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CoAL loans for Makhado have been secured

Companies
Johannesburg - The delayed start-up of Coal of Africa’s (CoAL’s) Makhado development project in Limpopo reflected the complex environment in which South African mining companies operated, CoAL said on Friday.

The company is developing the flagship Makhado project which will produce hard coking and thermal coal through open cast mining. Hard coking coal is used in the steel making process.

In the report, CoAL said an interim court interdict to halt any mining or construction activity issued against CoAL during the second quarter of 2014 remained in place. It said construction would resume as soon as all regulatory approvals were in place. The company has previously said that it intended to commence construction in calendar year 2018, subject to board approval.

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AP Photo/Nati Harnik, file

During the course of the 2016 financial year, CoAL received a 20-year integrated water use licence for the Makhado Project. But the Vhembe Mineral Resources Forum appealed the decision and the Department of Water and Sanitation automatically suspended the licence. “Representation has been made to the Minister of Water and Sanitation and the Water Tribunal to progress the final conclusion of the appeal,” the company said.

CoAL said it was currently seeking surface rights for the Makhado project, a process which it said was complicated as current surface rights were subject to land claims. The project is located over five farms.

CoAL has secured a loan of up to R240 million from the Industrial Development Corporation (IDC) to fund its Makhado development project in the Soutpansberg coalfields in the Makhado Municipality in Limpopo, the company said.

In a report for the quarter ended March 31, CoAL said the state-owned IDC would advance the R240 million to its subsidiary, Baobab Mining and Exploration. The IDC would pay the loan in two tranches of R120 million. Each tranche had a three-year repayment period and accruing interest at a real after-tax rate of 16 percent a year, CoAL said.

As part of the deal, the IDC had the right to appoint one director to the Baobab board and to be a member of the Makhado project’s steering committee during the loan repayment period.

Read also: Coal of Africa gets nod to transfer Makhado

In a bid to complement the Makhado project, CoAL last month announced the acquisition of the Uitkomst colliery from Pan African Resources for R275m. At the time, CoAL said the acquisition would enhance cash generation. Uitkomst is a high grade thermal export quality coal deposit, which is situated in the Utrecht coalfields in KwaZulu-Natal.

“The Uitkomst acquisition represents a highly compelling and attractive value proposition that CoAL believes to be value accretive and which will provide cash flows to support CoAL as the company continues to progress the Makhado project,” the company said. CoAL said Uitkomst had a net asset value of R209 million and made operating profits of R21.3 million for the six months ended December 31.

CoAL chief executive David Brown said the quarter to March 31 delivered “overdue good news” for CoAL and cited the successful acquisition of the Uitkomst Colliery, securing the IDC funding; and the completion of the Holfontein Mining Right transfer.

“The company is making good progress toward re-entering the market as a coal producer,” said Brown.

CoAL’s shares on the JSE on Friday closed unchanged at 50 cents a share.

BUSINESS REPORT

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