[miningmx.com] — SHARES in the R6.3bn mid-tier coal producer, Optimum Coal Holdings, have been under the kosh since mid-May falling 19% from R31/share. For a growth company, that’s not good news but Optimum Coal is pressing ahead with finance plans and expects to have raised R800m or more by November.
“We are in the process of arranging debt,’ says a company spokesperson. “There are a number of opportunities we’re looking at, but we obviously can’t issue paper. The share price is too low,’ he adds.
Stephen Meintjes, an analyst for Imara SP Reid, said in a note earlier this month the Optimum Coal share price was pressured by uncertainty regarding the start-up of various projects. There are other factors, too. Says an analyst: “It has a big loss-making contract with Eskom so it needs exports to make money. If there is no production, there is a problem’.
Further declines in the coal export price will therefore hurt Optimum Coal, while the onset of strikes as of Sunday evening won’t offer much assistance either, if protracted. Commenting on the strike, a spokesperson for Optimum Coal says it was an opportunity to shift stockpiles built while Transnet Freight Rail embarked on a 20-day maintenance shutdown in May and June.
The export coal price has been weakening, yet there’s no panic among coal traders, not yet. Said Bevan Jones, GM of the Johannesburg office of London Commodity Brokers: “The threat of coal worker strikes is not having a big effect on prices as miners appear to have enough stocks on hand to weather any interruptions’. Coal prices have weakened from $125/t and are expected to range between $90 to $110/t for the year.
Returning to Optimum Coal, it says there was a rejigging regarding in its projects that has resulted in some delays. Planned production from the Schoonoord project, with saleable output of 1.2 million tonnes/year, is currently waiting on regulatory approvals such as a water licence. Starting dates for Overvaal, Vlakfontein and Koornfontein 4-seam project, like Schoonoord planned for mid-2012, have been postponed.
Development focus will rather fall on Koornfontein which in May added coal tonnes in the form of the new TNC mine. The capacity of that operation and its related infrastructure has been under-estimated, therefore Optimum considers the mine will add greater value. There’s also uncertainty on how potential acquisitions will affect how Optimum times new projects.
The company is examining other prospects but Anglo American’s Kleinkopje, a 2 million tonne/year mine the UK-listed group has put on the block, is not among them, notwithstanding its additional entitlement at Richards Bay Coal Terminal.
However, there’s talk Optimum is negotiating with BHP Billiton and Anglo American to add more mineral rights to its portfolio. Hence the limbo at the firm regarding phasing in new projects.
If Optimum raises debt as planned, group gearing will increase to between 15% to 18% from the current level of 7.5% to 9%, a level considered by Imara SP Reid as “still appropriate’. Imara has a recommendation to buy the stock currently and thinks the blip on the share price is temporary.
