Shares in Coal of Africa slipped 10% yesterday to ZAR 3.30/share on news that it suffered losses at its thermal coal mines, and would have a funding shortfall of USD 15.7 million in the September quarter, notwith standing having raised USD 58.7 million in cash and debt through Investec. The share decline is now 55% since January.

Miningmx reports that if these fourth-quarter results show anything, it’s that CoAL is caught mid-stride between its thermal coal mining and its new strategy of becoming the dominant coking coal producer in the Limpopo province. The sudden decline in the thermal coal price has caught CoAL’s management by surprise and also reveals how little flexibility there is left in its Mpumalanga assets.

Miningmx said that it needs to bridge the shortfall. Enter Exxaro Resources. There’s talk that Exxaro is keeping a close watch of platinum assets, or possibly mulling diversification into copper. But neither could be as compelling right now as a dip at CoAL which, for Exxaro, must be a screaming buy.

That’s why deliberations to take a 30% stake in CoAL’s Makhado coking coal resources must surely be a paperthin pretext for a larger discussion regarding the takeover of the company as a whole, it adds. In Exxaro’s hands, especially with a balance sheet so lowly geared (4%) and some ZAR 8 billion in finance, CoAL would represent a logical, affordable piece of brownfields business.

Source - Miningmx

(www.coalguru.com)