SHARES in Coal of Africa Limited (CoAL) leapt more than 10 percent yesterday, after the junior coal producer announced that it had agreed to settle current and future liabilities until 2016 for underutilisation of its export allocation at the Matola terminal in Maputo.
CoAL said it would pay Grindrod Corridor Management and Terminal De Carvao Da Matola $10 million (R106.9m) to cover its current liabilities and settle all future take or pay obligations until December 31, 2016.
Chief executive David Brown said the company had assessed its funding options, which included the recently announced equity raising and the sale of its non-core assets.
CoAL said on Tuesday that it would raise up to £38.225 million (R677.3m) through the issue of 695 million new shares at 55p a share, which was a premium of 101.5 percent to the closing mid-market price on the London Stock Exchange’s AIM board on Friday.
“The equity raise will enable the company to free itself from these legacy issues and start the process of rebuilding value,” Brown said.
CoAL is a producer of thermal and coking coal and is constructing the Makhado colliery in Limpopo. It signed a throughput agreement with the Matola terminal operator in 2008, in which it was granted 1 million tons of capacity a year starting in 2009.
The capacity was increased to 3 million tons a year in 2010 and CoAL was obliged to take up 2.25 million tons a year.
CoAL said its turnaround strategy, which included the halting of production at Vele in anticipation of a plant modification and closure of Mooiplaats colliery before its sale, had resulted in the company producing no coal, and exposed it to its take-or-pay obligations.
“The company partially mitigated this exposure by ‘sub-leasing’ to third parties, but as a result of the differential in rail costs between the Maputo and Richards Bay rail corridors, was unable to totally offset its 2.25 million tons a year obligation,” it said.
The $10m payment would be made in two tranches, $6m and $4m respectively, and would settle the current liabilities and cover future take-or-pay obligations until December 31, 2016.
“The potential take-or-pay liability for these periods would have been significant, assuming an annual take-or-pay obligation of 2.25 million tons a year, and this settlement will materially mitigate any future exposure,” the company said.
Brown said the agreement demonstrated management’s continued execution of the turnaround strategy in resolving all material legacy issues.
According to CoAL’s 2013 annual report, under the Matola agreements it will pay for 75 percent of its contracted port allocation, regardless of whether it is utilised.
The shares leapt 13.56 percent to close at 67c yesterday.