LONDON (Alliance News) - Coal of Africa Ltd said Wednesday it has reached a USD10 million settlement with Grindrod Corridor Management Proprietary Ltd and Terminal de Carvão da Matola Limitada, both subsidiaries of Grindrod Ltd, for both historic and future liabilities remaining under the terms of their 2008 throughput agreement.
Coal of Africa will pay the settlement to Grindrod in two tranches, a USD6 million payment at the end of October, and a USD4 million payment by either the end of December, or five days after receiving the proceeds from the equity raise it announced on Tuesday, depending on which occurs first.
The thermal and coking coal developer said Tuesday it would raise GBP38.2 million with the issue of up to 695 million shares at an issue price of 5.5 pence per share, double its closing mid-market price on Friday. Coal of Africa shares were quoted at 3.73p midday Wednesday.
The company said Wednesday the payment will settle all current liabilities, as well as cover all future take-or-pay obligations until end-December 2016. It said that the potential liability for these periods would have been "significant" assuming an annual take-or-pay obligation of 2.25 million tonnes per annum.
"The settlement agreement results in certainty for Coal of Africa shareholders and eliminates the company's exposure in the 2014, 2015 and 2016 calendar years while preserving access to the port capacity for future production," Chief Executive David Brown said.
Under the 2008 agreement, Coal of Africa secured long-term port allocation through the Matola Terminal in Maputo, Mozambique, which Terminal de Carvão da Matola operated. This provided it with 1 million tonnes of coal per year through the terminal, with the right to secure up to 100% of any increased capacity in return for participation in the funding of any proposed expansion.
The terminal was expanded in 2010, taking Coal of Africa's take-or-pay obligation to around 2.25 million tonnes per year. It said that the locking-in of port capacity had resulted in it being exposed to take-or-pay obligations, whereby a fee was payable for yearly capacity not used.
Under Coal of Africa's turnaround strategy, it will close its loss-making Mooiplaats colliery in South Africa, sell the Woestalleen complex, and end production at its Vele site ahead of plant modification at the colliery, which will lead to no coal production and expose it to unused take-or-pay obligations under the terms of the agreement.
Although it has partly mitigated this exposure by sub-leasing its capacity to third parties, it has been unable to totally offset its commitment due to differences in rail costs between the Maputo terminal and Richards Bay rail corridors.
"This agreement demonstrates management's continued execution of the turnaround strategy in resolving all material legacy issues," Brown said in a statement. "Coal of Africa and Grindrod have a long-standing relationship, and the settlement promotes a future relationship beneficial to both parties and their shareholders."
By Hana Stewart-Smith; hanassmith@alliancenews.com; @HanaSSAllNews
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