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Diversified miner Exxaro has posted a 33% drop in full-year earnings for its 2012 financial year resulting from rising operational costs, lower export prices and lower volumes writes Reggie Sikhakhane.

“I have been at Exxaro for six years and 2012 has been the most challenging so far,” CEO Sipho Nkosi stated at this mornings financial results presentation in Johannesburg.

Exxaro‘s coal business has and continues to face challenging trading conditions with average export prices dropping from US$105/t in January 2012 to US$85/t in November 2012. The addition of strike action at its mines in eMalahleni saw the company’s turnover from coal contribution down 3%.

Revenue for the period under review dropped by 23% to R16.1 billion, while export sales fell by 21% owing to difficulties experienced in transporting coal to ports by rail. Overall coal production however remained stable at 40 Mt.

Although the company said that the export market was challenging, the domestic market presented further opportunities which grew further than expected.

Exxaro‘s financial director, Wim de Klerk, said other factors contributed to the fall in revenue and earnings. “We have invested significantly in our Mayoko iron ore project in the Republic of Congo, and also increased our shareholding in titanium oxide producer Tronox to 46%.”

The Mayoko project’s original iron ore reserve of 121 Mt has increased to 685 Mt and, with project execution and start-up of 2 Mtpa of iron ore still on schedule for the second half of the 2013 financial year.

Nkosi noted that the company suffered 2 fatalities during the period under review, one at its Matlala coal mine in Mpumalanga and another at its Waterberg-based Grootegeluk coal mine. “We are putting a lot of effort into trying to reduce as much fatalities as we possibly can and reach our 0.15 LTI target rate, down from this years 0.29 rate.

“This is an area that haunts us all because it is a part of our industry that is tragic,” Nkosi added.

Commenting on the companys outlook, Nkosi admitted that 2013 will remain a challenging year, but pointed out that Exxaro is optimistic of gaining momentum after the second half of 2013.

“We may be facing challenges in the mining industry currently, and you might be questioning some of the significant investments that we have made in some of our acquisitions and projects, but I can assure our investors that we are optimistic we will receive good returns in the future.”

The CEO stated that the company was aware of State-owned rail and freight company Transnet‘s announcement that it intended to increase cargo tariffs on dry bulk by more than two-thirds. “We are not in a position to supply our views on the announcement made by Transnet‘s CEO Brian Molefe. What we can say however, is that a 68% increment is huge, Nkosi said.

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