Exxaro not constrained by BEE

14 August 2010 - 16:29 By JIM JONES
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If there were ever any worries that indisputable BEE status would lock Exxaro into SA, its home country, they will again have been dispelled by the diversified mining group's latest interim report.

Exxaro is by far the largest black empowerment company listed on the JSE.

Apart from development and expansion projects at home, Exxaro is eagerly participating in exploration and development opportunities as far afield as Australia and Inner Mongolia. Such geographical diversification helps mitigate the risks inherent in operating in one country alone.

Still, Exxaro's growth prospects over the next few years are set to derive largely from SA - particularly from coal operations linked to state-owned Eskom, chemicals giant Sasol, steelmaker ArcelorMittal and to exports.

Chief executive Sipho Nkosi reported that in the six months to end-June the sale of 18.4million tons of coal to Eskom were fractionally higher than in the preceding half year, but fractionally lower than a year ago. The Eskom tonnage was 81% of the group's total coal sales.

Logically, it would seem, there will be little change until Eskom's next generation of thermal power stations (starting with Medupi) fires up.

Construction of the Medupi station has been moved out by six months while the tied-coal delivery contract is revisited, but the contract has been signed. Deliveries from the R9.5-billion colliery are slated to begin less than two years hence and ramping up to full annual capacity of 14.6million tons in 2014.

There are other Eskom opportunities under investigation, greenfields and brownfields collieries, along with the possibility of delivering to a new Sasol oil-from-coal project.

On the other hand, potential export sales growth remains hostage to Transnet's ability to provide additional rail capacity to the Richards Bay Coal Terminal.

Exxaro is re-evaluating the strategic fit of its mineral sands interests. In the past six months they contributed R430-million or 22% of the group 's R1.97-billion Ebita (earnings before interest, tax, depreciation and amortisation).

Of the mineral sands division's earnings, 32% derived from the partially-owned Australian operations. Higher prices and demand for mineral sands, zircon and pigments are expected to persist, though revenues will be affected by movements in the rand and Australian dollar exchange rates against the US currency.

In contrast to mineral sands, coal provided 73% of the half year's earnings before interest, depreciation and amortisation (EBITDA). Base metals and other interests delivered the remainder.

Outside SA, the 25%-owned Chifeng zinc refiner in Inner Mongolia is expanding annual production from 44000 tons to 110000 tons. And in Queensland, Australia, the 50%-owned Moranbah South coking coal project is at the prefeasibility stage.

An interim dividend of R2 a share has been declared from headline earnings of R6.83. A total interim dividend of R21-million is payable to the 9422 employee members of the company's MPower trust, making a total of R49.64-million since September 2007.

Further underscoring Exxaro's solid BEE credentials, an interim R373-million or 52% of the total interim declaration will be paid to other empowerment members of Main Street 333 (Pty), which is Exxaro's majority shareholder.

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