Exxaro Resources, a major player in mining and renewable energy, has announced an interim dividend as it reported its financial results for the first half of the year. While the company’s revenue saw a slight increase, its net operating profit significantly declined, raising concerns about the challenges it faces despite steady progress in its core operations.
Exxaro, listed on the Johannesburg Stock Exchange (JSE), has diverse interests across coal, energy, and ferrous markets. For the six months ending June 30, the company reported a 1% increase in revenue compared to the same period last year. This modest rise brought its half-year revenue to R19 billion. However, this positive growth was overshadowed by a 41% drop in net operating profit, which fell to R3.7 billion. The decline highlights the difficulties Exxaro is navigating in a complex and fluctuating market.
Despite the profit decrease, Exxaro declared an interim dividend of 796 cents per share. Although this is 347 cents lower than last year’s interim dividend, it reflects the company’s commitment to providing returns to its shareholders even during challenging times.
Exxaro’s financial performance in the coal sector, a key area of its operations, was mixed. Total coal sales volumes for the period decreased by 11.7%. This drop was primarily due to reduced offtake by Eskom, South Africa’s state-owned electricity utility, at its Medupi and Matimba power stations. These facilities experienced unit outages and equipment breakdowns, which negatively impacted coal demand. However, Exxaro noted that the situation improved towards the latter part of the reporting period, signaling a potential recovery in coal sales.
In response to the challenges in the coal market, Exxaro has been adapting its strategy to align with global trends towards decarbonization and environmental sustainability. The company reported success in supplying its customers with higher quality, cleaner-burning coal products. This move supports the growing market demand for environmentally friendlier energy sources and positions Exxaro as a company capable of evolving with the times.
Beyond coal, Exxaro is also active in energy generation, an area where it continues to perform steadily. The company generated 339 GWh of energy during the first half of the year, which met expectations. The operational earnings margin for its energy division remained robust at 79%, with revenue from this segment totaling R652 million. The company’s long-term offtake agreements underpin this stable performance, providing a solid foundation for future growth in the energy sector.
Exxaro’s involvement in renewable energy is part of its broader strategy to diversify its portfolio and reduce its carbon footprint. The company is advancing the development of several wind projects, with project financing for its operating wind assets totaling R4.2 billion. This debt, which is expected to be settled by 2031, is hedged through interest rate swaps and does not affect Exxaro’s balance sheet directly.
One of the company’s most ambitious renewable energy projects is the 68 MW Cennergi Lephalale solar project. This initiative is on track to begin powering Exxaro’s Grootegeluk coal mine with 176 GWh of green energy annually by the first quarter of 2025. The R1.6 billion solar photovoltaic power plant is expected to deliver a 27% reduction in Scope 2 emissions, demonstrating Exxaro’s commitment to sustainability and the global push for lower carbon emissions.
Looking ahead, Exxaro has set its sights on expanding its renewable energy output. The company’s full-year guidance for wind energy generation through its Cennergi subsidiary is between 700 GWh and 720 GWh of green electricity. This ambitious target underscores Exxaro’s strategic focus on renewable energy as a key driver of future growth.
Dr. Nombasa Tsengwa, Exxaro’s CEO, is steering the company through this complex situation. Under her leadership, Exxaro is balancing its traditional coal operations with aggressive moves into renewable energy. This dual approach is designed to ensure the company remains competitive in a market increasingly driven by sustainability and environmental considerations. While the interim financial results highlight some of the challenges Exxaro faces, particularly in the coal sector, the company’s ongoing investments in renewable energy projects offer a glimpse into its future potential.
