South Africa: Exxaro to Take Knock From Mining Royalties, Eskom Hike
Johannesburg — DIVERSIFIED resources group Exxaro said yesterday it expected the new mining royalties legislation, which comes into effect next month, and Eskom's latest tariff increase to affect future earnings.
The company expected to pay about R240m a year in mining royalties, while its electricity bill would double to about R1,3bn in three years due to the tariff hikes Eskom was granted this week.
Finance director Wim de Klerk said the hikes would affect the profitability of the company's base metals operations the most because of its heavy reliance on electricity.
"Our electricity cost in SA alone is R660m and this is expected to double over the three years. It's a huge cost and it's going to impact negatively on our coal and base metal businesses," he said.
Finance Minister Pravin Gordhan said last week that implementation of the mining royalties legislation, which was delayed last year because of the global economic downturn, would begin next month.
Under the legislation, passed in 2008, companies will have to pay extra tax proportional to their profitability.
The law requires all companies extracting minerals in SA to pay royalties at a rate of 0,5%-7% based on gross sales, less allowable deductions.
Presenting full-year results to December, CEO Sipho Nkosi said although coal volumes came under pressure the company still managed an 8% increase in sales to R15bn.
But this was not enough to prevent "significantly lower" net earnings for the year due to an extraordinary impairment charge, lower global coal prices, higher operating costs and a stronger rand.
Headline earnings, excluding one-off impairment costs, dropped to R2,5bn, or 729c per share, from R3,6bn, or 1058c per share, in the previous corresponding period. The R1,4bn impairment related to halting the Fairbreeze mine development in KwaZulu-Natal.
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