Spice up your port­fo­lio

Finweek English Edition - - MARKETPLACE | HOUSE VIEW - By Si­mon Brown

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. ■

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