Buffalo Coal treads debt-laden waters

VANCOUVER (miningweekly.com) – South Africa-focused coal miner Buffalo Coal has reached an agreement with its lead shareholder, Resource Capital Fund V (RCF), to amend a convertible loan agreement and provide it with an interest payment holiday effective from July 2, 2016.

RCF, which currently holds about 86.7% of Buffalo's issued and outstanding common shares, has agreed to defer interest payments until whichever comes first of the following scenarios: the maturity date of the convertible loan, the occurrence of any event that constitutes a default as defined in the convertible loan agreement, or the delivery of a notice by RCF terminating the interest payment holiday.

During the interest holiday period, interest will accrue at a rate of 1.29%, and will be payable on the last day of the interest holiday period in cash or common shares.

All other terms and conditions of the convertible loan agreement will continue in full force and will remain unamended.

Toronto-based Buffalo also announced Wednesday that it had completed a shares-for-debt arrangement with one of its creditors, mining contractor STA Coal Mining.

Buffalo issued 4.56-million common shares at a deemed issuance price of C$0.05 apiece to STA to settle about C$228 435 of contract mining fees payable to STA by a subsidiary of the company. This is for fees due in the quarter ended September 30.

Meanwhile, the company also announced that it received a forbearance letter from Investec Bank (Investec) for defaulting on certain covenants in relation to R183.7-million of Investec debt as at September 30.

Subsidiary Buffalo Coal Dundee (BC Dundee) was required to meet specified debt covenants at that date regarding its Investec debt totalling R201.6-million. Such a breach constitutes an event of default under the debt agreement, whereby Investec is entitled to request early payment of the outstanding debt.

However, Investec provided a forbearance letter on November 22, stating that it did not intend to exercise its rights to request early payment of the outstanding debt. However, it had reserved its right to review this decision periodically, with no obligation to keep the company advised in this regard. As a result, the company classified the total Investec debt as a current liability.

Buffalo supplies high-quality bituminous coal and anthracite to both the export and domestic markets, and has been hard-hit by a precipitous decline in coal prices in recent years. However, the API 4 coal index, the benchmark pricing index for coal exports meeting the RB1 specification, is currently at levels of around $85/t and has steadily increased from $51/t since the start of 2016. The short- to medium-term outlook for the API 4 coal price index is in contango, meaning that the future spot price is below the current price, and customers are willing to pay more for the commodity at some point in the future than the actual expected price of the commodity.

The domestic anthracite market remains weak in terms of demand and is expected to remain depressed throughout 2016.