Wescoal’s expansion in the coal market is proving that successful opportunities are still available to producers.

Labour unrest and the declining rand value may make for challenging business in the mining sector, but Wescoal’s expansion in the coal market is proving that successful opportunities are still available to producers, writes Vicky Sidler.

“Wescoal is growing and looking for more opportunities all the time,” says André Boje, Wescoal CEO, commenting on the recent acquisition of MacPhail Distributors, a coal distribution company, for R79 million. Adding MacPhail to Wescoal’s portfolio is a strategic move to “lower costs and increase visibility and presence in the marketplace.”

Rooted in coal trading

Increased competition from primary coal suppliers has placed the coal trading marketing under pressure, reducing volumes and pressure on margins. The acquisition of MacPhail, however, “will enable Wescoal to attain the critical mass required to negotiate and overcome challenges in the coal trading environment,” says Boje.

Coal trading is nothing new to Wescoal, however, who has been successfully supplying coal to the industry across South Africa and neighbouring countries since 2005. Its coal supply business has its roots in Chandler Coal, its coal trading arm which spans more than 80 years’ operational experience.

Deep rivets of expertise and knowledge of the workings of the coal market, together with value-added services has, positioned Chandler Coal as a leading coal supplier in South Africa. To be an effective coal merchant, an organisation requires staff with embedded knowledge of coal markets, clients with a demand for coal, a deep understanding of market influences, the ability to source the correct grade of coal to match client needs, as well as long and established relationships with mines and customers, and Chandler Coal has all these attributes.

Mining well into the future

Wescoal has made significant strides in the last few years with regards to expanding its coal mining business. From a single mining operation with a short lifespan (Khanyisa), the company now owns two operational mines, with a third significant asset moving into development in the near future.

Today Wescoal has a total life of mine of 12 – 15 years, and this could still grow further. “The key strategic thrust of Wescoal is to be a leading junior miner with a sustainable resource base and a coal trading operation,” says Boje, and this is clearly on the right track. In the 2013 financial year, Wescoal successfully produced 1.31Mt of coal.

Successfully expanding its operations

Wescoal has flourished since the first coal was mined and extracted from Khanyisa colliery in 2009, which is close to the Kendal power station. “We keep extending the life of mine at Khanyisa,” says Boje, pointing out that the colliery still boasts enormous potential. The life of mine is currently 12 to 18 months, with measured reserves of 1.24 million tons. Operated and managed by Wescoal, the mine has reserves of 0.82Mt and measured resources of 1.24Mt. With all legal permits in place, Khanyisa includes both open cast and underground mining, employing 84 people.

Boje is hoping to also extend the life of mine from two years to five years at Intibane colliery, which was commissioned in June this year. The mine has been approved to supply Tutuka power station and has recently delivered its first coal to Eskom. Owned, managed and operated by Wescoal, the opencast mine boasts reserves of 1.40 million tons and measured resources of 1.73Mt.

The third mine, Elandspruit colliery outside Middelburg in Mpumalanga is not operational yet, but Boje says Wescoal is hoping to conclude all the regulatory and environmental formalities early next year for mining to start in 2014. While it is easily accessible from the main road, no infrastructure has been developed as yet.

The Elandspruit colliery has an existing mining right with a resource of over 30Mt, all of which can be mined opencast. Wescoal’s underground Vlaklaagte mine was traded with Xstrata’s Elandspruit because the colliery is better suited to open cast mining, says Boje. “Our focus is predominantly open cast mining.”

Supplying South Africa’s market

Most of the coal from Wescoal’s mining operations will be delivered to Eskom, according to a R700-million deal signed in 2012 to supply power utility Eskom with 3.2Mt of coal per annum. “We are not really focusing on exporting our coal,” Boje says. “There is this perception that a mine cannot make money without exporting, but we are expanding well because we understand the domestic market.”

This is evident in Wescoal’s financial results, which reflect an increase of R46 million up 7.3% from the comparative financial period. “In terms of production, we are also exceeding targets,” says Boje, stating that this trend is expected to continue into next year. This is despite the challenges presented by the increasing cost of coal production, diesel price increases and the mass strike action affecting the entire country.

To maintain this growth and success, Wescoal continues to keep an eye out for opportunities and is currently negotiating with a number of majors regarding consolidating assets in the coal field. “The easiest part of this business is to actually mine the coal,” Boje says. “The hardest part is to sell it, and consolidation is an ideal way to give junior producers the critical mass that we need. Wescoal is perfectly placed to benefit from and take advantage of any consolidation opportunities that arise.”