Wescoal starting to reap benefits of Keaton deal, pays dividend

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Waheed Sulaiman, CEO, Wescoal Holdings

WESCOAL Holdings paid an interim dividend of 3.1 South African cents per share and said it was positioned for additional merger and acquisition activity as opportunities “continue to present themselves”.

The six months under review, ended September 30, has been a transitional period for Wescoal. It completed the R525m takeover of peer, Keaton Energy, paid down expensive short-term debt, and bolstered its balance sheet with new long-term debt from Nedbank totalling R440m.

Waheed Sulaiman, CEO of Wescoal Holdings, said today in the company’s interim results statement that the firm was on track to reach production this year of over seven million tonnes (Mt) of thermal coal while its resources had been increased to 318Mt. Longer term, the group is scoped to produce 8Mt per year (Mtpy).

From a financial performance, the addition to Keaton’s income contributed towards a 55% lift in revenue to R1.6bn year-on-year, an increase gross profit of 42% to R267.1m, and 41% higher total comprehensive income of R87.6m.

Importantly, cash generated from operations increased to R206m from R98m in the half year period of the previous financial year. Capital expenditure of R37m absorbed some of that cash as well as debt repayments totaling R82m, and the dividend of R14m.

Share earnings were lower owing to the dilutive effects of share issues which Wescoal sanctioned in order to part pay for the Keaton transaction, and to meet its black economic empowerment targets. The group is now 51% black-owned and has plans to extend black ownership through a yet-to-be-announced employee level scheme.

One of the challenges in the group is the trading division which has struggled to compete in the cut and thrust of South Africa’s commodities trading environment. Sulaiman said the business had been “successfully re-aligned” and that it was thriving in “challenging trading conditions”. It booked a R35m increase in first half revenue of R593m year-on-year.

Commenting on its prospects, Wescoal said that it continued to “… grow into a multi-faceted group with a presence in the domestic and international thermal coal markets, as well as coal logistics infrastructure”. As is the mantra presently, it would “… continue to take advantage of value enhancing opportunities … and grow revenue streams in FY18”.

The refinement of the Moabsvelden project, one of Keaton’s projects, would be completed in January. Under Keaton’s control, Moabsvelden was scoped to add about 2Mtpy of low cost coal (owing to plans to share infrastructure with the nearby Vanggatfontein mine) at a capital cost of about R300m. Sulaiman has said in the past Wescoal could probably commission the mine for less.

Said Wescoal: “Acquisition targets continue to present themselves and the board of directors continues to assess these with a view to sustainably growing the business. Delivery of the 8Mt ROM [run of mine] medium term objective is still on track”.

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