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EXX - Exxaro Resources - Audited Group Financial Results And Physical
Information For The 12-Month Period Ended 31 December 2007
EXXARO RESOURCES LIMITED
(formerly Kumba Resources Limited)
Incorporated in the Republic of South Africa
(Registration Number: 2000/011076/06)
Share Code: EXX
ISIN Number: ZAE000084992
("Exxaro" or "the company")
AUDITED GROUP FINANCIAL RESULTS AND PHYSICAL INFORMATION FOR THE 12-
MONTH PERIOD ENDED 31 DECEMBER 2007
EXXARO
POWERING POSSIBILITY
- REVENUE EXCEEDS R10 BILLION
- NET OPERATING PROFIT UP 15% TO R1,4 BILLION
- TOTAL DIVIDEND OF 160 CENTS PER SHARE
- FINAL DIVIDEND OF 100 CENTS PER SHARE
- HEADLINE EARNINGS 425 CENTS PER SHARE
- EXCITING COAL PROJECT DEVELOPMENTS
CONDENSED GROUP INCOME STATEMENT
2007 2006
Audited Audited
Year ended 31 December Rm Rm
CONTINUING OPERATIONS
Revenue 10 157 7 263
Operating expenses (8 696) (6 022)
Fair value adjustment on unbundling of 17 963
subsidiary
BEE credential expense and unbundling costs (821)
Impairment of property, plant and equipment (17) (784)
Net operating profit 1 444 17 599
Net financing costs (note 4) (215) (307)
Income from investments 2
Share of income from equity accounted 728 159
investments
Profit before taxation 1 959 17 451
Taxation (512) (578)
Profit for the year from continuing operations 1 447 16 873
Profit for the year from discontinued 2 323
operations (note 6)
Profit for the year 1 447 19 196
Attributable to:
Equity holders of the parent 1 427 19 169
Minority interest 20 27
Net profit 1 447 19 196
Ordinary shares (million)
- in issue 353 351
- weighted average number of shares 341 313
- diluted weighted average number of shares 355 318
Attributable earnings per share (cents)
- basic 418 6 124
- diluted 402 6 028
Attributable earnings per share from
continuing operations (cents)
- basic 418 5 382
- diluted 402 5 297
Attributable earnings per share from
discontinued operations (cents)
- basic 742
- diluted 731
Dividend paid per share (cents) in respect of 160
the previous financial year
Dividend paid per share (cents) in respect of 60 180
the interim period
Special dividend paid per share (cents) on 185
unbundling
Final dividend declared per share (cents) in 100
respect of this financial year
CONDENSED GROUP BALANCE SHEET
2007 2006
Audited Audited
Year ended 31 December Rm Rm
ASSETS
Non-current assets
Property, plant and equipment 8 235 7 583
Biological assets 30 26
Intangible assets 76 69
Investments in associates and joint ventures
(note 7)
- unlisted 757 384
Deferred taxation 732 748
Other financial assets (note 7) 1 031 693
10 861 9 503
Current assets
Inventories 1 531 1 391
Trade and other receivables 1 931 1 663
Cash and cash equivalents 850 906
4 312 3 960
Non-current assets classified as held for sale 2 2
Total assets 15 175 13 465
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareholders` equity 9 804 8 142
Minority interest 19 27
Total shareholders` equity 9 823 8 169
Non-current liabilities
Interest-bearing borrowings 1 259 1 214
Non-current provisions 1 329 931
Deferred taxation 1 077 1 116
3 665 3 261
Current liabilities
Trade and other payables 1 449 1 321
Interest-bearing borrowings 74 613
Taxation 137 67
Current provisions 27 30
Shareholders for dividends 4
1 687 2 035
Total equity and liabilities 15 175 13 465
Net debt (note 10) 483 921
Net asset value per share (cents) 2 778 2 320
Capital expenditure
- incurred 1 296 2 010
- contracted 450 842
- authorised but not contracted 1 278 732
Capital expenditure contracted relating to
captive mines, Tshikondeni, Arnot
and Matla, which will be financed by 72 8
ArcelorMittal SA Limited and Eskom
respectively
Commitment relating to the acquisition of
Namakwa Sands and a 26% interest
in Black Mountain (Pty) Limited from Anglo 2 353 2 353
Operations Limited, subject to price
adjustments
Contingent liabilities 201 100
Operating lease commitments 127 124
Operating sublease rentals receivable 1 10
CONDENSED GROUP CASH FLOW STATEMENT
2007 2006
Audited Audited
Year ended 31 December Rm Rm
Cash retained from operations 2 308 5 068
- net financing costs (116) (278)
- taxation paid (462) (1 927)
- dividends paid (note 8) (223) (3 396)
Cash used in investing activities
- capital expenditure (1 296) (2 010)
- proceeds from disposal of property, 50 170
plant and equipment
- proceeds from disposal of investment 26
- income from equity accounted and 379
other investments
- acquisition of subsidiary (note 9) (8) (1 545)
- investments acquired (249)
- other 5 1
Net cash inflow/(outflow) 388 (3 891)
- cash flows from issue of shares 114 2 199
- borrowings (repaid)/raised (567) 1 518
Net (decrease) in cash and cash (65) (174)
equivalents
Special purpose entities consolidated 9
Less cash and cash equivalents of (403)
unbundled subsidiaries
Cash and cash equivalents at beginning 906 1 483
of year
Cash and cash equivalents at end of 850 906
year
Calculation of movement in net debt
Net cash inflow/(outflow) 388 (3 891)
- shares issued 114 2 199
- share-based payments (54)
- increase in net debt on acquisition (25) (120)
of subsidiary
- special purpose entities 9
consolidated
- non-cash flow movements in net debt
applicable to currency translation
differences of transactions
denominated in foreign currency
59 16
- non-cash flow movements in net debt
applicable to currency translation
differences of net debt items of
foreign entities
(107) (195)
- net debt of unbundled subsidiaries 2 762
Decrease in net debt 438 717
RECONCILIATION OF HEADLINE EARNINGS
Gross Tax Net
Year ended 31 December 2007 Rm Rm Rm
Net profit attributable to 1 427 1 427
equity holders of the parent
Adjusted for:
- IAS 16: Impairment of 23 23
property, plant and equipment
- IAS 16: Gains or losses on 17 (5) 12
disposal of property, plant
and equipment
- IAS 28: Share of associate`s (3) 1 (2)
IAS 16 - Gains or losses on
disposal of property, plant and
equipment
- IAS 28: Share of associate`s
IAS 39 - Recycling of
re-measurements from equity to
the income statement, including
a hedge of net investment in a
foreign entity
but excluding cash flow hedges
(7) 1 (6)
- IAS 36: Impairment reversal of (6) (6)
investment
Headline earnings 1 451 (3) 1 448
Year ended 31 December 2006
Net profit attributable to 19 169 19 169
equity holders of the parent
Adjusted for:
- IFRS 3: Excess of acquirer`s
interest in the net fair value
of the acquiree`s identifiable
assets, liabilities and
contingent liabilities over cost
(36) (36)
- IFRS 5: Gains or losses on the
measurement to fair value less
cost to sell on disposal of
assets or disposal groups
(17 963) (17 963)
- IAS 16: Impairment of 784 (227) 557
property, plant and equipment
- IAS 16: Gains or losses on
disposal of property, plant
and equipment
3 1 4
- IAS 27: Gains on the disposal (1) (1)
of a subsidiary
- IAS 28: Gains or losses on the
disposal of associates
or joint ventures
(38) 7 (31)
- IAS 28: Share of associate`s
IAS 16 - Gains or losses on
disposal of property, plant and
equipment
(1) (1)
Headline earnings 1 917 (219) 1 698
Headline earnings from 2 328
discontinued operations
Headline (loss) from continuing (630)
operations
2007 2006
Year ended 31 December Rm Rm
Headline earnings per share
(cents)
- basic 425 542
- diluted 408 534
Headline earnings/(loss) per
share from continuing operations
(cents)
- basic 425 (201)
- diluted 408 (198)
Headline earnings per share from
discontinued operations (cents)
- basic 744
- diluted 732
GROUP STATEMENT OF CHANGES IN EQUITY
Non-distributable
reserves
Foreign Financial Equity-
Share Share currency instruments` settled
capital premium translation revaluation reserve
Rm Rm Rm Rm Rm
OPENING BALANCE 3 2 937 (29) (5) 88
AT 31 DECEMBER
2005
Net 433 31 714
gains/(losses)
not recognised
in income
statement
Currency 438 1
translation
differences
Share of reserve 6 (1) 3
movements of
associates
Share-based 711
payments
movement
Financial
instruments`
fair value
movements
recognised in
equity
- recognised in 8
current year
profit or loss
- recognised in 33
equity
Deferred (11) (10)
taxation
Net profit
Dividends paid
Share repurchase
Dividend in (25) (2)
specie - fair
value
Dividend in
specie - fair
value adjustment
Dividend in (25) (2)
specie - net
asset value
Issue of share 1 2 198
capital
- Management 248
Share Option
Scheme Trust(1)
- empowerment 1 1 950
transformation
transaction
- issue of share 173
capital to share
trusts
- treasury (173)
shares
BALANCE AT 31 4 5 135 379 24 802
DECEMBER 2006
Net gains/losses 148 (17) 182
not recognised
in income
statement
Currency 179 (3)
translation
differences
Share of reserve (13) 1 49
movements of
associates
Share-based 133
payments
movement
Financial
instruments`
fair value
movements
recognised in
equity
- recognised in (36)
equity
- fair value 1
adjustment
Deferred (18) 20
taxation
Net profit
Dividends paid
Issue of share 23
capital(1)
Share 91
placement(2)
- issue 640
- repurchase (460)
- expenses (89)
Transfer to (16)
retained income
Minority
share-buy out
Special purpose
entities now
consolidated
Prior year (3 186)
dividend in
specie
reclassification
BALANCE AT 31 4 2 063 527 7 968
DECEMBER 2007
(1) Issued to the Management Share Option Scheme Trust due to options
exercised.
(2) Repurchase of 10 million shares from Anglo South Africa (Pty)
Limited on 13 April 2007 at R45,99 per share and the subsequent re-issue
of 10 million new Exxaro shares at R64 per share. Secondary Tax on
Companies (STC) on the share repurchase of R57,5 million is included in
net profit.
(3) Dividends declared after the year-end comprise of a final dividend
of 100 cents per share. The STC payable on dividends will be nil after
taking into account STC credits.
GROUP STATEMENT OF CHANGES IN EQUITY
Attributable
to equity Total
Insurance Retained holders of Minority shareholders
reserve income the parent interest interest
Year ended 31 Rm Rm Rm Rm Rm
December 2007
OPENING BALANCE 4 325 7 319 9 7 328
AT 31 DECEMBER
2005
Net 1 178 1 178
gains/(losses)
not recognised
in income
statement
Currency 439 439
translation
differences
Share of reserve 8 8
movements of
associates
Share-based 711 711
payments
movement
Financial
instruments`
fair value
movements
recognised in
equity
- recognised in 8 8
current year
profit or loss
- recognised in 33 33
equity
Deferred (21) (21)
taxation
Net profit 19 169 19 169 27 19 196
Dividends paid (1 628) (1 628) (9) (1 637)
Share repurchase (1 763) (1 763) (1 763)
Dividend in (18 305) (18 332) (18 332)
specie - fair
value
Dividend in (17 966) (17 966) (17 966)
specie - fair
value adjustment
Dividend in (339) (366) (366)
specie - net
asset value
Issue of share 2 199 2 199
capital
- Management 248 248
Share Option
Scheme Trust(1)
- empowerment 1 951 1 951
transformation
transaction
- issue of share 173 173
capital to share
trusts
- treasury (173) (173)
shares
BALANCE AT 31 1 798 8 142 27 8 169
DECEMBER 2006
Net gains/losses 9 322 (4) 318
not recognised
in income
statement
Currency 176 176
translation
differences
Share of reserve 9 46 46
movements of
associates
Share-based 133 133
payments
movement
Financial
instruments`
fair value
movements
recognised in
equity
- recognised in (36) (4) (40)
equity
- fair value 1 1
adjustment
Deferred 2 2
taxation
Net profit 1 427 1 427 20 1 447
Dividends paid (208) (208) (11) (219)
Issue of share 23 23
capital(1)
Share 91 91
placement(2)
- issue 640 640
- repurchase (460) (460)
- expenses (89) (89)
Transfer to 16
retained income
Minority (13) (13)
share-buy out
Special purpose 7 7 7
entities now
consolidated
Prior year 3 186
dividend in
specie
reclassification
BALANCE AT 31 6 235 9 804 19 9 823
DECEMBER 2007
NOTES TO THE GROUP FINANCIAL RESULTS
1. BASIS OF PREPARATION
This condensed report complies with International Accounting Standard
34, Interim Financial Reporting, and schedule 4 of the South African
Companies Act. The financial statements from which these group financial
results have been derived are prepared on the historical basis excluding
financial instruments and biological assets, which are fair valued, and
conform to International Financial Reporting Standards. The accounting
policies adopted are consistent with those applied in the annual
financial statements for the year ended 31 December 2006, except for the
adoption of IFRS 7 Disclosure of Financial Instruments during the year.
This is a disclosure standard which has no impact on the measurement or
recognition of financial instruments and accordingly the adoption
thereof has had no effect on the profit or equity for the period.
2007 2006
Audited Audited
Year ended 31 December Rm Rm
2.'PROFIT BEFORE TAXATION FROM
CONTINUING AND DISCONTINUED
OPERATIONS IS ARRIVED AT AFTER
Depreciation and amortisation of (763) (813)
intangible assets
Financing costs (311) (451)
Interest received 96 115
Net realised foreign currency (42) 199
exchange (losses)/gains
Net unrealised foreign currency (32) (97)
exchange (losses)/gains
Derivative instruments held for 61 (226)
trading
Impairment charges (note 3) (17) (784)
Excess of minority interest over cost 36
of acquisition
Net profit on disposal of investments 39
Fair value adjustment on unbundling 17 963
of subsidiary
Net deficit on disposal of property, (17) (3)
plant and equipment
Share-based payment: BEE credential (580)
expense
Cost of empowerment transaction, (241)
unbundling, integration and branding
3. IMPAIRMENT CHARGES AND REVERSALS
Impairment of property, plant and (23) (784)
equipment(1)
Reversal of impairment of other 6
investments
(17) (784)
Taxation effect (227)
(17) (557)
(1) 2006: Impaired to value in use
based on an 8,53% discount rate.
4. NET FINANCING COST
Interest expense and loan costs 153 354
Finance leases 59 39
Interest income (96) (115)
Net interest expense 116 278
Interest adjustment on non-current 99 58
provisions
215 336
Less discontinued operations (note 6) (29)
Net financing cost as per income 215 307
statement
5. TAX RATE RECONCILIATION % %
Taxation as a percentage of profit 26,1 6,5
before taxation
Taxation effect of:
- assessed losses (not provided for) (0,2)
- capital profits 0,5 0,1
- fair value adjustment on unbundling 25,4
of subsidiary
- disallowable expenditure (2,1) (1,5)
- environmental rehabilitation asset
- exempt income 0,3 0,4
- special tax allowances 0,2
- share of associates` and joint 10,8 0,1
ventures` differences
- tax rate differences (2,1) (0,2)
- temporary differences not provided (0,2)
for
- Secondary Tax on Companies (STC) (2,9) (2,0)
- withholding tax (0,5)
- Controlled Foreign Company (CFC) (0,3)
profits
- foreign exchange differences (0,1) (0,1)
- prior year adjustment (0,7) 0,5
29,0 29,0
6. DISCONTINUED OPERATIONS
Exxaro unbundled its iron ore
business effective 1 November 2006 as
part of an empowerment transaction
and now holds only a 20% interest in
Sishen Iron Ore Company (Pty) Limited
which is equity accounted.
Revenue 6 483
Operating expenses (3 385)
Net operating profit 3 098
Net financing costs (29)
Profit before taxation 3 069
Taxation (746)
Profit for the period from 2 323
discontinued operations
Cash flow attributable to operating 982
activities
Cash flow attributable to investing (1 079)
activities
Cash flow attributable to financing 93
activities
Cash flow attributable to (4)
discontinued operations
7. INVESTMENTS
Unlisted investments in associates
- directors` valuation 9 110 4 812
Listed investments included in other
financial assets
- market value 92
Unlisted investments included in
other financial assets
- directors` valuation 328 93
8. DIVIDENDS PAID
Cash dividends 211 1 628
Share repurchase 1 763
Paid to minorities 12 5
223 3 396
9. BUSINESS COMBINATION
On 27 February 2007, the group
acquired 100% of the issued share
capital of Rosh Pinah Mine Holdings
(Pty) Limited which is included in
the base metals segment results. The
acquired business contributed neither
revenue nor operating profits to the
group for the period from 27 February
2007 to 31 December 2007. This
transaction increased the Exxaro
effective shareholding in Rosh Pinah
Zinc Corporation (Pty) Limited from
89,5% to 93,9%.
Details of assets acquired are as
follows:
- cash paid on acquisition (8)
- fair value of assets acquired 8
Goodwill
Fair value of assets acquired
- property, plant and equipment 18
- investments 15
- interest-bearing borrowings (25)
Fair value of net assets 8
Total purchase consideration (8)
Cash outflow on acquisition of (8)
subsidiary
10. NET DEBT
Net debt is calculated as being interest-bearing borrowings less cash
and cash equivalents.
11. RELATED PARTY TRANSACTIONS
During the period the company and its subsidiaries, in the ordinary
course of business, entered into various sale and purchase transactions
with associates and joint ventures. These transactions were subject to
terms that are no less favourable than those arranged with third
parties.
12. SUBSEQUENT EVENTS
The directors are not aware of any matter or circumstance arising after
the balance sheet date up to the date of this report, not otherwise
dealt with in this report.
13. JSE LIMITED REQUIREMENTS
The announcement has been prepared in accordance with the listing
requirements of the JSE Limited.
14. CORPORATE GOVERNANCE
The group complies in all material respects with the Code of Corporate
Practice and Conduct published in the King II Report on Corporate
Governance.
15. AUDIT OPINION
The auditors, Deloitte & Touche, have issued their opinion on the
group`s financial statements for the year ended 31 December 2007. The
audit was conducted in accordance with International Standards on
Auditing. They have issued an unmodified audit opinion. A copy of their
audit report is available for inspection at the company`s registered
office. These summarised financial results have been derived from the
group financial statements and are consistent in all material respects,
with the group annual financial statements.
UNAUDITED PHYSICAL INFORMATION (`000 TONNES)
12 months ended Six months ended
31 December 31 December
2007 2006 2007 2006
Coal(1)
Production
- Power station 34 246 34 599 16 830 16 849
- Tied operations(2) 16 732 17 596 8 353 8 638
- Commercial 17 514 17 003 8 477 8 211
operations
- Coking 2 962 2 496 1 479 1 109
- Tied operations(2) 463 363 242 180
- Commercial 2 499 2 133 1 237 929
operations
- Other commercial 4 112 4 665 2 016 2 339
operations
Total 41 320 41 760 20 325 20 297
Sales
- Eskom 34 226 34 665 16 604 16 554
- Tied operations(2) 16 699 17 598 8 337 8 623
- Commercial 17 527 17 067 8 267 7 931
operations
- Other domestic 5 237 4 892 2 572 2 449
- Tied operations(2) 449 381 214 207
- Commercial 4 788 4 511 2 358 2 242
operations
- Export commercial 1 821 2 434 813 1 092
operations
Total 41 284 41 991 19 989 20 095
Mineral Sands - RSA
Production
- Ilmenite 367 319 187 160
- Zircon 34 50 19 26
- Rutile 17 25 9 12
- Pig Iron 86 75 48 41
- Scrap Pig Iron 20 10 9 5
- Chloride Slag 150 134 77 72
- Sulphate Slag 26 36 14 18
Sales
- Ilmenite (external 50 50 30 30
sales)
- Zircon 27 48 14 23
- Rutile 18 31 9 9
- Pig Iron 88 60 45 29
- Scrap Pig Iron 8 9 4 5
- Chloride Slag 163 104 81 64
- Sulphate Slag 29 30 8 10
Minerals Sands -
Australia(3)
Production
- Ilmenite 216 227 111 116
- Zircon 36 36 19 18
- Rutile 17 18 8 9
- Synthetic Rutile 100 98 48 54
- Leucoxene 16 14 8 7
- Pigment 54 54 26 27
Sales
- Ilmenite 20 30 10
- Zircon 29 32 16 16
- Rutile 16 18 2 8
- Synthetic Rutile 57 27 21 19
- Leucoxene 17 10 7 4
Base Metals
Production
- Zinc concentrate - 95 104 53 55
Rosh Pinah
- Zinc metal 124 106 61 56
- Zincor 101 90 51 48
- Chifeng(4) 23 16 10 8
- Lead concentrate - 22 21 11 13
Rosh Pinah
Zinc metal sales 122 115 57 60
- Domestic 93 91 45 45
- Export 29 24 12 15
Lead concentrate
sales - Rosh Pinah
- Export 19 32 7 12
(1) For comparative purposes the Eyesizwe Coal mines are included for
the full periods disclosed.
(2) Tied operations refer to mining operations that supply their entire
production to either Eskom or ArcelorMittal SA Limited in terms of
contractual arrangements.
(3) The production and sales tonnes reflect Exxaro Sands Australia`s 50%
interest in the Tiwest joint venture with Tronox Inc., Western
Australia.
(4) The effective interest in the physical information for the Chifeng
(Hongye) refinery has been disclosed.
COMMENTS
REPORTED RESULTS NOT COMPARABLE
The group`s audited financial results and actual physical information
for the 12-month periods ended 31 December 2007 and 2006 respectively
are not comparable as a result of the empowerment transaction that
resulted in the creation of Exxaro Resources Limited ("Exxaro") in
November 2006.
The audited financial results for the 12-month period ended 31 December
2006 include Sishen Iron Ore Company ("SIOC") fully consolidated for 10
months to October 2006 with Eyesizwe Coal (Pty) Limited ("Eyesizwe")
only consolidated for two months to December 2006 and an effective 20%
holding in SIOC equity accounted for the same two-month period.
The 2007 financial year, however, has Eyesizwe fully consolidated and
the effective 20% interest in SIOC equity accounted, for the entire 12-
month period.
COMPARABLE SUPPLEMENTARY RESULTS
Comparable unaudited supplementary financial results, together with
physical information, is additionally provided below for information
purposes only, on the assumption that Exxaro had been created with
effect from 1 January 2006.
Comments are for comparable purposes based on an analysis of the group`s
audited financial results and physical information for the 12-month
period to 31 December 2007 compared with the unaudited supplementary
financial results and physical information compiled for the 12-month
period to 31 December 2006.
OPERATING RESULTS
The group experienced strong demand at higher commodity prices despite
the significant decrease in LME zinc prices in the last quarter of 2007.
This, together with a stronger rand of R6,80 to the US dollar on
31 December 2007, resulted in revaluations of stock to net realisable
value in the base metals and mineral sands businesses decreasing by R133
million compared to the end of 2006.
Revenue increased by 15% to R10 157 million and net operating profit was
R183 million higher at R1 444 million.
An average exchange rate of R7,26 to the US dollar was realised compared
with R6,76 for the corresponding period in 2006. The significant
strength of the Australian dollar to the US dollar (US$0,83 to the AUD
realised against US$0,75 for 2006), however, impacted negatively on the
financial results of the mineral sands operations in Australia.
EARNINGS
Attributable earnings for the period are R1 427 million (418 cents per
share) representing a 48% increase on the comparable 2006 attributable
earnings of R962 million (307 cents per share). This includes Exxaro`s
20% interest in the after-tax profits of SIOC amounting to R746 million,
some R148 million higher than for the comparable period.
Headline earnings increased from R893 million to R1 448 million with
headline earnings per share 49% higher at 425 cents compared with 285
cents for the comparable corresponding period.
CASH FLOW
Cash retained from operations of R2 308 million was mainly applied to
taxation payments of R461 million, capital expenditure of R1 296 million
(consisting of R727 million invested in new capacity and R569 million in
sustaining and environmental capital), an investment of R239 million in
the Richards Bay Coal Terminal (RBCT) to secure 2,5Mtpa export
entitlement, and the interim dividend payment of R211 million or 60
cents per share in September 2007. The group had a net cash inflow of
R388 million for the financial year.
After accounting for the net surplus of R91 million on the repurchase of
10 million shares from Anglo South Africa Capital (Pty) Limited and the
market placement of the same number of new shares, as well as a dividend
inflow of R373 million from SIOC, cash and cash equivalents increased by
R502 million before the repayment of borrowings.
Net debt of R921 million at 31 December 2006 decreased to R483 million
at a net debt to equity ratio of 5% on 31 December 2007. Net debt will
increase by the payment commitment of R2 353 million, subject to the
disclosed price adjustments, for the acquisition of Namakwa Sands and a
26% interest in Black Mountain/Gamsberg on conversion and subsequent
cession of their mining rights.
SAFETY, HEALTH AND ENVIRONMENT
The group remains committed to achieving a working environment that is
fatality and injury free. Its safety awareness and preventative
programmes have been strengthened by further initiatives to enhance
hazard identification and safe behaviour by individuals. Despite
excellent safety achievements at several operations, regrettably four on-
mine fatalities and one public road fatality were suffered during the
period under review. The average lost time injury frequency rate (LTIFR)
per 200 000 man-hours worked for the reporting period, however, improved
to 0,36 compared to 0,42 for the corresponding period in 2006.
Nine of the group`s 12 operations have achieved both the international
health and safety certification (OHSAS 18001) and environmental
certification (ISO 14001). The group aims to have all business units
fully compliant with both certifications by December 2008.
In response to the growing global threat of climate change, Exxaro has
developed a Clean Energy Strategy as a dedicated response measure.
Through this initiative Exxaro will be aligning all of its energy
related activities to South Africa`s Climate Change Response Strategy,
with a key output for 2008 being the company-wide carbon footprint. This
footprint will serve as a baseline against which our energy efficiency
progress will be measured, monitored, and improved.
The implementation of HIV/Aids voluntary counselling and testing (VCT)
and extension of anti-retroviral programmes to all of the group`s
businesses is also progressing well with the majority of employees who
tested HIV-positive enrolled on the disease management programme. Thirty
percent of the workforce participated in the VCT programme by the end of
2007 and a renewed focus to encourage participation by employees in the
programme and, where necessary, to enrol on the disease management
programme, is planned for 2008.
REPORTED SEGMENT RESULTS
2007 2006
Audited Audited
12 months ended 31 December Rm Rm
REVENUE
Iron Ore 6 483
Coal 5 087 2 882
Mineral Sands 2 172 1 859
KZN Sands 984 817
Australia Sands 1 188 1 042
Base Metals 2 732 2 379
Industrial Minerals 159 122
Other 7 21
Total as per audited income statement 10 157 13 746
NET OPERATING PROFIT
Iron Ore 3098
Coal 885 599
Mineral Sands (97) (698)
KZN Sands (157) (842)
Australia Sands 60 144
Base Metals 688 609
Industrial Minerals (3) 26
Other (29) 17 063(1)
Total as per audited income statement 1 444 20 697
(1) Includes the non-recurring accounting entries associated with the
empowerment transaction in November 2006.
COMPARABLE UNAUDITED SUPPLEMENTARY RESULTS
2007 2006
12 months ended 31 December Rm Rm
REVENUE
Coal(1) 5 087 4 433
Commercial operations 3 319 2 808
Tied operations 1 768 1 625
Mineral Sands 2 172 1 859
KZN Sands 984 817
Australia Sands 1 188 1 042
Base Metals 2 732 2 379
Rosh Pinah 941 888
Zincor 2 558 2 234
Consolidation entries (767) (743)
Industrial Minerals 159 122
Other 7 21
Total comparable revenue 10 157 8 814
NET OPERATING PROFIT
Coal(1) 885 620
Commercial operations 797 515
Tied operations 88 105
Mineral Sands (97) 86
KZN Sands(2) (157) (114)
Australia Sands 60 200
Base Metals 688 609
Rosh Pinah 457 404
Zincor 298 238
Consolidation entries (67) (33)
Industrial Minerals (3) (1)
Current operations 24 26
AlloyStream (27) (27)
Other(3) (29) (53)
Total comparable net operating 1 444 1 261
profit
Net financing costs (215) (315)
Income from investments 2
Equity accounted income(4) 728 638
Taxation(2) (512) (595)
Minority interest (20) (27)
Comparable attributable earnings 1 427 962
Post tax adjustments 21 (69)
Comparable headline earnings 1 448 893
Comparable attributable earnings per 418 307
share (cents)
Comparable headline earnings per 425 285
share (cents)
(1) Includes ex-Eyesizwe mines for the full periods.
(2) Excludes the pre-tax impairment in 2006 of R784 million and the
taxation effect of R227 million.
(3) Excludes non-recurring expenditure of R241 million associated with
the empowerment transaction in the 12 months to 31 December 2006.
(4) Includes 20% investment in SIOC equity accounted from 1 January
2006.
OPERATIONS
COAL
Production of power station coal was 353kt lower than for the
corresponding period in 2006 as reduced output at Matla and Arnot was
only partially offset by increased production at the North Block Complex
(NBC), Leeuwpan and Grootegeluk mines. Lower production at the Eskom
tied operations, Matla and Arnot, resulted respectively from a delay in
obtaining regulatory approval for a river diversion and from difficult
geological conditions.
Coking coal production showed a marked increase of 466kt year-on-year
due to improved performance at Tshikondeni as well as the successful
ramp-up of the GG6 plant at the Grootegeluk mine.
Coal exports were 25% lower than in 2006 primarily due to Exxaro`s
decision to close the underground mining operations during January 2007
at New Clydesdale Colliery (NCC) as a result of unsafe mining
conditions. To mitigate the loss of production at NCC, commissioning of
the Inyanda mine was fast tracked and first run-of-mine coal was
supplied to NCC for beneficiation four months after site establishment.
Leeuwpan mine`s reclaimer suffered a structural failure in September
2007 and is only expected to be repaired in the third quarter of 2008.
Front-end loaders have been deployed to minimise the impact on sales.
Total sales to Eskom were 439kt lower year-on-year in line with the
decrease in production. However, other domestic sales were significantly
higher on the back of a 27% increase in semi-soft coking coal sales to
ArcelorMittal SA Limited (ArcelorMittal) in line with increased demand.
Revenue increased by 15% to R5 087 million. This was due to
significantly higher free on rail export prices, increased selling
prices to ArcelorMittal based on higher international coking coal prices
and stronger power station coal prices to Eskom.
Despite a lower operating income at the tied operations brought about by
a non-recurring payment of R30 million from Eskom to Arnot for committed
reserves in 2006, Exxaro Coal achieved a record net operating profit of
R885 million, 43% higher than in 2006. The higher revenue, the
profitable turnaround at NBC and the savings realised from integrating
the Eyesizwe and Kumba Coal corporate offices, offset inflationary
pressures primarily in respect of labour and diesel costs.
MINERAL SANDS
KZN SANDS
KZN Sands reported improved production results from both furnaces for
the 2007 financial year in contrast with the negative impact that the
Furnace 1 shut had on production in the same period in 2006. Titanium
slag tapped was 35 659 tonnes higher at an annual production record of
186,6kt. Increased slag throughput also boosted low manganese pig iron
(LMPI) production. Ilmenite production was aligned with higher smelter
feed requirements, resulting in 48kt more than in 2006.
Business improvement initiatives during the year focused on increasing
smelter output at KZN Sands with Furnace 1 and Furnace 2 achieving cold
feed capacity of 92kt (84%) and 94,6kt (86%) respectively.
The pre-heater was not introduced as planned due to instability in the
furnaces, exacerbated by Eskom`s power supply shortages in the last
quarter of the year. KZN Sands will undertake a review in 2008 of the
current furnace hearth technology in use at the operation with the
objective to improve the performance of the furnaces.
Zircon and rutile production declined due to lower mineral grades in the
area mined during the period under review.
Revenue was R167 million higher due to increased chloride slag and LMPI
sales. Net operating loss increased by R43 million which includes a R45
million write down of the crude ilmenite stockpile from cost to net
realisable value due to the stronger rand at the end of the financial
year.
Furnace 2 is due for a scheduled maintenance shut in the latter part of
2008 which will result in less slag and LMPI production in 2008 when
compared to the 2007 financial year.
The average minerals sands in-situ grade at the Hillendale mine nearing
the end of its life is expected to be lower in 2008 until the mining and
development of the Fairbreeze and Braeburn deposits can commence upon
obtaining the mining rights.
AUSTRALIA SANDS
Revenue increased by 14% primarily as a result of substantially higher
synthetic rutile sales due to successful treatment of the ilmenite
stockpile and the rollover of 2006 sales following the unplanned shut of
the kiln for repairs and preventative maintenance in 2006.
Record pigment production was maintained during the period due to
continuous de-bottlenecking of the pigment plant and business
improvement initiatives. Zircon and rutile volumes were sustained as
initiatives to increase recoveries were offset by reduced feed into the
dry mill, in turn caused by lower mining grades resulting in reduced
concentrate production.
A planned five-week shut for the synthetic rutile plant was successfully
completed on schedule in July 2007. The benefits of the shut led to
increased synthetic rutile production. A successful two-week shut was
also completed at the Cooljarloo mine and included the replacement of
the outer shell of the floating feed preparation unit.
Net operating profit, however, decreased substantially as the Australian
dollar strengthened by more than 20% against the US dollar to a 23-year
high and continued cost increases in energy consumables were not fully
offset by modest price increases for zircon and pigment.
The 2008 mining plan indicates mining of a lower grade area for most of
the year. This is expected to result in marginally lower heavy minerals
concentrate production.
BASE METALS
Production of zinc concentrate at the Rosh Pinah mine of 95kt was nine
percent lower than the equivalent period in 2006 attributable to floods
in the early part of the year in southern Namibia, industrial action at
the mine in the second half of the year as well as stoppages due to
equipment and plant failure. This also had a negative effect on lead
production.
Production volumes at the Zincor refinery increased from 90kt in 2006 to
101kt in 2007 underpinned by the improved quality of imported zinc
concentrates and plant performance which in turn positively impacted on
zinc recoveries of up to almost 92%. Zincor successfully completed a
rebuild of the number 4 roaster similar to roaster number 3 that was
rebuilt in the second half of 2006, resulting in a marked improvement in
the roaster throughput in the plant.
Similar to 2007, capital expenditure in 2008 at both Rosh Pinah and
Zincor will focus on the replacement of mining and plant equipment
including the rebuild of the two small roasters and the realignment and
major maintenance of the cell house at Zincor.
Revenue increased by 15% to R2 732 million with an operating margin of
25% as a result of a 2% increase in the average rand zinc price for the
year to R22 824 per tonne compared to R22 311 per tonne in 2006. This
was partially offset by inflationary production cost increases, and a
write down to net realisable value of zinc stocks in the amount of R88
million resulting from the decline in LME zinc prices converted to rand
terms, at the end of the reporting year.
Production ramp-up from 50ktpa to 110ktpa at the Chifeng refinery has
reached 80% of design capacity at year-end. Exxaro has an effective 22%
interest in the expanded operation. The significant decline in demand
for zinc, especially zinc alloys, in the local Chinese market as well as
the sharp decline in prices at year-end combined with the higher
operating expenditure during the ramp-up phase, resulted in Exxaro`s
equity accounted interest reducing from a profit of R40 million in 2006
to a loss of R18 million in 2007.
Completion of the transaction to divest a 43,8% interest in Rosh Pinah
Zinc Corporation (Pty) Limited ("Rosh Pinah") to Namibian shareholder
groupings is targeted for the first half of 2008, effectively reducing
Exxaro`s shareholding in Rosh Pinah to 50,04%. Exxaro will continue to
manage the mine in terms of a management agreement.
A total of 13kt representing 30% of Rosh Pinah`s projected lead sales up
to June 2010 were hedged at forward prices ranging from US$1 700 to
US$940 per tonne to accommodate the stand-alone funding structure
arranged for the divestment. A further 30% of an intended 60% of the
projected zinc sales up to mid 2011 were hedged subsequent to year-end
at prices ranging from US$2 098 to US$2 435 per tonne.
INDUSTRIAL MINERALS
Production at both the FerroAlloys plant and the Glen Douglas mine
remained in line with the previous corresponding period. Net operating
profit declined at the Glen Douglas mine by R3 million as a result of
higher maintenance expenditure and lower offtake of higher premium
metallurgical dolomite products by ArcelorMittal.
GROWTH OPPORTUNITIES
COAL
Ramp-up of the GG6 project has reached 90% of the design capacity of
750ktpa. In addition to supplementing semi-soft coking coal to
ArcelorMittal`s South African coking plants, the project contributes to
alleviating the shortage of market coke for the ferro-alloy industry.
A supply agreement for 45 years was awarded to Exxaro Coal by Eskom in
March 2007 to supply 8,5Mtpa of power station coal from the Grootegeluk
mine to Eskom`s new 2 400MW Medupi power station consisting of three
generating units adjacent to the Matimba power station. Feasibility
studies are underway to also supply the planned additional three
generating units of Medupi which could increase the total coal supply
from the Grootegeluk mine to the new power station to 14,6Mtpa.
Capital expenditure on the char project for the production of char for
the ferro-alloy industry from a four retort facility at the Grootegeluk
mine ramping up to 160ktpa in 2008, has been revised to R320 million
from R296 million due to contractor skills shortages and scope changes.
The completion of the feasibility study to investigate the viability of
a market coke plant has been extended to 2008 to allow for more test
work on the coking characteristics of the process. If viable, the plant
will produce high quality market coke from semi-soft coking coal
produced at Grootegeluk mine.
In May 2007 Exxaro was awarded 2,5Mtpa export entitlement through RBCT
by means of a subscription process in addition to the existing 0,8Mtpa
entitlement. Exxaro also purchased a further 1Mtpa export entitlement
through RBCT from Billiton Energy Coal South Africa Limited for R212
million, bringing the total export allocation to 4,3Mtpa. On completion
of the RBCT Phase V expansion scheduled for the second quarter of 2009,
Exxaro will receive a further 2Mtpa export entitlement through the South
Dunes Coal Terminal Company, bringing the total entitlement to 6,3Mtpa.
Construction of the beneficiation plant at Inyanda is progressing well
with hot commissioning planned for the second quarter of 2008. The R269
million Inyanda coal mine will produce up to 1,5Mtpa of product.
The capital cost of the Mafube expansion project, in which Exxaro is a
50:50 joint venture partner with Anglo Coal, is expected to be
approximately R1,9 billion on completion. Construction commenced in July
2006 with the first coal to the washing plant delivered in January 2008
and ramp-up to full capacity expected in seven months.
Mining of the Eerstelingsfontein reserves near Belfast to supply 1Mtpa
power station coal to Eskom is targeted for 2008 on receipt of
environmental approvals. The feasibility study on the project has been
completed and mining authorisation was received. In addition, expanded
production of up to 2,4Mtpa from the Blesbok project at Belfast is
currently underway to meet the increased local demand for power station
coal.
In terms of the 50:50 joint venture agreement between Exxaro and Anglo
Coal Australia, exploration of the coking coal resource on the adjacent
properties of Moranbah South and Grosvenor South in Queensland,
Australia is progressing according to schedule. Exploration in 2008 will
focus on geophysical work to delineate potential long-wall mining
resources. Moranbah South has the potential to produce about 3,5Mtpa of
quality hard coking coal from underground long-wall mining for at least
20 years.
The Board has approved the development of the Diepspruit reserve at NCC
with implementation planned for the third quarter of 2008, subject to
regulatory approvals. The R136 million project will produce 1,3Mtpa run
of mine coal for beneficiation at NCC to supply the export market.
MINERAL SANDS
The start of construction of the Fairbreeze mine, south of KZN Sands`
existing Hillendale mine in KwaZulu-Natal, has been delayed to October
2008 subject to the approval of mining rights. The water-use licence has
been approved and production is planned to start in July 2010.
Feasibility studies on the Port Durnford project, located to the
immediate south-west of Hillendale mine, are on track for completion by
December 2008. The project, if viable, could potentially supply the
current KZN Sands furnaces for over 25 years.
The Toliara Sands project in south-western Madagascar comprises two
exploration areas, Ranobe and Monombo-Marombe. Hand-auger drilling in
the Monombo-Marombe area indicates resources capable of supplying long-
term ilmenite feedstock to the Exxaro KZN Sands furnace complex. Further
exploration drilling in this area is planned for 2008. Completion of the
feasibility study for the Ranobe deposit is targeted for the end of
2008.
The feasibility study on the pigment plant expansion to 160ktpa at the
Tiwest Kwinana facility was completed in the last quarter of 2007. A
decision on implementation by Exxaro and its joint venture partner,
Tronox Inc., is planned for the first half of 2008.
Bankable feasibility studies on the Dongara project, which forms part of
the Tiwest joint venture, are ongoing. With a 20Mt reserve and 10% heavy
minerals, the project will provide supplementary feedstock for Tiwest`s
mineral separation plant and synthetic rutile facility. As a result of
increased life expectancy at the Tiwest dry mine at Cooljarloo,
production at Dongara is planned to start in early 2011.
BASE METALS
A feasibility study is currently being undertaken on the further
expansion of the Chifeng refinery with a capacity increase in the order
of 130ktpa. The outcome of this study is expected to be completed by mid-
2008 after which Exxaro will review its participation in the expanded
operation.
ALLOYSTREAMTM
The Furnace 1 feasibility study of the AlloyStreamT technology, which
allows for the demonstration of this furnace`s beneficiation of
manganese ore, is planned for completion during the second half of 2008.
The AlloyStream technology could also lend itself to the production of
ferro-nickel for which test work and pilot campaigns are planned for
2008.
POWER CONSTRAINTS
It is considered unlikely that future production at the coal mines will
be affected by Eskom`s load shedding/rationing programme. Most of the
group`s coal operations supply some or all their production to Eskom`s
power plants. However, both KZN Sands and Zincor have an agreement with
the electricity utility which may result in some 10% of production being
lost.
The group supports the initiative contemplated by Eskom to introduce
stability into the power plant fleet and electricity transmission grid
and is committed to assisting Eskom in finding longer term solutions in
terms of additional coal supply, and consistency and quality of coal
supply. Exxaro is also examining various alternatives with regard to the
conservation and use of electricity throughout its operations.
CONVERSION OF MINING RIGHTS
Exxaro is approaching the conversion of its old order mining rights to
new order rights in two phases. It is firstly progressing the
applications which have been submitted for the conversion of the former
Kumba Resources - associated rights, excluding iron ore. This will be
followed by applications for the conversion of the former-Eyesizwe old
order mining rights. The scheduled date for submission of the latter is
April 2008.
Exxaro held a workshop with the Department of Minerals and Energy (DME)
in July 2007 as part of the conversion process to clarify and progress
the applications for new order mining rights. In addition to the
conversion applications, Exxaro also lodged applications for new order
mining rights for mineral sands deposits at Fairbreeze C Extension,
Braeburn, UVS and Braeburn Extension close to its existing Hillendale
mine in KwaZulu-Natal, and coal reserves at Tshikondeni Goni and
Leeuwpan Extension. The outcome of the applications is awaited.
CHANGES TO THE BOARD
Subsequent to year-end, Ms N Nyembezi-Heita has resigned from the Board
with effect from 29 February 2008. The Board wishes to thank her for her
services as director and chairperson of the Transformation,
Remuneration, Human Resources and Nomination Committee of the Board.
OUTLOOK
The acute shortage of skills in critical operational and project
development positions poses a significant challenge to the group.
Retention strategies and other programmes have been initiated to
mitigate this risk.
Strong local and export demand for coal products at increased prices
linked to higher sales volumes from the current project developments
coming on stream, is expected to increase the profit contribution from
the group`s commercial coal operations. The results of the mineral sands
business are likely to be adversely affected by the planned reline shut
of Furnace 2 at Empangeni, a continued strong Australian dollar and the
mining of lower grade mineral sands deposits. The current softer trend
in zinc metal prices is expected to persist. Continued buoyant iron ore
market conditions should benefit the group in respect of its equity
interest in SIOC. A weaker rand will positively impact on US dollar
denominated revenue.
FINAL DIVIDEND
The directors have declared a final dividend, dividend number 10 of 100
cents per share in respect of the 2007 financial year. The dividend has
been declared in South African currency and is payable to the
shareholders recorded in the books of the company at close of business
on Friday, 14 March 2008.
In compliance with the electronic statement system of JSE Limited, the
following dates are applicable:
Last date to trade cum dividend Friday, 7 March 2008
Shares trade ex dividend Monday, 10 March 2008
Record date Friday, 14 March 2008
Payment date Monday, 17 March 2008
Share certificates may not be dematerialised or rematerialised between
10 March 2008 and 14 March 2008, both days inclusive.
On behalf of the Board
SA Nkosi DJ van Staden
(Chief Executive Officer) (Chief Financial Officer)
20 February 2008
Registered Office Transfer Secretaries
Exxaro Resources Limited Computershare Investor Services 2004
Roger Dyason Road (Pty) Limited
Pretoria West Ground Floor, 70 Marshall Street
0183 Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
Tel no +27 12 307 5000
Fax no +27 12 307 4760
Directors: SA Nkosi (Chief Executive Officer)*, PM Baum,
JJ Geldenhuys, U Khumalo, MJ Kilbride*, Dr D Konar, VZ Mntambo,
RP Mohring, PKV Ncetezo, N Nyembezi-Heita, NL Sowazi,
DJ van Staden*, D Zihlangu
*Executive
Company Secretary: MS Viljoen
Corporate Affairs and Investor Relations: Trevor Arran
(+27 12 307 3292)
Sponsor: JP Morgan (+27 11 507 0300)
JSE share code: EXX ADR code: EXXAY
Registration number: 2000/011076/06'ISIN code: ZAE000084992
If you have any queries regarding your shareholding in Exxaro Resources,
please contact the Transfer Secretaries at +27 11 370 5000.
This report is available at www.exxaro.com
20 February 2008
Date: 21/02/2008 07:00:01 Supplied by www.sharenet.co.za
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