The urgency that coal companies might have felt a few years ago to diversify away from this commodity has subsided somewhat over the past two years in the wake of the energy crises that affected Europe and parts of Asia from mid-2021 until late 2022.
This shift in sentiment, said Exxaro Resources CEO Nombasa Tsengwa, has allowed the coal miner more time to make decisions about possible acquisitions in the renewable energy and metals industries.
Prices for oil, gas and coal rose when demand rebounded after the Covid-19 pandemic and where then, in some cases, pushed to record highs when this increase in demand later coincided with Russia’s invasion of Ukraine in early 2022, which disrupted energy supplies.
The uptick in coal demand from Europe — as an alternative fuel to Russian gas — has since mostly reversed, but the effect of this on how the role of coal in the energy transition is viewed has remained.
This did not change Exxaro’s ambition to introduce new income streams, but it did give them a “window of opportunity to not be under pressure to invest immediately” in new minerals assets, said Tsengwa.
Speaking to Business Day on the sidelines of the Investing in African Mining Indaba in Cape Town on Tuesday, Tsengwa said Exxaro stood by the decision it took in 2022 to revise its target of developing 3GW of renewable energy by 2030 down to 1.6GW.
“We are confident it was the right decision to not invest in 3GW given the current state of the market,” she said.
As much as there is a shortage of energy supply in SA at the moment, the market for new renewable energy projects was “swamped” and projects were competing for what little grid access was still available in those areas with the best sun and wind resources.
The market has become “extremely competitive”, she said, and local companies are having to compete with parties from outside the country that have access to “very cheap capital”.
In the absence of sufficient transmission capacity, the market will remain “difficult”.
But, she said, while the company might not be looking at acquiring large-scale, 1GW projects, at the moment, it is still actively looking for opportunities that will help achieve its 1.6GW target by 2030.
Its plans to establish a minerals business that will focus on green metals including manganese, copper and bauxite that are used in cleaner-energy applications such as solar panels and electric vehicles, also remain in place.
Tsengwa said the company has looked at certain assets and will continue to do so, it is just being “very cautious”.
A more cautious approach to investing in new revenue streams did not mean that the group is now necessarily looking at buying new coal assets, however it would consider purchasing additional rail entitlement to deliver more coal via rail to the Richards Bay Coal Terminal (RBCT) if such an opportunity presented itself.
“We believe we have enough [coal] volumes for many years, the only thing we would consider is to buy rail capacity. We would be very cautious however to not end up with a stranded asset.”
Exxaro’s coal business has been designed to run optimally at a production level of 50-million tonnes per year, including exports of between 8-million and 12-million tonnes.
However, the deterioration in rail performance on the Transnet Freight Rail coal line resulted in its coal shipments decreasing from 12-million tonnes in 2020 to 7.6-million tonnes in 2021 and 5.2-million tonnes in 2022.
Tsengwa said the troubles at Transnet will take time to resolve and that export volumes through RBCT, which dropped below 50-million tonnes last year (down from 72-million tonnes in 2019), will likely only recover to more than 70-million tonnes per year within the next two or three years.
Some recovery in railed volumes can be gained simply through improving efficiency. However, challenges such as the availability of locomotives, which has a much larger impact on current poor performance, will take longer to resolve, she said.
In the meantime, Exxaro is “optimising” its way into Maputo to export through this port instead.
“We see ourselves optimising exports from our Mpumalanga and Waterberg operations to Maputo,” she said.
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