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One to Watch: Coal of Africa



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Scotsman says BUY
COAL of Africa (CofA) was founded in the late 1970s as Golden Valley Mines. GVM was an Australian exploration company that, rather unfortunately, failed to find anything of moment. As a result, some three years ago the company changed direction andADVERTISEMENTacquired substantial coal reserves in South Africa. Its Limpopo prospect, which is on the border with Zimbabwe, has, by some estimates, total coal reserves of more than two million tonnes, with proven reserves of around 140m tonnes already.

In addition to the Limpopo prospect, which will enter production next year, the company has an important operation in the Mpumalanga Province. This lies in eastern South Africa, on the borders of Swaziland and Mozambique. Here, the company's Mooiplaats plant's production of thermal coal will start this autumn and it already has a major potential customer in a recently reconditioned local power station.

At Limpopo, CofA has put in place a distribution arrangement with Transnet, the South African rail company, to handle what is expected to be an initial annual production of 1.5m tonnes, projected to increase to 10m tonnes by 2012. South Africa, generally, has been bedevilled by electricity blackouts and CofA looks ideally placed to help meet an almost assured demand.

There are political issues with any investment in Africa and CofA is not likely to move into net profit for a couple of years. There are also continuing issues over the pollution caused by coal power stations. Given South Africa's need for electricity, it is reasonable to assume pragmatic necessity will be a persuasive argument to the benefit of CofA.