Exxaro Resources’ capital expenditure for the first half period to the end of June, is expected to narrow down by 33% to R1.1 billion, with production and sales volumes for the period also likely to plunge by 14% and 12%, respectively.
Exxaro finance director, Riaan Koppeschaar, yesterday attributed the decline in capex for the period to lower capital spending allocation at the company’s coal operations.
“The coal business’s capex is expected to decrease by 33%, mainly due to the timing of the equipment replacement strategy and the license to operate projects at Grootegeluk and the Mpumalanga mines,” said Koppeschaar.
Despite noting relative stability in the South African market, Exxaro experienced challenges with offtake from Eskom and rail underperformance.
It said the first quarter of the current year “remained challenging regarding offtake from Eskom’s power stations in the Waterberg region” although “improvements were observed in the second quarter” of the period under review.
Moreover, price improvements in the second quarter had resulted in an improvement in “the economics of exports through alternative ports, and also improved the demand for export products” in the domestic market.
This coincided with an improvement in global economic growth prospects, led by upward revision to the anticipated economic performances for the US, the Eurozone, UK and India.
For the period under review, the average benchmark API4 Richards Bay Coal Terminal (RBCT) export price for the first half of 2024 is expected to average $101 (around R1 800) per ton compared to $112 a year ago.
The iron ore fines price for for the same period is expected to average $117 per tonne, a decline from the $121 per ton attained for last year.
In terms of production, Exxaro expects thermal coal output for the period to be 14% lower for the half year to end June 2024.
It attributed this to the lower demand from Eskom at Grootegeluk, “based on their latest internal plan” covering the period which will also affect sales volumes.
However, total production for the period “remains within 2% of the guidance” the company previously provided.
Sales to Eskom for the interim period are expected to decrease by 12%.
Exxaro’s domestic thermal coal sales are expected to be much lower, by up to 54%, as the company diverted domestic sales into the export markets, mainly from the Mpumalanga mines.
Consequently, Exxaro expects to report an increase of 23% in export sales.
This has mainly been enabled by the company’s ability to move volumes through alternative export channels, mainly at Belfast.
As at the end of May, Exxaro had net cash of R15.3bn excluding its energy division’s net debt of R4.2bn.
“The group therefore has sufficient liquidity and will remain a going concern for the foreseeable future,” it said.
Exxaro, which recently said it was exploring acquisition opportunities, paid a special dividend of R5.72 per share after declaring a final cash dividend for the full year to December 2023 of R11.36 despite a 17% revenue plunge in a challenging environment.
Revenue for the full year to end December 2023 fell 17% to R38.3bn, hurt by significantly “lower export sales prices achieved due to the steep decline in the API4 index price which averaged $121 per ton” compared to $271 per ton in 2022.
BUSINESS REPORT