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EXX - Exxaro Resources Limited - Condensed group financial results and
physical information for the year ended 31 December 2010
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")
Condensed group financial results and physical information for the year ended
31 December 2010
Overview
- Improvement in safety
Lost time injury frequency rate down 24% to 0,25
- Revenue increased by 14% to R17,2 billion
- Net operating profit up 52% to R2,6 billion excluding the 2009
KZN Sands impairment
- Headline earnings per share up 105% to 1 495 cents per share
- Final dividend of 300 cents per share; total dividend of 500 cents per
share covered three times by attributable earnings
- Net cash inflow of R1,4 billion
- Net debt to equity of 13%
CONDENSED GROUP INCOME STATEMENT (AUDITED)
2010 2009
Year ended 31 December Rm Rm
Revenue 17 155 15 009
Operating expenses (14 519) (14 705)
Net operating profit 2 636 304
Net financing costs (note 4) (455) (415)
Share of income from investments and equity-accounted 3 719 1 900
investments
Profit before tax (note 2) 5 900 1 789
Income tax expense (665) (766)
Profit for the year 5 235 1 023
Profit attributable to:
Owners of the parent 5 208 1 023
Non-controlling interests 27
Profit for the year 5 235 1 023
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME (AUDITED)
2010 2009
Year ended 31 December Rm Rm
Profit for the year 5 235 1 023
Other comprehensive income (restated):
Exchange differences on translating foreign operations (9) (35)
Cash flow hedges 227 (474)
Share of comprehensive income of associates 40 (34)
Income tax relating to components of other comprehensive (115) 142
income
Net gain/(loss) recognised in other comprehensive income 143 (401)
Total comprehensive income for the year 5 378 622
Total comprehensive income attributable to:
Owners of the parent 5 408 759
Non-controlling interests (30) (137)
Total comprehensive income for the year 5 378 622
Ordinary shares (million)
- in issue 358 357
- weighted average number of shares 347 345
- diluted weighted average number of shares 361 358
Attributable earnings per share (cents)
- basic 1 501 297
- diluted 1 443 286
CONDENSED GROUP STATEMENT OF FINANCIAL POSITION (AUDITED)
2010 2009
At 31 December Rm Rm
ASSETS
Non-current assets
Property, plant and equipment 13 305 11 869
Biological assets 46 41
Intangible assets 75 87
Investments in unlisted associates and joint ventures 3 880 1 966
(note 6)
Deferred tax 726 629
Financial assets 1 375 1 217
19 407 15 809
Current assets
Inventories 3 120 3 133
Trade and other receivables 3 752 3 121
Current tax receivable 105 57
Cash and cash equivalents 2 140 1 023
9 117 7 334
Non-current assets classified as held for sale 85 86
Total assets 28 609 23 229
EQUITY AND LIABILITIES
Capital and reserves
Equity attributable to owners of the parent 17 437 12 908
Non-controlling interests (23) 1
Total equity 17 414 12 909
Non-current liabilities
Interest-bearing borrowings 3 644 4 347
Non-current provisions 2 193 1 853
Financial liabilities 75
Deferred tax 1 353 995
7 190 7 270
Current liabilities
Trade and other payables 3 057 2 510
Interest-bearing borrowings 716 407
Current tax payable 147 57
Current provisions 33 27
3 953 3 001
Non-current liabilities classified as held for sale 52 49
Total equity and liabilities 28 609 23 229
Net debt (note 7) 2 220 3 731
Net asset value per share (Rand) 49 36
Capital expenditure
- incurred 2 677 1 982
- contracted 6 475 3 550
- authorised but not contracted 2 490 1 420
Capital expenditure contracted relating to captive mines,
Tshikondeni, Arnot and Matla, which will be financed by
ArcelorMittal South Africa Limited and Eskom respectively 1 18
Contingent liabilities (note 8) 1 007 717
Contingent assets (note 9) 63 158
Operating lease commitments 132 92
Operating sublease rentals receivable 6 4
CONDENSED GROUP STATEMENT OF CASH FLOWS (AUDITED)
2010 2009
Year ended 31 December Rm Rm
Cash retained from operations 4 106 2 117
- net financing costs (256) (381)
- tax paid (430) (892)
- dividends paid (1 056) (1 050)
Cash flows from investing activities
- capital expenditure (2 677) (1 982)
- proceeds from disposal of property, plant and equipment 60 11
- dividends from investments and equity-accounted 1 817 1 754
investments
- increase in investments (149) (8)
- increase in joint venture (1 082)
- other (29) (107)
Net cash inflow/(outflow) 1 386 (1 620)
Net cash flows from financing activities
- shares issued 29 43
- increase in non-controlling interests` loans 6 10
- net borrowings (repaid)/raised (304) 821
Net increase/(decrease) in cash and cash equivalents 1 117 (746)
Cash and cash equivalents at beginning of year 1 023 1 769
Cash and cash equivalents end of year 2 140 1 023
Calculation of movement in net debt:
Net cash inflow/(outflow) 1 386 (1 620)
- shares issued 29 43
- loans from non-controlling interests 6 10
- non-cash flow movements in net debt applicable to 187 340
currency translation differences of transactions
denominated in foreign currency
- non-cash flow movements in net debt applicable to (97) (123)
currency translation differences of net debt items of
foreign entities
Decrease/(increase) in net debt 1 511 (1 350)
RECONCILIATION OF HEADLINE EARNINGS (AUDITED)
Non-
controlling
Gross Tax interest Net
Year ended 31 December 2010 Rm Rm Rm Rm
Profit for the year attributable to 5 208
owners of the parent
Adjusted for:
- impairment of property, plant and 4 (1) 3
equipment
- gains or losses on disposal of (26) (26)
property, plant and equipment
- share of associates` gains or 1 1
losses on disposal of property, plant
and equipment
Headline earnings (21) (1) 5 186
Year ended 31 December 2009
Profit for the year attributable to 1 023
owners of the parent
Adjusted for:
- impairment of property, plant and 1 435 1 435
equipment
- gains or losses on disposal of 88 (24) (2) 62
property, plant and equipment
- share of associates` gains or (8) 2 (6)
losses on disposal of property, plant
and equipment
Headline earnings 1 515 (22) (2) 2 514
Year ended 31 December 2010 2009
Headline earnings per share (cents)
- basic 1 495 729
- diluted 1 437 702
GROUP STATEMENT OF CHANGES IN EQUITY (AUDITED)
Other components of equity
Foreign Financial
Share Share currency instruments Equity-
capital premium translation revaluation settled
Rm Rm Rm Rm Rm
Balance at 1 January 2009 4 2 094 964 145 1 081
Total comprehensive income (162) (142)
Issue of share capital1 43
Share-based payment 160
movements (restated)
Non-controlling interests
additional contributions
Dividends paid (2)
Balance at 31 December 2009 4 2 137 802 3 1 241
Total comprehensive income (86) 213
Issue of share capital (1) 29
Share-based payment 148
movements
Non-controlling interests
additional contributions
Dividends paid (2)
Balance at 31 December 2010 4 2 166 716 216 1 389
Dividend paid per share 200
(cents) in respect of the
2009 financial year
Dividend paid per share 200
(cents) in respect of the
2010 interim period
Final dividend payable per 300
share (cents) in respect of
2010 financial year
1 Issued to the Kumba Resources Management Share Trust due to options
exercised.
2 The STC on these dividends amounts to Rnil million after taking into
account STC credits.
GROUP STATEMENT OF CHANGES IN EQUITY (AUDITED)
Retained Attributable Non- Total
Income to owners controlling Equity
Rm of the Interest Rm
parent Rm
Rm
Balance at 1 January 2009 8 708 12 996 128 13 124
Total comprehensive income 1 063 759 (137) 622
Issue of share capital (1) 43 43
Share-based payments movements 160 160
(restated)
Non-controlling interests 10 10
additional contributions
Dividends paid (2) (1 050) (1 050) (1 050)
Balance at 31 December 2009 8 721 12 908 1 12 909
Total comprehensive income 5 281 5 408 (30) 5 378
Issue of share capital (1) 29 29
Share-based payments movements 148 148
Non-controlling interests 6 6
additional contributions
Dividends paid (2) (1 056) (1 056) (1 056)
Balance at 31 December 2010 12 946 17 437 (23) 17 414
Dividend paid per share (cents) 200
in respect of the 2009 financial
year
Dividend paid per share (cents) 200
in respect of the 2010 interim
period
Final dividend payable per share 300
(cents) in respect of 2010
financial year
1 Issued to the Kumba Resources Management Share Trust due to options
exercised.
2 The STC on these dividends amounts to Rnil million after taking into
account STC credits.
NOTES TO THE CONDENSED GROUP FINANCIAL STATEMENTS (AUDITED)
1. BASIS OF PREPARATION
This condensed report for the year ended 31 December 2010 has been
prepared in compliance with International Accounting Standard 34, Interim
Financial Reporting, the AC 500 standards as issued by the Accounting
Practices Board or its successor, schedule 4 Part iv of the South African
Companies Act, No 61 of 1973, as amended, and the Listings Requirements of
the JSE Limited. The financial statements from which these condensed group
financial results have been derived are prepared on the historical cost
basis excluding financial instruments and biological assets, which are
fair valued, and conform to International Financial Reporting Standards
(IFRS) as issued by the International Accounting Standards Board. The
accounting policies adopted are consistent with those applied in the
annual financial statements for the year ended 31 December 2009.
The disclosure of share-based payment movements has previously been
disclosed as other comprehensive income, it is now disclosed directly in
the statement of changes in equity. The disclosure has been applied to the
prior year.
During 2010 the following accounting pronouncements became effective:
Amended IFRS 1 First-time Adoption of International Financial Reporting,
Amended IFRS 2 Share-based Payment, IFRS 7 Financial Instruments:
Disclosures, Revised IFRS 3 Business Combinations, Amended IFRS 5 Non
current Assets Held for Sale and Discontinued Operations, Amended IFRS 8
Operating Segments, Amended IAS 1 Presentation of Financial Statements,
Amended IAS 7 Statement of Cash Flows, Amended IAS 17 Leases, Revised IAS
27 Consolidated and Separate Financial Statements, Revised IAS 28
Investments in Associates, Revised IAS 31 Interests in Joint Ventures,
Amended IAS 36 Impairment of Assets, Amended IAS 38 Intangible Assets,
Amended IAS 39 Financial Instruments: Recognition and Measurement, Amended
IFRIC 9 Reassessment of Embedded Derivatives, IFRIC 17 Distributions of
Non-cash Assets to Owners, IFRIC 18 Transfers of Assets from Customers.
These pronouncements had no material impact on the accounting of
transactions or the disclosure thereof. The application of IFRS 3,
together with IAS 27, IAS 28 and IAS 31 will have a significant impact on
the accounting and disclosure of business combinations and the accounting
for the carrying value of investments on partial disposals of investments
for such transactions in the future.
The accounting standards, amendments to issued accounting standards and
interpretations, which are relevant to the group, but not yet effective at
31 December 2010, have not been adopted. The group continuously evaluates
the impact of these pronouncements.
2010 2009
Year ended 31 December Rm Rm
2. PROFIT BEFORE TAX IS ARRIVED AT AFTER
Depreciation and amortisation (1 380) (1 136)
Net realised foreign currency exchange losses (125) (576)
Net unrealised foreign currency exchange losses (30) (45)
Derivative instruments held for trading: gains 452 379
Fair value adjustments on financial instruments: 13 26
gains
Impairment charges (note 3) (4) (1 435)
Net surplus/(deficit) on disposal of property, plant 26 (88)
and equipment
3. IMPAIRMENT CHARGES
Impairment of property, plant and equipment (1 435)
Impairment of property, plant and equipment held for (4)
sale
Total impairments before tax (4) (1 435)
4. NET FINANCING COSTS
Interest expense and loan costs 321 460
Finance leases 70 66
Interest income (135) (145)
Net interest expense 256 381
Interest adjustment on non-current provisions 199 34
Net financing costs as per income statement 455 415
5. TAX RATE RECONCILIATION % %
Tax as a percentage of profit before tax 11,3 42,8
Tax effect of
- assessed losses not provided for (0,2) (1,5)
- capital losses (0,3) (1,3)
- disallowable expenditure (0,2) (1,3)
- exempt income 0,7 2,2
- special tax allowances 1,3 2,1
- share of associates and joint ventures 17,6 29,6
- tax rate differences 0,1 0,5
- imputed income (0,2) (0,8)
- prior year tax (1,9) 1,7
- derecognition of deferred tax asset (0,2) (46,0)
28,0 28,0
2010 2009
At 31 December Rm Rm
6. INVESTMENTS IN UNLISTED ASSOCIATES AND JOINT
VENTURES
Unlisted investments in associates
- directors` valuation 20 782 14 165
Unlisted investments included in other financial
assets
- directors` valuation 407 408
7. NET DEBT
Net debt is calculated as being interest-bearing borrowings less cash and
cash equivalents.
8. 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 2010 and 2009
is mainly attributable to guarantees to the Department of Mineral
Resources (DMR) in respect of environmental liabilities on immediate
closure of mining operations.
Includes the group`s share of contingent liabilities of associates and
joint ventures of R117 million (2009: R61 million).
The timing and occurrence of any possible outflows are uncertain.
9. CONTINGENT ASSETS
A surrender fee of R63 million (2009: R59 million) in exchange for the
exclusive right to prospect, explore, investigate and mine for coal
within a designated area in Central Queensland and Moranbah, Australia,
conditional on the grant of a mining lease.
The insurance claim of R99 million reported as outstanding in 2009 in
respect of the Furnace 2 incident at Exxaro TSA Sands (Pty) Limited was
settled and received during the first half of 2010.
10. RELATED PARTY TRANSACTIONS
During the year 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. EVENTS AFTER THE REPORTING PERIOD
After the fulfilment of all suspensive conditions, the Glen Douglas
dolomite mine investment was sold to JSE-listed materials supplier
Afrimat Limited with effective date 1 January 2011. On 31 December 2010,
this investment still constituted a non-current asset held for sale, with
its operating results therefore still included for the full 12 months of
2010. This event constitutes a non-adjusting event.
An impairment charge of R1,435 million was recorded in the 2009 financial
period to reflect the value in use calculation of the Exxaro KZN Sands
business. On further impairment testing done in 2010, no further
impairment or reversal was indicated as being necessary. A final decision
will be taken by the Exxaro board of directors on the development of the
Fairbreeze mine as a replacement feedstock producer for the Hillendale
mine at KZN Sands in the first half of 2011. A possible reversal or
partial reversal of the previous impairments of the carrying value of the
assets will be considered simultaneously by the board.
The directors are not aware of any matter or circumstance arising after
the statement of financial position date up to the date of this report,
not otherwise dealt with in this report.
12. JSE LIMITED LISTINGS REQUIREMENTS
The financial year end results announcement has been prepared in
accordance with the Listings Requirements of the JSE Limited.
13. CORPORATE GOVERNANCE
The group complies in all material respects with the Code of Corporate
Practice and Conduct published in the King III Report on Corporate
Governance.
14. MINERAL RESOURCES AND MINERAL RESERVES
The group`s Mineral Resources and Ore Reserves have been reviewed to
provide updated estimates. No material changes to the Mineral Resources
and Ore Reserves disclosed in the Exxaro annual report for the year ended
31 December 2009 were identified other than depletion due to continued
mining activities.
15. AUDIT OPINION
The auditors, Deloitte & Touche, have issued their opinion on the group`s
financial statements for the year ended 31 December 2010. 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 (audited)
Year ended 31 December (Rm) 2010 2009
REVENUE
Coal 10 515 9 731
Tied operations 2 952 2 681
Commercial operations 7 563 7 050
Mineral Sands 4 640 3 508
KZN Sands 1 288 705
Australia Sands 1 551 1 469
Namakwa Sands 1 801 1 334
Base Metals 1 787 1 582
Rosh Pinah 674 566
Zincor 1 598 1 413
Inter-segmental (485) (397)
Other 213 188
Total external revenue 17 155 15 009
NET OPERATING PROFIT/(LOSS)
Coal 2 690 1 905
Tied operations 186 75
Commercial operations 2 504 1 830
Mineral Sands 179 (1 559)
KZN Sands1 (66) (1 447)
Australia Sands 138 (2)
Namakwa Sands 107 (110)
Base Metals (113) (8)
Rosh Pinah 143 105
Zincor (171) (47)
Other (85) (66)
Other (120) (34)
Total 2 636 304
1Includes a pre-tax impairment of R1 435 million of the carrying value of the
assets of KZN Sands in 2009.
PHYSICAL INFORMATION (UNAUDITED)
12 months ended 6 months ended
31 December 30 June
`000 Tonnes 2010 2009 2010 2009
Coal
Production
Power station coal 36 767 36 562 18 269 18 583
'Tied operations1 16 461 16 486 8 365 8 704
'Commercial operations 20 306 20 076 9 904 9 879
Coking coal 2 419 2 020 1 187 922
'Tied operations1 285 268 124 129
'Commercial operations 2 134 1 752 1 063 793
Other coal 7 502 6 638 3 518 3 061
Char 114 38 49
Coal buy-ins 759 430
Total 46 802 46 017 23 023 22 996
Sales
Eskom coal 36 428 36 299 18 379 18 494
'Tied operations1 16 438 16 473 8 356 8 700
'Commercial operations 19 990 19 826 10 023 9 794
Other domestic coal 5 044 4 587 2 447 1 920
'Tied operations1 260 259 117 130
'Commercial operations 4 784 4 328 2 330 1 790
Coal export 4 106 4 715 1 842 2 389
Char 122 31 52
Total 45 700 45 632 22 720 22 803
Mineral Sands2
Production
Ilmenite 718 819 367 424
Zircon 196 185 94 97
Rutile 63 62 28 33
Synthetic Rutile 90 109 51 54
Pig iron (LMPI) 153 181 81 95
Scrap iron 12 15 8 7
Slag tapped 262 331 141 171
Chloride slag 232 201 84 104
Sulphate slag 52 44 16 19
Leucoxene 13 14 7 7
Pigment 57 53 25 25
Total 1 848 2 014 902 1 036
Sales
Zircon 243 146 124 47
Rutile 79 51 35 19
Synthetic Rutile 30 50 23 24
Pig iron (LMPI) 194 138 107 64
Scrap iron 3 6 1 4
Chloride slag 264 144 98 67
Sulphate slag 39 44 7 14
Leucoxene 16 15 7 1
Pigment 55 54 24 23
Total 923 648 426 263
Base Metals
Production
Zinc concentrate 120 108 60 53
'Rosh Pinah 101 94 52 47
'Black Mountain 19 14 8 6
Zinc Metal 120 116 54 54
'Zincor 90 87 43 44
'Chifeng3 30 29 11 10
Lead concentrate 37 38 17 20
'Rosh Pinah 19 20 9 12
'Black Mountain 18 18 8 8
Sales
Zinc metal sales 119 122 59 58
'Domestic 90 93 46 44
'Export 29 29 13 14
Lead concentrate sales
'Export 20 19 7 6
1 Tied operations refer to mines that supply their entire production to either
Eskom or ArcelorMittal South Africa Limited in terms of contractual
agreements.
2 Includes Exxaro Sands Australia`s interest in the Tiwest joint venture.
3 Exxaro`s effective interest in the Chifeng refinery is disclosed.
COMMENTS
COMPARABILITY OF RESULTS
The group`s audited financial results and actual physical information for the
years ended 31 December 2010 and 2009 are not comparable due to the R1 435
million impairment of the carrying value of the assets of KZN Sands, which
impairment was accounted for on 31 December 2009, and the inclusion of the
50% proportionally consolidated interest in Mafube Coal Mining (Pty) Limited
(Mafube) for 12 months in 2010 compared to seven months in 2009.
After fulfilment of all suspensive conditions, the Glen Douglas dolomite mine
was sold to Afrimat Limited effective 1 January 2011. The operating results
of Glen Douglas are therefore still included for the full 12 months of 2010.
Comments are based on a comparison of the group`s audited financial results
and unaudited physical information for the years ended 31 December 2010 and
2009 respectively.
An average exchange rate of R7,72 (spot average of R7,30) to the US dollar
(USD) was realised compared to R8,39 for the corresponding period. Moreover,
unrealised foreign currency losses on the revaluation of monetary items
denominated in a foreign currency were recorded based on the relative
strength of the local currency to the USD at 31 December 2010. The relative
strength of the Australian dollar (AUD), most notably in the second half of
2010 when the AUD traded around parity against the USD, continued to impact
negatively on the financial results of the mineral sand operations in
Australia. An average rate of USD0,87 cents (spot average of USD0,92 cents)
to the AUD was realised compared with USD0,76 cents in 2009.
REVENUE
Group consolidated revenue increased by 14% to R17,2 billion due to generally
higher sales volumes and commodity prices despite the impact of a stronger
local and Australian currency.
COAL
Revenue was 8% higher due to higher domestic sales volumes at lower realised
prices being only partially offset by lower export sales volumes at higher
export prices.
MINERAL SANDS
Revenue increased by 32% to more than R4,6 billion with increased sales
volumes realising at higher prices.
BASE METALS
Revenue increased by 13% mainly as a result of the higher zinc price at an
average zinc price for 2010 of USD2'161 per tonne, 30% higher than in 2009
when an average price of USD1 665 per tonne was realised.
NET OPERATING PROFIT
Group consolidated net operating profit was R897 million or 52% higher at
R2,6 billion after exclusion of the R1'435 million impairment of the carrying
value of the assets at KZN Sands in 2009.
COAL
The coal business reported a 41% increase in net operating profit to R2 690
million at an operating margin of 26% with higher export selling prices,
higher sales volumes to ArcelorMittal South Africa Limited (AMSA) and Eskom
offset by lower sales prices domestically, lower export volumes and a
stronger average realised local currency.
Net operating profit for the year for the tied operations increased by 148%
mainly due to the non-recurring impact of Matla`s scope change in life of
mine in the previous year together with the inflation related increase in
2010 in terms of the supply agreements with Eskom and AMSA.
MINERAL SANDS
The mineral sands business reported a consolidated net operating profit as
higher sales volumes at higher prices supported by disciplined cost
management was instrumental in offsetting the significant adverse impact of
the relative strength of both the local currency and the AUD to the USD.
The increase in revenue assisted in the achievement of a consolidated net
operating profit increasing from a loss in 2009 of R124 million, excluding
the impairment of the carrying value of the KZN Sands assets in 2009, to a
profit of R179 million. Unlike 2009 where all three businesses reported net
operating losses, only KZN Sands reported a loss in 2010.
BASE METALS
Despite the higher revenue recorded a net operating loss of R113 million was
reported mainly due to production challenges at the Zincor refinery. This was
exacerbated by the higher cost associated with external zinc concentrate
purchased, higher selling and distribution, electricity, labour,
rehabilitation as well as maintenance expenses.
EARNINGS
Attributable earnings, inclusive of Exxaro`s equity accounted investment in
associates, amounted to R5 208 million or 1'501 cents per share, up 405%
(111% excluding the 2009 KZN Sands impairment).
Equity accounted income in the post-tax profits of associates consists of
Exxaro`s 20% interest in Sishen Iron Ore Company (Pty) Limited (SIOC) of R3
623 million, 26% in Black Mountain (Pty) Limited (Black Mountain) of R86
million and 22% in the Chifeng zinc refinery of R8 million.
Headline earnings which exclude, inter alia, the impact of the impairment of
the carrying value of assets were R5'186 million or 1'495 cents per share.
This represents a 106% increase on the comparative 2009 earnings of R2'514
million at 729 cents per share.
CASH FLOW
Cash retained from operations was R4'106 million for the group. This was
primarily used to fund net financing charges of R256 million, taxation
payments of R430 million, dividend payments of R1'056 million and capital
expenditure of R2'677 million of which R1 522 million was invested in new
capacity and R1'155 million applied to sustaining and environmental capital.
R918 million of the expansion capacity expenditure was for the Grootegeluk
Medupi Expansion Project (GMEP). After the receipt of R1 817 million in
dividends, primarily from SIOC, the group had a net cash inflow of R1 386
million for the financial year. The final dividend for payment in April 2011
will amount to a further cash outflow of R1'074 million offset by the
dividend inflow from SIOC of R1 623 million.
Net debt of R3 731 million at 31 December 2009 accordingly decreased to R2
220 million at a net debt to equity ratio of 13% at 31 December 2010.
SAFETY AND SUSTAINABLE DEVELOPMENT
As a result of the programme of continuous engagement of employees and the
ongoing pursuit of Exxaro`s safety goals and objectives, Exxaro recorded a
decline in fatalities as well as a record improvement in lost time injury
frequency rate (LTIFR) per 200 000 man-hours worked of 24% from 0,33 in 2009
to 0,25 at 31 December 2010. Exxaro however continues to strive for an injury-
and fatality-free organisation.
Two CEO Safety Summits were held in 2010 in which the Safety and Sustainable
Development vision for Exxaro was shared and disseminated throughout the
organisation.
Exxaro will continue with this programme in 2011, however health, environment
and other sustainable development issues will be introduced to enhance
awareness and participation.
Aligned with Exxaro`s internal target, 70% of employees have now undergone
HIV prevalence testing. The prevalence rate is estimated at 13% compared to
an industry average of 25%, 38% of whom are voluntarily enrolled onto the HIV
management programme.
Water management and related issues have been identified as a key
sustainability issue for Exxaro and as such a dedicated water management
programme has been initiated to address these issues in an integrated manner.
Fourteen business units are ISO 14001 and OHSAS 18001 certified with
certification for the remaining three business units being awaited.
OPERATIONS
COAL
Production
Volumes were marginally higher than the previous year. Power station coal
production at the Eskom tied operations was 25kt lower due to adverse
geological- and technical issues at the Arnot mine which were only partially
offset by higher production at the Matla mine. Production in 2009 at the
Matla mine was negatively affected by a water ingress incident for which
successful mitigation was implemented in 2010.
Production at the commercial operations was marginally higher than in 2009 as
higher production at Leeuwpan mine following the commissioning of the
crushing and screening plant in 2010, coupled with the inclusion of
production from Mafube for 12 months as opposed to seven months in 2009,
offset lower production at Grootegeluk mine and North Block Complex (NBC) due
to full stockpiles at Eskom.
Coking coal production increased at Grootegeluk and Tshikondeni mines as a
result of increased demand mainly from AMSA.
The inclusion of production from the Mafube joint venture for the full year
in 2010 compared to seven months in 2009 as well as higher production at the
Grootegeluk, Leeuwpan, NBC and NCC operations due to higher demand and
improved dispatches, offset by marginally lower production at Inyanda, led to
a 13% increase in steam coal production.
The char plant production was 200% higher than the previous year due to the
plant only starting production in the middle of 2009.
Sales
Power station and coking coal sales to Eskom and AMSA respectively were
marginally higher than the previous year. Other domestic sales were 10%
higher than in 2009 based on higher demand from AMSA which higher demand was
met by re-directing sales destined for the export market from Grootegeluk;
this being possible as a result of lower availability of trains and leased
export entitlement.
Exxaro Coal`s strategy to increase export volumes was hampered by lower
availability of trains, the Transnet Freight Rail (TFR) strike as well as
less export entitlement available for leasing. Exxaro`s Richards Bay Coal
Terminal (RBCT) export entitlement increased from 1,8Mt to 6,3Mt per annum
with the commissioning of the Phase V expansion. However TFR`s constraints
limited export capacity for 2010 at 3Mt per annum. The remainder of the
exports were either sold on a free on rail basis or through the lease of
export entitlement.
Sales of reductants from the char plant improved threefold as 2010 was the
first full production and sales year.
MINERAL SANDS
Production
At KZN Sands, Furnace 2 suffered a burn through on 26 October 2010.
Fortunately no injuries occurred, however, the incident resulted in both
furnaces being out of commission simultaneously for two months during the
last quarter of 2010. Furnace 1 was shut down on 1 July 2010 for a planned
reline and pre-heating has now been completed with first production at the
end of January 2011.
Total run of mine tonnage was more than a million tonnes lower in 2010
resulting from the Hillendale mine in KwaZulu-Natal nearing the end of life
of mine. As a consequence of this, and lower grades, heavy mineral
concentrate was 73kt lower in 2010 at 414kt.
Zircon and rutile production was 11kt and 1kt higher respectively as the
higher zircon production at Australia Sands due to improved overall
utilisation of the dredge mine, coupled with improved recoveries at Namakwa
Sands despite lower zircon head grades, more than offset lower production at
KZN Sands resulting from the lower concentrate grade.
Higher slag and pig iron production at Namakwa Sands resulting from the
benefits of increasing side feed into the furnaces was not sufficient to
offset lower furnace production at KZN Sands caused by the extended furnace
downtime. Total slag tapped was 69kt lower at 262kt while low manganese pig
iron (LMPI) was 28kt lower at 153kt. Ilmenite production was lower in line
with the decrease in smelter slag output.
Furnace 2 at Namakwa Sands will be down for a planned reline in February 2011
for approximately 103 days.
At Australia Sands, synthetic rutile (SR) production was lower due to the
planned 38-day shut late in the year as well as from maintenance related
challenges in the first quarter of 2010. The SR plant has a major shut every
three years; the previous shut was in 2007.
The Kwinana pigment plant expansion in Australia was successfully
commissioned in late June 2010 and achieved nameplate production capacity of
40ktpa in October of the same year. Significant supply interruptions from a
key raw material supplier and an 11-day shut in May to complete all the tie-
ins for the expansion, led to lower pigment production although still higher
than in the previous year.
Sales
Sands volumes at all three businesses generally increased on the back of
stronger markets and were further supported by higher selling prices. The
high stockpile levels at the end of 2009 were reduced significantly thus
improving cash flow.
BASE METALS
Production
Zinc concentrate production at a higher grade at Rosh Pinah mine was 7kt
higher than in 2009 with lead concentrate production 1kt lower.
Production of zinc metal at the Zincor refinery of 90kt was more than 3kt
higher than the corresponding period and can be attributed to less downtime
on the acid plant. The 2009 production was however adversely affected by the
accident in September 2009.
Zinc production at the Chifeng refinery was marginally higher than in 2009.
Sales
Zinc metal sales were 2% lower due to lower local demand.
A total of 60% of Rosh Pinah`s projected zinc and lead-concentrate sales were
hedged during 2008 for the period July 2008 to December 2011 at forward
prices ranging from USD2 215 to USD1 887 per tonne for zinc and USD2 385 to
USD1 771 per tonne for lead. Taking the favourable currency hedging in place
in respect of these hedged prices, the average ZAR price equates to R19 976
per tonne. These hedges will mature in 2011.
CAPITAL EXPENDITURE AND PROJECT PIPELINE
The strong recovery in commodity markets and overall faster than anticipated
recovery in the global economy resulted in renewed focus on carbon,
reductants, ferrous and energy growth projects in line with the group`s
approved strategy.
COAL
The Medupi Coal Supply and Offtake Agreement (CSA) became unconditional and
binding on Exxaro and Eskom on 24 June 2010. In terms of the CSA, Exxaro will
supply 14,6 million tons of coal per annum to Medupi power station for a 40-
year period post ramp-up. The total capital cost of the Grootegeluk mine
expansion is forecast at R9,5 billion. First coal delivery will commence in
May 2012 and full commissioning is expected during 2014/15. Project detailed
design is nearing completion and the design will be largely completed by the
end of February 2011. 90% of the major construction packages and the plant
equipment packages have already been placed with the remainder to be placed
during the first quarter of 2011. On-site construction has commenced with the
majority of the bulk earthworks nearing completion. Civil work is well
underway with major structural work having commenced in February 2011.
Current indications are that the project will be completed on schedule and
within budget.
The R4 500 million bridge loan facility for the Grootegeluk expansion was
secured in the first half of 2010 with a consortium of local and
international financial institutions. First drawdown of the loan is only
expected in the second quarter of 2011.
Thabametsi is a prospective greenfields mine adjacent to Grootegeluk mine in
the Waterberg, Limpopo province. The development of the project was
originally planned to coincide with Eskom`s future developments in the
Waterberg as well as the Department of Energy`s formalisation and
establishment of an appropriate enabling environment, governed by the
National Integrated Resource Plan 2010 (NIRP 2010), to allow for new
generation capacity in terms of Eskom`s multi-site base load Independent
Power Producer (IPP) programme. The draft NIRP 2010, released during October
2010, does not cater for any new coal-fired power generation development
until 2027. The draft NIRP 2010 was subjected to a public review process in
December 2010 and is expected to be finalised early in 2011 after receiving
comments from all stakeholders. Due to the delays in the above initiatives,
the focus is now on first developing a smaller mine for the coal supply to
the Limpopo IPP. A bankable feasibility study as well as the public
consultation required for environmental approvals will commence once the
scope for the Limpopo IPP has been determined and the final NIRP 2010
promulgated. First coal production could be expected by 2015/16, but is
dependent on the Limpopo IPP and water supply development schedules.
Exxaro entered into a prospecting joint venture agreement with Sasol Mining
to investigate the commercial viability of the development of a new coal mine
in the Waterberg to supply Sasol`s potential new 80 000 barrels per day
inland coal-to-liquids facility (Project Mafutha). The study is still in an
extended pre-feasibility stage. The mining of the 170kt bulk sample for large
scale gasification testing at the Sasol Synfuels Secunda plant commenced in
August 2009 and was completed during the second quarter of 2010. It is
envisaged that the gasification tests will be completed during the first
quarter of 2011.
An integrated infrastructure plan continues to be developed for the Waterberg
coalfields with relevant stakeholders. Focus areas include the supply of raw
water to the area, rail, road, housing and job creation. Exxaro has completed
Phase I of its eco-friendly housing project in Lephalale and this project
received an award at the 2010 Nedbank Capital Green Mining Awards in the
sustainability category.
The Sintel char plant at Grootegeluk mine to produce reductants for the
ferroalloy industry has been fully commissioned with all four retorts in
operation. The plant reached its overall design capacity in the last quarter
of 2010. Exxaro is currently evaluating the Phase II expansion to produce a
further 140ktpa of char as well as a study to produce market coke from semi-
soft coking coal at Grootegeluk mine as part of its strategy of downstream
integration and beneficiation. These studies are expected to be completed
during 2011.
Exxaro`s application for a mining right for the Belfast project has been
accepted by the Department of Mineral Resources (DMR) and is being processed.
Updated specialist environmental studies as required by National
Environmental Management Act and National Water Act will be submitted to the
relevant authorities during the first half of 2011. The pre-feasibility study
was completed in December 2010 and the decision to proceed with a full
feasibility study will be evaluated in the first quarter of 2011. Depending
on the outcome, start up and first production is anticipated in 2014.
Exploration of the hard coking coal resource on the Moranbah South property
in the Bowen Basin of Queensland, Australia is progressing well and results
obtained during the pre-feasibility study remain encouraging. It is
anticipated that a feasibility study will be concluded during the second half
of 2012 with first production anticipated in 2015. Moranbah South, which is a
50% joint venture with Anglo American, has the potential to produce premium-
quality hard coking coal of approximately 6Mtpa.
ENERGY
The development of Exxaro`s energy portfolio to explore opportunities in the
energy markets is progressing according to plan. The focus is on cleaner
energy initiatives encompassing a combination of co-generation, carbon credit
trading, renewable energy, coal bed methane development, and coal base load
project developments. The securing of equity funding partners for projects
continues in parallel with these developments.
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 in the final
stages of completion. The drilling of the five wells and the fracturing of
four of the five wells has been completed. De-watering of the well field is
underway and gas flow is steadily increasing with time. The wells will be
operated during 2011 until economical gas flow levels have been obtained.
Clean energy initiatives include:
A pre-feasibility study for a 100MW wind farm on South Africa`s West Coast
has been completed. An 80m mast was installed at Brand se Baai during March
2010. The study indicates an initial project of between 40MW and 66MW being
viable. The bankable feasibility study is underway with planned completion in
the third quarter of 2011.
A pre-feasibility study for a 76MW wind farm in the Tsitsikama region is
continuing. Exxaro has a 75% share in this project. Completion of the pre-
feasibility study is planned for the end of 2011.
A bankable feasibility study for a 14MW co-generation plant at Namakwa Sands
is in the final stages. Construction of the power plant is planned for the
second half of 2011 with commercial operation date planned for the third
quarter of 2012. The Clean Development Mechanism registration of this project
is well advanced.
The facilitation for the development of a 600MW - 1 200MW coal fired power
station in the Waterberg (Limpopo IPP) continues. Non-binding term sheets for
the off-take of 1 150MW of electricity have been signed between Exxaro and
industrial off-takers. The project is one of the options being investigated
to enable the Thabametsi coal mine.
FERROUS
Exxaro continues to evaluate opportunities aligned with its strategy to
establish a direct footprint in iron ore.
Exxaro successfully concluded an agreement to partner with Assmang Limited to
commercialise its AlloyStreamTrade Mark technology for the beneficiation of
manganese ore into high carbon ferromanganese alloy. A large demonstration
facility is planned to be completed in 2011. Major benefits of
AlloyStreamTrade Mark technology include lower electrical consumption and the
use of un-agglomerated fine feed materials.
MINERAL SANDS
A final decision will be taken by the Exxaro board of directors on the
development of the Fairbreeze mine as a replacement feedstock producer for
Hillendale mine at KZN Sands during the first half of 2011. A possible
reversal or partial reversal of the previous impairments of the carrying
value of the assets will be considered simultaneously by the board.
BASE METALS
Activities are continuing on the optimisation of our zinc asset portfolio to
ultimately extract the most value in the divestment process, which is
earmarked to commence in 2011.
CONVERSION OF MINING RIGHTS
The conversion of all old mining rights has been granted except for Arnot and
Glisa (a part of North Block Complex) which continue to receive priority
attention. Of the old mining rights converted, five still await execution by
the DMR.
Except for Belfast, all new order mining rights have been granted and
executed.
CHANGES TO THE BOARD
Ms Noluthando Langeni was appointed to the board 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 FOR 2011
Coal export volumes, at higher international prices, are expected to remain
in line with the tonnage achieved in 2010 despite the build up by TFR to a
total export rail rate to RBCT of 70 Mtpa. Prices to the domestic market for
similar volumes should reflect normal inflation increases, however, supply
agreements with pricing mechanisms linked to hard coking coal prices should
reflect a considerable increase.
The positive price trends for mineral sands products experienced during the
second half of 2010 are expected to continue while demand should remain
strong in the medium to long term until supply and demand imbalances are
corrected.
It is expected that base metal prices are expected to be lower in the first
half of 2011. Production and sales volumes should be in line with those
achieved in 2010 with the logistical chain to Zincor remaining a challenge.
The group will continue with prudent capital prioritisation, judicious
working capital management and the pursuit of business improvement
initiatives.
The group`s consolidated results for 2011 will continue to be impacted by the
trading levels of the local currency and the AUD against the USD. On 31
December 2010 Exxaro had USD106 million of hedging in place at an average
exchange rate of R7,19 for the local operations as well as USD52 million at
an average rate of USD0,87c to the AUD for the Australian operation.
The financial information on which the outlook statement is based has not
been reviewed nor reported on by the group`s auditors.
DIVIDEND DECLARED
The board has declared a final cash dividend number 16 of 300 cents per share
in respect of the 2010 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, 8 April 2011.
In compliance with the requirements of Strate, the electronic and custody
system used by the JSE, the following dates are applicable:
Last date to trade cum dividend Friday, 1 April 2011
Shares trade ex dividend Monday, 4 April 2011
Record date Friday, 8 April 2011
Payment date Monday, 11 April 2011
Share certificates may not be dematerialised or rematerialised during the
period Monday, 4 April 2011 and Friday, 8 April 2011, both days inclusive.
On Monday, 11 April 2011 the final cash dividend will be electronically
transferred to the bank accounts of all certificated shareholders where this
facility is available. Where electronic fund transfer is not available or
desired, cheques dated 11 April 2011 will be posted on that date.
Shareholders who have dematerialised their share certificates will have their
accounts at their Central Securities Depositary Participants (CSDP) or broker
credited on Monday, 11 April 2011.
On behalf of the board:
Len Konar
Chairman
Sipho Nkosi
Chief Executive Officer
Wim de Klerk
Finance Director
23 February 2011
Registered office
Exxaro Resources Limited
Roger Dyason Road
Pretoria West, 0183
Telephone +27 12 307 5000
Fax +27 12 323 3400
Transfer secretaries
Computershare Investor Services (Pty) Limited
Ground Floor, 70 Marshall Street
Johannesburg, 2001
PO Box 61051
Marshalltown, 2107
Directors
Dr D Konar (Chairman), SA Nkosi (Chief Executive Officer), WA de Klerk
(Finance Director), JJ Geldenhuys, CI Griffith, U Khumalo, N Langeni, VZ
Mntambo, RP Mohring, NL Sowazi, J van Rooyen, D Zihlangu
Company secretary
MS Viljoen
Investor relations
RA de Beer (+27 12 307 4189)
Sponsor
Deutsche Securities SA (Pty) Limited (+27 11 775 7000)
www.exxaro.com
If you have any queries regarding your shareholding in Exxaro Resources
Limited, please contact the Transfer Secretaries at
+27 11 370 5000.
Pretoria
24 February 2011
Sponsor
Deutsche Securities SA (Pty) Limited
Date: 24/02/2011 07:05:02 Supplied by www.sharenet.co.za
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