[miningmx.com] – Nonkululeko Nyembezi-Heita, the former CEO of...

[miningmx.com] – Nonkululeko Nyembezi-Heita, the former CEO of ArcelorMittal South Africa, is making short work of her new role at IchorCoal, a relatively unknown Frankfurt-listed company she joined less than 18 months ago.

Tasked with seizing upon coal mining opportunities in South Africa’s unpredictable primary energy sector, she has so far assembled assets producing some four million tonnes a year (mtpa) in attributable output, most of it likely to be sold to Eskom.
“We want to be the buyer when times are difficult and now is a good time to go shopping,” said Nyembezi-Heita. “But it’s not easy as banks don’t wish to lend and people don’t want to sell at big discount.”

Yet cyclical lows in the price of internationally traded thermal coal is creating opportunities with a number of small junior miners operating in South Africa forced on to the backfoot, such as Continental Coal.

Listed in Sydney and operating near Witbank, Continental Coal placed its South African assets into business rescue earlier this year, a process largely driven by Absa Bank which had agreed in September 2011 to lend the company $65m.

A number of coal mining firms were thought to have kicked the tyres – including Keaton Energy – but it was IchorCoal that made the plunge buying Continental Coal’s Vlakvarkfontein and Penumbra colleries for a cut-price R128m.

Including the R244m IchorCoal had paid last year for a 29.99% stake in another Australian coal miner operating in South Africa – Universal Coal – Nyembezi-Heita’s company is now firmly on the map - although with some road still to travel as IchorCoal’s strategic goal is to grow output to 15mtpa to 20mtpa.

Significantly, Nyembezi-Heita is interested in buying producing or near production assets. One of Continental Coal’s projects – De Wittekrans, described by the firm’s previous management as the company-maker – holds no interest for Nyembezi-Heita.

“We declined to participate in De Wittekrans so that would be sold separately [out of business rescue]. Ichor has no shortage of projects; the only shortage is money to finance them. In this stage of cycle, it would be better to stay out of greenfields development projects,” she said.
Of the acquisition cost, some R73m required for the purchase of Vlakvarkfontein would be sourced externally as it’s easier to raise debt finance against a mine that has positive cash flow. The R55m required for Penumbra would be sourced internally.

Production from both mines will be sold to Eskom rather than through the export markets.
Although IchorCoal has export access through Richards Bay Coal Terminal, Nyembezi-Heita said that market conditions are just too difficult to turn a profit. The price of thermal coal ex-Richards Bay has fallen to around $60 from $110/t several years ago.

“Getting coal out of country is not difficult,” said Nyembezi-Heita. "But when the price of coal dropped from $80/t to about $60/t ... well, then you can’t make any money. So we won’t export the coal.”

Production from Penumbra would be blended with domestic coal from an adjacent property, the 1.9mtpa Usutu colliery in which IchorCoal has a stake through its 75% holding in Vunene Coal.

This would help minimise the high-sulphur content for which Penumbra coals had become known. “There’s real potential synergy. We can also share plants so that if we re-entered the export market at some future point, we could install a larger wash plant,” said Nyembezi-Heita.
Discussions with Eskom for a coal sales agreement from Penumbra and Usutu have not yet begun, but it’s logical that Camden power station would be supplied owing to locality, as well as history: Usutu used to be Camden’s largest supplier of coal in the Eighties.

Vlakvarkfontein, the other asset IchorCoal bought out of business rescue from Continental Coal South Africa, is profitable, however, IchorCoal already had a stake in the 1.2mtpa operation through its 45% holding in Mbuyelo Coal which made it a logical bidder for the asset.