Controversy Surrounds LontohCoal’s Recent Capital Raising

BRISBANE, Australia - May 1, 2013 - PRLog -- LontohCoal, the Johannesburg-based junior mining company that harboured ambitions of a US$1B listing in Hong Kong, is hoping to raise R360M ($40M) from Asian and West African investors in an effort to buy 6Mtpa of export entitlement, and to provide access to proprietary and third party coal production.

However, the capital raising has drawn criticism from certain quarters of the coal industry.

In a presentation published on LontohCoal’s website, the company says it hopes to issue 30 million shares at a price of R12/share, nearly half that LontohCoal says the company is worth, based on a discounted cash flow calculation which sees revenue rising from $1M in 2014 to $7M in 2023.

The presentation said the funds would secure export entitlement through Richards Bay from as early as the fourth quarter of this year, help pay for the consolidation of thermal coal production from Mpumalanga province, and pay for proprietary anthracite supply from KwaZulu-Natal province.

The funds would also be pumped into preparing for a listing in Hong Kong which is now scheduled for between the next 12 to 18 months. LontohCoal said previously it hoped to complete a listing in Hong Kong during 2013, although market conditions would appear to make a listing seem increasingly unlikely.

An industry source was critical of LontohCoal’s short-term, $40M capital-raising plans. “It’s certainly not a registered prospectus while the Kwasa Colliery near Piet Retief (one of the properties from which LontohCoal said it hoped to secure coal) is or was in business rescue,” the source said. In South Africa, business rescue is where companies are allowed to put a stay on creditors while steps are taken to avoid bankruptcy.

LontohCoal last year shipped anthracite to Ethiopia using material from Kwasa, but the colliery is neither owned nor operated by LontohCoal. Nor is the anthracite production in KwaZulu-Natal owned by LontohCoal. This is the so-called Hlobane View Colliery which has been owned by a number of parties and has not been mined since the early Nineties.

Tshepo Kgadima, president and CEO of LontohCoal, said the capital-raising document was a registered document in that it complied with regulations in the jurisdictions where the capital would be raised. Kgadima said he would embark on a roadshow next week to Asia (Singapore and Hong Kong) while another team was currently in Nigeria, raising capital.

Regarding Kwasa, Kgadima said “a number of options” were being considered. “In the next week we will have certainty on the way forward. At the moment, we don’t have a water use licence, nor one for Dundas,” said Kgadima of a seam in the same complex from which new coal would be mined.

“The future of coal production from Mpumalanga province is blending coals. In that regard we have to become a consolidator of properties, buying coal from previously disenfranchised operators,” he said of LontohCoal’s plans to buy and export third party coal production.

As for export entitlement through Richards Bay, Kgadima said capital raised would be used to secure a portion of the expansion planned by Richards Bay Coal Terminal (RBCT). It said in November last year that it intended to grow to 110Mtpa from the current 91Mtpa capacity.

In January and April last year, it was reported in City Press, a newspaper in Johannesburg, that Kgadima’s LontohCoal had fallen foul of its investors. The investors included senior people in the ruling African National Congress (ANC), as well as top South African businesswoman, Wendy Luhabe. They claimed the company had duped them of millions of rands.

The names of these high profile people were allegedly used to lure more people to pump money into LontohCoal with a promise of huge returns on the Hong Kong Stock Exchange, City Press said. They were particularly angry as LontohCoal didn’t own any of the mines from which it was claiming production. The claims were refuted by Kgadima.

A major part of LontohCoal’s valuation is its part in developing the 22Bt Lubimbi coal prospect in Zimbabwe. The South African Coal Report (SACR) said in the past that rights to the prospect were subject to dispute. Sable Mining, a UK-listed company, said it owned a joint venture with Zimbabwe’s Independence Mining - a claim the SACR was able to verify. “Sable is our partner with a 49% stake in the project,” said Peter Mutsinya, technical director of Liberation Mining in April last year.

Kgadima said LontohCoal had legal rights to the prospect. “There’s no legal reason to doubt our rights. The amount of work we’ve already done in Zimbabwe and the plans that we have also sets us apart from our rivals,” Kgadima said.

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