Wrap Text
EXX - Exxaro Resources Limited - Reviewed group interim financial results and
unaudited physical information for the six-month period ended 30 June 2010
Exxaro Resources Limited
Registration number: 2000/011076/06
JSE share code: EXX
ISIN: ZAE000084992
ADR code: EXXAY
("Exxaro" or "the company" or "the group")
Reviewed group interim financial results and unaudited physical information for
the six-month period ended 30 June 2010
-Decrease in LTIFR to 0,26
-Revenue increased by 10% to R7,9 billion
-Net operating profit up 43% to R1,4 billion
-Headline earnings per share up 68% to 683 cents per share
-Interim dividend of 200 cents per share covered 3,5 times by attributable
earnings
Condensed group income statement
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 Dec
2010 2009 2009
Reviewed Reviewed Audited
Rm Rm Rm
Revenue 7 852 7 111 15 009
Operating expenses (6 489) (6 158) (14 705)
Net operating profit (note 2) 1 363 953 304
Net financing costs (note 4) (239) (242) (415)
Share of income from investments and 1 636 886 1 900
equity-accounted investments
Profit before tax 2 760 1 597 1 789
Income tax expense (386) (214) (766)
Profit for the period 2 374 1 383 1 023
Profit attributable to:
Owners of the parent 2 408 1 390 1 023
Non-controlling interests (34) (7)
Profit for the period 2 374 1 383 1 023
Condensed group statement of comprehensive income
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 Dec
2010 2009 2009
Reviewed Reviewed Audited
Rm Rm Rm
Profit for the period 2 374 1 383 1 023
Other comprehensive income (restated):
Exchange differences on translating (49) (183) (35)
foreign operations
Cash flow hedges 288 (110) (474)
Share of comprehensive income of 30 (48) (34)
associates
Income tax relating to components of other (100) 78 142
comprehensive income
Net gain/(loss) recognised in other 169 (263) (401)
comprehensive income
Total comprehensive income for the period 2 543 1 120 622
Total comprehensive income attributable
to:
Owners of the parent 2 590 1 186 759
Non-controlling interests (47) (66) (137)
Total comprehensive income for the period 2 543 1 120 622
Ordinary shares (million)
- in issue 358 356 357
- weighted average number of shares 346 345 345
- diluted weighted average number of 361 361 358
shares
Attributable earnings per share (cents)
- basic 696 403 297
- diluted 667 385 286
Reconciliation of headline earnings
Gross Tax Non- Net
Rm Rm controlling Rm
interests
Rm
6 months ended 30 June 2010
(reviewed)
Profit attributable to owners of 2 408
the parent
Adjusted for:
- IAS 16: Impairment of property, 5 (1) 4
plant and equipment
- IAS 16: Gains or losses on (53) 4 (49)
disposal of property, plant and
equipment
Headline earnings (48) 3 2 363
6 months ended 30 June 2009
(reviewed)
Profit attributable to owners of 1 390
the parent
Adjusted for:
- IAS 16: Gains or losses on 18 (6) 12
disposal of property, plant and
equipment
- IAS 28: Share of associates` IAS (4) 1 (3)
16: Gains or losses on disposal of
property, plant and equipment
Headline earnings 14 (5) 1 399
Year ended 31 December 2009
(audited)
Profit attributable to owners of 1 023
the parent
Adjusted for:
- IAS 16: Impairment of property, 1 435 1 435
plant and equipment
- IAS 16: Gains or losses on 88 (24) (2) 62
disposal of property, plant and
equipment
- IAS 28: Share of associates` IAS (8) 2 (6)
16: Gains or losses on disposal of
property, plant and equipment
Headline earnings 1 515 (22) (2) 2 514
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 Dec
2010 2009 2009
Reviewed Reviewed Audited
Headline earnings per share (cents)
- basic 683 406 729
- diluted 655 388 702
Condensed group statement of financial position
At 30 June At 30 June At 31 Dec
2010 2009 2009
Reviewed Reviewed Audited
Rm Rm Rm
ASSETS
Non-current assets
Property, plant and equipment 12 285 12 727 11 869
Biological assets 41 35 41
Intangible assets 78 90 87
Investments in unlisted associates and 3 009 1 544 1 966
joint ventures (note 5)
Deferred tax 681 1 106 629
Other financial assets (note 5) 1 339 1 457 1 217
17 433 16 959 15 809
Current assets
Inventories 3 119 2 915 3 133
Trade and other receivables 3 175 2 799 3 121
Current tax receivable 71 40 57
Cash and cash equivalents 1 843 2 713 1 023
8 208 8 467 7 334
Non-current assets classified as held 80 85 86
for sale
Total assets 25 721 25 511 23 229
EQUITY AND LIABILITIES
Capital and reserves
Equity attributable to owners of the 15 215 13 575 12 908
parent
Non-controlling interests (46) 69 1
Total equity 15 169 13 644 12 909
Non-current liabilities
Interest-bearing borrowings 4 210 4 918 4 347
Non-current provisions 2 011 1 842 1 853
Financial liabilities 33 75
Deferred tax 1 252 1 437 995
7 473 8 230 7 270
Current liabilities
Trade and other payables 2 338 3 244 2 510
Interest-bearing borrowings 507 250 407
Current tax payable 149 76 57
Current provisions 27 20 27
3 021 3 590 3 001
Non-current liabilities classified as 58 47 49
held for sale
Total equity and liabilities 25 721 25 511 23 229
Net debt (note 6) 2 874 2 455 3 731
Net asset value per share (cents) 4 250 3 814 3 616
Capital expenditure
- incurred 1 042 686 1 982
- contracted 1 773 393 3 550
- authorised but not contracted 737 1 933 1 420
- share of associates` and joint 419 584 456
ventures` contracted capital
commitments not included above
Capital expenditure contracted relating 200 568 18
to captive mines Tshikondeni, Arnot and
Matla, which will be financed by
ArcelorMittal SA Limited and Eskom,
respectively
Contingent liabilities (note 7) 851 633 717
Contingent assets (note 8) 58 293 158
Operating lease commitments 98 97 92
Operating sublease rentals receivables 8 4
Condensed group statement of cash flows
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 Dec
2010 2009 2009
Reviewed Reviewed Audited
Rm Rm Rm
Cash retained from operations 1 930 832 2 117
- net financing costs (164) (192) (381)
- tax paid (189) (488) (892)
- dividends paid (352) (700) (1 050)
Cash flows from investing activities
- capital expenditure (1 042) (686) (1 982)
- proceeds from disposal of property, 57 4 11
plant and equipment
- increase in investments (59) (50) (8)
- increase in joint venture (1 082)
- dividends from investments and equity-638 1 124 1 754
accounted investments
- other 39 (123) (107)
Net cash inflow/(outflow) 858 (279) (1 620)
Net cash flow from financing activities
- shares issued 16 20 43
- increase in non-controlling 8 10
interests` loans
- net borrowings (repaid)/raised (54) 1 195 821
Net increase/(decrease) in cash and 820 944 (746)
cash equivalents
Cash and cash equivalents at beginning 1 023 1 769 1 769
of period
Cash and cash equivalents end of period 1 843 2 713 1 023
Group statement of changes in equity
Other components of equity
Share Share Foreign Financial Equity-
capital premium currency instruments settled
Rm Rm translations revaluation Rm
Rm Rm
Balance at 31 December 4 2 094 964 145 1 081
2008 (audited)
Total comprehensive (196) (8)
income (restated)
Issue of share 21
capital(1)
Share-based payments 72
movements
Non-controlling
interests additional
contributions
Dividends paid
Balance at 30 June 2009 4 2 115 768 137 1 153
(reviewed)
Total comprehensive 34 (134)
income (restated)
Issue of share 22
capital(1)
Share-based payments 88
movements
Non-controlling
interests additional
contributions
Dividends paid
Balance at 31 December 4 2 137 802 3 1 241
2009 (audited)
Total comprehensive (19) 188
income (restated)
Issue of share 16
capital(1)
Share-based payments 53
movements
Dividends paid(2)
Balance at 30 June 2010 4 2 153 783 191 1 294
(reviewed)
Dividend paid per share 200
(cents) in respect of
the previous financial
year
Dividend paid per share 200
(cents) in respect of
this interim period
(1)'Issued to the Kumba Resources Management Share Trust due to options
exercised.
(2)'The STC on these dividends amounted to Rnil after taking into
account STC credits.
Group statement of changes in equity (continued)
Retained Attributable Non- Total
income to owners of controlling equity
Rm the parent interests Rm
Rm Rm
Balance at 31 December 2008 8 708 12 996 128 13 124
(audited)
Total comprehensive income 1 390 1 186 (66) 1 120
(restated)
Issue of share capital(1) 21 21
Share-based payments 72 72
movements
Non-controlling interests 7 7
additional contributions
Dividends paid (700) (700) (700)
Balance at 30 June 2009 9 398 13 575 69 13 644
(reviewed)
Total comprehensive income (327) (427) (71) (498)
(restated)
Issue of share capital(1) 22 22
Share-based payments 88 88
movements
Non-controlling interests 3 3
additional contributions
Dividends paid (350) (350) (350)
Balance at 31 December 2009 8 721 12 908 1 12 909
(audited)
Total comprehensive income 2 421 2 590 (47) 2 543
(restated)
Issue of share capital(1) 16 16
Share-based payments 53 53
movements
Dividends paid(2) (352) (352) (352)
Balance at 30 June 2010 10 790 15 215 (46) 15 169
(reviewed)
(1)'Issued to the Kumba Resources Management Share Trust due to options
exercised.
(2)'The STC on these dividends amounted to Rnil after taking into
account STC credits.
Notes to the reviewed financial statements
1. Basis of preparation
This condensed interim report complies with International
Accounting Standard 34, Interim Financial Reporting, the AC 500
standards as issued by the Accounting Practices Board or its
successor and Schedule 4 Part iv of the South African Companies
Act. The group financial statements 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 2009.
The disclosure of share-based payments movements has previously
been disclosed as other comprehensive income; it is now disclosed
directly in the statement of changes in equity; the disclosure has
been applied to the prior period and year.
During 2010 the following accounting pronouncements became
effective:
Amended IFRS 1 First-time Adoption of International Financial
Reporting, Amended IFRS 2 Share-based Payments, Revised IFRS 3
Business Combinations, Amended IFRS 5 Non-current Assets Held for
Sale and Discontinued Operations, Amended IFRS 8 Operating
Segments, Amended IAS 1 Presentation of Financial Statements,
Amended IAS 7 Statement of Cash Flows, Amended IAS 17 Leases,
Revised IAS 27 Consolidated and Separate Financial Statements,
Revised IAS 28 Investments in Associates, Revised IAS 31 Interests
in Joint Ventures, Amended IAS 36 Impairment of Assets, Amended IAS
38 Intangible Assets, Amended IAS 39 Financial Instruments:
Recognition and Measurement, Amended IFRIC 9 Reassessment of
Embedded Derivatives, IFRIC 17 Distributions of Non-cash Assets to
Owners, IFRIC 18 Transfers of Assets from Customers. These
pronouncements had no material impact on the accounting of
transactions or the disclosure thereof. The application of IFRS 3,
together with IAS 27, IAS 28 and IAS 31 will have a significant
impact on the accounting and disclosure of business combinations
and the accounting for the carrying value of investments on partial
disposals of investments for such transactions in the future.
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 Dec
2010 2009 2009
Reviewed Reviewed Audited
Rm Rm Rm
2. Net operating profit is arrived at
after including:
Depreciation, and amortisation of (657) (531) (1 136)
intangible assets
Net realised foreign currency 5 (434) (576)
exchange gains/(losses)
Net unrealised foreign exchange 43 (76) (45)
gains/(losses)
Derivative instruments held for 115 335 379
trading: gains
Fair value adjustment on financial 6 11 26
instruments: gains
Impairment charges (note 3) (5) (1 435)
Net surplus/(deficit) on disposal 53 (22) (88)
of property, plant and equipment
3. Impairment charges
Impairment of property, plant and (5) (1 435)
equipment
Total impairments before and after (5) (1 435)
tax
4. Net financing costs
Interest expense and loan costs 184 245 460
Finance leases 33 33 66
Interest income (53) (86) (145)
Net interest expense 164 192 381
Interest adjustment on non-current 75 50 34
provisions
Net financing cost as per income 239 242 415
statement
5. Investments
Unlisted investments in associates
- directors` valuation 20 137 14 001 14 165
Unlisted investments included in
other financial assets
- directors` valuation 423 413 408
6. Net debt
Net debt is calculated as being interest-bearing borrowings less
cash and cash equivalents.
7. Contingent liabilities
Include 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 2010 is mainly due to Exxaro`s share of guarantees
issued by associates to the Department of Mineral Resources in
respect of rehabilitation and decommissioning obligations.
8. Contingent assets
A surrender fee of R58 million in exchange for the exclusive
right to prospect, explore, investigate and mine for coal
within a designated area in central Queensland and Moranbah
conditional on the grant of a mining lease, is disclosed as a
contingent asset.
9. 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.
10. JSE Limited Listings Requirements
The interim results announcement has been prepared in
accordance with the Listings Requirements of the JSE Limited.
11. Corporate governance
Sound corporate governance processes are being applied at
Exxaro. They are regularly reviewed and adapted to accommodate
internal corporate developments and to reflect national and
international best practice. Exxaro endorses the principles of
the King Code of Governance Principles for South Africa 2009
("King III Code"). The board of Exxaro is considering the
implications and effect of the King III Code and will report on
the implementation and application thereof in its annual
financial statements for the year ending 31 December 2011.
12. Mineral Resources and Mineral Reserves
The group`s Mineral Resources and Ore Reserves are under review
to provide updated estimations for 2010, however no material
changes to the Mineral Resources and Ore Reserves disclosed in
the Exxaro annual report for the year ended 31 December 2009
are expected other than depletion due to continued mining
activities.
13. Events after the reporting period
On 10 July 2010, Furnace 2 at Namakwa Sands was shut down as a
precautionary measure after a hot spot was detected. After
extensive investigations it was decided to continue with the
start-up of the furnace on 24 July 2010, with a reline planned
for February 2011. If there is any indication of safety
concerns, the furnace will be taken out of service and prepared
for an earlier reline.
Kumba Iron Ore Limited announced that it has reached an interim
pricing agreement on 21 July 2010 in respect to the supply of
iron ore to ArcelorMittal South Africa Limited from its
subsidiary Sishen Iron Ore Company (Pty) Limited (SIOC). The
duration of the interim agreement will be retrospective to 1
March 2010, and will endure until 31 July 2011. The difference
between the revenue recognised and amounts outstanding under
the interim agreement for the period ended 30 June 2010
amounted to R398 million of which R79.5 million is attributable
to Exxaro. Upon completion of the necessary documentation, the
R398 million will be recognised as revenue by SIOC within the
second half of 2010 and Exxaro will account for its
proportionate after-tax portion as income from equity-accounted
investments.
The directors are not aware of any other matter or circumstance
arising after the reporting period up to the date of this
report not otherwise dealt with in this report.
14. 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.
Comments
OPERATING RESULTS
Comments are based on a comparison of the group`s reviewed financial results and
unaudited physical information for the six-month periods ended 30 June 2010 and
2009 respectively. The earnings reported for the six-month period to 30 June
2010 includes results from the Mafube joint venture (Mafube) for the full period
under review while the comparative period to 30 June 2009 only includes Mafube
from the effective date of acquisition of 1 June 2009 i.e. one month.
The coal business reported a 16% increase in net operating profit to R1 199
million as lower export volumes at higher international selling prices were
offset by higher local sales volumes but at lower prices. All the mineral sands
businesses reported a net operating profit as generally higher sales volumes at
higher prices supported by disciplined cost management underpinned the results.
The base metals business remained profitable on the back of higher average zinc
prices and higher demand.
Group revenue increased by 10% to R7 852 million while net operating profit
increased by R410 million to R1 363 million as the group benefited from the
global economic recovery.
Revenue was recorded at a significantly stronger average exchange rate of R7,81
to the US dollar compared with R9,40 in the comparative period in 2009.
EARNINGS
Attributable earnings, inclusive of Exxaro`s 20% interest in the post-tax
profits of Sishen Iron Ore Company (Pty) Limited (SIOC) amounting to R1 624
million, increased by 73% from R1 390 million to R2 408 million or 696 cents per
share.
Headline earnings were R2 363 million or 683 cents per share. This represents a
68% increase on the comparative 2009 earnings of R1 399 million at 406 cents per
share.
CASH FLOW
Cash retained from operations was R1 930 million from which taxation payments of
R189 million, the final dividend for the 2009 financial year of R352 million and
capital expenditure payments of R1 042 million were made. A total of R681
million of the capital expenditure was invested in new capacity while R361
million was for sustaining and environmental purposes.
After accounting for R638 million of dividends received from associate
companies, a net cash inflow of R858 million was recorded and contributed to the
significant reduction in net debt in the six months to 30 June 2010.
Net debt of R3 731 million at 31 December 2009 decreased to R2 874 million at 30
June 2010 at a debt to equity ratio of 19%.
Subsequent to the interim reporting date, Exxaro will pay the interim dividend
of R716 million and received a dividend of R1 173 million from SIOC.
SAFETY AND SUSTAINABLE DEVELOPMENT
Safety and health of all employees continues to be a priority at Exxaro which is
reflected in the adoption of the "Safety Always All The Way" campaign.
Regrettably, one fatality was reported at Tshikondeni on 10 March 2010. The lost
time injury frequency rate (LTIFR) per 200 000 man-hours worked is 0,26, an
improvement from 0,30 recorded at 30 June 2009 and 0,33 at 31 December 2009.
Following on the CEO Safety Summit that was held on 30 April 2010, the Exxaro
Safety Improvement Plan (ESIP) is being rolled out at all business units
focusing on the training of visible felt leadership change champions,
communication of Exxaro zero tolerance safety rules, rolling out of the safety
training matrix, safety communication guidelines and mini Hazard Identification
and Risk Assessments (HIRA).
HIV testing and counselling continue to be an important focus for the group.
Since the beginning of 2009, 66% of employees have undergone HIV prevalence
testing against a target of 70%. The prevalence rate in the group is estimated
at about 12% with 43% of HIV positive employees already voluntarily enrolled
onto the HIV management programme.
Fourteen business units are now ISO 14001 and OHSAS 18001 certified with the
remaining three business units having programmes in place to be certified during
2010.
REPORTED SEGMENT RESULTS
Reported segments are based on the group`s different products and operations as
well as the physical location of these operations and associated products.
Reviewed Reviewed Audited
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 Dec
2010 2009 2009
Rm Rm Rm
Revenue
Coal 4 730 4 797 9 731
Tied operations 1 320 1 276 2 681
Commercial operations 3 410 3 521 7 050
Mineral Sands 2 130 1 550 3 508
KZN Sands 535 273 705
Namakwa Sands 893 644 1 468
Australia Sands 702 633 1 334
Base Metals 895 674 1 582
Rosh Pinah 283 206 566
Zincor 851 630 1 413
Intra-segmental (239) (162) (397)
Other 97 90 188
Total revenue 7 852 7 111 15 009
Segment net operating profit/(loss)
Coal 1 199 1 032 1 905
Tied operations 97 71 75
Commercial operations 1 102 961 1 830
Mineral Sands 148 (67) (1 559)
KZN Sands(1) 61 (110) (1 447)
Namakwa Sands 33 24 (110)
Australia Sands 54 19 (2)
Base Metals 12 9 (8)
Rosh Pinah 48 35 105
Zincor (18) 3 (47)
Intra-segmental and other (18) (29) (66)
Other 4 (21) (34)
Total 1 363 953 304
(1) Includes a R1 435 million impairment of the carrying value of
assets in the 12-month period ended 31 December 2009.
Unaudited physical information (`000 tonnes)
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 Dec
2010 2009 2009
Coal
Production
- Power station coal 18 269 18 583 36 562
* Tied operations(1) 8 365 8 704 16 486
* Commercial operations 9 904 9 879 20 076
- Coking coal 1 187 922 2 020
* Tied operations 124 129 268
* Commercial operations 1 063 793 1 752
- Other coal 3 518 3 061 6 638
- Char 49 38
- Coal buy-ins 464 430 759
Total 23 487 22 996 46 017
Sales
- Eskom coal 18 379 18 494 36 299
* Tied operations 8 356 8 700 16 473
* Commercial operations 10 023 9 794 19 826
- Other domestic coal 2 447 1 920 4 587
* Tied operations 117 130 259
* Commercial operations 2 330 1 790 4 328
- Coal export 1 842 2 389 4 715
- Char 52 31
Total 22 720 22 803 45 632
Mineral Sands(2)
Production
- Ilmenite 367 424 819
- Zircon 94 97 185
- Rutile 28 33 62
- Synthetic Rutile 51 54 109
- Pig iron (LMPI) 81 95 181
- Scrap iron 8 7 15
- Slag tapped 141 171 331
- Chloride slag 84 104 201
- Sulphate slag 16 19 44
- Leucoxene 7 7 14
- Pigment 25 25 53
Total 902 1 036 2 014
Sales
- Zircon 124 47 146
- Rutile 35 19 51
- Synthetic Rutile 23 24 50
- Pig iron (LMPI) 107 64 138
- Scrap iron 1 4 6
- Chloride slag 98 67 144
- Sulphate slag 7 14 44
- Leucoxene 7 1 15
- Pigment 24 23 54
Total 426 263 648
Base metals
Production
- Zinc concentrate 60 53 108
* Rosh Pinah 52 47 94
* Black Mountain 8 6 14
- Zinc metal 54 54 116
* Zincor 43 44 87
* Chifeng(3) 11 10 29
- Lead concentrate 17 20 38
* Rosh Pinah 9 12 20
* Black Mountain 8 8 18
Zinc metal sales 59 58 122
- Domestic 46 44 93
- Export 13 14 29
Lead concentrate sales
- Export 7 6 19
(1) Tied operations refer to mines that supply their entire production
to either Eskom or ArcelorMittal SA Limited (ArcelorMittal) in terms of
contractual agreements.
(2) Includes Exxaro Sands Australia`s 50% interest in the Tiwest joint
venture.
(3) Exxaro`s effective interest in the Chifeng refinery is disclosed.
OPERATIONS
Coal
Total production was marginally higher than the previous year as lower power
station coal production was more than offset by higher coking coal and steam
coal production.
Power station coal production at the Eskom tied mines was 339kt lower than the
corresponding period as lower production at Arnot, due to geological conditions
and technical challenges, was offset by higher production at Matla.
Power station coal production at the commercial mines was marginally higher as
lower demand at Grootegeluk and North Block Complex (NBC) mines was offset by
higher production at Leeuwpan after the crush and screen plant commissioning
during 2010 as well as the first full six-month`s contribution from Mafube.
Coking Coal production was 29% or 265kt higher as increased demand, mainly from
ArcelorMittal, led to higher production at Grootegeluk.
Steam Coal production was 15% higher at 3 518kt as the inclusion of production
from Mafube was complemented by higher production from Grootegeluk and Leeuwpan
due to higher demand.
Sales volumes to Eskom were in line with the previous year however domestic
sales of metallurgical coal were higher due to higher demand from ArcelorMittal.
This increased demand was met by re-directing sales destined for the export
market from Grootegeluk as a result of low availability of trains.
Exxaro Coal`s strategy to increase export volumes was hampered by lower
availability of trains, compounded by the Transnet Freight Rail strike during
the period.
Revenue is in line with the previous year, however, at a different sales mix
with lower export sales volumes at higher international prices offset by higher
domestic sales volumes at lower realised prices.
Net operating income for the six months ended 30 June 2010 increased by 16% to
R1 199 million at an improved operating margin of 25% resulting from the
different sales mix yet reduced somewhat by a stronger average realised local
currency as well as increased costs. The increased costs were most notably
operating costs from the full six months inclusion of the results of the Mafube
joint venture, higher depreciation charges, higher contractor cost at Leeuwpan
mine for the removal of overburden, and higher than inflation increases in
electricity, diesel and labour cost.
Mineral Sands
Lower heavy minerals concentrate production was reported due to anticipated
lower grades from the KZN Sands Hillendale mine. Slag tapped, low manganese pig
iron production as well as chloride and sulphate slag production was also lower
as a result of ancillary equipment failure at KZN Sands affecting both furnaces,
while Furnace 1 at Namakwa Sands was idled for longer than the comparative
period in 2009, further compounded by the planned Furnace 2 reline in the
current period.
Lower grades at the Hillendale mine led to lower overall zircon and rutile
production despite being partially offset by higher overall Zircon recoveries at
Namakwa Sands and higher production at the Australian operations based on higher
grades and increased overall utilisation of the dredge mine.
Synthetic rutile (SR) production decreased as a result of non-recurring
maintenance related issues. The SR plant at Chandala in Australia will be shut
for 38 days in the fourth quarter of 2010 for planned maintenance.
The 40kt pigment expansion at the Kwinana pigment plant in Australia was
successfully commissioned in late June with progressively ramped up production
anticipated from July 2010 onwards. Pigment production was in line with the
corresponding period notwithstanding an 11 day shut to complete all the tie-ins
for the expansion.
Despite the lower production volumes and a stronger Rand and Australian dollar
compared with the US dollar, revenue was R580 million higher at R2 130 million
as higher demand was satisfied from stockpiles at more favourable prices. Demand
for both chloride and sulphate feedstock was strong as pigment producers raised
output to meet the growth in consumption. The zircon market was positive as
strong demand and tight supply supported an upward trend in prices. Demand and
pricing for pig iron were also favourable due to the recovery in the global
steel and foundry sectors.
Based on the higher revenue, net operating profit of R148 million was reported;
a pleasing turnaround from the R67 million loss in the corresponding period in
2009. Included in the recorded net operating profit is the final R98 million
insurance proceeds received relating to the Furnace 2 water ingress incident at
KZN Sands in February 2008, the benefits of disciplined cost management and cost
improvement initiatives, as well as favourable hedging to mitigate the relative
strength of the Australian dollar.
Base Metals
Zinc concentrate production at a higher grade at the Rosh Pinah mine in Namibia
increased by 5kt over the equivalent period in 2009. Production of zinc metal at
the Zincor refinery of 43kt was however 965 tonnes lower and can be attributed
to downtime on the acid plant, throughput limitations on the purification
circuit and disruption of the incoming water supply.
Domestic zinc metal sales were 4% higher at 46kt and were realised at a higher
average price of USD2 157 per tonne.
Revenue for the six months to 30 June 2010 increased by 32% as a result of the
higher average realised zinc price and increased volumes sold.
A total of 60% of Rosh Pinah`s projected zinc and lead concentrate sales were
hedged during 2008 for the period July 2008 to December 2011 at forward prices
ranging from USD2 215 to USD1 887 per tonne for zinc and USD2 385 to USD1 771
per tonne for lead.
The higher revenue and cost saving initiatives contributed to the recording of a
net operating profit despite the impact of higher than inflation increases in
electricity and maintenance expenses.
Production at the Chifeng refinery was 3% higher compared to the equivalent
period in 2009. Equity accounted income was however only R2 million.
Production of zinc concentrate at Black Mountain Mining (Pty) Limited (Black
Mountain) was 33% higher at 8kt compared to the equivalent period in 2009. The
26% equity interest in Black Mountain delivered R9 million in equity income;
some 40% less than the previous corresponding period due to lower sales volumes
and a higher tax charge.
Other, including Industrial Minerals
As announced on 5 May 2010, the Glen Douglas dolomite mine was sold for R35
million to Afrimat Limited. Completion of the disposal now awaits the fulfilment
of a number of suspensive conditions which are expected to be met in the second
half of 2010.
CAPITAL EXPENDITURE AND PROJECT PIPELINE
Although the economic downturn necessitated a review of the company`s capital
expenditure and project pipeline in 2009, cognisance is being taken of the
recovery in the global economy resulting in a renewed focus on carbon,
reductants, ferrous and energy projects in line with the group`s approved
commodity strategy.
Coal
Construction of the R9,5 billion brownfields expansion at the Grootegeluk mine
to supply Eskom`s Medupi power station with 14,6Mtpa of power station coal for
40 years has commenced and is progressing well to supply the first coal to Eskom
during the second quarter in 2012, aligned with the start-up of the power
station. The bulk of the front end detailed engineering design has been
completed and orders for long lead capital items have been placed.
Exxaro and Eskom signed a revised agreement on 26 March 2010 and the R4,5
billion bridge loan facility has been secured with a consortium of local and
international financial institutions.
A pre-feasibility study on the Thabametsi Project, a potential greenfields mine
adjacent to the Grootegeluk mine, with the capability of supplying the market
with power station and metallurgical coal, has now been completed. The
implementation and development of this project is planned to coincide with
Eskom`s future developments in the Waterberg together with the Department of
Energy`s formalisation and establishment of an appropriate enabling environment
governed by the National Integrated Resource Plan to allow for new generation
capacity in terms of Eskom`s multi-site base load Independent Power Producer
programme. The scope of the bankable feasibility for the Thabametsi study will
only be finalised after the details of the new generation capacity are
determined, whereupon the required technical studies will commence.
Exxaro entered into a prospecting joint venture agreement with Sasol Mining to
investigate the commercial viability of the development of a new coal mine in
the Waterberg to supply Sasol`s potential new 80 000 barrels per day inland coal
to liquids facility (Project Mafutha). The study is in an extended pre-
feasibility stage and a decision to proceed to a bankable feasibility study is
expected by mid 2011. The mining of the 170 000 tonne bulk sample for
gasification testing at the Sasol Synfuels Secunda plant commenced in August
2009 and was completed during the second quarter of 2010. It is envisaged that
the gasification tests will be completed by the end of 2010.
An integrated infrastructure plan is being implemented for the Waterberg coal
fields together with the relevant stakeholders. Focus areas include key enablers
such as the supply of raw water to the area, rail, road and housing.
Exxaro`s application for a mining right at its Belfast project has been accepted
by the Department of Mineral Resources (DMR) and now awaits the record of
decision on the awarding of the mining right from the DMR. The specialist
environmental studies for Belfast as required by National Environmental
Management Act and National Water Act are in process and will be submitted to
the relevant authorities during the fourth quarter of 2010. The project is in a
pre-feasibility stage; depending on the outcome, start-up is anticipated in
2014.
The Sintel Char plant at Grootegeluk mine for the production of reductants for
the ferroalloy industry has been fully commissioned with all four retorts in
operation. The plant is expected to reach its overall design capacity in the
last quarter of 2010. Exxaro is also currently evaluating the phase 2 expansion
to the facility to produce another 140ktpa of char as well as a study to produce
market coke from semi-soft coking coal at Grootegeluk. These studies are
expected to be concluded in the first half of 2011.
Results from exploration activities of the hard coking coal resource on the
Moranbah South properties in the Bowen Basin of Queensland Australia remain
encouraging. Due to the high value entrenched in the potential long wall
operation, it was decided to revise the current bord and pillar study and
evaluate a combination of bord and pillar and a long wall operation. The concept
study was completed in January 2010, and the pre-feasibility study commenced
during the second quarter of 2010. Moranbah South, which is a 50% joint venture
with Anglo American Metallurgical Coal, has the potential to produce premium
quality hard coking coal.
Energy
The development of Exxaro`s energy portfolio and the formation of a separate
company to house Exxaro`s energy interests is progressing. In parallel a process
to secure an equity funding partner is underway with targeted investors.
A desktop study report for a solar power station has been completed. The pre-
feasibility study is expected to be finalised by end August 2010.
A desktop study report has been completed for a wind project on the West coast.
An 80m mast has been installed at Brand se Baai during March 2010. In addition
to this a memorandum of understanding was signed between Exxaro, Watt Energy,
the Tsitsikamma Community and other Danish parties to develop a 40MW wind farm
in the Tsitsikamma district. The project is currently in a desktop study phase.
Installation of an 80m mast is planned for the last quarter of 2010.
Development of the first five-spot test for the Coal Bed Methane project in
Botswana, with the aim of testing for economic gas flow is progressing well. The
drilling has been completed and fracturing is in process. The five-spot test
work should be completed by September 2010 after which the wells will be
operated until economic gas flow has been attained.
Mineral Sands
As a result of the improved fundamentals of the mineral sands industry a
bankable feasibility study will be undertaken on the Fairbreeze project at KZN
Sands. Depending on the outcome of the study and according to the current
project schedule, construction could commence by mid 2011 with commissioning
scheduled for the second half of 2013.
Ferrous
The final evaluation of the Turkey iron ore project concluded that it did not
meet Exxaro`s investment criteria with respect to size. The subsequent
divestment of its 76% share in the project JV is expected to be finalised during
2010.
Investigation into other opportunities continues as part of the group`s entry
strategy into the iron ore market. These include major iron ore projects as well
as the leveraging of unique beneficiation technology.
Exxaro has secured a technology partner to participate in the commercialisation
of its AlloyStreamTM technology to produce high carbon ferromanganese. The
technology will allow for the processing of raw materials that were previously
difficult to utilise in conventional processes. Agreements are in the process of
being finalised and commissioning of a large demonstration facility is planned
for 2012.
Base Metals
Activities are currently focused on optimisation of assets in order to extract
maximum value for all stakeholders during the envisaged divestment, planned for
2011.
CONVERSION OF MINING RIGHTS
Engagement with the relevant stakeholders continues in order to process the
registration of new order mining rights granted as well as the converted old
order mining rights of the former Kumba Resources Limited. Approval of the
conversion of the old order mining rights of the former Eyesizwe Coal (Pty)
Limited submitted to the DMR in 2008 is also still awaited.
CHANGES TO THE BOARD
Consequent to the election of Dr Len Konar as chairman of the board with effect
from 23 February 2010, Mr Jeff van Rooyen was appointed as chairman of the
audit, risk and compliance committee.
OUTLOOK
Coal export volumes should increase when compared with the first half of 2010
due to the anticipated commissioning of Richards Bay Coal Terminal Phase V,
subject to availability of rail capacity. International demand for hard coking
coal is set to remain strong and should support an increase in semi-soft coking
coal prices.
The current shortage of pigment should lead to an increase in prices while
demand for mineral sands products is generally anticipated to further improve.
The downside however remains the relative strength of the Australian dollar and
the Rand to the US dollar for the Australian and South African operations.
Continued strength in the zircon market is expected to prevail thus supporting
current price trends.
High zinc concentrate and metal stock levels are expected to result in downwards
pressure and a lower average realised zinc price in the second half of 2010. The
logistical challenge to transport concentrate from Rosh Pinah to Zincor is
expected to remain in the second half.
The equity accounted contribution from SIOC should be positively impacted by
anticipated higher prices and continued strong demand.
On the back of the current economic recovery, earnings in the second half of
2010 should increase however renewed fears of a slower than expected recovery
could impact negatively on the outlook. The relative strength of the local and
Australian currencies could further impact on the results for the second half of
2010 as well.
The financial information on which the outlook statement is based has not been
reviewed nor reported on by the group`s auditors.
INTERIM DIVIDEND
The board of directors have declared an interim cash dividend number 15 of 200
cents per share in respect of the 2010 interim period. The dividend has been
declared in South African currency and is payable to shareholders recorded in
the register of the company at close of business on Friday, 1 October 2010.
In compliance with the requirements of Strate, the electronic and custody system
used by the JSE, the following dates are applicable:
Last date to trade cum dividend Thursday, 23 September 2010
Shares trade ex dividend Monday, 27 September 2010
Record date Friday, 1 October 2010
Payment date Monday, 4 October 2010
Share certificates may not be dematerialised or rematerialised during the period
Monday, 27 September 2010 and Friday, 1 October 2010, both days inclusive.
On Monday, 4 October 2010 the cash 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 4 October 2010 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, 4 October 2010.
On behalf of the board
Len Konar Sipho Nkosi Wim de Klerk
Chairman Chief Executive Officer Financial Director
11 August 2010
REGISTERED OFFICE
Exxaro Resources Limited
Roger Dyason Road
Pretoria West, 0183
Telephone +27 12 307 5000
Fax +27 12 323 3400
TRANSFER SECRETARIES
Computershare Investor Services (Pty) Limited
Ground Floor, 70 Marshall Street
Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
DIRECTORS
Dr D Konar (Chairman), SA Nkosi (Chief Executive Officer), WA de Klerk
(Financial Director), JJ Geldenhuys, CI Griffith, U Khumalo, N Langeni, VZ
Mntambo, RP Mohring, NL Sowazi, J van Rooyen, D Zihlangu
COMPANY SECRETARY
MS Viljoen
INVESTOR RELATIONS
RA de Beer +27 12 307 4189
If you have any queries regarding your shareholding in Exxaro Resources Limited,
please contact the Transfer Secretaries at +27 11 370 5000.
This report is available at: www.exxaro.com
Pretoria
12 August 2010
Sponsor
Deutsche Securities SA (Pty) Limited
Date: 12/08/2010 07:05:02 Supplied by www.sharenet.co.za
Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
