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A pleasant glow
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Charlotte Mathews
Financial Mail
Friday, March 19, 2010
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Optimum Coal is likely to receive a warm reception from investors wanting to buy into a growing thermal coal producer just as demand and pricing are showing solid uptrends.
CEO Mike Teke says initial reaction from investors to the sale of up to 42,7m shares at R34-R37 ahead of the listing on March 29 has been “very positive”.
Other JSE-listed coal companies’ share performances this year are promising: Petmin has gained 33% and Coal of Africa 23%. Both produce coking coal (used in metallurgical plants), whereas Optimum Coal focuses only on thermal coal, used in power plants. Theprice performs differently.
Optimum, which will be at least 50,1%-owned by black investors after it broadens its shareholder base, has stakes in two Witbank coal mines previously owned by BHP Billiton Energy Coal SA (Becsa), Optimum and Koornfontein. Becsa didn’t sell these mines (to former Becsa executives) because they were underperforming assets but to secure empowerment credits under the mining charter, Teke says.
Optimum has an 8Mt/year export entitlement through the Richards Bay Coal Terminal and development projects at Schoonoord, Vlakfontein, Overvaal and Koornfontein No 4 seam.
The R840m gross proceeds of the sale of 24m new shares will be used to repay debt incurred in acquiring the controlling stake in Koornfontein, and to fund capital requirements and potential acquisitions.
Teke says management would consider both greenfield and brownfield acquisitions in thermal coal mines. It would also consider partnering one of the major coal producers. Optimum is not talking to Xstrata, which confirmed last week it was undertaking “a strategic review” of its Mpumalanga thermal coal mines, but Teke says it could be interested in Xstrata’s assets.
RMB Morgan Stanley’s Leigh Bregman is bullish on the prospects for thermal coal prices because of tight supply and surging demand from Asia. In the short or medium term he does not expect prices will return to the US$150/t seen in mid-2008.
Optimum’s other attractions are some highly experienced managers and directors, including former AngloGold CEO Bobby Godsell and former Becsa COO Eliphus Monkoe, as well as plans to pay a dividend equal to 25% of free cash flow.
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