Rain, protests hit Wescoal, but firm targets Moabsvelden as part of recovery plan

ABOVE average summer rainfall in Mpumalanga province and contractor and employee related interruptions would result in lower-than-forecast production from end-January, said Wescoal Holdings, the Johannesburg-listed coal producer.

Commenting in an update, the company also said that its Moabsvelden project would begin production in the second half of the firm’s current 2020 financial year. Coal production would also be increased at Vanggatfontein which is currently experiencing downtime until the beginning of June following a strike and violent protest.

A total of 567 millimetres of rain fell in Mpumalanga in December and January, the company said. Although dry by late March, the summer period saw three times more rain than normal – the wettest in a decade. The “sheer volume of water” impacted negatively on the firm’s opencast operations.

In addition, the appointment of a new mining contractor at its flagship mine, Vanggatfontein, and a strike that followed, which resulted in employees rioting at the mine’s premises, also hurt production. Wescoal said Vanggatfontein would resume production after a six – to eight-week interruption as previously guided.

“Training of replacement contract employees is well underway with at least 25% of required workforce already recruited and attending training,” said Wescoal. “These employees are expected to commence production activities by 14 May 2019.”

Underground production from Elandspruit, equal to 10% of total production, was suspended due to the process underway to secure a new underground mining contractor, the company said. Normal production levels will resume by July. “The focus is on restoring production and increasing output from existing operations, whilst also focusing on cost containment and operational business partner risks,” the company said.

There was good news, however.

An expansion plan at Vanggatfontein to bring on an additional mining phase and ‘optionality’ was due in the second half of the current financial year. Normalised production would be achieved from July onwards at Vanggatfontein which has a remaining life of around eight years at that rate. A long-term production targeting just over four million tons (Mt) run-of-mine was expected from next year.

Moabsvelden, a prospect Wescoal bought with the purchase of Keaton Energy in 2017, has long been on the company’s project agenda. Following an re-scoping of the property, Wescoal said today that it would press the button on the project, adding that it would mine 1.5 to 2Mt annually. It did not attach a capital figure to the project.

“Wescoal is currently negotiating with potential customers, including Eskom, for coal offtake and/or supply agreements,” it said of Moabsvelden, which is actually a satellite of Vanggatfontein. Vanggatfontein will also supply processing capability to the project. “The asset is fully permitted and the mine development plan is an opencast project with the aim of producing first coal during the second half of this calendar year,” said Wescoal.

“Wescoal remains focused on its strategy for long term sustainable growth, to be achieved in a measured and responsibly managed way,” it said. “The company’s immediate priorities are to resume normalised production at Vanggatfontein, to progress the extension project at Vanggatfontein and the development of the Moabsvelden Project, which form part of the plan to optimise the Keaton asset base.”

It added it would “… continue to evaluate various inorganic growth opportunities in the market on a case-by-case basis”.

It is thought to have had a bid for South32’s South African Energy Coal (SAEC) in joint venture with Exxaro Resources short-listed. No imminent announcement should be expected in respect of any corporate moves, the company said however.

Wescoal has been active in terms of inorganic business activities.

In April, a consortium of which it was a part withdrew its offer to buy Universal Coal, an Australian-listed company. This was after industrial minerals firm, Afrimat, tabled a higher R2.15bn bid of its own.

In February, Wescoal announced it would form a joint venture to bring Arnot colliery in Mpumalanga province back into production after a dispute between its former operator, Exxaro, and Eskom resulted in its closure. Wescoal said it relationship with Eskom remained sound.