Wrap Text
Finance Director's Pre-Close Message: Six-month period ending 30 June 2024
EXXARO RESOURCES LIMITED
Incorporated in the Republic of South Africa
(Registration Number: 2000/011076/06)
JSE share code: EXX
ISIN: ZAE000084992
ADR code: EXXAY
(Exxaro or the company or the group)
FINANCE DIRECTOR'S PRE-CLOSE MESSAGE
Six-month period ending 30 June 2024 (1H24) (the period)
This is an overview of the group's expected business performance for 1H24, encompassing strategic,
operational, and financial information. Unless otherwise indicated, all comparisons are against the six-
month period ended 31 December 2023 (2H23).
DEAR STAKEHOLDER
As of 31 May 2024, the group has achieved a total of twenty-one months without a work-related fatality
but recorded 4 lost time injuries resulting in a lost time injury frequency rate (LTIFR) of 0.06 against the
set target of 0.05. The current performance indicates a 25% improvement when compared to the same
period last year (1H23: 0.08). Exxaro has recorded zero high potential incidents across the group,
compared to 4 for the full year ended 31 December 2023. To sustain this further, various safety
initiatives have been deployed across all our business units.
After a soft start to 2024, the global economic growth prospects improved, mainly led by upward revision
to the anticipated economic performances for the US, the eurozone, UK and India. Following a higher-
for-longer headline consumer price index in the US, the initial policy rate reductions were postponed,
and anticipated to take effect during the second half of 2024.
With respect to Exxaro's key commodities, the average benchmark API4 Richards Bay Coal Terminal
(RBCT) export price for 1H24 is expected to average US$101 (2H23: US$112) per tonne, free on board
(FOB), a decline from the previous six months, and the iron ore fines price for 1H24 is expected to
average US$117 (2H23: US$121) per dry metric tonne, cost, and freight (CFR) China.
Total coal production (including buy-ins) and sales volume for 1H24 are expected to decrease by 14%
and 12% respectively, mainly due to the reduced demand from Eskom at Grootegeluk, based on their
latest internal plan.
In terms of our capital allocation programme, we expect the capital expenditure for 1H24 in our coal
business to be about 33% lower, due to lower sustaining capex spend at the Grootegeluk complex.
As at 31 May 2024, the group had net cash of R15.3 billion (excluding energy's net debt of R4.2 billion).
The group therefore has sufficient liquidity and will remain a going concern for the foreseeable future.
We will provide a detailed account of 1H24 business performance and an outlook on the subsequent
six months (2H24) when we announce our interim results on or about 15 August 2024.
Yours sincerely
Riaan Koppeschaar
Finance Director
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MACRO-ECONOMIC ENVIRONMENT
GLOBAL ECONOMY AND COMMODITY PRICES
Global inflation rates continued to trend down, enabling central banks to consider cutting interest rates.
The expectation is for the Federal Reserve, the European Central Bank, the Bank of England, and the
South African Reserve Bank, amongst others, to start lowering official policy interest rates during the
remainder of this year. The initial policy rate cuts will mark the end of the most aggressive rate hiking
cycle in four decades. With inflation rates retreating and interest rates easing imminent, the global
economy is expected to maintain its momentum during 2024. After a 2.7% increase in 2023, world real
GDP is expected to expand at the same pace in 2024.
Seaborne thermal coal prices started the year under pressure due to weak demand in Asia and Europe
and lower natural gas prices. As 1H24 progressed, prices strengthened due to concerns around the
impact on tightening sanctions on Russia, ongoing geopolitical tensions in the Middle East, disruptions
to US coal exports to India following the collapse of the Baltimore bridge as well as disruptions to rail
operations on South Africa's main coal export line, resulting in higher European natural gas prices.
The volatility in steel demand continued to be the key driver for the iron ore market and pricing. Fading
optimism and rising concerns for China's steel demand weighed on sentiment towards the end of 1H24.
The indication from the Chinese government regarding steel production curbs this year has dampened
market sentiment.
OPERATIONAL PERFORMANCE
COAL OPERATIONS
MARKETS
The bearish trend on pricing continued from 2023 into 1Q24, mainly driven by sufficient supply of coal
in major markets such as Europe, Japan, Korea, and Taiwan (JKT), with lower gas prices favouring gas
power generation.
There was a late recovery in prices towards the end of March 2024, mainly driven by geopolitics and
the Transnet Freight Rail (TFR) derailments in March and May 2024 which resulted in tight supply.
India's economic growth resulted in active participation in the seaborne market, with some headwinds
(strong renewables generation, revision of coal phase-out targets and cheaper gas prices) in Europe
and JKT expected to affect short-term demand and price sensitivities.
The South African market remained relatively stable, though macro factors impacted numerous
domestic end users. 1Q24 remained challenging regarding offtake from Eskom's power stations in the
Waterberg region, however improvements were observed in the second quarter. Price improvements
in 2Q24 improved the economics of exports through alternative ports, and also improved the demand
for export products in the domestic market.
PRODUCTION AND SALES VOLUMES
TABLE 1: Coal product
Product
'000 tonnes 2H23 1H24 % FY24 FY24 % FY23
Actual Forecast Change Forecast Previous Change Actual
(1) (1) Guidance
(2)
Thermal coal 21 005 18 095 (14) 39 410 38 611 2 39 824
Buy-ins 175
Total thermal product 21 005 18 095 (14) 39 410 38 611 2 39 999
(Including buy-ins)
Total metallurgical 1 077 997 (7) 2 325 2 465 (6) 2 465
Total product 22 082 19 092 (14) 41 735 41 076 2 42 464
(1) Based on the latest internal management forecast assumptions. Final numbers may differ by ±5%.
(2) Provided during the 31 December 2023 results presentation held on 14 March 2024.
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Production
Thermal Coal production: The expected decrease of 14%, is mainly linked to the lower demand from
Eskom at Grootegeluk, based on their latest internal plan.
Metallurgical coal production: Production aligned with market demand and logistics availability.
Total expected production remains within 2% of the guidance provided previously.
Tied mine (Matla)
Coal production and sales at Matla decreased by 1% in line with the end of the Mine 2 short wall and
the transition to the Mine 1 re-establishment.
TABLE 2: Coal sales volumes
Sales
'000 tonnes 2H23 1H24 % FY24 FY24 % FY23
Actual Forecast Change Forecast Previous Change Actual
(1) (1) Guidance
(2)
Thermal coal 18 390 15 317 (17) 33 656 33 727 34 733
- Eskom 12 212 10 714 (12) 25 438 25 875 (2) 23 693
- Domestic 2 821 1 293 (54) 2 790 2 852 (2) 5 025
- Tied (3) 3 357 3 310 (1) 5 428 5 000 9 6 015
Total metallurgical 344 277 (19) 625 636 (2) 684
Exports 2 661 3 269 23 6 579 6 023 9 5 109
Total sales 21 395 18 863 (12) 40 860 40 386 (1) 40 526
(1) Based on the latest internal management forecast assumptions. Final numbers may differ by ±5%.
(2) Provided during the 31 December 2023 results presentation held on 14 March 2024.
(3) Production supplied to Eskom.
Eskom sales are expected to decrease by 12% based on lower Eskom demand linked to their internal
maintenance and production plans.
Domestic thermal coal sales are expected to decrease by 54% based on the diversion of domestic sales
into the export markets, mainly at the Mpumalanga mines.
An increase of 23% is expected in export sales enabled by moving volumes through alternative export
channels, mainly at Belfast.
Total expected sales remain within 1% of the guidance provided previously.
TABLE 2: Coal Capex
R'million 2H23 1H24 % FY24 FY24 % FY23
Actual Forecast Change Forecast Previous Change Actual
(1) (1) Guidance
(2)
Grootegeluk Complex 1 511 962 (36) 2 116 2 261 (6) 2 217
Mpumalanga 145 155 7 558 474 18 216
Total 1 656 1 117 (33) 2 674 2 735 (2) 2 433
(1) Based on latest internal management forecast assumptions and estimates (excluding Matla). Final numbers may differ by ±5%.
(2) Provided during the 31 December 2023 results presentation held on 14 March 2024.
The coal business's capex is expected to decrease by 33%, mainly due to the timing of the equipment
replacement strategy and the license to operate projects at Grootegeluk and the Mpumalanga mines.
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LOGISTICS AND INFRASTRUCTURE
TFR railed 20.26 Mt to RBCT for the five-month period ended 31 May 2024, equivalent to an annualised
rate of 46.75 Mtpa. Three derailment incidences impacted negatively on export performance. TFR and
the coal industry continue to collaborate on efforts to improve rail performance. Industry has supported
various initiatives during the past six months and continues to engage to support improvement
initiatives.
ENERGY OPERATIONS
Cennergi's wind operations are forecasted to generate 325 GWh of electricity by 30 June 2024 (2H23:
392 GWh), which is in line with previous guidance. The average plant availability is forecast to be
marginally below the contracted availability of 97% in 1H24.
Construction of the 68 MW Lephalale Solar PV Project (LSP) at Grootegeluk continues with commercial
operations anticipated in 1H25.
CAPITAL ALLOCATION
In terms of the Group's Sustainable Growth and Impact Strategy we continue to evaluate investment
opportunities in minerals and energy aligned with our capital allocation framework and investment
criteria.
PORTFOLIO OPTIMISATION
The FerroAlloys disposal process is progressing well with the signing of a sale and purchase agreement
expected to be concluded in 4Q24.
SUSTAINABLE DEVELOPMENT
CLIMATE CHANGE RESPONSE STRATEGY IMPLEMENTATION
The refinement of the Exxaro decarbonisation roadmap has commenced. Upon finalisation, a peer
review of the roadmap will be undertaken to ensure credibility, risk management and capital allocation.
The goal is to finalise the roadmap in 3Q24.
Decarbonisation projects include the implementation of two nature-based carbon offset pilot projects at
Grootegeluk and Leeuwpan, with the objective of scaling across the group and creating social and
environmental impact.
SOCIAL INVESTMENT AND DEVELOPMENT
Social investments for the five-month period ended 31 May 2024 amounted to R1.045 billion,
(1H23: R 0.896 billion), building on the FY23 trend and commitment to creating socio-economic impact
in host communities. The local procurement spend on black Small Medium and Micro Enterprises
(SMME's) constitutes 74% of the social investment. Combined, these initiatives supported 237 SMME's,
through local procurement as well as enterprise and supplier development.
LEGAL MATTERS
As previously reported, in November 2023, the company received service of an application seeking the
permission of the High Court of South Africa to certify classes for purposes of a class action for damages
against Exxaro and three of its related entities, being Exxaro Coal (Pty) Ltd, Exxaro Coal Mpumalanga
(Pty) Ltd and Mafube Coal Mining (Pty) Ltd, as well as 14 other respondents.
Exxaro Resources Limited filed a notice to oppose the class action on behalf of Exxaro Resources
Limited, Exxaro Coal (Pty) Ltd and Exxaro Coal Mpumalanga (Pty) Ltd and will be filing its answering
affidavit in accordance with the agreed timetable.
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OUTLOOK FOR 2H24
ECONOMIC CONTEXT
Various headwinds to the anticipated global growth rates include financial conditions that will be less
accommodative than expected and geopolitical uncertainties. Global inflation is expected to continue
its downward path, barring any significant supply shocks. As a result, policy interest rates are predicted
to start declining, affecting both global investment sentiment and economic activity.
South Africa's real GDP contracted by 0.1% in 1Q24, after rising by 0.1% in 4Q23. An improvement in
economic activity is expected in response to easing infrastructure constraints, however, the growth
trajectory will be informed by uncertainty associated with South Africa's new government of national
unity and foreign exchange rate developments feeding through to inflation rate expectations which will
determine the scope for policy interest rate relief.
COMMODITY MARKETS AND PRICE
Extreme weather patterns, together with the anticipated tightness in spot supply availability, are
expected to support high Calorific Value (CV) seaborne thermal coal prices, offset by improving output
in Australia and better gas and nuclear performances in key markets. Turning to low CV seaborne
thermal coal, increasing renewables generation in China, along with healthy levels of inventory, will limit
any significant price increases.
India's strong economic growth and power demand is expected to continue driving seaborne demand,
despite robust domestic production.
JKT's demand is on the decrease mainly due to low electricity demand, due to a milder winter and
strong renewables and nuclear generation. Gas prices will continue influencing coal prices in JKT and
Europe, since it forms a significant part of the energy mix in those regions, resulting in switching
between coal and gas power generation.
The domestic market will continue to remain sensitive to macro factors which severely affect the coal
offtake for domestic end users, while export prices will remain the key driver for the demand of export
products in the domestic market.
The seaborne iron ore price will be supported as overall global steel demand is sustained with
continuous property sector stimulus measures implemented by the Chinese government.
BUSINESS PERFORMANCE
The TFR annual shut down is scheduled for July 2024.
Our optimization programmes focus on reducing cost and improving efficiencies across the whole value
chain, thus protecting our business from external factors. We are continuing with the digital programme
and advanced analytics to provide visibility and insights, which enable our business to be responsive
and resilient, throughout the prevailing economic conditions.
REVIEW OF THE UPDATE
The information in this update is the responsibility of the directors of Exxaro and has not been
reviewed or reported on by Exxaro's independent external auditors.
TELECONFERENCE CALL DETAILS
A dial-in teleconference call on the details of this announcement will be held on Tuesday, 25 June 2024
starting at 12:00 SAST.
PRE-REGISTRATION LINK
Participants must pre-register for the conference through the link below:
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https://services.choruscall.za.com/DiamondPassRegistration/register?confirmationNumber=6965352&
linkSecurityString=1b0dd24910
Please note that only registered participants will receive a dial-in number upon registration.
CONFERENCE REPLAY
A conference replay will be available one hour after the end of the conference until 4 July 2024. To
access the playback, dial one of the following numbers using the playback code 46358:
• South Africa 010 500 4108
• UK 0 203 608 8021
• Australia 073 911 1378
• USA 1 412 317 0088
• International +27 10 500 4108
To access the replay using an international dial-in number, please select the link below.
https://services.choruscall.com/ccforms/replay.html
25 June 2024
LEAD EQUITY SPONSOR AND DEBT SPONSOR
Absa Bank Limited (acting through its Corporate and Investment Banking division).
JOINT EQUITY SPONSOR
Tamela Holdings Proprietary Limited
EDITOR'S NOTE
Exxaro is one of the largest South Africa-based diversified resources companies, with main interests
in coal, iron ore and renewable energy commodities. www.exxaro.com
Interim results for the six-month period ending 30 June 2024 will be announced on or about
15 August 2024.
ENQUIRIES
Ms Sonwabise Mzinyathi: Acting Chief Investor Relations & Liaison
Tel: + 27 12 307 5000
LEGEND
1H23 – Six-month period ended 30 June 2023
2H23 – Six-month period ended 31 December 2023
4Q23 – Fourth quarter ended 31 December 2023
FY23 – Financial year ended 31 December 2023
1Q24 – First quarter ended 31 March 2024
2Q24 – Second quarter ended 30 June 2024
1H24 – Six-month period ending 30 June 2024
3Q24 – Third quarter ending 31 December 2024
4Q24 – Fourth quarter ending 31 December 2024
2H24 – Six-month period ending 31 December 2024
FYE24 – Financial year ending 31 December 2024
COMMODITY PRICES SOURCE
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Coal – IHS Energy
Iron ore – MB Online
DISCLAIMER
The operational and financial information on which any outlook or forecast statements are based has
not been reviewed nor reported on by the group's external auditor. These forward-looking statements
are based on management's current beliefs and expectations and are subject to uncertainty and
changes in circumstances. The forward-looking statements involve risks that may affect the group's
operational and financial information. Exxaro undertakes no obligation to update or reverse any forward-
looking statements, whether because of new information or future developments.
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Date: 25-06-2024 07:05:00
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