Exxaro pays special dividend while M&A search goes on

Nombasa Tsengwa, CEO, Exxaro Resources

EXXARO Resources on Thursday said it would pay a special dividend taking the final payout for its 2023 financial year ended December to R15.82 per share.

The special dividend of R5.72/share or R2bn represents the pass through of the dividend received from Exxaro’s 20.4% stake in iron ore producer Sishen Iron Ore Company which is controlled by Kumba Iron Ore.

“Obviously the business is generating cash and if you look at the balance sheet it is strong enough for a special distribution to shareholders,” said Riaan Koppeschaar, CFO of Exxaro in comments to reporters.

Exxaro closed the 12 months ended December with net cash of R14.8bn (excluding R4.4bn in debt held by the group’s energy division) which compares to R9.6bn as of December 31 in 2022. Koppeschaar said this was sufficient cash for merger and acqusition activity Exxaro has said previously it is seeking.

“We are earmarking net cash of R12bn to R15bn which is sufficient for the growth strategy taking into account we can introduce gearing,” said Koppeschaar. Exxaro would take on 1.5x Ebitda (R13.4bn for the 12 months ended December for a total of R20.1bn in net debt) as well as potentially gearing-up the target company.

Asked for progress on the firm’s deal-making aspirations, Richard Lilleke, Exxaro’s new business director, said the company would like to complete a deal this year. “But M&A is very unpredictable given the competition and other things.

“We are actively looking at M&A deals across our chosen commodities. Partnerships is one of the strategies we are contemplating where we don’t have in-house expertise or deals that are on the larger side. But it is not our only strategy,” said Lilleke.

Exxaro said in 2021 it planned to diversify into copper, manganese or vanadium, targeting a deal in 2024. Last year, however it broadened the scope to include other battery minerals such as lithium, and put no deadline on a transaction.

However, the delay in finding a target has been noted to analysts who say M&A is creating uncertainty in the business when it could be rewarding shareholders by passing down some of the bumper returns when the coal price peaked in 2022.

The special dividend declaration comes despite a decline in Ebitda down 29% year-on-year. This was on the back of softer coal sales. Attributable earnings fell 18% to R46.66/share.