A slowdown in global economic growth, supply-side disruptions, escalating US-China trade tensions and energy transition themes have all impacted on the commodities that diversified miner Exxaro Resources has produced in the year-to-date.

In a preclosed-period trading update for the financial year ending December 31, published last week, the company said its coal business had been performing well so far, with a 2% decrease in production volumes forecast for the full year, despite the estimated 6% decrease in coal demand from embattled State-owned power utility Eskom’s Medupi power station, in Limpopo.

FD Riaan Koppeschaar said total coal capital expenditure (capex) would be about 2% lower than 2018’s capex, owing to a reduction in sustaining capex as a result of the timing of truck replacement at the Grootgeluk mine.

This would be offset, to some extent, by an increase in expansion capital, largely driven by the acceleration of the Belfast project, and Exxaro Coal Central’s (ECC’s) expansion capex on the Dorstfontein West 4 Seam project.

Good demand for sized product in the domestic market had continued since the beginning of this year, he added, particularly as more domestic supply was available, owing to weak export prices and domestic pricing having remained stable.

The seaborne thermal coal market, however, remained oversupplied, with export sales prices having dropped by about 40% this year, after having traded at about $100/t in 2018.

The soft ban on coal imports in China and a sluggish Indian economy, despite India continuing to draw on South African coal, put a lot of pressure on seaborne trade, Koppeschaar said, adding that European stock levels remained relatively high because of cheap gas prices.

Exxaro expected its thermal coal production for the year to reach 43.7-million tonnes, compared with previous guidance of 44.3-million tonnes.

Its total coal output is expected to reach about 45.9-million tonnes, compared with previous guidance of 46.4-million tonnes.

Meanwhile, with the conclusion of Exxaro’s replacement empowerment shareholding transaction, the miner undertook to transfer at least 10% of its 24.9% shareholding in Eyesizwe into structures for the benefit of Exxaro’s employees and communities in the vicinity of its operations.

It is anticipated that implementation will be concluded in the first half of 2020.

Turning to coal logistics and infrastructure, Koppeschaar noted that Transnet Freight Rail had railed 59.4-million tonnes to the Richards Bay Coal Terminal from January to October.

This, he added, was equivalent to an annualised figure of about 70.5-million tonnes a year.

Export rail performance from Grootegeluk had declined after the yearly coal line maintenance shutdown, which was exacerbated by a collision between two trains at the Matlabas crossing between Thabazimbi and Lephalale, in October. High-level engagements were ongoing and train planning had been approved at levels above five trains per week.

For its commercial mines, coal production from the Waterberg was expected to decrease by 6%, in line with reduced Eskom demand at Medupi, while production at the Mpumalanga commercial mines was expected to be 15% higher than 2018’s production, owing to both the Mafube and Belfast mines being ramped up, as well as higher production at ECC and Leeuwpan, partly offset by the negative impact of the sale of the North Block Complex (NBC) operation in 2018.

Metallurgical coal production was expected to be in line with 2018 production, and coal buy-ins were expected to be 75% lower, as a result of higher coal availability from Exxaro’s own mines.

The expected 12% increase in export sales volumes would be driven by the availability of export product from the miner’s own operations, and total sales to Eskom were expected to increase by 3% as a result of higher sales from Leeuwpan and ECC, partially offset by lower offtake by Medupi from Grootegeluk and the NBC divestment in 2018.

Given Exxaro’s deliberate strategy to divert sales volumes from Leeuwpan to the export and Eskom markets, as well as the NBC divestment in 2018, the miner’s domestic thermal coal sales volumes were expected to decrease by about 34%.

Thermal coal production and sales were both expected to decrease by 11%, mainly owing to the Mine 3 shortwall ceasing production earlier than expected as a result of safety concerns.

Meanwhile, the implementation of the Thabametsi Coal independent power producer (IPP) had been delayed, owing to, among others, the finalisation of licence-to-operate approvals and lenders withdrawing their support or funding for power stations using “old coal technology”.

Exxaro confirmed that it had now completed all Thabametsi mine studies and obtained all the necessary licences to operate, but was still working on the financial close of the project.

Engagements in this respect were taking place with the project developer of the coal IPP to get clarity on the future of this project.

Exxaro also reported that first coal from its greenfield Belfast mine, in Mpumalanga, was produced through the beneficiation plant in September.

The project remained ahead of schedule and within budget.

Production at Mafube Nooitgedacht, meanwhile, was on track and the mine was expected to produce at nameplate capacity by the fourth quarter of this year.

For the first half of 2020, Exxaro expects domestic thermal coal demand and pricing to remain relatively stable.

Exxaro said it expected the Medupi offtake from Grootegeluk to continue to be in line with the current offtake plan, and the miner welcomed the release of the 2019 Integrated Resource Plan, as well as government’s announced efforts to secure Eskom’s financial viability.

The closure of ArcelorMittal South Africa’s Saldanha Works was not expected to impact negatively on Exxaro, as the high-value product could be placed in alternative markets, said Koppeschaar.