JOHANNESBURG (miningweekly.com) – Empowered diversified miner Exxaro Resources achieved a robust financial performance for the year ended December 31, 2018.
The company reported record coal production, sales and exports, while its revenue increased by 12% year-on-year to R25.5-billion. Its earnings before interest, taxes, depreciation and amortisation (Ebitda) increased by R4.5-billion year-on-year to R7-billion.
Headline earnings a share rose to R26.72, from R5.02 in 2017.
Exxaro declared a final cash dividend a share of R5.55, and a total dividend a share of R10.85 – a 55% year-on-year increase.
CEO Mxolisi Mgojo on Thursday said the company's earnings growth had been as a result of one-off costs in the prior year, such as the black economic empowerment transaction costs which were fully expensed in 2017.
He added, however, that "even at an adjusted level, core Ebitda grew to R7.3-billion from R7.2-billion.”
He cited challenges at the beginning of the first half of 2018, including interruptions from the communities, which resulted in a loss of 21 days of production owing to stoppages. There had also been “issues” at the Richard’s Bay Coal Terminal, where inclement weather disrupted the loading of vessels. He also noted that derailments and protracted project delays caused communities and nongovernmental organisations to slow approval processes, impacting on operations.
“Despite all of that . . . where we were supposed to have an earnings decline in 2018 we were able not only to close that, but to go beyond that.”
The R7-billion Ebitda was sufficient to cover the R1.9-billion increase in capital expenditure (capex), which Mgojo attributed to advancing the Grootegeluk 6 project to Phase 2 and projects at the Belfast mine, which are ahead of schedule and will deliver first coal in first half of this year.
The group’s net debt of R3.9-billion at year-end translates to a net debt to Ebitda cover of one, which is well within Exxaro's internal targets.
Mgojo said the R69-million cash-positive position at the previous year-end was an anomaly, given a number of transactions in the year that resulted in one-off proceeds, and that the net debt position as at December 31 is a more realistic marker.
Meanwhile, Exxaro's all-time-high coal production volumes, sales and exports were supported by positive factors, such as increased supply to Eskom, mainly for the Medupi power station, and strong export demand internationally, Mgojo said.
To further optimise its portfolio, Exxaro successfully sold its noncore Manyeka mine to Universal Coal for R90-million, with the gain on the disposal amounting to R69-million. Further, the disposal of NBC, concluded in October 2018, resulted in a gain of R102-million.
Mgojo commented that, the recently announced transaction with Wescoal for the disposal of Arnot was “a landmark for the country, with former employees being empowered for the very first time, with 50% ownership participation”.
He added that, from an acquisition perspective, opportunities still exist in South Africa, contrary to the global situation where quality, scale coal assets are becoming harder to come by.
Mgojo further noted that value was the key driver going forward and, as a result, the product mix would be tweaked to reflect a mix of higher-value coal. He added that all the projects being implemented by Exxaro were a means of creating an RB1 product for export purposes. “This will enable Exxaro to have a wider geographic play.”
Looking ahead, Mgojo said Exxaro’s short-term focus remains on South Africa and supporting Eskom’s turnaround plan.
“[In the] longer term, we also intend to pursue opportunities in other emerging markets where coal-fired power plants are being commissioned.”
He noted that, “as the foremost coal producer in the domestic market, [Exxaro] remains focused on delivering sustainable growth for all stakeholders and will continue helping to power South Africa’s economic growth”.
Meanwhile, Mgojo said the group had deployed digitisation advancements that have enabled visualisation of the entire mining value chain and helped establish integrated operations centres at its mines, effectively improving efficiencies and sustainability.
He commented on the value of making real-time changes and having full visibility of the entire value chain, adding that, in 2019, the focus would shift toward embedding the data analytics, rather than setting up the infrastructural backbone.
Mgojo noted that potential operational benefits in this regard are very significant, and that the group is, “gearing up for more records.”
Phase 2 of the digitisation initiative will be implemented this year, with a focus on embedding the data analytics to improve operational and product performance.