1st Dec 2015 15:38
LONDON (Alliance News) - Coal of Africa Ltd on Tuesday said it has signed a non-binding memorandum of understanding which will lead to a Chinese company investing in the company's subsidiary that holds the Makhado project in South Africa.
The memorandum has been signed with Qingdao Hengshun Zhongsheng Group Co Ltd, which will acquire up to a 34% stake in Coal of Africa's subsidiary, Baobab Mining and Exploration (Pty).
Qingdao Hengshun is an industrial conglomerate incorporated in Qingdao, Shandong Province, China and listed on the Shenzen Stock Exchange. Baobab is the legal owner of Makhado, which is a hard coking coal project in South Africa's Limpopo province.
Under the deal, Qingdao Hengshun will acquire up to a 34% stake in Baobab at a "mutually agreed consideration". The preliminary terms are based on an indicative cash acquisition price of approximately USD114.0 million, said Coal of Africa.
Coal of Africa said the proposed investment values the Makhado project at a minimum of USD335.0 million.
The deal is subject to a number of things, including the two companies signing a formal and binding deal, and if Coal of Africa wants to proceed, it will have to award the engineering, procurement and construction contract for the Makhado project to Qingdao Hengshun.
Importantly, that contract is thought to be worth around USD400.0 million in total, but Coal of Africa said the final total will be known once the front-end engineering and design work is completed in the first half of 2016.
Coal of Africa is aiming to finalise the deal in the first half of 2016.
If the deal proceeds, Qingdao Hengshun will be entitled to nominate directors to the board of Baobab, the number of which will be agreed between the two parties. However, Coal of Africa stressed the "effective management" of Baobab and the Makhado project will remain the responsibility of Coal of Africa.
Back in September and October, a shareholder of Coal of Africa, Yishun Brightrise Investment PTE, looked set to acquire a stake in the Makhado project and take on the EPC contract. However, Coal of Africa said Tuesday that this will no longer proceed.
There is also the possibility that Qingdao Hengshun will provide Coal of Africa with a debt package, but no further details about this potential part of the deal were released Tuesday.
Coal of Africa shares were up 17% to 3.06 pence per share on Tuesday afternoon.
By Joshua Warner; [email protected]; @JoshAlliance
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