Reverse in global coal prices could see Exxaro earnings drop 37%

Exxaro, SA’s largest coal miner, expects its earnings for the first six months of the year to decrease by up to 37% compared with the same period last year.

After experiencing a bumper year in 2022 thanks to record global coal prices, a dramatic drop in prices and ongoing rail problems led to a sharp decrease in earnings for Exxaro during the first half of this year.

In a trading statement published on Monday ahead of its interim results which will be released later this week, the group said it expected headline earnings per share for the six months to end-June to decrease between 23% and 37% from about R34 per share to between R21 and R26.

“The decrease in earnings at our own-managed operations is largely attributable to lower coal sales prices and volumes, compounded by the impact of ongoing logistical challenges. Income from our equity-accounted investments at Sishen Iron Ore Company and Mafube Coal were also negatively impacted by lower prices,” Exxaro said.

Exxaro benefited from record prices for coal in 2022 stemming from Russia’s invasion of Ukraine which also drove European demand for SA’s high calorifi-value coal.

The company previously said it realised an average coal price of $251 per tonne in 2022, up from $96 in 2021. This provided a buffer against lower export volumes which fell by close to a third to 5.2-million tonnes last year, hindered by problems at state-owned freight and logistics group Transnet.

Exxaro said in March it has kept its export guidance for 2023 at the same volume exported in 2022 (5.2-million tonnes) in anticipation of weaker export prices and little improvement in rail performance.

However, this year, prices have not been high enough to mitigate the ongoing problems affecting Transnet’s coal line.

The API4, the benchmark price reference for SA coal exports, rose to a high of about $280 per tonne in August 2022, but it has since dropped to lows of between $100 and $120 per tonne. The latest coal prices are roughly in line with market prices before Russia’s invasion of Ukraine.

Poor rail performance forced Exxaro to transport about 500,000-tonnes of its export coal by truck last year, but as previously reported by Business Day, according to the company’s group manager of marketing and logistics, Sakkie Swanepoel, lower coal prices could have a material impact on the amount of coal being trucked.

Transnet’s persistent troubles with cable theft and the low availability of locomotives saw coal exports through the Richards Bay Coal Terminal (RBCT) drop to about 50-million tonnes in 2022, the worst performance since 1993, when it shipped out 51-million tonnes.

Coal exports processed through the terminal, which exported about 70% of the coal that left SA last year, were down from 59-million tonnes in 2021 and 70-million tonnes in 2020.

Transnet has indicated it will not be able to rail more than 60-million tonnes of coal to the RBCT this year.

erasmusd@businesslive.co.za