JOHANNESBURG (miningweekly.com) – Aim-, ASX- and JSE-listed coal junior Coal of Africa (CoAL) is going all out to dispose of its noncore thermal coal mines in Mpumalanga, which are diverting attention away from the company's higher-value coking coal projects.
Ever since the thermal coal prices declined, the losses at Mooiplaats and Woestalleen thermal coal-mines have been a growing strain on the company, which is in negotiation with interested parties for either the outright sale of both operations in the next three to six months, or the striking up of partnerships that are able to add synergistic value.
“That’ll reduce the cash bleed,” CoAL CEO John Wallington tells Mining Weekly Online in the attached video interview.
The key step thereafter will be to bring the Vele coking coal project, in Limpopo, into production at the required volumes and products.
To do that, management will ask the board when it meets in May to approve capital expenditure for a new $25-million to $30-million plant, which will facilitate production at the rate of 2.7-million tons of run-of-mine coal a year and 1-million to 1.5-million tons of saleable coal a year, half of which will be semi-soft coking coal and the balance thermal coal for export or domestic use.
The thermal coal has already passed Eskom’s combustion tests.
These steps will turn the company around from being a cash drain to a cash generator, Wallington tells Mining Weekly Online, against the background of CoAL's loss in the six months to December 31 widening to $111.7-million from $74.7-million in the previous corresponding period, owing mainly to a $50-million impairment at Mooiplaats.
HARD COKING COAL
Tests have confirmed the presence of hard coking coal at CoAL’s Makhado project in Limpopo, which bodes well for the project’s go-ahead as hard metallurgical coal attracts the highest prices.
Makhado’s coking coal comes within 2% to 5% of the price benchmark and Vele’s soft-to-semi-soft coking coal is some 15% to 20% below that.
Talks are under way with potential black economic-empowerment (BEEs) partners, who will not be vendor financed.
Makhado will be funded by a combination of equity, debt, project finance and the injection of BEE finance.
“That’s why it’s quite critical that we get the feasibility study completed so that Makhado can be ring-fenced for financing,” Wallington adds.
The first Makhado coal is likely to be produced 18 months after regulatory approval is obtained and the funding is raised.
Full production, between two years and two-and-a-half years thereafter is expected to be 2-million tons of coking coal a year and close to 3-million tons of thermal coal a year, depending on the quality of thermal chosen.
The company’s key development in the last six months was its deal with Beijing Haohua Energy (BHE) of China, which bought $100-million worth of CoAL shares as part of a strategic partnership that has given CoAL a financial breathing space.
“That’s given us the window,” Wallington tells Mining Weekly Online.
The company is targeting a future production level of 10-million tons of coal a year against the background of current production, which is almost exclusively out of Mpumalanga, declining to zero.
The company’s total South African resource is 2.4-billion mineable tons, which has the potential to turn the eight-year-old CoAL into a mid-size producer.
“We’ve got the potential in the next two decades of probably doing 10-million tons of coking coal alone and another 10-million tons of thermal,” Wallington believes.
With good access to rail and port infrastructure, the 1 699-employee company is able to service both domestic and international markets.
Institutions hold 81% of the billion shares in issue in CoAL, which has a market capitalisation of R2.2-billion.