Johannesburg, South Africa — 02 August 2012 – Shares in Coal of Africa (CoAL) slipped 10% yesterday to R3.30/share on news that it suffered losses at its thermal coal mines, and would have a funding shortfall of US$15.7 million in the September quarter, notwithstanding having raised US$58.7 million in cash and debt through Investec. The share decline is now 55% since January.
Miningmx reports that if these fourth-quarter results show anything, it’s that CoAL is caught mid-stride between its thermal coal mining and its new strategy of becoming the dominant coking coal producer in the Limpopo province. The sudden decline in the thermal coal price has caught CoAL’s management by surprise and also reveals how little flexibility there is left in its Mpumalanga assets. It needs to bridge the shortfall.
Enter Exxaro Resources. There’s talk that Exxaro is keeping a close watch of platinum assets, or possibly mulling diversification into copper. But neither could be as compelling right now as a dip at CoAL which, for Exxaro, must be a screaming buy, says Miningmx.
That’s why deliberations to take a 30% stake in CoAL’s Makhado coking coal resources must surely be a paper-thin pretext for a larger discussion regarding the takeover of the company as a whole, it adds.
In Exxaro’s hands, especially with a balance sheet so lowly geared (4%) and some R8 billion in finance, CoAL would represent a logical, affordable piece of brownfields business. Exxaro already supplies 5Mtpa to ArcelorMittal SA (Amsa).
In CoAL it has 8 billion tonnes of coking coal optionality on its doorstep. CoAL also has infrastructure. The Soutpansberg to Maputo rail corridor is an expensive one in terms of tariffs, but not as expensive as building a new one, which is de rigueur in most other new coal districts. CoAL also has first option on some 20Mt of terminal capacity at Maputo by dint of a deal with Grindrod, which has the port concession.
So what does Exxaro think of all this? Exxaro Resources CEO Sipho Nkosi says to wait until September. That’s when a joint feasibility study on Makhado will be complete. He does allow himself the following comment, however: “The metallurgical coal industry is an asset with long-term fundamentals that we value.”
There’s one other factor that would suggest Exxaro’s intentions regarding CoAL are much larger than a minority stake in Makhado. When one talks of Makhado, it’s impossible to separate it from the Chapudi coking coal assets that neighbour it. This is a mega-mine of some scale that would earn Exxaro a major beating were it only to take a minority position.
Source: Miningmx. For more information, click here.