Forbes at low with host of fires to put out

IF SHAREHOLDERS in Toronto Stock Exchange and JSE-listed Forbes & Manhattan Coal (Forbes Coal) are wondering why the shares are sitting at a low, the reasons are to be found in the fine print in the interim results published yesterday.

Forbes Coal lost C$9.8m in the six months to end-August (previous comparable six months — C$10.5m loss) but that is just the beginning.

By August 31 the company had a net working capital deficiency of C$3.6m. It was not in compliance with its covenants regarding a R230m loan from Investec Bank and the directors believed the working capital deficiency along with the continuing operating losses indicated “the existence of a material uncertainty that may cast significant doubt about the company’s ability to continue as a going concern”.

Then there is a growing legal battle with resources giant Rio Tinto over the cancellation of a deal through which Forbes Coal had agreed to buy the Zululand Anthracite Colliery (ZAC).

ZAC was owned by former Australian Stock Exchange-listed junior Riversdale Mining which Rio Tinto had acquired to obtain control of Riversdale’s Mozambique assets and had subsequently decided to sell ZAC. Forbes Coal canned the deal in February citing Riversdale Mining as being in breach of its obligations.

Rio Tinto denies being in breach. Both are alleging damages suffered while Forbes Coal wants a R45m deposit being held in escrow to be returned. The disputes are going to arbitration but Forbes has also been hit with a claim amounting to R5.7m from Sasfin Bank for advisory fees “in relation to the successful conclusion of the Riversdale Mining acquisition”. Forbes Coal directors believe they will get their money back from Rio Tinto and will also not have to pay anything to Sasfin Bank and have structured the company’s accounts accordingly.

The good news is Investec Bank has waived the breach of the debt facility convenants to August 31 and Forbes Coal has reached “amicable and reasonable solutions” with its labour force after losing more than four weeks of production in October and November last year.

Significantly, on September 4, Forbes Coal closed a deal to raise $6m from Resource Capital Fund (RCF). The loan is convertible into equity and RCF already holds a 19.9% stake in Forbes Coal. Should RCF convert the entire loan along with other provisions such as interest payments and an “establishment fee” in Forbes Coal shares then it will end up with 50.1% of the company.