Wrap Text
Production and sales report, strategic update and trading statement
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”)
Production and sales report, strategic update and Trading statement
1. Interim Period Production and Sales Report
September September
Interim period volumes 2019 2018 Variance
t'000 t'000 t'000 %
Production 2,732 3,184 -452 -14%
Elandspruit 1,287 1,419 -132 -9%
Khanyisa 695 77 618 803%
Intibane 133 -133 -100%
Vanggatfontein 749 1,555 -806 -52%
Sales 3,107 3,047 59 -2%
Elandspruit 871 1,055 -184 -17%
Khanyisa 666 104 562 540%
Intibane - 166 -166 -100%
Vanggatfontein 1,054 1,122 -68 -6%
Mining 2,591 2,446 145 6%
Trading 516 601 -85 -14%
Production:
Group mining production level for the six months to 30 September 2019 is in total 14% lower than the comparable
period of September 2018 (the “Comparable Period”). Production increase at Khanyisa Complex was offset by lower
production from the other operations.
Elandspruit production was negatively impacted by the ongoing suspension of underground mining operations since
October 2018 due to the contractor having terminated the agreement on the basis of it not being economically viable.
Vanggatfontein production is 806 000 tonnes (52%) lower than the Comparable Period, following onboarding of
Stefanutti Stocks Mining Services during March 2019, appointed to take over from the previous contractor (Liviero
Mining). Subsequent to the mining contractor changeover, Vanggatfontein was put on a production downtime
(associated with violent protest action at the mine) for a period of six weeks as reported during April 2019 and a
regulatory shutdown (section 54 directive) that was imposed following the fatal accident in June 2019. In addition to
these stoppages, production was also impacted by below target equipment availability, absenteeism and production
sequence inefficiencies.
Khanyisa Complex’s production increased by 618 000 tonnes relative to the Comparable Period, mainly as a result of
the operation being 100% owned by Wescoal after the 65% interest acquisition announced during February 2019.
Sales:
Mining sales volumes relative to the Comparable Period are 6% higher, inclusive of 549 000 tonnes of coal bought
from third parties in order to meet contractual commitments (mainly Eskom coal supply agreements, 546 000 tonnes
for Vanggatfontein and 4 000 tonnes for Elandspruit) and 181 000 tonnes of intergroup sales from Khanyisa Complex
to Vanggatfontein.
Trading sales are 14% lower than the Comparable Period, reflecting the impact of increased market competition as
more coal producers continue to target domestic coal supply to offset lower priced export market business, together
with ongoing changes in the market place.
2. Quarterly Production and Sales Report
Quarter QTR
Quarterly Volumes Sep19 Jun19 Variance
t'000 t'000 t'000 %
Production 1,595 1,136 459 40%
Elandspruit 697 590 107 18%
Khanyisa 370 325 45 15%
Intibane - -
Vanggatfontein 529 220 309 141%
Sales 1,765 1,338 436 33%
Elandspruit 446 425 21 5%
Khanyisa 323 343 -20 -6%
Intibane - - - -
Vanggatfontein 725 330 395 120%
Mining 11,494 1,098 396 36%
Trading 271 246 24 10%
Group mining production levels increased by 40% (459 000 tonnes) during the second quarter, compared to the
preceding quarter to June 2019, following various targeted interventions.
The Company activated various initiatives to address operational downturn at Vanggatfontein and to increase
productivity and, as a result of such initiatives, during Q2 FY2020 Vanggatfontein mine’s production increased by
309 000 tonnes (141%) compared to the preceding quarter. Key improvement initiatives implemented to deliver the
marked productivity improvement include:
- deploying senior Wescoal personnel directly at the operation;
- appointing an independent productivity consulting group, Renoir Consulting, to assist with the development
and implementation of a back-to-basics turnaround strategy;
- fast tracking the voluntary separation process to exit employees in order to address absenteeism and lower
employee productivity;
- acquiring new primary earth moving equipment fleet that has since been delivered to the operation during
September 2019 to replace fully the old, unreliable kit;
- implementing improved operational management control processes, operating and supervisory structures;
and
- appointing a mining sub-contractor (with full complement of own equipment and personnel) under Stefanutti
Stocks Mining Services to rapidly accelerate waste removal and pit sequencing, a pre-requisite to delivering
high volumes of coal consistently.
The process to evaluate the reopening Elandspruit underground operation is taking longer than anticipated and the
internal pre-feasibility report is expected to be finalised during this quarter. In order to mitigate against the loss of
underground tonnes, the Company reached an agreement with the opencast contract mining company to increase
capacity to 240 000 tonnes of coal production per month. This initiative has resulted in second quarter production
being 18% higher than the preceding quarter. The mine plan has also been optimised to allow for better sequencing
and a consistent high volume of opencast production.
3. Strategic update
Achieving Stability across operations is the top priority in the execution of the three-pillar strategy of Stability, Sustainability
and Scalability. Elandspruit and Khanyisa Complex are now demonstrating the ability to operate at the strategic sustainable
production capacity levels of 240 000 tonnes and 100 000 tonnes per of coal respectively. Vanggatfontein production has
been operating at above 200 000 tonnes per month over the last few months and focus now on steadily ramping up
production during the last quarter of the financial year to over 300 000 tonnes of coal production per month.
Wescoal’s strategic focus of progressing Stability and Sustainability in laying the foundation to grow sustainably is also
increasingly becoming important in light of operational challenges experienced during this reporting period. In this regard,
a number of capital expansion and extension growth projects are currently being executed.
Expansion and extension growth projects:
- Moabsvelden – an extensive process is being followed to appoint a contract miner for the development of the
project. Negotiations are at an advanced stage with preferred contract miners and an appointment is expected
to be made no later than 31 December 2019. As previously communicated, first coal and delivery to Eskom
pursuant to the 10-year coal supply award will take place in H1 2020.
- Arnot Mine – Eskom consent remains the last outstanding condition precedent. Furthermore, Arnot Opco is
awaiting Eskom’s response on the coal supply tender for Arnot power station submitted in April 2019. Review
of the current state of operations, ‘as is status’, has been completed and integration work will commence as
soon as conditions precedent to the transaction are met, with start-up still expected during H1 2020.
- Khanyisa Complex
o The operation continues to perform well and is maintaining consistent profitability and cash
generation. The last instalment in terms of the 65% interest (Aztolinx) transaction is scheduled for
December 2019, with the full purchase price having been self-funded by cash generated at Khanyisa
Complex as previously announced.
o Triangle 2 extension project, the opening of a new box-cut and coal face required for the remaining
life of mine, is well advanced and first coal will be reached during November 2019.
- Vanggatfontein (VG5 pit) – This project, an extension project to replace VG3 pit during H2 2020, is already
underway and well progressed to open a new box-cut for an additional mining pit and coal face. The project
is being pursued as a joint development with a neighbouring mining right holder, which would further enable
extraction of some 450 000 tonnes boundary pillar area coal that would otherwise have been sterilised.
Assets for sale:
The Leeuw Braakfontein Colliery (LBC) disposal transaction was cancelled. The conditions precedent in terms of regulatory
approvals were not closed and the potential acquirer opted not to further extend the timelines. The asset remains non-
core to Wescoal and a new asset disposal process may be considered in the near future.
4. Trading statement
Shareholders are advised that Wescoal is in the process of finalising its interim results for the period ended 30 September
2019.
Group profitability has been significantly impacted (negatively) by factors outlined in the above production and sales report.
Lower than breakeven production volume at Vanggatfontein resulted in significant losses being incurred over the entire
interim reporting period. However, various initiatives implemented during the second quarter (Q2 FY20) are showing
material productivity improvement. This improvement is expected to continue enabling achieving desired production levels
during the second half of FY20 and in turn return Vanggatfontein to profitability.
Group profitability was also impacted by increased mining costs at Elandspruit mine as a result of the mine entering the
phase of higher strip ratios, lower quality coal (lower yields) and increasing haul distances to established infrastructure. A
number of cost containment initiatives have been introduced, mainly through optimising the mine plan and coal blending
to improve product yields. In addition, increased opencast volumes are already contributing to the reduction of unit costs.
A number of corporate activities, including Universal Coal and South32’s SAEC acquisition transactions which Wescoal
pursued and progressed to advanced stages, were closed off during H1 FY20. Residual once-off costs related to advisory,
structuring, legal and due diligence amounted to R18 million.
The Company expects, with reasonable certainty, that Headline Earnings Per Share ("HEPS") and Earnings Per Share ("EPS")
for the period ended 30 September 2019 are to vary by the amounts set out below:
- HEPS will be a loss of between 10.5 and 12.5 cents (30 September 2018: 23.5 cents); and
- EPS will be a loss of between 10.6 and 12.6 cents per share (30 September 2018: 25.2 cents).
Despite significant headwinds and the downturn in profitability, the Company was able to maintain positive cash generation
from operations with EBITDA expected to be between R140-150 million.
The above information has not been reviewed or reported on by Wescoal’s auditors.
The Company expects to release its interim results on or around Tuesday 26th November 2019.
8 November 2019
JSE Sponsor
Nedbank Corporate and Investment Banking
IR Advisor
Singular IR
Date: 08/11/2019 04:30:00
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