Wescoal plans to make a mint picking up majors’ leftovers and milking them
Wescoal has reported some stellar interim results thanks largely to the inclusion of Intibane Colliery in its interim numbers. The performance highlights how Wescoal's strategy of identifying attractive assets and leveraging them to boost revenues over the short to medium term has paid off. In this interview, Wescoal CEO Andre Boje talks about Wescoal's plans for the future, and the broader future of the coal industry. – FD
GUGULETHU MFUPHI: Onto some company news, now: Wescoal reported an interim revenue increase of 32.5 percent. Company Chief Executive Andre Boje joins us to unpack the positive numbers. Andre, looking at your revenue line, gross profit, operating profit: all of them ticked up. It must have been a good year for you.
ANDRE BOJE: It has been a good six-month period. We're not where we want to be yet. There's still a long way to go. There's a lot of improvement that we can still make on that. If you look at the results from our trading division – I don't want to focus on the negatives, but it wasn't that good, so we're taking steps to try to turn that around. Yes, we're very happy with it.
GUGULETHU MFUPHI: The inclusion of the Intibane Colliery also increased the numbers, I understand – the performance of your numbers because of those results there. How are you hoping that Intibane in the long term might contribute positively to your operation?
ANDRE BOJE: Intibane's not a long-term mine. It has a 'two year life of mine' currently. We're talking to next-door neighbours where it could become a 'four year life of mine'. This year's numbers are a direct result of Intibane with its low cost base – its low strip ratios. Our future project called Elandspruit, which we're hoping to have on stream the end of next year, is a mirror image of Intibane, and that's a 15-year project, so a longer term comes out of Elandspruit rather than Intibane.
ALEC HOGG: The markets like these numbers: share price up seven percent. Today you've doubled in price in the last six months and I guess the strategy is as the majors start offloading their coal assets; you'll pick them up and make more money.
ANDRE BOJE: Absolutely, I said it at this morning's presentation when we were talking to them. The majors are doing away with any non-one-tier asset, so it's right in line with what the juniors are looking for. The problem now with the juniors is raising capital. We require these assets, but we're fortunate that we do have access to capital.
ALEC HOGG: With these kinds of numbers, who needs capital? As Gugu was saying, 66 percent jump in headline earnings per share. You're turning them to account quickly.
ANDRE BOJE: Yes, we've generated much cash. We must remember that the 66 percent comes off a low base. We went through a bad period a couple of years ago, but we're comfortable with where the share price is. We think it's reasonably valued and we have room for improvement – definitely room for improvement.
ALEC HOGG: You said that Investec had given you R180M debt facility.
ANDRE BOJE: Yes.
ALEC HOGG: What do you pay them as a raising fee, given that junior miners are struggling so to raise capital for that kind of facility?
ANDRE BOJE: We believe we pay them a fair raising fee. It's just in excess of R1M, so it's not huge, and the interest rate that they've given us is a very favourable interest rate. A lot of that is a revolving credit facility, rather than a fixed-term credit facility. R79M is a fixed-term facility, whereas R100M or more is a revolving credit facility. What we're pleased about is the confidence they've shown in us.
GUGULETHU MFUPHI: You've mentioned future acquisitions in the pipeline and bulking up your asset base. Are there any that you've identified at the moment?
ANDRE BOJE: Well you know, we announced the MacPhail acquisition a short while ago. We're just waiting for the Competition Commission approval on that, which is the last outstanding CP, so we're focusing on the integration of that. Synergy savings, customer retention and there are brown fields operations available – definitely, there are brown fields available and we're talking to them – they are identified.
ALEC HOGG: So you picked up Elandspruit from Glencore Xstrata. Which other majors are divesting?
ANDRE BOJE: Currently Exxaro, Glencore Xstrata worldwide are looking at all their assets across the board – not just coal assets – so we're expecting something to come out of that. Billiton is looking at the disposing of assets, so it's quite positive.
ALEC HOGG: The cycle has actually turned in your favour.
ANDRE BOJE: Yes, you must understand that a part of it is driven by the export price of coal. Some of the mines are dedicated to the export prices of coal. They're too small for a large industrial company/user to turn it around. They're focused on export prices being low – $72.00 – it spiked currently to about $85.00 but it doesn't make money for them. Whereas it could be given to a junior, or sold on to a junior, who can make money out of it by focusing on a different marketplace. Be it Eskom, be it the domestic market, or being sub spec coal exports as well.
ALEC HOGG: You've given us all the good news. Something that is a challenge – or has to be a challenge – the coal sector has a huge involvement of the AMCU Union – the hardliners. How are they going to affect your performance going ahead?
ANDRE BOJE: For us there is no effect because we don't have AMCU on our mine at the moment, and all our processes are subcontracted and we have duplicate contractors on our mines. If one contractor goes out on strike, we'll have another contractor to take his or her place. Ourselves, we identified that potential problem so we have subcontracted all our processes.
GUGULETHU MFUPHI: Just on the Junior Mining Indaba that took place last week: I know Alec attended; many other Chief Execs were there. I'm not too certain if you were there, but if you were, what wer the takeaway points for you?
ANDRE BOJE: Unfortunately, I was in Europe at the time. I think the focus of the mining industry at the moment is the amendments to the MRPDA – that is this elephant in the room with everybody. Mark Cutifani said it over the weekend. There's a trust – I forget the word he used – between governments and…
ALEC HOGG: There's a trust deficit.
ANDRE BOJE: Yes, that's the word, and that is a fact. We need to address the issues in the MRPDA and we need to address environmental issues. By environmentally, I mean the Shell representative turned around and said 'coal generates carbon' and it does generate carbon. However, coal is still the most economical form of power in the world, and it's going to remain that way, so we need to address the environmental issues and work with government to resolve those issues. Clean coal technology, carbon capture, and storage: we need to look at that. If you look at fracking in the United States and what it has done to the economy… It's reduced prices down to the lowest. They have to look at that. They have to look at coal as well. At the same time: how so we make clean coal? There are technologies available, but it needs investment. Where is investment coming from? That is the key question at the moment.
ALEC HOGG: Well Andre, I can see that you're pretty optimistic about the future. You heard Jan-Willem. It's only going to be three years before they start drilling exploration wells. You can relax. Certainly, if your coal is not very long-term, as it seems to be for the moment. I guess your shareholders are also quite happy and Investec is happy. They're giving you R180M, so you're in the right place at the right time.
ANDRE BOJE: If you look at the fracking situation, we also look at the country, and with the American situation you need to remember they have oil shale, so they extract oil and therefore gas comes at no cost to them. In South Africa, that's not necessarily the case. We like to see fracking because they can work hand-in-hand with the coal. It's all in energy, so we don't see that as a threat. We see that as an opportunity in the country.