Picture: JEREMY GLYN
Picture: JEREMY GLYN

Junior mining company Wescoal believes the worst is over after it posted an interim loss thanks to operational issues at one of its Mpumalanga mines, including a strike and the unavailability of equipment.

The JSE-listed coal miner and trader, which has 51% of its share capital held privately, on Tuesday released a disappointing set of results for the six months to end-September, reporting a net loss of R51m from profit of R108m previously.

Revenue was unchanged at just under R2.1bn but operating costs increased from R104m to R184m while operating profit fell from R197m to R15m. Headline earnings per share dropped 151% to a loss of 11.9c and the company’s gearing ratio leapt from 18% to 36%.

While depressed global coal prices in 2019 have hurt the profits of larger coal producers that export their product, Wescoal was largely insulated from this as it mainly supplies coal to Eskom.

Much of Wescoal’s poor performance is the result of a 56% fall in production at its Vanggatfontein Colliery near Delmas, which has been plagued by operational issues.

Wescoal CEO Reginald Demana said the operational challenges at Vanggatfontein were related to the appointment of a new mining contractor, which resulted in violent protests by displeased employees and required operations to shut for six weeks.

When the mine reopened, a fatality required operations to stall again. High absenteeism also saw Wescoal replace employees from the pool of skills in the local community. This in turn posed a challenge, particularly for equipment operators. 

Another problem arose when the new contractor was unable to fund the required equipment off its balance sheet, forcing Wescoal to find asset-backed finance to purchase the equipment.

Demana said the operations were now staffed and the equipment had been delivered.

“We think the worst is over,” he said. “The ramp-up is already happening. This quarter and next quarter will be much better than what we experienced in the first half.”

Demana said Wescoal has appointed a subcontractor under the main contractor to assist with the mine and will also be regularly deploying senior people from Wescoal on site.

Keith McLachlan, a fund manager at Alpha Asset Management, said the operational issues appeared towards the end of the last financial year and so had to be dealt with in the first quarter of this financial year.

The mining environment and domestic economy continued to be tough, said McLachlan. “This bleeds through into the group’s trading segment’s volumes as well as into a range of other factors. SA remains, basically, a nightmare in which to operate any mine in.”

McLachlan said the second half of the financial year looked like it might be materially better for Wescoal if it executed its plans well for its mines. Better financial years could be enjoyed from 2021 on, he said.

Correction: November 26 2019

An earlier version of this article said Wescoal’s headline earnings per share dropped to 11.9c. Headline earnings per share dropped 151% to a loss of 11.9c.

steynl@businesslive.co.za