Why Exxaro is upbeat about its coal unit
Prices better than a year ago, while shareholders will benefit from placement of remaining Tronox shares in 2018
Coal and iron ore company Exxaro expected its coal business to perform better in the coming year due to good domestic and global demand and initiatives to improve efficiency, finance director Riaan Koppeschaar said on Friday.
Exxaro’s shares had added 0.89% to R156.79 by late afternoon on Friday, a three-and-a-half-year high.
In an overview of the business ahead of the December financial year-end, Koppeschaar said the average price Exxaro had received for its coal in the second half of the year was $88 a tonne and the average price received for iron ore was $67 a dry tonne. In the matching period in 2016, Exxaro realised about $75 a tonne for coal and $57 a dry tonne for iron ore.
Exxaro’s iron-ore interests are represented by its 20% stake in Kumba Iron Ore’s subsidiary, Sishen Iron Ore Company.
It also holds 24% of mineral sands miner Tronox after recently selling part of its stake, which netted R6.5bn.
Koppeschaar said it was still Exxaro’s intention to place the remaining Tronox shares in the first half of 2018, as the lock-up period expired in January. It was impossible to be definitive about timing as it depended on other factors, such as competing equity issues in the market.
Most of the money raised from the first tranche would be distributed to Exxaro shareholders. After the second tranche was sold another decision on distributions would be made.
Exxaro’s own coal production, excluding buy-ins, would rise 8% to about 46.4-million tonnes in the year to December compared with 2016, while capital spending would be 50% higher because of the timing of investments in the Grootegeluk mine in the Waterberg, Koppeschaar said.
Overall capex including stay in business spending, would be 4% less than Exxaro’s August guidance to investors.
Exxaro’s coal output was below the previous guidance because of strikes at Grootegeluk and Leeuwpan mines, Exxaro’s executive head of coal operations, Nombasa Tsengwa, said. Export sales, which will drop 3% to 7.65-million tonnes, have been affected by weather-related bottlenecks at Richards Bay Coal Terminal.
Exxaro and Eskom are still engaged in arbitration over Arnot power station to resolve contractual issues. In late 2015, Eskom refused to renew a supply contract for Arnot, saying the coal was too expensive. The parties disagree on who is responsible for closure costs.
Exxaro has put both Arnot and the North Block Complex (NBC) mine up for sale and said the NBC sale agreement was likely to be concluded by the end of December.
Exxaro and Eskom are in arbitration over the capital funding needed for Matla mine to access more resources. The Matla 1 shaft remains on care and maintenance while Matla 2 and 3 are producing below contractual volumes.