Wrap Text
Voluntary strategic and operational 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 STRATEGIC AND OPERATIONAL UPDATE
Wescoal, a junior coal mining company and trader in the domestic and export thermal coal markets, wishes to voluntarily
update shareholders on its operations, strategic projects and milestones as well as its quarterly production/sales figures
from its operating assets.
1. Strategic Update:
Wescoal’s long-term aim is to play a leading role in delivering a reliable energy source in a manner which adds
transformational value to society. Our key medium-term strategic objectives remain to stabilise our operations, followed
by optimising efficiency in both the Mining and Trading divisions, and ultimately to scale-up primarily through the
development of organic opportunities.
Expansion and extension growth projects:
- Moabsvelden – Wescoal is pleased to inform shareholders that the Moabsvelden project implementation is
progressing as planned and a contract miner has now been appointed following an extensive selection process.
The appointment remains subject to the conclusion and signature of a contract mining agreement, which is at
an advanced stage. Accordingly, box cut development and related infrastructure activities will commence on or
about early March 2020, subject to the imminent conclusion of the transfer of the acquired surface rights (farms).
The first coal and delivery to Eskom is scheduled for early calendar H2 2020 (previously H1 2020), ramping up
to full target production volume of 200 000 tonnes per month of run-of-mine (ROM) over 18 months.
Moabsvelden is the Mining Division’s key ‘greenfield’ development that will supply Kusile power station for a
period of around 10 years and ultimately with around 3 million tons of coal per annum. The capital expenditure
(“capex”) for the first phase of mine development, being the box cut development and auxiliary infrastructure to
start mining operations and produce a ROM product in early calendar H2 2020, is between R250 million and
R290 million. The capex for the second phase to take the project to steady state of 200 000 tonnes per month
of ROM production in early calendar H2 2021, inclusive of a coal handling and processing plant, is expected to
be similar to that of phase 1. Thus, at the conclusion of phases 1 and 2 in 18 months, Moabsvelden will be able
to supply 2.0-2.1 million tonnes of coal per annum to Eskom. In order to reach the full Eskom contractual supply
of 3.0 million tonnes of coal sales per annum, the third and final phase of the project will be required and this
will involve the development of VG6 underground project. Timing and incremental capex for this will be
confirmed in due course. The gross profitability of the Moabsvelden project per tonne of saleable coal product
is expected as a minimum to match that of current operations on a normalised basis. In addition, the project
promises attractive returns well above the average cost of capital which would enhance shareholder value.
- Arnot Mine – The transfer of Arnot business to Arnot Opco by Exxaro Resources Ltd has been concluded
pursuant to the fulfilment of the last condition precedent, the Eskom consent. This ‘first of its kind’ transaction
concluded in South Africa is aligned with Mining Charter III and comprises employee and community equity
ownership components and paves the way for Arnot Mine to be restarted during H2 2020 (previously expected
H1 2020). Eskom’s response on the coal supply tender for Arnot power station submitted in April 2019 is still
pending. Arnot Mine has resources of c.190m tonnes of coal and the operation is well positioned to supply coal
directly to Eskom’s Arnot power station primarily via a conveyor belt. However, other markets for coal are also
being considered.
- Khanyisa Complex
o The last instalment in terms of the 65% interest acquisition transaction from Aztolinx was settled in
December 2019. The purchase consideration in respect of the acquisition was fully funded from cash
generated at Khanyisa Complex as previously announced.
o Triangle 2 extension project, with the opening of a new box-cut and coal face required for the remaining
life of mine now well advanced, and first coal will be reached during April 2020.
- Vanggatfontein (VG5 pit) – An extension project to replace VG3 pit during calendar 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 will further enable
extraction of some 450 000 tonnes boundary pillar area coal that would otherwise have been sterilised. The
primary development phase is expected to be completed by Q2 FY21 at which point the joint project will be
dissolved and mining activities integrated with existing Vanggatfontein operations, thus coinciding with the
depletion of and replacing production from VG3 pit.
Assets for sale:
Various parties have expressed interest to acquire the Leeuw Braakfontein Colliery (LBC) pursuant to the cancelled
disposal transaction as previously announced. The asset remains non-core and a formal disposal process is currently
underway.
2. Operational update
Quarterly production and sales report
The below tables compare the Q3’FY20 ending December 2019 to comparable Q3’FY19 ending December 2018, as
well as to the immediately preceding quarter Q2’FY19 ending September 2019.
December December
Quarterly September Variance Variance
2019 2018
Volumes 2019
t'000 t'000 t'000 % t'000 t'000 %
Production 1 461 1 596 -135 -8% 1 268 193 13%
Elandspruit 621 697 -76 -11% 681 -60 -10%
-41%
Khanyisa 219 370 -152 24 195 89%
Intibane 0 0 0
Vanggatfontein 621 529 92 17% 563 58 9%
Sales 1 572 1 764 -192 -11% 1 286 286 18%
Elandspruit 443 446 -2 -1% 586 -143 -32%
Khanyisa 324 323 1 0% 56 268 83%
Intibane 14 -14 -100%
Vanggatfontein 665 725 -60 -8% 426 239 36%
Mining 1 432 1 493 -61 -4% 1 082 350 24%
Trading 140 271 -130 -48% 204 -64 -45%
Summary Production and Sales
Production: Group mining production levels overall are 13% higher than the comparable quarter ending December
2018 and 8% lower when compared to the immediately preceding quarter. All operations were affected by
unprecedented levels of rainfall during December 2019. Most significantly impacted was Khanyisa mine, where the
mining pits were flooded and production interrupted for three weeks as a result. Lower than anticipated production at
Khanyisa and Elandspruit was partially offset by better than prior period production at Vanggatfontein (+17%).The
Vanggatfontein production ramp-up is being advanced and on track to meet expectations of full capacity by 31 March
2020.
Sales: Group coal sales volumes increased 18% on comparable quarter of December 2018 and 11% lower when
compared to the immediately preceding quarter. This increase is a remarkable achievement given significantly reduced
offtake by Eskom during the December 2019 holiday period where Eskom was generally not taking coal deliveries from
23rd December 2019 to 2nd January 2020.
Trading sales were in line with expectations although significantly below the comparable quarter and previous quarter.
This is reflective of the current market environment of increased market competition as more coal producers continue
to target domestic coal supply and a significantly reduced coal offtake from a large privately-owned power producer.
General Guidance: While the environment for mining generally in SA and the coal sector specifically remains
challenging, the Company’s production volumes for Q4 FY’20 to end March 2020, are expected to see a moderate but
steady improvement overall in ROM production rates. We anticipate this improvement mainly from the Khanyisa run
rate to increase during Q4 FY’20 and in gradual improving contributions from Elandspruit as well as Vanggatfontein,
whilst the production from Moabsvelden will gradually ramp up in the next financial year. Further contributions are
anticipated in FY’21 from VG5’s optimisation, production from the Moabsvelden project and the anticipated restart of
Arnot Mine.
The information contained in this operational update has not been reviewed or reported on by the Company’s auditors.
19 February 2020
JSE Sponsor
Nedbank Corporate and Investment Banking
IR Advisor
Singular IR
Date: 19-02-2020 05:30:00
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