KHANYISA coal mine in Witbank, Mpumalanga, is part of the Wescoal group.     Supplied
KHANYISA coal mine in Witbank, Mpumalanga, is part of the Wescoal group. Supplied

Wescoal is ready to ramp up its production while counting on business stability

By Edward West Time of article published Nov 27, 2019

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CAPE TOWN - JSE coal group Wescoal is counting on its efforts to stabilise the business and ramp up production in the last six months to manifest in a profitable second half, chief executive Regional Demana said yesterday.

The group performed weakly in the six months to September 2019 due to contract mining production challenges and an increasingly competitive domestic coal market.

Revenue was static at R2.1billion, but gross profit slumped to R195million from R276m in the first half of 2018. Operating costs leapt to R184m from R104m. The headline loss came to 11cents per share, versus earnings of 23.5c at the same time last year.

Cash generation more than halved to R126m from R291m. Gearing doubled to 36percent from 18percent.

Demana said major production improvement initiatives were under way at all operations to meet the group’s strategic objectives of stability, sustainability and scalability, supported by bolstered operational skills at all levels. These were already yielding positive results,” he said.

Demana said their key strategic objective in the past six months had been to stabilise operations, optimise the performance, and ultimately scale-up through primarily organic opportunities.

“We will prudently manage costs and operational efficiencies to maximise returns from our current operations, and grow the business by exploiting the resources within our portfolio in a disciplined approach,” he said.

Demana said Arnot and Moabs- velden were key developmental and growth projects funded from existing capital, with an upside potential to bolster coal production output.

There were also numerous once off costs that were incurred in the first half, which were not expected to re-occur in the second half.

He said management aimed to stabilise operations for efficiency in both its mining and trading divisions in the medium term and the company was optimistic that this would be achieved by the end of the 2020 financial year.

At Vanggatfontein, where production had slipped by more than 50percent in the interim period due to labour and equipment issues, the emphasis was on ramping up production to more than 0.3million tons per month by March 2020, compared with the 0.2million tons that it had been operating at in recent months.

Elandspruit and the Khanyisa Colliery were demonstrating an ability to operate at sustainable production capacity levels of 0.2million tons and 0.1million tons per month. At Elandspruit, mining in the underground section remained suspended, but the loss in production would be offset to some extent by increasing production in the opencast operation, said Demana.

The Khanyisa Colliery operation continued to perform well and was maintaining consistent profitability and cash generation.

All the necessary regulatory approvals had been obtained for Moabsvelden greenfields project and the group was on track to appoint a contract miner. The process was under way to appoint a contract miner to develop the project and negotiations were at an advanced stage and an appointment was expected to be made by December 31. The first coal delivery to Eskom, pursuant to the 10-year coal supply award, was expected to commence in the first half of 2020.

The other new project, Arnot Mine, was awaiting Eskom’s consent to the change of ownership. In addition, Eskom’s response to the coal supply tender for Arnot power station submitted in April, 2019, was also awaited.

“Review of the ‘as is’ status of operations at Arnot has been completed and integration will commence as soon as the final condition of the transaction has been fulfilled,” Wescoal directors said.

Demana said recent media reports claiming that coal mines were overcharging Eskom for coal did not affect Wescoal, as the group did not supply coal at spot prices to Eskom, contracted coal prices were negotiated, and any price increases were in terms of long-term, negotiated contractually specified increases. “We believe our contracts are at fair prices and beneficial to both parties... our pricing is not aggressive,” said Demana.

Wescoal shares gained 3.33percent on the JSE yesterday to close at R1.24.

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