KEATON ENERGY HOLDINGS
Share price: R0,73 JSE code: KEH
BUY KEATON’S UNDOUBTED INVESTMENT merit lies in two transactions, fully supported by shareholders.
The first, the Moneybox Option Transaction, allows Keaton to sell its Sterkfontein Project, where it ceased all exploration and expenditure last year due to weakening global coal prices and the general economic climate. The transaction is priced at R152m, a lot of money for a small-cap miner. The second transaction, the Rutendo Flip Transaction, would ensure Keaton retains its BEE credentials, important for securing contracts with Eskom. This is worth R156,7m.
The mining hole at the heart of Keaton’s business is the Vanggatfontein Colliery, from where Keaton sells coal to Eskom, giving it steady, reliable business and medium to long-term contracts. It might be like supping with the devil. But if a mine has to sell its soul, at least get as much money as possible for it. And use a long spoon.
Keaton, as well as some other junior miners, is well placed to seize opportunities from the supply gaps that are appearing in the supply of coal due to weak global prices. It can back this opportunity with a strong balance sheet and moderate gearing.
Combined with this are strong cash-generative operations. Keaton does not pay a dividend but could do so in future.
The share price has been on a long downslide, losing 73% the past year. A forward PE of 5,9 is a good entry point.