Coal of Africa (CZA) has seen its share price plummet in recent months as demand for coal weakened rapidly. Worse still, labour unrest in South Africa is now threatening to derail the company's lossmaking thermal coal operations altogether. So, despite an impressive pipeline of longer-term, higher-value metallurgical coal assets, we downgrade our long-term buy recommendation to hold.
Hard coking coal prices fell from $310 (£192) per tonne in June 2011 to approximately $220 per tonne at the end of June 2012, declining to $150 a tonne by September. Prices for export-quality thermal coal dropped 27 per cent year on year, reaching a low of $85 a tonne. As if that's not bad enough, Coal of Africa's Mooiplaats colliery workers joined the wider labour revolt ongoing in South Africa last week. The workers went on strike after turning down an offer that would see wages and benefits rise 22 per cent.
Nevertheless, there have been a few recent positive developments. The company has shaken up its board - replacing the chairman - and has signed up a new strategic business partner from China who has preliminarily agreed to subscribe for $100m (£62m) of CZA shares at 25p apiece.
Broker Investec forecasts an adjusted loss per share of 6.8¢ next year, compared with a loss of 20.8¢ last year.
COAL OF AFRICA (CZA) | ||||
|---|---|---|---|---|
| ORD PRICE: | 16.5p | MARKET VALUE: | £132m | |
| TOUCH: | 16.5-17p | 12-MONTH HIGH: | 75p | LOW: 13p |
| DIVIDEND YIELD: | NIL | PE RATIO: | NA | |
| NET ASSET VALUE: | 47¢ | NET DEBT: | 8% | |
| Year to 30 Jun | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (p) |
|---|---|---|---|---|
| 2008* | 54 | -13 | -4.08 | nil |
| 2009* | 36 | -14 | -3.55 | nil |
| 2010 | 98 | -179 | -0.37 | nil |
| 2011 | 261 | -218 | -0.41 | nil |
| 2012 | 244 | -151 | -0.23 | nil |
| % change | -7 | - | - | - |
*2008-09 figures denominated in Australian dollars £1= A$1.56 £1=$1.61 | ||||
