Exxaro pushes coal exports to tide through Covid-19 but worries grow about demand future

DESPITE all the gloom and doom on the Covid-19 and coal fronts, Exxaro Resources cracked it during first half of 2020 pushing up export sales by 39% and backing that up with higher off-take from Eskom.

The end result was that thermal coal sales rose 10.7% to 22.8 million tons (Mt) compared to 20.6Mt for the corresponding six months in the previous financial year, which flowed through to an 18% in total revenue of R14.1bn (2019: R12bn), and an 11% increase in core headline earnings to R13.39/share.

Head of coal operations, Nombasa Tsengwa, said the group’s export performance was due largely to management’s speed of response in dealing with the evolving  situation.

“We got the permit needed to shift export coal on the first day at the start of the Covid-19 lockdown and that gave a lot of confidence to Transnet Freight Rail (TFR) that we were going to be putting coal on rail and they came to the party.

“On the marketing side, we were flexible enough that, when the Indians were not taking the coal, we quickly diverted it to where it was in demand which was Pakistan and, in particular, Vietnam.

“Vietnam took advantage of the low prices and they were not hit as badly by Covid-19 as many other countries.  Overall we were able to produce the coal and push the tonnages.”

But Tsengwa said this export performance would not be maintained, and was likely to drop in the second half.

“The seaborne market is currently estimated to be 30Mt to 40Mt in surplus and forecasts are it will contract between 70Mt and 100Mt in 2020 compared with 2019 so that’s not good. India is going into the monsoon season and demand from Pakistan and Vietnam is back to normal levels so you are not going to get that magic again,” she said.

Eskom also came to the party taking additional coal for its Medupi power station from Exxaro’s flagship Grootegeluk mine which pushed up production by 6% to 13.7Mt (2019: 12.9Mt) and this despite the imposition of force majeure by Eskom on all its coal suppliers which has not yet been officially lifted.

The Exxaro results statement notes that “… Eskom and Exxaro are still engaging on the force majeure notification by Eskom”, but Exxaro CEO, Mxolisi Mgojo, was cagey as ever when it came to spelling out what precisely is being discussed between the two.

“I am not going to tell you about our private conversations with Eskom, but to the extent that they are taking the coal there is nothing to fight about,” he said.

The other area where Mgojo is giving little away at this stage is the future of now wholly-owned alternative energy subsidiary, Cennergi, which he has previously flagged as key to Exxaro’s future.

“We are busy looking at various options and opportunities. We will come back to the market when we have our story right. I have learnt not to talk before I have all my planning done so I remain cagey on this one.”

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