Shares digital

South China Resources goes for coal

by Dan Coatsworth

South Africa beckons for Aim-quoted metals explorer South China Resources as it prepares to reinvent itself as a coal specialist. The shares have been suspended pending a reverse takeover of the Elof coal project from mining contractor, Injula. It will raise up to £4 million to buy a 70.5% stake and fund project development.

The company pulled out of a joint venture a year ago on the Danfeng copper and molybdenum project in China, saying it wasn’t economic to develop. In March 2008, South China Resources severed its remaining Asian ties after giving up on an option to explore the Zhunuo copper project in Tibet a month earlier.

Elof, near Johannesburg, is one of several deposits that form an extension of established coalfields in South Africa. It contains mostly thermal coal which South China Resources hopes to sell domestically to state energy company, Eskom. Should the reverse takeover be approved by shareholders, South China Resources will immediately start a bankable feasibility study.

Non-executive director Alastair Clayton says the company has spent seven months negotiating the transaction. ‘When we first looked at Elof, it was a good project. Now with coal prices rising so fast and Eskom needing more coal, it is an outstanding project,’ says Clayton.

Injulu will tale a 20.8% stake in South China Resources and head operations at Elof, supplying a managing director and executive directors. Clayton will remain as a non-exec but the future of Australia-based executive chairman Nathan McMahon is uncertain. Clayton says the board may favour executives either based in London or South Africa. Additional projects are being sought. Having rejected a potential deal in Eastern Europe, the company said it would concentrate on expansion in Africa.

Shares says: Coal may be hot property but having already failed investors with China, it will have work hard and fast to regain support.