Exxaro builds cash pile, widens search for critical mineral targets

By Nelson Banya

(Reuters) -South African coal miner Exxaro Resources is planning to build up a cash balance of up to 15 billion rand ($788.34 million), partly to fund acquisitions as it widens its search for clean energy minerals, executives said on Thursday.

Exxaro announced plans to acquire critical mineral assets two years ago to diversify its business and reduce its reliance on coal as the world shifts towards cleaner sources of energy, but it has yet to make any acquisitions.

Finance director Riaan Koppeschaar told analysts Exxaro would maintain a cash pile between 12 billion and 15 billion rand “taking into account the possible size of future acquisitions”. Its net cash balance was 7.2 billion rand at the end of June.

Morgan Stanley analysts warned that a high cash balance suggested Exxaro was concerned it might not be able to access debt and capital markets to fund acquisitions, and was likely to disappoint investors.

“It suggests a potential acquisition will be larger than many in the market thought,” the analysts added in a note.

Exxaro CEO Nombasa Tsengwa told Reuters that the group was looking at “additional commodities that would really increase our chances” of acquisitions.

“There’s a recognition that this could really impact our success, to go out into the market and look at other minerals that align with our investment criteria but still contribute to the energy transition,” Tsengwa said in an interview.

She declined to say which additional minerals Exxaro was targeting, but said it remains “active on the market” for copper and manganese assets.

Exxaro’s attempts to diversify are all the more urgent because of increased difficulties in hauling coal and other bulky minerals to ports due to problems at South Africa’s freight rail utility Transnet.

On Thursday the group reported a 29% drop in profits in the six months to June 30, citing lower coal prices and persistent problems with rail logistics.

Exxaro’s headline earnings per share (HEPS) were 24.43 rand ($1.27), down from 34.26 rand during the same period last year.

Coal accounted for 95% of Exxaro’s revenue in the first half of 2023, with renewable energy and iron ore investments providing the rest.

It has said it expects non-coal mineral assets will from 2026 generate the equivalent of 30% of its 2021 coal earnings of 10.7 billion rand.

Exxaro declared an interim dividend of 11.43 rand per share, down from 15.93 rand a year ago. Exxaro shares were little changed at 153.36 rand at 1412 GMT.

($1 = 19.0274 rand)

(Reporting by Nelson Banya; Editing by Tom Hogue, Edmund Klamann, Barbara Lewis and Jan Harvey)