Trading boosts Wescoal as production lifts late

JOHANNESBURG (miningweekly.com) – The trading division of Wescoal has proved a boon for the junior coal mining company by delivering a strong first half performance in difficult business circumstances of production coming into line late.

“It's again helped us out of a tight spot,” acting CEO Waheed Sulaiman conceded in an interview with Creamer Media’s Mining Weekly Online.

While the trading division’s operating earnings before interest, taxes, depreciation and amortisation (Ebitda) rose 40% in the six months to September 30 to R28.2-million, the operating Ebitda of the Johannesburg Stock Exchange-listed company plunged by more than 54% to R38.7-million.

Headline earnings a share bit the dust at a 66.4%-lower 5.1c a share and revenue fell 15.6% to R758.1-million, with no dividend declared.

A bright spot was the developing Elandspruit colliery’s good September output, which is seen as the start of promising steady-state production going forward.

The equity raising under way should position Wescoal better to conclude the Elandspruit project as well as take advantage of other growth opportunities and rebalance the company’s internal cash flows.

The 170 000 run-of-mine (RoM) tons from the developing Elandspruit colliery in September went through the process plant to yield 100 000 t of coal sold to Eskom, around which Wescoal is building its business.

Sulaiman expressed confidence that short-term contracts with the State power utility would be rolled forward but pointed out that, in the current environment, all banks were insisting on long-term contracts to justify long-term loans.

“And that’s our dilemma,” he added to Mining Weekly Online, as he outlined how continued project funding from own cash flow could hit a liquidity event if not supported by the company’s R81-million rights issue that is taking place at a far from ideal time.

Sulaiman is confident of the company receiving at least the R40-million underwritten amount.

He said Wescoal was studying a myriad of merger and acquisition options as conversations among junior coal mining companies intensified.

“I think everyone agrees something needs to happen,” he said.

While the latest set of results were not good when compared with the six months to September 2014, Sulaiman contended that they looked considerably better when compared with the immediately preceding six months.

“I have had a quick look at the October numbers and it’s not going to be that different, so I think September represents the monthly production that can be expected in the next six months,” he added. Elandspruit is expected to produce at a rate of two-million RoM tons a year.

Total coal sales of 698 000 t emanated from the mining division, in which the Intibane and the Khanyisa collieries were being streamlined.

The division’s social and labour plans are being reviewed to ensure they meet the needs of Wescoal’s host communities and R4.7-million was spent on rehabilitation activities to meet licensing conditions and to manage environmental impacts.

In addition, the rehabilitation provision had been increased by R12.8-million, for the future rehabilitation of Elandspruit.

Sales from the trading division totalled 550 000 t, a 12.1% reduction being mainly attributable to a more conservative credit policy and the prevailing business environment.

Margins fell to 12.8% from 13.4% and the debt equity ratio is 100.9%.

The company is engaging with shareholders to reassure the market that the process of moving towards a majority black empowerment shareholding does not hurt day-to-day business.

The decision to have a 51% black shareholding in Wescoal by December 2016 was taken by the full board last year.