Wrap Text
EXX - Financial Director's Pre-Close Message
EXXARO RESOURCES LIMITED
Incorporated in the Republic of South Africa
(Registration Number: 2000/011076/06)
JSE share code: EXX
ISIN: ZAE000084992
ADR code: EXXAY
Bond Code: EXX05
ISIN No: ZAG000160334
(Exxaro or the company or the group)
FINANCE DIRECTOR'S PRE-CLOSE MESSAGE
Financial year ending 31 December 2023 (FYE23)
This is an overview of the group's expected business performance for FYE23, encompassing strategic,
operational, and financial information. Unless otherwise indicated, all comparisons are against the financial
year ended 31 December 2022 (FY22).
DEAR STAKEHOLDER
As of 31 October 2023, Exxaro recorded eight lost time injuries resulting in a lost time injury frequency rate
(LTIFR) of 0.06 against the set target of 0.05. The current LTIFR indicates a 50% regression in performance
when compared to the same period last year. Exxaro has recorded three high potential incidents across
the group, compared to five for the full year ended 31 December 2022. To prevent potential incidents,
various safety initiatives have been deployed across all our business units.
In early 2023, global economic performance exceeded expectations, mainly led by the post-pandemic
recovery. Despite the continued challenges of elevated inflation, sharply higher global interest rates,
turbulence in the banking sector and geopolitical conflicts, the global economy has managed to avert a
recession. As the year progressed, global sentiment changed and weighed negatively on global economic
activity and commodity markets.
In respect of Exxaro's key commodities, the API4 coal export price index is expected to average US$122
(FY22: US$271) per tonne, free on board (FOB), and the iron ore fines price US$119 (FY22: US$120) per
dry metric tonne, cost and freight (CFR) China.
Total coal production (excluding buy-ins) is expected to remain flat, and sales volumes are expected to
decrease by 2%.
In terms of our capital allocation programme, we expect the capital expenditure for our coal business to be
about 57% higher when compared to FY22. This increase is mainly driven by higher spend at Grootegeluk
and Belfast.
As at 31 October 2023, the group had a net cash balance of R13.5 billion (excluding Cennergi Holdings
Limited's (Cennergi) net debt of R4.1 billion). As mentioned in August 2023, we will retain cash of between
R12 billion and R15 billion to fund our growth strategy.
We will provide a detailed account of FYE23 business performance and an outlook on the subsequent six
months (1H24) when we announce our annual financial results on or about 14 March 2024.
Yours sincerely
Riaan Koppeschaar
Finance Director
1
MACRO-ECONOMIC ENVIRONMENT
GLOBAL ECONOMY AND COMMODITY PRICES
World real GDP growth increased from an annual rate of 1.8% quarter on quarter in 4Q22 to 2.4% in 1Q23.
Aside from an appreciation to 2.9% in the second quarter 2023, the moderate economic growth pace,
recorded in 1Q23, is expected to continue for the rest of 2023. Strong momentum in the US, with increased
economic activity in Japan, India and Brazil provided the necessary support to the world economy. After a
3.1% increase in 2022, world real GDP is expected to expand by 2.6% in 2023.
For most of 2023, seaborne thermal coal prices have remained under pressure due to weak demand in
Europe and Northeast Asia. Both thermal coal and gas prices declined significantly as Europe remained
very well stocked with both gas and thermal coal. Stronger renewables availability further reduced the role
of gas and thermal coal in the European energy mix. Towards the end of 2023, natural gas supply risks,
the Israel-Hamas war and the uncertainty of the Northern Hemisphere winter were the key drivers for the
energy complex markets and pricing.
Despite the property sector weakness in China, the seaborne iron ore market was supported by the
resilience of China's steel output as the much-anticipated steel capacity cuts remained modest. In addition,
the property market policy easing, announced in August, is expected to stimulate property demand and, in
turn, stabilise the overall sentiment within the sector.
OPERATIONAL PERFORMANCE
COAL OPERATIONS
MARKETS
2023 has been characterised by coal price decreases due to a decrease in high Calorific Value coal
demand, driven by sufficient gas and coal stocks in Europe and Japan, Korea, and Taiwan (JKT). The coal
price decrease was exacerbated by warmer than usual winter temperatures, robust performance in
renewables and nuclear, and significantly lower gas prices.
2023 also saw a resurgence in Indian demand compared to FY22 levels, due to lower coal prices.
Changes in global trade flows were seen, as Australia resumed supply into China from a previous trade
ban, and Russian supplies to Europe and Japan reduced drastically, with Korea adopting a gradual
approach of weaning itself off Russian dependency.
China and India were the main demand drivers due to their economic growth and buoyant power demand.
The South African domestic market demand remained stable throughout the year across multiple products.
The decline in export pricing compressed margins and eroded profitability of alternative export channels.
Operational challenges and equipment failures at Eskom's power stations impacted on the offtake of power
station coal in the Waterberg region.
PRODUCTION AND SALES VOLUMES
The table below shows a year-on-year comparison of production and sales performance between FY22
and FYE23 as well as FYE23 compared to previous guidance.
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TABLE 1: COAL PRODUCTION AND SALES VOLUMES ('000 tonnes)
Production Sales
FY22 FYE23 FYE23 FYE % FY22 FYE23 FYE23 FYE %
Actual Previous Current Change Actual Previous Current Change
Guidance1 Forecast2 Previous Guidance1 Forecast2 Previous
Guidance Guidance
Thermal 41 136 39 379 40 555 3 41 402 39 697 40 700 3
Waterberg 27 849 26 430 26 629 1 26 800 25 610 25 719 -
Mpumalanga 7 130 6 936 7 913 14 3 231 3 240 3 840 19
Exports 5 214 4 843 5 128 6
Tied3 6 157 6 013 6 013 - 6 157 6 004 6 013 -
Metallurgical 1 988 2 832 2 427 (14) 691 737 748 1
Waterberg 1 988 2 832 2 427 (14) 691 737 748 1
Total (excluding
43 124 42 211 42 982 2 42 093 40 434 41 448 3
buy-ins)
Thermal coal
buy-ins 20 175 175 -
Total (including 43 144 42 386 43 157 2 42 093 40 434 41 448 3
buy-ins)
1
Provided at results presentation for the six-month period ended 30 June 2023 on 17 August 2023.
2
Based on latest internal management forecast assumptions and estimates. Final numbers may differ by ±5%.
3
Matla Mine supplying its entire production to Eskom.
Production
Thermal Coal production from Waterberg is expected to remain in line with previous guidance.
A 14% production increase against the previous guidance is expected at the Mpumalanga commercial
mines, mainly attributable to Belfast producing at full capacity following a recovery from the 2022 fatality
impact. Production also improved at Leeuwpan and Mafube which was enabled by optimal logistical
resource scheduling within the Transnet Freight Rail (TFR) limitations, and placement of additional product
in the market.
Metallurgical coal production is anticipated to decrease by 14% impacted due to poor rail performance.
Coal buy-ins are expected to be in line with previous guidance.
Sales
Domestic thermal sales are expected to remain in line with the previous market guidance in the Waterberg
region.
Mpumalanga domestic thermal coal sales are expected to increase by 19%, mainly attributable to the
increased domestic sales of product originally destined for the export market.
The forecasted 6% increase in export sales volumes from previous guidance is driven by optimal logistical
resource scheduling to mitigate low TFR performance. Increased export sales are planned at Mafube and
Leeuwpan, offset by decreased export sales at Belfast, where product has been placed in the domestic
market. Overall export sales are expected to decrease by 2% in FYE23 compared to FY22, due to poor rail
performance to Grootegeluk.
Metallurgical coal sales are expected to be in line with previous guidance.
Tied mines (Matla)
Thermal coal production and sales are both expected to be in line with previous guidance.
3
LOGISTICS AND INFRASTRUCTURE
TFR railed 39.43Mt to Richards Bay Coal Terminal (RBCT) from January to October 2023, equivalent to an
annualised tempo of 47.44Mtpa. The performance from Grootegeluk averaged three trains per week due
to the impact of security, vandalism, and locomotive shortages. The Mpumalanga export rail performance
averaged eight trains per week for the same period. Even though the coal export industry has supported
TFR where opportunities arose, no improvement in tonnage railed has been experienced.
ENERGY OPERATIONS
Cennergi's wind operations are forecasted to generate 720 GWh of electricity for FYE23 (FY22: 671 GWh).
Although Tsitsikamma experienced an Eskom distribution line fault in 1H23 resulting in 15GWh of lost
generation over the one-month period, an improvement in wind performance is expected from FY22. The
average plant availability is forecast to be above the contracted availability of 97%.
Financial close of the 68 MW Lephalale Solar PV Project (LSP) at Grootegeluk occurred on 30 June 2023.
Construction is underway and commercial operations are anticipated in 1H25.
CAPITAL ALLOCATION
We remain focused on supporting our early value coal strategy and sustaining the business operations
through our Capital Excellence journey.
TABLE 2: COAL CAPEX (R'million)
FYE23 FYE23 % Change
FY22 Previous Current Previous
Actual Guidance1 Forecast2 Guidance
Sustaining 1 374 2 344 2 460 5
Expansion 231 54 54 -
Total 1 605 2 398 2 514 5
1
Provided at results presentation for the sixth-month period ended 30 June 2023 on 17 August 2023
2
Based on latest internal management forecast assumptions and estimates, excluding tied operations. Final numbers may differ by
±5%.
Capital expenditure for FYE23 is expected to be 5% higher compared to the previous guidance provided in
August 2023.
Our Capital Excellence journey is being embedded, resulting in investment in projects that have a high
impact on business performance being prioritised.
Matla Mine 1 project
The Matla Mine 1 Relocation project commenced with construction in August 2020. Eskom has now
approved all required funding to implement the project. The expected completion date of the Matla Life of
Mine project is 1H26.
PORTFOLIO OPTIMISATION
INVESTMENT IN GROWTH
We actively evaluate and participate in investment processes for our minerals and energy businesses.
SALE OF NON-CORE ASSETS AND INVESTMENTS
As part of the broader Exxaro strategic review, the company continuously seeks opportunities to unlock
value to support its Sustainable Growth and Impact strategy. As previously mentioned, Exxaro has identified
that the FerroAlloys business is no longer a strategic fit within our envisaged Minerals business portfolio
and a sales process has commenced in 3Q23 to dispose of our entire shareholding in Exxaro FerroAlloys
Proprietary Limited. Exxaro aims to enhance the economic participation of Black-owned companies in the
South African economy. In line with this intent, Exxaro has earmarked the FerroAlloys disposal process to
target Black ownership. The sales process is anticipated to be concluded in 2Q24.
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SUSTAINABLE DEVELOPMENT
CLIMATE CHANGE RESPONSE STRATEGY IMPLEMENTATION
Our draft decarbonisation roadmap (roadmap) to carbon neutrality by 2050 has been completed and
currently reflects short-, medium- and long-term targets. Our short-term emission reduction target of 40%
by 2026, which is based on the FY22 emissions, remains relevant. In line with Exxaro's philosophy of
inclusiveness and stakeholder engagement, we have embarked on a business unit consultation phase on
the roadmap to get further insights and inputs for refinement purposes. It is envisaged that this consultation
process will be completed by the end of 1Q24.
SOCIAL INVESTMENT AND DEVELOPMENT
Social investments at 31 October 2023 amount to R1 392.2 million, compared to R 1 344.27million for the
same period in FY22, building on the FY22 trend and commitment to creating socio-economic impact in
host communities. The local procurement spend on black SMME's constitutes 74% of the social investment.
Combined, these initiatives supported 240 SMME's and provided 360 employment opportunities.
LEGAL MATTERS
Shareholders of Exxaro are hereby advised that on 23 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 subsidiaries, being Exxaro Coal (Pty) Ltd, Exxaro
Coal Mpumalanga (Pty) Ltd and Mafube Coal Mining (Pty) Ltd, as well as 14 other respondents.
The application is brought by 27 applicants, comprising of current and former mineworkers who state they
have contracted coal mine dust lung disease, alternatively, by the dependants of mineworkers whose
deaths they state are probably attributable to coal mine dust lung disease contracted on certain coal mines
during specified time periods. They seek to hold the respondents liable on the basis that the respondents
are alleged to have owned, controlled, managed, or operated the mines or employed the mineworkers at
those mines.
The Company is currently reviewing the application and obtaining legal advice on the appropriate course
of action.
OUTLOOK FOR 1H24
ECONOMIC CONTEXT
Global inflation is expected to continue its downward path, although towards the end of 2023, energy-
related pressures temporarily stalled this trajectory. As a result, policy interest rates are anticipated to
remain restrictive for longer, affecting both global investment sentiment and economic activity.
Despite unprecedented rolling load-shedding, South Africa's real GDP grew by 0.9% year-on-year in the
first six months of 2023.The modest upside reflected higher investment in machinery and other equipment
and a better than anticipated response to load-shedding. The ongoing constraints of inadequate electricity
and logistics supply have limited the local economy's future productive potential.
During 2023, the rand lost significant value against major global currencies. Intensified load shedding with
the perceived risk of a potential grid collapse, a widening current-account and fiscal deficit, US dollar
strength, global recessionary risk and widespread geopolitical tensions were the main reasons attributed
to rand weakness. The anticipated positive change in global economic sentiment, with interest rates
peaking and pivoting, together with the associated implications, as the catalyst for investor confidence and
economic activity, are expected to support the USD/ZAR exchange rate into 2024.
5
COMMODITY MARKETS AND PRICE
Despite the uncertainty regarding the severity of Europe's winter and potential risks around natural gas
availability and prices, continued strong Chinese thermal coal imports are anticipated to remain supportive
of prices.
Winter restocking in Europe and JKT is expected to drive prices higher than current levels in 1Q24. This is
likely to be supported by increased economic growth in China and India. Europe's drive for decarbonisation
and an increase in renewables will continue, further dampening coal demand in the long term, including a
decrease in power demand to pre-Covid levels (2020). The risk of further gas cuts from Russia remains,
albeit efficiently managed through buffer storage.
Ample supply from Australia and Indonesia due to strong production as a result of dry weather is expected
to keep prices steady on the seaborne market.
Rising iron ore supply and exports will be a limiting factor for the iron ore prices during 1H24. Supply
increases from major miners are expected, with a relatively flat Chinese demand. A stronger for longer
pricing environment is expected to prevail, supported by higher marginal cost levels.
A positive outlook on Eskom's availability factor presents some upside on the supply of power station coal
in FY24. Export pricing will continue to strongly influence the economics of the road trucking of coal to
alternative export channels and subsequently drive demand for export product in the domestic market in
FY24.
OPERATIONAL PERFORMANCE
Our coal business performance continues to be impacted by logistical challenges, and low commodity
prices. However, through our Optimization programme which focuses on improving efficiencies across the
value chain combined with the utilization of insights from advance analytics, we continue to alleviate the
impact of external factors on our business.
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 Wednesday,
29 November 2023 starting at 12:00 SAST.
PRE-REGISTRATION LINK
To register for the conference call please pre-register through this link:
https://services.choruscall.za.com/DiamondPassRegistration/register?confirmationNumber=6143486&link
SecurityString=1022e145de
Please note that only registered participants will receive a dial-in number upon registration.
PLAYBACK
A playback will be available one hour after the end of the conference until 4 December 2023. To access
the playback, dial one of the following numbers using the playback code 45400:
• 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
Participants will be required to state their name and company upon entering the call.
6
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
the coal, iron ore and energy commodities. www.exxaro.com
Annual financial results for the year ended 31 December 2023 will be announced on or about
14 March 2024.
INVESTOR RELATIONS
Ms Ling-Ling Mothapo: Chief Investor Relations & Liaison
Tel: +27 12 307 6000
LEGEND
FY22 – Financial year ended 31 December 2022
1H23 – Six-month period ended 30 June 2023
2Q23 – Second quarter ended 30 June 2023
3Q23 – Third quarter ended 30 September 2023
4Q23 – Fourth quarter ending 31 December 2023
2H23 – Six-month period ending 31 December 2023
FYE23 – Financial year ending 31 December 2023
1Q24 – First quarter ending 31 March 2024
1H24 – Six-month period ending 30 June 2024
COMMODITY PRICES SOURCE
Coal – IHS Energy
Iron ore – MB Online
DISCLAIMER
The financial information on which any outlook statements are based have not been reviewed nor reported
on by Exxaro'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 operations, markets, products, services, and prices.
Exxaro undertakes no obligation to update or reverse the forward-looking statements, whether because of
new information or future developments.
29 November 2023
7
Date: 29-11-2023 09:58:00
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