Exxaro Resources Limited has provided an update on its first-half 2024 (1H24) performance. The Finance Director’s pre-close message highlights the group’s strategic, operational, and financial activities. The report covers the six-month period ending June 30, 2024, with comparisons to the previous period ending December 31, 2023 (2H23).
Safety Performance
Exxaro achieved 21 months without a work-related fatality as of May 31, 2024. However, the company recorded four lost time injuries (LTIs), resulting in a lost time injury frequency rate (LTIFR) of 0.06. This figure is slightly above the target of 0.05 but shows a 25% improvement compared to the same period last year (1H23: 0.08). Notably, there were zero high-potential incidents, compared to four in the full year of 2023.
Economic and Market Conditions
The global economic outlook improved in 2024, driven by upward revisions in the US, eurozone, UK, and India. However, the average benchmark API4 Richards Bay Coal Terminal (RBCT) export price for 1H24 is expected to decline to $101 per tonne from $112 in 2H23. The iron ore fines price for 1H24 is also projected to decrease slightly to $117 per dry metric tonne, from $121 in 2H23.
Operational Performance
Exxaro’s total coal production, including buy-ins, is expected to decrease by 14% in 1H24, while sales volumes are forecasted to drop by 12%. This decline is mainly due to reduced demand from Eskom at the Grootegeluk complex. Capital expenditure in the coal business is anticipated to be 33% lower in 1H24, reflecting decreased sustaining capital expenditure at Grootegeluk.
Financial Position
As of May 31, 2024, Exxaro reported net cash of R15.3 billion, excluding energy’s net debt of R4.2 billion. This solid liquidity position ensures the group remains a going concern for the foreseeable future. The company will provide a detailed account of its 1H24 performance and a 2H24 outlook on August 15, 2024.
Coal Operations
Markets
The coal market faced bearish trends in 1Q24 due to sufficient supply and lower gas prices in major markets. Prices recovered towards the end of March 2024, driven by geopolitical factors and disruptions in rail operations in South Africa.
Production and Sales Volumes
Thermal coal production is expected to decrease by 14%, mainly due to lower demand from Eskom. Metallurgical coal production is aligned with market demand and logistics availability. Total coal production and sales volumes are forecasted to drop by 14% and 12%, respectively.
Table 1: Coal Production and Sales Volumes
| Product | 2H23 Actual (‘000 tonnes) | 1H24 Forecast (‘000 tonnes) | % Change |
|---|---|---|---|
| Thermal Coal | 21,005 | 18,095 | (14) |
| Metallurgical | 1,077 | 997 | (7) |
| Total | 22,082 | 19,092 | (14) |
Table 2: Coal Sales Volumes
| Sales Category | 2H23 Actual (‘000 tonnes) | 1H24 Forecast (‘000 tonnes) | % Change |
|---|---|---|---|
| Thermal Coal | 18,390 | 15,317 | (17) |
| Eskom | 12,212 | 10,714 | (12) |
| Domestic | 2,821 | 1,293 | (54) |
| Tied | 3,357 | 3,310 | (1) |
| Metallurgical | 344 | 277 | (19) |
| Exports | 2,661 | 3,269 | 23 |
| Total | 21,395 | 18,863 | (12) |
Coal Capex
The coal business’s capital expenditure is expected to decrease by 33%, mainly due to the timing of equipment replacement and licensing projects at Grootegeluk and Mpumalanga mines.
Table 3: Coal Capex
| R’million | 2H23 Actual | 1H24 Forecast | % Change |
|---|---|---|---|
| Grootegeluk | 1,511 | 962 | (36) |
| Mpumalanga | 145 | 155 | 7 |
| Total | 1,656 | 1,117 | (33) |
Logistics and Infrastructure
Transnet Freight Rail (TFR) transported 20.26 million tonnes to RBCT for the five months ending May 31, 2024. However, three derailment incidents negatively impacted export performance. Exxaro and the coal industry are collaborating to improve rail performance.
Energy Operations
Cennergi’s wind operations are forecasted to generate 325 GWh of electricity by June 30, 2024, in line with previous guidance. The average plant availability is expected to be slightly below the contracted 97% in 1H24. Construction of the 68 MW Lephalale Solar PV Project at Grootegeluk continues, with commercial operations anticipated in 1H25.
Capital Allocation and Portfolio Optimisation
Exxaro continues to evaluate investment opportunities in minerals and energy. The FerroAlloys disposal process is progressing, with a sale agreement expected by 4Q24.
Sustainable Development
Exxaro is refining its decarbonisation roadmap, with a peer review planned to ensure credibility and risk management. The company is also implementing two nature-based carbon offset pilot projects at Grootegeluk and Leeuwpan.
Social Investment
For the five months ending May 31, 2024, Exxaro’s social investments amounted to R1.045 billion, up from R0.896 billion in 1H23. These initiatives supported 237 small, medium, and micro enterprises (SMMEs) through local procurement and enterprise development.
Legal Matters
Exxaro is opposing a class action for damages filed in November 2023. The company has filed a notice to oppose and will submit its answering affidavit as per the agreed timetable.
Outlook for 2H24
The global economy faces headwinds, including less accommodative financial conditions and geopolitical uncertainties. Global inflation is expected to continue its downward path, leading to policy interest rate cuts. South Africa’s real GDP contracted by 0.1% in 1Q24, but economic activity is expected to improve with easing infrastructure constraints.
Commodity Markets and Prices
Seaborne thermal coal prices will be supported by extreme weather patterns and tight supply. India’s strong economic growth will drive demand, despite robust domestic production. JKT’s demand is expected to decrease due to lower electricity demand and strong renewables generation.
Business Performance
Exxaro’s optimization programs focus on reducing costs and improving efficiencies. The company is continuing its digital and advanced analytics programs to enhance visibility and responsiveness.
Teleconference Details
A teleconference on this announcement will be held on June 25, 2024, at 12:00 SAST. Registered participants will receive a dial-in number upon registration. A conference replay will be available until July 4, 2024.
Conclusion
Exxaro remains resilient amid challenging market conditions. The group continues to focus on safety, operational excellence, and sustainable development. Detailed 1H24 results and a 2H24 outlook will be provided on August 15, 2024.