KEATON EN­ERGY HOLD­INGS

Financial Mail - Investors Monthly - - Opening Bell -

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.

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