Killer Trade: Exxaro Resources selling momentum is slowing;
Exxaro Resources is one of the largest South African diversif ied resource groups, with interests in coal, mineral sands, industrial minerals and iron ore. The company is the second-largest South African coal producer, and the thirdlargest global producer of mineral sands, a class of ore deposit that is an important source of zirconium, titanium, thorium, tungsten and rare earth elements.
Exxaro’s eight managed coal mines produce over 40m tons per annum of power station, steam and coking coal, as well as char. However, since 2012, Exxaro’s share price has lagged other resources stock for many reasons, ranging from glum f inancials to endless strike action. After peaking at 21 495c/share in the second quarter of 2012, Exxaro gradually lost approximately 37% of its value – even breaking out of its major bull trend. Not even its 30% buyin option of Coal of Africa’s (CoAL’s) Makhado project in Limpopo in June 2012, or its announcement of zero fatalities from July 2011 could sweeten investor confidence. Reporting a 40% drop in 2012 headline earnings in February 2013 deepened losses further, with Exxaro plunging to the 13 480c/ share support level. To add fuel to the fire, the majority of operations were disrupted last year at Grootegeluk mine in Limpopo, and the Mpumalanga-based Matla and Arnot coal mines because of mass strike action over the non-payment of performance bonuses. Embarrassed, Exxaro confirmed that the strike action at the five operations affected supplied coal to the State-owned power utility Eskom. Eskom had already issued a warning prior to the strike of tight overall electricity supply that it struggled to meet due to increased demand – with narrowing supply/demand margins. The strike eventually came to an end after three weeks, with the strikers agreeing to accept Exxaro’s offer of a R2 800 firstquarter short-term incentive, which it had previously rejected.
In second quarter of 2013 downside eased, with Exxaro retaining support at 13 480c/share. Investors seemed to show a glimpse of approval when Exxaro was ranked second in an energy efficiency survey. The energy eff iciency measures implemented by Exxaro included a