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Exxaro earnings soar, final dividend down

Exxaro CEO Dr Nombasa Tsengwa.

Exxaro CEO Dr Nombasa Tsengwa.

16th March 2023

By: Martin Creamer

Creamer Media Editor

     

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JOHANNESBURG (miningweekly.com) – Coal, energy and ferrous markets company Exxaro reported strongly rising revenue in its year-end results for the year ended December 31, which boosted earnings before interest, taxes, depreciation and amortisation (Ebitda).

The 41% higher revenue at R46.4-billion was the main driver for the 78% increase in group Ebitda to R19 002-million.

Net operating profit of the JSE-listed company, headed by CEO Dr Nombasa Tsengwa, rose 67% to R16.2-billion from R9.7-billion.

Headline earnings a share were up 28% but the final dividend of 1 136c a share was 39c a share down.

The final dividend was declared from profits generated during the year and income reserves.

Nondumiso Medupe has been an independent nonexecutive director and audit committee member since January and Vuyisa Nkonyeni and Isaac Mophatlane will retire as independent nonexecutives from May 18.

After a safety performance of 35 months without a fatality, Exxaro suffered a fatality at its Belfast mine on August 15 last year. The fatal injury took place at the hard park area, a dedicated area where haul trucks are parked between shifts. An investigation into the circumstances that led to the accident has been concluded and learnings from the investigation have been implemented across its operations.

The revenue contribution from Exxaro’s Cennergi energy business was 3% lower owing to persisting low wind conditions experienced during the past twelve months.

Cash flow generated by operations increased by 79% to R18 863-million and, together with the dividends received from equity-accounted investments of R5 903-million, were sufficient to fund capital expenditure (capex), taxation paid and ordinary dividends paid.

Total capex decreased by 33% to R1 652-million made up of R1 401-million sustaining capex and R251-million expansion capex.

Strong cash generation resulted in a net cash position of R9 653-million, excluding Cennergi’s net debt of R4 412-million, compared with a net cash position of R764-million, excluding Cennergi’s net debt of R4 482-million at the end of December.

A substantial increase in gas prices, the reduction of gas supply from Russia, coupled with the implementation of a European Union embargo on Russian coal imports, contributed to the tightness of high calorific value (CV) coal supply sustaining the strong pricing of high CV coal through the third quarter. The low water levels in the Rhine river in Europe, high gas and coal inventories at European power utilities, as well as milder winter temperatures in October and November, sent the coal prices on a downward trajectory since the start of the fourth quarter.

Export tonnages continued to be negatively affected by lacklustre rail performance. This resulted in Exxaro exporting 5.2-million tonnes last year compared to 7.6-million tonnes in 2021, a decrease of 32%. To mitigate rail performance, Exxaro used road transport and exported coal through alternative ports.

Domestic demand for its high CV coal was stable and Exxaro expects this segment to continue to perform well. As a result of ongoing constraints in rail logistics, the JSE-listed company sold export coal in the domestic market to exporters that have access to export capacity.

The average benchmark API4 Richards Bay Coal Terminal export price of $271/t was 118% higher, resulting in a 161% increase in the average realised export price for Exxaro of $251/t compared with the $96/t of the previous year.

ENERGY BUSINESS

Cennergi generated 671 GWh of electricity last year, which was down on the 724 GWh of the previous year on persistent low wind conditions. In South Africa and regions such as Europe, wind farms have experienced below-normal wind conditions over the past 12 months.

Average equipment availability of 97.9% was better than contracted levels of 97.0%. Cennergi’s Ebitda margin was 80%, showing the consistency of earnings underpinned by the long-term offtake agreements.

The Cennergi project financing of R4 554-million will mature and be fully settled by the end of 2031. It has no recourse to the Exxaro balance sheet and is hedged through interest rate swaps at an effective rate of 12.3%.

FERROUS BUSINESS

The 46% decrease in adjusted equity-accounted income from Kumba Iron Ore-linked SIOC to R4 902-million from R9 035-million the previous year, was primarily owing to lower market prices and volumes, as well as higher operating expenses, which were partially offset by a weaker currency.

An interim dividend of R2 498 million was received from the investment in SIOC and SIOC declared a final dividend to its shareholders in February 2023. Exxaro’s share of the dividend amounts to R1 419-million, which is 43% lower than the interim dividend received.

CLIMATE CHANGE RESPONSE STRATEGY

Exxaro’s strategy for a transition to a clean energy and low-carbon future targets carbon neutrality by 2050, with shorter-term goals including reducing Scope 1 and Scope 2 carbon emissions by 43% in 2025. The strategy for Scope 3 carbon emissions reduction is still under development. The decarbonisation plan includes climate adaptation and resilience for operations and host communities, to minimise the impacts of physical risks associated with climate change.

Edited by Creamer Media Reporter

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