Wrap Text
Trading statement and voluntary operational and strategic update
WESCOAL HOLDINGS LIMITED
Incorporated in the Republic of South Africa
(Registration number 2005/006913/06)
Share code: WSL
ISIN: ZAE000069639
(“Wescoal” or the “Company” or the “Group”)
Trading statement and voluntary operational and strategic update
1. Trading statement
Wescoal wishes to advise its Shareholders (“Shareholders”) that it is in the process of finalising its
interim results for the six months ended 30 September 2020. The Company expects, with reasonable
certainty, that headline earnings per share ("HEPS") and earnings per share ("EPS") will vary by the
amounts set out below:
• HEPS will be between 3.0 and 3.5 cents (30 September 2019: (11.9) cents loss), being an
increase of between 125% and 129%; and
• EPS will be between 2.3 and 2.7 cents (30 September 2019: (11.8) cents loss), being an
increase of between 119% and 123%.
The return to Group profitability was driven by an improved performance from the mining operations
as reported in detail below. The Company was able to maintain a positive cash generation from
operations with EBITDA expected to be between R300 million and R320 million.
2. Voluntary operational and strategic update
Wescoal wishes to voluntarily update Shareholders on its operational performance as well as
production and sales figures from its operating assets for the first half of the financial year.
Eskom
Wescoal’s major customer, Eskom Holdings SOC Limited (“Eskom”) reduced coal off-take in
response to lower electricity demand during the government-imposed lockdown in South Africa
(“National Lockdown”) and issued suppliers with force majeure notices in April 2020. Wescoal
continued to operate at full capacity as an essential service provider during the National Lockdown.
Although the force majeure notice was subsequently withdrawn in August 2020, sales to Eskom
remain lower than pre-National Lockdown normalised levels due to reduced coal offtake. This has
resulted in a build-up of run-of-mine (“ROM”) and saleable product stockpiles across all three of
Wescoal’s operating mines. Total ROM and saleable product stockpiles have increased by more than
60% since the beginning of FY 2021. While offtake levels are expected to normalise in the late third,
to early fourth quarter of FY 2021, there remains significant downside risk to sales volumes. Wescoal
is currently exploring opportunities to supply into the domestic market, as demand for coal returns
with the easing of National Lockdown measures, and if successful, this will diversify revenue streams
in general, whilst offsetting lower sales volumes to Eskom.
Debt
For the first half of FY 2021 all lenders’ financial covenant requirements have been met due to
improved production performance in the Mining business. Wescoal is engaging its lenders in respect
of a potential debt restructure in order to manage the short to medium term debt repayment
commitments in light of the negative cash flow impacts on the business related to reduced coal offtake
levels. The timing of the conclusion of these discussions and the total amount of repayments to be
rescheduled during FY 2021 cannot be confirmed at this stage.
Trading division review/restructure
At the annual results presentation on 21 July 2020, the Company announced a strategic review of its
Trading Division. This process has been completed and a restructuring programme will be
implemented which is part of a Group initiative to streamline and integrate operations.
3. Projects
Moabsvelden
Wescoal announced the commencement of the box cut phase of the Moabsvelden project which will
produce 2.4 million tonnes per annum ROM over the 10-year life of mine, to be supplied to Eskom in
terms of a 10-year coal supply agreement (“CSA”) that has been signed with the power utility. Good
progress has been made in the first half of FY 2021, despite adopting a slow-ramp up approach for
the project. Various early-works construction activities have been completed or are nearing
completion and the first blast was successfully carried out in October 2020. Operationalising this asset
is a major capital expenditure project for Wescoal, requiring an initial investment of R250 - R290
million for the first phase of the project, with c.R140 million already spent to date. The Company
continues to closely monitor and manage cash flows, including optimisation work to reduce and/or
reschedule CAPEX spend. It is anticipated that first coal from Moabsvelden will be reached in Q4 FY
2021.
Vanggatfontein (VG5)
The extension project to replace VG3 by opening of the new box-cut for an additional mining pit and
coal face is nearing completion. The project is a joint development with a neighbouring mining right
holder, which enables extraction of some 450 thousand tonnes boundary pillar area coal that would
otherwise have been sterilised. The primary development phase is expected to be completed by Q3
FY 2021 at which point the joint project will be dissolved and mining activities will be integrated with
existing Vanggatfontein operations, thus coinciding with the depletion of and replacing production
from VG3.
Arnot Mine
The Arnot coal mine in Mpumalanga has stated resources of 212 million tonnes of coal and is well
positioned to supply coal to Eskom’s Arnot power station primarily via a conveyor belt. Coal supply
discussions with Eskom are currently underway. In addition, rehabilitation cost settlement discussions
with Eskom and the Department of Mineral Resources and Energy (DMRE) are well-advanced.
The underground mine restart is expected to be in calendar Q1 2021, with steady state production of
1 - 1.2mtpa by Q3 2021. The opencast mine is planned to reach steady state in Q4 2021 at 2 -
2.4mtpa. A low capital intensity approach will be adopted to operationalise the mine.
Leeuw Braakfontein Colliery (“LBC”) disposal update
Various parties have expressed interest in acquiring the LBC pursuant to the cancelled disposal
transaction as previously announced. The Company launched a formal disposal process and has now
selected a preferred bidder for LBC. Though at an advanced stage, there is no certainty that
negotiations will lead to a successful conclusion of the disposal process during the current financial
year.
4. Production and sales update
HY21 HY20 %
change
kt kt
Production tonnages
(ROM)
Vanggatfontein *2,327 750 210%
Elandspruit 1,552 1,287 21%
Khanyisa 548 696 -21%
4,427 2,733 62%
Sales tonnages
Vanggatfontein 1,451 1,067 36%
Elandspruit 1,069 871 23%
Khanyisa 483 666 -27%
Moabsvelden **728 - 100%
3,731 2,604 43%
* Vanggatfontein HY 2021 production includes VG5 ROM.
** Moabsvelden sales consists of buy-ins.
Production
Group mining production for the six months ended 30 September 2020 is in total 62% higher than the
comparable period of September 2019 (the "Comparable Period"). Vanggatfontein saw the biggest
increase in production of more than 200% compared to the Comparable Period, with Elandspruit also
achieving a significant increase, with only Khanyisa’s production being down from HY 2020.
Vanggatfontein production was steady throughout HY 2021, except in August 2020 when the
onboarding process of a new mining contractor affected ROM production performance. Production
from VG5, an internal project brought online during the period, also contributed to the significant
increase in ROM production at the Vanggatfontein complex, compared to HY 2020. The
Vanggatfontein increase in production compared to the Comparable Period would have been 148%
higher if VG5 production was excluded compared to the total increase of 210% that was achieved for
the complex.
Elandspruit also saw strong ROM production throughout HY 2021, averaging above 250 thousand
tonnes a month from the opencast operation. This translated into a 21% higher production level than
the Comparable Period. The restart of the underground mining section has been deferred due to the
current low demand environment brought about by COVID-19.
Khanyisa was the only operation that experienced lower production than the Comparable Period,
mainly due to safety stoppages. A 21% decrease in HY 2021 production compared to HY 2020 was
recorded at the operation.
Sales
Mining sales volumes relative to the Comparable Period were 43% higher. A major contributing factor
to this increase was Neosho sales in terms of the Eskom rectification plan for Moabsvelden. Besides
the buy-ins for the Moabsvelden contract, no coal had to be bought from third parties to supplement
Wescoal’s production during HY 2021. This was a significant improvement compared to HY 2020
when coal buy-ins of 549 thousand tonnes had to be bought from third parties in order to meet
contractual commitments. A solid performance on the production side enabled Wescoal to sell more
than 3 million tonnes of its own production in HY 2021.
Trading sales
Trading sales volumes were impacted by the National Lockdown and a significant reduction in sales
to a major customer. As a result, the business saw its sales volumes decrease by 30% from 516
thousand tonnes in HY20 to 363 thousand tonnes in HY21. The business has since seen some
recovery with sales currently in line with expectations and anticipated to remain stable, subject to no
further increases in COVID-19 infections and its consequential impact on the South African economy.
General production guidance
An overall solid production performance was recorded by the Group in HY 2021, and at the current
run-rate, ROM production will likely exceed 8 million tonnes for FY 2021. Vanggatfontein, with the
VG5 extension, was a solid contributor to the Group’s overall production levels, and this is expected
to continue for the rest of the current financial year as a new mining contractor has been successfully
onboarded. Elandspruit also continues to be a consistent performer with steady ROM production, and
the 250 thousand tonne per month average is expected to be maintained for the rest of FY 2021.
Although Khanyisa saw its production level drop in HY 2021 compared to HY 2020, production levels
are expected to improve as the Triangle 2 pit starts to contribute to the Group’s production levels. The
Moabsvelden box cut development is also progressing well, and first coal is anticipated in H2 FY 2021
despite the slow ramp-up approach that has been adopted for the project. The excellent production
performance recorded in the first half of the year coupled with the reduced coal offtake levels by
customers over the same period has resulted in a healthy build-up of ROM stockpiles across all the
operations. This will form part of the Company’s strategic stock and will assist to maintain stable sales
levels through the rainy season and the December festive period which have in the past been difficult
periods for the Company in terms of production and sales performance.
5. Restructuring and cost-saving measures
Reduced sales driven by lower demand from key customers, a lower selling price and above inflation
cost increases, coupled with the negative impact of the COVID-19 pandemic have required a
reassessment of the business model and cost saving initiatives. In an effort to improve the financial
performance, efficiency and sustainability of the business, management and the board have decided
to implement group-wide retrenchments and commenced a section 189 process. The process is
expected to be completed by mid-December 2020 with staff reductions across all operations.
6. Outlook summary
All mining operations have been producing at the required levels at all times, and the focus has now
shifted to efficiency as well as cost cutting initiatives across the Company in order to offset a
consistently lower domestic and export coal market demand environment that has been seen during
the first half and expected to continue for a few more months of the second half of the current financial
year. The impact of lower offtake from Eskom and other key Trading clients has resulted in the need
to create significant financial headroom for the remainder of this financial year. Several solutions in
this regard are already being pursued including cost cutting, mining production reduction,
rescheduling capital expenditure and non-core asset sales. The Company remains focused on its
strategy for long term sustainable growth, to be achieved in a measured and responsibly managed
way.
Wescoal will release its interim financial results for the six months ended 30 September 2020 on or
about 4 December 2020.
The information contained in this announcement has not been reviewed or reported on by the
Company’s auditors.
17 November 2020
Sponsor
Nedbank Corporate and Investment Banking
IR Advisor
Singular IR
Date: 17-11-2020 04:33:00
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