[miningmx.com] – DURING the height of Exxaro Resources’ damaging R5.8bn write-down of its Republic of Congo iron ore projet, Mayoko, there were calls from certain quarters for the group’s CEO, Sipho Nkosi, to quit.
Project miscalculations had already cost Tom Albanese his job at Rio Tinto whilst the cost overruns and delays at Minas Rio, an iron ore project in Brazil, were thought to be a contributing factor to Cynthia Carroll losing his job at Anglo American.
In the end, Nkosi remained and the ructions around the Mayoko misadventure died down – justifiably, according to Exxaro CFO Wim de Klerk who felt Exxaro had been admonished enough. It was time to move on, he said.
It’s possible, however, that moving on is exactly what Nkosi might be doing anyway … in two years’ time. That’s when Exxaro’s empowerment structure expires.
Nkosi and Mxolisi Mgojo, head of Exxaro’s coal business, have shares in Dreamvision Investments (formerly Eyesizwe) which owns 54% of the Exxaro’s BEE Holdco which, in turn, owns 52% of Exxaro – a shareholding worth roughly R10bn at today’s share price.
By 2016, however, the 10-year lock-in agreement for the principals of the BEE Holdco – called Main Street 333 – expires which potentially would allow Mgojo and Nkosi to retire wealthy men.
De Klerk said the company is working on a new structure.
“The law says our BEE should be 26%, but we moved it to beyond 50.1% because we also empower Kumba Iron Ore,’ said De Klerk of the Anglo American company in which Exxaro has just under 20%.
“It will be a strategic decision as to whether we stay at 26% or move back to 51%,’ De Klerk said.
There are pros and cons attached to the empowerment loading in Exxaro. Taking empowerment back to 51% may make it difficult for Exxaro to raise debt for its growth plans should it want to equity finance projects.
However, falling below 51% could exclude Exxaro from supplying Eskom with new sources of coal in terms of the Department of Trade and Industry’s BEE code which calls on coal producers to be 50% plus one share empowered.
Mgojo confirms, however, this only applies to new sources of coal such that existing colleries are not required to convert to the higher empowerment threshold. Said Mgojo: “Some shareholders in the BEE structures may monetize their stake in the Holdco.
“All we can say is that we have started a process between Exxaro and the BEE holdco group whereby will jointly look for actions to be taken over the next few years. By 2016 we will have an appropriate strategy around empowerment credentials’.
The response to the write-down of Mayoko has been to focus on the coal export business with Exxaro saying it could export as much as 5 million tonnes a year (mtpa) in its 2014 financial year, an increase of 25% over previous years.
Exxaro is also promising to clarify its plans for Total Coal of South Africa which it bought in July for R4.9bn, even though he firm’s assets lost R55m in the 2013 financial year.
Pretax earnings would have been double had it not been for certain non-recurring costs, said De Klerk.
Details of the company’s coal export expansion strategy is due on September 25 when it will take analysts and media to its Waterberg coalfields in the Limpopo province.
