South Africa – Buffalo Coal Corporation, the troubled TSX and JSE-listed company formerly known as Forbes Coal, continues to restructure its business amid increasingly difficult financial circumstances.
Buffalo Coal Corporation holds a majority interest in two operating mines through its 100% interest in South African company Buffalo Coal Dundee (BC Dundee), which supplies high quality bituminous coal and anthracite to both the export and domestic markets from its Magdalena bituminous mine and the Aviemore anthracite mine, both located near KwaZulu-Natal.
“The need to restructure over the past two years is a result of a number of factors, but principally arising from the underperformance by Magdalena underground, together with the increasing uncertainty of continued operations at Magdalena opencast, and the reduction in export coal prices over the past two years,” the company said in its results presentation.
The restructuring initiatives undertaken thus far to support and turn-around the current financial position of the business includes:
- The effective closure of the entire Canadian head office and the termination of service contracts with a large number of senior management staff in both Canada and Johannesburg resulting in net savings of approximately R15,0 million per annum.
- Raising a total of approximately R334,6 million to support the group’s working capital requirements and to implement a capital expenditure program to replace old and unreliable equipment.
- Restructuring of BC Dundee’s debt facilities with Investec Bank to provide cash relief to BC Dundee in terms of servicing and covenant reporting requirements until December 2015.
- An attempt to move Magdalena underground onto full calendar operations, in order to increase production levels to support the high fixed cost base.
- Ongoing cost cutting initiatives implemented in all aspects of the group.
- The appointment by Zinoju of STA Coal Mining, a contract mining company, to increase volumes at Magdalena underground at a fixed rate per ton, to assist in sustaining the group’s production and sales levels and contribute towards the overall fixed costs.
Despite these considerable efforts, the group remained in severe financial difficulty which necessitated a further restructuring, including an approximate 25% reduction in the labour complement, which was finalised by March this year.
Despite this, Buffalo Coal is working towards turning a turn-around back to profitability in the short term to ensure the creation of a sustainable foundation to take forward.
The short term strategy of the group to continue to pursue attractive expansion opportunities where it is believed that such opportunities will be synergistic and value enhancing to the existing business, while not removing the focus on the existing Dundee operations.
In particular, the company continues to seek replacement tonnages in light of the Magdalena opencast reserve, which reached the end of its life of mine during the first quarter of 2015.
Future production growth is set to be twofold, firstly through expansion and optimisation of the existing BC Dundee operations and secondly through acquisition in the Southern African region.
The Company’s key strategic goals for the year ending December 31, 2015 include:
- Finalise the restructuring process in order to create and sustain a reduced cost base, and a return to profitability and positive cash generation;
- Focus on achieving production targets through forward planning and improvement of operational efficiencies;
- Continued focus on cost containment at both an operational and corporate level;
- Explore opportunities to increase revenue;
- Explore new market opportunities for the anthracite product;
- Increase rail and port allocation to further gain exposure to seaborne bituminous and anthracite export markets, where feasible and profitable;
- Increasing the awareness of safety to reduce the number of lost time injuries;
- Achieve saleable production of 725k at Magdalena;
- Achieve saleable production of 335k at Avimore
The coal miner produced 473 000 t in the first quarter of the year, a 53.1% increase from the 309 000 t produced in the last quarter of 2014.
Coal revenues earned during the first quarter (Q1) of 2015 were R164,7 million compared to R163,3 million earned during the last quarter (Q4)of 2014 – an increase of 0.9%.
During Q1 2015, the group’s sales were 245 kt compared to sales of 223 kt for Q42014, an increase of 9.8%.
Bituminous sales for Q1 2015 were R38,2 million for domestic (57kt) and R69,9 million for export (108kt), compared to R38,9 million for domestic (62kt) and R79,3 million for export (55kt) in Q4 2014.
Anthracite sales (including calcine) for the quarter under review were R21,8 million for domestic (27kt) and R20,1 million for export (41kt), compared to R17,4 million for domestic (24kt) and R45,0 million for export (73kt) in Q4 2014.
Average selling prices for Q1 2015 were R672 per ton compared to an average selling price of R732 per ton for Q4 2014.
Revenue has increased marginally in Q1 2015 compared to Q4 2014 primarily due to a relative increase in sales tons during Q1 2015, offset by a lower selling price per ton on export products.
Magdalena, located 22 km from the town of Dundee in KwaZulu-Natal, encompasses approximately 1 844 ha. Magdalena, which until March 2015 consisted of the Magdalena underground mine and the Magdalena opencast operation, had a mineable coal resource, all in the measured resource category, of an estimated 50.29 Mt of in-situ coal with an estimated volume of 33.52 million cubic meters. From October 1, 2012 to March 31, 2015, 2.6 million tons of run of mine was extracted from Magdalena at an average extraction rate of 50%.
The Magdalena opencast operation (which was depleted in March 2015) and Magdalena underground mine have an estimated total production capacity of 100 000 tons of bituminous coal per month. Additional sections have been introduced into the underground mine to maintain this capacity with the opencast operation having closed. One of the company’s two processing plants is located on the Magdalena property.
Aviemore, located four kilometers from the town of Dundee in KwaZulu-Natal, encompasses approximately 5 592 ha. Aviemore consists of the Aviemore underground mine and had a mineable measured and indicated coal resource of 35.35 Mtof in situ coal with an estimated volume of 23.57 million m3. From October 1, 2012 to March 31, 2015, 1.1 Mt of run of mine was extracted from Aviemore at an average extraction rate of 55%. The Aviemore underground mine has an estimated production capacity of 45 500 tons of anthracite per month.