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Gold/Mining/Energy : Mining News of Note -- Ignore unavailable to you. Want to Upgrade?

To: LoneClone who wrote (18084)	4/21/2008 9:26:51 AM
From: LoneClone	Read Replies (1) \| Respond to of 193081

Coal of Africa signs up ArcelorMittal Brendan Ryan Posted: Mon, 21 Apr 2008 miningmx.com [miningmx.com] -- Coal of Africa MD Simon Farrell has just pulled off a “company-making” deal for the fledgling coal producer only to see the company’s share price fall when the news was released in Australia. Coal of Africa (CoAL) shares closed 23c – 7,9% - down on the ASX at A$2,67 despite the announcement that CoAL will sell 2,5 million tonnes (Mt) of coking coal annually to ArcelorMittal. Farrell commented; “It’s unbelievable. This is the best deal I have ever done in my life. I am going to sell coal to ArcelorMittal FOR (free-on-rail) from my mine but receive an FOB (free-on-board) price for it. “At current coking coal prices I would get US$300/t as if I had shipped the coal out of Richards Bay but I would save the $30/t in logistical costs I would otherwise have incurred in getting the coal to the port. “ My cost of producing the coal will be about US$25/t. And my share price goes down? It’s beyond belief.” Terms of the offtake arrangement are that the coal will be delivered to the town of Musina at an FOR price linked to the FOB price of Kestrel hard coking coal sold by Rio Tinto and reported by Wood McKenzie. “ArcelorMittal did a lot of test work on this coal previously when the deposit was looked at by the former Iscor. They probably know more about the coal than we do,” Farrell said. ArcelorMittal is also going to pump cash into CoAL by taking a 16% stake in the company through a placement of new shares at £1,11 each for a total of £66,7m (about US$133m). Combined with CoAL’s existing cash balance of about $50m that will put the company in a sound financial position to fund the new coking coal mines in Limpopo Province as well as its Mooiplaats mine near Ermelo in Mpumalanga Province. The coking coal will be sourced from CoAL’s Baobab and Thuli coal projects in Limpopo and ArcelorMittal has also negotiated an option to raise its offtake to 5Mt/year. At planned full output the two Limpopo mines will produce about 10Mt/year and cost between US$500m and $700m in total to build. Farrell said the cost would be funded through a combination of 70% debt and 30% equity. He added, “ We hope start production from the first mine by the middle of 2009. We hold a prospecting right which we must now convert to a new order mining right and we expect that to be a nine-month process. “ Once we start production we should be able to ramp up to 10Mt/year over a three-year period.” CoAL is also developing its Mooiplaats mine which should start producing in the third quarter of this year. The mine is situated close to the Camden power station which is one of the “mothballed” older power stations that Eskom is bringing back into commission to help deal with South Africa’s power crunch. Farrell said Mooiplaats will ramp up to full output of 5Mt/year ROM (run of mine) over a period of 18 months but the nature of the final product and where it is sold will depend on negotiations under way with Eskom. Farrell commented; “the ROM production will have a thermal value of around 23/24 Mj/kg (megajoules per kilogramme) which is higher than the stuff that Eskom typically buys. “We could sell the whole production from Mooiplaats to Eskom as ROM coal if they paid the right price for it and I would prefer to do that. “If they are not prepared to pay us a decent price then we will wash the coal to produce a 27,5Mj/kg product for the export market and sell the discard coal to Eskom. That discard product would still have a value of around 21Mj/kg but Eskom would only get 2Mt/year of coal from us instead of 5Mt/year. “