JOHANNESBURG (miningweekly.com) – Group wind power generation last year increased by 8% and the Lephalale solar power project is on its way to being operational in the first quarter of next year, Exxaro CE Dr Nombasa Tsengwa highlighted during the company’s presentation of double-dividend 2023 results.

The increased wind performance resulted in 727 GWh of green electricity being generated into the market at a high earnings before interest, taxes, depreciation and amortisation (Ebitda) margin – and, were it not for a fault that occurred on the distribution network of State-owned power utility Eskom, there would have been 15 GWh more. (Also watch attached Creamer Media video.)

The 2023 Ebitda margin for the energy business was 80% for the second consecutive year, emphasising the stability of the renewable energy business.

Additional good news on the climate change mitigation front is that the 68 MW Lephalale solar power project under construction is poised to provide Exxaro’s Grootegeluk coal mine with 176 GWh/y of green energy in the first quarter of 2025 – earlier than the operational date reported by Mining Weekly in a previous report.

Regarding wind energy, Exxaro FD Riaan Koppeschaar pointed out that the project financing of R4.3-billion for the Cennergi wind farm – which will be fully settled in 2031 and which has no recourse to the Exxaro balance sheet – is hedged through interest rate swops at an effective interest rate of 12.8%.

Koppeschaar noted that hedge accounting is also applied to the Lephalale solar project, which ensures limited volatility on the profit-and-loss account.

The empowered coal, energy and ferrous-linked company declared a final dividend of R10.10 a share, which is roughly R3.4-billion, and drew loud applause when, in addition to that, it announced a special dividend of R5.72 a share, amounting to R2-billion. Interestingly, Exxaro’s shareholder distribution has totalled more than R45-billion over five years.

SECOND-HIGHEST EBITDA

Exxaro reported its second highest Ebitda performance of R13.4-billion for the financial year ended December 31, despite lower coal export prices and reduced domestic and export sales volumes of coal. Coal revenue decreased 18% and coal Ebitda decreased by 36%.

“We remain committed to our sustainable growth and impact strategy as we transition towards becoming a more diversified business,” Tsengwa said.

One of Exxaro’s strategic priorities is to grow its energy business and become carbon neutral by 2050, while integrating environmental, social and governance (ESG).

“We continue to benchmark above our peers on global ESG best practice,” Tsengwa revealed.

The R1.6-billion Lephalale solar photovoltaic power plant will provide Exxaro with a 27% reduction in Scope 2 emissions.

Carbon intensity has been reduced by 20% and a memorandum of understanding has been signed with the Council for Geoscience to explore carbon capture, usage and storage to mitigate difficult-to-abate carbon emissions.

‘WONDERFUL MARKET’

During the media briefing, Exxaro Energy MD Leon Groenewald provided additional insight into the renewables business in response to Mining Weekly’s questions.

Regarding the Lephalale solar power, he said: “Our aim is to be operational in the first quarter of next year, which will help us, firstly, as a business, to make some decent money, but also saving some 27% of Scope 2 emissions, and then making a healthy dent in the Eskom monthly account.

“We think the renewables market is quite healthy currently, both for organic and inorganic opportunities, and we are pursuing both,” he said, at a time of frequent request for information (RFI) invitations.

“We’re building a pipeline to participate in the RFIs that are being issued. We're awaiting feedback on some of these processes, and we’re quite bullish.

“On the merger and acquisition front, we’re active in data rooms, and the moment you’re in a data room, the confidentialities are quite strict, so you can’t talk until you get to a certain stage. Nevertheless, we think that this is a wonderful market.

“On an Ebitda basis, you have a great margin, but you must also then consider what the financing costs are because typically you’d finance thee assets at anything from a 70% to an 80% project finance range.

“In the initial years, your net cash flows are not that rosy, but eventually once you start paying back the debt, the numbers are quite healthy.

“We’re seeing that in the Cennergi business. It’s a mid-life asset, margins remain at 80% and the debt continues to decline, so we’re very happy about where we are in this space and bullish about the future," Groenewald enthused.

GREEN HYDROGEN?

While a close eye is being kept on the emergence of the renewables-related green hydrogen opportunity, early entry into the green hydrogen business is not on the cards.

“Do we think green hydrogen’s going to happen? Yes. Are there some challenges with it? Yes, there are,” was Groenewald’s response to Mining Weekly.

He sees technical and macroeconomic challenges and finds the numbers commercially high.

“I think the player that will probably make the first inroads into green hydrogen is Sasol because they are already in hydrogen manufacturing.

"So, we're  monitoring this closely but if you ask me whether we’re going to announce a green hydrogen play on our side next year, my reply would be no,” said Groenewald, who foresees green hydrogen’s enablement being dependent on support from various sectors including government – “like we had with renewable energies. So, I think if there are facilitators and if there is proof of concept and more people embrace this, I think you’ll see some breakthroughs in the green hydrogen space.”

ROAD AHEAD

Exxaro reiterated that its purpose and vision of powering better lives in Africa and beyond, by responsibly investing in resources that power a cleaner world, remains core in the execution of its sustainable growth and impact strategy.

“We aspire to build on our strong foundation as we transition towards a diversified minerals and energy business.

“To enable this vision, we must first continue to recognise that we’ve built a robust coal business over decades, which continues to deliver great value to all stakeholders. As such, it remains a critical strategic lever for Exxaro.

“Success in executing the strategy will be measured by growth in diversified mineral earnings and energy generation, the decarbonisation of the portfolio, return on capital employed of over 20%, as well as agility in response to ESG issues,” said Tsengwa.

Exxaro’s 2024 full-year guidance for wind energy generation is 700 GWh to 720 GWh of green electricity.