JOHANNESBURG (miningweekly.com) – Coal mining and trading company Wescoal, which suffered lower profitability in the three months to March 31 on the drying up of long-term Eskom contracts, has committed to being more than 50% owned by black shareholders before December 2016 to qualify for long-term coal business from the State power utility, which its resources suit.

The JSE-listed company reported fallen mining sales and production in the 12 months to March 31, when higher revenue, buoyed by the trading business, failed to lift profitability owing to the absence of long-term Eskom business.

“We were particularly hard hit by low Eskom sales in the fourth quarter,” acting CEO Waheed Sulaiman told the results presentation attended by Creamer Media’s Mining Weekly Online. (Also watch attached video).

The lack of an appropriate black majority structure, in turn, resulted in the company’s long-term funding package not being concluded, the company reiterated in a Stock Exchange News Service announcement.

Wescoal Trading remained the group's strong performer in the non-Eskom domestic coal sales market, with trading revenues much higher at R1.1-billion compared with R591.2-million in the company’s 2014 financial year but its margins of profit thinner than mining margins.

CFO Morné du Plessis reported a significant increase in costs, greater provision for bad debts after a default by a significant customer and fallen cash reserves.

Short-term Eskom contracts are proving suboptimal for the company, with stop-and-start complicating operational performance.

“We’ve been under pressure from that and we’ve lost sales and profitability,” Du Plessis reported.

Yearly production of 1.5-million tons was 6% down from the underperforming Khanyisa coal mine with the new Intibane’s lower strip ratio coming to the rescue to improve the margin from 11% to 13% and Wescoal running on at break-even.

The company hopes to bring the new Elandspruit colliery into operation in the next few months, with an overall company production of four-million tons of coal a year by 2016.

Sulaiman said the company had begun a process to become majority black-controlled at holding company level and expected to be awarded Eskom long-term contracts on the basis of its commitment to achieve a 50%-plus-one-share ownership by historically disadvantaged South Africans by December 2016. (Also watch Creamer Media video attached).

"We will empower the company that is listed on the JSE," he affirmed during question time.

The first phase of the process towards black control had been completed by assigned consulting company PwC, which would be submitting its report to the board for response.

“We have to sell to Eskom. Our resources are Eskom-type resources. So its not as if we decide we want to export these resources or sell them to another customer.

“This is why we keep harping on about it being so crucial for us as a business to address Eskom’s needs,” Sulaiman pointed out.

During discussions with Eskom, three months or so had been lost and in the interim the company was engaging in short-term contracts.

“But Eskom is starting to show a lot of goodwill and pushing the process as much as they can,” he added.

Mining revenues in the 12 months to March 31 were R557.3-million compared with R556.2-million with an operational earnings before interest, taxation, depreciation and amortisation (Ebitda) of R94.7-million, which was down on last year’s R101.2-million, the company said in a media release.

Trading revenues were much higher at R1.16-billion compared with R591.2-million last year with operational Ebitda improving considerably to R34.3-million from R1.6-million in the prior period.

Sulaiman stepped up from his role as Wescoal executive director, commercial and strategy to lead the group when incumbent Andre Boje resigned after a board dispute earlier this year.

Prior to his Wescoal appointment, Sulaiman, a chemical engineer, worked in various roles at BHP Billiton’s South African operations, including helping to develop a black economic empowerment strategic framework, the company said in a media release.