CoAL abandons bid for Universal amid Eskom contract delay

David Brown, CEO, MC Mining

COAL of Africa’s (CoAL’s) R1.38bn (A$126.4m) bid for Australian-listed Universal Coal has been called off because a sales contract with Eskom had not been finalised in time.

CoAL said in a statement to the Johannesburg Stock Exchange that it could not meet a condition of the takeover bid that the combined entity would have sufficient working capital for 12-months.

In its bid document, CoAL calculated it would derive cash flow from the sale of coal from Universal Coal’s New Clydesdale Colliery (NCC) to Eskom, the South African power utility.

The contract has been under negotiation for at least a year, dating from when Universal formally completed its purchase of NCC from Exxaro Resources. Under Universal’s management, NCC was expected to produce two million tonnes of run-of-mine coal. The colliery is situated in South Africa’s Mpumalanga province.

However, CoAL said it could renew its bid for Universal Coal at a later stage. “Whilst CoAL is disappointed it cannot complete the offer at this time, it “… will continue to evaluate all opportunities, which include CoAL making another offer for Universal,” it said in a statement.

CoAL added that a renewed bid would, however, “… need to ensure the sustainability of the enlarged group going forward and be capable of completion”.

David Brown, CEO of CoAL, said that his company had no choice but to abandon its bid for Universal as between 30% to 40% of the total value in Universal had been attached to the NCC contract. “Universal is still a good fit for CoAL, but with so much value attached to NCC we couldn’t move forwad,” said Brown.

At the time of unveiling its bid for Universal, Brown said it could be the first in a number of consolidatory moves in the South African coal industry by his company.

“The combination of Universal’s producing assets and CoAL’s development portfolio, coupled with the excellent shareholder support ensures that the merger, as a first of its kind in the South African coal industry, will not be the last, we see the enlarged group as a springboard to creating a new coal mining force,” Brown said at the time.

There was no chance of a bid for Universal’s other asset Kangala which is operating. “In all honesty, I don’t think Universal’s shareholders would want us to pick the eyes out of the company,” said Brown.

CoAL would continue to focus on restructuring its balance sheet, operations and project pipeline to be better positioned to unlock shareholder value,” it said.

CoAL is developing the Soutpansberg coalfields through its Makhado project and is assessing the viability of restarting its Vele Colliery in South Africa’s Limpopo province.

Shares in CoAL 1.35% weaker on the JSE today but 17.8% weaker over the last month. The company said earlier this week that there were certain defeating conditions that could mean abandoning its offer for Universal.

7 COMMENTS

  1. Here is the acquisition that was going to create much needed job in South Africa and Eskom and the Guptas are frustrating all the initiative towards the growth of our country economy.

    Cry beloved country and who want to invest here in South Africa anyway.

  2. If only you can let us in and tell us what privileged information you have that we don’t have that causes you to make such a far reaching conclusion.

  3. Marshal the writing is on the wall. How long does it take to negotiate Eskom CSA. We all know that the intention of Eskom is create crisis so that you can be justified to pay absorbant price to the Guptas meanwhile hard working South African get the worst deal from Eskom. My worry is people are so scared to stand up to your bullying tactics. Remember the emperor has no clothes.

    History will judge harshly

  4. You are entitled to your opinion sir but not entitled to your own facts. You are making serious and wild allegations with nothing to back them up. Here are the facts.

    Universal Coal and the other 7 coal suppliers have been negotiating a CSA for the last 18 months. We are in dispute because they have offered a rand per Gigajoule much higher than NERSA allows. If we sign today, NERSA will not allow Eskom to recover the costs as prudent expenditure. This been the case eskom will be neglegent to commit to a cost that is not considered prudent by NERSA. It’s an exciting development that NERSA is stepping in to regulate coal costs as an input to the regulated prices of electricity.

    ESKOM average cost for a 23.5CV coal is R19/GJ. The average coal cost escalation for the last 5 years is 17% . The Eskom tarrif is regulated by NERSA to 9.5%. For the real costs of coal to come down it is sensible to cap the 23.5CV coal at a delivered price of R19/GJ. For lower CV coal the cap is lower. We are directed by Nersa and the consumer to drive the coal costs down. It will not be sensible to contract with Universal Coal at prices higher than R19.00/GJ and then attempt to pass the costs to the consumer.

    The Cap applies to Tegeta as well and off course they will receive a similar treatment.

    Let history be the judge. Whatever you do or say please do remember that you are not entitled to your own facts. Readers of miningmx will appreciate fact based opinions

  5. ESKOM + GUPTAS : Guptas appears to be in total control of our coal industries since the GUPTA FRIENDS interests are prioritized and protected by Eskom who in return are backed by the Government all the way. Almost no hope for the smaller coal mines that are not beneficial to the Guptas. SHAME ON GOVERNMENT!!!!!! NO SUPPORT FOR THE LOCAL INDUSTRY AND JOBLESS CITIZINS !!!!!!!!!!

  6. Dear David Brown

    the fact is CoAL ddoesnt have the money to do this transaction. This bid was made last year and it was extended many times!!!! not because of the lack of CSA, but because CoAL couldnt come up with the money!!!! i think this is a perfect excuse for CoAL. without Universal Coal , CoAL is dead as a company!!!! would love to see them get makhado going under the current coal market prices!!!

  7. Koko and Dzilafho, so close to the truth but far away from the real truth. Koko, thank you to the insight but all the same thank you. The principle you are trying to apply doesn’t work and bringing NERSA to find excuse is a devoid outlook at the challenges facing the south African economy. I was fortunate to have been a schooler of some of the great minds in economics in SA and out of the country. I hold no brief from anyone. Trained engineer and one of few well trained economist with great insight and emphases in Energy. Allow me to say in the name of truth you have gone down the drain. I miss time of proper winter school for we were taught basic principle on how to govern and what the future SA would look like and how your own would sacrifice principle in an altar for a penny.

    Good luck but principle and facts as you say would again be part of how harshly we treat you. Remember Kroonfontein.

    On CoAL I pity you David for you have allowed your name to be tarnished and inherited a legacy of rot. Maybe you can still reedem yourself and I think is time to let go while your reputation is still intact. We still respect what you did with Impala and I know you always say that the captain does not jump the ship until is really sinking. Maybe it’s really sinking.

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