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EXX - Exxaro Resources Limited - Audited group financial results and

Release Date: 23/02/2012 07:05
Code(s): EXX
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EXX - Exxaro Resources Limited - Audited group financial results and unaudited physical information for the year ended 31 December 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") Audited group financial results and unaudited physical information for the year ended 31 December 2011 Highlights Lost time injury frequency rate (LTIFR) down 20% to 0,20 MPower scheme testimony to meaningful employee empowerment, distributing over R1 billion to 9 694 beneficiaries Revenue increased by 24% to R21,3 billion Net operating profit up 53% to R4 billion, excluding the impact of impairment reversals and charges Headline earnings per share up 40% to 2 098 cents per share Final dividend of 500 cents per share; total dividend of 800 cents per share for 2011 Lowlights Regrettably, three fatalities Cessation of zinc production at the Zincor refinery Condensed group income statement (audited) 2011 2010 For the year ended 31 December Rm Rm Revenue 12 471 10 116 Operating expenses (9 663) (7 628) Net operating profit 2 808 2 488 Interest income (note 4) 159 116 Interest expense (note 4) (590) (432) Income from investments 4 2 Share of income from equity-accounted investments 4 668 3 717 Profit before tax (note 2) 7 049 5 891 Income tax expense (note 5) (986) (732) Profit for the year from continuing operations 6 063 5 159 Profit for the year from discontinued operations (note 6) 1 594 76 Profit for the year 7 657 5 235 Profit attributable to: Owners of the parent 7 653 5 208 - continuing operations 6 073 5 167 - discontinued operations 1 580 41 Non-controlling interests 4 27 - continuing operations (10) (8) - discontinued operations 14 35 Profit for the year 7 657 5 235 Condensed group statement of comprehensive income (audited) 2011 2010
For the year ended 31 December Rm Rm Profit for the year 7 657 5 235 Other comprehensive income: Exchange differences on translating foreign operations 800 (44) Cash flow hedges (40) 204 Share of comprehensive income of associates (254) 40 Share of comprehensive income of non-controlling interests 35 (57) Net gain recognised in other comprehensive income 541 143 Total comprehensive income for the year 8 198 5 378 Total comprehensive income attributable to: Owners of the parent 8 159 5 408 - continuing operations 6 641 5 167 - discontinued operations 1 518 241 Non-controlling interests 39 (30) - continuing operations (6) (12) - discontinued operations 45 (18) Total comprehensive income for the year 8 198 5 378 Ordinary shares (million) - in issue 354 358 - weighted average number of shares 348 347 - diluted weighted average number of shares 353 361 Attributable earnings per share continuing operations (cents) - basic 1 745 1 489 - diluted 1 720 1 432 Attributable earnings per share discontinued operations (cents) - basic 454 12 - diluted 448 11 Aggregate attributable earnings per share (cents) - basic 2 199 1 501 - diluted 2 168 1 443 Condensed group statement of cash flows (audited) 2011 2010 For the year ended 31 December Rm Rm Cash flows from operating activities - cash retained from operations 6 503 4 106 - net financing costs (94) (256) - tax paid (502) (430) - dividends paid (2 123) (1 056) Cash flows from investing activities - capital expenditure (4 926) (2 677) - proceeds from disposal of property, plant and equipment 496 60 - investments in intangible assets (119) - dividends from investments and equity-accounted investments 3 525 1 817 - increase in investments (325) (149) - other 37 Net cash inflow 2 472 1 415 Net cash flows from financing activities - shares issued 15 29 - increase in non-controlling interests` loans 11 6 - net borrowings repaid (631) (304) Net increase in cash and cash equivalents 1 867 1 146 Cash and cash equivalents at beginning of year 2 140 1 023 Translation difference on movement in cash and cash equivalents 158 (29) Cash and cash equivalents at end of year 4 165 2 140 Cash and cash equivalents classified as non-current assets held for sale at end of year 3 100 Cash and cash equivalents per Statement of Financial Position 1 065 2 140 Cash and cash equivalents at end of year 4 165 2 140 Condensed group statement of financial position (audited) 2011 2010 At 31 December Rm Rm Assets Non-current assets Property, plant and equipment 10 695 13 305 Biological assets 66 46 Intangible assets 128 75 Investments in unlisted associates (note 8) 4 764 3 880 Deferred tax 228 726 Financial assets 1 538 1 375 17 419 19 407
Current assets Inventories 589 3 120 Trade and other receivables 2 763 3 752 Current tax receivable 105 105 Cash and cash equivalents 1 065 2 140 4 522 9 117 Non-current assets classified as held for sale (note 7) 14 979 85 Total assets 36 920 28 609 Equity and liabilities Capital and reserves Equity attributable to owners of the parent 23 588 17 437 Non-controlling interests 20 (23) Total equity 23 608 17 414 Non-current liabilities Interest-bearing borrowings 2 202 3 644 Non-current provisions 2 166 2 097 Post-retirement employee benefits 133 96 Deferred tax 1 845 1 353 6 346 7 190 Current liabilities Trade and other payables 3 334 3 057 Interest-bearing borrowings 866 716 Current tax payable 50 147 Current provisions 151 33 4 401 3 953 Non-current liabilities classified as held for sale (note 7) 2 565 52 Total equity and liabilities 36 920 28 609 Reconciliation of headline earnings (audited) Gross Tax Net For the year ended 31 December 2011 Rm Rm Rm Profit for the year attributable to owners of the parent 7 653 Adjusted for: - impairment of property, plant and equipment 516 516 - reversal of impairment of property, plant and equipment (869) (869) - gains on disposal of subsidiaries (1) (1) - gains or losses on disposal of property, plant and equipment 3 (2) 1 - share of associates` gains or losses on disposal of 2 2 property, plant and equipment Headline earnings (349) (2) 7 302 Headline earnings from continuing operations (34) 9 6 048 Headline earnings from discontinued operations (315) (11) 1 254 For the year ended 31 December 2010 Profit for the year attributable to owners of the parent 5 208 Adjusted for: - impairment of property, plant and equipment 4 (1) 3 - gains or losses on disposal of property, plant and equipment (26) (26) - share of associates` gains or losses on disposal of property, plant and equipment 1 1 Headline earnings (21) (1) 5 186 Headline earnings from continuing operations (39) 5 128 Headline earnings from discontinued operations 18 (1) 58 For the year ended 31 December 2011 2010 Headline earnings per share aggregate (cents) - basic 2 098 1 495 - diluted 2 069 1 437 Headline earnings per share from continuing operations (cents) - basic 1 738 1 478 - diluted 1 714 1 421 Headline earnings per share from discontinued operations (cents) - basic 360 17 - diluted 355 16 Group statement of changes in equity (audited) Other components of equity Foreign Financial
Share currency instruments Equity- capital translation revaluation settled Rm Rm Rm Rm Balance at 1 January 2010 2 141 802 3 1 241 Profit for the year Other comprehensive income (43) 203 Share of associates` comprehensive income (43) 10 Issue of share capital 1 29 Share-based payments movements 148 Non-controlling interests additional contributions Dividends paid 2 Balance at 31 December 2010 2 170 716 216 1 389 Profit for the year Other comprehensive income 800 (40) Share of associates` comprehensive income 72 20 Issue of share capital 1 15 Employee share scheme (MPower) vesting issue of shares 174 Share-based payments movement 23 Non-controlling interests additional contributions Transfer to distributable reserve (3) Dividends paid 2 Balance at 31 December 2011 2 359 1 585 196 1 412 Final dividend paid per share (cents) in respect of the 2010 financial year 300 Dividend paid per share (cents) in respect of the 2011 interim period 300 Final dividend payable per share (cents) in respect of 2011 financial year 500 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) Attributable Other Retained to owners of
reserves income the parent Rm Rm Rm Balance at 1 January 2010 8 721 12 908 Profit for the year 5 208 5 208 Other comprehensive income 160 Share of associates` comprehensive income 73 40 Issue of share capital 1 29 Share-based payments movements 148 Non-controlling interests additional contributions Dividends paid 2 (1 056) (1 056) Balance at 31 December 2010 12 946 17 437 Profit for the year 7 653 7 653 Other comprehensive income 760 Share of associates` comprehensive income 9 (355) (254) Issue of share capital 1 15 Employee share scheme (MPower) vesting issue of shares 174 Share-based payments movement 23 Non-controlling interests additional contributions Transfer to distributable reserve (3) Dividends paid 2 (2 217) (2 217) Balance at 31 December 2011 9 18 027 23 588 Final dividend paid per share (cents) in respect of the 2010 financial year Dividend paid per share (cents) in respect of the 2011 interim period Final dividend payable per share (cents) in respect of 2011 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) Non- controlling Total interests equity Rm Rm
Balance at 1 January 2010 1 12 909 Profit for the year 27 5 235 Other comprehensive income (57) 103 Share of associates` comprehensive income 40 Issue of share capital 1 29 Share-based payments movements 148 Non-controlling interests additional contributions 6 6 Dividends paid 2 (1 056) Balance at 31 December 2010 (23) 17 414 Profit for the year 4 7 657 Other comprehensive income 35 795 Share of associates` comprehensive income (254) Issue of share capital 1 15 Employee share scheme (MPower) vesting issue of shares 174 Share-based payments movement 2 25 Non-controlling interests additional contributions 8 8 Transfer to distributable reserve (3) Dividends paid 2 (6) (2 223) Balance at 31 December 2011 20 23 608 Final dividend paid per share (cents) in respect of the 2010 financial year Dividend paid per share (cents)in respect of the 2011 interim period Final dividend payable per share (cents)in respect of 2011 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. Salient features 2011 2010
Rm Rm Net asset value per share (Rand) 67 49 Capital expenditure - incurred 4 926 2 677 - contracted 8 029 6 475 - authorised but not contracted 2 738 2 490 Capital expenditure contracted relating to captive mines, Tshikondeni, Arnot and Matla, which will be financed by ArcelorMittal South AfricaLimited (AMSA Limited) and Eskom 90 1 respectively Contingent liabilities (note 10) 1 198 1 007 Contingent assets (note 11) 82 63 Operating lease commitments 60 132 Operating sublease rentals receivable 4 6 Calculation of movement in net debt 2011 2010
Rm Rm Net cash inflow 2 472 1 415 - shares issued 15 29 - loans from non-controlling interests 11 6 - share-based payments (2) - investmentcapitalised to joint venture loan 21 - finance lease 125 - non-cash flow movements in net debt applicable to currency translation differences of transactions denominated in foreign currency (8) 187 - non-cash flow movements in net debt applicable to currency translation differences of net debt items of foreign entities (151) (126) Decrease in net debt 2 483 1 511 Notes to the group financial results (audited) 1. Basis of preparation This condensed report for the year ended 31 December 2011 has been prepared under the supervision of WA de Klerk (CA)SA, South African Institute of Chartered Accountants (SAICA) Registration number: 00133273, in accordance with the International Accounting Standard (IAS) 34 Interim Financial Reporting, the requirements of the South African Companies Act, No 71 of 2008, as amended, the AC 500 standards 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 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, Amended 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. The accounting standards, amendments to issued accounting standards and interpretations, which are relevant to the group, but not yet effective at 31 December 2011, have not been adopted. It is expected that, where applicable, these standards and amendments will be adopted on each respective effective date, except where specifically identified. The group continuously evaluates the impact of these pronouncements. 2. Profit before tax 2011 2010
For the year ended 31 December Rm Rm Profit before tax is arrived at after: Continuing operations Depreciation, and amortisation of intangible assets (735) (663) Net realised foreign currency exchange gains/(losses) 177 (30) Net unrealised foreign exchange (losses)/gains (20) 6 (Losses)/gains on derivative instruments held for trading (154) 152 Fair value gains adjustment on financial instruments 11 10 Impairment reversals/(charges) and write-offs of trade and other receivables 228 (44) Royalties (41) (50) Surplus on disposal of property, plant and equipment 38 48 Discontinued operations Depreciation, and amortisation of intangible assets (468) (717) Net realised foreign currency exchange gains/(losses) 361 (95) Net unrealised foreign exchange gains/(losses) 35 (36) Gains/(losses) on derivative instruments held for trading 196 300 Fair value gains adjustment on financial instruments 3 3 Impairment reversals/(charges) of property, plant and equipment(note 3) 353 (4) Impairment charges and write-offs of trade and other receivables (2) (1) Write-down to net realisable value of inventories (1) (50) Royalties (100) (64) Deficit on disposal of property, plant and equipment (37) (16) 3. Impairment reversals/(charges) Impairment of property, plant and equipment (516) Impairment of property, plant and equipment held for sale (4) Total impairment charges (516) (4) Partial reversal of impairment of property, plant and equipment held for sale 869 Tax effect 1 Net effect of impairment reversals/(charges) on attributable earnings 353 (3) Net impairment reversals/(charges) attributable to discontinued operations 353 (3) Impairment charges relates to the carrying value of the property, plant and equipment of the Zincor refinery. The impairment reversal relates to the carrying value of the property, plant and equipment of KZN Sands. 4. Net financing costs Interest expense and loan costs (289) (321) Finance leases 204 (70) Interest income 223 135 Net interest income/(expense) 138 (256) Interest adjustment on non-current provisions (429) (199) Total net financing costs (291) (455) Total net financing costs (291) (455) - continuing operations (431) (316) - discontinued operations 140 (139) 5. Tax rate reconciliation % % Tax as a percentage of profit before tax 12,7 11,3 Tax effect of - assessed losses not provided for (0,3) (0,2) - capital losses (0,6) (0,3) - disallowable expenditure (2,3) (0,2) - exempt income 0,4 0,7 - special tax allowances 1,3 - share of associates and joint ventures 15,0 17,6 - tax rate differences 0,1 - Controlled Foreign Company profits (CFC) (0,2) - prior year tax 0,1 (1,9) - derecognition of deferred tax asset (6,2) (0,2) - re-instatement of deferred tax asset 9,2 28,0 28,0 6. 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 operation and form part of a single co-ordinated plan to dispose of the assets and related liabilities. Although the sale transaction is still conditional to the completion of all conditions precedent, IFRS 5 Non-current Assets Held for Sale and Discontinued Operations requires that the operations of the Rosh Pinah mine is classified as discontinued operations. On 27 July 2011 it was announced that Exxaro was planning to cease zinc production at the Zincor refinery. Following the necessary consultations, Zincor ceased production on 12 December 2011. On 26 September 2011, Exxaro and Tronox Incorporated announced that New Tronox will acquire Exxaro`s mineral sands operations, which include, Exxaro`s 50% interest in the Tiwest Joint Venture with Tronox in Western Australia, along with 74% of Exxaro`s KZN Sands and Namakwa Sands operations in South Africa, in exchange for approximately 38,5% of New Tronox`s equity. 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 year ended 31 December 2011. Financial information relating to the discontinued operations for the period to the date of disposal is set out below. Financial performance and cash flow information 2011 2010 For the year ended 31 December Rm Rm Revenue 8 834 7 039 Operating expenses (7 261) (6 891) Net operating profit 1 573 148 Net financing income/(cost) (note 4) 140 (139) Share of income from investments 5 Profit before tax (note 2) 1 718 9 Income tax (expense)/benefit (124) 67 Profit for the year from discontinued operations 1 594 76 Cash flow attributable to operating activities 927 643 Cash flow attributable to investing activities (286) (923) Cash flow attributable to financing activities 1 979 437 Cash flow attributable to discontinued operations 2 620 157 Gains/(losses) on the disposal of subsidiaries 1 Glen Turkey Douglas Total Year ended 31 December 2011 Rm Rm Rm Consideration received: 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 after income tax 5 (4) 1 1 The Minerals Sands Operations and the Rosh Pinah Operation have been classified as discontinued as part of IFRS 5 requirements where a separate major line of business has been classified as held for sale. Actual sale has not occurred at 31 December 2011, whilst Zincor has been classified as discontinued based on the board decision to cease production. 7. Non-current assets classified as held for sale 2011 2010 At 31 December Rm Rm The major classes of assets and liabilities classified as held for sale are as follows: Assets Property, plant and equipment 6 771 34 Intangible assets 132 Deferred tax 465 Financial assets 158 21 Inventories 2 403 8 Trade and other receivables 1 932 22 Current tax receivable 18 Cash and cash equivalents 3 100 14 979 85
Liabilities Interest-bearing borrowings 834 Provisions 692 29 Deferred tax 69 8 Trade and other payables 968 14 Current tax payable 2 1 2 565 52 Total at end of year 12 414 33 Included above are the assets and liabilities of Rosh Pinah, the Australian and South African Mineral Sands operations as well as other assets and liabilities classified as held for sale. Management is committed to the sale of the other assets and liabilities within the next 12 months. 8. Investments 2011 2010 At 31 December Rm Rm Market value of listed investments 44 Directors` valuation of unlisted investments in associates 22 715 20 782 Directors` valuation of unlisted investments in other financial assets 392 407 Directors` valuation of unlisted investments in non- current assets held for sale 2 9. Net cash/(debt) Net cash/(debt) 263 (2 220) Net cash/(debt) is calculated as being interest-bearing borrowings less cash and cash equivalents, including those classified as non-current assets held for sale. 10. Contingent liabilities Comprises guarantees in the normal course of business from which it is anticipated that no material liabilities will arise, including guarantees to banks and other institutions. The increase in 2011 is attributable to the increase in the group`s share of contingent liabilities of associates and joint ventures. In 2010 the increase was due 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 R233 million (2010: R117 million). These contingent liabilities have no tax impact. The timing and occurrence of any possible outflows are uncertain. 11. Contingent assets A surrender fee of R82 million (2010: R63 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. 12. 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. 13. Events after the reporting period Subsequent to the reporting date of 31 December 2011 and further to the unsuccessful offmarket takeover bid for Australian junior miner Territory Resources, Exxaro, through its wholly-owned subsidiary Exxaro Australia Iron Investments (Pty) Limited, launched an off market takeover bid for African Iron Limited. This offer initially remained open for acceptance until 14 February 2012. By 14 February 2012 Exxaro obtained a shareholding of 66,6% in African Iron Ore Limited, with the offer automatically extended by a further 14 days until 28 February 2012, in line with the Australian Stock Exchange take over rules. The bid does not represent an adjusting event. 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. 14. JSE Limited Listings Requirements The financial year end results announcement has been prepared in accordance with the Listings Requirements of the JSE Limited. 15. 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. 16. Mineral Resources and Mineral Reserves The group`s Mineral Resources and Ore Reserves have been reviewed during the year 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 2010 were identified other than depletion due to continued mining activities. 17. Audit opinion The independent external auditors, PricewaterhouseCoopers Inc., have audited the consolidated annual financial statements of Exxaro Resources Limited from which the condensed consolidated financial results have been derived. The condensed financial statements are consistent in all material respects with the consolidated group annual financial statements. The audit was conducted in accordance with International Standards of Auditing. The auditors have issued an unqualified audit opinion on the consolidated annual financial statements. A copy of the auditors` audit report is available for inspection at the company`s registered office. Comments Comparability of results Comments are based on a comparison of the group`s audited financial results and unaudited physical information for the years ended 31 December 2011 and 2010 respectively. These results are not comparable due to the R869 million partial impairment reversal of the carrying value of the property, plant and equipment at KZN Sands, which was initially accounted for in the year ended 31 December 2009, and a R516 million impairment of the carrying value of the property, plant and equipment at the Zincor refinery. After fulfilment of all suspensive conditions, the Glen Douglas dolomite mine was sold to Afrimat Limited effective 1 January 2011. The investment was therefore effectively only accounted for one day in the year ended 31 December 2011. Reported actual segment results (Audited) 2011 2010
For the year ended 31 December Rm Rm Revenue Coal 12 763 10 515 Tied operations 3 140 2 952 Commercial operations 9 623 7 563 Mineral Sands 6 587 4 640 KZN Sands 1 196 1 288 Namakwa Sands 2 904 1 801 Australia Sands 2 487 1 551 Base Metals 1 846 1 787 Rosh Pinah 698 674 Zincor 1 550 1 598 Inter-segmental (402) (485) Other 109 213 Total 21 305 17 155 Net operating profit Coal 3 339 2 690 Tied operations 309 186 Commercial operations 3 030 2 504 Mineral Sands 2 678 179 KZN Sands 1 753 (66) Namakwa Sands 987 107 Australia Sands 938 138 Base Metals (1 145) (113) Rosh Pinah 102 143 Zincor 2 (1 239) (171) Other (8) (85) Other (491) (120) Total 4 381 2 636 1 Includes a partial impairment reversal of R869 million of the carrying value of the property, plant and equipment at KZN Sands, which impairment was initially accounted for in 2009. 2 Includes an impairment of R516 million of the carrying value of the property, plant and equipment at Zincor refinery. Exchange rates An average exchange rate of R7,28 (spot average of R7,22) to the US dollar (US$) was realised for the year ended 31 December 2011 compared to R7,72 (spot average of R7,30) for the year ended 31 December 2010. Unrealised foreign currency losses, on the revaluation of monetary items denominated in a foreign currency were recorded based on the relative strength of the local and Australian currency to the US$ at 31 December 2011. The relative strength of the Australian dollar (AU$) also continued to impact negatively on the financial results of the mineral sands business in Australia. An average rate of US$0,99 cents (spot average of US$1,03 cents) to the AU$ was realised compared with US$0,87 cents (spot average of US$0,92 cents) in 2010. Revenue Group consolidated revenue increased by 24% to R21,3 billion due to higher selling prices across Exxaro`s commodities despite lower total coal sales and the adverse impact of a stronger local and Australian currency. Coal Revenue was 21% higher mainly due to higher export sales at higher prices despite the lower volumes at the mines captive to Eskom, combined with lower other domestic sales volumes. Mineral Sands Revenue increased by 42% to R6,6 billion with lower sales volumes recorded at higher prices. Base Metals Revenue increased marginally by 3% as a 1% higher average realised zinc price of US$2 191 per tonne partially offset the lower zinc metal sales volumes. Net operating profit Group consolidated net operating profit was R1 392 million or 53% higher at R4 billion after exclusion of the R869 million partial reversal of the impairment of the carrying value of the property, plant and equipment at KZN Sands accounted for in 2009, as well as the R516 million impairment of the carrying value of the property, plant and equipment at the Zincor refinery. Coal The coal business reported a 24% increase in net operating profit to R3 339 million at an operating margin of 26% as higher selling prices and stronger international demand were only partially negated by lower local demand. The weaker domestic performance was partially as a result of lower demand from AMSA Limited as well as lower sales volumes from the operations tied to Eskom. Despite the lower sales volumes from the mines tied to Eskom, these operations recorded a 66% increase in net operating profit to R309 million, resulting from a revised manner by which the group applies the discount rates on the calculation and recovery of rehabilitation costs contributing R132 million to this number. The net impact of the revised calculation results in additional rehabilitation costs recoverable from Eskom. Mineral Sands The higher revenue recorded translated into a higher consolidated net operating profit of R1 702 million even after excluding the partial impairment reversal of the property, plant and equipment at KZN Sands of R869 million and non-recurring profit recognised on the Tronox International (Tronox) buy back transaction amounting to R107 million. Sales volumes at Namakwa Sands and Australia Sands increased on the back of higher demand. KZN Sands` sales were however lower due to combined furnace unavailability (Furnace 1 down for four months in 2011 and Furnace 2 down for eight months in 2011). The stronger AU$ against the US$ has been partially mitigated by the hedging of US$ receivables of the Australian operation, with realised foreign exchange gains of R90 million in 2011. Base Metals Despite the marginally higher revenue recorded, a net operating loss of R629 million, excluding the impairment of carrying amount of property, plant and equipment at the Zincor refinery, was reported mainly due to the previously announced decision to cease zinc production invariably resulting in an under recovery of fixed expenses. The impact of continued higher than inflation increases in electricity and maintenance expenses also continued to contribute negatively to the base metals results. Rosh Pinah`s operating results were also lower based on lower zinc concentrate production and sales. Other Net expenditure increased primarily from non-recurring costs associated with the implementation of Exxaro`s new operating model and associated technology enablement as well as other project related costs. Earnings Attributable earnings, inclusive of Exxaro`s equity accounted investment in associates, amounted to R7 653 million or 2 199 cents per share, up 47% from 2010`s 1 501 cents per share. Equity accounted investments in the post-tax profits of associates consists of Exxaro`s 19,98% interest in Sishen Iron Ore Company (Pty) Limited (SIOC) of R4 456 million, 26% in Black Mountain Mining (Pty) Limited (Black Mountain) of R210 million and 22% in the Chifeng zinc refinery of R2 million. Headline earnings which exclude, inter alia, the impact of the impairment and partial impairment reversal, were R7 302 million or 2 098 cents per share. This represents a 41% increase on the comparable 2010 earnings of R5 186 million or 1 495 cents per share. Cash flow Cash retained from operations was R6 503 million for the group. This was primarily used to fund net financing charges of R94 million, taxation payments of R502 million, dividend payments of R2 123 million, and capital expenditure of R4 926 million of which R3 301 million was invested in new capacity and R1 625 million applied to sustaining and environmental capital. R3 070 million of the expansion capacity expenditure was for the Grootegeluk Mine Expansion Project (GMEP) for the Medupi power station. After the receipt of R3 525 million in dividends, primarily from SIOC, the group had a net cash inflow of R2 472 million for the year. The final dividend for 2011 will amount to a further cash outflow of approximately R1 771 million offset by the dividend inflow from SIOC of approximately R1 958 million. Net debt of R2 220 million at 31 December 2010 has inverted to a net cash position of R263 million at 31 December 2011. Safety and sustainable development Regrettably three fatalities were suffered during the first seven months of 2011. The group continues to pursue its commitment to a zero injury and fatality environment. In 2012, Exxaro will implement further initiatives to enhance the current safety and risk assessment and control effectiveness drive. The average LTIFR per two hundred thousand man-hours worked improved to 0,20, from 0,25 in 2010, reflecting a 20% improvement year-on-year and below the group`s target at 0,21. The 2011 HIV/AIDS programme target for testing was 75%. This target was exceeded when 86% of employees, including contractors, underwent voluntary testing. The HIV prevalence rate is estimated at 12% of permanent employees (12,8% including contractors) as compared to the industry average of 25%. Exxaro has trained 153 community peer educators around six of the Mpumalanga business units as part of the HIV community awareness programme. The training will be extended to business units in the Waterberg region in 2012. In addition to the 16 Integrated Water Use Licences (IWULs) already granted in terms of National Water Act, No 36 of 1998, two further IWULs were approved and five Environmental Authorisations were granted in terms of the National Environmental Act, No 107 of 1998 in 2011. All 16 Exxaro operated business units have retained their ISO 14001 and OHSAS 18001 certification in 2011. Creating wealth for employees through meaningful empowerment When Exxaro was created in November 2006 following the unbundling of Kumba Resources, MPower was created as part of the group`s commitment to broad based ownership. Only employees up to lower management level qualified to be beneficiaries of the scheme as middle and senior management participate in management share incentives schemes. MPower held approximately 3% of Exxaro`s issued shares with each of the 9 694 beneficiaries` assigned units notionally linked to the shares held by the scheme. Shares held by MPower were sold in the last quarter of 2011, generating over R1 billion for distribution among the beneficiaries. The distribution varied dependent on number of units assigned; in turn based on individual length of MPower membership. Each beneficiary that participated for the full five years of the scheme received a pre-tax distribution of R135 102. In addition to this distribution, MPower has already paid a total of R81,5 million in dividends to participants. Physical information (unaudited) Year ended 31 Six months ended 31 December December
(`000 TONNES) 2011 2010 2011 2010 Coal Production Power station coal 32 532 36 767 16 832 18 498 Tied operations 1 12 441 16 461 6 071 8 096 Commercial operations 20 091 20 306 10 761 10 402 Coking coal 2 161 2 419 920 1 232 Tied operations 1 299 285 165 161 Commercial operations 1 862 2 134 755 1 071 Steam coal 7 337 7 502 3 535 3 984 Char 142 114 65 65 Total 42 172 46 802 21 352 23 779 Sales Eskom coal 32 301 36 428 16 470 18 049 Tied operations 1 12 443 16 438 6 067 8 082 Commercial operations 19 858 19 990 10 403 9 967 Other domestic coal 4 670 5 044 1 840 2 597 Tied operations 1 325 260 159 143 Commercial operations 4 345 4 784 1 681 2 454 Coal export 4 898 4 106 2 814 2 264 Char 129 122 55 70 Total 41 998 45 700 21 179 22 980 Mineral Sands 2 Production Ilmenite 771 718 404 351 Zircon 195 196 101 102 Rutile 67 63 35 35 Synthetic rutile 110 90 56 39 Pig iron (LMPI) 160 153 92 72 Scrap iron 8 12 4 4 Slag tapped 277 262 153 121 Chloride slag 281 232 131 148 Sulphate slag 49 52 23 36 Leucoxene 10 13 5 6 Pigment 76 57 32 32 Total 2 004 1 848 1 036 946 Sales Ilmenite 15 15 Zircon 173 243 81 119 Rutile 66 79 34 44 Synthetic rutile 37 30 21 7 Pig iron (LMPI) 170 194 91 87 Scrap iron 4 3 3 2 Chloride slag 274 264 148 166 Sulphate slag 50 39 22 32 Leucoxene 8 16 4 9 Pigment 71 55 28 31 Total 868 923 447 497 Base Metals Production Zinc concentrate 108 120 55 60 Rosh Pinah 89 101 46 49 Black Mountain 19 19 9 11 Zinc Metal 101 120 44 66 Zincor 73 90 32 47 Chifeng 3 28 30 12 19 Lead concentrate 36 37 16 20 Rosh Pinah 16 19 7 10 Black Mountain 20 18 9 10 Sales Zinc metal sales 114 119 51 60 Domestic 86 90 40 44 Export 28 29 11 16 Lead concentrate sales Export 18 20 11 13 1 Tied operations refer to mines that supply their entire production to either Eskom or AMSA 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. Operations Coal Production Power station coal production at the Eskom tied operations was 24% lower due to previously reported adverse geological conditions at the Arnot mine in March 2011, the closure of the Mooifontein open cast operation as well as the flooding in Mine 2 at M atla in February and June respectively. Production volumes at the commercial mines remained relatively in line with the previous year. Coking coal production declined by 11% because of lower demand from AMSA Limited, partially offset by higher production at Tshikondeni due to the higher contribution from the mini-pits initiated in April 2011. Steam coal production was 2% lower due to lower production at the NBC and NCC mines. The open pit operation at NCC reached the end of its economic life in the first quarter of 2010. This, together with challenging underground conditions, resulted in lower production than in 2010. NBC experienced a combination of challenging geological and equipment problems which led to lower production. Higher production was, however, recorded at Leeuwpan as a result of improved feed tempo to the dense medium separation plant and at Inyanda due to higher plant availability and throughput to meet increased demand. The Char plant production was 25% higher due to improved availability and higher feed rate per hour. Sales Sales of power station coal tonnes to Eskom, were 11% lower as a result of lower production at Matla and Arnot. This was partially offset by higher sales recorded at Leeuwpan. Domestic non-Eskom sales decreased by 9% mainly due to production challenges at NBC. Export sales tonnes were 19% higher than in 2010, mainly as a result of increased performance by Transnet Freight Rail (TFR). Mineral sands Production The consolidated mineral sands business reported an increase in production of most of its products. Lower heavy minerals concentrate production, as the KZN Sands Hillendale mine nears its end of life resulting in lower grades was offset by higher production in Australia as well as at Namakwa Sands from increased side feed. Titanium slag production was also lower at KZN Sands as Furnace 1 and 2 were down for four and eight months respectively. Zircon production reflects a volume increase at Namakwa Sands from better head grades. Lower production in Australia due to lower mineral grades was offset by improved recovery. Rutile production was 6% higher as increased production at Namakwa Sands from improved recovery and higher mineral grades was only partially offset by lower production in Australia. Synthetic rutile production in Australia was 22% higher in 2011 due to the 2010 plant shut which limited production in 2010. Record pigment production was achieved in 2011 as a result of a 28% improvement in performance from the existing plant, complemented by production volume from the pigment plant expansion commissioned in the previous year. Sales The increase in mineral sands product prices coupled with higher demand resulted in increased sales volumes at Namakwa Sands and Australia Sands, offset by lower volumes at KZN Sands due to furnace downtime. Base Metals On 27 July 2011 it was announced that Exxaro was planning to cease zinc production at the Zincor refinery. Following the necessary consultations, Zincor ceased zinc production on 12 December 2011. Production Production of zinc metal at the Zincor refinery of 73kt was 17kt lower than in 2010. Zinc concentrate and lead production at Rosh Pinah were 12kt and 3kt lower than in 2010 respectively. Zinc production grades were however 2% higher due to recovery improvements on the floatation plant. Sales Domestic zinc metal sales at Zincor were 4% lower at 86kt mainly due to lower production as a result of the planned ramp-down. Capital expenditure and project pipeline Exxaro`s growth initiatives are focused on diversifying the business further with carbon,reductants, ferrous and energy projects aligned with the groups approved commodity strategy. Coal Construction on GMEP, to supply Eskom with 14,6Mtpa of coal for the Medupi power station, continues to progress to deliver first coal in May 2012 and is expected to be completed within budget. Overall project progress has increased to 72% completion. The total project spend to date is R4,4 billion with total capital expenditure for the project still forecast at R9,5 billion. Total funds committed to date amount to approximately R6,5 billion. The Thabametsi development project, as a supplier of coal to a base load Independent Power Producer (IPP), is expected to reach first coal production by 2016/17, dependent on the Waterberg IPP and water supply development schedule. Exxaro continues to engage with the relevant stakeholders for the conclusion of implementation plans for an integrated infrastructure for the Waterberg coalfields which will include the supply of water, rail, road and housing requirements. 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 also supply Sasol`s potential new 80 000 barrels per day inland coal to liquids facility (Project Mafutha). The detailed pre- feasibility study for Project Mafutha has now been completed. Based on the findings of the pre-feasibility study, global environmental risks, and in the absence of a commercially viable carbon emission solution which is realistically not anticipated before 2020, the decision has been taken to not proceed with Project Mafutha at this stage. Studies regarding the evaluation of the Phase 2 expansion of the Sintel Char plant to produce an additional 140Ktpa of char and the production of market coke from semi-soft coking coal at Grootegeluk continue to progress. The studies are still expected to be completed in the second half of 2012. Exxaro`s application for a mining right for the Belfast project has been accepted by the DMR. The bankable feasibility study is expected to be completed by the second quarter of 2012. Specialist studies, as required by the National Environmental and National Water Acts, were submitted to the relevant authorities in the fourth quarter of 2011. Start-up and first production is expected to be in 2014. A concept study completed on the Moranbah South project indicated high potential for a dual long wall mine to produce between 10 and 12 Mtpa of premium quality hard coking coal. The pre-feasibility study commenced in 2011 and is expected to be completed in the second quarter of 2012,whereafter a bankable feasibility study will commence. Mineral Sands On 26 September 2011, Exxaro and Tronox announced that New Tronox will acquire Exxaro`s mineral sands operations, which include Exxaro`s 50% interest in the Tiwest Joint Venture with Tronox in Western Australia, along with 74% of Exxaro`s KZN Sands and 74% of Namakwa Sands operations in South Africa, in exchange for approximately a 38,5% shareholding in New Tronox. The long term partnership is expected to enhance production capabilities and implement technical efficiencies in the integrated process, creating a truly global, vertically integrated titanium dioxide pigment producer. This is expected to result in a strong platform for future growth uniquely positioned to capitalise on favourable market dynamics and to serve the needs of the ever growing pigment and zircon customer base across the globe. It is still expected that the transaction will close in the second quarter of 2012 following New Tronox shareholder and regulatory approvals. Exxaro awaits the customary regulatory and environmental approvals for the Fairbreeze project before construction can commence. Such approvals were not obtained in the second half of 2011 as previously expected. Detailed design was however completed in the second half of 2011. The department of Agriculture, Environmental Affairs and Rural Development requires additional information of Fairbreeze`s Basic Assessment Report on air quality, traffic and agricultural studies, as well as rehabilitation reports. This report, with the requested information, was sent on 9 February 2012 to Interested and Affected Parties for review by 9 March 2012 and Exxaro also awaits the decision from the relevant authorities by the end of June 2012. Commissioning is now only expected in the first half of 2014. A partial reversal of the previous impairments of the carrying value of the property, plant and equipment at KZN Sands was made in the second half of 2011. A decision on the reversal of the remaining portion will be taken once the regulatory and environmental approvals for Fairbreeze have been obtained. Base Metals The formal process to divest from the base metals business commenced early in May 2011. Exxaro received several offers for the Rosh Pinah zinc and lead mine in Namibia, following which it has entered into an agreement relating to the disposal of its 50,04% shareholding in, and claims against, Rosh Pinah Zinc Corporation to a subsidiary of Glencore International AG for R939 million, subject to final working capital and net debt adjustments. The transaction agreement contains terms and conditions that are customary for transactions of this nature, including, inter alia, regulatory approvals to be obtained in Namibia and South Africa. It is expected that the transaction will be completed by the second quarter of 2012. No offer was received for the Zincor zinc refinery in Springs, South Africa. It was consequently decided to cease zinc production at Zincor due to the refinery becoming uneconomical as a result of the high cost of zinc feedstock as well as escalating transport, electricity and labour costs. Zinc production was ramped down and finally ceased during December 2011. The refinery has been put on care and maintenance with a team appointed to evaluate any potential future use of the facility`s assets. In addition to the impairment of the carrying value of the property, plant and equipment at Zincor made on 30 June 2011, additional impairments were also made in the second half of 2011 arising from capital commitments for the remainder of 2011. Although discussions for the divestment of Exxaro`s shareholding in the Chifeng zinc refinery in China were well advanced, the potential buyer was unable to meet contractual obligations and the transaction was terminated. Exxaro still plans to sell this business and renewed efforts will be made during 2012 to divest from this asset. Energy Exxaro continues to explore opportunities in the energy markets with a focus on cleaner energy initiatives. To this end, Exxaro and its new equity partner have agreed all the salient points of the shareholders` agreement and will aim to sign the definitive agreement by the end of the first quarter of 2012. Exxaro intends submitting five renewable energy projects in terms of the South African government`s drive to procure 3 725MW of renewable energy electricity from the private sector. These projects will be submitted in the second window of submission, which closes on 5 March 2012, through the Department of Energy`s (DoE) Request for Qualification and Proposals for new Generation Capacity under the IPP Procurement Programme issued on 3 August 2011. The five projects entail two solar projects and three wind projects. The board of directors approved the outcome of the bankable feasibility study for a 14MW co-generation plant at Namakwa Sands in the third quarter of 2011. Construction of the power plant is expected to start in the second quarter of 2012, with commercial operation date planned for the fourth quarter of 2012. The Clean Development Mechanism registration of this project is underway. The pre-feasibility study for the 60MW co-generation plant at Grootegeluk mine is in the final stages and is now expected to be completed in the first half of 2012. The facilitation for the development of a 600MW coal-fired base load power station in the Waterberg is underway. Non-binding term sheets for the off- take of 1 150MW of electricity have been signed between Exxaro and industrial off-takers. Four base load IPPs have been selected, with the preferred bidder expected to be selected in the first half of 2012. The pre-feasibility study of the project will progress during 2012 and a bankable feasibility study is planned conditional to the establishment of appropriate enabling environment in which such a development can proceed. A clearer indication of the potential for economic gas flow by means of the evaluation of opportunities for underground coal gasification in both South Africa and Botswana, is now only expected in the first half of 2012. Ferrous AlloyStream`slarge scale demonstration facility to commercialise the technology for beneficiation of manganese ore into high carbon ferromanganese alloy together with Assmang Limited, is expected to be commissioned in the first quarter of 2012. The Ferromanganese furnace (Project Letaba) demonstration facility was completed in the fourth quarter of 2011. Subsequent to the reporting date of 31 December 2011 and further to the unsuccessful offmarket takeover bid for Australian junior miner Territory Resources, Exxaro, through its wholly-owned subsidiary Exxaro Australia Iron Investments (Pty) Limited, launched an off-market takeover bid for African Iron Limited. This offer initially remained open for acceptances until 14 February 2012. By 14 February 2012 Exxaro obtained a shareholding of 66,6% in African Iron Ore Limited, with the offer automatically extended by a further 14 days until 28 February 2012, in line with the Australian stock exchange takeover rules. African Iron Limited is an Australian-listed and domiciled iron ore development company working on the exploration and evaluation of the Mayoko Iron Ore and Ngoubou-Ngoubou Projects, located approximately 300km north-east of Pointe-Noire in the Republic of Congo in central West Africa. It owns a 92% interest in the Mayoko Iron Ore Project which currently has a Joint Ore Reserves Committee (JORC) code compliant mineral resource of 121 million tonnes of iron ore. The Mayoko Iron Ore Project represents a near term development opportunity in an emerging iron ore province in central West Africa with an existing underutilised, heavy haulage mineral railway passing within 2km of the main prospect. African Iron`s second opportunity is its 85% interest in the 944km2 Ngoubou-Ngoubou Authority to Prospect, which is contiguous with Mayoko. African Iron Limited`s assets provide an excellent match to Exxaro`s stated objective of gaining operational exposure in iron ore and represent a reasonably sized opportunity, which will allow Exxaro to leverage its bulk commodity and iron ore expertise. Conversion of mining rights All of Exxaro`s old order mining licences have been converted to mining rights. The converted mining rights for Grootegeluk and Gravelotte have been executed in the second half of 2011. The DMR has confirmed the granting of converted mining rights for Tshikondeni, Matla, Strathrae, Arnot and Glisa. These rights still need to be scheduled for execution by the DMR. Exxaro is continuously in consultation with the different regional offices of the DMR to expedite the execution process. Outlook for 2012 Greater emphasis will be placed to create and maintain a safe, healthy and environmentally friendly working environment. The group`s consolidated results for 2012 will continue to be impacted by the trading levels of the local currency and the AU$ against the US$. At 31 December 2011 Exxaro had US$200 million of hedging in place at an average exchange rate of R7,56 for the local operations as well as US$17 million at an average rate of US$0,97 to the AU$ for the Australian operation. The coal business will continue to focus optimising and growing its market position in the supply of coal to Eskom as well as the other domestic and export markets while considering alternatives to increase export volumes. Continued reliable performance from TFR and a progressive increase in allocation at the Richards Bay Coal Terminal remain paramount. International coal prices are expected to decrease in 2012 along with lower coking prices while volumes to Eskom and AMSA Limited should remain stable. Mineral sands` short to medium term focus remains the granting of relevant regulatory approvals for the construction of Fairbreeze, as well as the finalisation of the New Tronox transaction. Feedstock prices should increase significantly supported by higher demand. A recovery in demand for Zircon is also expected in the second quarter of 2012. Base metals finalisation of the sale of Rosh Pinah to a subsidiary of Glencore International AG is expected in the second quarter of 2012, whilst the future application of the Zincor plant is still under investigation. The financial information on which the outlook statement is based has not been reviewed nor reported on by the group`s auditors. Changes to the board Ms N Langeni resigned as non-executive director effective 18 January 2012. The board expressed its sincere appreciation for her contribution during her term of office. As a result of the resignation, Ms S Dakile-Hlongwane was appointed as non-executive director of the board on 21 February 2012, as the Basadi Ba Kopane Investments (Pty) Limited nominated representative. Maria Susanna (Marie) Viljoen, Company Secretary of first Kumba Resources Limited and then Exxaro since 1 August 2001, retired with effect 30 June 2011. The board expressed its sincere appreciation for her service during her term of office. The board of directors appointed Catharina Helena (Carina) Wessels as Group Company Secretary with effect 1 July 2011. 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. Final dividend The board of directors has declared a final cash dividend number 18 of 500 cents per share in respect of the 2011 final dividend. 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, 30 March 2012. 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, 23 March 2012 Shares trade ex dividend Monday, 26 March 2012 Record date Friday, 30 March 2012 Payment date Monday, 02 April 2012 Share certificates may not be dematerialised or rematerialised during the period Monday, 26 March 2012 and Friday, 30 March 2012, both days inclusive. On Monday, 02 April 2012 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 02 April 2012 will be posted on that date. Shareholders who have dematerialised their share certificates will have their accounts at their Central Securities Depository Participant (CSDP) or broker credited on Monday, 02 April 2012. On behalf of the board: Len Konar SiphoNkosi Wim de Klerk Chairman Chief Executive Officer Finance Director 21 February 2012 Registered Office Exxaro Resources Limited Roger Dyason Road Pretoria West, 0183 Tel no +27 12 307 5000 Fax no +27 12 323 3400 Transfer Secretaries Computershare Investor Services (Pty) Limited Ground Floor, 70 Marshall Street Johannesburg, 2001 PO Box 61051, Marshalltown, 2107 This report is available at: www.exxaro.com Directors: Dr D Konar (Chairman), SA Nkosi (Chief Executive Officer), WA de Klerk (Finance Director), S Dakile-Hlongwane , JJ Geldenhuys, CI Griffith, U Khumalo, VZ Mntambo, RP Mohring, NL Sowazi, J van Rooyen, D Zihlangu Prepared under supervision of: WA de Klerk (CA) SA, SAICA registration number: 00133273 Group Company Secretary: CH Wessels (+27 12 307 4384) Investor Relations: P Lebina (+27 12 307 3081) Sponsor: Deutsche Securities SA Proprietary Limited (+27 11 775 7000) If you have any queries regarding your shareholding in Exxaro Resources Limited, please contact the Transfer Secretaries at +27 11 370 5000. www.exxaro.com Date: 23/02/2012 07:05:44 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. 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