Coal producer Exxaro Resources said yesterday that its earnings grew by 75 percent for the six months to end June, boosted by surging coal prices as it flagged that Transnet Freight Rail’s logistic woes were putting a brake on its sterling performance.
Headline earnings per share rose by 75 percent to R34.26 per share, up from R19.61 per share in the second half of last year.
Exxaro declared an interim dividend of R15.93 per share. The group said it had a strong balance sheet and was cash-flush.
The results come as coal miners BHP, Thungela Resources and Glencore this month also delivering bumper interims on buoyant coal prices.
Exxaro said its revenue increased by 48 percent to R22.3 billion, compared to R15.1bn in the first half of 2021, mainly due to the exceptional performance of its coal business driven by higher sales prices and higher sales volumes, despite logistical challenges.
“During the first half of 2022, international coal prices reached a record high driven by the Russian-Ukraine conflict and the ban on Indonesian coal exports. Global trade flows were affected, increasing demand from Europe for South African high-quality coal to reduce the dependency on Russian coal.
“In stark contrast to the increased demand from Europe, the higher coal prices reduced demand from Asia, especially from India and Pakistan, due to affordability factors. This also eroded demand for low CV coal as they opted for cheaper sources of supply, widening the discounts across all low CV products,” Exxaro said.
But Exxaro is hampered from taking full advantage of high prices due to logistic woes.
In an interview, Nombasa Tsengwa, Exxaro's new chief executive, who assumed her position on August 1, said: "It was a very strong, solid set of results. The last six months have been tough from the market dynamic point of view (with) lots of changes in our economy in terms of the energy demand and challenges that we have been facing.
“Overall, a very good set of results on the back of a good product mix from a coal perspective. There was lots of innovation from our marketing team in terms of how they managed the logistics, despite the Transnet Freight Rail (TFR) challenges that we all know about. Also, the prices come into play,” she said.
This as the rail operations of state-owned TFR have been hit by cable theft, vandalism, sabotage and a shortage of locomotives, which has caused financial loss to Exxaro and its peers, owing to the low railage volumes of coal as a result.
Exxaro said there were three derailments in the second quarter of 2022, negatively impacting the Mpumalanga region’s performance.
“Discussions by Exxaro and the industry are continuing with TFR to resolve contractual challenges and to improve rail performance,” it said.
Brand marketing manager Sakkie Swanepoel said TFR indicated to the industry that they had the capacity to probably do only 16 million tonnes per annum for the next two years.
“After we (did) 58 million tonnes in 2021, year to date we are sitting at 54 million tonnes annualised. Unfortunately we have moved back from where we were in 2021. Looking forward, towards the end of the year we are not seeing anything yet that is giving us confidence that we are on a new trajectory.
"We remain very cautious and understand that things are not going to change in the short term. We will continue to work with TFR.
“We need to put a big focus on those things that are under our direct control. The energy is to see what we can do instead of looking at what TFR is doing.
“I think we will see a better result in the second half,” he added.
Anchor Capital investment analyst Seleho Tsatsi said: "Earnings and earning before interest, tax, debt and amortisation are up strongly thanks to higher prices in Exxaro’s export thermal coal business, which has more than offset the decline in iron ore earnings.“
He said thermal coal was likely to drive second-half 2022 earnings higher than first-half 2022 earnings as prices had increased from their already high levels.
“Cash returns to shareholders should also be attractive. The direction of earnings from iron ore in the near-term is likely to depend on the degree to which there is meaningful stimulus in China,” he said.
BUSINESS REPORT