| Mon 30 Apr 2012, 9:29 | | CZA - Coal of Africa Limited - Report for the quarter ended 31 March 2012 |
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CZA
CZA
CZA - Coal of Africa Limited - Report for the quarter ended 31 March 2012
Coal of Africa Limited
(Incorporated and registered in Australia)
(Registration number ABN 008 905 388)
ISIN AU000000CZA6
JSE/ASX/AIM share code: CZA
("CoAL or the "Company" or the "Group")
REPORT FOR THE QUARTER ENDED 31 MARCH 2012
Production at Vele Colliery commences and Makhado Project Definitive Feasibility
Study progressing well
Coal of Africa Limited ("CoAL" or "the Company") the coal exploration,
development and mining company operating in South Africa, is pleased to provide
its operational report, together with its subsidiaries, for the quarter ended 31
March 2012. A copy of this report is available on the Company`s website,
www.coalofafrica.com.
Highlights
- Commissioning of processing plant at the Vele coking coal colliery ("Vele
Colliery") and delivery of trial thermal coal to the Musina siding.
- Extraction of over 39,000 tonnes of run of mine ("ROM") coal and 2,59
million cubic meters of overburden at Vele Colliery during the three
months.
- Further progress with the Save Mapungubwe Coalition ("the Coalition") with
signature of the Memorandum of Agreement ("MOA") expected by 31 May 2012.
- Preliminary review of the Makhado coking coal project ("Makhado Project")
Definitive Feasibility Study ("DFS") conducted by the CoAL Board of
Directors ("Coal Board") in the March quarter with a further review and
update to the DFS scheduled in the June quarter.
- Independent tests commissioned by the Company confirmed the outcome of
detailed tests conducted by ArcelorMittal South Africa ("AMSA") confirming
the hard coking coal classification for Makhado Project product.
- 1,170,223 tonnes (FY2012 Q2: 1,083,396 tonnes) ROM and 601,491 tonnes
(FY2012 Q2: 531,506 tonnes) of export quality coal produced at the
Woestalleen thermal coal complex ("Woestalleen") and the Mooiplaats thermal
coal colliery ("Mooiplaats").
- Sales of export coal during the period of 452,888 tonnes (FY2012 Q2:
520,812 tonnes) lower due to reduced production output as a result of the
establishment of the new North Block at the Vuna thermal coal colliery
("Vuna Colliery").
- Granting of an Integrated Water Use Licence ("IWUL") for the North Block of
the Vuna Colliery and the commencement of mining operations.
- Good safety performance. Two lost time injuries recorded (FY2012 Q2: nil
lost time injuries) during the quarter.
- Satisfaction of all conditions precedent for the disposal of the non-
core NiMag (Pty) Ltd and Metalloy Resources Investments (Pty) Ltd (together
"the NiMag Group") by way of a Management Buy Out ("MBO") for ZAR54 million
(approximately US$7.0 million).
- Further progress on the disposal of the Holfontein thermal coal project
("Holfontein Project").
- Finalization of the remaining conditions precedent to the new US$40 million
Revolving Credit Facility with JP Morgan Australia Limited ("New Bank
Facility"), post period-end.
- Total cash balance, available and undrawn facilities as at 31 March 2012
(including on a pro forma basis the US$40 million New Bank Facility) of
US$114.8 million.
Commenting today, Mr John Wallington, Chief Executive Officer of CoAL said: "The
Company achieved significant milestones during the March quarter with progress
on a number of fronts. These include the completion of the commissioning of the
plant at Vele Colliery, a preliminary review of the Makhado Project Definitive
Feasibility Study by the CoAL Board and near completion of the Rio-Tinto/Kwezi
transaction over the Chapudi assets. In addition, the disposal of the NiMag
Group and further progress made on the disposal of the Holfontein Project is in
line with our strategy to focus on the development and operation of our coal
assets. Post period end, the Company was also pleased to finalize the US$40
million financing facility with JP Morgan Australia.
Construction of the Vele Colliery`s first phase was completed, allowing for the
final commissioning of the processing plant and delivery of an initial batch of
thermal coal product to the Musina siding with the first sales expected in the
June quarter. Moving forward, we remain fully focused on improving operational
performance at the two thermal mines, ramping up Vele to full production and
continuing with our development activities on the Makhado, Greater Soutpansberg
and Coal Bed Methane Projects. Collectively, these events beckon an exciting new
chapter for CoAL, as the Company proceeds towards its goal of becoming a
significant Southern African coal producer."
QUARTERLY COMMENTARY
Woestalleen Complex - Witbank Coalfield (100%)
The Woestalleen processing facility recorded one lost time injury during the
quarter (FY2012 Q2: nil lost time injuries) while no lost time injuries were
recorded at the Vuna Colliery (FY2012 Q2: nil lost time injuries).
The IWUL for the Vuna Colliery was received during the quarter allowing for the
commencement of mining of the North Block that consists of the #1 and #2 thermal
coal seam typical of the Witbank/Middelburg coalfields. The Company expects to
complete mining of the adjacent South Block during the June 2012 quarter. A
large portion of the #1 seam ROM coal, typically sold as a low grade power
station coal, is crushed on site at the Vuna Colliery to reduce costs and
delivered directly from site to Eskom Limited ("Eskom"), the South African
electricity utility. All #2 seam coal mined at the Vuna Colliery is transported
by roadhaul to Woestalleen for processing, producing an export grade product and
a further thermal coal middlings product for Eskom.
During the quarter, the Vuna Colliery produced 852,692 tonnes of ROM coal
compared with 821,392 tonnes during the previous three months. Establishment of
North Block mining operations at the Vuna Colliery and modification to the
Woestalleen plant temporarily reduced available processing capacity resulting in
coal processed during the three months reducing from 860,974 ROM tonnes to
773,283 ROM tonnes, producing 395,112 tonnes (FY2012 Q2: 353,395 tonnes) of
export quality coal and further 20,034 tonnes (FY2012 Q2: 225,475 tonnes) of
Eskom middlings product. The December 2011 quarter included additional Eskom
product from the processing and blending of stockpile material with additional
#1 seam material mined from a portion of the South Block in the final stages of
production. The yield for the March quarter decreased from 67.2% to 57.8% due to
the mining out of the remaining lower grade area in the South Block before
commencing full operations in the North Block and the additional processing of
#1 seam and lower grade stockpile material.
The Company previously commenced identifying potential resources in the vicinity
of Woestalleen to extend the life of the operation and has expanded the process
to include the potential of processing coal on behalf of third parties, to
ensure full utilization of the total plant processing capacity.
Mooiplaats Colliery - Ermelo Coalfield (100%)
Mooiplaats recorded one lost time injury during the quarter compared with no
lost time injuries during the previous three months. Management remains focused
on safety issues at all levels and continue to evaluate systems, procedures and
work place behaviour to ensure that potential risks are appropriately identified
and addressed.
ROM production at Mooiplaats increased from 262,004 tonnes in the December 2011
quarter to 317,531 tonnes in the March quarter due to a variety of operational
interventions and the full three months` production from the fifth section
commissioned during the previous quarter. The increase in ROM coal production
during the quarter is also attributable to improved maintenance scheduling and
increased equipment availability, following the introduction of the third party
maintenance contract with equipment supplier JOY Mining in the December 2011
quarter.
Overall yield decreased marginally quarter on quarter from 70.8% to 68.8% due to
product mix from the five underground sections at the mine and ROM coal bought
in. Coal processed during the three months increased from 304,107 ROM tonnes to
383,679 ROM tonnes in the March quarter as a result of increased production and
ROM coal purchased. A total of 206,379 tonnes (FY2012 Q2: 178,111 tonnes) of
export quality coal was produced and 57,598 tonnes (FY2012 Q2: 37,234 tonnes) of
the lower grade middlings product for sale to Eskom.
Further initiatives to identify improvements in the mining processes are
underway with the objective of meeting higher levels of sustainable production.
A strategic review of this asset has resulted in the identification of various
options to unlock potential value from the installed infrastructure and
processing plant which are being actively pursued.
Marketing and Logistics
South African export coal spot prices were under pressure during the March
quarter reducing from US$106 per tonne at the beginning of January to US$103 per
tonne at the end of March. Over the same period, the South African rand
strengthened against the US dollar from ZAR8.20 at the beginning of the quarter
to ZAR7.70 at the end of the quarter.
Export sales from the Matola Terminal in Maputo, Mozambique ("Matola Terminal"),
decreased from the previous quarter by 13% to 452,888 tonnes while coal sold
into the inland market decreased by 3% from 212,803 to 205,432 tonnes. Sales of
lower quality coal to Eskom normalised from 291,467 tonnes in the December 2011
quarter to 103,456 tonnes as a result of the once off depletion of excess
stockpiles suitable for this market and changes in the mining mix from the Vuna
Colliery with the depletion of the South Block and the establishment of mining
operations at the North Block. Going forward, the sales mix is anticipated to
normalize due to a higher level of available #2 seam thermal coal from the new
area.
Summary tables (tonnes)
Woestalleen Mooiplaats Total
March 2012 quarter
ROM production 852,692 317,531 1,170,223
ROM coal purchased - 68,755 68,755
Total coal processed 773,283 383,679 1,156,962
Overall Yield 57.8% 68.8%
Total coal produced 415,146 263,977 679,123
Export coal 395,112 206,379 601,491
Middlings coal 20,034 57,598 77,632
Total coal sales 189,639 119,249 761,776
Export* - - 452,888
Inland 136,884 68,548 205,432
Eskom 52,755 50,701 103,456
*Export sales include both Woestalleen and Mooiplaats coal
Woestalleen Mooiplaats Total
9 months year to date to
March 2012 quarter
ROM production 2,572,198 881,323 3,453,521
ROM coal purchased - 113,617 113,617
Total coal processed 2,548,153 1,005,495 3,553,648
Overall Yield 61.7% 69.0%
Total coal produced 1,573,146 693,320 2,266,466
Export coal 1,218,989 566,068 1,785,057
Middlings coal 354,157 127,252 481,409
Total coal sales 983,266 268,499 2,502,964
Export* - - 1,251,199
Inland 586,121 149,539 735,660
Eskom 397,145 118,960 516,105
*Export sales include coal from Woestalleen and Mooiplaats
Vele Colliery
Production during the quarter continued to ramp-up in line with the mine plan,
with 2,589,567m3 (FY2012 Q2: 180,000m3) of overburden and 39,135 tonnes (FY2012
Q2: 3,200 tonnes) of ROM coal produced from the opencast pit. Construction of
the plant and related infrastructure was completed in early January allowing for
the final hot commissioning of the plant completed at the end of February.
During the quarter, mining of the initial lower quality weathered coal located
closer to surface continued and was used to commission the plant, establish the
stockpile floor area and enable the production of 2,454 tonnes (FY 2012: nil
tonnes) of coking and thermal coal.
Following the production of the first batch of thermal product as per the
previous announcement on 24 April 2012, the first shipment of approximately
1,500 tonnes of thermal coal was trucked to the Musina siding located 55km from
the mine, and loaded onto 30 rail wagons for onward transport by rail to the
Matola Terminal. Total transfer time from siding to the port, located
approximately 750km away, was on schedule at close to 16 hours. The test train
run was also used to determine axle load capacity of the Transnet Freight
Services ("TFR") line between Groenbult and Hoedspruit and is expected to
confirm TFR`s capacity to commence regular trains from the Musina siding on the
existing line. The shipment coincided with the official delivery of the plant
from the project engineering consultants ELB Engineering Services to Vele mine
management.
With mining and plant operations underway, a permanent access ramp into the
opencast pit required to accommodate higher production rates, was completed by
quarter end. The detailed mine plan is based on mining the overburden in 15m
benches and the four coal seams in succession. The overall coal horizon is
generally flat with a modest 2 (two) degree dip, and ROM coal is currently being
mined from the Bottom-Upper (BU) and Bottom-Lower (BL) coal seam horizons with a
combined average seam thickness of 5.5 m. The upper coal seams are either not
present or weathered in nature in the first few mining cuts, but are expected to
become more prominent as mining progresses in a southerly direction. This
provides favourable conditions to increase production over a short period of
time to the planned level of approximately of 225,000 ROM tonnes per month.
Management remain confident of achieving an annualized production rate of 2.7
million tonnes per annum ("Mtpa") (ROM) by the end of January 2013, which will
enable full utilization of the designed plant processing capacity.
The impact of in-pit blasting operations is minimised with the use of a full
electronic blast initiation system along with effective stemming and blast
monitoring systems while in-pit contamination and potential coal losses are
managed through a robust grade control system, including the application of
appropriate equipment to mine the coal seams efficiently.
The plant commissioning has enabled detailed product test work and technical
input on future enhancements required to the plant. Results from the product
evaluation and washability tests are very encouraging and indicate that both a
coking coal and export grade thermal coal can be produced at the Vele Colliery.
Coking coal at 10%, 11% and 12% ash has been produced to enable AMSA to
undertake detailed product testing similar to that undertaken on Makhado.
Current indications seem most favourable for the 10% ash product. The production
of thermal coal as a middlings is looking favourable with the first trial cargo
described above having a relatively high 18% ash, but importantly with a high
calorific value and volatile content important for an export grade product. The
future enhancements to the plant include the addition of a flotation section to
capture the ultra-fines from the washed coking coal; a permanent ROM coal
handling section to replace the temporary facility planned only for the initial
phase of mining operations; and with the recent confirmation of a thermal
middlings component, the second stage washing facility required for the
generation of an export grade thermal coal product. The timetable to complete
the technical work for the next phase remains on track for completion by end
July with construction and commissioning of various modules expected to be
completed in phases with the total project completed by mid-2013.
These initiatives will further enhance the operational and financial performance
of the mine, creating additional value through higher yields on the coking coal
products, additional revenue from the export grade thermal coal and lower
operational costs from improved processing efficiencies, reduced discard volumes
and overall economies of scale.
The Coalition and the Company have made steady progress over the past few months
with the objective to convert the current Memorandum of Understanding into a MOA
by 31 May 2012 and the revised schedule has been agreed to by all parties. Upon
completion thereof, the Coalition has agreed to withdraw all legal proceedings
and administrative appeals against the Vele Colliery`s New Order Mining Right
("NOMR"), Environmental Management Plan ("EMP"), IWUL and Section 24G
authorisation which will be a further positive step in stabilizing the future
operation of the Vele Colliery. In the interim, the Coalition have participated
as observers in meetings of the Environmental Management Committee, established
in terms of the Environmental Authorisation. Compliance with the EMP is also
monitored by an independent third party appointed by the Department of
Environmental Affairs ("DEA").
During January, the second United Nations Educational Scientific and Cultural
Organization Reactive Monitoring Mission ("UNESCO RMM") visit took place, hosted
by the DEA. The UNESCO RMM visit assessed progress made in implementing their
November 2010 recommendations. As part of this process, the Vele Colliery
Heritage Impact Assessment report was revised during the quarter and submitted
to the DEA in early April.
Makhado Coking Coal Project
As announced in the Interim Financial Commentary published on 12 March 2012, the
Makhado Project DFS was completed in H1 FY2012 and a preliminary review was
undertaken by the CoAL Board during the quarter. The DFS and mine design, based
on five farms originally acquired by the Company namely Lukin, Salaita, Fripp,
Tanga and Windhoek, includes capital and operating cost estimates for the
envisaged coal handling and processing plant facility and associated
infrastructure to an accuracy of +/- 15%.
Between August 2010 and April 2011, CoAL excavated a box cut on the farm Tanga
to extract a 19,000 ton bulk sample to confirm the coal and coking product
properties and to facilitate the additional test work on the viability of the
thermal coal middlings product. Following detailed product test work undertaken
as part of the preliminary review, various options not included in the scope of
the original DFS have been identified, including the potential for an
underground mining component in the overall mine design, the mining and
processing of a medium to high grade thermal coal middlings product as well as
further planning and processing plant design work to improve overall
efficiencies and potentially reduce costs.
At the time the DFS commenced approximately two years ago, the conclusion of the
Rio Tinto/Kwezi transaction over the Chapudi properties was not sufficiently
advanced to include in the overall mine design plan any properties arising out
of this transaction. The refinement of the initial mine plan and DFS and the
near dated completion of the transaction has provided further optionality for
the overall development of the project with particular reference to the
properties immediately to the north of the current mining area. This potential
upside includes increased scale of future mining operations, extended life of
mine of the overall project and alternative sequencing of mining areas not
previously included in the plan. The contiguous nature and locality of these
properties in close proximity to the planned infrastructure complex, provides
significant synergies and further economies of scale in the overall future
mining operations.
A further detailed review to evaluate the options available in the initial plan
and where appropriate, those arising out of the Chapudi properties, is scheduled
for completion by mid-2012. Thereafter, a comprehensive report will be issued on
the Makhado Project, including the DFS, along with an updated reserve and
resource statement over the enlarged area including the newly acquired Chapudi
properties.
Makhado Coking Coal Project Definitive Feasibility Study
The draft Makhado Project DFS details the defined resource base, exploitation of
the resource, processing methodology, product logistics, supporting surface
infrastructure and bulk services as well as the life-cycle financials. Studies
indicate that the resource base can be exploited by open-pit mining methods and
beneficiated to produce hard coking coal for the domestic and export markets.
The supporting surface infrastructure identified in the draft DFS is designed to
facilitate the mining of the resource and is situated at the East Pit in order
to minimise materials handling and haulage costs in the early stages of
operation. The infrastructure will include a coal-washing plant, personnel
support facilities, vehicle support structures, water-management infrastructure
as well as management and monitoring systems commensurate with a modern, world-
class mine.
Whittle software has been used for mine planning and scheduling to determine the
optimal pit shell based on various input parameters appropriate for the project.
Detailed reviews and optimisation studies have been based on the outputs
generated by the software, including a series of nested pit shells to determine
the optimal financial return in each case. Based on the coal horizons and the
inherent dip, various mining methods have also been considered for the open cast
operation. Initial studies indicate similar characteristics to a number of coal
deposits in the Hunter Valley coalfield of New South Wales, Australia and
further afield in Indonesia, giving rise to further detailed technical input on
the mining method to be refined in the next phase of the DFS process.
In terms of potential underground mining, various methods have been considered
including high-wall, longwall, shortwall, bord and pillar, and road and yielding
rib pillar methodologies as options to mine this section of the resource. A
process to evaluate the various options has commenced and will form part of the
updated DFS.
The further enhancement to the mine plan includes the potential expansion of
production output rising from the plan in the first phase of 2.2 to 2.5 Mtpa of
saleable coking coal to approximately 5.0 Mpta in the second phase, before
considering the potential additional volume from the high grade thermal
middlings coal.
Based on the geographical location of the mine and the product characteristics,
coking coal produced at the Makhado Project has the potential to be sold most
profitably in the South African domestic market as well as to the export market,
particularly to India. The further potential of a high grade thermal coal
middlings provides opportunity to sell product both domestically and into the
export markets.
CoAL is proposing construction of a 22.5-kilometre railway `spur`, linking the
Makhado Project to the existing TFR line between Musina and town of Makhado, at
the existing Huntleigh siding. The anticipated cost of the spur is ZAR330
million (approximately US$42.8 million). Investment in this strategic
infrastructure will unlock value and facilitate the economic development in the
Limpopo province. CoAL believes this to a significant contribution towards the
geographically-focused infrastructure plan mentioned by President Jacob Zuma in
his 2012 State of the Nation Address, to be driven and overseen by the
Presidential Infrastructure Co-ordinating Commission (PICC). The plan targets,
amongst other issues, rail infrastructure development in Limpopo to unlock the
province`s mineral wealth. Engagement with interested and affected parties and
regulatory authorities to secure the approximately 80 hectares of land needed,
and the necessary permitting is underway.
Further detailed front end design work required to complete the tender
specifications documents continues in order to maintain the timetable to
commence construction of the mine following the granting of the NOMR. Capital
expenditure of various key aspects of infrastructure continues at a modest pace
to ensure the timetable to commence construction remains on track. Construction
of the overhead power lines to provide permanent electrical supply to the site
during the construction phase and the sub-station terrace for electrical
transmission equipment and related infrastructure is expected to commence
shortly. Eskom has confirmed supply of the initial 5MVA of power required during
the construction phase of the mine with the application for the remaining 5MVA
on track for delivery with the commencement of mining operations. Various
options to ensure the long term supply of water and to ensure adequate
availability for each phase of the mining project are under consideration,
including a detailed assessment of the related infrastructure required to supply
the water to the project.
Progress continues to be made on the various environmental and regulatory
processes required for the approval of the Makhado Project NOMR. Following the
submission of the Mining Right application in January 2011, finalisation of the
remaining aspects of this process including all consultations with the various
interested and effected parties continues and detailed technical studies remain
on track. Management anticipate obtaining all final regulatory approvals
necessary to commence with the construction of the mine by the end of calendar
2012.
Makhado Coking Coal Project Commercial Issues
In 2009, the Option to Participate Agreement (the "Option Agreement") was signed
between the Company and Exxaro Coal (Pty) Ltd ("Exxaro"), a wholly owned
subsidiary of Exxaro Limited. As part of the Option Agreement, the draft DFS has
been provided to Exxaro to undertake an initial evaluation of the project in
order to facilitate further discussion, with a view to agreeing the valuation
for Exxaro`s equity participation.
Various properties previously owned by Iscor, were acquired by CoAL, including
the five farms which constitute the Makhado Project. In order for CoAL to
acquire detailed exploration information previously compiled by Iscor, Exxaro
retained the right to a 30% equity participation in any future project as part
of the transaction. Furthermore, Exxaro`s majority 51% ownership by Historically
Disadvantaged South Africans ("HDSA") will enable CoAL to utilize their Black
Economic Empowerment ("BEE") credentials to achieve the minimum required level
of 26% BEE ownership in the project by May 2014. Ownership will be at the
project level and on this basis and assuming that Exxaro exercise their option
in full, CoAL will achieve 30% BEE ownership in the project.
Submission of the draft DFS triggered the start of the evaluation process by
Exxaro who have requested an extension of the original time period of 30 days to
complete the evaluation process and, to allow sufficient time for Exxaro`s
formal internal approval processes to be completed. As a result, Exxaro has been
granted an extension to 15 June 2012 by which date, a formal decision regarding
the exercise of their option will be made. Thereafter, the shareholders
agreement will be finalised and the formal binding agreement relating to the
option concluded. Initial feedback has been positive and interaction between the
two companies has increased appropriately to ensure completion of the evaluation
process by the revised date.
The detailed testing of the Makhado Project bulk sample by AMSA at the
Vanderbijlpark and Newcastle plants in South Africa was completed during the
quarter and final results received by the Company. These results are in line
with the initial technical assessment of the coal and confirm the performance of
the coke derived from the coal. Coal samples were tested on 10%, 11% and 12% ash
levels to accommodate a range of different tests in the plants. The complex
series of tests undertaken by AMSA over a four month period covered a range of
alternate product mixes and tests on a wide range of processing parameters to
understand how the coking coal performs under difference scenarios. The outcome
of the test confirmed that the 10% ash product performs well relative to other
hard coking coals based on Coke Strength Reaction, Coke Reactivity Index and
Reflectance.
Independent tests commissioned to confirm the AMSA results further suggest that
the coal will be classified as a hard coking coal. The individual and blended
test results corroborate the coal`s higher than average fluidity, dilatation and
high vitrinite content can be regarded as the strongest characteristics of the
coal. The Company expects that these characteristics will to a large extent
balance the lower maximum reflectance and higher volatiles for potential
customers.
In accordance with the Letter of Intent signed with ArcelorMittal Limited on 16
April 2008, CoAL may sell between 2.5 and 5.0 Mtpa of Limpopo coking coal from
Musina on an indexed linked free on rail (FOR) price, with CoAL sharing in the
savings achieved by ArcelorMittal on freight and inland transports costs not
incurred based on the replacement of imported. The detailed testing by AMSA of
the Vele product has also commenced on a similar basis to that undertaken for
the Makhado Project and once completed, will facilitate the start of discussions
regarding a potential commercial arrangement to supply coal from both the Vele
Colliery and Makhado Project.
An independent consulting firm has been retained by the Company to provide
technical assistance and support in negotiations with AMSA and other potential
off-take customers. A product road show to potential Indian customers of coal
mined at both Makhado Project and Vele Colliery was undertaken in March and
further road shows are planned for the June quarter.
Disposal of the NiMag Group
The disposal of the 100% interest in the non-core NiMag Group by way of a MBO
for a total of ZAR54 million (approximately US$7.0 million) was completed during
the March quarter. 60% of the purchase price will be funded by a combination of
equity contributions and bank debt and the remaining 40% financed by an interest
bearing loan provided by CoAL, repayable over four years. The transaction was
subject to certain conditions precedent, including finalisation of loan
financing agreements and South African Reserve Bank exchange control approval,
all of which were satisfied during the March 2012 quarter. Payment of 60% of the
purchase consideration or ZAR32.4 million (approximately US$4.2 million), was
received subsequent to the quarter end.
Disposal of the Holfontein Project
During the quarter, the Company granted Govhani Consulting (Pty) Ltd ("Govhani"
or "the Purchaser"), a company with is majority owned by HDSA`s, an exclusive
right to acquire the Holfontein Project for a total consideration of ZAR100
million (approximately US$13.0 million). The exclusive right extends to 30 June
2012 and provides for a continuing payment to CoAL of ZAR2.00 (approximately
US$0.26) per tonne of saleable coal produced by the project. The conditions
precedent to the transaction includes Govhani completing the DFS and obtaining
the remaining funding for the project as well as approval of the transaction by
the Department of Mineral Resources ("DMR").
Govhani paid an initial non-refundable deposit of ZAR4.0 million (approximately
US$0.5 million) to conduct a detailed review of the project and a further ZAR5.0
million (approximately US$0.7 million) on signature of the exclusivity agreement
enabling them to finalize the DFS in order to complete the acquisition of the
project. Upon completion of the transaction, the total purchase consideration
will be reduced by ZAR9.0 million (approximately US$1.2 million).
Acquisition of Rio Tinto`s South African Coal Assets
The Company continued to make progress on the fulfilment of the conditions
precedent in terms of the Sale and Purchase Agreement ("SPA") for the
acquisition of the Chapudi Coal Project and Related Exploration Properties in
South Africa`s Soutpansberg Coalfield in the Limpopo Province, (collectively,
the "Chapudi Coal Assets") from joint venture companies held by Rio Tinto
Minerals Development Limited and Kwezi Mining (Proprietary) Limited,
(collectively, "the Vendors"). In accordance with the SPA, following payment of
the initial deposit of US$2 million, the balance of the US$75 million purchase
consideration is payable in two tranches, the first of $43 million payable upon
fulfilment of all the conditions precedent of the SPA and the remaining amount
of US$30 million payable on the earlier of the granting of a NOMR on any of the
properties or two years from the date upon with the conditions precedent were
fulfilled.
During the quarter, the Company applied for South African Reserve Bank ("SARB")
approval for acquisition of the shares in the Companies holding the Chapudi Coal
Assets. The approval was received in early April, satisfying a significant
suspensive condition of the SPA. The application for SARB approval for the
acquisition of the shareholder claims by CoAL from the Vendors, was deferred
pending the approval and closure of the equity transaction.
On 30 April 2012, the parties agreed to an extension of the deadline for the
completion of the transaction to 31 May 2012, to enable the remaining conditions
precedent, including inter alia, the granting of the section 11 approval from
the DMR, to be fulfilled. The Company remains confident of that the necessary
approvals for the equity closing will be obtained very shortly, at which time
the transaction will close.
In order for the Vendors to complete certain outstanding administrative
requirements with the SARB in respect of the transaction, the basis of
settlement of the purchase consideration has been restructured into an equity
and shareholder loan component. Accordingly, of the first tranche payable of
US$43 million, the equity component of US$29.4 million is payable on fulfilment
of the conditions precedent of the SPA resulting in the completion of the
transaction and the balance of US$13.6 million, in respect of the balance on the
shareholders loan accounts, has been deferred pending finalization by the
Vendors of the outstanding issues with the SARB in relation to the closing of
the loan transaction.
Upon completion of the equity transaction, this will enable the consolidation of
various contiguous tenements making CoAL a substantial holder of prospecting and
mining rights for coking coal in the Soutpansberg coalfield. This provides
significant optionality and flexibility in the planning of future mining
projects. The detailed planning and technical work required as part of this
process is well advanced along with updating the reserve and resource
calculations of these newly acquired properties.
BEE ownership structure for Chapudi Coal Project
As previously announced on 6 February 2012, the Company entered into a BEE
ownership structure with Rothe Investments Proprietary Limited ("Rothe"), to
acquire a 26% shareholding in the wholly -owned CoAL subsidiary, Keynote Trading
& Investment 108 Proprietary Limited ("Keynote"). Keynote is expected to hold
the Chapudi Coal Project and related exploration properties (collectively, the
"Chapudi Coal Project") upon completion of its acquisition from the Vendors.
Rothe is a newly established company owned by Terracotta Processing (Pty) Ltd
("Terracotta"), Vibrant Veterans Minerals Resources (Pty) Ltd ("Vibrant"), both
BEE companies, and King Makhado Holdings (Pty) Ltd ("King Makhado"),
representing all communities in close proximity to the Chapudi Project.
Terracotta and Vibrant each own 30% of the entire issued share capital of Rothe
with the remaining 40% being held by King Makhado. The directors of Rothe are
Tirhan Joseph Mathebula, Vhutshilo Theopilos Muthurana and Mashudu Ramano.
Soutpansberg Coal Bed Methane Project
As previously reported, CoAL continues to advance its programme on the
development of the Coal Bed Methane Gas Project in the Soutpansberg coalfield.
Following completion of the registration in January 2012 of the Soutpansberg
Coal Bed Methane Gas Project with the United Nations ("UN") to participate in
the internationally accredited carbon credit program, in March 2012 a Project
Information Note (PIN) providing further details on the project was registered
with the Department of Energy. The UN designated verifiers have been contracted
to review all technical documentation regarding the gas utilization and
greenhouse reduction as part of the requirements for the disposal of methane gas
as part of the carbon credit program.
A trial site to initiate exploration has been identified and further technical
work on permeability and porosity has been commissioned. Planning for an
exploration program required to compile a JORC compliant resource over at least
50% of the property area is underway and is scheduled to commence in the second
half of 2012.
US$40 million New Bank Facility - JP Morgan Australia Limited
The remaining condition precedent for the previously announced US$40 million New
Bank Facility, was fulfilled post period end on 27 April 2012. The 364 day
senior unsecured revolving credit facility entered into with JP Morgan Australia
Limited, bears interest at the London Interbank Offer Rate (LIBOR) plus 300
basis points. No amount has been drawn down against the New Bank Facility at the
date of this report.
This facility is in addition to the US$50 million pre-export trade finance
facility concluded with Deutsche Bank in March 2010 and secured over the thermal
coal assets and production. As at 31 March 2012, US$32.5 million has been drawn
against this facility.
Litigation
The Share Sale Agreement ("SSA") dated 29 October 2009, whereby CoAL acquired
NuCoal Mining (Pty) Ltd, the company owning Woestalleen, included certain
withholding warranties and general warranties. In accordance with the SSA, 10%
of the purchase price (R65.0 million or approximately US$9.5 million) was
withheld in respect of potential claims under the withholding warranty
provisions. During the quarter, the Company entered into a settlement agreement
with the vendors whereby an amount of GBP3.0 million (approximately US$4.5
million), approximating 50% of the amount withheld, was paid to the vendors in
full and final settlement of the matter.
Corporate Activity
Work continues with the group restructuring and preparation for the migration of
the primary listing from the Australian Stock Exchange to the main market of the
London Stock Exchange. Further details will be provided to shareholders in due
course.
Cash and Available Facilities
At 31 March 2012, total available cash on hand and call deposits was US$55.8
million (FY2012 Q2: US$89.2 million), and total available loan facilities and
standby credit arrangements under existing facilities was US$19.0 million
(FY2012 Q2: US$12.0 million). The total cash balance, available and undrawn
facilities as at 31 March 2012 was US$74.8 million.
On a pro forma basis at 31 March 2012, taking into account the additional
undrawn US$40 million New Bank Facility, the total funding available to the
business was US$114.8 million.
Quarter on quarter, the amount drawn under the existing US$50 million Deutsche
Bank facility decreased from US$40 million at 31 December 2011 to US$32.5
million at 31 March 2011, with the repayment of US$7.5 million from funds on
hand. In addition, a one off payment of GBP3.0m (approximately US$4.5 million),
in relation to the settlement of the NuCoal litigation, was settled during the
quarter. Overall, this accounted for US$12.0 million of the total of US$33.4
million reduction in cash quarter on quarter
The Company`s funding requirements, excluding the funding of the Makhado Project
and the second phase expansion of the Vele Colliery, remains in line with its
original projections against which the US$106 million and US$40 million New Bank
Facility were raised in late 2011. Evaluation of alternative funding options for
the future development of the Makhado Project, net of the potential amounts to
be paid by Exxaro upon exercise of the option and co-funding of the project, and
the phase two capital expenditure and expansion of the Vele Colliery, are
ongoing.
Production, logistics and administration expenditure at the thermal operations
and corporate, will continue to be funded from cashflow generated by the
operations during the June quarter. Ongoing expenditure to ramp up Vele to full
production will be funded substantially in line with the capital raising
projections for the operation. Plans to accelerate the production of a thermal
coal product at Vele over the short term to generate cashflow to offset these
costs has commenced with the delivery of the first train for sale into the
export markets.
Projected exploration and development expenditure for the next quarter includes
drilling and analysis on samples from the Makhado Project, Greater Soutpansberg
Projects and Chapudi Properties and certain pre-Mining Right capital expenditure
required to be incurred on the Makhado Project to ensure the project timetable
remains on track. All exploration, evaluation and development capital
expenditure to be undertaken during the June quarter is anticipated to be funded
from available cash resources and undrawn facilities.
Authorised by
JOHN WALLINGTON
Chief Executive Officer
30 April 2012
Johannesburg
JSE Sponsor
J.P. Morgan Equities Limited
For more information contact:
John Wallington
Chief Executive Officer
Coal of Africa
+27 11 575 4363
Wayne Koonin
Financial Director
Coal of Africa
+27 11 575 4363
Shannon Coates
Company Secretary
Coal of Africa
+61 893 226 776
Chris Sim/ Jeremy Ellis/Neil Elliot
Nominated Adviser
Evolution Securities
+44 20 7071 4300
Jos Simson/Emily Fenton
Financial PR (United Kingdom)
Tavistock
+44 207 920 3150
Ruben Govender
JSE Sponsor
J.P. Morgan Equities Limited
+27 11 507 0430
Charmane Russell/James Duncan
Financial PR (South Africa)
Russell & Associates
+27 11 880 3924
+27 82 372 5816
www.coalofafrica.com
About CoAL:
CoAL is an AIM/ASX/JSE listed coal exploration, development and mining company
operating in South Africa. CoAL`s key projects include the Vele Colliery (coking
and thermal coal), the Makhado Project (coking coal) and the Mooiplaats and
Woestalleen Collieries (both thermal coal).
The Mooiplaats Colliery commenced production in 2008 and is currently ramping up
to produce 2 Mtpa. The Woestalleen Colliery, acquired through the acquisition of
NuCoal Mining (Pty) Limited in January 2010, currently processes approximately
2.5Mtpa of saleable coal for domestic and export markets. The Woestalleen
Complex also incorporates three beneficiation plants with a total processing
capacity of 350,000 run of mine feed tonnes per month.
CoAL`s Vele Colliery started commercial production in Q1 2012. During the
initial phase, the operation is targeting 2.7 Mtpa ROM production to produce
1.0Mtpa of saleable coking coal. The Makhado Project, CoAL`s flagship project in
the Soutpansberg coalfield, is well into the feasibility stage, with a
Definitive Feasibility Study having been reviewed by the CoAL Board in March
2012. An application for a New Order Mining Right for the Makhado Project was
submitted in January 2011.
In November 2010, CoAL agreed to acquire the Chapudi coal project and several
other coal exploration properties in the Soutpansberg coal basin in South Africa
from the previous owners, including Rio Tinto. Upon completion, the acquisition
of these projects will significantly extend the scale and scope of certain of
CoAL`s existing projects in the region and will more than double the resource of
the existing Makhado Project.
Date: 30/04/2012 09:29:17 Produced by the JSE SENS Department.
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