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EXX - Exxaro Resources Limited - Reviewed group interim financial results and
physical information for the six-month period ended 30 June 2008
Exxaro Resources Limited
Registration number: 2000/011076/06
JSE share code: EXX
ISIN code: ZAE000084992
ADR code: EXXAY
Reviewed group interim financial results and physical information
for the six-month period ended 30 June 2008
- Record coal operating profit of R935 million
- Headline earnings per share up 53%
- Interim dividend of 175 cents per share
- 14,6Mtpa coal supply to new Medupi power station agreed
Condensed group income statement
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 Dec
2008 2007 2007
Reviewed Reviewed Audited
Rm Rm Rm
Revenue 5 782 4 852 10 157
Operating expenses (4 976) (3 961) (8 713)
Net operating profit 806 891 1 444
Net financing costs (note 4) (87) (109) (215)
Share of income from investments and
equity
accounted investments 753 401 730
Profit before taxation (note 2) 1 472 1 183 1 959
Income tax expense (226) (330) (512)
Profit for the period 1 246 853 1 447
Profit attributable to:
Owners of the parent 1 244 839 1 427
Minority interest 2 14 20
Profit for the period 1 246 853 1 447
Ordinary shares (million)
- in issue 354 352 353
- weighted average number of shares 343 341 341
- diluted weighted average number of 359 354 355
shares
Attributable earnings per share (cents)
- basic 363 246 418
- diluted 347 237 402
Group statement of comprehensive income
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 Dec
2008 2007 2007
Reviewed Reviewed Audited
Rm Rm Rm
Profit for the period 1 246 853 1 447
Other comprehensive income:
Exchange differences on translating 582 174 176
foreign operations
Cash flow hedges 143 (47) (39)
Share of comprehensive income of 42 33 46
associates
Share-based payment movement 62 38 133
Income tax relating to components of (64) 2
other comprehensive income
Other comprehensive income for the 765 198 318
period, net of tax
Total comprehensive income for the 2 011 1 051 1 765
period
Total comprehensive income attributable
to:
Owners of the parent 2 005 1 037 1 749
Minority interest 6 14 16
Total comprehensive income for the 2 011 1 051 1 765
period
RECONCILIATION OF HEADLINE EARNINGS
Gross Tax Net
Rm Rm Rm
6 months ended 30 June 2008
Net profit attributable to owners of the 1 244
parent
Adjusted for:
- IAS 16: Impairment of property, plant 7 7
and equipment
- IAS 16: Reversal of impairment of
property, plant
and equipment (1) (1)
- IAS 16: Gains or losses on disposal of 58 (16) 42
property, plant and equipment
Headline earnings 64 (16) 1 292
6 months ended 30 June 2007
Net profit attributable to owners of the 839
parent
Adjusted for:
- IAS 16: Impairment of property, plant 6 6
and equipment
- IAS 16: Gains or losses on disposal of 2 (1) 1
property, plant and equipment
- IAS 28: Share of associate`s IAS 16 - (1) (1)
gains or losses on disposal of property,
plant and equipment
- IAS 36: Impairment reversal of assets (6) (6)
Headline earnings 1 (1) 839
Year ended 31 December 2007
Net profit attributable to owners of the 1 427
parent
Adjusted for:
- IAS 16: Impairment of property, plant 23 23
and equipment
- IAS 16: Gains or losses on disposal of 17 (5) 12
property, plant and equipment
- IAS 28: Share of associate`s IAS 16 - (3) 1 (2)
gains or losses on disposal of property,
plant and equipment
- IAS 28: Share of associate`s IAS 39 - (7) 1 (6)
recycling of remeasurements from equity
to the income statement, including a
hedge of net investment in a foreign
entity but excluding cash flow hedges
- IAS 36: Impairment reversal of assets (6) (6)
Headline earnings 24 (3) 1 448
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 Dec
2008 2007 2007
Reviewed Reviewed Audited
Rm Rm Rm
Headline earnings per share (cents)
- basic 377 246 425
- diluted 360 237 408
Condensed group statement of financial position
At At At
30 June 30 June 31 Dec
2008 2007 2007
Reviewed Reviewed Audited
Rm Rm Rm
ASSETS
Non-current assets
Property, plant and equipment 8 655 7 743 8 235
Biological assets 30 26 30
Intangible assets 95 74 76
Investments in unlisted associates 1 231 724 757
and joint ventures (note 5)
Deferred tax 818 701 732
Other financial assets (note 5) 1 115 1 046 1 031
11 944 10 314 10 861
Current assets
Inventories 1 656 1 645 1 531
Trade and other receivables 2 088 1 633 1 931
Cash and cash equivalents 1 664 857 850
5 408 4 135 4 312
Non-current assets classified as 2 95 2
held for sale
Total assets 17 354 14 544 15 175
EQUITY AND LIABILITIES
Capital and reserves
Equity attributable to owners of 11 478 9 276 9 804
the parent
Minority interest 27 29 19
Total equity 11 505 9 305 9 823
Non-current liabilities
Interest-bearing borrowings 1 283 1 299 1 259
Non-current provisions 1 442 1 168 1 329
Deferred tax 1 204 1 097 1 077
3 929 3 564 3 665
Current liabilities
Trade and other payables 1 592 1 436 1 449
Interest-bearing borrowings 141 131 74
Current tax payable 164 82 137
Current provisions 23 26 27
1 920 1 675 1 687
Total equity and liabilities 17 354 14 544 15 175
Net (cash)/debt (note 8) (240) 573 483
Net asset value per share (cents) 3 242 2 635 2 778
Capital expenditure
- incurred 465 396 1 296
- contracted 715 417 450
- authorised but not contracted 1 036 693 1 278
Capital expenditure contracted
relating to captive mines
Tshikondeni, Arnot and Matla, which
will be financed by
ArcelorMittal SA Limited and Eskom 477 444 72
respectively
Commitment relating to the 2 353 2 353 2 353
acquisition of Namakwa Sands and a
26% interest in Black Mountain
(Pty) Limited from Anglo Operations
Limited, subject to price
adjustments
Contingent liabilities (note 9) 496 166 201
Contingent assets (note 10) 216
Operating lease commitments 90 122 127
Condensed group statement of cash flows
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 Dec
2008 2007 2007
Reviewed Reviewed Audited
Rm Rm Rm
Cash retained from operations 1 523 1 199 2 308
- net financing costs (45) (64) (116)
- tax paid (216) (309) (462)
- dividends paid (note 6) (348) (4) (223)
Cash used in investing activities
- capital expenditure (465) (396) (1 296)
- proceeds from disposal of 3 10 50
property, plant and equipment
- acquisition of subsidiary (30) (8) (8)
(note 7)
- investments acquired (69) (184) (249)
- dividends from investments and 352 71 379
equity accounted investments
- other 86 (5) 5
Net cash inflow 791 310 388
Net cash flow from financing
activities
- cash flows from issue of shares 17 100 114
- increase in minority loans 1
- borrowings raised/(repaid) 5 (468) (567)
Net increase/(decrease) in cash and 814 (58) (65)
cash equivalents
Special purpose entities 9 9
consolidated
Cash and cash equivalents at 850 906 906
beginning of period
Cash and cash equivalents at end of 1 664 857 850
period
Group statement of changes in equity
Share Share
capital premium
Rm Rm
Balance at 31 December 2006 4 5 135
Total comprehensive income
Issue of share capital(1) 9
Share placement(2) 91
- issue 640
- re-purchase (460)
- expenses (89)
Prior year dividend in specie reclassification (3 186)
Special purpose entities now consolidated
Minority share buy-out
Balance at 30 June 2007 4 2 049
Total comprehensive income
Dividends paid
Issue of share capital(1) 14
Special purpose entities now consolidated
Transfer to retained income
Minority share buy-out
Balance at 31 December 2007 4 2 063
Total comprehensive income
Dividends paid
Issue of share capital(1) 17
Minority share additional contributions
Balance at 30 June 2008 4 2 080
Dividend paid per share (cents) in respect of 160
the previous financial year
Dividend declared per share (cents) in respect 175
of this interim period(3)
(1) Issued to the Kumba Resources Management Share Trust due to options
exercised.
(2) Re-purchase of 10 million shares from Anglo South Africa Capital
(Pty) Limited on 13 April 2007 at R45.99 per share and subsequent re-
issue of 10 million new Exxaro shares at R64 per share. Secondary Tax
on Companies (STC) on the share re-purchase of R57.5 million is
included in profit for the period.
(3) The STC payable on dividends will be nil after taking into account
STC credits.
Group statement of changes in equity (continued)
Other components of equity
Foreign Financial Equity
currency instrument settled Insuranc
s e
translation revaluatio reserve reserve
s n
Rm Rm Rm Rm
Balance at 31 December 379 24 802
2006
Total comprehensive 174 (48) 72
income
Issue of share
capital(1)
Share placement(2)
- issue
- re-purchase
- expenses
Prior year dividend in
specie
reclassification
Special purpose
entities now
consolidated
Minority share buy-out
Balance at 30 June 553 (24) 874
2007
Total comprehensive (26) 31 110
income
Dividends paid
Issue of share
capital(1)
Special purpose
entities now
consolidated
Transfer to retained (16)
income
Minority share buy-out
Balance at 31 December 527 7 968
2007
Total comprehensive 573 106 74
income
Dividends paid
Issue of share
capital(1)
Minority share
additional
contributions
Balance at 30 June 1 100 113 1 042
2008
Dividend paid per
share (cents) in
respect of the
previous financial
year
Dividend declared per
share (cents) in
respect of this
interim period(3)
(1) Issued to the Kumba Resources Management Share Trust due to
options exercised.
(2) Re-purchase of 10 million shares from Anglo South Africa
Capital (Pty) Limited on 13 April 2007 at R45.99 per share and
subsequent re-issue of 10 million new Exxaro shares at R64 per
share. Secondary Tax on Companies (STC) on the share re-purchase
of R57.5 million is included in profit for the period.
(3) The STC payable on dividends will be nil after taking into
account STC credits.
Group statement of changes in equity (continued)
Attributab
le
Retained to owners Minorit Total
of y
income the parent interes equity
t
Rm Rm Rm Rm
Balance at 31 December 1 798 8 142 27 8 169
2006
Total comprehensive 839 1 037 14 1 051
income
Issue of share 9 9
capital(1)
Share placement(2) 91 91
- issue 640 640
- re-purchase (460) (460)
- expenses (89) (89)
Prior year dividend in 3 186
specie
reclassification
Special purpose (3) (3) (3)
entities now
consolidated
Minority share buy-out (12) (12)
Balance at 30 June 5 820 9 276 29 9 305
2007
Total comprehensive 597 712 2 714
income
Dividends paid (208) (208) (11) (219)
Issue of share 14 14
capital(1)
Special purpose 10 10 10
entities now
consolidated
Transfer to retained 16
income
Minority share buy-out (1) (1)
Balance at 31 December 6 235 9 804 19 9 823
2007
Total comprehensive 1 252 2 005 6 2 011
income
Dividends paid (348) (348) (348)
Issue of share 17 17
capital(1)
Minority share 2 2
additional
contributions
Balance at 30 June 7 139 11 478 27 11 505
2008
Dividend paid per
share (cents) in
respect of the
previous financial
year
Dividend declared per
share (cents) in
respect of this
interim period(3)
(1) Issued to the Kumba Resources Management Share Trust due to
options exercised.
(2) Re-purchase of 10 million shares from Anglo South Africa
Capital (Pty) Limited on 13 April 2007 at R45.99 per share and
subsequent re-issue of 10 million new Exxaro shares at R64 per
share. Secondary Tax on Companies (STC) on the share re-purchase
of R57.5 million is included in profit for the period.
(3) The STC payable on dividends will be nil after taking into
account STC credits.
Notes to the reviewed financial statements
1. Basis of preparation
The format of the condensed interim report has been revised to
bring it in line with the amendments to International Accounting
Standard 34, Interim Financial Reporting. IAS 34 has been amended
following the revision of IAS 1, Presentation of Financial
Statements and IFRS 8, Operating Segments. These amendments have
been early adopted.
This condensed interim report complies with International
Accounting Standard 34, Interim Financial Reporting, and schedule
4 part iv of the South African Companies Act. The group financial
results have been prepared on the historical cost 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 2007, except for the early adoption of IFRS 8,
Operating Segments and IAS 1, Presentation of Financial
Statements.
The implementation of IFRS 8 has led to differences in the basis
of segmentation compared to previous periods. As a result, new
operating segments have been identified. IAS 1 and IFRS 8 are
disclosure standards and have no other impact on the measurement
or recognition of items included in the condensed interim report
and accordingly the adoption thereof has had no effect on the
profit or equity for the period.
6 months 6 months 12
months
ended ended ended
30 June 30 June 31 Dec
2008 2007 2007
Reviewed Reviewed Audited
Rm Rm Rm
2. Profit before tax is arrived at after
including:
Depreciation and amortisation (415) (368) (763)
Financing costs (141) (153) (311)
Interest income 54 44 96
Net realised foreign currency 107 (2) (42)
exchange gains/(losses)
Net unrealised foreign exchange (17) (41) (32)
losses
Derivative instruments held for 25 (4) 61
trading
Fair value adjustment on financial (7) 29 51
instruments
Impairment charges (note 3) (6) (17)
Net deficit on disposal of property, (58) (2) (17)
plant and equipment
3. Impairment charges
Impairment of property, plant and (7) (6) (23)
equipment
Reversal of impairment of property, 1
plant and equipment
Reversal of impairment of other 6 6
investments
Total impairments before and after (6) (17)
tax
4. Net financing costs
Interest expense and loan costs 67 78 153
Finance leases 31 30 59
Interest income (54) (44) (96)
Net interest expense 44 64 116
Interest adjustment on non-current 43 45 99
provisions
Net financing cost as per income 87 109 215
statement
5. Investments
Unlisted investments in associates
- directors` valuation 14 338 8 900 9 110
Unlisted investments included in
other financial assets
- directors` valuation 360 333 328
6. Dividends paid
Cash dividends 348 211
Cash dividends paid to minorities 4 12
relating to previous year
Total dividends paid 348 4 223
7. Business combinations
On 11 April 2008, the group acquired
76% of the issued share capital of
Exxaro Madencilik Sanayi Ve Ticaret
A.S., Turkey, which is included in
the other segment results.
The acquired business contributed
neither revenue nor operating profits
to the group for the period from 11
April 2008 to 30 June 2008.
Details of assets acquired are as
follows:
- cash paid on acquisition (30)
- fair value of assets acquired 30
Fair value of assets acquired
- intangible assets 30
Fair value of net assets 30
Total purchase consideration (30)
Cash outflow on acquisition of (30)
subsidiary
8. Net cash/debt
Net cash/debt is calculated as being interest-bearing borrowings
less cash and cash equivalents.
9. Contingent liabilities
Includes guarantees in the normal course of business from which it
is anticipated that no material liabilities will arise. This
includes guarantees to banks and other institutions. The increase
in 2008 is mainly attributable to guarantees issued to the
Department of Minerals and Energy in respect of environmental
liabilities on immediate closure of mining operations.
10. Contingent asset
An outstanding insurance claim for the Furnace 2 incident at
Exxaro TSA Sands (Pty) Limited for which it is probable that
settlement will be received in the second half of 2008.
11. Related party transactions
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. Post-balance sheet event
During June 2008 the group announced an empowerment deal involving
Rosh Pinah Zinc Corporation (Pty) Limited, whereby Exxaro`s
effective interest is reduced from 93,9% to 50,04% in favour of a
number of Namibian shareholder groupings. The effective date of
the empowerment transaction is 1 July 2008.
13. JSE Limited requirements
The interim 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. Auditors` review
The interim results have been reviewed by the company`s auditors,
Deloitte & Touche. Their unmodified review opinion is available
for inspection at the company`s registered office.
Unaudited physical information (`000 tonnes)
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 Dec
2008 2007 2007
Coal
Production
- Power station 18 118 16 830 34 246
*Tied mines(1) 8 962 8 353 16 732
*Commercial mines 9 156 8 477 17 514
- Coking 1 370 1 479 2 962
*Tied mines 171 242 463
*Commercial mines 1 199 1 237 2 499
- Other commercial operations 2 427 2 016 4 112
Total 21 915 20 325 41 320
Sales
- Eskom 17 880 16 604 34 226
*Tied mines 8 942 8 337 16 699
*Commercial mines 8 938 8 267 17 527
- Other domestic 2 607 2 572 5 237
*Tied mines 200 214 449
*Commercial mines 2 407 2 358 4 788
- Export commercial operations 1 284 813 1 821
Total 21 771 19 989 41 284
Mineral Sands - RSA
Production
- Ilmenite 133 187 367
- Zircon 16 19 34
- Rutile 7 9 17
- Pig iron 29 48 90
- Scrap pig iron 8 9 20
- Chloride slag 56 77 150
- Sulphate slag 10 14 26
Sales
- Ilmenite 20 30 50
- Zircon 22 14 27
- Rutile 7 9 18
- Pig iron 39 45 91
- Scrap pig iron 6 4 8
- Chloride slag 49 81 163
- Sulphate slag 6 8 29
Mineral Sands - Australia(2)
Production
- Ilmenite 85 111 216
- Zircon 13 19 36
- Rutile 6 8 17
- Synthetic rutile 56 48 100
- Leucoxene 6 8 16
- Pigment 22 26 54
Sales
- Ilmenite 10 20
- Zircon 14 16 29
- Rutile 5 2 16
- Synthetic rutile 27 21 57
- Leucoxene 8 7 17
Base metals
Production
- Zinc concentrate 47 53 95
- Zinc metal 60 61 124
- Zincor 47 51 101
- Chifeng(3) 13 10 23
- Lead concentrate 12 11 22
Zinc metal sales
- Domestic 51 45 93
- Export 15 12 29
Total 66 57 122
Lead concentrate sales
- Export 7 7 19
(1) Tied mines refer to mining operations that supply their entire
production to either Eskom or ArcelorMittal SA Limited in terms of
contractual agreements.
(2) The production and sales tonnes reflect Exxaro Sands Australia`s
50% interest in the Tiwest joint venture with Tronox Inc., Western
Australia.
(3) The effective interest in the physical information for the Chifeng
(Hongye) refinery has been disclosed.
COMMENTS
OPERATING RESULTS
Comments are based on a comparison of the group`s reviewed financial results and
physical information for the six-month periods ended 30 June 2008 and 2007
respectively.
The coal business continued to benefit from strong demand, higher sales volumes
and significant price increases. The base metals business delivered lower
operating profit in line with declining zinc prices while generally depressed
mineral sands prices, lower volumes and a persistent strong Australian dollar
had a major adverse effect on the operating results of the mineral sands
business.
Revenue increased by 19% to R5 782 million while net operating profit decreased
by R85 million to R806 million due to lower profits in the base metals business
and a significant loss in the mineral sands business.
A weaker average exchange rate of R7,54 to the US dollar was realised compared
to R7,33 for the corresponding period in 2007. The continued strengthening of
the Australian dollar to the US dollar, from an average of 0,81 US cents in the
six-month period to 30 June 2007 to 0,93 US cents in the period under review,
however, impacted negatively on the financial results of the mineral sands
operation in Australia.
EARNINGS
Attributable earnings, which includes the group`s 20% interest in the after-tax
profits of Sishen Iron Ore Company (Pty) Limited (SIOC) amounting to R735
million, increased by 48% from R839 million to R1 244 million or 363 cents per
share.
Headline earnings of R1 292 million are 54% higher than for the corresponding
period of R839 million while headline earnings per share increased from 246
cents to 377 cents.
CASH FLOW
Cash retained from operations of R1 523 million was primarily used to fund
taxation payments of R216 million, the final dividend for the 2007 financial
year of R348 million and capital expenditure of R465 million. R221 million of
this amount was invested in new capacity and R244 million applied to sustaining
and environmental capital.
Net cash inflow was R481 million higher at R791 million compared to the
corresponding period in 2007 resulting from higher cash generation from
operations and a R352 million dividend receipt from SIOC in March 2008.
Net debt of R483 million at 31 December 2007 has changed into a net cash
position of R240 million at 30 June 2008 due to the delays in effecting the
committed payment of R2 353 million, subject to the disclosed price adjustments,
for the acquisition of the net assets of Namakwa Sands and a 26% interest in
Black Mountain/Gamsberg on completion of the conversion and cession process of
their mining rights to the group.
SAFETY, HEALTH AND ENVIRONMENT (SHE)
The group remains committed to achieving a working environment that is fatality
and injury free. Its safety awareness and preventative programmes have been
enhanced by a strong focus on hazard identification and visible felt leadership.
Regrettably, despite ongoing interventions, two fatalities were suffered during
the period under review. Improvement of the average lost time injury frequency
rate (LTIFR) per two hundred thousand man-hours worked of 0,45 for the year to
date against a target of 0,21 and compared to 0,36 achieved at the end of 2007,
remains a key objective.
The group is further committed to achieving industry health sector targets by
2013. Following an assessment of its operations, programmes to ensure mitigation
of risks from noise and dust are being implemented. In line with the HIV/Aids
strategy, the current focus is to improve voluntary counselling and testing
(VCT) enrolment by creating a conducive environment for disclosure and treatment
participation. VCT participation increased to 42% of employees with the
prevalence rate unchanged at 13%.
All the group`s operations have fully compliant Environmental Management
Programmes required under the Mineral and Petroleum Resources Development Act
(MPRDA) and the National Environmental Management Act (NEMA) which is one of the
key indicators of ensuring that Exxaro remains a sustainable business. 71% of
operations are certified under both the international health and safety
certification (OHSAS 18001) and environmental certification (ISO 14001). The
target to have all operations fully compliant by December 2008 is on track.
REPORTED SEGMENT RESULTS
Implementation of a new International Financial Reporting Standard (IFRS 8) on
operating segments has led to differences in the basis of disclosure of
segmentation compared to previous periods. The revised segments are based on the
group`s different products and operations as well as the physical location of
these operations and associated products.
Segment results
6 months 6 months 12 months
ended ended ended
30 June 30 June 31
December
2008 2007 2007
Reviewed Reviewed Audited
Rm Rm Rm
Revenue
Coal 3 597 2 319 5 087
Tied operations 1 106 838 1 768
Commercial operations 2 491 1 481 3 319
Mineral Sands 1 035 1 040 2 172
KZN Sands 460 480 984
Australia Sands 575 560 1 188
Base Metals 1 063 1 416 2 732
Rosh Pinah 244 577 941
Zincor 1 032 1 358 2 558
Inter-segmental (213) (519) (767)
Other 87 77 166
Total - external revenue 5 782 4 852 10 157
Net operating profit/(loss)
Coal 935 393 885
Tied operations 72 50 88
Commercial operations 863 343 797
Mineral Sands (166) 8 (97)
KZN Sands (27) (28) (157)
Australia Sands (139) 36 60
Base Metals 89 502 688
Rosh Pinah 57 330 457
Zincor 69 192 298
Other (37) (20) (67)
Other (52) (12) (32)
Total 806 891 1 444
OPERATIONS
Coal
Production of power station coal was 1 288kt higher at 18,1Mt than for the
comparative period in 2007 with both the Eskom tied and the commercial mines
achieving higher production. Matla, after obtaining regulatory approval of a
river diversion and through improved efficiencies, increased production by 299kt
to offset the impact of the second half of 2007 face break which negatively
affected production in the first quarter of 2008. Arnot in turn increased
production by 311kt as an optimisation project focusing on throughput that
commenced in February 2008, has already shown positive results.
Various on-mine initiatives at the commercial operations of Grootegeluk and
Leeuwpan aimed at meeting the increased demand of 679kt from Eskom, were
complemented by the mining of new reserves at the North Block Complex (NBC)
which delivered increased product volumes of 251kt.
Lower coking coal production of 109kt compared to the corresponding period in
2007, was due to challenging geological and mining conditions at Tshikondeni.
Production of steam coal was 20% higher at 2 427kt due to the accelerated start-
up of Inyanda in the latter part of 2007 to mitigate the loss of production at
New Clydesdale (NCC) following the closure of the underground operations during
2007. Higher steam coal production at Leeuwpan mine of 98kt resulted from
increased overburden removal with a view to additional run of mine production
for 2008.
Sales to Eskom increased by approximately 1,3Mt on the back of increased demand
while other domestic sales remained largely in line with the comparative period
in 2007.
Export sales increased by 58% on higher international demand supported by
increased export allocation at the Richards Bay Coal Terminal (RBCT). Two new
mines, Inyanda and Mafube, are in the process of ramping-up and have already
contributed to increased production and sales.
The 32% increase in revenue from the tied mines for the period under review
results from increased volumes and the higher operating cost that is
recoverable, while the 68% increase in revenue from the commercial mines is due
to higher local and international selling prices, increased volumes and a weaker
local currency.
On the back of the substantially higher revenue the coal business achieved a
record operating income of R935 million for the six months ended 30 June 2008 at
an operating margin of 26%, a 138% improvement on the same period in 2007
despite inflationary pressures primarily in the cost of fuel, labour and
electricity.
Mineral Sands
KZN Sands
KZN Sands reported lower production volumes following the significant damage
caused to Furnace 2 after the water ingress incident at the end of February 2008
as previously reported. Furnace 1, however, delivered good production results.
More than 50kt of slag was tapped in the period under review representing an
equivalent of 93% of cold feed design capacity, a new record. Low manganese pig
iron production was lower resulting from the decreased slag throughput while
ilmenite production was aligned with the lower smelter feed requirements
compared to the comparative period in 2007. Zircon and rutile production were
marginally lower than the comparative period due to declining mineral grades in
the mine area while awaiting approval of the mining rights for adjacent mining
areas.
Revenue was R20 million lower while net operating profit remained in line with
the corresponding period in 2007, at a loss of R27 million as a result of the
loss of production from the furnace outage. The net operating loss includes the
derecognition of damaged Furnace 2 assets of R52 million and a write-down of the
crude ilmenite stockpile by R14 million.
The originally planned four-month maintenance shut on Furnace 2 has been brought
forward following the water ingress incident. Current estimates suggest that the
repairs to the furnace will result in additional downtime. Completion is
scheduled for December 2008 with first metal tap in January 2009. The proceeds
of an insurance claim have not been recognised in the results under review.
Continued investigations into optimising the hearth technology at KZN Sands are
ongoing, with feasibility study results expected at the end of 2008.
Australia Sands
With the dredge mining operations proceeding through a lower grade area of the
mine during 2008, production of heavy mineral concentrate (HMC) was lower than
that of the corresponding period in 2007. As a result of the restricted HMC
supply, mineral production is also lower. Initiatives to improve recoveries of
both zircon and rutile have partially assisted in countering the impact of the
lower HMC production.
Synthetic rutile (SR) production was higher in the period under review following
the SR kiln shut in the first half of 2007. The benefits of that shut have since
been realised with stable operating conditions being experienced which in turn
have yielded an increase in production.
Pigment production was lower in the period under review due to plant downtime
associated with the rebuild of all four chlorinators at the Kwinana pigment
plant and an interruption in gas supply during the first quarter of 2008.
Various initiatives currently underway should result in an improvement of
production in the second half of 2008.
Substantial price increases in process chemicals and energy consumables, as well
as a regional gas supply crisis which resulted in higher gas prices, offset
somewhat by slightly higher pigment prices, resulted in net operating profit
declining significantly from a profit of R36 million in the previous comparative
period to a loss of R139 million. In addition, the strength of the Australian
dollar against the US dollar continues to negatively impact on the profitability
of the business. This was partially offset by currency hedging gains of A$2,6
million (R17,6 million) during the period under review. Currency hedging of
US$40 million at an average rate of US cents 94 to the Australian dollar is in
place for the remainder of 2008.
Base Metals
Production of zinc concentrate at the Rosh Pinah mine was 47kt, 11% lower than
the comparative period in 2007. The lower production volumes were mainly the
result of plant stoppages and instability due to equipment failures at the
crushing and flotation circuits of the plant. A capital replacement programme
for the flotation circuit is planned for early 2009 while that for the crushing
circuit is planned for completion during the second half of 2008.
Production of zinc metal at the Zincor refinery was 47kt, 8% lower than the
comparative period in 2007. This was as a direct result of electricity load
shedding and power rationing that also led to instability in plant operating
conditions. The group expects that zinc production in the second half of 2008
will continue to be affected by power rationing as well as the planned rebuild
of the two smaller roasters and major maintenance at the cell house. Zinc metal
sales were 10% higher when compared to the previous period in 2007 due to good
local demand.
Revenue for the six months to 30 June 2008 decreased some 25% mainly as a result
of lower zinc prices. The average zinc price realised for the period under
review was US$2 272 per tonne, approximately 36% lower than the price recorded
in the previous comparative period in 2007.
Net operating profit declined significantly as a result of lower revenue coupled
with higher operating cost. The cost increases were driven by higher than
inflation increases in electricity, fuel and labour as well as higher
maintenance costs. Zinc metal inventories were written down to net realisable
value by R45 million for the period under review.
Production at the Chifeng refinery in which the group owns an effective 22%
interest has been fully ramped up to beyond its name plate capacity of 110ktpa.
Equity accounted income increased by R11 million to R18 million compared to the
corresponding period in 2007 due to additional production and sales volumes.
The divestment of a 43% interest in Rosh Pinah Zinc Corporation (Pty) Limited
(RPZC) to Namibian shareholder groupings, reducing the group`s shareholding to
an effective 50,04% from 1 July 2008, was completed in June 2008.
In terms of the transaction, RPZC declared a dividend of R435 million of which
R405 million is payable to the group. Shareholders` loans of R80 million were
extended to Rosh Pinah of which Exxaro provided R75 million.
As part of the transaction, an employee empowerment participation scheme
entitling eligible employees to share in 3% of RPZC`s future dividend payments,
has been created.
At 30 June 2008, a total of 12kt representing 40% of Rosh Pinah`s projected lead
sales and 63kt representing 47% of the projected zinc sales, were hedged.
Subsequent to the end of the period the hedging programme to accommodate the
stand alone bank funding, was completed. A total of 20,1kt of lead sales are
hedged forward until 2011 at an average price per tonne of US$1 756 and 93kt of
zinc sales at an average price per tonne of US$2 187.
GROWTH OPPORTUNITIES
Coal
In July 2008 Eskom and the coal business reached agreement on the supply for 45
years of 14,6Mtpa of power station coal from Grootegeluk mine to Eskom`s
adjacent Medupi power station which is currently under construction. This
agreement is inclusive of the 8,5Mtpa of power station coal to the Medupi power
station which was agreed to in March 2007. The agreement is subject to the final
approval by the Eskom board. Exxaro board approval for the coal supply agreement
and the implementation of the project to expand the Grootegeluk mine at a
capital cost of R9 billion, was given on 12 August 2008.
Construction of the Sintel char plant at the Grootegeluk mine for the production
of reductants for the ferroalloy industry at a total capital cost of R389
million is behind schedule. This is due to delays experienced with the
construction contractors. Ramp-up of the facility commenced in August 2008 with
full production of 160ktpa estimated to be reached in the first half of 2009.
A feasibility study to investigate the viability of producing high quality
market coke from semi-soft coking coal produced at Grootegeluk mine is
progressing well with first results expected by the end of 2008.
Commissioning of the beneficiation plant at the R290 million Inyanda mine was
successfully completed in the second quarter of 2008. It is expected that full
production of up to 1,5Mtpa of product mostly for the export market, will be
achieved by the end of 2008.
Commissioning of the Mafube expansion project at a capital cost of R1,9 billion
in which the group is a 50:50 joint venture partner with Anglo Coal, has been
completed and ramp-up to full capacity is expected to be reached by the end of
2008. At full production the mine will produce 3Mtpa of export steam coal and
2Mtpa of power station coal.
All mining authorisations and regulatory approvals for mining of the
Eerstelingsfontein reserves near Belfast to supply 1Mtpa of product to the local
market have been obtained. Production is planned to commence in the third
quarter of 2008, with full production expected by the first quarter of 2009.
Exploration of the hard coking coal resource on the adjacent properties of
Moranbah South and Grosvenor South in Queensland, Australia, continues to
progress according to schedule. Exploration is mainly focused on geophysical
work to delineate long-wall mining resources although the potential for other
mining methods has not been excluded. Moranbah South has the potential to
produce large volumes of premium quality hard coking coal.
Implementation of the development of the Diepspruit reserve at New Clydesdale
(NCC) has commenced with the aim to produce its first coal by the end of 2008.
The R136 million project will produce 1,3Mtpa run of mine coal for beneficiation
at NCC for supply to the export steam coal market.
As part of the group`s long-term strategy to leverage the strategic advantage
that it enjoys in the Waterberg coal field, exploration programmes have been put
in place and discussions continue with potential high volume long term off-
takers of coal.
Several on-site power generation projects are being investigated.
Mineral Sands
The Toliara Sands project`s feasibility study for the Ranobe deposit in south-
western Madagascar is progressing. Further process and metallurgical test work
is being undertaken on the ilmenite product from this deposit. An aerial
radiometric and a magnetic survey is planned for the northern Monombo-Marombe
area.
Implementation of the Tiwest Kwinana pigment plant expansion project for an
additional 40ktpa production has been approved by the board and will be
completed by 2010. The group will fund 100% of the A$100 million expansion
project. Tronox Inc., the group`s Tiwest joint venture partner has the option to
contribute its share of the capital at its discretion throughout the project
until a date two years from commissioning of the expansion.
The Dongara feasibility study which forms part of the Tiwest joint venture is in
process and will be completed during 2009. As a result of the increased life
expectancy of the Tiwest current dry mine operation at Cooljarloo, production at
Dongara is planned to commence in 2011. The Dongara deposit has the potential to
provide feedstock for the Tiwest mineral separation plant for six years. Further
exploration at Cooljarloo West has also been approved by the joint venture
partners.
Construction of the Fairbreeze mine south of the existing Hillendale mine in
KwaZulu-Natal, can commence on approval of the mining right. Current estimates
for production start-up is for late 2010. The feasibility study of the Port
Durnford deposit located to the south-west of the current Hillendale operations
will be completed in 2009. This mine could supply the KZN furnaces for longer
than 20 years, if proven viable.
A drilling campaign to confirm previous drill results at the Centane deposit in
the Eastern Cape is currently underway.
Base Metals
An investment was made in exploration assets in Turkey. The exploration area
includes zinc, lead, copper and iron ore prospects. A total of R56 million was
expensed for the period on acquisition and exploration costs. The acquisition
cost of the investment was allocated to intangible assets (exploration rights)
and subsequently expensed as the exploration activities are still in the early
stages.
The feasibility study to expand the Chifeng refinery by a further 100ktpa was
completed during the six months to June 2008. The group reviewed the prospect
and concluded that the planned expansion does not meet its investment criteria
culminating in a decision not to participate in the expansion project.
AlloyStream
The completion of the pre-feasibility study for Furnace 1, which is designed to
demonstrate the technology on commercial ferromanganese production, has been
delayed from its scheduled completion in the second half of 2008 as a result of
the power shortages in South Africa. The project will have to be relocated to a
site where sufficient power is available and supply guaranteed. The Coega
Industrial Development Zone is a potential alternative location that is
currently under investigation.
ACQUISITION OF NAMAKWA SANDS AND BLACK MOUNTAIN
The conversion applications for Namakwa Sands, Black Mountain and Gamsberg were
approved after the reporting period based on submissions by Anglo American to
the Department of Minerals and Energy (DME).
The group will acquire a 26% interest in Black Mountain/Gamsberg and assume
operational control of Namakwa Sands on completion of the registration and
cession of the mining rights.
CONVERSION OF MINING RIGHTS
Conversion of the group`s former Kumba Resources old order mining rights was
granted subsequent to the end of the reporting period enabling the group to
process the registration of the rights.
Regular engagement with the DME takes place to ensure the approval of the
applications for conversion of the former Eyesizwe old order mining rights which
were submitted to the DME in June 2008 as well as the approval of applications
for new order mining rights for a number of mineral sands and coal deposits.
CHANGES TO THE BOARD
Mrs PKV Ncetezo resigned from the board with effect from 30 April 2008. The
board wishes to thank her for her services as a director and member of the
Transformation Remuneration Human Resources and Nominations committee of the
board.
Mr MJ Kilbride will retire as chief operating officer and executive director on
31 August 2008. The board expresses its appreciation for his contribution to the
group.
The board welcomes Ms SEA Mngomezulu, nominated by Basadi ba Kopane Investments
(Pty) Limited of the empowerment women`s group consortium, who has been
appointed to the board as non-executive director subsequent to the end of the
reporting period.
The board is also pleased to announce that Mr J van Rooyen has been appointed as
an independent non-executive director and member of the Audit, Risk and
Compliance committee on 13 August 2008.
OUTLOOK
The group will benefit from higher coal volumes to leverage off the current
buoyant coal prices. Improved mineral sands price prospects are expected to be
offset by a continued strong Australian dollar and the impact of the rebuild of
Furnace 2 at KZN Sands. Operating results from the base metals business are not
expected to improve in the second half of 2008 due to lower zinc prices.
Significant increases in labour, fuel and electricity costs will continue to
have an adverse effect on the operating results of the businesses under the
group`s management. Nevertheless, the group should deliver significantly
improved earnings in the second half of 2008 mainly due to the favourable coal
and iron ore market conditions. A strengthening rand will negatively impact on
US dollar denominated income.
INTERIM DIVIDEND
The directors have declared an interim dividend number 11 of 175 cents per share
in respect of the 2008 interim period. The dividend has been declared in South
African currency and is payable to shareholders recorded in the records of the
company at close of business on Friday, 19 September 2008.
In compliance with the electronic statement system of JSE Limited, the following
dates are applicable:
Last date to trade cum dividend Friday, 12 September 2008
Shares trade ex dividend Monday, 15 September 2008
Record date Friday, 19 September 2008
Payment date Monday, 22 September 2008
Share certificates may not be dematerialised or rematerialised between 15
September 2008 and 19 September 2008 both days inclusive.
On Monday, 22 September 2008 the interim dividend will be electronically
transferred to the bank accounts of all certificated shareholders where this
facility is available. Where electronic fund transfer is not available or
desired, cheques dated 22 September 2008 will be posted on that date.
Shareholders who have dematerialised their share certificates will have their
accounts at their CSDP or broker credited on Monday, 22 September 2008.
On behalf of the board
SA Nkosi
(Chief Executive Officer)
DJ van Staden
(Chief Financial Officer)
13 August 2008
REGISTERED OFFICE TRANSFER SECRETARIES
Exxaro Resources Limited Computershare Investor Services
Roger Dyason Road (Pty) Limited
Pretoria West, 0183 Ground Floor, 70 Marshall Street
Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
Tel no: +27 12 307 5000
Fax no: +27 12 307 4080
DIRECTORS: SA Nkosi (Chief Executive Officer)*, PM Baum,
JJ Geldenhuys, U Khumalo, MJ Kilbride*, Dr D Konar,
SEA Mngomezulu, VZ Mntambo, RP Mohring, NL Sowazi, J van Rooyen,
DJ van Staden*, D Zihlangu
*Executive
COMPANY SECRETARY: MS Viljoen
CORPORATE AFFAIRS AND STRATEGY:
Trevor Arran (+27 12 307 3292)
Sponsor:
JP Morgan (+27 11 507 0300)'
Date: 14/08/2008 07:05:16 Supplied by www.sharenet.co.za
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