Wrap Text
EXX: Interim Financial Results for Six-Month Period Ended 30 June 2017
EXXARO RESOURCES LIMITED
(Incorporated in the Republic of South Africa)
Registration number: 2000/011076/06
JSE share code: EXX
ISIN: ZAE000084992
ADR code: EXXAY
(Exxaro or the company or the group)
REVIEWED CONDENSED GROUP INTERIM STATEMENTS AND UNREVIEWED PRODUCTION AND
SALES VOLUMES INFORMATION FOR THE SIX MONTHS ENDED 30 JUNE 2017
SALIENT FEATURES
Group
- Revenue R10,7 billion, up 10%
- Net operating profit R2,9 billion, up 35%
- Net debt: equity of 12%
- Interim dividend of 300 cents per share, up 210 cents per share
- HEPS* of 822 cents, up 185%
- AEPS** of 852 cents, up 135%
- Cash generated by operations at R3,7 billion, up 68%
SIOC
- R1,2 billion post-tax equity-accounted income
- R1,4 billion, Exxaro's share of dividend declared for 1H17
Tronox
- R295 million post-tax equity-accounted losses
- Diviedend of R59 million received in 1H17
* Headline earnings per share
** Attributable earnings per share
Please refer to the end for an explanation of the acronyms used throughout this document.
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
2017 2016 2016
Reviewed Reviewed Audited
Rm Rm Rm
Revenue 10 736 9 762 20 897
Operating expenses (7 826) (7 760) (16 413)
Operating profit (note 6) 2 910 2 002 4 484
Gain on disposal of joint venture 203 203
Impairment charges of non-current assets (100)
Net operating profit 2 910 2 205 4 587
Finance income (note 7) 71 83 229
Finance costs (note 7) (522) (417) (857)
Share of income/(loss) of equity-accounted
investments (note 8) 1 125 (9) 2 373
Profit before tax 3 584 1 862 6 332
Income tax expense (861) (490) (1 179)
Profit for the period from continuing operations 2 723 1 372 5 153
(Loss)/profit for the period from
discontinued operations (note 5) (121) 538
Profit for the period 2 723 1 251 5 691
Other comprehensive (loss)/income, net of tax (181) (91) (549)
Items that will not be reclassified to
profit or loss: (4) 31 (57)
- Remeasurements of post-employment
benefit obligation (29)
- Share of comprehensive income/(loss)
of equity-accounted investments 25 31 (57)
Items that may be subsequently reclassified
to profit or loss: (177) (122) (492)
- Unrealised (losses)/gains on translation of
foreign operations (39) 25 (45)
- Revaluation of financial assets
available-for-sale 5 (2) (5)
- Share of comprehensive loss of
equity-accounted investments (143) (145) (442)
Total comprehensive income for the period 2 542 1 160 5 142
Profit/(loss) attributable to:
Owners of the parent 2 692 1 285 5 679
- Continuing operations 2 692 1 406 5 141
- Discontinued operations (121) 538
Non-controlling interests 31 (34) 12
- Continuing operations 31 (34) 12
Profit for the period 2 723 1 251 5 691
Total comprehensive income/(loss)
attributable to:
Owners of the parent 2 511 1 194 5 130
- Continuing operations 2 511 1 226 4 666
- Discontinued operations (32) 464
Non-controlling interests 31 (34) 12
- Continuing operations 31 (34) 12
Total comprehensive income for the period 2 542 1 160 5 142
Cents Cents Cents
Attributable earnings/(loss) per share
Aggregate
- Basic 852 362 1 600
- Diluted 852 360 1 591
Continuing operations
- Basic 852 396 1 448
- Diluted 852 394 1 440
Discontinued operations
- Basic (34) 152
- Diluted (34) 151
CONDENSED GROUP STATEMENT OF FINANCIAL POSITION
At 30 June At 30 June At 31 December
2017 2016 2016
Reviewed Reviewed Audited
Rm Rm Rm
ASSETS
Non-current assets 51 556 46 126 49 959
Property, plant and equipment 22 568 21 073 21 972
Biological assets 47 52 45
Intangible assets 23 43 31
Investments in associates (note 11) 22 333 19 687 21 518
Investments in joint ventures (note 12) 1 329 1 195 1 258
Financial assets (note 13) 4 827 3 638 4 720
Deferred tax 429 438 415
Current assets 5 919 6 492 9 842
Inventories 1 287 1 213 1 036
Financial assets (note 13) 452 480
Trade and other receivables 2 440 2 281 3 050
Current tax receivable 119 185 81
Cash and cash equivalents 2 073 2 361 5 195
Non-current assets held-for-sale (note 14) 175 142 130
Total assets 57 650 52 760 59 931
EQUITY AND LIABILITIES
Capital and other components of equity
Share capital 1 660 2 460 2 509
Other components of equity 5 007 6 901 2 085
Retained earnings 30 476 26 651 31 281
Equity attributable to owners of the parent 37 143 36 012 35 875
Non-controlling interests (757) (834) (788)
Total equity 36 386 35 178 35 087
Non-current liabilities 15 909 11 940 16 282
Interest-bearing borrowings (note 15) 5 498 3 039 6 002
Provisions 4 149 3 297 4 162
Post-retirement employee obligations 222 228 239
Financial liabilities (note 17) 253 73 479
Deferred tax 5 787 5 303 5 400
Current liabilities 4 221 4 298 7 461
Trade and other payables 2 753 2 515 3 010
Shareholder loans 18 21 18
Interest-bearing borrowings (note 15) 11 1 584 503
Current tax payable 146 35 210
Financial liabilities (note 17) 236 3 599
Provisions 140 127 109
Overdraft (note 15) 917 16 12
Non-current liabilities held-for-sale (note 14) 1 134 1 344 1 101
Total liabilities 21 264 17 582 24 844
Total equity and liabilities 57 650 52 760 59 931
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
Other components of equity
Foreign Financial Retirement Available-
Share currency instruments Equity- benefit for-sale
capital translation revaluation settled obligation revaluation Other
Rm Rm Rm Rm Rm Rm Rm
At 31 December 2015 (Audited) 2 445 4 922 241 2 008 (205) (55)
Profit/(loss) for the period
Other comprehensive income/(loss) 25 (2)
Share of other comprehensive
(loss)/income of equity-accounted
investments (80) (192) 127 31
Issue of share capital 15
Share-based payments movement 81
Dividends paid
At 30 June 2016 (Reviewed) 2 460 4 867 49 2 216 (174) (57)
Profit for the period
Other comprehensive loss (70) (3)
Share of associates’ reclassification
of equity (557)
Share of other comprehensive
(loss)/income of equity-accounted
investments (386) (26) 115 (88)
Issue of share capital 49
Share-based payments movement 124
Dividends paid
Share repurchase (3 524)
Disposal of foreign subsidiaries (401)
At 31 December 2016 (Audited) 2 509 4 010 23 1 898 (262) (60) (3 524)
Profit for the period
Other comprehensive (loss)/income (39) (29) 5
Share of other comprehensive (loss)/income
of equity-accounted investments (174) (58) 89 25
Issue of share capital1 463
Share-based payments movement2 (422)
Dividends paid
Share repurchase3 (1 312) 3 524
Reclassification within equity4 1
At 30 June 2017 (Reviewed) 1 660 3 797 (35) 1 565 (266) (55) 1
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY (continued)
Attributable
to owners Non-
Retained of the controlling Total
earnings parent interests equity
Rm Rm Rm Rm
At 31 December 2015 (Audited) 25 670 35 026 (800) 34 226
Profit/(loss) for the period 1 285 1 285 (34) 1 251
Other comprehensive income/(loss) 23 23
Share of other comprehensive
(loss)/income of equity-accounted
investments (114) (114)
Issue of share capital 15 15
Share-based payments movement 81 81
Dividends paid (304) (304) (304)
At 30 June 2016 (Reviewed) 26 651 36 012 (834) 35 178
Profit for the period 4 394 4 394 46 4 440
Other comprehensive loss (73) (73)
Share of associates’ reclassification
of equity 557
Share of other comprehensive
(loss)/income of equity-accounted
investments (385) (385)
Issue of share capital 49 49
Share-based payments movement 124 124
Dividends paid (321) (321) (321)
Share repurchase (3 524) (3 524)
Disposal of foreign subsidiaries (401) (401)
At 31 December 2016 (Audited) 31 281 35 875 (788) 35 087
Profit for the period 2 692 2 692 31 2 723
Other comprehensive (loss)/income (63) (63)
Share of other comprehensive (loss)/income
of equity-accounted investments (118) (118)
Issue of share capital1 463 463
Share-based payments movement2 (422) (422)
Dividends paid (1 284) (1 284) (1 284)
Share repurchase3 (2 212)
Reclassification within equity4 (1)
At 30 June 2017 (Reviewed) 30 476 37 143 (757) 36 386
1 Vesting of Mpower 2012 treasury shares to good leavers and beneficiaries upon final vesting of the
share-based payment scheme on 31 May 2017.
2 Includes the final vesting of Mpower 2012 shares.
3 Exxaro repurchased 43 943 744 ordinary shares from Main Street 333 for a purchase consideration of R3 524 million.
4 Relates to a foreign entity which is required to reallocate distributable reserves to a non-distributable reserve.
Dividend distribution
Final dividend paid per share (cents) in respect of the 2016 financial year 410
Dividend paid per share (cents) in respect of the 2016 interim period 90
Dividend payable per share (cents) in respect of the 2017 interim period 300
Foreign currency translation
Arises from the translation of the financial statements of foreign operations within the group.
Financial instruments revaluation
Comprises 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, net of tax, of services received from employees and settled by equity instruments granted.
Retirement benefit obligation
Comprises remeasurements, net of tax, on the post-retirement obligation.
Available-for-sale revaluation
Comprises fair value adjustments, net of tax, on the available-for-sale financial assets.
CONDENSED GROUP STATEMENT OF CASH FLOWS
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
2017 2016 2016
Reviewed Reviewed Audited
Rm Rm Rm
Cash flows from operating activities 1 528 1 380 3 918
Cash generated by operations 3 660 2 183 5 549
Interest paid (328) (252) (595)
Interest received 55 45 136
Tax paid (575) (292) (547)
Dividends paid (1 284) (304) (625)
Cash flows from investing activities (907) (607) (2 198)
Property, plant and equipment acquired to maintain operations (note 10) (1 105) (993) (2 413)
Property, plant and equipment acquired to expand operations (note 10) (209) (179) (367)
Proceeds from disposal of property, plant and equipment 2 3 35
Settlement of contingent consideration (note 18.2) (74)
Increase in investments in other non-current assets (64) (34) (160)
Decrease in loans to related parties 400
Interest received on loans to related parties 84
Proceeds from disposal of operation 47
Proceeds from disposal of joint venture 200 200
Increase in investment in joint venture (54) (55)
Increase in investment in associate (233) (233)
Income from investments in associates and joint ventures 59 683 748
Cash flows from financing activities (4 620) (443) 1 483
Interest-bearing borrowings raised 1 066 7 565
Interest-bearing borrowings repaid (999) (1 509) (6 066)
Shares acquired in the market to settle share-based payments (97) (16)
Repurchase of share capital (3 524)
Net (decrease)/increase in cash and cash equivalents (3 999) 330 3 203
Cash and cash equivalents at beginning of the period 5 183 2 055 2 055
Translation difference on movement in cash and cash equivalents (24) (40) (75)
Cash and cash equivalents at end of the period 1 160 2 345 5 183
- Cash and cash equivalents 2 073 2 361 5 195
- Cash and cash equivalents classified as held-for-sale 4
- Overdraft (917) (16) (12)
RECONCILIATION OF GROUP HEADLINE EARNINGS
Gross Tax Net
Rm Rm Rm
6 months ended 30 June 2017 (Reviewed)
Profit for the period attributable to owners
of the parent 2 692
Adjusted for: 103 (8) 95
- IAS 16 Net losses on disposal of property,
plant and equipment 22 (6) 16
- IAS 28 Loss on dilution of investment in associate 75 75
- IAS 28 Share of equity-accounted investments’
separate identifiable remeasurements 6 (2) 4
Headline earnings 2 787
6 months ended 30 June 2016 (Reviewed)
Profit for the period attributable to owners
of the parent 1 285
Adjusted for: (184) (5) (189)
- IAS 16 Net losses on disposal of property,
plant and equipment 13 (1) 12
- IAS 28 Gain on disposal of joint venture (203) (203)
- IAS 28 Loss on dilution of investment in associate 29 29
- IAS 28 Excess of fair value over cost of
investment in associate (35) (35)
- IAS 28 Share of equity-accounted investments'
separate identifiable remeasurements 12 (4) 8
Headline earnings/(loss) 1 096
- Continuing operations 1 218
- Discontinued operations (122)
12 months ended 31 December 2016 (Audited)
Profit for the year attributable to owners
of the parent 5 679
Adjusted for: (1 001) (57) (1 058)
- IFRS 10 Gain on disposal of subsidiaries (670) (670)
- IAS 16 Net losses on disposal of property,
plant and equipment 35 (13) 22
- IAS 16 Gain on disposal of an operation (100) (100)
- IAS 28 Excess of fair value over cost of
investment in associate (256) (256)
- IAS 28 Loss on dilution of investment in associate 36 36
- IAS 28 Share of equity-accounted investments'
separate identifiable remeasurements 57 (17) 40
- IAS 28 Gain on disposal of joint venture (203) (203)
- IAS 36 Impairment of property, plant and equipment 100 (27) 73
Headline earnings/(loss) 4 621
- Continuing operations 4 763
- Discontinued operations (142)
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
2017 2016 2016
Reviewed Reviewed Audited
Cents Cents Cents
Headline earnings/(loss) per share
Aggregate
- Basic 882 309 1 302
- Diluted 882 307 1 294
Continuing operations
- Basic 882 343 1 342
- Diluted 882 341 1 334
Discontinued operations
- Basic (34) (40)
- Diluted (34) (40)
Refer to note 9 for details regarding the number of shares.
NOTES TO THE REVIEWED CONDENSED GROUP INTERIM FINANCIAL STATEMENTS
1. CORPORATE BACKGROUND
Exxaro, a public company incorporated in South Africa, is a diversified resources group with interests in the coal
(controlled and non-controlled), TiO2 and Alkali chemicals (non-controlled), ferrous (controlled and non-controlled) and
energy (non-controlled) markets. These reviewed condensed group interim financial statements as at and for the
six-month period ended 30 June 2017 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 PREPARATION
2.1 Statement of compliance
The reviewed condensed group interim financial statements as at and for the six-month period ended 30 June 2017 have
been prepared in accordance with IFRS, IAS 34 Interim Financial Reporting, the SAICA Financial Reporting Guides as
issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards
Council and the requirements of the Companies Act of South Africa.
The reviewed condensed group interim financial statements as at and for the six-month period ended 30 June 2017 have
been prepared under the supervision of PA Koppeschaar CA(SA), SAICA registration number: 00038621.
The reviewed condensed group interim financial statements should be read in conjunction with the group annual
financial statements as at and for the year ended 31 December 2016, which have been prepared in accordance with IFRS
as issued by the IASB. The reviewed condensed group interim 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 interim financial statements of Exxaro and its subsidiaries as at and for the six-month
period ended 30 June 2017 were authorised for issue by the board of directors on 15 August 2017.
2.2 Judgements and estimates
In preparing these reviewed condensed group interim 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 2016.
3. ACCOUNTING POLICIES
The accounting policies adopted in the preparation of the reviewed condensed group interim financial statements are
consistent with those followed in the preparation of the group annual financial statements as at and for the year
ended 31 December 2016. A number of new or amended standards became effective for the current reporting period.
However, the group did not have to change its accounting policies or make retrospective adjustments as a result of
adopting these standards. Additional disclosures required under the amended IAS 7 Statement of Cash Flows have not
been provided by the group as it is not required for condensed group interim financial statements. The group will
disclose the additional information in the group annual financial statements for the year ended 31 December 2017.
Taxes on income in the interim period are accrued using the tax rate that would be applicable to expected total
annual profit or loss.
New accounting standards and amendments issued to accounting standards and interpretations which are relevant to
the group, but not yet effective on 30 June 2017, have not been adopted. The group continuously evaluates the impact
of these standards and amendments. In summary the following are the current expectations in relation to IFRS 9
Financial Instruments, IFRS 15 Revenue from Contracts with Customers and IFRS 16 Leases.
IFRS 9
The group has decided not to adopt IFRS 9 until it becomes mandatory on 1 January 2018.
The actual impact of adopting IFRS 9 on the group's financial statements in 2018 is not known and cannot be reliably
estimated because it is dependent on the financial instruments that the group holds and economic conditions at that
time as well as accounting elections and judgements which the group will make in the future. The new standard will
require the group to revise its accounting processes and internal controls related to reporting financial instruments
and these changes are not yet complete.
However, the group has performed a preliminary assessment of the potential impact of the adoption of IFRS 9 based
on its position at 30 June 2017.
Based on its preliminary assessment, the group does not believe that the new classification requirements, if they had
been applied at 30 June 2017, would have had a material impact on its accounting for trade receivables, loans and
investments in equity securities that are managed on a fair value basis. At 30 June 2017, the group had equity investments
classified as available-for-sale with a fair value of R177 million. If these investments continue to be held for the same
purpose at initial application of IFRS 9, then the group may elect to classify them as at fair value through other
comprehensive income or fair value through profit or loss. The group has not yet made a decision in this regard. In the
former case, all fair value gains and losses would be reported in other comprehensive income, no impairment losses
would be recognised in profit or loss and no gains or losses would be reclassified to profit or loss on disposal.
In the latter case, all fair value gains and losses would be recognised in profit or loss as they arise, increasing
volatility in the group's profits.
The group has embarked on the process of determining the impact that the new impairment model, on the basis of expected
credit losses, will have on the impairment provisions. As part of this process the group will finalise the impairment
methodologies that it will apply under IFRS 9.
Disclosure requirements and changes in presentation are expected to change the nature and extent of the group's
disclosures about its financial instruments particularly in the year of the adoption of the new standard. The group
is in the process of identifying changes to systems and controls which will be necessary to capture the required data.
IFRS 15
The standard is effective for annual periods beginning on or after 1 January 2018. Exxaro assessed significant contracts
with customers in line with the IFRS 15 five-step model. While the group is still considering the impact, no material
impact is expected on the measurement and timing of revenue recognition.
The group must still take a decision on the transition method to be applied as well as the practical expedients to be
used, if elected.
IFRS 16
The standard is effective for annual periods beginning on or after 1 January 2019. Early adoption is permitted provided
that IFRS 15 is adopted at or before the date of initial application of IFRS 16. The group made progress on the initial
assessment of the potential impact of this standard on the group's financial statements but has not yet reached a
conclusion if this standard will be early adopted with the implementation of IFRS 15. This initial assessment included
the identification of material lease transactions within the group. The group must still make a decision on the
transition method to be applied as well as the practical expedients to be used, if elected.
4. SEGMENTAL INFORMATION
Operating segments are reported on in a manner consistent with the internal reporting provided to the chief operating
decision-maker, who is responsible for allocating resources and assessing performance of the reportable operating
segments. The chief operating decision-maker has been identified as the group executive committee. Segments reported
are based on the group's different products and operations.
The corporate transactions during 2016 necessitated a change in the segmental reporting structures and the manner in
which operating results are reported to the chief operating decision-maker. Changes to segmental reporting which
resulted in the re-presentation of comparative periods' segmental information, included:
- the iron ore operating segment is now included within the other operating segment which forms part of the
other reportable segment;
- an energy segment was added as an additional reportable segment.
The re-presentation resulted in five reportable operating segments compared to the four reportable operating
segments in prior periods.
Total operating segment revenue, which excludes VAT, represents the gross value of goods invoiced, services rendered
and includes operating revenues directly and reasonably allocatable to the segments. Segment net operating profit or
loss equals segment revenue less segment expenses, impairment charges, plus impairment reversals. Segment operating
expenses, assets and liabilities represent direct or reasonably allocatable operating expenses, assets and liabilities.
The reportable operating segments, as described below, offer different products and services, and are managed
separately based on commodity, location and support function grouping. The group executive committee reviews internal
management reports on these divisions at least quarterly.
Coal
The coal operations are mainly situated in the Waterberg and Mpumalanga regions and are split between coal commercial
operations and coal tied operations. Coal commercial operations include a 50% (30 June 2016: 50%; 31 December 2016: 50%)
investment in Mafube (a joint venture with Anglo), as well as a 10,82% (30 June 2016: 10,82%; 31 December 2016: 10,82%)
effective equity interest in RBCT. The coal operations produce thermal coal, metallurgical coal and SSCC.
Ferrous
The ferrous segment comprises a 20,62% (30 June 2016: 19,98%; 31 December 2016: 20,62%) equity interest in SIOC
(located in the Northern Cape province) reported within the other ferrous operating segment as well as the FerroAlloys
operations (referred to as Alloys).
TiO2 and Alkali chemicals
Exxaro holds a 42,97% (30 June 2016: 43,71%; 31 December 2016: 43,66%) equity interest in Tronox Limited and a 26%
(30 June 2016: 26%; 31 December 2016: 26%) equity interest in Tronox SA (both South African-based operations), as well
as a 26% (30 June 2016: 26%; 31 December 2016: 26%) member's interest in Tronox UK.
Energy
The energy segment comprises a 50% (30 June 2016: 50%; 31 December 2016: 50%) investment in Cennergi (a South African
joint venture with Tata Power Company Limited) which operates two windfarms.
Other
This reportable segment comprises the 26% (30 June 2016: 26%; 31 December 2016: 26%) equity interest in Black
Mountain (located in the Northern Cape province), an effective investment of 11,7% (30 June 2016: 11,7%;
31 December 2016: 11,7%) in Chifeng (located in the PRC), the Mayoko iron ore project (and related subsidiaries)
which was classified as a discontinued operation in 2016 and sold on 23 September 2016, as well as the corporate
office which renders services to operations and other customers.
The following table presents a summary of the group's segmental information:
TiO2 and
Alkali
Coal Ferrous chemicals Energy Other Total
Tied Commercial Other Base
operations operations Alloys ferrous metals Other
Rm Rm Rm Rm Rm Rm Rm Rm Rm
For the 6 months ended
30 June 2017 (Reviewed)
External revenue 1 591 9 079 56 10 10 736
Segment net operating profit/(loss) 149 2 865 (104) 2 910
External finance income (note 7) 21 50 71
External finance costs (note 7) (83) (121) (318) (522)
Income tax (expense)/benefit (26) (777) 8 (66) (861)
Depreciation and amortisation
(note 6) (6) (623) (46) (675)
Cash generated by/(utilised
in) operations 120 3 523 24 (7) 3 660
Share of income/(loss) of
equity-accounted investments
(note 8) 104 1 228 (295) (11) 99 1 125
Capital expenditure (note 10) (1 305) (2) (7) (1 314)
At 30 June 2017 (Reviewed)
Segment assets and liabilities
Deferred tax 67 17 28 317 429
Investments in associates (note 11) 2 203 8 771 10 740 619 22 333
Investments in joint ventures
(note 12) 961 368 1 329
External assets1 2 907 27 911 163 25 126 177 2 075 33 384
Assets 2 974 31 092 191 8 796 10 740 494 796 2 392 57 475
Non-current assets held-for-sale
(note 14) 46 129 175
Total assets as per statement of
financial position 2 974 31 138 191 8 796 10 740 494 796 2 521 57 650
External liabilities 2 650 4 464 23 4 7 056 14 197
Deferred tax2 4 5 842 (59) 5 787
Current tax payable2 (4) 150 146
Liabilities 2 650 10 456 23 4 6 997 20 130
Non-current liabilities
held-for-sale (note 14) 1 134 1 134
Total liabilities as per statement of
financial position 2 650 11 590 23 4 6 997 21 264
1 Excluding deferred tax, investments in associates and joint ventures and non-current assets held-for-sale.
2 Offset per legal entity and tax authority.
TiO2 and
Alkali
Coal Ferrous chemicals Energy Other Total
Tied Commercial Other Base
operations operations Alloys ferrous metals Other
Rm Rm Rm Rm Rm Rm Rm Rm Rm
For the 6 months ended
30 June 2016 (Reviewed)
(Re-presented)
External revenue
(continuing operations) 1 659 8 059 13 31 9 762
Segment net operating
profit/(loss) 122 2 110 (7) (66) 2 159
- Net operating profit/
(loss) from continuing operations 122 2 110 (7) (20) 2 205
- Net operating loss from
discontinued operations (46) (46)
External finance income (note 7) 1 14 1 67 83
External finance costs (note 7) (52) (121) (244) (417)
Income tax (expense)/benefit (19) (421) 2 (127) (565)
Depreciation and amortisation (note 6) (6) (511) (4) (43) (564)
Cash generated by/(utilised in) operations 167 2 422 (34) (9) (363) 2 183
Share of income/(loss) of
equity-accounted investments
(note 8) 109 736 (930) 37 39 (9)
Capital expenditure (note 10) (1 158) (10) (4) (1 172)
At 30 June 2016 (Reviewed)
(Re-presented)
Segment assets and liabilities
Deferred tax 37 31 124 109 137 438
Investments in associates (note 11) 2 242 5 874 11 111 460 19 687
Investments in joint ventures
(note 12) 683 512 1 195
External assets1 1 953 26 109 225 28 199 2 784 31 298
Assets 1 990 29 065 349 6 011 11 111 512 659 2 921 52 618
Non-current assets held-for-sale
(note 14) 142 142
Total assets as per statement of
financial position 1 990 29 065 349 6 011 11 111 512 659 3 063 52 760
External liabilities 1 735 5 833 33 47 3 252 10 900
Deferred tax2 (28) 5 392 3 (64) 5 303
Current tax payable2 35 35
Liabilities 1 707 11 260 36 47 3 188 16 238
Non-current liabilities held-for-sale
(note 14) 1 072 272 1 344
Total liabilities as per statement
of financial position 1 707 12 332 36 47 3 460 17 582
1 Excluding deferred tax, investments in associates and joint ventures and non-current assets held-for-sale.
2 Offset per legal entity and tax authority.
TiO2 and
Alkali
Coal Ferrous chemicals Energy Other Total
Tied Commercial Other Base
operations operations Alloys ferrous metals Other
Rm Rm Rm Rm Rm Rm Rm Rm Rm
For the 12 months ended
31 December 2016 (Audited)
(Re-presented)
External revenue
(continuing operations) 3 483 17 190 170 54 20 897
Segment net operating profit/(loss) 226 4 940 (75) 28 81 5 200
- Net operating profit/(loss)
from continuing operations 226 4 940 (75) 28 (532) 4 587
- Net operating profit from
discontinued operations 613 613
External finance income (note 7) 2 61 1 165 229
External finance costs (note 7) (105) (245) (507) (857)
Income tax benefit/(expense) 13 (1 110) 21 2 (180) (1 254)
Depreciation and amortisation
(note 6) (12) (1 072) (7) (107) (1 198)
Impairment charges - non-current
assets (excluding financial assets
and goodwill) (100) (100)
Gain on disposal of operation 100 100
Cash generated by/(utilised in)
operations 260 5 426 (53) (22) (62) 5 549
Share of income/(loss) of
equity-accounted investments
(note 8) 238 2 416 (384) 3 100 2 373
Capital expenditure (note 10) (2 747) (14) (19) (2 780)
At 31 December 2016 (Audited)
(Re-presented)
Segment assets and liabilities
Deferred tax 49 22 1 343 415
Investments in associates (note 11) 2 217 7 549 11 232 520 21 518
Investments in joint ventures
(note 12) 839 419 1 258
External assets1 2 952 27 481 201 25 126 178 5 647 36 610
Assets 2 952 30 586 223 7 575 11 232 545 698 5 990 59 801
Non-current assets held-for-sale
(note 14) 1 129 130
Total assets as per statement
of financial position 2 952 30 587 223 7 575 11 232 545 698 6 119 59 931
External liabilities 2 631 4 939 39 4 10 520 18 133
Deferred tax2 (54) 5 515 (61) 5 400
Current tax payable2 (14) 224 210
Liabilities 2 563 10 678 39 4 10 459 23 743
Non-current liabilities held-for-sale
(note 14) 1 101 1 101
Total liabilities as per statement
of financial position 2 563 11 779 39 4 10 459 24 844
1 Excluding deferred tax, investments in associates and joint ventures and non-current assets held-for-sale.
2 Offset per legal entity and tax authority.
5. DISCONTINUED OPERATIONS
During 2016 Exxaro entered into a sale of shares agreement for the sale of the Mayoko iron ore project and related
subsidiaries for a purchase consideration of US$2 million which became effective on 23 September 2016. The disposal
group represented a major geographical area of operation and was disclosed as part of the iron ore operating segment
which has now been re-presented to form part of the other operating segment within the other reportable segment.
Financial information relating to discontinued operations for the period to the date of disposal is set out below:
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
2017 2016 2016
Reviewed Reviewed Audited
Rm Rm Rm
The financial performance and cash flow information
Operating expenses (46) (57)
Operating loss (46) (57)
Gain on disposal of subsidiaries 670
Net operating (loss)/profit (46) 613
Income tax expense (75) (75)
(Loss)/profit for the period from discontinued operations (121) 538
Cash flow attributable to operating activities (16) (29)
Cash flow attributable to investing activities 1 9
Cash flow attributable to discontinued operations (15) (20)
6. SIGNIFICANT ITEMS INCLUDED IN OPERATING PROFIT
Raw materials and consumables (1 412) (1 124) (2 443)
Staff costs (2 011) (2 084) (4 365)
Royalties (70) (53) (82)
Gain on disposal of operation1 100
Depreciation and amortisation (675) (564) (1 198)
Fair value adjustments on contingent consideration2 (37) 38 (445)
Net realised foreign currency exchange losses (78) (74) (116)
Fair value adjustments on financial assets designated
at fair value through profit or loss 43 35 48
Provisions income/(expense) 192 (70) (896)
Net losses on disposal or scrapping of property,
plant and equipment (22) (13) (44)
Loss on dilution of investment in associate (75) (29) (36)
1 Sale of the Inyanda operation in 2016.
2 Relating to the ECC acquisition.
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
2017 2016 2016
Reviewed Reviewed Audited
Rm Rm Rm
7. NET FINANCING COSTS
Total finance income 71 83 229
- Interest income 66 78 218
- Finance lease interest income 5 5 11
Total finance costs (522) (417) (857)
- Interest expense (325) (245) (496)
- Unwinding of discount rate on rehabilitation cost (202) (173) (347)
- Finance lease interest expense (2) (2) (5)
- Amortisation of transaction costs (3) (4) (25)
- Borrowing costs capitalised1 10 7 16
Total net financing costs (451) (334) (628)
1 Borrowing costs capitalisation rate: 9,05% 9,02% 9,55%
8. SHARE OF INCOME/(LOSS) OF EQUITY-ACCOUNTED INVESTMENTS
Associates 1 018 (130) 2 132
Listed investments (363) (947) (391)
- Tronox Limited (363) (947) (391)
Unlisted investments 1 381 817 2 523
- SIOC1 1 228 736 2 416
- Tronox SA 9 (41) (111)
- Tronox UK 59 58 118
- RBCT2 (14) 25
- Black Mountain 99 39 100
Joint ventures 107 121 241
- Mafube 118 84 238
- Cennergi (11) 37 3
Share of income/(loss) of equity-accounted investments 1 125 (9) 2 373
1 December 2016 includes R221 million excess of fair value over the cost of the investment which arose on the increase of
0,64% in the shareholding of SIOC.
2 2016 includes R35 million excess of fair value over the cost of the investment which arose on the increase in the
RBCT shareholding.
9. DIVIDEND DISTRIBUTION
Total dividends paid in 2016 amounted to R625 million, made up of a final dividend of R304 million which related to the
year ended 31 December 2015, paid in April 2016, as well as an interim dividend of R321 million, paid in September 2016.
A final dividend relating to the 2016 year of 410 cents per share (amounting to R1 284 million) was paid to shareholders
in April 2017.
An interim cash dividend, number 29, for 2017 of 300 cents per share (2016: 90 cents per share) was approved by the board
of directors on 15 August 2017. The dividend is payable on 18 September 2017 to shareholders who will be on the register at
15 September 2017. This interim dividend, amounting to approximately R943 million (2016: R321 million), has not been
recognised as a liability in these reviewed condensed group interim financial statements. It will be recognised in
shareholders' equity in the year ending 31 December 2017.
The dividend declared will be subject to a dividend withholding tax of 20% 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, subject
to dividend withholding tax at a rate of 20% amounts to 240 cents per share. The dividend withholding tax amounts to
60,00000 cents per share (30 June 2016: 13,50000 cents per share; 31 December 2016: 82,00000 cents per share). The number
of ordinary shares in issue at the date of this declaration is 314 171 761 (2016: 358 115 505). Exxaro company's tax
reference number is 9218/098/14/4.
At 30 June At 30 June At 31 December
2017 2016 2016
Reviewed Reviewed Audited
Issued share capital (number)1 314 171 761 358 115 505 358 115 505
Ordinary shares (million)
- Weighted average number of shares 316 355 355
- Diluted weighted average number of shares 316 357 357
1 43 943 744 shares were repurchased and cancelled on 20 January 2017.
At 30 June At 30 June At 31 December
2017 2016 2016
Reviewed Reviewed Audited
Rm Rm Rm
10. CAPITAL EXPENDITURE
Incurred 1 314 1 172 2 780
- To maintain operations 1 105 993 2 413
- To expand operations 209 179 367
Contracted 3 881 1 506 2 333
- Contracted for the group (owner-controlled) 2 581 1 203 1 382
- Share of capital commitments of equity-accounted investments 1 300 303 951
Authorised, but not contracted 1 148 760 3 500
11. INVESTMENTS IN ASSOCIATES
Listed investments 7 383 7 818 7 946
- Tronox Limited1 7 383 7 818 7 946
Unlisted investments 14 950 11 869 13 572
- SIOC 8 771 5 874 7 549
- Tronox SA 1 740 1 795 1 728
- Tronox UK 1 617 1 498 1 558
- RBCT 2 203 2 242 2 217
- Black Mountain 619 460 520
Total carrying value of investments in associates 22 333 19 687 21 518
1 Fair value based on a listed price (Level 1 within the
IFRS 13 Fair Value Measurement fair value hierarchy) (Rm): 10 060 3 349 7 186
Listed share price (US$ per share): 15,12 4,41 10,31
Subsequent to 30 June 2017, the Tronox Limited share price improved to US$19,91 per share on 15 August 2017, an increase
of 32%. An impairment charge was not recognised for 2016 as the recoverable amount (value in use) of the Tronox Limited
investment was determined to be in excess of the carrying value.
At 30 June At 30 June At 31 December
2017 2016 2016
Reviewed Reviewed Audited
Rm Rm Rm
12. INVESTMENTS IN JOINT VENTURES
Unlisted investments 1 329 1 195 1 258
- Mafube 961 683 839
- Cennergi1 368 512 419
Total carrying value of investments in joint ventures 1 329 1 195 1 258
1 Included in financial assets is a loan to Cennergi (refer note 13): 126 126
13. FINANCIAL ASSETS
Non-current financial assets
Environmental rehabilitation funds 1 510 1 370 1 401
Loan to joint venture1 126 126
Non-current receivables 1 744 848 1 768
Indemnification asset2 1 130 1 072 1 100
Investments 192 209 193
- Available-for-sale 177 199 178
- Fair value through profit or loss 15 10 15
Lease receivables 125 139 132
Total non-current financial assets 4 827 3 638 4 720
Current financial assets
Loan to BEE shareholder3 452 480
Total current financial assets 452 480
Total financial assets 4 827 4 090 5 200
1 The loan granted to Cennergi in 2016 is interest free, unsecured and repayable on termination date in 2026, unless
otherwise agreed by the parties.
2 The indemnification asset arose on the ECC business combination transaction.
3 During January 2017 Main Street 333 settled its interest-bearing loan with Exxaro.
14. NON-CURRENT ASSETS AND LIABILITIES HELD-FOR-SALE
Moranbah coal project
Exxaro holds a 50% interest in the Moranbah coal project joint operation with Anglo American Metallurgical Coal Proprietary
Limited reported within the coal commercial operating segment which forms part of the coal reportable segment. The project
is based in Queensland, Australia.
As part of Exxaro's strategic decision to focus on its current pipeline of South African coal projects and due to the size
of the project, the group's executive committee approved a divestment plan for this asset. The sale will be managed through
a controlled market tender process, envisaged to be concluded towards the end of 2017.
The Moranbah coal project 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.
EMJV
Exxaro concluded the purchase of ECC in 2015, and as part of this acquisition Exxaro acquired non-current liabilities
held-for-sale relating to the EMJV. The sale of the EMJV is conditional on section 11 approval required in terms of the MPRDA
for transfer of the new-order mining right to the new owners, Scinta Energy Proprietary Limited, as well as section 43(2) approval
for the transfer of environmental liabilities and responsibilities. The EMJV remains a non-current liability held-for-sale for
the Exxaro group on 30 June 2017 as the required approvals are still pending.
The EMJV 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.
Corporate centre building
The land and buildings situated at corporate centre were classified as a non-current asset held-for-sale on 31 December 2015.
The sale was subject to the fulfilment of suspensive conditions which were not met and the sales agreement subsequently lapsed.
A new agreement was entered into with a property consortium in June 2016. These agreements have been amended and finalised
during May 2017. All conditions precedent to this sale agreement have not yet been met. The land and buildings situated at
corporate centre remains classified as a non-current asset held-for-sale on 30 June 2017.
The major classes of assets and liabilities classified as non-current assets and liabilities held-for-sale are as follows:
At 30 June At 30 June At 31 December
2017 2016 2016
Reviewed Reviewed Audited
Rm Rm Rm
Assets
Property, plant and equipment 166 128 129
Deferred tax 1 1
Trade and other receivables 4 14
- Other receivables 4 6
- Non-financial instrument receivables 8
Cash and cash equivalents 4
Non-current assets held-for-sale 175 142 130
Liabilities
Non-current provisions (1 113) (1 069) (1 083)
Post-retirement employee obligations (18) (18) (18)
Deferred tax (1)
Trade and other payables (3) (163)
- Trade payables (3) (41)
- Other payables (122)
Current tax payable (73)
Current provisions (20)
Non-current liabilities held-for-sale (1 134) (1 344) (1 101)
Net non-current liabilities held-for-sale (959) (1 202) (971)
15. INTEREST-BEARING BORROWINGS
Loans
Refinanced loan facility
Exxaro refinanced the previous senior loan facility by entering into a new facility agreement during July 2016.
The refinanced loan facility comprises a:
- R3 250 million bullet term loan facility with a term of five years (term loans)
- R2 000 million amortised term loan facility with a term of seven years (term loans)
- R2 750 million revolving credit facility with a term of five years (revolving facility).
Interest is based on JIBAR plus a margin of 3,25% for the bullet term loan facility (R3 250 million), JIBAR plus a margin
of 3,60% for the amortised term loan facility (R2 000 million) and JIBAR plus a margin of 3,25% for the revolving credit
facility (R2 750 million). The effective interest rate for the transaction costs on the term loans is 0,24%. Interest is
paid on a quarterly basis for the term loans, and on a monthly basis for the revolving credit facility.
The undrawn portion relating to the term loan facilities amounts to R1 750 million. The undrawn portion of the revolving
credit facility amounts to R1 250 million.
Bond issue
In terms of Exxaro's R5 000 million DMTN programme, a senior unsecured floating rate note (bond) of R1 000 million was
raised during May 2014. The bond comprises a:
- R480 million senior unsecured floating rate note, repaid on 19 May 2017
- R520 million senior unsecured floating rate note due 19 May 2019.
Interest on the R480 million bond was based on JIBAR plus a margin of 1,70% while interest on the R520 million bond is
based on JIBAR plus a margin of 1,95%. The effective interest rate for the transaction costs was 0,13% for the R480 million
bond and 0,08% for the R520 million bond. Interest is paid on a quarterly basis for both bonds.
Finance leases
Included in the interest-bearing borrowings are obligations relating to finance leases for mining equipment.
At 30 June At 30 June At 31 December
2017 2016 2016
Reviewed Reviewed Audited
Rm Rm Rm
15. INTEREST-BEARING BORROWINGS (continued)
Summary of loans and finance leases by period of redemption1
Less than six months 6 549 496
Six to 12 months 5 1 035 7
Between one and two years 521 1 012 5
Between two and three years (9) 1 529 514
Between three and four years (9) 498 (9)
Between four and five years 4 809 5 244
Over five years 186 248
Total interest-bearing borrowings 5 509 4 623 6 505
- Current2 11 1 584 503
- Non-current3 5 498 3 039 6 002
1 In July 2016 the R8 000 million loan facility, as
disclosed on 30 June 2016, was refinanced which
resulted in a new redemption profile.
2 The current portion represents 11 1 584 503
2 - Capital repayments of loans 1 480 480
2 - Interest capitalised 85
2 - Capital repayments of finance leases 21 27 32
2 - Reduced by the amortised transaction costs (10) (8) (9)
3 The non-current portion includes the following
amounts in respect of transaction costs that will
be amortised using the effective interest rate method,
over the term of the facilities. 30 12 35
Minimum finance lease payments:
- Not later than one year 21 31 35
- Later than one year but not later than five years 11 33 18
Total 32 64 53
Less: future finance charges (2) (7) (4)
Present value of finance lease liabilities 30 57 49
- Current 21 27 32
- Non-current 9 30 17
Overdraft
Bank overdraft 917 16 12
The bank overdraft is repayable on demand and interest payable is based on current South African money market rates.
There were no defaults or breaches in terms of interest-bearing borrowings during the reporting periods.
At 30 June At 30 June At 31 December
2017 2016 2016
Reviewed Reviewed Audited
Rm Rm Rm
16. NET DEBT1
Net debt is presented by the following items on
the statement of financial position (excluding assets and
liabilities classified as held-for-sale): (4 353) (2 278) (1 322)
- Cash and cash equivalents 2 073 2 361 5 195
- Non-current interest-bearing borrowings (5 498) (3 039) (6 002)
- Current interest-bearing borrowings (11) (1 584) (503)
- Overdraft (917) (16) (12)
Calculation of movement in net debt:
Cash inflow from operating and investing activities: 621 773 1 720
Add:
- Shares acquired in market to settle share-based payments (97) (16)
- Movement in external shareholder loans (3)
- Movement for interest capitalised/interest accrued 5 89
- Amortisation of transaction costs (3) (4) (25)
- Translation differences of movements in cash and
cash equivalents (24) (40) (75)
- Shares repurchased (3 524)
- Movement in cash and cash equivalents held-for-sale (4)
(Increase)/decrease in net debt (3 031) 734 1 690
1 Non-IFRS measure.
17. FINANCIAL LIABILITIES
Non-current financial liabilities
Finance lease 61 72 66
Contingent consideration1 191 408
Other 1 1 5
Total non-current financial liabilities 253 73 479
Current financial liabilities
Contingent consideration1 236 75
Share repurchase2 3 524
Total current financial liabilities 236 3 599
Total financial liabilities 489 73 4 078
1 Relating to the ECC acquisition.
2 During January 2017 Exxaro repurchased 43 943 744 ordinary shares from Main Street 333 for a purchase consideration
of R3 524 million.
18. FINANCIAL INSTRUMENTS
18.1 Carrying amounts and fair values
Due to the short-term nature of the current financial assets and current financial liabilities, the carrying amount is
assumed to be the same as the fair value. For the non-current financial assets and non-current financial liabilities,
the fair value is also equivalent to the carrying amounts.
18.2 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
Rm Rm Rm Rm
At 30 June 2017 (Reviewed)
Financial assets held-for-trading at fair value through profit or loss 1 1
- Current derivative financial assets 1 1
Financial assets designated at fair value through profit or loss 1 263 1 263
- Environmental rehabilitation funds 1 248 1 248
- KIO 15 15
Available-for-sale financial assets 177 177
- Chifeng 177 177
Financial liabilities designated at fair value through profit or loss (427) (427)
- Non-current contingent consideration (191) (191)
- Current contingent consideration (236) (236)
Net financial assets/(liabilities) held at fair value 1 263 1 (250) 1 014
At 30 June 2016 (Reviewed)
Financial assets held-for-trading at fair value through profit or loss 9 9
- Current derivative financial assets 9 9
Financial assets designated at fair value through profit or loss 1 160 1 160
- Environmental rehabilitation funds 1 150 1 150
- KIO 10 10
Available-for-sale financial assets 199 199
- Chifeng 199 199
Financial liabilities held-for-trading at fair value through profit or loss (1) (1)
- Current derivative financial liabilities (1) (1)
Net financial assets held at fair value 1 160 8 199 1 367
Level 1 Level 2 Level 3 Total
Rm Rm Rm Rm
At 31 December 2016 (Audited)
Financial assets designated at fair value through profit or loss 1 183 1 183
- Environmental rehabilitation funds 1 168 1 168
- New Age Exploration Limited 1 1
- KIO 14 14
Available-for-sale financial assets 178 178
- Chifeng 178 178
Financial liabilities held-for-trading at fair value through profit or loss (25) (25)
- Current derivative financial liabilities (25) (25)
Financial liabilities designated at fair value through profit or loss (483) (483)
- Non-current contingent consideration (408) (408)
- Current contingent consideration (75) (75)
Net financial assets/(liabilities) held at fair value 1 183 (25) (305) 853
Reconciliation of financial assets and financial liabilities within Level 3 of the hierarchy
Contingent
consideration Chifeng Total
Rm Rm Rm
At 31 December 2015 (Audited) (39) 210 171
Movement during the period
Losses recognised for the period in other comprehensive
income (pre-tax effect) (1) (1)
Gains recognised for the period in profit or loss 38 38
Exchange losses for the period recognised in
other comprehensive income (10) (10)
Exchange gains for the period recognised in profit or loss 1 1
At 30 June 2016 (Reviewed) 199 199
Movement during the period
Losses recognised for the period in other
comprehensive income (pre-tax effect) (4) (4)
Losses recognised for the period in profit or loss (483) (483)
Exchange losses for the period recognised in other
comprehensive income (17) (17)
At 31 December 2016 (Audited) (483) 178 (305)
Movement during the period
Gains recognised for the period in other comprehensive
income (pre-tax effect) 5 5
Losses recognised for the period in profit or loss (37) (37)
Settlements 74 74
Exchange losses for the period recognised in other
comprehensive income (6) (6)
Exchange gains for the period recognised in profit or loss 19 19
At 30 June 2017 (Reviewed) (427) 177 (250)
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 nor between Level 2 and Level 3
of the fair value hierarchy during the periods ended 30 June 2017, 30 June 2016 and 31 December 2016, as shown in
the reconciliation 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 finance director, on a six-monthly basis. The valuation reports are discussed with the chief operating decision-maker
and 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 assessed for reasonability by discounting estimated future cash flows using the market rate for similar instruments
at measurement date.
18.3 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/RMB exchange rate, RMB/US$ exchange rate, zinc LME price, production volumes, operational costs and the discount rate.
Sensitivity
analysis of a
10% increase
Sensitivity of in the inputs is
inputs and fair demonstrated
value below2
Inputs measurement1 Rm
At 30 June 2017 (Reviewed)
Observable inputs
Strengthening of the
Rand/RMB exchange rate R1,92/RMB1 rand to the RMB 18
RMB6,52 to Strengthening of the
RMB/US$ exchange rate RMB7,42/US$1 RMB to the US$ 96
US$2 100 to Increase in price of
Zinc LME price (US$ per tonne in real terms) US$2 719 zinc concentrate 96
Unobservable inputs
Increase in
production
Production volumes (tonnes) 85 000 tonnes volumes 29
Operational costs (US$ million per annum US$59,14 to Decrease in
in real terms) US$71,31 operations costs (70)
Decrease in the
Discount rate (%) 11,23% discount rate (12)
1 Change in observable or unobservable input which will result in an increase in the fair value measurement.
2 A 10% decrease in the respective inputs would have an equal but opposite effect on the above, on the basis that
all other variables remain constant.
Sensitivity
analysis of a
10% increase
Sensitivity of in the inputs is
inputs and fair demonstrated
value below2
Inputs measurement1 Rm
At 30 June 2016 (Reviewed)
Observable inputs
Strengthening of
Rand/RMB exchange rate R2,23/RMB1 the rand to the RMB 20
RMB6,28 to Strengthening of
RMB/US$ exchange rate RMB6,99/US$1 the RMB to the US$ 196
Zinc LME price (US$ per tonne US$1 740 to Increase in price
in real terms) US$2 100 of zinc concentrate 196
Unobservable inputs
Increase in
production
Production volumes (tonnes) 85 000 tonnes volumes 25
Operational costs (US$ million US$60,39 to Decrease in
per annum in real terms) US$74,76 operations costs (171)
Decrease in the
Discount rate (%) 10,17% discount rate (14)
At 31 December 2016 (Audited)
Observable inputs
Strengthening of
Rand/RMB exchange rate R1,96/RMB1 the rand to the RMB 18
RMB6,52 to Strengthening of
RMB/US$ exchange rate RMB7,13/US$1 the RMB to the US$ 158
Zinc LME price (US$ per tonne US$2 026 to Increase in price
in real terms) US$2 113 of zinc concentrate 158
Unobservable inputs
Increase in
production
Production volumes (tonnes) 85 000 tonnes volumes 33
Operational costs (US$ million US$58,97 to Decrease in
per annum in real terms) US$74,38 operations costs (129)
Decrease in the
Discount rate (%) 11,23% discount rate (15)
1 Change in observable or 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.
Inter-relationships
Any inter-relationships between unobservable inputs are not considered to have a significant impact within the range
of reasonably possible alternative assumptions for all reporting periods.
Contingent consideration
The potential undiscounted amount of all deferred future payments that the group could be required to make under the ECC
acquisition is between nil and US$120 million. The amount of future payments is dependent on the API4 coal price.
At 30 June 2017, there was an increase of US$2,9 million (R37 million) (30 June 2016: decrease of US$2,55 million
(R38 million), 31 December 2016: increase of US$35,45 million (R483 million)) recognised in profit or loss for the
contingent consideration arrangement.
API4 coal price range (US$/tonne) Future payment
Reference year Minimum Maximum US$ million
2015 60 80 10
2016 60 80 25
2017 60 80 25
2018 60 90 25
2019 60 90 35
The amount to be paid in each of the five years is determined as follows (refer table above):
- If the average API4 price in the reference year is below the minimum API4 price of the agreed range, then no payment
will be made
- If the average API4 price falls within the range, then the amount to be paid is determined based on a formula
contained in the agreement
- If the average API4 price is above the maximum API4 price of the range, then Exxaro is liable for the full amount
due for that reference year.
An additional payment to Total S.A. amounting to R74 million was required for the 2016 reference year as the API4
price was within the agreed range. No additional payment to Total S.A. was required for the 2015 reference year as
the API4 price was below the range.
The contingent consideration is classified within Level 3 of the fair value hierarchy as there is no quoted market price
or observable price available for this financial instrument. This financial instrument is valued as the present value
of the estimated future cash flows, using a discounted cash flow model.
The significant observable and unobservable inputs used in the fair value measurement of this financial instrument
are rand/US$ exchange rate, API4 export price and the discount rate.
Sensitivity
analysis of a
10% increase
Sensitivity of in the inputs is
inputs and fair demonstrated
value below2
Inputs measurement1 Rm
At 30 June 2017 (Reviewed)
Observable inputs
Strengthening of the
Rand/US$ exchange rate R13,01/US$1 rand to the US$ 43
US$68,52 to Increase in API4
API4 export price (price per tonne) US$75,00 export price per tonne 241
Unobservable inputs
Decrease in the
Discount rate (%) 3,44% discount rate (23)
1 Change in observable or unobservable input which will result in an increase in the fair value measurement.
2 A 10% decrease in the respective inputs would have an equal but opposite effect on the above, on the basis that all
other variables remain constant.
Sensitivity
analysis of a
10% increase
Sensitivity of in the inputs is
inputs and fair demonstrated
value below2
Inputs measurement1 Rm
At 30 June 2016 (Reviewed)
Observable inputs
Strengthening of
Rand/US$ exchange rate R14,85/US$1 the rand to the US$
Increase in API4
US$50,00 export price
API4 export price (price per tonne) to US$51,62 per tonne
Unobservable inputs
Decrease in the
Discount rate (%) 3,44% discount rate
At 31 December 2016 (Audited)
Observable inputs
Strengthening of
Rand/US$ exchange rate R13,63/US$1 the rand to the US$ 48
Increase in API4
API4 export price (price per tonne) US$57,19 to export price
US$75,00 per tonne 248
Unobservable inputs
Decrease in the
Discount rate (%) 3,44% discount rate (21)
1 Change in observable or 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. A 10% increase or decrease in the respective inputs had no impact on the fair value as at
30 June 2016.
Inter-relationships
Any inter-relationships between unobservable inputs are not considered to have a significant impact within the range of
reasonably possible alternative assumptions for all reporting periods.
At 30 June At 30 June At 31 December
2017 2016 2016
Reviewed Reviewed Audited
Rm Rm Rm
19. CONTINGENT LIABILITIES
Total contingent liabilities 5 686 8 037 6 907
- Operational guarantees1 3 549 4 197 4 331
- Pending litigation and other claims2 948 1 129 1 136
- Share of contingent liabilities of equity-accounted investments3 1 189 2 711 1 440
1 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.
2 Pending litigation and other claims consist of legal cases as well as tax disputes 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 date of reporting.
3 Mainly operational guarantees issued by financial institutions relating to environmental rehabilitation and closure cost.
The timing and occurrence of any possible outflows of the contingent liabilities above are uncertain.
SARS
On 18 January 2016, Exxaro received a letter of intent from SARS following an international income tax audit for the
2009 to 2013 years of assessment. According to the letter, SARS proposed that certain international Exxaro companies would
be subject to South African Income Tax under Section 9D of the Income Tax Act. Assessments to the amount of R442 million
were issued on 30 March 2016 and Exxaro formally objected against these assessments. SARS partially allowed Exxaro's
objection but R234 million remained due. Exxaro appealed against the portion not allowed and an alternative dispute
resolution hearing with SARS is scheduled for 22 August 2017.
These assessments have been considered in consultation with external tax and legal advisers and senior counsel.
Exxaro believes this matter has been treated appropriately by disclosing a contingent liability.
Financial provision for prospecting, exploration, mining and production operations
On 20 November 2015 the FPR were promulgated by the Minister of Environmental Affairs for South Africa as replacement
of financial provisioning and rehabilitation legislation contained in the MPRDA and the NEMA. The FPR will change the
requirements for making financial provision for the management, rehabilitation and remediation of environmental
impacts arising from mining operations. The FPR are currently valid and in force after interaction between the DEA,
stakeholders and industry on 26 October 2016. The submission of the first financial provision reporting to the DMR
according to the FPR has been extended to February 2019.
Following promulgation of the FPR, the DEA met with various stakeholders who sought clarification on a number of issues.
A final stakeholder meeting was held on 10 February 2017 after which an amended version of the regulations would have been
gazetted for public comment. This amended version was expected in March 2017 but has not yet been issued at reporting date.
Although the FPR are currently valid and in force, Exxaro is not yet able to determine a reliable estimate of the impact
that the new regulations will have on Exxaro's environmental rehabilitation liability until the clarification awaited
from the DEA is issued. Therefore the environmental rehabilitation liability, operational guarantees and the rehabilitation
trust fund have been accounted for in accordance with the requirements of the MPRDA and the NEMA.
At 30 June At 30 June At 31 December
2017 2016 2016
Reviewed Reviewed Audited
Rm Rm Rm
20. CONTINGENT ASSETS
Total contingent assets 150 145 150
- =Share of contingent assets of equity-accounted
investments1 150 145 150
1 Bank guarantee issued in favour of SIOC relating to environmental rehabilitation and closure cost.
21. RELATED PARTY TRANSACTIONS
The group entered into various sale and purchase transactions with associates and joint ventures during the ordinary
course of business. These transactions were subject to terms that are no less, nor more favourable than those arranged
with independent third parties.
Exxaro's majority BEE shareholder, Main Street 333, settled its loan with Exxaro and accrued interest thereon in
January 2017.
22. GOING CONCERN
Based on the latest results for the six-month period ended 30 June 2017, the latest board approved budget for 2017,
as well as the available bank facilities and cash generating capability, Exxaro satisfies the criteria of a going concern.
23. JSE LISTINGS REQUIREMENTS
The reviewed condensed group interim financial statements have been prepared in accordance with the Listings
Requirements of the JSE.
24. EVENTS AFTER THE REPORTING PERIOD
Details of the interim dividend are provided in note 9.
Exxaro is still exploring alternatives for the monetisation of its shareholding in Tronox through an efficient
staged sales approach.
On 2 August 2017, Tronox Limited announced the signing of a definitive agreement with Genesis Energy L.P. for the sale
of its Alkali chemicals business for US$1,325 billion in cash. When the sale is concluded, Tronox is expected to realise
a loss of approximately US$200 million during 2H17. Based on the shareholding and exchange rate as at 30 June 2017,
Exxaro's share of the expected loss is approximately R1,118 billion.
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.
25. REVIEW CONCLUSION
These reviewed condensed group interim financial statements for the six-month period ended 30 June 2017, on pages 2 to 30,
have been reviewed by the company's external auditors, PricewaterhouseCoopers Inc., who expressed an unmodified review
conclusion. A copy of the auditor's review report on the condensed group interim financial statements is available for
inspection at the company's registered office together, with the financial statements identified in the auditor's report.
26. 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) were made in the 2016 integrated report and is, in accordance with the JSE Listings Requirements,
available on the company's website. The company has completed a gap analysis against the principles, detailed practices and
general philosophies contained in the King Report on Corporate Governance for South Africa 2016 (King IV) and more detailed
information on the status and action plans will be published in the 2017 integrated report or earlier on the company's
website. As previously communicated, Mrs Carina Wessels, group company secretary and legal since June 2011 will be leaving
the company's employment at the end of September 2017. Please contact the corporate secretariat and legal office for any
additional information in this regard.
27. MINERAL RESOURCES AND MINERAL RESERVES
Other than the normal life of mine depletion, there have been no material changes to the mineral resources and mineral
reserves as disclosed in the 2016 integrated report.
28. KEY MEASURES1
At 30 June At 30 June At 31 December
2017 2016 2016
Closing share price (rand/share) 93,00 67,46 89,50
Market capitalisation (Rbn) 29,22 24,16 32,05
Average rand/US$ exchange rate (for the period ended) 13,20 15,39 14,69
Closing rand/US$ spot exchange rate 13,01 14,85 13,63
1 Non-IFRS numbers.
EXXARO 1H17 PERFORMANCE AT A GLANCE
Sustainable operations - LTIFR of 0,16
Strong profit margins and resilient balance sheet - Net operating profit margin of 27%, up 5%
- Income from equity-accounted investments
increased R1,1 billion from 1H16
- R3,0 billion coal net operating profit, up 35%
- Exports volume at 3,4Mt, down 17%
Returning cash to shareholders - Interim dividend of 300 cps at a 1H17 core attributable
earnings cover of 3 times
Mpower 2012 - Vesting of employee share scheme in May 2017
COMMENTARY
for the six-month period ended 30 June 2017
Comments below are based on a comparison between the six-month periods ended 30 June 2017 and 2016 (1H17 and 1H16), respectively.
1. SAFETY
During the first half of 2017 Exxaro recorded an LTIFR of 0,16 (1H16: 0,08) against a target of 0,11.
Regrettably, an employee at Matla Mine 2 in Mpumalanga, Mr Sibongiseni Sihle Majozi, was fatally injured on
1 March 2017 following an underground accident. Exxaro continues to strive for a consistent, fatality-free
environment and continuously improves all aspects of safety for all employees. Exxaro remains committed to the
Zero Harm Vision. Efforts to reduce incidents through the safety improvement plans are under way.
2. ROBUST FINANCIAL PERFORMANCE
Exxaro delivered a strong performance for 1H17, achieving a net operating profit of R2 910 million, up 35% from
R2 159 million recorded in 1H16. This was mainly driven by increased revenue coupled with only a 1% increase in operating
expenses. The income from equity-accounted investments increased to R1 125 million (1H16: R9 million equity-accounted loss),
primarily due to R492 million improvement from SIOC as a result of a recovery in iron ore export selling prices, as well
as a decrease of R635 million in losses recorded from our investments in Tronox.
3. COMPARABILITY OF RESULTS
The corporate transactions during 2016 necessitated a change in the segmental reporting structures and the manner in
which operating results are reported. Changes to segmental reporting, which resulted in the re-presentation of comparative
periods' segmental information. Refer note 4 to the reviewed condensed group interim financial statements.
The key transactions shown in table 1 below should be taken into account to gain a better understanding of the
comparability of the results for the two periods.
Table 1: Key transactions impacting on comparability
1H17 1H16 2H16
Re- Re-
presented presented
Reporting segment Description Rm Rm Rm
Coal - Termination and voluntary severance packages (10)
- Gain on disposal of Inyanda operation1 100
- Gain on disposal of SDCT1 203
- Loss on disposal of property, plant and equipment1 (22) (15) (30)
Ferrous - Impairment of property, plant and equipment (FerroAlloys)1 (100)
Other - Termination and voluntary severance packages and other (26) (62)
- Gain on disposal of property, plant and equipment1 1 9
- Gain on disposal of the Mayoko iron ore project1
and related receivable written off (27) 670
- Loss on dilution of shareholding in Tronox Limited1 (75) (29) (7)
- Fair value adjustment on contingent consideration
relating to the acquisition of ECC (37) 38 (483)
Group Total net operating profit impact (161) 172 87
1H17 1H16 2H16
Re- Re-
presented presented
Reporting segment Description Rm Rm Rm
Coal - Tax on disposal of property, plant and equipment1 6 1 12
- Excess of fair value over cost of investment in RBCT1 35
- Post-tax share of Mafube impairment of property, plant
and equipment1 (16)
- Post-tax share of Mafube gain on disposal of property,
plant and equipment1 1
Ferrous - Tax on impairment of property, plant and equipment1 27
- Excess of fair value over cost of investment in SIOC1 221
- Post-tax share of SIOC loss on disposal of property,
plant and equipment1 (4) (9) (19)
- Post-tax share of SIOC impairment of property,
plant and equipment1 (1)
TiO2 and alkali - Post-tax share of Tronox restructuring costs (9)
chemicals - Post-tax share of Tronox gain on disposal of
property, plant and equipment1 4
Group Total attributable earnings impact (159) 190 316
1 Excluded from headline earnings.
4. COMMODITY PRICE PERFORMANCE AND GROUP SEGMENT RESULTS
The movement in the main commodity prices impacting on Exxaro's performance are summarised in table 2 below:
Table 2: Change in commodity prices
Average US$ per tonne Change
Commodity price 1H17 1H16 %
API4 coal 79 53 49
Iron ore fines 62% Fe (cost and freight (CFR) China) 74 52 42
TiO2 pigment (cost, insurance and freight (CIF), US)1 2 376 2 201 8
1 Includes forecast for June 2017.
Table 3: Group segment results (Rm)
Revenue Net operating profit/(loss)
1H17 1H16 2H16 1H17 1H16 2H16
Reviewed Reviewed Reviewed Re-presented Re-presented
Coal 10 670 9 718 10 955 3 014 2 232 2 934
- Tied1 1 591 1 659 1 824 149 122 104
- Commercial 9 079 8 059 9 131 2 865 2 110 2 830
Ferrous 56 13 157 (7) (40)
- Alloys 56 13 157 (7) (68)
- Other 28
Other 10 31 23 (104) (66) 147
Total 10 736 9 762 11 135 2 910 2 159 3 041
1 Mines managed on behalf of and supplying their entire production to Eskom in terms of contractual agreements
5. FINANCIAL AND OPERATIONAL RESULTS
5.1. Group financial results
5.1.1. Revenue and net operating profit
Group revenue increased by 10% to R10 736 million (1H16: R9 762 million), while group net operating profit increased
by 35% to R2 910 million (1H16: R2 159 million), mainly due to a higher contribution from the coal operations driven
by improved coal sales prices as well as higher Eskom commercial volumes at Grootegeluk (GG) based on demand from the
Medupi Power Station. The average price per tonne achieved on exports was US$65 (1H16: US$42). This was offset by a
stronger average spot exchange rate of R13,20 to the US dollar recorded for the period ended 30 June 2017 (1H16: R15,39)
and lower export and domestic volumes.
Group operating expenses of R7 826 million for 1H17 remained almost flat compared to 1H16 as a result of the ongoing
Exxaro improvement project (EIP) to reduce costs and improve efficiencies.
However, the 1H17 group's net operating profit was negatively impacted by:
- R37 million loss on the fair value adjustment (1H16: R38 million gain) relating to the contingent consideration
which arose on the acquisition of ECC
- R75 million loss (1H16: R29 million loss) on dilution of our shareholding in Tronox Limited
- R27 million write-off of the receivables associated with the Mayoko iron ore project.
5.1.2. Earnings
Earnings, which include Exxaro's equity-accounted investments in associates and joint ventures, were R2 692 million
(1H16: R1 285 million) or 852 cents per share (1H16: 362 cents per share).
Headline earnings were 154% higher at R2 787 million (1H16: R1 096 million) or 882 cents per share (1H16: 309 cents
per share).
Table 4: Equity-accounted investments (Rm)
Equity-accounted income/(loss) Dividends received
1H17 1H16 2H16 1H17 1H16 2H16
Reviewed Reviewed Reviewed Reviewed
SIOC1 1 228 736 1 680
Tronox (295) (930) 546 59 233 65
Mafube 118 84 154 450
Black Mountain 99 39 61
Cennergi (11) 37 (34)
RBCT2 (14) 25 (25)
Total 1 125 (9) 2 382 59 683 65
1 2H16 includes R221 million excess of fair value over the cost of the investment which arose on the 0,64% increase in
Exxaro's shareholding in SIOC.
2 1H16 includes R35 million excess of fair value over the cost of the investment which arose on the increase in
Exxaro's shareholding in RBCT.
5.1.3. Cash flow and funding
Cash flow generated by operations increased by R1 477 million to R3 660 million (1H16: R2 183 million) and was
sufficient to cover capital expenditure of R1 314 million, dividends paid of R1 284 million, net financing charges of
R273 million and tax of R575 million.
In January 2017, Exxaro repurchased 43 943 744 ordinary shares from Main Street 333 for a consideration of
R3 524 million. Main Street 333 used a portion of the proceeds to settle a loan and accrued interest of
R484 million with Exxaro, which was advanced to Main Street 333 in July 2015.
Total capital expenditure for 1H17 increased by 12% or R142 million when compared to the corresponding period last
year, consisting of a R112 million increase in expenditure on sustaining and environmental capital (stay-in-business
capital) and R30 million on new capacity (expansion capital).
Dividends of R59 million were received from our investment in Tronox Limited (1H16: R233 million). SIOC has declared a
dividend to its shareholders in July 2017, Exxaro's share amounting to R1 390 million. The dividend will be accounted
for in 2H17.
5.1.4. Debt exposure
Net debt at 30 June 2017 was R4 349 million compared to R2 278 million at 30 June 2016. This equates to a net debt
to equity ratio of 12% (1H16: 6,5%), well below Exxaro's internal target of 40%.
In January 2017, the specific repurchase by Exxaro of Exxaro ordinary shares to the value of R3 524 million from
Main Street 333, was effected using cash generated from Exxaro's own operations. The repurchase consideration was
funded with available contributed tax capital and the remaining portion from reserves.
Exxaro's balance sheet structure remains strong despite the increase in the net debt.
5.2. Coal business performance
Table 5: Coal production and sales volumes ('000 tonnes) (Unreviewed)
Production Sales
1H17 1H16 2H16 1H17 1H16 2H16
Thermal 20 823 20 431 20 380 20 911 21 161 21 328
- Tied 3 542 3 966 3 934 3 542 3 961 3 932
- Commercial: domestic 17 281 16 465 16 446 13 973 13 116 13 622
- Commercial: export 3 396 4 084 3 774
Metallurgical 1 069 970 1 015 566 738 560
- Commercial: domestic 1 069 970 1 015 566 738 560
Total coal 21 892 21 401 21 395 21 477 21 899 21 888
Semi-coke 46 1 53 47 12 53
Total coal (excluding buy-ins) 21 938 21 402 21 448 21 524 21 911 21 941
Thermal coal buy-ins 105 577 29
Total coal (including buy-ins) 22 043 21 979 21 477 21 524 21 911 21 941
Domestic trading conditions were favourable in 1H17 as producers experienced strong demand for higher quality
product. The metals and reductants markets also recovered well, amidst increasing international commodity prices,
specifically ferrochrome.
Despite an oversupplied coal export market, Exxaro experienced consistent demand. Export volumes in 1H17 dropped
by 17% to 3,4Mt compared to 1H16 mainly due to congestion at RBCT, which experienced adverse weather conditions.
The average API4 price for 1H17 was US$79, up from the US$53 for the corresponding period in 2016.
5.2.1. Production and sales volumes
Overall coal production volumes (excluding buy-ins and semi-coke) increased by 2% or 491kt compared to 1H16.
This increase can be attributed mainly to the higher production volumes at GG in line with Addendum 9 to the
Medupi Coal Supply Agreement. Sales were 2% lower (422kt) as a result of lower exports.
5.2.1.1. Metallurgical coal
GG's metallurgical coal production was 99kt (10%) higher mainly due to the ramp-up of GG plant 10 (GG10) in 1H17.
Sales decreased by 172kt (23%), mainly due to reduced offtake by ArcelorMittal as certain coke batteries are
not yet operational.
5.2.1.2. Thermal coal
Tied mines
Power station coal production from the tied mines was 424kt (11%) lower compared to 1H16, due to the shortwall stop
at Matla Mine 3 from December 2016 to May 2017 and unfavourable geological conditions.
Commercial mines
The commercial mines' power station coal production increased by 932kt (8%) compared to 1H16 mainly due to:
- Increased production at the GG plants (GG7 and GG8) of 1 068kt (11%)
- Increased production at Leeuwpan of 76kt (6%) as a result of higher production in the crush and screen plant.
This increase was offset by:
- Lower production at NBC's Blesbok pit of 212kt (15%) due to lower coal exposure, longer hauling distances and high
rainfall.
Domestic power station coal sales for the commercial mines were 176kt (2%) higher mainly as a result of:
- An increase of 909kt (10%) in line with Addendum 9 to the Medupi Coal Supply Agreement.
This increase was partly offset by:
- Lower sales at Leeuwpan of 416kt (100%) where the Eskom supply was terminated at the end of March 2016 and is now
sold in the local and export markets
- Lower NBC sales of 317kt (21%) due to lower production. The extension of the NBC Eskom Coal Supply Agreement was
completed mid-June 2017.
Steam coal production decreased by 116kt (3%) mainly as a result of:
- Lower production at ECC 165kt (8%) at Dorstfontein East due to community unrest and excessive rainfall and
Forzando South due to lower yields and geological conditions
- Lower production at Leeuwpan of 44kt as a result of lower production through the Dense Medium Separation (DMS)
plant.
The lower production was partly offset by:
- Higher production at NBC's Eerstelingsfontein pit of 54kt (68%) due to good coal and equipment availability
- Slightly higher buy-ins from Mafube JV of 20kt (2%) due to the inclusion of product previously sold to Eskom and
briquettes
- Higher production at GG of 19kt (2%) as a result of production through the new GG10 beneficiation plant.
Domestic steam sales increased by 682kt (37%) mainly as a result of:
- Higher sales at Leeuwpan of 627kt (83%) due to higher demand and stock availability arising from Eskom product
placed in the local market after the termination of the contract
- Higher sales at ECC of 158kt (84%)
- Higher sales at NBC of 61kt (94%).
The increase in sales was partly offset by:
- Lower sales at GG of 152kt (18%) due to lower stock available from the GG4 and GG5 plants
- Lower steam coal export sales of 421kt (13%) mainly due to congestion experienced at RBCT as a result of adverse
weather conditions.
The semi-coke production increased by 45kt mainly due to the plant shutdown in 1H16 as a result of depressed market
conditions in the ferrochrome industry. Sales were 35kt higher due to higher demand and more stable market conditions.
5.2.2. Revenue and net operating profit
Coal revenue of R10 670 million was 10% higher than 1H16 (R9 718 million). Higher revenue from the commercial mines
was attributable to the higher selling prices as well as an increase in Eskom volumes. This was partially offset by
exports and domestic sales.
Increased net operating profit of R3 014 million compared to R2 232 million in 1H16, mainly due to:
- Higher sales prices (+R1 543 million)
- Scope changes of environmental provisions (+R171 million)
- Volume variances (+R162 million)
- Capitalisation of project related costs (+R102 million).
Partly offset by:
- Exchange rate variance due to stronger local currency against the US dollar (-R293 million)
- Inflation (-R277 million)
- Disposal of SDCT shareholding in 1H16 (-R203 million)
- Higher depreciation (-R112 million)
- Mafube coal buy-ins from Mafube JV (-R111 million).
5.3. Titanium dioxide and Alkali chemicals
Equity-accounted investment
Equity-accounted losses from the Tronox investments decreased from R930 million in 1H16 to R295 million for 1H17,
mainly due to increased pigment selling volumes and prices, as well as a more favourable product mix.
As previously communicated to the market, Exxaro is exploring alternatives for the monetisation of its shareholding
in Tronox Limited through an efficient and staged sales process. This process is likely to commence in 2H17.
5.4. Energy business
Equity-accounted investment
Cennergi, a 50% joint venture with Tata Power, recorded an equity-accounted loss of R11 million for 1H17 (1H16:
profit of R37 million). The variance of R48 million is mainly due to the cessation of the capitalisation of interest
in 2H16 and the inclusion of deemed revenue of R32 million in 1H16, which was reversed in 2H16 as a result of delays
with the grid connection. The two windfarm projects were brought into commercial operation during the 3Q16.
6. PERFORMANCE AGAINST NEW BBBEE CODES AND MINING CHARTER
Exxaro has been audited against the amended codes. The primary focus area to raise the BBBEE level is Enterprise and
Supplier Development (ESD). Exxaro has constituted an ESD forum to specifically lift the company's performance in this
area. We anticipate significant positive socio-economic impacts from the impending ESD initiatives.
Exxaro, through the Chamber of Mines, participated with the mining industry to provide inputs to the DMR to revise
the mining charter elements and targets. Exxaro supports the strategic intention of transforming the mining industry.
The Mining Charter III was gazetted on 15 June 2017 and subsequently suspended by the DMR Minister pending an urgent
court interdict submitted by the Chamber of Mines.
Exxaro is analysing the impact of the Mining Charter III on the organisation and will continue to engage through the
Chamber of Mines and through other appropriate channels with the DMR to address its concerns and submit new
transformation targets and content proposals for the Mining Charter III.
7. BROAD BASED BLACK ECONOMIC EMPOWERMENT
On 17 January 2017, Exxaro concluded the repurchase of shares transaction pursuant to the unwinding of the existing
BEE transaction (refer paragraph 5.1.4). On 25 June 2017 Exxaro, Main Street 333, and the Industrial Development
Corporation (IDC) agreed on the formation of a special purpose vehicle, incorporated for the purpose of holding
ordinary shares in Exxaro pursuant to the replacement BEE transaction, entered into the following agreements:
- A framework agreement setting out the framework within which the Main Street 333 unwind and the consequential
implementation of the replacement BEE transaction will take place
- A relationship agreement detailing the terms and restrictions of the replacement BEE transaction over the
transaction term.
The implementation of the replacement BEE transaction remains subject to various conditions precedent, which include
the finalisation and agreement of the remaining suite of agreements required to implement the replacement BEE
transaction and the Main Street 333 unwind.
It is expected that Exxaro will seek shareholder approval in 2H17 for the replacement BEE transaction.
8. MPOWER 2012
Exxaro implemented Mpower 2012, an employee share ownership plan, in July 2012 which held a shareholding of 0,8% in
Exxaro. The shares held by Mpower 2012 vested on 31 May 2017 and were sold, upon the instructions of the participants,
during June 2017 and paid to employees in July 2017. The distribution to participants varied depending on their years
of service. Employees that participated for the full term received a pre-tax benefit of R43 384, consisting of
R8 399 of dividends over the five-year period and R34 985 of proceeds when the shares were sold.
9. MINERAL RESOURCES AND mineral RESERVES
Other than the normal life of mine depletion, there have been no material changes to the mineral resources and
reserves as disclosed in the 2016 integrated report.
10. MINING AND PROSPECTING RIGHTS
The Waterberg area remains an exciting mining prospect for Exxaro as the Thabametsi project has now started early
works, and the Thabametsi Coal IPP, operated by Marubeni Middle-East & Africa Power Limited, has embarked on its licensing
processes with financial close envisaged in 2Q18. Exxaro also holds a 100% ownership in the Waterberg North and South
prospecting rights areas. The project areas consist of four prospecting rights for which applications for renewals were
submitted and the first two were granted last year and executed in March 2017. For the last two rights, granting is still
pending. Exxaro has a reasonable expectation that the remaining renewals will be granted in 2017.
The Leeuwpan mining right consolidation (to include Leeuwpan extension) and mining right registration were finalised
in March 2017. The mining right registrations of Matla, Arnot, Forzando South and Glisa (at the NBC operation) are
pending. Exxaro has a reasonable expectation that registrations will be concluded during 2017.
11. OUTLOOK
Exxaro expects that 2H17 domestic thermal volumes will remain at current levels. Volumes in the metals markets will
reduce based on expected lower offtake from ArcelorMittal. This is expected to persist until 2Q18.
Export markets are still reliant on demand from India for lower quality coal. However, Exxaro is actively
diversifying its markets for lower quality coal in order not be overly dependent on the Indian market.
Pricing is expected to remain relatively flat. Growth is expected from the South-East Asian markets
for RB1 and RB3 material.
Exxaro has a positive outlook for the coal business in 2H17 based on:
- Stable trading conditions in domestic markets
- Stable international coal prices
- Our operational excellence process delivering further results
- Technology and innovation improvements.
The rand exchange rate against the US dollar is expected to remain volatile during 2H17 due to the combination of
significant event risks and volatility in the US dollar.
The performance of the investment portfolio (SIOC and Tronox) is expected to be positively influenced by the current
favourable market conditions, anticipated to continue into 2H17.
12. INTERIM DIVIDEND
Exxaro's dividend policy is based on a cover ratio of between 2,5 and 3,5 times core attributable earnings.
Notice is hereby given that a gross interim cash dividend, number 29 of 300 cents (1H16: 90 cents) per share, for
the six-month period ended 30 June 2017 was declared, payable to shareholders of ordinary shares. For details of the
dividend, please refer note 9 of the reviewed condensed group interim financial statements.
Salient dates for payment of the interim dividend are:
- Last day to trade cum dividend on the JSE Tuesday, 12 September 2017
- First trading day ex dividend on the JSE Wednesday, 13 September 2017
- Record date Friday, 15 September 2017
- Payment date Monday, 18 September 2017
No share certificates may be dematerialised or re-materialised between Wednesday, 13 September 2017 and
Friday, 15 September 2017, 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 or broker credited on Monday, 18 September 2017.
13. GENERAL
Additional information on financial and operational results for the six-month period ended 30 June 2017, and the
accompanying presentation can be accessed on our website on www.exxaro.com.
On behalf of the board
Len Konar Mxolisi Mgojo Riaan Koppeschaar
Chairman Chief executive officer Finance director
17 August 2017
ACRONYMS
Anglo Anglo South Africa Capital Proprietary Limited
API4 All publications index 4 (for Richards Bay 6 000kcal/kg)
ArcelorMittal ArcelorMittal South Africa Limited
BBBEE Broad-based black economic empowerment
BEE Black Economic Empowerment
Black Mountain Black Mountain Proprietary Limited
BUs Business units
Cennergi Cennergi Proprietary Limited
CFR Cost and freight
CIF Cost, insurance and freight
Chifeng Chifeng Kumba Hongye Corporation Limited
Cps cents per share
DEA Department of Environmental Affairs
DMR Department of Mineral Resources
DMTN Domestic Medium Term Note
EBITDA Earnings before interest, tax, depreciation, impairment charges and
net loss/gain on disposal of investments and assets
ECC Exxaro Coal Central Proprietary Limited
EIP Exxaro improvement project
EMJV Ermelo joint venture
FPR Financial Provisioning Regulations
GDP Gross domestic product
GG Grootegeluk
HEPS Headline earnings per share
IAS International Accounting Standard
IASB International Accounting Standards Board
IFRS International Financial Reporting Standard
IOT Internet of things
IPP Independent power producer
JIBAR Johannesburg Interbank Average Rate
JSE JSE Limited
kcal kilocalorie
KIO Kumba Iron Ore Limited
kt kilo tonnes
LME London Metal Exchange
LP Leeuwpan
LTIFR Lost-time injury frequency rate
M&A Mergers and Acquisitions
Mafube Mafube Coal Proprietary Limited
Main Street 333 Main Street 333 Proprietary Limited
Mpower 2012 Exxaro Employee Empowerment Trust
MPRDA Mineral and Petroleum Resources Development Act, 2002
Mt Million tonnes
Mtpa Million tonnes per annum
NBC North Block Complex
NCC New Clydesdale Colliery
NEMA National Environmental Management Act, 1998
NOP Net operating profit
OE Operational excellence
OHIFR Occupational health injury frequency rate - YTD
PPI Producer Price Index
Rbn Rand billion
RB1 Richards Bay export product 1
RB3 Richards Bay export product 3
RBCT Richards Bay Coal Terminal Proprietary Limited
PRC People's Republic of China
Rm Rand million
RMB Chinese Renminbi
RSA Republic of South Africa
SAICA South African Institute of Chartered Accountants
SARS South African Revenue Service
SDCT South Dunes Coal Terminal SOC Limited
SIOC Sishen Iron Ore Company Proprietary Limited
SLP Social and labour plan
SOC State-owned company
SSCC Semi-soft coking coal
Tata Power Tata Power Company Limited
TFR Transnet Freight Rail
TiO2 Titanium dioxide
Tronox Exxaro's investment in Tronox entities
Tronox SA Tronox KZN Sands Proprietary Limited and Tronox Mineral
Sands Proprietary Limited
Tronox UK Tronox Sands Limited Liability Partnership in the United Kingdom
US$ United States dollar
VAT Value added tax
VSP Voluntary serverance packages
WACC Weighted average cost of capital
CORPORATE INFORMATION
Registered office
Exxaro Resources Limited
Roger Dyason Road
Pretoria West, 0183
Tel: +27 12 307 5000
Fax: +27 12 323 3400
This report is available at:
www.exxaro.com
Directors
MW Hlahla**, Dr D Konar*** (chairman),
S Mayet***, MDM Mgojo* (chief executive officer),
PA Koppeschaar (finance director)*, S Dakile-Hlongwane***,
Dr CJ Fauconnier***, V Nkonyeni***, VZ Mntambo**,
EJ Mybrugh***, Dr MF Randera**, J van Rooyen***,
PCCH Snyders***, D Zihlangu**
* Executive
** Non-executive
*** Independent non-executive
Prepared under supervision of:
PA Koppeschaar, CA(SA)
Group company secretary
CH Wessels
Transfer secretaries
Computershare Investor
Services Proprietary Limited
Rosebank Towers, 15 Biermann Avenue
Rosebank, 2196, South Africa
PO Box 61051, Marshalltown, 2107
Investor relations
MI Mthenjane (+27 12 307 7393)
Sponsor
Absa Bank Limited (acting through its Corporate and Investment Bank Division)
Tel: +27 11 895 6000
If you have any queries regarding your shareholding in Exxaro Resources Limited, please contact the transfer
secretaries at +27 11 370 5000.
Date: 17/08/2017 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.