Exx - Exxaro Resources Limited - News Release: Exxaro`s Reviewed Group Interim Release Date: 12/08/2010 07:06:03 Code(s): EXX
EXX - Exxaro Resources Limited - News Release: Exxaro`s Reviewed group interim
financial results and unaudited physical information for the six-month period
ended 30 june 2010
Exxaro Resources Limited
Registration number: 2000/011076/06?
JSE share code: EXX
ADR code: EXXAY
("Exxaro" or "the company" or "the group")
NEWS RELEASE: EXXARO`S REVIEWED GROUP INTERIM FINANCIAL RESULTS AND UNAUDITED
PHYSICAL INFORMATION FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2010
- Decrease in LTIFR to 0,26
- Revenue increased by 10% to R7,9 billion
- Net operating profit up 43% to R1,4 billion
- Headline earnings per share up 68% to 683 cents per share
- Interim dividend of 200 cents per share; covered 3,5 times by attributable
Diversified South African-based resources group Exxaro Resources Limited
(Exxaro) today reported group revenue of R7,9 billion for the six months ended
30 June 2010, an increase of 10% when compared with the same period in 2009.
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 2010 and
2009 respectively. The earnings reported for the six-month period to 30 June
2010 includes results from the Mafube joint venture (Mafube) for the full period
under review while the comparative period to 30 June 2009 only includes Mafube
from the effective date of acquisition of 1 June 2009.
"Net operating profit increased by R410 million to R1,4 billion as the group
benefited from a global economic recovery," said Sipho Nkosi, Exxaro`s chief
"The coal business reported a 16% increase in net operating profit to R1,19
billion as lower export volumes at higher international selling prices were
offset by higher local sales volumes but at lower prices.
"All the mineral sands businesses reported a net operating profit as generally
higher sales volumes at higher prices supported the results. The base metals
business remained profitable on the back of higher average zinc prices and
higher demand," said Nkosi.
Revenue was recorded at a significantly stronger average exchange rate of R7,81
to the US dollar compared with R9,40 in the corresponding period in 2009.
Attributable earnings, inclusive of Exxaro`s 20% interest in the post-tax
profits of Sishen Iron Ore Company (Pty) Ltd (SIOC) amounting to R1,62 billion,
increased by 73% from R1,39 billion to R2,41 billion or 696 cents per share.
Headline earnings were R2,36 billion or 683 cents per share. This represents a
68% increase on the comparative 2009 earnings of R1,39 billion at 406 cents per
Cash retained from operations was R1,93 billion from which taxation payments of
R189 million, the final dividend for the 2009 financial year of R352 million and
capital expenditure payments of R1,04 billion were made. A total of R681 million
of the capital expenditure was invested in new capacity while R361 million was
for sustaining and environmental purposes.
After accounting for R638 million of dividends received from associate
companies, a net cash inflow of R858 million was recorded and contributed to the
significant reduction in net debt in the six months to 30 June 2010.
Net debt of R3,73 billion at 31 December 2009 decreased to R2,87 billion at 30
June 2010 at a debt to equity ratio of 19%.
Subsequent to the interim reporting date, Exxaro will pay the interim dividend
of R716 million and received a dividend of R1,17 billion from SIOC.
SAFETY & SUSTAINABLE DEVELOPMENT
"Safety and health of all employees continues to be an important value for
Exxaro and is reflected in the adoption of the group-wide `Safety Always All The
Way` campaign," added Nkosi.
Regrettably, one fatality was reported at Tshikondeni on 10 March 2010. The
lost time injury frequency rate (LTIFR) per 200 000 man-hours worked is 0,26, an
improvement from 0,30 recorded at 30 June 2009 and 0,33 at 31 December 2009.
"Following the CEO Safety Summit on 30 April 2010, the Exxaro Safety Improvement
Plan (ESIP) is being rolled out at all business units with a focus on training
of visible felt leadership change champions, communication of Exxaro zero
tolerance safety rules, rolling out of the safety training matrix, safety
communication guidelines and the mini Hazard Identification and Risk
Assessments," he said.
HIV testing and counselling continue to be an important focus for the group.
Since the beginning of 2009, 66% of employees have undergone HIV prevalence
testing against a target of 70%. The prevalence rate in the group is estimated
at about 12% with 43% of HIV positive employees already voluntarily enrolled on
to the HIV management programme.
Fourteen business units are now ISO 14001 and OHSAS 18001 certified with the
remaining three business units having programmes in place to be certified during
CHANGES TO THE BOARD
Consequent to the election of Dr Len Konar as chairman of the board with effect
from 23 February 2010, Mr Jeff van Rooyen was appointed as chairman of the
Audit, Risk and Compliance committee.
Coal export volumes should increase when compared with the first half of 2010
due to the anticipated commissioning of Richards Bay Coal Terminal Phase V
subject to the availability of rail capacity. International demand for hard
coking coal is set to remain strong and should support an increase in semi soft
coking coal prices.
The current shortage of pigment should lead to an increase in prices while
demand for mineral sands products is generally anticipated to further improve.
The downside, however, remains the relative strength of the Australian dollar to
the US dollar for the Australian operations. Continued strength in the zircon
market is expected to prevail thereby supporting current price trends.
High zinc concentrate and metal stock levels is expected to result in downward
pressure and a lower average realised zinc price in the second half of 2010. The
logistical challenges to transport concentrate from Rosh Pinah to Zincor are
expected to remain in the second half of 2010.
The equity accounted contribution from SIOC should be positively impacted by
anticipated higher prices and the continued strong demand.
"On the back of current economic recovery, earnings in the second half of 2010
should increase, however, renewed fears of a slower than expected recovery could
impact negatively on the outlook. The relative strength of the local and
Australian currencies could further impact on the results for the second half of
2010," said Nkosi.
The financial information on which the outlook statement is based has not been
reviewed nor reported on by the group`s auditors.
The board of directors has declared an interim cash dividend number 15 of 200
cents per share in respect of the 2010 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 1 October 2010.
- View or download the full results announcement on www.exxaro.com
- 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 was marginally higher than the previous year as lower power
station coal production was offset by higher coking coal and steam coal
Power station coal production at the Eskom-tied mines was 339kt lower than the
corresponding period as lower production at Arnot, due to geological conditions
and technical challenges, was partially offset by higher production at Matla.
Power station coal production at the commercial mines was marginally higher as
lower demand at the Grootegeluk and North Block Complex (NBC) mines was negated
by higher production at Leeuwpan after the crush and screen plant commissioning
during 2010 as well as the first full six-month`s contribution from Mafube.
Coking coal production was 29% or 265kt higher as increased demand, mainly from
ArcelorMittal South Africa, led to higher production at Grootegeluk.
Steam coal production was 15% higher at 3 518kt as the inclusion of production
from Mafube was complemented by higher production from Grootegeluk and Leeuwpan
due to higher demand.
Sales volumes to Eskom were in line with the previous year, however, domestic
sales of metallurgical coal were higher due to higher demand from ArcelorMittal.
This increased demand was met by re-directing sales destined for the export
market from Grootegeluk as a result of low availability of trains.
Exxaro Coal`s strategy to increase export volumes was hampered by lower
availability of trains, compounded by the Transnet Freight Rail strike during
Revenue is in line with the previous year, however, at a different sales mix
with lower export sales volumes at higher international prices offset by higher
domestic sales volumes at lower realised prices.
Net operating income for the six months ended 30 June 2010 increased by 16% to
R1,19 billion at an improved operating margin of 25% resulting from the
different sales mix yet reduced somewhat by a stronger average realised local
currency as well as increased costs. The higher costs were most notably
operating costs from the full six months inclusion of the results of the Mafube
joint venture, higher depreciation charges, higher contractor costs at Leeuwpan
mine for the removal of overburden, and higher than inflation increases in
electricity, diesel and labour costs.
Lower heavy minerals concentrate production was reported due to anticipated
lower grades from the KZN Sands Hillendale mine. Slag tapped, low manganese pig
iron production as well as chloride and sulphate slag production was also lower
as a result of ancillary equipment failure at KZN Sands affecting both furnaces.
Furnace 1 at Namakwa Sands was idled for longer than the corresponding period in
2009, further compounded by the Furnace 2 reline in the current period.
Lower grades at the Hillendale mine led to reduced overall zircon and rutile
production despite being partially offset by higher overall zircon recoveries at
Namakwa Sands and higher production at the Australian operations based on higher
grades and increased overall utilisation of the dredge mine.
Synthetic rutile (SR) production decreased as a result of non-recurring
maintenance related issues. The SR plant at Chandala in Australia will be shut
for 38 days in the fourth quarter of 2010 for planned maintenance.
The 40kt pigment expansion at the Kwinana pigment plant in Australia was
successfully commissioned in late June with progressively ramped up production
anticipated from July 2010 onwards. Pigment production was in line with the
corresponding period notwithstanding an 11-day shut to complete all the tie-ins
for the expansion.
Despite the lower production volumes and a stronger Rand and Australian dollar
compared with the US dollar, revenue was R580 million higher at R2,13 billion as
higher demand was satisfied from stockpiles at more favourable prices. Demand
for both chloride and sulphate feedstock was strong as pigment producers raised
output to meet the growth in consumption. The zircon market was positive as
strong demand and tight supply supported an upward trend in prices. Demand and
pricing for pig iron were also favourable due to the recovery in the global
steel and foundry sectors.
Based on the higher revenue, net operating profit of R148 million was reported;
a pleasing turnaround from the R67 million loss in the corresponding period in
2009. Included in the recorded net operating profit is the final R98 million
insurance proceeds relating to the Furnace 2 water ingress incident at KZN Sands
in February 2008, the benefits of disciplined cost management and cost
improvement initiatives, as well as favourable hedging to mitigate the relative
strength of the Australian dollar.
Zinc concentrate production of a higher grade at the Rosh Pinah mine in Namibia
increased by 5kt over the equivalent period in 2009. Production of zinc metal
at the Zincor refinery of 43kt was, however, 965 tonnes lower and can be
attributed to downtime on the acid plant, throughput limitations on the
purification circuit and disruption of the incoming water supply.
Domestic zinc metal sales were 4% higher at 46kt and were realised at a higher
average price of US$2 157 per tonne.
Revenue for the six months to 30 June 2010 increased by 32% as a result of the
higher average realised zinc price and increased volumes sold.
A total of 60% of Rosh Pinah`s projected zinc and lead concentrate sales were
hedged during 2008 for the period July 2008 to December 2011 at forward prices
ranging from US$2 215 to US$1 887 per tonne for zinc and US$2 385 to US$1 771per
tonne for lead.
The higher revenue and cost saving initiatives contributed to the recording of a
net operating profit despite the impact of higher than inflation increases in
electricity and maintenance expenses.
Production at the Chifeng refinery was 3% higher compared to the equivalent
period in 2009. Equity accounted income was however only R2 million.
Production of zinc concentrate at Black Mountain Mining (Pty) Limited (Black
Mountain) was 33% higher at 8kt compared to the equivalent period in 2009. The
26% equity interest in Black Mountain delivered R9 million in equity income; 40%
less than the previous corresponding period due to lower sales volumes and a
higher tax charge.
Other, including Industrial minerals
As announced on 5 May 2010, the Glen Douglas dolomite mine was sold for R35
million to Afrimat Limited. Completion of the disposal now awaits the
fulfillment of a number of suspensive conditions which are expected to be met in
the second half of 2010.
CAPITAL EXPENDITURE AND PROJECT PIPELINE
Although the economic downturn necessitated a review of the group`s capital
expenditure and project pipeline in 2009, cognisance is being taken of the
recovery in the global economy resulting in a renewed focus on carbon,
reductants, ferrous and energy projects in line with the group`s approved
Construction of the R9,5 billion brownfields expansion at the Grootegeluk mine
to supply Eskom`s Medupi power station with 14,6Mtpa of power station coal for
40 years has commenced and is progressing well to supply the first coal to Eskom
during the second quarter in 2012, aligned with the start-up of the power
station. The bulk of the front end detailed engineering design has been
completed and orders for long lead capital items have been placed.
Exxaro and Eskom signed a revised agreement on 26 March 2010 and the R4,5
billion bridge loan facility has been secured with a consortium of local and
international financial institutions.
A pre-feasibility study on the Thabametsi Project, a potential greenfields mine
adjacent to the Grootegeluk mine, with the capability of supplying the market
with power station and metallurgical coal, has now been completed. The
implementation and development of this project is planned to coincide with
Eskom`s future developments in the Waterberg together with the Department of
Energy`s formalisation and establishment of an appropriate enabling environment
governed by the National Integrated Resource Plan to allow for new generation
capacity in terms of Eskom`s multi-site base load Independent Power Producer
programme. The scope of the bankable feasibility for the Thabametsi study will
only be finalised after the details of the new generation capacity are
determined, whereupon the required technical studies will commence.
Exxaro entered into a prospecting joint venture agreement with Sasol Mining to
investigate the commercial viability of the development of a new coal mine in
the Waterberg to supply Sasol`s potential new 80 000 barrels per day inland coal
to liquids facility (Project Mafutha). The study is in an extended pre-
feasibility stage and a decision to proceed to a bankable feasibility study is
expected by mid 2011. The mining of the 170 000 tonne bulk sample for
gasification testing at the Sasol Synfuels Secunda plant commenced in August
2009 and was completed during the second quarter of 2010. It is envisaged that
the gasification tests will be completed by the end of 2010.
An integrated infrastructure plan is being implemented for the Waterberg coal
fields together with the relevant stakeholders. Focus areas include key
enablers such as the supply of raw water to the area, rail, roads and housing.
Exxaro`s application for a mining right at its Belfast project has been accepted
by the Department of Mineral Resources (DMR) and now awaits the record of
decision on the awarding the mining right from the DMR. The specialist
environmental studies for Belfast as required by National Environmental
Management Act and National Water Act are in process and will be submitted to
the relevant authorities during the fourth quarter of 2010. The project is in a
pre-feasibility stage; depending on the outcome, start-up is anticipated in
The Sintel Char plant at Grootegeluk mine for the production of reductants for
the ferroalloy industry has been fully commissioned with all four retorts in
operation. The plant is expected to reach its overall design capacity in the
last quarter of 2010. Exxaro is also currently evaluating the phase 2 expansion
to the Sintel Char plant to produce a further 140ktpa as well as a study to
produce market coke from semi-soft coking coal at Grootegeluk. These studies are
expected to be concluded in the first half of 2011.
Results from exploration activities of the hard coking coal resource on the
Moranbah South properties in the Bowen Basin of Queensland, Australia, remain
encouraging. Due to the high value entrenched in the potential long wall
operation, it was decided to revise the current bord and pillar study and
evaluate a combination of bord and pillar and a long wall operation. The concept
study was completed in January 2010, and the pre-feasibility study commenced
during the second quarter of 2010. Moranbah South, which is a 50% joint venture
with Anglo American Metallurgical Coal, has the potential to produce premium
quality hard coking coal.
The development of Exxaro`s energy portfolio and the formation of a separate
company to house Exxaro`s energy interests is progressing. In parallel a process
to secure an equity funding partner is underway with targeted investors.
A desktop study report for a solar power station at Lephalale has been
completed. The pre-feasibility study is expected be finalised by end August
A desktop study report has been completed for a wind project on the West Coast
and an 80m mast has been installed at Brand se Baai in March 2010. In addition
to this, a memorandum of understanding was signed between Exxaro, Watt Energy,
the Tsitsikamma Community and Danish parties to develop a 40MW wind farm in the
Tsitsikamma district. The project is currently in a desktop study phase and
installation of an 80m mast is planned for last quarter of 2010.
Development of the first five-spot test for the coal bed methane project in
Botswana, with the aim of testing for economic gas flow, is progressing well.
The drilling has been completed and fracturing is in process. The five-spot
test work should be completed by September 2010 after which the wells will be
operated until economic gas flow has been attained.
As a result of the improved fundamentals of the mineral sands industry a
bankable feasibility study will be undertaken on the Fairbreeze project at KZN
Sands. Depending on the outcome of the study and according to the current
project schedule, construction could commence by mid 2011 with commissioning
scheduled for the second half of 2013.
The final evaluation of the Turkey iron ore project concluded that it did not
meet Exxaro`s investment criteria with respect to size. The subsequent
divestment of its 76% share in the project joint venture is expected to be
finalised during 2010.
Investigation into other opportunities continues as part of the company`s entry
strategy into the iron ore market. These include major iron ore projects as
well as the leveraging of unique beneficiation technology.
Exxaro has secured a technology partner to participate in the commercialisation
of its AlloyStream TM technology to produce high carbon ferromanganese. The
technology will allow for the processing of raw materials that were previously
difficult to utilise in conventional processes. Agreements are in the process of
being finalised and commissioning of a large demonstration facility is planned
Activities are currently focused on optimisation of assets in order to extract
maximum value for all stakeholders during the envisaged divestment, planned for
12 August 2010
Deutsche Securities SA (Pty) Limited
Date: 12/08/2010 07:06:02 Supplied by www.sharenet.co.za
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