I sent a mail to the directors. You don't have to agree with me....

I sent a mail to the directors. You don't have to agree with me. And i cannot give individual replies except to bigbillbrown. These were the contents.

Dear Directors of Continental Coal,
Sorry - getting very worried about Continental Coal. Further to my last email as a shareholder, economist, auction theorist urging you to auction of all your firm's assets to deeper pocketed players - I want to draw your attention to my following line of thoughts.

You make one mistake in the negotiations - and you may face administration within the next year or so - the share price indicates that very strongly and I believe it is right.

Firstly to reiterate my original main point. Again, I still believe that you should preferably sell every asset, repay debt and return money to shareholders. At this stage of the credit cycle (and I cannot see any change for the next decade), there cannot be any role of a publicly listed small miner in actual mining because of cost of capital implications in an industry with constant high capital needs, especially in a small margin industry. This is unless the firm has already become big with substantially lower costs of capital - which you have not. You know that Vlakvarks and Ferreira hardly generates any net cash flow because of your capital and financing costs - just having producing mines is not good enough. And then you have to close down Ferreira soon - that comes with closure costs - and once you take account of these closure costs, Ferreira has hardly ever been profitable for the company - neither is Vlakvarks.

Actual mining at this stage of the credit cycle is a big boys' game who have much lower costs of capital. The best that a small miner can hope for is to sell their assets to a bigger player - provided the assets are attractive enough for a bigger player. I also believe that you are in a very lucky position that you have attractive assets for bigger players - this is something most small miners in the world would hope for in today's climate. The feeling that you are a great junior miner is massaging your ego - as I said, a publicly quoted junior miner has no role to play at this stage of the cycle where production is a big boys' game. If you were a non-publicly listed private company, it is your choice because you are the owner.

In all my years as an economist, I have not seen an easier case, than your comany's, to recommend that a company should sell all assets. Most other small companies are not even in a position to sell because they do not have assets attractive enough for bigger players.

It also concerns me that after these many years, you still have not been able to solve the problem of how your African subsidiary will upload cash to the holding company. Hence the constant needs of dilution to pay for overhead costs - you have to bring in these financiers and issue all these free shares and warrants and options. You can check by google searching that some of your financiers have a pretty chequered history and are called vulture capitalists - the trigger prices they use for their warrants are mostly configured to fraud models of Black Scholes. Just bringing them on board can quite often mean a dilution to death story - one reason why you are where you are with a destroyed market cap (prices have fallen more than 95% and you wonder why) and a horrible balance sheet. You will never get proper institutional investors if they see that Socius is on board. Here is Socius for you. Please read this article:
http://www.zamansky.com/cases/zamansky-investigates-cell-therapeutics-for-breaches-of-duties-to-shareholders.html

The rest of my post will be more constructive. In case you want to sell a stake in your company (and stake sells are common in the coal industry), the way to go about is ensuring that the aspiring buyer has to `commit' that they are buying so much % of the company for so many million dollars. The offer share price should be worked out from this statement. Recently Coal of Africa sold 25% of the company for $100m and this was the statement and the offer price was worked out from that. Here is another example of similar stake offer which failed: http://www.miningmx.com/news/energy/Firestone-to-review-R300m-Tata-Power-offer.htm

It should never be the way you are setting it up- we will sell 19.9% of the company to a strategic investor at some price in the future which should not be less than the prevailing share price - strategically a suicidial step. And for this you expect shareholders to vote that you get share based incentive payments in future.

Now, let me draw your attention to how you should value a strategic stake sale with a real life example and what good it can do to your share price 9maybe temporarily). Please take a look at the following recent enough article where Tata Power bought a 26% stake in an Indonesian coal miner. This is last November, when coal prices were already low.
http://www.financialexpress.com/news/tata-power-picks-stake-in-another-coal-miner/1029062

Tata Power may be keen to have similar kind of interests in South Africa. So do many others like Reliance Power, Coal India, RP Goenka, NTPC. Suppose one of them (let us say Tata Power) come up with a similar stake purchase offer to CCC - that they would want to purchase, let us say, an approximate 19.9% of CCC's stake in South African interests for a lumpsum of, let us again assume, of $50m -$80m. The reason I quote these cash figures is that the recent article states that the Indonesian company has resources of around 1 billion tonnes and Tata Power's 26% stake was next day valued at $137m. I have seen elsewhere that the actual stake was bought between $150m-$175m. Conti's South African resources are about 600m tonnes, Tata's Mundra and Trombay operations are nearly equidistant to South Africa than Indonesia, and South African coal is better in quality and valued higher. Also Tata Power and other Indian firms have recently (before last November) become more concerned about Indonesian coal because of regulatory uncertainties. Plus Botswana should have some value.

The exact cash figure is not important but we assume that it is a sizable lumpsum between $50m to $80m. So the South African businees ownership structure changes from '26% Sioc + 74% subsidiary' to '26%Sioc+59% subisidiary+15% Tata Power'. Tata Power owning 15% of African operations is approximately the same as Tata Power buying 19.9% of Continental Coal. Now , what would be the share purchase price for this 20% (just for simplicity rather than 19.9%). Currently, there is something like like 515m shares (can't remember exactly) - let us say you add another 45m in lieu of your last year's unpaid salaries - so totally 560m. If they issue 140m shares to Tata Power, that is 20 percent of new total shares of 700m. Let us assume that Tata Power values this stake at the lower end at $50m - what should be the share price they pay - $50m divided by 140m shares - that is more than 35 cents a share. You can see why shareholders will like this more.

Even though there are assumptions in my calculations, you can see why the general story makes sense. Please contact me if I can be of any help/use. Jason, never received your call after so many promises.
Thanking you,
- saikat