CoAL leery of exports
The importance of having bought Australian firm Universal Coal is only now becoming fully clear to Coal of Africa (CoAL), the Johannesburg-listed coal development firm.
Reading between the lines, David Brown, CEO of CoAL, said more than once at the firm’s recent interim results announcement that raising capital in the current market was proving tough to do.
Asked to expand on these concerns in an interview with finweek, Brown acknowledged there was a real risk that the firm could put back the development of its R6bn Makhado coal project in Limpopo.
Makhado is an enormous reserve and, until the purchase of Universal Coal for a hefty premium and total outlay in shares and cash of R1.38bn, the project was CoAL’s main reason for living.
“What we’re saying is that were there slippage in the development of Makhado, it would not be catastrophic; not like it would have been two years ago,” he said. He added there was no evidence the project would be delayed and that the firm was not anticipating a delay, yet.
So to Universal Coal, which is hoping to have saleable coal of about 3.5m tons in a year, pending a coal sales agreement with Eskom. Its Kangala mine already supplies Eskom.
Such is Brown’s disaffection with the export price of coal that he has completely refocused the company’s strategy on the domestic market. No doubt the 900km distance of his projects in Limpopo – Makhado and Vele – to the Richards Bay Coal Terminal in KwaZulu-Natal has something to do with this.
He couldn’t resist a nibble at Transnet, however.
He said the state-owned freight and logistics entity could do more to accommodate mining investment by lowering its rail tariffs when trading conditions were tough, and raising them when export prices improved.
Transnet’s response to this is always the same. It puts down investment regardless of the commodity cycle but needs return on investment through the cycle. It will never “get back” the lost revenue from tariffs were it to provide discounts, whereas mining companies can retain coal in the ground for better days.