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EXX - Exxaro - News Release - Exxaro`s Audited Group Financial Results For

Release Date: 24/02/2009 07:06:06      Code(s): EXX
EXX - Exxaro - News Release - Exxaro`s Audited Group Financial Results For      
The 12-Month Period Ended 31 December 2008                                      
EXXARO RESOURCES LIMITED                                                        
Incorporated in the Republic of South Africa                                    
(Registration Number: 2000/011076/06)                                           
JSE share code: EXX                                                             
ISIN code: ZAE000084992                                                         
ADR code: EXXAY                                                                 
("Exxaro" or "the company" or "the group")                                      
PERIOD ENDED 31 DECEMBER 2008                                                   
-  Revenue increases 36% to R13,8 billion                                       
-  Net operating profit up 71% to R2,5 billion                                  
-  Significant maiden profit contribution from Namakwa Sands                    
-  Headline earnings of 1 058 cents per share                                   
-  Final dividend of 200 cents per share; total dividend of 375 cents per       
Diversified South African-based resources group Exxaro Resources Limited        
(Exxaro) today reported consolidated revenue of R13,8 billion for the 12        
months ended 31 December 2008, an increase of 36% when compared with the same   
period in 2007.                                                                 
The group`s audited financial results and actual physical information for the   
12- month periods ended 31 December 2008 and 2007 are not comparable as a       
result of the acquisition of Namakwa Sands and a 26% interest in Black          
Mountain Mining (Pty) Limited (Black Mountain) effective from 1 October and 1   
November 2008 respectively.                                                     
Comparable unaudited supplementary financial results together with physical     
information are provided for information purposes only, on the assumption       
that both the acquisition of Namakwa Sands and the 26% interest in Black        
Mountain took place on 1 January 2007.                                          
Comments are for comparable purposes based on an analysis of the unaudited      
comparable supplementary financial results and physical information compiled    
for the 12- month periods to 31 December 2008 and 2007 respectively.            
"The coal business reported record revenue and net operating profit as strong   
demand resulted in increased sales at higher prices despite a significant       
softening in international prices in the last quarter of 2008 following the     
global economic meltdown," said Exxaro chief executive director, Sipho Nkosi.   
"The sands business reported a higher consolidated net operating profit         
compared to 2007 as a profit contribution from KZN Sands and a substantially    
higher profit from Namakwa Sands more than offset a loss in the Australian      
operation. Significantly lower average zinc prices and an increased             
environmental provision resulted in the base metals business recording a net    
operating loss," he said.                                                       
An average exchange rate of R8,10 to the US dollar was realised compared to     
R7,26 for the corresponding period in 2007.  The consistent strength of the     
Australian dollar at 0,84 US cents to AU$1 realised in 2008, continued to       
impact negatively on the financial results of the mineral sands operations in   
Australia, despite the weakening of the Australian dollar  in the last          
quarter of 2008.                                                                
Group consolidated revenue increased by 33% to R15,2 billion with net           
operating profit R1,2 billion higher at R2,8 billion.                           
COMPARABLE EARNINGS                                                             
Attributable earnings for the period are R3,4 billion or 1 002 cents per        
share representing a 154% increase on the comparable 2007 attributable          
earnings of R1,4 billion or 396 cents per share. This includes Exxaro`s 20%     
share of the after-tax profits of Sishen Iron Ore Company (Pty) Limited         
(SIOC) amounting to R1,9 billion, a negative contribution of R4 million from    
the effective 22% interest in the Chifeng zinc refinery and an equity           
accounted loss of  R1251 million from the 26% interest in Black Mountain.       
Headline earnings which exclude the impact of the impairment of the carrying    
value of assets in the earnings of Black Mountain, are R3,7 billion or 1 068    
cents per share, this is 167% higher than R1,4 billion or 403 cents per share   
reported for the previous corresponding period.                                 
CASH FLOW                                                                       
Cash retained from operations was R3,6 billion. This was primarily used to      
fund taxation payments of R487 million, dividend payments of R984 million and   
capital expenditure of R1,6 billion of which R470 million was invested in new   
capacity and R1,2 billion applied to sustaining and environmental capital.      
After the payments of R2,7 billion and R221 million respectively for the        
acquisition of Namakwa Sands and a 26% interest in Black Mountain, the group    
had a net cash outflow of R1,85 billion for the financial year. The final       
dividend for payment in March 2009 will amount to a further cash outflow of     
R710 million offset by the dividend inflow from SIOC of R1,1 billion.           
Net debt of R483 million at 31 December 2007 accordingly increased to R2,4      
billion at a net debt to equity ratio of 18% at 31 December 2008.               
SAFETY, HEALTH AND ENVIRONMENT                                                  
The group remains committed to achieving a work environment that is fatality-   
and injury-free. Despite excellent safety achievements at several business      
units, regrettably five employees lost their lives in 2008 compared to a        
similar number reported in 2007. The lost time frequency rate (LTIFR) per 200   
000 man-hours worked in 2008 was 0,39 against a target of 0,21 and compared     
to 0,36 in 2007.                                                                
In a further measure to strengthen its safety awareness and preventative        
programmes, various safety improvement interventions focusing on pre-work       
Hazard Identification Risk Analysis and intensive training on Exxaro`s I Care   
Risk Controls, Vehicle Safety and Visible Felt Leadership, have been            
Exxaro has reviewed its HIV/Aids strategy with the objective on improving       
employee understanding of preventive behaviour to the contracting and spread    
of HIV/Aids and increasing the number of employees who test and enrol for       
treatment. At the end of 2008, the cumulative voluntary counselling and         
testing enrolment improved to 50% from 30% at the end of 2007.                  
The environmental programme for 2008 focused on ensuring that all its mining    
operations have fully compliant Environmental Management Programmes required    
under the Mineral and Petroleum Resources Development Act as well as the        
National Environmental Management Act. Exxaro is reviewing its processes to     
determine the impact of its activities on natural resources.                    
Nine business units are certified under both the international health and       
safety (OHSAS 18001) and environmental (ISO 14001) standards.  The remaining    
six business units have implemented certification programmes with the target    
to have all operations fully compliant in 2009.                                 
POWER CONSTRAINTS                                                               
Exxaro is in ongoing discussions with Eskom to agree on baseline consumption    
and continuous power supply while at the same time progressing group-wide       
initiatives to conserve electricity consumption at existing operations and      
feasibility studies to develop co- and on-site power generation projects.       
CONVERSION OF MINING RIGHTS                                                     
The group is in regular engagement with the Department of Minerals and Energy   
(DME) to process the registration of new order mining rights granted as well    
as the converted old order mining rights of the former Kumba Resources.  The    
applications for approval of the conversion of the old order mining rights of   
the former Eyesizwe Coal submitted during 2008 is in process.                   
All applications for new order mining rights have been granted in the mineral   
sands and coal businesses except the Weltevreden deposit adjacent to the        
Leeuwpan coal mine which is under consideration by the DME.                     
CHANGES TO THE BOARD                                                            
Mr DJ van Staden will retire as financial director on 28 February 2009. The     
Board expresses its appreciation for his significant contribution to the        
As announced, Mr WA de Klerk will succeed Mr van Staden as financial director   
on 1 March 2009.                                                                
The group is expected to continue experiencing strong demand for local power    
station coal. However, coking coal sales are anticipated to be lower at         
reduced prices.  Steam coal sales volumes should increase but at lower          
international prices.                                                           
Increased production volumes at all mineral sands operations and a full 12-     
months` contribution from Namakwa Sands together with the local and             
Australian currencies remaining at their present weaker levels, should          
benefit this business in 2009 if market demand and prices remain at current     
stable levels.                                                                  
The base metals business is expected to remain under pressure in 2009 as a      
result of continued depressed market conditions and zinc prices.                
The equity accounted contribution from SIOC will be impacted by market demand   
and the level of iron ore price adjustments effective from 1 April 2009.        
The group will have a strong focus on capital prioritisation and working        
capital management together with continuous business improvement initiatives    
and cost control to offset lower demand and price challenges.                   
Overall, the group`s consolidated results for 2009, will largely be driven by   
the extent to which global recessionary conditions impact on demand and         
prices for its commodities, as well as the trading levels of the local and      
Australian currencies.                                                          
The uncertain market outlook remains a key factor to the group`s results for    
FINAL DIVIDEND                                                                  
The directors have declared a final dividend, dividend number 12 of 200 cents   
per share in respect of the 2008 financial year. The dividend has been          
declared in South African currency and is payable to shareholders recorded in   
the register of the company at close of business on Friday, 27 March 2009.      
-  View or download the full results announcement on www.exxaro.com             
-  See Addendum 1 for Operational highlights; Addendum 2 for Growth             
Editor`s Note:                                                                  
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                               
Trevor Arran                                                                    
Executive General Manager: Corporate Affairs & Strategy                         
Tel: +27 (0) 12 307 3292                                                        
Mobile: +27 (0) 83 609 1444                                                     
Email: Trevor.Arran@exxaro.com                                                  
ADDENDUM 1:                                                                     
OPERATIONAL HIGHLIGHTS                                                          
Production volumes for the coal commodity business overall were 9% higher       
than the previous year.                                                         
Power station coal production at the Eskom tied mines was significantly         
higher due to a good turnaround at Arnot mine after successful implementation   
of improvement initiatives. The commercial mines, most notably North Block      
Complex (NBC) and Inyanda, increased production to supply higher demand from    
Eskom.  NBC started mining new reserves and increased overall capacity.         
Coking coal production, however, decreased by 402kt in 2008 due to              
challenging geological and mining conditions at Tshikondeni. In addition,       
Grootegeluk mine used its no. 6 plant tipping capacity to channel run of mine   
tonnages to the production of additional power station coal from the no. 2      
washing plant, thereby contributing to the reduction of coking coal             
Steam coal production was significantly higher than the previous year mainly    
due to Inyanda ramping up during 2008, good production levels at Leeuwpan       
resulting from additional overburden removal in 2007, as well as increased      
production at NBC.                                                              
Sales of power station coal to Eskom increased by 2Mt to 36,3Mt as a result     
of improved production performance at the tied mines and demand from the        
electricity utility to increase stock levels at various power stations.         
Other domestic sales were negatively affected by the lower production at        
Tshikondeni as well as a 13% decrease in sales to ArcelorMittal SA Limited in   
line with reduced demand in the steel and ferroalloy industry in the last       
quarter of 2008. The coal business was able to fully offset these lower sales   
volumes through additional sales from Leeuwpan and NBC to the domestic          
Export volumes increased from 1,8Mt in 2007 to 3,3Mt in 2008 as a result of     
increased export allocation at the Richards Bay Coal Terminal (RBCT) and        
production volumes from the new mines, Mafube and Inyanda.                      
Revenue increased by 78% to more than R9 billion due to significantly higher    
average international coal prices linked to global oil and energy price         
increases, and stronger demand.  Domestic prices followed this upward trend     
with international prices, however, declining in the last quarter of 2008       
following the global economic crisis.                                           
The commodity business reported an annual record net operating income of R2,7   
billion, an increase of 200% compared to 2007 despite inflationary pressures,   
especially in respect of labour and diesel costs, exploration costs for         
Moranbah South in Australia and higher expenditure on projects in the           
Waterberg and Mpumalanga province.                                              
Mineral Sands                                                                   
KZN Sands                                                                       
KZN Sands reported lower production volumes as a result of the Furnace 2        
water ingress incident at the end of February 2008 with only Furnace 1 being    
operational for the remainder of the year.  Titanium slag was 63kt lower at     
113kt than for the comparable period in 2007.  Furnace 1 performed well by      
producing more than 95kt of slag equivalent to 87% of cold feed capacity. Low   
manganese pig iron production was in line with the decreased slag throughput    
while ilmenite production was aligned with the lower smelter feed               
requirements at 138kt lower than the corresponding period in 2007.              
Revenue was R10 million lower but net operating profit increased by R188        
million compared to the corresponding period in 2007 due to improved prices,    
a weaker local currency and cost savings.                                       
Continued improvement initiatives are impacting positively on production with   
the Furnace 2 start-up in early December 2008, ramping up according to plan.    
Australia Sands                                                                 
Record synthetic rutile production was achieved during 2008 resulting from      
more stable operating conditions following the kiln shut in 2007.  Although     
mineral production was lower as a result of the dredging operations moving      
through lower ore grade areas, successful business improvement initiatives to   
increase yield and recoveries partly offset the negative variance.  The 2009    
mine plan indicates a higher grade than 2008 which should positively impact     
on mineral production in 2009.                                                  
Pigment production was substantially lower than the comparative period in       
2007 as a result of maintenance related issues, an emergency shut at one of     
the critical raw material suppliers, the rebuild of all four chlorinators and   
interruptions in gas supply during the first quarter of 2008 as previously      
reported.  Several initiatives have been implemented to improve the             
performance of the pigment plant and in December 2008 pigment production        
improved to pre-2008 levels.  A stronger pigment production performance is      
expected in 2009.                                                               
The lower production, increased maintenance cost at the pigment plant and a     
rapid escalation in process chemical costs and energy consumables, combined     
with the strong Australian dollar in the first half of 2008, led to a R142      
million decrease in net  operating profit  compared to the previous year. The   
decline in operating profit was partially offset by stronger pigment prices     
and the weakening of the Australian dollar during the last quarter of 2008.     
The Australian dollar weakened from an average of 0,87 US cents to the          
Australian dollar for the six months ended 31 December 2007 to an average       
rate for the six months ended 31 December 2008 of 0,77 US cents. The improved   
mineral production and weaker Australian dollar in the second half of 2008      
led to a net operating profit of R57 million, compared to a loss of R139        
million in the first half of 2008.                                              
At 31 December 2008, currency hedging of AU$51 million was in place at an       
average rate of 0,76 US cents to the Australian dollar.                         
Namakwa Sands                                                                   
Exxaro acquired effective ownership of Namakwa Sands on 1 October 2008 for an   
adjusted consideration of R2,8 billion, consisting of the cash price of  R2     
billion, a working capital adjustment of R199 million, capital expenditure on   
the mineral separation project (MSP Project 1000) of R448 million and R121      
million to compensate Anglo Operations Limited for its taxation recoupment.     
The capitalised price adjustments result in either a subsequent cash inflow     
or additional future deduction from taxable income for Exxaro KZN Sands.        
Annual records were achieved for zircon, titanium slag and pig iron             
production. The record zircon production was attributable to higher grades      
and improved plant efficiencies.  The record  smelter production resulted       
from  Furnace 2 operating on full power of 35MW following the de-               
bottlenecking of process difficulties which increased  slag and iron tapped     
despite the power cutbacks in the first quarter of 2008.                        
Efficiency improvements at the smelter operations include annual records        
reported for the chlorinatable (CP) slag ratio at 84,5% compared to a           
previous best 82,5%, and iron recovery at 91.3% compared to the previous        
record of 90,3%.                                                                
The 44% increase in revenue is due to record product sales of 416kt at          
stronger zircon and average pig iron prices and a weaker local currency. A      
record net operating profit of R499 million was recorded for the year at an     
operating margin of 27%.                                                        
Base Metals                                                                     
Production of zinc metal at the Zincor refinery of 87kt was 14% lower than      
the corresponding period in 2007. This was due to limited power supply and a    
total plant black-out following a transformer failure causing major delays      
and instability through-out the plant during the second half of 2008, as well   
as the extended shut and rebuild of two roasters and the acid plant.            
Zinc metal sales, however, remained in line with the corresponding period in    
2007 despite a drastic reduction in the second half as a result of the global   
economic crisis causing a sharp decline in the local market.                    
Production of zinc concentrate at the Rosh Pinah mine of 94kt is in line with   
2007 although lower metal content grades were experienced. This was caused by   
plant stoppages and instability from equipment failures at the crushing and     
flotation circuits of the plant and failures due to unstable electricity        
supply.  A capital replacement programme of the flotation circuit is planned    
for the second half of 2009 while the crushing circuit was fully refurbished    
during the second half of 2008.                                                 
Zinc concentrate railed from Rosh Pinah was 11% lower as problems experienced   
with the availability of railway wagons led to lower imports of cement into     
Namibia and subsequent backhaul of concentrate.  Lead sales were higher than    
in 2007 due to rescheduled shipments.                                           
Revenue for the year decreased by 33% to R1,8 billion mainly as a result of     
lower zinc prices and marginally lower sales.  The average zinc price for the   
year of US$1 874 was 42% lower than the equivalent average of US$3 231 in       
Net operating profit declined substantially from a profit of R688 million in    
2007 to a loss of R172 million due to  lower revenue coupled with increased     
operating costs resulting from  higher than inflation increases in              
electricity, diesel and labour, high maintenance expenses and an increase in    
the provision for environmental rehabilitation at Zincor of R87 million.        
The divestment of a 43% interest in Rosh Pinah Zinc Corporation (Pty) Limited   
to Namibian shareholder groupings, effectively reducing Exxaro shareholding     
to 50.04%, became effective on 1 July 2008.  Exxaro retains operational         
control of the mine.                                                            
At 31 December 2008 a total of 18kt representing 60% of Rosh Pinah`s            
projected lead sales were hedged forward until 2011 at an average price per     
tonne of R16 089 and 78kt representing 60% of Rosh Pinah`s projected zinc       
sales at an average price of R19 619.                                           
Production at the Chifeng refinery was 101ktpa for the year compared to a       
design capacity of 110ktpa. An equity accounted loss of R4 million was          
incurred compared to a loss of R18 million for the corresponding period in      
Industrial Minerals                                                             
The group is currently evaluating the proposed divestment of its interest in    
the Glen Douglas dolomite mine.                                                 
ADDENDUM 2:                                                                     
GROWTH OPPORTUNITIES                                                            
CAPITAL EXPENDITURE AND PROJECT PIPELINE                                        
Following the credit crisis and global economic meltdown in the second half     
of 2008, Exxaro is reviewing its capital expenditure programmes, including      
sustaining capital, as well as its project pipeline.  The group will focus on   
the successful implementation of committed expansions while re-prioritising     
other identified growth opportunities,                                          
Subsequent to Exxaro Board approval in August 2008 for the coal supply          
agreement and the implementation of the project to expand the Grootegeluk       
mine at a capital cost of R9 billion, Exxaro and Eskom concluded an agreement   
in September 2008 for the supply of 14,6Mtpa of power station coal, for 40      
years, from Grootegeluk mine to Eskom`s adjacent Medupi power station which     
is currently under construction.  The first coal is anticipated to be           
supplied during the last quarter of 2011 with full production from 2014         
The development of the Diepspruit reserve at New Clydesdale is planned to       
produce its first coal in the second quarter of 2009. At full production, the   
R136 million project will produce 1,3 Mt run of mine coal for beneficiation     
at NCC for supply to the export steam coal market.                              
The commissioning and start of ramp-up of the Sintel char plant at              
Grootegeluk mine for the production of reductants for the ferroalloy industry   
has been delayed to February 2009 after the failure of the refractory lining    
of the four retorts during the heating process.  The revised plan is to         
commission all four retorts by the end of June 2009 with full production of     
160ktpa estimated to be reached by end of 2009.                                 
Commissioning and ramp-up to full capacity of the Mafube expansion project at   
a capital cost of R1,9 billion has been completed. The mine will produce        
3Mtpa of export steam coal and 2Mtpa of power station coal. Exxaro`s 50%        
joint venture participation with Anglo Coal, although still awaiting            
fulfilment of all the conditions precedent, added 733kt to the overall export   
volumes allowing the group  to take advantage of the higher average export      
prices experienced during the year.                                             
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 focused on geological work to   
delineate long-wall mining resources.  The potential for bord and-pillar        
mining operations will also be explored.  Moranbah South has the potential to   
produce premium quality hard coking coal.                                       
A pre-feasibility study and geological exploration work on a potential          
greenfields mine adjacent to the Grootegeluk mine with the capability of        
supplying the market with power station and metallurgical coal, is being        
Mineral Sands                                                                   
The feasibility study for the construction of the Fairbreeze mine south of      
the existing Hillendale mine, is being updated  with start of construction      
targeted for the second half of 2009. Production is planned for the first       
half of 2011 after the mining of Braeburn and Braeburn extension in the next    
three years.                                                                    
The feasibility study of the Port Durnford mine, located to the south-west of   
Hillendale mine is progressing. This mine could supply the KZN furnaces for     
longer than 20 years, if proven viable.                                         
Implementation of the Tiwest Kwinana pigment expansion project for an           
additional 40ktpa production is on track with commissioning targeted for the    
first quarter of 2010.  Exxaro is funding 100% of the AU$100 million            
expansion project.                                                              
Base Metals                                                                     
Exploration activities in Turkey for zinc, lead, copper and iron ore            
prospects are still in the early stages with further participation being        
critically reviewed in the current depressed economic environment.  A total     
of R110 million was expensed for the year on acquisition and exploration        
Following Exxaro`s decision in the first half of 2008 not to participate in     
the planned expansion of the Chifeng refinery by a further 100ktpa, the         
project has been indefinitely postponed in the light of the substantial         
decline in demand for zinc metal.                                               
24 February 2009                                                                
Sponsor: Deutsche Securities (SA) (Proprietary) Limited                         
Date: 24/02/2009 07:06:05 Supplied by www.sharenet.co.za                     
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