Johannesburg - Coal of Africa (CoAL), the emerging coal development company operating in Limpopo, is considering participating in the government’s independent power producer (IPP) programme, which is expected to produce more than 3 000 megawatts of electricity.
The triple-listed coal producer’s shares closed 5.77 percent down at 49 cents on the JSE yesterday.
David Brown, the chief executive of CoAL, said yesterday that the company felt it made sense to participate in a local IPP in the province, where the bulk of its coal resources were found.
He said he had previously signalled that an IPP was necessary as weak coal prices and the lack of a contracted domestic market were weighing heavily on the economics of its Vele colliery in Limpopo.
“There is a round of IPP coming. We are assessing whether to enter that round to become part of the process going forward,” Brown said. “We have not settled on a final position, but the primary goal is to find a home for our coal in light of the price environment.”
The planned IPP comes as the group’s losses widened in the six months to December as the weak exchange rate affected the balance sheet.
The company said losses had widened to $14.3 million (R217.4m), or 0.76 US cents per share compared with a loss of $0.8m, or 0.07 US cents per share. It paid no dividends in the period under review.
Brown called on the government to intervene by ensuring the regulatory environment “is sleek”, and that there were no delays in moving forward.
CoAL’s portfolio comprised Vele, and the Greater Soutpansberg Project, which includes Makhado.
The company is selling its Mooiplaats thermal colliery as part of its turnaround strategy, which is vital to its survival.
However, Brown said given the low price environment, potential buyers had run into difficulties in obtaining credit, and CoAL could look at potentially selling a stake of Mooiplaats to an empowerment company.
“Our option two for Mooiplaats is something we are beginning to develop. Given that the domestic market is robust, we are looking at a model where we will sell a stake in Mooiplaats to a black empowerment operator,” he said.
“We have looked at signing a memorandum of understanding with certain parties,” Brown added.
The company said yesterday that among the highlights in the period was that the government had renewed the integrated water use licence for its Vele operation for a further 20 years, while the licence for the Makhado project had been granted for a period of 20 years.
CoAL signed a memorandum of agreement to enable an empowerment consortium comprising seven local communities to acquire a 20 percent interest in its flagship project, Makhado. It had also identified suitable empowerment shareholders to acquire a further 6 percent stake in the project.
“These transactions have been formalised and will ensure that the Makhado project has the requisite ownership structure,” Brown said.
Another highlight was that CoAL had entered into a non-binding memorandum of understanding with Beijing-headquartered industrial conglomerate Qingdao Hengshun Zhongsheng Group. The Chinese group had proposed to acquire up to 34 percent in its subsidiary Baobab, which owns the mining right for the Makhado project.