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EXX - Exxaro - Press release - Exxaro`s reviewed group interim financial

Release Date: 20/08/2009 07:06:02      Code(s): EXX
EXX - Exxaro - Press release - Exxaro`s reviewed group interim financial        
results for the six-month period ended 30 June 2009                             
EXXARO RESOURCES LIMITED                                                        
(Incorporated in the Republic of South Africa)                                  
Registration number: 2000/011076/06?                                            
JSE share code: EXX                                                             
ISIN: ZAE000084992                                                              
ADR code: EXXAY                                                                 
("Exxaro" or "the company" or "the group")                                      
ENDED 30 JUNE 2009                                                              
-   Revenue increased by 23% to R7,1 billion                                    
-   Net operating profit up 18% to R953 million                                 
-   Headline earnings per share up 8% to 406 cents per share                    
-   Interim dividend of 100 cents per share                                     
Diversified South African-based resources group Exxaro Resources Limited        
(Exxaro) today reported revenue of R7,1 billion for the six months ended 30     
June 2009, an increase of 23% when compared with the same period in 2008.       
Comments are based on a comparison of the group`s reviewed financial results    
and unaudited physical information for the six-month periods ended 30 June      
2009 and 2008 respectively. The earnings reported for the six-month period      
to 30 June 2009 includes results from Namakwa Sands and the 26% interest in     
Black Mountain Mining (Pty) Ltd (Black Mountain) which were acquired on 1       
October 2008 and 1November 2008 respectively.                                   
"Net operating profit increased by R147 million to R953 million,                
notwithstanding lower profits in the base metals business and a further,        
albeit lower, consolidated loss in the mineral sands business. Although the     
consolidated operating results show an improvement when compared with the       
previous year, the group was adversely affected by the vagaries of the          
current global economic downturn," said Sipho Nkosi, Exxaro`s chief             
executive officer.                                                              
The coal business reported a 10% increase in net operating profit to R1,0       
billion due to higher sales volumes to Eskom and the export market, offset      
by lower international steam coal prices, lower local non-Eskom sales           
volumes, and higher production costs.                                           
The base metals business delivered significantly lower operating results in     
line with zinc prices 42% lower than the corresponding period in 2008.          
The mineral sands business reported a consolidated net operating loss as the    
loss at KZN Sands, from primarily lower demand, more than offset the            
profitable contributions from Namakwa Sands and Australia Sands.                
A weaker average exchange rate of R9,40 to the US dollar was realised on        
revenue compared to R7,54 for the corresponding period in 2008, however, the    
timing of the volatility of the local currency to the US dollar on              
repatriation of foreign currency proceeds, led to lower realised currency       
gains than anticipated.                                                         
Unrealised foreign currency losses on the revaluation of monetary item          
balances in foreign currency resulted from the relative strength of the         
local currency on 30 June 2009.  The weaker Australian dollar  to the US        
dollar, from an average of US 93 cents in the six-month period to 30 June       
2008 to US 71 cents in the period under review, together with favourable        
hedging of US dollar receivables, impacted positively on the financial          
results of the mineral sands operation in Australia.                            
Attributable earnings, inclusive of Exxaro`s 20% interest in the post-tax       
profits of Sishen Iron Ore Company (Pty) Ltd (SIOC) amounting to R868           
million, increased by 12% from R1,2 billion to R1,4 billion or 403 cents per    
Headline earnings were R1,4 billion or 406 cents per share.  This represents    
an 8% increase on the comparative 2008 earnings of R1,2 billion on 377 cents    
per share.                                                                      
CASH FLOW                                                                       
Cash retained from operations was R832 million. Taxation payments of R488       
million, the final dividend payment for the 2008 financial year of R700         
million and capital expenditure of R686 million were made. A total of R347      
million of the capital expenditure was invested in new capacity and R339        
million applied to sustaining and environmental capital.                        
A net cash outflow of R279 million was recorded after accounting for R1,1       
billion dividend receipts from associate companies.                             
Net debt of R2,38 billion at 31 December 2008 increased to R2,5 billion at      
30 June 2009 at a debt to equity ratio of 18%, and includes the R2,7 billion    
and R221 million paid for Namakwa Sands and a 26% interest in Black Mountain    
in the latter half of 2008 respectively.                                        
Subsequent to the interim date, Exxaro paid R1,0 billion for its investment     
in the Mafube joint venture with Anglo Coal.                                    
The significant reduction in cash retention and net cash outflow position       
compared with the corresponding period in 2008, can partly be ascribed to       
higher inventory holding as demand decreased while customers were destocking    
during the global recessionary environment.                                     
SAFETY, HEALTH AND ENVIRONMENT                                                  
The safety and health of employees continues to be an overriding priority       
for Exxaro. Regrettably a non- reportable fatality occurred in a public road    
accident in June 2009. The average lost time injury frequency rate (LTIFR)      
per 200 000 man-hours worked improved significantly to 0,30 from the            
previous year`s 0,45 in the first half of 2008 and the 0,39 for the full        
year of 2008.                                                                   
Further safety improvements were identified during Exxaro`s CEO Safety          
Summit held in March 2009 and are being focused on for feedback on progress     
at the next summit planned for October 2009.                                    
The reviewed HIV/Aids strategy which focuses on improved employee               
understanding of preventative behaviour as well as voluntary counselling and    
testing (VCT) participation, has increased VCT participation since inception    
of the HIV/AIDS programme.                                                      
Ten business units are now ISO 14001 and OHSAS 18001 certified.  The            
remaining five business units have programmes in place to be certified by       
the end of 2009.                                                                
CONVERSION OF MINING RIGHTS                                                     
Engagement with the Department of Minerals and Energy (DME) continued in        
order to process the registration of new order mining rights granted as well    
as the converted old order mining rights of the former Kumba Resources          
Limited.  Approval of the conversion of the old order mining rights of the      
former Eyesizwe Coal (Pty) Ltd submitted to the DME in 2008, is also still      
in process.                                                                     
CHANGES TO THE BOARD                                                            
As previously announced, Wim de Klerk replaced Dirk van Staden as financial     
director on 1 March 2009.                                                       
Chris Griffiths was appointed on 16 July 2009 in place of Philip Baum who       
had resigned on 15 July 2009.  The Board expresses its appreciation for Mr      
Baum`s significant contribution to the group.                                   
"Demand for power station coal should remain similar to that experienced in     
the current reporting period," said Mr Nkosi.                                   
"The group expects similar levels of steam coal exports in the second half      
of 2009 albeit at lower international prices.  However, such performance        
remains dependant on the availability of logistical infrastructure," he         
A significant decline in domestic steam and coking coal prices are              
anticipated in the second half of 2009 due to contractual pricing               
Demand for the mineral sands products will continue to be affected by the       
depressed economic environment combined with the additional downside of a       
possible strong Australian dollar to the US dollar in the Australian            
Zinc markets are expected to remain depressed with downwards pressure on        
prices due to the expected oversupply of metal.                                 
"The equity accounted contribution from SIOC will be impacted by the lower      
benchmark iron ore prices with effect from 1 April 2009," said Mr Nkosi.        
Due to the continued lower economic activity and its impact on demand and       
prices, it is inevitable that earnings for the second half of 2009 will be      
adversely impacted.  The relative strength of the local currency, and its       
volatility, will also impact on the results for the second half of 2009.        
The financial information on which the outlook statement is based has not       
been reviewed or reported on by the company`s auditors.                         
INTERIM DIVIDEND                                                                
The Board of Directors has declared an interim cash dividend number 13 of       
100 cents per share in respect of the 2009 interim period.  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, 25      
September 2009.                                                                 
-   View or download the full results announcement on                           
-   See Addendum 1 for Operational highlights; Addendum 2 for                   
Capital expenditure and project pipeline                                     
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                               
Wim de Klerk                                                                    
Financial director                                                              
Tel: + 27 12 307 4848                                                           
Mobile: +27 82 652 5145                                                         
Email: wim.deklerk@exxaro.com                                                   
ADDENDUM 1:                                                                     
OPERATIONAL HIGHLIGHTS                                                          
Total production of power station coal was 465kt higher than the                
corresponding period last year.  Higher demand from Eskom resulted in           
increased production from the Grootegeluk and Leeuwpan operations while NBC     
started mining new reserves which yielded increased product volumes of          
The Eskom-tied collieries recorded lower net production volumes mainly due      
to 802kt lower production volumes from Matla resulting from water ingress       
from surface cracks after seasonal rains as well as other production            
challenges. Higher production from Arnot of 544kt was achieved due to the       
benefits realised from the production optimisation project implemented          
during March 2008, which is now fully operational.                              
Lower coking coal production for the six months ended 30 June 2009 of 448kt     
was due mainly to a management decision to cut back on coking coal              
production at Grootegeluk due to lower demand. Lower coking coal production     
at Tshikondeni mine was caused by continued difficult geological conditions     
in the area being mined.                                                        
Production of steam coal was 26% higher than the similar period in 2008 with    
the Inyanda mine now fully operational.  The joint venture agreement with       
Anglo Coal for the Mafube mine was signed with an effective date of 1 June      
2009 and resulted in additional steam coal production of 106kt.  Higher         
production results from NBC from the mining of additional reserves were         
offset by lower production from Leeuwpan and Grootegeluk due to lower market    
demand in current market conditions, as well as lower coal production from      
NCC with lower yields achieved on different sources of run-of-mine tonnages     
treated through the beneficiation plant.                                        
Sales to Eskom increased, based on higher demand.  However, lower non-Eskom     
sales to domestic customers resulted from lower demand in the current market    
conditions albeit at higher negotiated prices.                                  
Export sales volumes increased substantially from a fully ramped-up Inyanda     
mine and additional export coal from Mafube, however, was recorded at lower     
international steam coal prices and a weaker local currency..                   
As a result revenue increased by 33% to R4,8 billion.                           
Net operating income for the six months ended 30 June 2009 increased by 10%     
at an operating margin of 22%.  The operating margin decreased from the 26%     
in the previous period due to increased labour and contractor costs after       
the implementation of a seven-day work week at Grootegeluk mine, increased      
mining cost at Leeuwpan mine from the high stripping ratios due to the          
geological area mined during the period, higher coal buy-in prices for NCC      
and for Mafube export coal, and higher railage tariffs for coal destined for    
Mineral Sands                                                                   
KZN Sands                                                                       
KZN Sands reported increased production for the six months to 30 June 2009.     
Both furnaces were fully operational for the entire period under review, as     
opposed to the same period in 2008, when furnace 2 was down after damage by     
a water ingress incident at the end of February 2008.  More than 100kt of       
slag was tapped in the six months, the best production from the furnaces        
since inception.  Low manganese pig iron (LMPI) production was also higher      
resulting from the increased slag throughput, while zircon and rutile           
production were both higher than the comparative period due to higher grade     
Stability in the furnaces is impacting positively on production from the KZN    
Sands business.                                                                 
Revenue was, however, R187 million lower and a net operating loss of R110       
million compared to a loss of R27 million in 2008 was reported attributable     
to lower demand as a result of the global economic slow down, lower LMPI        
prices and unrealised foreign currency revaluation losses in this reporting     
Namakwa Sands                                                                   
Slag and iron production was adversely affected by the furnace 1 water          
ingress incident towards the end of March 2009 and the subsequent decision      
to delay the reline to March 2010 as a result of market conditions.             
The global economic crisis had a major impact on the markets for Namakwa        
Sands` products in the first half of 2009.  Demand dropped sharply across       
all sectors as customers and end-users focused on reducing inventories and      
cutting back on new purchases.                                                  
Namakwa Sands` revenue for the reporting period was R644 million with a net     
operating profit of R24 million.  The net operating profit was severely         
affected by the sudden decline in sales volumes towards the latter part of      
the first quarter.  This downward trend was softened by significantly better    
sales tonnage of zircon, chloride slag and pig iron in the second quarter.      
The positive impact of a weaker local currency to the US dollar on revenue      
recorded was reduced by foreign currency losses on repatriation of foreign      
currency proceeds due to the timing of the volatility on the relative           
exchange rate.                                                                  
Subsequent to the acquisition of Namakwa Sands in October 2008, management      
has embarked on an exercise to re-define the mine plan by December 2009.        
Australia Sands                                                                 
Higher grades at the dredge mine led to higher concentrate and therefore        
higher mineral production. Successful improvement initiatives continue to       
favourably impact mineral production.                                           
Production of synthetic rutile (SR) was slightly lower in the period under      
review as a result of maintenance-related problems occurring during the         
second quarter. These problems have been resolved and performance should        
improve in the second half of 2009.                                             
Pigment production improved substantially from the corresponding half year      
in 2008 following the successful implementation of various initiatives and a    
successful shut in May 2008.                                                    
Although increased maintenance cost was incurred at the SR plant, the           
significant increases in 2008 in the cost of process chemicals and energy       
consumables was not experienced in the period under review.                     
Net operating profit improved from a loss of R139 million in the                
corresponding period in 2008 to a profit of R19 million for the current         
period, attributed to an improved production performance, a weaker average      
Australian dollar against the US dollar and higher sales prices on average,     
albeit partially offset by lower sales volumes as a result of the economic      
slowdown.  Hedging of US dollar receivables had a positive impact on            
operating results.  Currency hedging of US$22 million at an average rate of     
US 63 cents to the Australian dollar is in place for the remainder of 2009.     
Base Metals                                                                     
Production of zinc metal at the Zincor refinery of 44kt was 6% lower. The       
shortfall can be attributed to downtime on the acid plant and throughput        
limitations on the purification circuit.  Downtime on the acid plant            
negatively affected the rest of the operation.  The challenges with the acid    
plant have since been resolved.                                                 
Zinc metal sales were 17% lower than the equivalent period in 2008 mainly       
due to lower demand.                                                            
Production at Rosh Pinah was in line with 2008 but yielded higher metal         
content. The flotation cell replacement project is only marginally behind       
schedule and is expected to come into operation late in 2009. The cells are     
necessary to sustain historical recoveries.                                     
A total of 60% of Rosh Pinah`s projected zinc and lead concentrate sales        
were hedged during the previous financial year for the period July 2008 to      
December 2011 at forward prices ranging from US$2 431 to US$1 887 for zinc      
and US$2 940 to   US$900 for lead per tonne as part of the partial              
divestment to facilitate a Namibian empowerment transaction. In the first       
half of 2009, a portion of the hedging programme was ineffective and            
resulted in losses of R42 million being accounted for in profit and loss.       
Revenue for the six months to 30 June 2009 decreased by 37% mainly as a         
result of lower zinc prices. The average zinc price for the six months of       
US$1 329 is 42% lower than the equivalent period in 2008 and was only           
partially offset by the weaker local currency.                                  
Net operating profits declined substantially as lower revenues, coupled with    
higher operating costs, resulted from higher than inflation increases in        
electricity and maintenance expenses as well as higher distribution costs.      
Production at the Chifeng refinery was 23% lower due to low prices and          
market demand.  Prices and demand recovered at the end of the second            
quarter, with a positive outlook for annual performance. Exxaro`s               
proportionate share of the post-tax earnings of Chifeng decreased by 89% to     
R2 million compared to the equivalent period in 2008, mainly due to the         
lower production and high raw material prices eroding margins.                  
Exxaro exercised its option to acquire 26% in Black Mountain during the last    
quarter of 2008. In the current period Exxaro equity accounted R15 million      
as its share of Black Mountain`s post-tax earnings.                             
Industrial Minerals                                                             
Production volumes of ferrosilicon at the FerroAlloys plant showed a modest     
increase, however, sales volumes were lower as a result of lower market         
The group plans to finalise the proposed divestment of its interest in the      
Glen Douglas dolomite mine during the second half of 2009.                      
ADDENDUM 2:                                                                     
CAPITAL EXPENDITURE AND PROJECT PIPELINE                                        
Exxaro has completed the review and prioritisation of its capital               
expenditure and project pipeline following the global economic downturn.        
The group will focus on the successful implementation of committed              
expansions and projects which meet its investment hurdle rate within a Board-   
approved mandate.                                                               
The expansion of the Grootegeluk mine to supply Eskom`s Medupi power station    
with 14,6Mtpa of power station coal for 40 years, is progressing in line        
with the planned schedule to supply the first coal during the last quarter      
of 2011.  Full production from 2014 onwards is envisaged.  The project, at      
an estimated capital cost of R9 billion, is in the detailed engineering         
design phase and orders will be placed during the next six months for long      
lead capital items.                                                             
The pre-feasibility study and geological exploration work on a potential        
greenfields mine adjacent to the Grootegeluk mine (Thabametsi mine) with the    
capability of supplying the market with power station and metallurgical         
coal, is being progressed with planned completion by the end of 2009.  The      
development is aligned with Eskom`s request for proposals for Independent       
Power Producers for base-load power stations.                                   
An integrated infrastructure plan is being implemented for the Waterberg        
coal fields, together with relevant stakeholders, focusing on the supply of     
housing, water, rail and road infrastructure.                                   
Exxaro entered into a prospecting joint venture agreement with Sasol Mining     
(Pty) Limited (Sasol) for the development of a new coal mine in the             
Waterberg to supply Sasol`s new potential inland coal-to-liquids project        
(Project Mafutha). The development is in the pre-feasibility stage with the     
mining of a bulk sample being planned before the end of 2009 for large-scale    
testing at the Sasol Synfuels Secunda plant.                                    
Exxaro concluded an option agreement with Coal of Africa Limited which          
affords Exxaro a minority participation right in the Makhado coking coal        
project in the Limpopo province.  The exercise of the option is subject to a    
detailed technical and economic due diligence on the project.                   
Two of the four retorts of the Sintel Char plant at Grootegeluk mine for the    
production of reductants for the ferroalloy industry that had been delayed      
after the failure of the refractory lining, have been commissioned with the     
first char produced during June 2009.  The other two retorts will be            
commissioned by the end of October 2009 with full production of 140ktpa of      
char estimated to be reached during 2010.  The quality of the product is in     
line with market expectations and the entire production off-take has been       
The potential bord-and-pillar mining operation pre-feasibility study of the     
hard coking coal resource on the Moranbah South properties in Queensland,       
Australia, has commenced with exploration drilling being prioritised to         
finalise this study during the first half of 2010.  Exploration work on the     
potential long-wall mining project is also progressing according to plan to     
confirm that Moranbah South can produce premium quality hard coking coal in     
conjunction with our joint venture partner Anglo Coal Australia.                
Mineral Sands                                                                   
The approval of the mining right for the Fairbreeze CExtension portion of       
the Fairbreeze project, which in the past prevented this project from           
proceeding, was granted.  However, in light of prevailing market conditions,    
the project is currently under review.                                          
The feasibility study of the Port Durnford project, located to the south-       
west of Hillendale mine, was completed during the first half of 2009.  This     
mine could supply the KZN furnaces for longer than 20 years, however,           
current economic conditions are impacting negatively on the financial           
viability of the project.  This project is therefore currently also under       
The development of a mine in Madagascar (Toliara Sands project) will not be     
economically viable due to the deposit size, grades, location and               
infrastructure development required.  Exxaro does not plan any further          
exploration in this area and is in the process of exiting from the option       
The 100% funded Exxaro pigment plant expansion at Kwinana, at an expected       
cost of AU$100 million, remains on track and on budget for commencement in      
the first half of 2010.                                                         
As a result of the increased life expectancy of Tiwest`s current dry mine       
operation at Cooljarloo, Australia, existing dry mining operations will now     
only cease in 2011. A pre-feasibility study of the Dongara mine was             
completed in 2008.  However, in the current economic circumstances, the         
project payback period is insufficient to warrant investment.  As an            
alternative, a pre-feasibility study to replace the dry mining capacity with    
an expansion of the Cooljarloo dredge operation is underway and will be         
completed in the fourth quarter of 2009.                                        
An exploration programme to identify an inferred or indicated resource on       
the Tiwest Cooljarloo West tenements will involve the drilling of 25 000        
metres in the second half of 2009 to confirm initial exploration results.       
Base Metals and Ferrous Metals                                                  
The commercialisation of the AlloyStream(TM) technology for the                 
beneficiation of manganese ore was progressed to pre-feasibility level for a    
site at Coega. Further work on forming strategic alliances is continuing to     
optimise the business case for the development of the manganese project.  A     
successful campaign on the beneficiation of nickel ore was also completed.      
Optimisation studies to fast track the development of both the manganese and    
nickel projects are in progress.                                                
20 August 2009                                                                  
Deutsche Securities (SA) (Pty) Limited                                          
Date: 20/08/2009 07:06:01 Supplied by www.sharenet.co.za                     
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