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EXX - Exxaro Resources - Reviewed group interim financial results, unaudited
physical information for the six-month period ended 30 June 2009 and interim
dividend declaration
Exxaro Resources Limited
(Incorporated in the Republic of South Africa)
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, unaudited physical
information for the six-month period ended 30 June 2009 and interim dividend
declaration
Revenue increased by 23% to R7,1 billion
Net operating profit up 18% to R953 million
Headline earnings per share up 8% to 406 cents per share
Interim dividend of 100 cents per share
Condensed group income statement
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 Dec
2009 2008 2008
Reviewed Reviewed Audited
Rm Rm Rm
Revenue 7 111 5 782 13 843
Operating expenses (6 158) (4 976) (11 376)
Net operating profit 953 806 2 467
Net financing costs (note 4) (242) (87) (241)
Share of income from investments and 886 753 1 665
equity-accounted investments
Profit before tax (note 2) 1 597 1 472 3 891
Income tax expense (214) (226) (510)
Profit for the period 1 383 1 246 3 381
Profit attributable to:
Owners of the parent 1 390 1 244 3 405
Non-controlling interests (7) 2 (24)
Profit for the period 1 383 1 246 3 381
Group statement of comprehensive income
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 Dec
2009 2008 2008
Reviewed Reviewed Audited
Rm Rm Rm
Profit for the period 1 383 1 246 3 381
Other comprehensive income:
Exchange differences on translating (183) 582 193
foreign operations
Cash flow hedges (110) 143 520
Share of comprehensive income of (36) 42 187
associates
Share-based payment movement 60 62 92
Income tax relating to components of other 78 (64) (115)
comprehensive income
Net (loss)/gain recognised in other (191) 765 877
comprehensive income
Total comprehensive income for the period 1 192 2 011 4 258
Total comprehensive income attributable
to:
Owners of the parent 1 258 2 005 4 117
Non-controlling interests (66) 6 141
Total comprehensive income for the period 1 192 2 011 4 258
Ordinary shares (million)
- in issue 356 354 355
- weighted average number of shares 345 343 343
- diluted weighted average number of 361 359 361
shares
Attributable earnings per share (cents)
- basic 403 363 993
- diluted 385 347 943
Condensed group statement of financial position
At 30 June At 30 June At 31 Dec
2009 2008 2008
Reviewed Reviewed Audited
Rm Rm Rm
ASSETS
Non-current assets
Property, plant and equipment 12 727 8 655 11 309
Biological assets 35 30 34
Intangible assets 90 95 79
Investments in unlisted associates and 1 544 1 231 1 849
joint ventures (note 5)
Deferred tax 1 106 818 1 083
Other financial assets (note 5) 1 457 1 115 1 577
16 959 11 944 15 931
Current assets
Inventories 2 915 1 656 2 481
Trade and other receivables 2 799 2 088 2 924
Current tax receivable 40 2
Cash and cash equivalents 2 713 1 664 1 769
8 467 5 408 7 176
Non-current assets classified as held 85 2 78
for sale
Total assets 25 511 17 354 23 185
EQUITY AND LIABILITIES
Capital and reserves
Equity attributable to owners of the 13 575 11 478 12 996
parent
Non-controlling interests 69 27 128
Total equity 13 644 11 505 13 124
Non-current liabilities
Interest-bearing borrowings 4 918 1 283 3 650
Non-current provisions 1 842 1 442 1 746
Financial liabilities 33 31
Deferred tax 1 437 1 204 1 257
8 230 3 929 6 684
Current liabilities
Trade and other payables 3 244 1 592 2 366
Interest-bearing borrowings 250 141 500
Current tax payable 76 164 440
Current provisions 20 23 21
3 590 1 920 3 327
Non-current liabilities classified as 47 50
held for sale
Total equity and liabilities 25 511 17 354 23 185
Net debt/(cash) (note 6) 2 455 (240) 2 381
Net asset value per share (cents) 3 814 3 242 3 661
Capital expenditure
- incurred 686 465 1 617
- contracted 393 418 433
- authorised but not contracted 1 933 1 036 2 711
- share of associates` and joint 584 297 456
ventures` contracted capital
commitments not included above
Capital expenditure contracted relating 568 477 70
to captive mines Tshikondeni, Arnot and
Matla, which will be financed by
ArcelorMittal SA Limited and Eskom
respectively
Commitment relating to the acquisition 2 353
of Namakwa Sands and a 26% interest in
Black Mountain Mining (Pty) Limited from
Anglo Operations Limited, subject to
price adjustments
Contingent liabilities (note 7) 633 496 587
Contingent assets (note 8) 293 216 192
Operating lease commitments 97 90 77
Reconciliation of headline earnings
Gross Tax and Net
Rm non- Rm
control-
ling
interests
Rm
6 months ended 30 June 2009 (reviewed)
Profit attributable to owners of the 1 390
parent
Adjusted for:
- IAS 16: Gains or losses on disposal of 18 (6) 12
property, plant and equipment
- IAS 28: Share of associates` IAS 16 - (4) 1 (3)
Gains or losses on disposal of property,
plant and equipment
Headline earnings 14 (5) 1 399
6 months ended 30 June 2008 (reviewed)
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 (1) (1)
property, plant and equipment
- IAS 16: Gains or losses on disposal 58 (16) 42
of property, plant and equipment
Headline earnings 64 (16) 1 292
Year ended 31 December 2008 (audited)
Profit attributable to owners of the 3 405
parent
Adjusted for:
- IAS 16: Impairment of property, plant 21 21
and equipment
- IAS 16: Gains or losses on disposal of 66 (20) 46
property, plant and equipment
- IAS 16: Reversal of impairment of (1) (1)
property, plant and equipment
- IAS 27: Gains on disposal of (7) (7)
subsidiary
- IAS 28: Share of associates` IAS 16 - 2 (1) 1
Gains or losses on disposal of property,
plant and equipment
- IAS 28: Share of associates` IAS 39 - 4 4
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
- IAS 28: Share of associates` IAS 16 - 161 161
Impairment of property, plant and
equipment
Headline earnings 246 (21) 3 630
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 Dec
2009 2008 2008
Reviewed Reviewed Audited
Headline earnings per share (cents)
- basic 406 377 1 058
- diluted 388 360 1 006
Condensed group statement of cash flows
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 Dec
2009 2008 2008
Reviewed Reviewed Audited
Rm Rm Rm
Cash retained from operations 832 1 523 3 574
- net financing costs (192) (45) (193)
- tax paid (488) (216) (487)
- dividends paid (700) (348) (984)
Cash flows from investing activities
- capital expenditure (686) (465) (1 617)
- proceeds from disposal of property, 4 3 29
plant and equipment
- investments acquired (50) (69) (179)
- associate acquired (221)
- acquisition of subsidiaries and other (30) (2 757)
business operations
- dividends from investments and equity- 1 124 352 1 044
accounted investments
- other (123) 86 (55)
Net cash (outflow)/inflow (279) 791 (1 846)
Net cash flow from financing activities
- shares issued 20 17 31
- increase in non-controlling interests` 8 1
loans
- net borrowings raised 1 195 5 2 734
Net increase in cash and cash 944 814 919
equivalents
Cash and cash equivalents at beginning 1 769 850 850
of period
Cash and cash equivalents end of period 2 713 1 664 1 769
Group statement of changes in equity
Other components of equity
Share Share Foreign Financial Equity-
capital premium currency instruments settled
Rm Rm translations revaluation reserve
Rm Rm Rm
Balance at 31 December 4 2 063 527 7 968
2007
Total comprehensive 573 106 74
income
Issue of share 17
capital(1)
Non-controlling
interests additional
contributions
Dividends paid
Balance at 30 June 4 2 080 1 100 113 1 042
2008
Total comprehensive (136) 32 39
income
Issue of share 14
capital(1)
Liquidation dividend
from subsidiary
Net profit on dilution
of interest in a
subsidiary
Dividends paid
Balance at 31 December 4 2 094 964 145 1 081
2008
Total comprehensive (196) (8) 72
income
Issue of share 21
capital(1)
Non-controlling
interests contribution
Dividends paid
Balance at 30 June 4 2 115 768 137 1 153
2009
Dividend paid per 375
share (cents) in
respect of the
previous financial
year
Dividend paid per 100
share (cents) in
respect of this
interim period(2)
(1)'Issued to the Kumba Resources Management Share Trust due to options
exercised.
(2)'The STC on these dividends will amount to Rnil after taking into
account STC credits.
Group statement of changes in equity
Retained Attributable Non- Total
income to owners of controlling equity
Rm the parent interests Rm
Rm Rm
Balance at 31 December 2007 6 235 9 804 19 9 823
Total comprehensive income 1 252 2 005 6 2 011
Issue of share capital(1) 17 17
Non-controlling interests 2 2
additional contributions
Dividends paid (348) (348) (348)
Balance at 30 June 2008 7 139 11 478 27 11 505
Total comprehensive income 2 177 2 112 135 2 247
Issue of share capital(1) 14 14
Liquidation dividend from 1 1 1
subsidiary
Net profit on dilution of (7) (7)
interest in a subsidiary
Dividends paid (609) (609) (27) (636)
Balance at 31 December 2008 8 708 12 996 128 13 124
Total comprehensive income 1 390 1 258 (66) 1 192
Issue of share capital(1) 21 21
Non-controlling interests 7 7
contribution
Dividends paid (700) (700) (700)
Balance at 30 June 2009 9 398 13 575 69 13 644
Dividend paid per share
(cents) in respect of the
previous financial year
Dividend paid per share
(cents) in respect of this
interim period(2)
(1)'Issued to the Kumba Resources Management Share Trust due to
options exercised.
(2)'The STC on these dividends will amount to Rnil 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 (IAS) 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 were
early adopted in 2008.
This condensed interim report complies with IAS 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 2008. During
2009 the following accounting pronouncements became effective:
Amended IFRS 2 Share-based Payments, Revised IAS 23 Borrowing
Costs, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements
for the Constructions of Real Estate, IFRIC 16 Hedges of Net
Investments in a Foreign Operation, Improvements to Financial
Reporting Standards 2008 (amendments to 35 various standards).
These pronouncements had no material impact on the accounting of
transactions or the disclosure thereof.
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 Dec
2009 2008 2008
Reviewed Reviewed Audited
Rm Rm Rm
2. Profit before tax is arrived at
after including:
Depreciation, and amortisation of (531) (415) (898)
intangible assets
Financing costs (328) (141) (394)
Interest received 86 54 153
Net realised foreign currency (434) 107 476
exchange (losses)/gains
Net unrealised foreign exchange (76) (17) 39
(losses)/gains
Derivative instruments held for 335 25 (69)
trading gains/(losses)
Fair value adjustment on financial 11 (7) (26)
instruments gains/(losses)
Impairment charges (note 3) (6) (20)
Net surplus on disposal of 7
investments
Net deficit on disposal of property, (22) (58) (66)
plant and equipment
3. Impairment charges
Impairment of property, plant and (7) (21)
equipment
Reversal of impairment of property, 1 1
plant and equipment
Total impairments before and after (6) (20)
tax
4. Net financing costs
Interest expense and loan costs 245 67 283
Finance leases 33 31 63
Interest income (86) (54) (153)
Net interest expense 192 44 193
Interest adjustment on non-current 50 43 48
provisions
Net financing cost as per income 242 87 241
statement
5. Investments
Unlisted investments in associates
- directors` valuation 14,001 14,338 13,162
Unlisted investments included in
other financial assets
- directors` valuation 413 360 387
6. Net debt/cash
Net debt/cash 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 2008 and 2009 is mainly attributable to guarantees to the
Department of Minerals and Energy in respect of environmental
liabilities on immediate closure of mining operations.
8. Contingent assets
An outstanding insurance claim of R237 million 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 2009.
A surrender fee of R56 million in exchange for the exclusive right
to prospect, explore, investigate and mine for coal within a
designated area in central Queensland and Moranbah, Australia,
conditional on the grant of a mining lease.
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 announcement has been prepared in accordance with the
JSE Limited Listings Requirements.
11. 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.
12. 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
2009 2008 2008
Coal
Production
- Power station 18 583 18 118 36 700
''* Tied operations(1) 8 704 8 962 18 095
''* Commercial operations 9 879 9 156 18 605
- Coking 922 1 370 2 560
''* Tied operations 129 171 327
''* Commercial operations 793 1 199 2 233
- Other 3 061 2 427 5 574
Total 22 566 21 915 44 834
Sales
- Eskom 18 494 17 880 36 255
''* Tied operations 8 700 8 942 18 054
''* Commercial operations 9 794 8 938 18 201
- Other domestic 1 920 2 607 5 481
''* Tied operations 130 200 352
''* Commercial operations 1 790 2 407 5 129
- Export(2) 2 389 1 284 3 276
Total 22 803 21 771 45 012
KZN Sands
Production
- Ilmenite 185 133 229
- Zircon 18 16 34
- Rutile 10 7 19
- Pig iron 54 29 50
- Scrap pig iron 7 8 16
- Chloride slag 51 56 95
- Sulphate slag 9 10 18
Sales
- Ilmenite 20 40
- Zircon 4 22 36
- Rutile 3 7 14
- Pig iron 17 39 64
- Scrap pig iron 4 6 7
- Chloride slag 30 49 101
- Sulphate slag 13 6 17
Namakwa Sands(3)
Production
- Ilmenite 141 159 315
- Zircon 64 65 130
- Rutile 15 13 27
- Pig iron 41 52 103
- Scrap pig iron 2 6
- Chloride slag 53 64 135
- Sulphate slag 10 14 24
Sales
- Zircon 37 64 135
- Rutile 11 14 27
- Pig iron 47 58 82
- Scrap pig iron 1
- Chloride slag 37 77 145
- Sulphate slag 1 5 26
Australia Sands(4)
Production
- Ilmenite 98 85 174
- Zircon 15 13 29
- Rutile 8 6 13
- Synthetic rutile 54 56 113
- Leucoxene 7 6 16
- Pigment 25 22 43
Sales
- Zircon 6 14 35
- Rutile 5 5 14
- Synthetic rutile 24 27 62
- Leucoxene 1 8 17
- Pigment 23 24 44
Base metals
Production
- Zinc concentrate 53 51 109
''* Rosh Pinah 47 47 94
''* Black Mountain(5) 6 4 15
- Zinc metal 54 60 110
''* Zincor 44 47 87
''* Chifeng(6) 10 13 23
- Lead concentrate 20 18 37
''* Rosh Pinah 12 12 20
''* Black Mountain(5) 8 6 17
Zinc metal sales 58 66 126
- Domestic 44 51 93
- Export 14 15 33
Lead concentrate sales
- Export 6 7 22
(1)'Tied operations refer to mines that supply their entire production
to either Eskom or ArcelorMittal SA Limited in terms of contractual
agreements.
(2)'Includes steam coal exports from Exxaro`s 50% share of the Mafube
expansion project.
(3)'Namakwa Sands has been included from 1 January 2008, for comparable
purposes.
(4)'Exxaro Sands Australia`s 50% interest in its Tiwest joint venture
is disclosed.
(5)'Exxaro`s 26% interest in Black Mountain Mining (Pty) Limited has
been disclosed from 1 January 2008, for comparable purposes.
(6)'Exxaro`s effective interest in the Chifeng refinery is disclosed.
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 2009 and
2008 respectively. The earnings reported for the six-month period to 30 June
2009 includes results from Namakwa Sands and the 26% interest in Black Mountain
Mining (Pty) Limited (Black Mountain) which were acquired on 1 October 2008 and
1 November 2008 respectively.
The coal business reported a 10% increase in net operating profit to R1 032
million due to higher sales volumes to Eskom and the export market, offset by
lower international steam coal prices, lower local non-Eskom sales volumes, and
higher production costs. The base metals business delivered significantly lower
operating results in line with zinc prices 42% lower than the corresponding
period in 2008. The mineral sands business reported a consolidated net operating
loss as the loss at KZN Sands, primarily from lower demand, more than offset the
profitable contributions from Namakwa Sands and Australia Sands.
Revenue increased by 23% to R7 111 million while net operating profit increased
by R147 million to R953 million, notwithstanding lower profits in the base
metals business and a further, albeit lower, consolidated loss in the mineral
sands business. Although the consolidated operating results show an improvement
when compared with the previous year, the group was adversely affected by the
vagaries of the current global economic downturn.
A weaker average exchange rate of R9,40 to the US dollar was realised on revenue
compared to R7,54 for the corresponding period in 2008, however, the timing of
the volatility of the local currency to the US dollar on repatriation of foreign
currency proceeds, led to lower realised currency gains than anticipated.
Unrealised foreign currency losses on the revaluation of monetary items in
foreign currency resulted from the relative strength of the local currency on 30
June 2009. The weaker Australian dollar to the US dollar, from an average of US
93 cents in the six-month period to 30 June 2008 to US 71 cents in the period
under review, together with favourable hedging of US dollar receivables,
impacted positively on the financial results of the mineral sands operation in
Australia.
EARNINGS
Attributable earnings, inclusive of Exxaro`s 20% interest in the post-tax
profits of Sishen Iron Ore Company (Pty) Limited (SIOC) amounting to R868
million, increased by 12% from R1 244 million to R1 390 million or 403 cents per
share.
Headline earnings were R1 399 million or 406 cents per share. This represents an
8% increase on the comparative 2008 earnings of R1 292 million or 377 cents per
share.
CASH FLOW
Cash retained from operations was R832 million. Taxation payments of R488
million, the final dividend for the 2008 financial year of R700million and
capital expenditure payments of R686 million were made. A total of R347 million
of the capital expenditure was invested in new capacity and R339 million applied
to sustaining and environmental capital.
A net cash outflow of R279 million was recorded after accounting for
R1124million dividend receipts from associate companies.
Net debt of R2 381 million at 31 December 2008 increased to R2 455 million at 30
June 2009 at a debt to equity ratio of 18%, and includes the R2662million and
R221 million paid for Namakwa Sands and a 26% interest in Black Mountain in the
latter half of 2008 respectively.
Subsequent to the interim date, Exxaro paid R1 032 million for its investment in
the Mafube joint venture with Anglo Coal.
The significant reduction in cash retention and net cash outflow position
compared with the corresponding period in 2008, can partly be ascribed to higher
inventory holding as demand decreased while customers were destocking during the
global recessionary environment.
SAFETY, HEALTH AND ENVIRONMENT
Safety and health of all employees continues to be an overriding priority for
Exxaro. Regrettably a non-reportable fatality occurred in a public road accident
in June 2009. The average lost time injury frequency rate (LTIFR) per 200 000
man-hours worked improved significantly to 0,30 from the previous year`s 0,45 in
the first half of 2008 and the 0,39 for the full year of 2008.
Further safety improvements were identified during the CEO Safety Summit held in
March 2009 and are being focused on for feedback on progress at the next summit
planned for October 2009.
The reviewed HIV/Aids strategy which focuses on improved employee understanding
of preventative behaviour as well as voluntary counselling and testing (VCT)
participation, has increased VCT participation since inception of the HIV/Aids
programme.
Ten business units are now ISO 14001 and OHSAS 18001 certified. The remaining
five business units have programmes in place to be certified by the end of 2009.
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 6 months Audited
ended 30 June 12 months
ended
31 December
2009 2008 2008
Rm Rm Rm
Revenue
Coal 4 797 3 597 9 040
'Tied operations 1 276 1 106 2 492
'Commercial operations 3 521 2 491 6 548
Mineral Sands 1 550 1 035 2 776
'KZN Sands 273 460 974
'Namakwa Sands 644 491
'Australia Sands 633 575 1 311
Base Metals 674 1 063 1 829
'Rosh Pinah 206 244 436
'Zincor 630 1 032 1 733
'Inter-segmental (162) (213) (340)
Other 90 87 198
Total - external revenue 7 111 5 782 13 843
Segment net operating profit/(loss)
Coal 1 032 935 2 654
'Tied operations 71 72 83
'Commercial operations 961 863 2 571
Mineral Sands (67) (166) 104
'KZN Sands (110) (27) 31
'Namakwa Sands 24 155
'Australia Sands 19 (139) (82)
Base Metals 9 89 (172)
'Rosh Pinah 35 57 (14)
'Zincor 3 69 (95)
'Inter-segmental and other (29) (37) (63)
Other (21) (52) (119)
Total 953 806 2 467
OPERATIONS
Coal
Total production of power station coal was 465kt higher than the corresponding
period last year. Higher demand from Eskom resulted in increased production from
the Grootegeluk and Leeuwpan operations while NBC started mining new reserves
which yielded increased product volumes of 392kt.
The Eskom tied collieries recorded lower net production volumes mainly due to
802kt lower production volumes from Matla resulting from water ingress from
surface cracks after seasonal rains as well as other production challenges.
Higher production from Arnot of 544kt was achieved due to the benefits realised
from the production optimisation project implemented during March 2008, which is
now fully operational.
Lower coking coal production for the six months ended 30 June 2009 of 448kt was
due mainly to a management decision to cut back on coking coal production at
Grootegeluk due to lower demand. Lower coking coal production at Tshikondeni
mine was caused by continued difficult geological conditions in the area being
mined.
Production of steam coal was 26% higher with the Inyanda mine now fully
operational. The joint venture agreement with Anglo Coal for the Mafube mine was
signed with an effective date of 1 June 2009 and resulted in additional steam
coal production of 106kt. Higher production results from NBC from the mining of
additional reserves were offset by lower production from Leeuwpan and
Grootegeluk due to lower market demand in current market conditions, as well as
lower coal production from NCC with lower yields achieved on different sources
of run-of-mine tonnages treated through the beneficiation plant.
Sales to Eskom increased based on higher demand. However, lower non-Eskom sales
to domestic customers resulted from lower demand in the current market
conditions albeit at higher negotiated prices.
Export sales volumes increased substantially from a fully ramped-up Inyanda mine
and additional export coal from Mafube, however, was recorded at lower
international steam coal prices and a weaker local currency.
As a result revenue increased by 33% to R4 797 million.
Net operating income for the six months ended 30 June 2009 increased by 10% at
an operating margin of 22%. The operating margin decreased from the 26% in the
previous period due to increased labour and contractor costs after the
implementation of a seven-day work week at Grootegeluk mine, increased mining
cost at Leeuwpan mine from the high stripping ratios due to the area mined
during the period, higher coal buy-in prices for NCC and for Mafube export coal,
and higher railage tariffs for coal destined for export.
Mineral Sands
KZN Sands
KZN Sands reported increased production for the six months to 30 June 2009. Both
furnaces were fully operational for the entire period under review, as opposed
to the same period in 2008, when furnace 2 was down after damage by a water
ingress incident at the end of February 2008. In excess of 100kt of slag was
tapped in the six months, the best production from the furnaces since inception.
Low manganese pig iron (LMPI) production was also higher resulting from the
increased slag throughput, while zircon and rutile production were both higher
than the comparative period due to higher grade recoveries.
Stability in the furnaces is impacting positively on production from the KZN
Sands business.
Revenue was, however, R187 million lower and a net operating loss of R110million
compared to a loss of R27 million in 2008 was reported attributable to lower
demand as a result of the global economic slow down, lower LMPI prices and
unrealised foreign currency revaluation losses in this reporting period.
Namakwa Sands
Slag and iron production was adversely affected by the furnace 1 water ingress
incident towards the end of March 2009 and the subsequent decision to delay the
reline to March 2010 as a result of market conditions.
The global economic crisis had a major impact on the markets for Namakwa Sands`
products in the first half of 2009. Demand dropped sharply across all sectors as
customers and end-users focused on reducing inventories and cutting back on new
purchases.
Namakwa Sands` revenue for the reporting period was R644 million with a net
operating profit of R24 million. The net operating profit was severely affected
by the sudden decline in sales volumes towards the latter part of the first
quarter. This downward trend was softened by significantly better sales tonnage
of zircon, chloride slag and pig iron in the second quarter.
The positive impact of a weaker local currency to the US dollar on revenue
recorded was reduced by foreign currency losses on repatriation of foreign
currency proceeds due to the timing of the volatility on the relative exchange
rate.
Subsequent to the acquisition of Namakwa Sands in October 2008, management has
embarked on an exercise to re-define the mine plan by December 2009.
Australia Sands
Higher grades at the dredge mine led to higher concentrate and therefore higher
mineral production. Successful improvement initiatives continue to favourably
impact mineral production.
Production of synthetic rutile (SR) was slightly lower during the period under
review as a result of maintenance-related problems occurring during the second
quarter. These problems have been resolved and performance should improve in the
second half of 2009.
Pigment production improved substantially following the successful
implementation of various initiatives and a successful shut in May 2008.
Although increased maintenance cost was incurred at the SR plant, the
significant increases in 2008 in the cost of process chemicals and energy
consumables was not experienced during the period under review.
Net operating profit improved from a loss of R139 million in the corresponding
period in 2008 to a profit of R19 million for the current period, attributed to
an improved production performance, a weaker average Australian dollar against
the US dollar and higher sales prices on average, albeit partially offset by
lower sales volumes as a result of the economic slowdown. Hedging of US dollar
receivables had a positive impact on operating results. Currency hedging of
US$22 million at an average rate of US 63 cents to the Australian dollar is in
place for the remainder of 2009.
Base Metals
Production of zinc metal at the Zincor refinery of 44kt was 6% lower. The
shortfall can be attributed to downtime on the acid plant and throughput
limitations on the purification circuit. Downtime on the acid plant negatively
affected the rest of the operation. The challenges with the acid plant have
since been resolved.
Zinc metal sales were 17% lower than the equivalent period in 2008 mainly due to
lower demand.
Production at Rosh Pinah was in line with 2008 but yielded higher metal content.
The flotation cell replacement project is only marginally behind schedule and is
expected to come into operation late in 2009.
A total of 60% of Rosh Pinah`s projected zinc and lead concentrate sales were
hedged during the previous financial year for the period July 2008 to December
2011 at forward prices ranging from US$2 431 to US$1 887 for zinc and US$2 940
to US$ 900 for lead per tonne as part of the partial divestment to facilitate a
Namibian empowerment transaction. In the first half of 2009, a portion of the
hedging programme was ineffective and resulted in losses of R42 million being
accounted for in profit or loss.
Revenue for the six months to 30 June 2009 decreased by 37% mainly as a result
of lower zinc prices. The average zinc price for the six months of US$1 329 is
42% lower than the equivalent period in 2008 and was only partially offset by
the weaker local currency.
Net operating profits declined substantially as lower revenues coupled with
higher operating costs resulted from higher than inflation increases in
electricity and maintenance expenses as well as higher distribution costs.
Production at the Chifeng refinery was 23% lower due to low prices and market
demand. Prices and demand recovered at the end of the second quarter, with a
positive outlook for annual performance. Exxaro`s proportionate share of the
post-tax earnings of Chifeng decreased by 89% to R2 million compared to the
equivalent period in 2008 mainly due to the lower production and high raw
material prices eroding margins.
Exxaro exercised its option to acquire 26% in Black Mountain during the last
quarter of 2008. In the current period Exxaro equity accounted R15million as its
share of Black Mountain`s post-tax earnings.
Industrial Minerals
Production volumes of ferrosilicon at the FerroAlloys plant show a modest
increase, however, sales volumes were lower as a result of lower market demand.
The group plans to finalise the proposed divestment of its interest in the Glen
Douglas dolomite mine during the second half of 2009.
CAPITAL EXPENDITURE AND PROJECT PIPELINE
Exxaro has completed the review and prioritisation of its capital expenditure
and project pipeline subsequent to the global economic downturn. The group will
focus on the successful implementation of committed expansions and projects
which meet its investment hurdle rate within a board approved mandate.
Coal
The expansion of the Grootegeluk mine to supply Eskom`s Medupi power station
with 14,6Mtpa of power station coal for 40 years, is progressing in line with
the planned schedule to supply the first coal during the last quarter of 2011.
Full production from 2014 onwards is envisaged. The project, at an estimated
capital cost of R9 billion, is in the detailed engineering design phase and
orders will be placed during the next six months for long lead capital items.
The pre-feasibility study and geological exploration work on a potential
greenfields mine adjacent to the Grootegeluk mine (Thabametsi mine) with the
capability of supplying the market with power station and metallurgical coal is
being progressed with planned completion by the end of 2009. The development is
aligned with Eskom`s request for proposals for Independent Power Producers for
base-load power stations.
An integrated infrastructure plan is being implemented for the Waterberg coal
fields together with the relevant stakeholders focusing on the supply of
housing, water, rail and road infrastructure.
Exxaro entered into a prospecting joint venture agreement with Sasol Mining
(Pty) Limited (Sasol) for the development of a new coal mine in the Waterberg to
supply Sasol`s new potential inland coal-to-liquids project (Project Mafutha).
The development is in the pre-feasibility stage with the mining of a bulk sample
being planned before the end of 2009 for large-scale testing at the Sasol
Synfuels Secunda plant.
Exxaro concluded an option agreement with Coal of Africa Limited which affords
Exxaro a minority participation right in the Makhado coking coal project in the
Limpopo province. The exercise of the option is subject to a detailed technical
and economical due diligence on the project.
Two of the four retorts of the Sintel Char plant at Grootegeluk mine for the
production of reductants for the ferroalloy industry that had been delayed after
the failure of the refractory lining, have been commissioned with the first char
produced during June 2009. The other two retorts will be commissioned by the end
of October 2009 with full production of 140ktpa of char estimated to be reached
during 2010. The quality of the product is in line with market expectations and
the entire production offtake has been secured.
The potential bord-and-pillar mining operation pre-feasibility study of the hard
coking coal resource on the Moranbah South properties in Queensland, Australia,
has commenced with exploration drilling being prioritised to finalise this study
during the first half of 2010. Exploration work on the potential long-wall
mining project is also progressing according to plan to confirm that Moranbah
South can produce premium quality hard coking coal in conjunction with our joint
venture partner Anglo Coal Australia.
Mineral Sands
The approval of the mining right for the Fairbreeze C Extension portion of the
Fairbreeze project, which in the past prevented this project from proceeding,
was granted. However, in light of prevailing market conditions, the project is
currently under review.
The feasibility study of the Port Durnford project, located to the south-west of
Hillendale mine, was completed during the first half of 2009. This mine could
supply the KZN furnaces for longer than 20 years, however, current economic
conditions are impacting negatively on the financial viability of the project.
This project is therefore currently also under review.
The development of a mine in Madagascar (Toliara Sands project) will not be
economically viable due to the deposit size, grades, location and infrastructure
development required. Exxaro does not plan any further exploration in this area
and is in the process of exiting from the option agreement.
The 100% funded Exxaro pigment plant expansion at Kwinana, at an expected cost
of AU$100 million, remains on track and on budget for commencement in the first
half of 2010.
As a result of the increased life expectancy of Tiwest`s current dry mine
operation at Cooljarloo, Australia, existing dry mining operations will now only
cease in 2011. A pre-feasibility study of the Dongara mine was completed in
2008. However, in the current economic circumstances, the project payback period
is insufficient to warrant investment. As an alternative, a pre-feasibility
study to replace the dry mining capacity with an expansion of the Cooljarloo
dredge operation is underway and will be completed in the fourth quarter of
2009.
An exploration programme to identify an inferred or indicated resource on the
Tiwest Cooljarloo West tenements will involve the drilling of 25 000 metres in
the second half of 2009 to confirm initial exploration results.
Base Metals and Ferrous Metals
The commercialisation of the AlloyStream(TM) technology for the beneficiation of
manganese ore was progressed to pre-feasibility level for a site at Coega.
Further work on forming strategic alliances is continuing to optimise the
business case for the development of the manganese project. A successful
campaign on the beneficiation of nickel ore was also completed. Optimisation
studies to fast track the development of both the manganese and nickel projects
are in progress.
CONVERSION OF MINING RIGHTS
Engagement with the Department of Minerals and Energy (DME) continued 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 DME in 2008, is also still in process.
CHANGES TO THE BOARD
As previously announced, Mr WA de Klerk replaced Mr DJ van Staden as finance
director on 1 March 2009.
Mr CI Griffith was appointed on 16 July 2009 in place of Mr PM Baum who had
resigned on 15 July 2009. The board expresses its appreciation for MrBaum`s
significant contribution to the group.
OUTLOOK
Demand for power station coal should remain similar to that experienced in the
current reporting period.
The group expects similar levels of steam coal exports in the second half of
2009 albeit at lower international prices. However, such performance remains
dependant on the availability of logistical infrastructure.
A significant decline in domestic steam and coking coal prices are anticipated
in the second half of 2009 due to contractual pricing arrangements.
Demand for the mineral sands products will continue to be affected by the
depressed economic environment combined with the additional downside of a
possible strong Australian dollar to the US dollar in the Australian operations.
Zinc markets are expected to remain depressed with downward pressure on prices
due to the expected oversupply of metal.
The equity-accounted contribution from SIOC will be impacted by the lower
benchmark iron ore prices with effect from 1 April 2009.
Due to the continued lower economic activity and its impact on demand and
prices, it is inevitable that earnings for the second half of 2009 will be
adversely impacted. The relative strength of the local currency, and its
volatility, will also impact on the results for the second half of 2009.
The financial information on which the outlook statement is based has not been
reviewed or reported on by the company`s auditors.
INTERIM DIVIDEND
The board of directors have declared an interim cash dividend number 13 of 100
cents per share in respect of the 2009 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, 25September 2009.
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, 17 September 2009
Shares trade ex dividend Friday, 18 September 2009
Record date Friday, 25 September 2009
Payment date Monday, 28 September 2009
Share certificates may not be dematerialised or rematerialised during the period
Friday, 18 September 2009 and Friday, 25 September 2009, both days inclusive.
On Monday, 28 September 2009 the interim 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 28 September 2009 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, 28 September 2009.
On behalf of the board
SA Nkosi
Chief Executive Officer
WA de Klerk
Finance Director
19 August 2009
REGISTERED OFFICE TRANSFER SECRETARIES
Exxaro Resources Limited Computershare Investor Services (Pty) Limited
Roger Dyason Road Ground Floor, 70 Marshall Street
Pretoria West, 0183 Johannesburg, 2001
Tel no +27 12 307 5000 PO Box 61051
Fax no +27 12 323 3400 Marshalltown, 2107
DIRECTORS Dr D Konar (Acting Chairman), SA Nkosi (Chief Executive
Officer)*, WA de Klerk*, JJ Geldenhuys, CI Griffith, U Khumalo,
SEAMngomezulu, VZ Mntambo, RP Mohring, NL Sowazi, J van Rooyen, DZihlangu
*Executive
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
20 August 2009
Sponsor
Deutsche Securities (SA) (Pty) Limited
Date: 20/08/2009 07:05:06 Supplied by www.sharenet.co.za
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