Wrap Text
Reviewed condensed group financial statements for the year ended 31 December 2014
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 condensed group financial statements and unreviewed production and sales volumes information
for the year ended 31 December 2014
Salient features
- Regrettable fatality on 5 July 2014
- Maintained lost-time injury frequency rate (LTIFR) at 0,19
40% below coal industry average
- Coal production volumes at 39,1 million tonnes, up 1%
- Coal exports at 5,3 million tonnes, up 19%
- Headline earnings per share of 1 372 cents, down 6%
- Final dividend of 210 cents per share, total dividend of 470 cents per share, down 15%
Condensed group statement of comprehensive income
2014 2013
Reviewed Audited
For the year ended 31 December Rm Rm
Revenue 16 401 13 568
Operating expenses (note 5) (15 197) (12 576)
Operating profit 1 204 992
Other income (note 6) 1 466 1 594
Impairment charges of non-current assets (note 7) (5 962) (143)
Net operating (loss)/profit (3 292) 2 443
Finance income (note 8) 80 81
Finance costs (note 8) (183) (367)
Income from financial assets 9 12
Share of income from equity-accounted investments (note 9) 2 515 3 631
(Loss)/profit before tax (871) 5 800
Income tax expense (13) (645)
(Loss)/profit for the year from continuing operations (884) 5 155
Profit for the year from discontinued operations (note 10) 1 049
(Loss)/profit for the year (884) 6 204
Other comprehensive income (OCI), net of tax 1 190 2 640
Items that will not be reclassified to profit or loss: (316) 150
Share of comprehensive (loss)/income of equity-accounted investments (316) 150
Items that may be subsequently reclassified to profit or loss: 1 506 2 490
Unrealised gains on translating foreign operations 224 537
Revaluation of available-for-sale financial assets 345 100
Share of comprehensive income of equity-accounted investments 937 1 853
Total comprehensive income for the year 306 8 844
(Loss)/profit attributable to:
Owners of the parent (883) 6 217
- continuing operations (883) 5 168
- discontinued operations 1 049
Non-controlling interests (1) (13)
- continuing operations (1) (13)
(Loss)/profit for the year (884) 6 204
Total comprehensive income/(loss) attributable to:
Owners of the parent 307 8 854
- continuing operations 307 7 805
- discontinued operations 1 049
Non-controlling interests (1) (10)
- continuing operations (1) (10)
Total comprehensive income for the year 306 8 844
2014 2013
Reviewed Audited
For the year ended 31 December cents cents
Attributable (losses)/earnings per share
Aggregate
- basic (249) 1 751
- diluted (248) 1 746
Continuing operations
- basic (249) 1 456
- diluted (248) 1 452
Discontinued operations
- basic 295
- diluted 294
Headline earnings/(losses) per share
Aggregate
- basic 1 372 1 463
- diluted 1 368 1 459
Continuing operations
- basic 1 372 1 470
- diluted 1 368 1 466
Discontinued operations
- basic (7)
- diluted (7)
Refer to note 11 for details regarding the number of shares.
Reconciliation of group headline earnings
Gross Tax Net
Rm Rm Rm
For the year ended 31 December 2014 (Reviewed)
Loss attributable to owners of the parent (883)
Adjusted for:
- IFRS 10 Loss on disposal of subsidiary 28 28
- IAS 16 Net losses on disposal of property, plant
and equipment 27 (6) 21
- IAS 2 Gains on translation differences recycled to
profit or loss on the liquidation of a foreign subsidiary (47) (47)
- IAS 28 Loss on dilution of investment in associates 58 58
- IAS 28 Share of associates’ separate identifiable remeasurements 296 (18) 278
- IAS 36 Impairment of property, plant and equipment 4 740 (552) 4 188
- IAS 36 Impairment of intangible asset 202 202
- IAS 36 Impairment of goodwill acquired in a business combination
in terms of IFRS 3 1 020 1 020
- IAS 38 Loss on the write-off of intangible assets 4 4
Headline earnings 6 328 (576) 4 869
- continuing operations 4 869
For the year ended 31 December 2013 (Audited)
Profit attributable to owners of the parent 6 217
Adjusted for:
- IFRS 10 Gain on disposal of subsidiary (964) (964)
- IAS 16 Net losses on disposal of property, plant and equipment 9 (4) 5
- IAS 28 Loss on dilution of investment in associates 12 12
- IAS 28 Share of associates’ separate identifiable remeasurements (114) 2 (112)
- IAS 36 Impairment of property, plant and equipment 292 (11) 281
- IAS 36 Reversal of impairment of property, plant and equipment (247) (247)
- IAS 38 Loss on the write-off of intangible assets 2 2
Headline earnings (1 010) (13) 5 194
- continuing operations 5 218
- discontinued operations (24)
Condensed group statement of financial position
2014 2013
Reviewed Audited
At 31 December Rm Rm
ASSETS
Non-current assets 41 408 44 681
Property, plant and equipment 18 344 20 342
Biological assets 84 72
Intangible assets (note 13) 34 1 176
Investments in associates (note 14) 18 588 19 207
Investments in joint ventures (note 15) 966 861
Financial assets (note 19) 2 853 2 657
Deferred tax 539 366
Current assets 5 693 4 483
Inventories 998 938
Trade and other receivables 2 611 2 434
Current tax receivable 78 82
Cash and cash equivalents 2 006 1 029
Non-current assets held-for-sale (note 16) 328 342
Total assets 47 429 49 506
EQUITY AND LIABILITIES
Capital and other components of equity
Share capital 2 409 2 396
Other components of equity 6 031 4 234
Retained earnings 25 985 29 668
Equity attributable to owners of the parent 34 425 36 298
Non-controlling interests (26)
Total equity 34 425 36 272
Non-current liabilities 9 182 9 157
Interest-bearing borrowings (note 17 and 19) 2 976 3 569
Non-current provisions 2 219 1 863
Post-retirement employee obligations 167 149
Financial liabilities 88 95
Deferred tax 3 732 3 481
Current liabilities 3 590 3 852
Trade and other payables 3 208 2 867
Interest-bearing borrowings (note 17 and 19) 34 31
Current tax payable 27 131
Current provisions 254 17
Overdraft (note 17 and 19) 67 806
Non-current liabilities held-for-sale (note 16) 232 225
Total equity and liabilities 47 429 49 506
Group statement of changes in equity
Other components of equity
Foreign Financial Retirement Available- Attributable to Non-
Share currency instruments Equity- benefit for-sale Retained owners of controlling Total
capital translations revaluations settled obligation revaluations Other earnings the parent interests equity
For the year ended 31 December Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm
At 1 January 2013 (Audited) 2 374 1 211 21 1 300 (163) (733) 24 784 28 794 12 28 806
Profit/(loss) for the year 6 217 6 217 (13) 6 204
Other comprehensive income 534 100 634 3 637
Share of comprehensive income of
equity-accounted investments 1 401 289 110 150 (1) 54 2 003 2 003
Issue of share capital 1 22 22 22
Share-based payments movement 83 83 83
Dividends paid (1 387) (1 387) (1 387)
Acquisition of non-controlling interest (68) (68) (28) (96)
Balance at 31 December 2013 (Audited) 2 396 3 146 310 1 493 (13) 100 (802) 29 668 36 298 (26) 36 272
Loss for the year (883) (883) (1) (884)
Other comprehensive income 224 345 569 569
Share of comprehensive income/(loss) of
equity-accounted investments 827 (194) 310 (316) (63) (6) 63 621 621
Issue of share capital 1 13 13 13
Share-based payments movement (108) (108) (108)
Dividends paid (2 055) (2 055) (2 055)
Reclassification of equity 2 808 (808)
Disposal and liquidation of subsidiaries3 (30) (30) 27 (3)
Balance at 31 December 2014 (Reviewed) 2 409 4 167 116 1 695 (329) 382 25 985 34 425 34 425
1 Vesting of treasury shares held by Mpower 2012 to good leavers. A good leaver is a participant to a share-based
payment scheme whose employment has been terminated due to retrenchment, retirement, death, serious disability,
serious incapacity or promotion out of the relevant qualification category as defined internally by the remuneration
and nominations committee.
2 Reclassification of reserves created for transactions with non-controlling interests.
3 Included in foreign currency translations is R17 million in respect of loss on translation difference on disposal
of subsidiary and R47 million gain on translation difference on the liquidation of a foreign subsidiary.
Final dividend paid per share (cents) in respect of the 2013 financial year 315
Dividend paid per share (cents) in respect of the 2014 interim period 260
Final dividend payable per share (cents) in respect of the 2014 financial year 210
Foreign currency translations
Arise from the translation of the financial statements of foreign operations within the group.
Financial instruments revaluations
Comprise the effective portion of the cumulative net change in the fair value of cash flow hedging instruments where
the hedged transaction has not yet occurred.
Equity-settled
Represents the fair value of services received and settled by equity instruments granted.
Retirement benefit obligation
Comprises remeasurements on the post-retirement obligation.
Available-for-sale revaluations
Comprise the fair value adjustments net of tax on the investments in Richards Bay Coal Terminal (RBCT) R344 million
(2013: R54 million) and Chifeng Kumba Hongye Corporation Limited (Chifeng) R1 million (2013: R46 million)
(refer to note 19).
Condensed group statement of cash flows
2014 2013 1
Reviewed Audited
For the year ended 31 December Rm Rm
Cash flows from operating activities 1 660 436
Cash generated by operations 4 083 2 173
Interest paid (307) (262)
Interest received 59 70
Tax paid (120) (158)
Dividends paid (2 055) (1 387)
Cash flows from investing activities 620 (1 480)
Property, plant and equipment to maintain operations (note 12) (1 460) (1 257)
Property, plant and equipment to expand operations (note 12) (1 737) (3 507)
Increase in investment in intangible assets (25) (201)
Proceeds from disposal of property, plant and equipment 8 17
Decrease in investment in other non-current assets 214 222
Proceeds from disposal of subsidiaries 87
Increase in investment in joint ventures (108) (82)
Income from investments in associates 3 719 3 229
Dividend income from financial assets 9 12
Cash flows from financing activities (604) 715
Interest-bearing borrowings raised 800
Interest-bearing borrowings repaid (604)
Consideration paid to non-controlling interests (96)
Proceeds from issuance of share capital 14
Other financing activities (3)
Net increase/(decrease) in cash and cash equivalents 1 676 (329)
Cash and cash equivalents at beginning of year 223 553
Translation differences on movement in cash and cash equivalents 40 (1)
Cash and cash equivalents at end of year 1 939 223
Cash and cash equivalents 2 006 1 029
Overdraft (67) (806)
Refer to note 10 for cash flows from discontinued operations.
1 Represented between cash generated by operations and translation differences on movement in cash and cash
equivalents due to a reclassification of foreign currency differences not related to cash and cash equivalents.
Notes to the reviewed condensed group financial Statements
for the year ended 31 December
1. Corporate information
Exxaro Resources Limited (Exxaro), a public company incorporated in South Africa, is a diversified resources
group with interests in the coal (controlled and non-controlled), titanium dioxide (TiO2) (non-controlled),
ferrous (controlled and non-controlled) and energy (non-controlled) markets. These reviewed condensed group
financial statements as at and for the year ended 31 December 2014 comprise the company and its subsidiaries
(together referred to as the group) and the group’s interest in associates and joint ventures.
2. Basis of accounting
2.1 Statement of compliance
The reviewed condensed group financial statements as at and for the year ended 31 December 2014 have 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 requirements for provisional reports and the
requirements of the Companies Act No 71 of 2008. The Listings Requirements of the JSE Limited (JSE) require
provisional reports to be prepared in accordance with the conceptual framework and the measurement and
recognition requirements of International Financial Reporting Standards (IFRS) and the SAICA Financial Reporting
Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial
Reporting Standards Council and to also, as a minimum, contain the information required by IAS 34 Interim Financial
Reporting.
The reviewed condensed group financial statements should be read in conjunction with the group annual
financial statements as at and for the year ended 31 December 2013, which have been prepared in accordance
with IFRS as issued by the International Accounting Standards Board (IASB). The reviewed condensed group
financial statements have been prepared on the historical cost basis, excluding financial instruments and
biological assets, which are at fair value.
The reviewed condensed group financial statements of Exxaro and its subsidiaries for the year ended
31 December 2014 were authorised for issue by the board of directors on 3 March 2015.
2.2 Judgements and estimates
In preparing these reviewed condensed group financial statements, management made judgements, estimates and
assumptions that affect the application of accounting policies and the reported amounts of assets,
liabilities, income and expense. Actual results may differ from these estimates. The significant judgements
made by management in applying the group’s accounting policies and the key source of estimation uncertainty
were similar to those applied to the group annual financial statements as at and for the year ended
31 December 2013.
3. Significant accounting policies
The accounting policies adopted in the preparation of the reviewed condensed group financial statements are in
line with IFRS and are consistent with those followed in the preparation of the group’s annual financial statements
for the year ended 31 December 2013, except for the adoption of new standards and interpretations effective
1 January 2014 (where applicable).
The accounting standards and amendments issued to accounting standards and interpretations which are relevant
to the group, but not yet effective at 31 December 2014, 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 standards and amendments.
The nature and the impact of each new standard or amendment, effective on 31 December 2014, are described below:
Investment entities (amendments to IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interest
in Other Entities and IAS 27 Separate Financial Statements)
These amendments provide an exception to the consolidation requirement for entities that meet the definition
of an investment entity under IFRS 10. The exception requires investment entities to account for subsidiaries
at fair value through profit or loss. These amendments have no impact on the group, since none of the entities
in the group qualify to be classified as investment entities under IFRS 10.
Offsetting financial assets and financial liabilities (amendments to IAS 32 Financial instruments: Presentation)
These amendments clarify the meaning of “currently has a legally enforceable right to offset” as well as the
criteria for non-simultaneous settlement mechanisms of clearing houses to qualify for offsetting. These
amendments have no impact on the group as the group does not offset financial assets and financial
liabilities.
Novation of derivatives and continuation of hedge accounting (amendments to IAS 39 Financial instruments:
Recognition and Measurement)
These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated
as a hedging instrument meets certain criteria. These amendments have no impact on the group as the group has
not novated its derivatives during the current or prior periods.
Recoverable amount disclosures for non-financial assets (amendments to IAS 36 Impairment of Assets)
These amendments remove the unintended consequences of IFRS 13 Fair Value Measurement on the disclosure
required under IAS 36. In addition, these amendments require disclosure of the recoverable amounts for the
assets or cash-generating units (CGUs) for which an impairment loss has been recognised or reversed during the
period. The group adopted these disclosure requirements on 1 January 2014.
4. Segmental information
Operating segments are reported on in a manner consistent with the internal reporting provided to the chief
operating decision maker. The chief operating decision maker, who is responsible for allocating resources and
assessing performance of the reportable operating segments, has been identified as the group executive
committee. Operating segments reported are based on the group’s different products and operations.
Total operating segment revenue, which excludes Value Added Tax (VAT), represents the gross value of goods
and services invoiced and includes operating revenues directly and reasonably allocable to the segments.
Export revenue is recorded according to the relevant sales terms, when the risks and rewards of ownership are
transferred.
Segment revenue includes sales made between segments. These sales are made on a commercial basis.
Segment operating expenses, assets and liabilities represent direct or reasonably allocable operating expenses,
assets and liabilities.
Segment net operating profit equals segment revenue less operating segment expenses, less impairment charges,
plus impairment reversals.
The group has four reportable operating segments, as described below, based on the group’s strategic divisions.
The strategic divisions offer different products and services and are managed separately. For each of the
strategic divisions, the group executive committee reviews internal management reports on a monthly basis. The
summary below describes the activities and location of each of the group’s reportable operating segments:
Coal
The coal operations are mainly situated in the Waterberg and Mpumalanga regions and are split between
commercial and tied coal operations as well as a 50% joint venture interest in Mafube Coal Proprietary Limited
(Mafube). The operations produce thermal, metallurgical and semi-coking coal.
Ferrous
The ferrous operations include the group’s investment in African Iron Ore Limited (AKI) and a 19,98% equity
interest in Sishen Iron Ore Company Proprietary Limited (SIOC). Investments in the FerroAlloys and Alloystream™
operations are collectively referred to as the Alloys operations.
TiO2
Exxaro holds a 43,98% (2013: 44,40%) equity interest in Tronox Limited (Tronox), a 26% equity interest in each of
the South African-based operations, Tronox KZN Sands Proprietary Limited and Tronox Mineral Sands Proprietary
Limited (collectively referred to as Tronox SA) as well as a 26% members’ interest in Tronox Sands Limited
Liability Partnership in the United Kingdom (Tronox UK).
Other
The other operating segment includes the 50% investment in Cennergi Proprietary Limited (Cennergi) (a joint
venture with Tata Power), a 26% equity interest in Black Mountain Mining Proprietary Limited (Black Mountain),
an effective investment of 11,7% in the Chifeng operations as well as the results of Exxaro Base Metals which
was sold during 2013.
The following table presents a summary of the group’s segmental information:
Coal Ferrous TiO2 Other
Tied Commercial Iron Alloys Base
operations operations ore Rm Other metals Other Total
For the year ended 31 December 2014 (Reviewed) Rm Rm Rm Rm Rm Rm Rm Rm
Total revenue 4 577 11 601 159 14 67 16 418
Inter-segmental revenue (2) (14) (1) (17)
External revenue 4 577 11 599 159 66 16 401
Segment net operating profit/(loss) 319 2 978 (6 100) (97) (41) (1) (350) (3 292)
External finance income (note 8) 4 43 33 80
External finance costs (net of borrowing costs
capitalised) (note 8) (69) (112) (2) (183)
Income tax (expense)/benefit (53) (751) 624 23 90 54 (13)
Depreciation and amortisation (note 5) (43) (734) (8) (4) (4) (96) (889)
Impairment charge of non-current assets
(excluding financial assets) (note 7) (5 751) (9) (202) (5 962)
Write-off and impairment of trade and other
receivables (note 5) (1) (22) (17) (40)
Impairment charges of non-current financial assets (note 5) (21) (21)
Cash generated by/(utilised in) operations 95 4 365 (75) (64) (109) (129) 4 083
Share of income/(loss) from equity-accounted investments
(note 9) 268 2 830 (568) 77 (92) 2 515
Capital expenditure (note 12) (2 576) (352) (42) (104) (123) (3 197)
At 31 December 2014 (Reviewed)
Segment assets and liabilities
Deferred tax 4 41 57 123 103 211 539
Investments in associates (equity-accounted) (note 14) 5 422 12 809 357 18 588
Investments in joint ventures (equity-accounted) (note 15) 818 148 966
External assets1 1 883 22 075 81 124 16 267 2 562 27 008
Total assets 1 887 22 934 138 247 5 541 12 809 624 2 921 47 101
Non-current assets held-for-sale (note 16) 303 25 328
Total assets as per statement of financial position 1 887 23 237 138 247 5 566 12 809 624 2 921 47 429
External liabilities 1 523 3 723 139 49 73 3 506 9 013
Deferred tax (71) 3 718 57 5 23 3 732
Current tax payable 10 5 5 7 27
Total liabilities 1 462 7 446 201 54 73 3 536 12 772
Non-current liabilities held-for-sale (note 16) 232 232
Total liabilities as per statement of financial position 1 462 7 678 201 54 73 3 536 13 004
1 Excluding deferred tax and investments in equity-accounted associates and joint ventures and non-current assets held-for-sale.
Coal Ferrous TiO2 Other
Tied Commercial Iron Base
operations operations Ore Alloys Other metals Other Total
For the year ended 31 December 2013 (Audited) Rm Rm Rm Rm Rm Rm Rm Rm Rm
Total revenue 3 917 9 445 120 21 86 13 589
Inter-segmental revenue (21) (21)
External revenue 3 917 9 445 120 86 13 568
Segment net operating profit/(loss) 215 2 554 (27) (61) (53) 145 793 3 566
Net operating profit/(loss) from continuing operations 215 2 554 (27) (61) (53) (14) (171) 2 443
Net operating profit from discontinued operations 159 964 1 123
External finance income (note 8) 4 66 11 81
External finance costs (net of borrowing costs
capitalised)(note 8) (165) (200) (74) (2) (441)
Income tax (expense)/benefit (9) (745) 4 17 12 4 72 (645)
Depreciation and amortisation (note 5) (41) (624) (8) (3) (5) (175) (856)
Impairment (charges)/reversals of non-current assets
(excluding financial assets) (note 7) (143) 98 (45)
Impairment charges of trade and other receivables (note 5) (23) (2) (25)
Cash generated by/(utilised in) operations 75 2 072 (7) (60) (44) 26 111 2 173
Share of income/(loss) from equity-accounted investments (note 9) 129 4 166 (638) 77 (103) 3 631
Capital expenditure (note 12) (2 996) (1 453) (17) (160) (1) (137) (4 764)
At 31 December 2013 (Audited)
Segment assets and liabilities
Deferred tax (36) 80 5 95 53 169 366
Investments in associates (equity-accounted) (note 14) 5 523 13 325 359 19 207
Investments in joint ventures (equity-accounted) (note 15) 528 333 861
External assets1 1 579 19 893 5 109 94 216 252 1 587 28 730
Total assets 1 543 20 501 5 114 189 5 792 13 325 611 2 089 49 164
Non-current assets held-for-sale (note 16) 342 342
Total assets as per statement of financial position 1 543 20 843 5 114 189 5 792 13 325 611 2 089 49 506
External liabilities 1 387 3 046 128 32 12 4 792 9 397
Deferred tax 4 2 872 600 40 (35) 3 481
Current tax payable 18 1 1 111 131
Total liabilities 1 391 5 936 729 33 52 4 868 13 009
Non-current liabilities held-for-sale (note 16) 225 225
Total liabilities as per statement of financial position 1 391 6 161 729 33 52 4 868 13 234
1 Excluding deferred tax and investments in equity-accounted associates and joint ventures and non-current assets held-for-sale.
Year ended 31 December
2014 2013
Reviewed Audited
Rm Rm
5. Significant items included in operating expenses
Depreciation and amortisation 889 856
Net realised foreign currency exchange gains (97) (56)
Net unrealised foreign currency exchange (gains)/losses (7) 20
Net (gains)/losses on derivative instruments held-for-trading (28) 81
Write-offs and impairment of trade and other receivables 1 40 25
Royalties 2 125 8
Net loss on disposal of property, plant and equipment 27 21
Loss on dilution of investment in associate 58 12
Impairment charges of non-current financial assets 3 21
Loss on disposal of subsidiary 28
Termination benefits 4 138 19
1 Include trade and other receivables relating to the Mayoko iron ore project (R22 million).
2 The amount paid in 2013 for royalties includes an adjustment for the prior period
calculations based on final SARS assessments.
3 Non-current financial assets relating to the Mayoko iron ore project.
4 Include voluntary severance package costs incurred and accrued for.
6. Other income
Other income 1 466 1 594
Other income relates to shortfall income received from Eskom as a result of delays in agreed upon production
off-take plans.
Year ended 31 December
2014 2013
Reviewed Audited
Rm Rm
7. Impairment charges/(reversals) of non-current assets
Mayoko iron ore project 5 208
Impairment of property, plant and equipment 4 740
Impairment of goodwill (note 13) 1 020
- total impairment charges 5 760
- net tax effect (552)
Intellectual property 202
Impairment of intangible asset 202
- total impairment charges (pre- and post-tax) 202
New Clydesdale Colliery (NCC) operation 132
Impairment of property, plant and equipment 292
Reversal of impairment of property, plant and equipment (149)
- total impairment charges 143
- net tax effect (11)
Zincor (98)
Reversal of impairment of property, plant and equipment (98)
Net impairment charges per statement of comprehensive income
(including discontinued operations) 5 962 45
Net tax effect (552) (11)
Net effect on attributable earnings 5 410 34
- continuing operations 5 410 132
- discontinued operations (98)
Mayoko iron ore project
The Mayoko iron ore project is located in the Republic of the Congo (RoC) and was acquired in February 2012
through the acquisition of AKI. The project is reported within the iron ore operating segment which forms part
of the ferrous reporting segment.
After the acquisition, Exxaro aimed to secure a mining convention agreement, as well as port and rail access
agreements (project agreements). This included a company mining tax regime with the government of the RoC.
These negotiations were done simultaneously with ongoing work for:
- confirmation of inferred and proven resources; and
- clearing and construction of the infrastructure required to mine the resource.
Based on the conceptual positive business case, a decision was taken to start the project in phases (ramping up
to 2 million tonnes per annum (Mtpa)) as soon as the mining convention and project agreements had been finalised.
Based on the assumption that project agreements would be finalised in a reasonable timeframe, Exxaro began
acquiring assets (such as rolling stock, beneficiation plant, harbour cranes, etc.) and appointing people to permit
fast-track initiation. However, the mining convention was not signed until January 2014 (effectively 10 months
after the original submission) and there has since been slow progress on other required project agreements, which
are still outstanding.
With the time lapse, the financial models (on a 12 million tonnes concept study level) were updated with the
latest assumptions on capital, operational costs, resources and long-term iron ore prices which indicated that
the project may not achieve Exxaro’s required hurdle rates. The major driver of the change in the returns since
acquisition was attributed to higher capital expenditure. At the time of finalising the revised concept study,
Exxaro had not yet been successful in concluding the definitive project agreements.
As a result of the delays in finalising these agreements, as well as higher future project development costs following
the outcome of the concept study, a pre-tax impairment loss of R5 803 million (R5 760 million excluding the impairment
of financial assets and write down of trade and other receivables), was raised consisting of an impairment of
goodwill acquired in the business combination with AKI in 2012 of R1 020 million, impairment of property, plant
and equipment of R4 740 million (including the mineral resource of R1 877 million recognised on acquisition of the
project and project-related costs capitalised of R1 696 million) as well as impairment and write-off of financial
assets amounting to R43 million in terms of IAS 39 Financial Instruments: Recognition and Measurement.
The recoverable amount, being the fair value less costs of disposal (level 3 as per IFRS 13 Fair value Measurement),
was considered to be immaterial and the project was impaired to a recoverable amount of Rnil. This was derived using
a discounted cash flow valuation technique (consistent with the valuation technique used on 31 December 2013) where
cash flow projections and a post-tax discount rate of 17% (31 December 2013: 14%) were used. The increase in the
discount rate is as a result of the market assumptions on risk inherent in the implementation of the project.
Key assumptions made in the valuation, included the following: 31 December 31 December
2014 2013
LoM: estimated at 25 years 35 years
Iron ore price: range US$78/tonne US$88/tonne
and and
US$117/tonne US$169/tonne
Post-tax discount rate 17,0% 14,0%
The values assigned to the key assumptions represented management’s best estimates with respect to its LoM and
operating projections, as well as pricing forecasts. The iron ore price ranges were based on the current known
industry trends and analysis.
The discount rate was a post-tax US-based weighted average cost of capital adjusted for various risk factors, based
on historical data from both external and internal sources.
The decrease in the LoM to 25 years (31 December 2013: 35 years) is mainly due to the increase in annual production
costs, acceleration in ramp-up, lower plant yield and different ore mix, based on the most recent information
available.
Management has identified that a reasonably possible change in two key assumptions could cause the carrying amount
to exceed the recoverable amount. The following table shows the amounts by which these two assumptions would need
to change individually for the estimated recoverable amount to be equal to the carrying amount prior to the
impairment:
Change
Key assumption Unit required
Post-tax discount rate % (8)
Iron ore price: range US$/tonne 17 and 26
Intellectual property
Exxaro has taken the decision not to develop the underground coal gasification project in 2015. The decision is
based on the current economic environment and the expected capital expenditure required for the project. The licence
relating to this technology is not transferable and non-income generating. The licence (intangible asset) has been
fully impaired with a value of R202 million following the revised management intention.
NCC operation
The carrying value of property, plant and equipment of the NCC coal operation, reported within the commercial
operating segment contained in the coal reporting segment, was impaired with R292 million to the recoverable amount
based on impairment tests performed in June 2013. The recoverable amount was revised following the classification
of the NCC operation as held-for-sale at 31 December 2013 due to the signing of the sales agreement of the NCC
operation, which was concluded with Universal Coal Development VII Proprietary Limited (Universal) in January 2014.
As a result of the revision to the recoverable amount, a partial impairment reversal to the amount of R149 million
was recorded on 31 December 2013, bringing the net pre-tax impairment loss recorded to R143 million.
Zincor
The impairment reversal of the carrying value of property, plant and equipment at the Zincor operation was based
on the revised recoverable amount of the operation. The recoverable amount was revised following the sale of Exxaro
Base Metals Proprietary Limited (Exxaro Base Metals), which included the Zincor assets (refer to note 10).
Year ended 31 December
2014 2013
Reviewed Audited
Rm Rm
8. Net financing costs
Finance income 80 81
- interest income 66 48
- finance lease interest income 9 11
- interest income from joint ventures 5 22
Finance costs (net of borrowing costs capitalised) (183) (367)
- interest expense (323) (329)
- unwinding of discount rate on rehabilitation cost (183) (367)
- amortisation of transaction costs (10) (9)
- borrowing costs capitalised1 333 338
Total net financing costs (103) (286)
1 Borrowing costs capitalisation rate of 6,69% (2013: 5,67%).
9. Share of income/(loss) from equity-accounted investments
Associates 2 339 3 605
Listed investments (628) (981)
Tronox Limited (628) (981)
Unlisted investments 2 967 4 586
SIOC 2 830 4 166
Tronox SA (38) 238
Tronox UK 98 105
Black Mountain 77 77
Joint ventures 176 26
Mafube 267 131
South Dunes Coal Terminal Company SOC1 Limited (SDCT) 1 (2)
Cennergi (92) (103)
Share of income from equity-accounted investments 2 515 3 631
1 State-owned company.
At 31 December
2014 2013
Reviewed Audited
Rm Rm
10. Discontinued operations
All the conditions precedent to the sale of Exxaro’s
100% shareholding in Exxaro Base Metals to Lebonix
Proprietary Limited were met on 2 December 2013. The
subsidiary, which included the Zincor operations, was
disposed of for a total consideration of R183 million.
This sale completed the Zincor divestment process,
which commenced with the cessation of the production
of zinc metal at Zincor in 2011 which was followed by
the sale of the Rosh Pinah mine during 2012.
Financial information relating to the discontinued
operations to the date of disposal is set out below:
The financial performance and cash flow information
Revenue
Operating income 61
Impairment reversal of non-current assets 98
Operating profit 159
Gain on disposal of subsidiary 964
Net operating profit 1 123
Finance costs (74)
Profit for the year from discontinued operations 1 049
Cash flow attributable to operating activities 26
Cash flow attributable to investing activities 98
Cash flow attributable to financing activities (37)
Cash flow attributable to discontinued operations 87
11. Dividend distribution
Total dividends paid by the group in 2014 amounted to R2 055 million, made up of a final dividend of
R1 126 million that relates to the year ended 31 December 2013, which was paid in April 2014, as well as an
interim dividend of R929 million, paid in September 2014.
A final dividend for 2014 of 210 cents per share (2013: 315 cents per share) was approved by the board of
directors on 3 March 2015. The dividend is payable on 20 April 2015 to shareholders who will be on the register
at 17 April 2015. This final dividend, amounting to approximately R752 million (2013: R1 126 million), has not
been recognised as a liability in this condensed group financial statements. It will be recognised in
shareholders’ equity in the year ending 31 December 2015.
The dividend declared will be subject to a dividend withholding tax of 15% for all shareholders who are not
exempt from or do not qualify for a reduced rate of dividend withholding tax. The total secondary tax on
companies (STC) credits available for offsetting against the dividend withholding tax amount to Rnil
(2013: R195 million). Exxaro company’s tax reference number is 9218/098/14/4.
Year ended 31 December
2014 2013
Reviewed Audited
Issued share capital as at declaration date (number) 358 115 505 358 115 505
Ordinary shares (million)
- weighted average number of shares 355 355
- diluted weighted average number of shares 356 356
At 31 December
2014 2013
Reviewed Audited
Rm Rm
12. Property, plant and equipment
Capital expenditure
- incurred 3 197 4 764
to maintain operations 1 460 1 257
to expand operations 1 737 3 507
- contracted 2 887 4 204
contracted for the owner controlled group operations 1 402 3 241
group’s share of capital commitments of equity-accounted investments 1 485 963
- authorised, but not contracted 2 160 2 826
13. Intangible assets
Goodwill1
At beginning of year 953 902
Exchange differences on translation 67 51
Impairment charge (1 020)
At end of year 953
Patents and licences2
Gross carrying amount
At beginning of year 232 121
Additions 30 201
Transfer from other assets 1
Write-off (5) (90)
At end of year 258 232
Accumulated amortisation
At beginning of year 9 61
Write-off (1) (88)
Amortisation charge 14 36
At end of year 22 9
Accumulated impairment
Impairment charge 202
At end of year 202
Net carrying amount at end of year 34 1 176
1 Goodwill was allocated to AKI, which is regarded as a single cash-generating unit. Impairment testing was
performed on this goodwill based on fair value less costs of disposal where factors such as iron ore prices
and respective discount rates were considered. The full amount of goodwill was impaired at 30 June 2014
(refer to note 7).
2 Includes software licences, intellectual property, which was impaired on 31 December 2014 (refer to note 7),
as well as an option to receive specific quantities of water from the Eungella water pipeline (Australia) and
the right to receive water from the Zeeland Water Treatment Works (Lephalale).
At 31 December
2014 2013
Reviewed Audited
Rm Rm
14. Investments in associates
Listed investments 9 686 10 267
Tronox Limited 1 9 686 10 267
Unlisted investments 8 902 8 940
SIOC 5 422 5 523
Tronox SA 1 786 1 819
Tronox UK 1 337 1 239
Black Mountain 357 359
Total carrying value of investment in associates 18 588 19 207
1 Fair value based on a listed price (Level 1 within
the IFRS 13 Fair Value Measurement fair value hierarchy). (Rm) 14 122 12 319
- listed share price (US$ per share) 23,88 23,07
15. Investments in joint ventures
Unlisted investments 966 861
Mafube 818 528
SDCT 1
Cennergi 148 333
Total carrying value of investment in joint ventures 966 861
1 The fair value of the investment in SDCT consists of an investment of R1 333 (31 December 2013: R1 333) and a
loan to the joint venture of R83 million (2013: R69 million) disclosed as part of financial assets (note 19).
16. Non-current assets and liabilities held-for-sale
Exxaro concluded a sale of asset agreement relating to the NCC operation with Universal in January 2014. The
sale is conditional to section 11 approval required in terms of the Mineral and Petroleum Resources Development
Act No 28 of 2002 for transfer of the new-order mining right from Exxaro Coal Mpumalanga Proprietary Limited to
the new owners. On 31 December 2014, conditions precedent to the sales agreement with Universal had not been met.
The NCC operation remains a non-current asset classified as held-for-sale on 31 December 2014.
The NCC operation met the relevant recognition criteria to be classified as a non-current asset held-for-sale on
31 December 2013. The NCC operation does not meet the criteria to be classified as a discontinued operation since
it does not represent a separate major line of business, nor does it represent a major geographical area of
operation since it forms part of the Mpumalanga coal region which is reported as part of the commercial coal
operating segment.
The held-for-sale property, plant and equipment also includes farms in the Waterberg region, with a carrying
amount of R25 million on 31 December 2014, which is expected to be sold in 2015.
The major classes of non-current assets and liabilities held-for-sale are as follows:
At 31 December
2014 2013
Reviewed Audited
Rm Rm
ASSETS
Property, plant and equipment 174 149
Deferred tax 65 90
Financial assets 73 67
Inventories 8 8
Trade and other receivables 8 4
- trade receivables 3
- non-financial instrument receivables 5 4
Current tax receivable 24
Total assets 328 342
LIABILITIES
Non-current provisions (158) (144)
Post-retirement employee obligations (4) (3)
Trade and other payables (21) (39)
- trade payables (11) (20)
- other payables (3) (7)
- derivative instruments (9)
- non-financial instrument payables (7) (3)
Current provisions (40) (39)
Current tax payable (9)
Total liabilities (232) (225)
Net assets held-for-sale 96 117
At 31 December
2014 2013
Reviewed Audited
Rm Rm
17. Interest-bearing borrowings
Summary of loans by financial year of redemption
2014 31
2015 34 324
2016 1 392 326
2017 874 1 927
2018 395 329
2019 917 331
2020 onwards 398 332
Total interest-bearing borrowings 3 010 3 600
- current interest-bearing borrowings 2 34 31
- non-current interest-bearing borrowings 3 2 976 3 569
1 During 2014, an addendum to the senior loan facility was signed extending the date of the first capital
repayment to 30 January 2016.
2 The R34 million current portion represents interest capitalised of R44 million reduced by amortised transaction
costs of R10 million.
3 The non-current portion includes R34 million in respect of transaction costs that will be amortised using the
effective interest rate method, over the term of the facilities.
Overdraft
Bank overdraft 67 806
There were no defaults or breaches in terms of interest-bearing borrowings during both reporting periods.
Senior loan facility
During April 2012, Exxaro secured a senior loan facility of R8 billion.
The senior loan facility comprises a:
- term loan facility of R5 billion for a duration of 97 months; and
- revolving credit facility of R3 billion for a duration of 62 months.
Interest is based on JIBAR plus a margin of 2,75% for the term loan and JIBAR plus a margin of 2,50% for
the revolving facility.
The effective interest rate for the transaction costs for the term loan is 0,47%.
Interest is paid on a six monthly basis for the term loan and on a monthly basis for the revolving facility.
The undrawn portion relating to the term loan is R3 billion (2013: R3 billion). The undrawn portion of the
revolving facility is R3 billion (2013: R1,4 billion).
During February 2015 (an event after reporting period), R2,3 billion on the revolving facility, as well as
R2,0 billion on the term loan was drawn down.
Bond issue
In terms of Exxaro’s R5 billion Domestic Medium-Term Note (DMTN) programme, a senior unsecured floating rate
note (bond) of R1 billion was raised during May 2014.
The bond consists of a:
- R480 million senior unsecured floating rate note due 19 May 2017; and
- R520 million senior unsecured floating rate note due 19 May 2019.
Interest is based on JIBAR plus a margin of 1,70% for the R480 million bond and JIBAR plus a margin of 1,95%
for the R520 million bond.
The effective interest rates for the transaction costs are 0,13% for the R480 million bond and 0,08% for the
R520 million bond.
Interest is paid on a three monthly basis for both bonds.
Bank overdraft
The bank overdraft is repayable on demand and interest payable is based on current South African money market
rates.
At 31 December
2014 2013 1
Reviewed Audited
Rm Rm
18. Net debt
Net debt is presented by the following items on the face of the statement of financial
position (excluding assets and liabilities held-for-sale): (1 071) (3 377)
- cash and cash equivalents 2 006 1 029
- non-current interest-bearing borrowings (2 976) (3 569)
- current interest-bearing borrowings (34) (31)
- overdraft (67) (806)
Calculation of movement in net debt:
Cash inflow/(outflow) from operating and investing activities: 2 280 (1 044)
Add:
- shares issued 14
- share-based payments (2)
- non-cash flow movement for interest accrued not yet paid (4) (40)
- non-cash flow amortisation of transaction costs (10) (9)
- consideration paid to non-controlling interests (96)
- translation differences on movements in cash and cash equivalents 40 (1)
Decrease/(increase) in net debt 2 306 (1 178)
1 Represented between cash generated from operations and translation differences on movements in cash and cash
equivalents due to a reclassification of foreign currency difference not related to cash and cash equivalents.
19. Financial instruments
(a) Carrying amounts and fair values
The carrying amounts and fair values of financial assets and financial liabilities in the condensed group
statement of financial position, are as follows:
At 31 December
2014 2013
Reviewed Audited
Carrying Carrying
amount Fair value amount Fair value
Rm Rm Rm Rm
ASSETS
Non-current assets
Financial assets, consisting of: 2 693 2 693 2 469 2 469
- Environmental Rehabilitation Funds 826 826 618 618
- Loans to joint ventures 83 83 255 255
- Kumba Iron Ore Limited 22 22 40 40
- Chifeng 267 267 253 253
- RBCT 973 973 551 551
- New Age Exploration Limited 1 1
- Non-current receivables 522 522 751 751
Current assets 1 4 104 4 104 2 875 2 875
Trade and other receivables 2 090 2 090 1 845 1 845
Derivative financial assets 8 8 1 1
Cash and cash equivalents 2 006 2 006 1 029 1 029
Non-current assets held-for-sale 76 76 67 67
Total financial instrument assets 6 873 6 873 5 411 5 411
LIABILITIES
Non-current liabilities 2 976 2 976 3 569 3 569
Interest-bearing borrowings 2 2 976 2 976 3 569 3 569
Current liabilities 1 2 603 2 603 2 907 2 907
Trade and other payables 2 502 2 502 2 056 2 056
Derivative financial liabilities 14 14
Interest-bearing borrowings 2 34 34 31 31
Overdraft 67 67 806 806
Non-current liabilities held-for-sale 14 14 36 36
Total financial instrument liabilities 5 593 5 593 6 512 6 512
1 Carrying amounts approximate the fair values due to the short-term nature of the maturities of these financial assets and liabilities.
2 Carried at amortised cost representing fair value in terms of IAS 39 Financial Instruments: Recognition and Measurement.
(b) Fair value hierarchy
The table below analyses recurring fair value measurements for financial assets and financial liabilities.
These fair value measurements are categorised into different levels in the fair value hierarchy based on the
inputs to the valuation techniques used. The different levels are defined as follows:
Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities that the group
can access at the measurement date.
Level 2 - inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly or indirectly.
Level 3 - unobservable inputs for the asset and liability.
Level 1 Level 2 Level 3 Total
At 31 December 2014 (Reviewed) Rm Rm Rm Rm
Financial assets held-for-trading at fair value through profit or loss
- Current derivative financial assets 8 8
Financial assets designated at fair value through profit or loss
- Environmental Rehabilitation Funds 826 826
- Environmental Rehabilitation Fund held-for-sale 73 73
- Kumba Iron Ore Limited 22 22
Available-for-sale financial assets
- Chifeng 267 267
- RBCT 973 973
Net financial assets carried at fair value 921 8 1 240 2 169
Level 1 Level 2 Level 3 Total
At 31 December 2013 (Audited) Rm Rm Rm Rm
Financial assets held-for-trading at fair value through profit or loss
- Current derivative financial assets 1 1
Financial assets designated at fair value through profit or loss
- Environmental Rehabilitation Funds 618 618
- Environmental Rehabilitation Fund held-for-sale 67 67
- Kumba Iron Ore Limited 40 40
Available-for-sale financial assets
- Chifeng 253 253
- New Age Exploration Limited 1 1
- RBCT 551 551
Financial liabilities held-for-trading at fair value through profit or loss
- Current derivative financial liabilities (14) (14)
- Current derivative financial liabilities held-for-sale (9) (9)
Net financial assets/(liabilities) carried at fair value 726 (22) 804 1 508
(c) Level 3 fair values
Chifeng RBCT
Reconciliation of assets within Level 3 of the hierarchy: Rm Rm
Opening balance at 1 January 2013 (Audited) 174 467
Movement during the year
Gains recognised for the period in OCI (pre-tax effect) 46 82
Exchange gains for the period recognised in OCI 33
Closing balance at 31 December 2013 (Audited) 253 551
Movement during the year
Gains recognised for the period in OCI (pre-tax effect) 1 422
Exchange gains for the period recognised in OCI 13
Closing balance at 31 December 2014 (Reviewed) 267 973
Transfers
The group recognises transfers between levels of the fair value hierarchy as at the end of the reporting
period during which the transfer has occurred.
There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the years ended
31 December 2014 and 31 December 2013.
There were no transfers between Level 2 and Level 3, as shown in the reconciliations above.
Valuation process applied by the group
The fair value computations of the investments are performed by the group’s corporate finance department,
reporting to the financial director, on a six monthly basis. The valuation reports are discussed with the audit
committee in accordance with the group’s reporting governance.
Current derivative financial instruments
Level 2 fair values for simple over-the-counter derivative financial instruments are based on market
quotes. These quotes are tested for reasonableness by discounting estimated future cash flows using
the market rate for similar instruments at measurement date.
Valuation techniques used in the determination of fair values within Level 3 of the hierarchy, as well
as significant inputs used in the valuation models
Chifeng
Chifeng is classified within Level 3 of the fair value hierarchy as there is no quoted market price or
observable price available for this investment. This unlisted investment is valued as the present value
of the estimated future cash flows, using a discounted cash flow model. The valuation technique is consistent
to that used in previous reporting periods.
The significant observable and unobservable inputs used in the fair value measurement of the investment in
Chifeng are Rand/Renmimbi (RMB) exchange rate, RMB/US$ exchange rate, Zinc London Metal Exchange (LME) price,
production volumes, operational costs and the discount rate.
Sensitivity analysis
of a 10% increase
in the inputs is
Sensitivity of inputs demonstrated below 2
At 31 December 2014 (Reviewed) Inputs and fair value measurement 1 Rm
Observable inputs
Rand/RMB exchange rate R1,86/RMB1 Strengthening of the 26
Rand to the RMB
RMB/US$ exchange rate RMB6,13 to RMB6,75/US$1 Strengthening of the 152
RMB to the US$
Zinc LME price (US$ per tonne in real terms) US$2 311 to US$2 226 Increase in price of 152
zinc concentrate
Unobservable inputs
Production volumes (tonnes) 85 000 tonnes Increase in production volumes 37
Operational costs (US$ million per annum in real terms) US$63 to US$76 Decrease in operations costs (133)
Discount rate (%) 9,94% Decrease in the discount rate (20)
At 31 December 2013 (Audited)
Observable inputs
Rand/RMB exchange rate R1,72/RMB1 Strengthening of the 25
Rand to the RMB
RMB/US$ exchange rate RMB6,02 to RMB5,95/US$1 Strengthening of the 161
RMB to the US$
Zinc LME price (US$ per tonne in real terms) US$2 039 to US$2 027 Increase in price of 161
zinc concentrate
Unobservable inputs
Production volumes (tonnes) 208 750 tonnes Increase in production volumes 177
Operational costs (US$ million per annum in real terms) US$74 to US$88 Decrease in operations costs (143)
Discount rate (%) 10% Decrease in the discount rate (21)
1 Change in observable/unobservable input which will result in an increase in the fair value measurement.
2 A 10% decrease in the respective inputs would have an equal but opposite effect on the above, on the
basis that all other variables remain constant.
Interrelationships
Any interrelationships between unobservable inputs is not considered to have a significant impact within
the range of reasonably possible alternative assumptions for both reporting periods.
RBCT
RBCT is classified within Level 3 of the fair value hierarchy as there is no quoted market price or observable
price available for this investment. This unlisted investment is valued as the present value of the estimated
future cash flows, using a discounted cash flow model. It is not anticipated that the RBCT investment will
be disposed of in the near future. The valuation technique is consistent to that used in previous reporting
periods.
The significant observable and unobservable inputs used in the fair value measurement of the investment
in RBCT are Rand/US$ exchange rate, API4 export price, Transnet Market Demand Strategy, discount rate and annual
utilisation factor.
Sensitivity analysis
of a 10% increase
in the inputs is
Sensitivity of inputs demonstrated below 2
At 31 December 2014 (Reviewed) Inputs and fair value measurement 1 Rm
Observable inputs
Rand/US$ exchange rate R10,94 to R18,80/US$1 Strengthening of the 257
Rand to the US$
API4 export price US$62 to US$93 Increase in API4 154
(US$ steam coal A-grade price per tonne in real terms) export price per tonne
Unobservable inputs
Transnet Market Demand Strategy for the terminal 74Mtpa to 81Mtpa Acceleration of Transnet 97
Freight Rail (TFR) performance, ie:
reach full capacity sooner
Discount rate (%) 13% to 17% Decrease in the discount rate (120)
Annual utilisation factor (safety and rail delay factor) (%) 90% Increase in annual utilisation factor 123
1 Change in observable/unobservable input which will result in an increase in the fair value measurement.
2 A 10% decrease or increase in the respective inputs would have an equal but opposite effect on the above,
on the basis that all other variables remain constant.
Sensitivity analysis
of a 10% increase
in the inputs is
Sensitivity of inputs demonstrated below 2
At 31 December 2014 (Audited) Inputs and fair value measurement 1 Rm
Observable inputs
Rand/US$ exchange rate R9,85 to R10,15/US$1 Strengthening of the 119
Rand to the US$
API4 export price US$75,50 to US$97 Increase in API4 119
(US$ steam coal A-grade price per tonne in real terms) export price per tonne
Unobservable inputs
Transnet Market Demand Strategy for the terminal
77Mtpa to 81Mtpa Acceleration of 127
TFR performance,
ie: reach full capacity sooner
Discount rate (%) 13% to 17% Decrease in the discount rate (109)
Annual utilisation factor (safety and rail delay factor) (%) 90% Increase in annual utilisation factor 119
1 Change in observable/unobservable input which will result in an increase in the fair value measurement.
2 A 10% decrease in the respective inputs would have an equal but opposite effect on the above, on the basis
that all other variables remain constant.
Interrelationships
Any interrelationships between unobservable inputs is not considered to have a significant impact within the
range of reasonably possible alternative assumptions for both reporting periods.
At 31 December
2014 2013
Reviewed Audited
Rm Rm
20. Contingent liabilities
Total contingent liabilities 7 999 2 066
- Grootegeluk Medupi expansion project (GMEP) 26 50
- DMC Iron Congo South Africa 84
- Total S.A. 1 5 390
- Pending litigation claims 2 445 328
- Operational guarantees 1 237 927
- Group’s share of contingent liabilities of equity-accounted investments 901 677
1 Guarantee issued to Total S.A. in respect of the purchase price payable for the acquisition of Total Coal South
Africa Proprietary Limited (TCSA).
2 Pending litigation claims consist of legal cases with Exxaro as defendant. The outcome of these claims is
uncertain and the amount of possible legal obligations that may be incurred can only be estimated at this stage.
Operational guarantees include guarantees to banks and other institutions in the normal course of business from
which it is anticipated that no material liabilities will arise.
The timing and occurrence of any possible outflows of the contingent liabilities above are uncertain.
A policy regarding the water treatment liability as prescribed by the Mineral and Petroleum Resources Development
Act of 2002 has been developed in 2014 and an estimate has been included as part of the rehabilitation provision
in the current year.
At 31 December
2014 2013
Reviewed Audited
Rm Rm
21. Contingent assets
Total contingent assets 256 108
- Surrender fee on prospecting rights, exploration rights and mining rights 1 81
- Guarantee on sale of NCC 2 170
- Group’s share of contingent assets of equity-accounted investments 86 27
1 In 2013 a surrender fee in exchange for the exclusive right to prospect, explore, investigate and mine for
coal within a designated area of central Queensland and Moranbah, Australia, conditional to the grant of a
mining lease, was included as contingent asset. However, in 2014, circumstances changed to the extent that
the possibility for this surrender fee does not exist anymore, hence no amount relating to this matter is
included in the current year.
2 Exxaro has received a guarantee from Universal as part of the sales transaction of NCC.
22. Related party transactions
During the year the group, 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,
nor more favourable than those arranged with third parties.
23. Going concern
Taking into account the group’s liquidity position as well as internal budgets for the short to medium term,
it is expected that the group will continue to trade as a going concern within the next 12 months.
24. JSE Limited Listings Requirements
The reviewed condensed group financial results announcement has been prepared in accordance with the
Listings Requirements of the JSE Limited.
25. Events after the reporting period
Details of the final dividend proposed are given in Note 11.
The following non-adjusting events occurred after the reporting date and are disclosed for information purposes:
- On 28 January 2015, the Pegasus South Environmental Management Programme amended licence was approved; and
- On 30 January 2015, the financial guarantees provided by Universal for the sale of NCC were extended to
- 31 July 2015; and
- During February 2015, R2,3 billion on the revolving facility, as well as R2 billion on the term loan, was drawn down.
The directors are not aware of any other significant matter or circumstance arising after the reporting
period up to the date of this report, not otherwise dealt with in this report.
26. Review conclusion
The reviewed condensed group financial statements for the year ended 31 December 2014 have been reviewed
by the company’s external auditors, PricewaterhouseCoopers Inc, in accordance with International Standards on
Reviewed Engagements 2410 Review Interim Financial Information Performed by the Independent Auditors of the Entity.
The unmodified review conclusion is available for inspection at the company’s registered office.
27. Corporate governance
Detailed disclosure of the company’s application of the principles contained in the King Report on Governance
for South Africa 2009 (King III) was made in the 2013 integrated report and is available on the company’s
website in accordance with the JSE Listings Requirements. Other than the appointment of Dr CJ Fauconnier
to the Remuneration and nomination committee and the appointment of Mr V Nkonyeni to both the board and
the audit committee, no material changes have occurred since the disclosure. Revised disclosure and more
detailed information will be made in the 2014 integrated report and published on the company’s website during
April 2015. Contact the group company secretary, Carina Wessels, for additional information in this regard.
28. Mineral resources and mineral reserves
Other than the normal LoM depletion there have been no material changes to the mineral reserves and resources
as disclosed in the 2013 integrated report.
Old-order mining right conversions
Operation Status Reason where not registered
Grootegeluk, Magvanti (Gravelotte), Mafube, Leeuwpan Registered
Tshikondeni, Strathrae North Block Complex (NBC), Matla Granted Execution in process, await DMR execution date
Glisa (NBC), Arnot, Inyanda Executed Timely submission for registration but registration pending
New-mining right application
Operation Status Reason
Goni, Mafube Nooitgedacht, NCC Registered
Thabametsi, Glisa South (Paardeplaats), Eerstelingsfontein
(NBC) - Mining Right Renewal Submitted Approval pending
Belfast, Leeuwpan Ext, Eerstelingsfontein (NBC) Executed Timely submission for registration but registration pending
At 31 December
2014 2013
29. Other*
Net asset value per share (Rand/share) 96 101
Capital expenditure contracted relating to tied mines,
Tshikondeni, Arnot and Matla, which will be financed by
ArcelorMittal SA Limited and Eskom (Rm) 159 317
Operating lease commitments (Rm) 135 212
Closing share price (Rand/share) 103,50 146,46
Market capitalisation (Rb) 37,06 52,45
Average Rand/US$ exchange rate (spot rate) 10,83 9,62
Closing Rand/US$ exchange rate (spot rate) 11,56 10,44
* Non-IFRS numbers.
Commentary
for the year ended 31 December
Comparability of results
Comments are based on a comparison of the reviewed condensed group financial results and unreviewed production and
sales volumes information for the years ended 31 December 2014 and 2013 (referred to as 2014 and 2013 respectively), unless
otherwise indicated. The financial results for 2014 and 2013 are not comparable mainly due to key events and
transactions listed in Table 1.
Table 1: Key events and transactions during the reporting periods which make financial and operational results not comparable
Reporting segment 2014 Rm 2013 Rm
Coal Net impairment of carrying value of property, plant and
Loss on sale of non-core assets and voluntary equipment at NCC and loss on sale of property,
severance package expenses (22) plant and equipment (152)
Ferrous Impairment of the original investment including
goodwill, carrying value of the property, plant
and equipment and qualifying project costs
capitalised for the Mayoko iron ore project as
well as write-off of financial assets (5 817)
Other Loss on dilution of shareholding in Tronox Limited (58) Loss on dilution of shareholding in Tronox Limited (12)
Intellectual property assets impairment (202) Zincor partial impairment reversal 98
Profit on sale of other non-core assets and
voluntary severance packages (67) Profit on sale of Zincor refinery 964
Loss on write-off of intangible asset (2)
Total net operating (loss)/profit impact (6 166) Total net operating profit/(loss) impact 896
Safety, health, environment and community
On 5 July 2014, the group recorded an unfortunate and regrettable fatality at Arnot mine in Mpumalanga when an
employee, Mr Solomon Latebotse Mashigo, was fatally injured by a rock that had dislodged from the tunnel roof and slid from a
continuous miner. The investigation of this incident by the Mpumalanga Department of Mineral Resources (DMR) was
finalised on 29 August 2014 and concluded that poor employee judgement and a culture of focus on “short-term incentive scheme
achievement” were the major causes. Corrective measures have been implemented as recommended by the investigation report.
This fatality followed Exxaro’s 2013 achievement of a full year without a fatality. We remain committed to our goal of zero
harm.
On 25 November 2014, Mr Christopher Schroeder, a mechanical foreman employed at the Mayoko iron ore project in the
Republic of the Congo (RoC), was regrettably fatally injured after being bitten by a snake. The investigation into this
fatality has revealed that the incident happened outside of working hours, not at his place of work, and was not related to
any of his official duties. As such, it is not classified as a reportable fatality.
The LTIFR remained constant at 0,19 for 2014 and 2013, well below the 0,32 coal industry and 2,55 mining industry
averages as published by the Chamber of Mines for 2013. Thirty-six lost-time injuries (LTIs) were recorded in 2014, a 10%
improvement on the 40 incidents recorded in 2013. Exxaro will continue with its commitment to further raise awareness of
safety risks.
Table 2: Reported occupational disease incidents
2014 2013
Tuberculosis 18 18
Pneumoconiosis 12 37
Noise-induced hearing loss 12 8
Other 6 26
Total 48 89
A 46% reduction in reportable occupational disease incidents was recorded in 2014 compared with 2013. This reflects
the group’s concerted efforts in implementing occupational risk exposure profiles since 2013 to further reduce the
incidents of occupational diseases. The number of employees enrolled on the HIV/Aids programme continued to increase, from 545
in 2013 to 667 in 2014.
Exxaro continues to develop technologies aimed at maximising water use efficiency. The research and development
department developed and piloted a passive water-treatment plant at the North Block Complex (NBC) mine in the fourth quarter
of 2014. Results from this pilot were encouraging. Construction of a scaled-up water treatment plant is scheduled to
start in the second quarter of 2015. The water treatment plant at Matla mine has been commissioned and performance tests are
under way. These two water-treatment plants are expected to return approximately 10 mega litres of potable water for
public use per day.
Obtaining environmental authorisations for expansion activities and projects is a strategic priority for the group.
Exxaro has ensured that all critical environmental authorisations are obtained.
The group spent R88 million (2013: R57 million) on social and labour plans (SLPs) and other community related projects, mainly
on education (R39 million on teacher and learner development) and infrastructure (R15 million on building roads and houses).
Financial and operational excellence
Group
Revenue
Group consolidated revenue increased by 21% to R16 401 million for the year ended 31 December 2014 compared with
R13 568 million in 2013, mainly due to higher revenue from the coal business.
Table 3: Reviewed group segment results 1 (Rm)
for the year ended 31 December
Revenue Net operating profit
2014 2013 2014 2013
Coal 16 176 13 362 3 297 2 769
- Tied 2 4 577 3 917 319 215
- Commercial 3 11 599 9 445 2 978 2 554
Ferrous 159 120 (6 238) (141)
- Iron ore 4 (6 100) (27)
- Alloys 159 120 (97) (61)
- Other (41) (53)
Other 66 86 (351) 938
- Base metals 5 (1) 145
- Other 6 66 86 (350) 793
Total 16 401 13 568 (3 292) 3 566
1 An average exchange rate of R10,86 to the US dollar (US$) was realised for 2014 (2013: R9,48).
2 Mines that are managed on behalf of and supply their entire production to either Eskom or ArcelorMittal South Africa
Limited (AMSA) in terms of contractual agreements.
3 Net operating profit includes the NCC net pre-tax impairment of R143 million in 2013.
4 Net operating loss includes the pre-tax impairment of the original investment including goodwill, carrying value of
property, plant and equipment and qualifying project costs capitalised to the Mayoko iron ore project of R5 760 million
as well as the impairment and write-off of financial assets totalling R43 million recorded in 2014.
5 Net operating profit includes a Zincor refinery partial impairment reversal of R98 million recorded in 2013.
6 Net operating (loss)/profit includes a pre-tax impairment loss of other non-core assets of R202 million in 2014 as
well as profit on the sale of subsidiaries of R964 million on the sale of Exxaro Base Metals Proprietary Limited (which
held the Zincor refinery) recorded in 2013.
Net operating profit
The group’s net operating profit decreased by 192% to a loss of R3 292 million (2013: net operating profit of
R3 566 million) mainly as a result of the pre-tax impairment of the Mayoko iron ore project which included the original
investment including goodwill, carrying value of property, plant and equipment and qualifying project costs capitalised to the
Mayoko iron ore project of R5 760 million, as well as the write-off and impairment of financial assets totalling R43 million
recorded in 2014, a pre-tax impairment loss of other non-core assets of R202 million in 2014, a partial impairment reversal
of the carrying value of property, plant and equipment of the Zincor refinery of R98 million recorded in 2013, the NCC
net pre-tax impairment of R143 million in 2013, as well as profit on the sale of subsidiaries of R964 million on the sale
of Exxaro Base Metals Proprietary Limited (which held the Zincor refinery) recorded in 2013.
Support functions (functions other than those directly linked to mining activities) costs reduced by R124 million
compared with 2013, mainly due to continuous cost-saving initiatives being implemented across the group. This reduction
resulted in a net lower recovery from the coal and ferrous businesses of R116 million.
Earnings
Losses attributable to owners of the parent, which include Exxaro’s equity-accounted investments in associates and
joint ventures, were R883 million (2013: attributable earnings of R6 217 million) or 249 cents loss per share
(2013: 1 751 cents earnings per share), down 114% from 2013 mainly due to the non-recurring post-tax impairment losses recorded
in 2014 as well as profits realised on the sale of subsidiaries of R964 million in 2013.
Headline earnings, which exclude, inter alia, the impact of any impairment and partial impairment reversals as well as
profits realised on the sale of subsidiaries and other non-core assets, were 6% lower at R4 869 million
(2013: R5 194 million) or 1 372 cents per share (2013: 1 463 cents per share), mainly due to a R1 116 (31%) reduction in the
post-tax income from the equity-accounted investments.
Cash flow and funding
Cash flow generated from operations was 88% higher than in 2013 at R4 083 million (2013: R2 173 million). This cash
was used to fund dividends paid of R2 055 million, net financing charges of R248 million and taxation payments of
R120 million. R3 197 million was spent on acquiring property, plant and equipment, of which R1 737 million was invested in new
capacity (expansion capital), with the remaining R1 460 million applied to sustaining and environmental capital
(stay-in-business capital). Of the funds spent on new capacity, R277 million was for the Grootegeluk Medupi expansion project
(GMEP) (2013: R1 633 million), and R759 million for the Mayoko iron ore project (until impairment in June 2014) (2013: R1 613 million).
After the receipt of dividends of R3 719 million (2013: R3 229 million), primarily from Sishen Iron Ore Company
Proprietary Limited (SIOC) and Tronox Limited (Tronox), as well as the outflow associated with capital expenditure, the group
had net cash inflow before financing activities of R2 280 million (2013: R1 044 million outflow). Net debt decreased 68%
to R1 071 million at 31 December 2014 (2013: R3 377 million), reflecting a net debt to equity ratio of 3% (2013: 9%).
Exxaro successfully raised R1 billion in its debut bonds issuance in the first half of 2014, under Exxaro’s R5 billion Domestic
Medium-term Note Programme listed on the interest rate market of the JSE Limited (JSE).
Coal commodity business
General trading conditions in the coal commodity remained challenging in 2014 with average API4 export US$ prices
dropping from US$83 per tonne at the beginning of January to a low of US$63 per tonne in November, closing the year at
US$66 per tonne (20% lower). Export volumes, however, increased from 4,5 million tonnes (Mt) to 5,3Mt. The group realised
an average export price of US$65 per tonne in 2014 compared to US$80 per tonne in 2013, mainly on higher sales of
lower-value product. An average of 67% of export product sales was on the RB1 product, compared with 92% in 2014.
Production and sales volumes
Overall coal production volumes (excluding buy-ins and semi-coke) were 0,34Mt higher (1%) than in 2013 and sales volumes
were 1,47Mt higher (4%).
Metallurgical coal
Grootegeluk’s production was 212kt (11%) higher and sales were 357kt (19%) higher than 2013, mainly reflecting
increased Transnet Freight Rail (TFR) train allocations to Richards Bay Coal Terminal (RBCT) as well as higher AMSA demand.
Tshikondeni production was 189kt (55%) lower than 2013 while sales were 102kt (30%) lower than 2013 due to the mine
stopping production in September 2014 as it reached the end of its life.
Thermal coal
Power station coal production from the tied mines was marginally higher (48kt) than 2013, mainly due to production at
Matla which was 241kt (2%) higher as a result of improved cutting rates at the short walls, offset by 193kt (12%) lower
production at Arnot due to the fatality in July and difficult geological conditions.
The commercial mines’ power station coal production was 933kt (5%) higher than 2013, mainly reflecting the 869kt
increase at Grootegeluk due to the Medupi power station supply which started in the second half of the year. Higher
throughput at Leeuwpan resulted in a 130kt (5%) increase in production while NBC production was 66kt lower due to the limitation
on Eskom contractual volumes. Eskom demand from Leeuwpan was impacted by the Majuba silo collapse in the fourth quarter
of 2014, with Leeuwpan production negatively affected by approximately 200kt.
Domestic power station coal sales from the commercial mines were 658kt higher than 2013, primarily due to higher
demand with Medupi off-take commencing, while export sales increased by 515kt due to the ongoing review and balancing of
export volumes, export logistics capacity as well as market commitments and opportunities.
Table 4: Unreviewed coal production and sales volumes (‘000 tonnes)
for the year ended 31 December
Production Sales
2014 2013 2014 2013
Thermal (Power station and steam coal) 36 875 36 553 39 071 37 859
- Tied 1 11 814 11 766 11 808 11 768
- Commercial: domestic 25 061 24 787 22 753 22 204
- Commercial: export 4 510 3 887
Metallurgical 2 274 2 251 2 470 2 215
- Tied 154 343 233 335
- Commercial: domestic 2 120 1 908 1 456 1 308
- Commercial: export 2 781 572
Coal 39 149 38 804 41 541 40 074
Semi-coke 127 91 115 97
Total (excluding buy-ins) 39 276 38 895 41 656 40 171
Thermal buy-ins 2 202 1 470
Total (including buy-ins) 41 478 40 365 41 656 40 171
1 Mines that are managed on behalf of and supply their entire production to either Eskom or AMSA in terms of
contractual agreements.
2 Exported as a steam coal product, blended at RBCT.
Steam coal production was 659kt (12%) lower, mainly due to NCC which remains under care-and-maintenance (419kt) and
lower stock levels at Inyanda (359kt) as the mine nears the end of its life. Leeuwpan production rose by 173kt on the
improved performance of the dense medium separation (DMS) plant.
Domestic steam coal sales decreased by 109kt (3%) mainly due to lower sales from Grootegeluk of 91kt (6%), affected by
industrial action in the Rustenburg area in the first half of 2014, 36kt (100%) lower sales at NCC (under
care-and-maintenance) as well as at Inyanda 11kt (4%) due to stock being redirected to the export market. These were partly
offset by 29kt (2%) higher sales at Leeuwpan due to higher demand.
Export steam coal sales were 108kt (3%) higher, mainly due to increased train allocations and buy-ins. This was partially
offset by 507kt lower export sales at NCC (care-and-maintenance) and at Inyanda 324kt (20%) as the mine nears the end of life.
Buy-ins were 732kt (50%) higher than 2013 which contributed to overall higher export sales, albeit at lower margins.
Semi-coke
The ferroalloys market demand for reductants improved from the previously depressed levels, allowing Exxaro to operate
at full capacity. As such, the semi-coke plant production was 36kt (40%) higher as new markets were identified, coupled
with repositioning the reductants product as semi-coke.
Logistics
The TFR performance rate was at 72Mt for 2014 (2013: 71Mt), despite the force majeure event in February 2014 and
annual shut in May 2014.
Exxaro used 100% of its available RBCT entitlement for 2014 and 2013 and leased additional entitlement requirements to
meet demand.
Revenue
Coal revenue was R2 814 million (21%) higher than 2013, reflecting a combination of higher coal export sales volumes at
weaker Rand prices, higher power station coal sales at higher prices, lower domestic steam coal volumes at higher prices as
well as the take-or-pay income generated from Eskom.
Net operating profit
Coal achieved net operating profit of R3 297million at an operating margin of 20% in 2014 compared to R2 769 million
at 21% operating margin for 2013. This 19% increase was mainly on the back of higher volumes (R632 million); favourable exchange
rate due to the weakening of the local currency against the US$ (R561 million); lower allocated corporate costs
(R91 million); the saving against previous losses realised at NCC after it was placed under care-and-maintenance (R243 million),
offset by higher royalty tax provision (R86 million); higher distribution costs (R137 million); higher depreciation
costs (R141 million); higher buy-ins from Mafube joint venture (JV) (R181 million), weaker prices (R54 million);
inflationary pressures recorded at a general inflation rate of 7,5% (R400 million); as well as the impact of changes in
environmental rehabilitation provision other than the unwinding of the discount rate (R768 million, which includes a second half
adjustment of the provision for possible future affected water treatment liabilities of R370 million).
The group has initiated a proactive implementation of the DMR’s affected water treatment requirements by compiling a
model that seeks to calculate an estimate of current provisions that should be raised for any possible future affected
water treatment. The financial provisioning for environmental liabilities is governed by Regulation 53 and Section 41 of
the Mineral and Petroleum Resources Development Act 28 of 2002 (MRPDA), as well as Section 30 of the National Water Act
which require the financial provisioning on protection of water resources. However, in both sets of legislation, there is limited
guidance provided on the manner of determining the liabilities associated with the treatment of any affected water.
Exxaro has taken a stance in calculating the possible future liabilities’ net present values.
Equity-accounted income
Income received from the Mafube JV with Anglo South Africa Capital Proprietary Limited increased by 104% to R267 million from 2013
as a result of higher volumes, and due to the cost-plus mechanism in place. Overall cost increases due to the maintenance of plant
and equipment, higher petroleum use and increased labour costs as a result of higher production bonuses contributed to the higher
equity-accounted income from this investment through the cost-plus recovery mechanism.
Portfolio improvement
GMEP
Construction on GMEP to supply Eskom’s Medupi power station with 14,6 million tonnes per annum (Mtpa) of coal
progressed well and Exxaro met its contractual commitments on time and within budget. Total capital expenditure for the project
remains within the forecast R10,2 billion. The project has achieved 34,6 million hours without a fatality, and the
project LTIFR remained at 0,17. All commissioning was completed in December 2014, with all plant modules individually tested.
The operational team will follow a steady ramp-up curve based on the revised Eskom demand schedule until nameplate
capacity is achieved. The construction of in-pit crusher 3 is progressing to plan and commissioning is still expected in the
second quarter of 2015.
In January 2014, Eskom formally notified Exxaro that it would not be able to begin off-take from 1 February 2014. An
agreement was reached and approved by both parties’ respective boards in the third quarter of 2014, resulting in the
ninth addendum to the original coal supply and off-take agreement. First coal was delivered to Medupi power station in
July 2014. GMEP delivered 3,1Mt of coal to Eskom in 2014 as per the coal supply and off-take agreement.
Total Coal South Africa Proprietary Limited (TCSA)
Exxaro entered into a binding sale and purchase agreement on 25 July 2014 with Total S.A. (Total), subject to certain
conditions precedent, whereby Exxaro will acquire 100% of the issued share capital of TCSA and its related export
marketing rights under primary RBCT allocation. Exxaro will pay a total purchase consideration of US$472 million
(US$386,5 million to acquire 100% of the issued share capital of TCSA and US$85,5 million to settle outstanding loan claims
of Total Finance against TCSA). Three of the conditions precedent have been fulfilled. The condition precedent regarding the
consent by the DMR of South Africa for the acquisition being granted in terms of Section 11 of the MPRDA, is still outstanding.
Thabametsi
Thabametsi is a prospective greenfields opencast coal mine adjacent to Grootegeluk mine in the Waterberg, Limpopo
province. Development will be phased over a 10 to 15-year implementation period ramping up to a 20Mtpa mining complex. The
mine will supply some 3,8Mtpa run-of-mine (ROM) coal to the 600MW Waterberg independent power producer (IPP) post
ramp-up. The pre-feasibility study (PFS) for the development of Thabametsi North phase 1 was completed in the second quarter
of 2014. The bankable feasibility study (BFS) began in the fourth quarter of 2014 and is expected to be completed in the
second half of 2015. The environmental authorisation for Thabametsi mine was granted in December 2014 and the mining
right application process is progressing. The first coal ROM production to Grootegeluk mine is expected to be achieved by
2016/17 (phase 1A), after which the production ramp-up rate will depend on the 600MW Waterberg IPP (phase 1B). For phase
1B, Exxaro and the GDF SUEZ consortium continue to engage to finalise the coal supply and off-take agreement, as well as
water supply development schedules. Exxaro is also engaging with the relevant stakeholders to conclude implementation
plans on integrated infrastructure for the Waterberg coalfields, which is deemed crucial for the development of all
projects in the Waterberg region.
NCC
The fulfilment of most of the outstanding conditions precedent to the NCC sale transaction has been achieved. Section
11 from the DMR remains outstanding. Competition Commission approval has been obtained and Universal Coal has secured
funding guarantees for the transaction.
Belfast
The Belfast project is a greenfields opencast mine development expected to produce an average of 2,2Mpta of A-grade
export coal and 0,5Mtpa of Eskom coal over a 16-year period post commissioning, after which a phase 2 ten-year
life-extension will be considered. The BFS was completed in the first half of 2014. In June 2014, the Exxaro board approved
R3,8 billion for development of the project, subject to required licences and regulatory approvals being obtained. The
integrated water use licence (IWUL) was granted in October 2014. Rezoning appeals are expected to be finalised by mid-2015.
Detailed engineering will be conducted in 2015, after which it is expected that construction will begin, with commissioning
scheduled for the second half of 2017.
Moranbah South project
The environmental impact study (EIS) authorisation to develop an underground dual long wall mine on the Moranbah South
project (50% joint arrangement with Anglo American plc), in the Bowen Basin of Queensland, Australia, was obtained. However,
the development schedule of the project was intentionally reprioritised due to current adverse market conditions. This position
will be reviewed in the second half of 2015. The mine is anticipated to eventually reach 18Mtpa ROM production of
high-quality hard coking coal.
Reductants
Semi-coke capacity expansion is determined by the availability of suitable feedstock and is being executed in a phased
approach. The BFS for Retorts 5 and 6 is on schedule for completion during the first half of 2015. The concept study
for the addition of Retorts 7 and 8, which had been rescheduled for completion in the first quarter of 2015 to allow
incorporation of the scope change work done on Retorts 5 and 6, will no longer be performed in 2015 due to project
reprioritisation across the group.
Mines in closure
September 2014 marked the last production at Tshikondeni. Inyanda’s life of mine will end in the third quarter of
2015, which will result in lower export sales in 2015.
Exxaro will be executing approved community projects in line with the committed social and labour plans.
Ferrous commodity business
Production and sales volumes
Changes in the product mix at FerroAlloys in 2014 resulted in an overall production increase of 1 637 tonnes (30%)
from 2013. This was mainly due to the addition of a blend product made from a combination of buy-ins and own product.
Sales volumes increased by 1 361 tonnes (19%) from 2013 mainly due to higher production and the commissioning of the new
ferrosilicon plant in November 2014.
Net operating loss
The overall ferrous net operating loss, excluding the pre-tax impairment of non-current assets relating to the Mayoko
iron ore project in 2014 of R5 760 million, increased by 239% to R478 million. The increase in losses reflects costs
incurred on the Mayoko iron ore project which are no longer eligible for capitalisation following the impairment, higher
costs at FerroAlloys mainly due to the Letaba project which has been terminated, as well as an overall increase in group
corporate costs and ferrous head-office costs allocated. This has been partly offset by an increase of R61 million in
income earned from the Ultra-High Dense Medium Separation (UHDMS) plant.
Equity-accounted investments
Equity-accounted income from Exxaro’s 19,98% interest in SIOC in 2014 decreased by 32% to R2 830 million, mainly due to a
47% decrease in iron ore prices in 2014 compared to 2013’s closing price.
Portfolio improvement
Mayoko iron ore project
In January 2014, the mining convention was signed by the government of the RoC, along with rail and port framework
agreements for the development of a 12Mtpa Mayoko mine. A concept study on a revised 12Mtpa project was concluded in
June 2014. The outcome of this study and delays in concluding further definitive agreements for rail and port resulted
in Exxaro impairing the investment in the project. Subsequently, the RoC government indicated that it would
take responsibility for the required upgrades to public rail and port infrastructure to enable Exxaro to transport and
export up to 12Mtpa of iron ore from the Mayoko mine. In July 2014, the RoC government signed the first amendment to the
mining convention extending the mining exploitation convention and the exploitation permit by 24 months. In September
2014, the content of definitive agreements (comprising both rail and port related agreements) were agreed with relevant
technical teams from the RoC government. Exxaro continues to actively liaise with the RoC government to finalise port and
rail agreements before a final decision can be made on any future pre-feasibility studies.
As communicated in the Securities Exchange News Service (SENS) announcement in June 2014, any further development
expenditure on this project will be determined through a staged approach after considering the outcome of a PFS, BFS as
well as commodity market conditions. Project expenditure for 2015 is expected to be limited to the cost of maintaining
the minimal remaining footprint in the RoC, as well as costs relating to the project team’s interaction with the RoC
government until a final decision is made.
The independent review of the Mayoko iron ore project investment process by KPMG Inc was completed in the second half of
2014 and findings are being implemented. The review covered the period from identifying African Iron Limited as a possible
acquisition up to June 2014, when the impairment was announced. The key findings of the review are that deviation from
standard internal project development governance processes, in pursuit of first-mover advantages, resulted in inadequate
identification of project specifications. An aggressive ramp-up schedule was assumed at acquisition of the project, which
was continually moved out largely as a result of the delay in concluding the mining convention and rail and port access
agreements, resulting in the gradual erosion of projected returns. An independent technical review of the project has
been completed in the first quarter of 2015, and the results are being analysed. The purpose of this review is to verify
the project assumptions for the project at concept study level.
Alloys
In 2014, Exxaro ceased its AlloyStream TM Letaba operation in Pretoria West. Assmang relinquished all rights and
obligations to AlloyStream technology and waived the pre-2016 intellectual property lock-in period, thereby exiting
the JV arrangement.
Exxaro’s FerroAlloys business embarked on an expansion of its operation in 2014 in reply to increased demand for its
product. Significant improvements were introduced into the design of the new plant optimising throughput and utilisation.
The expansion project was successfully commissioned with the operation now able to almost double its existing capacity.
The new facility will be ramped up in the first quarter of 2015.
The UHDMS processing technology is a breakthrough beneficiation process developed internally that uses a high-quality
gas atomised ferrosilicon powder only manufactured by Exxaro. Exxaro has developed unique ore characterisation
equipment, methodologies and a mobile pilot plant to support this technology. In conjunction with Kumba Iron Ore Limited,
this technology has been proven to outperform existing beneficiation technologies relevant to low-grade, near-density ores.
Exxaro is evaluating business opportunities for this technology on a large commercial scale with various partners.
TiO2 commodity business
Equity-accounted losses
Equity-accounted losses from Exxaro’s 43,98% effective interest in Tronox, together with the 26% equity interest in
Tronox SA and Tronox UK for the year ended 31 December 2014 were R568 million, mainly due to lower sales prices across
most products.
Subsequent to 31 December 2014, Tronox has made an announcement to aquire Alkali Chemicals, a division of FMC Corporation
and the largest global producer of natural soda ash serving blue-chip customers in the glass, detergent and chemical
manufacturing industries for US$1,64 billion in an all-cash transaction to create a leading inorganic chemicals company
with enhanced scale, stability and financial strength well-positioned to pursue strategic growth initiatives. The
transaction will be funded through existing cash and $600 million debt. It is expected that the transaction will be
accretive to Tronox EBITDA, free cash flow and earnings upon closing. It is expected that the transaction will close in
the first quarter of 2015 and subject to customary closing conditions. Alkali Chemicals is expected to add stability and
has a history of consistently delivering strong operational and financial performance. Exxaro will continue to equity-account
the Tronox investment, including the contribution made by the Alkali Chemicals business.
Energy business
Equity-accounted income
The equity-accounted investment in Cennergi has contributed R92 million in losses, which represented an 11% decrease
on losses recorded in 2013 mainly due to lower operating, business development and project costs.
Portfolio improvement
In 2013, the Botswana government embarked on a prequalification process for units 5 and 6 on an Independent Power Producer
(IPP) basis. Cennergi was selected as one of seven prequalified bidders for the Morupule B Phase 2 process. Final bid
documents were received from the Botswana government in December 2014 and bid submission is expected to be in May 2015.
Cennergi is preparing a bid for the Morupule B phase 2 units 5 and 6 coal-fired base load IPP (2x150MW).
Cennergi continues the project execution phase of both its Amakhala Emoyeni Wind Farm (AEWF) project and Tsitsikamma
Community Development Wind Farm (TCWF) project for which financial close has been achieved. Construction on the 134MW
AEWF project began in June 2014 and is expected to be completed in the second quarter of 2016. The commercial operation
date is planned for the third quarter of 2016. The Cookhouse and Bedford Community trusts together own 5% of the equity
of the project.
Construction on the 95MW TCWF project began in the third quarter of 2014 and is expected to be complete in the fourth
quarter of 2015. The commercial operation date is planned for the first quarter of 2016. Cennergi owns 75% of the
project, while Watt Energy and the community trust own 25%.
Both projects are progressing within contractual commitments, on time and within budget.
Other non-core businesses
Exxaro will review the Black Mountain Mining Proprietary Limited (Black Mountain) Swartberg and Gamsberg projects to determine
optimal timing for the sale of its equity interest in Black Mountain. Based on Exxaro’s strategic decision to divest from zinc
and its minority shareholding in Black Mountain, Exxaro has indicated to Vedanta Resources plc (majority shareholder of Black
Mountain) that it is unlikely to contribute additional shareholder funding to develop the Gamsberg project. Should Exxaro not
meet future funding calls, Vedanta can elect to disproportionately contribute Exxaro’s portion of shareholder funding by
advancing an additional shareholder loan to Black Mountain or by diluting Exxaro’s shareholding in Black Mountain.
In the third quarter of 2014, Black Mountain completed the definitive feasibility study on the Gamsberg project. The project
was approved in November 2014 and construction is planned to start in the first half of 2015.
Table 5: Reviewed equity-accounted investments (Rm)
for the year ended 31 December
Equity-accounted income in profit or loss Exxaro’s share of dividends received
2014 2013 2014 2013
SIOC 2 830 4 166 3 095 2 664
Tronox (568) (638) 553 507
Black Mountain 77 77 71 58
Mafube 267 131
Cennergi (92) (103)
South Dunes Coal Terminal (SDCT) 1 (2)
Total 2 515 3 631 3 719 3 229
Outlook
We expect that the challenging conditions facing most commodity markets in 2014 will continue into 2015. However,
significantly lower oil prices and more supportive initiatives from key central banks are expected to boost global real GDP
growth to the 3% level in 2015, last achieved in 2009. The average API4 price expected is around US$62 FOB RBCT per tonne.
The Rand exchange rate against the US$ is expected to remain weak for most of 2015, mainly due to the combination of lower
commodity prices and the overall strength of the US$.
Most of Exxaro’s capital expenditure in coal over the past five years has been directed at GMEP. While
the benefits of this expenditure are expected to realise in 2015, the delays recently announced by Eskom on the
synchronisation of unit 6 at Medupi power station present challenges in configuring the Grootegeluk mining plan. This will,
in turn, require a revised focus on the operational productivity and configuration of the entire operation to maximise
efficiencies and profitability. To protect margins, there is a renewed focus on managing controllable costs across the
business.
The group will continue to exercise caution and discipline in allocating capital to projects in 2015. Like many others
in the industry, Exxaro is expected to reduce its expansion capital expenditure in the short to medium term.
Coal
We expect 2015 financial performance to be impacted by lower coal prices, continued Rand/US$ exchange rate volatility
and the availability of coal for the export market. With Inyanda nearing its end of life, Grootegeluk will become the
major supplier of coal to the export market. As such, export performance in 2015 will hinge largely on TFR rail
performance between the Waterberg and RBCT. In 2015, Transnet is expected to maintain its 2014 record performance
levels. Although RBCT reached record-setting levels in 2014 of 70,2Mtpa, lower export coal US$ prices are expected to
affect export volumes.
Both thermal and coking coal seaborne markets are expected to remain weak given the general oversupply of coal and
subdued economic growth outlook globally.
In the domestic market, demand for steam coal is expected to be stable. However, declining commodity prices in the
international market have a direct impact on sales of metallurgical coal. Strong resistance from metallurgical customers
is expected as they struggle to reduce their own costs. Strong resistance from Eskom on commercial sales terms is also
expected as the state-owned company continues to experience operational and financial challenges.
Coal will remain a significant part of South Africa’s energy mix even though the government’s integrated resource plan
2010 - 2030 sees renewable energy making up over 40% of all new electricity generated in South Africa over the next
20 years.
Ferrous
The finalisation of the phase 1 close-out and metallurgical test work on the remaining drill samples on the impaired
Mayoko iron ore project will continue in the first half of 2015. In the meantime, the second amendment to the Mayoko
mining exploitation convention is under way and will be submitted to the RoC government in the second quarter of 2015,
after which it is expected to be submitted to the RoC parliament for ratification. This should occur in the second
quarter of 2015, subject to scheduled parliamentary sessions in the RoC.
TiO2
TiO2 pigment producers reduced inventories in 2014 as demand did not improve to sustainable levels and favourable market
conditions for feedstock producers. In 2015, market conditions are expected to remain challenging for TiO2 pigment and
feedstocks.
Energy
The electricity shortfall crisis at national level creates a renewed and accelerated need to invest in renewable
energy programmes in 2015. Following delays in the government’s third window of renewable energy procurement process,
2015 is expected to bring a revived sense of urgency from government to commit to initiatives that can deliver
sustainable solutions to the challenges of the shortfall in the supply of electricity. Exxaro remains committed to
participating in any procurement opportunities that present themselves in 2015.
Accolades
Exxaro has won the 2015 Ethical Boardroom magazine’s Best Corporate Governance Award in the mining category in the
Africa region. The global publication delivers in-depth coverage and analysis of governance issues such as leadership,
committees and quorum, ethics and compliance, shareholder engagement, activism and risk management strategies. Each year,
a panel of four adjudicators scores entrants under four pillars (Board Composition, Board Committees, Shareholder Rights
and Transparency) and 120 governance factors. The awards recognise companies that have shown exceptional leadership in
governance and highlight the important role that corporate governance plays in dictating a company’s success and a
board’s contribution in creating long-term value.
Exxaro was named the overall winner in the Nkonki Inc. Top 100 Integrated Reporting Awards 2014. The awards recognise
South African companies excelling in the integrated reporting sphere. Exxaro also received an Excellence award for being
judged as one of the top 22 of the top 100 reports received and was awarded the number one spot in the Basic Metals
Industry category.
The group also achieved a top 10 placing in the third annual EY Excellence in Integrated Reporting Awards. The awards
recognise companies that are emerging as leaders in integrated reporting, as well as trends and best practice with
regard to integrated reporting.
Annual dividend
Exxaro remains committed to returning regular income through dividends to its shareholders, as well as ensuring long-term
capital growth on shares held.
Notice is given that a gross final cash dividend, number 24 of 210 cents (2013: 315 cents) per share, for the year
ended 31 December 2014 has been declared, payable to shareholders of ordinary shares. No secondary tax on companies (STC)
credits are available for offsetting against the dividend withholding tax, while total STC credits available for final
dividend number 22 amounted to R195 million, representing 54,51893 cents per share. The gross local dividend is 210 cents
per share for shareholders exempt from dividend withholding tax. The dividend declared will be subject to a dividend
withholding tax of 15% for all shareholders who are not exempt from or do not qualify for a reduced rate of dividend
withholding tax. The net local dividend payable to shareholders who are subject to dividend withholding tax at a rate of
15% is 178,50000 cents per share. The dividend withholding tax amounts to 31,50000 cents per share (2013: zero cents per
share). The number of ordinary shares in issue at the date of this declaration is 358 115 505 (2013: 358 115 505).
Exxaro’s tax reference number is 9218/098/14/4.
The salient dates on payment of the annual dividend are:
Last day to trade cum dividend on the JSE Friday, 10 April 2015
First trading day ex dividend on the JSE Monday, 13 April 2015
Record date Friday, 17 April 2015
Payment date Monday, 20 April 2015
No share certificates may be dematerialised or rematerialised between Monday, 13 April 2015 and Friday, 17 April 2015,
both days inclusive. Dividends for certificated shareholders will be transferred electronically to their bank accounts
on payment date. Shareholders who hold dematerialised shares will have their accounts at their central securities
depository participant (CSDP) or broker credited on Monday, 20 April 2015.
General
Additional information on the financial and operational results for the year ended 31 December 2014, as well as the
presentation thereof can be accessed from the company’s website on www.exxaro.com.
On behalf of the board:
Len Konar Sipho Nkosi Wim de Klerk
Chairman Chief executive officer Finance director
4 March 2015
Corporate information
Registered office
Exxaro Resources Limited
Roger Dyason Road
Pretoria West, 0183
Tel: +27 12 307 5000
Fax: +27 12 323 3400
Transfer secretaries
Computershare Investor
Services Proprietary Limited
Ground Floor
70 Marshall Street
Johannesburg, 2001
PO Box 61051
Marshalltown, 2107
Directors
Dr D Konar*** (Chairman), SA Nkosi* (Chief Executive Officer), WA de Klerk* (Finance Director),
S Dakile-Hlongwane***, Dr CJ Fauconnier***, NB Mbazima**^, VZ Mntambo**, RP Mohring***,
V Nkonyeni***, Dr MF Randera**, J van Rooyen***, D Zihlangu***
* Executive ** Non-executive *** Independent non-executive ^ Zambian
Prepared under supervision of:
WA de Klerk, CA(SA)
Group company secretary:
CH Wessels
Investor relations
M Mthenjane (+27 12 307 7393)
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.
This report is available at www.exxaro.com
Date: 05/03/2015 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
