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South African Coal Miner Diversifies into Clean Energy Minerals

Exxaro Resources plans to acquire manganese and copper assets as it seeks to reduce its reliance on coal.

by Motoni Olodun

Exxaro Resources, one of South Africa’s leading coal producers, is expanding its portfolio of critical minerals to support the global transition to cleaner energy sources. The company announced on Wednesday that it is looking for manganese and copper assets, both of which are essential for the production of batteries, electric vehicles, and renewable energy technologies.

Exxaro, which also has interests in iron ore and renewable energy, said it is building a war chest of up to 15 billion rand ($728.3 million) to fund acquisitions. The company has a net cash balance of 13.5 billion rand ($654.6 million) as of October, according to its latest trading update.

The miner’s strategy is to diversify away from coal, which faces increasing environmental and regulatory pressures as countries seek to reduce their greenhouse gas emissions and meet the goals of the Paris Agreement on climate change. Coal accounts for about 90% of Exxaro’s revenue and 85% of its earnings before interest, taxes, depreciation, and amortization (EBITDA).

Exxaro’s Chief Growth Officer Richard Lilleike, who is leading the miner’s mergers and acquisitions drive, told analysts that the company is interested in both producing and development assets, but would also consider greenfield projects in light of the current high valuations of mineral assets.

“We certainly are seeing a lot of investment opportunities mostly on the earlier stage capital raising. I think capital markets are quite tough right now and therefore our balance sheet stands out as a partner to new assets or assets under development,” Lilleike said during a call.

Exxaro was among several firms that were interested in buying Botswana’s Khoemacau copper mine, which holds one of Africa’s largest copper deposits. The $1.88 billion mine was eventually sold to Chinese miner MMG Ltd in October.

Copper is in high demand as it is used in wiring, electronics, and electric motors. The metal is expected to see a supply deficit of 327,000 tonnes in 2023, according to the International Copper Study Group. Manganese is also a key ingredient in steelmaking and battery production. The global manganese market is projected to grow at a compound annual growth rate of 4.1% from 2023 to 2028, reaching $28.6 billion by 2028, according to a report by Research and Markets.

As part of its diversification plan, Exxaro is also selling off its ferroalloys unit, which produces ferrosilicon, mostly used in steelmaking. The company said it expects to complete the sale by June 2024. The unit does not fit into Exxaro’s long-term strategy, as it consumes a lot of electricity and has low margins.

Exxaro said it expects its coal production to be flat at 43 million metric tons in the year to Dec. 31, in line with previous guidance. Export sales are also seen flat this year at just over 5 million tons, amid persistent freight rail logistics challenges.

Exxaro’s diversification strategy is in line with the broader trend of mining companies seeking to tap into the opportunities and challenges posed by the energy transition. The company said it aims to create value for its shareholders, customers, employees, and communities while contributing to a low-carbon future.

Source: Reuters

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