Market backs Wescoal’s growth plans
WESCOAL shares soared more than 10 percent on the JSE yesterday after the coal and trading company said it was eyeing further growth opportunities in the year ahead following its R525 million acquisition of Keaton Energy this year.
Its shares closed 11.11 percent higher at R2.20 after the junior miner reported improved financial results for the year to March.
Wescoal chief executive Waheed Sulaiman said that, after years of building the business around Eskom, which saw the company selling more than 80 percent of its coal to the state-owned power utility, Wescoal no longer focused on a single commodity and a single client.
“We have grown into a multifaceted group with a presence in the domestic and international thermal coal markets, as well as coal logistics infrastructure. We see opportunities to further diversify and grow streams in the 2018 financial year,” he said.
Wescoal, which employs 200 people, operates the Elandspruit Mine west of Middelburg, Mpumalanga, and produced 3.5 million tons of coal last year. It harbours ambitions to produce 8 million tons a year and believes that acquiring Keaton Energy will boost its chances of achieving this target.
“The acquisition of Keaton offers the benefits of consolidation, alignment of infrastructure and regional synergies, and offers opportunities to expand existing markets and enter new ones. Once concluded, it will result in an enlarged business with coal resources in excess of 150 million tons, four operating mines and two processing plants,” the company said.
Wescoal signed a number of coal-supply contracts during the year under review, including an agreement with Eskom that will see it deliver about 7.8 million tons of coal over five years.
The company signed an empowerment deal that has placed 50 percent of the company in black hands, in line with Eskom’s procurement requirements.
Wescoal shut down unprofitable depots in the year under review.
The company said the steady state at Elandspruit, coupled with consistency in its trading division, resulted in a 33 percent boost in revenue, from R1.59 billion to R2.12bn.
Gross profit margins increased to 17.4 percent in 2017 from 15.8 percent in 2016 as the mining division benefited from improved unit costs, while the rationalisation of the trading division resulted in better margins.
However, earnings before interest, tax, depreciation and amortisation (Ebitda) were hit by once-off costs, including a non-cash discount of R82m for the empowerment transaction and transaction expenses of R8.5m for the acquisition of Keaton. Excluding the impact of these non-recurring costs, Ebitda was R294m, or 94 percent higher than in 2016.
Headline earnings per ordinary share before the impact of non-recurring costs and the empowerment share dilution were 53 cents for the year to the end of March.
Headline earnings of 11c per ordinary share reflected the impact on earnings of the noncash BEE discount of 32c, the impact – 7c – of the empowerment transaction’s increase in the number of issued shares, and the Keaton transaction expenses, at 3c.
Wescoal will distribute a dividend of R12m.