[miningmx.com] — TOUGH and uncertain times are taking their toll on the South African coal sector and mining contractor Sentula Mining is suffering from the fall out through flat earnings and an underperforming share price.
On Friday, Sentula published results for the six months to end-September which reported a 10% increase in revenue to R1.3bn (six months to end-September 2010 – R1.2bn) but unchanged headline earnings of 10.6c a share.
At the current level of around 196c, Sentula shares are trading at discounts of 50% or greater to both net asset value (NAV) of 472c and tangible net asset value of 396c calculated as of September 30.
Those figures are, in turn, materially down on the NAV of 505c and tangible NAV of 430c reported at end-March this year.
CEO Robin Berry says a combination of global economic uncertainty combined with specific risk and logistical factors related to South Africa are affecting the business.
“Global uneconomic uncertainty and its impact on local mining continues to affect the rate of recovery and sustainable growth in resource and energy sectors,” said Berry.
Turning specifically to South Africa, Berry estimated the current export production capacity of the country’s coal mines at between 65mt/year and 68mt/year.
“That’s where it has been for the last couple of years. There’s been a lot of talk about new projects but not many seem to be coming on stream.
“Certainly, I don’t see another six or seven million tons of export coal capacity coming on line which would require an overall increase in annual industry production capacity of about 10mt to 12mt.”
Berry said the reasons for this included the nationalisation debate and caution over Transnet Freight Rail’s (TFR) ability to maintain over the long-term the improved level of railages it has achieved to Richards Bay over the past few months.
Since about July TFR has been railing coal to Richards Bay at a rate of just over 6mt/month. That is a marked improvement on its performance of the previous two years where TFR managed to rail coal at around only 5.3mt/month.
Stockpiles at the Richards Bay Coal Terminal have been building up because the coal companies are not yet geared up to produce and market the higher volumes of coal now being railed.
If TFR does manage to maintain the new rate then it could shift 72mt to Richards Bay during 2012 but the SA coal exporters at this stage are not geared up to produce that amount of coal.
TFR executives have already threatened to shift locomotives off the Richards Bay line to be used elsewhere if the coal companies do not step up their performance.
Berry added coal producers were waiting for the final outcome of the nationalisation debate so they could have certainty over the conditions for future investment in South Africa.
He said Sentula’s contract mining operations were being affected by this lack of growth in the sector, but added he still expected to pick up new business from existing operations.
“We are sitting in a tight capital market. Producers face difficult decisions in terms of investing in new equipment to continue with their own mining operations against bringing in a contractor to do the mining,” he said.
“That’s the space the mining contractor plays in. We’re there to fill the gap.”
