JUNIOR coal producer Keaton Energy’s securing of a R350 million financing facility from Investec Bank would give it financial flexibility and reduce the cost of capital, the JSE-listed firm said yesterday.
Keaton rose as high as R2.95 but closed unchanged at R2.88 yesterday after it announced the R350m facility, comprising a R300m term loan and a R50m working capital facility.
Keaton expects to allocate R170m of the term loan to replace the financing that was issued in 2011 for the construction of its Vanggatfontein coal washing plant and ancillary facilities in Mpumalanga. The other R130m of the term loan was used to fund the acquisition of Xceed Resources, and the R50m working capital facility is available for general purposes.
“We are pleased to have concluded this important financing at a time when Keaton is in a strong growth phase,” chief executive Mandi Glad said.
“We will conclude the Xceed acquisition on an all-cash basis as announced previously and, importantly, the replacement of the Vanggatfontein project finance debt with a term loan provides us not only with greater financial flexibility within the Keaton group but also reduces our cost of capital,” she added.
The facility is in line with Keaton’s strategy to grow into a 5 million ton a year producer through exploration and acquisitions in the medium term.
“The availability of a further R50m facility, coupled with our growing cash reserves, positions Keaton to take advantage of any opportunities that may arise in the market,” Glad added.
Imara SP Reid equity research analyst Sibonginkosi Nyanga said the acquisition of Australian-owned Xceed would boost Keaton’s resources.
“I think it is a good deal, because the Xceed resources will add into the already existing Keaton resource,” Nyanga said.
Xceed holds an interest in three South African coal projects – Moabsvelden, Roodepoort and Bankfontein. Keaton previously said Roodepoort had a 29.3 million ton resource, Bankfontein had 13.7 million tons of underground coal and Moabsvelden had 65.3 million tons of thermal coal.
Keaton operates the Vanggatfontein and Vaalkrantz collieries and has three development projects – Koudelager, Braakfontein and Sterkfontein.
It is also set to benefit from the completion of Eskom’s power stations and strengthening thermal coal prices.
In its 2013 annual report, the company said it had identified 16 potential acquisitions, screened 13 and examined 10 in detail. It said four of the acquisitions would go ahead.
In the six months to September last year, Keaton’s revenue increased 70 percent to R710m, compared with R417m in the corresponding period of 2012.
Most of this increase was due to improved performance at Vanggatfontein for thermal coal deliveries to Eskom, where revenue increased 98 percent, and metallurgical coal sales to the local market, where revenue rose 84 percent.