Forbes and Manhattan Coal boost export capacity

Forbes and Manhattan Coal (FMC-T) currently exports about 35% of the coal it produces at its two mines in South Africa but plans to raise that percentage to about 80% by 2013 on the back of a new agreement with Transnet Freight Rail and Grindrod Terminals to export coal through the Port of Richards Bay in eastern South Africa, a deep sea port 190 km north of Durban on the Indian Ocean.

Stephan Theron, the company’s Toronto-based president and chief executive, says the deal is a milestone because it “mitigates throughput risk.”

“It’s extremely difficult to get any port throughput in South Africa and there’s constraint in rail as well so this is a significant deal for us,” he explained in a telephone interview.

“South Africa is a very mature coal market that has been in operation for quite some time and the major miners are key players,” he adds. “Richards Bay Coal Terminal is a private terminal with 90 million tonnes of capacity so there are shareholders who have certain allocations at the port and for junior miners it’s very difficult to get any allocation.”

Richards Bay is the main coal terminal and Forbes and Manhattan currently have a 197,000 tonne per year allocation there. The Grindrod facilities are at the Dry Bulk Terminal operated by Transnet, both in the port of Richards Bay.

Within the dry bulk terminal Grindrod has its own facility where it can process coal. So coal from Forbes and Manhattan’s coal mines will be sent directly to Grindrod’s stockpiling facility where it will then be transferred to ships at the port. Grindrod Terminals will provide up to 70,000 tonnes of stockpile capacity per month.

Under the agreement, Grindrod Terminals Richards Bay will provide export capacity in the terminal for the shipment of 600,000 tonnes of coal a year in 2011, 720,000 tonnes in 2012 and 960,000 tonnes in 2013. 

Forbes and Manhattan estimates that at current spot prices, the increased throughput of coal “could potentially lead to incremental cash flows of up to $30 million per year.”

News of the deal after markets closed on Dec. 7 sent shares of the company up 7.5% to $3.60 per share the following day. The coal producer’s shares closed at $3.66 apiece on Dec. 9.

Since listing on the TSX on Sept. 27, Forbes and Manhattan Coal has traded in a range of $2.65-$4.35 per share.

Forbes and Manhattan own and operate the Magdalena bituminous mine and the Aviemore anthracite mine in the Klipriver coalfield near Dundee in South Africa’s KwaZulu Natal province.

For the fiscal year ending in February 2011, the company anticipates it will produce 680,000 tonnes of coal from the two underground mining operations. It is currently expanding its coal production capacity and expects that amount to grow to 1.5 million tonnes annually by 2013. Of that amount, 1.2 million tonnes will be earmarked for the export market, Theron says.

The company acquired the two underground coal mines when it took a majority stake (53%) earlier this year in Slater Coal, a privately held South African coal mining company run for the last two decades by the Slater brothers. Forbes and Manhattan will acquire 100% of the company and its assets by March 2012 for a total acquisition price of US$75 million.

Forbes and Manhattan has about 25.6 million shares outstanding.