Wescoal starts retrenchment process as low domestic, export demand persists

18th November 2020 By: Creamer Media Reporter

Coal miner Wescoal has started the process to implement group-wide retrenchments, noting that this is necessary in light of lower demand from key customers, a lower selling price, above-inflation cost increases and the negative impact of Covid-19 on the company, which has necessitated a reassessment of its business model and to implement cost saving initiatives.

The miner has started a Section 189 process, which it expects to conclude by mid-December, with staff reductions to be implemented across all operations.

"The impact of lower offtake from Eskom and other key trading clients has resulted in the need to create significant financial headroom for the remainder of this financial year. Several solutions in this regard are already being pursued including cost cutting, mining production reduction, rescheduling capital expenditure and noncore asset sales," the company says in a trading update.

The mining division's sales volumes increased by 43% year-on-year to 3.73-million tonnes, mainly as a result of sales in terms of power utility Eskom's rectification plan for the Moabsvelden mine.

The trading division's sales volumes for the six months to September 30, however, decreased by 30% year-on-year to 363 000 t, as a result of the national Covid-19-related lockdown.

Power utility Eskom reduced its coal offtake in response to lower electricity demand during the six-month period. The utility had issued suppliers with force majeure notices in April, which were withdrawn in August.

Nevertheless, sales to Eskom remain lower than before the lockdown started.

As Wescoal had continued to operate at full capacity, run-of-mine and saleable product stockpiles have built up at all of the company's mines. These stockpiles have increased by 60% since the start of Wescoal's 2021 financial year on April 1.

"While offtake levels are expected to normalise in the late third, to early fourth quarter of the financial year, there remains significant downside risk to sales volumes.

"Wescoal is currently exploring opportunities to supply into the domestic market, as demand for coal returns with the easing of National Lockdown measures, and if successful, this will diversify revenue streams in general, while offsetting lower sales volumes to Eskom," the company states.

Meanwhile, the company's production for the six months under review increased by 62% year-on-year to 4.43-million tonnes.

Output at Vanggatfontein increased by 210% year-on-year to 2.34-million tonnes, while output at Elandspruit increased by 21% year-on-year to 1.55-million tonnes.

Safety stoppages at Khanyisa, however, resulted in a 21% year-on-year decrease in the mine's output to 548 000 t.

Wescoal expects full-year run-of-mine production to exceed eight-million tonnes.

An improved performance from the company's mining operations contributed to a return to profitability for the group, with Wescoal expecting to report a 125% to 129% improvement in headline earnings a share to between 3c and 3.5c, compared with the headline loss a share of 11.9c reported for the prior comparable period.

Earnings a share, meanwhile, are expected to be 119% to 123% higher at between 2.3c and 2.7c, compared with the loss a share of 11.8c reported for the prior comparable period.

Wescoal notes that it was able to maintain a positive cash generation from operations with earnings before interest, taxes, depreciation and amortisation expected to be between R300-million and R320-million.

The miner's results for the six months will be published on December 4.