HCI coins it as its coal burns bright

While much investment attention is fixed on Hosken Consolidated Investments’ much vaunted oil and gas exploration interests, the empowerment group with a market value of R17bn continues to see its coal mining interests churning strong profits.

Results for the year to end-March released on Thursday evening showed a chunky R309m contribution to HCI’s headline earnings from the unlisted coal mining interests.

This was the second biggest earnings contribution at HCI behind the core gaming operations in JSE-listed Tsogo Sun Gaming — which chipped in R795m. The coal interests, on an earnings basis, are now bigger than more established listed investments such as broadcasting and media (R238m), transport (R23m) and hotels (R287m).

A segmental breakdown showed coal mining revenue up 46% to R2.115bn and pretax profits surging 88% to R433m.

HCI CEO Johnny Copelyn said a 46% revenue increase at the flagship Palesa Colliery comprised a 48% increase in coal revenue and 40% increase in transport revenue.

He said sales volumes at Palesa increased by 540,000 tonnes (up 21%) as a result of stronger offtake from power utility Eskom during the first half of the year.

Copelyn noted the sale of an export quality product, albeit in limited volumes, saw the overall gross profit margin on coal sales improving by 600 basis points in comparison with the previous financial year.

Prompted around future plans for the coal business, Copelyn said HCI had no plans to separately list these strong performing assets on the JSE

While the “dirty energy” assets are pumping profits, HCI has decided to sell its 10% interest in the Karoshoek solar plant near Upington for R350m. The group still has a small stake in Nasdaq-listed renewable energy group Montauk.

HCI’s short-term ambitions to capitalise on its local oil and gas exploration interests are still clear — particularly its participation via Impact Oil & Gas (IOG) — in the promising Venus prospect off the Namibian coast.

Notes to HCI’s annual financial statements showed the group — after the financial year-end close — had invested R376m in IOG through a subscription for shares.

HCI has also committed to invest a further $27m (about R530m) in August 2023. HCI explained that these investments were being made to fund the accelerated appraisal programme in respect of the Venus and Venus West oil prospects offshore in Namibia.

HCI’s other significant unlisted segment in property also performed stoutly — posting almost R200m in pretax profit (including a R71m uplift in the value of the real estate) off markedly higher revenue of R234m.

Copelyn said the property segment’s increase in revenue was driven by improved trading at Gallagher Estate’s convention and conferencing operations.

Rental income decreased by 3%, but the corresponding period in 2022 included income from the Olympus Village Mall and the Westlake warehouse precinct, which were sold during the latter part of that financial year.

Copelyn said the remaining portfolio’s rental income increased by a healthy 7% — most notably 19% at The Point centre and 10% at the Whale Coast Village Mall.