Exxaro Resources Limited (EXX) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Exxaro FD Pre-Close Conference Call. [Operator Instructions] Please note that this call is being recorded. I'd now like to hand the conference over to Mzila Mthenjane. Please go ahead.

Thank you very much, Irene. And good afternoon, good morning or good evening, depending on where you're dialing from. My name is Mzila Mthenjane and I head up Stakeholder Affairs of Exxaro. It's a pleasure to introduce to you the team that will be taking you through the FD's pre-close and will be led by our Financial Director, Riaan Koppeschaar. We also have on the call our CEO, Mxolisi Mgojo; Dr. Nombasa Tsengwa, who heads up the coal operations. And she's accompanied by her team in the form of Mellis Walker who looks after the finances on the coal side as well as Sakkie Swanepoel, who looks after Marketing and Logistics. And Riaan is also supported by Ms. Dashni Sinivasan. So without further ado, let me hand over to Riaan to take us through the FD's Pre-Close.

Thanks, Mzila. Good afternoon, ladies and gentlemen. It's a pleasure to engage with you again. If we look at the expected business performance for the first half of 2020, I'm firstly quickly going to look at the safety record. You all know that safety is very important to Exxaro. And for the year-to-date, the lost-time injury frequency rate was 0.1 against our target of 0.11. Also, we're very proud that we've achieved 38 months without a fatality thus far. If we look at COVID, the impact of COVID has obviously been pronounced on all of us, Exxaro is no exception. And you will also see in the document that various measures have been put in place across our operations to manage COVID-19. Nombasa and the team will also elaborate on that a bit later on. You will also see the number of positive cases in our operations, which is also increasing with the -- in line with the trend that we've seen in the rest of South Africa. When we look at commodity prices, we expect that the realized prices for the first half of the year will be lower compared to the second half of 2019, although we are seeing very strong iron ore prices at the moment. And that is mainly due to supply issues from Brazil. If we then look at the production and sales that we forecast, I think taking into account the current operating environment, it's really a very good performance. We forecast that production will only be 1% down and sales 2%, a very good performance indeed. Then CapEx, you will see that the CapEx is much lower compared to the second half of 2019. So we forecast the CapEx to decrease by 61%. That is mainly due to also project delays associated with COVID as well as the timing of our equipment replacements at the operations. Also important to note that Cennergi is now included in the results from the 1st of April. So Cennergi is not equity accounted anymore, it's now consolidated. And with the consolidation, we will also be consolidating debt of ZAR 4.7 billion. Remember, this debt has got no recourse to the Exxaro balance sheet. So we also set out there the net debt number for the group. So you can see there was good cash flow generation despite COVID, the first 5 months of the year. But as a precautionary measure, we've also drawn down on certain of our long-term loan facilities to give us additional flexibility. So at the moment, we're sitting with cash on hand of between ZAR 3.5 billion and ZAR 4.5 billion. Also, you will see in the document, Tronox, still the intention to monetize Tronox. But the level of share price is very low at the moment, so we don't think the timing is opportune now. When it comes to the disposal of the non-core assets, I think everything is still on track. We're fairly confident that on Black Mountain, we can still announce a transaction over the next few weeks. We're making very good progress there. And then as we announced in March, we have embarked on a process to dispose of Leeuwpan and ECC. So that process is afoot. There's a few -- quite a number of bidders looking at the asset. And we are still hopeful that we should be able to announce a transaction before the end of the year. So I think with that, that is just a broad overview. I will hand back to Nombasa and her team to give you a bit more color on the production, the sales, CapEx and what the markets are looking like. Thanks very much. Nombasa, over to you.

Good afternoon, ladies and gentlemen. Thank you for your time, and thank you, Koppes. Just in anticipation of the questions you may have, we'll request that you just indulge us, given the fact that we are on the lines, to try and cover as much ground to probably cover even those questions you may have. So I will take you through very briefly first on the operational response to COVID-19, before lockdown and also during the lockdown, and then obviously to it -- at those previous levels, which was 5, 4, and where we are at now at 3. Mellis will take you through more of the projects, in terms of where we are, and also CapEx, and Sakkie will look at the markets. So if we look at the period that followed the declaration of the national state of emergency announced by the President on the 15th of March, we really quickly guided the teams at our operations to make sure that we utilize all the guidance that we got from sources we could get hold of at that early stage, given what had happened in other countries, through the WHO, the National Institute of Communicable Diseases, the Department of Health, nationally, the DMRE. And then we matched all of that with our own experience in implementing the Health and Safety Act, which is also a very rigorous regime as these regulations had become as we saw them unfolding. So we as a team, we quickly put together, we did sort of like a risk-based scenario assessment where we quickly mapped out all our work areas for what we called risk-intense areas on the work places as far as where employees work and also looking at the amount of ventilation that is prevalent in these areas, whether we're looking at surfaces, we look at open pits, we look underground, we look in transportation, offices, workshops, all of those we did that mapping. And on that basis, we then tried to schedule our shifts in a way that we limited the number of people exposed in these risk-intense areas to the extent that early in that time, we were able to make sure that our teams were not exceeding 20 people, including doing away with unnecessary meetings unauthorized meetings, BU visits or operations visits. And we offered additional PPEs to our employees. We practiced sanitization, physical distances. And already then, we were able to establish a wall-to-wall management structures, flowing from head office all the way to the space, to ensure that we have seamless communication. And we had compliance where we even appointed -- making sure that our doctors were responsible to make sure that they guide us in this regard. And we also made sure that all risk protocols that we put in place were improved for all work areas by these committees. By the time the President, on the 27th of March, he had now introduced the -- or announced the lockdown, we were really ready in this regard. And as you know, that coal was declared an essential service for electricity generation and also for exports as a contributor, significant contributor to our economy. Now let me tell you what we did at the different operations in response. Grootegeluk was able to produce at 100%, and even though we say it was really near capacity because of some of our customers domestically that were impacted negatively. Matla exited at 75%; Leeuwpan and Belfast at 100%; ECC and Mafube at 50% capacity. So with that background, let me take you through the numbers. And I will be using -- taking you through table 1 on the FD statement that you have received this morning. And you will see that, as Koppes had said earlier that total production is expected to be more or less on par with our second half of 2019 levels. And this amount includes buy-ins. And if you exclude buy-ins, as he had mentioned, we would be at -- expecting to be 1% below. And on sales, as you can see, we expect to be 2% lower than the second half of 2019. Now let me take you through the left-hand part of -- left-hand side of your table, which is on production. Starting with thermal coal where we expect to be down 2%, and this is due to a 11% expected decrease from Mpumalanga operations, and that is where we really had a lot of impact due to COVID-19 pandemic, which had -- it had on the demand, especially at Leeuwpan and ECC. And we also had a 10-day shutdown at Leeuwpan, at Belfast and ECC over the Easter period. And really, this was to manage our stockpiles and also to preserve cash. And then at Matla, we were down about 9% due to the pandemic because we had to reduce our capacity to 75% and also to monthly geological issues. And maybe just on this before I just move on to others, one thing I just forgot to mention earlier is that we were very, very fortunate to respond very quickly after the opening of the permits that we could apply from all the authorities and really, the leadership of our CEO, who had really pulled through the industry to make sure that we're able to actually make this happen, so we were able to produce in this way. So I've already told you about thermal coal, in terms of where we had dips. However, we expect that there will be an offset by 4% due to an improvement at GG due to good coal production and also our Eskom offtake, which was better than the second half of 2019. And you will recall, last year, we had quite a few challenges from Medupi as far as the offtake. And one of the biggest contributors in that third quarter of '19, you will recall, it was a main feeder conveyor breakdown that Medupi suffered. Now looking at met coal, very pleasing to report an expected 34% increase in our production. And as a result, that is obviously on net coal as a result of our high-value strategy that we've been talking about, which has been enabled by our better value chain visualization from our digital programs. So this takes us to the expected 1% lower total production, which then excludes the small amounts of buy-ins that I've mentioned earlier on. However, overall, if you take into consideration and include those buy-ins, we are very much on par with our second half of '19. Now taking you to the right-hand side of the table, ladies and gents, on sales. If we look at just Eskom total volumes, they are expected to be 8% lower due to the still-to-be-realized tonnes from Leeuwpan and ECC. We had mentioned to you that there has been a delay with our negotiations with Eskom and the contracts for those 2 operations. And these are partly offset by the higher offtake I've already mentioned from Grootegeluk. Looking at Matla, same amount of 9% lower due to the reasons I've already mentioned earlier. Moving on to the total domestic sales, also expected to be 8% lower, which are impacted as well by the pandemic especially on our key customers, such as the distillers. As you know, they had not been nominated as essential services and also the likes of ArcelorMittal during this period. And partly offset by an expected 16% increase in our export sales due to the availability of our export coal and an increase in demand from alternative markets, as we have mentioned, mainly from Vietnam and countries like Pakistan. Sakkie can give you a little bit of color there. So before I hand over to Mellis to take you through his part, I must mention that it's been a very challenging time in our operations, trying to balance the need for preserving lives, which is very important to us, and also the imperatives of our country as far as the economy as we were required. And I must say that it took a great team for us to find this outcome where the teams, where they were looking at the health practitioners and our lives and looking at our own employees, there was serious commitment and they stood up to make sure that they actually deal with this challenge which has been an invisible enemy as our President has called it. I'm really very proud of my team. And having said that, I conclude by informing you that there is nothing that we see from the market thus far to suggest that we will be able to recover the lost tonnes as a result of the COVID-19 impact. So I don't want us to have that illusion, and you may be asking that question. And after Mellis, Sakkie will take you through our market experience over the last few months. And he will also give you his own reflections in respect of the outlook. Mellis, please, over to you, sir.

Thank you, Nombasa, and afternoon and morning and evening to everybody on the line. From a capital efficiency point of view, you know that we've been on a journey for a couple of years now where we've really turned over every dime in our capital budget and made sure that we've really looked specifically at sustaining CapEx and that we are really efficient about that. If we look at the table, firstly, we've got our first half '20 forecast, which is ZAR 1.3 billion, which is about ZAR 2 billion down from what we spent in the second half of last year. The substantial portion of that is the reduction in expansion capital as we can understand, specifically with the market where it is, the pandemic that has caused the construction industry to be quite hampered in terms of its progress. So when the pandemic kicked in, then obviously, lockdown 4 -- we're into lockdown 5, lockdown 4. And only at lockdown 3, which was the beginning of June, that some activity started, obviously, caused our contractors to take some time to get reestablished, and obviously, very serious protocols around getting the contractors back on site in terms of the additional risk that you now obviously introduced to your operations, and that's been done in a very considered and structured way. If we look at our forecast for 2020, it is down against our previous cost guidance that we gave you in March. The bulk of that is on the expansion side, as we can expect, with all the delays, specifically GG6. And ZAR 200 million of that is on sustaining CapEx, and we're quite proud that our reaction to the pandemic really has shown us that there are additional sustaining CapEx savings in the pot. So another ZAR 200 million that is permanent savings, not rollovers, and we're really proud of our reaction in that regard. GG6 was -- is going to be impacted by the delays that have happened by another 3 months. But we're looking at a 6-to-9 month delay now. So not looking at the end of this year any longer, but early 2021 in terms of the full production coming out of that expansion that we're running with. We've seen the operations really reacting and putting mitigations steps in place to limit the damage and the value distraction in the second half of this year, but we expect that in 2021 that we're going to have most of the impact reflected in our numbers. So really, that's just a summary, and we're very proud of our capital discipline, our capital diligence and the fact that we've managed to keep our sustaining CapEx really under good control. Thank you very much.

And then maybe we can take [ ESAC ]. If you can take us through what you saw in the period behind us and probably a bit of what may be lying ahead.

Thank you, Nombasa. Good afternoon, everyone on the line. Yes, we've come through quite a tumultuous time in our markets during this period. And I can just say, we were extremely well supported by our operations for keeping up the show and make sure we have product even at times when some of our competitors didn't have time -- did not have product at this specific time we could be in the market. So our operations did really very, very well. We were also very fortunate during this period that our -- we were very well supported by Transnet, by moving our product to Richards Bay and to those customers where we could continue in the domestic market to deliver coal by rail. So we really had very good support from Transnet, and this made this export performance very much possible. Talking about the export market itself, I think we've seen quite a few changes to the normal South African export profile, if you will, where India is taking more or less between 50% and 60% of South African exports in total. And then you have other smaller players thereafter, for example, Pakistan, normally a close second runner, and in other countries. Now what we had in this period, was quite a few of our markets going into lockdown, and also RBCT, not sure at some stage when the lockdowns will impact the port itself, there was a period that we could not nominate vessels for about 2 weeks. And also, there was a period where some of our customers were continuously pushing from April already to say to us they cannot take the coal because some of the ports that they take the coal to are in lockdown in some of the countries, and that pushed a lot of our vessels into the month of May. But we were very fortunate that as I say, India taking normally close to 60% of South African coal, and that is somewhere between 3 million and 4 million tonnes per month normally that they take. So in March, we've seen that India still took 3.2 million tonnes of coal from Richards Bay. And to give you an indication, for the month of April, that fell to 25% of that to only 850,000 tonnes. And then luckily, in May, we could see India coming back to be the biggest export destination again from South Africa, being close to 2 million tonnes but not at the normal level of, let's say, 3.5 million tonnes. We were very fortunate also in this period that Pakistan continued with the normal levels of demand, and we were able during March, April and May as South Africa to export to Pakistan more or less 75% to 800,000 tonnes per month combined for Richards Bay not just Exxaro. So we were -- as South Africa quite fortunate that Pakistan remained in the market. And then I think what really saved the South African exporters, to an extent, was both China and Vietnam continuing to buy quite a lot of coal during that -- those 3 months due to the low pricing. As you all know, South Africa generally do not export to China. But due to the fact that Indonesia and Australia and Russia could export to China, that had a positive impact on our market as well. So that really helped us in China really for the first 5 months of this year at very, very high import. Vietnam as -- was really the star during this period, where in the month of March they totaled 0.5 million tonnes. But then in April, Vietnam imported nearly 1.3 million tonnes from South Africa, and in May, that was 1.6 million tonnes. So Vietnam really coming in as a very strong off-taker of South African coal really has saved the day for us in this period. And that's why you will recall Nombasa say, we were fortunate to also have good demand from alternative markets where we're not, on a regular basis, maybe that competitive. But I think we did very well in the markets. We have, as I said, the wind behind our back from our operations that performed excellently, and our logistics worked very well in our favor as well. So I think for us, a really good time. In the domestic market -- or maybe let me stick to the export market looking forward, we are a bit nervous about the road going ahead. There is a gradual increase in inquiries from across the world but I can clearly see that the nervousness about the risk of potential second and third waves of the coronavirus, lockdowns in the world is spooking markets a bit. So we do see a lot of hesitation in markets. And we approach the second half with a bit of caution. Also just to remind you that in the second half of the year, we sit with the monsoon in India. India being 60% of South African sales, and the monsoon has started there already. So we know that normally has a big impact in the offtake during the next 3 months. We also enter the period now in the second half of the year, where we very regularly are quite disrupted due to bad weather and the impact of that on the ability of Richards Bay to accept vessels to load coal. And then on top of that, we do sit in a market that definitely is still quite oversupplied. What we saw in the export market is that the demand for coal both from industrial and power users went down much rapid -- more rapidly than what the production went down. And therefore, we really said at one stage, with the huge oversupply, with production not that impacted to the extent as demand was impacted, you will have seen prices have dropped to $40 per tonne on API4, which was, of course, a very nervous time for us in the markets. Luckily for us, the situation is better. There is more equilibrium, still definitely an oversupply, and we expect the seaborne coal sales this year, which is in the order of 1 billion tonnes per year on the thermal side, that we expect that to come down between 70 million and 100 million tonnes. So somewhere between 7% and 10% on a global scale this year. And we -- our view is that we definitely sit with at least 40 million tonnes of oversupply in the market. But due to India and some of the markets coming back, we do see an up [ in prices ] and you will have seen that we are away from the $40 per tonne on RB1, that we are closer to $50 and sometimes a little bit above $50 per tonne. I think on my side, that is probably the big story I wanted to share with you on the export side, not negative about the second half, but a bit cautious because we also just don't know how this will play out. In the domestic market, as Nombasa said, on the Eskom side went quite well but in the domestic market, quite impacted by some of our industrial customers not able to produce at all. And we do see that some of those customers are now coming back into the market, and there is a gradual uptick in demand from that. But we believe that it will take quite a bit of time for us to get to pre-COVID-19 levels. So also in that regard, we are not negative, but very realistic that this is not going to just blow over in 3 months' time. As I said, on the logistics part, we're positive. We really get very good performance from TFR, and we are quite satisfied with what's going on in that area. I think from my side for now, Nombasa, until we get new questions, maybe to stop there.

No. Thank you, Sakkie. I think that's the -- we leave it at that, Koppes, then we will take questions. Thank you.

Thank you very much, everyone. So Irene, then we can then take questions, and you can help us with facilitating the Q&A session.

[Operator Instructions] Our first question is from Thabang Thlaku of SBG Securities.

I just wanted to say congratulations. I think Exxaro has done well given the difficult times that we're in. I just have 2 marketing questions for Sakkie. Can you give us an indication where of -- rather where the RB3 price on average was for the last 5 months And then -- and also, are you able to give us a split of your RB3 versus RB1 exports?

Yes, Thabang, we -- thank you for the question, firstly. We will give this type of detail definitely during our results presentations. And we have not made a forecast on what our product split will be for the year. So I unfortunately do not have that question at hand. And as for pricing, again, I don't have the number in my head. If you think about API4 in the past 3 months varied between $40 and, say, $55. And you take a type of a discount of, let's say, $10 to that before see the adjust you can work out a type of price, or you can simply look at the RB3 price for the period. But I'm sorry, I don't have that period price in my head.

However, thank you very much for the congratulations, Thabang. We really appreciate it.

Next question is from Tim Clark of SBG Securities.

From my side, I think it was a startingly good result given the Transnet issues and other issues that you were faced. Can I just ask a couple of questions? First of all, just on CapEx, just for clarity. You mentioned, Mellis, that you've taken out CapEx for GG6, but you've got quite a bit of CapEx sitting in your FY '20 from March guidance for Thabametsi, ZAR 525 million. So is that still there? Because it doesn't sound like that's going to be spent. Because you're down about ZAR 500 million, but your reason you gave was GG6. So that's the first question. The second question I've got is just on your working capital. We've seen across a lot of the other miners out there that there's working capital impacts coming through from just the inventory build. And you do have a little bit more scale of production and sales. So I just wonder if you could talk about working capital a little bit.

Thanks for the question, Tim. Yes, the Thabametsi CapEx in our 2020 forecast, and that was similar to the guidance that we gave in March. Obviously, it's become a bit more clearer now. So there's nothing in there. So the expansion -- yes, the expansion CapEx, there was an increase, as you would see under the Mpumalanga side, a little bit from the previous forecast, and that was related to the capitalization of revenue and costs, with the finalization of that project coming to an end. So yes, so sustaining CapEx, that's a permanent saving. The rollovers will essentially be on the expansion side. If we look at working capital, we're very mindful of tying up cash in stock, and which is part of the reason why we took a 10-day shut at those 3 operations that we mentioned earlier during April, that was right over the Easter period. And we're also constantly monitoring and managing our receivables as well. That's a big risk item in times like we are when liquidity is really at a premium.

The next question is from Brian Morgan of RMB Morgan Stanley.

A couple of questions, but maybe just the first one. There's been quite a lot in the media about alternatives to installing FGD at Medupi. Are you in discussions with Eskom about sulfur content in coal? And add to that, is there anything you can do with GG6 to supply maybe a lower content -- a lower sulfur content coal to Eskom?

Sorry, can you repeat for me? Sorry, I did not get all of that. Sorry, Brian.

Yes, Brian, if I may, can I ask you to repeat your question?

Sure. I'll take my headset off. So there's been a lot in the media about FGD at Medupi and Eskom looking for alternatives to it. So have you been in discussions with Eskom about supplying a lower sulfur content coal to them? And can GG6 play a part in that?

Okay. No, I think Sakkie can then respond because he interacts with Eskom in terms of demand. Can you respond to that Sakkie?

Yes, no problem, Nombasa. Brian, yes, I think our maneuverability on the Exxaro side is extremely limited. We have had discussions with Eskom, not recently, quite a while ago, probably at least a year ago. The nature of the Grootegeluk resource is, on your top benches, you do sit with high sulfur. So benches 1 to 5 are at elevated sulfur levels of above 1%. And then when you -- you will remember that when you wash those top benches, you wash both power station coal and semi-soft coking coal as well as our RB1 from that. So what comes out of the different product streams is it is not the sulfur that you can wash out, if I can call it that. The sulfur is what it is. So the resource from a Grootegeluk perspective does not lend itself to low sulfur production from the top benches from which you produce the power station coal. And in fact, we sit with the same dilemma on our semi-soft coking coal that goes to AMSA, and we sit with a bit of the same dilemma on our RB1 product that we export. So it's not unique Eskom product problem. It is a -- the nature of the Waterberg reserve on the top benches. That's the dilemma we sit with, you can't wash it out.

Sakkie, I think Mellis is confirmed -- the fact is that the low sulfur has not necessarily been asked from us to -- we haven't been asked to change the level of sulfur as is also in the contract, right?

Correct. Correct.

Yes, yes. That's it, okay. Okay.

Okay, cool. And in terms of the ECC sale prices, ECC and Leeuwpan sale prices. When do you -- first of all, when do you expect to start shortlisting bidders? And secondly, at this point, does it look as though you would be selling this with or without the rail allocation?

Koppes -- I think Koppes has mentioned that we are in the process -- Brian, I hope I heard you. We're in the process and there are a few bidders that are busy looking at the assets, and we will be announcing just before the end of the year, hopefully, unless there is something that is unforeseen. And at this point in time, the rail or -- entitlement isn't part of the deal.

Okay. So just to be clear, the shortlisting you would expect at the end of this year?

Shortlisting? I thought that we said we will announce the transaction by the end of the year in terms of it being finalized or the important stage of probably announcing the buyer.

Okay, fine. And then the final question from my side is on the 2 force majeures that you were issued during this period. One at -- on coal supply and then the other at Cennergi. Now your argument is that those aren't valid force majeures. Now is the coal force majeure still in place? It's the first one. And then you said that the Cennergi one is no longer in place but you're presumably still going to challenge that, right?

Can you hear me?

Yes, Mxolisi, we can.

Yes. Look, as we indicated in our SENS that to the extent that we do not agree with Eskom on both of these force majeures, it is something that we put before them and expressed that view very strongly. And of course, they would have their own view with regards to that. But we have opened up a dialogue between ourselves to try and find an amicable outcome that hopefully will not result in taking any form of legal action because we don't think that's in the best interest of both parties. But we always will reserve our right to that in the event that we can't find each other in that regard. So that's all I can say at this point in time.

And I think what we've been saying as well, just to add to you there also to say we -- I mean these force majeures were not necessarily to Exxaro alone. They were to their suppliers across the industry. And when we said that the offtake -- we can see from the offtake results that we've announced today that Eskom has not been wayward or untoward in their offtake.

[Operator Instructions]

Sorry, carry on I was just asking if there are any other questions.

We have a follow-up question from Tim Clark.

Just a clarity question. I just want to be sure that your balance sheet position at the end of May of ZAR 5.3 billion already included the payment of the ZAR 1.55 billion for Cennergi. I would assume it does, but just so that we don't end up with a wrong number there. And then secondly, just I wonder if given all the measures that, Nombasa, you spoke about in relation to the pandemic, I wonder if you could talk about just if we should be worried or thinking a little bit about unit cost because you're operating very close to full capacity, so there shouldn't be a material fixed cost unit cost effect, a little bit from the lost sales but not significant, and it's only 1%.

Mellis, do you want to take that?

Thanks, Nombasa. Tim, in terms of unit cost production, there's been -- in addition to the CapEx savings that we've talked about, there's been significant cost reduction initiatives as a result of the reduced volumes and just as a result of the pandemic. So we don't see a big rand per tonne blowout as a result of the lower volumes and some of the additional costs that we may be incurring currently to comply with all the regulations.

Tim, Riaan here, on the debt number. So the ZAR 5.3 billion is after we've paid the Cennergi consideration.

Our next question is from Andrew Snowdowne of Sanlam Investment.

Can you hear me?

Yes, we can, Andrew. Go ahead.

I have a few questions, if I may. I'll ask them upfront and then maybe you can field them. I guess the first one is just some clarity on the CapEx. I think it's encouraging to hear that there's a permanent saving on sustaining CapEx of ZAR 200 million. Maybe you could just give us -- you gave us good guidance all the way out to FY '24. Am I correct to assume a lot of the reduction now is simply a delay so, therefore, it's a ZAR 600 million reduction versus your previous guidance for FY '20? Should I assume effectively ZAR 400 million to be caught up in FY '21, primarily on the expansion side? Maybe just some clarity relative to the previous longer-term guidance on CapEx. Should I continue with the rest? Or should we --- or you're happy to address this step by step? Up to you.

I think maybe continue with another 2 or 3.

Okay, right. And the next question is just with regards to the sales process for Leeuwpan and ECC, what's the -- you do make a comment in your release about that there's some pending application still with the DMR. One of them is execution or consolidation of the Leeuwpan rights into a single mining right. Could this potentially delay the sales process with Leeuwpan? How are you thinking about that within that sales process? And then the other one is just with regards to Arnot mine, as well arbitration is still continuing. And the point is made that you're still waiting for a resolution in terms of outstanding payment from Eskom. Could you remind us exactly how much -- what that number is in terms of the outstanding payments? And then a final question for me. Again, we're now consolidating Cennergi. We've now -- know what the net debt position is for the group including that, ZAR 5.3 billion as just confirmed. I was wondering whether you could give us any guidance in terms of financials for Cennergi as we don't really have much of a history to work on at this point in time.

Can I quickly deal with the authorization remark on the sales of Leeuwpan and ECC? Definitely not. Because what happens is once you -- Section 11 is approved, where the transfer of the mining rights goes to the buyer, all the applications that are in process, they then fall over to the buyer under the transfer of the mining right.

And is there no risk that this will delay the sales process? Because again obviously the [ bidders ] will be aware of this.

Absolutely not that we are aware of in this regard. Mellis, do you want to talk to the arbitration process and outstanding payment in that contract?

Yes. So on the first one, Andrew, the ZAR 400 million on expansion will be -- it's essentially a timing issue. The ZAR 200 million, you won't see in the numbers going forward in the longer-term guidance that we will give. The Arnot, it is -- so the arbitration was converted into an order of the court. Eskom still owe us about ZAR 70 million worth of management fees from the period that the CSA had ended up until it was handed over to Arnot OpCo, the empowerment deal that was done. So we're still pursuing our rights in terms of -- in that regard.

So I think most -- now, the most important thing is to note that the amount that we are busy claiming now from Eskom under the order of the court is not that big bulk amount of the environmental liability that we're due, it's the adjusted management. It's a small amount of ZAR 70 million. I think just to overemphasize where this is from.

Yes, I just wanted to clarify the magnitude of this thing.

Yes, yes.

And just confirm, that ZAR 400 million on CapEx, so will that all be caught up in FY '21? Will this -- or can we expect some spillover into FY '22?

I think at this stage, the expectation is that most of it will be caught up in 2021, Andrew. But obviously, we will look at the re -- let's say, resmoothing of our capital program once we understand exactly what that quantum is because we're not going to just chunk it up and add it to the 20 -- the original 2021 number. We'll have to look at the whole reprogram of our expenditure so that we can handle that in terms of our resources.

Perhaps I can come in on Cennergi. So Andrew, so on Cennergi, more or less, the -- if you look at the revenue on an annual basis, so remember now for 2020, we will only book for 9 months. But currently, on an annual basis, the Cennergi revenue is about ZAR 1.2 billion. The OpEx about ZAR 200 million, and then the EBITDA about ZAR 1 billion. Then the depreciation is more or less ZAR 200 million. And the interest expense on those loans are about ZAR 600 million. Adjusted -- we are still doing the final purchase price allocation. So these are just preliminary numbers. You'll recall that normally when you acquire an asset, there is a final purchase price allocation. This is sort of the pro forma numbers. They may still change, but just give you the math.

At least we have something to work off now. That's helpful. Good margins over there, but certainly on EBITDA. Maybe then just a final question for me. Again, yes, we've now got Cennergi as indicated by what you've just indicated, reasonable cash flows, albeit high interest charge there still. Can you -- are you happy to give us any sort of update in terms of related thinking on dividend, certainly, in terms of these results, the way Exxaro is performing relative to some of the other miners through this period? Any reason to be taking any sort of haircuts on what you would usually pay on dividend? Maybe you could give us some sort of update on related thinking on cash return to investors.

Yes. So the -- at this stage, obviously, the dividend is now something that the Board will finally take a decision on. But as things look now, we can't see any reason to deviate from our dividend policy. So as things stand now, we should continue with the current dividend policy.

Okay, so a full pass-through of the [ incumbent ] dividend, and we can also expect some dividend from the coal business, correct?

Yes, yes.

Our next question is from Johann Pretorius of Renaissance Capital.

I can only echo what others have said before, well done with the fantastic performance. Just 2 questions from me. The first one on GG6. What should we model there for the ramp-up now given that COVID may have slightly impacted it? How should we expect GG6 to ramp up? What will the total CapEx be on GG6 and what is the remaining CapEx? So that is the one part of -- or the first sort of cluster of questions. And then the second one, perhaps for Sakkie. Is South Africa perhaps benefiting from the political issues between China and Australia? It seems to us that perhaps China may be turning away Australian coal cargoes. Could South Africa be a beneficiary or perhaps even a medium to longer-term beneficiary from that?

Sakkie, do you want to start and then Mellis can come through with the GG6 and the timing and the CapEx there.

Will do, Nombasa. Johann, now for us, normally, look, it can go to 2 sides. But I think the default position with regards to China is that China normally do not import from South Africa. And the simple reason is that we must compete in China against Indonesia, Australia and Russia that's on their doorstep. And therefore, we need to discount our coal rather deeply to make up for the freight differential on the sea side. There's also sometimes a problem that China have with some of the trace elements in South African coal. But it -- we have seen over the past that, from time to time, we do get inquiries from China. So this is not a normal market for us. I think that the current -- there is obviously sociopolitical or economic issues going on in terms of the Australian-Chinese situation, but there's also a big effort by the Chinese to protect their own industry. As I've indicated to you that China has imported at record levels for the first 5 months, and there's actually a bit of nervousness in the market that China may block its imports much earlier this year than they've done in the recent years. But as far as Australia is concerned, for us, it's actually a problematic thing because if Australia cannot sell that coal to China, and it's most often the highest product, the RB3 product that they then can't sell there, then they must find another home for their product, which then invariably runs to outside of the world to our kind of backdoor markets like India, for example. So if anything, normally, it's very negative for us if China do not import Australian coal. And I do not foresee that it will soon become an opportunity for us.

Sakkie, that's perfectly clear.

Johann, thanks for the question. And on GG6, I think there's still quite a bit of work to be done before we get to the final answers. You know that originally, we talked about a 3-to-6-month delay, just with the lockdown and the associated delays through basically May, June and then July, we're looking at additional 3 months on top of that. So we're looking at between 6 and 9 months currently. So the revamped GG2 and the small coal plant, we're looking at between quarter 1 and 2 next year being completed. So that would be somewhere around March, April, May next year. There is obviously a risk of the number -- the CapEx number increasing because of these delays as well as the contracted changeovers that we've seen and some of the inefficiencies associated with that. We don't see a massive impact there, but there is very likely to be a slightly higher CapEx number eventually.

So just to clarify, the last number that I remember for GG6 was around ZAR 4.8 billion, and that was for a targeted semi-soft coal production of between 1.7 million to 2.7 million tonnes. Do those numbers kind of still hold and we should perhaps expect the CapEx to go up a bit? And where do you expect volumes to sit at the end of the day?

Johann, I think the volumes will be still in the 1.7 million to 2.7 million tonnes. The CapEx number is likely to be north of ZAR 5 billion. So maybe slightly above the ZAR 5 billion. But as I say, it's very early days so because we're still wrestling with, obviously, certain claims. And we're certainly trying to get everybody ramped up quickly enough, and timing is crucial to us. But it probably won't -- it won't -- what I can tell you, it won't be the ZAR 4.8 billion.

I think what we said, Johann, if you recall, what we said in March was that we will -- we think that if we go up to within 10% of the ZAR 4.8 billion, and we're still of the view that we will remain there. Nothing has changed so far.

Seems we have no further questions on the line.

Okay. Mzila, unfortunately, had to drop off because there's the power cuts in his area. So maybe then, if there are no other further questions, you want to wrap it up then, Koppes?

Yes. So thank you for the interest and for all the questions. I mean, if there's further questions you have, you're welcome to drop Mzila a line. And then we look forward to sharing the full half year results with you in August. So I don't know, perhaps we can just check on the line, are there any -- are there no further questions then?

We have no further questions, sir.

Okay. So thanks very much. Then I think we can end the call.

Thank you. I'm back on the line just-in-time to say thank you, everyone, for dialing in.

Just in time to wrap up.

Just in time to wrap up. But thank you to all the questions. And we will connect again on the 13th of August when we release our results, and we'll provide more information in that regard. And perhaps it's likely to be a virtual call again, but please look out for more information. Thank you very much, and keep safe.

Ladies and gentlemen, that concludes this conference. Thank you for joining us, you may now disconnect your lines.