Wescoal to double up coal trading arm

[miningmx.com] – WESCOAL Holdings is to buy a coal trading business for R79m in a move that increases the junior miner’s heft in the domestic coal market currently dominated by primary producers of coal.

Andre Boje, CEO of Wescoal Holdings, said the business due for purchase would “more than double” the company’s current domestic trading activities which are held through Chandler Coal. “The business we are buying is bigger than our current trading business, but more profitable” said Boje.

Chandler Coal made a 57% contribution to Wescoal Holdings’ revenue line in the 2012 financial year, equal to some R359m, but only a slim 13% contribution to pre-tax earnings of some R7m. Building market share in the domestic coal industry would, therefore, provide Wescoal with an opportunity to drive better margins.

“The two companies together will have a lot more bargaining power,” Boje said.

In its announcement today, Wescoal Holdings said: “The acquisition of the third party’s coal business will give the trading division the critical mass required to negotiate and overcome these challenges [of primary producer dominance].

“In addition, significant synergy savings and the profits generated by the third party’s coal business will enhance Wescoal earnings and shareholder value,” it said.

More details of the transaction, including financial effects and identity of the business Wescoal is buying, would be announced at Wescoal’s full-year results presentation later this month, Boje said.

Wescoal has been replacing resources and reserves, as well as adding growth tonnes, in the last 18 months as it builds its mining business.

It was recently awarded a water licence for its Itibane colliery, and has all but completed a swap of mineral rights with Xstrata. “I think we’re going places,” said Boje.