JOHANNESBURG (miningweekly.com) – Probably by the middle of next year, if things go well, Exxaro will likely achieve financial close on a renewable energy project, which, from a sizing perspective, will probably be north of 100 MW, and located in Mpumalanga.

This was made clear by Exxaro MD for Energy Leon Groenewald in response to Mining Weekly on progress being made by the Johannesburg Stock Exchange-listed company in its partnership with independent energy company ENERTRAG.

Last month, financial close was achieved for the 68 MW Lephalale solar project to supply renewable energy to Exxaro’s Grootegeluk coal mine in Limpopo. This was announced by Cennergi, a subsidiary of Exxaro Resources, Grootegeluk’s owner and operator. Cennergi will supply renewable energy to the flagship mine for 25 years through a power purchase agreement (PPA).

Of the Mpumalanga project, Groenewald added: “We're working very hard at it. It’s an interesting and tough project, but we're looking forward to that and the good part is that the work is very complementary to the solar profile, so that helps a lot in terms of saving electricity, plus electricity cost and also halving Scope 2 reductions. We'll keep you posted as that progresses.”

As reported by Exxaro in April, its partnership with independent energy company ENERTRAG aims to develop wind and solar solutions for the mining industry in Mpumalanga.

“We've basically done all of the permitting exercises, so now we’re in the conversation regarding offtake and financing.

“Just to give you some idea, the project per se is a bit more complex than the 68 MW Lephalale solar project because we're looking at multiple offtakers with different life-of-mines and then project financing.

“Where Grootegeluk was one project with a long PPA, a single offtaker and able to be project financed, here we're looking at a different configuration, so it's interesting and we’re looking forward to that,” Groenewald added.

On Thursday, August 17, Exxaro reported that worsening electricity shortages were presenting opportunities for its renewable energy business, which delivered improved 17% higher half-year revenue. This was on a 28% overall decrease in earnings before interest, taxes, depreciation and amortisation (Ebitda) to R7 661-million for the coal-mining company.

Mining Weekly: Is that wonderful 80% margin that you report on your renewables business sustainable?

Groenewald: Yes, it's an industry norm - but what you must understand, that's an Ebitda margin. On a net profit margin, you've got to take the cost of debt into consideration and that's different, but we're seeing 70% to 80% is not outside the norm. If you look at cost levels, they are fairly low and most of them are CPI linked. It is true that in some cases, you have a bit of pushback in some of your operation and maintenance contracts that have a dollar or a Euro component and that makes it slightly challenging, but over the long term those numbers are, I think, fairly predictable, as 80% is not outside the norm, and we see new projects we're testing looking to be okay as well.

As reported earlier by the black-empowered diversified resources and renewable energy company Exxaro, the partnership with ENERTRAG has a potential pipeline of 700 MW. Furthermore, Exxaro is in discussion with various parties to acquire near-permitted sites to further boost its entry into the energy market. The potential pipeline ranges from 370 MW to 975 MW.

It so doing, the company is mindful of South Africa’s electricity grid constraints, which remain a challenge.

There are around 9 GW of renewable energy projects under development in South Africa, of which the mining sector is said to account for 6.5 GW.

Having created renewable-energy company Cennergi in 2012, Exxaro built two wind farms with a combined capacity of 229 MW in the Eastern Cape in 2016, which is underpinning its foray into solar power.

By accelerating its decarbonisation plan, the company can also realise cost savings, partnership opportunities and favourable financing terms, Exxaro CEO Dr Nombasa Tsengwa said during this week’s presentation of half-year results.

Decarbonisation is described as being central to the strategy of the company, which is looking to contribute “meaningfully” to the energy transition, through renewable-energy generation for its own operations and other customers, alongside the production of critical minerals such as copper, manganese and bauxite.

Outlined was how the transition to clean energy hinged on clean energy technology supply chains to source critical minerals, as steel from manganese and iron-ore will be required for wind turbines, plus more copper for transmission lines and offshore wind power, and even more aluminium from bauxite to support solar photovoltaic plants.

Aware of the increasing pressure to which coal companies are being subjected, Exxaro has revised its Scope 1 and Scope 2 emission targets to 40% by 2026.

It has finalised its value chain Scope 3 analysis with the majority from Eskom supply, and will be pursuing other Eskom suppliers to partner in dealing with Scope 3 emissions.

COPPER, MANGANESE AND BAUXITE

Exxaro has been implementing its critical metals growth strategy for the last 18 months and has intensified its understanding of the copper, manganese and bauxite markets, and energy markets that it is targeting

“We’re not going to just buy for the sake of buying,” Tsengwa assured investors and analysts.

Interestingly, the board has given Exxaro permission to look wider than copper, manganese and bauxite to enable the company to enter a relevant new market.

“Our view was always to get a great start and understand these markets, being a slightly different environment for us beyond coal,” Tsengwa said.

Exxaro made clear that the slowdown in announced merger and acquisition (M&A) did not mean that there had been a slowdown in M&A activity as such.

The Exxaro M&A team as well as the mining industry is described as being “incredibly busy” on a number of opportunities, which are out there in the commodities in the company’s sights.

Copper M&A activity was described as being “very active” and manganese as being a little more bespoke, with Exxaro having an advantage in manganese in being a South African company.

Made clear was that when the time is right and the deal makes sense, the trigger will be pulled.