Exxaro Resources Limited (EXX) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Exxaro FD Pre-Close 2025. [Operator Instructions] Please note that this event is being recorded. I will now hand over to your host, Anda Mwanda of Investor Relations. Please go ahead.

Thank you, operator. Ladies and gentlemen, good morning. Welcome to Exxaro's Finance Director's pre-close message for the financial year ending 31 December 2025. My name is Anda Mwanda, Acting Investor Relations and Communications Head here at Exxaro, and I will be facilitating this session. I'm joined in the room today with our Chief Executive Officer, Ben Magara; our Finance Director; Riaan Koppeschaar; Executive Head of Coal, Caroline Shirindza; Richard Lilleike, who's our Executive Head of Strategy and Business Development; Leon Groenewald, Executive Head of Energy; Mervin Govender, Executive Head, Technical Services, who also in the room are also joined by a relevant supporting team. Our agenda for today is as follows: Riaan Koppeschaar, our Finance Director, will take us through the FD pre-close and will also chair this meeting today. After that, we will have an opportunity for questions and answers. With that, over to you.

Thanks Anda. Good morning, ladies and gentlemen. It's good to engage with you again on our expected financial results for the group. As always, we start off with safety. On the safety front, we're doing well. We're now, as of the end of October, 38 months without any work-related fatality and we still forecast that our lost-time injury frequency rate will be at 0.05 within our threshold that we set in the group. Also, we will later on give you a bit of more detail on some of our strategic initiatives. You might have seen we announced the disposal of the FerroAlloys business. Richard will give a detailed understanding of that as well as on the acquisition of the Manganese assets where we currently stand. You will see in an announcement that certain of the conditions have been fulfilled. Also last week, we announced the acquisition of two wind assets that we acquired from Acciona. We will ask Leon Groenewald to [indiscernible] an update on that. And then if I delve into the financial results of the -- expected financial results, obviously being impacted by firstly prices you will see the forecast the coal price to be $89 per tonne compared to $105 a tonne last year. And then on the iron ore $100 per dry metric tonne compared to $109 last year. So definitely, we are in a lower pricing environment. Then the results are also impacted by the pressures associated with logistical constraints, as we pointed out in the past as well as also on variable Eskom offtake that we experienced in the group. So if we look at the production and sales numbers in the announcement, you will see that the coal production is in line with our guidance and also very much in line with 2024. When we turn to the sales numbers, you can see that on thermal sales, we are also within guidance, but we are expecting a 2% increase mainly due to a 30% increase in domestic sales and also increased sales from our Matla mine as the life expansion projects are coming to a conclusion. Also you will see metallurgical sales, 49% lower driven by lower demand from the steel and metals industry in South Africa. So definitely, at this point in time, we're forecasting within the guidance that we gave earlier the year. Synergy also good performance from availability. We forecast availabilities to be above the 97% threshold. And you will see in the announcement also that the wind generation this year is lower than last year, mainly attributed to lower wind conditions that we experienced. I'm also pleased to announce that on the capital allocation front, we've completed the repurchase program that we announced in March 2025. So we bought back just over 7.3 million shares equivalent to 2.12% of the issued share capital. If you look at capital expenditure, you will see we forecast it to be about 7% higher compared to the 2024 number. It's mainly related to the truck and shovel replacement strategy that we're embarking on at the Grootegeluk mine as well as the double benching project at our Belfast mine. Note on cash balances, the cash balance as at the end of October was at ZAR 18 billion. And also just take note that there is still a provisional tax payment in December that we forecast at this stage to be about ZAR 1.3 billion to ZAR 1.4 billion. So with that, I'm going to ask Richard to quickly give an overview on FerroAlloys as well as the Manganese acquisition.

Thank you, Riaan. I'm pleased to say we've made very good progress in our sustainable growth and impact strategy through the announcements that we've made. On the FerroAlloys divestment, we're pleased to announce that on the 31st of October, we successfully concluded the transaction after all CPs having been met. We sold the company to a consortium led by Eversed, a new BEE entity in conjunction with management and employees. So a truly transformational deal in the FerroAlloy space, meeting our goals of what we set out to do when we announced the transaction in 2023. On Manganese, we have made very good progress on the transaction announced on the 13th of May to acquire Manganese assets from Ntsimbintle Holdings. We are pleased to say that we have received all competition authority approvals, including Competition Commission and the Competition Tribunal for the entire transaction. We have also received ministerial approval under Section 11 of the Mineral and Petroleum Resources Development Act for CP. So these are two fantastic milestones in realizing our ambition of becoming a meaningful player in the Manganese sector. We still have a few outstanding conditions to be met before we can close the transactions. We are still aiming for a Q1 announcement, depending on how developments go on some of these outstanding CPs.

Thanks, Richard. Leon [that’s] overview of the energy assets we acquired.

Yes. Good morning all. I'm proud to announce that we acquired a majority stake in the Acciona assets, of Gouda wind farm, which is 138 megawatts and Sishen solar farm, which is 75 megawatts. And then we have in line with our services expansion strategy also acquired an 80% equity stake of the O&M company. The price is as it stated there, ZAR 1.7 billion to ZAR 1.8 billion. These two projects are -- [indiscernible] two projects under the LEAP program. They are 20-year take-or-pay agreements. And we believe that as part of our strategy as long-term shareholders in project that we can extract further value out of these projects because our view is not short term just to run the numbers. So this adds another 117 megawatts net because it's only a 54.9% equity stake, and that brings our portfolio to roughly 500 megawatts in operation and in construction.

Thanks very much. Anda, we can probably at this stage can take any questions. Thank you.

Thank you, Leon. We'll now open to questions and answer those questions. Over to you, operator.

[Operator Instructions] Our first question comes from Tim Clark of SBG.

Congratulations on the results. I've got a couple of questions, please. Can I just start with coal sales? We spoke to Thungela recently, and we've seen reports recently of quite good volumes in the second half on TFR on the coal line. I wonder if perhaps there's -- you could give us some color on the Waterberg link down to the coal line. And my sense is that Waterberg line is remaining a bit of a constraint and limiting your ability to take advantage of potential additional export volumes. I mean it sounds like there might be some leasing available from other participants on the line. That's my first question. I'll come back on the second.

Okay. Thanks, Tim. We'll ask Sakkie Swanepoel to answer.

Tim, thanks for the question. Now, Waterberg remains a bit of a headache for us in terms of increasing the flow of trains from Lephalale down to RBCT. We see sporadic increases and then it goes back again. We are in very constructive discussions with TFR on that in seeing what we can do to increase the flow of trains there, including discussions with Trump on the infrastructure side to see what we can do there at Exxaro to assist. So yes, Waterberg remains more or less at the same levels that it was in the first half.

Does that mean that your ability to lease or to take -- to ramp up if Transnet does perform is somewhat limited? Or is there -- how much capacity do you think you can get out of the Mpumalanga mines?

Yes. Look, the capacity to lease is maybe a strong statement because sometimes people say they will lease capacity, but it's not an economical tariff that they are willing to lease it out. So at this stage, we -- as you say, we will not take on entitlement TFR or RBCT for the purpose of the Waterberg because the constraint remains on the line. That is not going to help us there. And in Mpumalanga, we are not in discussion with anybody currently on leasing entitlement.

Just my second question, please, is on this renewables acquisition in the last couple of days. My understanding is that there's project finance debt of over ZAR 2 billion, ZAR 2.1 billion to ZAR 2.3 billion in the vehicle. I wonder if you could just answer or help us with two things, just to help us modeling it. First of all, some idea of the kind of IRR hurdles that are contractually in place. Obviously, the assets have additional optionality beyond that. And then secondly, that services element, is it material, immaterial? Can you give us some kind of steer on contribution from the services side, please?

Yes. So Tim, let me go for it. So the project finance is typical around 2 project finance. I think the debt [indiscernible] they were about 15 years on average. So that's typical for that. I think later rounds have longer tenors. So if you look at what I can give guidance to the market is to say is that the project finance debt has not been refinanced, and that's part of the optimization. So you can assume typical rates for those assets and at those margins, so probably north of [300 bps]. Then, from an IRR perspective, it fits in well with our stated group policy of the portfolio IRR of between 14% and 15%. So that's more or less what we are aiming for. On the services side, Tim, the idea is not -- I think services will start small. The value add that we want there is, firstly, to learn the ropes on the solar side. So we're inheriting a fully fledged solar O&M team that does the maintenance for us. What this helps you with is having a first-hand understanding of this and this then as part of our future business where you usually outsource some of this, we will now bring that money into the company. So that's the logic there. So it's not necessarily a big money spend, but I think in terms of operational efficiencies and our views of long-term optimization of the assets where you have your own people close to operations and really understanding that, that's part of the operation. And as life progresses with more assets, one can certainly look at the business case. But in isolation, the IRR still adds up, but obviously, it's not -- it's a capital-light business. So from your modeling perspective, it's not going to make a significant dent in that, but it's going to add up to the operational efficiencies in due course.

Our next question comes from Thobela Bixa of Nedbank. Please go ahead.

We've got a couple of questions. Maybe the first one is to Richard. Just in terms of those tag-along rights that you spoke to when we have initially announced the Manganese deal. Initially, it sounded like this could have been done much quicker. Perhaps could you just take us through as to why does it feel like this has taken that much longer in terms of getting across the line for the tag-along rights? And then my second question is on the metallurgical coal, you continue to produce above 2 million tonnes. Yes, there's been weaker demand from the industrial domestically on the metal side as well as also on the steel side. Just take us through as to what's your thinking of continuing to produce at those levels, but perhaps your sales are now sort of below even 0.5 million tonnes. I know that perhaps you do blend some of your metallurgical coal with other thermal coal elsewhere. Can you just sort of make us understand that blending and what's happening there? And then I'll ask my other 2 questions later on.

Thanks, Thobela. In terms of the preemptive or waiver process, the waiver of preemptives at Hotazel Manganese Mines were fairly straightforward and followed the time line as we had indicated on announcement. And we are now in possession of all those waivers and are finalizing consents on Hotazel. What we found on Mokala is the waiver of the preemptive was straightforward, but the exercise of the tag right was not. Because of the way of the structure of the shareholding agreement at Mokala, it requires, in our view, a revised sale and purchase agreement to be agreed between the parties. As soon as that is required, the process of agreeing commercial terms on similar basis to what we've agreed with them then becomes more complicated and opens up a new set of negotiations, which complicate the matter. So while we have, in our mind, obtained the waiver of the preemptive from Glencore, we haven't yet triggered the tag-along rights as that will only be triggered on agreement in a revised sale and purchase agreement, which takes time, hence, the delays on Mokala side.

Sakkie here. Just on the question about metallurgical coal, I think quite important to understand or to give the message first that we are not producing the metallurgical coal and stockpiling it, we do sell it, but we sell it as a thermal coal. So [indiscernible], maybe help you in the announcement that we brought out, if you look at the thermal coal production forecast for the year of [37.124 million tonnes] and you will see we only sell thermal as [32.142 million tonnes]. To that, you actually need to add the exports, which is about 7 million tonnes, bringing you to 39 million tonnes, which is then close to 2 million more than the production. So you can see that some of our metallurgical coal that we produce goes into the South African metallurgical sector and the rest we blend with our thermal coal in exports. And that's why it looks as if we're building stock, but I can assure you we're not building stock.

Then my other two questions are around the Eskom. It does seem as though for the second half that Eskom uptake was much weaker and especially given that Unit 4 had actually come online in the second half. And if I recall well, in the half year numbers, there was a bit of optimism about Eskom's uptake in the second half. Could you perhaps take us through as to what has transpired since the results of the first half? And then secondly is I seem to recall that cost obviously, you don't talk to cost in your pre-close statements. But given sort of the weaker or slightly weak-ish production numbers, what can we expect on costs given that it does seem as though production was constrained and therefore, that denominator could be limited in terms of aiding in your cost numbers. Could you just talk us through some of those things?

So maybe starting on the Eskom side. Medupi, maybe I must first mention really has a very good year. Medupi is doing better than our own internal forecast for the year, and it's producing very well. So we're very comfortable with Medupi offtake and continuity of that offtake. Matimba this time around at [indiscernible] is the one that's struggling. There's still operational challenges. There are stockpile challenges, but I think the major contributor to the poorer performance is a major program that Eskom is on at Matimba about control and instrumentation replacement in the different modules. And that renders quite a few of the modules to be out of production for a substantive period of time. So I think Matimba is the one we understand why it is, the impact is just much bigger than what we thought. So I think it is something that we can look at as it will happen. But at some stage, that will also put Matimba at a better level for performance. But overall, with Medupi very comfortable.

And then just on the cost side, as you indicated, we don't give guidance now on cost, but you are correct to the extent that the production today is less, it has an adverse impact on unit cost. We will fully report on that in March. And just to say there are ongoing cost measures in the group where we are trying to look at all of these issues.

[Operator Instructions] Our next question comes from Nkateko Mathonsi of Investec.

Look, I have a quick question on the exports you're guiding or your forecast is now 7 million, very much flat versus FY '24. I just want to know in terms of the mix, how much was exported via Maputo versus what was exported via Maputo in the previous year. And I think that will actually help us have a little bit of a read in terms of the impact on costs.

Thank you for the question. This year, intentionally, we have pulled back our exports through Maputo, specifically from our Belfast operation because trucking at the prevailing price environment just didn't make economic sense for us. So we've pulled that back. We are not per se chasing the export number. We're trying to chase the most value for the company. So we've pulled back that export. So we will see lower exports to Maputo than the previous period. And we will see quite a bit of an uptick in exports through RBCT, where TFR, I think, is really doing quite well even the current constraints they still have. We're doing quite well on the RBCT side. You may have seen in the media that there is reported about 56 million tonnes per annualized number that's currently on the table. We still hope they're going to get to 57 million tonnes, but we've seen quite a few weeks of 60 million tonnes equivalent as well. So we're quite hopeful that in the new year, we can stabilize above that 60 million tonnes to RBCT and very constructive discussions with TFR.

[Operator Instructions] With no further questions in the question queue, we have reached the end of our question-and-answer session. I will now hand back for closing remarks.

Thank you, operator. I'll hand over to Ben for his closing remarks.

Thank you for joining us this morning. I'm very pleased that we continue to deliver on our promise. We have met basically all the production sales and CapEx guidance, which I think Riaan has covered quite well. And we continue to accelerate the prudent delivery of our strategy. And I think Richard and Leon have articulated this quite well. Yes, I think the markets and the headwinds of coal prices are with us right now. While we have seen a trend from about just below $80 a tonne to about $84 a tonne, $85 a tonne now, it's still very low numbers and the kind of cost of -- the marginal cost of production is a lot higher than that. And that's why clearly, in Petako, you can see the impact of reduced exports through Maputo because of the higher logistics costs in that route. But we're very pleased that we continue to meet the requirements, and I think the defensive nature of our portfolio helps us to continue to deliver on our promise. We have in the management structure, I think since the last announcement, we have also got Fortune Ntlhoro, who is now our Executive Head for Commercial, doing the logistics and marketing side and supply chain. So we're very pleased that the management structure is now fully appointed and all the teams -- the guys are in place, and we continue to prudently work on our strategy to accelerate all that. The loop and turnaround that Caroline and Mervin have been talking about, I think that is basically complete. So we think we are starting the new year in a very good place. And we hope that the export prices smile at us because I think Transnet's progress is very helpful. And I'm looking forward to the quarter 1 closure of the Manganese transaction to get into our stable. Thanks, Richard, and thanks, everybody, for joining us.

Thank you, sir. Ladies and gentlemen, that concludes today's event. Thank you for joining us, and you may now disconnect your lines.