Exxaro sets sights on renewables

Exxaro Resources, SA’s largest coal miner, is in the hunt for acquisitions in the renewable energy sector as it ramps its strategy to transform into a diversified company that thrives in a low-carbon economy.

Writing in the company’s 2022 annual report published on Tuesday, chairperson Geoffrey Qhena said the group had a pipeline of renewable and new minerals projects for consideration and had performed due diligence on several of these projects.

“However, we have not been able to conclude the projects at this stage due to, among other factors, deferring value expectation on those assets,” he said.

“The development of the Lephalale self-generated solar plant is progressing well with the necessary regulatory approvals being obtained. This further displays our commitment to responsibly transitioning into a low-carbon business.”

CEO Nombasa Tsengwa said the group has cash and sufficient debt facilities to facilitate any growth through M&A.

“In addition, macro-risks demand that we maintain an above normal level of financial liquidity,” Tsengwa said.

Exxaro also gave an update on its ongoing renewable energy projects. It said self-generation renewable energy projects are planned for implementation at its Grootegeluk and Belfast operations in the short term.

“Cennergi will begin construction of the 68MW Lephalale solar plant and enter into an offtake agreement with Grootegeluk mine,” Tsengwa said. “Future merger and acquisition opportunities will further grow the generation capacity from the 229MW base of wind energy generated in the Eastern Cape.

“We aim to grow to 1.6GW of generation capacity from wind, solar and battery storage by 2030. This renewable energy investment will contribute significantly to SA’s decarbonisation plans.”

The group is also looking at acquisitions opportunities in its minerals portfolio, Tsengwa said. 

“We have reviewed opportunities in our targeted commodity interests, namely manganese, copper, and bauxite. The commodity sector remains competitive with high expectations for valuations, consequently, limiting access to opportunities and delaying our pace of development.

“Therefore, when pursuing acquisitions within these minerals, we balanced the need to transition at speed with our investment criteria and capital allocation requirements to balance risk and returns.”

The group would optimise its portfolio to maintain its “robust and resilient long-life coal assets, which are cost competitive and continue to deliver operating margins above 20%", Tsengwa added.

“Our early value coal strategy was our foremost response to climate change — to limit stranded high-value coal reserves and increase the proportion of high-quality (high energy value) coal products in our export mix,” she said.

“Combined with our market-to-resource approach — to inform operational plans with market insights to deliver coal products that meet customer specifications — this strategy provides optionality and flexibility in terms of coal blending to supply different markets during the prevailing European energy crisis.” 

Exxaro also revealed that it had paid R7.2bn in taxes in the past financial year, up from R2.9bn a year earlier as strong coal prices, driven by record demand from India and China, led to a 28% jump in annual profit. 

In addition, earnings before interest, tax, depreciation and amortisation soared 78% to R19bn.

khumalok@businesslive.co.za