Junior coal miner and supplier Wescoal would be a vastly different company at the end of the current financial year as new developments came on stream, Wescoal CEO Andre Boje said last week during a presentation on the company’s results for the six months ended September 30.

Boje said that, for the remainder of the current financial year, Wescoal, which had achieved a significant increase in earnings in the first half of the year, would focus on establishing the Eland-spruit project, commissioning the Muhanga plant and extending the Khanyisa mining area.

Boje said work on the 40.17-million-ton Elandspruit project, located 10 km from Middelburg, in Mpumalanga, would start as soon as a water-use licence for the project was granted, which was expected by the end of this year.

Wescoal would need to invest R170-million in the project, R60-million of which would be funded through internal cash flows and the balance through an Investec facility.

Further, production at the coal processing plant, which Wescoal acquired from Muhanga Mines last month, would start this week.

Boje said the coal to be beneficiated at this plant would be sold to the company’s existing customer base and would increase the company’s revenue base.

Meanwhile, the pillar and other extensions planned at the Khanyisa operation, in Mpumalanga, would extend the project’s mine life well past 2017.

These developments, in conjunction with the start of the Phase 2 Intibane development, would enable Wescoal to reach its four-million-ton-a-year production target by March 2017.

Boje pointed out that this would be a significant increase on Wescoal’s current production capacity of 1.92-million tons, which meant that the developments would certainly be a game changer for the company.

In addition to these specific projects, the coal miner would also focus on implementing cost control measures and diversifying the mining division’s customer base in the remainder of the current financial year.

Boje said that Wecoal’s reliance on Eskom as a customer was a challenge; however, the company did not expect a reduction in offtake from the State-owned utility during the current financial year.

“Eskom’s black economic-empowerment (BEE) requirements are also always a potential risk,” Boje said; however, he stated that Wescoal would deal with this through the creation of a special purpose vehicle that would enable the Elandspruit project to supply coal to Eskom at the price premium for full BEE compliance.

Other challenges faced by the company included escalating production costs at the Khanyisa operation and the potential depletion of the project’s resources before the extensions were acquired.

Further, the amendments to the Mineral and Petroleum Resources Development Act were also still pending.

Boje said that Wescoal did not fear coal being declared a strategic mineral as it currently mostly supplied the domestic market; however, the price determination aspects related to the amendments were a significant risk.

Financial Results
Wescoal last week reported headline earnings of R28-million for the six months ended September, up 55.1% on the R18-million of the prior corresponding period.

Headline earnings a share increased by 33.3% to 15.23c, while revenue grew by 92.8% to R897.8-million.

Boje said the results had been significantly impacted on by the successful integration of MacPhail, which Wescoal had acquired in October last year.

“This acquisition has breathed new life into the trading division and places the Wescoal group in the unique position of having a sophisticated trading division servicing the domestic market together with a mining division. The division has been rebranded under the banner Wescoal Trading and the integration of the operation is almost complete,” he said.

Further, during the period under review Wescoal’s mining division increased its production by 5% to 942 291 t; however, its contribution to the group’s earnings before interest, taxes, depreciation and amortisation increased by 38.7% as a result of the bulk of the volume being delivered from the Intibane colliery.

The mining division’s revenue grew by 13.4% during the period to R296.8-million, while profit increased to R38-million from R27.7-million previously.

Meanwhile, during the six-month period, the trading division sold 625 949 t, a 187% increase on the prior period, as a result of the inclusion of MacPhail.

This division achieved revenue of R610-million and profit of R14.2-million, up from R2.9-million in the prior corresponding period.