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Small glow in the east
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Charlotte Mathews
Financial Mail
Friday, June 18, 2010
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Close to the construction buzz around SA’s second big new coal-fired power station, Kusile, two junior JSE-listed coal producers are ramping up projects.
But neither will supply Kusile, which has contracted Anglo Coal’s New Largo colliery to supply it with the hefty 15Mt/year it needs. And since construction of the plant began, the mining community has been subjected to a jump in violent crime and armed raids, leading to increased security worries and spending.
Mining companies can’t choose where they operate, though, and the reason that Kusile, Wescoal Holdings and Keaton Energy are all in the same area is the massive resources of the Witbank coal fields. Even after 140 years of mining they still offer opportunities for big and small producers.
Wescoal’s Khanyisa Colliery, which has a three-year life, has secured a short- term contract to supply Eskom power stations. But its coal is being trucked as far away as Majuba, about 100km from the mine, and Grootvlei, 150km distant.
Wescoal CEO André Bojé says Eskom is taking as much coal as the mine can produce to its specifications — about 80000t/month, a large portion of the planned annual 1,2Mt/year that the colliery is expected to produce.
Keaton’s Klip Colliery, a small deposit with an 18-month life, closed down last year after producing about 400000t of coal, and the site is being rehabilitated. It still holds some coal stockpiles, leading to a rumour that the coal is of such poor quality it cannot be sold.
Keaton MD Paul Miller says it is true the coal was low quality, but there was a market for it. The problem was that the contracted buyer defaulted, then was liquidated, and then died. A new buyer has been found and all that coal has been sold and is being taken off the site.
Though an accounting loss was shown on Klip for technical reasons related to the acquisition of the mining rights, in fact the mine cleared a R5m cash profit overall, Miller says.
Keaton has now moved on to start work on the nearby Vanggatfontein project, which will produce 30000t/month of metallurgical coal for the domestic alloy industry in its first phase. The company has also applied to supply Eskom with about 200000t/month from Vanggatfontein’s second phase, on a medium-term contract. It depends, though, on whether Eskom is willing to pay the price needed for Keaton to earn a return on capital, Miller says.
While Keaton started off as a coal producer, Wescoal was a coal washer and trader for several years, until buying Khanyisa almost two years ago to diversify its revenue sources.
This paid off in the year to March. Though Khanyisa contributed only two months of production, it contributed 29% of Wescoal’s revenue, compared with 71% from the coal trading division.
Bojé says coal trading was hit by a drop of about a fifth in local manufacturing activity, and inland prices dropped 34%. Even so, they were above export prices, prompting many large coal exporters to sell locally. Conditions are expected to improve towards the end of this year, as European buyers return.
Bojé says this year Wescoal will have the cash to explore properties on which it has acquired permits, and will partner with other rights holders who have not had the funds to explore their properties. “We will not reduce our trading activity,” he says. “ It has had one bad year but will get back to previous levels.”
Imara SP Reid analyst Steve Meintjes says though Wescoal appears to have a short life at present, there are opportunities to pick up rights and mine with black empowerment groups. This is not an investment in a sizable company like Exxaro or Optimum Coal but Wescoal has an interesting business model and a good chance of gaining access to further resources
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