African coal producer Universal Coal has successfully effected the drawdown of R285 million worth of funding, or the Tranch A facility, of the Investec debt financing facility secured in June.
The company said on Monday that the drawdown effectively replaces the previous project finance debt facilities with FirstRand Bank, acting through its Rand Merchant Bank division, on more favourable and flexible corporate debt facilities.
Interest rates over the Tranche A facility will be levied at three-month JIBAR plus a margin of 4.0% a year until completion of NCC, after which the margin will be reduced to 3.5% a year.
Repayment of Tranche A will follow a quarterly cycle over twenty repayment periods, with interest being serviced simultaneously, while the revolving working capital facility has a tenor of five years and must be repaid at the end of the period.
Through this facility, an additional revolving working capital facility of R25 million is also available to be used to fund fluctuations in cash flows at the Kangala Colliery, and remains undrawn and fully available, while the funding facility will also enable the company to fund the final phase of capital development for its second mining operation, the New Clydesdale colliery (NCC).
Located on the southern margin of the Witbank coalfields, about 100 km north-east of Johannesburg and 70km east of its Kangala mine, the first phase of the NCC project is scheduled to be fully commissioned later this year. It also sits adjacent to Universal Coal's undeveloped Roodekop project.
Universal Coal is now in a strong cash position, with cash reserves previously designated as restricted reserves now released in addition to excess cash generated during the 2015 financial year.
This enables the company to partially repay the existing shareholder loan into the project entity, effectively providing Universal Coal with sufficient cash reserves to cover the corporate burn requirements for the full 2016 financial year.
Following the NCC project completion and subject to Investec’s approval, Universal Coal anticipates returning excess cash reserves to shareholders thorough permitted capital restructuring mechanisms.
“The securing of favourable corporate debt facilities helps expedite the development of our second operation, NCC, which should double the company's net production once Phase 1 steady state is achieved.
“With the drawdown releasing restricted cash, and our first operation, Kangala, generating strong cashflow, we are in an excellent cash position to continue growing the company and increasing shareholder value,” says Universal Coal CEO Tony Webber.
Meanwhile, the Tranche B financing facility of R215 million to fund the balance of the NCC development requirements remains subject to several conditions precedent yet to be fulfilled, the most significant of which is a Coal Supply Agreement (CSA) with Eskom, which Universal Coal is pursuing aggressively.
NCC development status
Ministerial approvals in terms of Section 11 have been granted and closure of the acquisition transaction is being completed.
Universal Coal has further completed a bankable feasibility study for the initial phase of the NCC project, which has been approved by the Board subject to the signature of the CSA. Project development will continue as scheduled, with on-site mining activities to commence upon conclusion of the CSA.
The opencast tender process for mining at Roodekop has been completed and a preferred contractor nominated. Contractual agreements are in the process of being drafted. The processing plant contractor has been notified of their successful tender proposal and the contractor for the primary crusher services is currently underway.