| Mon 26 Oct 2009, 7:05 | | CZA - Coal of Africa - Report for the September 2009 quarter & trading update |
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CZA
CZA
CZA - Coal of Africa - Report for the September 2009 quarter & trading update
Coal of Africa Limited
(previously, "GVM Metals Limited")
(Incorporated and registered in Australia)
(Registration number ABN 008 905 388)
JSE Share code: CZA
ASX Share code: CZA
ISIN AU000000CZA6
("CoAL" or the "Company")
REPORT FOR THE SEPTEMBER 2009 QUARTER & TRADING UPDATE
Coal of Africa Limited ("CoAL" or "the Company") provides its operational
report for the quarter ended 30 September 2009. A full copy of this report is
available on the Company`s website, www.coalofafrica.com.
Highlights
- Railing and sale of first coal from the Mooiplaats thermal coal project
("Mooiplaats Project");
- Agreement in principle on terms of a Broad Based Black Economic Empowerment
("BBBEE") transaction taking the Company closer to compliance with South
- African Black Economic Empowerment ("BEE") legislation;
- Continued public private partnership ("PPP") discussions with Transnet
- Freight Rail ("TFR"), a division of Transnet, the South African government
owned rail and freight organisation, on the Maputo rail corridor;
- Agreements executed to acquire the remaining 26% of Limpopo Coal Company
(Pty) Ltd ("Limpopo Coal"), the owner of the Vele coking coal project ("Vele
Project") taking CoAL`s interest to 100% on completion;
- Completion of construction of the laboratory in Polokwane to reduce time
delays for thermal and coking coal sample analysis;
- Appointment of Hendrik ("Kobus") Verster to the CoAL Board as ArcelorMittal
SA`s nominee Non-Executive Director;
- Cash balance at the end of the quarter of A$47 million - the Company has no
debt.
Post Quarter Events
- Issue of 1,990,000 CoAL shares to acquire 6% of Limpopo Coal increasing the
Company`s interest in the Vele Project to 80%.
Commenting on the results today, Simon Farrell, Managing Director of CoAL
said, "With the first sales of coal completed in September, the Company
demonstrated the operational capabilities and logistical strategies that
enable it to overcome many of the challenges faced by emerging coal mining
companies. The revised Mooiplaats mine layout and the planned south shaft
should allow the Company to take advantage of the increasing interest shown in
thermal coal. Furthermore, the Company expects the granting of a New Order
Mining Right for its Vele coking coal project before the end of 2009 and
production is expected to follow within four months of receiving the required
legislative approval. I am optimistic that the railways PPP initiative will
ensure that the Company will be able to deliver significant tonnage of coal to
the international and domestic markets."
DISCUSSION OF RESULTS
Mooiplaats Project - Ermelo Coalfield (100%)
In early July 2009, the Company announced that following an extensive
reassessment of the mine plan and geological conditions, a revised mining
layout for the Mooiplaats Project had been finalised. During the September
quarter, additional vertical as well as horizontal drilling programmes to re-
affirm the amended mine layout were completed. The revised layout did not
result in any material amendments to the anticipated tonnage schedules of the
project`s life of mine plan and depending on the rate of development, export
quality thermal coal is now expected to be reached by the end of 2009.
The Company`s mining plan anticipates run of mine ("ROM") production for the
next five years as follows:
2010 2011 2012 2013 2014
Calendar year
ROM Production 1.7m 2.7m 3.1m 3.4m 3.2m
The remaining road and conveyor infrastructure development of the Mooiplaats
Project`s north shaft was completed during the quarter. Currently, coal mined
at the Mooiplaats Project is expected to be railed from the Umlabo siding to
the Matola Terminal in Maputo, Mozambique ("Matola Terminal") while the larger
Overvaal siding is being re-commissioned. The work required to re-commission
the Overvaal siding is, pending relevant approvals and finalisation of lease
documentation, expected to be completed by the end of Q2 2010.
Mining operations at the Mooiplaats Project are currently producing
approximately 30,000 ROM tonnes per month of a high calorific value
(>27MJ/kg), mid volatile "lean" coal. In mid-September 2009, the Company
loaded its first train of mid volatile "lean" coal and agreed terms of sale.
The Company commenced trucking the coal from the Mooiplaats Project on 8
September 2009, with the first train loaded and railed to the Matola Terminal
on 11 September 2009. Trains will continue to be loaded and dispatched to
utilise the maximum stockpile of 80,000 tonnes at the Matola Terminal.
Shipping is expected to commence by the end of 2009.
During September 2009, the Company also signed an off-take agreement with
Traxys, a global mineral marketing company, for 35% of the export quality
thermal coal from the Mooiplaats Project. The terms of this agreement offer
significant upside over what are considered standard terms in the industry.
CoAL has agreed terms with another well respected global trader for a further
35% of the Mooiplaats Project export quality thermal coal and expects to
execute a formal off-take agreement reflecting the agreed terms by the end of
2009.
Safety management continues to be a key focus at CoAL`s projects but sadly, in
July 2009, two employees of a contractor to CoAL were fatally injured in an
accident resulting from the unlawful access to and use of a vehicle by an
unlicensed contractor. Immediately following the accident, operations were
halted for three days whilst investigations were conducted by inspectors and
mine officials of the South African Department of Mineral Resources ("DMR").
Reassuringly, the results of the official inquiry indicated no material
breaches by the Company, but suggested legal prosecution of the driver and
several of the contractors` officials.
An application to extend the current New Order Mining Right ("NOMR") to
include the farms Klipbank and Adrianople was lodged with the DMR in the
September quarter. The extension would result in the development of the south
decline shaft and increase the life of the mine. The DMR is currently
processing the application and the Company expects the application to be
approved by the end of 2009.
Vele Project - Tuli Coal Field (80% - will be 100% on granting of the NOMR)
During July 2009, CoAL confirmed that it will develop its Vele Project in two
phases. Phase 1 will initially comprise the establishment of a modular coal
treatment plant with the ability to deliver an estimated 1 million saleable
tonnes (yield dependant) of coking coal per annum. The capacity of the modular
plant can be doubled should ArcelorMittal SA ("Mittal") wish to increase its
off-take from the Vele Project, as indicated in the Letter of Intent signed in
April 2008 ("Mittal LOI"). The Mittal LOI provides for the potential off-take
from the Company`s coking coal properties of a minimum of 2.5 million tonnes
per annum ("mtpa"), with an option for Mittal to increase this to 5mtpa.
Phase 2 of the Project is expected to deliver the planned full capacity of 5
mtpa of saleable coking coal from the Vele Project and the implementation
thereof will be dictated by market conditions.
The Company is ready to launch Phase 1 of the Vele Project immediately upon
the granting of a NOMR which is currently under review by the DMR. Approval of
the NOMR is expected by the end of 2009. The total capital expenditure to
complete Phase 1 of the Vele Project is estimated at ZAR350 million with a
further ZAR200 million required to double the Phase 1 capacity. An additional
ZAR2.65 billion will be required to complete Phase 2 of the Vele Project,
which will deliver 5 mtpa. The Mittal LOI is subject to formal documentation
but, in principle, provides for a free on rail ("FOR") delivery in return for
a free on board ("FOB") indexed price, which is expected to deliver a
significantly better margin than would have otherwise been enjoyed through
exporting the coal. Initial mining is expected to utilise opencast methods,
which also contributes to lower initial mine establishment costs.
A considerable amount of preparation for Phase 1 has already been completed
and significant capital expenditure committed to the modular plant which is
expected to shorten its production lead time. Dry commissioning of the modular
plant has been completed and all manufacturing work on the plant and
supporting infrastructure is progressing according to schedule. Following the
granting of a NOMR by the DMR, the wash plant and associated infrastructure is
expected to be commissioned within four months in Q1 or early Q2 of 2010.
Work on the Vele Project feasibility study undertaken by GRD Minproc (Pty) Ltd
was finalised during the quarter. The results of the feasibility study are
expected to be ready before the end of 2009. Discussions regarding the mining
contract continued with MCC Contracts, the selected open-cast mining
contractor, and the mining contract is due to be signed by the end of 2009. A
Memorandum of Understanding in this regard between the two parties has already
been signed.
A further 39 exploration holes, totalling over 3,200 metres, were drilled on
the mine area during the quarter. All cores have been geophysically logged and
core samples sent to the laboratory in Polokwane for analysis, the results of
which are expected in the next quarter.
In May 2009, CoAL submitted comprehensive Environmental Management Progamme
("EMP") and Environmental Impact Assessment ("EIA") documents to the DMR in
which the Company committed itself to the highest level of environmental and
social performance. Dust monitors have already been erected on the Vele
Project area as well as on neighbouring farms. Water monitoring boreholes have
been drilled and an Integrated Water and Waste Management Plan for the Vele
Project is being compiled by independent consulting engineers.
Acquisition of remaining 26% Interest in Limpopo Coal
As announced on 14 July 2009 and 23 October 2009 ("Announcements"), the
Company executed two binding agreements with Shangoni Bezwe Management
Services (Pty) Ltd ("Shangoni") and Tranter Holdings (Pty) Ltd ("Tranter") to
collectively secure the remaining 26% interest in Limpopo Coal, the company
that owns the Vele Project and in which CoAL already owns a 74% interest. On
23 October 2009, 1,990,000 fully paid ordinary CoAL shares were issued to
Shangoni for 6% of Limpopo Coal after all suspensive conditions to the
agreement had been satisfied. The consideration payable to Tranter for the
remaining 20% of Limpopo Coal is 5,625,750 new fully paid ordinary shares in
CoAL and is conditional upon the fulfillment or waiver of suspensive
conditions set out in the Announcements.
Makhado Coking Coal Project - Soutpansberg Coal Field (100%, subject to 30%
Exxaro option)
The Company has prepared the documentation required for the NOMR Application
for submission to the DMR, based on the planned 5mtpa production profile of
the 1.3 bn tonne (including the Rio farm swap) Makhado coking coal project
("Makhado Project"). This application will be submitted once section 11
approval in terms of the South African Minerals and Petroleum Resources
Development Act, 2002, has been granted by the DMR for the Rio Tinto Farm
Swap.
During the quarter, the Company completed an additional 45 exploration holes
bringing the total metres drilled since June 2009 to over 2,086 metres. The
exploration boreholes of the large diameter drilling programme provided
additional cores for bulk sample analysis and assisted in delineating the
southern and northern limits of the coal.
In July 2009, the Company submitted an application to the DMR for the
extraction of a bulk sample from the Makhado Project. Approval of the
application is expected in Q4 of 2009 and the sample extracted will yield
1,000 tonnes of coal for analysis by ArcelorMittal SA in their coking ovens.
Holfontein Coal Project (100%)
During July 2009, the Company mandated The Mineral Corporation (Pty) Ltd
("Mineral Corp") to update the resource estimate of the Holfontein coal
project ("Holfontein Project") based on both historic data and the results of
the drilling programme undertaken during 2008/09. The Mineral Corp report is
expected to be completed shortly and the Company continues to classify
Holfontein as an asset available for sale. The New Order Mining Right for
Holfontein is anticipated to be granted by the end of 2009.
Confirmation of PPP Discussions with TFR
Discussions progressed with regards to the PPP with TFR on the Maputo rail
corridor. The discussions are designed to ensure the availability of rail
capacity to match the port capacity CoAL has secured through agreements with
Grindrod Trading & Shipping Limited ("Grindrod"). CoAL`s export capacity via
the Matola Terminal is currently 1 mtpa. This is expected to rise to 3 mtpa by
late 2010 with the potential to reach 13 mtpa following an additional 10 mtpa
expansion via the creation of a new dedicated coal export terminal. Terms and
conditions of the arrangement between CoAL and TFR are yet to be finalised,
but both parties are committed to ensuring a solution is found that will meet
the overall objective of facilitating the use of the Maputo corridor, as a
viable export route for coal producers and an alternative to the Richards Bay
Coal Terminal.
Richards Bay Throughput Agreement
As announced on 25 August 2008, the Company entered into a throughput
agreement with Grindrod Limited ("Throughput Agreement") to secure long term
port allocation for the export of coal produced at the Mooiplaats Project via
the dry bulk terminal at Richards Bay ("Richards Bay Terminal"). As a result
of certain conditions precedent under the Throughput Agreement not being met
by Grindrod, the Company has formally terminated the Throughput Agreement.
Notwithstanding this, CoAL continues to work closely with Grindrod and others
with a view to securing allocation at the Richards Bay Terminal. As
previously advised, the Company is using the Matola dry bulk coal terminal in
Maputo, Mozambique for the export of coal produced at the Mooiplaats Project.
Black Empowerment Transaction
The Company has, subject to formal documentation, reached agreement in
principle with its proposed BBBEE partners ensuring CoAL takes a significant
step towards compliance with South African BEE legislation. The arrangement
will replace the previous agreement, announced on 13 June 2008, with Coal
Investments Limited ("CIL") pursuant to which CIL subscribed for shares and
was granted an option to acquire 50 million CoAL shares. The parties are in
the process of negotiating formal agreements which are expected to include the
cession of CIL of their right to appoint a director to the Company`s Board.
The BBBEE consortium will be led by Firefly Investments 163 (Pty) Ltd
("Firefly") which is wholly owned and controlled by historically disadvantaged
South Africans. Firefly`s current shareholders include Mosomo Investment
Holdings (Pty) Ltd and Mtungwa Resources (Pty) Ltd which are led by Kgomotso
Brian Mosehla and Patrick Ntshalishali. The proposed transaction requires CoAL
to issue an option to acquire 50 million shares, representing approximately
10.85% of the Company`s issued capital, to Firefly. Any shares issued on
exercise of the option to subscribe for shares are proposed to be subject to
a 12 month "lock-in period". it is expected that the shares will be issued at
a price of 60 pence per share. The right to subscribe for the shares is
expected to last until five years from the date the conditions to the
agreement are satisfied.
Pursuant to the proposed agreement, Firefly will undertake, within a period of
three months, to distribute the rights under the agreement to subscribe for
shares to the King of the VhaVenda, His Majesty Khosi Khulu Toni Mphephu
Ramabulana, representing his constituents of the Mudimeli, Musekwa, Makushu-
Musholombi and Tshivhula communities, relevant female empowerment and youth
groups as well as a special purpose vehicle to promote and develop
entrepreneurs and other specific community groups in the Limpopo province.
The proposed agreement with Firefly will be subject to certain regulatory
approvals, including consent of the Australian Foreign Investments Review
Board and CoAL shareholder approval. It is proposed that Firefly will also
have the right to nominate two persons to the CoAL Board. To facilitate the
BBBEE transaction, the Company`s second largest shareholder, African Global
Capital I, L.P., an entity associated with Mvelaphanda Holdings (Pty) Ltd,
Palladino Holdings Limited and OZ Management LP, and its affiliate CIL, which
currently own in the aggregate 17.33% of the issued share capital of CoAL,
are expected to enter into an agreement with Firefly in terms of which amongst
other provisions, they will cede their voting rights over their ordinary
shares in CoAL to Firefly for a period of time.
Construction of Polokwane Analytical Laboratory
The construction of a world class analytical laboratory in Polokwane in the
Limpopo Province was completed during the quarter. The facility commenced
performing petrographic and thermal coal tests on samples from the Company`s
Vele and Makhado Projects. Results from these tests are expected early in Q4
2009.
Nimag Group of Companies (100%)
The combined effect of cost cutting measures, an improvement in nickel prices,
together with increased demand for the Nimag Group`s products resulted in a
return to profitability during the September quarter. The Group`s new Managing
Director has been tasked with growing the Group through the acquisition of
companies with similar production profiles.
Appointment of a Non-Executive Director
On 27 August 2009, the Company announced the appointment of Mr Hendrik
("Kobus") Verster as ArcelorMittal SA`s nominee non-executive director to the
CoAL Board. Mr Verster replaced Mr Pierre Leonard, who stepped down from the
Board as non-executive director.
Mr. Verster has 15 year`s finance experience within the ArcelorMittal Group
and is currently Executive Director Finance of ArcelorMittal South Africa and
a board member of various unlisted ArcelorMittal Group companies. He is also a
director of the National Business Initiative in South Africa, which is a
regional partner of the World Business Council for Sustainable Development, a
voluntary group of leading national and multinational companies which work
together to towards sustainable growth and development in South Africa through
partnerships, practical programmes and policy engagemAuthorised by
Simon Farrell
Managing Director
26 October 2009
For more information contact:
Simon Farrell, Managing Director - CZA
+61 417 985 383 or +61 8 9322 6776
Peter Bacchus/ Alastair Cochran - Morgan Stanley
+44(0) 20 7425 8000
Simon Edwards/ Chris Sim - Evolution Securities
+44(0) 20 7071 4300
Jos Simson/ Leesa Peters - Conduit PR
+44(0) 20 7429 6603
Melanie de Nysschen / Thembeka Mgoduso - Macquarie First South Advisers
+27(11) 583 2000
About CoAL:
Coal of Africa Limited ("CoAL") is an AIM/ASX/JSE listed coal mining and
development company operating in South Africa. CoAL has three key projects
including the 113 million tonne (`mt`) Mooiplaats thermal coal mine, the 656
mt Vele coking coal project and the 1.3 bn tonne Makhado coking coal project
(including the Rio farm swap).
The Mooiplaats coal mine commenced production in 2008 and is currently ramping
up to produce 2 mtpa. CoAL`s Vele and Makhado coking coal projects are
expected to start production in H1 2010 and Q4 2011 respectively producing an
initial 2 mtpa rising to a combined annual output of 10 mtpa of coking coal.
Resource Estimation:
Resource estimations have been compiled, according to the JORC and SAMREC
codes, by Mr John Sparrow (Member of the South African Council of Natural
Science Professions SACNASP) 400109/03, an independent geological and
technical consultant with 26 years experience in the Southern African and
Australian regions. Mr Sparrow has sufficient experience relevant to the
assessment of this style of mineralization to qualify as a Competent Person as
defined in the JORC Code and has compiled a number of Competent Person`s
reports for various organizations for the JSE, ASX and TSE. Mr Sparrow
consents to the inclusion of the information in this report in the form and
context in which it appears. The JORC Code is the Australasian Code for
Reporting of Exploration Results, Mineral Resources and Ore Reserves and
SAMREC is the South African Code for the Reporting of Mineral Resources and
Mineral Reserves.
Date: 26/10/2009 07:05:00 Produced by the JSE SENS Department.
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