Coal of Africa casts about for second acquisition

Coal of Africa casts about for second acquisitionCoal of Africa (CoAL) is reviewing prospects for a second acquisition, soon after completing its purchase of Uitkomst Colliery from Pan African Resources, to generate cash while it develops its flagship Makhado coal mine, it said on Monday.

CoAL has been battling to move forward with Makhado in the Soutpansberg area, in the teeth of strong opposition from local farmers and environmentalists, and banks’ aversion to lending money for new coal mines.

Makhado was planned to be a large mine, producing about 5.5-million tonnes a year of coking and thermal coal, at a capital cost of about $281m. The plans are being revised which might make it smaller, less expensive and able to deliver its first coal sooner.

CoAL CEO David Brown said the board of directors would review the revised plan for Makhado in August.

In the year to June CoAL generated $1.1m from customers and earned $132,000 in interest income, which was less than needed to cover $3.2m of staff costs and $8.2m of administration and corporate costs. At the end of June it held $9.7m in cash.

CoAL shares were trading 6.8% higher at 47c by midday, but significantly below the 73c of a year ago. Benchmark prices for Richards Bay export coal were at $82.30/tonne last week while coking coal was $179.90/tonne. Prices for both have been sustained by Chinese demand and restricted supply.

The Uitkomst colliery, which has been acquired with effect from June 30, produced 508,510 tonnes of coal and had five lost time injuries, which would be a focus of CoAL’s management, Brown said.

Vele colliery is suspended while it waits for an integrated water use licence to allow it to divert a stream so it can modify the plant. When all regulatory approvals are in place, Vele can consider current market pricing and offtake agreements, Brown said.

CoAL has drawn down the first of two R120m tranches of a loan extended by the Industrial Development Corporation (IDC) for the Makhado project, which gives the IDC a 5% stake in it.

CoAL said the IDC would get another 5% of the project on the drawdown of the second tranche, but CoAL’s stake in it would not drop below 64%.