Digging into a hole

While Wework is dishing up hipster heaven, Buffalo Coal is attempting to grind out a living at the polar opposite end of the zeitgeist.

The company, which has a couple of coal mines in the Dundee area of Kwazulu-natal, is running into the pretty substantial issue that its Aviemore mine has only 18 months of lifeof-mine reserves left.

The Magdalena mine has five years of reserves left, but once Aviemore has been mined out, Magdalena won’t be able to carry the overhead costs on its own and will have to close.

Buffalo can tap into additional reserves at Aviemore, which would extend the life of mine to 15 years, but this would require additional capital of about R445m, which is a pretty substantial dabble, given the parlous state of the company’s current financial position.

Going concern remains a significant issue, with Buffalo in breach of a stack of covenants on its borrowings from Investec. And though the bank provided a forbearance letter in November 2016 stating that it doesn’t intend to call the debt in early, it has the right to review this periodically.

There’s also the matter of a loan from Resource Capital Fund that is due on June 30 2019. The company is not expecting to have the means to settle the full amount, so it will need to make some sort of a plan when the time comes.

On the positive side, the market for both bituminous coal and anthracite remains strong, and the weakening rand will help with export sales. The challenge will be to get enough out of the ground to make it count.