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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                                                             
ISIN: ZAE000084992                                                              
ADR code: EXXAY                                                                 
("Exxaro" or "the company" or "the group")                                      
NEWS RELEASE                                                                    
REVIEWED GROUP INTERIM FINANCIAL RESULTS AND UNAUDITED PHYSICAL INFORMATION     
FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2011                                     
OVERVIEW                                                                        
*  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           
  Zincor)                                                                       
*  Headline earnings per share up 53% to 1 045 cents per share                  
*  Interim dividend of 330 cents per share; covered 3 times by                  
attributable earnings                                                         
NOTE:                                                                           
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.                                                                 
REVENUE                                                                         
"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        
Nkosi.                                                                          
"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    
costs.                                                                          
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.    
EARNINGS                                                                        
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 FLOW                                                                       
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    
Nkosi.                                                                          
"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       
2010.                                                                           
"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.             
OUTLOOK                                                                         
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             
challenges.                                                                     
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           
identified.                                                                     
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.                 
INTERIM DIVIDEND                                                                
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    
2011.                                                                           
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                 
Ends                                                                            
    *    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                                       
Editor`s Note:                                                                  
Exxaro is one of the largest South African-based diversified resources          
groups, with interests in the coal, mineral sands, base metals and iron ore     
commodities. www.exxaro.com                                                     
Enquiries:                                                                      
Wim de Klerk                                                                    
Finance director                                                                
Tel: + 27 12 307 4848                                                           
Mobile: +27 82 652 5145                                                         
Email: wim.deklerk@exxaro.com                                                   
ADDENDUM 1:                                                                     
OPERATIONAL HIGHLIGHTS                                                          
Coal                                                                            
Production                                                                      
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       
production.                                                                     
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                                                                           
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.                                                                 
Mineral Sands                                                                   
Production                                                                      
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.      
Sales                                                                           
Total sales volumes were in line with the previous year albeit at a different   
overall product mix at lower favourable selling prices.                         
Base Metals                                                                     
Production                                                                      
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.                                        
Sales                                                                           
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.                                                                   
ADDENDUM 2:                                                                     
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   
strategy.                                                                       
Coal                                                                            
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     
development schedules.                                                          
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.              
Energy                                                                          
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.                                        
Mineral Sands                                                                   
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      
2014.                                                                           
Ferrous                                                                         
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.         
Base Metals                                                                     
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.     
Ends                                                                            
Pretoria                                                                        
18 August 2011                                                                  
Sponsor                                                                         
Deutsche Securities (SA) (Proprietary) Limited                                  
Date: 18/08/2011 07:06:33 Supplied by www.sharenet.co.za                     
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