Coal of Africa (ex GVM) (CZA)

Previous Stock Tip These companies are all previous recommendations from the Red Hot Portfolio that we subsequently recommended and then sold from the portfolio at a later date. By no means are these companies intended to be buy recommendations for you to go out and invest money towards their shares. For the opportunity to start making serious money from the recommendations we’re making now, just start your 1 month risk free trial! Initial Recommendation: RHPS Issue 70 / March 2007 This industry may have been in the pits, but times are changing – This company is well placed to cash in on this boom Golden Valley Mines (GVM) listed on the general mining sector of the JSE in November, but listed in Australia way back in 1980. In 2005 the company also listed on the AIM exchange (the UK’s equivalent of our AltX). This amazing company’s on the move and has been through some big changes in its history. It’s now focusing its energy on coal mining in South Africa, although it also owns a nickel-magnesium alloy business and has interests in gold and zinc explorations in Australia and Indonesia. Part of the reason for the new focus on coal relates to the infuriating power cuts we’ve been having. Eskom (who I despise) has finally agreed to resurrect a number of their “mothballed” coal burning power stations in a far-too-late attempt to meet growing demand. There’s no doubt, the population of South Africa is growing very fast, which translates into a steadily increasing demand for power and hence coal. This is over and above what will be provided by private energy players like IPSA. Eskom consumed 112 million tons last year alone. Due to demand South Africa has switched to being a net importer of coal rather than a net exporter and GVM has spotted this opportunity well in advance. Spreading its wings and expanding solidly ensures a very positive future GVM began its new venture in 2005 by obtaining a 49% interest in Holfontein Investments. This has subsequently increased to 100%. Then last year the second major move into coal was forthcoming with a 74% acquisition of Limpopo Coal. The Baobab Mining and Exploration is another, which GVM will shortly own 100% of, also situated in the northern regions. This deal is expected to be completed by the end of this month (March). It’s not only the growing demand for coal from Eskom that’s in play here, but also a strong ever-growing demand for coking coal from the steel industry to fire their furnaces. The northern coalfields are still relatively undeveloped and untapped. This is where the new grade of coal called “thermal coal” comes from and this is just where we find GVM digging in boots and all! On the financial front things look great with cash in hand at A$10.7 million and profit before tax sitting at A$2 million. (The A is Australian dollars.) A bankable feasibility study on new projects within the Holfontein Project is due for completion now in March… perfect timing! Becoming a “right hand” to Eskom will keep the profits rolling in Now comes news that GVM is to buy Kelso Mining for R140 million, which gives GVM access to Coal of Africa. These coalfields are within 2kms of the Camden Power Station near Ermelo, which is one of the mothballed stations to be “switched on” again by Eskom and is right next to the rail line to Richards Bay. GVM is currently involved in expansion into Asia through the purchase of interests in Asia Energy Plc. This is an exciting opportunity as it expands the portfolio of coal investments on a global basis and could be the start of further international expansion. A glance at similar companies reflects this company’s true potential If you have a look at other coal mining shares, they’ve done magnificently.In fact Schamin was one of them, which I selected twice for our portfolio, reaching target both times. Although dirty black coal isn’t green by any means, the world has a long way to go before it can do without it. Nuclear is green and clean, and much preferred, but has many decades to go before replacing coal and that’s just on the power generation side of things. Right now demand is outstripping supply, mothballed power stations are to come back on stream, steel demand is growing, Maputu is to upgrade its coal wharf and the rail line to it’s being upgraded. And so goes the story and what a story it is. All of this spells future success for the coal industry and now we have this great opportunity to ride along with this new kid on the JSE block to success.

RHPS Verdict This company has so many things going for it I simply don’t have space to list them all. The only negative at the moment is the share isn’t very liquid right now. I don’t expect this to be the case for too long though! I vote this a buy from current levels of around 515c to a target of R15.00 in a year. This is the sort of share that you need to buy for the long-term! Update 1: RHPS Issue 72 / May 2007 RHPS Recommendation: BUY GVM (GVM): A lot more to come The company has just announced the raising of £12.7 million from clients in London to fund the acquisition of Kelso Mining and Coal of Africa. GVM has also received government approval for the Baobab Coal Project, completing the acquisition. Discussions have just been entered into with Eskom for a possible off-take agreement from the Mooiplaats Coal Project. I’m expecting a further announcement soon on this, which could be very lucrative for GVM. Things are looking very good! Update 2: RHPS Issue 77 / October 2007 RHPS Recommendation: BUY GVM (GVM): Looking Good The company just released a market update or report indicating that significant progress is being made with all the coal projects. Things are looking very good here. Update 3: RHPS Issue 80 / January 2008 RHPS Recommendation: HOLD GVM (GVM): Superstar! The share’s been a superstar performer of late making repeated new highs. On 19 December 2007 the company will be changing its name to Coal of Africa. I’ve just gone through the annual report, which is indicative of a great company. Update 4: RHPS Issue 83 / March 2008 RHPS Recommendation: BUY Coal of Africa (ex GVM) (CZA): Time may be up but we’re staying in The share’s now on target in exactly the right timeframe, but due to the potential for a lot more upside, we’ll hang on to the share for now. BUY Update 5: RHPS Issue 85 / June 2008 RHPS Recommendation: SELL Coal of Africa (CZA): Handsome profits from a magnificent performance The share’s been a spectacular performer, but it’s now over the time limit and well beyond our target (which I raised twice). Sell the share and take the profits.

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