I understand that much of Conti's debt on their balance sheet is in the form of a 'divi' arrangement, whereby the debt is only repaid when the SA subsidiary starts paying divis to the Aus parent. The parent company will get 75% of the divis, and 25% will go to paying off the debt. It does still have to be paid off eventually of course, but it is not a 'current' debt and there is no monthly outgoing interest payment, like there would be on conventional bank borrowing, convertible loans etc.
The bank debt which does exist has had its repayments deferred for a while, and also mitigated by the smart 'hedge' on Penumbra production at ZAR1,057 per ton = USD105, or USD30 above the prevailing price.
It's hoped that future projects like De Witt can raise funding through offtakes/advance payments from major customers, rather than from conventional debt. The company have successfully done so with Ferreira in the past, so could do again. De Wittekrans only needs USD20M to start up the lucrative low-cost open-cast phase, which would only require a major customer to stump up 300,000 tons' worth up-front at a discounted price of say USD70/ton... USD20M is peanuts for EDF Energy or a major Indian pwoer generator, say.
Everyone knows that the company has substantial debts, but with production (finally) starting to ramp up to the level that is generating positive cashflow, and the likelihood that (in the medium term at least) coal prices must start to edge upwards, my own opinion is that the share price is currently at the bottom of its range.
What do I know though?? It's certainly still a risky share.
No advice intended.
CCC Price at posting:
4.0¢ Sentiment: None Disclosure: Held
