ANNOUNCEMENT 12 MARCH 2012 REPORT FOR THE HALF-YEAR ENDED 31 DECEMBER 2011

Transcription

1 ANNOUNCEMENT 12 MARCH 2012 REPORT FOR THE HALF-YEAR ENDED 31 DECEMBER 2011 Significant progress made at Vele, Makhado product testing confirms hard coking coal Commenting on Coal of Africa s performance for the six months ended December 2011, Mr John Wallington, Chief Executive Officer of Coal of Africa Limited (CoAL), said: The most significant development of the half-year was the lifting of the suspension of the water licence at the Vele Colliery and the subsequent commencement of maiden coal extraction and commissioning of the plant. We are encouraged by progress at Vele and look forward to first sales in Q4 FY2012. This progress at Vele, particularly the establishment of the agreements with key stakeholders, is a strong indication on how far the Company has advanced in forging a new approach to sustainable development. The Makhado Project Definitive Feasibility Study (DFS) was completed during the reporting period, with all phases of design work and reporting complete. Further work on identified blue sky potential commenced. Independent experts progressed the baseline social and environmental studies required for the project s new order mining right (NOMR) application. The consultation process with interested and affected parties continued and included the involvement of various governmental departments. Further testing of the Makhado Project bulk sample by Arcelor Mittal South Africa (AMSA) has been completed at both the Vanderbijlpark and Newcastle plants. Product testing has confirmed that the product is a hard coking coal. The Company s decision to transfer the Mooiplaats Colliery to an owner-operated mining operation during the period, together with the commissioning of a fifth underground section, has seen improved production and product yields. These changes are part of strategic and operational initiatives across the Company s thermal coal portfolio to identify further opportunities to add value to the Mooiplaats and Woestalleen assets. Further progress on the Group restructuring occurred in the period, including the disposal of the non-core assets namely, the Nimag Group and the Holfontein thermal coal project. This restructuring, targeted for completion in June 2012, alongside the successful capital raising in November 2011, will facilitate development of the Makhado project and prospective Soutpansberg assets as the Company advances the plan to move to the Main Market of the London Stock Exchange. Highlights Environmental Authorisation (EA) for the Vele Colliery granted and suspension of the Vele Colliery Integrated Water Use Licence (IWUL) lifted, allowing for the commencement of full operations from October Extraction at the Vele Colliery commenced in December 2011 with approximately 16,800 tonnes of run-of-mine (ROM) coal stockpiled by the end of February Wet commissioning of the plant and related infrastructure completed in December and hot commissioning completed by end of February

2 Memorandum of Agreement (MOA) signed with the South African Department of Environmental Affairs (DEA) and South African National Parks (SANParks) to ensure the conservation and integrity of this natural and cultural heritage site and to maintain and strengthen co-operation between the parties. Memorandum of Understanding (MOU) signed with the Save Mapungubwe Coalition, committing the parties to working together and strengthening co-operation to ensure the sustainable development of the Mapungubwe cultural landscape. Transfer to owner management of mining operations at the Mooiplaats Colliery, together with the commissioning of a fifth underground section, resulted in improved production and product yields. Total coal sales of US$143.8 million for the period (US$88.3 million for the corresponding period 2011). Sales of export coal increased by 15.5% to 798,311 tonnes from 691,128 tonnes in the previous six months, as a result of improved rail and port efficiencies. 2,283,298 tonnes (H2 FY2011: 2,263,417 tonnes) of ROM and 1,183,566 tonnes (H2 FY2011: 1,381,275 tonnes) of export-quality coal produced at the Woestalleen and Mooiplaats thermal collieries. Signing of irrevocable undertakings by vendor shareholders and extension of the time period to obtain regulatory approvals for the acquisition of the Chapudi Coal Project from Rio Tinto Minerals Development Limited/Kwezi Mining (Proprietary) Limited. Full Mineral Experts Report published and the placement of 130,000,000 shares raising approximately US$106 million together with the securing a new US$40 million working capital facility with J.P. Morgan Chase Limited. Further progress on disposal of the non-core assets including US$6.6 million for the Group companies of NiMag (Proprietary) Limited and Metalloy Resources Investments (Proprietary) Limited (the NiMag group). Total cash balance, available and undrawn facilities (excluding the new bank facility of US$40 million) as at the end of December 2011 of US$100.1 million. Post-reporting events Agreement to sell the Holfontein thermal coal project (Holfontein Project) for approximately US$12.7 million to Govhani Consulting (Proprietary) Limited. BEE shareholder agreement signed for Chapudi UNESCO and DWA Heritage Impact Assessment presented to UNESCO in January 2012 Appointment of J.P. Morgan Equities Limited as JSE sponsor with effect from 30 January Commentary Vele Colliery The most significant development of the half-year was the lifting of the suspension of the IWUL on 18 October This has enabled management to complete construction of the infrastructural facilities, building of the plant, and commence production at Vele at the end of the half-year, with the first sales of coal expected in Q4 FY2012. Furthermore, an MOU with the Save Mapungubwe Coalition and Coal of Africa was signed on 24 November The Company and the Coalition share a commitment to work together and strengthen co-operation in the interest of sustainable development, preservation and protection of the Mapungubwe cultural landscape. This innovative approach aims to set a benchmark for best practice in relation to managing and mitigating the

3 impacts of mining at Vele Colliery and related activities, specifically the impact on water and heritage resources. The MOU requires the signing of a MOA subject to which the Coalition has agreed to withdraw legal proceedings and administrative appeals against the Vele Colliery s NOMR, EMP, IWUL and Section 24G authorisation. Progress on converting the MOU into an MOA is progressing satisfactorily for both parties. Significant information sharing has taken place between the two parties to date in the spirit of the MOU. Once the review of specific technical studies has been concluded, both parties will be in a position to conclude the MOA. This development follows on from the company s commitment to work together with the South African DEA and SANParks in respect of the Mapungubwe Cultural Landscape World Heritage Site, enshrined in a MOA, announced on 1 September The MOA was concluded pursuant to conditions set out as part of the EA and seeks to ensure the conservation and integrity of the cultural heritage site to maintain and strengthen cooperation between CoAL, SANParks and the DEA. The additional heritage impact assessment as required by the United Nations Educational Scientific and Cultural Organization (UNESCO) and the DEA was completed during the quarter and was presented to UNESCO in January The mine commenced production in December and produced 118,000m 3 of overburden and 3,200 ROM tonnes of coal during the month. A further 500,000m 3 waste and 13,600 ROM tonnes of coal were mined in January and February. Progress continued with the plant and related infrastructure, with wet commissioning completed in December. Product samples are being prepared for evaluation by ArcelorMittal South Africa (AMSA) and other potential international customers. Makhado Coking Coal Project The DFS was completed during the reporting period, with all phases of design work and reporting complete. Independent experts progressed the baseline social and environmental studies required for the Makhado Project NOMR application. The consultation process with interested and affected parties continued and included the involvement of various governmental departments. Additional comments from various interested and affected parties on the environmental impact assessment, EMP and IWUL submissions were received and the IWUL Technical and Engineering report is expected to be submitted to the DWA during H2 FY2012. Further testing of the Makhado Project bulk sample by AMSA has been completed at both the Vanderbijlpark and Newcastle plants. Coal samples have been prepared at 10%, 11% and 12% ash levels. In addition, individual and blended tests performed by AMSA and additional independent analysis confirmed that the 10% ash product performed well relative to other hard coking coals. Test work for establishing potential secondary products was completed which conceptually indicates that the production of a secondary thermal coal product may be feasible. The Makhado Project DFS will be submitted to Exxaro Limited in terms of their option to acquire up to 30% of the project. An international consulting firm has been engaged for coking coal technical assistance and support with offtake agreement negotiations. A product road show to potential international customers for both the Makhado Project and Vele Colliery is planned in March and April 2012.

4 Woestalleen Complex (Vuna Colliery & Woestalleen Wash Plant) Witbank Coalfield (100%). Woestalleen Vuna Colliery continued its outstanding safety record with not a single lost-time injury recorded since start-up in Two lost-time injuries were recorded at Woestalleen during the reporting period. No fatalities have been recorded at this colliery. Total ROM production from Vuna of tonnes was 2.6% lower than the comparative six month period of tonnes primarily due to limited pit room and a shorter month in December. Operational performance is expected to return to normal levels over the next few months with 1.62Mt ROM projected for the six months to 30 June and approximately 3.3Mt ROM for the full year. Woestalleen produced 823,877 tonnes (H2 FY2011: 1,009,519 tonnes) of export-quality coal and a further 334,123 tonnes (H2 FY2011: 161,346 tonnes) of lower-grade product for Eskom Limited (Eskom), the South African electricity utility. The overall plant yield marginally increased to 64.8% (H2 FY2011: 64.3%) due to a selective mining initiative. Strategic review of Mooiplaats Colliery Ermelo Coalfield (100%) Safety at Mooiplaats continues to be a focus area. Four lost-time injuries were reported at the mine during the six months (H2 FY2011: four lost-time injuries). The transition to an owner-managed mine at the end of June 2011 facilitated the direct management of the operation, resulting in an improvement in overall performance. The commissioning of a fifth underground section in September 2011 assisted in increasing production from 498,587 ROM tonnes in the previous six months to 563,792 ROM tonnes despite challenging mining conditions and infrastructure availability issues. The challenging geological conditions are anticipated to continue for the remainder of the financial year, resulting in a reduction in the full year forecast to 30 June 2012 from 1.67Mt to approximately 1.3Mt. Coal processed during the six months decreased to 621,816 ROM tonnes from 731,766 ROM tonnes during the previous six-month period. The reduction was due to lower ROM coal purchases from 152,699 tonnes to 44,862 tonnes. The coal processed yielded a total of 359,689 tonnes (H2 FY2011: 371,756 tonnes) of exportquality coal and a further 69,654 tonnes (H2 FY2011: 110,948 tonnes) of the lower-grade product. A strategic review is in progress to identify and evaluate options available to management with the primary objective to increase the underlying value of the asset. In addition, an operational initiative, expected to identify potential improvements in the mining process leading to sustainable levels of higher production, is scheduled to commence during H2 FY2012. This process includes the introduction of a support contract with equipment supplier Joy Mining to improve the maintenance of underground machinery. Marketing and logistics Total sales tonnes achieved for the period were 1,741,188 (H2 FY2011: 1,665,209), of which 798,311 (H2 FY 2011: 691,128) were to the export markets. Export sales increased by 15.5% compared to the previous six month period which is attributable to improved rail performance, a slight recovery of market conditions and

5 increased capacity at the Matola Terminal in Maputo, Mozambique. However, the international demand for South African coal, specifically from Asia and Europe, remained subdued during the period due to continued concerns regarding the European economy, larger than normal stockpiles in India, and increased availability of lower-grade Indonesian coal. The demand for South African coal increased towards the end of the six months and this trend has continued in H2 FY2012. Index-linked international coal prices were under pressure during the six months with sales recorded at discounts to these indices. South African export coal spot prices declined from just over $118 per tonne at the beginning of July to approximately $102 in December, but these movements were offset by cost reductions caused by a weakening of the South African rand against the US dollar. During the six months, Woestalleen sold 449,237 tonnes (H2 FY2011: 621,799 tonnes) and Mooiplaats sold 80,991 tonnes of export-quality coal (H2 FY2011: 124,388 tonnes) to domestic customers. Eskom purchased 344,390 tonnes (H2 FY2011: 106,003) of middlings coal from Woestalleen and 68,259 tonnes (H2 FY2011: 121,891 tonnes) from Mooiplaats. Acquisition of Rio Tinto s South African assets The Company secured irrevocable undertakings from the vendor shareholders in terms of the Sale and Purchase Agreement (SPA) for the acquisition of Rio Tinto s Chapudi Coal Project and related exploration properties (collectively, the coal assets) in the Soutpansberg coal basin in the Limpopo Province. The date for the fulfilment of the suspensive conditions in the SPA was extended from 12 August 2011 to 30 April 2012, to allow for obtaining the remaining regulatory approvals required. The transaction consolidates various tenements and will make CoAL a substantial holder of coking coal new order prospecting rights in the Soutpansberg coalfield when completed. The Company is in the process of mobilising the exploration teams and finalising the exploration programme for the various properties, which is expected to further increase the resource base and unlock the potential value from these assets. Disposal of the NiMag Group CoAL entered into a SPA for the disposal of its 100% interest in the non-core NiMag Group by way of a management buyout. The Company will dispose of its shares in the NiMag Group companies for a total of ZAR54 million (approximately US$6.6 million), of which 60% is being funded by a combination of equity contributions and bank debt. The remaining 40% will be financed by an interest-bearing loan provided by CoAL that is repayable over four years. The closing of the transaction is subject to certain conditions precedent normal with a transaction of this nature, expected to be satisfied by the end of April Disposal of the Holfontein Project On 30 January 2012, the Company agreed to sell the Holfontein Project to South African-owned Govhani Consulting for ZAR100 million (approximately US$12.7 million) and a continuing payment to CoAL of ZAR2.00 (approximately US$0.25) per tonne of saleable coal produced by the project. Govhani paid an initial non-

6 refundable deposit of ZAR4.0 million (approximately US$0.5 million) to conduct a detailed review of the project and a further ZAR5.0 million (approximately US$0.6 million) upon signature of the agreement, enabling it to finalise the DFS in order to complete the acquisition of the project. Upon completion of the transaction, the total purchase consideration will be reduced by ZAR9.0 million (approximately US$1.1 million). Conditions precedent to closing the transaction include: Govhani completing the DFS and obtaining the remaining funding for the project and approval of the transaction by the Department of Mineral Resources (DMR), all of which are required to be fulfilled by 30 June Soutpansberg Coal Bed Methane Project During the six months, Tshipise Energy (Pty) Ltd (Tshipise) a joint venture between CoAL and BEE partner Vibrant Veterans (Pty) Ltd, completed the exercise to collate desktop studies undertaken by Australian-based Geogas (Pty) Ltd (Geogas) on the coal bed methane potential of the properties located in the Soutpansberg coalfields, substantially in the same proximity as the various coking coal projects the Group is currently involved in. Geogas compiled desktop studies of the total area granted under Tshipise s 1,578km 2 exploration right and Tshipise will move into the next phase of the exploration, including the drilling of additional holes and completing further technical studies to prove up a potential coal bed methane resource in accordance with the JORC code. Financial Results Revenue from the sale of coal for the six months totalled US$143.8 million compared to US$88.3 million for the comparative period. The loss for the six months under review amounted to US$74.7 million, including various non-cash charges of US$68.8 million, or cents per share compared to a loss of US$66.5 million, including various non-cash charges of US$30.6m, or cents per share for the prior corresponding period. Foreign exchange losses total US$42.6 million of which US$37.7 million represent unrealised losses arising from the translation of inter-group loan balances, borrowings and cash. Depreciation of US$8.5 million and amortisation of US$19.5 million contributed further to the non-cash charges. The Company recorded a further impairment to the carrying value of the assets classified as held for sale, as the result of the exchange rate related adjustment in the carrying value of the NiMag Group due to the depreciation of the South African Rand against the United States dollar. As at 31 December 2011, the Company had cash and available facilities of US$100.1 million, excluding the US$40 million facility arranged with JP Morgan Limited, compared to cash and available facilities of US$40.3 million at 30 June Corporate activity Work continues with the group restructuring and preparation for the migration of the primary listing from the Australian Stock Exchange to the Main Market of the London Stock Exchange by the end of In

7 preparation for this change and achieving further alignment of corporate advisors, CoAL appointed J.P. Morgan Equities Limited as JSE sponsor with effect from 30 January The Company issued 130,000,000 shares in November 2011, raising approximately US$106 million (excluding expenses) and simultaneously published a Registration Document, prepared in accordance with the Prospectus Rules of the Financial Services Act (United Kingdom) made under section 73A of the Financial Services Management Act, which satisfied a significant condition precedent to secure the US$40 million new bank facility. JOHN WALLINGTON Chief Executive Officer A presentation will be hosted at 1030hs CAT on 12 March 2012 with a simultaneous webcast and conference call. Further information is available on For more information contact John Wallington Chief Executive Officer Coal of Africa Wayne Koonin Financial Director Coal of Africa Shannon Coates Company Secretary Coal of Africa Chris Sim/ Jeremy Ellis/ Neil Elliot Nominated Adviser Investec Bank plc Jos Simson/Emily Fenton Financial PR (United Kingdom) Tavistock Reuben Govender JSE Sponsor J.P. Morgan Equities Limited Charmane Russell/Jane Kamau Financial PR (South Africa) Russell & Associates About CoAL: CoAL is an AIM/ASX/JSE listed coal exploration, development and mining company operating in South Africa. CoAL s key projects include the Vele Colliery (coking and thermal coal), the Makhado Project (coking coal) and the Mooiplaats and Woestalleen Collieries (both thermal coal). The Mooiplaats Colliery commenced production in The Woestalleen Colliery, acquired through the acquisition of NuCoal Mining (Pty) Limited in January 2010, currently processes approximately 2.5Mtpa of saleable coal for domestic and export markets. The Woestalleen Complex also incorporates three beneficiation plants with a total processing capacity of 350,000 ROM feed tonnes per month. CoAL s Vele Colliery commenced production in Q3FY2012. During the initial phase, the operation is targeting 2.7Mtpa ROM production to produce 1Mtpa of saleable coking coal. The Makhado Project, CoAL's flagship project in the Soutpansberg coalfield, is well into the feasibility stage, with a DFS completed. Application for a new order mining right for the Makhado Project was submitted in January In November 2010, CoAL agreed to acquire the Chapudi coal project and several other coal exploration properties in the Soutpansberg coal basin in South Africa from the previous owners, including Rio Tinto. Upon completion, the acquisition of these projects will significantly extend the scale and scope of certain of CoAL's existing projects in the region and will more than double the resource of the existing Makhado Project.