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Despite railing troubles and limited port capacity, Exxaro Resources plans to bolster its coal exports by 24% to help feed Europe’s ravenous appetite for South African coal.
The diversified miner, a major coal supplier to Eskom with interests in energy and iron ore, said its ambitions to feed more coal into the global market had been spurred by strong demand from Europe, the likes of which was last seen in 1990.
As an energy supply crunch has gripped Europe, overall coal exports from South Africa to Europe rose from 1.7 million tons in the second half of last year, to 4.5 million tons in the first half of this year, Exxaro said.
The group itself sent 2.5 million tons into export markets in the first half of 2022. Some 32% of these volumes were delivered into Europe, a significant increase from just 6% in the second half of 2021.
Despite severe railing troubles preventing optimal volumes from moving through the Richards Bay Coal Terminal, Exxaro now aims to send a further 3.1 million tonnes into export markets in the year’s second half.
“We are really trying every avenue that there is. With Transnet Freight Rail performance currently sitting at an annualised 54 million tons per annum [against a capacity of 81 million tons], we simply cannot just rest on our laurels and hope that our coal will get to markets,” said Sakkie Swanepoel, Exxaro’s general manager for marketing and logistics.
Exxaro’s managing director of minerals, Kgabi Masia, said exporting coal through alternative channels comes at an added cost – almost double that of the traditional railed route to Richards Bay Coal Terminal.
But at current benchmark coal prices – of $345 a ton on Wednesday – the economics are not a constraint. “The constraint is at what rate can you load trucks and where can you get port capacity to go and dump that coal to export it,” said Swanepoel. Exxaro is pushing coal to alternative ports, as well as selling to other market players that have logistics capacity to move the coal offshore.
While Exxaro’s coal export sales declined by 1.5 million tons compared to the first half of 2021 due to Transnet’s deteriorating railing performance, record-high coal prices bolstered earnings.
Exxaro also benefitted greatly from its early value strategy, which optimises the production of more valuable, high-quality coal.
On Thursday the group reported a 48% increase in revenue to R22.3 billion for the six months ended in June. Net operating profit jumped 77% to R9.2 billion, and Exxaro declared an interim dividend of R15.93 per share.
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Transnet deal
While industry is collaborating with Transnet to help solve the rail issues, relations have been tested by Transnet’s unexpected bid to amend the terms of a long-term railing agreement with exporting parties.
On Thursday, Transnet Freight Rail said 21 coal exporters had signed the deed of amendment. Thungela Resources confirmed it is among this grouping, while Exxaro said it had not yet reached agreement with Transnet.
Looking ahead, and despite persistent railing issues, Exxaro expects the coal business will perform even better.
“Going into the second half of this year, we expect continued geopolitical tension, continued European energy insecurity concerns and the implementation of economic sanctions. Our expectation is that these global dynamics will have a resultant impact on the energy complex trade flows,” said CEO Nombasa Tsengwa. “The implications for our operations will be continued European demand for our high CV [calorific value] coal, and we are ready to continue to service this market.”
Shift from coal
Despite the strong focus on the coal business, Tsengwa said Exxaro remained committed to its strategy to decarbonise and diversify away from coal.
The group is progressing well with its 80MW Lephalale solar project. Through its acquisition of Cennergi, Exxaro has 229MW of wind energy – a base on which it intends to build a renewable energy business.
Cennergi has concluded a joint development agreement with ENERTRAG South Africa to collaborate on the development and execution of renewable energy products for the Mpumalanga region.
However, Exxaro’s plans to grow its green power portfolio to 3 000MW by 2030 have now been almost halved to 1 600MW as the group refocuses its immediate investment and development priorities.
“It is really imperative to be agile whenever market opportunities arise, or market opportunities change,” Tsengwa said.
Other market opportunities include acquisitions in green economy commodities copper, bauxite and manganese – Exxaro’s three chosen minerals in expectation of insufficient supply in the long term relative to demand.
While copper prices have only recently come off a record high, “the current manganese and bauxite pricing environment is supportive of entry through acquisitions”, Tsengwa noted.
The group has also progressed work around its scope three emissions which primarily relate to its coal being burnt by Eskom. Tsengwa said this needs to be managed “very carefully” in partnership with the utility”, and “we believe a plan could be on the table by the end of the second half of next year”.
