Transnet boosts Exxaro’s coal railing, Eskom paying invoices

6th March 2014

By: Martin Creamer

Creamer Media Editor

  

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JOHANNESBURG (miningweekly.com) – State-owned rail enterprise Transnet was praised at Thursday’s Exxaro Resources results presentation for boosting the JSE-listed company’s coal exports by 15% last year and facilitating the doubling of them in 2014.

But at the other end of the parastatal spectrum, investors had to be assured that State energy utility Eskom was making shortfall payments to Exxaro at the Medupi power station project, which is significantly behind schedule.

“We are ready to deliver coal but Eskom is not ready to take it,” FD Wim de Klerk said at the results presentation, which saw Exxaro’s headline earnings rise 4% in the 12 months to December 31 and the company’s board approve a final dividend that is 10% higher than last year’s.

The company, headed by CEO Sipho Nkosi, has now had no fatalities in the past 14 months and has improved its lost-time injury frequency rate by 34%.

“There is some discomfort that Eskom does not pay us. That is not true. Eskom pays us every month on the invoice that we send them. There is absolutely no truth behind the rumour that we have not been paid the R1.5-billion up to now,” said De Klerk.

Exxaro, which has received R2-billion in shortfall payments from Eskom over the past two years, was guaranteed to receive R1.5-billion in shortfall payments this year.

Nkosi assured that while there were occasional challenges with Eskom, the utility was a “solid customer”.

“At the end of the day, we will deliver the tonnages to Medupi because I cannot see this country going forward without that project.

“We have built a very good partnership with Eskom and also with Transnet. The work that Transnet has done is quite remarkable in the Waterberg,” Nkosi said.

Transnet, which has improved the Grootegeluk rail line, is now providing four trains a week, up on its previous two a week, which, if sustained, will double Grootegeluk’s export capacity to 4.5-million tons a year in 2014.

“We are now focusing on growing our coal export business and the initiatives being taken are quite critical,” Nkosi added.

Exxaro operational head Mxolisi Mgojo told the meeting in response to Standard Bank mining analyst Tim Clarke that Transnet’s intention over the next three to four years was to increase capacity of the rail line from the Waterberg coalfield to 28-million tons a year.

In the current period, the capacity had been increased from 4-million tons to 6.5-million tons a year through the creation of an additional rail loop.

Another loop to be put in place during 2014 would take the capacity to 10-million tons a year and allow 200-wagon trainsets to function from Richards Bay Coal Terminal through Ermelo into the Waterberg.

“A lot of work has been done on the ground, which Transnet does not shout about, but we always say that the real test is the actual movement of coal,” Mgojo said.

STOPPING MARKET ‘RATTLE’

Nkosi said that the upcoming May 7 national and provincial government elections made 2014 a year in which discussions had taken place with politicians on the government’s contention that both coal and platinum were strategic assets.

“Behind the scenes, we work very hard with the government in trying to deal with those issues so that it does not rattle, impact or affect the market."

Indeed, the reason the Mineral and Petroleum Resources Development Act Amendment Bill was still being debated was because of government’s acceptance that the Chamber of Mines was able to make a contribution to its improvement.

THABAMETSI PROJECT

New business development head Ernst Venter said that the Thabametsi coal project could virtually mimic the company’s flagship Grootegeluk coal operation in size.

“Thabametsi is very important to us because it takes the company forward and so does Belfast colliery,” Nkosi added.

Exxaro, which produced 3% more coal at 38.7-million tons, exported 4.5-million tons and headline earnings a share were 1 463c.

A final dividend of 315c a share has been declared, bringing total dividend for the year to 550c a share, up 10%.

Net operating profit was R759-million lower at R2 658 million mainly as a result of the exclusion of the discontinued operations in the 2013 results.

The operating loss was partially offset by a 32% increase in coal’s net operating profit as well as R157-million lower costs.

Headline earnings were R5 194-million. or 1 463c a share, representing a 4% increase on 2012, mainly owing to the 32% increase in the coal business net operating profit.

Cash generated from operations of R2 159-million was used primarily to fund net financing charges of R192-million, taxation payments of R158-million and dividends of R1 387-million.

A total of R4 764-million was spent on buying property, plant and equipment of which R3 507-million was invested in new capacity and R1 257-million applied to sustaining and environmental capital.

Of the funds spent on new capacity, R1 812-million was for the Grootegeluk expansion and R1 613-million for the Mayoko iron-ore project in the Republic of Congo, on which go-ahead finality is expected later this month.

Dividends from Sishen Iron Ore Company of R2 664-million and Tronox of R507-million helped to restrict net cash outflow to R1 058-million for the year.

Net debt increased to R3 377-million, reflecting a net debt to equity ratio of 10%.

The company has disposed of the Zincor zinc refinery and signed an agreement to sell the New Clydesdale colliery.

Exxaro’s wetland strategy is in its final stages of development, with the completion of a detailed wetland study for all business units to mitigate the impact of mining on water resources.

Two water treatment plants, at Matla and North Block Complex, will be commissioned in the second and fourth quarters.

Exxaro, with the financial services firm KPMG, has conducted a social return on investment assessment of its social and labour plan projects, providing clear means of determining which social projects add value to a community.

Exxaro will invest R299-million in 63 local economic development projects over the next five years.

The Leeuwpan mine in Delmas, Mpumalanga, handed over 25 houses valued at some R6.5-million to residents of the nearby Botleng community as part of the social plan, benefitting 100 beneficiaries.

Five local contractors were empowered with skills development when they were appointed to each build five of the 25 houses.

Group consolidated revenue decreased by 16% to R13 568-million, mainly as a result of the exclusion of the mineral sands and Rosh Pinah businesses in the 2013 results.

 

Edited by Creamer Media Reporter

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