Exxaro Resources unveiled details of its strategy for diversified growth, decarbonisation, sustainability and impact management at its shareholder Capital Markets Day.
CEO Mxolisi Mgojo opened proceedings:
“Climate change has become the focal point not only of our business but of society and the global community. The world is under pressure to transition faster and that presents new opportunities. This dynamic environment affirms our approach of maximising the value of our coal assets through the early value coal strategy, thus minimising stranded coal assets while building a low carbon and resilient business.”
The strategy presented to shareholders, is anchored on measurable and multi-stakeholder value creation. It is a direct response to climate change within the context of being a key player in South Africa’s economy and energy value chain while continuing to deliver value over the long term through sustainable growth and strategic impact management.
Core forces shaping the strategies are energy transition, climate change and the Just Transition in a shift to a low carbon future. At the core of the strategy is managing the embedded risk of carbon by diversifying earnings away from carbon-based commodities while also reducing the company’s carbon footprint.
With a proven ability to outperform value creation targets, the company is implementing this from a position of strength. In addition, a key consideration is developing alternative economic opportunities that will support the livelihoods of communities who are depending on our coal operations.
Dr Nombasa Tsengwa, CEO Designate and MD for Minerals reflected;
“Exxaro embarked on its journey of transformation over a decade ago gaining a head start in renewable energy through a joint venture in renewable energy business Cennergi. This provided a platform for growth and evolution from coal-dominated operations to a diversified minerals producer focusing on manganese, bauxite and copper, as well as a renewable energy business. Our transition to a low carbon future to place us on a pathway that will have a positive impact on our stakeholders and society at large.”
The approach outlined, during the CMD is to responsibly manage and maximise the value of the coal business while actively minimising the value at risk from stranded assets. It is economically feasible to optimise our coal reserves and manage the value extraction in a way that provides a stable transition for workers and communities whilst providing the company with capital to reposition the business for a resilient and sustainable future.
Exxaro will remain accountable to its stakeholders in order to ensure financial value creation and to empower people to sustain enduring economic activity. The ‘Sustainable Impact strategy’ will ensure that communities dependent on coal are adequately empowered and are able to transition as well. The future portfolio will consist of renewable energy and minerals, with a focus on wind and solar power, Bauxite, Copper and Manganese.
Part of the growth strategy and its associated objectives is predicated on aligning to the Task Force on Climate-related Financial Disclosures (TCFD), guidelines adopted last year and aimed at improving the reporting of climate-related financial information. Ultimately, this transparency could improve investment opportunities and further strengthen investor relationships.
Roland Tatnall MD of Energy said;
“It’s important to note that Exxaro is no stranger to clean energy and has been a player in the sector for the past 10 years through its investment in Cennergi, which is the second largest Independent Power Producer in South Africa. The company currently has nine operating assets, 11 assets under management and three generators under development as plans to grow the existing business continue.”
Exxaro’s history with clean energy affirms that management has been cognisant of the increasing anti-coal sentiments and perceived risks across the investor landscape together with the pressure for decarbonisation and resource efficiency. This adds impetus for the company to build a resilient and carbon neutral portfolio aligned with a Just Transition.
Financial Director, Riaan Koppeschaar said:
“We have a strong balance sheet and cash generative coal operations at the core of our business. We are one of the most efficient and low-cost coal producers in the world. However, we have a long-term vision and need to adapt to the dynamics of a low carbon future.
“Exxaro will utilise its mining skills to supply minerals that power a cleaner world while providing shareholders with superior returns from the combination of the minerals business representing 50% of expected coal EBITDA within 10 years and the predictable cash generation of the renewable energy business. Our improved governance process, reinforced from the past learnings, will be a key foundation for our success.”
He added that within 10 years, 70% of earnings should be non-coal earnings in order to actively reduce the company’s emissions by at least 46%. In doing so, the company would have spread its commodity and financial risk.
“We’ve outlined a clear strategy for low carbon growth, having established a track record of operational excellence, achieved our targets and applied key lessons learnt from our past. Our strategy is anchored on measurable and multi-stakeholder value creation. Going forward we will use innovation and organisational intelligence, plus best in class partnerships, to respond to the urgency for adaptation to building a climate resilient business and communities, as well as contributing to South Africa’s decarbonisation progress.”