Market welcomes Wescoal’s news of move from loss to profit

COAL mining and exploration company Wescoal’s shares rose 17% to an intraday high of 70c yesterday before closing 3,3% higher at 62c, after the firm issued a trading update saying it expects to report a profit for the year ended March.

Wescoal said it expected headline earnings per share to be between 10c and 11,5c, from a loss of 26,17c the previous year.

Basic earnings per share are expected to be between 11,5c and 13c, from the previous year’s loss of 29,11c.

Imara SP mining analyst Stephen Meintjies said encouraging as this might be, attention should be paid to the company’s recent acquisition of Pegasus from BHP Billiton.

“The company may have experienced challenges in the second half of the year.

“Looking ahead the real issue is the new assets the company acquired, and on what this will mean for the company,” he said.

Wescoal’s main business is the mining‚ processing‚ procurement and trading of coal.

Coal product is sourced and distributed to clients in industry, including the power generation‚ manufacturing and petrochemicals sectors.

The company diversified into coal mining through the acquisition of the Khanyisa Mine at Kendal in Mpumalanga.

Last November, the company acquired a 51% stake in the undeveloped Pegasus mining project in Witbank, estimated to hold 15-million tons of coal deposits.

Wescoal courted some controversy last year after two companies, BSM Mining and Sutha Civils, tried to liquidate it over allegations the company failed to honour its debts, a move that was subsequently blocked by the high court in Pretoria in December, when it issued an interdict against the companies’ applications.

At that time, Andre Boje, CEO of Wescoal, described the applications as an attempt by BSM and Sutha to coerce the mining company to pay debts that it did not owe.

In November, Wescoal announced a R102m deal to buy a 51% stake in the undeveloped Pegasus deposit in Witbank.

The deal saw Wescoal issue 140-million shares at 73c each to HSTI, a shelf company set up to house the asset.

Wescoal said it would cost up to R250m more to bring an opencast mine into production there to supply South African users of metallurgical coal, such as the ferrochrome industry, as well as the export market.

The deposit has a measured resource of 15-million tons and should be in production from 2014, with low costs due to a low stripping ratio of 1,46, which means relatively little waste to move for each ton of coal dug, a big cost factor for coal miners.

An independent assessment had put the value of the deposit at between R593m and R946m.