Wescoal shares up on growth prediction

Coal miner Wescoal is paying a total dividend of about 6c per share for the year to March as it expects “excellent growth options”, according to CEO Waheed Sulaiman.

The dividend tops a year of corporate activity in which Wescoal brought its Elandspruit mine to full production, increased its black ownership and bought Keaton Energy.

Sulaiman said on Wednesday that Wescoal wanted to strike a balance between rewarding loyal shareholders and conserving cash for future acquisitions. Wescoal shares surged 11% to 220c after the announcement.

Group revenue rose by a third compared with 2016’s to R2.1bn due to an 82% increase in run-of-mine coal production to 3.37-million tonnes from the Elandspruit and Intibane mines.

The group’s third mine, Khanyisa, is expected to contribute about 290,000 tonnes in the first half of the year.

Gross profit margins widened to 17.4% from 15.8% because of higher production and restructuring in the trading division, which involved closing some offices and reducing exposure to lower-margin customers. Mining contributed 86% of operational earnings, while trading contributed 14%.

After R90.8m in nonrecurring costs on the black empowerment transaction and the Keaton acquisition, headline earnings were less than half 2016’s at 11.3c a share, from 27.1c previously. Wescoal held R435m cash at the end of March, of which R350m has been set aside to pay for Keaton. It received a R176m cash injection from its empowerment deal.

Sulaiman said Wescoal had secured several new contracts, including one from Eskom, as well as other domestic and export customers. Eskom sales were 45% of revenue, down from 59% in 2016.

Sulaiman said this was probably a sustainable level since Wescoal and Keaton’s resources were low grade, which limited export opportunities.

Capital expenditure was R113m. Keaton’s Moabsvelden project was the subject of studies but it would probably only begin in the 2019 financial year, Sulaiman said.