JOHANNESBURG (miningweekly.com) – Johannesburg-listed coal and energy company Exxaro is expecting the Federal Reserve, the European Central Bank, the Bank of England and the South African Reserve Bank, among others, to start lowering official or policy interest rates during the remainder of this year.

“Such initial rate cuts would mark the end of the most aggressive rate hiking cycle in four decades,” Exxaro CEO Dr Nombasa Tsengwa said during the company’s presentation of first-half results on Thursday, covered by Mining Weekly. (Also watch attached Creamer Media video.)

With inflation rates retreating and interest rate cuts imminent, the global economy is expected to maintain its momentum throughout this year.

“However, it is worth noting that although South Africa CPI has been trending downwards, the mining CPI in this half was higher than in the second half of last year on the back of elevated electricity prices,” Tsengwa pointed out.

Adding to the 12.7% higher electricity prices were elevated coke and refined petroleum costs owing to the increase in brent crude prices.

A highlight of Exxaro’s half-year results were coal export sales of 3.2-million tonnes and a price realisation of 95% in line with its target.

The company, which is still within its 2024 market guidance, maintains its R12-billion to R15-billion cash book, which underpinned the board approving an interim dividend of R7.96 a share.

“We were able to successfully operationalise our decarbonisation and environmentally cleaner imperatives in the market by supporting our customers with higher quality, cleaner-burning coal products, in line with our decarbonisation strategy,” Tsengwa outlined.

Group revenue and earnings were lower owing to export prices, decreased domestic offtake and increased logistics costs.

“We’re operating in a challenging environment, but despite tougher trading conditions, our cash generation of R4.8-billion resulted in a net cash position of R9.8-billion, setting a solid foundation to execute our growth strategy.”

Tsengwa remarked that the recent South African election results and subsequent creation of the Government of National Unity had driven positive sentiment towards the country, but uncertainty still lingered in respect of policy execution.

RENEWABLE ENERGY

First-half green energy generation of 339 GWh was at an operational earnings before interes, taxes, depreciation and amortisation (Ebitda) margin of 79% on revenue of R652-million, underpinned by the annuity nature of the long-term offtake agreements.

The operating wind assets project financing of R4.2-billion for the wind farms will be settled by 2031. This has no recourse to the Exxaro balance sheet and is hedged through interest rate swaps.

“We say that the renewable-energy business is a predictable business, albeit seasonal,” Exxaro MD for Energy Leon Groenewald outlined for Mining Weekly.

“Winds in the second half are usually higher than in the first half. You'll see the numbers on generation are consistent with what we've seen in the first half. Also, the prediction for the second half is in line with what we've seen in the past with the 720 GWh,” added Groenewald.

“The Ebitda margins are around 80%. We looked at the fixed costs and there's nothing that concerns us about our cost base. The debt you'll see coming down on synergies and that debt will be repaid by 2031, so there are no surprises.”

FOUR TREES REPLACE EVERY REMOVED TREE

The 68 MW Cennergi Lephalale solar project is poised to power Exxaro’s Grootegeluk coal mine with 176 GWh/y of green energy in the first quarter of 2025.

The R1.6-billion Lephalale solar PV power plant will provide Exxaro with a 27% reduction in Scope 2 emissions.

Exxaro’s 2024 full-year guidance for wind energy generation is 700 GWh to 720 GWh of green electricity.

“We still plan our solar project, that we are in construction with, for the first quarter of next year.

“We have lost some time. To clear 240 ha of bushveld is challenging. The number that we quoted last time was 1 100 truckloads of bush being cleared.

“We replace every tree that we remove with four other trees. So, we're dealing with that as well, and we've made our commitments, and then we’re working with the EPC contractor on a remedial plan to ensure that we're on time with the delivery dates. That is on track, but we will keep you posted on developments.

“In terms of the delivery of the Scope 2 benefits, that will still happen as planned,” Groenewald said.

MARKETS

Following a weak start to the year, thermal coal prices recovered in the second quarter of this half on the back of tightening sanctions on Russia, the Middle East tensions, disruptions in the US of export costs to India and the issues experienced here at home in the South African main export corridor to the Richards Bay Coal Terminal, Tsengwa pointed out.

Iron-ore prices saw a steady decline from January to March, as the sentiment was impacted by the fading optimism and uncertainty surrounding steel demand in China.

Prices recovered slightly in April and May on the back of demand for steel, both inside and outside of China. However, these gains were short-lived.

Exxaro, which is studying critical minerals as part of its diversification strategy, found copper remaining quite strong owing to improving investor sentiment and optimism about potential global economic growth.

The company noted that manganese prices had also rebounded significantly owing to supply-side constraints, “reassuring us that our strategy is on the right track”, said Tsengwa.

“On the home front, we are pleased to report that Transnet Freight Rail (TFR) and industry collaboration have improved.

“As such, we remain cautiously, cautiously optimistic for the second half of the year that TFR will perform at the 50-million tons per annum.

“We saw an increase in the domestic sales of coal in the second quarter of this year, and this is due to the higher equipment availability at the Waterberg power stations. However, this only partly offset the weak demand we saw in the first quarter. Our export sales grew on the back of alternative means of evacuating product offshore.” Tsengwa explained.

COAL PRODUCTION

Exxaro chief coal operating officer Kgabi Masia reported that coal production volumes declined by 12.7% from 22.1-million tonnes for the second half of 2023 to 19.3-million tonnes in the first half of 2024, mainly attributed to continuing low demand from Eskom and logistical challenges.

Total coal sales volumes for the period decreased by 11.7%, negatively impacted by a lower offtake from Eskom at Medupi and Matimba power stations owing to unit outages and equipment breakdowns. However, an improved performance has been seen towards the latter part of the reporting period.

The Coal ebitda margin of 28% was described as stable when compared with the second half of 2023. Waterberg’s Ebitda reduction of –R100 million (2%) was driven by a decrease in revenue of –R455-million on lower sales volumes to the domestic and export markets at lower export and local prices, offset by higher prices achieved on Eskom sales.

While Ebitda for Matla remained stable, there was an Ebitda decrease of –R528-million (-108%) in Mpumalanga attributed to lower revenue of –R30-million with higher export volumes from the Belfast and Leeuwpan mines.

Exxaro became successful in developing alternative routes to the market which resulted in an increased export volume of 600 000 t, or 22%.

Europe has reverted to a normalised proportion of Exxaro sales and India came back into the market as coal prices came down.

“We’re able to successfully play into the decarbonisation and environmentally cleaner imperatives in the market by supporting our customers with higher-quality, cleaner-burning coal product,” Tsengwa said.