Exxaro in “advanced talks” to acquire manganese mine
https://africa-mining-wrap.castos.com/episodes/exxaro-resources-in-advanced-talks-to-acquire-manganese-mine-riaan-koppeschaar
Transcript:
Hlengiwe: Hello and welcome to the African Mining Wrap brought to you by
McCloskey, by Opis a Dow Jones Company. We’re coming to you live from the Joburg Indaba, in Johannesburg, South Africa. We’re joined by Exxaro Resources finance director Riaan Koppeschaar. Riaan, welcome and thanks for joining us.
Riaan: Thanks very much for having me.
Hlengiwe: Let’s kick it off with plans for the next six months. Do you see a significant increase in Exxaro’s coal operating levels of around the current 42.5 million tonnes? Tell us about that and if you see an increase in that, especially for the next coming six months.
Riaan: Yes. So what we indicated when we announced our results in August was two of the main drivers of our operational performance is firstly the Eskom offtake at our
Matimba and Medupi power stations. We did indicate to the market that in the second half we think Eskom will be taking more coal. We also saw that, that they are taking more coal. And then we also said the exports.
We believe that the exports through RBCT will remain fairly flat and then that we could move more tonnes to through alternative ports. So that is still the plan. So for the full year, we at that point in time, we were forecasting 3.4 million tonnes for the second half of the year. So that is still the plan for exports.
Hlengiwe: What will need to happen for Exxaro to reach its optimal 50 million tonnes a year at operating level? What is needed for that to happen?
Riaan: So 50 million tonnes for the overall group?I think it’s two areas. The one is the logistical channel must be unconstrained that we are able to export more, especially through Richards Bay terminal. As we pointed out, that is still the most cost efficient mechanism to use.
And then secondly is also for Eskom to take its full offtake of coal. So those are two aspects. And then the other aspect we working on is we are expanding or building a new mine at Matla. It’s a cost plus mine for Eskom and ultimately in 2026 that mine will be ramped up. So those three factors will get us then closer to the 50 million tons that we are geared to produce and.
Hlengiwe: How much will the production output for the Matla mine be?
Riaan: So at the moment we sitting now with between four and 5 million tonnes. Once fully ramped up, it can go to close to 10 million tonnes.
Hlengiwe: You briefly touched on optimizing costs earlier in the session. Mining inflation is becoming a major concern, with Exxaro saying that dollar 100 a tonne is on the floor right now. So what are the main cost drivers? And do you see this continuing? You know, even if Transnet is able to improve its performance.
Riaan: So in South Africa, I think one of the big cost drivers is labour cost. If you look at your fixed cost component, normally 50% plus is labour cost. And as we know, in South Africa, your labour cost normally escalates by more than your CPI or PPI. So that is the one variable that we face now. Also electricity prices.
If you get a 14 or a 15% electricity price increase, it’s a major cost driver. And I think some of the inflationary pressures stemming from, from COVID has not worked out of the system as yet. We’re starting to see it moving downwards, but still costs, like maintenance, that is still at very elevated levels. So hence why I think mining inflation is running higher than, for instance, your normal CPI or PPI inflation.
Hlengiwe: Let’s move on to capital allocation and diversification, which is, you know, some of the things that you discussed earlier. You’ve got a cash chest of about 14 billion rands.
Would Exxaro be open to, you know, doing something similar to what Thungela has done with Ensham? But I think, you know, you mentioned the expansion of the Matla mine. Or would you rather go into diversification? I mean, we. We understand there are plans for an acquisition later at the end of the year. Do you want to just talk us through that?
Riaan: So at Exxaro, we’ve got quite a lot of resources at our disposal, specifically in South Africa. So I don’t think there is a need for us to buy additional resources. We’ve got sufficient. So even if there is an increase in cold demand in South Africa, whether it’s from Eskom or the domestic market, we can, through our own resources, probably flex our production to satisfy that amount.
You know, there’s no compelling reason for us to go out and buy new resources or do other acquisitions at this point in time. So the. I think the cash balance that we’re retaining, that is predominantly to grow the new minerals and also our renewable energy business.
Hlengiwe: The acquisition that I’ve just touched on, what are we expecting at the end of the year?
Riaan: Look, we busy with discussions with various players. As we indicated at our interim results announcement. We probably further advanced talking to manganese players. But these negotiations are complex. There’s many role players involved. As we always said, it must also be the right acquisition at the right price for the company.
Hlengiwe: Now, when we talk about manganese, currently the global manganese market is going through a little bit of a turbulence with prices coming down. Does this flat manganese market present a challenge?
Riaan: No. Look, when we invest something like manganese, you obviously need to take a longer term view. We still have a very positive view on manganese. Manganese has got a big application in steel.
Steel is going to be around. Even steel will still be required in the transition to renewable energy, whether it’s to build wind turbines, etcetera. So steel will be around. Also, manganese may have an application in battery applications going forward.
At the moment it’s still very small. I think it’s only about 2% is in battery applications. But we think for us as a company, the attraction lies in that a big portion of the global resource is sitting in our backyard. And as a good coal miner, we can play a major role in extracting that for the benefit of the company.
Hlengiwe: I was actually listening in or chatting to the Council of Geoscience. There are still tons of green fields, lots of untapped manganese resources.
Riaan: Your entry into it, probably you want to have operational asset, but from there on then you can grow it organically.
Hlengiwe: Yeah. Riaan, thanks for joining us and we wish you all the best.
Riaan: Okay, thanks very much.
Hlengiwe: Riaan Koppeschaar, Finance Director of Exxaro Resources, giving us the production outlook for the next six months, cost containment within the coal business, and of course what we are all eagerly anticipating, which is the acquisition of a manganese asset which will be announced at the end of the year. Thank you for joining us. Until next time, bye.