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UPDATE - Coal of Africa issues shares at 100% premium



Coal of Africa (LON:CZA) is to raise around £38.2mln through a placing of shares at double the prevailing market price.

The company is to issue 695mln shares at 5.5p per share, prompting the shares to shoot up 0.625p to 3.35p in early deals on Tuesday.

The share placing is being supported by existing major stakeholders, Haohua Energy International (Hong Kong) Resource, M&G Investment Management, and Investec Asset Management (Proprietary), while TMM Holdings is coming on board for the first time as a major shareholder, as it is subscribing for 215mln shares.

The company said the decision to raise funds was made for a number of reasons: the delay in, and reduction in the size of, the expected consideration for the sale of the Mooiplaats colliery; additional costs incurred to complete the product testing at the Vele Colliery for ArcelorMittal South Africa Limited; the company only partially mitigating its take-or-pay obligations under the throughput agreement between the company, Terminal De Carvao Da Matola Limitada and Grindrod Corridor Management Proprietary Limited after the Mooiplaats Colliery was placed in care and maintenance mode; and the cessation of production at the Vele Colliery in anticipation of the plant modification.

The final payment for the acquisition of the assets comprised in the Greater Soutpansberg Project, which represent access to more than 1.6 billion tonnes in situ, is also now payable. The company has been negotiating to defer this payment until it is cash generative, but agreement on this has not yet been reached and the payment is now due.

“It is important for CoAL to raise these funds to commence the value creation process,” said David Brown, the chief executive officer of the Limpopo-focused mining company.

“The short term plan relates to the plant modification at the Vele Colliery. Vele Colliery is a ‘brownfields’ project, which implies less time and risk to develop the asset compared to a ‘greenfields’ project, and has the potential to become CoAL's near term cash generator. This would enable CoAL to move forward and develop its medium term project, Makhado.

“The intention is that this project will be funded at the project level by debt funding and partly through the sale of equity at the asset level. These short and medium term projects would be the enablers for the longer term growth through the development of the Greater Soutpansberg Project assets," Brown explained.

City firm, Investec, said: “Successful completion of this will be a significant step forward for the company, leaving it completely unencumbered of outstanding liabilities and providing it with the funds to start realising the inherent value of its projects. While the market for metallurgical coal is currently moribund, our analysts do expect it to improve and CZA’s projects should be well placed to benefit.”

Meanwhile, mining specialist SP Angel opined: “It is good to see the company better funded following the cash drain seen to date.”

Shares in Coal of Africa were up 21% at 3.31p in late afternoon trading.

Quick facts: MC Mining Limited

Price: 9.5 GBX

Market: AIM
Market Cap: £13.4 m


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