The less volatile coal price is the reason South African coal stocks, big and small, have slumbered throughout the current period of rand depreciation. In fact, of all the coal stocks on the JSE, it’s the diminutive Wescoal Holdings that has provided the value, a company that plies its trade almost exclusively within South Africa’s borders while its peer group has exposure to the export market.
The stock is up 155% in the last 12 months while erstwhile competitors such as Coal of Africa (CoAL), Keaton Energy, and even the diversif ied play Exxaro Resources are all down, significantly in some instances. Shares in CoAL are 66% weaker over the last 12 months.
David Brown, executive chairperson of CoAL, who is currently in search of a CEO to replace the recently departed John Wallington, says the rand has had little impact on the company. “A 10% weakening does not compensate for an approximately 28% fall in thermal coal prices,” he said
bout 83% of Wescoal’s pretax earnings in its 2012 financial year were derived from sales to Eskom with the balance from the company’s trading division which services the domestic coal market, industrial consumers such as cement maker PPC or beverages firm, SAB. Prices for this coal have been on parity with export prices.
Still, the domestic trading market has not been a massive boon for Wescoal. It’s worth noting just how low margins can be: the trading division was worth 13% of pretax earnings but nearly half of total reve- nue. That’s why the company is looking at bulking up its market share. A R79m takeover of an unnamed rival, announced on the JSE last week, will double Wescoal’s trading ability and give it greater bargaining power, says its CEO, Andre Bojé.
A coal junior hoping to reverse the share slide is Keaton Energy. Its CEO Mandi Glad says Keaton hopes to generate enough cash in its current 2014 financial year to not only f inance an aggressive acquisition policy, but to pay dividends, and pay down debt. It seems ambitious at first glance.
However, international trading group Gunvor owns about 10% of Keaton Energy from when the coal junior bought Leeuw Mining in 2011 and would be willing to part equity finance other acquisitions as Keaton Energy chases down its strategic goal of reaching 5m tonnes/year of production.
Some 16 projects have been identified; five of them rejected for value or technical reasons, while four are “on the go”, says Glad. One of them is Mooiklip, a dinky 4.5mt anthracite prospect in KwaZuluNatal that Keaton hopes to buy.
Says Glad of the current year: “The production results this year are looking good and in a year’s time I hope to speak of massive bank balances that may allow us to pay dividends.” Asked how this would be juggled with acquisitions and debt serving, Glad responded: “With difficulty.”
Keaton reported a bank balance of R19.6m at the close of its last financial year compared to a R60.5m balance at the end of the previous financial year.