CoAL hunts cash-yielding asset
• Company to buy another colliery after acquiring Pan African Resources’ Uitkomst in bid to raise money to finalise Makhado project
Coal of Africa (CoAL) intends to cut overheads and make another acquisition in the short term of a similar size and quality to Uitkomst colliery to generate cash over the next two to three years, says CEO David Brown.
He was speaking on Wednesday after the coal junior announced the R275m purchase of the Uitkomst colliery from Pan African Resources and the raising of a R240m loan from the Industrial Development Corporation to advance its Makhado coal project.
The shares rose 2c on the JSE, to 52c after the announcement, but they are still a fraction of the 780c of five years ago.
Pan African’s shares added 5c to 265c. It said its total profit after the disposal of Uitkomst would be R157m, including dividends received of R30m, on an original investment of R148m a year ago. “The transaction reaffirms Pan African’s focus on our gold-mining business and again demonstrates our ability to conclude value-accretive transactions to the benefit of our shareholders,” Pan African CEO Cobus Loots said.
In 2016, CoAL’s offer to buy Australian Stock Exchangelisted Universal Coal fell through because it could not give the London Stock Exchange the necessary assurance about its 12-month working capital. At the end of December, CoAL’s cash holdings had fallen to $7m, from $19.5m six months previously. CoAL has no cash-generating assets as its two coal mines, Mooiplaats and Vele, are on care and maintenance.
It is attempting to sell Mooiplaats, but a 2014 offer fell through. Brown said while there were negotiations with another buyer, he would not be confident of the sale until the money was in the bank.
CoAL’s future lies in a large coking project at Makhado in the Soutpansberg area, capable of producing 5.5-million tonnes of coal a year, which is awaiting regulatory approvals.
Brown said this was a valueaccretive opportunity but without operating assets, CoAL lacked the cash flow to complete the regulatory steps, put financing in place and move into production. CoAL will pay R125m in cash for Uitkomst, a thermal and metallurgical mine near Utrecht in KwaZulu-Natal employing 520 people. This portion will be funded from internal cash and a $13m equity investment.
Another R25m will be payable in cash over the next two years or in shares after that date. The final R125m will be paid in CoAL shares, giving Pan African a 9.3% stake in the firm.
Brown said the stake would give Pan African an interest in ensuring the transaction was successful and create an ongoing working relationship between the companies.
The recent weakening of the rand would benefit CoAL as the acquisition price was fixed in rand, but the funding was being raised in dollars, he said.
MINER HAS NO CASH-GENERATING ASSETS AS ITS TWO COAL MINES ARE ON CARE AND MAINTENANCE