R1.55bn Exxaro venture into clean energy

DURBAN – Diversified miner Exxaro Resources on Tuesday extended its focus beyond coal to renewable energy, announcing that it had bought the remaining stake in Cennergi for R1.55 billion.

Exxaro said that it concluded an agreement with Khopoli Investments, a subsidiary of Tata Power Company, to acquire the remaining 50 percent shareholding in the independent power producer.

Exxaro Resources chief executive Mxolisi Mgojo said the conclusion of the transaction was a natural progression to a collaboration that has lasted seven years with Tata Power. Mgojo said the projects had been commendable and an outstanding success in South Africa’s implementation of its energy strategy.

“As a South African-based company, Exxaro is pleased with this opportunity to consolidate its interest in this renewable energy asset at a time in South Africa where we need energy security as we respond to increasing negative sentiment towards coal-based electricity generation,” Mgojo said.

Exxaro is one of South Africa’s biggest coal miners and supplies coal to the export market and to power utility Eskom.

The move away from coal was put in the spotlight earlier this month by the Institute for Energy Economics and Financial Analysis (IEEFA), a respected international energy think-tank, after it warned that new energy technologies would replace coal-fired power faster than most predicted.

The IEEFA added that South Africa’s coal-mining industry was on the brink of permanent decline as the country’s main export markets prepare to reduce reliance on imports and global divestment from fossil fuels increases at an exponential rate.

“South African coal exporters are likely to seek alternative markets going forward as opportunities for growth in the main export destinations dry up. However, the long-term outlook for coal exports to other destinations is also likely to disappoint,” the IEEFA said.

Last month, the National Treasury issued its first real indication of its plans to unbundle Eskom, stating that it would consider disposing of the debt-ridden power utility’s coal-fired power stations in an effort that could potentially raise about R450bn.

While analysts said that the disposal would take some time to conclude, it indicated the government’s growing attraction to renewable energy.

In March, Exxaro rewarded shareholders with a bumper dividend on higher coal prices and a solid performance from its iron ore investment.

Exxaro said it also expected Sioc, a Kumba iron ore subsidiary, to soar further in the first half of 2019 on higher iron ore prices after the mine disaster in Brazil, relatively higher global lump premium prices and a weaker rand against the dollar.

Cennergi owns two wind farms, which were originally bid as part of Window 2 of the Department of Energy’s renewable energy independent power producer procurement programme.

The group owns the 134 megawatts (MW) Amakhala Emoyeni Wind Farm and the 95MW Tsitsikamma Community Wind Farm, both in the Eastern Cape.

Cennergi’s outstanding debt was estimated at R4.9bn by the end of December 2019 and is repayable over a period of 15 years as of 2016.

“The debt will be excluded from Exxaro’s debt covenant ratios as it is limited recourse funding with no additional security from Exxaro,” the group said.

Cennergi’s projected earnings before interest, tax, depreciation and amortisation for 2019 are expected to be around R850m.

Exxaro shares declined 2.28 percent on the JSE on Tuesday to close at R131.92.

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