Capital shortages keep junior coal firms in crisis

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Johannesburg - Junior coal companies operating in South Africa are in the midst of a crisis as a shortage of capital weighs heavily on stock prices, with analysts predicting a consolidation of operations.

“Some of the junior coal companies that are undercapitalised will have to sell their resource. Some miners have to look for capital somewhere and one cannot rule out the possibility of consolidation,” Sibonginkosi Nyanga, a mining analyst at Imara SP Reid, said.

Foreign-owned companies, mainly listed in Canada and Australia, are coming under pressure to dispose of their South African assets.

“If the coal price does not increase from these levels, several juniors will have no choice but to consolidate. Operating conditions are challenging and working capital pressures are intensifying,” an analyst who did not wish to be named said on Friday.

This year was likely to be tough for junior coal producers considering the depressed pricing environment.

“Most of them are losing cash in the current environment and need the coal price to increase materially to start making profits,” the analyst added.

Australian-listed Continental Coal, which was to have debuted on the JSE in November last year, suspended its share while it ironed out the $15 million (R162m) bond that is said would mature by February.

Continental Coal, which is 16.25 percent owned by JSE-listed junior gold producer Village Main Reef, expected to update stakeholders on its recapitalisation programme today, it said last week.

In addition, the company said it had made progress in its discussions with bondholders, and had appointed a financial adviser to conduct a solvency review of its overall funding and restructuring strategy.

Forbes & Manhattan Coal, which operates the Magdelena and Aviemore collieries in KwaZulu-Natal, is also under financial heat.

It has received permission from the Toronto Stock Exchange to rely on a financial hardship exemption in connection with the $4m bridge loan portion of a larger financing package worth up to $25m to be provided by Resource Capital Funds.

Forbes had applied to the bourse to exempt it from the requirement to obtain shareholder approval for any or all of the financing aspects, due to its financial hardship, early this month.

Forbes Coal’s share declined dramatically last year to C$0.12 (R1.19) on the Toronto Stock Exchange. It closed unchanged at R3.49 on the JSE on Friday.

Meanwhile, the Australian and London-listed Coal of Africa Limited (CoAL), which dropped 10.4 percent on the JSE last month, reflected the subdued sentiment in the coal sector. CoAL had earlier announced its plan to sell five non-core assets. The company is moving ahead with the development of its coking coal project in Makhado, in the Soutpansberg.

It previously announced that it expected to raise $406m in capital funding and introduce a broad-based black empowerment group to the project.

Juniors Keaton Energy and Wescoal are gaining momentum on the JSE.

“Their market is secure as they supply most of their product to Eskom, and the completion of the power stations will mean business for both firms,” Nyanga said.


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