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…

Finweek English Edition - - THE WEEK IN THE NEWS - Ed­i­to­rial@fin­week.co.za

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

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