Wescoal surges on earnings outlook

Over 350% jump expected

JUNIOR coal producer Wescoal rose as much as 11.63 percent on the JSE yesterday to trade at R2.40 a share on news that earnings for the half year ended September would jump by more than 350 percent.

The share price rose after the company, which supplies coal to Eskom and provides support to the coal sector through its subsidiaries Chandler and MacPhail, declared a gross special dividend.

Wescoal said its earnings a share for the period would be between 24.1 cents and 28.9c, compared with the 5.3c declared during the corresponding period last year. Headline earnings a share for the period would increase more than 350 percent to between 23.2c and 27.8c, compared with the 5.1c reported for the prior comparative period.

“Wescoal solid performance is on the back of strong sales from Elandspruit, the company’s flagship mine and further operational efficiencies,” the company said in a trading statement yesterday.

Elandspruit, which is 200km from Johannesburg, is expected to produce about 2 million tons of coal a year. This is expected to double the group’s output to about 4 million tons in the medium term to see the group generating the bulk of its income from higher-margin mining activities.

Earlier, the company said a gross special dividend of 4.2c an ordinary share would be declared after it declared a zero dividend last year.

Wescoal announced last month that it would pay a R10 million special dividend to shareholders before its black economic empowerment deal.

Wescoal’s investment case was solidified last month after management finally addressed the company’s black ownership level, which had fallen short of the 50 percent required by Eskom of all its suppliers.

Wescoal’s target for black ownership this year

The company committed to increasing its black ownership to at least 51 percent by the end of this year from 37 percent making it possible for the company to secure medium- to long-term

Prior to the deal, the company operated on short-term contracts, which posed a significant risk to performance. contracts from

Trading activities

Eskom. Eskom is forcing mining companies to find empowerment partners following its requirement that 50 percent or more of suppliers be in black hands in the future.

Wescoal’s revenue in the year to March dropped by 5 percent, largely due to reduced sales from trading activities.

Management attributed this to a more conservative credit policy and a tough business environment. Profitability at operating level, however, improved because of a strong performance from the highermargin activities.

The mining division increased its contribution to operating profit to 79 percent, which helped the operating margin improve to 6.3 percent compared with 2.8 percent. This translated into 79 percent growth in headline earnings.

The company’s financial results for the interim period ended 30 September are expected to be released on November 1, 2016.