South African coal mining company Exxaro Resources (EXXJ.J) is strategizing to amass a cash reserve of up to 15 billion rand ($788.34 million) in preparation for potential acquisitions, especially in the realm of clean energy minerals, according to statements from company executives on Thursday.
Two years ago, Exxaro outlined its intention to broaden its portfolio by acquiring critical mineral assets, as a strategic move to diversify its operations and decrease its dependence on coal amid the global trend towards cleaner energy sources. While this expansion has been part of the company’s long-term plan, no acquisitions have materialized thus far.
Finance Director Riaan Koppeschaar elaborated to analysts that Exxaro aims to maintain a cash balance ranging between 12 billion and 15 billion rand, factoring in potential future acquisitions. As of the end of June, the company’s net cash balance stood at 7.2 billion rand.
Morgan Stanley analysts cautioned that a substantial cash accumulation could signal Exxaro’s apprehension regarding its access to debt and capital markets for financing acquisitions, possibly resulting in a setback for investors. They added that this suggests the potential for an acquisition larger than market expectations.
Exxaro CEO Nombasa Tsengwa revealed to Reuters that the company is actively exploring “additional commodities that would really increase our chances” of successful acquisitions. While she refrained from specifying the exact minerals being pursued, Tsengwa emphasized the ongoing interest in the market for copper and manganese assets. She underlined the company’s strategic intent to identify minerals aligned with investment criteria while contributing to the energy transition.
Exxaro’s drive to diversify its mineral portfolio has grown more urgent due to challenges in transporting coal and other bulky minerals to ports due to operational issues at South Africa’s freight rail utility, Transnet.
In financial performance news, Exxaro reported a 29% decline in profits for the six months ending June 30, attributed to lower coal prices and ongoing rail logistics challenges. Headline earnings per share (HEPS) stood at 24.43 rand ($1.27), down from 34.26 rand during the corresponding period in the previous year.
While coal constituted 95% of Exxaro’s revenue during the first half of 2023, the company has made strides in renewable energy and iron ore investments. It anticipates that non-coal mineral assets will contribute around 30% of its 2021 coal earnings by 2026.
Exxaro declared an interim dividend of 11.43 rand per share, compared to 15.93 rand in the prior year. As of 1412 GMT, Exxaro’s shares remained relatively stable at 153.36 rand.
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