Very good morning, ladies and gentlemen. Welcome to Exxaro's Interim Results For The Six-M onth Period Ended 30th June 2025. My name is Sonwabise Mzinyathi and I look after investor relations and communications for Exxaro. Today I will be facilitating this presentation. As you know, at Exxaro we begin all our sessions with a safety briefing. With that, allow me to take you through it. We have not planned any emergency drill today, but if for some reason the alarm is activated, please remain calm, stay on your seat. Exit the building using the emergency exit doors. The assembly point for Exxaro is in front of our building. If you are a visitor, we request that you remain with your host at all times. In the event of load shedding, we do have generators on the premises. The generators will go live in about three minutes.
For the bathroom facilities, you go out of the auditorium, you turn left and the bathroom facilities will be on your right. Smoking areas are allocated outside of our building. We request you to please take note of our disclaimer. Our content for our presentation today will consist of key highlights. It will be followed by operational performance, financial performance, and then we'll get into the outlook. Our speakers for today, our CEO, Mr. Ben Magara, as well as our Finance Director, Mr. Riaan Koppeschaar. Allow me to welcome Ben to his very first interim results altogether as Exxaro CEO. Ben, today marks 143 days since you joined Exxaro and we just want to recognize that it has been nothing short of extraordinary and we have felt your visionary and transformational leadership already. With that, Ben, I'd like to hand over to you.
Thanks. Thank you very much and very kind words. I have absolutely enjoyed my time at Exxaro and I'm so looking forward to doing the best work of our lives with all my fellow employees. Thank you for joining us this morning. Before I start, this is Women's Month and I have some very special guests in the audience this morning, so please allow me to mention them a little bit, because in this special Women's Month. [Foreign language]. My two sweethearts that I'm going to mention are [Mama Solukazi.] It was so good. It's so good to see you here. Please stand up for us. I meet at the shopping centers all the time and she looks at my wife and she says, "Makoti, take care of my son." I really thank you for being here with us this morning. [Mamdikapa,] you welcomed me to Exxaro.
You welcomed me to Exxaro when I joined as a Non-Executive Director and it's been nothing short of lots of fun and it's been like homecoming for me at Exxaro. I want to thank you for that. There are some Non-Executive Board Members who have also joined us this morning and some past, I can say past CEOs but still shareholders. I will not mention all of them, but really just to welcome you all and good morning everyone and thank you for joining us. It is my great pleasure that I am able to present Exxaro's Interim Results For The Period Ending 30 June 2025 alongside our Finance Director Riaan Koppeschaar, who I must commend once again for the excellent work that he has done when he was acting CEO prior to my tenure.
As you would have seen already from the numbers, because I'm sure you have read them, Riaan's pocket has only gotten deeper. His hands, I'm not so sure if they got any longer. It's now been over four months since I joined and in this time we have visited all our operations and engaged directly with our fellow employees. We have engaged with organized labor to the extent we actually went to organized labor offices. I didn't want them to come and see us here because generally employers tend to say come and see me, come here. We wanted to go and see them in their workplaces. Sit with them with Solidarity, we went up through the kopje there. It was great to see and to engage with them and get the sense of their own expectations of this company.
They had no other expectations but to see Exxaro succeed. We met also with governments, industry bodies, partners, customers, both locally and internationally. You, obviously, our shareholders and investors. They've deepened my understanding of our stakeholder expectations and their vision for Exxaro. As a fresh graduate mining engineer in the ' 90s, young at heart, I began my career in the coal industry. As I said earlier, Exxaro gives me a feeling of homecoming. Not only is coal our foundation and we can see the longevity of coal demand even post 2050, we are going to extend the life of our mines because we've got fantastic infrastructure and we are diversifying into other minerals that give us opportunities to diversify, but also to get into the grid energy space as you'd have seen some of our announcements. I have since gained global exposure across multi-commodities in the mining value chain.
This has shaped my own leadership approach. I believe that safety is core to everything that we do. If it is not safe, we don't do it at all. I believe in strong relationships. I'm always focused on exceptional performance, on people doing the best work of their lives. We spend so many years at work, we can make it so fun that it doesn't have to feel like work, but we have to deliver. Our core focus, delivering exceptional performance, will continue through operational efficiency, capital discipline, and winning with our people. I've been both impressed and inspired by the depth, expertise, passion, and commitment that I have sensed and felt on all our operations and businesses, including even the mines in closure, because I've been to all of them, be it in Limpopo or KwaZulu-Natal. I look forward to visiting our energy facilities in September.
I will now take you through the key highlights. That was really just a quick catch up on my return to coal and just how much fun we are having. The numbers have to highlight that this fun is not for nothing. I'll also take you through the early signs of our decisive action in executing our sustainable growth and impact strategy because that's what we are here for. I'm pleased to announce that we achieved some key strategic milestones in this first half. Leon and the energy solution business Synergy achieved financial close of our 140 MW Karreebosch Wind Farm in February. We are going to spend about ZAR 4.7 billion on this project and this transaction contributes to our portfolio of diversification. Most importantly, it will support our program to reduce Scope 3 emissions as we execute on our decarbonization roadmap.
In May, six weeks after I'd started, we announced the acquisition in the manganese area of holdings and OMH shares and claims in key manganese assets. I will provide a fuller update a bit later about this. On the safety side, on Friday the 15th last week we achieved three years fatality free. Thank you Monge for kicking it off. Really, that for me is wonderful news about a company that knows that people confessed that if it's not safe, we do not do it. Not in my name and not in your name either. In this first half we delivered way in line with all our guidances underpinned as I said earlier about operational efficiency and marketing excellence. This is despite a challenging macroeconomic environment. We're having also decreased offtake levels and ongoing logistics constraints. I'll cover on this a little bit because it might not be very clear.
We are seeing very good green shoots about TFR and Transnet's performance but it's not. There's no cigar yet because a lot of money into RBCT which can now deliver 91 million tons. We still want to get there, but Transnet has since improved from about 48-50 million tons run rate now to about 54 tons. Exxaro has got long life assets. We're partnering in this private sector participation. We are interested in it because it's good for the country, it's good for the economy, but it will make money for our shareholders. Overall, our coal production increased by 1%. This seems marginal until you see that our export sales went up by 3% year-on-year, bolstered mainly by the successful efforts of our operational teams. Our Mpumalanga operations improved production by 14% in total, including Lupan.
Our sales and marketing teams have done an exceptional job in continuing to drive price realization up 1% to 96%. If you think of API4, the benchmark for RBCT pricing, it means we achieved, if it was $100, we achieved $96. That's an exceptional industry leading price realization because on average the industry tends to play around 80%-85%. I touched earlier on the wind energy. It was in line with our performance last year at 337 GWh. Hence our financial performance in the first half was robust. Our revenue went up 8% to ZAR 20.6 billion. Our group EBITDA is up 10% year-on-year to ZAR 5.6 billion. You can see our EBITDA is higher than the rate of growth in revenue, which means there was a robust cost containment program in order to maximize margins.
Our net cash position has improved by 27% to ZAR 12.4 billion compared to the first half of last year 2024. E quity investments, particularly from iron ore investments and Black Mountain, the zinc business. We benefited a lot at Black Mountain because of increased production and sales volumes due to favorable mining conditions and the ramping up of our projects there. Lastly, I'm happy to announce that given this great performance and cash generation, the board has declared an interim dividend of ZAR 8.43 per share. Thank you. We appreciate it. Ladies and gentlemen, let me remind you this is Exxaro's 45th consecutive dividend since the listing on the Johannesburg Stock Exchange 19 years ago in 2006. We have not missed a bit for our shareholders. This is a clear testament of our business model and our commitment to delivering consistent and sustainable shareholder returns.
We are vested with a great asset and great people. As a new leadership from the announcement we made yesterday, we're looking forward to driving this growth. Let me now share a bit of a backdrop about what drove Exxaro's stable delivery. Amidst all the shifting macro and market challenges, the first half of 2025 set an unprecedented tone stemming from the unpredictable markets and geopolitical activities that we've all seen. At the World Economic Forum in Davos 2018, the former Canadian Prime Minister Justin Trudeau coined a very insightful phrase that's proving to be even more relevant and was very relevant in this half of the year. He said, and I quote, the pace of change has never been this fast yet. It will never be this slow again. It will never be this slow again. Indeed, this uncertainty is here and is our new norm.
Great companies will be those that can surf with elegance like Exxaro. These waves of unpredictability and uncertainty are here to stay. We might as well enjoy them. We saw a sluggish GDP of 2.2% which dampened demand for bulk commodities like iron ore and coal, affecting our pricing, power, and export volumes. We saw cautious optimism with regards to investor sentiment, underpinned mainly by the formation of the Government of National Unity in our country. That optimism continues. We are continuously seeing the green shoots in some of the ministries, including our own Ministry of Transport, particularly on the logistics side. These efforts to include and involve public participation and public sector involvement, of which Exxaro is ambitious to be part of because we have long-term assets and long-life assets. We continue to have good engagements with TFR and the whole management.
As part of my program of induction, I did meet with Michelle in this office in this building again to emphasize our wish to continue to work together and collaborate and improve the logistics so critical to South Africa and of course to Exxaro. We make no bones about us wanting to make more money out of it because it grows our economy and that's the only way we can all grow. I've met them during my tenure already and I acknowledge their great efforts to Michelle towards all these reforms. This half we saw seaborne thermal coal prices soften a little bit compared to last year, mainly because of lower stock levels, the dropping of stock levels in Europe. They focused on reducing their stocks in some mild weather patterns. However, the prices remain higher than the pre-2021 averages.
Australia saw benchmark coal prices fall to a four-year low at $90 per 1 ton, while our API4 benchmark at RBCT averaged $92 per 1 ton. Iron ore prices were volatile and weaker, linked mainly to the lower than expected Chinese construction activity. Enough of the backdrop. Now back to why we're here, because excuses don't put dividends on the table. I'll share with you our operational performance before Riaan shares the full financial details. I stand for safety and at Exxaro, we believe zero harm is achievable and we believe that all incidences are preventable. Following the launch of our One Voice safety strategy at our annual CEO Safety Summit in April, we rolled out the refreshed safety strategy. This is a refreshed strategy. It doesn't mean we're veering from our base of the way we do things.
We are topping up on it because we can never be complacent with all this good performance. We have to continue to work hard. This refreshed safety strategy is anchored on five pillars, as you see on the slides, which aim to ensure that our people, systems, processes, workplaces are integrated to power our goal to achieve zero harm. Safety is a state of mind and we'll continue to focus on making sure we work safely. Everyone at Exxaro knows this. As I've already explained earlier, total production was 19.4 million tons from 19.3 in the first half of last year. I focus on comparing with first half of last year because that removes the seasonality impact of our results. Riaan will focus on how the financial results have to be presented.
The drop in the sequential halves is in line with seasonality as the second half of 2024 tends to have less rains and therefore better production. Grootgeluk remained stable despite extraordinary rainfall and a partial rail wash away in the first quarter, which impacted both rail and road performance. Our operations in Mpumalanga excelled and thanks to Chris Barlow, I think I saw him here and I saw quite a number of our general managers from the mines and Tamara. Where's Tamara? Tamara, welcome. She's our first. Please stand up. She's our first General Manager, Mining Engineer at Mafube and she sent an article that I really have now copied going forward which says we are qualified, we are competent, we are capable, we are worth it. Well done.
Our Mpumalanga operations excelled and produced 14% year-on-year better and we have made up for the decrease in the Waterberg area. Belfast increased production by 6% through a debottlenecking project and is now delivering at its nameplate capacity, which is really exceptional performance. Mafube continues to outperform, improving by 25% year-on-year. I was the CEO at Anglo American Coal when together with the former CEO of Exxaro, the Big Bear Siponkosi, we approved the start of the Mafube Greenfields project which is now one of our valued mines. I'm proud of its success and to come back to it and see it continue really gives me a good feeling. It continues to deliver. Matla is down 12% compared to the first half of last year because we have decommissioned the shortwall which produced last year and is out of our production numbers this year.
This was the last shortwall mine in South Africa because there isn't enough coal deposits that are flat enough, long enough, wide enough for this kind of technology to be used. However, Matla delivered exceptional performance and it's worth mentioning that the ramp up of Matla is going on very well. We are spending ZAR 5.2 billion to build up Matla for coal to the power station and we have seen a massive improvement way in line with that. We will have almost a new mine there. I'll provide more details of this later. For those excited to come back to the coal phase, it's early days but our Leeuwpan turnaround is yielding results. Leeuwpan improved by 18% due to the modified mine plan pit consolidation as well as our sales and marketing team driving and processing teams driving an optimized product mix focusing on restoring the profitability of this mine.
This is a mine that has operated for 35 years and it has never had a fatality. It takes a lot of work and we applaud that because we know it doesn't happen without leadership. It doesn't happen without employees working hard every day and believing they can go home safely every day. We achieved excellent sales volumes and this was due to exceptional efforts from our marketing teams, particularly through our market to resource optimization strategy and the logistics teams who mitigated the rail washaway I spoke about at Grootgeluk by placing trains which we would have lost and placed all those trains into the Mpumalanga operations because those mines were outperforming on the expectations we had. That has helped us to step up the production better than last year and maintain our customer commitments. These were not just tactical adjustments.
They were decisive actions that protected our market share and revenue. Our total sales increased by 1% mainly on other domestic thermal coals driven by Mafube and Leeuwpan. M oving to our international markets and exports w e delivered a strong performance indicating our continued proactiveness to market dynamics. The Indian market was negatively impacted by local production in India and weaknesses in the steel sector. Despite this, ladies and gentlemen, Exxaro is progressing well in developing this niche market for the whole of South Africa and the rest of Africa. We saw growth into Africa of about 18% and that is helpful to our volumes. Similarly, our progress in the market development efforts in other Asia is encouraging and Exxaro's brand is well recognized for consistency in quality and in deal execution. This is something I am very proud of and I found it at Exxaro.
Having been in the coal industry for many years, I know what consistency and quality means to our customers, especially in Japan. I spoke about price realization earlier, really driving our market to resource optimization and RBCT where we have entitlement remains our most optimal value route. Even though we take advantage of alternative coal evacuation methodologies and multimodal logistics systems. When we feel that there is potential to make more margins and more profits in those areas, we minimize road where we realize that the margins are not good enough at current prices. It's possibly not very helpful to be on the road with your coal. We continue to monitor that, and our teams are exceptional in delivering in that space. Where margins justify it, we do it.
Synergy's operating wind assets generated 337 GWh of electricity in the first half, as I said, almost flat from last year. This was supported by good plant availability, which is higher than last year with about 1% to about 98%. Revenue increased by 3.5% in the Synergy business to ZAR 675 million, really on the back of stable generation and increased annual tariff escalations, with operational EBITDA improving to ZAR 537 million from our wind energy business. This drive is not just about money but about reducing emissions, and this is our contribution to the world. Let me now hand over to my buddy Koppes, as we call him, to take us through all the financial performance results, and I'll be back again to share with you our outlook and guidance. Thank you.
Good morning ladies and gentlemen, once again a pleasure to present our financial results for the six month period ended 30th June. I'm sure you will all agree that as his buddy I gave Ben a very good induction, eh? This more serious stuff. The financial results will be compared to the second half of 2024, to ensure comparability. The figures presented in this section are based on IFRS results adjusted for headline earnings adjustments detailed in the additional slides. This high level overview of the group result depicts performance of our managed operations in the first two graphs at the top. As you can see, revenue decreased by 5% contrasting with a 6% increase in EBITDA. Income from our equity accounted investments is highlighted in the top right graph, indicating an increase mainly due to SIOC's contribution increasing by almost ZAR 500 million compared to the second half of 2024.
Equity income per investment is available in the additional slides. Despite operating in dynamic and challenging market conditions, we generated ZAR 5.3 billion in cash to end in a net cash position of ZAR 12.4 billion at the end of June, which will be discussed in more detail later on. This translated into headline earnings per share of ZAR 17.24. Now let's look closer at the EBITDA analysis, firstly starting with the price impact. In line with the decline in the benchmark API4 coal price, export prices were 16% lower than in the second half of 2024 but offset by our local price realization relative to the API4 index which improved by 1%. The higher prices realized in the domestic market also provided support to the overall revenue.
If you look at the volumes, export volumes decreased by 8% following the road and rail damage caused by severe rainfall in the first quarter and distribution to the ports only ramped up in the second quarter after repairs to these channels were completed. Domestic sales volumes declined by 1 million ton with the lower offtake from the Waterberg power stations which experienced maintenance outages and coal stacking and reclaiming challenges. Next, we faced inflationary pressure across the mining industry which also contributed to an increase in costs. You can see electricity costs rose by 6.4%, labor costs by 1.2% and other costs in line with PPI at 1.3%. Our diesel cost however decreased by 0.5%, helping to limit the overall inflationary impact. Beyond inflation, other costs also impacted EBITDA. We had higher buying volumes from El Mafube JV, albeit at lower prices.
We had a positive impact of ZAR 548 million relating to inventory movements with net realizable value adjustments in the second half of last year not occurring again and higher production than sales volumes in the first half of this year. Operational costs decreased by ZAR 442 million as a result of lower export tonnage at Grootegeluk and also lower stripping ratios at Leeuwpan and Belfast in the first half of this year. Adjustments to the rehabilitation liability had a negative impact on profit in the second half of last year due to higher post-water treatment cost and a sharp decrease in the discount rates. Although the discount rate declined further in the first half of this year, the movement was much lower than in 2024.
On the logistical front, our logistics cost decreased by ZAR 190 million due to the lower export volumes and us also moving less tons through Maputo, which is the more expensive route. The positive impact of the weaker rand-dollar exchange rate on revenue was offset by realized and unrealized losses on foreign debtor and cash balances. Finally, looking at the general costs which mainly consist of returns on our rehabilitation trust fund, the revaluation resulted in it to be ZAR 41 million higher in the first half of this year. On the next slide we look at the performance of the Waterberg and Mpumalanga coal operations. Although the revenue from both regions decreased from the second half of last year, EBITDA in total increased by 8%. Firstly, looking at Waterberg.
Although the Waterberg revenue decreased by ZAR 153 million driven by a lower offtake and decreased export volumes, this was offset by higher prices realized in the domestic market. EBITDA increased by ZAR 400 million despite inflation adding about ZAR 98 million to the cost base. The operational cost as mentioned on the previous slide reduced by ZAR 215 million while the negative impact on export volumes resulted in lower logistical costs of ZAR 183 million. Another factor impacting EBITDA was the combination of lower domestic offtake and road and rail damage restricting our export sales. This led production to exceed sales volumes and resulted in elevated inventory levels at the end of June with a positive EBITDA impact of ZAR 322 million. Shifting focus, although the revenue decreased by ZAR 746 million, the EBITDA only declined by ZAR 55 million.
This decline in revenue was largely due to constraints on export volumes and lower prices realized in line with the lower coal index p rice. C ost pressure also played out with inflation adding about ZAR 45 million to the cost base. As indicated earlier, operational costs at the Mpumalanga operations were ZAR 282 million lower, mitigating the impact of the decrease in revenue. On a positive note, we had higher buy-in volumes from Mafube at lower prices and that provided some relief, contributing ZAR 121 million EBITDA uplift together with inventory write-offs to net realizable value in the second half of last year amounting to ZAR 141 million, which did not recur again in 2025. The combination of discount rate movements as well as a lower increase in closure cost at Leeuwpan resulted in a lower increase in our rehabilitation liability in the first half, which impacted EBITDA positively by ZAR 104 million.
The EBITDA for Matla remained stable. Overall, these dynamics resulted in an EBITDA margin of 28% for the coal business. On slide 18, we look at our cost performance and we are delivering on our promise to the market. We have stabilized the unit cost despite softer production volumes resulting from the continued offtake constraints w e are experiencing. C ash cost per tonne remained flat at ZAR 651 a ton despite a 3.4% coal mining inflation rate. That means we effectively absorbed inflation, a clear demonstration of cost discipline. Total production cost decreased by 8% from ZAR 10.9 billion in the second half of 2024 to ZAR 10.1 billion in the first half. We countered the lower volumes with various cost-saving initiatives across the business. Key drivers of the savings include this focused profitability and cost improvement projects at all the operations.
We are starting to see the benefits of the Leeuwpan turnaround project and there's business optimization top five focus areas at all our operations. Logistic cost optimization and improved channel utilization resulted in us exporting 290,000 lower sales via Maputo and only 45,000 lower export sales via RBCT. Looking at the specific cost component indicated in the bottom right graph, the employee cost as a fixed cost remained flat in absolute terms, but the unit cost impacted by the lower volume increased the unit cost by ZAR 11 a ton. Maintenance is also largely a fixed cost and was executed in line with the normal life cycle plans, resulting in an increase of ZAR 7 a ton. General expenses were mainly impacted by a once off credit in 2024 which did not recur again in 2025.
We have improved contractor performance of ZAR 6 a ton based on bench liberation, stability, and operational efficiency. Rehabilitation cost decreased by ZAR 17 a ton as a result of the discount rate movements between the relevant periods and also lower volume increases in the first half of this year. This shows we can maintain unit cost below mining inflation even under operational and market challenges and with cost saving initiatives. Control focused projects remain committed to continuously improving our cost performance in line with the guidance that we've given the market previously. Focusing on our cash generation and capital allocation strategy, our capital allocation framework remains focused on maintaining our net debt EBITDA ratio below 1.5x excluding any project financing, providing stability for future growth while also maintaining a strong balance sheet.
For the first half of this year, our cash inflows totaled ZAR 5.6 billion, which included ZAR 3.9 billion from our owner controlled operations as well as a ZAR 1.7 billion dividend from our investment in SIOC. In line with the capital allocation framework, we directed funds towards key areas. ZAR 872 million was allocated to sustaining operations and support functions, ensuring the ongoing efficiency and reliability of our assets. ZAR 3 billion was paid in dividends, rewarding shareholders for their continued support. This included a ZAR 1.7 billion pass through of the SIOC dividend and ZAR 1.3 billion from our own managed operations. ZAR 382 million of shares were repurchased up to the end of June as part of the share repurchase program. Expansion capital of ZAR 1.1 billion was spent on the ongoing Leeuwpan Solar Project as well as the new Karreebosch W ind Farm, which reached financial close in the first quarter of this year.
Under other allocations, we accounted for ZAR 180 million related to development costs associated with the Karreebosch transaction and also ZAR 163 million for acquiring shares to settle vested share based payment schemes. As a result, our closing net cash position at the end of June stood at ZAR 18.3 billion, excluding the energy segment's net debt of ZAR 5.8 billion. Finally, we ensured that our economic value creation was shared equitably with all the stakeholders. We contributed ZAR 3.6 billion to employees, reflecting our investment in human capital. ZAR 2.7 million was paid in taxes and royalties supporting national economic development, and ZAR 2.8 billion was distributed as dividends to external shareholders, reinforcing confidence in our business. Additionally, ZAR 78 million was allocated to community initiatives, ensuring meaningful socio-economic impact beyond our operations. Looking at CapEx, firstly coal, our capital performance remains disciplined and aligned with the long-term sustainability of the business.
Total capital is well within our guidance, and our spend is aligned with our capital execution plan, avoiding both over as well as under investment. We are on track with our target capital spend range of ZAR 2.5 billion-ZAR 3 billion per annum in real 2022 terms, ensuring our business remains well capitalized and with the necessary intensity. We are confident in our capital discipline and remain committed to delivering the right investment at the right time for the right outcomes. The last one there, energy expansion capital of ZAR 1.1 billion, and that was spent on the LSP project as well as the new Karreebosch Wind Farm, which reached financial close in the first quarter. A s Ben already alluded to. I'm pleased to announce that the Board has resolved to pay an interim dividend of ZAR 8.43 at an overall group cover ratio of 2x.
This is a pass through of the SIOC dividend and a cover of 2.5x on Exxaro adjusted group earnings since implementation of the share repurchase program that we announced earlier in the year of ZAR 1.2 billion. A total of 2.6 million shares have been repurchased at the total value of ZAR 382 million as at the end of June. In July, another 1.7 million shares were repurchased at a total consideration of ZAR 280 million. As previously stated, our cash buffer of ZAR 12 billion-ZAR 15 billion will not be retained post the acquisition of the manganese assets. We are currently reviewing our capital allocation framework to ensure it continues to deliver competitive and sustainable shareholder returns while preserving the strength of our balance sheet. With this, I also want to thank everybody at the operation, at the connection that made these results possible. Also the finance team for the long nights and the hard effort. Really appreciate it and I hand back to my buddy.
Thanks, thanks Koppes. Really wonderful financial numbers. Now I can look at the outlook. Traditionally, as you would know, in mining, the second half is always better than the first. This is mainly driven by the uncontrollables of better weather conditions, but also about operational momentum, which we can control. Mining is a momentum game. It's about creating momentum and having rhythm. If you have got that in the system, it tends to work better. I always used to talk about five aspects of mining, which is safety, quality, production, costs, and culture. If you can get your safety right, you'll be fine. If you can get the quality of your performance, okay, you'll get better. If you repeat those two, you'll get good production. If you get good production, you drop your unit costs. If you drop your unit costs, you'll make more margins.
The culture, you have to keep watching because people come first. It's about how people are wired. It's about how people can do the best work of their lives. That's what we look forward to. We anticipate increased offtake from Dan and his team at Eskom, especially due to Medupi's Unit 4, which has now been returned. We're very pleased when they announced a few weeks ago that Unit 4 is back. Those two giant power stations are running well. I think they may have one on maintenance, short maintenance period right now. We have seen since July when Medupi 4 came in that there's increased production and uptake into Eskom, which is very pleasing for us. Each unit, ladies and gentlemen, consumes somewhere around 2- 2.3 million tons of coal.
When a unit is down for a year, that's 2- 2.3 million tons out of your production and that impacts unit costs. We welcome the units that have all six units seem to be running and one other than putting it on maintenance. We commend Dan and his team for that continued effort. We expect and we have guided as follows that the total production we still expect is somewhere around 38.9- 42.8 million tons and our coal sales with all equal would range somewhere between 38.3 and 42.4 million tons with export sales, given the green shoots I spoke about earlier with Transnet, ranging possibly between 6.5 and 7.2. Obviously, all this depends on continued improvement from Transnet, but also favorable prices that justify the multimodal logistics options that we continue to utilize and monitor.
On the energy side, due to the delays of the LSP which has been delayed, our energy generation guidance range from 780- 810 GWh which consists of a full year wind generation and half year solar generation. This has been revised to accommodate the LSP delays which is now expected to produce first electrons in the first half of next year. We therefore expect 677- 718 GWh, a range only coming from the wind generation. Ladies and gentlemen, Exxaro's sustainable growth and impact strategy remains intact. If anything, we are accelerating the delivery of our strategy as we aim to transform Exxaro into a diversified natural resources champion in Africa and beyond. As indicated during our various announcements in the last six months, we have taken decisive action to deliver on our strategy. Ultimately, we have had a strong coal base and that will continue.
We have quality investments in iron ore and base metals and we're prudently scaling our energy business, adding energy transition metals as well to our portfolio, building this business to make sure they all thrive now and in the long-t erm to create the sustainability we need for our country, for our continent, for our shareholders and all stakeholders. Having spent three decades in the mining industry in South Africa and globally, I can confirm that Exxaro's coal portfolio is well capitalized and we have invested significantly in building high quality infrastructure and we continue to do that. Our friends at Eskom have provided us with ZAR 5.2 billion. It will be a bit more at Matla. The life of mine expansion project at Matla will basically provide a new mine with access, office infrastructure, change house facilities and a ventilation shaft.
As I said, this investment is about ZAR 5.2 billion and the project is on schedule, within budget and on target. Since our announcement on the 13th of May of Ntsimbintle Holdings shareholders, they've since now approved that transaction. The escrow agreements, the warranties and indemnities have all also been entered into and were filed with the South African Competition Commission. We have also completed our submission to the Minister, to our regulator in terms of section 11 of the MPRDA. Aside from all these necessary regulatory approvals, we are in the process of receiving all the waivers and the exercise of preemptive rights or tag along rights. We still expect, as originally announced, to close this transaction in quarter one of 2026. Furthermore, we are accelerating the growth of our energy solutions business.
At the beginning of the year, we took a significant step to close the Karreebosch, as Riaan has already highlighted, including the power purchase agreement with Northern Platinum, who happens to also be buying quite a lot of our own coking coal from GG. This adds 140 MW of gross capacity to Synergy, bringing our total energy production to 437 MW, strengthening our ability to deliver clean, reliable energy solutions to our customers and contributing meaningfully to South Africa's just energy transition. The commissioning of the LSP has been delayed, and we expect first electrons in the first half of 2026. The completion of this project will see Grootegeluk benefiting from both electricity cost savings and also reducing Exxaro's own scope 2 emissions in our decarbonisation plan.
We remain focused on the operational delivery, which is really the bedrock that allows us to get the cash generation we need for our growth and also to return to our shareholders amid this challenging operating environment while progressing our strategy to execute decisively on our journey to become a diversified natural resources champion with a strong coal base and growing presence in the energy and transition metals. On this note, I would like to also update you on the next steps for our Leeuwpan turnaround plan. The team has successfully concluded consultations within the legislated timeframe of 60 days. This milestone simply reflects the strong collaboration between our Exxaro management teams, organized labor stakeholders, our employee representatives, and all the employees at Leeuwpan.
I am happy to announce that we are in constructive discussions also with Transnet to look at alternative export channels in support of our turnaround plan at Leeuwpan in order to minimize job losses, and they have been very helpful. Thanks to Michelle and her team, our disciplined capital allocation remains the cornerstone of financial stability. As we indicated earlier, upon the close of our manganese deal, we have no intention to rebuild our cash buffer to current levels. In that regard, we are reviewing our capital allocation framework in order to enhance the returns to our shareholders within our company's risks. I guess shareholders can read what they may choose in there, but we are reviving that because we are reviewing it because we can see if the world continues on the path we are, that there may be some to return to shareholders.
All this to say we are committed to sustained strategic value unlock. As you would have seen yesterday, we unveiled a group management structure that is fit for the future within a functional operating model. Our focus is really to drive and resource this organization for growth but also represent the demographics of our country with qualified, competent, capable people who are worth their salt and just want to be seen in the sun doing their work. We must ensure that as we transition, we bring everyone along, including our communities. Lastly, to my fellow employees, I have been deeply encouraged by the talents, the passion, the commitment that you have for Exxaro.
You are the strength of this great organization and this places responsibility on us, your management leaders and on leadership to inspire and to enable teams to thrive and for all of us to do the best work of our lives safely together. I'm confident that together we are taking decisive action to deliver on Exxaro strategy and stakeholder expectations that are highlighted at the start, anchored in our purpose of powering better lives in Africa and beyond. We are positioning this organization to become, you may already know this term by now, Diversified Natural Resources champion in Africa and beyond. These results, my fellow employees, they belong to you and thank you very much.
Thank you, Ben and Riaan. This brings us to a close of our presentation. I am told there's over 90 people that are watching us from LinkedIn. I'd like to thank them for watching and wish them a good day further. They're off. We will now, for us that are left in the room and online on the webcast, get into the questions and answers. I'll start with questions in the room if I may have. I see you, Brian, Thobela, Lelo, and then next to Lelo [audio distortion].
Thanks Sonwa. It's Brian Morgan here, RMB Morgan Stanley. Just three questions if I may. I was under the impression, maybe mistakenly t hat the timelines for the preemptives and t he tag alongs was end of July, early August. Has there been an extension to the timelines there? The second question may be for you, Riaan. You did tell us that you weren't. Going to build up any more cash, but you did, and just want to get a bit more color on that. Then Black Mountain's a bit of a black box to us. We don't really know what's going on there, but it's a bit blind, right. Maybe you could just color it in for us a bit.
Thank you. I'll touch on the manganese transaction and because I'm the CEO I'll hand everything else to Riaan. Brian, the timelines of the take along and preemptive rights predominantly are on Hotazel and on Mokala and imminently we were expecting and I'm still hoping to check my cell phone if some of those have already come in. Richard is with us this morning, so we expect them imminently and the process is ongoing. There is really no issue in what we see today. Everything is in order for them to exercise whatever right they would want to choose. Everything is on schedule. I think what was critical for us is to make sure we can still submit our Competition Commission filing, the work we are doing with section 11, and those are possibly the biggest drivers of where we'd end.
The fact that we don't know which bookend we are focusing on from ZAR 9 bliion-ZAR 14.6 billion is possibly why preemptive rights are important. The timelines of delivering the transaction to quarter one is still in line. We are imminently looking at our cell phones for emails and WhatsApps to confirm with their options. Thank you.
Yes. So o n the cash build up, as we said, we are currently reviewing the capital allocation framework. The other thing also, we want to have certainty on the price tag for the manganese assets, whether it's ZAR 9 billion or ZAR 14 billion. Also, remember, normally we don't declare special dividends or share buybacks at interims. We do it at finals. Black Mountain, remember they are part of the Vedanta Group. We've got a 26% shareholding. Last year, they were impacted by production issues that affected them. I think if you go onto Vedanta's website, you will be able to read more about them. This year, it is definitely going better. Also, from a capital perspective, you may be aware they are developing the Gamsberg project and the smelter. That is a fairly big project. It's $500 million, and it's going into production at the end of this year. It is going better there at the moment.
Thanks.
All right, Thobela.
Thank you. This is Thobela Bixa from Nedbank. I've got some questions for the both of you, so I'll start with Bennetor.
Thanks Thobela.
Since you have done your roadshow, having looked at the assets, could you just give us some color as to how you found the assets to be and then also given the fact that you've actually worked on some of these assets before, how are they compared to when you worked on them? The second question for you is we saw the management changes yesterday and part of it was that, you know, you're saying that, okay, it's fit for the future but your strategy hasn't actually changed from last year. What necessitated the changes that you made yesterday? Of course there were acting and other things and then I'll ask buddy two later on.
Thank you very much. It looks like you have made sure that buddy two can come in. Thobela, really, on the assets, they are well capitalized and I'm bringing here a 35-year global lens. Having seen assets from South America to Australia, South Africa, China, Russia, you name it. I can see that they are well capitalized. These are good assets we possibly have, if anything, going to have infrastructure that's available and that can go beyond the current life of mine deposits. We've got huge life of mine, substantial resources, but the equipment and infrastructure can still take us a lot further, which means the need to look at life extension on those assets. One has to always confirm that with demand because there's no need in bringing it if there's no demand.
All the international energy agents' analysis shows that even beyond 2050 there is still need for coal. If I estimate what I'm seeing today, Exxaro is supposed to be somewhere around 30% of production for the country. If I look at the life of mine, I know for the industry in South Africa, Exxaro by 2040 will possibly be pre-mining 50% of the world countries' coal because all the other life of mines will have been depleted. B y 2050, 2055 if no new mines come along. Exxaro will be at 75% of the country's production because we've got long-life, substantial deposits, which really augurs well for Exxaro in terms of sustainability. I'm really glad with the infrastructure. I'm impressed with the performance. We don't like to say these guys are now doing better than us 20 years ago, but they are.
If you look at the lost time injury frequency rates, it was something we dreamt of 20 years ago, 15 years ago, three years without a fatality. It was a single mine that could achieve that. I remember doing that at New Denmark Colliery. We had three years fatality free, but we were the only mine in Anglo Coal that could do that. This is the whole of Exxaro with 18,000 employees and contractors. That's phenomenal. I think there's really good, good performance that I'm seeing. There will always be room for improvement. If I look at business performance improvement, what we have applied at Mafube, what's happening at Belfast are all issues of operational efficiency, business process improvement, debottlenecking, theory of constraints that can definitely provide us with more opportunities of reducing capital requirements, improving our outputs, but reducing our unit costs.
That's work, as Riaan said, that we have to continue doing. With GG as a flagship, if those opportunities come in, a 1% reduction in CapEx, 1% improvement in yields and recoveries can be a game changer to your margins and we continue to focus on that. I'm really impressed with that. The management changes we did yesterday, proudly. I think when I announced the structure then we had realized that with our growth trajectory, with the oncoming of manganese in January, as we expect to then be in our stable, we need much more attention. We will have 60.1% effective control onto the TP Borrow asset. Therefore, our attention there is much bigger. We will be entitled to three board seats out of five. That again requires airtime for us. We have a capability for bulk mining that I think will be beneficial to our joint venture partners as well.
All the operational structures need to also be bolstered with the expertise we can bring on board to them. Therefore, I can see that we have a manganese and joint ventures kind of platform that we haven't had that we're going to have to have and deliver on. We have the capability, we have a lot of underground, a lot of history around these capabilities. It's people we have both internally and externally. We are resourcing ourselves for the future. We are also delayering and removing any duplication. We looked at all the other areas. Where is innovation sitting? Where is optimization sitting? Where is technology sitting?
Is there a way to optimize this and make sure when we deliver in a functional model, we have four businesses but we've got functional support functions which can work together to deliver and not be siloed in their way of thinking as we drive the Exxaro way. That's really what we are trying to deliver and a good representative of competent people and I can't wait to dance with them.
Thank you. When we looked at the numbers, there was quite a big surprise in terms of the beat, in terms of what we were expecting. Looking at some of the unit costs that we saw and some of the sort of the waterfall of the EBITDA, it does seem as though some of what aided to that beat was the fact that it was one-offs. The question is how sustainable are some of these things that you're able to do in terms of being able to contain costs. That's the first question. The second question is around the debt on the energy business. We've seen that grow from around about ZAR 4.3 billion to now ZAR 5.8 billion. Currently, as things stand, that debt is ring-fenced in the energy business. What are your thoughts, especially with the CapEx bill that's coming in the energy business of that, what, ZAR 4.7 billion?
How do you think about structuring that debt? Will it continue to be ring-fenced? It does seem as though you are growing that business, but perhaps the recourse is not necessarily on your balance sheet. At the same time, if that business were not to do well, Exxaro would have to step in. Just talk to us about the risk related to that. Thanks.
Yeah, so on the cost saving, I think all of these initiatives are sustainable on the core side. Even internally I don't think we are happy with the 651 performance. We were now impacted because the divider on unit cost was 1 million tons less again this time. That also inflated the unit cost. Remember what we told you last time, in 2024 the unit cost was ZAR 638. We said we think we can bring the unit costs down 10%-15% compared to that. That is still what we're aiming to do. That is obviously dependent on Eskom taking the volumes.
Indeed.
Yeah, all the initiatives are sustainable. The second question was on energy. Yeah, the debt. Remember all the energy debt is currently project financed. Even the Karreebosch Wind Farm, it's project finance. We put in about, I think our equity check is ZAR 680 million, and then the rest is project finance. The same with the Lephalale project. Remember we always told the market we are aiming for returns in that business, equity returns of 15%. In order for you to get those returns you must gear them and that is how. They lend themselves to gearing now, the business is very stable. If you look at the Tsitsikamma, the Amakhala, the variability on revenue and EBITDA over a five-year period is 3%. The chances that you are not able to service the project financing is very low.
Minimum.
That's why we've got fairly much confidence that you won't breach your project financing. The second lever that you have is if you think your ratios can come under pressure, you take less dividends out of the business to enhance the financial position.
Okay, Lelo, and then Lelo, when you're done, please hand over to [audio distortion]
Thank you. Sonwabise Mzinyathi from Absa. I've got two questions. The first question is in terms of your tracking or alternative tunnels, I do note that the number was lower compared to the second half and the first half of last year. What was the result of that? At these spot levels, please remind us again what number you guys wouldn't want to be tracking at. My second question is with regards to Medupi Unit 4 coming back, you guys did speak about it. Do you see upside potential in the second half in terms of offtake from Waterberg? Lastly, in terms of why was the delay in the solar project, the LSP projects, if memory serves me correctly, it was supposed to be closed second half of this year, but it seems it's going to be next year now. Thank you.
On the best route and the most optimal route for us, having invested so much in Richards Bay Coal Terminal and being a rail basically with sidings at the mouth of all our mines, the best route and optimal route for us is to take it to Richards Bay. As long as Transnet continues to improve, which we are seeing right now, we will move our coal to Richards Bay because that's the best route for us. We have a multimodal approach and our sales and marketing teams continuously monitor the spot price. At anything below $85, $80, $88, you possibly are not in a good space to continue road. We do look at Maputo. What we do with roads is possibly around how far can you move it from the mine to what nearest siding before you can put it back onto rail.
Even when you talk about Maputo, there will still be volumes we can take through there that are giving us good margins because of that multimodal arrangement of moving our coal. However, the best route remains Richards Bay. At current levels you will possibly see that there's less trucks going to Maputo and in higher levels, $10 or more you'll possibly see a bit more trucks. That's the nature of competition. For ourselves we monitor that closely because it's a business of margins. I think that's possibly more around our multimodal routes. Some of the discussions we are having is around we have also seen benefits in the domestic market. Even though we have diverted some of our exports in domestic where we are not able to export, we look for margins. The teams have got clear targets of does it make sense and what are the questions numbers.
If you look at our operating margin, I think the coal business provided, gave us a 22.8% operating margin. We are comfortable with anything north of 20% to keep that domestic thermal also ticking. That's very helpful. I think that possibly covers the multimodal question you raised. On the LSP and Riaan can come in if I've left anything else. I think the industry, particularly in renewable energy, is inundated with projects. We are having to build a skills base that we have not had before as an industry around renewable energy and bringing these projects. The LSP project is supposed to be one of the first and big projects to really do, especially in that region. Galvanizing all the resources necessary, trafficking and bringing all the equipment you need and materials you need from international suppliers is proving to be a challenge for the whole industry in that area.
A lot of these big projects have some element of delay and ours is no exception. We are working with all the contractors and EPCMs in there to drive it. We're bringing our resources, and as we improve in our organizational structure that we have provided, which is functional, we are even taking some of our engineers within to make sure that they can also bolster the work we need to do and fast track lsp. It's not a pleasing space. I think we're doing our best to make sure we can deliver first electrons in the first half of next year.
Ben, Lelo's other question was around the return of Medupi and any guidance we can give on offtake in Waterberg g ive return.
Perfect. I'll take that one too. Medupi Unit 4 was critical to the volumes of Grootegeluk and that has since been announced by Dan and his team and is back. Medupi is running now at six units continuously. We have seen in general to reduce costs between a kind of a tied colliery to a power station. You do not want to end up putting any coal from the mine through a stockpile and then you rehandle it to the power station. You want to run the conveyor belt straight from the mine tip straight into the plant. That provides both efficiencies for us and for them. Whatever stock they have sitting there right now, because Medupi 4 was down, they are better off still getting the mine to deliver directly because it reduces costs for electricity and for the country. That's what we're doing right now.
We've seen good volumes if the first half continues with that unit up. As I said earlier on, each unit burns about, call it 2 million tons a year. Half year we have got a 1 million tons, for half year we could have a 1 million tons in there because Medupi 4 is in if that continues. We are seeing those good efforts coming through. We really believe that will help us in the second half in building the momentum we already picked up from the first half. Thanks, Mpumelelo. Anything else we might have missed?
Perfect, thank you.
You've covered.
A lot of things are happening with regard to the big structural reforms that are taking place in the country. The impact electricity, energy, the impact transport and logistics. With that, also the whole view globally around critical, strategic, critical minerals becomes something now that is highly contested as a country. Three major things are also happening with the structural reforms. The role of the private sector taking, you know, really things into their own hands in terms of how they can actually play a role in securing their own logistics future, if I may call that, is opening up.
When you talk about critical minerals on the other side, you are talking about assets which are on the ground, which have been defined by South Africa as being very critical for the future of the country and of the continent, of which one of them is actually manganese, by the way.
Therefore, when you see these things starting to play out like that, and you look at way back, three years back when we were looking at our strategy about the areas that we want to grow in terms of diversifying our resources base, we were looking at assets at that time which probably, if you look at where we are now going forward, whether they actually still make sense, given the fact that as you said earlier, one of the biggest, one of the biggest advantages, strategic advantages, competitive advantages of Exxaro , is the fact that you've got this long life, absolutely high volume assets which are of great demand.
Now you are taking the first step in getting us into manganese. The question I'm asking is how do you create another Grootegeluk type of organization, leveraging already the manganese assets which are there, of which, by the way, manganese represents 80% of South Africa, represents, I think anyway, around 70%- 80% of global resources on the ground. Why would you be wanting to go and chase bauxite assets in some other part of the world where you still have to deal with logistical issues and all of that, when on your own doorstep you can actually be the master of your own destiny around not only exploiting those and consolidating it and building long life assets, but also on the logistics side where you can have your own determination of how you move into the future. I will leave it at that for the moment.
Thank you very much. Thank you. [Amex], I think you speak with two. With two. Two, two heads there. One is a shareholder, there's expectations, but one is somebody who has been in my shoes and you have more intimate knowledge than most. It's really good that we can pick up your own expectations and views. Like we have always said, around the vision, I think that Critical Minerals is a great space. Our own minister, my own regulator, Baba Gwede Mantashe, has highlighted certain minerals as critical minerals to South Africa. That includes coal. Here we go with our life extension mines and our long lives. It includes coal, iron ore, it includes manganese. The rest which are not interested in. I didn't have to mention that. We are very pleased with the direction of travel that Exxaro is taking in going into the Kalahari manganese field.
As you said, 80% of the world's deposits. Is this the end? Is this the start? Please allow us to bid the transaction, to close the transaction, have it in house. We have put one man to head that whole joint ventures and metals to drive the growth we want in there and see how we can optimize that region with all the parties involved in there, how we can do with the railing and all the opportunities. We had [Martin Klema] screaming this morning about what can you do with beneficiation in that area. There's really a boom for that area that is beyond current thinking, that I think Exxaro will be center stage in doing that. Today our focus is let's bet this transaction, let's get it going and optimize the village.
Let me highlight also that our friends in electricity and in logistics, with all the current challenges and the improving efforts, everybody always says don't waste a good crisis. I think it's a wonderful opportunity for private sector participation. These reforms, if anything else, they may be forced because they have battled but actually for us that's where the world should be where private sector can take a meaningful role because we know what it means to have good logistics and to have reliable power and Exxaro has got long life assets as you already highlighted that will continue to drive that level of participation in these RFQs.
I'm aware that the Minister I think is announcing something tomorrow and I'm hoping I'm not speaking out of turn because I think it's public news and we look forward to what's going to come out of it because we want to be in there. Bauxite, b auxite, bauxite. I think if you can read anything from us saying beyond the manganese transaction and having understood the bookends of ZAR 9 billion- ZAR 14.6 billion, we believe we do not need as much cash buffer anymore going forward, and we are reviewing our capital allocation framework. If you read in a listed company's conversation, I think you know what that means. We are likely to have to enhance dividends to our shareholders, but we need to look at the whole capital risk for the company.
If you were asking me, the real priority for the next couple of years is to close manganese, drive it, see how best to optimize that region because Exxaro has the capability and the bulk mining capability and the knowledge. What we are doing with Transnet can be transferable to improving even in that region. I think we're possibly best placed to be one of the, if not the top partner for Transnet, both from Grootegeluk to Maputo or Grootegeluk to RBC and on the manganese line, and we look forward to that engagement and participation because Exxaro is in it. Thank you.
Thank you. Thanks Ben. We've got a few questions on the webcast. I'll come back to the room. The first one is from Randy from McCloskey. Randy just wants to know if we could provide some color on declining sales in India given that we are exporting more than 5,500 kcal in our material net has received but exporting less to India, which is the main buyer. Are we finding that the increased demand for these grades is going to other parts in Asia? It's two questions. It's one around color on the declining sales in India. The second question is around are we then exporting different grades to other parts of Asia? The second one is Shah Shahl from Betalu. He's asking did we receive a take or pay from Transnet during this period. The third one is from Lebu from Truffle. Truffle is complimenting Exxaro for the results.
Thank you Lebu. He just wants to know if we could give a breakdown of the API 4 benchmark prices in Mpumalanga and whether or not these will be sustainable. He's also asking if we could take him through the other cost line in the coal business.
Thank you. I'll start off with India and other Indias you would have noticed. Yes, indeed other Asia we are improving in our export sales in that area. We are focused on growing that market and will continue to do so. We are seeing really reliable and consistent demand from our Japanese customers. They like our consistency in terms of quality management, and the Japanese market is very, normally when they find what they know is the right asset, they tend to invest in their power stations from understanding the coal in the ground and the capability of the company that's going to produce it to the right quality. The Japanese market is a reliable market for us and is consistent from what we can see.
We are also seeing them having to think through the sources of their coal depending on the different country suppliers that they have who are more amenable to continue with coal or not continue with coal. South Africa is a very favorable supplier into the Japanese market if we can maintain our reliability in consistence of quality supplies. Other Asias are improving. India's impact is predominantly because, one, there is local production that's increasing in India, they are able to produce their own. India also has had, because of the reduced industrial activity and construction activity in China, we are seeing a lot of steel coming into India from China, which also means a reduction in the coking coal requirements of India. Those are the two main fronts.
However, the Exxaro team, Sakkie, Lester, and the whole team, they have been so focused on looking for alternatives continuously that if you look even how we have reduced in other areas, we've managed to find new customers and we are growing those new customers. We are confident that our export volumes are more up to now still dependent on an improved logistics than a customer demand constraint. The customer demand is less of a constraint than logistics. I think that possibly covers India. The take or pay with TFR , we'll take that and give Riaan the API4 and sustainability for that. As you may be aware, I think Transnet and Kumba have settled on how their take or pay has happened, and they've opted for a cash out on that and settled for an agreement. We can see in the industry that there's lots of negotiations.
We are not at a stage right now to disclose where we are, but we are confident that we will find an answer because of the work, the importance of TFR to ourselves as well. We will come back at an appropriate time with where we are. As we speak right now, they've been extremely helpful in helping us with the turnaround of Lupin. We can put some general freight business capacity in there to bring some of the coal into the line. I think we are happy with the discussions we are having with them. Until further notice, you'll have to hang in.
The other line is mostly the mines enclosure and then certain of the coal head office costs. For instance, the logistics studies and stuff that we do. The coal price realization, I didn't understand it correctly, but remember what we do is we blend coal, we blend Mpumalanga, and basically you take the high value, you blend it with Mpumalanga, and then the end product is a higher value coal that we sell. That is, and we've been able to do it consistently. That's why for the last couple of years we've been sitting at 95%, 96% price realization. I think that was with the question.
Yeah, I think you've answered him. He wanted to, how I'm interpreting it, he wanted to understand what's our breakeven price around when we compare it to API 4.
I think if you look at our operating margins at 27% for the coal business, I think you can consider, and for me in the industry with the coal industry head, Exxaro is possibly at the lowest cost position. Our challenge is not breakeven price, it's being even more efficient, being more effective because really our margins are sitting in the right place. At R651 per ton operating costs, we are the lowest cost producer. I think the wind is going to have to pick up other sales than ours.
Okay, thanks Ben and Riaan. I'm going to go on to Cora's call. Good morning, operator. Do we have any questions on the line?
We have one question from Nkateko Mathonsi of Investec. Please go ahead.
Good morning and yeah, well done on beating our HEPS and DPS estimates. I have one question and it's very much on cost and the question is for Ben. If you look at the unit cost on the coal side, it has increased by 48% in two years' time since first half of 2023 and volumes have contributed. I'm talking lower volumes. If you can comment in terms of the next three, five years, how you see those volumes actually change. I'm of the impression that in terms of fixed costs, Exxaro fixed cost support 48 million tons per annum and at best this year we'll get to 42 million tons per annum. In terms of delivery, it's around the 42 million tons per annum.
How do you see those volumes actually get back to the 48 million tons per annum? If you don't, where do you see opportunities for cutting costs? I get what you're saying, that Exxaro is a lower cost producer, but based on where you were two years ago, you could even be lower than where you are right now. Just talking to how you see the next two, three years actually unfold as far as cost is concerned. Thank you.
Thank you very much. Yeah, good talking to you. I think Grootegeluk is the first one I could pick up. As a group, every mine has got almost five projects. They are driving around business performance, improvement around optimizing operational efficiency, debottlenecking, looking for taking out what I call bad costs and bringing in good costs that improve value and that each of those mines is with those projects and they continue and we expect to realize more margins because of those efforts. In biggest bulk areas, I think we've already touched on the turnaround plan for Leeuwpan and that is a key driver, I would say, for the next year to make sure we bring it back to where it needs to be. I think in the industry Leeuwpan is possibly still one of those that others might still find attractive.
For us, we want to turn it around and make sure it is profitable within our stable and providing logistics and the work we are doing on the ground is helpful. Grootegeluk is possibly one of the biggest unit cost drivers for us. Riaan Koppeschaar mentioned this morning earlier about the efforts with Eskom. The more we can get those volumes if those six units by two for the two mega power stations there continue to run apart from the maintenance times, Grootegeluk would be producing to the extent 2 or 3 million tons more than we have today. Our stock levels are very good in that area. They still need to take a lot more. It is really Grootegeluk can continue to drive our costs down and our cost position.
The improvements and business improvements we are expecting from Grootegeluk and our customers taking offtake would be very helpful to us, I think in costs again, we can never stop so we look at all the fixed costs, as I said earlier on our management structure, we have in this announcement, we have also delayered and we have also reduced duplication again in an effort to make sure we can see the good cost that coming through to enhance the performance of the business. I'm really glad with the work we are doing. I must comment Mervin and I think his whole team, he was also acting in this whole half running the coal operations since the appointment and we have now made him our Executive Head of Technical Services. Congratulations Mervin.
I think the wonderful production numbers and productivities that you are seeing today are evident of all the work that they are doing with the teams on the ground. Thank you. Anything you might want to add on that?
Perhaps also to add, so that 48 million tons. Remember, once Matla is ramped up, the new mine, one Matla can go back to 8- 10 million tons .
Depending o n the qualities, depending on in terms of the products, we would then feed into the plant. We're expecting this ramp up in the next year to 18 months. I think the right dominoes with Eskom are in line, and we expect to continue to do that.
All right, I'm going to do another round in the room. Gotcha.
Can I just ask one more question
For sure.
The port is sitting at 91 million tons. We spent a lot of money as industry at best. Transnet had said that, and this was Porsche's words, we will not go beyond 81 million tons. Now there lies the opportunity for RBCT to say how can we partner with, from a private sector participation point of view, of actually looking at how we take those volumes on the rail side to match the port capacity so that as an industry we can also get a return on investment on the port that does not actually get the return that it's supposed to have given the past historical investments there. Again, this is beyond just Exxaro, but it's Exxaro being part of a coal industry which says that if we can get more of that logistics.
By the way, if you recall, Ben, the demand was actually beyond 91. Remember the studies that were done that we could quote as an industry, as a country, the demand from the customer point of view is actually probably just above 100 million tons. Therefore, if we are looking at now from a strategic resource point of view, critical resource, mineral. Do you see? Are you guys thinking about that opportunity as an industry? Because already the industry is playing a big role in the joint funding, working with Transnet, collaborating with Transnet to actually deal with some of the current network improvements. That's part of what's being engaged on right now.
I'm saying that now, now there comes the opportunity as an industry to say we will take this beyond what is deemed as, and especially the fact that you are going to be allowed to play into that space. I'm just saying now, thinking bigger for the country, thinking bigger for Exxaro and thinking bigger for the coal sector.
I think you're right. I'm not convinced that the industry can still produce 80 million tons alone with no constraints on logistics at all. If I look at the life of mine we have, only Exxaro can do that and Exxaro can't get to that number. If you just look at life of mine from all the industry players, I am not convinced that we can get to 90 million tons even if the constraints were completely removed. However, let's accept that in the last year Transnet has improved by 10% from 50 to 54, 55 million tons as a run rate. If they can continue to run at that rate, we'll get there. Will the industries continue to supply those volumes? I do not see enough greenfields and life extension projects to bring the industry to that level of output. Here in lies the opportunity for Exxaro.
Maybe it's less for me an industry benefit, but actually more for Exxaro because we have long life, we can expand, we have life extensions. We are not oblivious, we are not shying from the opportunity. I think the baby steps that Transnet are taking, we are fully participating in trying to maximize where we can get to. The dream is on. Mxolisi.
Thank you.
Okay, any other questions in the room? Okay, we have three more questions on the webcast. One is from Shashi, from Citi. He's asking with the average selling price achieved from Waterberg area seeming to have increased over 10% year-on-year. Please elaborate on the reasons for this steep increase. Since in the Waterberg area the average selling price seems to have increased 10% year-on-year, what is the reason for this? He's also asking what is the current price level? At what point is this current price level sustainable?
Do you have a feel?
Okay, so obviously the export price didn't increase 10%. The export price was lower. Remember, portion is also your domestic Eskom price which is linked to an inflation mechanism, so that you would expect to increase in the Waterburg region because it's not linked to the international price.
I think if anything else, I would expect he's talking more about the Eskom sector side. If it's anything to do with export and you need any further details, our investor relations team is available and we could possibly go into a bit more detail to help you get to what you are looking for. Apologies, we possibly are not getting it as accurately as you may want it. The best may just be get in touch with our investor relations team and get further clarity.
Thank you. You have two questions from Shailen at HSBC. One is he's requesting guidance on the size of the stockpile at Medupi. If we have any guidance on that, then his second question is he's asking whether or not the market can anticipate a lower cover ratio for coal dividends going forward. I think it just means dividends. We don't have group dividends.
He's going into his financial valuations now. I think the lower conversion ratios is really we have articulated in a three letter word which is we are reviewing our capital allocation framework, and I think you can read a lot in that. I'm sure it will also yield many levers about what we could pull around that. I think if we could allow us to come back after that review because our expectation is that we do not need as much cash buffer post the manganese transaction, and we are looking at what happens to dividends, what happens to this cover and that cover. Hopefully you will answer as we come back with a full review of that. I think you can read in it that there must be some further opportunities for our shareholders around dividends. In terms of stockpiles, we don't normally guide on our stockpile levels, but my buddies here. Let me pass with this institutional memory to throw some numbers.
I think the question is more what's the stockpile?
Yeah.
We obviously don't really know what's on their side. As Ben said, they feed life as much as they can at the moment.
Okay, this last question is what drove the domestic coal revenue?
Remember we did discuss that. That's obviously Eskom . Then remember some of the exports were also diverted to the FCA market locally.
All right, any questions? Last round in the room and then. All right, ladies and gentlemen, that brings us to a close of our interim financial results to our sell side analysts. We will meet you at 12:30 P.M. Thank you and have a good day further.
Thanks, everybody. Thank you very much.