Triple-listed emerging coal exploration, development and mining company Coal of Africa (CoAL) has signed a non-binding Memorandum of Understanding (MoU) with Qingdao Hengshun Zhongsheng Group with respect to a proposed equity investment in CoAL subsidiary, Baobab Mining and Exploration.
Baobab is the legal owner of the mining rights for the Makhado project – a hard coking coal project located in the Soutpansberg coalfield – which is 36 km north of Makhado town in the Limpopo province.
Through the MoU, Hengshun is proposing to acquire up to 34% of Baobab at a mutually agreed consideration at an indicative cash acquisition price of approximately US$113.94 million which implies a Makhado Project value of at least US$335 million.
The final transaction valuation is however subject to both parties’ negotiation, a valuation report issued by an internationally reputable accounting firm and the conclusion of a formal subscription and sale agreement between both parties.
The proposed equity investment is also subject to an engineering, procurement and construction contract (EPC) being awarded to Hengshun, the value of which is approximately US$400 million, but will be confirmed by the completion of a front-end engineering and design which will be completed in the first half of the 2016 calendar.
The equity investment is also subject to a formal due diligence process as well as approval of the transaction from both the CoAL and Hengshun boards respectively.
The 34% equity investment will entitle Hengshun to nominate a to be agreed number of directors to the board of Baobab, but the effective management of Baobab and operatorship of the Makhado project will remain the responsibility of CoAL.
Meanwhile, Singapore-listed Yishun Brightrise Investment PTE has expressed an intention to acquire a strategic interest in the Makhado project as well as the EPC contract. Yishun remains supportive of the company, as demonstrated by the recent commitment to a further equity subscription worth $14.7 million, however it is not going to be the acquiring party for the strategic interest in the Makhado project nor entering into the EPC contract.
“The MoU and the proposed investment by Hengshun is another step towards bringing the Makhado project into production. Together with the imminent receipt of the water use license the formalisation of the MoU into a subscription and sale agreement will greatly assist CoAL in completing the outstanding requirements for the Makhado project and commencing the planned construction by the second half of the 2016 calendar year,” says CoAL CEO David Brown.