EXXARO Resources adjusted its diversification strategy from coal saying it would focus on energy security instead of water and food security and relinquished prospecting rights to its large coal resources in the Waterberg.
Over the past year, Exxaro Resources CEO, Mxolisi Mgojo, has set about reducing the group’s exposure to coal and increasing its exposure to alternative and renewable forms of energy.
Earlier this month, the company announced it was putting its Leeupan and ECC collieries up for sale. The 2019 results now released report that the group has also given up the prospecting rights to its Waterberg North and South projects which were located about 30kms north of Grootegeluk and consisted of inferred coal resources of 2.1 billion tons and 869 million tons respectively.
Mgojo also reported that the group’s previous strategy to look at new investment opportunities in three areas – water security, food security and energy security – had been modified to focus solely on energy security.
Exxaro now wholly-owns energy company Cennergi – formerly a 50/50 joint venture – which will clearly be the vehicle for this investment thrust, but Mgojo was giving nothing away at this stage on what the next developments would be for Cennergi.
In an interview following the release of the group’s year-end numbers for 2019, he said the change resulted from Exxaro’s view that there were better opportunities to grow more quickly in the energy space and therefore, from a capital allocation perspective, it was better to invest there.
“Cennergi is going to be the stepping stone into our whole renewable energy strategy but I cannot give you any specifics right now. We are still working on those. We are investigating various options and we are not in a position to share what those are.”
Mgojo was also guarded in this outlook for the year ahead commenting that “… we expect domestic thermal coal demand and pricing to remain relatively stable during 2020. Global economic stabilisation is anticipated for the first half of 2020.
“However a potential increase in thermal coal import demand in China might support the seaborne market somewhat.”
The company held up well against falling export coal prices and a sharp drop in coal demand from Eskom’s Medupi power station in the year to end-December, but can thank booming income from its non-managed stake in Sishen Iron Ore (SIOC) for the respectable results reported.
Group revenue was up just 1% at R25.7bn (year to end-December 2018 R25.5bn), but group core earnings before interest, tax, depreciation and amortisation (EBITDA) dropped 20% to R5.8bn (R7.3bn).
Despite this, core headline earnings rose 3% to R7.4bn (R7.2bn) thanks in large part to the increase in income from SIOC which pushed Exxaro’s core equity-accounted earnings from associates and joint ventures to R4.8bn (R3.3bn) with the end result being a slight increase in the final dividend to 566c a share (555c a share).