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WESCOAL HOLDINGS LIMITED - Conclusion of Moabsvelden project coal offtake agreement; conclusion of debt refinance process; voluntary operationa

Release Date: 31/07/2019 15:30
Code(s): WSL     PDF:  
 
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Conclusion of Moabsvelden project coal offtake agreement; conclusion of debt refinance process; voluntary operationa

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”)

ANNOUNCEMENT REGARDING:

-    CONCLUSION OF THE MOABSVELDEN PROJECT COAL OFFTAKE AGREEMENT;
-    CONCLUSION OF DEBT REFINANCE PROCESS; AND
-    VOLUNTARY QUARTERLY OPERATIONAL UPDATE

1.   INTRODUCTION

Wescoal’s strategy is to grow sustainably and become a leading provider of reliable energy source in a manner which adds
transformational value to society, anchored in three strategic pillars, namely:

     -    stability of existing operations and related support services;
     -    sustainability of the business with all licenses to operate in place and an optimal balance sheet that supports growth
          and sustained shareholder rewards; and
     -    scalability of the business and operations through inorganic and organic growth opportunities.

Following communication of the above strategy to Wescoal shareholders (“Shareholders”) at the annual results presentation on
25 June 2019, Wescoal is pleased to inform Shareholders that it has commenced with the full roll-out and implementation of the
strategy across the Group. This voluntary operational update serves to inform Shareholders on progress made in regard to:

     -    signature of the Moabsvelden project (“Moabsvelden”) coal offtake agreement;
     -    conclusion of the refinancing of existing debt facilities; and
     -    quarterly production and operational update.

2.   CONCLUSION OF THE MOABSVELDEN COAL OFFTAKE AGREEMENT

Wescoal is pleased to inform Shareholders that the Company, through its wholly-owned subsidiary Neosho Trading 86 Proprietary
Limited, has entered into a long-term coal supply agreement (“CSA”) with Eskom Holdings SOC Limited (“Eskom”) to supply coal
for the next 10 years from its greenfield development project, Moabsvelden. The signature of the CSA marked the conclusion of
16 months of negotiations with Eskom which commenced early in 2018.

Moabsvelden is located approximately 5km from the current Vanggatfontein mine, in Delmas and formed part of the assets
acquired from Keaton Energy Holdings Limited by Wescoal during 2017. Development work, that includes box cut mining and
associated mining infrastructure, will commence during Q3’2019 with first coal to Eskom expected in January 2020. This project is
expected to contribute circa. three (3) million tonnes per annum of mined coal towards Wescoal’s production capacity and
presents a new growth opportunity for all our key stakeholders, namely employees, communities and Shareholders.

The signature of the Moabsvelden CSA falls squarely into the scalability pillar wherein Wescoal announced its intention to fast-
track the development of internal (organic) growth opportunities.

3.   CONCLUSION OF DEBT REFINANCE PROCESS

In order to achieve the stated strategic objective of sustainability, Wescoal identified the optimisation of Wescoal’s funding and
capital structure as being of paramount importance. In this regard, Wescoal is pleased to inform Shareholders that it has closed
the refinance of its existing credit facilities (“New Debt Facilities”), through a consortium of South African commercial banks
consisting of Nedbank Limited (acting through its Corporate and Investment Banking Division) and The Standard Bank of South
Africa Limited (acting through its Corporate and Investment Banking Division). The New Debt Facilities are for a combined R1.1
billion, with a provision that also allows Wescoal access to an additional R500 million accordion facility subject to credit approval
but within the legal agreements of the refinance facilities, thus reducing significantly the lead time towards accessing this extra
liquidity facility.

The improved capital structure will consolidate and optimise various debt instruments thereby enhancing the Group’s liquidity
and overall balance sheet strength. This will further enable the Group to pursue specific existing organic growth expansion projects
e.g. Moabsvelden and, subject to lenders approval, to take advantage of further inorganic acquisition opportunities in the market.

The New Debt Facilities have been concluded and first drawdown to refinance the old debt facilities has already been undertaken.

4.     VOLUNTARY QUARTERLY OPERATIONAL UPDATE

Wescoal wishes to update Shareholders on quarterly production and sales from its operating assets. The tables below compare
the Q1’FY20 ending June 2019 to Q4’FY19 ending March 2019 as well as Q1’FY19 ending June 2018.

Summary Production and Sales

                                          QTR
 Volumes                 QTR Jun19                     Variance                       QTR Jun19   QTR Jun18      Variance
                                         Mar-19

                           t'000          t'000           t'000         %                             t'000           t'000         %

                                                                                          1,136       1,649            -514       -31%
 Production                  1,136        1,428           - 293       -20%
 Elandspruit                   590          565              25         5%                  590         709            -119       -17%

 Khanyisa                      325          293              32        11%                  325          41             284       692%

 Intibane                        -            -               -         0%                    -         133            -133      -100%

 Vanggatfontein                220          570           - 350       -61%                  220         767            -546       -71%


                                                                                          
 Sales                       1,338        1,635            -297       -18%                1,338       1,559            -221       -14%

     Elandspruit               425          513             -87       -17%                  425         498             -73       -15%

     Khanyisa                  336          347             -10        -3%                  336          45             292       651%

     Intibane                                 -               -         0%                    -         141            -141      -100%

                                                                                            
     Vanggatfontein            330          508            -178       -35%                  330         569            -239       -42%

                                                                                          
 Mining                      1,092        1,368           - 276       -20%                1,092       1,253            -161       -13

                                                                                            
 Trading                       246          267             -21        -8%                 246         306             -60       -20%

Production:

Safety and the objective of achieving zero harm at all times are at the centre of Wescoal’s strategy, and for this reason, Wescoal’s
number one value is safety. Regrettably, on 17 June 2019, a mobile equipment collision occurred at the Vanggatfontein mine,
resulting in the operator of the haul truck being seriously injured and subsequently succumbing to his injuries. The Department of
Mineral Resources and Energy (“DMR”) has on 26 July 2019 concluded its formal inquiry into the accident and Wescoal is awaiting
the final report into the matter.

Overall production output from mining operations is 20% (293kt) lower compared to immediately preceding quarter ended 31
March 2019, and 31% (514kt) lower against the comparable quarter ended 30 June 2018. The decline in the overall production
output for the comparable quarters is as a result of the Vanggatfontein production downtime announced in April 2019. However,
this was partly offset by increased output from other operations.

Vanggatfontein production of 220kt for the quarter was impacted by unprotected industrial actions, resulting in nearly six weeks
of production downtime. The operation was further impacted by one week of Mineral and Petroleum Resources Development
Act’s section 54 stoppage of operation following the reported fatality at the mine. All mining and production activities have
resumed since then.

As part of the production ramp up plan, the capacity and efficiency have been supplemented with the addition of new equipment.
New Caterpillar equipment for two production teams consisting of two excavators and seven 777 trucks were delivered and
commissioned during May 2019. An additional two teams are scheduled for delivery during this quarter. It is envisaged that the
operation will reach its current maximum sustainable production rate (“MSPT”) of 340kt during September 2019.

Elandspruit was also impacted by labour disruptions and by lack of production from underground mining which remains
suspended. The open cast contractor has delivered new equipment to site and revised the shift roster to be able to deliver the
MSPT of 240kt per month.

Khanyisa complex production is 692% higher relative to the comparable period of the previous year. The increased volumes being
from the Khanyisa Triangle section, 100% owned by Wescoal since February 2019.

Sales: Coal sales from Trading in the quarter were 8% lower than the preceding quarter and Mining sales were 20% lower. Relative
to the comparable period or previous year (June 2018), total sales volumes were 14% higher, mainly as a result of additional
volumes from Khanyisa. The seasonal cycle of sales from the Trading division saw sales 8% lower when compared to the
immediately preceding quarter, and 20% lower than the comparable period of the previous financial year.

5.   OUTLOOK

Wescoal’s short term focus is to stabilise the operations and to continue working towards achieving strategic MSPTs
communicated at the annual results presentation, with the aim of reaching and maintaining the MSPTs for at least the last six
months of the current financial year. In this regard, progress made to-date is as follows:

     -    Khanyisa Complex continues to perform consistently at the 100 – 120ktpm MSPT level
             o    life extension initiatives at the mine continue to be explored which include among others, Triangle 2 start-up,
                  recovery of roof coal and evaluation of options relating to fuel pipeline in the area.

     -    Elandspruit is on track to deliver 230 – 240ktpm MSPT in the month of July 2019 and going forward
             o    process to appoint a new contractor in order to reopen the underground section is currently underway
             o    additional equipment has been added to increase open cast mining capacity.

     -    Vanggatfontein ramp-up plan implementation to reach steady state is in progress, although still at a level below
          management’s expectations
             o    additional new equipment has been brought on site
             o    a new mine plan is being finalised to ensure a consistent delivery of the 300 – 340ktpm MSPT during the second
                  half of the financial year
             o    funding for acquiring new equipment is well advanced, with draft legal agreements already in circulation

The above information has not been reviewed or reported on by Wescoal’s auditors.

Shareholders will be informed in the next quarterly production update on progress made in working towards achieving the
above MSPTs.

31 July 2019

JSE Sponsor
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IR Advisor
Singular IR

Date: 31/07/2019 03:30:00
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