JSE-listed mining group Wescoal, headed up by CEO Reginald Demana, has said its focus, moving forward, will be on restoring production and increasing output from existing operations, while also focusing on cost containment and operational business partner risks.

The overall economic climate remains challenging for the company from a cost containment and business partner perspective, with several external factors affecting the company’s operations negatively.

State-owned Eskom remains a consistent and reliable customer, Wescoal said on Tuesday, adding that it remains committed to maintaining strong relations with the power utility.

Other challenges include above average rainfall in the Mpumalanga province, which has been measured since the rainy season started in October 2018. December 2018 measured 295 mm over 24 days, with January 2019 receiving a slightly lower amount at 272 mm over 22 days. While the heavy rain subsided in late March, it has been the wettest and warmest season in over a decade, with the province receiving almost three times more rainfall compared with a year ago.

Although the pumping preparations and water management systems at Wescoal’s operations have worked according to plan, Wescoal lamented that the sheer volume of water to be processed has been excessive, negatively impacting on the opencast mining operations.

With the company operating in a challenging environment, it reported on Tuesday that immediate priorities would include resuming normalised production at Vanggatfontein, to progress the extension project at Vanggatfontein, as well as developing the Moabsvelden project, which forms part of the plan to optimise the Keaton asset base.

While Wescoal confirmed that it continues to evaluate various inorganic growth opportunities in the market on a case-by-case basis, the company noted that no imminent announcement should be expected in this regard.

PRODUCTION AND SALES UPDATE

In general, production is expected to be lower owing to operations having been impacted on by above-average seasonal rainfall, the Vanggatfontein mining contractor change-over and the production downtime at Vanggatfontein.

Wescoal last month announced that production at Vanggatfontein would be suspended for up to eight weeks after the mining contractor had dismissed its 274 employees following unlawful industrial action that turned violent. As a result, Wescoal provided Eskom with a notice of force majeure and its inability to supply coal in terms of the mine’s supply agreement with the utility.

At Elandspruit, the impact is related to the suspension of the underground mining section during the second half of the 2019 financial year.

Production from Khanyisa was impacted on by the dispute outlined in the Aztolinx buy-out announcement in February, which was resolved but affected production for over six months during the period under review. The mining division was, however, supported by extensive increases in both production and sales from Khanyisa in the last quarter, Wescoal said.

At Vanggatfontein, Wescoal reported that the production downtime was being addressed as an urgent priority. Overall, the situation remains calm and the restoration plan with the mining contractor remains on track.

The training of replacement contract employees is under way, with at least 25% of the required workforce already recruited and attending training. These employees are expected to start production activities by May 14.

Simultaneously, equipment at the mine is being replaced and upgraded, and the mining contractor has initiated negotiations to rehire some of the former employees who are eligible to return to work.

The remaining production downtime at Vanggatfontein is anticipated to be for a minimum four- to six-week period, in line with timelines previously communicated, and ramp-up to full production will begin in early June.

Additionally, the expansion plan at the asset is to bring on an additional mining phase, Vanggatfontein five (VG5), adding capacity and optionality in the second half of the current financial year.

According to Wescoal, it is anticipated that normalised production will be achieved from July onwards at Vanggatfontein, which has a remaining life of around eight years and a long-term production run rate targeting 340 000 t a month run-of-mine (RoM) from the next financial year.

At Elandspruit, the underground mining section remains suspended owing to the process currently under way to secure a new underground mining contractor. Normal production levels are expected to resume by July.

Wescoal also reported that the opencast mining contractor has secured additional equipment to increase capacity to at least 230 000 t a month RoM, which will guarantee the budgeted production levels without the underground operations.

The multiple faces active at the mine enable operational flexibility and the current reserve has a remaining life of about six years. 

The Khanyisa agreement, meanwhile, has secured access to additional coal production and is at present a consistent and strong contributor to production and profitability for Wescoal.

Khanyisa produced 293 000 t during the quarter ended March 31.

At the current mining rate, the production at Khanyisa is about 100 000 t a month RoM, with a life-of-mine of slightly more than four years.

GROWTH STRATEGY UPDATE

Wescoal’s continued strategic drive for growth has seen much activity and management time invested during the 2019 financial year, with the most significant growth project the offer to acquire Universal Coal, which, after an extensive process, was rejected owing to another offer being considered by Universal’s board.

In February, Wescoal announced the acquisition of a 50% indirect interest in the Arnot mine, which is expected to be a two-million-tonne-a-year asset when mining activity resumes.

At Moabsvelden, Wescoal is currently negotiating with potential customers, including Eskom, for coal offtake and/or supply agreements. The asset is fully permitted and the mine development plan is for an opencast project with the aim of producing first coal during the second half of this calendar year.