“I can’t believe it, but I’ve had 55 meetings in the last few weeks”, says Simon Farrell, managing director of Coal of Africa. Make that 56, if you count a quick telephone interview with Minesite, snatched sometime after the coffee had been offered at a birthday lunch given for one of the mining industry’s movers and shakers last week. The lunch sounded fun, and a good meal at the end of a grueling few weeks, in which shareholders have been comprehensively updated, was no doubt richly deserved. But the informal setting in no way took the edge off the sharpness of Simon Farrell’s conversation. Partly, perhaps, as he modestly says, that’s because, “it’s pretty easy to tell the story”. But it’s mainly because it is, in fact, a pretty good story. Coal of Africa Limited, to give it its full title, or CoAL, to give it its clever acronym, has coal in Africa, and specifically in South Africa - where they are crying out for it to feed the country’s spluttering power stations. That the country’s coal fired power stations are suffering from a lack of supply isn’t so much because there’s not much coal around, but rather that the state power generator Eskom has rather overplayed its market-dominant position over the last few years in refusing to pay the market rate. Come a serious squeeze on the immediate supply side, and Eskom is struggling to find sellers on terms it finds acceptable. It will have to catch up soon, or the country’s lights will go off for good, and all those budding empowered entrepreneurs will be holding their hands out for stakes in companies that make generators.
That dynamic suits CoAL just fine. Its key Mooiplaats property is located in the Ermelo coal field in Mpumalanga, a couple of hundred kilometers north east of Richards Bay, but just 1.7 kilometres away from the Camden power station. And anyone who’s flown over Camden lately can see just how low the stockpile has fallen. The management at Camden might say different, but from the air it looks as though they’re running on a stockpile that’s got about two days in it - and that’s being generous, and not allowing for the settling of fines. Mooiplaats contains an SRK-endorsed inferred resource of 240 million tonnes of thermal and anthracitic coal, including a measured resource of 43 million tonnes in an upper seam. Camden requires six million tonnes per year, so Mooiplaats is in pole position to meet the power station’s needs for at least ten years. The plan is for Mooiplaats to be up and running by August and producing between 200,000 and 250,000 tonnes per month from two declines, coal that could well be sold into Camden.
Only if the price is right, though. The current strength in the coal market has put CoAL in an enviable position as regards its negotiations with domestic South African buyers. All of a sudden the option of washing the Mooiplaats coal and exporting it looks viable. And why not? Eskom has been fairly unappreciative of coal companies over the years, so now’s surely the opportune moment to pay it back and put on a bit of a squeeze. Richards Bay may not be just around the corner, but it’s not too far away. And more significantly there’s a railway line that runs right down there just on CoAL’s doorstep. CoAL has just done a deal with Transnet Freight for rail shipment of coal from other projects in the north of the country down to Richards Bay, so there are people around willing to tackle the transportation issues. What’s more, if Richards Bay is overly busy, there’s always Maputo just across the border.
And how is it doing business in this coal price environment? “It’s like having a 25 knot breeze behind you and setting the right spinnaker sail”, says Mr Farrell, a sailing man. And with that he’s off to toast the birthday boy.
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