Exxaro Resources-South Africa’s largest coal producer has recently released interim result for the six month period ended on 30 Jun’18. And CoalMint is on hands to elaborate the major takeaways from the report.
Coal Production
Exxaro’s coal production has witnessed steady improvement year-on-year from H1 CY16 to H1 CY18. Domestic trading conditions were favourable in H1 CY18 as producers experienced strong demand for higher-quality product.
Overall coal production volumes (excluding buy-ins and semi-coke output) increased by 7% Y-o-Y to 23.397 MnT in H1 CY18 compared with 21.892 MnT in H1 CY17. This increase can essentially be attributed to the higher production volumes at Grootegeluk to supply the Medupi Power Station.
A grade-wise break-up of total coal output indicates that the total volume of thermal coal produced during H1 CY18 period was 22.218 MnT, up 6.7% Y-o-Y from 20.823 MnT in H1 CY17. Metallurgical coal production stood 1.179 MnT in the half year period.
Coal Sale:
Overall coal sales (including exports) increased 5.7% Y-o-Y to 22.709 MnT in H1 CY18 against 21.477 MnT in H1 CY17. However, sales were down 1.1% from the 22.971 MnT coal sales attained in the half year period ended on Dec’17 (H2 CY17).
A grade-wise break-up of coal volume indicates that the total thermal coal sold during H1 CY18 period was 22.125 MnT, up 5.8% from 20.911 MnT in H1 CY17 but down 1% from 22.347 MnT in H2 CY17.
Sales of Metallurgical coal stood 0.584 MnT in the half year period.
Coal Exports:
The first half of 2018 saw relatively subdued export demand as a result of high international prices. The API4 index remained above USD 100/MT.
Exxaro’s total exports which comprise entirely of thermal coal increased 15% Y-o-Y to 3.921 MnT in H1 CY18 as against 3.396 MnT coal exported during H1 CY17. However, exports had fell 7% from 4.216 MnT coal volume exported during the second half period of CY17.
Exxaro has also highlighted the increasing exposure of its coal export destination towards African and Asian customers, with Europe continuing downward trend.
Coal Price:
Exxaro’s average price realization on exports was USD 79/MT during H1 CY18, rising 22% Y-o-Y from USD 65/MT in H1 CY17, as a result of surging coal index price (API-4) which had averaged USD 97/MT in H1 CY18.
However, the growth in average price realization was offset by a stronger average spot exchange rate of Rand 12.30 to USD recorded for the period ended 30 Jun’18. The exchange rate was Rand 13.20 in H1 CY17.
Price in USD/MT
Financial Results:
Consolidated group revenue increased by 14% Y-o-Y to Rand 12,260 Million in H1 CY18 compared with Rand 10,736 Million in H1 CY17, mainly due to a higher contribution from the coal operations.
Consolidated group net operating profit increased by 7% Y-o-Y to Rand 3,126 Million in H1 CY18.
Revenue from Coal Business:
Coal revenue of Rand 12,240 Million was 15% higher than Rand 10,670 Million in H1 CY17. Higher revenue from the commercial mines was mainly attributable to the higher selling prices as well as an increase in Eskom volumes.
Exxaro’s coal sales to Eskom increased 6% Y-o-Y to 15.883 MnT in H1 Cy18, and is projected higher at 15.909 MnT in H2 CY18.
Net operating profit of Rand 3,387 Million (H1 CY17: Rand 3,014 Million) represents an increase of 12% Y-o-Y, mainly due to – higher sales prices, volume variances, lower distribution cost.
Operating Profit was partly offset by:
– Higher cost of buy-ins
– Inflation
– Exchange rate variance on sales due to a stronger rand against USD
– Net scope changes of environmental rehabilitation provisions
– Royalties
Outlook for H2 CY18:
Exxaro has anticipated a stable outlook for its coal business in H2 CY18 based on favourable trading condition in domestic market wherein supply remains tight and strong international coal prices.
The company has underlined that its export market are still reliant on Indian customers; which on the back of high coal price this term had sourced its coal from Russia, US and Australia instead.
Exxaro is actively diversifying its markets for lower quality coal to minimise dependency on the Indian market while expecting a growth from the South-East Asian markets.
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