Our opinion on the current state of EXX.

Exxaro (EXX) is South Africa's BEE coal company with interests in iron and heavy minerals. It has interests in Australia, America and Europe. It is a provider of coal to Eskom's Medupi power station. The company is trying to improve coal production from 48m tons presently to about 60m tons by 2022, but this policy might be changed due to the lower demand for coal on the world market. The price of export coal has dropped from $100 per tonne at the end of 2018 to as little as $60 per tonne. This is an immensely cash-generative operation that is usually profitable depending on what happens to the price of coal. The demand for coal both locally and in the export market has been strong, but the shift towards renewable energy is seen as a long-term threat to the business. It is becoming increasingly difficult to obtain funding for new coal-fired power stations as banks feel the pressure from environmental groups. On 9th April 2021, the company announced that it had sold its interest in Exxaro Coal Central (Pty) Ltd and Leeuwpan Coal Mine operation. In its results for the year to 31st December 2022 the company reported revenue up 41% and headline earnings per share (HEPS) up 28%. The company said, "Headline earnings increased by 26% to R14 558 million (FY21: R11 568 million), driven mainly by the 78% increase in group EBITDA, which was partially offset by the 26% decrease in equity-accounted income. SIOC’s adjusted equity-accounted income was 46% lower as a result of lower iron ore prices and volumes as well as higher operating expenses, which were partly offset by a weaker currency" In a trading statement for the six months to 30th June 2023 the company estimated that HEPS would fall by between 23% and 37%. The company had been benefiting from rising commodity prices since 2016 and an upward sloping trendline has formed. This trendline was broken convincingly on 14-8-2019, but the upward trend resumed at the start of 2021 with the share moving to new cycle highs. The share has been moving down since the beginning of 2023. Obviously, the Ukraine conflict has had a beneficial impact on this share through higher commodity prices, but that effect is beginning to wane. It remains a volatile commodity play.

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Snapshot: 11 / 2023

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