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EXX - Exxaro Resources Limited - News Release
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")
NEWS RELEASE
EXXARO RESOURCES AUDITED FINANCIAL RESULTS AND UNAUDITED PHYSICAL INFORMATION
FOR THE 12 MONTHS ENDED 31 DECEMBER 2006
NOTE TO MEDIA: 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.
*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
Diversified South African-based resources group Exxaro Resources Limited
(Exxaro) today reported revenue of R13,7 billion, an increase of 16%, 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 R4,34 billion.
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 R2,8 billion or 904
cents per share.
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 earning for the year under revue of R1,7
billion or 542 cents per share to the corresponding period is not meaningful.
CASH FLOW
Cash retained from operations of R4,76 billion was mainly utilised to fund
taxation of R1,93 billion, dividends of R3,40 billion, capital expenditure of
R2,01 billion and the acquisition of Eyesizwe Coal at a net cash outflow of
R1,55 billion.
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 R1,98 billion.
A total of R1,32 billion of the capital expenditure was invested in new
capacity.
After also accounting for the inflow of R2,2 billion from the issue of 65 334
843 shares to Exxaro`s black controlled holding company, Main Street 333
(Proprietary) Limited, net debt of R1,48 billion 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 R2,35 billion, 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 200 000 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," added Dr Fauconnier.
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.
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.
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.
*View or download the full results announcement on www.exxaro.com
*See Addendum 1 for Operational highlights; Addendum 2 for Growth opportunities
Editor`s Note:
Exxaro is a diversified resources group with interests in the coal, mineral
sands, base metals, industrial minerals and iron ore commodities. www.exxaro.com
Enquiries:
Trevor Arran
General Manager: Corporate Affairs & Investor Relations
Tel: +27 (0) 12 307 3292
Mobile: +27 (0) 83 609 1444
ADDENDUM 1:
OPERATIONAL HIGHLIGHTS
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 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 primarily 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 13kt 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
six 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.
ADDENDUM 2:
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.
ALLOYSTREAM TM
The commercialisation of AlloyStream TM 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.
22 February 2007
Sponsor: J.P.Morgan Equities Limited
Date: 22/02/2007 08:15:16 Supplied by www.sharenet.co.za
Produced by the JSE SENS Department.
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