Coal of Africa chairman David Brown. Picture: FINANCIAL MAIL
Coal of Africa CEO David Brown. Picture: FINANCIAL MAIL

COAL of Africa (CoAL) has held preliminary discussions with Haohua Energy International on the possibility of the Chinese group subscribing for additional shares in CoAL, but no binding agreements are in place.

Unlike most other junior mining companies, CoAL has been able to raise funding for its planned Makhado hard coking coal mine in Limpopo and its bid for Australian-listed Universal Coal, which owns the Kangala and New Clydesdale mines in SA. A month ago, it signed a memorandum of understanding with Qingdao Hengshun Group on taking an equity stake in the Makhado project.

Proposed pricing for the investment values Makhado at about $335m.

CoAL made a R1.5bn offer in cash and shares for Universal Coal in November.

It has secured funding for the deal by concluding agreements with Yishun Brightrise Enterprises and M&G Investment Management to subscribe for shares at $0.0435 each.

Haohua Energy, already a substantial shareholder in CoAL with a holding of about 24%, published a notice in Hong Kong, saying it intended to subscribe for shares in CoAL at the same price, which amounts to an investment of $5m.

CoAL CEO David Brown said on Monday CoAL was obliged to publish a notice on SENS because Haohua Energy had made an announcement on the Shanghai Stock Exchange, but these discussions were at a preliminary stage. Any subscription would require approval by CoAL shareholders and regulatory clearance in China and Australia (where CoAL is also listed).

Funding from Haohua Energy was not needed for the acquisition of Universal Coal, but Haohua Energy wished to avoid dilution of its position in CoAL after CoAL’s share placement with M&G and Yishun Brightrise, Mr Brown said.

In CoAL’s latest annual report, Mr Brown said CoAL, having achieved a tidier corporate structure, was in a position to assess potential merger and acquisition opportunities, as valuations were more reflective of commodities prices.

CoAL’s shares were trading 5% lower at 54c. Although the Richards Bay benchmark coal price gained 2% to $50.4/tonne last week compared with the previous week, the rand weakened on Monday by about 1.7% against the US dollar and 2.5% against the Australian dollar.