FD Riaan Koppeschaar: Exxaro has sufficient liquidity to withstand operational interruption

Riaan says further downside scenarios have been used to stress test Exxaro's solvency and liquidity.

Exxaro FD Riaan Koppeschaar has provided an overview of the company’s expected business performance for the six months ended 30 June 2020.

He says that “Zero Harm” remains Exxaro’s key business objective and that the lost-time injury frequency rate has improved by 16 percent. 

In line with the company’s “Zero Harm” vision, measures have been implemented across its operations to manage the Covid-19 risks. “To date, a total of eight Covid-19 cases have been recorded, of which one has fully recovered and seven remain active cases,” Riaan says. “We are pleased that Exxaro has not recorded any loss of life on account of the virus.” 

He adds that disruptions to supply chains, demand, international trade flows and travel, along with lockdowns, collapsing currencies and stock prices, resulting from measures related to Covid-19 have dealt a heavy blow to the global economy. 

“A deeper recession in 2020 compared to 2008 and 2009 is anticipated,” Riaan says. “However, commodity markets recorded mixed results over the period under review.” 

In respect of Exxaro’s key commodities for the half year, he says the AP14 coal export price index is expected to average $66 per tonne and the iron ore fines price $90 per dry metric tonne.

“Total coal production and sales volumes are both expected to decrease by 1 percent and 2 percent respectively, mainly due to the impact of the pandemic on market demand and the lockdown measures impacting our Mpumalanga operations,” Riaan says. “While we expect to achieve higher export volumes, this is offset by lower commercial domestic sales volumes.” 

He expects a weaker $ sales price per tonne will be realised, in line with the weaker AP14 coal export price index, cushioned somewhat by a weaker rand/dollar exchange rate.

In terms of Exxaro’s capital allocation programme, Riaan expects the capital expenditure for the half year in their coal business to decrease by 61 percent, mainly due to project delays linked to the pandemic and timing in equipment replacements. 

At 31 May 2020, the group’s net debt was R5.3 billion. “In addition to operational measures implemented by us to combat the spread of the virus, further downside scenarios have been used to stress test our solvency and liquidity position,” he says. “As a result, management and our board of directors believe that the group has sufficient liquidity to withstand an interruption to our operations and will remain a going concern for the foreseeable future.”