SIMON BROWN: I’m chatting now with Serfaas Badenhorst. He is portfolio supervisor at Momentum Securities. Serfaas, I admire the early morning time. The speak of 2022 in some ways has been round Thungela, however you’re saying, hold on sec, there’s Exxaro on the market as effectively.
Before we get to the inventory itself, coal remains to be largely how we energy planet Earth, and the Ukraine battle has essentially modified a few of these dynamics.
SERFAAS BADENHORST: Yes, Simon. I feel that’s very true. The Germans really needed to part out coal by 2038, however that’s fairly a bitter capsule for the authorities at this stage with the Russian War. So they fired up a variety of [their] coal stations, which clearly is driving up the worth.
SIMON BROWN: And what we’re seeing, as you talked about, [is the] costs. If you take a look at coal costs, [there is] the Richards Bay Coal Terminal. But there are a lot of different completely different spot and contract costs for coal. These are buying and selling at perhaps not report highs, however actually the highest ranges now we have seen in a really very long time. As I mentioned in the intro there, coal remains to be largely how Planet Earth works.
SERFAAS BADENHORST: That’s right. So sadly what’s taking place now – let’s simply take Germany for instance – earlier than the battle Germany really received 50% of its coal from Russia however now, with the Eurozone imposing all these sanctions on the Russian Federation, [the coal] must be sourced some other place. This is driving up the worth, and [among] the beneficiaries of which can be the South African coal corporations.
SIMON BROWN: Absolutely. And successful from it.
Turning to Exxaro, as I mentioned everybody normally – effectively, actually this yr – has been specializing in Thungela, and, make no mistake, Thungela has achieved extremely effectively. Exxaro has had a great yr too, and naturally they’re the different actually giant coal miner in South Africa. They are effectively positioned they usually’ve, I’m taking a look at their dividend yield, a 12% dividend yield. They are perhaps the forgotten coal youngster in our market, however they’re a top quality enterprise and, you say, a possibility.
SERFAAS BADENHORST: Yes, positively. Thungela is a good firm, however I feel one ought to be aware that there’s a concentrated threat in an organization like that. With Exxaro you’re getting extra of a diversified play and from our aspect a diversified play is the safer choice. You even have the publicity to iron ore, which is coming off a really low base. So the potential for upside is certainly there, persevering with with greater coal costs after which additionally the risk of renewables going into the future.
SIMON BROWN: Of course, I’d forgotten that. They’re really trying in the direction of renewables, which is kind of crafty [of] them. They are at the moment a ‘dirty energy’ supplier and [looking] out to renewables which, as you say, is in the future a while off. But that basically might turn into fairly a biggie for them.
SERFAAS BADENHORST: Exactly. If you look as soon as once more at what’s taking place in the Eurozone with its dependency on Russian fuel, a variety of these governments are realising, pay attention, now we have to hurry up the renewable play fairly shortly. So you may have Exxaro benefiting from the excessive coal costs at this stage, but additionally poised for a future positioning of renewables.
SIMON BROWN: Gotcha. How massive is iron ore in Exxaro’s life? There was some extent in time when it was thought-about extra of an iron ore firm, however today coal might be very way more the dominant a part of the equation.
SERFAAS BADENHORST: Definitely extra the dominant a part of the of the equation. If I keep in mind appropriately, iron ore makes up simply over 20%, however that’s an additional kicker to the revenue assertion and, as I mentioned, will probably be a great kicker coming off a low base this yr.
SIMON BROWN: The iron ore worth has been slightly unstable, however I can nonetheless keep in mind when it was again at, what, $40/tonne. It is now buying and selling nearer to $100/tonne. Exxaro – you might be mentioning a goal worth of round R270/share. That I think about most likely is in the quick to medium time period, notably as we head into the European winter.
SERFAAS BADENHORST: Yes. Unfortunately the coal worth goes to be [high/short term]due to the demand and provide with the demand being greater in the winter. That is certainly one thing to consider. So that’s a goal worth set hopefully till the finish of winter in the Eurozone.
SIMON BROWN: I discussed there a 12% dividend yield. What these corporations are doing is in many senses actually producing money, and sending money again to shareholders. This is typical mining; when it’s booming they generate income they usually reward shareholders.
SERFAAS BADENHORST: That is certainly so. I feel considered one of the limiting components that might have been extra useful for shareholders is Transnet, sadly, at this stage. They can’t absolutely profit from all the pieces that’s taking place in the present zone. But, even with that, [coal] exports to the Eurozone [are] up 700% this yr. So even with the downturn at Transnet, there’s positively upside potential for the shareholders and hopefully an even bigger dividend fee as effectively.
SIMON BROWN: Yes. If Transnet may even simply do as promised, then there’s most likely some extra capability for these of us, and perhaps even some extra upside in that area.
Servaas Badenhorst, portfolio supervisor at Momentum Securities, I admire the early morning insights.
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