BEE Play, Exxaro, gains energy

If Exxaro Resources can still pass as a black economic empowerment (BEE) play, it has matured well within its transformative agenda.

Exxaro’s announcement this week that it was on course to develop a 600MW coal fired power station in Limpopo is proof of that maturity. Exxaro was born out of a pure BEE equity partnership in assets that were bundled out of the former Iscor, now known as Arcelor-Mittal SA. It is partly a marvellous story of how the former bastion of Afrikanerdom was made to pay for its pre 1994  sins, that is within the constraints of the elitist transformation agenda.

Under the leadership of Sipho Nkosi (CEO) Exxaro is flirting with another potentially marvellous transformation towards hosting an integrated energy play within its broader operations. It is an attractive path given South Africa’s trajectory. It is a path that requires lots of investment into research and development and innovation. Look no further than what Sasol has done.

The JSE listed company, Kumba, is largely known for coal mining. The group with R41bn in assets, refers to itself as “one of the largest South African-based diversified resources groups”. That accounts for interests in other metals other than coal. These include mineral sands, ferrous and energy commodities mined from across six countries South Africa, Botswana, Republic of Congo, China and Australia.

Exxaro is the second-largest coal producer in South Africa with current production of 40 million tonnes per annum. The coal factor stands out as thee centre piece in history and the future. Exxaro earned coal assets which were previously held by Iscor and were transferred into Kumba.

When the Anglo American subsidiary Kumba walked away with former Iscor assets in 2001 it had to introduce BEE. This came through equity participation, in Kumba of a broad based BEE consortium led by Sipho Nkosi. And then Kumba was split into two. Anglo American took control of Kumba Iron Ore. Kumba’s coal mining operations were rebranded and separately listed as Exxaro in 2006, keeping firm the BEE angle. Exxaro was also left holding about 20%5 of Sishen Iron Ore.

As such Nkosi became one of the first few black CEO’s of mainstream corporations let alone the JSE. Nkosi remains on top and is marked as one of the wealthiest black business people in the country. One assumes and hopes Exxaro’s BBBEE scorecard is on par. Or is it Mr Nkosi. But then we digress!

Exxaro announced a firm plan to roll out a 600 MW coal fired power station in Limpopo and in partnership with French player GDF SUEZ, a global player in Independent Power Production (IPP). The site of the new plant is located 17km north-west of the Lephalale town and will be supplied from Exxaro’s Thabametsi mine.

Nkosi said “This is an exciting milestone for Exxaro”. The development will contribute towards power availability and supply in South Africa”.

The initiative takes advantage of South Africa’s IPP initiative. Nkosi said “As a major player in the coal mining sector, we are integrated in the power (and energy) production value chain. We have taken advantage of the opportunities provided from current regulatory developments in South Africa’s mineral and energy sectors to develop a coal mine that can supply new power generating capacity”.

Again look to Sasol to see the endless possibilities in this path. Sasol recently launched a gas engine power station for its operations in Sasolburg. In partnership with Wartsila, Sasol, is building a similar plant in Mozambique which postions the group for the IPP market. This completes Sasol’s energy play, coal, gas and liquids.

Exxaro’s recent noise promises something to this direction. This includes that partnership with Tata Energy called Cennergi. Through this venture Exxaro has captured two renewable energy IPP projects in the Eastern Cape. These are the   Amakhala Emoyeni wind farm near Bedford (140MW) and Tsitsikamma Community wind farm in Mfengu community land (95MW).

In his latest annual report message Nkosi promise to push Exxaro further into dynamism. “When Exxaro was formed six years ago through the merger of Kumba Resources and Eyesizwe, we committed to creating a company that would make a sustainable difference to South Africa both economically and socially”

He adds that “At Exxaro, innovation is a creative and systematic approach to our work to create new value from existing operations, as well as from emerging markets and technologies. Innovation is a key enabler of our organisational growth strategy and involves each critical stage from generating ideas, to discovery, development, demonstration and industrialisation of sustainable solutions for conventionally complex and unresolved problems. In essence, we give people a chance to test ideas and we accept failure when the result is learning.

“We have made solid progress on most elements of our strategy”. Nkosi lists included what he calls “Optimising our portfolio”. This is “reducing our exposure to base metals, merging our mineral sands interests with Tronox, expanding our presence in the ferrous market and completing a major expansion in the coal market”.

With this in place said Nkosi we are well on track to tripling our market value in the next eight years.

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