Junior coal miner Wescoal will make no further acquisitions as it plots a new course for the company in the months ahead, which is to involve diversifying away from coal.
While Wescoal still expects adequate demand for coal in the medium to long term, diversification appears to be “the only way to go”, interim CEO Robinson Ramaite told Business Day after the release of the company’s annual results on Friday.
“What we are doing as Wescoal now is we are now reviewing our strategy to see how do we balance our current coal portfolio with other opportunities that the market will present,” he said. “Whether it’s in terms of other commodities, other energy generation prospects, and maybe using the fact that we own a lot of land to look at how seriously can go into agriculture. So yes, we have to look at diversified sources.”
Wescoal’s bid to branch out comes as coal producers around the world are seeking to diversify away from fossil fuels as they, and their lenders, come under growing pressure to green their portfolios in the face of climate change. In SA, major listed coal producer Exxaro is also seeking to transform its business away from coal to secure its role in a low carbon future.
Ramaite said a final strategy was likely to only be presented next year. “What I can say for now is that we will not be doing any further acquisitions.”
The immediate focus for the company is to enhance cash generation, with a view to paying dividends. “We need to return some money to shareholders who have been loyal to the business over a period of time,” Ramaite said.
Ramaite’s RBFT Investments is the largest shareholder in Wescoal, with a 65.46% stake.
Despite lower offtake from customers, including Eskom, Wescoal narrowed its losses in the financial year ended March 31, thanks to a new coal supply agreement with the utility.
Wescoal revenue increased to R3.9bn, up from R3.81bn in the previous year. Gross profit increased to R411m, up from R333m previously — thanks largely to a major cost savings drive within the company — and operating profit of R135m compared favourably with a R3m loss in the year prior.
Wescoal’s loss narrowed from R136.6m in 2020 to a loss of R35.8m in the 2021 financial year.
According to Jubilant Speckman, Wescoal CFO, the losses were mainly driven by a high amortisation of R414m due to significant capital expenditure in the previous year as well as a high finance cost of R154m due to full utilisation of loans.
The company also experienced lower coal offtake from Eskom, something which has affected a number of coal producers since the initial Covid-19 lockdown was instituted in March last year. Wescoal production and sales was however boosted by a new agreement to supply Eskom from its Moabsvelden mine.
Wescoal’s production for the 2021 financial year increased to 7.7-million tonnes, up from six-million tonnes of coal in 2020. Coal sales also improved from 6.3-million tonnes to 7.9-million tonnes.
Wescoal has also managed to reduce growing coal inventories which were nearing one-million tonnes in September 2020 but are currently at 400,000 tonnes, Wescoal’s CEO for mining, Thiva Tshithavhane, said.
In the longer term the Moabsvelden contract is expected to contribute up to 30% of Wescoal’s overall production. The restart of the Arnot coal mine — a joint venture between Wescoal and former Arnot employees — is anticipated to result in first coal being delivered before the end of the calendar year.
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