EXX - Exxaro Resources Limited - News Release Release Date: 21/02/2008 07:01:01 Code(s): EXX
EXX - Exxaro Resources Limited - News Release
EXXARO RESOURCES LIMITED
(formerly Kumba Resources Limited)
Incorporated in the Republic of South Africa
(Registration Number: 2000/011076/06)
Share Code: EXX
ISIN Number: ZAE000084992
("Exxaro" or "the company")
EXXARO`S AUDITED GROUP FINANCIAL RESULTS AND PHYSICAL INFORMATION FOR THE
12-MONTH PERIOD ENDED 31 DECEMBER 2007
- Revenue exceeds R10 billion
- Net operating profit up 15% to R1,4 billion
- Headline earnings of 425 cents per share
- Total dividend of 160 cents per share; final dividend of 100 cents per
- Exciting coal project developments
NOTE TO EDITORS:
REPORTED RESULTS NOT COMPARABLE
The group`s audited financial results and actual physical information for
the 12-month periods ended 31 December 2007 and 2006 respectively are not
comparable as a result of the empowerment transaction that resulted in the
creation of Exxaro Resources Limited ("Exxaro") in November 2006.
The audited financial results for the 12-month period ended 31 December
2006 include Sishen Iron Ore Company ("SIOC") fully consolidated for 10
months to October 2006 with Eyesizwe Coal (Pty) Ltd ("Eyesizwe") only
consolidated for two months to December 2006 and an effective 20% holding
in SIOC equity accounted for the same two month period. The 2007 financial
year, however, has Eyesizwe fully consolidated and the effective 20%
interest in SIOC equity accounted, for the entire 12-month period.
COMPARABLE SUPPLEMENTARY RESULTS
Comparable unaudited supplementary financial results together with physical
information is additionally provided below for information purposes only,
on the assumption that Exxaro had been created with effect from 1 January
Comments are for comparable purposes based on an analysis of the group`s
audited financial results and physical information for the 12-month period
to 31 December 2007 compared with the unaudited supplementary financial
results and physical information compiled for the 12-month period to 31
Diversified South African-based resources group Exxaro Resources Limited
(Exxaro) today reported revenue of R10,16 billion for the 12-month period
ended 31 December 2007, an increase of 15%, while net operating profit
increased by R183 million to R1,44 billion.
The group experienced strong demand at higher commodity prices despite the
significant decrease in LME zinc prices in the last quarter of 2007. This,
together with a stronger rand of R6,80 to the US dollar on 31 December
2007, resulted in revaluations of stock to net realisable value in the base
metals and mineral sands businesses decreasing by R133 million compared to
the end of 2006.
An average exchange rate of R7,26 to the US dollar was realised compared
with R6,76 for the corresponding period in 2006. The significant strength
of the Australian dollar to the US dollar (USD 0,83 to the AUD realised
against USD 0,75 for 2006), however, impacted negatively on the financial
results of the mineral sands operations in Australia.
Attributable earnings for the period are R1,43 billion (418 cents per
share) representing a 48% increase on the comparable 2006 attributable
earnings of R962 million (307 cents per share). This includes Exxaro`s 20%
interest in the after-tax profits of SIOC amounting to R746 million, some
R148 million higher than for the comparable period.
Headline earnings increased from R893 million to R1,45 billion with
headline earnings per share 49% higher at 425 cents compared with 285 cents
for the comparable corresponding period.
Cash retained from operations of R2,31 billion was mainly applied to
taxation payments of R461 million, capital expenditure of R1,29 billion
(consisting of R727 million invested in new capacity and R569 million in
sustaining and environmental capital), an investment of R239 million in the
Richards Bay Coal Terminal (RBCT) to secure 2,5Mtpa export entitlement, and
the interim dividend payment of R211 million or 60 cents per share in
September 2007. The group had a net cash inflow of R388 million for the
After accounting for the net surplus of R91 million on the repurchase of 10
million shares from Anglo South Africa Capital (Pty) Ltd and the market
placement of the same number of new shares, as well as a dividend inflow of
R373 million from SIOC, cash and cash equivalents increased by R502
million before the repayment of borrowings.
Net debt of R921 million at 31 December 2006 accordingly decreased to R483
million at a net debt to equity ratio of 5% on 31 December 2007. Net debt
will increase by the payment commitment of R2,35 billion, subject to the
disclosed price adjustments, for the acquisition of Namakwa Sands and a 26%
interest in Black Mountain/Gamsberg on conversion and subsequent cession of
their mining rights.
SAFETY, HEALTH AND ENVIRONMENT
The group remains committed to achieving a working environment that is
fatality and injury free. Its safety awareness and preventative programmes
have been strengthened by further initiatives to enhance hazard
identification and safe behaviour by individuals. Despite excellent safety
achievements at several operations, regrettably four on-mine fatalities and
one public road fatality were suffered during the period under review. The
average lost time injury frequency rate (LTIFR) per 200 000 man-hours
worked for the reporting period, however, improved to 0,36 compared to 0,42
for the corresponding period in 2006.
Nine of the group`s 12 operations have achieved both the international
health and safety certification (OHSAS 18001) and environmental
certification (ISO 14001). The group aims to have all business units fully
compliant with both certifications by December 2008.
In response to the growing global threat of climate change, Exxaro has
developed a clean energy strategy as a dedicated response measure. Through
this initiative Exxaro will align all of its energy-related activities to
South Africa`s Climate Change Response Strategy, with a key output for 2008
being the company-wide carbon footprint. This footprint will serve as a
baseline against which our energy efficiency progress will be measured,
monitored, and improved.
The implementation of HIV/Aids voluntary counselling and testing (VCT) and
extension of anti-retroviral programmes to all of the group`s businesses is
also progressing well with the majority of employees who tested HIV-
positive enrolled on the disease management programme. Thirty percent of
the workforce participated in the VCT programme by the end of 2007 and a
renewed focus to encourage participation by employees in the programme and,
where necessary, to enrol on the disease management programme, is planned
It is considered unlikely that future production at the coal mines will be
affected by Eskom`s load shedding/rationing programme. Most of the group`s
coal operations supply some or all their production to Eskom`s power
plants. However, both KZN Sands and Zincor have an agreement with the
electricity utility which may result in some 10% of production being lost.
The group supports the initiative contemplated by Eskom to introduce
stability into the power plant fleet and electricity transmission grid and
is committed to assist Eskom to find longer-term solutions in terms of
additional coal supply, and consistency and quality of coal supply. Exxaro
is also examining various alternatives with regard to the conservation and
use of electricity throughout its operations.
CONVERSION OF MINING RIGHTS
Exxaro is approaching the conversion of its old order mining rights to new-
order rights in two phases. It is firstly progressing the applications
which have been submitted for the conversion of the former Kumba Resources-
associated rights, excluding iron ore. This will be followed by
applications for the conversion of the former-Eyesizwe old order mining
rights. The scheduled date for submission of the latter is April 2008.
Exxaro held a workshop with the Department of Minerals and Energy (DME) in
July 2007 as part of the conversion process to clarify and progress the
applications for new order mining rights. In addition to the conversion
applications, Exxaro also lodged applications for new order mining rights
for mineral sands deposits at Fairbreeze C Extension, Braeburn, UVS and
Braeburn Extension close to its existing Hillendale mine in KwaZulu-Natal,
and coal reserves at Tshikondeni Goni and Leeuwpan Extension. The outcome
of the applications is awaited.
Subsequent to year-end, Ms N Nyembezi-Heita has resigned from the Board
with effect from 29 February 2008. The Board wishes to thank her for her
services as director and Chairperson of the Transformation, Remuneration,
Human Resources and Nomination Committee of the Board.
The acute shortage of skills in critical operational and project
development positions poses a significant challenge to the group. Retention
strategies and other programmes have been initiated to mitigate this risk.
Strong local and export demand for coal products at increased prices linked
to higher sales volumes from the current project developments coming on
stream, is expected to increase the profit contribution from the group`s
commercial coal operations. The results of the mineral sands business are
likely to be adversely affected by the planned reline shut of Furnace 2 at
Empangeni, a continued strong Australian dollar and the mining of lower
grade mineral sands deposits. The current softer trend in zinc metal prices
is expected to persist. Continued buoyant iron ore market conditions should
benefit the group in respect of its equity interest in SIOC. A weaker Rand
will positively impact on US dollar denominated revenue.
The acute shortage of skills in critical operational and project
development positions poses a significant challenge to the group. Retention
strategies and other programmes have been initiated to mitigate this risk.
The directors have declared a final dividend, dividend number 10 of 100
cents per share in respect of the 2007 financial year. The dividend has
been declared in South African currency and is payable to the shareholders
recorded in the books of the company at close of business on Friday, 14
- View or download the full results announcement on www.exxaro.com
- See Addendum 1 for Operational highlights; Addendum 2 for Growth
Exxaro is one of the largest South African-based diversified resources
groups, with interests in the coal, mineral sands, base metals, industrial
minerals and iron ore commodities. www.exxaro.com
Executive General Manager: Corporate Affairs & Investor Relations
Tel: +27 (0) 12 307 3292
Mobile: +27 (0) 83 609 1444
Production of power station coal was 353kt lower than the corresponding
period in 2006 as reduced output at Matla and Arnot was only partially
offset by increased production at the North Block Complex (NBC), Leeuwpan
and Grootegeluk mines. Lower production at the Eskom-tied mines - Matla and
Arnot - resulted from a delay in obtaining regulatory approval for a river
diversion and from difficult geological conditions.
Coking coal production showed a marked increase of 466kt year-on-year due
to improved performance at Tshikondeni as well as the successful ramp-up of
the GG6 plant at the Grootegeluk mine.
Coal exports were 25% lower than in 2006 primarily due to Exxaro`s decision
to close the underground mining operations during January 2007 at New
Clydesdale Colliery (NCC) as a result of unsafe mining conditions. To
mitigate the loss of production at NCC, commissioning of the Inyanda mine
was fast-tracked and first run-of-mine coal was supplied to NCC for
beneficiation four months after site establishment.
Leeuwpan mine`s reclaimer suffered a structural failure in September 2007
and is only expected to be repaired in the third quarter of 2008. Front-
end loaders have been deployed to minimise the impact on sales.
Total sales to Eskom were 439kt lower year on year in line with the
decrease in production. However, other domestic sales were significantly
higher on the back of a 27% increase in semi-soft coking coal sales to
Arcelor Mittal in line with increased demand.
Revenue increased by 15% to R5,09 billion. This was due to significantly
higher free on rail export prices, increased selling prices to
ArcelorMittal SA Limited (ArcelorMittal) based on higher international
coking coal prices and stronger power station coal prices to Eskom.
Despite a lower operating income at the tied mines brought about by a non-
recurring payment of R30 million from Eskom to Arnot for committed reserves
in 2006, Exxaro Coal achieved a record net operating income of R885
million, 43% higher than in 2006. The higher revenue, the profitable
turnaround at NBC and the savings realised from integrating the Eyesizwe
and Kumba Coal corporate offices, offset inflationary pressures primarily
in respect of labour and diesel costs.
KZN Sands reported improved production results from both furnaces for the
2007 financial year in contrast with the negative impact that the Furnace 1
shut had on production in the same period in 2006. Titanium slag tapped was
35,6kt higher at an annual production record of 186,6kt. Increased slag
throughput also boosted low manganese pig iron (LMPI) production. Ilmenite
production was aligned with higher smelter feed requirements, resulting in
48kt more than in 2006.
Business improvement initiatives during the year focused on increasing
smelter output at KZN Sands with Furnace 1 and Furnace 2 achieving cold
feed capacity of 92kt (84%) and 94,6kt (86%) respectively.
The pre-heater was not introduced as planned due to instability in the
furnaces, exacerbated by Eskom`s power supply shortages in the last quarter
of the year. KZN Sands will undertake a review in 2008 of the current
furnace hearth technology in use at the operation with the objective to
improve the performance of the furnaces.
Zircon and rutile production declined due to lower mineral grades in the
area mined during the review period.
Revenue was R167 million higher due to increased chloride slag and LMPI
sales. Net operating loss increased by R43 million which includes a R45
million write-down of the crude ilmenite stockpile from cost to net
realisable value due to the stronger rand at the end of the financial year.
Furnace 2 is due for a scheduled maintenance shut in the latter part of
2008 which will result in less slag and LMPI production in 2008 when
compared to the 2007 financial year.
The average minerals sands in -situ grade at the Hillendale mine nearing
the end of its life is expected to be lower in 2008 until the mining and
development of the Fairbreeze and Braeburn deposits can commence upon
obtaining the mining rights.
Revenue increased by 14% primarily as a result of substantially higher
synthetic rutile sales due to successful treatment of the ilmenite
stockpile and the rollover of 2006 sales following the unplanned shut of
the kiln for repairs and preventative maintenance in 2006.
Record pigment production was maintained during the period due to
continuous de-bottlenecking of the pigment plant and business improvement
initiatives. Zircon and rutile volumes were sustained as initiatives to
increase recoveries were offset by reduced feed into the dry mill, in turn
caused by lower mining grades resulting in reduced concentrate production.
A planned five-week shut for the synthetic rutile plant was successfully
completed on schedule in July 2007. The benefits of the shut led to
increased synthetic rutile production. A successful two-week shut was also
completed at the Cooljarloo mine and included the replacement of the outer
shell of the floating feed preparation unit.
Net operating profit, however, decreased substantially as the Australian
dollar strengthened by more than 20% against the US dollar to a 23-year
high and continued cost increases in energy consumables were not fully
offset by modest price increases for zircon and pigment.
The 2008 mining plan indicates mining of a lower grade area for most of the
year. This is expected to result in marginally lower heavy minerals
Production of zinc concentrate at the Rosh Pinah mine of 95kt was 9% lower
than the equivalent period in 2006 attributable to floods in the early part
of the year in southern Namibia, industrial action at the mine in the
second half of the year as well as stoppages due to equipment and plant
failure. This also had a negative effect on lead production.
Production volumes at the Zincor refinery increased from 90kt in 2006 to
101kt in 2007 underpinned by the improved quality of imported zinc
concentrates and plant performance which in turn positively impacted on
zinc recoveries of up to almost 92%. Zincor successfully completed a
rebuild of the no. 4 roaster similar to roaster no. 3 that was rebuilt in
the second half of 2006, resulting in a marked improvement in the roaster
throughput in the plant.
Similar to 2007, capital expenditure in 2008 at both Rosh Pinah and Zincor
will focus on the replacement of mining and plant equipment including the
rebuild of the two small roasters and the realignment and major maintenance
of the cell house at Zincor.
Revenue increased by 15% to R2,73 billion with an operating margin of 25%
as a result of a 2% increase in the average rand zinc price for the year to
R22 824 per tonne compared to R22 311 per tonne in 2006. This was
partially offset by inflationary production cost increases, and a write-
down to net realisable value of zinc stocks in the amount of R88 million
resulting from the decline in LME zinc prices converted to rand terms, at
the end of the reporting year.
Production ramp-up from 50ktpa to 110ktpa at the Chifeng refinery has
reached 80% of design capacity at year-end. Exxaro has an effective 22%
interest in the expanded operation. The significant decline in demand for
zinc, especially zinc alloys, in the local Chinese market as well as the
sharp decline in prices at year end combined with the higher operating
expenditure during the ramp-up phase, resulted in Exxaro`s equity accounted
interest reducing from a profit of R40 million in 2006 to a loss of R18
million in 2007.
Completion of the transaction to divest a 43,8% interest in Rosh Pinah Zinc
Corporation (Pty) Limited ("Rosh Pinah") to Namibian shareholder groupings
is targeted for the first half of 2008, effectively reducing Exxaro`s
shareholding in Rosh Pinah to 50,04%. Exxaro will continue to manage the
mine in terms of a management agreement.
A total of 13kt representing 30% of Rosh Pinah`s projected lead sales up to
June 2010 were hedged at forward prices ranging from US$1 700 to US$940 per
tonne to accommodate the stand-alone funding structure arranged for the
divestment. A further 30% of an intended 60% of the projected zinc sales
up to mid 2011 were hedged subsequent to year-end at prices ranging from
US$2 098 to US$2 435 per tonne.
Production at both the FerroAlloys plant and the Glen Douglas mine remained
in line with the previous corresponding period. Net operating income
declined at the Glen Douglas mine by R3 million as a result of higher
maintenance expenditure and lower off-take of higher premium metallurgical
dolomite products by Arcelor Mittal.
Ramp-up of the GG6 project has reached 90% of the design capacity of 750
ktpa. In addition to supplementing semi-soft coking coal to ArcelorMittal`s
South African coking plants, the project contributes to alleviating the
shortage of market coke for the ferro-alloy industry.
A supply agreement for 45 years was awarded to Exxaro Coal by Eskom in
March 2007 to supply 8,5Mtpa of power station coal from the Grootegeluk
mine to Eskom`s new 2 400MW Medupi power station consisting of three
generating units adjacent to the Matimba power station. Feasibility studies
are underway to also supply the planned additional three generating units
of Medupi which could increase the total coal supply from the Grootegeluk
mine to the new power station to 14,6Mtpa.
Capital expenditure on the char project for the production of char for the
ferro-alloy industry from a four retort facility at the Grootegeluk mine
ramping up to 160ktpa in 2008, has been revised to R320 million from R296
million due to contractor skills shortages and scope changes.
The completion of the feasibility study to investigate the viability of a
market coke plant has been extended to 2008 to allow for more test work on
the coking characteristics of the process. If viable, the plant will
produce high quality market coke from semi soft coking coal produced at
In May 2007 Exxaro was awarded 2,5Mtpa export entitlement through RBCT by
means of a subscription process in addition to the existing 0,8Mtpa
entitlement. Exxaro also purchased a further 1Mtpa export entitlement
through RBCT from Billiton Energy Coal South Africa Limited for R212
million, bringing the total export allocation to 4,3Mtpa. On completion of
the RBCT Phase V expansion scheduled for the second quarter of 2009, Exxaro
will receive a further 2Mtpa export entitlement through the South Dunes
Coal Terminal Company, bringing the total entitlement to 6,3Mtpa.
Construction of the beneficiation plant at Inyanda is progressing well with
hot commissioning planned for the second quarter of 2008. The R269 million
Inyanda coal mine will produce up to 1,5Mtpa of product.
The capital cost of the Mafube expansion project, in which Exxaro is a
50:50 joint venture partner with Anglo Coal, is expected to be
approximately R1,9 billion on completion. Construction commenced in July
2006 with the first coal to the washing plant delivered in January 2008 and
ramp-up to full capacity expected in seven months.
Mining of the Eerstelingsfontein reserves near Belfast to supply 1Mtpa
power station coal to Eskom is targeted for 2008 on receipt of
environmental approvals. The feasibility study on the project has been
completed and mining authorisation was received. In addition, expanded
production of up to 2,4Mtpa from the Blesbok product at Belfast is
currently underway to meet the increased demand for power station coal.
In terms of the 50:50 joint venture agreement between Exxaro and Anglo Coal
Australia, exploration of the coking coal resource on the adjacent
properties of Moranbah South and Grosvenor South in Queensland, Australia
is progressing according to schedule. Exploration in 2008 will focus on
geophysical work to delineate potential long-wall mining resources.
Moranbah South has the potential to produce about 3,5Mtpa of quality hard
coking coal from underground long-wall mining for at least 20 years.
The Board has approved the development of the Diepspruit reserve at NCC
with implementation planned for the third quarter of 2008 subject to
regulatory approvals. The R136 million project will produce 1,3Mtpa run of
mine coal for beneficiation at NCC to supply the export market.
The start of construction of the Fairbreeze mine, south of KZN Sands`
existing Hillendale mine in KwaZulu-Natal, has been delayed to October 2008
subject to the approval of mining rights. The water-use licence has been
approved and production is planned to start in July 2010.
Feasibility studies on the Port Durnford project, located to the immediate
south-west of Hillendale mine, are on track for completion by December
2008. The project, if viable, could potentially supply the current KZN
Sands furnaces for over 25 years.
The Toliara Sands project in south-western Madagascar comprises two
exploration areas, Ranob and Monombo-Marombe. Hand-auger drilling in the
Monombo-Marombe area indicates resources capable of supplying long-term
ilmenite feedstock to the Exxaro KZN Sands furnace complex. Further
exploration drilling in this area is planned for 2008. Completion of the
feasibility study for the Ranobe deposit is targeted for the end of 2008.
The feasibility study on the pigment plant expansion to 160ktpa at the
Tiwest Kwinana facility was completed in the last quarter of 2007. A
decision on implementation by Exxaro and its joint venture partner, Tronox
Inc., is planned for the first half of 2008.
Bankable feasibility studies on the Dongara project, which forms part of
the Tiwest joint venture, are ongoing. With a 20Mt reserve and 10% heavy
minerals, the project will provide supplementary feedstock for Tiwest`s
mineral separation plant and synthetic rutile facility. As a result of
increased life expectancy at the Tiwest dry mine at Cooljarloo, production
at Dongara is planned to start in early 2011.
A feasibility study is currently being undertaken on the further expansion
of the Chifeng refinery with a capacity increase in the order of 130kt.
The outcome of this study is expected to be completed by mid 2008 after
which Exxaro will review its participation in the expanded operation.
The Furnace 1 feasibility study of the AlloyStream technology, which allows
for the demonstration of this furnace`s beneficiation of manganese ore, is
planned for completion during the second half of 2008. The AlloyStream
technology could also lend itself to the production of ferro-nickel for
which test work and pilot campaigns are planned for 2008.
Date: 21/02/2008 07:01:01 Supplied by www.sharenet.co.za
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