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EXX - Exxaro - Audited group financial results and physical information for
the 12-month period ended 31 December 2008
EXXARO RESOURCES LIMITED
Incorporated in the Republic of South Africa
(Registration Number: 2000/011076/06)
JSE share code: EXX
ISIN code: ZAE000084992
ADR code: EXXAY
("Exxaro" or "the company" or "the group")
Audited group financial results and physical information for the 12-month
period ended 31 December 2008
HIGHLIGHTS
*Revenue increases 36% to R13,8 billion
*Net operating profit up 71% to R2,5 billion
*Significant maiden profit contribution from Namakwa Sands
*Headline earnings of 1 058 cents per share
*Final dividend of 200 cents per share; total dividend of 375 cents per share
CONDENSED GROUP INCOME STATEMENT
Year ended 31 December 2008 2007
Audited Audited
Rm Rm
Revenue 13 843 10 157
Operating expenses (11 376) (8 713)
Net operating profit 2 467 1 444
Net financing costs (note 4) (241) (215)
Share of income from investments and equity- 1 665 730
accounted investments
Profit before taxation (note 2) 3 891 1 959
Income tax expense (510) (512)
Profit for the year 3 381 1 447
Profit attributable to:
Owners of the parent 3 405 1 427
Minority interest (24) 20
Profit for the year 3 381 1 447
GROUP STATEMENT OF COMPREHENSIVE INCOME
Year ended 31 December 2008 2007
Audited Audited
Rm Rm
Profit for the year 3 381 1 447
Other comprehensive income:
Exchange differences on translating foreign 193 176
operations
Cash flow hedges 520 (39)
Share of comprehensive income of associates 187 46
Share-based payment movement 92 133
Income tax relating to components of other (115) 2
comprehensive income
Other comprehensive income for the year, net of 877 318
tax
Total comprehensive income for the year 4 258 1 765
Total comprehensive income attributable to:
Owners of the parent 4 117 1 749
Minority interest 141 16
Total comprehensive income for the year 4 258 1 765
Ordinary shares (million)
- in issue 355 353
- weighted average number of shares 343 341
- diluted weighted average number of shares 361 355
Attributable earnings per share (cents)
- basic 993 418
- diluted 943 402
CONDENSED GROUP STATEMENT OF FINANCIAL POSITION
At 31 December 2008 2007
Audited Audited
Rm Rm
ASSETS
Non-current assets
Property, plant and equipment 11 309 8 235
Biological assets 34 30
Intangible assets 79 76
Investments in associates and joint ventures
(note 6)
- unlisted 1 849 757
Deferred tax 1 083 732
Other financial assets (note 6) 1 577 1 031
15 931 10 861
Current assets
Inventories 2 481 1 531
Trade and other receivables 2 924 1 870
Current tax receivable 2 61
Cash and cash equivalents 1 769 850
7 176 4 312
Non-current assets classified as held for sale 78 2
Total assets 23 185 15 175
EQUITY AND LIABILITIES
Capital and reserves
Equity attributable to owners of the parent 12 996 9 804
Minority interest 128 19
Total equity 13 124 9 823
Non-current liabilities
Interest-bearing borrowings 3 650 1 259
Non-current provisions 1 746 1 329
Financial liabilities 31
Deferred tax 1 257 1 077
6 684 3 665
Current liabilities
Trade and other payables 2 366 1 449
Interest-bearing borrowings 500 74
Current tax payable 440 137
Current provisions 21 27
3 327 1 687
Non-current liabilities classified as held for 50
sale
Total equity and liabilities 23 185 15 175
Net debt (note 10) 2 381 483
Net asset value per share (cents) 3 697 2 783
Capital expenditure
- incurred 1 617 1 296
- contracted 889 450
- authorised but not contracted 2 711 1 278
Capital expenditure contracted relating to 70 72
captive mines, Tshikondeni, Arnot and Matla,
which will be financed by ArcelorMittal SA
Limited and Eskom respectively
Commitment relating to the acquisition of Namakwa 2 353
Sands and a 26% interest in Black Mountain Mining
(Pty) Limited from Anglo Operations Limited,
subject to price adjustments
Contingent liabilities (note 11) 587 201
Contingent assets (note 12) 192
Operating lease commitments 77 126
Operating sublease rentals receivable 1
RECONCILIATION OF HEADLINE EARNINGS
for year ended 31 December 2008
Gross Tax Net
Rm Rm Rm
Profit for the year attributable to 3 405
owners of the parent
Adjusted for:
- IAS 16 - Impairment of property, 21 21
plant and equipment
- IAS 16 - Gains or losses on 66 (20) 46
disposal of property, plant and
equipment
- IAS 16 - Reversal of impairment (1) (1)
of property, plant and equipment
- IAS 27 - Gains on disposal of (7) (7)
subsidiary
- IAS 28 - Share of associates` 2 (1) 1
IAS 16 - Gains or losses on disposal
of property, plant and equipment
- IAS 28 - Share of associates` 4 4
IAS 39 - 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 28 Share of associates` 161 161
IAS 16 - Impairment of property,
plant and equipment
Headline earnings 246 (21) 3 630
For the year ended 31 December 2007
Profit for the year attributable to 1 427
equity holders of the parent
Adjusted for:
- IAS 16 - Impairment of Property, 23 23
plant and equipment
- IAS 16 - Gains or losses on 17 (5) 12
disposal of property, plant and
equipment
- IAS 28 - Share of associates` (3) 1 (2)
IAS 16 - Gains or losses on disposal
of property, plant and equipment
- IAS 28 - Share of associates` (7) 1 (6)
IAS 39 - 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 - Reversal of investment (6) (6)
impairment
Headline earnings 24 (3) 1 448
Year ended 31 December 2008 2007
Audited Audited
Rm Rm
Headline earnings per share (cents)
- basic 1 058 425
- diluted 1 006 408
CONDENSED GROUP STATEMENT OF CASH FLOWS
Year ended 31 December 2008 2007
Audited Audited
Rm Rm
Cash retained from operations 3 574 2 308
- net financing costs (193) (116)
- tax paid (487) (462)
- dividends paid (note 7) (984) (223)
Cash used in investing activities
- capital expenditure (1 617) (1 296)
- proceeds from disposal of property, plant and 29 50
equipment
- dividends from investments and 1 044 379
equity-accounted investments
- investments acquired (179) (249)
- associate acquired (note 8) (221)
- acquisition of subsidiaries and other business (2 757) (8)
operations (note 9)
- other (55) 5
Net cash (outflow)/inflow (1 846) 388
- cash flows from issue of shares 31 114
- borrowings raised/(repaid) 2 734 (567)
Net increase/(decrease) in cash and cash 919 (65)
equivalents
Special purpose entities consolidated 9
Cash and cash equivalents at beginning of year 850 906
Cash and cash equivalents end of year 1 769 850
Calculation of movement in net debt:
Net cash (outflow)/inflow (1 846) 388
- shares issued 31 114
- loans from minority shareholders 1
- increase in net debt on acquisition of (25)
subsidiary
- special purpose entities consolidated 9
- non-cash flow movements in net debt (352) 59
applicable to currency translation differences
of transactions denominated in foreign currency
- non-cash flow movements in net debt 282 (107)
applicable to currency translation differences
of net debt items of foreign entities
- hedging of share-based payment exposure (14)
(Increase)/decrease in net debt (1 898) 438
GROUP STATEMENT OF CHANGES IN EQUITY
Other components of equity
Share Share Foreign Financial Equity-
capital premium currency instruments settled
Rm Rm translation revaluation reserve
Rm Rm Rm
Balance at 1 January 2007 4 5 135 379 24 802
Total comprehensive 148 (17) 182
income
Issue of share capital1 23
Share placement2 91
- issue 640
- repurchase (460)
- expenses (89)
Transfer to retained (16)
income
Minority share buy-out
Special purpose entities
now consolidated
Dividends paid3
Prior year dividend in (3 186)
specie reclassification
Balance at 31 December 4 2 063 527 7 968
2007
Total comprehensive 437 138 113
income
Issue of share capital1 31
Minority share additional
contributions
Liquidation dividend from
subsidiary
Net profit on dilution of
interest in a subsidiary
Dividends paid3
Balance at 31 December 4 2 094 964 145 1 081
2008
GROUP STATEMENT OF CHANGES IN EQUITY (continued)
Retained Attribut- Minority Total
income able interest equity
Rm to owners Rm Rm
of the
parent
Rm
Balance at 1 January 2007 1 798 8 142 27 8 169
Total comprehensive income 1 436 1 749 16 1 765
Issue of share capital1 23 23
Share placement2 91 91
- issue 640 640
- repurchase (460) (460)
- expenses (89) (89)
Transfer to retained income 16
Minority share buy-out (13) (13)
Special purpose entities now 7 7 7
consolidated
Dividends paid3 (208) (208) (11) (219)
Prior year dividend in specie 3 186
reclassification
Balance at 31 December 2007 6 235 9 804 19 9 823
Total comprehensive income 3 429 4 117 141 4 258
Issue of share capital1 31 31
Minority share additional 2 2
contributions
Liquidation dividend from 1 1 1
subsidiary
Net profit on dilution of (7) (7)
interest in a subsidiary
Dividends paid3 (957) (957) (27) (984)
Balance at 31 December 2008 8 708 12 996 128 13 124
Dividend paid per share
(cents) in respect of the
2007 financial year 160
Dividend paid per share
(cents) in respect of the
2008 interim period 175
Final dividend declared
per share (cents) in
respect of 2008 financial
year 200
1 Issued to the Kumba Resources Management Share Trust due to options
exercised.
2 Repurchase of 10 million shares from Anglo South Africa (Pty) Limited
on 13 April 2007 at R45,99 per share and the subsequent re-issue of 10
million new Exxaro shares at R64 per share. STC on the share repurchase
of R57,5 million is included in net profit.
3 The STC on these dividends will amount to Rnil million after taking
into account STC credits.
NOTES TO THE GROUP FINANCIAL STATEMENT
1. Basis of preparation
The format of the condensed 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 report complies with International Accounting Standard
34, Interim Financial Reporting, and Schedule 4 part iv of the South
African Companies Act. The financial statements from which these
group financial results have been derived are prepared on the
historical basis excluding financial instruments and biological
assets, which are fair valued, and conform to International Financial
Reporting Standards. The accounting policies adopted are consistent
with those applied in the annual financial statements for the year
ended 31 December 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 report and accordingly the
adoption thereof has had no effect on the profit or equity for the
year.
Year ended 31 December 2008 2007
Audited Audited
Rm Rm
2. Profit before taxation is arrived at after
Depreciation and amortisation of intangible (898) (763)
assets
Financing costs (394) (311)
Interest received 153 96
Net realised foreign currency exchange 476 (42)
gains/(losses)
Net unrealised foreign currency exchange 39 (32)
gains/(losses)
Derivative instruments held for trading (69) 61
(losses)/gains
Fair value adjustments on financial (26) 51
instruments
Impairment charges and reversals (note 3) (20) (17)
Net profit on disposal of investments 7
Net deficit on disposal of property, plant and (66) (17)
equipment
3. Impairment charges and reversals
Impairment of property, plant and equipment (21) (23)
Reversal of impairment of property, plant and 1
equipment
Reversal of impairment of investments 6
Total impairments and reversals before and (20) (17)
after tax
4. Net financing cost
Interest expense and loan costs 283 153
Finance leases 63 59
Interest income (153) (96)
Net interest expense 193 116
Interest adjustment on non-current provisions 48 99
Net financing cost as per income statement 241 215
5. Tax rate reconciliation % %
Taxation as a percentage of profit before 13,1 26,1
taxation
Taxation effect of
- assessed losses (not provided for) (0,3) (0,2)
- capital profits 0,2 0,5
- disallowable expenditure (0,7) (2,1)
- reclassification of previously disallowable 1,1
expenditure
- exempt income 1,0 0,3
- special tax allowances 0,2
- share of associates` and joint ventures` 11,9 10,8
- tax rate differences 0,4 (2,1)
- Secondary Tax on Companies (STC) (0,1) (2,9)
- withholding tax (0,4) (0,5)
- Controlled Foreign Company profits (CFC) (0,1) (0,3)
- foreign exchange differences (0,1) (0,1)
- prior year adjustment 1,7 (0,7)
- rate change on deferred tax balance 0,3
28,0 29,0
6. Investments
Unlisted investments in associates
- directors` valuation 13 162 9 110
Unlisted investments included in other
financial assets
- directors` valuation 387 328
7. Dividends paid
Cash dividends 957 211
Cash dividends paid to minorities 27 12
Total dividends paid 984 223
8. Acquisition of associate
On 1 November 2008, the group acquired 26% of the issued share
capital of Black Mountain Mining (Pty) Limited, which is included in
the other base metals segment results, for R221 million.
The acquired business contributed an equity accounted loss of R189
million to the group for the period from 1 November 2008 to
31 December 2008.
9. Business combinations
On 11 April 2008, the group acquired 76% of the issued share capital
of Exxaro Madencilik Sanayi Ve Ticaret A.S., Turkey (Madencilik),
which is included in the other segment results. The acquired business
contributed nil revenue and R7 million operating loss to the group
for the period from 11 April 2008 to 31 December 2008.
On 1 July 2008, the group acquired 100% of the issued share capital
of Skyprops 112 (Pty) Limited, which is included in the other segment
results. The acquired business contributed neither revenue nor
operating profit to the group for the period from 1 July 2008 to
31 December 2008.
On 1 October 2008, the group acquired the assets and liabilities of
the operations of Namakwa Sands which is included in the Mineral
Sands segment results. The acquired business contributed R491 million
revenue and R155 million operating profits to the group for the
period from 1 October 2008 to 31 December 2008.
Details of assets
acquired are as
follow:
Madencilik Skyprops Namakwa Total
Sands
Rm Rm Rm Rm
- cash paid on (30) (65) (2 662) (2 757)
acquisition
- purchase (121) (121)
consideration
outstanding
- fair value of 30 65 2 783 2 878
assets acquired
Goodwill
Fair value of assets
acquired
- property, plant and 65 2 207 2 272
equipment
- intangible assets 30 30
- financial assets 16 16
- inventories 399 399
- trade and other 371 371
receivables
- trade and other (148) (148)
payables
- non-current (62) (62)
provisions
Fair value of net 30 65 2 783 2 878
assets
Total purchase (30) (65) (2 783) (2 878)
consideration
Purchase 121 121
consideration
outstanding
Cash outflow on (30) (65) (2 662) (2 757)
acquisition of
subsidiaries and
other business
operations
10. Net debt
Net debt is calculated as being interest-bearing borrowings less cash
and cash equivalents.
11. 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 to the Department of Minerals and
Energy in respect of environmental liabilities on immediate closure
of mining operations.
12. Contingent assets
An outstanding insurance claim of R135 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 R57 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.
13. Related-party transactions
During the period the company and its subsidiaries, in the ordinary
course of business, entered into various sale and purchase
transactions with associates and joint ventures.
These transactions were subject to terms that are no less favourable
than those arranged with third parties.
14. Post-balance sheet event
The directors are not aware of any matter or circumstance arising
after the balance sheet date up to the date of this report, not
otherwise dealt with in this report.
15. JSE Limited Listings Requirements
The announcement has been prepared in accordance with the listings
requirements of JSE Limited Listings Requirements.
16. 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.
17. Audit opinion
The auditors, Deloitte & Touche, have issued their opinion on the
group`s financial statements for the year ended 31 December 2008. The
audit was conducted in accordance with International Standards on
Auditing. They have issued an unmodified audit opinion. A copy of
their audit report is available for inspection at the company`s
registered office. These summarised financial results have been
derived from the group financial statements and are consistent in all
material respects with the group annual financial statements.
REPORTED ACTUAL SEGMENT RESULTS
12 months ended 31 December 2008 2007
Audited Audited
Rm Rm
REVENUE
Coal 9 040 5 087
Tied operations 2 492 1 768
Commercial operations 6 548 3 319
Mineral Sands 2 776 2 172
KZN Sands 974 984
Australia Sands 1 311 1 188
Namakwa Sands1 491
Base Metals 1 829 2 732
Rosh Pinah 436 941
Zincor 1 733 2 558
Inter-segmental (340) (767)
Other 198 166
Total - external revenue 13 843 10 157
NET OPERATING PROFIT
Coal 2 654 885
Tied operations 83 88
Commercial operations 2 571 797
Mineral Sands 104 (97)
KZN Sands 31 (157)
Australia Sands (82) 60
Namakwa Sands1 155
Base Metals (172) 688
Rosh Pinah (14) 457
Zincor (95) 298
Other (63) (67)
Other (119) (32)
Total 2 467 1 444
1 Revenue and net operating profit included from effective date of
acquisition of 1 October 2008.
COMPARABLE UNAUDITED SUPPLEMENTARY RESULTS
12 months ended 31 December 2008 2007
Rm Rm
REVENUE
Coal 9 040 5 087
Tied operations 2 492 1 768
Commercial operations 6 548 3 319
Mineral Sands 4 142 3 464
KZN Sands 974 984
Australia Sands 1 311 1 188
Namakwa Sands1 1 857 1 292
Base Metals 1 829 2 732
Rosh Pinah 436 941
Zincor 1 733 2 558
Inter-segmental (340) (767)
Other 198 166
Total comparable revenue 15 209 11 449
NET OPERATING PROFIT
Coal 2 654 885
Tied operations 83 88
Commercial operations 2 571 797
Mineral Sands 448 99
KZN Sands 31 (157)
Australia Sands (82) 60
Namakwa Sands1 499 196
Base Metals (172) 688
Rosh Pinah (14) 457
Zincor (95) 298
Other (63) (67)
Other (119) (32)
Total comparable net operating profit 2 811 1 640
Net financing costs1 (457) (453)
Income from investments 2 2
Equity accounted income2 1 601 683
Taxation1 (546) (500)
Minority interest 24 (20)
Comparable attributable earnings 3 435 1 352
Post tax adjustments 228 22
Comparable headline earnings 3 663 1 374
Comparable attributable earnings per share 1 002 396
(cents)
Comparable headline earnings per share (cents) 1 068 403
1 Takes into account Namakwa Sands from 1 January 2007, for comparable
purposes.
2 Includes 26% of Black Mountain`s post tax earnings from 1 January 2007,
for comparable purposes
UNAUDITED PHYSICAL INFORMATION (`000 TONNES)
12 months ended 31 6 months ended 31
December December
2008 2007 2008 2007
Coal
Production
- Power station 36 700 34 246 18 118 16 830
* Tied operations1 18 095 16 732 8 962 8 353
* Commercial operations 18 605 17 514 9 156 8 477
- Coking 2 560 2 962 1 370 1 479
* Tied operations1 327 463 171 242
* Commercial operations 2 233 2 499 1 199 1 237
- Other 5 574 4 112 2 427 2 016
Total 44 834 41 320 21 915 20 325
Sales
- Eskom 36 255 34 226 17 880 16 604
* Tied operations1 18 054 16 699 8 942 8 337
* Commercial operations 18 201 17 527 8 938 8 267
- Other domestic 5 481 5 237 2 607 2 572
* Tied operations1 352 449 200 214
* Commercial operations 5 129 4 788 2 407 2 358
- Export2 3 276 1 821 1 284 813
Total 45 012 41 284 21 771 19 989
KZN Sands
Production
- Ilmenite 229 367 133 187
- Zircon 34 34 16 19
- Rutile 19 17 7 9
- Pig iron 50 90 29 48
- Scrap pig iron 16 20 8 9
- Chloride slag 95 150 56 77
- Sulphate slag 18 26 10 14
Sales
- Ilmenite 40 50 20 30
- Zircon 36 27 22 14
- Rutile 14 18 7 9
- Pig iron 64 91 39 45
- Scrap pig iron 7 8 6 4
- Chloride slag 101 163 49 81
- Sulphate slag 17 29 6 8
Namakwa Sands3
Production
- Ilmenite 315 300 159 140
- Zircon 130 115 65 48
- Rutile 27 24 13 10
- Pig iron 103 91 52 44
- Scrap pig iron 6 11 2 6
- Chloride slag 135 126 64 63
- Sulphide slag 24 27 14 12
Sales
- Zircon 135 115 64 55
- Rutile 27 26 14 13
- Pig iron 82 86 58 37
- Scrap pig iron 1 1 1
- Chloride slag 145 124 77 51
- Sulphate slag 26 30 5 11
Australia Sands4
Production
- Ilmenite 174 216 85 111
- Zircon 29 36 13 19
- Rutile 13 17 6 8
- Synthetic rutile 113 100 56 48
- Leucoxene 16 16 6 8
- Pigment 43 54 22 26
Sales
- Zircon 35 29 14 16
- Rutile 14 16 5 2
- Synthetic rutile 62 57 27 21
- Leucoxene 17 17 8 7
Base Metals
Production
- Zinc concentrate 109 110 51 61
* Rosh Pinah 94 95 47 53
* Black Mountain5 15 15 4 8
- Zinc metal 110 124 60 61
* Zincor 87 101 47 51
* Chifeng6 23 23 13 10
- Lead concentrate 37 37 18 19
* Rosh Pinah 20 22 12 11
* Black Mountain5 17 15 6 8
- Zinc metal sales 126 122 66 57
* Domestic 93 93 51 45
* Export 33 29 15 12
Lead concentrate sales
- Export 22 19 7 7
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 2007 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 has been disclosed from
1 January 2007, for comparable purposes.
6 Exxaro`s effective interest in the Chifeng refinery is disclosed.
COMMENTS
REPORTED RESULTS NOT COMPARABLE The group`s audited financial results and
actual physical information for the 12-month periods ended 31 December 2008
and 2007 are not comparable as a result of the acquisition of Namakwa Sands
and a 26% interest in Black Mountain Mining (Pty) Limited (Black Mountain)
effective from 1 October and 1 November 2008 respectively.
The audited financial results for the 12-month period ended 31 December 2008
include Namakwa Sands fully consolidated for the last three months with Black
Mountain equity accounted for the final two months of the period.
COMPARABLE SUPPLEMENTARY RESULTS Comparable unaudited supplementary financial
results together with physical information are provided for information
purposes only, on the assumption that both the acquisition of Namakwa Sands
and the 26% interest in Black Mountain took place on 1 January 2007.
Comments are for comparable purposes based on an analysis of the unaudited
comparable supplementary financial results and physical information compiled
for the 12-month periods to 31 December 2008 and 2007 respectively.
COMPARABLE OPERATING RESULTS The coal business reported record revenue and
net operating profit as strong demand resulted in increased sales at higher
prices despite a significant softening in international prices in the last
quarter of 2008 following the global economic meltdown. The sands business
reported a higher consolidated net operating profit compared to 2007 as a
profit contribution from KZN Sands and a substantially higher profit from
Namakwa Sands more than offset a loss in the Australian operation.
Significantly lower average zinc prices and an increased environmental
provision resulted in the base metals business recording a net operating
loss.
Group consolidated revenue increased by 33% to R15,2 billion with net
operating profit R1,2 billion higher at R2,8 billion.
An average exchange rate of R8,10 to the US dollar was realised compared to
R7,26 for the corresponding period in 2007. The consistent strength of the
Australian dollar at 0,84 US cents to AU$1 realised in 2008, continued to
impact negatively on the financial results of the mineral sands operations in
Australia, despite the weakening of the Australian dollar in the last quarter
of 2008.
COMPARABLE EARNINGS Attributable earnings for the period are R3 435 million
or 1 002 cents per share representing a 154% increase on the comparable 2007
attributable earnings of R1 352 million or 396 cents per share. This includes
Exxaro`s 20% share of the after-tax profits of Sishen Iron Ore Company (Pty)
Limited (SIOC) amounting to R1 856 million, a negative contribution of R4
million from the effective 22% interest in the Chifeng zinc refinery and an
equity accounted loss of R251 million from the 26% interest in Black
Mountain.
Headline earnings which exclude the impact of the impairment of the carrying
value of assets in the earnings of Black Mountain, are R3 663 million or 1
068 cents per share, this is 167% higher than R1 374 million or 403 cents per
share in the previous corresponding period.
CASH FLOW Cash retained from operations was R3 574 million. This was
primarily used to fund taxation payments of R487 million, dividend payments
of R984 million and capital expenditure of R1 617 million of which R470
million was invested in new capacity and R1 147 million applied to sustaining
and environmental capital. After the payments of R2 662 and R221 million
respectively for the acquisition of Namakwa Sands and a 26% interest in Black
Mountain, the group had a net cash outflow of R1 846 million for the
financial year. The final dividend for payment in March 2009 will amount to a
further cash outflow of R710 million offset by the dividend inflow from SIOC
of R1 123 million.
Net debt of R483 million at 31 December 2007 accordingly increased to R2 381
million at a net debt to equity ratio of 18% at 31 December 2008.
SAFETY, HEALTH AND ENVIRONMENT The group remains committed to achieving a
working environment that is fatality and injury free. Despite excellent
safety achievements at several business units, regrettably five employees
lost their lives in 2008 compared to a similar number reported in 2007. The
lost time inquiry frequency rate (LTIFR) per 200 000 man-hours worked in 2008
was 0,39 against a target of 0,21 and compared to 0,36 in 2007.
In a further measure to strengthen its safety awareness and preventative
programmes, various safety improvement interventions focusing on pre-work
Hazard Identification Risk Analysis and intensive training on Exxaro`s I Care
Risk Controls, Vehicle Safety and Visible Felt Leadership, have been
implemented.
Exxaro has reviewed its HIV/Aids strategy with the objective of improving
employee understanding of preventive behaviour to the contracting and spread
of HIV/Aids and increasing the number of employees who test and enrol for
treatment. At the end of 2008, the cumulative voluntary counselling and
testing enrolment improved to 50% from 30% at the end of 2007.
The environmental programme for 2008 focused on ensuring that all its mining
operations have fully compliant Environmental Management Programmes required
under the Mineral and Petroleum Resources Development Act as well as the
National Environmental Management Act. Exxaro is reviewing its processes to
determine the impact of its activities on natural resources.
Nine business units are certified under both the international health and
safety (OHSAS 18001) and environmental (ISO 14001) standards. The remaining
six business units have implemented certification programmes with the target
to have all operations fully compliant in 2009.
OPERATIONS
Coal
Production volumes for the coal commodity business overall were 9% higher
than the previous year.
Power station coal production at the Eskom tied mines was significantly
higher due to a good turnaround at Arnot mine after successful implementation
of improvement initiatives. The commercial mines, most notably North Block
Complex (NBC) and Inyanda, increased production to supply higher demand from
Eskom. NBC started mining new reserves and increased overall capacity.
Coking coal production, however, decreased by 402kt in 2008 due to
challenging geological and mining conditions at Tshikondeni. In addition,
Grootegeluk mine used its no 6 plant tipping capacity to channel run of mine
tonnages to the production of additional power station coal from the no 2
washing plant, thereby contributing to the reduction in coking coal
production.
Steam coal production was significantly higher than the previous year mainly
due to Inyanda ramping up during 2008, good production levels at Leeuwpan
resulting from additional overburden removal in 2007, as well as increased
production at NBC.
Sales of power station coal to Eskom increased by 2Mt to 36,3Mt as a result
of improved production performance at the tied operations and demand from the
electricity utility to increase stock levels at various power stations.
Other domestic sales were negatively affected by the lower production at
Tshikondeni as well as a 13% decrease in sales to ArcelorMittal SA Limited in
line with reduced demand in the steel and ferroalloy industry in the last
quarter of 2008. The coal business was able to fully offset these lower sales
volumes through additional sales from Leeuwpan and NBC to the domestic
market.
Export volumes increased from 1,8Mt in 2007 to 3,3Mt in 2008 as a result of
increased export allocation at the Richards Bay Coal Terminal (RBCT) and
production volumes from the new mines, Mafube and Inyanda.
Revenue increased by 78% to more than R9 billion due to significantly higher
average international coal prices linked to global oil and energy price
increases, and stronger demand. Domestic prices followed this upward trend
with international prices, however, declining in the last quarter of 2008
following the global economic crisis.
The commodity business reported an annual record net operating income of R2
654 million, an increase of 200% compared to 2007 despite inflationary
pressures, especially in respect of labour and diesel costs, exploration
costs for Moranbah South in Australia and higher expenditure on projects in
the Waterberg and Mpumalanga province.
MINERAL SANDS
KZN Sands
KZN Sands reported lower production volumes as a result of the Furnace 2
water ingress incident at the end of February 2008 with only Furnace 1 being
operational for the remainder of the year. Titanium slag produced was 63kt
lower at 113kt than for the comparable period in 2007. Furnace 1 performed
well by producing more than 95kt of slag equivalent to 87% of cold feed
capacity. Low manganese pig iron production was in line with the decreased
slag throughput while ilmenite production was aligned with the lower smelter
feed requirements at 138kt lower than the corresponding period in 2007.
Revenue was R10 million lower but net operating profit increased by R188
million compared to the corresponding period in 2007 due to improved prices,
a weaker local currency and cost savings.
Continued improvement initiatives are impacting positively on production with
the Furnace 2 start-up in early December 2008, ramping up according to plan.
Australia Sands
Record synthetic rutile production was achieved during 2008 resulting from
more stable operating conditions following the kiln shut in 2007. Although
mineral production was lower as a result of the dredging operations moving
through lower ore grade areas, successful business improvement initiatives to
increase yield and recoveries partly offset the negative variance. The 2009
mine plan indicates a higher grade than 2008 which should positively impact
on mineral production in 2009.
Pigment production was substantially lower than the comparative period in
2007 as a result of maintenance-related issues, an emergency shut at one of
the critical raw material suppliers, the rebuild of all four chlorinators and
interruptions in gas supply during the first quarter of 2008 as previously
reported. Several initiatives have been implemented to improve the
performance of the pigment plant and in December 2008 pigment production
improved to pre-2008 levels. A stronger pigment production performance is
expected in 2009.
The lower production, increased maintenance cost at the pigment plant and a
rapid escalation in process chemical costs and energy consumables, combined
with the strong Australian dollar in the first half of 2008, led to a R142
million decrease in net operating profit compared to the previous year. The
decline in operating profit was partially offset by stronger pigment prices
and the weakening of the Australian dollar during the last quarter of 2008.
The Australian dollar weakened from an average of 0,87 US cents to the
Australian dollar for the six months ended 31 December 2007 to an average
rate for the six months ended 31 December 2008 of 0,77 US cents. The improved
mineral production and weaker Australian dollar in the second half of 2008
led to a net operating profit of R57 million, compared to a loss of R139
million in the first half of 2008.
At 31 December 2008, currency hedging of AU$51 million was in place at an
average rate of 0,76 US cents to the Australian dollar.
Namakwa Sands
Exxaro acquired effective ownership of Namakwa Sands on 1 October 2008 for an
adjusted consideration of R2 783 million, consisting of the cash price of R2
015 million, a working capital adjustment of R199 million, capital
expenditure on the mineral separation project (MSP Project 1000) of R448
million and R121 million to compensate Anglo Operations Limited for its
taxation recoupment. The capitalised price adjustments result in either a
subsequent cash inflow or additional future deduction from taxable income for
Exxaro KZN Sands.
Annual records were achieved for zircon, titanium slag and pig iron
production. The record zircon production was attributable to higher grades
and improved plant efficiencies. The record smelter production resulted from
Furnace 2 operating on full power of 35MW following the de-bottlenecking of
process difficulties which increased slag and iron tapped despite the power
cutbacks in the first quarter of 2008.
Efficiency improvements at the smelter operations include annual records
reported for the chlorinatable (CP) slag ratio at 84,5% compared to a
previous best 82,5%, and iron recovery at 91,3% compared to the previous
record of 90,3%.
The 44% increase in revenue is due to record product sales of 416kt at
stronger zircon and average pig iron prices and a weaker local currency. A
record net operating profit of R499 million was recorded for the year at an
operating margin of 27%.
Base Metals
Production of zinc metal at the Zincor refinery of 87kt was 14% lower than
the corresponding period in 2007. This was due to limited power supply and a
total plant black-out following a transformer failure causing major delays
and instability throughout the plant during the second half of 2008, as well
as the extended shut and rebuild of two roasters and the acid plant.
Zinc metal sales, however, remained in line with the corresponding period in
2007 despite a drastic reduction in the second half as a result of the global
economic crisis causing a sharp decline in the local market.
Production of zinc concentrate at the Rosh Pinah mine of 94kt is in line with
2007 although lower metal content grades were experienced. This was caused by
plant stoppages and instability from equipment failures at the crushing and
flotation circuits of the plant and failures due to unstable electricity
supply. A capital replacement programme of the flotation circuit is planned
for the second half of 2009 while the crushing circuit was fully refurbished
during the second half of 2008.
Zinc concentrate railed from Rosh Pinah was 11% lower as problems experienced
with the availability of railway wagons led to lower imports of cement into
Namibia and subsequent backhaul of concentrate. Lead sales were higher than
in 2007 due to rescheduled shipments.
Revenue for the year decreased by 33% to R1 829 million mainly as a result of
lower zinc prices and marginally lower sales. The average zinc price for the
year of US$1 874 per tonne was 42% lower than the equivalent average of US$3
231 in 2007.
Net operating profit declined substantially from a profit of R688 million in
2007 to a loss of R172 million due to lower revenue coupled with increased
operating costs resulting from higher than inflation increases in
electricity, diesel and labour, high maintenance expenses and an increase in
the provision for environmental rehabilitation at Zincor of R87 million.
The divestment of a 43% interest in Rosh Pinah Zinc Corporation (Pty) Limited
to Namibian shareholder groupings, effectively reducing Exxaro shareholding
to 50,04%, became effective on 1 July 2008. Exxaro retains operational
control of the mine.
At 31 December 2008 a total of 18kt representing 60% of Rosh Pinah`s
projected lead sales were hedged forward until 2011 at an average price per
tonne of R16 089 and 78kt representing 60% of Rosh Pinah`s projected zinc
sales at an average price of R19 619.
Production at the Chifeng refinery was 101ktpa for the year compared to a
design capacity of 110ktpa. An equity-accounted loss of R4 million was
incurred compared to a loss of R18 million for the corresponding period in
2007.
Industrial minerals
The group is currently evaluating the proposed divestment of its interest in
the Glen Douglas dolomite mine.
CAPITAL EXPENDITURE AND PROJECT PIPELINE
Following the credit crisis and global economic meltdown in the second half
of 2008, Exxaro is reviewing its capital expenditure programmes, including
sustaining capital, as well as its project pipeline. The group will focus on
the successful implementation of committed expansions while re-prioritising
other identified growth opportunities.
Coal
Subsequent to Exxaro board approval in August 2008 for the coal supply
agreement and the implementation of the project to expand the Grootegeluk
mine at a capital cost of R9 billion, Exxaro and Eskom concluded an agreement
in September 2008 for the supply of 14,6Mtpa of power station coal, for 40
years, from Grootegeluk mine to Eskom`s adjacent Medupi power station which
is currently under construction. The first coal is anticipated to be supplied
during the last quarter of 2011 with full production from 2014 onwards.
The development of the Diepspruit reserve at New Clydesdale is planned to
produce its first coal in the second quarter of 2009. At full production, the
R136 million project will produce 1,3Mt run of mine coal for beneficiation at
NCC for supply to the export steam coal market.
The commissioning and start of ramp-up of the Sintel char plant at
Grootegeluk mine for the production of reductants for the ferroalloy industry
has been delayed to February 2009 after the failure of the refractory lining
of the four retorts during the heating process. The revised plan is to
commission all four retorts by the end of June 2009 with full production of
160ktpa estimated to be reached by end of 2009.
Commissioning and ramp-up to full capacity of the Mafube expansion project at
a capital cost of R1,9 billion has been completed. The mine will produce
3Mtpa of export steam coal and 2Mtpa of power station coal. Exxaro`s 50%
joint venture participation with Anglo Coal, although still awaiting
fulfilment of all the conditions precedent, added 733kt to the overall export
volumes allowing the group to take advantage of the higher average export
prices experienced during the year.
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 focused on geological work to
delineate long-wall mining resources. The potential for bord and-pillar
mining operations will also be explored. Moranbah South has the potential to
produce premium quality hard coking coal.
A pre-feasibility study and geological exploration work on a potential
greenfields mine adjacent to the Grootegeluk mine with the capability of
supplying the market with power station and metallurgical coal, is being
progressed.
Mineral Sands
The feasibility study for the construction of the Fairbreeze mine south of
the existing Hillendale mine, is being updated with start of construction
targeted for the second half of 2009. Production is planned for the first
half of 2011 after the mining of Braeburn and Braeburn extension in the next
three years.
The feasibility study of the Port Durnford mine, located to the south-west of
Hillendale mine is progressing. This mine could supply the KZN furnaces for
longer than 20 years, if proven viable.
Implementation of the Tiwest Kwinana pigment expansion project for an
additional 40ktpa production is on track with commissioning targeted for the
first quarter of 2010. Exxaro is funding 100% of the AU$100 million expansion
project.
Base Metals
Exploration activities in Turkey for zinc, lead, copper and iron ore
prospects are still in the early stages with further participation being
critically reviewed in the current depressed economic environment. A total of
R110 million was expensed for the year on acquisition and exploration costs.
Following Exxaro`s decision in the first half of 2008 not to participate in
the planned expansion of the Chifeng refinery by a further 100ktpa, the
project has been indefinitely postponed in the light of the substantial
decline in demand for zinc metal.
POWER CONSTRAINTS
Exxaro is in ongoing discussions with Eskom to agree on baseline consumption
and continuous power supply while at the same time progressing group wide
initiatives to conserve electricity consumption at existing operations and
feasibility studies to develop co- and on-site power generation projects.
CONVERSION OF MINING RIGHTS
The group is in regular engagement with the Department of Minerals and Energy
(DME) to process the registration of new order mining rights granted as well
as the converted old order mining rights of the former Kumba Resources. The
applications for approval of the conversion of the old order mining rights of
the former Eyesizwe Coal submitted during 2008 are in process.
All applications for new order mining rights have been granted in the mineral
sands and coal businesses except the Weltevreden deposit adjacent to the
Leeuwpan coal mine which is under consideration by the DME.
CHANGES TO THE BOARD
Mr DJ van Staden will retire as financial director on 28 February 2009. The
board expresses its appreciation for his significant contribution to the
group.
As announced, Mr WA de Klerk will succeed Mr van Staden as financial director
on 1 March 2009.
OUTLOOK
The group is expected to continue experiencing strong demand for local power
station coal. However, coking coal sales are anticipated to be lower at
reduced prices. Steam coal sales volumes should increase but at lower
international prices.
Increased production volumes at all mineral sands operations and a full 12
months` contribution from Namakwa Sands together with the local and
Australian currencies remaining at their present weaker levels, should
benefit this business in 2009 if market demand and prices remain at current
stable levels.
The base metals business is expected to remain under pressure in 2009 as a
result of continued depressed market conditions and zinc prices.
The equity-accounted contribution from SIOC will be impacted by market demand
and the level of iron ore price adjustments effective from 1 April 2009.
The group will have a strong focus on capital prioritisation and working
capital management together with continual business improvement initiatives
and cost control to offset lower demand and price challenges.
Overall, the group`s consolidated results for 2009, will largely be driven by
the extent to which global recessionary conditions impact on demand and
prices for its commodities, as well as by the trading levels of the local and
Australian currencies.
The uncertain market outlook remains a key factor to the group`s results for
2009.
FINAL DIVIDEND
The directors have declared a final dividend, dividend number 12 of 200 cents
per share in respect of the 2008 financial year. 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, 27 March 2009.
In compliance with the electronic statement system of JSE Limited, the
following dates are applicable:
Last date to trade cum dividend Friday, 20 March 2009
Shares trade ex dividend Monday, 23 March 2009
Record date Friday, 27 March 2009
Payment date Monday, 30 March 2009
Share certificates may not be dematerialised or rematerialised between
Monday, 23 March 2009 and Friday, 27 March 2009, both days inclusive. On
Monday, 30 March 2009 the final dividend will be electronically transferred
to the bank accounts of all certified shareholders where this facility is
available. Where electronic fund transfer is not available or desired,
cheques dated 30 March 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, 30 March 2009.
On behalf of the board
SA Nkosi
(Chief Executive Officer)
DJ van Staden
(Financial Director)
23 February 2009
Registered Office
Exxaro Resources Limited
Roger Dyason Road, Pretoria West, 0002
Tel no +27 12 307 5000 Fax no +27 12 307 4080
Transfer Secretaries
Computershare Investor Services (Pty) Limited
Ground Floor, 70 Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
Directors: SA Nkosi* (Chief Executive Officer), PM Baum, JJ Geldenhuys, U
Khumalo, 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)
If you have any queries regarding your shareholding in Exxaro Resources,
please contact the Transfer Secretaries at +27 11 370 5000.
Pretoria
24 February 2009
Sponsor: Deutsche Securities (SA) (Proprietary) Limited
Date: 24/02/2009 07:05:09 Supplied by www.sharenet.co.za
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