SHAREHOLDERS in Exxaro Resources can look forward to a payout of $354m (R4.8bn) after the company said it was likely to distribute nearly all of the first tranche of its stake in Tronox instead of spending it on new and stay-in-business capital, and debt relief.
“Definitely the first tranche, the bulk of it, we will give back to shareholders,” said Riaan Koppeschaar, CEO of Exxaro during question time today following the publication of the coal firm’s pre-close message – essentially an operational update about a month before the close of the group’s 2017 financial year on December 31.
“We can’t commit to how much of the second tranche will be returned, but we will return any surplus,” said Koppeschaar. The surplus would be calculated once the firm was satisfied it had an appropriate dividend cover. It is targeting net debt of 1x to 1.5x pre-tax earnings – earnings before interest, tax, depreciation and appreciation. “We will do an assessment when the second tranche is made,” Koppeschaar said.
Exxaro said earlier this year it would sell its 42.7% stake in Tronox, a New York-listed mineral sands producer, as it considered the investment non-core, especially after the company made a $1.67bn bid for rival company, Cristal (The National Titanium Dioxide Company). Exxaro does not want exposure to that much debt, and it did not want to see control of the company either as the mineral sands business was volatile.
Then on October 3, Exxaro announced it had sold a first phase 16 million share stake in Tronox, equal to $345m or R4.7bn at the time and at the then share price of $21.59/share. Exxaro is not permitted to sell additional shares in Tronox until 2018. It said previously the funds from the sale would be put towards dividends as well as debt reduction and capex.
“The intention is definitely in the first half of next year, we want to do something again. We will be informed by market conditions,” said Koppeschaar.
There were still grumbles, however, regarding the interplay between the sell down in Tronox and a black economic empowerment (BEE) deal that was narrowly approved by shareholders earlier this week (November 20). Asked why the BEE deal was done before Tronox sales were paid out, Koppeschaar said: “At the end of the day, there is people who may perceive the two transactions as being linked, but they weren’t.
“If you make a return now [the payout before the empowerment deal], then open yourself to changing the reference price for the BEE transaction,” he said. Some analysts have asked why Exxaro believed it was necessary to ’empower the cash’ in Exxaro which is from an offshore listing vehicle rather than just the South African coal assets?