4 September 2009

Publication: Miningmx

Author: Marc Hasenfuss

Newly listed exploration company Sephaku Holdings has entered into a coal mining joint venture agreement with an Indian conglomerate.

Sephaku will link up with the Action Group to “co-develop” opportunities around building a medium sized coal mining company in South Africa. The venture will be known as INSA Coal Holdings.

The Action Group –as far as Miningmx can ascertain – has no major interests in mining. The group, described as a “diverse holding company” holds interests in footwear, chemicals, automotive and industrial batteries, computer peripherals and power backup, housing and commercial building, health care, steel plants, gas distribution and fibre/particle board production.

The deal represents Sephaku’s first serious shift into coal sector. The company’s portfolio is currently anchored by cement projects with smaller interests in gold mining, fluorspar, tin, limestone, diamonds and nickel.

Dolf Prinsloo, an associate director at Deloitte Consulting (which brokered the Action deal) said INSA’s activities would include greenfields exploration projects and brownfield projects.

He added that the new company would also consider acquiring operating mining assets.

Coal has been a commodity play that has excited many investors. But a number of much vaunted projects have hit snags, and not yet delivered on the initial promise.

Junior exploration counters are not exactly the flavour of the month on the JSE at the moment with a couple of recently listed counters fizzling out.

At first glance Sephaku (which Miningmx notes is fairly cash flush) looks more formidable when compared with some of its listed counterparts. But the company still needs to convince the market it is capable of generating sufficient deal flow to build a formidable portfolio of exploration projects.

Since listing last month the market has battled to find a value peg for Sephaku with the share veering between 480c and 640c on the JSE.

Sephaku’s financial statements to end February 2009 showed a tangible net asset value of 252c/share. In that reporting period the company notched up losses of R10m.

Sephaku earned R45m in ‘other income” and investment income (mainly interest earned on cash), but incurred operating expenses of R53m.

Sephaku recently emphasised that net asset value (rather than income) would be a more appropriate measure for investors to apply to the company, which was mainly involved in exploration and development at this juncture.