EXXARO Resources warned 1.4 million tons (Mt) of thermal coal exports were at risk in terms of its previously guided 7.6Mt in sales target for the 2022 financial year.
This was owing to continued performance problems related to locomotive availability, derailments, and theft of infrastructure experienced by Transnet Freight Rail (TFR), a unit of government-owned freight and logistics company, Transnet.
TFR railed 24Mt to Richards Bay Coal Terminal for the five months ended May equivalent to an annualised rate of 54Mt. Railing last year of export coal totalled about 60Mt – well below the coal line’s 80Mt/y capacity.
Exxaro said performance lapses were to be seen at its mines. “The performance from Grootegeluk has declined from an average of five trains per week in 2021 to four trains per week year-to-date in 200,” Exxaro said of its flagship mine situated in South Africa’s Limpopo province.
“The Mpumalanga export rail performance declined from 15 trains per week in 2021 to eight trains per week year-to-date in 2022.” Exxaro said that it continue to “engage” with Transnet in order to mitigate the export channel problems.
Exxaro made these comments in its financial director’s pre-closing statement for the six months ended June 30. Shares in the company were about 3% lower by mid-morning on the Johannesburg Stock Exchange. On a year-to-date basis, however, the stock is about 29% higher reflecting the transformation in the thermal coal market.
The invasion of Ukraine by Russia in February has resulted in sanctions on the export of Russian gas supplies, and disrupted coal exports from Ukraine. Europe and Asia have consequently sought alternative suppliers sending the average price of coal from South Africa – as measured by the API4 Index – to a record $270/t average price in the first half of Exxaro’s 2022 financial year. The previous API4 average was $151/t free on board.
“Our price realisation on exports is expected to be in line with previous API4 index price realisation,” said Exxaro in a statement.
The company also supplies coal to Eskom as well as the domestic market. Prices locally had tightened as suppliers sought the export price premium, especially for the Atlantic market which is back on the agenda for South African coal producers following years of shrinkage. Exports to India – previously a key market for South Africa – have diminished as buyers sought lower prices.
Exxaro also receives dividends from its 20% stake in Sishen Iron Ore Company which is held in joint venture with Kumba Iron Ore. Exxaro said today the iron ore price was stable as steel production in China had been robust, Covid-19 related lockdowns notwithstanding.
Thermal coal production for the six months is expected to total about 20.5Mt, an increase of about 1% year-on-year following the ramp up of the GG6 project at Grootegeluk, and the placement of export coal through “alternative distribution channels” given Transnet’s logistical problems.
Production was offset following the sale of ECC by Exxaro in September last year.
