Following an “extremely positive and transformational year” in which South Africa-focused Coal of Africa Limited (CoAL) achieved significant milestones, such as settling significant liabilities and transitioning into a coal producer with the acquisition of the cash-generative Uitkomst colliery, the company will advance towards self-sufficiency.
“CoAL is looking forward to a potential secondary acquisition and/or the Makhado project coming to fruition within a short period,” CoAL CEO David Brown noted at the end of last month during a teleconference in which he discussed the company’s audited financial statements for the financial year ended June 30.
He noted that CoAL would focus the potential acquisition of a second cash generator in the second half of the 2018 financial year, adding that between one-million and three-million tonnes a year could be added through this acquisition, which would be “very favourable” for the company.
Strategies for the next financial year include completing the sale of the Mooiplaats thermal coal colliery. Earlier this month, CoAL announced that the colliery is being sold to a consortium of investors for an aggregate purchase price of R179.9-million.
Further, CoAL’s board in September approved the development of the Makhado Lite project, in the Soutpansberg area, in Limpopo, ensuring similar returns for the original Makhado project, with lower capital requirements and a shorter construction phase.
To progress the Makhado Lite project, which is the company’s key project focus, CoAL aims to finalise the surface rights for the project, complete geotechnical drilling and secure funding for the project. Construction activities are expected to start in the first half of the 2019 financial year.
The project has an estimated 29-year life-of-mine (LoM) with run-of-mine (RoM) production of four-million tonnes a year. The construction period for the mine is 12 months, with project capital expenditure estimated at between $75-million and $85-million.
“CoAL continued to ensure that it is well positioned to unlock near-term shareholder value from the flagship Makhado Lite project,” Brown highlighted, noting that, as part of this, the company recognised the limited cash flow that would have been generated during Makhado's preproduction phase.
The company has secured a debt facility of up to $18-million from the Industrial Development Corporation (IDC) to advance the development of Makhado Lite.
CoAL completed the first drawdown of $9.2-million during the period under review, which resulted in the IDC’s owning 5% of Baobab and, thereby, underpinning the South African government’s support for the project, Brown reiterated. The second tranche of the $9.2-million is available upon written request from Baobab.
Brown added that a combination of debt and equity would be used to fund the project once offtake agreements had been signed.
CoAL further awaits the granting of an integrated water use licence (IWUL) for Makhado Lite, after the suspension of the licence was lifted by the Water and Sanitation Minister.
The granting of the licence is the final approval required for the stream diversion in respect of the plant modification project (PMP); once all regulatory approvals are in place, CoAL will be able to consider the prevailing market pricing and conclude an investment decision for the PMP.
Meanwhile, to settle its historic debt owed to diversified miner Rio Tinto for the acquisition of the Greater Soutpansberg Project (GSP) assets, in Limpopo, CoAL repaid the final $18.2-million during the period under review.
In terms of its project pipeline, CoAL will not mine all areas simultaneously at the GSP assets, but will aim to identify “sweet spots” for GSP and advance project design.
Meanwhile, the Department of Mineral Resources is considering the company’s mining right applications for the Mopane, Generaal and Chapudi projects.
“Exploration and development of the CoAL prospects in the Soutpansberg coalfield are the catalysts for long-term growth of the company,” CoAL stated.