Spice up your portfolio
The phrase junior miner just screams risk, especially at a time when mining in general is under pressure from commodity prices and potentially under threat from the Mining Charter.
However, for those looking for some serious spice in their portfolio this may be the best of the very risky junior mining space. Recent results had some R90m of extra costs relating to the BEE deal and the acquisition of Keaton. This saw headline earnings per share (HEPS) down to 11.3c from 27.1c in the previous year, while stripping out these oneoff costs almost doubled HEPS.
So, if we strip out the one-off costs and add some modest growth for the year ahead, Wescoal should be able to do at least 60c HEPS for the 2018 financial year and that puts it on a price-to-earnings ratio (P/E) of under 4 times. In other words, the market is pricing the miner to make closer to 20c HEPS in the next financial year, and that would require a near collapse of the business.
Lastly, let’s look at the company’s business, which is coal mining. Nothing fancy but it does have good mines, solid contracts and a great proven management team. So for those looking for that extra risk, this may be a good bet. ■