Wescoal’s cautionary does not spark elation

Junior miner Wescoal’s shareholders were probably expecting a cautionary notice. But there was a slight sense of disappointment that Tuesday’s cautionary was about the sale of “noncore, nonoperational assets”, even though the directors noted the mooted transaction was in line with a strategy of realising value for shareholders and building a scalable, sustainable business.

There are more than a few punters who reckon the underrated and undervalued Wescoal is ripe for corporate action.

An obvious transaction would be merging Wescoal with another similarly blackempowered coal mining venture of roughly the same operational scale.

The coal businesses of empowerment investment companies Vunani and Hosken Consolidated Investments (HCI) spring to mind.

Of course, transactions that appear to have merit on paper can in reality be tricky to consummate, although Wescoal does offer a neat reverse listing opportunity to the coal mining assets owned by both Vunani and HCI.

Also a valid consideration is whether Wescoal’s value proposition — in spite of a recent spring in the share price – would attract larger mining counters or private equity players. A recent trading update shows that Wescoal’s financials for the year to end-March would reflect headline earnings of more than 45.5c per share and earnings of 46.5c per share.

This bottom-line improvement stemmed simply from “continued strong production from mining operations as well as from synergies realised from the recent acquisition of Keaton Energy Holdings”.

The company’s trading statement for the year to end-March puts Wescoal on an earnings multiple of just more than four times, a sceptical rating that hardly seems justified by the available fundamentals.

Twinsaver has just unveiled its revamped facility manufacturing tissues near Vereeniging. It is always good to see companies take advantage of the Department of Trade and Industry’s 12i tax allowance incentives for greenfield and brownfield development.

In the case of Twinsaver, it is a brownfield investment – an expansion of a paper and tissue manufacturing site that has been used for nearly 100 years. The group installed a R500m tissueproduction machine with annual output of more than 25,000 tonnes of the things people use to wipe their noses.

Demand for the product is booming, growing 20% a year in SA, says CEO Garth Towell. The machine is state-of-the-art technology from Italy, so one can blow one’s nose in Continental style, while also – broadly speaking – saving energy.

Twinsaver is a fairly recent acquisition by the Ethos Private Equity Group of what was known as Nampak Tissue. The increased capacity will enable Twinsaver to pursue new markets in Africa and makes the group the largest manufacturer of tissue in sub-Saharan Africa.

It has employed lots of engineers to run the facility. Investments under the tax incentive include a training allowance and investment allowance of 55% of qualifying assets — or a maximum of R550m investment allowance — in the case of any brownfield project that enjoys preferred status.