South African Coal Miner Exxaro's 2019 Profit suffers amid Lower Export Prices
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South Africa based mining company, Exxaro's 2019 results are out and below is the brief snapshot of the company's performance:
| Particulars | 2018 | 2019 |
| Revenue | R25,302 Million | R25,582 Million |
| EBITDA | R7,617 Million | R5,902 Million |
| Production Volume | 46.7 MnT | 45.3 MnT |
| Sales Volume | 45.2 MnT | 44.5 MnT |
| Avg API Coal Price | USD 98/MT | USD 72/MT |
Revenues and profits
The company's revenues have recorded a marginal increase of 1% y-o-y to R25,726 million (USD 1,556 million) against R25,491 (USD 1,542 million) in previous year of 2018.
The company has highlighted that while company's coal export volumes increased by 14% in 2019, there was a significant decline in the South African coal price resulting in a 30% lower average price per tonne of USD 54 against USD 77 in 2018.
On the domestic front, while higher prices from commercial mines had a positive revenue impact, this was offset by lower production volumes when compared to the previous year.
In terms of profits, company's EBITDA (Earnings before Interest, Tax, Depreciation and Amortization) decreased by 20% to R5,832 million (USD 353 million) against R7,281 million (USD 441 million) in 2018.
This decline can be majorly attributed to lower export prices, inflationary pressure on costs, higher selling and distribution costs directly and higher rehabilitation costs at company's closed operations.
Production and sales volume
Exxaro's coal production volumes (excluding buy-ins) were down by 1.46 MnT in 2019 (-3% y-o-y basis) and stood at 45.3 MnT.
The company has attributed lower production volumes to the divestment of NBC (North Block Complex) operations at the end of October 2018 as well as lower production at Grootegeluk mine amid lower demand from Eskom for the Medupi power station. This was partially offset by the early tonnes from Belfast mine and ramp-up of Mafube mine.
Sales volumes were down by only 1% y-o-y and stood at 44,553 tonne due to belt failure and ash handling problems experienced at the Medupi power station resulting in lower offtake.
Demand and Prices
The company has also mentioned that overall, the thermal coal seaborne market remained in oversupply. Although there was a price support towards the end of 2019, the sharp increase in API4 priced South African producers pushed them out of their natural markets.
The competition intensified with traditional Atlantic Ocean suppliers competing aggressively. The API4 index price averaged USD 72 per tonne compared to USD 98 per tonne in 2018. Export volumes increased 14% from 8 MnT in FY18 to 9.1 MnT in FY19.
In the domestic market, steam coal demand remained stable with Eskom demand varying due to lower offtake from Medupi power station, AMSA demand varied due to fluctuations in kiln operations as well as the steel plant in Saldanha being placed on care and maintenance.
Outlook
The company expects domestic thermal coal demand and pricing to remain relatively stable during 2020. The API4 is expected to be under pressure as a similar liquefied natural gas (LNG) supply wave, as was evident in 2019, is anticipated to continue into 2020, together with low gas prices globally. However, a potential increase in thermal coal import demand in China might support the seaborne market somewhat.
