Edenville Energy PLC (LON:EDL) Chief Executive Officer Rufus Short caught up with DirectorsTalk for an exclusive interview to discuss their production & what they’re looking to achieve and their £740,000 placing.
Q1: I understand Edenville started trial coal production in October/November last year and that you’re now increasing production and looking to secure long term orders. Can you give us some background as to where your production is at and what you’re looking to achieve?
A1: As I said in the results announcement on Tuesday, we finish 2017 with an operating mine producing coal, established in 1 year with several trial orders for coal and the prospect of additional long-term orders as production continues to ramp up over 2018.
Where we sit today, multiple short-term orders for coal have been fulfilled and the wash plant is operating well and can produce a consistent clean sized product. We’re currently supplying, or arranging supplies, to over a dozen different customers in the region, Tanzania and elsewhere. We’re working alongside these customers to develop products they have requested, some of these are specialist products for their operations.
The potential orders, we’re currently discussing and we must ensure that we’ve got enough capacity to produce the type and the size of the coal demanded by customers who will provide the best medium-term return for the company.
We have an efficient current fleet in the mining side and it’s available to excavate approximately 40,000 cubic metres of material a month and we’re meeting those targets, overburden is removed and the raw coal is then processed. From this, we produce coal we can sell and also stockpile coal, some of this stockpiled coal is suitable for future use in the power plant.
With the coal quality, it’s very wrong to assume that coal is coal and customers will take what we can dig out of the ground and wash, the coal size is critical and particularly the calorific value is crucially important. Also important is how it is transported to the customer to ensure the quality is not degraded, customers have tended to vary their collection due partly to the wet conditions affecting transport routes and also their ability to source economically favourable transport.
The transport costs can be up to two or possible three times the cost of the coal depending on the customer’s location and they have to take that into account when they’re placing their orders with us. Therefore, we’ve tried to produce on ‘as needed basis’ rather than having excess washed coal sitting in wet conditions which will avertedly affect its quality.
Now, that we’re experiencing drier conditions in Tanzania, customers have started to take increased quantities of coal, this being predominantly the high calorie coal as opposed to the medium calorie coal. The medium calorie product which is predominantly fine coal is viable fuel for the mine and power plant but at present has a limited external market although we are pursuing several possible opportunities for this.
The key to increasing the current economic production at the current time is refinement and enhancement of our processing capability in the wash plant. As, I say, we are currently fulfilling orders for various companies with the intention of securing further long-term commitments for offtake of coal and I look forward to providing updates on these in the coming months.
Q2: Now, you raised £740,000 in a discounted placing at the end of April, what will the proceeds be used for?
A2: As I said in the last question, the key to maximising the value from our current coal production is ensuring the processing plant is optimised to produce the right product. As the mine has developed, we have identified some modifications and improvements that can be made to optimise throughput and treatment of the raw coal. Filtration system has been constructed that cleans the fines and waste water and is improving water usage overall. We’re also planning on installing a pre-screening module to take out the majority of the fines before the reach the washing circuit and this should greatly improve the general throughput rate in the plant as larger lump coal will be the only material going through the plant. These enhancements couple with an additional excavator and fleet of trucks to open up new mining areas is what the proceeds of the recent placing will largely be spent on.
What we mean by advancing our current mining operations, the cash flow from current sales is unfortunately insufficient to cover these items at present. As consistently stated in our announcements for all coal sales have been on normal commercial terms and whilst we receive some upfront payments for smaller orders, other shipments are on longer payment terms requiring Edenville Energy to have a certain amount of working capital available to fulfil orders. Those on longer term payment plans tend to be larger organisations and we’ve conducted our own due diligence into their credit worthiness, nevertheless, we need that working capital to get the product on to the stockpile and ready for those customers.
Q3: With regards to the placing, there have been a few questions asked about its timing of the announcement, the price and whether you’ve considered alternative sources of finance for Edenville Energy?
A3: I’ll deal with each of these points separately.
Firstly, with regards to the timing of the placing announcement, please understand that no one wants to make announcements at 3:30pm on a Friday afternoon and I was as frustrated as anyone that this occurred. However, we were required under the AIM rules and Market Abuse Regulations to ensure that inside information is announced without delay, unfortunately the documentation for the fundraising was not received and signed by the investors until Friday afternoon so we had to issue the RNS at that time in accordance with AIM Rule 11.
The placing was carried out at the best price our broker could achieve and unfortunately reflects the discount invested demand for a placing in a small cap resources stock. We did consider a wider share offering but we were advised that the costs and uncertainties surrounding this would make this appropriate at this time.
You’ve also asked whether we have looked into alternative sources of finance, I can assure you that we, and our advisors, have investigated a number of sources of funding to meet the company’s requirements including various forms of debt. However, we’ve not been able to source any meaningful finance other than PLC equity on acceptable terms at the present time. I believe that this is primarily due to the country in which we operate and the size and development stage for our activities.
Therefore, the Board has to conclude that at this time, the only viable source of financing was to raise money through the issue of equity at the PLC level and this was done at the best price our broker could achieve.
I would like to also point out that the project has been built and put into operation with no debt and the company has no significant debt commitments at this time.