Why Coal of Africa just jumped 126%

Why Coal of Africa just jumped 126%

By Harriet Mann | Wed, 4th May 2016 - 17:30


Throw another lump on the fire! Coal of Africa (CoAL) has agreed amended terms with mining heavyweights Rio Tinto (RIO) and Kwezi Mining over the deferred payment for the pair's Chapudi coal assets. The AIM-listed African miner has defended itself against claims it had broken terms of the deal and, crucially, avoided an immediate $18.8 million (£13 million) bill. No wonder the shares are smokin'.
CoAL's (CZA) subsidiary MbeuYashu Proprietary bought the Chapudi Coal assets from the pair in 2012 for $75 million, with $30 million of this to be paid at a later date. The deal gave MbeuYashu the rights over the GSP Project and other exploration properties in South Africa's Soutpansberg coalfield.
Of the deferred consideration, $11.2 million has been paid, but, in March, Rio and Kwezi claimed that CoAL had breached the terms of the deal. The rest of the payment was due immediately.

After disputing this, CoAL has come away from talks with an amended agreement. Instead of $100,000, CoAL will pay a minimum $650,000 every month until June 2017, plus $1 million on 15 May and a further $2 million on 15 September. With interest on the outstanding balance at 4% and certain payments linked to the assets disposals and proposed takeover of Universal, the new deal will also allow CoAL to pursue its business strategy.
"This was the last of the historic liability issues and this agreement provides certainty of outcome as well as providing CoAL with flexibility," said CoAL chief executive David Brown.
Changing hands for over 200p once upon a time, the share price collapsed in 2008 and the coal miner has failed to break above 10p since mid-2013. In fact, Wednesday's rally has taken the shares to an 11-month high, with the price briefly hitting 5.5p before sliding back to 4.3p. Over 17 million shares have been traded today, which dwarfs the 270,000 daily average.
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

http://www.iii.co.uk/articles/314376/why-coal-africa-just-jumped-126