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EXX - Exxaro - Exxaro`s Audited Group Financial Results And Physical
Information For The 12-Month Period Ended 31 December 2009
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")
EXXARO`S AUDITED GROUP FINANCIAL RESULTS AND PHYSICAL INFORMATION FOR THE 12-
MONTH PERIOD ENDED 31 DECEMBER 2009
OVERVIEW
* Revenue increases 8% to R15 billion
* Net operating profit adversely impacted by R1,44 billion impairment
at KZN Sands
* Currency strength impacted negatively on earnings
* Headline earnings 31% lower at 729 cents per share
* Final dividend of 100 cents per share; total dividend of 200 cents
per share
* Targeted savings realised through optimisation initiatives and
prioritising capital expenditure
Diversified South African-based resources group Exxaro Resources Limited
(Exxaro) today reported group consolidated revenue of R15 billion and net
operating profit of R1,74 billion, excluding the R1,44 billion impairment at
its KZN Sands operation, for the financial year ended 31 December 2009. When
compared with the corresponding period in 2008, revenue was 8% higher and net
operating profit R728 million lower, the latter before the impairment is
taken into account.
REPORTED RESULTS NOT COMPARABLE
The group`s audited financial results and actual physical information for the
12-month period ended 31 December 2009 includes a proportionally consolidated
50% interest in the Mafube Coal Mining (Pty) Ltd (Mafube) from 1 June 2009.
The results are not comparable with the corresponding 12-month period in
2008 which only includes the acquisition of Namakwa Sands and a 26% interest
in Black Mountain Mining (Pty) Limited (Black Mountain) with effect from 1
October and 1 November 2008 respectively.
Comparable supplementary financial results have not been disclosed therefore
comments are based on an analysis of the financial results and physical
information compiled for the 12-month periods to 31 December 2009 and 2008
respectively.
"The coal business reported lower net operating profit as an increase in
revenue, mainly due to higher export and local power station sales volumes,
was more than offset by lower international coal prices and above
inflationary increases in the cost of electricity, rail tariffs and labour
costs, and realised and unrealised foreign currency losses," said Sipho
Nkosi, Exxaro`s chief executive officer.
"All three units within the mineral sands business reported operating losses
on the back of lower demand for their products at softer prices. The two
local operations, KZN Sands and Namakwa Sands, were adversely impacted by
realised and unrealised foreign currency losses while the Australia Sands
operation was affected by the Australian dollar (AUD) persisting at strong
levels against the US dollar (USD). The operating results of KZN Sands were
also severely impacted by a R1,44 billion impairment to the carrying value of
the assets following the decision to not proceed with the development of the
Fairbreeze mine," said Nkosi.
Lower realised zinc prices as well as a lower demand for products resulted in
the base metals business recording a small net operating loss.
Export sales were recorded at weaker average exchange rate levels than in
2008. However, realised currency losses were incurred as foreign currency
proceeds on export sales were repatriated at stronger exchange rate levels.
Unrealised foreign currency losses were also incurred on the revaluation of
monetary items in foreign currency at 31 December 2009.
EARNINGS
Attributable earnings for the period were R1,02 billion or 297 cents per
share. This is significantly lower than the comparable 2008 attributable
earnings of R3,41 billion (993 cents per share) primarily due to the lower
operating results and the impairment of the carrying value of the KZN Sands
assets. Attributable earnings include Exxaro`s 20% share of the after-tax
profits of Sishen Iron Ore Company (Pty) Limited (SIOC) amounting to R1,76
billion, a contribution of R13 million from the effective 22% interest in the
Chifeng zinc refinery and an equity accounted profit of R123 million from the
26% interest in Black Mountain.
Headline earnings which exclude the impact of the impairment of the carrying
value of the KZN Sands assets were R2,51 billion (729 cents per share) which
is 31% lower than the R3,63 billion (1 058 cents per share) for the
corresponding period in 2008.
CASH FLOW
Cash retained from operations was R2,12 billion. This was primarily used to
fund net financing charges of R382 million, taxation payments of R892
million, dividend payments of R1,05 billion and capital expenditure of R1,98
billion, of which R990 million was invested in new capacity and R992 million
applied to sustaining and environmental capital. After the receipt of R1,75
billion in dividends, primarily from Sishen Iron Ore Company (SIOC), and the
R1,08 billion outflow to finalise the acquisition of the 50% interest in
Mafube, the group had a net cash outflow of R1,62 billion for the financial
year. The final Exxaro dividend for payment in April 2010 will amount to a
further cash outflow of R357 million offset by the dividend inflow from SIOC
of approximately R600 million.
Net debt of R2,38 billion at 31 December 2008 increased to R3,73 billion at a
net debt to equity ratio of 29% at 31 December 2009.
SAFETY, HEALTH AND ENVIRONMENT
Regrettably, an explosion in the maintenance contractor`s storage area
situated at the Zincor business unit occurred on 10 September 2009, resulting
in the deaths of three contractors and injuries to 12 others.
The average lost time injury frequency rate (LTIFR) per 200 000 man-hours
worked improved by 15% from 0,39 in 2008 to 0,33 in 2009.
Thirteen business units are now ISO 14001 and OHSAS 18001 certified. The
business units that did not achieve certification by end of 2009 will ensure
that their programmes result in certification in 2010.
CHANGES TO THE BOARD
Ms Simangele Mngomezulu resigned with effect from 21 December 2009. The
Board expresses its appreciation for her contribution to the board. Ms
Noluthando Langeni was appointed in her stead with effect from 23 February
2010. The acting chairman, Dr Len Konar, was elected as chairman of the board
with effect from 23 February 2010.
OUTLOOK
"The rate of recovery from the global recession remains uncertain despite a
number of positive indicators," said Nkosi.
The group expects the global demand for coal to increase with the demand for
local power station coal anticipated to remain strong. The domestic demand
for steam and metallurgical coal is however expected to be firmer but still
to remain subdued in 2010. Coal exports may be affected by the availability
of rail and port allocation at RBCT.
For the mineral sands commodities, higher production and sales volumes are
anticipated at prices which, although still under pressure, are showing signs
of recovery.
The base metals business is expected to remain under pressure in 2010 as a
global zinc oversupply may result in downward pressure on zinc prices in the
second half of 2010, while local demand is anticipated to remain stable.
Based on current market expectations on iron ore price increases anticipated
with effect from 1 April 2010 and coupled with strong demand, the equity
accounted contribution from SIOC may have a positive impact on Exxaro`s
earnings.
The introduction of the payment of royalties with effect from 1 March 2010
will have a negative impact on the group`s operating results, most notably
for the coal business.
"Overall, the group`s consolidated results for 2010 will largely be driven by
the recovery in demand and the prices for its commodities, as well as by the
trading levels of the local and Australian currencies. The group will
continue with its focus on capital prioritisation and working capital
management together with rigorous cost control," he added.
FINAL DIVIDEND
The board of directors has declared a final cash dividend number 14 of 100
cents per share in respect of the 2009 financial year end. 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, 16
April 2010.
Ends
View or download the full results announcement on www.exxaro.com
See Addendum 1 for Operational highlights; Addendum 2 for Capital expenditure
and project pipeline
Editor`s Note:
Exxaro is one of the largest South African-based diversified resources
groups, with interests in the coal, mineral sands, base metals, industrial
minerals and iron ore commodities. www.exxaro.com
Enquiries:
Wim de Klerk
Finance director
Tel: + 27 12 307 4848
Mobile: +27 82 652 5145
Email: wim.deklerk@exxaro.com
ADDENDUM 1:
OPERATIONAL HIGHLIGHTS
Coal
Total coal production volumes were marginally higher than the previous year.
Power station coal production at the Eskom tied mines was 9% lower at
16,486Mtpa mainly as a result of an inrush of water at Matla`s number 2 mine
which impacted negatively on production for several months, but which has
subsequently been rectified. This was partially offset by increased
production at Arnot mine after ramping up the opencast mining operations to
full production. The commercial mines increased production by 8% to over
20Mtpa to meet the increased demand from Eskom.
Coking coal production showed a marked decrease year on year, down 21% to
2,020Mtpa, due to difficult geological conditions at Tshikondeni mine while
semi-soft coking coal production decreased significantly at Grootegeluk mine
as a result of lower demand from the steel and related industries.
Steam coal production was 19% higher at 6,638Mtpa mainly due to the inclusion
of production from Mafube of some 816kt following the acquisition of a 50%
interest in the joint venture in June 2009. Higher production at the Inyanda
and NBC mines was offset by lower production at Grootegeluk and Leeuwpan
mines due to lower domestic steam coal demand. Production at New Clydesdale`s
(NCC) new Diepspruit shaft also ramped up slower than anticipated.
A total of 38kt of char was produced at the four new retorts that were
successfully commissioned at Grootegeluk mine. Ramp-up to full production is
expected in the second half of 2010.
Sales to Eskom were in line with the previous year as increased sales volumes
from the commercial operations were offset by lower sales volumes from the
tied operations mainly due to production challenges at the Matla mine.
Domestic sales were 16% lower at 4,587Mtpa due to lower demand during the
recessionary climate.
In line with Exxaro Coal`s strategy, export volumes increased 44% year on
year to 4,715Mtpa as Exxaro was able to secure additional export allocation
at Richards Bay Coal Terminal (RBCT) from other RBCT users.
Revenue increased by 8% to R9,73 billion as higher export volumes combined
with increased domestic power station coal sales at higher prices were
partially offset by lower domestic metallurgical and steam coal sales and
lower export prices realised.
Despite the higher revenue, net operating profit decreased by 28% to R1,91
billion, an operating margin of 20%, as above inflationary increases in
electricity, rail tariffs and labour increased the cost of sales. Costs were
further impacted by realised and unrealised exchange rate losses and an
increase in exploration expenditure for the Moranbah South project in
Australia.
The operating profit from the tied operations was slightly down year on year
as the environmental rehabilitation provision was reduced after extension of
the life of mine at Matla mine.
MINERAL SANDS
KZN Sands
KZN Sands had significantly higher production volumes with both furnaces
operational compared to one furnace being down for 10 months in 2008 after
the water ingress incident in February 2008. Titanium slag tapped was 93kt
higher at 205kt as both furnaces tapped more than 100kt of titanium slag. Low
manganese pig iron and ilmenite production were respectively 58kt and 139kt
higher than in 2008, in line with the increased slag production. Zircon and
rutile production remained in line with 2008 despite the decrease in run-of-
mine tonnes as a result of higher grades mined.
Despite the increased production, revenue reduced by R269 million to R705
million as lower sales volumes of zircon, pig iron and chloride slag were
recorded at softer prices.
Net operating profit before impairments was R43 million lower than for the
corresponding period as the lower revenue combined with realised and
unrealised foreign currency losses were only partially offset by improvements
in production efficiencies and cost savings.
The impairment of R1,44 billion of the carrying value of the assets is mainly
as a result of the decision taken in the latter part of 2009 not to proceed
with the development of the Fairbreeze mine as a replacement feedstock
producer for Hillendale mine. Hillendale is planned to close during the last
quarter of 2012.
Australia Sands
Improvement initiatives led to pigment production returning to 2007 levels
with 2009 production a 23% improvement on the 2008 year. Zircon and rutile
production increased as a result of higher grades and various improvement
projects. Synthetic rutile production was slightly lower as a result of
maintenance-related problems predominantly experienced in the second quarter
of 2009.
Revenue increased 12% to R1,47 billion while net operating results improved
from a loss of R82 million in 2008 to a loss of R2 million in 2009. This was
achieved on the back of a much stronger production performance, higher
pigment sales and higher average prices for both mineral and pigment products
at a realised rate of USD0,79 to the AUD when compared with USD0,84 in 2008.
Namakwa Sands
The impact of the global recession on operations resulted in the postponement
of the Furnace 1 start-up which was shut down for a reline at the end of
March 2009. Furthermore, production activities at the mine and separation
plants were temporarily halted during August to preserve cash flow and avoid
the build up of stocks.
Total annual sales of 299kt were down 28% on the previous year`s record of
416kt.
Net operating profit for only three months in 2008 of R155 million was
followed by a loss in the 2009 financial year of R110 million. Softer
prices, albeit at a marginally weaker local currency, realised and unrealised
exchange rate losses, and the R55 million derecognition of the preheaters due
to their deteriorated condition, all added to the weaker financial results.
BASE METALS
Lead and zinc production at the Rosh Pinah mine was in line with 2008
performance with lead concentrate exports 14% lower than the corresponding
period in 2008.
Production of zinc metal at the Zincor refinery of 87kt was 338 tonnes more
than in 2008, but was adversely affected by downtime on the acid plant as
well as the disruption caused by the explosion in September 2009. Domestic
zinc metal sales were in line with 2008.
A total of 60% of Rosh Pinah`s projected zinc and lead concentrate sales are
hedged to December 2011 at average forward prices ranging from USD2 216 to
USD2 061 for zinc and USD1 967 to USD 1 713 for lead. Hedging gains realised
were Namibian dollars 25 million more than in 2008.
Revenue for the 12 months to 31 December 2009 decreased by 14% mainly as a
result of the lower average realised US dollar zinc price. The average zinc
price for 2009 of USD1 658 is 12% lower than in 2008 and was only partially
offset by the slightly weaker local currency.
A turnaround from a net operating loss in 2008 of R172 million to a loss of
R8 million was reported due to cost savings initiatives implemented as well
as the upwards revaluation of inventories at the Zincor refinery at year end.
The impact of above inflationary increases in electricity and maintenance
expenses are, however, still being experienced.
Production at the Chifeng refinery was in line with 2008. Equity accounted
income from this operation increased by R17 million to R13 million mainly due
to reduced production costs as well as a reduction in the rates of the
environmental duties paid.
Exxaro`s 26% share in Black Mountain, acquired in the last quarter of 2008,
contributed R123 million to equity income due mainly to increased sales
volumes.
OTHER
Production volumes at the FerroAlloys plant were slightly higher while Glen
Douglas production volumes were lower due to unplanned plant stoppages.
Revenue for 2009 decreased marginally when compared to the previous year due
to the lower demand and selling prices. Sales volumes were lower at both
Glen Douglas and FerroAlloys.
ADDENDUM 2:
CAPITAL EXPENDITURE AND PROJECT PIPELINE
As announced on 1 December 2009, Exxaro reviewed its commodity portfolio and
growth pipeline against the background of the prevailing economic climate to
align resources with a commodity strategy best positioned to release optimal
value for stakeholders.
Following this review, Exxaro plans to reconfigure its zinc assets in order
to ultimately divest from them in an optimal manner. The portfolio of zinc
assets includes the Zincor refinery in Springs, Gauteng, a 50,04% interest in
the Rosh Pinah zinc and lead mine in Namibia, a 26% interest in Black
Mountain which owns the Black Mountain zinc and lead mine and the Gamsberg
zinc project in the Northern Cape, and an effective 22% interest in the
Chifeng zinc smelter in China.
COAL
Detail engineering on the expansion of the Grootegeluk mine to supply Eskom`s
new Medupi power station with 14,6Mtpa of power station coal for 40 years is
progressing in order to supply the first coal to Eskom during the second
quarter of 2012 which co-incides with the start-up of the power station. Full
production from 2015 is anticipated.
As previously reported, Exxaro received notice from Eskom, in the third
quarter of 2009, that it was seeking to review certain commercial terms
contained in the Medupi Coal Supply and Off-take Agreement ("CSA") signed on
19 September 2008, including the coal price escalation mechanism and the coal
delivery ramp-up. Pending the outcome of the review process, in December
2009 Exxaro temporarily suspended its funding programme as well as the
placement of additional contracts associated with the project. It is
expected that the review process will be concluded in the first quarter of
2010. Due to the delays in the project execution, it is expected that the
capital costs associated with the project will now increase from R9 billion
to R9,5 billion.
The Thabametsi Project pre-feasibility study to develop a potential green
fields mine adjacent to the Grootegeluk mine, with the capability of
supplying the market with power station and metallurgical coal, is scheduled
for completion by end March 2010. Implementation of this project is linked
to Eskom`s future developments in the Waterberg together with the
establishment by the Department of Energy of an appropriate enabling
environment to allow for new generation capacity in terms of Eskom`s multi-
site base load Independent Power Producer (IPP) programme. The scope of the
bankable feasibility study will only be finalised after the details of
potential new generation capacity has been determined, whereafter the
required technical studies will commence. The environmental studies started
at the end of 2009 and are due to be completed during 2011. First coal
production could be expected by 2015.
Exxaro entered into a prospecting joint venture agreement with Sasol Mining
for the development of a new coal mine in the Waterberg to supply Sasol`s
potential new 80 000 barrel per day inland coal to liquids facility
(Project Mafutha). The project is in the pre-feasibility stage and a
decision to proceed to a bankable feasibility study is expected in 2010.
An integrated infrastructure plan is being implemented for the Waterberg coal
fields together with the relevant stakeholders. Focus areas include the
supply of raw water to the area, rail, road and housing.
After the successful commissioning of the Sintel Char plant at Grootegeluk
mine for the production of reductants for the ferroalloy industry, Exxaro is
currently evaluating the phase 2 expansion to produce a further 140ktpa of
char.
Exploration of the hard coking coal resource on the Moranbah South properties
in the Bowen Basin of Queensland, Australia, is progressing well and the
results obtained are encouraging. Moranbah South, which is a 50 percent
joint venture with Anglo American, has the potential to produce premium
quality hard coking coal.
ENERGY
The commodity portfolio review announced on 1 December 2009 stated that the
group is exploring opportunities in the energy markets. Studies into clean
energy initiatives encompassing co-generation, carbon credit trading and
renewable energy (wind and solar projects) are progressing well.
Development of the first five-spot test for the Coal Bed Methane project in
Botswana, with the aim of testing for economic gas flow, is progressing well.
Completion of the test work is planned for April 2010 after which the site
will be operated until economic gas flow has been attained.
MINERAL SANDS
As a result of the decision to not continue with the development of the
Fairbreeze mine, the group will plan for the closure of the KZN Sands
operations during the next five years while in parallel investigating other
feedstock alternatives and the continuation of the business should the
outlook for the mineral sands industry improve substantially.
The implementation of the Tiwest Kwinana pigment expansion project which will
increase production by 40ktpa is progressing according to plan, with
commissioning targeted for the second half of 2010. Exxaro is funding 100%
of the expansion project of which the capital expenditure is now projected at
some AUD118 million.
BASE METALS
Base Metals activities are focused on the process of optimisation for
divestment. It is expected that potential suitors will be engaged in the
second half of 2010.
FERROUS
The final evaluation of the iron ore project in Turkey concluded that it did
not meet the Group`s investment criteria and a decision was made to divest
from the project.
Pretoria
25 February 2010
Sponsor
Deutsche Securities (SA) (Proprietary) Limited
Date: 25/02/2010 07:06:05 Supplied by www.sharenet.co.za
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