Wescoal “active” in consolidation of SA domestic coal market

WESCOAL, a R888m mid-tier coal producer, said it was positioned to grow through industry consolidation in an attempt to reach an aspirational run of mine (ROM) production of eight million tonnes (mtpa) a year.

Commenting in a strategic and operating update today, it said that with less than a quarter of its financial year (ended March 31) to run, it had recorded ROM production of 2.4 million tonnes (mt).

“Wescoal remains an active participant in the consolidation of the domestic junior coal mining sector with respect to reviewing value enhancing opportunities,” it said.

The announcement is somewhat curious as it comes a day after Keaton Energy, which is worth half of Wescoal, issued another cautionary announcement that it was engaged with potential bidders for the company. It said last year that it had received a number of approaches interested in a takeover.

Wescoal said that it had recently concluded coal sales agreements with Eskom equal to some 7.8 mtpa over the life of the five-year coal sales agreement (CSA) and exports over one million tonnes a year for three years.

This production would be supplied from the firm’s Elandspruit and Intibane operations to which it would add 500,000 tonnes a year from a small underground operation and some 1.2mtpa from Khanyisa, a mine Wescoal has had to idle whilst it waited for a water use licence which is to be issued imminently.

On a back-of-the-matchbox basis, this is production of about 4.2mtpa which, when added to Keaton Energy’s existing production, and output from its Moabsvelden project, once it was commissioned, would see a a combined company production of close to eight million tonnes a year.

Wescoal, however, has given no indication that it is in the running for Keaton Energy. Mandi Glad, Keaton’s CEO, told Miningmx last year that she hoped to have clarity on the potential transaction by year-end.

As she confirmed multiple parties were bidding for the company, bidders could also include Coal of Africa, which saw its bid for Universal Coal fail last year after the latter didn’t conclude an Eskom contract in time.

Another potential bidder for Keaton could be Gunvor, the commodities trading company which already has a 34.97% stake in the company through its subsidiary Plusbay, just beneath the take-out threshold.

Wescoal said it was well capitalised following a black economic empowerment (BEE) transaction that makes it compliant with Eskom’s supplier rules (51% empowered) and had included an equity injection of R178m.

Said Wescoal: “Recently concluded Eskom and export coal sale contracts, coupled with an equity injection from the BEE transaction, have positioned Wescoal very well to further its inorganic growth ambitions of acquiring additional coal resources and interests in key logistic infrastructure”.

Shares in the company have gained 51% in the last three months of 2016.