CoAL’s water worries
As Coal of Africa (CoAL) urgently awaits approval on a water-use licence for its Vele project in Limpopo, concerns about the firm’s share price grow. Add the country’s drought to the mix and things get somewhat sticky…
coAL,a R1.1bn coal development firm, is sweating on government renewing its application for a wateruse licence for the Vele – the controversial Limpopo colliery positioned a short drive from the Mapungubwe national heritage site.
David Brown, CEO of CoAL, said in the first half of this year that he expected its application would be viewed favourably before the end of the year. Realistically, he has about six-and-a-half weeks left if that deadline is to be met.
Shares in the company had staged an impressive turnaround, up some 68% this year-to-date. However, concerns over the thermal coal market, and the possibility that the asset closest to generating cash for CoAL, Vele, may be postponed are reflected in a 29% slide market value in the last 30 days.
Environmental permitting has been vexed for Vele since the beginning of its development more than five years ago. Lobbyists managed to have work on the site postponed for half a year and are now agitating the courts to have production from the mine, where plant re-engineering is underway, halted again.
What’s not helpful is the noise created by the country’s drought, the worst since 1992 (see sidebar). This, and the fact that coal markets may not be supportive of production from Vele are creating uncertainty for CoAL even though the firm’s balance sheet problems have been largely solved.
Brown sold a slug of shares in CoAL to the Chinese company, Beijing Haohua Energy, raising $70m and has followed that up by selling shares in CoAL’s underlying project, Makhado – also in Limpopo – to Singapore’s Yishun Brightrise Investments for a total of $24m in cash and debt. Yishun also has the right to finance the $400m project and manage its construction.
There’s also an attempt to block the environmental permitting for Makhado, although Brown said the company was confident it would have the court interdict against it set aside.
“CoAL does not anticipate that the process will affect Makhado’s construction timetable,” said Brown recently in CoAL’s third-quarter operating results. “CoAL has engaged constructively with the department of water and sanitation and anticipates that we will be granted a licence in due course,” he added.
“We are still pressing hard to get it as soon as possible but the main focus is on Makhado rather than Vele. Vele would not restart prior to July 2016 so while it is important, it’s not vital,” Brown said in response to finweek’s questions. He declined to comment on whether drier weather this summer might complicate the applications.
Makhado’s 26-month construction phase is expected to begin in the second half of 2016 with 5.5m metric tons per year (MMt/y) of saleable hard coking and thermal coal due to be produced by the end of 2016.
Vele, which was due to be commissioned next year, is slated to produce 2.7MMt/y run-of-mine thermal and soft coking export coal. There are also plans afoot to increase the colliery’s life of mine to 21 years from the current expected life of 16 years. Vele was mothballed around 2011 while critical upgrades of the plant to include production of thermal coal were assessed.
David Brown CEO of CoAL