Coal of Africa reports US$46.3 million loss

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Coal of Africa Limited is pleased to provide a copy of its Interim Financial Statements for the six months ended 31 December 2013.

“The period reflects the Company’s transition to a project development company. The execution against the five point turnaround strategy yielded positive results. The company has fared well considering the current coal commodity market as well as the wholesale changes that have been needed to ensure your Company is in a position to realise the significant upside potential embodied in its coal resources,” says David Brown, Coal of Africa CEO.

Financial review

The loss for the six months under review amounted to US$46.3 million, or 4.42 cents per share compared to a loss of US$111.7 million, or 14.39 cents per share for the prior corresponding period.

The loss for the period under review of US$46.3 million (2012 H1: US$111.7 million) includes non-cash charges of US$30.3 million (2012 H1: US$96.1 million) as follows:

Mooiplaats impairment loss of US$16.5 million (US$50.0 million in the six months ended 31 December 2012);

net foreign exchange losses of US$12.6 million (2012: US$19.9 million) arising from the translation of inter-group loan balances, borrowings and cash due to changes in the ZAR:AUD exchange rate during the period;

depreciation of US$0.7 million (2012: US$9.8 million) and amortisation of US$0.5 million (2012: US$9.4 million) contributed further to the non-cash charges.

– Loss of nil due to the discount on early settlement of the Grindrod receivable (2012: US$2.7 million);
– Loss of nil (2012: US$4.3 million) on the fair value adjustment of the Investec equity derivative financing package.

As a result of the exclusion of impairment losses from the headline earnings calculations, the headline loss per reduced from 7.95 cents in the prior corresponding period, to 2.85 cents per share during the six months under review.

As at 31 December 2013, the Company had cash and cash equivalents of US$4.2 million compared to cash and cash equivalents of US$29.9 million at 30 June 2013.

Highlights and events after the reporting period

On 31 January 2014, the Department of Mineral Resources (DMR) granted Section 11 approval in terms of the MPRDA for the disposal of Woestalleen Complex. The sale consideration of ZAR80 million (US$7.6million) was received on 6 March 2014.

David Brown was appointed as Chief Executive Officer (CEO) and Executive Director and Bernard Pryor was appointed Chairman, effective 1 February 2014.

Appointment of Sedgman as the engineer for the FEED of the Vele Colliery plant modification.


Principal activity and nature of operations

The principal activity of the Company and its subsidiaries is the acquisition, exploration and development of thermal and metallurgical coal properties in South Africa.

The Company’s principal coking and thermal coal assets and projects include:
The near-term development project, the Vele Colliery;
The Makhado Project and the Greater Soutpansberg Project (“GSP”) comprising three exploration stage coking and thermal coal projects, namely The Chapudi, Mopane and Generaal Projects; and
Two non-core thermal assets, the Woestalleen and Mooiplaats collieries which are classified as ‘Operations held for sale’.

Review of Operations

The Company’s focus on safety continued and no lost time incidents (LTIs) were recorded during the six month period.

The restructuring of CoAL continued during the period and resulted in the disposal of the Woestalleen Complex near Middelburg in Mpumalanga.

The Company satisfied suspensive conditions of the transaction and by the end of December 2013, only the conditions requiring regulatory approval were outstanding. This was received at the end of January 2014 with the flow of funds in March 2014.

The Opgoedenhoop New Order Mining Right (“NOMR”) previously formed part of the Woestalleen Complex and was subject to a separate disposal process.

The Company is awaiting regulatory approval for the transaction, expected in Q1 CY2014.

The Mooiplaats Colliery, near Ermelo in Mpumalanga was placed on care and maintenance in August 2013, at which time it was producing Eskom quality coal only.

The colliery is undergoing a formal disposal process which is expected to be completed during CY2014. During December 2013 the Company agreed to sell the Holfontein thermal coal project near Secunda, also in Mpumalanga, and received an option fee of ZAR5 million (US$0.5 million) for a one year option, extendable for further periods on the payment of additional option fees.

The Company expects the buyer to exercise its option in CY2014 and once legislative approval for the transaction is granted, the purchase price of ZAR50 million (US$4.8 million) will become payable to CoAL.

During the six months ended December 2013, CoAL converted its interest in ASX listed Lemur Resources Limited into Bushveld Minerals Limited shares.

CoAL will dispose of these shares in 2014.

In addition, CoAL undertook processes to decrease overhead costs which included a reduction in staff numbers at its corporate office as well as its projects. These processes were completed by July 2013 and together with the relocation of the corporate office in Johannesburg, resulted in significant cost savings.

A further step in the turnaround strategy required the confirmation of the Vele Colliery coal quality. During the period the Company supplied samples of semi-soft coking coal to ArcelorMittal South Africa Limited (AMSA) for tests in their coke batteries. The semi-soft coking coal test results were favourable, meeting all of AMSA’s technical requirements and in January 2014 the Company received a Letter of intent for the supply of coal.

Both AMSA and CoAL wish to convert the letter of intent into a formal off-take agreement dependent on agreement on pricing parameters.

Furthermore Eskom, the state power utility, successfully undertook combustion tests on Vele thermal coal and the parties are to hold further discussions with regards to a potential off-take agreement.

In terms of South African mining legislation, the Company requires a 26% Black Economic Empowerment (BEE) shareholding for its mining and exploration projects.

The Company is at an advanced stage of finalising agreements to enable a broad based BEE consortium, including communities and future employees, to acquire 26% of the Makhado Project.

The company estimates the Makhado Project Net Present Value to be in excess of ZAR6.9 billion (US$ 656.9 million) and is planned to produce over two million tonnes per annum (Mtpa) of hard coking coal and over three Mtpa of Eskom quality thermal coal.

The construction of the project, including ramp-up, is expected to take 26 months commencing in CY2015 and has an initial life of mine of 16 years. The inclusion of a BEE shareholder ensures that the project has the requisite corporate structure for the granting of the NOMR and in time, the Makhado Project will benefit one of the least economically developed areas in South Africa.

Current and future funding

During the reporting period the balances outstanding under the Deutsche Bank trade finance facility and the Investec Bank Limited (Investec) derivative facility were repaid. Furthermore the Company secured a ZAR210.0 million (US$20.0 million) facility from Investec in October 2013 and has drawn ZAR107.0 million (US$10.2 million) of this for general working capital requirements. The Investec facility will be repaid using the proceeds from the disposal of non-core assets.

The Company has a long-term project pipeline and the modification of the Vele plant and the development of the Makhado Project will be followed by the development of the GSP project areas. The development of the Company’s significant coking and thermal coal resources is expected to be funded by a combination of debt and equity.

Outlook

Good progress has been made on all elements of the turnaround strategy.

The placement of the loss making Mooiplaats Colliery on care and maintenance and the commencement of a formal sales process, as well as the disposals of the Woestalleen Complex, Holfontein project and Bushveld investment are at various stages of completion and are all expected to be completed during CY2014.

CoAL is in the process of re-negotiating its take or pay port obligations and this is expected to be completed by the end of H1 CY 2014.

The confirmation of the Vele Colliery semi-soft coking coal qualities by AMSA could, subject to the requisite funds being raised, result in the commencement of the project’s processing plant modifications, expected to be completed in H1 CY2015.

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