CoAL leery of ex­ports

Finweek English Edition - - CONTENTS -

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.

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