Strike costs Wescoal R10m in Eskom deliveries

[miningmx.com] – WESCOAL Holdings, a R148m junior coal miner, said a
three week truck drivers’ strike in October wiped R10m off the revenue line as
deliveries to power utility Eskom were disrupted.

Deliveries of explosives and diesel were also delayed, the company said. “The net
effect of this was a loss of R10m in revenue and R3m in profit for the mining
division,’ it said in its interim report in which the company nevertheless posted solid
earnings.

Revenue for the six months ended September was higher at R351.4m compared to
R337.1m previously. The outcome was R10.7m in profit from operations, slightly
lower than the R11.5m recorded last year although that included some R4.6m which
represents a non-recurring sale of an asset. No dividend was declared.

More than 20,000 truck drivers took to the streets in often violent protests during
September and October. An agreement to increase wages 10% from March, 2013
followed by 8% and 9% increases in subsequent years, was accepted by unions on
October 10 with the Road Freight Employers Association.

The strike created a potentially parlous situation for Eskom which was concerned that
coal supplies would run dry at its recommissioned power stations where the stock
yards are relatively small.

In September, Wescoal announced that it had signed a three-year, R700m supply deal
with Eskom, effective from June 1, 2012.

In terms of the transaction, announced to the JSE on September 6, some 3.2 million
tonnes (Mt) of coal would be supplied to Eskom from Wescoal’s Khanyisa and Intibane
colleries.

Wescoal CEO Andre Boje said that costs increased 23.7% during the period, largely
owing to the higher diesel price and “reinforced the need to focus on low cost
production in the mining division and maximising margins in the trading operation’.

The start up of Wescoal’s new project, Intibane, by the first quarter of 2013 would
help lower overall costs as it had a lower strip ratio that the company’s existing
Khanyisa colliery.

However, there was a chance that Khanyisa could be extended by as much as three
years. The 1.2Mtpa colliery had an estimated 400,000 tonnes of coal left in the open
pit, equal to four to six months of mining, but its life of mine could be extended by
exploiting 600,000 tonnes of underground coal and by acquiring part of the
neighbouring property from Anglo American Coal that would add a further 2.8Mt of
coal, said Boje.

The appointment of a CEO for Wescoal Holdings subsidiary, Wescoal Mining, Dutch
Botes, who had experience of underground mining, was a key development in the
possibility that Khanyisa could be extended, Boje added.

Wescoal is aiming to have output of 4Mtpa by 2015. The completion of the purchase of
Elandspruit from Xstrata, a R180m transaction, had received the support of 53% of
Wescoal’s shareholders. A circular regarding the deal would be posted by end-
November. Elandspruit has a 12-year life of mine and contains some 28Mt of coal
resource and production forecast of 2.4Mtpa.

Shares in Wescoal were nearly 6% higher in early Johannesburg trade.