JOHANNESBURG (miningweekly.com) – South Africa’s economic growth remains inadequate to drive the changes required for the country’s socioeconomic challenges and the continued delay in the promulgation of key minerals legislation is deterring the investment required to make South Africa’s mining industry fire on all cylinders, Exxaro Resources CEO Mxolisi Mgojo said on Thursday.
In reporting 185%-higher headline earnings of R4 621-million for the 12 months to December 31, the head of the R40-billion, 6 000-employee black-controlled mining company told investors, analysts and journalists that it was therefore important to manage the business resiliently, with clear priorities and decisiveness. (Also watch Creamer Media video attached).
For the second year running, Exxaro ran its mining business with zero fatalities and in the 12 months to December 31, its lost time injury frequency rate improved by 47% to set a new record – but this has been marred by the death last week of Sibongiseni Sihle Majozi at Matla Mine 2.
“Zero harm remains our goal and we will continue to work tirelessly towards it,” Mgojo promised at the results presentation attended by Mining Weekly Online.
Its coal operations delivered a strong performance, with coal revenue up 14%, at R20.7-billion, and coal net profit up 101%, at R5.2-billion, as the company lessens its dependence on coal supply contracts to State power utility Eskom and increases its coal exports through the Richards Bay Coal Terminal (RBCT), where it has an 11% entitlement.
The final dividend of 410c a share, subject to a dividend withholding tax of 20% set in the latest Budget, amounts to R1 289-million or R5 a share.
Mgojo was firm on Exxaro taking a holistic view in restructuring its replacement black economic empowerment (BEE) transaction, which would involve balancing public shareholder’s objectives with those of the existing BEE shareholders as well as its customers, other commercial partners, employees and the government.
He committed the company to continuing to meet the requirements of the mining sector regulations and emphasised that the company was fully compliant with its current contractual obligations to Eskom, with which it has major long-term contracts for the supply of large volumes of coal to particularly the Matimba and Medupi power stations.
Mgojo outlined how Exxaro’s proposed new BEE structure would see the continued participation of broad-based empowerment groups.
He said that allowing for black equity control that is less burdensome on the balance sheets of both Exxaro and its black partners enhances the company’s ability to protect and deliver value on its investments and to drive future growth in new investments.
Exxaro executive head coal operations Nombasa Tsengwa flashed on to the screen details of the company’s six growth projects requiring a total capital investment of R14.4-billion.
Tsengwa announced that the Exxaro board had this week given the go-ahead for construction of the second phase of the GG6 project at an increased capital cost of R4.8-billion, from R4-billion previously, on a change in scope that includes a filter plant.
The first semi-soft coking coal from this project, which will produce at a rate of 2.7-million tonnes a year, is expected in 2020.
Sustaining capital of R3.5-billion is for mainly the replacement of primary equipment including haulage trucks, mechanical shovels and stacker reclaimers.
Exxaro CFO Riaan Koppeschaar reported a 14%-higher revenue of R20.9-billion on higher coal sales prices and a 64%-higher net operating profit of R5.2-billion.
Cash flow generated by operations increased by R1 023-million to R5 549-million, compared with 2015’s R4 526-million.
This cash flow was sufficient to cover capital expenditure of R2 780-million, dividends of R625-million, net financing charges of R459-million and tax of R547-million.
Income from equity-accounted investments also increased substantially to R2 373-million, from 2015’s loss of R1 137-million, on the recovery in iron-ore export selling prices and lower losses of R1 119-million from its investment in the mineral sands company Tronox.
Cost savings of R235-million were achieved through the implementation of the company’s improvement project.
A 15%-lower average spot exchange rate of R14.69 to the dollar was recorded in the 12 months to December 31, compared with R12.76 in 2015.
The company also gained R670-million on the disposal of the Mayoko iron-ore project in the Congo Republic.
Debt was cut to R1 322-million from R3 012-million at the end of 2015, equating to a net debt to equity ratio of 3.8%, well down on the previous 8.8%.
Exxaro’s capital structure remains robust with the company refinancing its R8-billion term loan facility at attractive terms, despite Standard and Poor’s downgrading of Exxaro's domestic credit rating.
Total dividends paid in 2016 amounted to R625-million, made up of a final dividend of R304-million and an interim dividend of R321-million.
The final dividend of 410c a share, subject to a dividend withholding tax of 20% set in the latest Budget, amounts to R1 289-million.
Exxaro has restructured the shareholding in South Dunes Coal Terminal (SDCT) for a direct interest in RBCT, resulting in a R203-million gain on disposal of SDCT and a R35-million excess of fair value over cost of the investment in RBCT on the additional 20 000 shares acquired in RBCT.
The total purchase consideration of the additional RBCT investment amounted to R297-million.
Exxaro has formally objected against a step taken by South African Revenue Services to subject it to South African income tax of R442-million on investments outside of the country. (Also watch Creamer Media video attached).