Exxaro To­tal

Finweek English Edition - - INVESTMENT -

An­a­lysts were left baff led af­ter Exxaro Re­sources dis­closed this week it had paid $ 472m ( R5bn) for French group To­tal’s South African coal as­sets which are held in sub­sidiary To­tal Coal South Africa ( TCSA), es­pe­cially as the as­sets had booked a R55m loss in the 2013 f inan­cial year.

“You would have to bet on a longterm t her­mal coal ex­port price of $100/t to jus­tify the price, and I don’t think you can bank on that price, not in the long term,” said one an­a­lyst. The ac­qui­si­tion price could also in­crease.

That’s be­cause To­tal’s em­pow­er­ment part­ner on its SA as­sets – min­ing en­trepreneur Brid­gette Radebe’s Mmakau Min­ing – may want to be bought out by Exxaro as well, which would inf late the ac­qui­si­tion cost to $594m, as­sum­ing they were on the same terms.

The ac­qui­si­tion cost com­prises $386.5m i n eq­uit y and $ 86.5m i n debt, a sum de­scribed by Mac­quarie Re­search an­a­lyst, Kieran Daly, as “ex­pen­sive for a busi­ness that lost R55m”.

How­ever, Daly said this was on par with the mul­ti­ple Glen­core paid for Op­ti­mum Coal in 2012, although the ex­port coal price that year av­er­aged around $120/t com­pared to the $70 to $75 be­ing paid per ton of ex­port-qual­ity ther­mal coal to­day.

The ac­qui­si­tion, were it to be in­cluded in Exxaro’s last full-year re­sults, would have di­luted head­line earn­ings 5% while it takes net debt to R9bn from R4bn cur­rently, which is at the up­per end of where Exxaro CFO Wim de Klerk last said he pre­ferred debt to be. THE QUES­TION IS WHY IS EXXARO PAY­ING SUCH A HEFTY SUM FOR LOSS­MAK­ING AS­SETS? For t he t i me be­ing, t he com­pany can’t say ow­ing to conf iden­tialit y agree­ments with To­tal, although De Klerk al­luded to the fact that in buy­ing TCSA, Exxaro also takes pos­ses­sion of the com­pany’s 4m tons a year (mtpa) of ex­port en­ti­tle­ment through Richards Bay Coal Ter­mi­nal (RBCT), dou­bling then Exxaro’s to­tal en­ti­tle­ment to about 8mtpa.

In so do­ing, it gives Exxaro the op­por­tu­nity to reshuff le its as­sets in the Water­berg coal­fields in Lim­popo, con­vert­ing some mines to so-called mul­ti­prod­uct op­er­a­tions so that they pro­duce both Eskom coal and coal for the higher-mar­gin ex­port mar­ket. If this is the strat­egy be­hind the ac­qui­si­tion, then it’s a case of pay­ing a pre­mium for build­ing op­er­a­tional and strate­gic f lex into the group’s coal as­sets, which are clearly ear­marked as a core busi­ness strat­egy.

Wim de Klerk

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