Betting on coal through Exxaro

Serfaas Badenhorst, portfolio manager at Momentum Securities, said Exxaro offers good value with the continued energy shortage.

Exxaro Resources is a large coal and heavy minerals mining company in South Africa with mines and offices in Africa, Asia, Europe, and Australia.

Exxaro is among the top five coal producers in South Africa and is one of the country’s largest diversified mining companies.

It has assets in renewable energy, thermal and metallurgical coal, iron ore, zinc, and residual pigment manufacturing.

The group is a constituent of the JSE Top 40 Index with a market cap of R77 billion.

Badenhorst said the energy crunch continues with Russia’s war on Ukraine, putting the Eurozone in a predicament regarding electricity generation.

Although the Eurozone is set on green energy, it has been achieved mainly by using Russia’s natural gas.

“With President Putin slowly turning down the tap on the Eurozone, they had to return to alternative means in generating electricity,” he said.

“One of these means is by starting up their coal-fired power stations. It has resulted in strong demand for coal, which has driven up the price, which is currently above $400 per ton.”

Exxaro is one of the South African companies benefitting from higher coal prices.

“Exxaro is perfectly poised to take advantage of the European winter, with higher prices and being cash flush at this stage,” Badenhorst said.

“With a dividend of over 12% and a target price of around R270 per share, there’s definite upside in the short term.”

“That is why our stock pick of the week is the coal-producing company Exxaro.”