Wescoal increases revenue despite tough trading conditions

Introduction and financial review

Wescoal, the listed coal mining company involved in the mining and trading of coal, today announced their final results for the year ended 31 March 2011.

Andre Bojé, CEO of Wescoal said, “Despite harsh trading conditions, Wescoal’s revenue increased by 58% to R557.6 million (2010: R353.9 million).” Bojé is pleased to report that the coal price increases in the latter part of the year under review will have a positive effect on revenue in the new financial year.

Gross profit declined by R32.8 million to R25.7 million (2010: R58.5 million) as a result of Wescoal writing off of all mining costs totalling R29.3 million incurred at the Sutha Civils (Pty) Ltd operations at Khanyisa Colliery; accelerated the write off of R7.5 million of mine establishment costs and mining in progress; and impaired goodwill of R4.8 million in Chandler Coal (Pty) Ltd. Reduced production and increased costs relating to flooding, primarily at the Blesboklaagte washing plant, accelerated losses.

The attributable loss for the year under review from continuing operations is R17.0 million (2010: profit of R26.0 million). The discontinued operations of Wescoal Mineral Recoveries’ briquetting plant and the Blesboklaagte benefication plant took the loss in discontinued operations to R43.8 million.

A headline loss per share of 26.2 cents (2010: headline earnings per share of 4.3 cents) was incurred as a result of write-offs and costs due to flooding in the quarter ended 31 March 2011.

Cash at the end of the period increased to R31.3 million (2010: 11.3 million).

Wescoal did not declare a final dividend opting to retain cash for operational activities.

Operational review

Wescoal operates in two divisions, namely the mining and trading division.

The mining division contributed 43.6% to overall revenue bringing in R242.9 million; this is R166.5 million more than the corresponding period and attributable to mined tonnage of 967 000 and supply to Eskom of 885 000 tons of coal. Profits were affected by write offs resulting in an operating loss of R10.7 million (2010: profit R20.7 million). Bojé remarked that meaningful comparisons are not possible as the prior year consisted of only two operating months at the Khanyisa Colliery.

According to Bojé Khanyisa Colliery returned to full production in April 2011 and the Blesboklaagte washing operation was closed on 31 March 2011. “The division’s focus is to maximise product supply to Eskom and Municipal power generators,” said Bojé. He also indicated that the intention of Wescoal remains to expand the mining division in order for it to produce the bulk of Wescoal’s profit into the future.

The trading division contributed the remaining 56.4% to Wescoal’s overall revenue stream, with both volumes and revenue up 15% on the last financial year. This division contributed R1.8 million in operating profit (2010: R8.9 million).

The manufacturing sector is showing increased demand and Wescoal expects increased volumes on the back of this. Management remains focused on cost reductions and margin improvement.

Prospects

Bojé acknowledges that the write offs and impairments are rigorous but serve to tidy the Wescoal balance sheet and the sale of the Blesboklaagte plant should provide additional income in the new financial year. Furthermore the termination of the Elandspruit 291JS transaction, although disappointing, was essential since the due diligence revealed too much risk for Wescoal to proceed.

“The group continues to seek opportunities to obtain coal resources and is currently evaluating options, we have submitted an application for a mining right on the Vlakvarkfontein 213 IR reserve near Khanyisa which will extend the life of Khanyisa by at least 12 months, ”

Bojé concluded by saying that the board is positive that the measures undertaken and the renewed focus by both the trading and mining divisions will return the group to the expected profitability.