Over 30,000 coal workers have gone on strike after NUM and coal companies could not reach agreement over wage increases. NUM is reportedly demanding R1 000 for the lowest category and a 14% increase for artisans, miners and officials. Companies have increased their offer from an 8% increase to 8.5%. Inflation is around 4.6%.
Wescoal mainly uses contract workers, and issued a sens announcement on 16 July that it reached agreement with NUMSA, with a 7% increase for the operating year, excluding performance bonuses. Wescoal has also introduced medical benefits for all employees and a transport allowance.
Wescoal is therefore not affected by the current strike, unless its workers are intimidated by other striking workers. In fact, we believe the strike could even favour Wescoal, with Eskom more likely to now enter into and conclude supply contracts with unaffected producers such as Wescoal.
Eskom typically holds 35-40 days’ worth of coal inventory and confirmed in the media today that it has about 4 weeks’ worth of stock. However, we are now heading into the rainy season, which typically sees a dip in inventories and production rates. There is also a drop in coal burning efficiencies at Eskom if the coal gets too wet.
Exxaro indicated that its affected operations are Matla (10.4Mta), Arnot (1.4Mta) and the North Block Complex near Belfast (3.3Mta). Therefore around 39% (15Mta) of Exxaro’s coal production is affected by the strike. Exxaro did indicate at its recent results presentation that the company built up some inventory ahead of the wage negotiations. The company declined to say how much exactly, but we estimate it to be a few weeks’ worth, but probably not as much as a full month.
Wescoal remains our top pick in the coal sector and we believe that it could be headed for one of its best years yet, provided that its workers don’t get dragged into the coal striking malaise.