Loucas Pouroulis transformed “Lefcockroach” into Elands – can he promote coal play Keaton as adeptly?

Coal miner Keaton Energy produced breakthrough first half results this year – a 192% increase in HEPS, and a 70% increase in revenue to be precise, thanks to an increases in its production capacity. Keaton is a coal-focused group, and as CEO Mandi Glad explains in this interview, the company is betting that Eskom’s plans to switch from coal to a less carbon-intensive mix of gas and renewable energy are going to take a long time to come to fruition. Keaton is investing in new coal assets, and planning to increase production over the next few years, and Glad is promising plenty more stellar numbers to come. While Keaton’s numbers have surged, it’s share price has languished, and Glad is also hoping that these exciting results will translate into a stronger share price over the course of this year. Man behind the business is mining entrepreneur Loucas Pouroulis who has had various successes (Cons Modder; Elands Platinum) and the odd spectacular failure (Lefko) in a long and interesting career.  – FD

To watch this video on CNBC’s Power Lunch click here

GUGULETHU MFUPHI:  Keaton Energy has reported a 192 percent rise in first half headline earnings per share and a 70 percent increase in group revenue.  Joining us now to unpack the number is company Chief Executive, Mandi Glad.  Mandi, I’m sure that when you look at your results you’re pretty impressed with what you’ve managed to achieve, especially with your operations in Vanggatfontein.

MANDI GLAD:  I’m very happy, yes.

GUGULETHU MFUPHI:  What are you doing right then, particularly with regard to those operations?

MANDI GLAD:  I think that is has largely been a combination of things.  We replaced our mining contractor a little over a year ago, paid a lot of attention to the plant, and opened a new pit, so I think we’ve just created flexibility and it has all come together and the mine’s performing really well at the moment.

GUGULETHU MFUPHI:  Have you not been plagued by concerns like the rest of the mining industry with regard to labour unrest?

MANDI GLAD:  Not at Vanggatfontein…somewhat at Walkrans but thankfully, not at Vanggatfontein.

ALEC HOGG:  This is one of those stocks that we keep hearing whispers about.  It’s not a particularly big company – 460 million rand market cap.  You seem to have gotten the rumour mill, or at least the traders pretty excited about you.  Are you doing a lot of work, telling them your story?

MANDI GLAD:  I’m trying to, yes.  I spend as much time as I can out there largely as a result of the fact that I don’t think our share price is reflective of our value and therefore I try to interact as much as I can with the market.

ALEC HOGG:  How is it not reflective of your value?

MANDI GLAD:   Well, if you just look at our net asset value it’s significantly higher than our market cap.  In my opinion I need to do that work and I’d love to start seeing it come through in the share price.

ALEC HOGG:    You’ve come back a long way: R4.50 three years ago and R2.50 today, so quite a lot of upside potentially with this kind of number.

MANDI GLAD:  Absolutely, and I think the market’s been looking at us to deliver some positive results, which I believe we have for this period.  I believe it’s sustainable.  We’ll be back in March, I hope, with an equally good story, and perhaps at some point the share will start to reflect that.

ALEC HOGG:  Your strategy though, to get to a five million ton per year producer: that’s kind of the magic number.  Why?

MANDI GLAD:  That’s where it all began in 2008.  We said that our short-term goal was 2.4 million tons and five million tons was the medium term goal.  We obviously achieved the 2.4 and therefore, in terms of delivering on what we said initially – five million tons is the next number.  We have a plan and we should get there by 2017.

GUGULETHU MFUPHI:   How are you hoping to make that happen?

MANDI GLAD:  Well, we have an internal pipeline of projects: one being Koudelager, which we will develop in the course of next year.  Thereafter, we are working on an acquisition that hopefully will succeed and we will successfully close, in which case Moabsvelden will come on stream in January 2015 and thereafter an existing project – Braakfontein, which will see us at 5.36 million tons.

ALEC HOGG:  This Company that you talk about in the set of results – Exceed Resources: is that also another step in the direction…?

MANDI GLAD:  Yes, the Moabsvelden Project I speak of is the asset that we would acquire through the acquisition of Exceed.

ALEC HOGG:  Do you know what’s interesting Mandi?  David Salter, your Chairman in this company…I remember him well from the days of Lucas Pouroulis and Eland’s Platinum.  They did a fantastic job there in selling.  I don’t know how well they did in producing.  How did he move from platinum to coal?  What’s the story there?

MANDI GLAD:  I don’t think there was ever a conscious move from platinum to coal.  It was because of…it was the back end of Eland and obviously, David was Lucas’ right-hand man for a number of years.  In fact, Lucas’ son Phoevos and I founded Keaton, so it was a natural progression.  I think Lucas probably said ‘David, go and look after the kids’ and that’s how he landed up there, but I’m happy to say he’s a proper coal man now.

ALEC HOGG:  Are the Pouroulis’ considerably involved?

MANDI GLAD:  Operationally – no, but from a shareholding perspective – yes.

ALEC HOGG:  How big?

MANDI GLAD:  43 – 44 percent.

ALEC HOGG:  So that’s why we’re hearing all the talk about Keaton, because Lucas is certainly a fairly good promoter.

MANDI GLAD:  Very much so…I think he’s been quite quiet, actually, in the last few years but absolutely a good promoter.

ALEC HOGG:  From a broader perspective – and clearly you’re in the coal industry so you love what you’re doing – but are you not concerned sometimes when you hear about the replacements that we’re seeing for coal?  For instance, Karoo Gas on the one hand here in South Africa, which could potentially be a very big competitor for coal, and of course, Renewable Resources.

MANDI GLAD:  Alec, perhaps naively I don’t, because I think it’s some way off.  Outside of proving it to be viable the capital requirements and to replace the coal-generated power…I don’t see it happening in the foreseeable future.  I think it will chip away slowly – a couple of percentage points at a time – but I believe we’re 20/30 years away from that.

GUGULETHU MFUPHI:   You’ve also had considerable growth in sales to Eskom, so naturally once the other plants come on board – Medupi as well as Kusile.  Are you in a position to benefit from that?

MANDI GLAD:  Kusile – potentially.  Medupi – no, we don’t have a position.

GUGULETHU MFUPHI:   How come?

MANDI GLAD:  I think a decision, initially from my perspective, was because of…I didn’t see how the infrastructure was going to support much happening there.  I think that in order to have made a success in the Waterberg, you need a couple of billion tons.  At the time, we took a view and decided we would position ourselves in the known coalfields and around all the power stations.  It’s worked for us and obviously, via the acquisition of Exceed we will grow our footprint in Delmas, so at that time I didn’t think it was the right decision.

ALEC HOGG:  And the relationships with the DMR…how is that all panning out now?

MANDI GLAD:  We know…the DMR being our regulator is not easy.  Having said that, we formed a good relationship, and it takes a lot of work, so yes, we manage with what we have, but there are certainly no major concerns or complaints.