Sale of non-core assets is paying off for Wescoal

Junior coal miner Wescoal’s long-term growth strategy to dispose of non-core assets and pursue value enhancing opportunities has begun to pay off, as evidenced in its interim results.

The JSE-listed miner and trader reported that revenue increased 28% to reach R2.1bn  in the six months ended September. Headline earnings per share (HEPS) increased 16% to 23.5c a share and operational expenditure dropped 21% compared with the comparative period in 2017.

The increased revenues were driven by sales that were positively affected by additional revenue over the period from the Vanggatfontein operation it acquired with Keaton Energy last year.

Wescoal’s profits, however, recorded a comparatively modest 3% increase. Profits were affected by a number of factors, including lower margins on sales-distribution transport and an above-inflation increase of input costs, the company said.

The small cap company sells 50% of its coal production on fixed terms to Eskom and, as such, did not benefit from higher coal prices this year to the degree that some of its coal mining peers have. “The price was a factor, but not a significant one,” said Wescoal CEO Waheed Sulaiman. “The fixed contracts mean we are not exposed to the ups and downs of the coal price.”

Firmly in its sights now is the acquisition of Universal Coal.  Wescoal recently announced it is in advanced negotiations with Ata Resources to join a consortium which intends to acquire the entire issued share capital of Universal Coal — a Sydney, Australia-listed firm with operations in Mpumalanga.

Sulaiman said Wescoal is seeking a 50% stake in the asset.

Universal Coal produces coal to supply both Eskom and the export market and would fit neatly into Wescoal’s strategy to increase revenue streams and diversify its asset base.

Beyond Universal, Wescoal is looking at a few other projects, “all of which we believe would be value-adding for our shareholders”, Sulaiman said.

He would not be drawn on whether Wescoal might be interested in South32’s SA Energy Coal, which is up for sale. However, he  said Wescoal had previously considered, and decided against, buying the Optimum coal mine which is owned by the Gupta family’s Tegeta Resources. The mine was placed in business rescue in February.

steynl@businesslive.co.za