Eskom, Kumba Iron Ore to loom large in Exxaro year-end numbers next week

EXXARO Resources is set to report lower year-end profits from its managed operations owing to a significant decline in the export price of coal as well as lower off-take from its domestic mines.

Commenting in a trading statement today, the company said earnings before interest, tax, depreciation and amortisation for the year ended December 31 would fall between 22% and 8%. On a headline share earnings basis, however, Exxaro would report an increase of up to 19% as a result of higher income from its 20% stake in Kumba Iron Ore subsidiary, Sishen Iron Ore Company (SIOC).

Kumba Iron Ore reported a 69% increase in net profit to R21.3bn from R12.6bn a year ago owing to higher iron ore pricing and rand/dollar depreciation. It announced a total dividend of R46.78/share – nearly R20bn – equal to 92% of earnings and easily exceeding Kumba’s dividend policy of 50% to 75% of earnings.

Consequently, Exxaro’s attributable earnings per share would be between 32% and 46% higher for the year but trading in its core product of coal has been difficult. Coal export sales were higher year-on-year but there was “a significant decline” in the benchmark API4 export price, the company said today.

Exxaro is also exposed to Eskom’s difficulties, notably the slower than planned ramp-up and subsequently technical problems at the Medupi power station. Exxaro expanded its Grootegeluk coal mine in Limpopo province specifically to meet Medupi demand. Given the faltering performance of Medupi’s build-up, this has resulted in Exxaro imposing several phases of penalties in terms of take-or-pay agreements.