Bullish coal junior Wescoal, which has declared a maiden divi-dend after delivering improved earnings, will be going all out to supply the gargantuan upcoming needs of Eskom, which intends procuring half of its future coal from juniors.

At Wescoal’s presentation of its 7.8%-higher R19.33-million headline earnings in the year to March 31, André Boje, the CEO of the JSE-listed company, flashed a graphic onto a large screen, which showed how Eskom’s contracted tonnages were poised for significant decline.

“In 2015, there’s a supply cliff for Eskom,” said Boje, adding that Eskom needed new supplies of 60-million tons a year in the next two years, which meant that South Africa needed the equivalent of another 20 Wescoals in the next two years.

“Where are they going to come from? I haven’t got the answer. That’s a scary number, and you have got to be investing now to have the coal then,” Boje pointed out.

Wescoal nonexecutive chair-person Robinson Ramaite told investors that the company remained on the lookout for acquisitions as it began taking up the large Eskom oppor-tunity, while also slowly increas-ing its exports through Richards Bay, where it had a 200 000-t-a-year Quattro allocation.

“Our intentions are to keep on growing our operational base, particularly now, more than at any other time, because the environment in which we are operating is quite exciting,” Ramaite said, adding that consolidation in the junior mining space was likely.

The company’s two func-tioning mines, Khanyisa, which has gone underground, and Intibane, which was commissioned in April, will take the mining division to 1.6-million tons a year, while the Xstrata deal, which involves the transfer of the Vlaklaagte and Elandspruit mining assets to Wescoal, will ramp up production to 2.4-million tons a year by the end of 2014.

In response to Mining Weekly’s query, Boje said he expected that Eskom would phase in its stipulation that the junior companies that supplied it with coal needed to be 50.1% black-controlled.

Ramaite described black con- trol as being more of an oppor-tunity for Wescoal than a threat.

“I also look at it as an oppor-tunity,” Boje added.

Wescoal, which is essentially debt-free, is self-funding the R40-million needed for Intibane.

The generation of strong cash flows is one of the reasons the company declared the four-times-covered dividend of 3c a share.

However, much work is under way on its 80-year-old trading division, which accounts for 53% of revenue but only 11% of profit, and which continues to face headwinds.

New entrants are squeezing already low trading margins.

“Every man and his dog thinks it’s easy to buy and sell coal,” said Boje.

The trading division is on the point of paying R79-million for a nationally operating trading rival.

If the company already had the new entity in its stable, its headline earnings per share would have been 54% higher and the year’s revenue of the trading division would have risen to R1-billion.

The strike in the transport-ation sector cost the company R10-million in lost revenue and the company has been unable to recover the sharp diesel price increase from its customers.

The international coal price is currently down to a low $77/t, with only weaker South African currency assisting exporters.

Wescoal expects inland coal prices, which are currently R80/t above export prices, to remain static.

The company has been inves-tigating the introduction of more dry coal processing, a low-cost method of upgrading coal quality, which improves the price at which coal can be sold.

In the year to March 31, group revenue rose 7.3% to R676.9-million and mining volumes rose 10.6% to 1.31-mil-lion but trading volumes plunged 20.5%.

Operating costs rose 19.5% to R48.8-million, owing to infla-tionary factors and bringing in personnel at top management level.

Total shareholders funds increased 12.9% to R177.3-million and the net asset value per share increased 12.9%.

For the coming financial year, finance costs have been trimmed by 24.8% to R3.4-million.