KEATON Energy is considering exporting coal from Moabsvelden because it might not attract finance for the R300m project if it dealt with Eskom.
Keaton already supplies about two million tonnes a year (mtpa) to Eskom from its operating mine Vanggatfontein which is a stone’s throw from the planned Moabsvelden project, both in Mpumalanga province.
However, lenders expressed concern with another Eskom deal following allegations in the Public Protector’s report on state capture which implicated Eskom CEO, Brian Molefe.
Molefe consequently resigned from Eskom, effective from January, but denied any wrongdoing and saying that he would work to clear his name. The report stated Molefe had close contact with the Gupta family whose company, Oakbay Investments, bought Optimum Coal out of business rescue.
“We have had preliminary discussions with financial institutions,” said Mandi Glad, CEO of Keaton. “The market is aware a number of local institutions have concerns regarding exposure to Eskom,” she said. “In terms of those discussions – and for the time being – we are awaiting for the off-taker before we go back to the banks.”
This means Keaton must first sign a coal sales agreement with a coal trading firm before financing Moabsvelden. Glad said the project would yield a grade of coal (4,800kCal/kg) that could be sold into the Indian market.
Citing banking sources, Miningmx reported in August that lenders were re-assessing providing funds related to Eskom business. “We are very bothered by the whole concept through which Eskom has changed its coal contract process. Its buying policy is confusing as they don’t apply the tender system properly; it’s too ad hoc,” said one banker.
Glad was commenting in the presentation of Keaton’s interim results for the six month period ending September 30 in which it posted headline share earnings of 7.1 cents compared to a loss of 29.4c/share in the corresponding period of the previous financial year.
It produced 1.14 million tonnes (mt) of washed 2- and 4-seam thermal coal from Vanggatfontein, a decline of just over 50,000 tonnes owing to temporary pit sequencing constraints. Sales of metallurgical coal fell a third to 35,961 tonnes.
However, the company made in-roads on its debt which was reduced R82m as a result of improved cash generation and the redemption of preference shares in Leeuw Mining & Exploration (LME) which it is selling. The company also renegotiated repayment terms with Gunvor which relates to coal it should have delivered from Moabsvelden.
The mine was heavily delayed as Keaton waited on the Department of Mineral Resources (DMR) for a water use permit, eventually granted in October. Glad said development of the project was a priority for the group as it would boost the firm’s overall profitability.
As Moabsvelden is located near Vanggatfontein, it was “… a cut and paste of Vanggatfontein,” said Glad. “It is 80% of its size, therefore cash generation will increase by this amount,” said Glad. It would also see production increase to 4.5mtpa from the region. “That will get us closer to our stated target of 5mtpa,” said Glad.
Other priorities for Keaton was the granting of a Section 11 notice from the DMR that would enable Keaton to transfer ownership of LME: “A chapter that needs to be closed in the next month or two,” she said.
No mention was made of Keaton’s announcement last week that it was in discussions with certain parties that could result in the takeover of the company.
Shares in the company have almost doubled in the last month to R1.05/share but Glad said the company was still “heavily undervalued”.
