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Absa seeks business rescue for ContiCoal

David McKay | Thu, 27 Nov 2014 11:33

[miningmx.com] – ABSA Bank has brought an application in South Africa’s High Court aimed at putting the 74%-owned South African subsidiary of Continental Coal into business rescue proceedings even as the coal firm seeks to raise A$35m and sell its subsidiary.

Continental Coal issued supplementary information today to an earlier prospectus for the A$35m rights issue in which it had set down plans to sell Continental Coal SA for R700m to LSP Energy. As far as can be determined, LSP is a Stellenbosh-based business which has Izak Spies as its principle. Attempts by Miningmx to contact Spies were unsuccessful.

Business rescue is a provision in South Africa’s Companies Act in which a business rescue practitioner is given three months to put a distressed firm’s financial affairs in order, normally a firm that would otherwise become insolvent.

Continental Coal said in its supplementary information to the prospectus that agreements with institutions to underwrite and sub-underwrite the A$35m rights offer had been withdrawn.

David Tasker, a spokesman for Continental Coal, confirmed the business rescue application had been brought against the company, but added that it would be helpful in concluding the sale process. "Firstly, the application does not formalise until next week," he said.

"However it should be noted that it actually does help with the sale process as it was always designed (and stated) to pay out ABSA and EDF," said Tasker. EDF Trading deferred revenue due to it from Continental Coal whilst it developed projects, including Penumbra, a proposed 750,000 tonne/year mine.

Absa agreed in September 2011 to provide Continental Coal $65m (R712m) in finance. It is thought that while Absa is supportive of the sale process, it has instituted business rescue to protect the security over Penumbra; in other words, if the sale process fails, it would prevent the asset going into administration.

Business rescue also assists the sale process as it means that no creditors can do anything until the application is dealt with, a market source told Miningmx.

Continental Coal said in supplementary information to its prospectus that proceeds from the sale to LSP Energy would be used to repay creditors, including Absa and EDF. One of the conditions of the sale is a R50m deposit which, as far as can be determined, has yet to be paid.

“In the event the sale was not completed, Continental Coal would “remain in urgent need of funding to stabilise its financial position and pay its existing creditors,” it said. It owed creditors $29.3m, it said. Liquidation was also a possibility, it said.

A standstill agreement with convertible note holders in Continental Coal, and other creditors, had also been proposed to January 31, the company said.

Continental Coal produced about 2.2 million tonnes of saleable coal in its last financial year and was hoping to achieve the same output with Penumbra replacing production from the nearly exhausted Ferreira mine.

The company's board was replaced in January following cash flow problems with Peter Landau, a former director, returning to the firm and arranging a briding loan with a UK private equity investor.

Continental has one other operation mine in Vlakvarkfontein and a 'company-making' project in De Wittekrans, a proposed 1.6mpta mine with a significant export portion but requiring some $120m in capital

http://www.miningmx.com/page/news/energy/1647982-Absa-seeks-business-rescue-for-ContiCoal#.VJqTuF4Ac