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Buffalo Coal posts R87m interim loss

Buffalo Coal posts R87m interim loss

Photo by Creamer Media

24th August 2020

By: Marleny Arnoldi

Deputy Editor Online

     

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TSX- and AltX-listed Buffalo Coal Corporation has posted a net loss of R87-million for the six months ended June 30, compared with a net profit of R25.3-million reported for the six months ended June 30, 2019.

This is a decrease of more than 200% year-on-year and translated to a headline loss a share of 0.21c, compared with headline earnings a share of 0.06c in the prior interim period.

The company owns 100% of the shares in Buffalo Coal Dundee, which has an interest in two operating coal mines in South Africa, through a 70% interest in Zinoju Coal.

Zinoju Coal owns the Aviemore anthracite and Magdalena bituminous mines, in Dundee, KwaZulu-Natal.

Buffalo attributed the losses for the six months under review to limited mining activities during April, with 30% of the workforce allowed to resume work after April 14, while 50% of the mines’ workforce was allowed to resume work on May 4.

Buffalo could only increase to 100% of operational capacity by June 1.

The company states that its first Covid-19 case among its employees had been identified on July 11, with 17 more cases recorded since then. Fourteen of these have recovered.

Buffalo says the interim results have been prepared on the basis of accounting principles applicable to a going concern, which assume that the group will continue to operate for the foreseeable future and will be able to realise its assets and discharge its liabilities in the normal course of operations.

The company’s ability to continue as a going concern and ultimately continue operations into the future, is dependent on its ability to realise on short-term opportunities, settling its outstanding debt obligations and to secure the funding required for medium to longer term projects.

Buffalo remains dependent upon sustaining profitable levels of operation, as well as the continued support of Investec, Resource Capital Fund (RCF) and other stakeholders and believes that, subject to its ability to meet current production and sales forecasts, it should be able to generate positive cash flows in the foreseeable future.

However, there is no assurance that the company will be able to meet its covenants in the future, or that Investec will provide future waivers or that further credit facility extensions will be provided, if required. These matters constitute material uncertainties which cast significant doubt as to whether the group can continue as a going concern.

Owing to continued uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and the length of travel and quarantine restrictions imposed by governments of affected countries, Buffalo says it cannot yet quantify uncertainties or accurately predict the impact Covid-19 may have on its ability to operate and/or the ability of third parties to meet their obligations with the group.

The impact on the domestic anthracite business in South Africa is purely consequential, in that domestic metallurgical users will likely see their export markets eroded, and their demand for reductants will reduce as a consequence.

This too could impact on the forecast profitability and cash flows of the group.

As a result of the national lockdown imposed by the South African government on March 23, and the uncertainty of the outcome thereof on the company’s operations and cash flows, Buffalo approached both Investec and financial services provider STA, requesting a postponement of further payments until more information is available on the impact of Covid-19 on the group’s operations.

Buffalo continues to be in breach of certain covenants and agreed repayment terms with respect to its borrowings from Investec Bank – with a loan balance amounting to R59.1-million.

On May 13, Buffalo received formal notification from Investec advising that the group was in default of its payment obligations. As part of the revolving credit facility arrangement agreement reached with Investec on June 6, the parties agreed to negotiate in good faith on the restructuring of the remaining balance owing and payable to Investec by August 31.

The amount payable to STA of R14.6-million is overdue as at June 30. Buffalo resumed payment of R1-million monthly instalments to STA on June 30, after the monthly instalments were temporarily suspended from March to May.

The company’s RCF convertible loan of $27-million, about R468-million, became due and payable on June 30, 2019.

On April 15, 2019, BC Corp and RCF agreed to extend the final maturity date of the RCF loan to December 31, 2019.

On December 13, 2019, RCF agreed to further extend the final maturity date of the RCF loan to December 31 this year, to allow the company the opportunity to obtain financing to settle this amount. Currently the company does not have the means to repay the convertible loan at maturity.

Buffalo remains dependent on the continued financial support of Investec and other stakeholders, sustaining profitable levels of operation and believes that, subject to its ability to meet current production and sales forecasts, it should be able to generate positive cash flows in the foreseeable future.

As at June 30, the group had a shareholders’ deficiency of R452-million and a working capital deficiency of R510-million.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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