Exxaro expects recovery following Covid-19 slow down

FD Riaan Koppesaar says Exxaro anticipates coal sales rebound in his pre-close statement.

Exxaro finance director Riaan Koppeschaar, in his pre-close statement, gave an overview of the group’s expected business performance for the financial year ending 31 December 2020 (FYE20). The update encompassed strategic, operational, and financial information.

Exxaro is one of the largest South Africa-based diversified resources companies, with main interests in coal, titanium dioxide, iron ore and energy commodities.

In his 3 December statement, Riaan reported that the Covid-19 pandemic and associated control measures had resulted in a record decline in real GDP for the second quarter of 2020 in most of the world’s economies. In terms of the group’s capital allocation programme, they expect the capital expenditure for FYE20 in the coal business to be about 47 percent lower compared to FY19, mainly due to project delays linked to the pandemic, as well as key projects reaching completion.

He said that at 31 October 2020, the group’s net debt (excluding Cennergi’s net debt of R4.6 billion) was R5.9 billion, as compared to R5.8 billion last year.

Total coal production (excluding buy-ins) and sales volumes are both expected to increase by five percent, mainly due to the increased Eskom demand at Medupi Power Station and the ramping up of production at Belfast.

Commodity markets recorded mixed results over the period under review. In respect of Exxaro’s key commodities for FYE20, the API4 coal export price index is expected to average $61. (FY19: $71) per tonne, free on board (FOB), and the iron ore fines price $100 (FY19: $94) per dry metric tonne, cost and freight (CFR) China.

He indicated that while they expect an increase of 27 percent in export volumes, Exxaro anticipates a weaker US dollar sales price per tonne to be realised, in line with the weaker API4 coal export price index, cushioned somewhat by a weaker rand/dollar exchange rate.

“In addition to operational measures implemented to combat the spread of Covid-19, the group has sufficient liquidity to withstand an interruption to our operations and will remain a going concern for the foreseeable future,” says Riaan.

Notwithstanding the unusually strong rebound in GDP activity during the third quarter, Riaan anticipates a much deeper global recession in 2020 compared to 2008/09.

Riaan declared that in 2020, Zero Harm remained Exxaro’s key safety objective and the company was pleased to report another fatality-free year, achieving a record 45 consecutive months of fatality-free shifts. He stated, however, that three high-potential incidents were reported across the group, two at Grootegeluk and one at Matla. He indicated that corrective measures had been implemented at both mines.

A lost-time injury frequency rate (LTIFR) of 0.06 was recorded, which is 45 percent better than the set target of 0.11, and 50 percent better than the 0.12 recorded in the previous financial year.

He indicated that Exxaro would provide a detailed account of FYE20 business performance when announcing its financial results on 18 March 2021.