[miningmx.com] – THE bidding contest between Coal of Africa (CoAL) and IchorCoal, a firm listed in Germany, over a third company – Australia’s Universal Coal – seems to have ended after IchorCoal declined to extend its cash offer.
This leaves CoAL in pole position to conclude its $89m bid for Universal Coal which will be completed by means of a reverse takeover. A meeting of CoAL shareholders was been scheduled for March 3 but the offer has since been extended.
Meanwhile, the rancour between CoAL and IchorCoal lingers on.
David Brown, CEO of CoAL, responded irritably to insinuations by IchorCoal that his firm didn’t have the firepower to support the takeover of Universal Coal, a company which has lined up about four million tonnes of thermal coal production from South Africa’s Mpumalanga province.
Nonkululeko Nyembezi-Heita, CEO of IchorCoal, said it would be “helpful” to shareholders assessing CoAL’s offer if further detail was provided about the debt burden CoAL will assume. Based on pro forma financial results provided by CoAL, it would have gross debt of $100m before interest with “significant near term repayments’. This compares to only $59m in available cash, she said.
Given CoAL’s project development obligations and forecast near-term cash flow, Nyembezi-Heita said further detail on CoAL’s ability to service this debt burden would be useful to shareholders, especially as both CoAL and Universal have significant project pipelines including the New Clydesdale Colliery (NCC), that Universal bought from Exxaro Resources.
“Taking into account Universal’s own project development activities at NCC, as well as its own debt service obligations, IchorCoal does not anticipate that Universal will pay material dividends, if any, in the near term to contribute to CoAL meeting its project development and debt obligations,” she said. Universal Coal had negative net operating cash flows of A$2m ($1.41m) in the half-year ended December 31.
“[It] has never declared a dividend and has not announced an intention to declare a dividend in the near term,” said Nyembezi-Heita, who was also critical of the fact that Universal had not yet signed a long-term coal supply agreement with Eskom.
Brown said CoAL would consolidate Universal Coal which would allow it to use the proceeds of its own cash flow to pay for capital obligations. In addition, CoAL was partly funding the takeover through convertible loan notes, not just cash. It was also raising its own cash in the process and was unlikely to tap its own cash pile, he said.
Still, it’s worth noting that IchorCoal is a shareholder in Universal Coal by dint of a shares-for-cash investment in 2014 giving it a stake of 29.99%. CoAL will need IchorCoal to agree to its offer for the takeover to fully take effect.
Brown doesn’t think this will be a problem as CoAL’s offer far exceeds the level IchorCoal was prepared to pay for the company. “It’s in the interests of both shareholders to extract value from Universal Coal,” he says.
One final point is that Nyembezi-Heita will have to decide whether it makes sense to have the Universal Coal investment when she wants her company to become a sizeable operator.
She said in 2015 that current conditions supported the consolidation of South African coal production and that IchorCoal wanted to play a role in the process building a portfolio of up to 15 million to 20 million tonnes/year.
