JOHANNESBURG (miningweekly.com) – Despite a lower coal price in the short term, which would impact South African-focused miner Coal of Africa Limited’s (CoAL’s) project development, the company remained bullish, noting that prices would likely increase again in 2018.
The ASX-, Aim- and JSE-listed company on Friday said coal prices for hard and semisoft coking coal were under severe pressure as a result of a market oversupply and weakening demand in China.
It stressed, however, that the company’s project parameters would remain unchanged.
CoAL was still determined to produce in excess of 6.7-million tonnes a year of saleable product by 2019, CEO David Brown said in a conference call.
“Our primary focus over the next 12 to 24 months is to develop our Vele and Makhado projects,” he added.
He noted that, although the market was expected to “find a floor” in 2015, the coal market would likely undergo a “slow and painful” recovery over the next two to three years.
“The current levels of pricing are sending a powerful message. As there is a market oversupply, there will be a significant deterrent to investment in new capacity, which will help reduce the supply issue,” he said.
However, a weaker import demand reflected the ready availability of domestic coal. Brown further noted that, although the oultook was subdued, the fact that CoAL had a significant hard coking coal resource in South Africa – “which is very scarce” – was a key advantage to the company’s growth.
He highlighted that CoAL also enjoyed well-tested logistics for its bulk commodities, while strong support from the Limpopo government bode well for the signing of offtake and funding agreements.
“The local government sees CoAL as a catalyst for industrial development, which would lead to job creation – much needed in the province,” Brown added.
In the year ahead, the company was aiming to complete an equity raising, obtain all regulatory approvals for the Makhado project and receive all regualtory approvals for plant modification at its Vele mine. Commercial production at Vele was expected to start in 2017.
Brown warned that the company anticipated further objections from interested and affected parties regarding the development of the Makhado project, particularly in terms of the application for an integrated water use licence, as the mine was situated in a water-stressed farming environment.
The company reported a loss of $800 000 for the six months ended December 31.
Meanwhile, CoAL had extended the date by which Blackspear Capital, a wholly owned subsidiary of Blackspear Holdings, was required to fulfil the conditions precedent for the acquisition of the company’s Mooiplaats operation, in Ermelo, until April.
CoAL CFO Michael Meeser on Friday said that, although the sale of the Mooiplaats colliery remaind a “thorn in our side”, the mine’s close proximity to power utility’s Eskom’s Camden power station and the usability of the coal for power generation, made it suitable for supplying coal to the utility.
“It hasn’t been one of those assets that have flown off the blocks,” Meeser noted, but added that the company could either exercise the option to sell the mine for R250-million or could possibly reopen the mine, which was currently on care and maintenance.
The miner was considering operating the Mooiplaats colliery as an Eskom-only product mine. Discussions regarding the sale of the mine, as well as for a potential offtake agreement, were under way.
The company hoped to complete the disposal, or restart operations, by the end of the year.