| Tue 3 Oct 2006, 8:00 | | Wescoal - Transaction Update |
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WSL
WSL
Wescoal - Transaction Update, Competent Persons" Report, Profit Forecasts
And Cautionary Announcement
WESCOAL HOLDINGS LTD
(Incorporated in the Republic of South Africa)
(Registration number 2005/006913/06)
(JSE Share code: WSL & ISIN: ZAE000069639)
("Wescoal" or "the company")
TRANSACTION UPDATE REGARDING PROPOSED ACQUISITION OF ANKER COAL & MINERAL
HOLDINGS SA (PROPRIETARY) LIMITED ("Anker SA"), COMPETENT PERSONS" REPORT,
PROFIT FORECASTS AND CAUTIONARY ANNOUNCEMENT
1. TRANSACTION UPDATE
Shareholders are referred to the announcement dated 31 May 2006 that
Wescoal has, subject to certain conditions precedent, purchased all
the issued shares in and certain shareholders" claims on loan account
against Anker SA from its shareholders ("the acquisition").
It was further announced on 20 July 2006 that the Competition
Commission has unconditionally approved the acquisition. The pro forma
financial effects of the acquisition were published on 10 July 2006.
The Competent Person"s Report ("CPR") complying with the SAMREC Code
has been finalised by SRK Consulting (South Africa) (Proprietary)
Limited ("SRK"). The CPR has been submitted to the JSE Limited
together with the draft circular to shareholders. The CPR has been
reviewed and approved by SAMREC.
2. COMPETENT PERSONS" REPORT
THE SALIENT FEATURES OF SRK"S CPR ARE AS FOLLOWS:
2.1 Introduction
SRK has been commissioned by Wescoal to prepare a CPR on the current and
future coal mining operations in and around Witbank and Ermelo in
Mpumalanga, South Africa, currently owned by Anker SA. The assets under
review comprise the following mining and prospecting assets:
Mining Assets
* Elandsfontein Colliery, mining and processing operations, near
Witbank, Mpumalanga, namely:
* Elandsfontein opencast colliery,
* Elandsfontein discard dump,
* Elandsfontein processing plant.
* Golfview Colliery, mining and processing operations, near Ermelo,
Mpumalanga, namely:
* Golfview opencast colliery,
* Golfview discard dump,
* Golfview processing plant.
* Wesselton East Mining Complex, near Ermelo, Mpumalanga, comprising
resources on portions of the farms:
* Leliefontein,
* Joubertsvlei,
* Van Outshoornstroom,
* Witbank,
* Meppel,
* Jan Hendriksfontein.
* Prospecting Assets
* Vlakfontein Prospecting area, comprising resources on various
portions of various farms, near Amersfoort, Mpumalanga;
* Uitkomst Prospecting area, comprising resources on various
portions of various farms, near Ermelo, Mpumalanga;
* Mooiklip Prospecting area, comprising resources on various
portions of various farms, between Ermelo and Amersfoort,
Mpumalanga;
* Sheepmoor Prospecting area, comprising resources on various
portions of various farms, near Sheepmoor, Mpumalanga;
* Steenkoolspruit Prospecting area, comprising resources on various
portions of various farms, between Amsterdam and Ermelo,
Mpumalanga;
The Prospecting Assets, because of the limited information currently
available, did not form part of the overall valuation of the Anker SA
Assets.
2.2 Resources and reserves
The table below summarises SRK"s audited Coal Reserves Estimates.
Anker SA Run of Mine Reserves Estimates
Seam GTIS Proved Probable Total
Reserves Reserves sales
reserves
kt kt kt kt
Elandsfontein No. 2 - - - -
Seam
No. 1 2,326 - 1,752 972
Seam
Discard - - - 312
Total 2,326 - 1,752 1,284
Golfview C Upper 2,164 1,445 - 1,445
C Lower 2,280 1,523 - 1,153
Discard & - - - 1,278
dump
Total 4,444 2,968 3,876
Wesselton B
East 1,061 549 254 803
C Upper 1,505 484 688 1,172
C Lower 27,539 3,723 10,179 10,145
Discard - - - 1,503
Total 30,104 4,756 11,121 13,623
2.3 Operational issues
Mining has currently been carried out on a limited basis since January
2006 at both Elandsfontein and Golfview. Reclamation and re-processing
of the discard dumps has been carried out during this period. The
current plan has been developed as a depletion schedule, which will be
further refined on completion of the current acquisition transaction.
Both Elandsfontein and Golfview have a limited life and production
will be replaced from the Wesselton East operation. The overall
production profile of the three operations combined are indicated in
the table below.
Production profile for combined operations
Period 2007 2008 2009 2010 2011 2012
Total (kt 22,398 2,700 3,192 2,728 1,643 1,772 1,730
RoM )
Feed to (kt 18,978 2,100 2,172 1,763 1,080 1,500 1,730
Plant )
Plant (%) 67% 56% 57% 62% 73% 73% 73%
Yield
Raw (kt 3,420 600 1,020 965 563 272
Sales )
Washed (kt 15,363 1,549 1,615 1,356 905 1,257 1,449
Sales )
Total (kt 18,783 2,149 2,635 2,322 1,468 1,528 1,449
Sales )
Period 2013 2014 2015 2016 2017
Total (kt 22,398 1,920 1,920 1,920 1,920 952
RoM )
Feed to (kt 18,978 1,920 1,920 1,920 1,920 952
Plant )
Plant (%) 67% 73% 73% 73% 73% 73%
Yield
Raw (kt 3,420
Sales )
Washed (kt 15,363 1,609 1,609 1,609 1,609 798
Sales )
Total (kt 18,783 1,609 1,609 1,609 1,609 798
Sales )
2.4 Projected new capital expenditure (3 years) (R"000)
The projected new capital expenditure for the next three years are
detailed below:
2007 2008 2009
Elandsfon Total incl escalation 8,383 6,574 0
tein
Golfview Total incl escalation 13,465 3,158 1,739
Wesselton Total incl escalation 21,000 46,297 40,542
East
Total capex incl 42,848 56,028 42,282
escalation
Additional 756 984 715
contingency
Total capex incl esc 43,604 57,012 42,996
& contingency
2.5 Marketing and sales
The current allocation of Anker SA at Richards Bay Coal Terminal ("RBCT")
in Richards Bay, Kwa-Zulu Natal, is approximately 150,000 tonnes per annum.
This will increase to some 450,000tpa in 2008, to 750,000tpa in 2009 and
ultimately some 1.0 million tpa from 2010, the expected time that the full
capacity of Phase V expansion of the RBCT will be available for use. This
is indicated in the table below.
Projected RBCT Allocation for the next 5 years
2007 2008 2009 2010 2011
RBCT Allocation 150,000 450,000 750,000 1,000,000 1,000,000
(Mtpa)
Wescoal will market their own coal locally and will use the expertise of
the Rotterdam headquartered Vitol Group for the export products. The
assumptions used in the determination of a value is indicated in the table
below.
Prices and indices used in the technical-economic model
2007 2008 2009 2010 2011 Escalation
per year(1)
Raw ZAR/t 80.00 88.00 96.80 106.48 117.13 10.0%
Exchange ZAR:$ 6.93 7.34 7.36 7.69 8.04 4.5%
rate
Export US$/t 50.00 52.50 55.13 57.88 60.78 5.0%
RBCT
Export US$/t 48.00 50.40 52.92 55.57 58.34 5.0%
Matola
Inland ZAR/t 250.00 275.00 302.50 332.75 366.03 10.0%
"A"
Inland ZAR/t 220.00 242.00 266.20 292.82 322.10 10.0%
"B"
Inland ZAR/t 185.00 203.50 223.85 246.24 270.86 10.0%
"C"
Duff ZAR/t 150.00 165.00 181.50 199.65 219.62 10.0%
Power ZAR/t 85.00 93.50 102.85 113.14 124.45 10.0%
station
Discard ZAR/t 18.00 19.80 21.78 23.96 26.35 10.0%
Slimes ZAR/t 25.00 27.50 30.25 33.28 36.60 10.0%
Note 1: Escalation factor applied annually from 2012 to the end of the
life of the operations
2.6 Environmental issues
The current estimates of the environmental liabilities and
rehabilitation costs are indicated below. SRK have used the High Order
rehabilitation cost estimates in the technical-economic model. This is
conservative, but once the acquisition has become effective, detailed
environmental liability estimations will be carried out to determine a
realistic and practical value.
SRK"s High Order rehabilitation costs
Operation R"000
Elandsfontein 35,270
Golfview 18,750
Wesselton East 20,000
Total estimated current 74,020
liability
A provision of ZAR2.50 per sales tonne has been made in the technical-
economic model to realise sufficient funds to cover the closure cost of
both Elandsfontein and Golfview, as well as providing a suitable provision
for the eventual closure of Wesselton East. The provision adequately covers
the expected SRK High Order environmental liabilities.
3. VALUATION
The values presented in the CPR are Net Present Values based on a
range of discounted cash flows. This estimate serves as a guide for
potential investors to appreciate the production and financial
potential of the operation. SRK do not assign market values to
operations of this nature. At a discount rate of 15% a Net Present
Value of the operating free cash flows of approximately ZAR R375
million can be assigned to the Mining Assets. As is usual in
operations of this nature the valuation is most sensitive to the
revenue (coal price) and least sensitive to the capital expenditure.
4. FORECAST INCOME STATEMENTS
The forecast income statements of Wescoal, including the acquisition,
for the financial years ending 31 March 2007 and 31 March 2008, the
preparation of which was the responsibility of the directors, are set
out below. The forecasts were based on the mining depletion schedules
prepared by SRK and contained in the CPR. The forecasts have been
examined by Middel & Partners, and their independent accountants"
report thereon will be included in the circular to be sent to
shareholders.
The funding arrangements in respect of the acquisition are currently
being finalised. This will entail an issue of shares for cash. The
forecast earnings per share and net asset per share will be published
once finality has been reached in respect of the funding arrangements.
INCOME STATEMENT Year ending
31 March 2007 31 March 2008
R R
Turnover 320,370,537 511,199,489
Cost of sales (281,175,322) (402,335,826)
Gross profit 39,195,215 108,863,663
Other income 105,521 110,758
Operating costs (23,975,758) (49,082,498)
Profit from 15,324,978 59,891,923
operating
activities
Interest received 1,440,565 81,460
Interest paid (5,027,276) (4,460,415)
Net profit before 11,738,267 55,512,968
taxation
Taxation (3,142,209) (3,919,294)
Net profit for the 8,596,058 51,593,674
year
Headline earnings 5,5 22,2
per share (cents)
Main forecast assumptions:
(1) Revenue:
(1.1) The forecast mining and processing volumes were based on the mine
plan prepared by SRK as set out in the CPR. Mining at Anker SA
subsidiaries Elandsfontein Colliery (Pty) Ltd and Golfview Mining
(Pty) Ltd, was assumed to commence in January 2007.Mining of
Anker SA"s substantial unmined resources referred to as Wesselton
East was assumed to only commence in late 2008 or early 2009 and
have accordingly been excluded from the forecasts
(1.2) The following production volumes, based on the mine plan, were
assumed :
2007 2008
Tons Tons
"A" Grade 156,801 495,407
"B" Grade 82,908 204,231
Raw coal 150,000 600,000
Export coal 73,500 200,000
Power 101,068 593,245
station
Duff 81,670 47,349
Discard 481,765 580,000
Total 1,127,212 2,720,232
(1.3) An export price of $50.00 per ton was assumed for the 2007
calendar year increasing by 5% in 2008. A ZAR/$ exchange rate of
R6.93 was assumed for 2007 and R7.34 for 2008.
(2) Gross profit:
(2.1) Coal trading (historical Wescoal business): The forecast gross
profit on the coal trading business was based on margin achieved
during the first quarter of the current financial year. A
moderate increase in margin was provided for in 2008 based on
increased demand for coal.
(2.2) Mining activities (Anker SA): The forecasts for mining and
processing costs were based on market related tariffs for the
outsourcing of mining and materials handling with an appropriate cost
estimate for processing which will be handled in-house. Only opencast
mining is planned for the forecast period and a mining cost of R14.00
per strip ratio was assumed translating into mining costs of R63.70
per RoM ton. Inflation of 6.5% on this price is assumed for 2008.
(3) Operating costs:
(3.1) Forecast operating costs were based on historical costs adjusted
for increases in capacity. Inflation of 6% was assumed.
(4) Shares in issue:
(4.1) It was assumed that there will be 231 709 139 shares in issue,
being the current 103 709 139 shares, with 28 000 000
shares being issued to Community Investment Holdings (Pty)
Limited ("CIH") as consideration for the 35% of the issued shares
of Anker SA acquired from CIH, and 100 000 000 shares to be
issued for cash as part of the funding arrangements.
5. DOCUMENTATION
It is anticipated that a circular with full particulars of the
acquisition, as well as Revised Listings Particulars of Wescoal,
including a CPR and a notice of general meeting of shareholders, will
be mailed to shareholders in October 2006.
6. CAUTIONARY ANNOUNCEMENT
Shareholders are advised to exercise caution when dealing in the
company"s securities until the funding arrangements have been
finalised.
Johannesburg
2 October 2006
Designated adviser Exchange Sponsors
Auditors Middel & Partners
Attorneys Kim Warren, Rambau &
Associates
Advisers in respect of Brink Cohen Le Roux Inc.
Competition Commission
application
Competent Persons" Report SRK Consulting (South Africa)
(Pty) Ltd
Warning: The listing of ordinary shares in the company is on ALTx.
Investors are advised of the risks of investing in a company listed on
ALTx. Investors are advised that the JSE does not guarantee the viability
or the success of a company listed on ALTx. In terms of the Listings
Requirements, the company is obliged to appoint and retain a Designated
Adviser, which is required to, inter alia, attend all board meetings held
by the company to ensure that all the Listings Requirements and applicable
regulations are complied with, approve the Financial Director of the
company and guide the company in a competent, professional and impartial
manner. If the company fails to retain a Designated Adviser, it must make
arrangements to appoint a new Designated Adviser within 10 business days,
failing which the company faces suspension of trading of its securities.
If a Designated Adviser is not appointed within 30 days of its suspension,
the company faces the termination of its listing without the prospect of an
appropriate offer to minority shareholders.
Date: 03/10/2006 08:00:10 AM Produced by the JSE SENS Department
