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Wescoal prioritises steady-state production after challenging financial year

Wescoal CEO Reginald Demana

Wescoal coal mine

25th June 2019

By: Marleny Arnoldi

Deputy Editor Online

     

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Despite a turbulent second half in coal miner Wescoal’s financial year ended March 31, the company remains positive about achieving its ten-million-tonne run-of-mine (RoM) production target from the 2021 financial year.

Until then, CEO Reginald Demana aims to get the miner’s current projects up to steady-state production, at an overall eight-million tonnes a year of RoM coal, within the current financial year.

He attributed the weaker performance in the second half of the 2019 financial year to the changeover in mining contractor – now JSE-listed Stefanutti Stocks – at the Vanggatfontein project, in Mpumalanga, which resulted in labour disruptions that negatively impacted on production.

Additionally, Wescoal’s pending underground mining contractor appointment for the Elandspruit project, in Mpumalanga, and above-average seasonal rainfall in the region also contributed to the poorer group performance.

Wescoal’s earnings before interest, taxes, depreciation and amortisation decreased by 15% to R456-million, compared with R538-million in the 2018 financial year.

Mining volumes decreased by 13% to 5.9-million tonnes, compared with the 6.8-million tonnes mined in the corresponding period.

The company also reported that its gross profit had decreased by 18% to R461-million, compared with R565-million in the corresponding period, while headline earnings a share decreased by 62% to 17.5c, compared with 46.4c apiece in the corresponding period.

An unsuccessful bid to acquire Universal Coal also impacted negatively on the group’s performance in the reporting period.

Wescoal declared no final dividend for the reporting period to effectively and carefully manage cash flows; however, Demana told Mining Weekly Online that the company would embark on a share buyback programme within the next few weeks to buy back a maximum of 20% of shares.

“We believe our share price is significantly undervalued and a share buyback programme would allow us to reinvest in the company while rewarding shareholders.”

Meanwhile, during the reporting period, Wescoal had sold its noncore Intibane and Leeuwbraakfontein collieries, as well as concluded the acquisition of the Arnot mine, which produces coal exclusively for the adjacent Eskom Arnot power station, while adding seven-million tonnes a year of coal production to Wescoal’s overall production profile.

Demana mentioned that State-owned power utility Eskom’s offtake agreements accounted for about 60% of Wescoal’s revenue. The company plans to maintain its Eskom-derived revenue at that level.

Meanwhile, Wescoal also became the full owner of the Khanyisa Triangle project in the financial year under review, which should also contribute to higher output in the 2020 financial year.

Khanyisa currently produces about 100 000 t a month of RoM coal.

Demana said the imminent additions of the Moabsvelden and Vanggatfontein 5 projects would further strengthen the group’s position towards achieving its ten-million-tonne RoM target.

Moabsvelden, which Wescoal acquired through 100% ownership of Neosho Trading, has a 30-million-tonne resource. It can potentially be developed into a 1.5-million-tonne-a-year RoM coal operation.

Demana expects to conclude the Vanggatfontein expansion by June 30, which will add additional mining capacity in the second half of the 2020 financial year.

Demana said the mine would achieve normalised production from July.

He also expects to appoint an underground mining contractor at Elandspruit before the end of this year.

The opencast mining contractor has secured extra equipment to increase capacity at the mine to at least 230 000 t a month RoM, which will guarantee the budgeted production levels of Elandspruit without the underground operations.

Demana added that Wescoal had hired a new mine manager at Elandspruit to review the mine plan to avoid another stop-start situation in future.

“We continue to optimise existing businesses and assets and bolster our balance sheet to enable us to fund other growth opportunities that may arise and we are currently looking at various value-accretive acquisition opportunities, in an attempt to deliver more value for our shareholders and consolidate the coal market.

“In the medium term, we aim to create an environment of stable operations translating to predictability and consistency, which will lead to efficiency in both our mining and trading segments,” Demana concluded.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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