JOHANNESBURG (miningweekly.com) – While retaining coal as its bedrock, Exxaro Resources has begun taking steps that will take the company beyond coal and even beyond mining, Exxaro CEO Mxolisi Mgojo said on Thursday.
"We're looking at capital-light, fast growing areas of high return that can be rapidly developed with others," he told Mining Weekly Online. (Also watch attached Creamer Media video).
But this is all taking place while Exxaro continues to invest heavily in its long-term coal-mining business, which still has a 40-year horizon ahead of it.
In the second half of 2017, Exxaro embarked on an expansion programme of roughly R13-billion in coal in Limpopo and Mpumalanga.
Speaking after reporting 23% higher operational cash generation of R6.8-billion and 17% higher net operating profit to R6.1-billion in 2017, Mgojo said the company was currently in active negotiations for a potential investment that would present additional earnings sources over time.
"We're exploring new business opportunities that will impact positively on people's lives. Including our mainstay core business, being our coal business, we've also come to understand some of the big global challenges that are impacting not only ourselves, but the continent and the world at large," he said.
The three areas of interest to the JSE-listed company are around energy security, water security and food security.
"We have to start thinking beyond just coal. We have to start thinking beyond mining," he said, after Exxaro executive head strategy and stakeholder affairs Mzila Mthenjane opened the meeting with these words: "Delivering on a strategy of yesteryear is hardly sufficient for the future success of any company. We have an option to either embrace change or, if I can be dramatic, be annihilated by change."
The company already has two renewable wind farms that are operating at planned capacity by Cennergi, its 50:50 joint venture with Tata Power, and is looking at more renewable energy management systems that do not require substantive capital investment.
Platforms to meet some of the water security and food security challenges are also being studied.
Mgojo said in response to Mining Weekly Online that Exxaro would be looking into the areas of technological systems that would complement producers and the creation of digital market places around energy, water security and food security.
"Ours is not going to be so much directly invested in the food farming side of it, but it becomes a catalyst in terms of taking advantage of new platforms, artificial intelligence platforms, data analytics, the Internet of Things, being able to utilise these types of platforms around how the whole agricultural economy can be managed," he said.
The negotiations with innovative business partners takes place against the backdrop of Exxaro already prioritising fundamental innovation initiatives within its own business, including upgrading of its network backbone, leveraging data and analytics, enabling mobility and self-service and reimagining its enterprise resource planning.
It has identified more than 500 digitalisation and innovation opportunities across its core and supportive functions and has started implementing prioritised opportunities to drive value for Exxaro in a number of areas including increased production, higher throughput and uptime, reduced costs, better quality, improved safety and environmental performance, greater visibility across operational areas and enhanced access to information.
This programme is supported by a programme office that manages a pipeline of opportunities from conception to value realisation using an agile methodology.
"We've got vast land resources. In some instances, we've got issues around having to deal with water long after we've closed our mines. How do we take those and receive those costs in a very positive way?" he asked.
The World Economic Forum had reiterated energy security, water security and food security as the top-ten global risks, which Exxaro had now recognised as areas of opportunity with partners.
Mgojo emphasised that the company was entering these areas while fully understanding the issues of capital allocation, which was why it would share risk and enter into the technological service opportunities in a way that would help those tilling the soil to get produce to market commercially.
Exxaro is already in the midst of its own technological revolution in working to embed digitisation into the organisation.
"This will ensure that waste is continuously identified and removed to ensure that every activity is aligned to value achievement," he said.
Higher tonnage and higher coal prices combined to produce a healthy increase of 38% on core headline earnings per share in 2017.
The two wind farm projects brought into operation in the third quarter of 2016 are running at planned capacity and the company has delivered on its goal of a 30% black economic empowerment transaction.
It is taking steps to implement employee and community ownership schemes.
It is monetising its shareholding in mineral sands company Tronox in a staged process and disposal of other noncore assets is in place for value.
Revenue rose 9% to R22.8-billion buoyed by the coal business, which benefitted from higher selling prices and volumes.
Shareholders have received R2 214-million in dividends, which excludes the special R4.5-billion dividend on the part disposal of Tronox.
"The results show great performance driven by strong production, aided by improved coal demand and improved commodity prices," Mgojo said.
While the lost time injury frequency rate had been reduced from 0.29 in 2012 to 0.12 in 2017, the JSE-listed company suffered a fatality at its Matla coal mine.
"Safety remains a priority for our sustainability," Mgojo told journalists.
The five-year coal expansion programme has seven coal projects under way - four in Limpopo's Waterberg region and three in Mpumalanga.
The largest capital project is the R4.8-billion, 1.7-million-tonne-a-year GG6 project at Grootegeluk, in the Waterberg, where first production of semisoft coking coal is expected in the company's 2020 financial year.
The project programme will provide the company - which last year signed a ten-year coal export transportation agreement with State rail enterprise Transnet to increase coal volumes from the Waterberg to Richards Bay Coal Terminal - with additional export volumes and more power station coal.
In this regard, Exxaro is spending R1.3-billion on a 12-million-tonne-a-year rapid loadout station, which is scheduled to be operational in the Waterberg in the first half of 2019.
This will enable Exxaro to load 200-wagon trains within three to four hours. The ten-year agreement allows for the transportation of 7.8-million tonnes of export coal a year, of which three-million tonnes will arise out of the Waterberg once all the region's projects have ramped up.
The signing of the contract with Transnet follows the completion of first phase in the Waterberg expansion programme of 2016, which included a 1.8 km passing loop that facilitates the crossing of 100-wagon trains without disrupting other rail operations on the line.
In Mpumalanga, Exxaro is executing the R3.3-billion, 2.7-million-tonne-a-year Belfast project, where production of thermal coal is expected to begin in the first half of 2020.
Again in the Waterberg, capital of R2.8-billion is earmarked for the development of the first phase of the 3.9-million-ton-a-year Thabametsi project, where it is continuing to take precautionary steps to protect its mining right in the event of the associated Marubeni independent power producer coal-fired power station being delayed or not eventuating.
Mgojo urged that the new mining charter addresses growth, global competitiveness, transformation and inclusive growth.
"If we can achieve that .. we can start seeing our industry turning around," he said.