Exxaro Resources Limited - News ReleaseRelease Date: 01/08/2012 07:06:00 Code(s): EXX
Exxaro Resources Limited
(Incorporated in the Republic of South Africa)
Registration number: 2000/011076/06
South African Income tax registration number: 9218/098/14/4
JSE Share code: EXX
ISIN code: ZAE000084992
ADR code: EXXAY
(?Exxaro? or ?the company? or ?the group?)
REVIEWED GROUP INTERIM FINANCIAL RESULTS AND UNREVIEWED PHYSICAL INFORMATION
FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2012
DELIVERING ON OUR STRATEGY
? Zero fatalities
? Core net operating profit up 42%
? Headline earnings per share (HEPS) up 11% to 1 162 cents per share
? Interim dividend of 350 cents per share, up 17%
? Replacement employee empowerment scheme approved
WHAT WE ARE WORKING ON
? Lost time injury frequency rate (LTIFR) at 0,26 against target of 0,15
COMPARABILITY OF RESULTS
Comments are based on a comparison of the group?s reviewed financial results and unreviewed physical
information for the six-month period ended 30 June 2012 and 2011 respectively. These results are not
comparable due to profits realised on the sale of certain mineral sands, zinc and other assets of R4 121
million in 2012, the partial impairment reversal of the carrying value of property, plant and equipment at
KZN Sands of R103 million in 2012, as well as R439 million impairment of the carrying value of property,
plant and equipment at the Zincor refinery in 2011. The conclusion of two sale transactions also results in
the mineral sands and base metals commodity businesses? results effectively being included in the six-
month results for approximately five and half and five months respectively. Where relevant, comments
exclude transactions which make the results under review not comparable.
The group early adopted the new suite of consolidating standards IAS 27, 28 and IFRS 10,11 and 12. As
such the Mafube and South Dunes Coal Terminal (SDCT) joint ventures, which were previously
proportionately consolidated, are now equity accounted. This has resulted in the restatement of prior
periods? financial results to reflect the new accounting method.
PORTFOLIO IMPROVEMENT THROUGH DELIVERY OF THE GROUP?S STRATEGY
The construction of the Grootegeluk Medupi Expansion Project (GMEP) continues to progress as planned
and within budget. The first coal has already been delivered to Eskom.
The group announced that all regulatory approvals related to the transaction between Exxaro and Tronox
had been obtained and the transaction became effective on 15 June 2012. The transaction entails the
combination of Exxaro?s mineral sands operations with the businesses of Tronox under a new Australian
holding company, Tronox Limited, which listed on the New York Stock Exchange on 18 June 2012 under
the ticker symbol TROX. Exxaro currently holds 39,2% (38,5% on a fully diluted basis) of the shares in
Tronox Limited and 26% directly in each of the South African-based operations, KZN Sands and Namakwa
Sands. The formation of Tronox Limited is expected to result in a strong platform for future growth as it is
uniquely positioned to capitalise on favourable market dynamics and serve the needs of the ever-growing
pigment and zircon customer base across the globe.
In line with the group?s strategy to establish an Exxaro controlled iron ore business, Exxaro and African Iron
Limited (AKI) jointly announced on 11 February 2012 a successful off market cash takeover offer by Exxaro
through its wholly owned subsidiary, Exxaro Australia Iron Investments Pty Ltd (Exxaro Australia), for all of
the shares and listed options in AKI. AKI was an Australian-listed and domiciled iron ore development
company involved in the exploration and evaluation of the Mayoko Iron Ore and Ngoubou-Ngoubou
Projects, located in the Republic of Congo in Central West Africa. The total purchase consideration paid in
cash for this acquisition was R2 743 million.
Exxaro continues to explore opportunities in the energy market with a focus on cleaner energy initiatives.
Exxaro and Tata Power (through its wholly owned subsidiary Khopoli Investments), formed a 50:50 joint
venture to create Cennergi (Pty) Limited (Cennergi) when the parties signed the shareholders agreement
and Memorandum of Incorporation on 2 March 2012.
Exxaro also announced that it has completed the sale of its 50,04% interest in the Rosh Pinah operation to
a subsidiary of Glencore International plc for a consideration of R931 million. The effective date of the
transaction was 1 June 2012. The sale forms part of Exxaro?s strategic plan to divest from the group?s zinc
SAFETY, HEALTH AND ENVIRONMENT
On 12 July 2012, Exxaro achieved 12 months without any fatalities. However, the average lost time injury
frequency rate per 200 000 man-hours worked increased to 0,26 from 0,22 in the corresponding six-month
period in 2011, reflecting an 18% increase in the rate which is higher than the group?s target of 0,15. Ten
business units achieved no lost time injuries in the six-month period ended 30 June 2012 compared to five
in the corresponding period in 2011.
During the reporting period, six incidents of noise-induced hearing loss were recorded and reported to the
Department of Mineral Resources (DMR). The HIV/AIDS educators training programme has also been
extended into the Waterberg region in the first half of 2012.
Exxaro's operations have applied for all requisite environmental authorisations in terms of the Mineral and
Petroleum Resources Development Act, the National Water Act and the National Environmental
Management Act. The group continues to strive to find a balance between the environmental, social and
economic impacts of mining, and to aspire to more than mere compliance.
OPERATIONAL AND FINANCIAL EXCELLENCE
An average exchange rate of R7,88 (spot average of R7,93) to the US dollar (USD) was realised for the six-
month period ended 30 June 2012 compared to R7,21 (spot average of R6,78) for the six-month period
ended 30 June 2011. Unrealised foreign currency losses, on the revaluation of monetary items
denominated in a foreign currency, were recorded based on the relative strength of the local currency to the
USD at 30 June 2012. The relative strength of the Australian dollar (AUD) also continued to impact
negatively on the financial results of the mineral sands business in Australia, albeit only marginally. An
average rate of USD0,97 (spot average of USD0,96) to the AUD was realised compared with USD0,96
(spot average of USD1,03) in 2011.
Revenue and net operating profit
Group consolidated revenue increased, although marginally by 3% to R9,8 billion, mainly as a result of
higher mineral sands prices at lower volumes, a weaker relative local currency realised, as well as lower
coal volumes at lower export prices.
Group consolidated net operating profit was R1,06 billion higher at R3,02 billion after exclusion of the R103
million partial reversal of the impairment of the carrying value of property, plant and equipment at KZN
Sands, the profits recognised on the sale of the mineral sands, Rosh Pinah mine and other assets of R3,54
billion, R544 million and R40 million respectively, as well as the R439 million impairment of the carrying
value of property, plant and equipment at the Zincor refinery in 2011.
Attributable earnings, inclusive of Exxaro?s equity accounted investment in associates, amounted to R9,05
billion or 2 555 cents per share, up 177% from 2011?s 921 cents per share.
Headline earnings recorded, which exclude, inter alia, the impact of the impairment and partial impairment
reversal as well as profits realised on the sale of the subsidiaries, were R4,12 billion or 1 162 cents per
share. This represents an 11% increase on the corresponding 2011 earnings of R3,64 billion or 1 045
cents per share.
Cash retained from operations was R2,49 billion for the group. This was primarily used to fund net financing
charges of R80 million, taxation payments of R164 million and the final dividend for the 2011 financial year
of R1,77 billion. A total of R1,68 billion of the capital expenditure was invested in new capacity with R675
million applied towards sustaining and environmental capital. A total of R1,56 billion of the capital
investment in new capacity was for the expansion of GMEP to supply Eskom?s Medupi power station.
After the receipt of R1,96 billion, primarily received from Sishen Iron Ore Company (Pty) Ltd (SIOC) as
dividends, the group had a net cash outflow before financing activities of R2,46 billion for the period under
review. The acquisition of AKI contributed to the net cash outflow and the net debt reported at 30 June
2012 of R1,29 billion, reflecting a debt to equity ratio of 4%.
The group continues to take due cognisance of the macro-economic fundamentals and the challenges
experienced by the industry in its evaluation of growth projects while ensuring alignment with the group?s
approved commodity strategy.
Equity accounted investments
Equity accounted investments in the post-tax profits of associates consists primarily of Exxaro?s 19,98%
interest in Sishen Iron Ore Company (Pty) Limited (SIOC) of R1,94 billion and 26% in Black Mountain
Mining (Pty) Ltd (Black Mountain) of R45 million. Exxaro?s effective shareholding in Chifeng Zinc refinery
has been diluted from 22% to 11,97% as a result of Exxaro not participating in the Phase IV expansion
project. As such, Chifeng is no longer accounted for as an associate but rather as a financial asset with
effect from the first half of 2012.
The Tronox Limited investment has been equity accounted for effectively 15 days in the six-month period
ended 30 June 2012, contributing R118 million post-tax in equity income for this period. Moreover, an
excess of R707 million was accounted for being the best estimate of the fair value of the net asset value
over the cost of the investment in Tronox Limited. This estimated amount will be finalised in the second half
Revenue and net operating profit
Revenue remained stable at R5,83 billion, mainly due to higher average domestic prices, partially offset by
lower export prices and volumes.
The marginal increase in revenue was not enough to counter inflationary cost increases, resulting in a
decrease in net operating profit to R1,35 billion at an operating margin of 23%.
Production and sales volumes
Total coal production volumes decreased by 3% mainly as a result of lower steam coal volumes.
The power station coal production at the Eskom tied operations was 4% lower due to production difficulties
at Matla and Arnot. Commercial mines? power station coal production was, however, higher mainly due to
improved run of mine tonnage at NBC, partially offset by lower production volumes at Grootegeluk due to
conveyor belt breakdowns.
Sales to Eskom were 2% lower as a result of lower power station coal production at Arnot and Matla.
Other domestic sales were 3% lower due to lower sales at Leeuwpan and NBC, marginally offset by higher
steam coal sales from Grootegeluk and Inyanda.
Steam coal production was 7% lower as a result of poor run of mine tonnage at Leeuwpan.
Export sales tonnes declined by 13% primarily as a result of lower availability on the Transnet Freight Rail
(TFR) line as well as production challenges experienced at the Mafube mine.
A decline in the Char plant production was reported due to lower demand from customers, mainly resulting
from softening Ferrochrome markets. Stock levels were proactively managed down to match the demand.
The decrease in demand from Ferrochrome customers led to a 49% decrease in sales from the Char
Coking coal production increased by 3% due to a higher demand from ArcelorMittal South Africa Limited
(AMSA) and higher production from the Tshikondeni mini pits that operated for the full six months.
To date the total project expenditure on GMEP is R5,93 billion, while total funds committed amount to
approximately R7 billion. The first coal based on a revised ramp up schedule agreed with Eskom was
already delivered to Eskom. The new agreement is still subject to the approval of the Eskom Board in early
August 2012, failing which the terms of the current coal supply agreement will apply. In terms of the revised
agreement, 160kt of coal will be delivered during 2012 for the commissioning of the respective coal
handling systems while the coal supply ramp-up up will commence during March 2013 and endure until
Revenue and net operating profit
An increase in revenue was recorded at all the mineral sands operations although only accounted for five
and a half months due to the sale of the business to Tronox Limited. Revenue increased 24% to R3,59
billion mainly as a result of higher prices achieved on all products. Higher slag sales volumes due to higher
furnace uptime were offset by lower sales volumes of pigment, zircon, rutile and pig iron.
The higher revenue recorded translated into a higher net operating profit of
R1,82 billion after excluding the partial impairment reversal of property, plant and equipment at KZN Sands
of R103 million.
Production and sales volumes
Production volumes at the KZN Sands mine continued to decline significantly due to lower grades as the
mine comes to end of life in 2013. Furnace 1 was back on line at the end of February 2012. No furnace
incidents were reported in the six-month period under review, resulting in high production of slag products
at the furnaces. The deficit in furnace feedstock requirements due to the declining production from
Hillendale was supplemented by existing ilmenite stock piles.
Namakwa Sands? zircon production was managed against full stock piles and weak customer demand,
while slag production increased mainly due to increased furnace uptime.
The proactive management of pigment stock piles in a softening market at Australia Sands led to pigment
production being 41% lower than the corresponding period in 2011. Included in the 2011 production
numbers are tonnages relating to the Kwinana pigment plant expansion. Tronox bought back into the
expansion on 30 June 2011, invariably contributing to the reduction of Exxaro?s proportionate share of
pigment production. Zircon production was significantly lower due to lower demand as well as lower dry mill
feed rates from lower grades. Synthetic rutile production remained stable in comparison to the
corresponding period as a result of good plant stability and improved ilmenite feed rates.
The slow-down in the market continued to have a negative impact on the demand for zircon. As such sales
tonnes were 59% lower than the corresponding period in 2011. Pig iron and pigment sales declined by
16,45% and 53% respectively, also due to softening market demand. The demand for slag products,
however, remained strong.
A total of R51 million was spent on the Fairbreeze project in the six-month period ended 30 June 2012,
bringing the total cost capitalised to the project to date to R75 million.
Revenue and net operating profit
The cessation of zinc production at Zincor refinery was the main contributor to the decrease in revenue and
net operating losses in the base metals business. Lower average selling prices were realised for zinc and
lead at US$ 1 976 and US$ 2 087 per tonne respectively (2011: US$ 2 325 and US$ 2 602). Sales
recognised at Zincor were as a result of closing stock, recorded at the end of the 2011 financial year, being
A consolidated net operating profit of R448 million was reported for the base metals business as the profit
realised on the sale of Rosh Pinah was partially offset by Zincor?s continued care and maintenance costs.
Production and sales
No production was recorded at Zincor in the first half of 2012. Zinc and lead concentrate production at Rosh
Pinah was 10kt lower mainly due to lower feed grades. This in turn led to lower sales volumes.
CAPITAL EXPENDITURE AND PROJECT PIPELINE
Exxaro?s growth initiatives continue to focus on diversifying the business with carbon, reductants, ferrous
and energy projects, aligned with the group?s approved commodity strategy.
The total capital expenditure to completion of GMEP is still forecast at R9,5 billion.
Exxaro continues to engage with the relevant stakeholders for the conclusion of implementation plans for
an integrated infrastructure for the Waterberg coalfields which will include the supply of water, rail, and road
and housing requirements. This infrastructure is deemed crucial to the developments of projects such as
Thabametsi, a greenfields project that is geared at both the domestic and export markets. It is expected
that this project will provide Exxaro with the opportunity to produce volumes of between 13Mtpa and
Exxaro Coal and Coal of Africa Limited (CoAL) continue to progress on the valuation of the Makhado
Project in the Greater Soutpansberg area. The project represents potential development of high quality
metallurgical coal assets. Exxaro Coal is still in the process of reviewing CoAL?s definitive feasibility study
and is expected to reach a decision on whether to proceed to exercise its option in the third quarter of 2012.
Studies relating to the evaluation of the Phase 2 expansion of the Sintel Char plant to produce an additional
140ktpa of char as well as the bankable feasibility study for the production of market coke at Grootegeluk,
continue to progress and are expected to be completed in the first quarter of 2013.
The Belfast project continues to progress and a bankable feasibility study is now only expected to be
completed in the second half of 2012.The colliery, if feasible and fully operational, will produce both export
and power station coal.
The pre-feasibility study on the Moranbah South project commenced in 2011 and is now planned to be
completed in the second half of 2012. Exxaro, jointly with Anglo Coal Australia, plan to embark on a
bankable feasibility study in 2013.
Exxaro has assumed full management and operational control over the entire group of companies that were
acquired as part of the acquisition of AKI. A broad-based review of the operations and technical aspects of
the Mayoko project is currently being conducted and is expected to be completed during the second half of
2012. The project has advanced significantly since acquisition with emphasis on the Phase I mining. The
intent is to develop the project in phases, eventually producing and exporting 10Mtpa of iron ore by 2016.
AlloyStreamTM?s large scale demonstration facility to commercialise the technology for beneficiation of
manganese ore into high carbon ferromanganese alloy, together with Assmang Limited, was successfully
commissioned in the first quarter of 2012. Testing of commercial viability will continue in 2012 and 2013.
Cennergi submitted five renewable energy projects (two solar projects and three wind projects) through the
Department of Energy?s (DoE) Request for Qualification and Proposals for new Generation Capacity under
the Independent Power Producer Procurement Programme (IPPPP). The joint venture was granted
preferred bidder status on two wind projects and plans to achieve financial close by February 2013 in terms
of the current IPPPP milestones. The first of these projects, Amakhala Emoyeni Wind Farm project, is a
140MW wind farm located near the town of Bedford in the Eastern Cape. The second successful wind
project is the Tsitsikamma Community Wind Farm, which Cennergi is developing together with Watt Energy
and the Tsitsikamma Development Trust. This project entails a 95MW wind farm located on the Mfengu
community land, in the Eastern Cape.
The construction of the 14MW co-generation power plant at Namakwa Sands commenced in the second
quarter of 2012. This project now falls within the ambit of Tronox Limited.
The facilitation for the development of a 600MW coal-fired base load power station, at Thabametsi in the
Waterberg continues. The preferred IPP partner for the base load power station will be selected during the
second half of 2012. The Thabametsi greenfields development project is expected to reach first coal
production by 2017, dependant on the Waterberg IPP and water supply development schedule.
The exploration programme for the Botswana gas initiative is progressing well and security of tenure of the
leases has been secured. The project is also progressing an extension to the prospecting licence.
CONVERSION OF MINING RIGHTS
The execution of the mining rights for Tshikondeni, Matla, Strathrae, Arnot and Glisa has still not been
scheduled by the DMR. Exxaro continues to engage with the different regional offices of the DMR to
expedite the execution process.
The safety of our people remains the highest priority for the Exxaro group. As such, Exxaro will continue to
focus on creating and maintaining a safe and healthy environment for our people to work in.
The financial and operational results are expected to be relatively stable in the second half of 2012.
The coal export price index is anticipated to remain under pressure in the remainder of 2012, while
domestic prices are expected to be at marginally higher levels. Power station coal demand is expected to
remain robust along with strong steam coal demand. Overall coal production volumes are expected to be
higher in the second half but are likely to be offset by weaker international coal prices. The char plant has
been put on care and maintenance until market conditions improve. Transnet Freight and Rail (TFR)
performance is expected to remain stable.
Exxaro?s future equity income is expected to be influenced by the mineral sands and iron ore industry due
to Exxaro?s interests in SIOC and Tronox Limited respectively.
The trading levels of the local currency to the US dollar will invariably impact on the financial results in the
second half of 2012.
The financial information on which the outlook statement is based has not been reviewed nor reported on
by the group?s external auditors. These forward-looking statements are based upon management's current
beliefs and expectations and are subject to uncertainty and changes in circumstances. The forward-looking
statements involve risks that may affect the company's operations, markets, products, services and prices.
Exxaro undertakes no obligation to update or revise any forward-looking statements, whether as a result of
new information or future developments.
CHANGES TO THE BOARD
Ms N Langeni resigned as non-executive director effective 18 January 2012. As a result, Ms S Dakile-
Hlongwane was appointed as non-executive director of the board on 21 February 2012 as the Basadi Ba
Kopane Investments (Pty) Limited nominated representative.
Dr Mahomed Fazel Randera was appointed to the Exxaro board as a non-executive director on 13 June
2012 as the Eyesizwe Mining (Pty) Limited nominated representative. The board welcomes Dr Randera to
The following board committee changes also became effective from 13 June 2012:
Mr JJ Geldenhuys was appointed to the Audit Committee to replace Mr NL Sowazi,
Dr D Konar was appointed as a member of the Remuneration and Nomination Committee and
Ms S Dakile-Hlongwane was appointed to the Sustainability, Risk and Compliance Committee.
A gross interim cash dividend of 350 cents per share for the six-month period ended 30 June 2012 has
been declared payable to shareholders of ordinary shares.
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
Wim de Klerk
Tel: + 27 12 307 4848
Mobile: +27 82 652 5145
1 August 2012
Deutsche Securities (SA) Proprietary Limited
Date: 01/08/2012 07:06:00 Supplied by www.sharenet.co.za
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