EXX - Exxaro Resources Limited - News release reviewed group interim Release Date: 18/08/2011 07:06:34 Code(s): EXX
EXX - Exxaro Resources Limited - News release reviewed group interim
financial results and unaudited physical information for the six-month period
ended 30 June 2011
Exxaro Resources Limited
Registration number: 2000/011076/06
JSE share code: EXX
ADR code: EXXAY
("Exxaro" or "the company" or "the group")
REVIEWED GROUP INTERIM FINANCIAL RESULTS AND UNAUDITED PHYSICAL INFORMATION
FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2011
* Decrease in LTIFR to 0,22; regrettably one fatality
* Revenue increased by 22% to R9,6 billion
* Net operating profit up 20% to R1,6 billion (despite impairment at
* Headline earnings per share up 53% to 1 045 cents per share
* Interim dividend of 330 cents per share; covered 3 times by
Comments on operating results are based on a comparison of the group`s
reviewed financial results and unaudited physical information for the six-
month periods ended 30 June 2011 and 2010 respectively.
Diversified South African-based resources group Exxaro Resources Limited
(Exxaro) today reported group consolidated revenue of R9,6 billion for the
six months ended 30 June 2011, a 22% increase when compared with the same
period in 2010.
"The coal and mineral sands business were the main contributors to the
increase," said Sipho Nkosi, Exxaro`s chief executive officer.
Revenue was recorded at a stronger average exchange rate of R7,21 to the US
Dollar compared to R7,81 in the corresponding period in 2010. For the
Australian mineral sands business the comparative average exchanges rates
were USD0,96 and USD0,87 respectively.
and Australian dollar (AUD) 0,96 to the US dollar respectively, compared with
R7,81 and AUD 0,87 in the corresponding period in 2010.
"Revenue from the coal business was 22% higher at R5,8 billion, due primarily
to increased export sales at higher international selling prices," added
"Looking at the mineral sands business, revenue improved 36% to R2,9 billion,
mainly due to the long anticipated increases in selling prices complemented
by increased demand."
Revenue from the base metals business was in line with that of the
corresponding period in 2010 as the higher average LME zinc selling prices
and export volumes were offset by a stronger local currency to the US dollar.
NET OPERATING PROFIT
"The higher consolidated revenue recorded translated into higher consolidated
net operating profit of R1,6 billion, an increase of 20% as the group
continued to benefit from strong demand at generally higher selling prices,
albeit at stronger operating currencies," said Nkosi.
The coal business reported a 36% increase in net operating profit of R1,6
billion (at an operating margin of 28%). An increase in export volumes at
higher international selling prices, combined with higher non-Eskom local
sales at higher prices, were partially offset by lower power station coal
volumes to Eskom, and inflationary pressures on distribution and maintenance
The mineral sands business reported a consolidated net operating profit of
R652 million, driven by more favourable selling prices, strong demand,
improved operational efficiencies and continued cost containment, despite the
impact of stronger local and Australian currencies.
KZN Sands recorded a marginal loss of R6 million compared to a profit of R61
million in the corresponding period in 2010 which, however, included a non-
recurring insurance payment receipt of R98 million.
Namakwa Sands and Australia Sands recorded net operating profit increases of
R247 million and R324 million respectively. The higher profits were recorded
at respective operating margins of 25% and 32%. Included in Australia Sands
is a profit of R24 million from the disposal of the interest in the Kwinana
pigment plant expansion.
A net operating loss of R125 million was recorded for the base metals
operations prior to accounting for the impairment as continued operating
challenges at the Zincor refinery were compounded by higher than inflation
increases in electricity and maintenance expenditure and a stronger local
currency. After an evaluation of the carrying value of the Zincor refinery,
also taking due cognisance of the announcement made by the group on 29 July
2011, an impairment loss of R439 million was recorded, resulting in a
consolidated net operating loss of R564 million. Moreover, a deferred tax
asset or R153 million was derecognised at Zincor based on the expectation of
it no longer being able to be utilised with available future taxable income.
Attributable earnings, inclusive of Exxaro`s 20% interest in the post-tax
profits of Sishen Iron Ore Company (Pty) Limited (SIOC) amounting to R2,4
billion, as well as the respective R5 million and R147 million contributions
from the equity interests in Chifeng and Black Mountain, increased by 33%
from R2,4 billion to R3,2 billion (or 921 cents per share).
Headline earnings recorded, which exclude the impact of any impairments, was
R3,6 billion (or 1 045 cents per share). This represents a 53% increase on
the corresponding 2010 earnings of R2,4 billion (at 683 cents per share).
Cash retained from operations was R2,4 billion from which taxation payments
of R207 million, the final dividend for the 2010 financial year of R1,06
billion and capital expenditure payments of R1,8 billion were made. A total
of R1,3 billion of the capital expenditure was invested in new capacity while
R528 million was for sustaining and environmental purposes. A total of R1,3
billion of the capital investment in new capacity was for the expansion of
Grootegeluk mine to supply Eskom`s Medupi power station.
After accounting for R1,6 billion of dividends received from associate
companies, a net cash inflow of R1,3 billion was recorded and contributed to
the significant reduction in net debt in the six months to 30 June 2011.
Net debt of R2,2 billion at 31 December 2010 decreased to R996 million at 30
June 2011 reflecting a debt to equity ratio of 5%.
Subsequent to the interim reporting date, Exxaro will pay the interim
dividend of some R1 billion and receive a dividend of R1,9 billion from SIOC.
SAFETY & SUSTAINABLE DEVELOPMENT
"Despite strengthened safety awareness and prevention programmes through
various initiatives to enhance hazard identification and safe behaviour,
regrettably one fatality was suffered during the period under review," added
"Shuttle car operator Mandla Piet Mabaso was fatally injured underground at
New Clydesdale Colliery (NCC) on 16 February 2011. Subsequent to the interim
reporting date, a further two fatalities occurred. On 8 July 2011, Johannes
Jan Drotschie, a fitter at Matla, was fatally injured underground, while
Colman Selebalo Thobejane, a contractor working for Isambane at Arnot mine,
was fatally injured on surface on 11 July 2011. Our condolences are extended
to the family and friends of the deceased," said Nkosi.
The average lost time injury frequency rate (LTIFR) per 200 000 man-hours
worked for the six-month period improved to 0,22 from 0,25 at 31 December
"Wellness of employees remains paramount with progress evident in the
implementation of an HIV/AIDS voluntary counselling and testing programme.
The target for testing for 2011 is 75% of employees compared to the 70%
achieved in 2010," said Nkosi.
All 16 operational business units are now ISO 14001 and OHSAS 18001
certified. Certification for the Grootegeluk Medupi Expansion Project
(GMEP), which is still under construction, is in progress.
CONVERSION OF MINING RIGHTS
Engagement with the relevant stakeholders continues in order to process the
registration of the new order mining rights granted. The conversion of mining
rights for Arnot and Glisa (a part of NBC) is underway Three mining rights
converted for Tshikondeni, Matla and Strathrae (also part of NBC) still await
execution by the Department of Mineral Resources (DMR). New order mining
rights for Belfast are in different phases of application and processing.
CHANGES TO THE BOARD AND COMPANY SECRETARIAT
Maria Susanna (Marie) Viljoen, Company Secretary of Exxaro since 1 August
2001, has retired with effect from 30 June 2011. The board of directors has
appointed Catharina Helena (Carina) Wessels as Group Company Secretary with
effect from 1 July 2011 in her stead. Carina holds LLB and LLM degrees, is
an admitted advocate of the High Court of South Africa, and is a Fellow and
Senior Vice-President of the Chartered Secretaries Southern Africa.
The positive market recovery for coal in terms of price and demand are set to
continue in the second half of 2011, amidst the existing logistical
Following the commissioning of Phase V expansion at Richards Bay Coal
Terminal (RBCT), Exxaro`s export entitlement should be 6,3Mtpa, but only some
2,9Mtpa of this will be available in 2011. The remainder of the exports
planned can only be achieved by selling on a free-on-rail basis, the lease of
export entitlement, and exports via Maputo in Mozambique.
Market conditions on the mineral sands business are favourable and the demand
for all products is strong. The upward trend in prices should continue in the
medium-term given current supply and demand imbalances.
Subsequent to the in-principle decision announced on 29 July 2011 to
permanently cease the production of zinc at Zincor, Exxaro is contemplating
the retrenchment of Zincor employees unless a feasible alternative is
The equity accounted contribution from SIOC should continue to be positively
impacted by anticipated higher iron ore prices and continued strong demand.
The strength of the local currency and Australian dollar against the US
dollar will continue to impact on the group`s financial results. At 30 June
2011, Exxaro has USD234 million of hedging in place at an average exchange
rate of R7,34 for the local operations and USD27 million at an average rate
of USD 0,99 to the AUD for the Australian operation.
The financial information on which the outlook statement is based has not
been reviewed nor reported on by the group`s external auditors.
The board of directors has declared an interim cash dividend number 17 of 330
cents per share in respect of the 2011 interim period. The dividend has been
declared in South African currency and is payable to shareholders recorded in
the register of the company at the close of business on Friday, 23 September
In compliance with the requirements of Strate, the electronic and custody
system used by the JSE, the following dates are applicable:
Last date to trade cum dividend Friday, 16 September 2011
Shares trade ex dividend Monday, 19 September 2011
Record date Friday, 23 September 2011
Payment date Monday, 26 September 2011
* 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 and iron ore
Wim de Klerk
Tel: + 27 12 307 4848
Mobile: +27 82 652 5145
Total coal production volumes decreased by 10% as a result of lower power
station coal volumes.
The commercial mines` power station coal production was 574kt or 6% lower
than in the corresponding period. This was mainly due to lower production at
Grootegeluk as a result of lower demand by Eskom, partially offset by higher
production at Leeuwpan due to the crush and screen plant commissioned during
2010 leading to full period production in 2011. Equipment availability
problems experienced by North Block Complex (NBC) also adversely impacted
Power station coal production volumes were lower than the same period in 2010
mainly due to lower production at the Eskom tied mines. The underground
production at Arnot was negatively affected by geological conditions and
technical challenges, as well as the closure of the Mooifontein operations in
the first quarter of 2011 which also contributed negatively to the lower
production at Arnot mine.
Coking coal production increased marginally due to higher production at
Grootegeluk based on increased demand, mainly from ArcelorMittal South Africa
(AMSA) while Tshikondeni`s production was higher resulting from the mini-pits
started in the first half of 2011.
Steam coal production was 8% higher with higher production at Leeuwpan. This
was as a result of operational improvements to the dense medium separator
(DMS) plant feed tempo being complemented by the benefit of improved coal
availability after additional overburden stripping. Higher production was
also recorded at Grootegeluk and the Mafube joint venture on the back of
higher international demand and throughput improvements respectively.
However, this was partially offset by lower production at NBC and at NCC due
to the closure of Haasfontein in the first half of 2011.
The char plant production was 58% higher than the corresponding period due to
improved availability and feed rate.
Sales to Eskom were lower following the lower production.
Other domestic sales were 14% higher due to higher demand from AMSA in
addition to higher spot sales from Leeuwpan.
Exxaro`s coal strategy is to increase export volumes which contributed to a
13% improvement in exports mainly due to higher railings by TFR despite the
21-day maintenance shut and the derailments in the first half of 2011.
Reductants` higher production in turn resulted in the 42% higher sales from
the Char plant.
At KZN Sands, heavy minerals concentrate (HMC) production was 32kt lower due
to the Hillendale mine nearing its end of life, resulting in 4kt lower zircon
and 1kt lower rutile production. The lower HMC, together with the fact that
only one furnace was operational for the full period under review (after
Furnace 2 suffered a burn through in October 2010) also resulted in lower
titanium slag production.
Namakwa Sands recorded higher zircon and rutile production of 6kt and 3kt
respectively. With greater uptimes of the furnaces, titanium slag production
increased with 31kt.
At Australia Sands, synthetic rutile production increased due to improved
consistency in production together with the reduction of coal quality
problems which adversely affected the plant in the past. Zircon production
was marginally lower as a result of harder digging conditions.
Pigment production was significantly higher following the commissioning and
ramp- up of the pigment plant expansion, combined with improved performance
from the existing plant. On 30 June 2011, Tronox Western Australia exercised
its reinstatement right to buy back into the pigment plant expansion
culminating in a subsequent net cash inflow of R469 million to Australia
Sands thereby compensating Exxaro for the funding of the entire expansion.
Total sales volumes were in line with the previous year albeit at a different
overall product mix at lower favourable selling prices.
Zinc concentrate production at Rosh Pinah was 9kt lower resulting from a
planned shut in May 2011. The shut was originally planned for the second
half of 2011.
Production of zinc metal at the Zincor refinery of 41kt was marginally lower
and can be attributed to downtime in the acid plant and throughput
limitations on the purification circuit.
Dispatches of zinc concentrate were 24% lower due to logistical challenges
following the heavy rains in Namibia in the first quarter of 2011.
Zinc metal exports were 30% higher at 17kt, based on increased demand.
A total of 60% of Rosh Pinah`s projected zinc and lead concentrate sales were
hedged during the 2008 for the period July 2008 to December 2011 at forward
prices ranging from US$2 215 to US$1 887 for zinc and US$2 385 to US$ 1 771
for lead. Actual hedging gains were R19 million more than the corresponding
period in spite of lower commodity prices. These hedges mature in the second
half of 2011.
CAPITAL EXPENDITURE AND PROJECT PIPELINE
The group continues to take due cognisance of the pace of the recovery in the
global economy as well as macro economic fundamentals in its evaluation and
prioritisation of growth projects in line with the group`s approved commodity
Construction of GMEP to supply Eskom with 14,6Mtpa of coal for the Medupi
power station, continues to progress well and is anticipated to be completed
on time and within budget.
The detailed design for first coal supply has been completed for most
disciplines, with some minor work continuing to the end of August 2011.
Overall project progress was at 54% completion on 30 June 2011. The total
project capital expenditure spent to date is some R2 billion with total
capital expenditure for the project still forecast at R9,5 billion. Total
funds committed to date amount to approximately R5 billion.
The R4,5 billion bridge loan facility with a consortium of financiers is
still in place with first draw-down of the loan now only expected in the
third quarter of 2011.
Thabametsi is a prospective greenfields mine adjacent to Grootegeluk mine in
the Waterberg. The development of the project will coincide with the
Department of Energy`s (DOE`s) formalisation, establishment and
implementation of the National Integrated Resource Plan 2010 (NIRP 2010).
The NIRP 2010, issued at the end of March 2011, indicates that coal-fired
base-load Independent Power Producer (IPP) power stations have been brought
forward in the energy mix, paving the way for the development of Thabametsi
as a supplier of coal to a base-load IPP. First coal production could be
achieved by 2016/17, but is dependent on the Waterberg IPP and water supply
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). Project Mafutha is still
in a pre-feasibility study phase. The activities on the project have been
scaled down pending the satisfactory outcome on work relating to primary
areas such as gasification demonstration testing and the government`s
participation and support for the project.
The integrated infrastructure plan for the Waterberg coalfields is being
implemented with relevant stakeholders to provide for the supply of raw
water to the area as well as rail, road and housing requirements.
The sintel char plant at Grootegeluk mine to produce reductants for the
ferroalloy industry has been fully commissioned with all four retorts in
operation. Exxaro is progressing its evaluation of the phase 2 expansion to
produce a further 140ktpa of char as well as a bankable feasibility study to
produce market coke from semi-soft coking coal at Grootegeluk. These studies
are now only expected to be completed during the first half of 2012.
The bankable feasibility study which includes comprehensive specialist
studies as required by relevant environmental and water legislation in
respect of the Belfast project are still in process and will be submitted to
the relevant authorities in the fourth quarter of 2011. Start-up and first
production is still anticipated in 2014.
Exploration of the hard coking coal resource on the Moranbah South properties
in the Bowen Basin of Queensland, Australia is continuing, with the joint
venture partners still targeting conclusion of the feasibility study in the
latter part of 2012. This project is a 50% joint venture with Anglo American
and has the potential to produce premium-quality hard coking coal.
The initiative to form an energy company with equity funding partners to
focus on a number of cleaner energy projects has progressed well with short-
listed potential strategic equity partners conducting their respective due
diligence studies on a number of existing energy projects
A bankable feasibility study for a 14MW co-generation plant at Namakwa Sands
has been completed. Construction is scheduled to start in January 2012 with
commercial operation anticipated to be in November 2012. The total capital
expenditure for the project is estimated to be R252 million, with
registration for carbon credits under way.
The pre-feasibility study for the 60MW co-generation plant at Grootegeluk
mine is in the final stages and is expected to be completed by end 2011.
This market coke co-generation operation has the potential to produce
electricity from coke oven off-gas.
Gas is now being flared from all five holes of the five-spot coal bed methane
project in Botswana, with an increasingly positive indication of the
potential for economic gas flow to be proven. It is expected to have a much
clearer indication of the potential for economic gas flow by the end of 2011.
The facilitation for the development of a 600MW coal fired power station in
the Waterberg is under way. Non-binding term sheets for the off-take of 1
150MW of electricity have been signed between Exxaro and industrial off-
takers as previously reported. The project is one of the options being
investigated to enable the Thabametsi Coal mine near Grootegeluk. While the
pre-feasibility study has progressed, a formal request for proposal for a
600MW coal-fired base-load power station was issued to IPPs on 14 June 2011.
Evaluation and selection to short-list the IPPs has commenced in order to
select the preferred IPP by end of 2011.
A decision was taken by the Exxaro board of directors to proceed with the
development of the Fairbreeze mine as a replacement feedstock producer for
Hillendale mine at KZN Sands during the first half of 2011. Detailed design
has commenced on the Fairbreeze project and construction is expected to
commence in the second half of 2011, subject to customary regulatory and
environmental approvals. These are expected to be obtained in the second
half of 2011. A reversal or partial reversal of the previous impairments of
the carrying value of the assets at KZN Sands will also be considered in the
second half of 2011. The Hillendale ore body will be depleted by the end of
2012 after which the plant will be relocated to a central position at
Fairbreeze. The commissioning is anticipated to occur in the first half of
Exxaro made an off-market takeover bid for Australian junior miner Territory
Resources on 23 May 2011 of A$0,46 per share. The majority of Territory`s
Board supported Exxaro`s offer, however, this was overturned when Noble
Resources, the biggest shareholder of Territory at 32%, made a A$0,50 per
share, unconditional on-market counter offer for the company on 9 June 2011.
Exxaro declined the opportunity to raise its offer. The group continues to
evaluate opportunities aligned with its strategy to establish a direct
footprint in iron ore.
The construction of the 5,3m diameter ferromanganese furnace (Project
Letaba), in partnership with Assmang Limited to commercialise Exxaro`s
AlloystreamTM technology, is progressing as planned. The demonstration
facility is still scheduled to be completed in the second half of 2011.
The formal process to divest from Exxaro`s zinc business commenced in May
2011 with invitations being sent to interested parties. Exxaro received
indicative offers for only Rosh Pinah mine from a number of parties who were
subsequently shortlisted to conduct a detailed due diligence with the view to
submit final binding bids. It is planned to have the process completed by the
end of 2011 subject to obtaining certain regulatory approvals. No offers were
received for the Zincor operation. In the meantime, the Zincor operation has
been appropriately impaired as a result of significant changes in the manner
in which the asset is expected to be used coupled with a reassessment of the
asset`s carrying value subsequent to the announcement made on 29 July 2011.
18 August 2011
Deutsche Securities (SA) (Proprietary) Limited
Date: 18/08/2011 07:06:33 Supplied by www.sharenet.co.za
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