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EXX - Exxaro - Reviewed group interim financial results and unaudited
physical information for the six-month period ended 30 June 2011
Exxaro Resources Limited
Registration number: 2000/011076/06
JSE share code: EXX
ISIN: ZAE000084992
ADR code: EXXAY
("Exxaro" or "the company" or "the group")
Reviewed group interim financial results and unaudited physical information
for the six-month period ended 30 June 2011
Decrease in LTIFR to 0,22; regrettably one fatality
Revenue increase by 22% to R9,6 billion
Net operating profit up 20% to R1,6 billion (despite impairment at Zincor)
Headline earnings per share up 53% to 1 045 cents per share
Interim dividend of 300 cents per share; covered 3 times by attributable
earnings
CONDENSED GROUP INCOME STATEMENT
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 Dec
2011 2010 2010
Reviewed Reviewed Audited
Rm Rm Rm
Revenue 9 324 7 508 16 355
Operating expenses (7 779) (6 195) (13 854)
Net operating profit (note 2) 1 545 1 313 2 501
Net financing cost (note 4) (160) (222) (434)
Share of income from investments and 2 529 1 636 3 719
equity-accounted investments
Profit before tax 3 914 2 727 5 786
Income tax expense (734) (372) (618)
Profit for the period from continuing 3 180 2 355 5 168
operations
Profit for the period from discontinued 34 19 67
operations
Profit for the period 3 214 2 374 5 235
Profit attributable to
Owners of the parent 3 205 2 408 5 208
- continuing operations 3 185 2 356 5 164
- discontinued operations 20 52 44
Non-controlling interests 9 (34) 27
- continuing operations (5) (2) (8)
- discontinued operations 14 (32) 35
Profit for the period 3 214 2 374 5 235
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 Dec
2011 2010 2010
Reviewed Reviewed Audited
Rm Rm Rm
Profit for the period 3 214 2 374 5 235
Other comprehensive income
Exchange differences on translating 232 (49) (9)
foreign operations
Exchange differences realised on sale of (3)
subsidiary
Cash flow hedges (1) 288 227
Share of comprehensive income of 59 30 40
associates
Income tax relating to components of (13) (100) (115)
other comprehensive income
Net gain recognised in other 274 169 143
comprehensive income
Total comprehensive income for the 3 488 2 543 5 378
period
Total comprehensive income attributable
to
Owners of the parent 3 493 2 590 5 408
- continuing operations 3 469 2 344 5 226
- discontinued operations 24 246 182
Non-controlling interests (5) (47) (30)
- continuing operations (2) (6) (12)
- discontinued operations (3) (41) (18)
Total comprehensive income for the 3 488 2 543 5 378
period
Ordinary shares (million)
- in issue 359 358 358
- weighted average number of shares 348 346 347
- diluted weighted average number of 362 361 361
shares
Attributable earnings per share
continuing operations (cents)
- basic 915 681 1 488
- diluted 880 653 1 431
Attributable earnings per share
discontinued operations (cents)
- basic 6 15 13
- diluted 5 14 12
Aggregate attributable earnings per
share (cents)
- basic 921 696 1 501
- diluted 885 667 1 443
CONDENSED GROUP STATEMENT OF FINANCIAL POSITION
At 30 June At 30 June At 31 Dec
2011 2010 2010
Reviewed Reviewed Audited
Rm Rm Rm
ASSETS
Non-current assets
Property, plant and equipment 13 484 12 285 13 305
Biological assets 46 41 46
Intangible assets 185 78 75
Investments in unlisted associates 4 725 3 009 3 880
(note 6)
Deferred tax 420 681 726
Other financial assets (note 6) 1 408 1 339 1 375
20 268 17 433 19 407
Current assets
Inventories 2 967 3 119 3 120
Trade and other receivables 3 901 3 175 3 752
Tax receivable 111 71 105
Cash and cash equivalents 3 202 1 843 2 140
10 181 8 208 9 117
Non-current assets classified as held 804 80 85
for sale (note 7)
Total assets 31 253 25 721 28 609
EQUITY AND LIABILITIES
Capital and reserves
Equity attributable to owners of the 19 900 15 215 17 437
parent
Non-controlling interests (30) (46) (23)
Total equity 19 870 15 169 17 414
Non-current liabilities
Interest-bearing borrowings 3 429 4 210 3 644
Non-current provisions 2 243 2 011 2 193
Deferred tax 1 536 1 252 1 353
7 208 7 473 7 190
Current liabilities
Trade and other payables 2 912 2 338 3 057
Interest-bearing borrowings 828 507 716
Tax payable 130 149 147
Current provisions 18 27 33
3 888 3 021 3 953
Non-current liabilities classified as 287 58 52
held for sale (note 7)
Total equity and liabilities 31 253 25 721 28 609
Net debt (note 8) 996 2 874 2 220
Net asset value per share (Rand) 55 43 49
Net tangible asset value per share 55 42 48
(Rand)
Capital expenditure
- incurred 1 827 1 042 2 677
- contracted 3 671 1 773 6 475
- authorised but not contracted 2 535 737 2 490
- share of associates` and joint 514 419 556
ventures` contracted capital
commitments not included above
Capital expenditure contracted 613 200 1
relating to captive mines Tshikondeni,
Arnot and Matla, which will be
financed by ArcelorMittal South Africa
Limited and Eskom, respectively
Contingent liabilities (note 9) 980 851 1 007
Contingent assets (note 10) 70 58 63
Operating lease commitments 69 98 132
Operating sublease rentals receivable 5 8 6
RECONCILIATION OF HEADLINE EARNINGS
6 months ended 30 June 2011 Gross Tax Non- Net
(Reviewed) Rm Rm Control- Rm
ling
interest
Rm
Profit attributable to owners of 3 205
the parent
Adjusted for:
- impairment of property, plant 439 439
and equipment
- gains or losses on disposal of (11) 3 (8)
property, plant and equipment
- gains or losses on the (1) (1)
disposal of subsidiaries
- share of associates` gains or 2 2
losses on disposal of property,
plant and equipment
Headline earnings 429 3 3 637
Headline earnings from 3 178
continuing operations
Headline earnings from 459
discontinued operations
6 months ended 30 June 2010
(Reviewed)
Profit attributable to owners of 2 408
the parent
Adjusted for:
- impairment of property, plant 5 (1) 4
and equipment
- gains or losses on disposal of (53) 4 (49)
property, plant and equipment
Headline earnings (48) 3 2 363
Headline earnings from 2 311
continuing operations
Headline earnings from 52
discontinued operations
12 months ended 31 December 2010
(Audited)
Profit attributable to owners of 5 208
the parent
Adjusted for:
- impairment of property, plant 4 (1) 3
and 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
Headline earnings from 5 140
continuing operations
Headline earnings from 46
discontinued operations
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 Dec
2011 2010 2010
Reviewed Reviewed Audited
Headline earnings per share
(cents)
- basic 1 045 683 1 495
- diluted 1 005 655 1 437
Headline earnings per share from
continuing operations (cents)
- basic 913 668 1 482
- diluted 878 640 1 424
Headline earnings per share from
discontinued operations (cents)
- basic 132 15 13
- diluted 127 15 13
CONDENSED GROUP STATEMENT OF CASH FLOWS
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 Dec
2011 2010 2010
Reviewed Reviewed Audited
Rm Rm Rm
Cash flows from operating activities
- cash retained from operations 2 387 1 930 4 106
- net financing cost (79) (164) (256)
- tax paid (207) (189) (430)
- dividends paid (1 058) (352) (1 056)
Cash flows from investing activities
- capital expenditure (1 827) (1 042) (2 677)
- proceeds from disposal of property, 429 57 60
plant and equipment
- increase in investments (33) (59) (149)
- dividends from investments and equity-1 625 638 1 817
accounted investments
- other 20 39 (29)
Net cash inflow 1 257 858 1 386
Net cash flow from financing activities
- shares issued in terms of share 10 16 29
option schemes
- increase in non-controlling 6
interests` loans
- net borrowings repaid (137) (54) (304)
Net increase in cash and cash 1 130 820 1 117
equivalents
Cash and cash equivalents at beginning 2 140 1 023 1 023
of period
Total cash and cash equivalents end of 3 270 1 843 2 140
period
Cash and cash equivalents classified as 68
held for sale
Cash and cash equivalents per statement 3 202 1 843 2 140
of financial position
Cash and cash equivalents end of period 3 270 1 843 2 140
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
Other components of equity
Share Share Foreign Financial Equity
capital premium currency instruments settled
Rm Rm translations revaluation Rm
Rm Rm
Balance at 4 2 137 802 3 1 241
1 January 2010
(audited)
Total (19) 188
comprehensive
income
Issue of share 16
capital1
Share-based 53
payment
movements
Dividends paid2
Balance at 4 2 153 783 191 1 294
30 June 2010
(reviewed)
Total (67) 25
comprehensive
income
Issue of share 13
capital1
Share-based 95
payment
movements
Non-controlling
interests
additional
contributions
Dividends paid2
Balance at 4 2 166 716 216 1 389
31 December 2010
(audited)
Total 220 36
comprehensive
income
Issue of share 10
capital1
Share-based 18
payment
movements
Non-controlling
interests
contribution
Dividends paid2
Balance at 4 2 176 936 252 1 407
30 June 2011
(reviewed)
Final dividend 300
paid per share
(cents) in
respect of the
2010 financial
year
Dividend paid 200
per share
(cents) in
respect of 2010
interim period
Dividend paid 300
per share
(cents) in
respect of 2011
interim period
1Issued to the Kumba Resources Management Share Trust due to
options exercised.
2The STC on these dividends amounted to Rnil after taking into
account STC credits.
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY (continued)
Retained Attributable to Non- Total
income owners of controlling equity
Rm the parent interests Rm
Rm Rm
Balance at 8 721 12 908 1 12 909
1 January 2010
(audited)
Total comprehensive 2 421 2 590 (47) 2 543
income
Issue of share 16 16
capital1
Share-based payment 53 53
movements
Dividends paid2 (352) (352) (352)
Balance at 30 June 10 790 15 215 (46) 15 169
2010 (reviewed)
Total comprehensive 2 860 2 818 17 2 835
income
Issue of share 13 13
capital1
Share-based payment 95 95
movements
Non-controlling 6 6
interests
additional
contributions
Dividends paid2 (704) (704) (704)
Balance at 12 946 17 437 (23) 17 414
31 December 2010
(audited)
Total comprehensive 3 237 3 493 (5) 3 488
income
Issue of share 10 10
capital1
Share-based payment 18 18
movements
Non-controlling (2) (2)
interests
contribution
Dividends paid2 (1 058) (1 058) (1 058)
Balance at 30 June 15 125 19 900 (30) 19 870
2011 (reviewed)
Final dividend paid
per share (cents)
in respect of the
2010 financial year
Dividend paid per
share (cents) in
respect of 2010
interim period
Dividend paid per
share (cents) in
respect of 2011
interim period
1Issued to the Kumba Resources Management Share Trust due to
options exercised.
2The STC on these dividends amounted to Rnil after taking into
account STC credits.
NOTES TO THE REVIEWED FINANCIAL STATEMENTS
1. Basis of preparation
The interim financial information for the six months ended 30
June 2011 has been prepared in accordance with IAS 34 Interim
Financial Reporting, the requirements of the South African
Companies Act, 71 of 2008, as amended, the AC 500 standards as
issued by the Accounting Practices Board or its successor and in
compliance with the Listings Requirements of the JSE Limited.
The group financial statements have been prepared on the
historical cost basis excluding financial instruments and
biological assets, which are fairly valued, and conform to
International Financial Reporting Standards (IFRS). The
accounting policies adopted are in terms of IFRS and are
consistent with those applied in the annual financial statements
for the year ended 31 December 2010.
During the first half of 2011 the following accounting
pronouncements became effective:
Amended IFRS 1 First-time Adoption of International Financial
Reporting, Amended IFRS 7 Financial Instruments: Disclosures,
Amended IAS 1 Presentation of Financial Statements, Revised IAS
24 Related Party Disclosures and Amended IAS 34 Interim
Financial Reporting. These pronouncements had no material impact
on the accounting of transactions or the disclosure thereof.
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 Dec
2011 2010 2010
Reviewed Reviewed Audited
Rm Rm Rm
2. Net operating profit is arrived at
after including
Continuing operations
Depreciation, and amortisation of (638) (628) (1 323)
intangible assets
Net realised foreign currency (14) 6 (124)
exchange gains/(losses)
Net unrealised foreign exchange 64 41 (32)
gains/(losses)
Derivative instruments held for 190 148 544
trading: gains
Fair value adjustment on financial 6 6 13
instruments: gains
Impairment charges (note 3) (439)
Impairment reversals/(charges) and 44 (72) (45)
write-offs of trade and other
receivables
Write-down to net realisable value (90) (98) (50)
of inventories
Royalties (78) (62) (78)
Net surplus on disposal of 11 53 25
property, plant and equipment
Discontinued operations
Depreciation, and amortisation of (20) (29) (57)
intangible assets
Net realised foreign currency (1) (1) (1)
exchange losses
Net unrealised foreign exchange 2 2
gains
Derivative instruments held for (49) (33) (92)
trading: losses
Impairment charges (note 3) (5) (4)
Impairment charges and write-offs (1)
of trade and other receivables
Royalties (15) (16) (36)
Net surplus on disposal of 1
property, plant and equipment
3. Impairment charges
Impairment of property, plant and (439) (5) (4)
equipment
Tax impact 1
Total impairments after tax (439) (5) (3)
Impairment charges attributable to (5) (4)
discontinued operations included in
impairment charges above:
4. Net financing cost
Interest expense and loan costs (147) (184) (321)
Finance leases (39) (33) (70)
Interest income 107 53 135
Net interest expense (79) (164) (256)
Interest adjustment on non-current (96) (75) (199)
provisions
Net financing cost as per income (175) (239) (455)
statement
Total net financing cost
- continuing operations (160) (222) (434)
- discontinued operations (15) (17) (21)
5. Discontinued operations
The Rosh Pinah mine assets classified as held for sale represent
a separate major line of business as well as geographical area
of operations and form part of a single co-ordinated plan to
dispose of the assets and related liabilities. Although not yet
disposed of, IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations requires that the operation of the Rosh
Pinah mine be classified as discontinued operations.
The Glen Douglas dolomite mine investment, which was disclosed
as a Non-current Asset Held for Sale as at 31 December 2010, was
sold to JSE-Listed materials supplier Afrimat Limited on 1
January 2011. The investment was therefore effectively only
accounted for one day in the six months period ended 30 June
2011.
Financial information relating to the discontinued operations
for the period to the date of disposal is set out below.
The financial performance and cash flow information
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 Dec
2011 2010 2010
Reviewed Reviewed Audited
Rm Rm Rm
Revenue 291 344 800
Operating expenses (note 2) (200) (294) (665)
Net operating profit 91 50 135
Net financing cost (note 4) (15) (17) (21)
Profit before tax 76 33 114
Income tax expense (42) (14) (47)
Profit for the period from 34 19 67
discontinued operations
Cash flow attributable to operating 49 37 123
activities
Cash flow attributable to investing (28) (20) (80)
activities
Cash flow attributable to financing (14) 3 (28)
activities
Cash flow attributable to 7 20 15
discontinued operations
6 months ended 30 June 2011
(reviewed)
Gains/(losses) on the disposal of Turkey Glen Total
subsidiaries Rm Douglas Rm
Rm
Consideration received or
receivable
Cash 17 33 50
Total disposal consideration 17 33 50
Carrying amount of net assets sold (12) (37) (49)
Gain/(loss) on sale before and 5 (4) 1
after income tax
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 Dec
2011 2010 2010
Reviewed Reviewed Audited
Rm Rm Rm
6. Investments
Unlisted investments in associates
- directors` valuation 17 990 20 137 20 782
Unlisted investments included in
other financial assets
- directors` valuation 393 423 407
Included in the directors`
valuations are investments
classified as non-current assets
held for sale.
7. Non-current assets classified as
held for sale
The major classes of assets and
liabilities of the assets
classified as held for sale are as
follows:
Assets
Property, plant and equipment 316 33 34
Financial assets 12 18 21
Investments in associates and joint 137
ventures
Inventories 165 10 8
Trade and other receivables 106 19 22
Cash and cash equivalents 68
804 80 85
Liabilities
Interest-bearing borrowings 9
Non-current provisions 92 29 29
Deferred tax 96 10 8
Trade and other payables 84 17 14
Tax payable 6 2 1
287 58 52
Total at end of reporting period 517 22 33
Included above are the assets and liabilities of Rosh Pinah (a
subsidiary) classified as held for sale and other assets and
liabilities classified as held for sale.
Completion of the sale transactions is expected to take place
within 12 months.
8. Net debt
Net debt is calculated as being interest-bearing borrowings less
cash and cash equivalents. It excludes Exxaro`s share of any
proportionately consolidated liabilities to joint venture
partners.
9. Contingent liabilities
Include 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 2011 is mainly due to the inclusion of Exxaro`s
share of guarantees by joint ventures to Transnet Freight Rail
(TFR) in respect of rail allocation. Includes the group`s share
of contingent liabilities of associates and joint ventures of
R152 million. The timing and occurrence of any possible outflows
are uncertain.
10. Contingent assets
A surrender fee of R70 million (2010: R58 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 to the grant of a mining lease.
11. Related party transactions
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 with
associates and joint ventures. These transactions were subject
to terms that are no less favourable than those arranged with
third parties.
12. Financial instruments
No reclassification of financial instruments occurred during the
period under review.
13. JSE Limited Listings Requirements
The interim results announcement has been prepared in accordance
with the Listings Requirements of the JSE Limited.
14. Corporate governance
Sound corporate governance processes are being applied at
Exxaro. They are regularly reviewed and adapted to accommodate
internal corporate developments and to reflect national and
international best practice. Exxaro endorses the principles of
the King Code of Governance Principles for South Africa 2009
("King III Code"). The board of Exxaro has considered the
implications and effect of the King III Code and has started to
implement and apply the recommendations.
15. Mineral Resources and Mineral Reserves
No material changes to the Mineral Resources and Ore Reserves
disclosed in the Exxaro annual report for the year ended 31
December 2010 are expected other than depletion due to continued
mining activities.
16. Events after the reporting period
The directors are not aware of any other matter or circumstance
arising after the reporting period up to the date of this report
not otherwise dealt with in this report.
17. Auditors review
The interim results have been reviewed by the company`s
auditors, PricewaterhouseCoopers Inc. Their unmodified review
opinion is available for inspection at the company`s registered
office.
UNAUDITED PHYSICAL INFORMATION (`000 TONNES)
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
2011 2010 2010
Coal
Production
Power station coal 15 700 18 269 36 767
Tied operations1 6 370 8 365 16 461
Commercial operations 9 330 9 904 20 306
Coking coal 1 241 1 187 2 419
Tied operations1 134 124 285
Commercial operations 1 107 1 063 2 134
Other coal 3 802 3 518 7 502
Char 77 49 114
Total 20 820 23 023 46 802
Sales
Eskom 15 831 18 379 36 428
Tied operations1 6 376 8 356 16 438
Commercial operations 9 455 10 023 19 990
Other domestic coal 2 830 2 447 5 044
Tied operations1 166 117 260
Commercial operations 2 664 2 330 4 784
Coal export 2 084 1 842 4 106
Char 74 52 122
Total 20 819 22 720 45 700
Mineral Sands2
Production
Ilmenite 367 367 718
Zircon 94 94 196
Rutile 32 28 63
Synthetic Rutile 54 51 90
Pig iron (LMPI) 68 81 153
Scrap iron 4 8 12
Slag tapped 124 141 262
Chloride slag 150 84 232
Sulphate slag 26 16 52
Leucoxene 5 7 13
Pigment 44 25 57
Total 968 902 1 848
Sales
Zircon 91 124 243
Rutile 33 35 79
Synthetic Rutile 16 23 30
Pig iron (LMPI) 79 107 194
Scrap iron 1 1 3
Chloride slag 126 98 264
Sulphate slag 28 7 39
Leucoxene 4 7 16
Pigment 43 24 55
Total 421 426 923
Base Metals
Production
Zinc concentrate 53 60 120
Rosh Pinah 43 52 101
Black Mountain 10 8 19
Zinc Metal 57 54 120
Zincor 41 43 90
Chifeng3 16 11 30
Lead concentrate 20 17 37
Rosh Pinah 9 9 19
Black Mountain 11 8 18
Sales
Zinc metal sales 63 59 119
Domestic 46 46 90
Export 17 13 29
Lead concentrate sales
Export 7 7 20
1 Tied operations refer to mines that supply their entire production
to either Eskom or AMSA in terms of contractual agreements.
2 Includes Exxaro Sands Australia`s attributable interest in the
Tiwest joint venture.
3 Exxaro`s effective interest in the Chifeng refinery is disclosed.
Exxaro is a South African-based mining group, listed on the JSE Limited.
Exxaro has a diverse and world-class commodity portfolio in coal, mineral
sands, base metals and industrial minerals, with exposure to iron ore through
a 20% interest in Sishen Iron Ore Company (SIOC). As the second-largest South
African coal producer with capacity of 45 million tonnes per annum and the
third-largest global producer of mineral sands, Exxaro is a significant
participant in the coal and mineral sands markets and provides a unique
listed investment opportunity into these commodities.
COMMENTS
OPERATING RESULTS
Comments are based on a comparison of the group`s reviewed financial results
and unaudited physical information for the six-month periods ended 30 June
2011 and 2010, respectively.
REVENUE
Group consolidated revenue increased by 22% to R9 615 million with the coal
and mineral sands businesses being the main contributors.
Revenue was recorded at a stronger average exchange rate of R7,21 to the US
dollar, compared to R7,81 in the corresponding period in 2010. For the
Australian Mineral Sands business the comparative average exchange rates were
USD0,96 cents and USD0,87 cents respectively.
Coal
Revenue was 22% higher at R5 786 million, due primarily to increased export
sales at higher international selling prices.
Mineral Sands
Revenue improved 36% to R2 889 million, mainly due to the long anticipated
increases in selling prices complemented by increased demand.
Base Metals
Revenue was in line with that of the corresponding period as the higher
average LME zinc selling prices and export volumes were offset by a stronger
local currency.
NET OPERATING PROFIT
The higher consolidated revenue recorded translated into higher consolidated
net operating profit of R1 636 million, an increase of 20%, as the group
continued to benefit from strong demand at generally higher selling prices,
albeit at stronger exchange currencies.
Coal
The coal business reported a 36% increase in net operating profit of R1 627
million (at an operating margin of 28%). An increase in export volumes at
higher international selling prices combined with higher non-Eskom local
sales at higher prices were partially offset by lower power station coal
volumes to Eskom and inflationary pressures on distribution and maintenance
costs.
Mineral Sands
The mineral sands business reported a consolidated net operating profit of
R652 million, driven by favourable selling prices, strong demand, improved
operational efficiencies and continued cost containment, despite the impact
of stronger local and Australian currencies.
KZN Sands recorded a marginal loss of R6 million compared to a profit of R61
million in the corresponding period which included a non-recurring insurance
payment receipt of R98 million.
Namakwa Sands and Australia Sands recorded net operating profit increases of
R247 million and R324 million, respectively. The higher profits were recorded
at respective operating margins of 25% and 32%. Included in Australia Sands,
is a profit of R24 million from the disposal of the interest in the Kwinana
Pigment plant expansion.
Base Metals
A net operating loss of R125 million was recorded prior to accounting for the
impairment as continued operating challenges at the Zincor refinery were
compounded by higher than inflation increases in electricity and maintenance
expenditure. After an evaluation of the carrying value of the Zincor
refinery, also taking due cognisance of the announcement made by the group on
29 July 2011, an impairment loss of R439 million was recorded, resulting in a
consolidated net operating loss of R564 million. Moreover, a deferred tax
asset of R153 million was derecognised at Zincor based on the expectation of
it no longer being able to be utilised with future available taxable income.
EARNINGS
Attributable earnings, inclusive of Exxaro`s 20% interest in the post-tax
profits of SIOC amounting to R2 375 million as well as the respective R5
million and R147 million contributions from the equity interests in Chifeng
and Black Mountain, increased by 33% from R2 408 million to R3 205 million
(or 921 cents per share).
Headline earnings recorded, which exclude the impact of any impairments, were
R3 637 million (or 1 045 cents per share). This represents a 54% increase on
the corresponding 2010 earnings of R2 363 million (at 683 cents per share).
CASH FLOW
Cash retained from operations was R2 387 million from which taxation payments
of R207 million, the final dividend for the 2010 financial year of R1 058
million and capital expenditure payments of R1 827 million were made. A total
of R1 299 million of the capital expenditure was invested in new capacity
while R528 million was for sustaining and environmental purposes. R1 267
million of the capital investment in new capacity was for the expansion of
Grootegeluk mine to supply Eskom`s Medupi power station.
After accounting for R1 625 million of dividends received, a net cash inflow
of R1 257 million was recorded and contributed to the significant reduction
in net debt in the six months to 30 June 2011.
Net debt of R2 220 million at 31 December 2010 decreased to R996 million at
30 June 2011, reflecting a debt to equity ratio of 5%.
Subsequent to the interim reporting date, Exxaro will pay an interim dividend
of some R1 076 million and receive a dividend of R1 893 million from SIOC.
SAFETY, HEALTH AND ENVIRONMENT
Despite strengthened safety awareness and prevention programmes through
various initiatives to enhance hazard identification and safe behaviour,
regrettably one fatality was suffered during the period under review. Shuttle
car operator Mandla Piet Mabaso was fatally injured underground at New
Clydesdale Colliery (NCC) on 16 February 2011. Subsequent to the interim
reporting date, a further two fatalities occurred. On 8 July 2011, Johannes
Jan Drotschie, a fitter at Matla, was fatally injured underground while
Colman Selebalo Thobejane, a contractor working for Isambane at Arnot mine in
Mpumalanga, was fatally injured on surface on 11 July 2011. The average lost
time injury frequency rate (LTIFR) per 200 000 man-hours worked for the six-
month period improved to 0,22 from 0,25 at 31 December 2010.
Wellness of employees remains paramount with progress evident in the
implementation of an HIV/AIDS voluntary counselling and testing programme.
The target for testing for 2011 is 75% of employees compared to the 70%
achieved in 2010.
All 16 operational business units are now ISO 14001 and OHSAS 18001
certified. Certification for the Grootegeluk Medupi Expansion Project (GMEP)
which is still under construction, is in progress.
REPORTED SEGMENT RESULTS
Reported segments are based on the group`s different products and operations
as well as the physical location of these operations and associated products.
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
2011 2010 2010
Reviewed Reviewed Audited
Rm Rm Rm
REVENUE
Coal 5 786 4 730 10 515
Tied operations 1 445 1 320 2 952
Commercial operations 4 341 3 410 7 563
Mineral Sands 2 889 2 130 4 640
KZN Sands 575 535 1 288
Australia Sands 1 191 702 1 551
Namakwa Sands 1 123 893 1 801
Base Metals 900 895 1 787
Rosh Pinah 291 283 674
Zincor 826 851 1 598
Inter-segmental (217) (239) (485)
Other 40 97 213
Total 9 615 7 852 17 155
NET OPERATING PROFIT
Coal 1 627 1 199 2 690
Tied operations 83 97 186
Commercial operations 1 544 1 102 2 504
Mineral Sands 652 148 179
KZN Sands (6) 61 (66)
Australia Sands 378 54 138
Namakwa Sands 280 33 107
Base Metals (564) 12 (113)
Rosh Pinah 86 48 143
Zincor1 (638) (18) (171)
Other (12) (18) (85)
Other (79) 4 (120)
Total 1 636 1 363 2 636
1Includes an impairment to the carrying value of property, plant and
equipment of R439 million at 30 June 2011.
OPERATIONS
Coal
Production
Total coal production volumes decreased by 10% as a result of lower power
station coal volumes.
The commercial mines` power station coal production was 574kt or 6% lower
than in the corresponding period. This was mainly due to lower production at
Grootegeluk as a result of lower demand by Eskom, partially offset by higher
production at Leeuwpan due to the crush and screen plant commissioned during
2010. Equipment availability problems experienced by North Block Complex
(NBC) also adversely impacted production. Power station coal production
volumes were lower than the same period in 2010 mainly due to lower
production at the Eskom tied mines. The underground production at Arnot was
negatively affected by geological conditions and technical challenges, as
well as the closure of the Mooifontein operation. Production at Matla was
lower due to a focus on improved qualities.
Coking coal production increased marginally due to higher production at
Grootegeluk based on increased demand, mainly from ArcelorMittal South Africa
Limited (AMSA) while Tshikondeni`s production was higher resulting from the
mini-pits started in the first half of 2011.
Steam coal production was 8% higher with higher production at Leeuwpan. This
was as a result of operational improvements to the dense medium separation
(DMS) plant feed tempo being complemented by the benefit of improved coal
availability after additional overburden stripping. Higher production was
also recorded at Grootegeluk and the Mafube joint venture on the back of
higher international demand and throughput improvements, respectively.
However, this was partially offset by lower production at NBC and at NCC due
to the closure of Haasfontein in the first half of 2011.
The char plant production was 58% higher than the corresponding period due to
improved availability and feed rate.
Sales
Sales to Eskom were lower following the lower production.
Other domestic sales were 14% higher due to higher demand from AMSA in
addition to higher spot sales from Leeuwpan.
Exxaro`s coal strategy is to increase export volumes which contributed to a
13% improvement in exports mainly due to higher railings by TFR despite the
21-day maintenance shut and the derailments in the first half of 2011.
Reductants` higher production in turn resulted in the 42% higher sales from
the Char plant.
Mineral Sands
Production
At KZN Sands, heavy minerals concentrate (HMC) production was 32kt lower due
to the Hillendale mine nearing its end of life, resulting in 4kt lower zircon
and 1kt lower rutile production. The lower HMC, together with the fact that
only one furnace was operational for the full period under review (after
Furnace 2 suffered a burn through in October 2010), also resulted in lower
titanium slag production.
Namakwa Sands recorded higher zircon and rutile production of 6kt and 3kt,
respectively. With greater uptimes of the furnaces, titanium slag production
increased with 31kt.
At Australia Sands, synthetic rutile production increased due to improved
consistency in production together with the reduction of coal quality
problems which adversely affected the plant in the past. Zircon production
was marginally lower as a result of harder digging conditions.
Pigment production was significantly higher following the commissioning and
ramp-up of the pigment plant expansion combined with improved performance
from the existing plant. On 30 June 2011, Tronox Western Australia exercised
its reinstatement right to buy back into the pigment plant expansion,
culminating in a subsequent net cash inflow of R469 million to Australia
Sands, thereby compensating Exxaro for the funding of the expansion.
Sales
Total sales volumes were in line with the previous corresponding period,
albeit at a different overall product mix at more favourable selling prices.
Base Metals
Production
Zinc concentrate production at Rosh Pinah was 9kt lower resulting from a
planned shut in May 2011.
Production of zinc metal at the Zincor refinery of 41kt was marginally lower
which can be attributed to downtime in the acid plant and throughput
limitations on the purification circuit.
Sales
Dispatches of zinc concentrate were 24% lower due to logistical challenges
following the heavy rains in Namibia in the first quarter of 2011.
Zinc metal exports were 30% higher at 17kt based on increased 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 US$2 215 to US$1 887 for zinc and US$2 385 to US$ 1 771
for lead. Actual hedging gains were R19 million more than the corresponding
period in spite of lower commodity prices. These hedges mature in the second
half of 2011.
CAPITAL EXPENDITURE AND PROJECT PIPELINE
The group continues to take due cognisance of the pace of the recovery in the
global economy as well as macro-economic fundamentals in its evaluation and
prioritisation of growth projects in line with the group`s approved commodity
strategy.
Coal
Construction of GMEP, to supply Eskom with 14,6 Mtpa of coal for the Medupi
power station, continues to progress well and is anticipated to be completed
on time and within budget.
The detailed design for first coal supply has been completed for most
disciplines, with some minor work continuing to the end of August 2011.
Overall project progress was at 54% completion on 30 June 2011. The total
project spent to date is some R2 billion with total capital expenditure for
the project still forecast at R9,5 billion. Total funds committed to date,
amount to approximately R5 billion.
The R4,5 billion bridge loan facility with a consortium of financiers is
still in place with draw-down of the loan now only expected in the third
quarter of 2011.
Thabametsi is a prospective greenfields mine adjacent to Grootegeluk mine in
the Waterberg. The development of the project will coincide with the
Department of Energy`s (DoE`s) formalisation, establishment and
implementation of the National Integrated Resource Plan 2010 (NIRP 2010). The
NIRP 2010, issued at the end of March 2011, indicates that coal-fired base-
load Independent Power Producer (IPP) power stations have been brought
forward in the energy mix, paving the way for the development of Thabametsi
as a supplier of coal to a base load IPP. First coal production could be
achieved by 2016/17, but is dependent on the Waterberg 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). Project Mafutha is still
in a pre-feasibility study phase. The activities on the project have been
scaled down, pending the satisfactory outcome on work relating to primary
areas such as gasification demonstration testing and government`s
participation and support for the project.
The integrated infrastructure plan for the Waterberg coalfields is being
implemented with relevant stakeholders to provide for the supply of raw water
to the area as well as rail, road and housing requirements.
The sintel char plant at Grootegeluk mine to produce reductants for the
ferroalloy industry has been fully commissioned, with all four retorts in
operation. Exxaro is progressing its evaluation of the phase 2 expansion to
produce a further 140ktpa of char as well as a bankable feasibility study to
produce market coke from semi-soft coking coal at Grootegeluk. These studies
are now only expected to be completed during the first half of 2012.
The bankable feasibility study, which includes comprehensive specialist
studies as required by relevant environmental and water legislation in
respect of the Belfast project, are still in process and will be submitted to
the relevant authorities in the fourth quarter of 2011. Start-up and first
production is still anticipated in 2014.
Exploration of the hard coking coal resource on the Moranbah South properties
in the Bowen Basin of Queensland, Australia, is continuing, with the joint
venture partners still targeting conclusion of the feasibility study in the
latter part of 2012. This project is a 50% joint venture with Anglo American
and has the potential to produce premium-quality hard coking coal.
Energy
The initiative to form an energy company with equity funding partners to
focus on a number of cleaner energy projects has progressed well with short-
listed potential strategic equity partners conducting their respective due
diligence studies on a number of existing energy projects.
A bankable feasibility study for a 14MW co-generation plant at Namakwa Sands
has been completed. Construction is scheduled to start in January 2012 with
commercial operation anticipated to be in November 2012. The total capital
expenditure for the project is estimated to be R252 million, with
registration for carbon credits also under way.
The pre-feasibility study for the 60MW co-generation plant at Grootegeluk
mine is in the final stages and is expected to be completed by end of 2011.
This market coke co-generation operation has the potential to produce
electricity from coke oven off-gas.
Gas is now being flared from all five holes of the five-spot coal bed methane
project in Botswana, with an increasingly positive indication of the
potential for economic gas flow to be proven. It is expected to have a much
clearer indication of the potential for economic gas flow by the end of 2011.
The facilitation for the development of a 600MW coal fired power station in
the Waterberg is under way. 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. While the pre-feasibility study has progressed, a
formal request for proposal for a 600MW coal-fired base load power station
was issued to IPPs on 14 June 2011. Evaluation and selection to short-list
the IPPs has commenced, in order to select the preferred IPP by the end of
2011.
Mineral Sands
A decision was taken by the Exxaro board of directors during the first half
of 2011 to proceed with the development of the Fairbreeze mine as a
replacement feedstock producer for Hillendale mine at KZN Sands. Detailed
design has commenced on the Fairbreeze project and construction is expected
to commence in the second half of 2011, subject to customary regulatory and
environmental approvals. These are expected to be obtained in the second half
of 2011. A reversal or partial reversal of the previous impairments of the
carrying value of the assets at KZN Sands will also be considered in the
second half of 2011. The Hillendale ore body will be depleted by the end of
2012 after which the plant will be relocated to a central position at
Fairbreeze. The commissioning is anticipated to occur in the first half of
2014.
Ferrous
Exxaro made an off-market takeover bid for Australian junior miner Territory
Resources on 23 May 2011 of AUD0,46 cents per share. The majority of
Territory`s Board supported Exxaro`s offer, however, this was overturned when
Noble Resources, the biggest shareholder of Territory at 32%, made an AUD0,50
cents per share, unconditional on-market counter offer for the company on 9
June 2011. Exxaro declined the opportunity to raise its offer. The group
continues to evaluate opportunities aligned with its strategy to establish a
direct footprint in iron ore.
The construction of the 5,3m diameter ferromanganese furnace (Project
Letaba), in partnership with Assmang Limited to commercialise Exxaro`s
AlloystreamTM technology, is progressing as planned. The demonstration
facility is still scheduled to be completed in the second half of 2011.
Base Metals
The formal process to divest from Exxaro`s zinc business commenced in May
2011 with invitations being sent to interested parties. Exxaro received
indicative offers for only Rosh Pinah mine from a number of parties who were
subsequently shortlisted to conduct a detailed due diligence with the view to
submit final binding bids. It is planned to have the process completed by the
end of 2011, subject to obtaining certain regulatory approvals. No offers
were received for the Zincor operation. In the meantime, the Zincor operation
has been appropriately impaired. This was as a result of significant changes
in the manner in which the asset is expected to be used coupled with a
reassessment of the assets` carrying value subsequent to the announcement
made on 29 July 2011.
CONVERSION OF MINING RIGHTS
Engagement with the relevant stakeholders continues in order to process the
registration of new order mining rights granted. The conversion of mining
rights for Arnot and Glisa (a part of NBC) is under way. Three mining rights
converted for Tshikondeni, Matla and Strathrae (also part of NBC) still await
execution by the Department of Mineral Resources (DMR). New order mining
rights for Belfast are in different phases of application and processing.
CHANGES TO THE BOARD AND COMPANY SECRETARIAT
Maria Susanna (Marie) Viljoen, Company Secretary of first Kumba and then
Exxaro since 1 August 2001, has retired with effect from 30 June 2011. The
board of directors has appointed Catharina Helena (Carina) Wessels as Group
Company Secretary with effect from 1 July 2011 in her stead. Carina holds LLB
and LLM degrees, is an admitted advocate of the High Court of South Africa,
and is a Fellow and Senior Vice-President of the Chartered Secretaries
Southern Africa.
OUTLOOK
The positive market recovery for coal in terms of price and demand are set to
continue in the second half of 2011, amid the existing logistical challenges.
Following the commissioning of Phase V expansion at Richards Bay Coal
Terminal (RBCT), Exxaro`s export entitlement should be 6,3Mtpa, but only some
2,9Mtpa of this will be available in 2011. The remainder of the exports
planned can only be achieved by selling on a free-on-rail basis, the lease of
export entitlement, and exports via Maputo in Mozambique.
Market conditions on the mineral sands business are favourable and the demand
for all products is strong. The upward trend in prices should continue in the
medium-term given current supply and demand imbalances.
Subsequent to the in-principle decision announced on 29 July 2011 to
permanently cease the production of zinc at Zincor, Exxaro is contemplating
the retrenchment of Zincor employees unless a feasible alternative is
identified.
The equity accounted contribution from SIOC should continue to be positively
impacted by anticipated higher iron ore prices and continued strong demand.
The strength of the local currency and Australian dollar against the US
dollar will continue to impact on the group`s financial results. At 30 June
2011, Exxaro has USD234 million of hedging in place at an average exchange
rate of R7,34 for the local operations and USD27 million at an average rate
of USD0,99 cents 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 external auditors.
INTERIM DIVIDEND
The board of directors has declared an interim cash dividend number 17 of 300
cents per share in respect of the 2011 interim period. The dividend has been
declared in South African currency and is payable to shareholders recorded in
the register of the company at the close of business on Friday, 23 September
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, 16 September 2011
Shares trade ex dividend Monday, 19 September 2011
Record date Friday, 23 September 2011
Payment date Monday, 26 September 2011
Share certificates may not be dematerialised or rematerialised during the
period Monday, 19 September 2011 and Friday, 23 September 2011, both days
inclusive.
On Monday, 26 September 2011 the 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 26 September 2011 will be posted on that date.
Shareholders who have dematerialised their share certificates will have their
accounts at their CSDP or broker credited on Monday, 26 September 2011.
On behalf of the board
Len Konar Sipho Nkosi Wim de Klerk
Chairman Chief Executive Officer Finance Director
17 August 2011
REGISTERED OFFICE
Exxaro Resources Limited
Roger Dyason Road, Pretoria West, 0183
Telephone +27 12 307 5000
Fax +27 12 323 3400
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**
*Executive'**Non-executive'***Independent non-executive
PREPARED UNDER SUPERVISION OF
AM Mukhuba CA(SA)
Reg No 04921772
GROUP COMPANY SECRETARY
CH Wessels
INVESTOR RELATIONS
RA de Beer +27 12 307 4189
SPONSOR
Deutsche Securities (SA) (Proprietary) Limited +27 11 775 7000
TRANSFER SECRETARIES
Computershare Investor Services (Pty) Limited
Ground Floor, 70 Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
If you have any queries regarding your shareholding in Exxaro Resources
Limited, please contact the transfer secretaries
at +27 11 370 5000
This report is available at: www.exxaro.com
Pretoria
18 August 2011
Sponsor
Deutsche Securities (SA) (Proprietary) Limited
Date: 18/08/2011 07:05:21 Supplied by www.sharenet.co.za
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