Exxaro Declines Over Tronox Doubts, Missed Profit Estimate

Exxaro Resources Ltd. (EXX), the second- largest coal producer in South Africa, declined in Johannesburg trading after its earnings missed analyst estimates.

Exxaro dropped as much as 1.7 percent. It posted headline earnings per share, which exclude one-time items, of 20.98 rand ($2.73), compared with an average 21.21 rand estimate among 11 analysts Bloomberg surveyed. Net income rose 47 percent to 7.65 billion rand on higher prices and volumes, Exxaro said today.

The company, which is combining its mineral-sands business with Oklahoma City-based Tronox Inc., said the unit gained from higher prices and the reversal of an 869 million-rand impairment on property, plant and equipment at its KZN Sands operations.

“People are quite desperate to know what the impact of the Tronox transaction will be on earnings,” said Clinton Duncan, an Avior Research analyst, said by phone from Johannesburg.

Exxaro will hold 38.5 percent of New Tronox, to be listed on a “major exchange” in the second quarter, Chief Executive Officer Sipho Nkosi said today. The company previously said the listing may take place by the end of the first quarter.

Exxaro fell 0.9 percent to 203 rand by 2:48 p.m. in the city. The FTSE/JSE Africa All Share Index gained 0.5 percent.

New Tronox, an integrated pigment manufacturer, will reduce Exxaro’s susceptibility to increased mineral sands prices that producers haven’t been able to pass on to clients, Duncan said.

Tronox Deal

“The expectation is that the Tronox transaction will be earnings negative for Exxaro in the short term,” he said. “In the longer term, it is expected to stabilize its cash flow and earnings.” Some investors are concerned over delays in approval for the Fairbreeze mine, due to begin output in 2014, he said.

The government is expected to say by mid-May if Fairbreeze will get environmental approval, Trevor Arran, executive general manager for mineral sands at Exxaro, told reporters today.

Exxaro, buying Perth-based African Iron Ltd., plans to spend 2.1 billion rand this year to develop its project in the Republic of Congo. Investment in the mine is expected to total 1.6 billion rand in 2013, Finance Director Wim de Klerk said.

While Exxaro currently doesn’t produce iron ore itself, the company benefits from higher prices because of its 20 percent stake in Kumba Iron Ore Ltd. (KIO)’s Sishen operation.

The company also gained from higher coal prices and exports, which reached a record 4.9 million tons last year, it said. Coal sales to local utility Eskom Holdings SOC Ltd. and ArcelorMittal South Africa Ltd. fell in the period, it said.

Exports are expected to reach 5 million tons this year as the company is “encouraged” by the performance of Transnet Freight Rail, a unit of Transnet SOC Ltd., Nkosi said.

Prices for coal exported through Richards Bay on South Africa’s east coast averaged $116.46 in 2011, up 27 percent on the prior year, according to IHS McCloskey Group Ltd. data. “International coal prices are expected to decrease in 2012 along with lower coking prices,” the company said.

To contact the reporter on this story: Jana Marais in Johannesburg at jmarais@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net

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