Wescoal returns to profit, but has concerns over Eskom’s lethargic demand
The power utility’s demand for coal has not yet returned to pre-lockdown levels, the junior miner says
Eskom supplier Wescoal is concerned about rising stock levels due to a lack of demand from the power utility and other customers, moving to cut staff and possibly sell off non-core assets as it waits for trading to return to pre-pandemic levels.
The group, which has a market value of R311m, said its inventory levels had more than doubled to R287m in the six months since the end of March, which had affected its cash flows.
Wescoal has sought new terms with lenders, and will be looking to cut costs, expecting weak conditions to persist for a few more months of its financial year at end- March 2021 as SA’s economy recovers.
The stock build-up will, however, form part of the company’s strategic stock to help maintain sales levels through the upcoming rainy season and festive season, the group said.
Wescoal reported on Friday that it generated R11m profit in its six months to end-September, from a R51m loss previously, as production stabilised. “All mining operations have been producing at the required levels at all times,” the group said.
In the prior comparative period in 2019, Wescoal had faced production issues at its Vanggatfontein Colliery near Delmas, where the appointment of a new mining contractor had led to protests from employees. That operation had no sales of run-of-mine production in the that period, and 312,000 tonnes to end-September 2020.
Group revenue increased slightly to R2.08bn to end-September, and though Covid-19 weighed on sales, the group produced 4.4-million tonnes of coal from 2.7-million previously, saying that this had helped its operational profitability.
“Wescoal delivered a satisfactory financial performance, largely driven by a solid operational turnaround strategy in the mining division, despite a tough economic environment of reduced coal offtake from major customers as a result of the Covid-19 pandemic,” said CEO Reginald Demana.
“Having stabilised our mining operations, the focus now shifts to the rollout of cost saving initiatives to improve the group’s profitability further and to create financial headroom to position the company to grow sustainably,” Demana said.
As of the end of March, Wescoal had 222 employees and 2,251 contractors at three operating mines and four processing plants.
The group said on Friday that it expects its retrenchment process to be completed by mid-December, with staff reductions across all operations.
With Lisa Steyn
Correction: December 4 2020
An earlier of version of this article incorrectly said Vanggatfontein Colliery had produced 312,000 tonnes of coal to end-September, when this is what it sold from its run-of-mine production.
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