HIGHER coal prices brought the beat back into Exxaro Resources’ earnings in the 2016 financial year in which it will report attributable share earnings of between 1,456 cents and 1,712 cents.
This compares with earnings of 83 cents per share in the 2015 financial year which was also affected by the write-down in respect of goodwill related to Exxaro Coal Central Proprietary (ECC).
Exxaro bought the ECC assets from Total Coal South Africa in a renegotiated deal in August 2015 in which would pay up to $382m depending on mine performance. The mines had been loss-making before Exxaro bought them but the firm has since recorded progress.
Nombasa Tsengwa, head of Exxaro’s coal division, said in December that the company was on course to produce a profit of R200m, or more, from the ECC mines. “What we’ve done in the short-term is a lot of cost reduction initiatives,” said Tsengwa at the time. “We were also able to diversify into the Indian market with our product from ECC,” she added.
Commenting in a trading statement today, Exxaro said the earnings improvement was on the back of a higher net operating from the coal business as well as higher equity-accounted income from investments.
Exxaro has just under a 20% stake in Kumba Iron Ore which produced a strong return to profitability in its 2016 financial year in which full-year share earnings increased to R27.30 while cash generated increased 24% to R17.2bn. Kumba passed the dividend, however, despite amassing R6.2bn in net cash.
Exxaro also has a 43.87% stake in Tronox, a New York-listed mineral sands company, although there are bound to be questions when Exxaro presents its year end results later this month as to whether the Johannesburg firm will maintain its shares in Tronox after the latter announced a merger with Cristal, a private US firm, for $1.67bn in cash and shares.
Attention will also be given to Exxaro’s black economic empowerment deal after it last year bought back the shares from its previous empowerment structure with a view to reinvesting them. Its relationship with Eskom, especially in respect of financing Matla and the possibility of restarting operations at the mothballed Arnot mine will also win airtime.
Exxaro is due to announce its full-year figures on March 9. Shares in the company were some 3.6% higher on the Johannesburg Stock Exchange today, and almost 64% higher on a 12 month basis reflecting the turnaround in the coal market where the spot price for thermal coal has doubled.
