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
ADR code: EXXAY
("Exxaro" or "the company" or "the group")
EXXARO`S REVIEWED GROUP INTERIM FINANCIAL RESULTS FOR THE SIX-MONTH PERIOD
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
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
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
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.
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
- View or download the full results announcement on
- See Addendum 1 for Operational highlights; Addendum 2 for
Capital expenditure and project pipeline
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
Tel: + 27 12 307 4848
Mobile: +27 82 652 5145
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
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
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
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
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.
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.
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.
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.
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-
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.
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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