WESCOAL Holdings forecast a recovery in production in the second half of its 2020 financial year following disappointing numbers for the six months ended September in which the firm posted a R51m net loss (2019: R108m profit).
“We hope to increase production to a run-rate (annualised) in March of eight million tons,” said Wescoal CFO, Izak van der Walt. “Production is improving.”
Production interruptions at Vanggatfontein, Wescoal’s flagship mine situated in Mpumalanga province, was the main factor behind lower year-on-year first half output of 2.7 million tons (Mt). As previously reported, the company was forced to replace its contractor which went bust whilst a lack of equipment availability impeded the replacement contractor, Stefanutti Stocks.
Contractor liquidity issues at Wescoal’s Elandspruit has also resulted in no underground production from the mine. Van der Walt said the contractor had asked for a rate increase the company couldn’t afford.
Wescoal’s third mine, Khanyisa performed well, owing to the fact the company was able to better price the coal after having bought out 100% of the mine. This allowed Wescoal to establish its own marketing channel.
Financially, however, it was a poor outcome for Wescoal.
Lower production meant Wescoal was forced to buy in 500,000 tons of coal in order to meet Eskom contracts. (Given that most of the firm’s business is Eskom-related, however, was a positive: revenue was largely flat year-on-year.)
Lower production resulted in an increase in operating expenses to R184m (R104m). The firm’s operating profit came in at R15m (R197m). The headline loss per share was 11.9 cents, although the company continued to generate cash of some R126m. Wescoal passed the interim dividend.
Shares in Wescoal are currently trading at a 12-month low of 120c/share on the Johannesburg Stock Exchange.
For the remainder of the year, however, the focus falls on getting Vanggatfontein back on track and seeing first production from Arnot, the former Exxaro Resources colliery that was forced to shut after failing to renew a coal sales agreement with Eskom.
Wescoal bought the colliery in association with employees, but the deal can only be closed once Eskom signs off on the transaction, which includes a coal audit. Van der Walt acknowledged it was taking time for Eskom to walk through its processes, but he said the company wasn’t “overly concerned”.
Moabsvelden, Wescoal’s most important project, is also due to be commissioned next calendar year. Negotiations were at “an advanced stage” with preferred contract miners and an appointment was expected before year-end. First coal and delivery to Eskom, in terms of a recently signed 10-year coal supply award were expected in the first half.
Wescoal CEO, Reg Demana, acknowledged as “a fair question” that merger and acquisition pursuits of the last 18 months may have distracted management, but he said the focus was now firmly on organic growth.
Wescoal has some 44Mt in available coal production in existing assets, including the extension to the south side of Vanggatfontein.
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