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EXX - Financial Director's Financial Year ending 31 December 2017 Pre-close Message
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"?)
FINANCE DIRECTOR'S
Financial year ending 31 December 2017 (FYE17)
Pre-close message
This message covers the expected operational performance of the Exxaro group for FYE17.
While we acknowledge and recognise the diverse stakeholders for our group, this message is targeted
primarily at the financial and investor community with a distinct focus on operational matters, as
well as progress on some of our strategic initiatives, without undermining the importance of other
sustainability matters.
Dear stakeholder,
Below is an update on the group's operational performance for FYE17. Unless otherwise indicated, all
comparisons are against the financial year ended 31 December 2016 (FY16).
We recorded a year-to-date lost-time injury frequency rate (LTIFR) of 0,13 compared to 0,09 reported in
FY16. No high potential incidents and fatalities were reported during 2H17. Exxaro remains committed to
the Zero Harm Vision and efforts to reduce incidents through the Safety Improvement Plans are under way.
A significant uptick in commodity prices was recorded during the third quarter of 2017, supported by
favourable economic data from China and fears of supply disruptions, amongst others. However, the
momentum was not sustained through to the last quarter. For Exxaro's key commodities, the API4 coal
export price index is expected to average US$88 per tonne and iron ore fines US$67 per dry metric tonne,
Cost and Freight (CFR) China, for 2H17.
On the production front our coal business continued to be resilient with an increase of 8% in production
volumes forecast (excluding buy-ins). We expect Coal capex to increase by 50% compared to FY16, mainly
due to the timing of sustaining and expansion capex at Grootegeluk. The expenditure for FYE17 is expected
to be 4% lower than that guided in August 2017, primarily as a result of the timing in capex spending.
We sold 22,425 million shares in Tronox Limited (Tronox) in October 2017, realising net proceeds of
$474m (R6,5bn). The disposal reduces Exxaro's ownership of Tronox's total outstanding voting shares from
approximately 51,2 million to approximately 28,8 million, representing 24% of Tronox's total outstanding
voting shares.
On 20 November shareholders approved the terms of the Replacement BEE transaction. Implementation is
expected before 31 December 2017.
We will provide a detailed account of FYE17 operational and financial performances when we announce
our financial results on the 8th March 2018.
Yours sincerely
Riaan Koppeschaar
Finance Director
TABLE 1: COAL PRODUCTION AND SALES VOLUMES (˜000 tonnes)
Production Sales
FY(E) 31 December FY(E) 31 December
2017 2016 % 2017 2016 %
Forecast(1) Actual Change Forecast(1) Actual Change
Thermal 44 083 40 811 8 43 554 42 489 3
Tied(2) 7 376 7 900 (7) 7 374 7 893 (7)
Commercial: domestic 36 707 32 911 12 28 530 26 738 7
Commercial: export 7 650 7 858 (3)
Metallurgical 2 174 1 985 10 1 177 1 298 (9)
Commercial: domestic 2 174 1 985 10 1 177 1 298 (9)
Total Coal 46 257 42 796 8 44 731 43 787 2
Semi-coke 94 54 74 93 65 43
Total (excluding buy-ins) 46 351 42 850 8 44 824 43 852 2
Thermal coal buy-ins 218 606 (64)
Total (including buy-ins) 46 569 43 456 7 44 824 43 852 2
(1) Based on latest internal management forecast assumptions and estimates.
(2) Mines managed on behalf of and supplying their entire production to Eskom.
GLOBAL ECONOMY AND COMMODITY PRICES
During 2H17, global economic activity remains on track to record the strongest annual growth rate since
2011. Accelerations in global industrial production as well as trade and fixed investment underpin levels of
real Gross Domestic Product (GDP) growth of around 3,1% for 2017, compared to 2,5% in 2016. The strong
economic activity and the return of cost inflation in key commodity producing countries remain supportive to
commodity markets, however, political and policy uncertainty have the potential to limit and/or delay further
investment in the sector.
China's supply-side reform initiatives and slow domestic output response, mainly due to stricter safety and
environmental inspections, global supply pressures together with strong demand, contributed to thermal coal
prices holding up during 2H17. Although Chinese steel production remains strong, softer economic data with
relatively solid supply growth from the majors started to weigh negatively on iron ore fines seaborne prices
towards the end of 2H17. The iron ore lump premium reached record levels during the latter half of 2H17.
The improving and strong titanium dioxide (TiO2) pigment market fundamentals continued during 2H17.
The return of geopolitical risks in the Middle East was reflected in the higher brent crude oil price during
2H17.
COAL COMMODITY UPDATE
PRODUCTION AND SALES VOLUMES
Commercial mines
Despite a strike in September, thermal coal production from commercial mines is expected to increase by 12%,
primarily due to the power station coal ramp-up at the Medupi power station, in line with Addendum 9 to the
coal supply agreement (CSA) and strategic stockpiling at Grootegeluk.
Coal buy-ins are expected to decrease by 64% due to the availability of sufficient own coal to fulfill
contracts.
Export sales volumes are expected to decrease by 3% mainly as a result of the congestion at Richards Bay
Coal Terminal (RBCT) in 1H17, driven by adverse weather conditions. Total local sales tons are expected
to increase by 6%, mainly due to Eskom sales being 8% higher, mostly from Grootegeluk, as well as
increased demand in the domestic market.
Tied mines
Thermal coal production and sales from tied mines are expected to decrease by 7%, resulting from a five
month stoppage of Mine 3 short wall, requested by Eskom, to manage qualities at Matla.
MAJOR CONTRACTS UPDATE: TIED MINES
Exxaro and Eskom are engaging, through the arbitration process, to resolve contractual arrangements at
Arnot and this will be continuing into 2018.
Large capital projects at Matla remain unfunded by Eskom, with Mine 1 on care-and-maintenance. The
remaining mine shafts (Mine 2 and Mine 3) are forecasted to produce 7,4 million tonnes (Mt) for FYE17
against contractual volumes of 10,1Mt. Exxaro continues to engage with Eskom to provide the required
capital funding, through an arbitration process, as per the tied mine Coal supply agreement (CSA), which
will enable the achievement of contractual production and sales volumes.
COAL MARKETS
International thermal coal prices remained favourable in 2H17 as we saw good demand from Asian markets,
including India. However, there is some sentiment that prices are expected to soften a bit during 2018.
Domestic coal markets remained strong in 2H17 amidst higher demand for product as exporters attempted
to maximize returns. The strong demand in all the domestic sectors is expected to continue into 1H18.
CAPEX AND PROJECTS
Exxaro expects Coal capex to increase by 50% compared to FY16 mainly due to timing of sustaining and
expansion capex at Grootegeluk. The expenditure for FYE17 is expected to be 4% lower than guided in
August 2017, primarily as a result of the timing in capex spending.
Grootegeluk
Grootegeluk capex is expected to be 48% higher than that reported for FY16. FY17 Grootegeluk capex is
expected to be 5% lower than that reported in August 2017 largely due to the timing on GG6 expansion,
Load Out Station, Trucks & Shovels and Backfill capex.
TABLE 2: COAL CAPEX (R™million)
FYE17 FYE17 FY16
Current Previous Actual
Forecast(1) Forecast(2)
Sustaining 3 345 3 717 2 380
Waterberg 2 657 3 017 1 940
Mpumalanga 688 700 440
Expansion 762 578 367
Waterberg 677 494 312
Mpumalanga 85 84 55
Total 4 107 4 295 2 747
(1) Based on latest internal management forecast assumptions and estimates, excluding tied operations.
(2) Provided in 30 June 2017 results presentation during August 2017.
Thabametsi
Exxaro and Marubeni / Kepco (the lead developers of the Thabametsi Independent Power Producer (IPP))
are engaging on the definitive CSA and associated infrastructure agreements. Financial close is
expected during 1H18 due to the IPP awaiting environmental authorization (EA).
Marubeni has submitted its integrated water use license application (IWULA). Exxaro has requested the
Department of Water and Sanitation (DWS) to consent to Exxaro ceding 720 000 m3 of its water allocation.
Eskom has indicated that the temporary supply of electricity of 3 mega-volt ampere (MVA) to the IPP
requires Exxaro Coal (Pty) Ltd to sign a new electricity supply agreement (ESA) to be in line with
current electricity demand.
Construction of the bulk water pipeline and powerline is in process, with the handover expected in
December 2017. The project is proceeding on schedule and on budget.
Belfast
All licenses for the mining and plant areas construction were authorised at the beginning of September
2017. Construction activities commenced during October 2017. The project is proceeding on schedule and
on budget with first production expected 1H20.
Leeuwpan
The Leeuwpan expansion environmental licenses and the wayleave permit were also granted, and during
this period, similarly, construction has commenced.
LOGISTICS AND INFRASTRUCTURE
TFR railed 56,03Mt to RBCT from January to September 2017, equivalent to an annualised rail tempo
of 73,21Mt. The annual coal line shutdown took place in July for 7 days, with rail services
restored successfully afterwards.
The Waterberg LTA was approved and signed by Exxaro and Transnet. This LTA guarantees rail
capacity at affordable tariffs to enable Grootegeluk Complex's export growth projects.
TFR's performance on the North West Corridor has remained at satisfactory levels with a year-to-date
(Jan - Oct 2017) total strike rate of 93% being achieved (96% strike rate for export).
FERROUS COMMODITY UPDATE
SISHEN IRON ORE COMPANY PROPRIETARY LIMITED (SIOC)
Guidance on SIOC's equity-accounted contribution will be provided when we have reasonable certainty
on its FYE17 financial results.
TITANIUM DIOXIDE (TiO2) AND ALKALI CHEMICALS
TRONOX
Exxaro sold 22,425 million shares in Tronox in October, realising net proceeds of $474m (R6,5bn).
The disposal reduces Exxaro's ownership of Tronox's total outstanding voting shares from
approximately 51,2 million to approximately 28,8 million, representing 24% of Tronox's total
outstanding voting shares.
Exxaro intends to use the proceeds to fund operations, repay debt and distributions to shareholders.
As previously communicated, it is the intention that the majority of the proceeds received from the
disposal of the first tranche will be returned to shareholders. The method, the amount and the
timing of any distribution will be announced with our FYE17 results, at the latest.
Exxaro will continue to assess market conditions going forward for further possible sell downs of
its remaining Tronox investment. The remaining investment was classified as a non-current asset
held-for-sale on 30 September 2017, and equity accounting ceased from the date of classification.
ENERGY
CENNERGI PROPRIETARY LIMITED (CENNERGI)
The two wind-farm projects, Amakhala Emoyeni (AE) and Tsitsikamma Community Wind Farm (TCWF),
are running at planned capacity.
REPLACEMENT BEE TRANSACTION
On 20 November shareholders approved the terms of the Replacement BEE transaction. Implementation
is expected before 31 December 2017.
SALE OF NON-CORE ASSETS AND INVESTMENTS
The group's interests in Black Mountain Mining Proprietary Limited and the Chifeng Kumba Hongye
Corporation Limited's refinery remain non-core and Exxaro intends to divest from these
investments.
As previously communicated, Exxaro intends to dispose of its interests in Arnot and North Block
Complex (NBC). The divestment process for NBC is well advanced and it is anticipated that a
transaction agreement will be concluded by the end of the financial year.
In respect of the divestment process for Moranbah South coking coal project in Australia, Exxaro
did not receive viable offers for its 50% shareholding and will reassess its position in due
course.
OTHER CONSIDERATIONS
MINING AND PROSPECTING RIGHTS
Much of the progress obtained in 2H17 revolves around the successful submissions or amendments to
existing rights, with the intent to either protect, or ensuring greater Life of Mine potential to
operations. These include 1) the addition of associated minerals to the Thabametsi Mining right;
2) additional mining methods at Matla for greater extraction; and 3) the inclusion of environmental
and infrastructure liabilities in the Grootegeluk mining right area. The Arnot South Prospecting
right renewal was successfully concluded during the period.
OUTLOOK FOR 1H18
We expect an improvement in the operational results of the coal business for 1H18 driven
primarily by:
* Ongoing good demand in the domestic market underpinning prices;
* Stable seaborne demand internationally;
* Our operational excellence process delivering sustainable improved results; and
* Technology and innovation improvements starting to contribute positively with the establishment
of the innovation project office.
During 1H18, the performance of our SIOC investment will be influenced by an anticipated softer
iron ore market. The iron ore lump premium is expected to revert to its long term historic average
after the winter heating season in China.
Relative stable commodity prices with global industrial production, trade and real fixed investment
momentum, together with successful international mediation efforts in Middle East, will continue to
support world economic activity over the next six months. The Rand Dollar exchange rate remains
extremely volatile, and subject to ongoing event risk as the economic and political environment in
South Africa remains a challenge.
REVIEW OF THE UPDATE
The information in this update is the responsibility of the directors of Exxaro and has not been
reviewed or reported on by Exxaro's external auditors.
TELECONFERENCE CALL DETAILS
A dial-in teleconference call on the details of this announcement will be held on Friday, 24 November 2017
at 12h00 (GMT+2:00).
PARTICIPANT TELEPHONE NUMBERS (Assisted):
* Johannesburg (Telkom): 010 201 6800
* South Africa (Toll Free): 0 800 200 648
* Johannesburg (Neotel): 011 535 3600
* USA and Canada (Toll Free): 1 855 481 5362
* UK (Toll Free): 0 808 162 4061
Please instruct Participants to ask to be joined into the Exxaro Resources call.
PARTICIPANT TELEPHONE NUMBERS (Press *0 for operator assistance):
* Hong Kong (Toll Free): 800 966 117
* Australia (Toll Free): 1 800 350 102
* France (Toll Free): 0 800 902 688
Please instruct Participants to ask to be joined into the Exxaro Resources call.
PLAYBACK
A playback will be available until Wednesday, 6 December 2017. To access the playback, dial one of the
following numbers using the playback code 19127#:
* South Africa: 011 305 2030
* UK toll-free: 0808 234 6771
* USA and Canada: 1 855 481 5363
* International Toll: +27 11 305 2030
SPONSOR
Absa Bank Limited (acting through its corporate and
Investment banking division).
EDITOR’S NOTE
Exxaro is one of the largest South Africa-based diversified resources companies, with interests in the coal,
titanium dioxide, iron ore and energy commodities. www.exxaro.com
ENQUIRIES
Mzila Mthenjane, Executive Head: Strategy & Stakeholder
Affairs
Tel: + 27 12 307 7393
Mobile: +27 83 417 6375
Email: Mzila.mthenjane@exxaro.com
Pretoria 24 November 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”)
LEGEND
1H18 - Six-months period ending 30 June 2018
FY16 - Financial year ended 31 December 2016
FYE17 - Financial year ending 31 December 2017
2H17 - Six-months period ending 31 December 2017
1H20 - Six-months period ending 30 June 2020
COMMODITY PRICES SOURCE
Coal - IHS Energy
Iron ore - MB Online
Mineral sands and pigments - TZMI
DISCLAIMER
The financial information on which any outlook statements are based have not been reviewed nor reported on
by Exxaro’s external auditors. These forward-looking statements are based on management’s current beliefs and
expectations and are subject to uncertainty and changes in circumstances. The forward-looking statements
involve risks that may affect the group’s operations, markets, products, services and prices. Exxaro undertakes no
obligation to update or reverse the forward-looking statements, whether as a result of new information or
future developments.
24 November 2017
Date: 24/11/2017 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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