SA’s largest coal miner, Exxaro, almost doubled its operating profit, helped by higher local coal sales and export prices.
The company, valued at R63.2bn on the JSE, reported operating profit (revenue minus operating expenses) of R16.2bn in its 2022 annual results for the year to end-December.
Exxaro benefited from record prices for coal in 2022 stemming from Russia’s invasion of Ukraine and European demand for SA’s high calorific value coal, mainly attributed to the ban on Russian coal coming into effect in August.
Despite the record prices, its export tonnages fell by close to a third to 5.2-million tonnes last year, hindered by problems at state-owned freight and logistics group Transnet.
Ongoing issues at local ports and railroads have forced many miners to transport commodities on trucks and to export from other ports, such as the one in Maputo in Mozambique.
The poor rail performance forced Exxaro to transport about 500,000-tonnes of its export coal by truck last year to alternative ports. But as global coal prices start declining from highs, it will become more difficult to justify the high cost associated with trucking as opposed to railing.
Exxaro’s group manager of marketing and logistics, Sakkie Swanepoel, told journalists on Thursday that Exxaro 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.
“It is not going well on the Transnet side this year so far. We started off with January and February being fairly challenging months. At the current [railage] rate, we have a risk of ending as low as we were last year,” he said.
Transnet has indicated it will not be able to rail more than 60-million tonnes of coal to the Richards Bay Coal Terminal per year for the next two years. Swanepoel said this was similar to the volume Exxaro is certain it would have delivered last year, when it eventually managed to get only 50-million tonnes away.
He said the half-a-million tonnes of coal trucked to alternative ports may come under threat if prices decline further. Even at the current price of between $130 and $140 a tonne, the industry could already see a “material impact on the amount of coal being trucked”.
“A big chunk of Mpumalanga coal that went out on truck last year will not go out at the $130 to $140 per tonne level,” he said.
“Domestic demand for our high calorific value coal was stable and we expect this segment to continue to perform well. As a result of ongoing constraints on the rail logistics, we sold export coal in the domestic market to exporters that have access to export capacity,” Exxaro said.
In other financials, the coal miner’s revenue jumped 41.5% year on year to R46.4bn, helped by coal sales, which generated 97% of sales, growing 43.2%.
Total comprehensive income for the year rose close to a fifth to R18.4bn. However, the total dividends for 2022 are down 30% to R6.7bn, or R27.68 per share.
Ambitious plans
Exxaro previously announced ambitious plans to diversify away from being a coal-only business as it strives to achieve a target of net-zero carbon emissions by 2050. It hopes to achieve this by investing in renewable energy through its recently acquired energy solutions business Cennergi, and by diversifying to include metals in its mining portfolio.
However, Exxaro CEO Nombasa Tsengwa told journalists on Thursday that no viable opportunities have yet been identified through the Exxaro Minerals business, which that was established to focus on green metals including manganese, copper and bauxite.
The strategy to include minerals as part of Exxaro’s mining portfolio was still “very much on track” and the company still believed in the fundamentals of those three commodities, she said.
But given the high-inflation environment, some of the assets it has been looking at were “highly valued at the moment” and “quite expensive”.
Tsengwa said it has looked at about 12 potential opportunities within and outside SA: five in manganese, five in copper and two in bauxite. However, the high premium for these assets was one of the reasons it decided to “abandon” those opportunities.
“We have said we will practise caution and restraint when we look at these assets to make sure we create shareholder value and that we do not overpay. We will always walk away when it is not a good enough opportunity for us.”
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