Exxaro looks ahead to more hard times

SOUTH Africa’s second-largest coal producer has reported a 39% reduction in first-half profits, warning that continued low coal prices will hurt its profits for the full year.

Staff Reporter

Net operating profits declined to $1.2 million rand for the six months ended June 30, from $2.6 million rand a year earlier, the company said in its report Thursday.

Headline earnings, which exclude one-time items, declined 39% to 7.12 rand a share from 11.62 rand in the same period a year earlier.

This was, however, a 199% improvement on the headline earnings a share in the second half of 2012.

Operating costs were 320 million rand ($31 million) higher in the half than a year earlier.

A 292 million-rand write-down of assets at its New Clydesdale mine, along with lower sales prices, hurt overall profit, Exxaro said.

“NCC’s carrying value of property, plant and equipment has been impaired by R292 million (pre-tax), during the six-month period ended June 30 mainly as a result of reduced profitability in turn caused by lower export sales prices, lower train availability as well as operational challenges,” the company said.

Exxaro is considering halting output at the colliery and has started talks with unions regarding cuts to the over 400 workers there.

“Trading conditions for the coal business continued to be challenging,” the company said.

“The financial and operational results for the remainder of 2013 are expected to be impacted by continued low coal prices and rand-dollar exchange-rate volatility.”

Exxaro cautioned that future earnings through to 2016 were also "sensitive" to major capital expansions under way, in particular the expansion of the Grootegeluk colliery to supply Eskom’s Medupi power station.

Eskom recently announced that construction of the Medupi power station has been delayed by six months, resulting in unit six only expected to supply electricity to the grid in the second half of 2014.

“Exxaro confirms that the parties have reached an amicable agreement to deal with this delay,” the company said in its results.

“Construction on the Grootegeluk Medupi Expansion Project, to supply Eskom’s Medupi power station with 14.6 million tonnes per annum, continues to progress on time and within budget and is 96% complete.”

The coal export price declined from approximately $US92 per tonne in January 2013 to a low of around $US77 per tonne in June 2013.

Exxaro realised an average export price of $US84 per tonne in the first half of 2013, compared to $US103 per tonne in the comparable period in 2012.

Production was relatively stable compared to last year at a 19 million tonnes.

The company said it was working to broaden its marketing options and is working to develop new relationships in China, India and Pakistan.

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