Wescoal Holdings has just delivered a strong set of results, with full year revenues jumping 70% to R1.1 billion, and operational EBITDA increasing by 124%. Wescoal’s share price has also performed favourably over the last 12 months and is trading 25% higher on the year, this is however off of a lower base, as the company has been recovering from poor results in 2011. Andre Boje, CEO of Wescoal, enlightens us on the company’s plans for growth, extracting maximum value and rewarding loyal shareholders. It is clear from Wescoal’s satisfactory performance and its incisive strategy that it is being led by individuals who have an exact set of ideals guiding Wescoal along the path of superior returns and a prosperous future. – LF
ALEC HOGG: Wescoal Holdings delivered solid full-year results as the business experienced a revenue surge to R1.1bn. Joining us for more is Andre Boje, the Chief Executive of Wescoal. Andre, just to set the scene a little, Wescoal is a little bit like the old Cons Modder when Loucas Pouroulis started, he would go and scratch around. They called him a cockroach. He would scratch around the old deposits that the big mining houses let go, and you’ve done the same thing – very successfully so far – but you seem to be now moving into a different field, particularly with your Elandspruit mine, where you have a quality long-term asset.
ANDRE BOJE: It’s a substantial asset. We haven’t stopped the scratching around. We are still looking to extend the life of Khanyisa and Intibane up into 2017, but Elandspruit is our actual project. That is our focus.
ALEC HOGG: So Intibane into 2017. The last time we spoke to you – six months ago – you said it had maybe two years left to go.
ANDRE BOJE: That’s right, yes.
ALEC HOGG: So have you found new deposits?
ANDRE BOJE: No, it’s a resource that’s squeezed between ourselves and Continental Coal that they can’t do. Well, it’s not Continental Coal; it’s other companies that they can’t do very much with, but we are right there. We have an opencast pit right there next to it and Khanyisa is the same thing.
GUGULETHU MFUPHI: Well, let’s explore that scratching around that Alec mentioned, a little bit further. As you mentioned, expanding on Intibane as well as Khanyisa: does this make it difficult though, looking at other areas that you might explore to find value?
ANDRE BOJE: No, you must look around your infrastructure. You would never go and get a small little operation of five-hundred-thousand tons. Appropriate infrastructure – it’s where your infrastructure is. You just expand on that to your contiguous resources.
ALEC HOGG: I think the big thing in mining right now – and it’s great that you’re able to extract value from assets that have been left by others – but the big thing is the legislation. We also spoke about this six months ago. What’s developed there?
ANDRE BOJE: It hasn’t been sent back to Parliament yet, but the new Act hasn’t been promulgated either. There is concern about it, but it’s not under my control. We are more concerned with the controllable aspect, focusing on Elandspruit, maximising value out of Khanyisa, and of course, we have our MacPhail acquisition, which not many people are talking about. To us, MacPhail is a substantial acquisition.
ALEC HOGG: MacPhail used to be listed separately some years ago.
ANDRE BOJE: That’s correct. I actually worked for them when they were listed in the nineties.
ALEC HOGG: What’s left there?
ANDRE BOJE: A very good trading operation – very lean, mean, and hungry. I was with MacPhail at the time. We broke away, formed Chandler Coal, and we kicked each other to death for many, many years. We’ve now gotten together and I think we have a very good trading operation.
ALEC HOGG: Competition issues…
ANDRE BOJE: That’s passed. We’ve done everything. The Competition Commission gave us a hard time for a few months, but that’s resolved. In reality, we’re competing with the Code of Export prices of Seymour and Thermal Coal. The primary producers are competing in the domestic space because the domestic margins are higher than your international prices, so we have serious competition.
GUGULETHU MFUPHI:Â Speaking about the domestic space, obviously Eskom and the likes of Medupi (set to come up board next year), surely that should have some kind of positive impact on your numbers.
ANDRE BOJE: Medupi is way out of our league. That’s Exxaro. They’re up north. Kusile haven’t signed a contract yet with Anglo, but I’m sure they’ll resolve those issues, going forward. Eskom is hungry for coal. They have a supply cliff coming in 2015/2016, which Eskom themselves have acknowledge so yes, continuity without a doubt. However, you must look at the higher margin business, which is the rest of the domestic market. There’s a 16-million ton domestic market, which is everybody that needs energy, from the brewery to cement manufacturer, to any other manufacturers. Your margins are higher there because it’s a beneficiated product, whereas Eskom is a low margin, but it’s a continuous, nice cash flow.
ALEC HOGG: But it’s not your game, as you say – more of the MacPhail. That’s an interesting acquisition. You say people aren’t talking about it yet. Has the market brought it into the valuation of your shares?
ANDRE BOJE: I don’t believe so.
ALEC HOGG: What’s the uplift then? What’s the potential uplift?
ANDRE BOJE: We showed it in the circular that year-on-year, if you take historical figures – not going forward – with us, synergy save is anything else…it’s seven cents, so we’ve earned 50, which are low sums.
ALEC HOGG: But your share price is up 30 percent in the past year, so you’ve had a good run.
ANDRE BOJE: Yes, we’ve had a good run. We’re generating cash. Look at the cash we’re generating. We came off a low base in 2011. We had a bad run in 2011 and we were hammered for that 2011 performance, but we continually improved after that, everything from cash generation to the extent that the finance houses are funding us. We’re generating cash. If you look now, we’ve just done R101m EBITDA. Well, in terms of the larger mining houses, that’s Mickey Mouse, but in terms of small caps or penny stocks, that’s not a bad EBITDA.
ALEC HOGG: You’ve overcome the hurdle that all juniors seem to have found, which is access to capital.
ANDRE BOJE: Yes.
ALEC HOGG: So I guess it’s like when the banks aren’t lending money on mortgages…if you’re the only guy who has cash in your pocket, you can buy houses cheaply. Is it a similar situation?
ANDRE BOJE: Exactly. We needed funding, but we got very creative about how we funded our business historically, and now we have access to funding. We have good access to funding. It’s very difficult for a new player to come on the market and raise R170m to R200m to open an Elandspruit. It’s not going to be that easy. If you look at the Eskom space specifically, where they need 60 million tons from (let’s not call it BEE miners, but rather junior miners) in the next five or six years, where’s this cash going to come from? That’s a question I must ask.
GUGULETHU MFUPHI:Â So where are you hoping it might come from?
ANDRE BOJE: Well, I don’t know. We have our cash.
GUGULETHU MFUPHI: Exactly, and you’re using your cash quite wisely as well – very strong on acquisitions. Anywhere else where you might be distributing some of that capital?
ANDRE BOJE: We pay dividends. People ask me why we pay dividends when we have a heavy CapEx spend. It’s because our long-suffering shareholders deserve to get dividends. You have to separate the thought train that our dividends are of the CapEx. If you look at the big mining houses, they pay dividends but they still have massive CapEx spend, so why should we be any different?
ALEC HOGG: Andre, that Elandspruit deal – Glencore Xstrata had it available. It was little small for them, but beautiful for you. Are there others in that range (the R200m range) that might be available? I think that’s where Gugu’s going.
ANDRE BOJE: Yes, there are. Exxaro was an example, where it went up for open tender. We bid for it. We lost on that one, but more will come on stream. Let’s just go back to your statement about Elandspruit. It wasn’t so much that it was too small for them. We had a vlaklaagte, which sterilised some of their resources, so there were synergies as well, and not just the size of it. I think with it being contiguous to some of their current mines, they may not have disposed of it, if it wasn’t this attractive.
ALEC HOGG: Interesting story. Andre Boje from Wescoal. The shareholders are very happy with the way that things are progressing there and it just shows: if you scratch around long enough, you get some big juicy opportunities as well.
