Coal of Africa eyes Universal

Coal of Africa's Mooiplaats plant. Picture: Supplied

Coal of Africa's Mooiplaats plant. Picture: Supplied

Published Nov 27, 2015

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Johannesburg - The shares of Coal of Africa Limited (CoAL) rocketed yesterday on news of its A$126.4m (R1.3 billion) bid to take over Universal Coal.

The news caused CoAL stock on the JSE to climb by as much as 22 percent before closing 14.81 percent higher at 62c, valuing the company at R1.2bn.

CoAL’s desperate move to acquire cash-generating Universal comes after it sold four of five operating assets and placed the Mooiplaats mine on care and maintenance as part of a turnaround plan to boost its balance sheet.

The company has been rocked by the rapid fall in global coal prices that squeezed the industry and has previously had run-ins with communities and the government for environmental compliance.

The offer was backed by the Universal board and came three months after German listed IchorCoal announced its plan to take over Universal.

Speaking to journalists during a conference call after the announcement yesterday, CoAL chief executive David Brown said the combined entity was likely to create an enlarged South African coal producer with significant resources that could attract additional investors and provide access to capital and opportunities for growth.

‘Compelling offer’

“The combination of Universal’s producing assets and CoAL’s development portfolio, coupled with the excellent shareholder support, ensures that the merger, as a first of its kind in the South African coal industry, will not be the last. We see the enlarged group as a springboard to creating a new coal mining force,” he said.

CoAL had received signed statements of intent to accept the offer from Universal shareholders including Coal Development Holdings, Universal’s second-largest shareholder with a stake of about 28.4 percent of Universal’s total issued share capital.

Universal chief executive Tony Weber said: “This is a compelling offer that immediately crystallises value for our shareholders, yet allows shareholders to retain exposure to the new consolidated group. Looking ahead we see exciting times for the merged group.”

Universal has a portfolio of producing and exploration assets including the Kangala mine in Witbank, which produces an average of 2 million tons of thermal coal a year, primarily for the domestic market, and the New Clydesdale Colliery, which was under development and the output of which is likely to be 1.5 million tons next year.

Brown said the company was pinning its hopes on Universal to plug the cash generation and production gap.

“The acquisition of Universal will provide CoAL with immediate coal production and cash flow as well as a diversified portfolio of production, development and exploration projects with expected synergies to the existing CoAL business,” he said in a statement.

“Our mantra has always been to look for assets that are in production, near production or that are cash generative,” Brown said.

He did not anticipate any job losses.

“The workforce in both companies are complimentary, we do not foresee a significant reduction in wage costs,” Brown noted.

Brown said he believed that the offer was compelling for both CoAL and Universal shareholders.

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