EXX - Exxaro Resources Limited - News Release Release Date: 14/08/2008 07:06:24 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 REVIEWED GROUP FINANCIAL RESULTS FOR THE SIX-MONTH PERIOD ENDED 30
- Record coal operating profit of R935 million
- Headline earnings per share up 53%
- Interim dividend of 175 cents per share
- 14,6Mtpa coal supply to new Medupi power station agreed
Diversified South African-based resources group Exxaro Resources Limited
(Exxaro) today reported revenue of R5,8 billion for the six months ended 30
June 2008, an increase of 19% over the comparative period last year.
"A highlight of the reporting period was the R935 million contribution to
group operating profit from the coal business which represents a 138% increase
on its contribution in the same period in 2007. This was due to strong demand
for product, higher sales volumes and significant price increases," said Sipho
Nkosi, Exxaro`s chief executive officer.
The group`s net operating profit, however, decreased 10% by R85 million to
R806 million due to lower profits in the base metals business and a
significant loss in the mineral sands business.
"The base metals business delivered lower operating profit in line with
declining zinc prices while generally depressed mineral sands prices, lower
volumes and a persistent strong Australian dollar had a major adverse effect
on the operating results of the mineral sands business," said Nkosi.
A weaker average exchange rate of R7,54 to the US dollar was realised compared
to R7,33 for the corresponding period in 2007. The continued strengthening of
the Australian dollar to the US dollar, from an average of 0,81 US cents in
the six-month period to 30 June 2007 to 0,93 US cents in the period under
review, however, impacted negatively on the financial results of the mineral
sands operation in Australia.
Attributable earnings which include the group`s 20% interest in the after-tax
profits of Sishen Iron Ore Company (Pty) Ltd (SIOC) amounting to R735 million,
increased by 48% from R839 million to R1,2 billion or 363 cents per share.
Headline earnings of R1,3 billion are 54% higher than for the corresponding
period of R839 million while headline earnings per share increased from 246
cents to 377 cents.
Cash retained from operations of R1,5 billion was primarily used to fund
taxation payments of R216 million, the final dividend for the 2007 financial
year of R348 million and capital expenditure of R465 million. Of this amount,
R221 million was invested in new capacity and R244 million applied to
sustaining and environmental capital.
Net cash inflow was R481 million higher at R791 million compared to the
corresponding period in 2007 resulting from higher cash generation from
operations and a R352 million dividend receipt from SIOC in March 2008.
Net debt of R483 million at 31 December 2007 has changed into a net cash
position of R240 million at 30 June 2008 due to the delays in effecting the
committed payment of R2,4 billion, subject to the disclosed price adjustments,
for the acquisition of the net assets of Namakwa Sands and a 26% interest in
Black Mountain/Gamsberg on completion of the conversion and cession process of
their mining rights to the group.
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 enhanced by a focus on hazard identification and visible felt
"Regrettably, despite ongoing interventions, two fatalities were suffered
during the period under review. Improvement of the average lost time injury
frequency rate (LTIFR) per 200 000 man-hours worked of 0,45 for the year to
date against a target of 0,21 and compared to 0,36 achieved at the end of
2007, remains a key objective," said Nkosi.
The group is further committed to achieving industry health sector targets by
2013. Following an assessment of its operations, programmes to ensure
mitigation of risks from noise and dust are being implemented. In line with
the HIV/Aids strategy, the aim is to improve voluntary counselling and testing
(VCT) enrolment by creating a conducive environment for disclosure and
treatment participation. VCT participation increased to 42% of employees with
the prevalence rate unchanged at 13%.
All the group`s operations have fully compliant Environmental Management
Programmes required under the Mineral and Petroleum Resources Development Act
(MPRDA) and the National Environmental Management Act (NEMA) which is one of
the key indicators of ensuring that Exxaro remains a sustainable business. A
total of 71% of operations are certified under both the international health
and safety certification (OHSAS 18001) and environmental certification (ISO
14001). The target to have all operations fully compliant by December 2008 is
ACQUISITION OF NAMAKWA SANDS AND BLACK MOUNTAIN
The conversion applications for Namakwa Sands, Black Mountain and Gamsberg
were approved after the reporting period based on submissions by Anglo
American to the Department of Minerals and Energy (DME).
The group will acquire a 26% interest in Black Mountain/Gamsberg and assume
operational control of Namakwa Sands on completion of the registration and
cession of the mining rights.
CONVERSION OF MINING RIGHTS
Conversion of the group`s former Kumba Resources old order mining rights was
granted subsequent to the end of the reporting period enabling the group to
process the registration of the rights.
Regular engagement with the DME takes place to ensure the approval of the
applications for conversion of the former Eyesizwe old order mining rights
which were submitted to the DME in June 2008, as well as the approval of
applications for new order mining rights for a number of mineral sands and
CHANGES TO THE BOARD
Mrs PKV Ncetezo resigned from the board with effect from 30 April 2008. The
board wishes to thank her for her services as a director and member of the
Transformation Remuneration Human Resources and Nominations committee of the
Mr MJ Kilbride will retire as chief operating officer and executive director
on 31 August 2008. The board expresses its appreciation for his contribution
to the group.
The board welcomes Ms SEA Mngomezulu, nominated by Basadi ba Kopane
Investments (Pty) Limited of the empowerment women`s group consortium, who has
been appointed to the board as non-executive director subsequent to the end of
the reporting period.
The board is also pleased to announce that Mr J van Rooyen has been appointed
as an independent non-executive director and member of the Audit, Risk and
Compliance committee on 13 August 2008.
The group will benefit from higher coal volumes to leverage off the current
buoyant coal prices. Improved mineral sands commodity price prospects are
expected to be offset by a continued strong Australian dollar and the impact
of the rebuild of Furnace 2 at KZN Sands. Operating results from the base
metals business are not expected to improve in the second half of 2008 due to
the lower zinc prices.
Significant increases in labour, fuel and electricity costs will continue to
have an adverse effect on the operating results of the businesses under the
group`s management. Nevertheless, the group should deliver significantly
improved earnings in the second half of 2008 mainly due to the favourable coal
and iron ore market conditions. A strengthening Rand will negatively impact
on US dollar denominated income.
The directors have declared an interim dividend number 11 of 175 cents per
share in respect of the 2008 interim period. The dividend has been declared
in South African currency and is payable to shareholders recorded in the
records of the company at close of business on Friday 19 September 2008.
- View or download the full results announcement on
- See Addendum 1 for Operational highlights; Addendum
2 for Growth opportunities
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 & Strategy
Tel: +27 (0) 12 307 3292
Mobile: +27 (0) 83 609 1444
Production of power station coal was 1 288kt higher at 18,1Mt than for the
comparative period in 2007 with both the Eskom tied and commercial mines
achieving higher production. Matla, after obtaining regulatory approval of a
river diversion and through improved efficiencies, increased production by
299kt to offset the impact of the second half of 2007 face break which
negatively affected production in the first quarter of 2008. Arnot, in turn,
increased production by 311kt as an optimisation project focusing on
throughput that commenced in February 2008, has already shown positive
Various on-mine initiatives at the commercial operations of Grootegeluk and
Leeuwpan aimed at meeting the increased demand of 679kt from Eskom were
complemented by the mining of new reserves at the North Block Complex (NBC)
which delivered increased product volumes of 251kt.
Lower coking coal production of 109kt compared to the corresponding period in
2007, was due to challenging geological and mining conditions at Tshikondeni.
Production of steam coal was 20% higher at 2 427kt due to the accelerated
start-up of Inyanda in the latter part of 2007 to mitigate the loss of
production at New Clydesdale (NCC) following the closure of the underground
operations during 2007. Higher steam coal production at Leeuwpan mine of 98kt
resulted from increased overburden removal with a view to additional run of
mine production for 2008.
Sales to Eskom increased by approximately 1,3Mt on the back of increased
demand while other domestic sales remained largely in line with the
comparative period in 2007.
Export sales increased 58% on higher international demand supported by
increased export allocation at the Richards Bay Coal Terminal (RBCT). Two new
mines, Inyanda and Mafube, are in the process of ramping-up and have already
contributed to increased production and sales.
The 32% increase in revenue from the tied mines for the period under review
results from increased volumes and the higher operating cost that is
recoverable, while the 68% increase in revenue from the commercial mines is
due to higher local and international selling prices, increased volumes and a
weaker local currency.
On the back of the substantially higher revenue, the coal business achieved a
record operating income of R935 million for the six months ended 30 June 2008
at an operating margin of 26%, a 138% improvement on the same period in 2007
despite inflationary pressures primarily in the cost of fuel, labour and
KZN Sands reported lower production volumes following the significant damage
caused to Furnace 2 after the water ingress incident at the end of February
2008 as previously reported. Furnace 1, however, delivered good production
results. More than 50kt of slag was tapped in the period under review
representing an equivalent of 93% of cold feed design capacity, a new record.
Low manganese pig iron production was lower resulting from the decreased slag
throughput while ilmenite production was aligned with the lower smelter feed
requirements compared to the comparative period in 2007. Zircon and rutile
production were marginally lower than the comparative period due to declining
mineral grades in the mine area while awaiting approval of the mining rights
for adjacent mining areas.
Revenue was R20 million lower while net operating profit remained in line with
the corresponding period in 2007, at a loss of R27 million as a result of the
loss of production from the furnace outage. The net operating loss includes
the derecognition of damaged Furnace 2 assets of R52 million and a write-down
of the crude ilmenite stockpile by R14 million.
The originally planned four-month maintenance shut on Furnace 2 has been
brought forward following the water ingress incident. Current estimates
suggest that the repairs to the furnace will result in additional downtime.
Completion is scheduled for December 2008 with first metal tap in January
2009. The proceeds of an insurance claim have not been recognised in the
results under review.
Continued investigations into optimising the hearth technology at KZN Sands
are ongoing, with feasibility study results expected at the end of 2008.
With the dredge mining operations proceeding through a lower grade area of the
mine during 2008, production of heavy mineral concentrate (HMC) was lower than
that of the corresponding period in 2007. As a result of the restricted HMC
supply, mineral production is also lower. Initiatives to improve recoveries
of both zircon and rutile have partially assisted in countering the impact of
the lower HMC production.
Synthetic rutile (SR) production was higher in the period under review
following the SR kiln shut in the first half of 2007. The benefits of that
shut have since been realised with stable operating conditions being
experienced which in turn have yielded an increase in production.
Pigment production was lower in the period under review due to plant downtime
associated with the rebuild of all four chlorinators at the Kwinana pigment
plant and an interruption in gas supply during the first quarter of 2008.
Various initiatives currently underway should result in an improvement of
production in the second half of 2008.
Substantial price increases in process chemicals and energy consumables, as
well as a regional gas supply crisis which resulted in higher gas prices,
offset somewhat by slightly higher pigment prices, resulted in net operating
profit declining significantly from a profit of R36 million in the previous
comparative period to a loss of R139 million. In addition, the strength of
the Australian dollar against the US dollar continues to negatively impact on
the profitability of the business. This was partially offset by currency
hedging gains of A$2,6 million (R17,6 million) during the period under review.
Currency hedging of US$40 million at an average rate of US cents 94 to the
Australian dollar is in place for the remainder of 2008.
Production of zinc concentrate at the Rosh Pinah mine was 47kt, 11% lower than
the comparative period in 2007. The lower production volumes were mainly the
result of plant stoppages and instability due to equipment failures at the
crushing and flotation circuits of the plant. A capital replacement programme
for the flotation circuit is planned for early 2009 while that for the
crushing circuit is planned for completion during the second half of 2008.
Production of zinc metal at the Zincor refinery was 47kt, 8% lower than the
comparative period in 2007. This was as a direct result of electricity load
shedding and power rationing that also led to instability in plant operating
conditions. The group expects that zinc production in the second half of 2008
will continue to be affected by power rationing as well as the planned rebuild
of the two smaller roasters and major maintenance at the cell house. Zinc
metal sales were 12% higher when compared to the previous period in 2007 due
to good local demand.
Revenue for the six months to 30 June 2008 decreased some 25% mainly as a
result of lower zinc prices. The average zinc price realised for the period
under review was US$2 272 per tonne, approximately 36% lower than the price
recorded in the previous comparative period in 2007.
Net operating profit declined significantly as a result of lower revenue
coupled with higher operating cost. The cost increases were driven by higher
than inflation increases in electricity, fuel and labour as well as higher
maintenance costs. Zinc metal inventories were written down to net realisable
value by R45 million for the period under review.
Production at the Chifeng refinery in which the group owns an effective 22%
interest has been fully ramped up to beyond its name plate capacity of
110ktpa. Equity accounted income increased by R11 million to R18 million
compared to the corresponding period in 2007 due to additional production and
The divestment of a 43% interest in Rosh Pinah Zinc Corporation (Pty) Limited
(RPZC) to Namibian shareholder groupings, reducing the group`s shareholding to
an effective 50,04% from 1 July 2008, was completed in June 2008.
In terms of the transaction, RPZC declared a dividend of R435 million of which
R405 million is payable to the group. Shareholders` loans of R80 million were
extended to Rosh Pinah of which Exxaro provided R75 million.
As part of the transaction, an employee empowerment participation scheme
entitling eligible employees to share in 3% of RPZC`s future dividend
payments, has been created.
At 30 June 2008, a total of 12kt representing 40% of Rosh Pinah`s projected
lead sales and 63kt representing 47% of the projected zinc sales, was hedged.
Subsequent to the end of the period the hedging programme to accommodate the
stand-alone bank funding was completed. A total of 20,1kt of lead sales is
hedged forward until 2011 at an average price per tonne of US$1 756 and 93kt
of zinc sales at an average price per tonne of US$2 187.
In July 2008 Eskom and the coal business reached agreement on the supply for
45 years of 14,6Mtpa of power station coal from Grootegeluk mine to Eskom`s
adjacent Medupi power station which is currently under construction. This
agreement is inclusive of the 8,5Mtpa of power station coal to the Medupi
power station which was agreed to in March 2007. The agreement is subject to
the final approval by the Eskom board. Exxaro board approval for the coal
supply agreement and the implementation of the project to expand the
Grootegeluk mine at a capital cost of R9 billion, was given on 12 August
Construction of the Sintel char plant at the Grootegeluk mine for the
production of reductants for the ferroalloy industry at a total capital cost
of R389 million is behind schedule. This is due to delays experienced with
the construction contractors. Ramp-up of the facility commenced in August 2008
with full production of 160ktpa estimated to be reached in the first half of
A feasibility study to investigate the viability of producing high quality
market coke from semi-soft coking coal produced at Grootegeluk mine is
progressing well with first results expected by the end of 2008.
Commissioning of the beneficiation plant at the R290 million Inyanda mine was
successfully completed in the second quarter of 2008. It is expected that
full production of up to 1,5Mtpa of product mostly for the export market, will
be achieved by the end of 2008.
Commissioning of the Mafube expansion project at a capital cost of R1,9
billion in which the group is a 50:50 joint venture partner with Anglo Coal,
has been completed and ramp-up to full capacity is expected to be reached by
the end of 2008. At full production the mine will produce 3Mtpa of export
steam coal and 2Mtpa of power station coal.
All mining authorisations and regulatory approvals for mining of the
Eerstelingsfontein reserves near Belfast to supply 1Mtpa of product to the
local market have been obtained. Production is planned to commence in the
third quarter of 2008, with full production expected by the first quarter of
Exploration of the hard coking coal resource on the adjacent properties of
Moranbah South and Grosvenor South in Queensland, Australia, continues to
progress according to schedule. Exploration is mainly focused on geophysical
work to delineate long-wall mining resources although the potential for other
mining methods has not been excluded. Moranbah South has the potential to
produce large volumes of premium quality hard coking coal.
Implementation of the development of the Diepspruit reserve at New Clydesdale
(NCC) has commenced with the aim to produce its first coal by the end of 2008.
The R136 million project will produce 1,3Mtpa run-of-mine coal for
beneficiation at NCC for supply to the export steam coal market.
As part of the group`s long-term strategy to leverage the strategic advantage
that it enjoys in the Waterberg coal field, exploration programmes have been
put in place and discussions continue with potential high volume long term off-
takers of coal.
Several on-site power generation projects are being investigated.
The Toliara Sands project`s feasibility study for the Ranobe deposit in south-
western Madagascar is progressing. Further process and metallurgical test work
is being undertaken on the ilmenite product from this deposit. An aerial
radiometric and a magnetic survey is planned for the northern Monombo-Marombe
Implementation of the Tiwest Kwinana pigment plant expansion project for an
additional 40ktpa production has been approved by the board and will be
completed by 2010. The group will fund 100% of the A$100 million expansion
project. Tronox Inc., the group`s Tiwest joint venture partner, has the
option to contribute its share of the capital at its discretion throughout the
project until a date two years from commissioning of the expansion.
The Dongara feasibility study which forms part of the Tiwest joint venture is
in process and will be completed during 2009. As a result of the increased
life expectancy of the Tiwest current dry mine operation at Cooljarloo,
production at Dongara is planned to commence in 2011. The Dongara deposit has
the potential to provide feedstock for the Tiwest mineral separation plant for
six years. Further exploration at Cooljarloo West has also been approved by
the joint venture partners.
Construction of the Fairbreeze mine south of the existing Hillendale mine in
KwaZulu-Natal can commence on approval of the mining right. Current estimates
for production start-up is late 2010. The feasibility study of the Port
Durnford deposit located to the south-west of the current Hillendale
operations will be completed in 2009. This mine could supply the KwaZulu-Natal
furnaces for longer than 20 years, if proven viable.
A drilling campaign to confirm previous drill results at the Centane deposit
in the Eastern Cape is currently underway.
An investment was made in exploration assets in Turkey. The exploration area
includes zinc, lead, copper and iron ore prospects. A total of R56 million
was expensed for the period on acquisition and exploration costs. The
acquisition cost of the investment was allocated to intangible assets
(exploration rights) and subsequently expensed as the exploration activities
are still in the early stages.
The feasibility study to expand the Chifeng refinery by a further 100ktpa was
completed during the six months to June 2008. The group reviewed the prospect
and concluded that the planned expansion does not meet its investment criteria
culminating in a decision not to participate in the expansion project.
The completion of the pre-feasibility study for Furnace 1, which is designed
to demonstrate the technology on commercial ferromanganese production, has
been delayed from its scheduled completion in the second half of 2008 as a
result of the power shortages in South Africa. The project will have to be
relocated to a site where sufficient power is available and supply guaranteed.
The Coega Industrial Development Zone is a potential alternative location that
is currently under investigation.
Date: 14/08/2008 07:06:21 Supplied by www.sharenet.co.za
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