[miningmx.com] – EXXARO Resources may write-down its R5.36bn investment in its Mayoko iron ore project after having failed to sign a infrastructure deal with the Republic of Congo (RoC) where the project is based.
The development comes as a hefty blow to Exxaro’s ambitions of diversifying its business away from coal. It said at its interim results announcement in April that it was hopeful of signing a port and rail deal by year-end.
“The impact of this write-down will be a pre-tax write-off of an amount up to the original acquisition cost of the company’s investment in the Mayoko Project as well as the project related costs capitalised to date amounting to R5,36bn in total,” Exxaro said in an announcement to the Johannesburg Stock Exchange.
“The exact quantum of the impairment loss will be communicated as soon as calculations have been finalised,” it said.
Exxaro bought Mayoko after successfully bidding R2.8bn for Australian-listed African Iron in January 2012. It has since spent capital developing the project ahead of a mining convention with the RoC. A scoping study in June found the project could produce 12 million tonnes/year of iron ore.
However, finalising the mining convention has proved troublesome. In November, Exxaro confirmed it was waiting on a sitting of RoC’s parliament in order to progress a deal, a development Macquarie Research said at the time had left the project “as the mercy of the politicans”.
The value of the project has also been hindered by the declining price of iron ore. “Alot has changed in the market since Exxaro bought African Iron,” an analyst said. “The iron ore price was trading at $140/t at the time and now it’s $90/t,” he said.
Exxaro said today that it would actively liaise with the RoC government in respect of the future of the project. Exxaro stopped spending capital on the prospect earlier this year saying it wanted to protect shareholder capital.
Exxaro added that full-year net operating profit would also fall at least a fifth depending on the impact of the impairment on Mayoko. The group was due to report its annual figures on August 21.
However, Exxaro Resources said that it would record “stable net operating profit” from its coal mines while income from its investment in Kumba Iron Ore would also come in as expected.
On May 19, Exxaro said it had raised R1bn in two bond issuances, the proceeds of which would be used for “general corporate purposes”.
Shares in the company were down 2% by mid-morning on the Johannesburg Stock Exchange. On a 12-month return basis, Exxaro is up 3.56%.
