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Eqstra not selling contract mining business – yet

3rd March 2015

By: Irma Venter

Creamer Media Senior Deputy Editor

  

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Eqstra Holdings was going to reduce its exposure to contract mining, but it was not yet ready to sell the troubled business, said CEO Walter Hill on Tuesday.

He said Eqstra would not sell its contract mining business in a “depressed market”. He said it would be prudent to first make the business more attractive by turning it around and paying off its debt, before considering potential buyers, more likely to come forward once commodity prices started to gather strength.

“We won’t sell at the bottom of the cycle.”

Announcing the company’s financial results for the six months ended December 31, in Johannesburg, he said Eqstra was, however, working to decrease its exposure to contract mining. He said the group would like to see the Contract Mining and Plant Rental division’s revenue-generating asset base drop to less than 30% of the group’s asset base in the short term, down from the current 43%.

It was 50% in 2012.

Eqstra reported a 7.8% increase in profit, to R152-million, for the six months ended December 31, compared with the same period last year.

Revenue decreased 4.5%, to R4.7-billion.

Interest-bearing borrowings decreased 1.4% to R7.86-billion.

Hill said the group’s improved performance was mainly as a result of the planned ending of lossmaking contracts in the contract mining division, the closure of noncore lossmaking business units and cost reductions. 

Eqstra’s Industrial Equipment division increased its profit before tax to R77-million, up from R74-million.

This improvement came despite industry-wide industrial action during July last year, resulting in the closure of workshops and the hampering of equipment deliveries.

The Fleet Management and Logistics division benefited from the closure of underperforming business units, resulting in profit before tax inching up from R96-million to R98-million.

The Contract Mining and Plant Rental division welcomed Justin Colling in January as the new CEO for the contract mining business.

He was tasked with driving operational improvements and introducing initiatives to maximise shareholder returns.

The Contract Mining and Plant Rental division delivered increased profit before tax of R6-million, up from zero at December 31, 2013.

Hill said the division was “showing definite early signs of recovery”. The uptick was not based on an increase in the frail commodity cycle, but rather owing to improved management.

The past six months had been focused on right-sizing the division, at a retrenchment cost of R15-million, following the termination of lossmaking contracts, such as the Nkomati and Wolwekrans contracts, and a slowdown in mining activities in South Africa.

The division was looking for opportunities to redeploy underutilised assets, which had proved challenging.

Operations at the new Karowe diamond mine, in Botswana, started late in December, and were expected to benefit the division in the second half of the year.

Mining group Rio Tinto sold its Benga operations to International Coal Ventures. The current contract terminated in December, next year, and Eqstra was negotiating the way forward, while operations at the site were “performing according to plan”.

Looking ahead, Hill said Eqstra management would, over the next 12 months, focus on improving its liquidity, curtailing capital expansion, redeploying excess standing equipment, and matching maintenance spend to cash flows.

He said the collapse and downgrade of certain South African banks had largely contributed to a liquidity squeeze for corporate issuance in the capital market towards the end of last year, which might make it difficult for Eqstra to raise new debt in the capital market in the short to medium term.

 

Edited by Creamer Media Reporter

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