'Lavish spending' at teetering Waterberg Coal

Claims of extravagant spending by Waterberg Coal's top brass are under the spotlight after Standard Bank demanded this week that the coal junior repay by April 9 the R400-million it borrowed two years ago.

Standard Bank's decision to recall the loan has now cast a cloud over the future of the cash-strapped company, which had been betting on scoring a contract to supply 10 million tons of coal a year to Eskom. But this deal failed to materialise as the power utility battled its own financial woes.

Waterberg's share price plunged 79% in the past year, and it has teetered on the verge of bankruptcy for more than a year. For the six months to December, it had a loss of R448-million, and it had only R9.6-million in cash on hand at year's end.

To help navigate South Africa's tricky regulatory environment, CEO Stephen Miller brought politically connected Mathews Phosa in as chairman two years ago.

This week, trade in the share was suspended on the JSE and the Australian Stock Exchange after Waterberg revealed that Standard Bank was "seeking repayment" of the loan it took out in March 2013.

Sources close to the company say that instead of paying off debt, Australian-born Miller and his executives apparently lavished cash on dinners and entertainment.

Miller allegedly also spent his time in South Africa in a suite at the Michelangelo Hotel in Sandton. An executive suite at the hotel costs R7700 a night, a premier suite R9720 and a residential suite R13917, so the monthly cost of renting a suite is more than R230000.

When questioned, Miller, who will return to South Africa tomorrow , said he was paying for the Michelangelo suite out of his own pocket.

But the sources list other instances of lavish spending: two years ago, the company booked out a luxury guesthouse, Cape Villa, in Camps Bay during the Mining Indaba, ostensibly to impress new investors.

"These guys have been splurging money like it's going out of fashion. Yet they can't even repay their bankers," said one source.

Standard Bank would not say why it decided to recall the loan now.

The company has also attracted controversy for its close links to businessman Mervyn Key, who was involved in the Tollgate fiasco. Key was a director of Tollgate, which collapsed in the 1990s with debt of more than R300-million. He was charged with fraud and theft of R28-million, but ultimately acquitted.

Miller said Key had helped Waterberg on legal matters, but claimed this was as a consultant and that he had no permanent contract.

Key said he had no involvement in Waterberg Coal, yet he was able to answer questions on the company's funding issues in great detail.

Both Miller and Key said negotiations with Standard Bank were continuing. Asked why the loan was not repaid on time, Miller said: "Eighteen months came very quickly and R400-million is a lot of money."

The company intended to start supplying Eskom with 10million tons of coal this year, but it has struggled to sign an agreement with the utility due to issues including conflicting black economic empowerment requirements.

The plan now is to develop its mine in Limpopo and export the coal to Europe, while it waits for an agreement with Eskom.

Its survival depends on securing $200-million (R2.4-billion) to pay the Standard Bank loan and start developing the export mining project.

Waterberg Coal's fragile financial position and its missed deadlines have not endeared it to investors. The stock traded at A$0.14 a year ago, but was down to A$0.04 on Monday, before trading was stopped.

"It is not easy for a junior mining company to get the financing needed with current low coal prices," said Miller. He said the shares would start trading once financing was in place.