Wescoal Investor Presentation February 2016 Important notice This - - PowerPoint PPT Presentation

Wescoal Investor Presentation

February 2016

Important notice

This document has been prepared by Wescoal Holdings Limited (the “Company”). For the purposes of this notice, the presentation that follows (the “Presentation”) shall mean and include the slides that follow, the oral presentation of the slides by the Company, any question-and-answer session that follows that oral presentation, hard copies of this document and any materials distributed at, or in connection with, that presentation. By attending the meeting at which the Presentation is made, or by reading the Presentation slides, you will be deemed to have (i) agreed to all of the following restrictions and made the following undertakings and (ii) acknowledged that you understand the legal and regulatory sanctions attached to the misuse, disclosure or improper circulation of the Presentation. The Presentation is has been furnished to you solely for your information and may not be reproduced, redistributed or disclosed in any way, in whole or in part, directly or indirectly, to any other person without the prior written consent of the Company. Your obligations as set out in this notice will continue in respect of the information contained in the Presentation until such time as, and then only to the extent that, any such information is made available to the public. The Company may not be making the information contained herein public, except to the extent required by law or regulation. If this is not acceptable to you, you should not receive the information contained in the Presentation. The information contained in the Presentation, including market information from third parties, has not been independently verified and no representation or warranty, express

• r implied, is made as to, and no reliance should be placed, on the fairness, accuracy, completeness or correctness of the information or opinions expressed herein. The

information and opinions contained in this Presentation do not purport to be comprehensive, are provided as at the date of the document and are subject to change without

• notice. The Company is not under any obligation to update or keep current the information contained in the Presentation. The Company, its subsidiaries, or any of their respective

affiliates, directors, officers, employees, agents, Exchange Sponsors, Singular Systems or any other person shall have no liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of the Presentation or its contents or otherwise arising in connection with the Presentation. Singular Systems is acting for the Company in connection with the Presentation and will not be responsible to anyone other than the Company for providing the protections afforded to clients. Statements in the Presentation, including those regarding the possible or assumed future or other performance of the Company or its industry or other trend projections, constitute forward-looking statements. By their nature, forward-looking statements involve known and un-known risks, uncertainties, assumptions and other factors because they relate to events and depend on circumstances that will occur in the future whether or not outside the control of the Company. Such factors may cause actual results, performance

• r developments to differ materially from those expressed or implied by such forward-looking statements. Accordingly, no assurance is given that such forward-looking

statements will prove to have been correct. They speak only as at the date of the Presentation and the Company undertakes no obligation to update these forward-looking statements.

Busin iness Overv rview

• Established in June 2005 the company listed on the JSE on 20 July 2005.
• Wescoal [WSL] is listed on the JSE main board: Basic Resources: Mining, subsector: Coal.
• In 2014 acquired the Wescoal Processing Plant near Middleburg/Mpumalanga which has

a 200Kt/m throughput capacity.

• In July 2015, the flagship asset Elandspruit Colliery produced, processed and delivered

first coal.

• The main business of the Group is the mining, processing, sale and supply of coal.
• Coal is mined, sourced and supplied to clients in local industry including power generation,

manufacturing and petro-chemicals sectors through two primary divisions, namely Mining and Trading.

• The key strategic thrust is to be a leading junior coal miner with a sustainable resource

base and a coal trading operation

• Wescoal promotes sustainable growth in mining, competitiveness and environmental enhancement.

Strategic In Intent

• To focus on the domestic coal mining market and transform Wescoal into a majority-

black-owned business supplying Eskom and other customers cost effectively

• Wescoal is steadfast in its strategic development plan with Elandspruit Colliery at the

forefront

• The challenging environment, specifically in the local coal sector, presents opportunities

for corporate activity.

• Consolidation in the junior coal sector is likely and Wescoal sees itself as a significant

participant in this process.

• To deliver financial growth
• To take the lead in coal production by junior miners with a goal of 8 mtpa
• Safety remains a top priority and
• To develop quality relationships with customers and our broader stakeholder base

Strategic Priorities

• Strategic organic priorities include, bedding down the Elandspruit Colliery before

embarking on additional major projects.

• Future projects considered conservatively and with care.
• The last phase of the Elandspruit Colliery includes initiatives to reduce operational risk

by optimising and upgrading water management and road network systems.

• Inorganic growth opportunities available.
• Augmenting the Intibane and Khanyisa Collieries resource bases and others on

potentially creating a new mining complex.

• Debottlenecking projects at the processing plant will ultimately increase the throughput

capacity of the plant and reduce operating costs.

Structure and background

WESCOAL HOLDINGS

Functioning operations Khanyisa Colliery Intibane Colliery Elandspruit Colliery (Flagship) Processing plant 20km from Elandspruit Annualised production ~2m tons of coal Near-term production target 4m tons of coal in 2016 Mining division is the major source of growth and well positioned to become a significant local producer > 80 Years of operational experience in SA Trading operations Gauteng, Eastern Cape, Kwazulu Natal, Western Cape 6 Depots countrywide Logistics network covering southern Africa. Trading division enhances Wescoal profile, provides exciting embedded options and generates steady cash flows

Note: Trading division includes operation previously traded as Chandler Coal and the acquired distribution business of MacPhail in 2013 and fully integrated in 2015.

Segmental contributions (as at interims 30 September 2015)

27% 73%

Operational EBITDA

Mining Trading 31% 69%

Revenue

Mining Trading

Revenue

630 751 676 927 1 147 444 1 674 372 758 100

200 000 400 000 600 000 800 000 1 000 000 1 200 000 1 400 000 1 600 000 1 800 000 2012 2013 2014 2015 1H '16

Revenue (R’000)

8

Operating Profit

25 959 27 170 45 168 45 540 17 869

5 000 10 000 15 000 20 000 25 000 30 000 35 000 40 000 45 000 50 000 2012 2013 2014 2015 1H '16

Operating profit (R’000)

9

Cash Generated From Operations

12 533

38 492 47 134 94 905 129 092 20 000 40 000 60 000 80 000 100 000 120 000 140 000 2012 2013 2014 2015 1H '16

R’000 Performance

• Free cash utilised to increase mining asset base
• No dividend declared during interim reporting period

10

Headline Earnings Per Share

11,4 12,2 15,2 15,4 5,1 2 4 6 8 10 12 14 16 18 2012 2013 2014 2015 1H '16

Cps HEPS for the full year

HEPS for the half-year

11

Note: As reported at interim results October 2015, EPS attributable to the month of September 2015 was 2,50 cps, mainly on the back of the Elandspruit Eskom contract.

Mining Division Update – Bu

Buck cking th the 2015 tr trend Elandspruit Colliery

• Mining right contains 5 potentially mineable coal seams, which occur from suboutcrop to a maximum

depth of 70m below surface, near horizontal in formation and devoid of geological complexities such as faulting or dolerite intrusions.

• Reserves of 34-million tons + and a LOM 12 to 15 years.
• Provides feed for the Wescoal processing plant 20 km away successfully launched in 2015.

Performance

• Annualised monthly production of 2 million tons of RoM a year.
• Annual ‘near-term’ target of Group of 4 million tons of RoM a year.
• Contractor performing according to expectation
• Eskom contract discussions advancing
• Improved LTIF

“Elandspruit has proven its flagship qualities in 2015, performing above the 2015 mining industry average in an overall challenging business climate including eroding values, pricing pressures and labour disruptions. The mine will continue to focus on supplying Eskom and last year bucked the local industry trend, where there have been very few such developments.” - Waheed Sulaiman.

Mining Division Update - Cos

• st man

anagement rem emain ins a a focus.

The Intibane Colliery

• The Intibane Colliery was issued a water use license in late December 2015.
• Ramp up in site activity, increasing production to its steady state target of 80kt/m ROM.
• Intibane produces coal which is suitable for the Eskom or low grade domestic markets.
• Increased production from Intibane will help drive volume based cost dilution and

recent equity injections will reduce interest costs slightly. Khanyisa Colliery

• Progress made in acquiring resources contiguous to Khanyisa Colliery.
• Agreement reached with counterparties to potentially extend Life of Mine by 3-4 years.
• The agreement is subject to a number of CPs and approval from the DMR.
• Mining activities subject to the granting of a water use license – application submitted

in February 2015.

Trading Division Update - cr

creates op

• perational

l fle flexib ibil ilit ity with ith th the e min ining divis ivision

• 1H exceeded expectations in a difficult business environment with strong performance.
• 1H operating EBITDA was R28,2 million up 39,8% over the prior period.
• 1H divisional sales totalled 550 000 tons (2014: 626 000 tons).
• The 12,1% reduction is mainly attributable to a more conservative credit policy and

the prevailing business environment.

• Bad debts reduced from R1,8m to R1,2m - improved credit controls and active debtor

management.

• Gross margins decreased 3,3% to R62,0 million (2014: R64,1 million) as a result of a

downward price pressures which were partially compensated for by cost saving and productivity initiatives.

• Cost saving of 19,9% were achieved through reducing expenditure on non-income

generating activities and better utilisation of existing resources.

• The division’s national footprint continues to be a key differentiator and source of value.
• Close working relationship with mining division creates operational flexibility/optionality.

Executive and Operational Management

Waheed Sulaiman

Acting Chief Executive Officer

Bonani Siko

General Manager Ops. Wescoal Mining (17 years experience)

Ettienne Strydom

Projects Manager Wescoal Mining (22 years experience)

Dutch Botes

Head of Wescoal Mining (37 years experience)

Izak van der Walt

Acting Chief Financial Officer

Jaap Kruger

Acting Manager – Processing Plant (30 years experience)

Mike Berry

Head of Wescoal Trading (26 years experience)

Executive Operational

Skilled and Motivated Executive and Operational Management Focused on Delivery

Bongani Hlope

Head: Group Human Resources

Vikesh Dhanooklal

Group Legal Adviser & Company Secretary

Management Team Update

• Waheed Sulaiman appointed Acting CEO
• Izak van der Walt appointed Acting CFO
• Operational Management focused on performance
• Additional management expertise harnessed in Legal/Company Secretary & HR:
• Vikesh Dhanooklal appointed as Company Secretary & Group Legal Adviser
• Bongani Hlope appointed as Group Head of Human Resources
• Motivated Leadership Team

Management Team’s Focus Areas

• Strategy continues to evolve to establish a more sustainable business
• Eskom long-term contracts
• 50%+ black ownership
• Funding strategies
• Performance focussed: Production - Mining, Processing and Trading of Coal
• Strengthen skills a platform to create a scalable company structure
• Employer of choice in the domestic junior coal environment
• Broad based employee contribution
• HDSA – best practices
• King IV compliance within medium term

WSL Shareholder information – 23

23 Dec ec 2015

23 Dec 2015 27 Nov 2015 Change

Rank Beneficial Holder % Holding % Holding % Holding

1 Ramaite Muthanyi Robinson Mr 17,70%

42 047 450 20,40% 42 047 450 0,00%

2 Simeka Capital Holdings (Pty) Ltd 12,76%

30 303 030 0,00%

• 30 303 030

3 Certificated 7,65%

18 182 137 8,82% 18 175 000 0,04% 7 137

4 Mzimela Eric Thuthukani Mr 5,80%

13 782 269 6,69% 13 782 269 0,00%

5 Clucas Gray 3,76%

8 930 000 4,33% 8 930 000 0,00%

6 Boje Andre Russell Mr 3,49%

8 278 457 4,01% 8 268 977 0,11% 9 480

7 Botha George Marthinus Mnr 3,07%

7 300 000 3,54% 7 300 000 0,00%

8 Guvon Beleggings (Pty) Ltd 2,61%

6 210 000 3,01% 6 210 000 0,00%

9 Scribante Construction (Pty) Ltd 2,57%

6 105 935 2,96% 6 105 935 0,00%

10 Chlorotrix (Pty) Ltd 2,23%

5 303 030 2,57% 5 303 030 0,00%

11 Gujo Investments (Pty) Ltd 1,93%

4 590 000 2,23% 4 590 000 0,00%

12 Luvhengo Shammy Arewanga Mr 1,91%

4 545 455 2,20% 4 545 455 0,00%

13 Coetzee Gerhard Mr 1,82%

4 314 063 2,09% 4 314 063 0,00%

14 Steenkamp Investment Trust 1,79%

4 250 000 2,11% 4 350 000

• 2,30%
• 100 000

15 Sikhosana Mpumelelo James Mr 1,53%

3 633 998 1,76% 3 633 998 0,00%

16 G R Wakeling 1,36%

3 222 656 1,56% 3 222 656 0,00%

17 Boje Louise Mrs 1,15%

2 737 000 1,33% 2 737 000 0,00%

18 Steyn Capital 0,86%

2 037 500 0,99% 2 037 500 0,00%

19 Khumalo Wiseman Nkukuleko Mr 0,84%

2 000 000 0,97% 2 000 000 0,00%

20 Alpha Wealth 0,79%

1 876 842 0,73% 1 500 000 25,12% 376 842

75,63% 179 649 822

72,30% 149 053 333 22,98% 30 596 489

WSL Share in information and Shareholders - (as at January 2016)

Shares in issue 237 533 578 up from 196,301,361 1 Yr. High 229cps - 1 Yr. Low 74cps (as at 20/01/2016) Salient Dates

• FY Results c. Thursday 23 June 2016
• Next AGM: Wednesday, October 2016

Sovereignty Capital

0,42% 1 000 000

Flagship Asset Management

0,28% 674 750

Sanlam Investment Management

0,08% 195 278

Absa Asset Management

0,03% 65 224

Nedbank Private Wealth

0,01% 30 000

Plexus Asset Management

0,01% 16 800

Simonis Storm

0,01% 14 900

Ashburton Investments

0,01% 14 700

Other Institutional Shareholders

WSL vs vs Mining In Index – com

• mparative perf

rformance

WSL vs vs Mining In Index – rel

elative perf erformance

WSL vs

vs All Share vs vs Top 40 vs vs Mining In

Index

Coal, , South African export price Z ZAR & USD

WSL vs vs Domestic Junior Coal Peers

Risks and Responses

No Risk Response

1

• HDSA status of Wescoal
• Key for Eskom contracts
• Key for export opportunities
• Renewed focus for DMR
• Process to achieve HSDA control by

December 2016 well underway

• Exploring new export opportunities, due to

ZAR/USD exchange rates and coal prices

2

• Wescoal funding
• Key to implement Elandspruit
• Key to pursue inorganic growth options
• Raised R52m of Share Capital during 2015
• Working through Investec funding conditions
• Investigating alternative funding proposals

3

• Eskom coal supply contracts
• Most of our coal is Eskom grade coal
• Contract delays have a knock-on effect on

revenues and unit costs

• Commitment to Eskom re: HSDA 50%+
• wnership by December 2016
• Multi-pronged Eskom engagement strategy
• Short-term Eskom supply contracts ongoing

while negotiating long term supply contracts

In Investment Case & Prospects

• Actively pursuing multi-pronged Eskom engagement strategies.
• Continue supplying Eskom from Elandspruit at production cost plus a rate of return, in a

substantial/reliable market.

• Advancing BEE/HDSA ownership in 2016
• Organic and inorganic opportunities in the SA coal sector
• Exploring export opportunities arising due to ZAR/USD exchange rates and export coal

prices with greater interest

• WSL a player in the consolidation of junior coal producers in SA market
• Production ramping up to target in 2016
• Leadership team focused on performance
• De-risk Elandspruit further by improving water management and logistics
• Optimising processing plant by further debottlenecking
• Attentive to cash and working capital management
• Responsible towards shareholders and stakeholders

Wescoal Values

• Willingness to learn and share information allows for consistent improvement in work

practices and compliance to high work standards

• Safety consciousness ensures a safe, healthy and injury-free workplace
• Integrity in behaving in an honest, correct and proper manner
• Respecting the right and dignity of each employee, stakeholder as well as the laws

where the Group is operational

• Environmental responsibility by reducing, re-using and recycling resources and

actively participating in reclamation processes to improve environmental quality

• Accountability in taking responsibility for actions, decisions and being answerable

for the consequences

• Neighbourliness towards those outside the company’s boundaries showing respect

and being actively engaged to establish a lasting relationship.

Recent SENS Announcements

25th January 2016: Voluntary Operational and Market Update Over the past three months, the Wescoal Group has steadily maintained its progress in extremely difficult local and international market conditions, making headway across all facets of the operations. Mining Operations Update: The flagship Elandspruit Colliery is now delivering its production target of 165kt Run of Mine (“ROM”) per month on a continuous basis. Mine development is at an advanced phase in line with the project plan and budget. Recently raised funding is being used to upgrade haulage roads and to reduce the interaction between public road users and mine operational traffic. Additionally, significant progress has been made with the upgrading and construction of water control systems. Work at the Wescoal Processing Plant to implement cost-saving and debottlenecking projects is on track to be completed before the end of the current financial year. This versatile facility is capable of producing a range of domestic, export and Eskom grade products. The Intibane Colliery was issued a water use license in the latter part of December 2015. This has triggered a ramp up in site activity, in order to increase production to its steady state target of 80kt ROM per month. Intibane produces coal which is suitable for the Eskom or low grade domestic markets. Progress has also been made in acquiring resources contiguous to Khanyisa Colliery. An agreement has been reached with counterparties which has the potential to extend Khanyisa’s Life of Mine by between three and four years. The agreement is subject to a number of conditions precedent and approval from the Department of Mineral Resources. Mining activities at Khanyisa are also subject to the granting of a water use license – an application was submitted to authorities in February 2015. Cost management remains a focus. In this regard, increased production from Intibane will help drive volume based cost dilution and recent equity injections will reduce interest costs slightly. Wescoal continues to supply Eskom as well as other domestic and export customers. Global coal oversupply and sentiment have had a negative impact on domestic and export price expectations. However, the weakening exchange rate will have a positive impact on the rand price of export coal going forward. Trading Division Update: The trading division continues to meet expectations despite the challenging local business environment and pressures on

• perating margins.

Corporate Office: Recent fund raising initiatives raised R52 million. While this was less than anticipated, it was sufficient to initiate crucial de-risking and

• ptimisation projects across the Wescoal Group. Proceeds from the fund raising have also helped to alleviate pressure on the Group’s cash flow which was

used to fund the development of Elandspruit. In line with managing Group risks more effectively, legal and human resource expertise have been insourced through the appointment of Vikesh Dhanooklal as Group Legal Adviser and Company Secretary and Bongani Hlope as head of Human Resources.

Directors Dealings

(Nov 2015 – January 2016)

The following directors dealings were disclosed between Nov. 2015 – Jan. 2016:

• 14 Jan. 2016

W Sulaiman (Exec) bought 120 000 shares R0.83

• Tot. Value:

R99 600

• 8 Jan. 2016

V Dhanooklal (Co.Sec.) bought 124 shares R0.95 Value: R 117 bought 29 876 shares R0.99 Value: R29 577

• Tot. Value:

R29 695

• 11 Dec. 2015 I van der Walt (Exec) bought 50 000 shares

R0.98

• Tot. Value:

R49 000

• 10 Dec. 2015

W Sulaiman (Exec) bought 200 000 shares R1.05

• Tot. Value:

R210 000

• 20 Nov. 2015

R Ramaite (NE Chair) bought 169 930 shares R1.10

• Tot. Value:

R186 923

• 19 Nov. 2015

R Ramaite (Non-exec. Chair) bought 150 000 shares R1.20 Value R180 000 bought 50 000 shares R1.15 Value R 57 500 bought 85 000 shares R1.10 Value R 93 500

• Tot. Value:

R331 000

• 16 Nov. 2015 W Sulaiman (Exec)

bought 200 000 shares R1.20

• Tot. Value:

R240 000

Change to the board of directors – (11 December 2015)

Mr Robinson Ramaite automatically retired as a non-executive director of Wescoal post the annual general meeting on the 13th of November 2015, and was immediately thereafter re-appointed as a non-executive director and chairman of Wescoal by the board of directors; And Mr Ramaite’s re-appointment to the board will be ratified at the Company’s next AGM.

• Mr. Vikesh Dhanooklal has been appointed as the company secretary of Wescoal with immediate
• effect. Vikesh Dhanooklal is an admitted Attorney of the High Court of South Africa, with over 15

years of post – admission experience. Vikesh was appointed as Group Legal Adviser of the Company

• n the 1st of September 2015, and has held positions in BHPBilliton South Africa and South32 in the

field of Mining and Property law.

Company Secretary Change – (20 November 2015)

RESULTS OF THE COMBINED CLAW-BACK AND RIGHTS OFFER

– (7 December 2015) The circular dated 17 November 2015 containing details of the combined claw-back and rights offer to Shareholders of a maximum of 49 041 904 new Wescoal shares at an issue price of 132 cents each (the “Combined claw-back and rights offer”). The Combined claw-back and rights offer closed on Friday, 4 December 2015. The Combined claw-back and rights offer shares, which were offered to Shareholders and/or their renouncees, a total of 1 080 702 new Wescoal shares, being 2.20% of the Combined claw-back and rights offer shares, were applied for in terms

• f the offer.

Simeka Capital Holdings Proprietary Limited (“Simeka”), pursuant to its R40 million subscription commitment, will be issued with 30 303 030 new ordinary shares of no par value which have not been subscribed for by the Shareholders pursuant to the Combined claw-back and rights offer. Accordingly, the Company will issue 31 383 732 new Wescoal shares, representing 63.99% of the Combined claw-back and rights offer shares. Following the issue of 31 383 732 new Wescoal shares pursuant to the Combined claw-back rights offer, the total issued share capital of the Company will increase to 237 533 578 ordinary shares of no par value.

Changes to the board of directors – (13 November) 2015

Shareholders are advised of the following changes to the board of Wescoal Holdings Ltd:

• Mr Waheed Sulaiman who was appointed as Acting Chief Executive Officer with effect from 31

March 2015, has been appointed at the AGM as Executive Director; and

• Mr Izak van der Walt, appointed as Acting Chief Financial Officer of Wescoal with effect from 2

September 2015, has been appointed at the AGM as Executive Director Finance. Both appointments are with immediate effect.