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Thursday, 03 December 09
PROLONGED COAL MARGIN SQUEEZE AHEAD - WESCOAL


Mining Weekly reported that, Coal junior Wescoal foresees a continued margin squeeze ahead. The JSE AltX-listed company's gross margin was reduced to 8,7% in the six months to September 30, from 11,3% in the previous period, and was expected to remain under pressure for another 12 months "at least".

"In these times, cost saving is crucial," Wescoal CEO Andre Bojé said on Wednesday, when he announced that there would be no interim dividend.

He anticipated no improvement in the poor current trading conditions until the second half of 2010.

Wescoal would, Bojé said, focus on trading with smaller customers, enter new markets, and intensify mining in order to limit reliance on any one of its coal trading, coal washing or coal-mining divisions.

"We'll move rapidly to being a primary producer of coal, with a strong trading arm, and reduced vulnerability to a single revenue stream," he said.

He ascribed volume decline to reduced manufacturing activity and increased competition from traditional exporters choosing to divert product into the domestic market.

Wescoal's revenue fell 27% to R217-million – compared to R299-million in the previous corresponding – and profit fell to R7-million from R13-million. Net asset value, the company said, was well above the 74c share price at 114,76c a share.

Wescoal's trading segment contributed 88% to overall revenue, amounting to R191-million; and the washing and mining segments the remaining 12%, amounting to R26-million.

Bojé said that management was "extremely excited" about the contribution the jig plant was making at Blesboklaagte and by the acquisition of the Khanyisa mine, where a rail siding had been secured and an additional coal-washing plant was being considered.

The jig plant was commissioned at Blesboklaagte to process discard that was previously waste, the benefits of which will flow through during the balance of the financial year.
Source: Mining Weekly



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