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Report for the quarter ended 31 December 2015
Coal of Africa Limited
(Incorporated and registered in Australia)
Registration number ABN 008 905 388
ISIN AU000000CZA6
JSE/ASX/AIM share code: CZA
("CoAL or the "Company" or the "Group")
ANNOUNCEMENT 28 January 2016
REPORT FOR THE QUARTER ENDED 31 December 2015
Progress on Regulatory Licenses and the acquisition of Universal Coal
Coal of Africa Limited (“CoAL” or “the Company”) which operates in South Africa, together with its
subsidiaries, hereby provides its update for the quarter ended 31 December 2015. All figures are denominated
in United States dollars unless otherwise stated. A copy of this report is available on the Company's website,
www.coalofafrica.com.
Salient Operational Features
- No lost-time injuries (“LTIs”) recorded during the quarter (FY2016 Q1: nil).
- The Integrated Water Use Licence (“IWUL”) for its Vele Colliery in the Limpopo Province has been
renewed for a further twenty years.
- IWUL for its Makhado Project has been granted by the Department of Water and Sanitation (“DWS”) for a
period of 20 years.
- The South African Minister of the Department of Environmental Affairs (“DEA”), has dismissed the Appeal
against the Environmental Authorisation (“EA”) Amendment for the Vele Colliery in the Limpopo Province.
- The Company awarded the Optimisation Study and Front End Engineering and Design (“FEED”) package
for Makhado Colliery to DRA Project South Africa (“DRA”).
- The Company signed a non-binding Memorandum of Understanding (“MOU”) with Qingdao Hengshun
Zhongsheng Group Co Ltd (“Hengshun”) with respect to a proposed equity investment in Baobab Mining
and Exploration (Pty) (“Baobab”) a subsidiary of CoAL. Baobab is the subsidiary of CoAL that owns the
Mining right for the Makhado Project.
Corporate and Financial Features
- The Company agreed the terms of a recommended Offer to be made by CoAL for the entire issued and to
be issued share capital of Universal Coal Plc (“Universal”).
- Available cash at period end was US$31.1million and restricted cash of $1.018 million.
Commenting today, Mr David Brown, Chief Executive Officer said: “The regulatory progress and project
development achievements during the last quarter have reiterated the Company’s commitment to the
execution of its short and medium term strategy. The MOU with Hengshun is an important milestone in the
identification of a strategic investor for the development of the Company’s flagship Makhado Project.
Hengshun has commenced due diligence on the Makhado Project and has expressed its interest to acquire
an interest in the project and provide facilitated debt. In addition the potential acquisition of Universal will
transform the Company into a mid-tier producer”
QUARTERLY COMMENTARY
Makhado Coking Coal Project – Soutpansberg Coalfield (100% owned - 74% post BBBEE transaction)
The Makhado Project recorded no LTIs (FY2016 Q1: nil) during the quarter.
Makhado’s 26-month construction phase is expected to begin during H2 CY2016, with a further four month
ramp-up phase resulting in the production of 5.5 million tonnes per annum (“Mtpa”) of saleable product.
During the quarter the Optimisation study and FEED was awarded to the International engineer and project
delivery group DRA. The study follows on the original works performed by DRA during the Definitive
Feasibility Study completed in 2013 and includes the infrastructure components of the project, and also the
integration of the work of a number of specialist consultants.
The Company has officially been granted an IWUL for a period of 20 years concluding all regulatory approvals
for the Makhado Project. The award of the IWUL for Makhado further signifies government’s commitment to
the flagship project, and its potential to foster socio economic transformation.
An interim court interdict seeking to halt any mining or construction activity was issued against the Makhado
Project during Q2 FY2014. The matter was heard in the North Gauteng High Court on 3 December 2015 with
judgement handed down on Tuesday 8 December 2015 on two matters. The first relates to the condition to
compel CoAL to conduct a Strategic Regional Impact Assessment and secondly a review of the
Environmental Authorisation. The condition compelling CoAL to conduct a Strategic Regional Impact
Assessment has been set aside. The interim interdict against the Environmental Authorisation remains in
place pending the review of the authorisation.
CoAL does not anticipate that the process will affect Makhado’s construction timetable.
Mooiplaats Colliery – Ermelo Coalfield (74% owned)
The Mooiplaats thermal coal colliery was placed on care and maintenance during the September 2013 quarter
and recorded no LTIs during the period (FY2016 Q1: nil).
During the quarter the Company continued discussions with other potential purchasers and is assessing
options regarding a transaction at the colliery.
Vele Colliery – Limpopo (Tuli) Coalfield (100% owned)
The Vele coking and thermal coal colliery (“Vele Colliery”) recorded no LTIs during the quarter (FY2016 Q1:
nil).
The original Vele Colliery IWUL, valid until March 2016, has been renewed for a further 20 years, and also
amended in line with the requirements for the Plant Modification Project (PMP) at the Colliery.
During H2 2015, the Company commenced a process to obtain approval relating to a non-perennial stream
diversion. This decision is anticipated in H2 2016. Once this regulatory approval in respect of the Colliery has
been received, the final decision to proceed with the PMP will be placed before the board, which will include
an assessment of forecast global coal prices.
Greater Soutpansberg Project (MbeuYashu) (74% owned)
The MbeuYashu Project recorded no LTIs (FY2016 Q1: nil) during the period.
No other significant matters to report.
Corporate
During the quarter the Company entered into a MOU with Hengshun with respect to a proposed equity
investment in Baobab a subsidiary of CoAL. Baobab is the legal owner of the mining right for the Makhado
Project. Hengshun is an industrial conglomerate incorporated in Qingdao, Shandong Province, China and
listed on the Shenzen Stock Exchange.
The current MOU includes the following commercial considerations:
1) Hengshun proposes to acquire up to 34% of Baobab at a mutually agreed consideration. The
preliminary terms of negotiation between both parties are based on an indicative cash acquisition
price of approximately US$113.94 million which implies a Makhado Project value of at least US$335
million. The final transaction valuation would be subject to both parties’ negotiation, a valuation report
issued by an internationally reputable accounting firm and the conclusion of a formal subscription and
sale agreement between both parties.
2) The proposed equity investment is subject to an Engineering, Procurement and Construction contract
(“EPC”) being awarded to Hengshun. The value of the EPC contract is approximately US$400 million,
but will be confirmed by the completion of a Front End Engineering and Design which will be
completed in H1 CY 2016.
3) The equity investment is subject to a formal due diligence process as well as approval of the
transaction from both the CoAL and Hengshun boards respectively.
4) The 34% equity investment will entitle Hengshun to nominate a to be agreed number of directors to
the board of Baobab, but the effective management of Baobab and operatorship of the Makhado
project will remain the responsibility of CoAL.
5) A debt package may also be provided by Hengshun on commercial arm’s length terms.
6) Hengshun has the right to match any alternative proposals for the provision of the mining contract.
7) The MOU is a non-binding document which is also subject to CoAL shareholder and any other
necessary regulatory approvals.
In November 2015 the Company announced the terms of a recommended Offer to be made by CoAL for the
acquisition of Universal Coal. The Company has previously communicated its intention to acquire a cash
generating project to boost the Company cash flow during the construction of the Makhado Project. The
Universal transaction has been identified as a value enhancing investment and will provide the enlarged group
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. Successful completion of the
Offer will create a balanced and focused South African coal miner.
CoAL has received signed statements of intent to accept the Offer from Universal Shareholders (including the
Independent Universal Directors) in respect of 202 768 708 Universal Shares, representing 40.1 per cent. Of
Universal's total issued share capital, including Coal Development Holdings B.V., Universal's second largest
shareholder with an interest of approximately 28.4% of Universal's total issued share capital. Each of these
Universal Shareholders has also stated their intention to elect for the Loan Note Alternative in respect of their entire
holding of Universal Shares. The Company has agreed that it requires a minimum of 50.1% acceptance of the offer
in order for the acquisition to be committed.
Authorised by
David Brown
Chief Executive Officer
For more information contact:
David Brown Chief Executive Officer Coal of Africa +27 10 003 8000
De Wet Schutte Chief Financial Officer Coal of Africa +27 10 003 8000
Celeste Riekert Investor Relations Coal of Africa +27 10 003 8000
Tony Bevan Company Secretary Endeavour Corporate Services +61 08 9316 9100
Company advisors:
Jos Simson/Emily Fenton Financial PR (United Kingdom) Tavistock +44 20 7920 3150
Matthew Armitt/Ross Allister Nominated Adviser and Broker Peel Hunt LLP +44 20 7418 8900
Charmane Russell/Olwen Auret Financial PR (South Africa) Russell & Associates +27 11 880 3924 or
+27 82 372 5816
Investec Bank Limited is the nominated JSE Sponsor
About CoAL:
CoAL is an AIM/ASX/JSE listed coal exploration, development and mining company operating in South Africa. CoAL’s key projects
include the Vele Colliery (coking and thermal coal), the Greater Soutpansberg Project /MbeuYashu, including CoAL’s Makhado Project
(coking and thermal coal).
AU: Coal of Africa Limited, Suite 8, 7 The Esplanade, Mount Pleasant, Perth WA 6153, Australia, Tel: +61 8 9316 9100, Fax: +61 8 9316 5475
ZA: South Block, Summercon Office Park, Cnr Rockery Lane and Sunset Avenue, Lonehill, 2191, Tel: +27 10 003 8000 Fax: +27 11 388 8333 Email: adminza@coalofafrica.com
Bernard R. Pryor – Chairman, David H. Brown – Chief Executive Officer, De Wet O Schutte
Non-executive directors: Peter G. Cordin, Andrew D Mifflin, Khomotso B. Mosehla ,Thabo F Mosololi, Rudolph H.
Date: 28/01/2016 09:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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