The Speculator

Coalworks gets a vote of confidence from institutional investors with a successful share placement.

PORTFOLIO POINT: Coalworks’ successful $17.4 million placement finds support from institutional investors, with its shares retaining a premium over the issue price.

Our portfolio stock Coalworks (CWK) scored a vote of confidence from backers of a placement made late last week to raise $17.4 million. Even in today’s lacklustre market, the shares maintained a premium to their issue price of 78c, trading this morning at 83c.

The placement was made to new and existing institutional investors in Australia and overseas. Significantly, the Asian-focused Noble Group of Hong Kong has become an important shareholder, with 9% of Coalworks’ issued capital. Noble Group is a leading global supply chain manager.

The placement of 22,383,343 shares was oversubscribed, with the Noble Group taking just over half, or 11,430,707 shares, to emerge as a 9% holder. The placement does not require shareholder approval since it was made within Coalworks’ available 15% placement capacity under ASX rules.

The placement is likely to have diluted the previous 19.9% holding (29.67 million shares) of Coalworks’ major shareholder, Boardwalk Resources, a company controlled by Newcastle-based mining and sporting entrepreneur Nathan Tinkler.

Boardwalk led a dissident shareholders’ revolt last November, which resulted in two of five Coalworks directors failing to win re-election to the board. (See The Speculator, November 16).

One of those to lose his seat was executive director David Smith, a former corporate finance chief with Sydney broker BBY, who had joined the Coalworks board only two months previously. Ironically, BBY was the lead manager in organising the latest placement.

At this morning’s price of 83c, Coalworks carries a market capitalisation of $142 million, with remaining cash following the placement of around $32 million.

Proceeds of the capital raising will enable Coalworks to purchase long lead items for its Vickery South project, and to apply for capacity at Newcastle’s Port Waratah coal export terminal.

Itochu of Japan is spending $11 million to complete a bankable feasibility study to earn a 49% interest in the Vickery South coking and export thermal coal project on the Gunnedah Basin of NSW.

First production is planned for 2015 from a so-far identified JORC-compliant coal resource of 58.5 million tonnes, of which 83% is identified as semi-soft coking coal.

-The Speculator portfolio, as at April 11
Company
ASX
No of shares
Bought
Purchase price
Current price
Current value
Image Resources
IMA*
15,000
31/12/2010*
0.362 av
$0.335
$5,025
Viralytics
VLA
19,995
20/12/2011
$0.308
$0.355
$7,098
Robust Resources
ROL
6,000
31/12/2010*
$1.49 av
$1.230
$7,380
Scotgold Resources
SGZ
27,500
31/12/2010*
5.5 av
$0.079
$2,173
Coalworks
CWK
10,000
31/12/2010*
$0.830
$0.835
$8,350
GoConnect Ltd
GCN
250,000
31/12/2010*
0.034 av
$0.032
$8,000
Minemakers
MAK
20,000
25/01/2011*
0.425 av
$0.255
$5,100
Platsearch
PTS
20,000
8/02/2011*
$0.130
$0.090
$1,800
Broken Hill Prospecting
BPL
20,000
22/02/2011*
$0.160
$0.086
$1,720
Austpac Resources
APG
40,000
2/03/2011*
$0.060
$0.039
$1,560
Potash West
PWN
11,050
30/03/2011*
$0.200
$0.250
$2,763
Cortona Resources
CRC
20,000
13/04/2011*
0.146 av
$0.130
$2,600
Golden Gate Petroleum
GGP
408,500
20/04/2011*
0.0145 av
$0.019
$7,762
TNT Mines
TNT
4,440
22/07/2011*
$0.000
$0.250
$1,110
Quickstep Holdings
QHL
20,000
23/11/2011*
$0.185
$0.160
$3,200
Orpheus Energy
OEG
19,250
17/08/2011*
0.164 av
$0.130
$2,503
 
Total value of portfolio
$68,142
Cash at bank
-$13,930
Total
$54,212
 
Portfolio change since January 3, 2012 (started with $50,000)
8.42%
All Ordinaries change since January 3 2012 (then 4155.22)
5.26%
 
*Shares held from previous year, carried at their December 30, 2011 closing price.

New funds will also boost Ferndale project

The new funds will also be used to increase Coalworks’ land holding at Ferndale in the Upper Hunter, which has a JORC-inferred resource of 743 million tonnes, of which 443 million tonnes is an open cut-inferred resource and 300 million tonnes an underground inferred resource.

Coalworks owns a 92.5% interest in Loyal Coal, holder of the Ferndale project (EL7430), which was independently valued more than a year ago at $40 million.

Since then, with Tinkler’s company Boardwalk, Ferndale has entered into a joint venture under which Boardwalk will acquire 50% of Loyal Coal by spending $25 million to fund a bankable feasibility study for an open-cut coal mine and a pre-feasibility study for an underground mine.

Conceptual mine studies are underway with a view to first production planned for 2016. (Boardwalk acquired its then-19.9% interest in Coalworks for $19.2 million cash through a share placement from Coalworks earlier last year.)

Following last week’s successful placement, Coalworks’ chairman Wayne Mitchell said: “We continue to make good progress at Vickery South and Ferndale. The proceeds of this placement position us to fund advancement of both flagship assets over the coming months.”

Coalworks has two remaining major assets:

# Oaklands: In south-central NSW, about 250 kilometres west of Canberra, with a JORC-compliant resource of 822 million tonnes of thermal coal, including 121 million tonnes measured, 574 million tonnes indicated and 129 million tonnes inferred. This is the least advanced of Coalworks’ projects.
Consultant Minarco has been undertaking preliminary feasibility studies for a range of coal-to-liquids projects based on a range of CTL plant capacity options (7000, 14,000 and 21,000 barrels/day). At an investor presentation last month, Coalworks said a 21,000 barrels/day plant would require a multi-million dollar consortium to be formed, for an output of 21,000 barrels a day of petrol, equal to 6% of the Australian market. First petrol could be available in five to six years after securing finance.

# Orpheus Energy Ltd: Coalworks retains a one-third interest in its listed offshore spin-off Orpheus Energy (OEG), which is developing a 50:50 joint venture with Indonesia’s PT Mega Coal in coking and thermal coal export projects in East and South Kalimantan. First production from a thermal coal project has been projected to start this month at the rate of 50,000 tonnes of coal a month from the Alam Duta Kalimantan project, to which OEG is entitled to 50% of net profits. The mine plan aims to achieve a minimum $15/tonne cash profit margin from two open pits being mined at the project by two separate contractors with fixed mining costs.

David Haselhurst writes a monthly column for Money magazine. Please note that he is not able to provide personal replies to emails.