Exxaro, SA’s largest coal miner, expects to report lower production and sales in the first half of its 2023 financial year as logistical challenges, high inflation and lower coal prices affected its coal business.
The company said in a pre-close message that total production was predicted to fall 3.4% to 20.7-million tonnes and sales 7.2% to 19.5-million tonnes in the period to end-June compared to the previous six months to end-December.
Adding to the pressure was the weaker rand, interest rate hikes, ongoing load-shedding, the perceived risk of a possible collapse of the power grid, and lower demand from state-owned power utility Eskom, Exxaro’s largest customer.
The miner, valued about R57.2bn on the JSE, is a diversified resources company with interests in coal, iron ore and renewable energy commodities.
Finance director Riaan Koppeschaar said that despite China’s lifting its zero-Covid-19 policy and the global economy averting a recession, global macroeconomic challenges dampened sentiment, with the bearish market leading to lower coal prices as Europe had sufficient gas and coal stocks.
“Both thermal coal and gas prices declined significantly to levels last recorded two years ago. Europe remains very well stocked for both gas and thermal coal,” the company said.
As a result, Exxaro expects the average benchmark export price from the Richards Bay Coal Terminal (RBCT) to be down more than half to $127 and iron ore fines price slightly higher at $117.
“The lower coal prices resulted in an increase in demand for SA coal from India. Demand from India retreated in 2022 due to the soaring prices. Changes in global trade flows are seen, as Australia resumed supply into China, and Russian supplies to Europe and Japan reduced materially,” Exxaro said.
Domestic exports remain a challenge as Transnet Freight Rail tries to deal with derailments, cable theft and vandalism.
Exxaro has decided to put its FerroAlloys business up for sale as it does not fit into its envisaged minerals business portfolio, and is looking at options to dispose of its 26% stake in Black Mountain in Aggeneys in the Northern Cape.
The FerroAlloys business is part of the ferrous segment which accounted for a mere 0.5% of total revenue in its latest annual results.
“All in all, it was a decent trading update even though export coal prices have since normalised after skyrocketing in 2022,” Anchor Capital investment analyst Saleho Tsatsi said.
“The proportion of Exxaro’s profits from coal exports is still small relative to its peer group, like Thungela.”
The share price was down 2.60% to R159.34 in early afternoon trade on the JSE in line with a broad sell-off in commodity-linked stocks.
“These declines in sales and production were widely expected and aligned with our predictions,” said Willem Oldewage, analyst at Nitrogen Fund Managers.
The miner will publish its interim results on August 17.
With Andries Mahlangu
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