Exxaro trims annual dividend as it eyes cooling coal prices ahead and remains hamstrung by Transnet
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Exxaro CEO Nombasa Tsengwa said: "Exxaro will remain prudent in our capital allocation framework, in terms of returning cash to shareholders, managing debt and selectively re-investing for the growth of our business.” File photo: Phando Jikelo/African News Agency (ANA)
Exxaro yesterday delivered strong annual results on the back of coal prices but trimmed its annual dividend to shareholders as coal prices start to cool and it remains hamstrung by Transnet logistical problems.
In its financial results for the year ended December 31, 2022, the mining firm said headline earnings per share rose by 28% to R60.16 a share from R46.83 a share, while revenue increased by 41% to R46.3 billion.
Earnings before interest, taxes, depreciation and amortisation (Ebitda) came to R19bn in the reported period from R10.6bn previously.
Despite this, Exxaro declared a lower dividend, due to lower income from its iron ore investment and uncertainty over Transnet’s rail performance.
It declared a final dividend of R11.36 per share, compared with R11.75 per share last year.
Exxaro CEO Nombasa Tsengwa said: "Exxaro will remain prudent in our capital allocation framework, in terms of returning cash to shareholders, managing debt and selectively re-investing for the growth of our business.”
The group has been trucking some of its coal to ports because of Transnet logistic woes.
Transnet is struggling to transport minerals to the Richards Bay port, due to the shortage of locomotives and spares, cable theft and vandalism of its infrastructure.
Exxaro executive Sakkie Swanepoel said: "So far this year it is not going very well on the Transnet side, with January and February being challenging months in terms of railings and, at the current rate, we are at risk of ending as low as we were last year.”
Swanepoel said discussions under way between the mining industry and Transnet were very constructive, but it would take time to get results.
“Transnet indicated they will not be able to do more than 60Mt (million tons) a year for the next two years, which is the number that they were certain they would deliver last year when they eventually did only 50Mt.
"We are already seeing the impact on coal exports of current prices around $140 (R2 571) per ton to $150 per ton space. A big chunk of coal that was trucked from Mpumalanga mines will not be going out this year at these prices. At prices around $100 per ton to $110 per ton, the coal trucking business is probably dead,” he said.
Swanepoel said the group was budgeting for a repeat coal export performance of 5.2Mt during 2023 because no material improvement was expected in Transnet Freight Rail’s performance.
The group said the average benchmark API4 RBCT export price of $271 per tonne was 118% higher compared to 2021's $124 per tonne, resulting in a 161% increase in the average realised export price for Exxaro of $251 per tonne.
API4 is the benchmark price reference for South African coal exports.
However, export sales decreased by 32% to 2 418 kt, mainly driven by lower rail performance and the disposal of ECC (-1 243 kt).
Anchor Capital investment analyst Seleho Tsatsi said Exxaro reported very strong earnings growth in 2022, with Heps up 28%.
“The largest driver of results was the export thermal coal price, which reached record highs in 2022. Unfortunately, Transnet issues impacted volumes. Due to these volume issues, Exxaro wasn’t able to export as much coal at these record prices as it otherwise would.
“Nevertheless, the net operating profit from the coal business, which is not just export thermal coal, still more than doubled versus 2021 thanks to the record export prices,” he said.
Tsatsi said these prices had retreated strongly from their highs, which would impact earnings in 2023.
Sanlam Private Wealth investment analyst Christiaan Bothma said the increase in Exxaro earnings was primarily driven by much higher export coal prices, with realised prices up 161% year-on-year.
He said despite the strong financial performance, only 45% of earnings were returned to shareholders as the rest was being held back for potential acquisitions in other minerals such as copper, manganese and bauxite, as well as expansions into renewable energy.
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