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WESCOAL HOLDINGS LIMITED - Voluntary operational & funding update

Release Date: 31/01/2019 17:40
Code(s): WSL     PDF:  
 
Wrap Text
Voluntary operational & funding 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”)

Voluntary Operational & Funding Update

Wescoal wishes to update shareholders on various operational and performance matters. A separate
strategic update on various growth opportunities, including the previously announced Universal
Transaction, will be made as soon as it is possible to do so within the transaction’s multi-jurisdictional
regulatory frameworks.

Overall Economic Climate
The company is managing a challenging economic climate presented by cost containment and
operational business partner risks. Eskom continues to be a consistent and reliable primary
customer.

It is envisaged that Stefanutti Stocks who are already on site will take over all mining activities at
Vanggatfontein from March 2019. The previous mining contractor was placed in business rescue and
this has impacted on the company’s performance. Prior to the transition to Stefanutti Stocks, actions
to mitigate and manage the operational risks and change-over process were instituted.

Management is working towards a partial insourcing model for greater oversight of costs and risks.
Elandspruit underground operations are on care and maintenance while the company negotiates
with potential underground contractors to resume operations.

Quarterly Production Update for the Quarter ended 31 December 2018
Group mining production levels during the quarter fell by 17% mainly due to the poor performance
of the contractor at Vanggatfontein.

Production fell short of target in October and November 2018, while December 2018 showed positive
signs of recovery. Average production over the last three months at Vanggatfontein has been 190kt
ROM per month compared to the previous quarter’s production average of 260kt ROM per month.
The medium to long term production run rate targets 300kt ROM per month as the performance of
the new contractor ramps up. Vanggatfontein has a remaining life of 10+ years.

Elandspruit mine opencast operations are at production levels of around 220kt ROM per month with
multiple faces active which enables operational flexibility and the current reserve has a remaining
life of about six years. Management is working on brownfields expansion options as a means to
increase the life of mine.

At Khanyisa, the company is managing the JV relationship and the coal production levels are steadily
increasing from a low level of 124 000 tonnes in the previous quarter to 245 000 tonnes in the current
quarter.
The trading business is performing in line with expectations for the year despite a challenging
environment.

Growth project:
The Moabsvelden project, adjacent to the Vanggatfontein property, is planned to produce the first
coal during the second quarter of the next financial year. The mine will be an opencast operation in
conjunction with commercial arrangements to sell the coal. It has a 47.8 million tonnes resource and
the potential to deliver in excess of 2 million tonnes per annum ROM with coal processing conducted
at Vanggatfontein. The asset is fully permitted.

Funding:
The underlying cash generation from operations reported in the half year September 2018 was
R291m for the six-month period. This remains a robust and major contributor to funding the
company’s growth plans. The half year results net debt improved from R422m reported in March
2018 to R238m in the interim results for September 2018. The gearing ratio improved from 29% to
18%, positioning the company for sustainable growth.

The Keaton transaction resulted in a step change in the Group’s funding capacity. In preparation for
acquisition and growth initiatives the total debt facilities were increased to around R850 million,
which is sufficient to fund the company’s operational requirements and current growth initiatives,
including the potential acquisition of an interest in Universal Coal Plc that is currently being
evaluated.

The restructure and upsize of debt facilities to R1.1 billion are well advanced, with lenders having
received full credit approvals. The drafting of legal agreements is in progress. Wescoal expects to
reach financial closure within weeks to ensure sufficient funding capacity for near term investments.
The funding structure and agreements include an accordion element to further increase of facilities
to R1.5 billion for any future envisaged projects.

The debt restructure reduces finance rates and risks as well as allowing the company to continue its
growth trajectory.

Disposals:
The Leeuwbraakfontein disposal is subject only to standard regulatory approvals and the flow of
funds (R103 million) is anticipated within the first half of FY20. Proceeds of R57 million were received
during July and August 2018 for the disposal of Intibane. Disposal of non-core assets are in line with
the company’s strategy of realising value for shareholders, of de-risking and building a scalable,
sustainable business. Funds from the disposal of non-core assets will be used to support the Group’s
growth aspirations.

Share Buy-Back:
To date 7.6 million shares have been repurchased and the Board has put the programme on hold in
order to conserve cash to pursue near term growth opportunities.

Wescoal remains focused on its strategy for long term sustainable growth under its BEE ownership
status of between 52% - 59%.
More detailed financial performance updates will be announced when possible and as appropriate
within the regulatory framework for the financial year-end being 31 March 2019.

Wescoal shareholders are invited to attend a meeting with the directors of the company and/or to
dial in to a shareholder’s conference call on Friday, 1st February where the Chairman will host a Q&A
forum. For details shareholders are requested to contact Jacques de Bie – jdebie@singular.co.za

31 January 2019

Sponsor
Nedbank Corporate and Investment Banking

IR Advisor
Singular IR

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