Exxaro to list joint venture on NYSE

2012-06-16 08:51

New Tronox to make its debut in US despite jitters caused by Europe’s dwindling demand for commodities

In a week characterised by concerns about shrinking global demand for South African commodities, Exxaro, one of South Africa’s leading diversified mining companies, is bucking the trend.

Exxaro will nail its colours to the mast tomorrow and list one of its joint ventures on the New York Stock Exchange (NYSE).

Worth $3.4 billion (R29 billion), the paintmaking ingredient company, New Tronox, will be listed in the US for the first time.

Exxaro has caught the attention of shareholders as it simultaneously initiates three significant moves across three countries: the New York listing, an acquisition in the Congo and a sale in Namibia.

Exxaro is full of confidence, despite jitters caused by Europe’s dwindling demand for commodities.

“The company’s main projects are on track,” said Sipho Nkosi, chief executive of Exxaro.

Nkosi said the company had a vision of becoming a company valued at $20 billion in the next few years.

This is while South African mining companies seek to meet with Mineral Resources Minister Susan Shabangu to discuss the slide of mining production in the country.

Exxaro said that New Tronox would create more than 3 500 jobs in about 16 countries, including South Africa, but there might be headwinds ahead for the company.

Exxaro’s share price went through a slight wobble over the past three weeks.

This was, however, explained as a function of an oversupply of coal on the market, leading to a plunge in coal prices, rather than a reflection of the company’s overall strategy.

Coal miners may have to scale back their output of the commodity by implementing production cuts, which could lead to job cuts.

This week South African coal prices traded at their lowest levels since February 2010. This week the price fell to $81.65 a ton free on board due to the drag on the market caused by oversupply.

Furthermore, there are concerns about the Chinese coal market. China is the world’s largest importer of coal, but the Chinese economy is slowing down and decreased Asian demand is expected.

Reuters reported this week that Chinese traders have renegotiated the price of coal consignments more frequently over the past few months and other Asian countries have defaulted on coal deals.

But analyst Kamani Moodley of Afrifocus Securities speculated that the “price will not drop any further and an uptick can be expected in the next quarter”.

Moodley said: “Exxaro is exposed to some of the good commodities and has a solid diversified portfolio.”

The Exxaro share price has performed at well above the average level.

The share price is up by more than 18%, compared with the average rise of shares in the JSE Top 40 blue chip index of 6.8%.

The company is involved in a joint venture between Tata Power and Exxaro Resources to build a hydroelectric plant in the Republic of Congo to supply power to Exxaro’s Mayoko iron ore project in the country.

It is also developing port capacity in the Congo so that it can better export ore from Mayoko.

In addition, the company is discussing the extension and upgrading of rail facilities with the Congolese government so as to transport the iron ore to that country’s port, Pointe-Noire.

Exxaro has announced a R931 million deal with Glencore involving the disposal of its 50.04% permanent stake in the Rosh Pinah zinc mine in Namibia.

This is in line with the company’s stated aim of getting rid of non-core assets, including its zinc operations.

Exxaro earlier this year reported a 40% positive yield in full-year profit.

South Africans who bought this share four years ago have enjoyed solid year-on-year returns. Compound annual growth of 20% has been their bounty.

Headline earnings per share stand at 49%.

The company is liquid and relatively unencumbered as there is little debt on the balance sheet.

In this year’s annual report, Nkosi announced that the company had reduced its net debt by R2.5 billion and that revenue was up 24% to R21.3 billion.

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