Conclusion of empowerment deal secures future coal supply deals with Eskom
Empowerment stake to rise
JUNIOR coal producer Wescoal said that it was in a position to secure more medium- to longterm coal supply contracts from Eskom after it entered into a subscription agreement that would raise its empowerment shareholding to 59 percent.
The company, which operates the Khanyisa Colliery, Intibane Colliery, Elandspruit Colliery, rallied on news of the subscription agreement, but was still 3.16 percent down to close at R1.84 per share on the JSE yesterday.
The company also said it had resolved to distribute R10 million to shareholders in the form of a special dividend.
Wescoal began talks in August to increase its black empowerment ownership to 50 percent by the end of December as part of the requirements of Eskom’s long-term coal supply agreement (CSA).
Wescoal’s Elandspruit Colliery has a five-year CSA with 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 chief executive Waheed Sulaiman said the CSA would provide the company with the ability to raise longterm debt funding.
“We have met Eskom’s empowerment obligation and that will allow us to raise longterm debt from banks against the contract to fund growth,” Sulaiman said.
“It is now unlikely that we will go to shareholders to ask for money because the empowerment partners have brought in money.”
In terms of the proposed transaction, the empowerment consortium comprising Robinson Ramaite, Eric Mzimela and Simeka Capital will subscribe to 124 million Wescoal shares for R211m.
Ramaite is Wescoal’s non-executive chairman and a former director-general in the Department of Public Service and Administration with 18.76 percent stake in Wescoal. Ramaite, through his family trust, holds a 38 percent non-controlling interest in Simeka and Mzimela holds 5 percent in Wescoal.
Share transfer
The empowerment consortium is expected to consolidate its Wescoal shareholding into a single special purpose vehicle (SPV) and each member of the consortium is to transfer their Wescoal shares to the SPV in an exchange for new ordinary shares in the SPV shares.
After the share issue, the SPV’s shareholding in Wescoal will increase from 37 percent to 59 percent.
The Industrial Development Corporation has allocated R178m funding for the SPV R178m and Wescoal will fund the balance of the subscription for R35m.
Wescoal also announced yesterday that it had clinched a series of material coal supply contracts with third parties in line with its strategy to diversify its income stream and export 1 million tons a year.
“The coal purchase confirmations would expand Wescoal’s presence in the domestic thermal coal market and increase its exports to approximately 1 million tons per annum,” the company said.
Sibonginkosi Nyanga, an analyst at Momentum SP Reid, said the transaction made sense as Wescoal had built its business model around Eskom.
“If they achieved a 50 percent plus empowerment subscription agreement, it is positive. It means that they will be able to get long-term supply contracts… Wescoal now is in a sweet spot,” Nyanga said.
Shares declined 3.16 percent to close at R1.84 on the JSE yesterday.