Exxaro keeps its head stuck in sands
September 16, 2008
By Justin Brown
Johannesburg - Exxaro Resources is sticking with its heavy minerals division despite heavy losses and negative investor sentiment towards the business.
The company's mineral sands division has made losses amounting to hundreds of millions of rands since 2006.
Wim de Klerk, the head of Exxaro's sands and base metals division, said last week that following the acquisition this month of Namakwa Sands, worth R2.2 billion or more, the firm would have a significant position in both titanium slag and zircon.
With Namakwa Sands, the group produces one-quarter of the world's titanium slag, used in making pigment and plastics, and 17 percent of all zircon, used to make tiles.
An analyst, who wished to remain anonymous, said the titanium slag market was likely to remain oversupplied for the "next 10 years", but the zircon market was showing some strength.
De Klerk said Exxaro had no plans to sell off its heavy minerals operations and would continue to invest in the business for the long term.
A second analyst, who also wished to remain anonymous, said Exxaro should get out of heavy minerals, given the return the group had received from the unit.
"The question is, will they be able to get the right price if they do exit? Given the losses at Exxaro's KwaZulu-Natal Sands business, the group is unlikely be able to exit for value," said the analyst.
Exxaro's heavy mineral business was likely to account for less than 10 percent, or R3.2 billion, of the group's market value.
The analyst said that if Exxaro spun off its heavy minerals business, the shareholders who received the shares "would dump them".
"The shareholders of the company don't want the heavy minerals business," said the analyst. "We don't like the business at all."
The analyst said Exxaro had never received a proper return on the capital invested in its heavy minerals business. "That speaks for itself."
Over the next 18 months Exxaro is set to spend more than R1.6 billion in capital on its mineral sands division.
De Klerk declined to indicate what return Exxaro was seeking to achieve from its heavy minerals business.
Anwaar Wagner, an Old Mutual Investment Group South Africa analyst, said: "Management needs to assess if it can get sufficient returns from this business, otherwise it needs to look at other options to create value for shareholders."
The R2.2 billion or more that Exxaro was spending to buy Namakwa Sands from Anglo American would be better spent on the group's coal division, said an analyst.
Heavy minerals was a very technical business that Exxaro had battled to master, the analyst added.
Exxaro is one of three companies that together produce almost 70 percent of titanium slag worldwide. The other two are Rio Tinto and Iluka.
In turn, five pigment producers turn out close to 70 percent of all pigment: Du Pont, Crystal, Huntsman, Kronos and Tronox.
Exxaro has a joint venture with Tronox in Australia.
De Klerk said Fairbreeze C's mining rights had been converted but the group was waiting on Fairbreeze C extension.
Exxaro shares fell 3.94 percent to R95. The basic materials index fell 2.94 percent.
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