Wescoal already lining up the next target after Keaton Energy

Waheed Sulaiman, CEO, Wescoal Holdings

The acquisition of Keaton Energy gives Wescoal a larger financial and operating base from which to pursue further acquisitions and Wescoal was already reviewing possible targets according to CEO Waheed Sulaiman.

Interviewed over Wescoal’s results for the year to end-March released today he told Miningmx the current South African coal sector was “ a difficult environment to work in but full of opportunities which Wescoal is in a good position to take advantage of.”

He commented, “We are keen to grow the company quickly. The next deal will be done much sooner than 18 months. We have a good relationship with Eskom and I cannot think of any other coal company that has its BEE issues sorted out as we have. The enlarged combination of Wescoal and Keaton will allow us to go after bigger acquisition targets than we have pursued so far.”

Once the Keaton deal is in place – Keaton shares are to be delisted on July 4 – then Wescoal will own coal resources totaling more than 150mt as well as four operating mines and two processing plants. Wescoal is forecast to supply 7.8mt of coal to Eskom over a five-year period.

Sulaiman added, “We are already reviewing possible targets but, that said, our immediate focus is to bed down the Keaton acquisition. We need to make sure that we do not lose any of the value that we have identified and then get the additional expected value from the business that we have paid for.”

Wescoal is 58,83% BEE equity controlled which comfortably meets Eskom’s demand that the companies which supply it with coal must show BEE ownership of at least 50% plus one share but that BEE deal had a substantial impact on Wescoal’s results for the year to end-March.

The company turned in a solid set of operating numbers but headline earnings were hit by the financial impact of the BEE deal although Sulaiman stressed this was a, “once-off, non-cash item” and that the rise in the Wescoal share price subsequent to the deal being announced showed the value put on the BEE transaction by investors.

At the time the BEE deal was announced the Wescoal share price sat at 169c but this had risen to 238c by the time the deal was closed and accounting requirements were that the price at closure was the price that had to be used.

This resulted in Wescoal’s income for financial  2017 being hit by a R82.3m “BEE discount” item which – along with various non-recurring costs related to the Keaton acquisition – knocked Wescoal’s headline earnings to 11.3c a share (previous financial year – 27.1c a share). Excluding these costs headline earnings would have been 53c a share.

The BEE deal has a stated life of five years because, according to Sulaiman, it’s linked to the Eskom supply contract which is for five years.   Asked if Wescoal would have to issue more shares to renew the BEE deal after the initial five year period Sulaiman replied, “that’s a discussion that has yet to take place.”