[miningmx.com] – EXCHANGE rate changes added a further R400m to Exxaro Resources’ already grievous losses on its Mayoko iron ore project taking the project’s total write-down number to R5.8bn.
The effect of the write-down is to plunge Exxaro Resources into its worst ever financial performance since formation seven years ago with interim attributable losses falling to between R2.37bn and R2.65bn, the group said in an updated trading statement.
Exxaro is due to report its interim figures on August 21. It reported a R917m profit at the interim stage in its 2013 financial year.
Excluding the effect of the write-down, and even including a 19% reduction in the contribution of Exxaro’s 19.9% investment in Kumba Iron Ore, headline earnings are expected to be 5% to 12% higher – a performance largely based on its coal assets.
Exxaro’s coal business would report a higher net operating profit than the R1bn posted at the interim stage in the group’s 2013 financial year, it said. This was owing to higher revenue, an increase in the take-or-pay penalty from Eskom, and lower costs.
Eskom is paying penalties for coal that should have been delivered from Exxaro’s Grootegeluk Medupi Expansion Project to the power utility’s 4,800MW Medupi power station in Limpopo province. Depending on when the start date is calculated, Medupi is about two years behind forecast commissioning date.
Exxaro’s coal division also reported impairments at the half-way stage last year that won’t be reflected in the current interim period.
The write-down will come as profoundly sobering news for Exxaro shareholders who have grown used to stellar performances from the group which in 2012 targeted a market capitalisation of $20bn by 2020.
It is currently valued at R52bn ($4.87bn). However, this is some 8% higher compared to June 24 when it first reported the likelihood of the write-down on Mayoko, a project based in the Republic of Congo (RoC).
Since then, Exxaro has unveiled two high profile announcements in which it dedicated R8bn worth of capital to its coal business in South Africa: a R3.8bn coal project near Belfast in Mpumalanga province, and earlier this week, a R4.9bn swoop for Total Coal South Africa (TCSA).
Exxaro said the write-down consisted of R2.89bn representing its initial takeover of African Iron, an Australian company that owned the Mayoko property, R1.17bn which was the carrying value of plant and equipment and R1.69bn related to project costs. A further R47m in receivables had also been written down.
It seems unlikely now that Exxaro will do anything but make a polite exit from RoC after initially planning a 10 million tonne (mt) to 12mt a year iron ore mine – a venture it said had stalled after failing to secure a rail and port agreement.
Macquarie Research has since alluded to speculation the Mayoko deposit is below grade expectations such that higher volumes were required to achieve a sufficient return.
