These are a few notes I took from an informal discussion with Jason Brewer after the GM last Friday at UWA. A few other HC members were there too, so they might be able to fill in anything I missed.
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Someone asked JB about Julius Malema (leader of ANC's youth wing - who recently called for mine nationalization). JB: calls came out of frustration at BEE not achieving what it was designed to. Has created oligopolies like Russia. Distribution of wealth not effective. Malema in some ways similar to Pauline Hanson - gets headlines, but not necessarily representing majority political view. ANC rejected his views on nationalization. Malema was sent to Venezuela straight away after making these comments, to see just how communism works. (ed. - If you Google Malema, you see that he has just apologized to the ANC for his recent comments, and has now "subjected himself to the discipline of the ANC" - whatever that means).
SA now have a state exploration co. JB sees this as a good sign. SA mines minister at ADU Conference - looking for SA to relax some of its restrictions on granting mining leases - to make the process easier for investors. JB stated a number of times that it is very hard for SA listed & unlisted companies to get access to capital - SA market does not have the risk appetite of Australian market. This was one reason why DT was keen to join Conti.
BEE holders often can not get returns on their holdings - the listed companies like Conti often fund everything - that investment has to be recovered before BEE partners get returns.
When JB was with LinQ Resources trying to raise capital in London oct 08 to jan 09 - v difficult to get funding - now v different - major institutions willing to offer funds (example from before, when Conti asked for $25m CNotes, they were willing offer $50m - $100m). Comparison: original london investors in coal of africa have been v impressed with rise in CoA's sp/value. They are now comparing to CCC - great value (Conti will prod half thermal coal of CoA after Mashala deal, but sp only trading at a fraction of COA's).
Don Turvey - ex BHP hard nosed gray-haired coal guy - makes a huge difference in investor's attitude & perception of Conti. Similarly with Johan Heystek. Can not put a price on the experience and credentials of these guys.
Don left BHP to set up own private equity firm Scinta - building coal asset base but GFC hit - no junior mkt in SA - hard to get risk capital. Conti & DT knew of each other. Don was impressed with what Conti had done at VlkVk. Liked the EDF arrangement & other assets in Cont's portfolio. Also liked the Australian set up & esp. the access to capital through asx.
There are a lot more Mashalas out there. Main focus is those assets which have synergies with Conti's mines, esp. access to rail & port allocations. Koornfontein is a great case in point. Don was hoping to acquire this with Scinta. They are currently operating well below capacity & buying in coal from third parties for processing. This would be an excellent option for Conti, in the future. Would not buy this until Conti's sp goes up a lot & Conti are producing more than 2mtpa.
EDF willing to provide more funding to Conti, just so long as they can access more export thermal coal. Head of EDF trading SA is ex-BHP. Both Don & Johan have a good relationship with him (from the previous discussion - also, Haroon Alli Mashala's Marketing Manager has much experience working with EDF, from when he was at Noble Energy.)
EDF very happy with Mashala deal. It lowers Conti's risk profile. Conti's credentials go straight up, as EDF have immediate access to export coal via Ferreira mine. Guaranteed cash flow straight away.
Conti is very happy to deal with EDF rather than deal directly with Indian buyers - much easier negotiating with EDF. Many Indian energy companies/traders are buying SA domestic grade coal for Indian power plants.
JSE listing will make a big difference in getting funding for bolt-on projects to existing assets.
Should get 2 listings (AIM/JSE) for price of one via RenCap & the SA brokerage firm they just acquired - or at least a good discount.
Perhaps in 2 years time VlkVk may be swapped for more export focused mine.
We discussed the Chinese market & Indonesian supply to it. Indonesians have issues with quality and consistency of supply. They load most coal on barges. Don't have the reliability and quality controls of Richards Bay operations. RB coal much more reliable & consistent in quality.
Botswana assets: interesting to look at CIC energy, who have 2.8Bt coal assets (ed. - see: www.cicenergycorp.com), no infrastructure yet - Rothschilds advising CIC at the moment - full rail access may take 4 to 5 yrs. Conti happy to wait for others to do this work. Conti have 3 prospecting licenses in Botswana. Have as much or more coal than CIC. Want to keep Botswana option. Only done desktop work so far.
Botswana coal region has only limited water & power infrastructure. Conti not setting itself as an exploration co. JB said Conti is more a mine development and production company. But do have access to Mashala's 6 drilling rigs. Will drill in Botswana, but not a priority now.
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okay - that's it for now! Perhaps I should start charging for these reports? I'm way ahead of Dr AC now, as far as updates go. Never mind, the rewards will come in due time, with the express coal train from Joburg.
very happy to see some positive sentiment in the market today for CCC/O, as well as NKP/O (and about time too!)
all I can say to any new buyers - you've made a damn good choice. and to those sellers - good luck!
CCC Price at posting:
64.0¢ Sentiment: LT Buy Disclosure: Held
