Keaton’s finance costs affect earnings
Share price dropped 11%
EMERGING coal producer and developer, Keaton Energy, has warned that higher finance costs to fund its Moabsvelden open-pit thermal coal mine near Delmas, and a share issue in February will weigh heavily on earnings for the half-year to September.
The Keaton share dropped by 11 percent on the JSE on Friday as investors voted with their feet after the company flagged that headline earnings a share would decline by between 32 percent and 27 percent. Keaton is a JSE-listed junior coal producer whose main asset Vanggatfontein in Mpumalanga sold 93 percent of its output to Eskom on a longterm contract.
The earnings drop is as a result of more shares in issue during the period after more than 32 647 838 new shares were issued in February.
“As well as increased finance costs following the drawdown of the Investec finance facility, the benefit will flow only once production commences at Moabsvelden,” said the company in the trading update on Friday. Headline earnings a share will likely fall to between 13.2c and 14.2c a share, compared to 19.4c a share for the comparative period last year.
Basic earnings a share for the period would drop by between 37 percent and 31 percent to be between 12.3c and 13.3c a share, compared to 19.4c a share for the comparative period last year.
Keaton’s financial results for the half-year to September will be released on Wednesday.
The Moabsvelden mine is expected to produce 1.4 million tons a year by next year of export and Eskom quality thermal coal at about R30 million.
Keaton plans to sell twothirds of production from the mine to Eskom, and export the difference. The operation will likely reach steady state in the first quarter of 2016.
After Moabsvelden, Keaton would develop either Balgray or Koudelager in KwaZulu-Natal, which would enable the group to meet its medium-term target of producing 5 million tons a year of saleable coal.
Keaton has a long-term contract to supply Eskom with approximately 2.1 million tons of thermal coal a year until 2020.
Analysts believed Keaton was in a position to generate impressive cash flows.
In February Keaton concluded a financing facility with Investec in which the bank provided Keaton with a R300m term loan and a R50m working capital facility.
Of the R300m, R170m had been used to settle the remain- ing balance of the project finance facility advanced by Nedbank in 2011 for the construction of the Vanggatfontein coal washing plant and ancillary facilities.
About R130m of the term loan would be used partly to purchase Xceed Resources, and the working capital facility of R50m was available for general purposes.
Keaton’s Vanggatfontein Colliery 5 Seam (foreground). The junior coal producer warns its headline earnings will fall by between 32 percent and 27 percent.