Exxaro to cut costs as its profit slumps 62%
Commodity price rout hurts firm
EXXARO Resources, South Africa’s fourth-biggest exporter of coal, is to concentrate on cost reduction and its core operations during the commodity price slump.
“This is an industry that’s in the stormy seas, particularly right now,” chief executive Sipho Nkosi said at an earnings presentation in Johannesburg yesterday. Exxaro would focus on its coal business and cash preservation, he said.
The company reported a 62 percent drop in first-half profit and forecast a continued surplus of coal, iron ore, mineral sands and pigment.
Demand for these products would be weak “in the near term”, it said.
The price of commodities has slumped this year on abundant supply and signs of slowing economic growth in China.
The Bloomberg Commodity index, which tracks the value of 22 raw materials, including metals, oil and crops, closed at the lowest level in more than 13 years on Wednesday.
Exxaro’s headline earnings, which exclude one-time items, fell to R3.03 a share from R7.93 a year earlier, the company said yesterday.
It declared an interim dividend of 65c, 75 percent lower than last year.
If the coal price stays above $50 (R644.62) a ton, “they’ll be fine”, Stephen Meintjes, an analyst at Imara SP Reid, said after the company’s earnings presentation.
Exxaro realised an average coal export price of $56 a ton in the period, an 18 percent drop year on year, the company said.
Coal export volumes decreased to 2.4 million tons from 2.7 million tons and the company expects export sales volumes for the year to be about 4 million tons. The shares rose 7.54 percent on the JSE to close at R67.47 yesterday.
Earlier this month, Exxaro finalised the purchase of Total SA’s coal unit for $262 million in cash, 19 percent less than when the deal was first announced.
The operations produced exports of 3.2 million tons in 2014, though that might not indicate what Exxaro would produce under the current cost environment, said Mxolisi Mgojo, the chief executivedesignate.
Mgojo is to replace Nkosi when he retires in March.
Exxaro was unlikely to incur further capital expenditure on the Mayoko iron ore project in the Republic of Congo in 2016 and expected to be granted the mining rights by the end of this year, Nkosi said. – Bloomberg