Departing boss says Exxaro has been tested and found strong

IT doesn’t seem the best of times to be leaving a company whose shares are languishing at levels last seen in 2008 and the price of its chief product, coal, is at worryingly low levels, but outgoing CEO Sipho Nkosi begs to differ.

Nkosi, who helped start Exxaro a decade ago, said there couldn’t be a better time to exit. “I think the best moment is now because I have been tested and I think we have come out strong,” he said, referring to the com- modity slump that has put mining companies under severe pressure to restructure.

Since Exxaro’s shares peaked at R214 in 2012, Nkosi has presided over a company that has seen its stock plunge 63%.

Kobus Nell, a portfolio manager at Stanlib Asset Management, said Exxaro’s share had been hard hit, because the share is affected by the coal price. Furthermore, the performance of the Sishen Iron Ore Company also has an impact. Exxaro owns 20% of the producer and Kumba owns 73%.

“It is a company that is very dependent on the iron-ore price and . . . the ability of Kumba to still pay dividends to them,” Nell said.

Although the iron-ore price rose to about $68 a ton last week from $42 two months ago and the falling rand had provided relief, it did not mean the storm was over because rail costs for exporting coal were still high.

“I don’t think one should make the conclusion that we are through the storm . . . it is still a case [of] a company that is subject to high costs,” Nell said.

Nkosi believes the commodity slump is a lesson for business to “rebalance and refocus so that it’s ready for the next wave of growth”.

In need of rebalancing is the company’s relationship with Eskom. Besides a R5.3-billion impairment due to delays in the Mayoko iron-ore project in the Republic of Congo, and closing the AlloyStream project due to a weak market, the most recent de- bacle is with Eskom.

Eskom opted not to renew a contract with Exxaro to supply coal to its Arnot power station and is now sourcing coal from Optimum Coal — owned by Tegeta Resources, which the Gupta family and President Jacob Zuma’s son Duduzane own.

Nkosi said Exxaro and Eskom’s relationship was like a marriage and, like all marriages, the two parties would “wrestle and fight” at times but it was a 40-year union that had built Exxaro’s coal business. “If it was not for Eskom, we would not have survived,” he said.

Although engagement between the two parties is tense, Nkosi said they were in talks to try resolve issues.

Exxaro holds the mining rights to the Arnot mine but the mine is owned by Eskom, which is liable for retrenchments, mine closure and environmental costs.

Last year, Exxaro supplied Eskom with 33.3 million tons of coal — about 27% of Eskom’s requirement.

Faced with Eskom’s challenges, Exxaro CEO-designate Mxolisi Mgojo said recently the company was broadening its supply base. In particular there was an increase in demand for coal in India and Pakistan.

Nkosi’s outlook for Exxaro was optimistic, not only in coal but one day as an energy generation company.

Nkosi said he might be leaving the mining industry but not the business world. He would continue as a director at Sanlam, Tronox and many other companies but would no longer be on Exxaro’s board.