Posted: 2008-06-10 23:57 Enough coal for Africa  Presenter: Williams Guest(s): Farrell - Click here to listen to the interview Summit TV speaks to Simon Farrell from Coal of Africa about their partnership with the world’s biggest steel maker, their prospects for the future, and on being a victim of crime in South Africa DAVID WILLIAMS: Welcome to Face to Face. We’re talking coal to Coal of Africa managing director Simon Farrell about the prospects for the industry in terms of Eskom and power. Simon, you’re listed on the AIM, Australia and in South Africa - what are the prospects for the company at the moment? The big deal in April - let’s talk about that first... SIMON FARRELL: The deal in April was when we joined hands with ArcelorMittal - they are the largest consumer of coking coal in South Africa, and they’re the largest steel producer in the world. Last year they produced approximately 120 million tons of steel - which makes them three times bigger than the number two in the world. To have a partner like that as a junior getting going is fantastic - they’ve turned out to be wonderful partners, and they’re very simple to deal with. We are very excited about it… DAVID WILLIAMS: An interesting story at the time - your share price dropped after what you described as a “company making deal”. People didn’t quite follow - but they have since got the message. SIMON FARRELL: It absolutely amazed me at the time. Here we had the world’s largest steel company taking a minimum commitment of 25% of our planned production at a free on rail price - but priced at a free on board price - so essentially we were getting paid at the mine what we would normally get paid at the ports. It was just fantastic. The other thing that happened was in the run up a couple of weeks before that the shares had run up 15% or 20%. So when the announcement was made we had done the placement - it was at a 10% to 15% discount to the then market price. There was a lot of whingeing from the shareholders - most of them are quite clever - really I still shake my head about it. But since then the price of the shares has gone up about 35% to 40% so they quickly realised what happened and it’s now reflected in the share price. DAVID WILLIAMS: Coal is a good place to be in South Africa with our coal reserves - what are the prospects specifically here, and notably with Eskom supply? SIMON FARRELL: There was a misconception that there was a shortage of coal in South Africa - it’s quite the opposite. I think it just reflected poorly on Eskom in terms of their coal purchasing. After the mining indaba in Cape Town in February it was quite amazing - we were flying in to have a look at the Camden Power Station with two to three days supply in front of it, and it just so happened that at the time there was a train with 200 wagons of export quality thermal coal chuffing past. It was just that I think the Eskom purchasing department needed a bit of a spanking. DAVID WILLIAMS: Part of the problem may have been their procurement policy. There does seem to be a transport and infrastructure issue getting the coal to where it needs to be - as opposed to mining it... SIMON FARRELL: To be fair that is a worldwide problem - and it’s the reason why thermal coal prices have more than doubled this year, and why coking or metallurgical coal prices have tripled. Worldwide the governments of Australia, China, and India have all underestimated what the requirements for bulk commodities has been - and while the miners can produce the stuff they can’t get it to the ports. DAVID WILLIAMS: You’ve had experience of mining in different countries - you are Australian and you live here for some of the time - what was the perspective from a foreign perspective? We thought we were having a bad time with a big power crisis in January and early February - what damage did this do to the image of South Africa as an investment destination? SIMON FARRELL: It didn’t frighten people off - I think it was more scratching of heads asking “How on earth did they get themselves into this pickle?” So it was more amazement rather than fear. I think in time Eskom, the government and Transnet will overcome the problems - but what people don’t realise the competition for capital, capital equipment and people is quite intense - and things that might have taken one year five or 10 years ago now take 18 months and are m much more expensive. The price of steel has gone through the roof - and things are going to take longer - but I think previously the market generally thought the spiking coal prices would come back to more normal levels within 18 months to two years, but most of the pundits are now saying it’s a four to five year problem so people are going to have to get used to paying coal prices in the US$125 to $150 range, and coking coal in the US$300 range for some time. DAVID WILLIAMS: What about the political situation here? You have a semi-South African and semi-foreign perspective - the political uncertainty Mbeki to Zuma? SIMON FARRELL: I think initially there was great concern. People generally fear change - while they have a different opinion of Mbeki domestically, I think in the foreign sense they thought he was okay and Zuma is unknown. I think there is a growing acceptance of the change of guard - and everyone is adopting this “wait and see” attitude. I think crime is a real issue in this country - for foreign investors most people that invest large amounts of money in a foreign country like to go and visit regularly… DAVID WILLIAMS: Also, they want their people if they invest there to be safe - would you say that’s the biggest obstacle to investment, tourism and visiting the country generally? SIMON FARRELL: Yes, if it’s not number one it’s very close to number one - everyone has a different perspective on it. DAVID WILLIAMS: You were saying you yourself had an experience. SIMON FARRELL: Yes, I was hijacked over the weekend - which I hope not to repeat in the near future. DAVID WILLIAMS: What happened? SIMON FARRELL: I came through the gate of the hotel where I am staying - it’s a very nice B&B - and I drove up the driveway, parked the car turned around and there’s a bloke with a gun saying “lie on the ground - I want your watch and wallet.” Fortunately he didn’t take the car. I’ll be a bit more careful - looking behind when I drive in the future. DAVID WILLIAMS: Did it make you want to leave the country? SIMON FARRELL: No, but it would be nice if it didn’t happen so regularly. Most of my friends have been hijacked. Something has got to be done about it. It’s all very well making lots of money - but if you lose your life in the process it’s all pretty pointless. www.summit.co.za Transcripts: onsub1@avusa.co.za sa/met Comments Related to this transcript: Comment on this transcript... Name : Email : Comments :