🕐02.11.12 - 09:54 Uhr

INVESTEC: COAL OF AFRICA - COMPOUNDING THE OPERATING LOSSES - BUY



Coal of Africa · CZA has announced further details regarding the strike settlement at Mooiplaats, disclosing that it has agreed to a 26% increase in labour costs for the bargaining unit, versus its original offer of a 22% increase.

While the outcome is not hugely material on a cost per tonne basis, we find it odd that CZA would yield to union pressure at all when it did not appear necessary to do so, given that the operation is loss making.

Currently, any addition to the cost base simply compounds the losses.

We can only assume that there is a strategic benefit, perhaps involving the pending Haohua transaction.
¢ CZA had announced in yesterday’s 1Q13 report that it had reached agreement with the National Union of Mineworkers (NUM) to end the strike at Mooiplaats.

The company has subsequently disclosed that it has agreed to a 26% increase in labour costs, inclusive of various benefits and allowances, for the relevant bargaining unit.

It had previously offered a 22% increase (all inclusive), prior to the workers going on strike on the 25th of September.

¢ With the bargaining unit representing only 27% of Mooiplaats’ labour bill, the increase equates to an overall increase of approximately 1% on the total cost per tonne of saleable coal.

On this basis, the outcome would appear to be reasonable, but we struggle to understand why CZA had to yield at all, given that it had already been proposing a reasonable wage increase and, crucially, given that the operation is currently loss-making.

CZA had already been able to declare “force majeure” so there was little pressure to deliver tonnage, and CZA was not incurring labour costs since this was an illegal strike (no work, no pay).

With South African export thermal coal prices continuing to weaken, any continuation of the strike presumably worked in CZA’s favour.

¢ We have not adjusted our earnings assumptions any further, given the relatively limited impact in light of our recent coal price adjustments.

Our target price, based on risked NPV, is unchanged.


To access the full note please click here Analysts: Europe: Hunter Hillcoat +44 (0)20 7597 5182 South Africa: Albert Minassian +27 11 291 6176 Australia: Tim Gerrard +61 2 9293 2168
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