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EXX - Exxaro Resources Limited - Audited condensed group financial results
for the year ended 31 December 2006
EXXARO RESOURCES LIMITED
(formerly Kumba Resources Limited)
Incorporated in the Republic of South Africa
(Registration Number: 2000/011076/06)
Share Code: EXX
ISIN Number: ZAE000084992
("Exxaro" or "the company")
Audited condensed group financial results for the year ended 31 December 2006
- Historic empowerment transaction successfully concluded
- Earnings not comparable
- Good operating results
- Coal production reaches 24 million tonnes
- Strong project pipeline for transformed group
- Options to acquire Namakwa Sands and a 26% interest in Black Mountain/Gamsberg
exercised post December 2006
CONDENSED GROUP INCOME STATEMENT
Year ended
31 December
2006 2005
Audited Restated
CONTINUING OPERATIONS Rm Rm
Revenue 7,263 5,308
Operating expenses (6,022) (4,319)
Fair value adjustment on unbundling of
subsidiary 17,963
BEE credential expense and unbundling costs (821)
Impairment of property, plant and equipment (784)
Net operating profit 17,599 989
Net financing costs (307) (162)
Share of income from equity accounted
investments 159 7
Profit before taxation 17,451 834
Taxation (578) (323)
Profit for the year from continuing
operations 16,873 511
Profit for the year from discontinued
operations (note 5) 2,323 2,727
Profit for the year 19,196 3,238
Attributable to:
Equity holders of the parent 19,169 3,177
Minority interest 27 61
Net profit 19,196 3,238
Ordinary shares (million)
- in issue 351 306
- weighted average number of shares 313 304
- diluted weighted average number of shares 318 311
Attributable earnings per share (cents)
- basic (restated for December 2005) 6,124 1,045
- diluted (restated for December 2005) 6,028 1,022
Attributable earnings per share from
continuing operations (cents)
- basic (restated for December 2005) 5,382 148
- diluted (restated for December 2005) 5,297 145
Attributable earnings per share from
discontinued operations (cents)
- basic (restated for December 2005) 742 897
- diluted (restated for December 2005) 731 877
Dividend paid per share (cents) in respect 160 90
of the previous financial year
Dividend paid per share (cents) in respect
of the interim period 180 160
Special dividend paid per share (cents) in
respect of the interim period 220
Special dividend paid per share (cents) on
unbundling 185
Final dividend paid per share (cents) in
respect of this financial year 160
Reconciliation of headline earnings
Net profit attributable to ordinary
shareholders 19,169 3,177
- Impairment charges 784 28
- Share of associate`s net profit on
disposal of property, plant
and equipment (1)
- Excess of minority interest over cost of
acquisition (36) (95)
- Net deficit on disposal or scrapping of 3 2
property, plant and equipment
- Fair value adjustment prior to unbundling (17,963)
- Net profit on disposal of investments (39) (1,179)
- Minority interest on adjustments (1)
- Taxation effect of adjustments (219) 428
Headline earnings 1,698 2,360
Headline earnings from discontinued 2,328
operations 1,996
Headline earnings from continuing (630) 364
operations
Headline earnings per share (cents)
- basic (restated for December 2005) 542 776
- diluted (restated for December 2005) 534 759
Headline earnings per share from continuing
operations (cents)
- basic (restated for December 2005) (201) 120
- diluted (restated for December 2005) (198) 117
Headline earnings per share from
discontinued operations (cents)
- basic (restated for December 2005) 744 657
- diluted (restated for December 2005) 732 642
CONDENSED GROUP BALANCE SHEET
At 31 December
2006 2005
Audited Restated
Rm Rm
ASSETS
Non-current assets
Property, plant and equipment 7,583 8,469
Biological assets 26 28
Intangible assets 69 61
Investments in associates and joint
ventures (note 6)
-unlisted 384 95
Deferred taxation 748 339
Other financial assets (note 6) 693 392
9,503 9,384
Current assets
Inventories 1,391 1,481
Trade and other receivables 1,663 2,066
Cash and cash equivalents 906 1,483
3,960 5,030
Non-current assets classified as
held for sale 2 11
Total assets 13,465 14,425
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareholders` equity 8,142 7,319
Minority interest 27 9
Total shareholders` equity 8,169 7,328
Non-current liabilities
Interest-bearing borrowings 1,214 2,210
Non-current provisions 931 727
Deferred taxation 1,116 984
3,261 3,921
Current liabilities
Trade and other payables 1,321 1,468
Interest-bearing borrowings 613 911
Taxation 67 773
Current provisions 30 24
Shareholders for dividends 4
2,035 3,176
Total equity and liabilities 13,465 14,425
Net debt (note 9) 921 1,638
Net asset value per share (cents) 2,320 2,392
Capital expenditure
-incurred 2,010 1,044
-contracted 842 1,635
-authorised but not contracted 732 2,182
Contingent liabilities 100 82
Operating lease commitments 124 163
Operating sublease rentals receivable 10 1
Capital expenditure contracted relating
to captive mines
(2006 Tshikondeni, Arnot and Matla; 2005
Tshikondeni and
Thabazimbi), which will be financed by
Mittal Steel
(South Africa) and Eskom respectively. 8 6
CONDENSED GROUP CASH FLOW STATEMENT
Year ended 31
December
2006 2005
Audited Restated
Rm Rm
Cash retained from operations 4,761 3,864
- net financing costs (278) (189)
- taxation paid (1,927) (821)
- dividends paid (note 7) (3,396) (1,447)
Cash used in investing activities
- capital expenditure (2,010) (1,044)
- proceeds from disposal of property,
plant and equipment 170 23
- proceeds from disposal of investment 26 1,179
- acquistion of subsidiary (note 8) (1,545)
- decrease/(increase) in investment in
subsidiaries (1,174)
- other 308 68
Net cash (outflow)/inflow (3,891) 459
- cash flows from issue of shares 2,199 128
- borrowings raised/(repaid) 1,518 (401)
Net (decrease)/increase in cash and cash
equivalents (174) 186
Less cash and cash equivalents of
unbundled subsidiaries (403)
Cash and cash equivalents at beginning of
year 1,483 1,297
Cash and cash equivalents end of year 906 1,483
Calculation of movement in net debt:
Net cash (outflow)/inflow (3,891) 459
- shares issued 2,199 128
- loans from minority shareholders 2
- Share based payments (54)
- Increase in net debt on acquisition of
subsidiary (120)
- Prior year adjustment, increase in net
debt due to application of IFRIC 4 (247)
- non-cash increase in loans due to joint (1)
ventures now consolidated
- non-cash flow movements in net debt
applicable to currency
translation differences of transactions
denominated in foreign currency 16 (96)
- non-cash flow movements in net debt
applicable to currency
translation differences of net debt items
of foreign entities (195) (13)
- Less net debt of unbundled subsidiaries 2,762
Decrease in net debt 717 232
NOTES TO THE GROUP FINANCIAL RESULTS
1. Basis of preparation
This condensed report complies with International Accounting Standard 34,
Interim Financial Reporting, and schedule 4 of the South African Companies Act.
The financial statements from which these group financial results have been
derived are prepared on the historical basis excluding financial instruments and
biological assets, which are fair valued, and conform to International Financial
Reporting Standards. The accounting policies adopted are consistent with those
applied in the annual financial statements for the year ended 31 December 2005
except for the change noted in note 4. Where applicable the prior year`s figures
have been adjusted.
Year ended
31 December
2006 2005
Audited Restate
d
Rm Rm
2.Profit before taxation from continuing and
discontinued operations is arrived at after
Depreciation and amortisation of intangible (813) (826)
assets
Financing costs (451) (432)
Interest received 115 150
Net realised foreign exchange gains/(losses) on:
- currency exchange differences 199 225
- revaluation of derivative instruments (278) (64)
Net unrealised foreign exchange gains/(losses)
on:
- currency exchange differences (97) (76)
- revaluation of derivative instruments 51 83
Fair value adjustment on financial assets 84 43
Fair value adjustment on financial liabilities 5
Impairment charges (note 3) (784) (28)
Excess of minority interest over cost of
acquisition 36 95
Net profit on disposal of investments 39 1,179
Fair value adjustment on unbundling of 17,963
subsidiary
Net deficit on disposal of property, plant and
equipment (3) (2)
Share based payment: BEE credential expense (580)
Cost of empowerment transaction, unbundling,
integration and branding (241)
3.Impairment charges and reversals
Impairment of property, plant and equipment1 (784) (3)
Reversal of impairment of other fixed assets 2
Impairment of intangible assets (20)
Impairment of investments (7)
(784) (28)
Taxation effect 227 -
(557) (28)
1 Impaired to value in use based on a 8,53%
discount rate.
4. Accounting for arrangements that contain a lease
In terms of IFRIC 4 (Determining whether an
arrangement contains a lease) and IAS 17 (Leases),
arrangements that convey the right to use an
asset, are evaluated for recognition,
classification as a finance or operating lease,
and measured, and accounted for accordingly.
The result is the recognition of a number of
finance leases where Exxaro is either the
lessee or the lessor.
Income statement impact
(Decrease) in revenue (89) (81)
Decrease in depreciation 79 72
Decrease in operating expenses 47 42
(Increase) in financing cost (38) (51)
Decrease in taxation 5
(Decrease) in profit for the period (1) (13)
Impact on attributable earnings per share (cents) (0) (4)
Impact on diluted attributable earnings per share (0) (4)
(cents)
Balance sheet impact
(Decrease) in property, plant and equipment (363) (357)
Increase in deferred tax asset 23
(Decrease) in retained earnings (57) (58)
Increase in non-current interest bearing
borrowings -
Finance lease liability 246 247
(Decrease) in other long-term payables:
- Mittal Steel (South Africa) captive mines (520) (604)
(Decrease) in deferred tax liabilities (22)
(Decrease) in current interest-bearing borrowings (9)
Increase in trade and other payables 80
The impact of the change on the 31 December 2004 financial statements is a
decrease in property, plant and equipment of R349 million, an increase in
deferred tax assets of R18 million, a decrease in retained earnings of R45
million, an increase in finance lease liabilities of R212 million, a decrease in
other long-term payables of R607 million and an increase in trade and other
payables of R109 million.
5. Discontinued operations
Exxaro unbundled its iron ore business effective 1 November
2006 as part of an empowerment transaction and now holds
only a 20.62% interest in Sishen Iron Ore Company (Pty) Limited
which is equity accounted.
Revenue 6,483 6,573
Operating expenses(1) (3,385) (2,642)
Net operating profit 3,098 3,931
Net financing costs (29) (120)
Profit before taxation 3,069 3,811
Taxation (746) (1,084)
Profit for the period from discontinued 2,323 2,727
operations
Cash flow attributable to operating activities 982 1,205
Cash flow attributable to investing activities (7,025) 807
Cash flow attributable to financing activities 5,853 (2,206)
Cash flow attributable to discontinued operations (190) (194)
(1) 2005 includes pre-tax settlement proceeds of R1 163 million
from the disposal of the interest in the Hope Downs project.
6.Investments
Unlisted investments in associates - directors` 4,812 130
valuation
Listed investments included in other financial assets -
market value 92 60
Unlisted investments included in other financial assets
-
directors` valuation 93 35
Year ended 31
December
2006 2005
Audited Restated
Rm Rm
7.Dividends paid:
- Cash dividends 1,628 1,430
- Share repurchase 1,763
- Paid to minorities 5 17
3,396 1,447
8.Business combination
On 1 November 2006, the group acquired 100% of the issued
share capital of Eyesizwe Coal (Pty) Limited, which is included in
the coal business segment results. The acquired business
contributed revenues of R329 million and operating profits of
R7 million to the group for the period from 1 November 2006
to 31 December 2006. Details of assets acquired are as follows:
Cash paid on acquisition 1,607
Fair value of assets acquired (1,607)
The assets and liabilities arising from the acquisition
are as follows:
- cash and cash equivalents 62
- property, plant and equipment 2,026
- financial assets 34
- investments 42
- inventories 53
- trade and other receivables 243
- trade and other payables (222)
- interest-bearing borrowings (120)
- non-current provisions (68)
- Receiver of revenue (13)
- deferred taxation (430)
Fair value of net assets 1,607
Total purchase consideration (1,607)
- Less: cash and cash equivalents acquired 62
Cash outflow on acquisition of subsidiary (1,545)
9. Net debt
Net debt is calculated as being interest-bearing borrowings less cash and cash
equivalents.
10. 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.
11. JSE Limited requirements
The announcement has been prepared in accordance with the listings requirements
of JSE Limited.
12. 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.
13. Audit opinion
The auditors, Deloitte & Touche, have issued their opinion on the group`s
financial statements for the year ended 31 December 2006. 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
statements have been derived from the group financial statements and are
consistent in all material respects, with the group annual financial statements.
UNAUDITED PHYSICAL INFORMATION (`000 TONNES)
12-months 6-months ended
ended
31 December 31 December
2006 2005 2006 2005
Iron ore(1)
Production 25,709 30,987 10,379 15,476
Sales
- Exports 17,511 22,113 6,304 11,510
- Domestic 6,795 9,172 2,960 4,360
Total 24,306 31,285 9,264 15,870
Coal(2)
Production
- Power station 18,061 14,573 10,511 7,243
- Coking 2,496 2,273 1,387 1,098
- Other 3,365 2,993 1,889 1,552
Total 23,922 19,839 13,787 9,893
Sales
- Eskom 18,253 14,703 10,796 7,268
- Other domestic 4,465 4,174 2,397 2,164
- Export 1,569 1,109 1,014 500
Total 24,287 19,986 14,207 9,932
Mineral Sands - RSA
Production
- Ilmenite 319 356 159 202
- Zircon 50 47 24 23
- Rutile 25 23 13 11
- Pig iron 75 89 34 52
- Scrap pig iron 10 8 5 3
- Chloride slag 134 134 62 79
- Sulphate slag 36 30 18 18
Sales
- Ilmenite 50 60 20 30
- Zircon 48 47 25 21
- Rutile 31 18 22 9
- Pig iron 60 79 31 50
- Scrap pig iron 9 11 4 5
- Chloride slag 104 150 40 85
- Sulphate slag 30 41 20 20
Mineral Sands -
Australia(3)
Production
- Ilmenite 227 220 111 116
- Zircon 36 35 18 18
- Rutile 18 16 9 8
- Synthetic rutile 98 111 44 56
- Leucoxene 14 12 7 7
- Pigment 54 53 27 27
Sales
- Ilmenite 30 13 30 3
- Zircon 32 36 16 19
- Rutile 18 18 10 10
- Synthetic rutile 27 59 8 33
- Leucoxene 10 14 6 10
Base metals
Production
- Zinc concentrate 104 126 49 62
- Zinc metal 106 117 50 58
- Zincor 90 102 42 50
- Chifeng(4) 16 15 8 8
- Lead concentrate 21 25 8 12
Zinc metal sales
- Domestic 91 92 46 46
- Export 24 27 9 13
Total 115 119 55 59
Lead concentrate
sales
- Export 32 35 20 23
(1)2006 only includes physical information for 10 months.
(2) 2006 includes physical information of the former Eyesizwe Coal mines for
November and December 2006 only.
(3) The production and sales tonnes reflect Exxaro Sands Australia`s 50%
interest in the Tiwest joint venture with Tronox Inc., Western Australia.
(4) The effective interest in the physical information for the Chifeng (Hongye)
refinery has been disclosed.
COMMENTS
Audited results not comparable
The group`s audited financial results and unaudited physical information for the
financial year ended 31 December 2006 are not comparable to the corresponding
results and physical information for the previous financial year. This is due to
the successful conclusion of the empowerment transaction in the fourth quarter
of 2006 which resulted in the unbundling and separate listing of Kumba Iron Ore
Limited (KIO) and the revised listing of Exxaro on 27 November 2006.
The audited financial results for the 12-month period to 31 December 2006
include Sishen Iron Ore Company (Pty) Ltd (SIOC) fully consolidated for 10
months to 31 October 2006 and equity accounted for the remaining two months to
31 December 2006 at an effective 20,62% holding. Eyesizwe Coal (Pty) Ltd
(Eyesizwe Coal) has been fully consolidated only for the two months ended 31
December 2006.
All non-recurring accounting entries and expenditure necessitated by the
implementation of the empowerment transaction which were comprehensively
disclosed in the circular to shareholders dated 9 October 2006 are shown
separately in the segment results.
Unaudited comparative supplementary financial information is provided below for
information purposes only, on the assumption that the empowerment transaction
had been implemented with effect from 1 January 2005.
Operating results
The financial results for the financial year under review benefited from a
substantial recovery in the zinc metal price and higher iron ore, coal and
zircon prices, partially offset by above inflation cost increases in labour,
petroleum and energy related consumables.
Revenue increased by 16% to R13,7 billion while net operating profit, excluding
the impact of the impairment of the local mineral sands` assets and the
accounting entries relating to the empowerment transaction in 2006 as well as
the Hope Downs settlement in 2005, increased by R598 million to R4 339 million.
An average exchange rate of R6,76 to the US dollar was realised compared with
R6,36 for the corresponding period in 2005.
Earnings
Attributable earnings, inclusive of Exxaro`s 20,62% interest in the post-tax
profits of SIOC for November and December 2006 but excluding the mineral sands`
asset impairment and non-recurring accounting entries, are R2 831 million or 904
cents per share.
The statutory tax rate of 29% reduces to an effective tax rate of 6% as a result
of the non-recurring accounting entries relating to the pre-unbundling fair
value adjustment of KIO which is not taxable and the BEE credential expense and
unbundling and integration costs which are not tax deductible.
Headline earnings include all the empowerment transaction related expenses
(which are not allowed to be excluded), but exclude the unbundled interest in
KIO at fair value. A comparison of headline earnings for the year under review
of R1 698 million or 542 cents per share to the corresponding period is not
meaningful.
Cash flow
Cash retained from operations of R4 761 million was mainly utilised to fund
taxation of R1 927 million, dividends of R3 396 million, capital expenditure of
R2 010 million and the acquisition of Eyesizwe Coal at a net cash outflow of R1
545 million.
Cash outflows in respect of dividends and taxation were further increased by the
repurchase of 38 331 012 shares and the STC on such repurchase, collectively
amounting to R1 983 million.
R1 321 million of the capital expenditure was invested in new capacity.
After also accounting for the inflow of R2 199 million from the issue of 65 334
843 shares to Exxaro`s black controlled holding company, Main Street 333 (Pty)
Ltd, net debt of R1 481 million at 30 June 2006 decreased to R921 million at a
net debt to equity ratio of 11,3%. Net debt will increase by the anticipated
cash outflow in 2007 of R2 353 million, subject to the disclosed price
adjustments, as a result of the exercise of the options to acquire Namakwa Sands
and a 26% interest in Black Mountain/Gamsberg for which term funding facilities
are in place.
Safety, health and environment
Regrettably, and despite excellent safety achievements at several mines, six
fatalities were suffered during the past year of which three were in a single
accident at the Glen Douglas mine, two at the Tshikondeni mine and one at the
group`s training facility in Lephalale. A further fatality occurred at the
Grootegeluk mine at the end of January 2007. The group remains committed to
achieving a working environment that is fatality and injury free. Its ongoing
safety awareness and preventative programmes have been strengthened by further
initiatives to enhance hazard identification. The average lost time injury
frequency rate per two hundred thousand man-hours worked (LTIFR) for the 12-
month period improved to 0,42 from the previous year`s 0,52. A target LTIFR of
0,30 has been set for 2007.
The group has an integrated, enterprise-wide risk management programme in place
which evaluates environmental risk management and enhances the company`s
environmental performance. With the inclusion of the business units of the
former Eyesizwe Coal, 71% of the business units within the group have obtained
international health and safety certification (OHSAS 18001) and environmental
certification (ISO 14001). The group has set a target of 100% compliance by
December 2007.
Programmes for HIV/AIDS voluntary counselling and testing (VCT) have been
introduced at all of the group`s South African operations. This includes
awareness, training of peer educators, VCT and a disease management programme
which to date has a greater than 80% retention rate. The extension of anti-
retroviral programmes to all of the group`s businesses is progressing well, with
the majority of employees who tested HIV-positive during the year, now enrolled
on the disease management programme.
Segment results and adjusted earnings
12-months ended
31 December
2006 2005
Audited Restated(7)
Rm Rm
Revenue
Iron Ore(1) 6 483 6 573
Coal 2 882 2 187
- Kumba Coal 2 074 2 187
- Exxaro Coal(2) 808
Mineral Sands 1 859 1 927
- Exxaro KZN Sands 817 839
- Exxaro Australia Sands 1 042 1 088
Base Metals 2 379 1 070
Industrial Minerals 122 107
Other 21 17
Total 13 746 11 881
Net operating profit
Iron Ore(1) 3 098 2 767
Coal 599 554
- Kumba Coal 535 554
- Exxaro Coal(2) 64
Mineral Sands (698) 259
- Exxaro KZN Sands (842) (47)
- Exxaro Australia Sands 144 306
Base Metals 609 69
Industrial Minerals 26 26
Other 17 063 1 245
- Fair value adjustment on unbundling(3) 17 963
- Share based payment: BEE credential
expenses(4) (580)
- Hope Downs(5) 1 179
- Other(6) (320) 66
Total 20 697 4 920
Net operating profit 20 697 4 920
Non recurring entries
- Fair value adjustment on unbundling(3) (17 963)
- Hope Downs(5) (1 179)
- Impairment 784
- BEE credential expense(4) 580
- Empowerment and unbundling costs 241
Adjusted net operating profit 4 339 3 741
Net financing costs (336) (282)
Equity accounted income 159 7
Taxation (1 331) (981)
- As reported (1 324) (1 407)
- On Hope Downs proceeds 426
- On Impairment (227)
- On share repurchase 220
Adjusted attributable earnings 2 831 2 485
(1) 100% of SIOC consolidated for 10 months to 31 October 2006 and for 12
months to 31 December 2005.
(2) Exxaro Coal represents the former Kumba Coal and Eyesizwe Coal from 1
November 2006.
(3) The fair value of the investment in Kumba Iron Ore that was unbundled to
shareholders as a dividend in specie.
(4) The discount at which shares were issued as part of the empowerment
transaction.
(5) A$ 236,5 million option- and settlement payment realised on the disposal of
Kumba Resource`s interest in the Hope Downs project.
(6) Includes the cost of the empowerment transaction as disclosed in the
circular to shareholders dated 9 October 2006, branding, information management
infrastructure and integration expenditure, shared-based expenses on the
collapse of the previous management incentive schemes, and a finance charges
provision raised in respect of an earlier year finance facility that has since
been redeemed.
(7)Restated as set out in note 4 to the group financial statements.
UNAUDITED SUPPLEMENTARY FINANCIAL INFORMATION
The unaudited supplementary financial information provides, for information
purposes only, the financial results of Exxaro had the empowerment transaction
been implemented effective 1 January 2005, but excluding the acquisition of
Namakwa Sands and a 26% interest in Black Mountain/Gamsberg. The illustrative
financial results are therefore compiled on the assumption that Eyesizwe Coal
had been acquired and fully consolidated from 1 January 2005, Exxaro had equity
accounted its 20,62% interest in SIOC from the same date, and all non-recurring
accounting entries associated with the empowerment transaction are excluded. The
option and settlement proceeds for the interest in the Hope Downs project
received in 2005, and the impairment of the carrying value of the mineral sands`
assets in 2006, have also been excluded.
2006 2005
Rm Rm
REVENUE 8 814 7 248
Operating expenses (7 553) (6 254)
Net operating profit 1 261 994
Net financing costs (315) (173)
Income from equity accounted investments 638 417
Profit before taxation 1 584 1 238
Taxation (595) (321)
Attributable earnings 989 917
Net profit attributable to equity holders of the 962 856
parent
Impairment charges 28
Excess of minority interest over cost of acquisition (36) (95)
Net (surplus) on disposal/scrapping of property, plant
and equipment (3) (2)
Net surplus on disposal of investment (39)
Minority interest on adjustments (1)
Share of associates exceptional items (1)
Taxation effect of adjustments 10 (6)
Headline earnings 893 780
OPERATIONS
Iron Ore
In the 10-month period to 31 October 2006, production was negatively impacted by
inclement weather in the first quarter while exports were adversely affected by
the breakdown of one of the two ship loaders at Saldanha Bay in September 2006.
The commodity business benefited from the average international iron ore price
increase of 19% effective from 1 April 2006.
The performance of iron ore has been reported on by Kumba Iron Ore Limited in
the release of its results for the period ended 31 December 2006.
Coal
Coal production was substantially higher due to increased output at the former
Kumba Coal mines and the acquisition of the former Eyesizwe Coal mines.
Production of coking coal increased by 222kt on the comparative 2005 period.
Higher output from the commissioning of the new coal beneficiation module (GG6)
at the Grootegeluk mine during August 2006 was partially offset by lower
production at Tshikondeni mine caused by unfavourable geological conditions.
Increased throughput at both the Grootegeluk and Leeuwpan mines and an
additional 277kt from the former Eyesizwe Coal mines during November and
December 2006, increased thermal coal production by 12% or 372kt.
The continued higher demand from Eskom, the ramp-up of the jig plant at Leeuwpan
mine and the acquisition of Eyesizwe Coal, contributed to power station coal
production increasing by 24% to 18 061kt for the year under review.
The higher demand from Eskom and metallurgical coal at stronger than anticipated
prices, combined with more favourable export agreements and the contribution
from the former Eyesizwe mines, resulted in an increase of 32% in revenue to
almost R2,9 billion.
Net operating profit, in turn, increased R45 million to R599 million as the
higher turnover was offset by increases in labour and petroleum costs. The cost-
based arrangement of the former Eyesizwe mines with Eskom also impacted on the
operating margin of the overall commodity business.
Exxaro KZN Sands
The Furnace 1 shut to effect modifications and improvements was successfully
completed in the second half of 2006. This, however, negatively impacted on pig
iron production and resultant sales. Successful improvement initiatives resulted
in marginally higher production of zircon, rutile and slag.
Despite the weaker currency, higher rutile sales and stronger zircon prices,
revenue and net operating profit, excluding the impairment, were R22 million and
R11 million lower respectively than for the corresponding period in 2005. This
was due to the Furnace 1 shut, lower slag and pig iron sales.
As reported in the announcement of the 2006 interim results of the group, the
combined impact of a stronger currency outlook over the life of the assets and
projected surplus of high-grade titanium feedstock on world markets, led to a
pre-tax reduction of R784 million in the carrying value of the assets.
Exxaro Australia Sands
Business improvement initiatives led to increased mineral production. The
unplanned shut of the synthetic rutile (SR) kiln at the Chandala plant in July
2006 to enable inspection and repairs to refractories resulted in 13 kt lower SR
production and a net operating opportunity loss of R28 million. The shut was,
however, also utilised to carry out maintenance that was only planned for in
2007 with the result that sales impacted by the 2006 shut will effectively
realise in 2007.
Although revenue was marginally lower, net operating profit decreased by R162
million to R144 million due to the SR kiln shut, maturity in 2005 of the
favourable hedging programme and substantial increases in the cost of energy
related consumables and labour.
Base Metals
Zinc concentrate production was significantly lower as a result of accelerated
exploration development, heavy rainfall in southern Namibia in the first 6
months which negatively affected transport from Rosh Pinah mine, and industrial
action by employees in November 2006. Zinc metal production at the Zincor
refinery was 12kt lower due to lower quality zinc concentrates which caused
plant instability, the planned rebuild of a roaster and acid plant stoppages. An
additional roaster shut and rebuild, which forms part of Zincor`s scheduled
maintenance programme, is planned for the third quarter of 2007.
Revenue however increased by 122% to R2 379 million and net operating profit by
R540 million to R609 million at an operating margin of 26%. This was primarily
due to an increase of 137% in the average realised zinc price of US$3 277 per
tonne for the period compared with the previous period in 2005.
In line with production and sales growth and the stronger zinc metal price,
Exxaro`s equity accounted income from its investment in the Chifeng refinery in
China increased from R12 million to R40 million.
Negotiations with Namibian groupings to acquire a 49,9% interest in Rosh Pinah
mine are proceeding. Exxaro will retain management and operational control.
Industrial Minerals
Physical volumes and the financial contribution from both the dolomite and
ferrosilicon components of this business segment, were in line with that of the
previous financial year.
GROWTH OPPORTUNITIES
Coal
Commissioning of the R323 million new GG6 plant at Grootegeluk mine started in
August 2006 with full production expected by mid-2007. The plant is treating and
beneficiating coal previously sent untreated to the adjacent Matimba power
station and will at full production supply 730ktpa of semi-soft coking coal to
the refurbished coking plants of Mittal Steel at its Newcastle facility.
Construction, at an estimated cost of R245 million, of the 1Mtpa export-focused
Inyanda mine near Witbank to produce high quality thermal coal has now commenced
after new order mining rights were awarded in November 2006 and the approval of
the Richards Bay Coal Terminal (RBCT) expansion earlier in the year. Letters of
intent for offtake for the period April 2008 to June 2009, prior to the
commissioning of RBCT Phase V, have also been received.
The RBCT Phase V expansion in which Exxaro is a 12,5% shareholder, will provide
Exxaro Coal with a 2Mtpa export allocation in addition to the 1.1Mtpa available
from Eyesizwe Coal`s RBCT shareholding. This allocation will be utilised by
production from the new Inyanda mine as well as from expanded output at Exxaro`s
Mpumalanga operations and its Grootegeluk mine.
Construction of a Sintel Char facility to produce char for the ferroalloy
industry from the Grootegeluk mine, commenced in August 2006. Production from
this plant will start at 80ktpa and is expected to ramp up to 160ktpa by 2008.
The capital estimate for the project is R234 million.
A feasibility study to investigate the viability of a market coke plant is
expected to be completed in the first half of 2007. If viable, the plant will
produce high quality market coke from semi soft coking coal produced at
Grootegeluk mine.
A technical feasibility study to potentially supply 7,3Mtpa of power station
coal to Eskom for a new 2100 MW power station consisting of three generating
units, adjacent to the Matimba power station, was completed in June 2006.
Commercial agreements are being negotiated and if approved by Exxaro and Eskom,
construction could commence in 2008 with production from 2010. A feasibility
study for coal supply to an additional three generating units is in progress and
will be completed by April 2007.
Exxaro and Anglo Coal Australia concluded a joint venture agreement to undertake
exploration and evaluate the coking coal resource on the adjacent properties of
Moranbah South and Grosvenor South in Queensland, Australia. Exploration is
progressing according to plan and a pre-feasibility study for an initial phase
underground mine is expected to be completed by year-end.
The results of the recent drilling programme at Mmamabula Central in Botswana,
which is a joint venture between Exxaro Coal and Magaleng, have indicated
positive results. Further geological drilling and modelling will continue during
2007 with a feasibility study commencing in 2008.
Construction of the Mafube expansion project in which Exxaro is a 50:50 joint
venture partner with Anglo Coal is progressing well, with first product from
this 3Mtpa export mine expected in October 2007.
A feasibility study for the development of the Belfast underground and open pit
mine to supply between 2.5Mtpa and 4.5Mtpa of coal to both Eskom and the export
market has commenced and will be completed during 2007.
Converted mining rights for the Eerstelingsfontein reserves near Belfast have
been obtained and an implementation plan to commence mining in this area has
been developed to supply Eskom with 1Mtpa of power station coal.
Mineral Sands
The Exxaro board has approved the construction of the Fairbreeze mine, south of
Exxaro KZN Sands` existing Hillendale mine in KwaZulu-Natal, subject to the
obtaining of a new order mining right for the Fairbreeze C Extension area and
the applicable environmental authorisations. Production is planned to commence
in 2008.
Exploration work has confirmed the presence of a large low grade deposit on the
Port Durnford property located to the immediate south west of Exxaro KZN Sands`
Hillendale mine. The deposit has the potential to supply the Exxaro`s furnaces
for more than 25 years. The Port Durnford project is a 51%:49% joint venture
between Exxaro Sands and Imbiza Resources.
Exxaro Australia Sands acquired the Dongara project in March 2003 as part of its
takeover of Magnetic Minerals. Located in Western Australia, the 20Mt reserve
containing 10% heavy minerals will provide supplementary feedstock for Tiwest`s
mineral separation plant and synthetic rutile facility. Tronox acquired 50% of
the project in 2006 and it became part of the Tiwest joint venture with Exxaro
Australia Sands. A bankable feasibility study is being conducted and if viable,
production is expected to start at the end of 2009.
The group together with its joint venture partner, Tronox has announced plans to
increase annual production capacity, subject to board approval, at the Tiwest
Joint Venture (Tiwest) titanium dioxide pigment plant in Kwinana, Western
Australia.
The Kwinana plant, with a current capacity of 110ktpa, produces chloride process
titanium dioxide (TiO2) pigment. The brownfield expansion will increase capacity
by 40ktpa to 50ktpa. It is estimated that the expansion will cost between US$35
million to US$45 million. The additional capacity is expected to come on line in
2009.
Drilling on the Ranobe and Monombo-Marombe exploration areas comprising the
Toliara Sands project in south-western Madagascar is indicating resources
capable of supplying long-term ilmenite feedstock to the Exxaro KZN Sands
furnace complex. It is envisaged that the feasibility study will be completed in
2007 after which a development decision will be made.
Base Metals
The expansion project for the Chifeng smelter to increase capacity from 50ktpa
to 110ktpa is on track to be commissioned around mid 2007. Exxaro is
participating in the expansion by converting 22% of its 60% shareholding in the
Phase 2 company to 25% in the new Phase 3 company which will result in an
effective 22% interest in the expanded operation.
Exxaro entered into a 50:50 joint venture agreement with Zincongo, a Congolese
subsidiary of First Quantum Limited, to develop the Kipushi project during 2002.
Following an invitation in August 2006 by Gecamines of the Democratic Republic
of the Congo (DRC) for international tenders in connection with the Kipushi zinc
mine near Lubumbashi in the DRC, Zincongo initiated emergency proceedings
against Gecamines before the Belgium Courts on the grounds that the tender
invitation is in breach of the existing exclusivity contractual arrangements
between Gecamines and Zincongo. The Belgium courts are expected to announce its
ruling during the first quarter of 2007.
In December 2006, Exxaro also informed Gecamines that it will lodge a request
for ICC arbitration, asking for enforcement of the agreements concluded between
the companies regarding the rights to develop the Kamoto copper/cobalt project
at Kolwezi in the DRC.
ALLOYSTREAMTM
The commercialisation of AlloyStream technology, which allows for improved
beneficiation of manganese ore into ferromanganese is advancing. A joint venture
agreement, signed between Samancor Manganese and Exxaro in March 2006, provides
for the cooperation which could result in a facility producing 200ktpa of high
carbon ferromanganese utilising the technology, if proved viable by feasibility
studies. A development decision on the first commercial furnace of this project
is expected towards the end of 2007, with production start-up anticipated to
commence by the end of 2009.
A study to apply the technology to the production of ferronickel will be
initiated in 2007.
ACQUISITION OF NAMAKWA SANDS AND INTEREST IN BLACK MOUNTAIN/GAMSBERG.
On 19 January 2007 Exxaro announced that, pursuant to the empowerment
transaction, it had exercised the options to acquire the Namakwa Sands mineral
sands operation and a 26% interest in a company to be formed to hold the Black
Mountain lead-zinc mine and the Gamsberg zinc project.
The acquisitions are subject to shareholders` approval and suspensive conditions
pertaining to, amongst others, regulatory approvals and the conversion of mining
and prospecting rights to new order rights. It is expected that all suspensive
conditions will be satisfied in the second half of 2007.
CONVERSION OF MINERAL RIGHTS
Applications for conversion of the group`s mineral rights into new order rights,
audited by an independent advisor, have been submitted to the appropriate
regional offices of the Department of Minerals and Energy for consideration.
OUTLOOK
The group is well positioned to benefit from the continued strong commodity
markets and a currency at weaker levels.
Buoyant demand for coal at favourable prices and a zinc price remaining high,
should have a positive impact on the operating results for these commodities. A
surplus in the supply of high-grade titanium feedstock will continue to affect
the results of the mineral sands operations while zircon, which remains in short
supply, and stable offtake of pigment from Exxaro Sands, Australia, will make a
positive contribution.
DIVIDEND
A special dividend of 185 cents per share was declared and paid in November 2006
on the unbundling and separate listing of Kumba Iron Ore and the revised listing
of Exxaro Resources.
The Exxaro Board will consider the declaration in each financial year of an
interim and final dividend in line with its intention to progress to the
distribution of 50% of Exxaro`s attributable earnings after making provision for
future commitments, working capital requirements and available cash.
An interim dividend will accordingly be considered by the Board at the time of
approval of the interim results for the period 1 January to 30 June 2007.
On behalf of the Board
Dr CJ Fauconnier DJ van Staden
(Chief Executive Officer) (Chief Financial Officer)
20 February 2007
Registered Office Transfer Secretaries
Exxaro Resources Limited Computershare Investor
Roger Dyason Road Services 2004 (Pty) Limited
Pretoria West, 0002 Ground Floor, 70 Marshall Street
0002 Johannesburg, 2001
Tel: +27 12 307 5000 PO Box 61051
Fax: +27 12 307 4080 Marshalltown, 2107
Directors: Dr CJ Fauconnier (Chief Executive Officer), PM Baum,
JJ Geldenhuys, U Khumalo, MJ Kilbride*, Dr D Konar, VZ Mntambo,
RP Mohring, PKV Ncetezo, SA Nkosi*, N Nyembezi-Heita, N Sowazi,
DJ van Staden*, DR Zihlangu *Executive
Company Secretary: MS Viljoen Corporate Affairs and Investor Relations: Trevor
Arran (+27 12 307 3292)
GROUP STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2006
Non-distributable
reserves
Attribu-
table
reserves
of equity
Foreign Finan-
cial
Share Share Accounted Instru-
Currency ments Equity- Insu-
Capital Premiu Investments Translati Revalua settled rance
m on tion reserve reserve
Rm Rm Rm Rm Rm Rm Rm
OPENING
BALANCE 3 2,809 20 (141) 48 34
AT 31
DECEMBER
2004
Prior
year
adjustme
nts:
Recog-
nition
of
finance
leases
in terms
of IFRIC
4
-trans-
fer of
attri-
butable (20)
reser-
ves of
equity
accoun-
ted
invest-
ments
-nega-
tive
good-
will
adjust-
ment
-decom-
missio-
ning
asset
resta-
ted
Resta- 3 2,809 (141) 48 34
ted
opening
balance
Net
gains/ 112 (53) 38
(losses)
not
recog-
nised in
income
state-
ment
Curren-
cy trans- 153 3
lation
diffe-
rences
Mino-
rity
share of
reserve
move-
ments
Share-
based 38
pay-
ments
move-
ment
Finan-
cial
instru-
ments
fair
value
move-
ments
recog-
nised in
equity
-recog-
nised in (8)
current
year
income
-recog- (95)
nised in
equity
-fair 2
value
adjust-
ment
Defer- (41) 45
red taxa-
tion
Net
profit
Divi-
dends
paid
Issue of 132
share
capital
Move-
ment in
shares
issued
to
Manage- (4) 16
ment
Share
Trust
Mino-
rity
share-
buy out
BALANCE 3 2,937 (29) (5) 88
AT 31
DECEMBER
2005
Net 433 31 714
gains/(l
osses)
not
recog-
nised in
income
statemen
t
Curren- 448 1
cy trans-
lation
diffe-
rences
Share of 6 (1) 3
reserve
move-
ments of
asso-
ciates
Share- 711
based
pay-
ments
move-
ment
Finan-
cial
instru-
ments
fair
value
move-
ments
recog-
nised in
equity
-recog- 8
nised in
current
year
income
-recog- 23
nised in
equity
Defer- (21)
red taxa-
tion
Net
profit
Cash
divi-
dends
paid1
Share
repurcha
se1
Divi- (25) (2)
dend in
specie
Divi-
dend in
specie -
fair
value
adjustme
nt
Divi- (25) (2)
dend in
specie -
net
asset
value
Issue of 1 2,198
share
capital
BALANCE 4 5,135 379 24 802
AT 31
DECEMBER
2006
Attrib-
table
OPENING BALANCE AT 31
DECEMBER 2004 Total
to equity
Prior year holders of Mino-rity share
adjustments: Retai- holders
Recog-nition of ned the parent Inte-rest Inte-rest
finance leases in income
terms of IFRIC 4
-trans-fer of attri- Rm Rm Rm Rm
butable reser-ves of
equity accoun-ted
invest-ments
-nega-tive good-will 2,516 5,289 1,197 6,486
adjust-ment
-decom-missio-ning
asset resta-ted
Resta-ted opening
balance (45) (45) (45)
Net gains/
(losses) not recog- 20
nised in income state-
ment
Curren-cy trans- 53
lation diffe-rences 53 53
Mino-rity share of 18 18 (11) 7
reserve move-ments
Share-based pay-ments 2,562 5,315 1,186 6,501
move-ment
Finan-cial instru-
ments fair value move- 16 113 (37) 76
ments recog-nised in
equity
-recog-nised in 16 172 60 232
current year income
-recog-nised in (97) (97)
equity
-fair value adjust- 38 38
ment
Defer-red taxa-tion
Net profit (8) (8)
Divi-dends paid (95) (95)
Issue of share 2 2
capital
Move-ment in shares 4 4
issued to
Manage-ment Share 3,177 3,177 61 3,238
Trust
Mino-rity share-buy (1,430) (1,430) (17) (1,447)
out
BALANCE AT 31 132 10 142
DECEMBER 2005
Net gains/(losses)
not recog-nised in
income statement
Curren-cy trans- 12 12
lation diffe-rences
Share of reserve move- (1,194) (1,194)
ments of asso-ciates
Share-based pay-ments 4,325 7,319 9 7,328
move-ment
Finan-cial instru-
ments fair value move- 1,178 1,178
ments recog-nised in
equity
-recog-nised in 449 449
current year income
-recog-nised in 8 8
equity
Defer-red taxa-tion 711 711
Net profit
Cash divi-dends paid1 8 8
Share repurchase1 23 23
Divi-dend in specie (21)
Divi-dend in specie -
fair value adjustment 19,169 19,169 27
Divi-dend in specie - (1,628) (1,628) (9) (1,637)
net asset value
Issue of share (1,763) (1,763) (1,763)
capital
BALANCE AT 31 (18 305) (18 332) (18 332)
DECEMBER 2006
1 STC on these dividends amount to R424 million.
Sponsor: JP Morgan (+27 11 507 0300) JSE Share code: EXX ADR code: EXXAY
Registration number: 2000/011076/06 ISIN code: ZAE000084992
If you have any queries regarding your shareholding in Exxaro Resources, please
contact the Transfer Secretaries at +27 11 370 5000
This report is available at Exxaro Resources world wide web site at:
www.exxaro.com
22 February 2007
Sponsor: J.P.Morgan Equities Limited
Date: 22/02/2007 08:14:00 Supplied by www.sharenet.co.za
Produced by the JSE SENS Department.
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