Exxaro Says Coal Prices Curb Earnings as Profit Drops 39%

Exxaro Resources Ltd., South Africa’s second-largest coal producer, said low prices will hurt full-year profit after it fell 39 percent in the first half.

Headline earnings, which exclude one-time items, declined to 7.12 rand a share from 11.62 rand in the same period a year earlier, the Pretoria-based company said in a statement today. Operating costs were 320 million rand ($31 million) higher in the half than a year earlier, the company said.

Lower prices and a 292 million-rand writedown of assets at the New Clydesdale mine, which employs 402 workers in Mpumalanga province, cut profit, it said. The company is considering stopping output at the colliery, which has negative margins, and has started talks with unions over layoffs.

“Trading conditions for the coal business continued to be challenging,” the company said. “The financial and operational results for the remainder of 2013 are expected to be impacted by continued low coal prices and rand-dollar exchange-rate volatility.”

Prices for coal shipped from Richards Bay on South Africa’s east coast, the world’s biggest coal-export terminal, averaged $82.67 a metric ton in the first half, down 16 percent from a year earlier, according to data compiled by IHS McCloskey Group Ltd. The rand has been the most volatile of 16 major currencies against the dollar in the past six months, according to data compiled by Bloomberg.

Congo Project

The slide in prices coupled with rising costs and slowing Chinese demand is prompting miners from Glencore Xstrata Plc, the world’s biggest shipper, to Peabody Energy Corp. to cancel projects and fire workers.

“Exxaro’s focus remains grounded on improved long-term value creation through cost management, improved productivity levels and investment in risk-adjusted return projects,” it said.

The company’s Mayoko iron-ore project in the Republic of Congo is a 730 million-ton resource, according to a company presentation. A nine-month delay at the project while it waits for the country to finalize its mining convention has cost it an extra 200 million rand, Exxaro Finance Director Wim de Klerk said at the presentation. Production is expected to reach 30,000 tons a month by the second half of next year and 10 million tons annually by 2019.

Exxaro had 64 responses to a sale notice of its New Clydesdale mine, though it hasn’t received any offers.

The company started a so-called Section 189 process, a 60-day notice to discuss possible staff reduction, it said in an Aug. 8 statement. The shares were little changed at 162.08 rand at 2:27 p.m. in Johannesburg.

Anglo American Plc is South Africa’s largest coal producer.

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