EXXARO Resources shares fell by more than 2% to their lowest level in almost three months on Friday, after the diversified miner warned that full-year earnings would fall by as much as a fifth because of weak commodity prices and production setbacks.

Exxaro derives the bulk of its profit from its coal and mineral sands operations, which have seen prices fall due to oversupply in the market, according to an analyst who wished to remain anonymous in line with company policy.

"It’s a perfect storm," he said, adding that the company had to lower volumes in response to softer prices.

Weakened demand for base metals, coking and thermal coal from China has pushed international prices down for most parts of the year.

Last week the Financial Times reported that iron-ore prices fell to a one-month low as buying from Chinese steel makers declined, an early sign that the rally which propelled the commodity 35% higher over the past three months is starting to fade.

The Pretoria-based company said headline earnings per share were likely to drop by at least 20% for the year to end-December.

Exxaro shed 2.46% to close at R154.50 on Friday, its lowest level since the beginning of September. The all share index gained 0.52%, reaching a record high.

Over the past 12 months, shares in the miner led by Sipho Nkosi have lost almost 12%.

Unprotected strike action at Kumba’s Sishen Iron Ore Company, in which Exxaro has a 19.98% stake, also had a negative effect on earnings. "The decline in earnings is largely attributable to a decrease in export iron-ore prices as well as the effect on production following the illegal strike at Sishen mine," the miner said.

Last month, Kumba forecast a loss of 2.6-million tons in iron-ore production as a result of the strike which began in October. Attendance rates at the Northern Cape mine are still low.

According to Exxaro’s interim results to end-June, the company received more than R1.9bn in dividends, primarily from Sishen Iron Ore.

"The coal business is expected to deliver lower operating profit compared to the corresponding period in 2011 primarily due to lower international and domestic selling prices, coupled with lower volumes," the company said.

Locally, the company, along with other coal miners, is facing a call by Eskom to lower prices to limit annual electricity price increases for the country.

Last week Eskom CEO Brian Dames called for a "country pact" with the industry to limit future increases to the inflation rate, warning that without it the country faced even higher electricity tariff increases than the 16% Eskom has asked for over the next five years.

On the mineral sands business, Exxaro warned of reduced demand for zircon and pigment weighing on its earnings.