EXXARO
EXXARO
Coal Fuels
Exxaro Success PRODUCTION: Manelesi Dumasi
After releasing a very strong set of results for 2017, Exxaro is a South African mining company that is enjoying a positive period in its relatively short history. Coal remains at the heart of Exxaro’s operations, but the company is also thinking about its future…
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“This year, we will intensify engagements with all stakeholders on the Mining Charter to ensure that it is truly an effective instrument to sustainably transform the face of mining in South Africa,” said President Ramaphosa during his State of the Nation Address in February. His appointment has been widely welcomed by the mining industry. He is seen as a supporter of the industry, in which he started the National Union of Mineworkers (NUM) in 1982. “We need to see mining as a sunrise industry,” said the President. “With the revival in commodity prices, we are determined to work with mining
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companies, unions and communities to grow the sector, attract new investment, create jobs and set the industry on a new path of transformation and sustainability.” And his positivity seems to have been welcomed, both by the industry and the wider economy. The Chamber of Mines has suspended its legal action against the Mining Charter III, and economic indicators such as currency price and business confidence have surged since Ramaphosa took office. One of the country’s biggest and most important mining companies, Exxaro, is certainly looking forward to a positive future for the industry and the country. Active mainly with coal, Exxaro
was founded in 2006 following the unbundling of Kumba Resources coal operation and merging that business with Eyesizwe Coal. Today, Exxaro owns assets all over the world and is active in many mineral and energy sectors. The company is a JSE-listed mining giant, and CEO Mxolisi Mgojo is a mining industry stalwart. He also holds the Presidency position at South Africa’s Chamber of Mines which received Ramaphosa with open arms. “The mining industry supports and commends the President’s commitment to renewal and revitalisation and progress. The industry will play its part in building our nation,” the organisation said.
INDUSTRY FOCUS: MINING
Ramaphosa’s appointment of Gwede Mantashe as the Minister of Mineral Resources was also welcomed by the COM, and following Mantashe’s calling of a meeting to discuss the Mining Charter, the COM said: “The industry is appreciative of the real engagement that Minister Mantashe began at the weekend, after an absence of such processes over the last few years. “We are aligned with the Minister’s thinking that transformation, competitiveness and growth are and should be mutually reinforcing goals.” And, riding the positive waves since Ramaphosa’s appointment, the mining industry and Exxaro in particular have had much to celebrate, while acknowledging that many sizeable challenges still exist. In March, Exxaro released a fantastic set of financial results for the year ending 31 December 2017.
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BOOMING Exxaro saw net operating profit and revenue increase, and Mgojo was happy with what he described as a “great set of results”. “The Group’s net operating profit increased by 17% to R6 billion. The coal business benefitted from higher selling prices and volumes, while the Group’s results were impacted by various once-off transactions, namely the cost associated with the implementation of the replacement BEE transaction and a net gain realised on the partial disposal of our shareholding in Tronox. “Our revenue was 9% higher at R22.8 billion mainly due to higher coal selling prices as well as higher Eskom commercial volumes at Grootegeluk based on demand from the Medupi Power Station. “Operating profit was 18% higher at R5.8 billion. The good operating performance translated in an improved core HEPS of R20.11, an increase of 38%,” said the CEO.
// WE ARE AN AGILE AND PURPOSEDRIVEN BUSINESS; WE AIM TO SEEK, DEVELOP, PRIORITISE, FUND AND COMMERCIALISE NEW BUSINESS OPPORTUNITIES // In October last year, Exxaro sold 22.4 million shares in Tronox (a USbased titanium products company) with net proceeds of $474 million (R6.5 billion). The replacement BEE transaction has also been highlighted by Mgojo as a success. “We are pleased to have delivered on our goal of a replacement 30% BEE transaction and we must thank our shareholders for their support in
INDUSTRY FOCUS: MINING
// THE GROUP’S NET OPERATING PROFIT INCREASED BY 17% TO R6 BILLION // achieving this goal. We have started the work to implement the community and employee ownership schemes.” There was however one important area identified by President Ramaphosa in his SONA and by Mgojo in his results presentation that needs constant and ongoing attention – safety. “We are extremely concerned about the rise in mining fatalities last year,” said Ramaphosa. “We call on mining companies to work together with all stakeholders to ensure that mine accidents are dramatically reduced. One mining fatality is one too many.” Mgojo agreed, saying: “Safety remains a priority for our sustainability. Whilst we have reduced our LTIFR
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from 0.29 to 0.12 over the past years, it remains above our target of 0.11, therefore much work remains ahead to reach our goal of zero harm.” One stakeholder group that came away from the results presentation in a good mood was the shareholders. Thanks to the Tronox deal and the strong performance of the company, especially with coal, shareholders were rewarded. “From the proceeds of the Tronox disposal, the Board declared a special dividend of R12.55 amounting to some R4.5 billion which was paid to shareholders on the 5th of March 2018. “Taking into account the cash generation of the business, as well as the strong balance sheet, the Board has resolved to pay a final dividend of R4 per share. Relatively stable internationally core markets are anticipated in 2018 with China’s domestic policy continuing to be instrumental in seaborne price determination and direction of change,” said Mgojo.
Overall, the mood was one of positivity and forward thinking. “The results reflect our strict forecast on delivering a solid performance from the coal business whilst maintaining organisational excellence and improving prospects for the future. “I would like to thank all of our employees who have helped to make these results possible. We look forward to powering better lives for South Africans,” said Mgojo. 2018 AND BEYOND Exxaro’s Executive Head: Stakeholder Affairs, Mzila Mthenjane said earlier in the year that the focus on the Mining Charter III remains as hot as ever, and the result of any discussion here will shape the industry going forward. “As it currently stands, mining in South Africa is in a precarious position,” he started. “It exists in a changing political landscape, which is creating uncertainty for the industry. The primary
EXXARO
// OUR RESOLUTION IS THAT IT IS THE FUEL THE ORGANISATION WILL CONTINUE TO USE TO POWER ITSELF, AND THE COUNTRY, FOR THE FORESEEABLE FUTURE // goal of 2018, it seems, is for the mining industry and government to work together to provide certainty. Right now, high levels of uncertainty, paired with record lows in sentiment, has resulted in poor levels of investment. Tackling this issue head-on rests largely on the shoulders of the MPRDA’s Mining Charter, which comes up for review in the coming months.” Mthenjane, like Ramaphosa, was keen to remind of the importance of the industry which has long been the backbone of South Africa, and Africa. “The mining industry is a large part of South Africa’s economy, and it plays a role in uplifting several other sectors. All will be affected if exports are severely affected due to the weaker US Dollar and resulting stronger ZAR.” He said that, with a slightly strong ZAR against the Dollar, Exxaro’s export revenues could be hit, and a reasonable price is what is needed. “In recent weeks, the US Dollar has weakened, while this poses several benefits for South African citizens, such as potentially lower fuel costs and cheaper imported goods, it affects
mining in the form of lower export revenues. An optimal and fairly-priced currency, amongst others, is what is required for sustainable growth of the industry.” STICKING WITH COAL While Exxaro has quite rightly looked to expand its reach beyond just coal mining in recent years, there is no doubt that coal will remain at the heart of the business for a long time to come. The company has excellent contracts with Eskom and is the biggest coal supplier to the nation’s power utility. The company has started a spending programme on seven coal projects to protect the future of supply. At Grootegeluk, the GG6 project is underway to add 1700 tons per year of soft coking coal - this is a R4.8 billion project. At Belfast in Mpumalanga, a R3.3 billion project is underway to deliver high quality coal for the export market. “Coal remains a key commodity for the group,” said Mthenjane. “We have looked at the resource from every angle and considered all its possibilities.
Our resolution is that it is the fuel the organisation will continue to use to power itself, and the country, for the foreseeable future – in a consciously sustainable manner.” But this does not mean the company is going for a ‘one commodity’ approach. It is using its global expertise to ensure that its portfolio is diverse. Exxaro is keen to get involved early in the fourth industrial revolution and is investigating many other opportunities. “Though coal remains our primary business commodity (with more than R10 billion of expansion capital planned over the next four to five years), that’s not to say that other opportunities aren’t being explored,” reminds Mthenjane. “We are an agile and purpose-driven business; we aim to seek, develop, prioritise, fund and commercialise new business opportunities within a rapid stagegate governed process, that will impact positively on people’s lives. In anticipation of potential threats to coal mining, we are looking at renewable energy solutions, in addition to our Cennergi investment, to find new ways to generate and supply energy and manage energy consumption.” Of course, resolution of the ongoing Mining Charter debate will bring certainty and direction to the industry and, with Mantashe and Ramaphosa keen on resolving the issue sooner rather than later, and with Mgojo at the helm of Exxaro and the COM, delivering this much-needed certainty should be now just a matter of time. “Mining is an area that has massive unrealised potential for growth and job creation,” said Ramaphosa. There is no doubt that mining remains the continent’s backbone, and there is no doubt that Exxaro remains one of the most exciting businesses within the industry. This is a company that is truly powering possibility.
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May 2018
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