Exxaro a rare bright spot
Exxaro, a diversified miner and Eskom’s largest coal supplier, is so far unscathed by the coronavirus crisis. Ahead of its financial close, Exxaro said on Thursday that it expected overall coal sales for the first six months of 2020 to dip just 2%.
Exxaro, a diversified miner and Eskom’s largest coal supplier, is so far unscathed by the coronavirus crisis.
Ahead of its financial close, Exxaro said on Thursday that it expects overall coal sales for the first six months of 2020 to dip just 2%. The group’s performance is a rare bright spot among SA businesses, which generally have been hard hit by the economic effects of the nationwide lockdown.
Though export volumes are expected to be 16% higher, this will be offset by lower commercial domestic sales volumes in the first half of 2020.
Notably, the domestic industrial sector took less coal during the lockdown. Total coal production and sales volumes are expected to decrease by 1% and 2%, respectively.
Exxaro is among power utility Eskom’s suppliers that were designated as essential services and permitted to operate in the lockdown, which was implemented on March 27 and has since been eased to permit more economic activity.
The group is a 21% shareholder in Sishen Iron Ore, which was permitted to operate at 50% in the first weeks of lockdown and ramped up to full production in mid-April.
Though Eskom warned in April that it may not be able to take the contracted coal produced by Exxaro for its Medupi and Matimba power plants, this has not happened and now appears unlikely, with electricity demand picking up.
Exxaro executive head of coal operations Nombasa Tsengwa said that offtake from Eskom was better in the first half of 2020 than in the six months before.
An oversupply in the domestic and export markets has negatively affected coal prices. But this was offset by the weak rand/dollar exchange rate.
The low coal price contributed to a surge in export volumes as some markets — such as Pakistan and Vietnam — took the opportunity to buy more coal from SA.
Iron ore prices in the first half of the year have been supported by strong Chinese steel production as well as low iron ore inventory levels and constrained Brazilian supply.
Exxaro said capital expenditure in the coal business for the first half of 2020 will be 61% lower, mainly due to project delays linked to the pandemic and timing in equipment replacement.
The group has implemented measures to curb the spread of the coronavirus.
To date, it has recorded eight Covid-19 cases. One person has fully recovered.
On a teleconference with Exxaro on Thursday, Tim Clark, head of metals and mining research at SBG Securities, described the miner’s performance as “startlingly good”.
Johann Pretorius, the head of research at Renaissance Capital, said it was a “fantastic performance”.
As governments across the globe try to revive their economies, Exxaro foresees a gradual uptick in demand in some markets.
Group manager marketing Sakkie Swanepoel, however, said there was some hesitation in the market. “Nervousness about the risk of potential second and third waves of coronavirus lockdowns is spooking markets a bit,” he said.
“We are not negative about the second half [of the year], but a bit cautious as we don’t know how this will play out.”