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EXXARO RESOURCES LIMITED - Finance Director's 2H14 Pre-Close Message

Release Date: 01/12/2014 09:05:00      Code(s): EXX     
Incorporated in the Republic of South Africa
(Registration Number: 2000/011076/06)
JSE share code: EXX
ISIN: ZAE000084992


To our stakeholders,

In preparation for the financial closed period commencing at the close of business on
31 December 2014, we enclose below an analysis and update of the group?s expected operational
performance for the year ending 31 December 2014 (FY14), with specific reference to the second half of
2014 (2H14).

Regrettably Mr Christopher Schroeder, a mechanical foreman employed at the Mayoko Iron Ore Project
in the Republic of the Congo (RoC), was fatally injured on 25 November 2014 after being bitten by a
snake. Mr Solomon Latebotse Mashigo, employed at the Arnot operation, was also fatally injured on
5 July 2014 after being struck by a rock during the operation of continuous miner equipment. The
respective investigations into the two accidents are currently underway. We extend our condolences to
Mr Schroeder and Mr Mashigo?s families, colleagues and friends.

These fatal accidents are tragic events which highlight the need for continued vigilance and unrelenting
effort on safety awareness training and continuous improvement. An outstanding performance had been
achieved up until the end of June 2014, when the business operated for more than 12 months without a
fatality. Safety remains a top priority at Exxaro, and we will continue to strive to achieve zero harm at all
our operations.

Up to the end of November the Rand exchange rate has weakened against US dollar to an average of
R10,88 compared to the average of R10,83 that the group realised in 1H14. The API#4 coal export prices
dipped to below $63 per tonne, from the average export price realised of $68 per tonne in 1H14. The coal
markets continue to be in oversupply, in spite of production cutbacks announced by some producers.

The group capital expenditure outlay for 2H14 remains in line with the previous guidance. The announced
acquisition of the Total Coal South Africa (TCSA) operations and Richards Bay Coal Terminal (RBCT)
allocation of 4,1 million tonnes is a significant step towards optimising Exxaro?s coal resource portfolio.

Following the agreement with Eskom on Addendum 9 to the Medupi Power Station coal supply
agreement (Addendum 9), the Grootegeluk Medupi Expansion Project (GMEP) is ramping up to a
planned supply of 3,1 million tonnes of coal for 2014.

The independent review of the Mayoko Iron Ore Project investment process by KPMG was completed
during 2H14 and the findings are being implemented. Following the impairment of the investment in
1H14, discussions with the Republic of the Congo (RoC) government have been positive, resulting in the
extension of the Mining Convention by a further two years and a mutually beneficial arrangement on the
Rail and Port Tariff Agreements is expected by the end of the year.

FY14 has been a challenging year for the industry and Exxaro has been no exception. Exxaro has proven
resilient in the past and will rely on the same to endure the challenges presented by these tough trading
conditions. We will provide a detailed account of the second half?s performance when we announce our
FY14 financial results on 5 March 2015.

Yours sincerely

Wim de Klerk
Finance Director
1   OVERALL GROUP FINANCIAL                            1Q15. Negotiations are currently underway on a
    PERFORMANCE                                        new contract for a further three year duration.
Consolidated earnings guidance will be provided
                                                       Eskom?s national stock holding days remain at
once we have reasonable certainty on the full
                                                       healthy levels averaging 40 days.
year results, taking into account:
  ? the remaining December month results,              The domestic steam coal demand has increased
  ? the equity-accounted investments?                  during the first three quarters of 2014 but has
       respective performance,                         seen a small decline during 4Q14 due to coal
  ? as well as any adjustments required from           being sold in Southern Africa from Botswana.
       the financial closure process.                  This decline in 4Q14 is further compounded by
                                                       the decline in supply to the export markets as the
2   COAL COMMODITY REVIEW                              API#4 prices remain depressed. It is expected
2.1 Production and sales volumes                       that these conditions will continue into FY15,
FY14 production and sales volumes are both             exerting further downward pressure on prices.
expected to be marginally higher than the FY13
volumes mainly due to higher Eskom and export          Good demand for high quality metallurgical
sales.                                                 products persists in the South African steel
2H14 production volumes are expected to be             industry.    This is favourable for the Semi-soft
higher than 1H14 mainly due to higher production       Coking Coal (SSCC), Small Nuts and Pulverized
of power station coal at Grootegeluk?s GG7&8,          Coal Injection (PCI) from Grootegeluk.
and sales volumes will be higher mainly due to
                                                       2.4 Projects update
Grootegeluk?s Eskom demand for Matimba and
                                                       2.4.1 GMEP
Medupi in terms of Addendum 9.
                                                       Following Eskom?s board approval in August
FY14 export sales are expected to be higher than       2014, a settlement was reached, in terms of
FY13 in line with previous guidance mainly due to      Addendum 9, on the impact of the current Medupi
higher export sales of power station coal. 2H14        Power Station construction delays. Details of the
export sales are expected to reach 2,4 million         impact of the settlement on Exxaro?s financial
tonnes.                                                results will be provided on 5 March 2015.
2H14 domestic sales are expected to be higher
                                                       The main difference between the Take-or-Pay
than 1H14 due to Grootegeluk?s Eskom sales to
                                                       (ToP) per Addendum 9 and the Shortfall income is
Matimba and Medupi in terms of Addendum 9.
                                                       that the ToP is accounted for in the ?revenue? line
2.2 Logistics                                          and the Shortfall income in the ?other income?
Good rail performance by Transnet Freight Rail         line. Both have the same impact on the net
(TFR) during 2014 together with collaboration          operating profit line.
initiatives in terms of daily train planning and the   Coal dispatches to Medupi since 23 June 2014
introduction of an Exxaro 24-hour schedule at          are anticipated to be 3,1 million tonnes.
Thabazimbi has reduced the train handling,
turnaround and loading times. The strike rate of       2.4.2 Thabametsi
98% has been achieved and it?s expected that this      The bankable feasibility study (BFS) which
rate will be maintained and improve rail               commenced in 3Q14 is still expected to be
operational performance going forward.                 completed by mid-2015.

TFR is set to show a considerable increase in its      Indications are that the request for proposals by
annual performance on the RBCT rail rate, and          the Department of Energy, detailing the base load
the industry consensus is that at least 74 million     independent     power producer       procurement
tonnes is possible for its fiscal year to March        programme (BIPPPP) will be delayed until 1Q15.
2015.                                                  The Thabametsi mining right application
                                                       approvals are expected during FY15 and the first
2.3 Markets                                            run-of-mine coal production could be achieved by
The Eskom contract for the supply of coal to           2016/17 to the Grootegeluk beneficiation complex
Majuba from Leeuwpan expires at the end of             (Phase 1A); where after the rate of production
                                                       ramp-up will be dependent on the BIPPPP and

Mokolo and Crocodile River (West): Water              sustaining capital    expenditure,   primarily   at
Augmentation Project (MCWAP) - 2 water supply         Grootegeluk.
development schedules respectively.
                                                      3    FERROUS COMMODITY REVIEW
2.4.3 Belfast project
                                                      3.1 Projects update
Mining activities have to commence within one         3.1.1 Mayoko Iron Ore Project update
year of the awarding of the integrated water use
                                                      Exxaro engaged KPMG to perform an
license (IWUL). The project?s IWUL was approved
                                                      independent review of the Mayoko Iron Ore
and granted in October 2014. An objection was
                                                      Project investment process. The independent
lodged against the project?s rezoning. It is
                                                      review has been completed. It covered the period
expected that appeals will be finalised by 2H15.
                                                      from identification of African Iron Limited as a
The project is currently on track from a time and
                                                      possible acquisition up to June 2014, when the
cost perspective.
                                                      impairment was announced. The key findings of
2.4.4 Reductants ? Semi-coke                          the review are that the deviation from standard
A BFS for the two retorts expansion commenced         internal    project   development     governance
in 3Q14 and remains scheduled for completion by       processes, in pursuit of first mover advantages,
mid-2015.                                             resulted in inadequate identification of project
                                                      specifications. An aggressive ramp-up schedule
2.4.5 Moranbah South
                                                      was assumed at acquisition of the project, which
Approval from           the Australian Federal
                                                      was continually moved out largely as a result of
Government of the Moranbah South Joint Venture
                                                      the delay in concluding the mining convention and
(JV) environmental impact study has been
                                                      rail and port access agreements, resulting in the
received. Further development of this JV will be
                                                      gradual erosion of projected returns over time. An
jointly determined with Anglo American plc.
                                                      independent technical review of the project is
2.5 Disposals                                         currently underway, with the results thereof
The January 2014 sale of New Clydesdale               expected in early 2015.
Colliery (NCC) to Universal Coal is conditional on
                                                      During the past six months Phase One (2,2 million
a Section 11 approval required in terms of the
                                                      tonnes) of the project was stopped, and various
Mineral and Petroleum Resources Development
                                                      discussions were held with the RoC government
Act 28 of 2002 for transfer of the new-order
                                                      in terms of the agreements. The intent is to
mining right. This approval remains outstanding
                                                      finalise the agreements with the RoC government
and is expected to be received in 1H15.
                                                      early in 2015. As communicated in the Stock
2.6 Acquisitions                                      Exchange News Service (SENS) announcement
Two of the four conditions precedent remains          in June 2014, any further development
outstanding on the TCSA acquisition, i.e.,            expenditure on this project will be determined
approval of the Section 11 transfer of the new-       through a staged approach after considering the
order mining right and Competition Commission         outcome of a pre-feasibility study, BFS as well as
approval. These are expected to be achieved in        commodity market conditions. Guidance on 2015
1H15. Until such time, the TCSA operations are        project expenditure will be provided once the
not consolidated into the Exxaro group results.       agreements are signed.
2.7 Mines in closure                                  3.1.2 Alloystream
                                                      Assmang and Exxaro have executed a settlement
September marked       the   last   production   at
                                                      agreement, whereby Assmang relinquishes all
                                                      rights and obligations to the Alloystream
Inyanda? s life of mine will come to an end in        Technology and waive the pre-2016 intellectual
3Q15 which is expected to result in lower exports     property ?lock-in? period.
in FY15.
                                                      3.2 Capital expenditure
2.8 Capital expenditure                               No additional capital expenditure on the Mayoko
The capital expenditure profile guidance              Iron Ore Project is expected in 2H14 as previously
previously provided remains unchanged. The
majority of the expenditure is scheduled for

3.3 Contribution from Sishen Iron Ore                 Ferrous, will be leaving Exxaro employment at the
     Company Proprietary Limited (SIOC)               end of February 2015. He has served Exxaro with
As recently announced by Kumba Iron Ore we            distinction and prior to Exxaro, Kumba and Iscor,
expect the earnings contribution in 2H14 from our     for a total of 40 years. Ernst has opted to pursue
Sishen Iron Ore Company investment to be lower        other career opportunities. The executive
than 1H14.                                            committee and the board of directors of Exxaro
                                                      expressed their sincere appreciation for his
                                                      contribution during his 40 years.
4.1 Contribution from Tronox
Exxaro expects to receive its share of the            8 OPERATING MODEL OPTIMISATION
dividend declared by Tronox of 0,25 USD cents         Progress on the group?s internal operating model
per quarter for 4Q14. Earnings guidance on this       optimisation process has resulted in Exxaro
equity-accounted investment will be provided          making voluntary severance package offers to
once we have reasonable certainty on the full         approximately 49 employees at the corporate
year results.                                         centre. This is expected to result in a once-off
                                                      cost of approximately R80 million in FY14, whilst
                                                      expected to result in sustainable future savings of
5.1 Contribution from Cennergi
                                                      approximately R50 million per year from FY15
Cennergi commenced construction of its two wind
                                                      onwards. The impact of the roll out at the
projects in 3Q14. Completion is expected in 2H16.
                                                      operations is still to be determined.
Cennergi is continuing to prepare a binding bid for
                                                      9   MACRO-ECONOMIC ENVIRONMENT AND
the Morupule B Phase II units in Botswana. Bid
submission is expected to be in 1Q15, with a
                                                      The threats and risks to global economic growth
preferred bidder announcement to be six months
                                                      remain and hence a slow global recovery is
from date of submission.
                                                      expected from late FY15. Exxaro expects that the
Earnings guidance on this equity-accounted            economic growth recovery in India, a significant
investment will be provided once we have              market for our coal products, will be gradual and a
reasonable certainty on the full year results.        sustained lower Brent crude oil price is positive for
                                                      economic growth. Annual global real GDP growth
                                                      is anticipated to reach about 3% in FY15,
6.1 Black Mountain investment
                                                      marginally higher (0.3%) compared to FY14.
In 3Q14 Black Mountain Mining Proprietary
Limited (BMM) completed the Definitive Feasibility    The industry is entering into a new phase of
Study on the Gamsberg project. The project was        prolonged low commodity prices. We expect that
approved in November and construction is              despite stable production volumes, the Coal
planned to start in 1H15.                             business will maintain its strong position as the
                                                      leading Exxaro revenue generator. Exxaro
Based on Exxaro?s strategic decision to divest        expects flat to declining real-Rand commodity
from zinc and Exxaro?s minority shareholding in       prices, continuous cost pressures and subdued
BMM, it was indicated to Vedanta that Exxaro is       global demand, however, a weaker Rand will
unlikely to contribute additional shareholder         partially compensate and reduce the impact on
funding for the development of the Gamsberg           margins. Sustaining capital expenditure will
project.                                              remain high in order to maintain production.
                                                      Continued exposure to general industry
If Exxaro does not meet future funding calls,
                                                      challenges such as potential labour unrest and
Vedanta can elect to disproportionately contribute
                                                      regulatory uncertainty are expected to remain with
Exxaro?s portion of shareholder funding by way of
                                                      the group in FY15.
advancing an additional shareholder loan to BMM
or by diluting Exxaro?s shareholding in BMM.          It is expected that API#4 price levels will remain
                                                      depressed at levels below $65,00 for FY15.
7  CHANGES TO MANAGEMENT                              Export volumes are also expected to be lower as
   STRUCTURE                                          a result of lower available production volumes
Mr Ernst Venter, currently the executive head for     putting the company in an overall long entitlement
Growth, Technology, Projects, Services and            position. The excess entitlement in 2015 will

amount to 0.9 million tonnes. Plans are afoot to                          FY15, whilst engaging                closely      with   the
lease entitlement and buy-in additional coal.                             government of the RoC.
Although the FY14 TFR annual rate is forecasted                           Exxaro?s balance sheet remains strong in the
to only reach approximately 74 million tonnes at                          short to medium term, with adequate liquidity and
most, FY15 brings very high expectations in this                          low gearing in FY15.
regard. Given TFR?s very public commitment to
                                                                          The 2015 financial year will be a challenging year,
increase its rail rate and an industry that has
                                                                          given the market outlook described above. Exxaro
signed long term ToP agreements, backed by a
                                                                          will continue to review its project pipeline and
major capital expenditure programme the
                                                                          overall capital allocation programme in order to
expected TFR rail rate to RBCT for FY15 is 74
                                                                          preserve stakeholder value and position the
million tonnes.
                                                                          company for growth opportunities when the
Iron ore prices are expected to remain at levels                          market turns positive again.
below $80 per tonne. This is expected to have a
                                                                          10 REVIEW OF THE UPDATE
direct impact on Exxaro?s share of the SIOC
                                                                          The information appearing in this message is the
earnings, and as such lower dividends are
                                                                          responsibility of the directors of Exxaro and has
expected from this investment.
                                                                          not been reviewed or reported on by Exxaro?s
The group will continue with caution on the                               external auditors.
development of the Mayoko Iron Ore Project in

                                                                  1H13        2H13        1H14      2H14        % change
                                                                                                                 vs 1H14)
       Macro-economic indicators
       Average ZAR/US$ (spot)                                     9,20       10,04       10,67      10.88              1.97
       Brent crude oil (US$/bbl.)                               107,95      109,45      108,65      95.78           (11.85)

       Product prices
       API#4 Thermal coal (US$/t, FOB RBCT)                       82,78       78,09       76,90     68.44           (10.77)
       Hard Coking Coal (US$/t, FOB Australia)                      155         142         117       112            (4.27)
Prices reflect international commodity reference and not Exxaro Resources specific. Sources: Reuters, I-Net, SACR, CRU

Editor?s note:
Exxaro is one of the largest South African based diversified resources companies, with interests in the Coal, Titanium Dioxide,
Iron ore and Energy commodities. www.exxaro.com

Wim de Klerk
Finance Director
Tel: + 27 12 307 4848
Mobile: +27 82 652 5145
Email: wim.deklerk@exxaro.com

1 December 2014

Deutsche Securities (SA) Proprietary Limited

The financial information on which any outlook statements are based have not been reviewed or reported on. These forward-
looking statements are based on 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 group?s operations, markets, products, services
and prices. Exxaro undertakes no obligation to update or reverse the forward-looking statements, whether as a result of new
information or future developments.


Date: 01/12/2014 09:05:00 Supplied by www.sharenet.co.za                     
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