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Wescoal - Transaction Update, Competent Persons" Report, Profit Forecasts

Release Date: 03/10/2006 08:00:01      Code(s): WSL
     Wescoal - Transaction Update, Competent Persons" Report, Profit Forecasts  
               And Cautionary Announcement                                      
     WESCOAL HOLDINGS LTD                                                       
(Incorporated in the Republic of South Africa)                             
     (Registration number 2005/006913/06)                                       
     (JSE Share code: WSL & ISIN: ZAE000069639)                                 
     ("Wescoal" or "the company")                                               
     PROFIT FORECASTS AND CAUTIONARY ANNOUNCEMENT                               
     1.   TRANSACTION UPDATE                                                    
Shareholders are referred to the announcement dated 31 May 2006 that  
          Wescoal has, subject to certain conditions precedent, purchased all   
          the issued shares in and certain shareholders" claims on loan account 
          against Anker SA from its shareholders ("the acquisition").           
It was further announced on 20 July 2006 that the Competition         
          Commission has unconditionally approved the acquisition. The pro forma
          financial effects of the acquisition were published on 10 July 2006.  
          The Competent Person"s Report ("CPR") complying with the SAMREC Code  
has been finalised by SRK Consulting (South Africa) (Proprietary)     
          Limited ("SRK"). The CPR has been submitted to the JSE Limited        
          together with the draft circular to shareholders. The CPR has been    
          reviewed and approved by SAMREC.                                      
2.   COMPETENT PERSONS" REPORT                                             
     THE SALIENT FEATURES OF SRK"S CPR ARE AS FOLLOWS:                          
     2.1  Introduction                                                          
     SRK has been commissioned by Wescoal to prepare a CPR on the current and   
future coal mining operations in and around Witbank and Ermelo in          
     Mpumalanga, South Africa, currently owned by Anker SA.  The assets under   
     review comprise the following mining and prospecting assets:               
     Mining Assets                                                              
*    Elandsfontein Colliery, mining and processing operations, near        
          Witbank, Mpumalanga, namely:                                          
          *    Elandsfontein opencast colliery,                                 
          *    Elandsfontein discard dump,                                      
*    Elandsfontein processing plant.                                  
     *    Golfview Colliery, mining and processing operations, near Ermelo,     
          Mpumalanga, namely:                                                   
          *    Golfview opencast colliery,                                      
*    Golfview discard dump,                                           
          *    Golfview processing plant.                                       
     *    Wesselton East Mining Complex, near Ermelo, Mpumalanga, comprising    
          resources on portions of the farms:                                   
*    Leliefontein,                                                    
          *    Joubertsvlei,                                                    
          *    Van Outshoornstroom,                                             
          *    Witbank,                                                         
*    Meppel,                                                          
          *    Jan Hendriksfontein.                                             
     *    Prospecting Assets                                                    
          *    Vlakfontein Prospecting area, comprising resources on various    
portions of various farms, near Amersfoort, Mpumalanga;          
          *    Uitkomst Prospecting area, comprising resources on various       
               portions of various farms, near Ermelo, Mpumalanga;              
          *    Mooiklip Prospecting area, comprising resources on various       
portions of various farms, between Ermelo and Amersfoort,        
          *    Sheepmoor Prospecting area, comprising resources on various      
               portions of various farms, near Sheepmoor, Mpumalanga;           
*    Steenkoolspruit Prospecting area, comprising resources on various
               portions of various farms, between Amsterdam and Ermelo,         
     The Prospecting Assets, because of the limited information currently       
available, did not form part of the overall valuation of the Anker SA      
     2.2  Resources and reserves                                                
          The table below summarises SRK"s audited Coal Reserves Estimates.     
Anker SA Run of Mine Reserves Estimates                               
                    Seam       GTIS       Proved     Probable  Total            
                                          Reserves   Reserves  sales            
kt         kt         kt        kt               
     Elandsfontein  No. 2      -          -          -         -                
                    No. 1      2,326      -          1,752     972              
                    Discard    -          -          -         312              
                    Total      2,326      -          1,752     1,284            
     Golfview       C Upper    2,164      1,445      -         1,445            
C Lower    2,280      1,523      -         1,153            
                    Discard &  -          -          -         1,278            
                    Total      4,444      2,968                3,876            
Wesselton      B                                                           
     East                      1,061      549        254       803              
                    C Upper    1,505      484        688       1,172            
                    C Lower    27,539     3,723      10,179    10,145           
Discard    -          -          -         1,503            
                    Total      30,104     4,756      11,121    13,623           
     2.3  Operational issues                                                    
          Mining has currently been carried out on a limited basis since January
2006 at both Elandsfontein and Golfview. Reclamation and re-processing
          of the discard dumps has been carried out during this period. The     
          current plan has been developed as a depletion schedule, which will be
          further refined on completion of the current acquisition transaction. 
Both Elandsfontein and Golfview have a limited life and production    
          will be replaced from the Wesselton East operation. The overall       
          production profile of the three operations combined are indicated in  
          the table below.                                                      
Production profile for combined operations                                 
     Period                2007   2008    2009    2010   2011    2012           
     Total    (kt  22,398  2,700  3,192   2,728   1,643  1,772   1,730          
     RoM      )                                                                 
Feed to  (kt  18,978  2,100  2,172   1,763   1,080  1,500   1,730          
     Plant    )                                                                 
     Plant    (%)  67%     56%    57%     62%     73%    73%     73%            
Raw      (kt  3,420   600    1,020   965     563    272                    
     Sales    )                                                                 
     Washed   (kt  15,363  1,549  1,615   1,356   905    1,257   1,449          
     Sales    )                                                                 
Total    (kt  18,783  2,149  2,635   2,322   1,468  1,528   1,449          
     Sales    )                                                                 
     Period                2013   2014    2015    2016    2017                  
     Total    (kt  22,398  1,920  1,920   1,920   1,920   952                   
RoM      )                                                                 
     Feed to  (kt  18,978  1,920  1,920   1,920   1,920   952                   
     Plant    )                                                                 
     Plant    (%)  67%     73%    73%     73%     73%     73%                   
     Raw      (kt  3,420                                                        
     Sales    )                                                                 
     Washed   (kt  15,363  1,609  1,609   1,609   1,609   798                   
Sales    )                                                                 
     Total    (kt  18,783  1,609  1,609   1,609   1,609   798                   
     Sales    )                                                                 
     2.4  Projected new capital expenditure (3 years) (R"000)                   
The projected new capital expenditure for the next three years are    
          detailed below:                                                       
                                        2007    2008     2009                   
     Elandsfon   Total incl escalation  8,383   6,574    0                      
     Golfview    Total incl escalation  13,465  3,158    1,739                  
     Wesselton   Total incl escalation  21,000  46,297   40,542                 
Total capex incl       42,848  56,028   42,282                 
                 Additional             756     984      715                    
Total capex incl esc   43,604  57,012   42,996                 
                 & contingency                                                  
     2.5  Marketing and sales                                                   
     The current allocation of Anker SA at Richards Bay Coal Terminal ("RBCT")  
in Richards Bay, Kwa-Zulu Natal, is approximately 150,000 tonnes per annum.
     This will increase to some 450,000tpa in 2008, to 750,000tpa in 2009 and   
     ultimately some 1.0 million tpa from 2010, the expected time that the full 
     capacity of Phase V expansion of the RBCT will be available for use. This  
is indicated in the table below.                                           
     Projected RBCT Allocation for the next 5 years                             
                       2007     2008      2009      2010        2011            
     RBCT Allocation   150,000  450,000   750,000   1,000,000   1,000,000       
     Wescoal will market their own coal locally and will use the expertise of   
     the Rotterdam headquartered Vitol Group for the export products. The       
     assumptions used in the determination of a value is indicated in the table 
     Prices and indices used in the technical-economic model                    
                       2007     2008    2009     2010     2011     Escalation   
                                                                   per year(1)  
Raw       ZAR/t   80.00    88.00   96.80    106.48   117.13   10.0%        
     Exchange  ZAR:$   6.93     7.34    7.36     7.69     8.04     4.5%         
     Export    US$/t   50.00    52.50   55.13    57.88    60.78    5.0%         
     Export    US$/t   48.00    50.40   52.92    55.57    58.34    5.0%         
     Inland    ZAR/t   250.00   275.00  302.50   332.75   366.03   10.0%        
     Inland    ZAR/t   220.00   242.00  266.20   292.82   322.10   10.0%        
     Inland    ZAR/t   185.00   203.50  223.85   246.24   270.86   10.0%        
     Duff      ZAR/t   150.00   165.00  181.50   199.65   219.62   10.0%        
     Power     ZAR/t   85.00    93.50   102.85   113.14   124.45   10.0%        
Discard   ZAR/t   18.00    19.80   21.78    23.96    26.35    10.0%        
     Slimes    ZAR/t   25.00    27.50   30.25    33.28    36.60    10.0%        
     Note 1:   Escalation factor applied annually from 2012 to the end of the   
               life of the operations                                           
2.6  Environmental issues                                                  
          The current estimates of the environmental liabilities and            
          rehabilitation costs are indicated below. SRK have used the High Order
          rehabilitation cost estimates in the technical-economic model. This is
conservative, but once the acquisition has become effective, detailed 
          environmental liability estimations will be carried out to determine a
          realistic and practical value.                                        
     SRK"s High Order rehabilitation costs                                      
Operation                 R"000                                            
     Elandsfontein             35,270                                           
     Golfview                  18,750                                           
     Wesselton East            20,000                                           
Total estimated current   74,020                                           
     A provision of ZAR2.50 per sales tonne has been made in the technical-     
     economic model to realise sufficient funds to cover the closure cost of    
both Elandsfontein and Golfview, as well as providing a suitable provision 
     for the eventual closure of Wesselton East. The provision adequately covers
     the expected SRK High Order environmental liabilities.                     
     3.   VALUATION                                                             
The values presented in the CPR are Net Present Values based on a     
          range of discounted cash flows. This estimate serves as a guide for   
          potential investors to appreciate the production and financial        
          potential of the operation. SRK do not assign market values to        
operations of this nature. At a discount rate of 15% a Net Present    
          Value of the operating free cash flows of approximately ZAR R375      
          million can be assigned to the Mining Assets. As is usual in          
          operations of this nature the valuation is most sensitive to the      
revenue (coal price) and least sensitive to the capital expenditure.  
     4.   FORECAST INCOME STATEMENTS                                            
          The forecast income statements of Wescoal, including the acquisition, 
          for the financial years ending 31 March 2007 and 31 March 2008, the   
preparation of which was the responsibility of the directors, are set 
          out below. The forecasts were based on the mining depletion schedules 
          prepared by SRK and contained in the CPR. The forecasts have been     
          examined by Middel & Partners, and their independent accountants"     
report thereon will be included in the circular to be sent to         
          The funding arrangements in respect of the acquisition are currently  
          being finalised. This will entail an issue of shares for cash. The    
forecast earnings per share and net asset per share will be published 
          once finality has been reached in respect of the funding arrangements.
     INCOME STATEMENT     Year ending                                           
                          31 March 2007          31 March 2008                  
R                      R                              
     Turnover             320,370,537            511,199,489                    
     Cost of sales        (281,175,322)          (402,335,826)                  
     Gross profit         39,195,215             108,863,663                    
Other income         105,521                110,758                        
     Operating costs      (23,975,758)           (49,082,498)                   
     Profit from          15,324,978             59,891,923                     
     Interest received    1,440,565              81,460                         
     Interest paid        (5,027,276)            (4,460,415)                    
     Net profit before    11,738,267             55,512,968                     
     Taxation             (3,142,209)            (3,919,294)                    
     Net profit for the   8,596,058              51,593,674                     
Headline earnings    5,5                    22,2                           
     per share (cents)                                                          
     Main forecast assumptions:                                                 
     (1)  Revenue:                                                              
(1.1)     The forecast mining and processing volumes were based on the mine
               plan prepared by SRK as set out in the CPR. Mining at Anker SA   
               subsidiaries Elandsfontein Colliery (Pty) Ltd and Golfview Mining
               (Pty) Ltd, was assumed to commence in January 2007.Mining of     
Anker SA"s substantial unmined resources referred to as Wesselton
               East was assumed to only commence in late 2008 or early 2009 and 
               have accordingly been excluded from the forecasts                
     (1.2)     The following production volumes, based on the mine plan, were   
assumed :                                                        
                             2007           2008                                
                             Tons           Tons                                
               "A" Grade     156,801        495,407                             
"B" Grade     82,908         204,231                             
               Raw coal      150,000        600,000                             
               Export coal   73,500         200,000                             
               Power         101,068        593,245                             
               Duff          81,670         47,349                              
               Discard       481,765        580,000                             
               Total         1,127,212      2,720,232                           
(1.3)     An export price of $50.00 per ton was assumed for the 2007       
               calendar year increasing by 5% in 2008. A ZAR/$ exchange rate of 
               R6.93 was assumed for 2007 and R7.34 for 2008.                   
     (2)  Gross profit:                                                         
(2.1)     Coal trading (historical Wescoal business): The forecast gross   
               profit on the coal trading business was based on margin achieved 
               during the first quarter of the current financial year. A        
               moderate increase in margin was provided for in 2008 based on    
increased demand for coal.                                       
     (2.2)     Mining activities (Anker SA): The forecasts for mining and       
          processing costs were based on market related tariffs for the         
          outsourcing of mining and materials handling with an appropriate cost 
estimate for processing which will be handled in-house. Only opencast 
          mining is planned for the forecast period and a mining cost of R14.00 
          per strip ratio was assumed translating into mining costs of R63.70   
          per RoM ton. Inflation of 6.5% on this price is assumed for 2008.     
(3)  Operating costs:                                                      
     (3.1)     Forecast operating costs were based on historical costs adjusted 
               for increases in capacity. Inflation of 6% was assumed.          
     (4)  Shares in issue:                                                      
(4.1)     It was assumed that there will be 231 709 139 shares in issue,   
               being the current 103 709 139 shares, with             28 000 000
               shares being issued to Community Investment Holdings (Pty)       
               Limited ("CIH") as consideration for the 35% of the issued shares
of Anker SA acquired from CIH, and 100 000 000 shares to be      
               issued for cash as part of the funding arrangements.             
     5.   DOCUMENTATION                                                         
          It is anticipated that a circular with full particulars of the        
acquisition, as well as Revised Listings Particulars of Wescoal,      
          including a CPR and a notice of general meeting of shareholders, will 
          be mailed to shareholders in October 2006.                            
     6.   CAUTIONARY ANNOUNCEMENT                                               
Shareholders are advised to exercise caution when dealing in the      
          company"s securities until the funding arrangements have been         
2 October 2006                                                             
     Designated adviser               Exchange Sponsors                         
     Auditors                         Middel & Partners                         
     Attorneys                        Kim Warren, Rambau &                      
     Advisers in respect of           Brink Cohen Le Roux Inc.                  
     Competition Commission                                                     
Competent Persons" Report        SRK Consulting (South Africa)             
                                      (Pty) Ltd                                 
     Warning: The listing of ordinary shares in the company is on ALTx.         
     Investors are advised of the risks of investing in a company listed on     
ALTx. Investors are advised that the JSE does not guarantee the viability  
     or the success of a company listed on ALTx.  In terms of the Listings      
     Requirements, the company is obliged to appoint and retain a Designated    
     Adviser, which is required to, inter alia, attend all board meetings held  
by the company to ensure that all the Listings Requirements and applicable 
     regulations are complied with, approve the Financial Director of the       
     company and guide the company in a competent, professional and impartial   
     manner.  If the company fails to retain a Designated Adviser, it must make 
arrangements to appoint a new Designated Adviser within 10 business days,  
     failing which the company faces suspension of trading of its securities.   
     If a Designated Adviser is not appointed within 30 days of its suspension, 
     the company faces the termination of its listing without the prospect of an
appropriate offer to minority shareholders.                                
Date: 03/10/2006 08:00:10 AM Supplied by www.sharenet.co.za                     
Produced by the JSE SENS Department                                             

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