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Wescoal voluntary strategic update – 24 January 2018
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")
Wescoal Voluntary Strategic Update – 24 January 2018
Wescoal wishes to update shareholders on various strategic company matters including the
integration of Keaton Energy (“Keaton”), operational and financial matters pertaining to the enlarged
organisation and key changes to the management and Board.
Keaton acquisition and integration update:
The rationale for the acquisition of Keaton Energy Holdings during 2017 included further diversifying
Wescoal’s asset base, realising economies of scale and synergies, expanding optionality in
contracts and off-take negotiations, as well as strengthening the balance sheet and free cash
generation.
The enlarged business now has coal resources well in excess of 300 million tonnes, four operating
mines three processing plants and significant interests in coal supply chain infrastructure. This
translates into additional revenue certainty and diversification through production of a range of coal
qualities, mining and washing/processing options, customer and sales strategies across domestic
and export markets, as well as optionality in contracts and off-take negotiations.
The Company is pleased to report that the integration programme is at an advanced stage and
progressing according to plan. Identified personnel redeployments and overhead reductions are
complete. Immediate operational cost-savings and efficiencies identified during the acquisition due
diligence have been implemented. The combined effect of these savings is in excess of R40 million
per annum. Key technical and mining skills have also been retained successfully.
Systems integration is well underway with the aim of common reporting and resource management
across the Group.
Mining operations at Vanggatfontein, formerly Keaton’s flagship mine, are stable and integration into
Wescoal is progressing according to plan.
Various improvement and efficiency projects have been identified and are being implemented in a
measured fashion. These projects represent low risk value enhancement opportunities and support
the Group’s philosophy around standardisation and scalability.
Production and performance from the combined operations
The Group is now better positioned to meet increased demand, both from Eskom as well as other
domestic and export customers. The enhanced flexibility of the enlarged resource base and
associated mine infrastructure has facilitated increased ROM production and product variations to
service the market as and when required.
Total run of mine (“ROM”) production attributable to Wescoal has doubled to 4.8 million tonnes up
until end December 2017. This is double the amount achieved during the prior comparable period.
The Group is well on its way to achieve its announced 8 million tonnes ROM production target.
Production at Elandspruit was ramped up to take advantage of spot sale opportunities and the mine
is on track to comfortably exceed its annual target of 2.5 million tonnes. During October 2017, a new
mining contractor was introduced at Elandspruit. The transition was carefully planned and well
executed – it was concluded safely and without impacting negatively on production rates.
ROM production from Vanggatfontein totalled 1.5 million tonnes during the second and third
quarters of the financial year. This is equivalent to 3 million tonnes per annum ROM on an
annualised basis. Recently secured surface rights will enable the multiple mini-pits at
Vanggatfontein to be developed in an optimal, cost efficient manner.
Combined output from Intibane and Wescoal’s share of the Khanyisa complex is approximately
1.5 million tonnes on an annualised basis.
The restructured Trading business continues to do well in challenging economic conditions. Sales
volumes are in line with the prior year up until end December 2017, at just over 750 thousand
tonnes.
Financial update and shareholder return
The Company secured a R440 million long term debt facility during 2017. This, in addition to strong
internal cash flow generation has significantly increased the liquidity and cash reserves of the
Group.
The Company paid two dividend tranches during 2017 - a final FY17 dividend of R12 million in
September 2017 and an FY18 interim dividend of R14 million in December 2018.
During December 2017, Wescoal embarked on a modest share buy-back program in line with the
approvals provided by shareholders. This program continues within defined boundaries set by the
Wescoal Board.
Management
The transition of Thivha Tshithavhane into head of the mining division as of 1 April 2017 is complete
and a resounding success. His predecessor, Dutch Botes, formally left the Company’s employ at the
end of December 2017. Dutch was instrumental in growing the Wescoal business to where it is
today and continues to assist in a consultant capacity on new projects.
The internal appointment of Izak van der Walt into the Group Chief Financial Officer role during
August 2017 is a further reflection of the quality of personnel embedded in the Group.
Staff acquired through the Keaton acquisition coupled with a forward-looking people resourcing
model ensures that Wescoal continues to have the internal expertise and experience required for a
profitable, sustainable business.
Board and governance
During November 2017, Wescoal announced the appointment of Cecil Maswanganyi and Eric
Mzimela to the Wescoal Board. It is the intention of the Wescoal Board to further augment the
Board skill set and independence in the coming months. These changes will ensure that the
Company continues to be well positioned to take advantage of value enhancing opportunities in a
sustainable manner. Wescoal continues to adopt best-practice governance principles at all levels of
the organisation.
Growth options
The Moabsvelden resource, which is adjacent to Vanggatfontein, represents a significant organic
growth option for the Group. Development studies are on track to be completed in the coming
weeks. Preliminary results are encouraging and confirm that Moabsvelden represents a significant
value enhancing opportunity.
“We expect to produce between 1.5 million and 2 million tonnes per annum of additional ROM from
the Moabsvelden project. This allows us to comfortably secure our 8 million tonnes per annum
ROM production objective from internal resources.” says CEO Waheed Sulaiman.
He concludes; “The combined Group is now better positioned to meet increased demand, both from
Eskom, as well as other domestic and export customers which have grown noticeably as a
contributing segment. This also reduces our concentration and dependency risk to a greater extent.”
Additionally, Wescoal remains intent on playing an active role as a consolidator in the junior coal
sector and will continue to consider value enhancing opportunities. The acquisition strategy is
focussed on securing additional resources and strategic interests in key logistics infrastructure.
24 January 2018
Sponsor
Nedbank Corporate and Investment Banking
IR Advisor
Singular Systems IR
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