JSE-listed coal companies that tackled legacy issues were rewarded with substantial appreciation in their share prices over the past 10 months. Investors in companies such as Wescoal and Resource Generation (Resgen) have enjoyed gains of up to 300% since January.
But several others, unable to raise funds for development, are being left out of 2016’s surge in global coal prices. Waterberg sums up the situation in its latest market update: "It is a well-publicised fact that the coal market has suffered a serious degradation in pricing over the last few years. As a result, this has made the development of the Waterberg project and raising ongoing funding difficult."
Global coal prices have benefited from China’s decree that its mines have to cut production by 250-million tonnes in 2016. In fact, the cut has been far less, and Chinese authorities are starting to backpedal, fearing a shortage of coal during winter. But coal prices have held steady.
Benchmark prices for coal shipped from Richards Bay Coal Terminal have almost doubled to about $83/tonne over the past year and coking coal prices have added about 250%. Big diversified miners such as Anglo American, South32 and Glencore benefit directly from coal exports.
In its latest, European Metals & Mining report, Macquarie increased its forecasts for thermal and metallurgical coal prices and raised its share price targets for these companies by between 17% and 34%.
SA’s smaller listed coal companies generally have little or no exports. They focus on supplying Eskom, providing mining services, or are trying to get new coal mines into production, mainly to supply the national electricity utility.
Sales to Eskom used to provide a steady if unexciting return, but they have become less attractive as the utility has changed its policies. It wants its suppliers to be majority black-owned, is averse to investing capital in coal mines, and is signing shorter duration agreements than in the past.
Wescoal, whose shares have more than doubled to 245c since early January, has made a spectacular recovery since a boardroom battle in 2015 over its empowerment strategy. In 2016, it has signed a long-term supply contract with Eskom for its flagship Elandspruit colliery, another for export offtake and made progress on a black empowerment structure.
It will announce interim earnings on Tuesday, which will be more than four times higher than a year ago.
Resgen, whose shares have risen fourfold to 199c, also had a major boardroom shake-up in 2015, after the previous management was taking too long to raise funding to advance the Boikarabelo coal mine.
It said recently it was planning to close a funding package by March that would enable it to produce coal by the first quarter of 2019.
Shares in Exxaro, the heavyweight in the coal sector, have more than doubled this year to R98, on steady operating results. The stock was also boosted by a contribution from Exxaro Coal Central acquired in 2015, and an increased dividend.
Investors who exited Coal of Africa (CoAL) at its June peak of 118c, when it seemed likely to succeed in its bid for Universal Coal, would have made a substantial profit on the January price of 50c. CoAL’s shares fell back to 50c when it was unable to conclude the deal and management is now looking for another cash-generating asset.
In 2016, Keaton Energy’s share price has lagged some of its peers, with a 15% gain to 53c. It warned recently it had delivered less coal to Eskom from its flagship Vanggatfontein mine because of Eskom constraints. But it said it was making progress on advancing its Moabsvelden project.
Other listed coal shares are flat. In Waterberg Coal’s case, that is because its shares have been suspended for 18 months, while it tries to make progress on raising funds. In Buffalo Coal’s case, it is largely because the shares rarely trade. They have been 120c since May.
Buffalo Coal has had to restructure debt held with Investec and convert a loan extended by its major shareholder — Resource Capital Fund — into shares. Resource Capital is now reviewing its strategic options on Buffalo.
Coal mining contractor Buildmax, whose shares have held at 19c-20c in 2016, is warning it will report an interim loss. At year-end, when there was an emphasis of matter on its going concern status, it said trading conditions were challenging, as there was intense competition for work, and increases in contractor rates were not offsetting cost inflation.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.