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EXX: Finance Directors Pre-Close Message Financial Year End 31/12/2020.
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”)
FINANCE DIRECTOR’S PRE-CLOSE MESSAGE
Financial year ending 31 December 2020 (FYE20)
This is an overview of the group’s expected business performance for FYE20, encompassing strategic,
operational and financial information. Unless otherwise indicated, all comparisons are against the financial
year ended 31 December 2019 (FY19).
Dear stakeholder,
Zero Harm remains Exxaro’s key safety objective. For the year to date, a lost-time injury frequency rate
(LTIFR) of 0.06 was recorded, which is 45% better than the set target of 0.11 and 50% better than the 0.12
recorded in FY19. We are also pleased to report another fatality free year achieving a record 45 consecutive
months of fatality-free shifts. However, three high-potential incidents (HPIs) were reported across the group,
two at Grootegeluk and one at Matla. Corrective measures have since been implemented at both mines.
COVID-19 (“the pandemic”) and associated control measures resulted in a record decline in real GDP for
the second quarter of 2020 in most of the world’s economies. Notwithstanding the unusually strong rebound
in GDP activity during the third quarter, a much deeper global recession in 2020 compared to 2008/09 is
anticipated. Commodity markets recorded mixed results over the period under review. In respect of
Exxaro’s key commodities for FYE20, the API4 coal export price index is expected to average US$61
(FY19: US$71) per tonne, free on board (FOB), and the iron ore fines price US$100 (FY19: US$94) per dry
metric tonne, cost and freight (CFR) China.
Total coal production (excluding buy-ins) and sales volumes are both expected to increase by 5%, mainly
due to the increased Eskom demand at Medupi Power Station and the ramping up of production at Belfast.
While we expect an increase of 27% in export volumes, we expect a weaker US$ sales price per tonne to
be realised, in line with the weaker API4 coal export price index, cushioned somewhat by a weaker
rand/dollar exchange rate.
In terms of our capital allocation programme, we expect the capital expenditure for FYE20 in our coal
business to be about 47% lower compared to FY19, mainly due to project delays linked to the pandemic as
well as key projects reaching completion. At 31 October 2020, the group’s net debt (excluding Cennergi’s
net debt of R4.6 billion) was R5.9 billion (FY19: R5.8 billion). In addition to operational measures
implemented to combat the spread of COVID-19, the group has sufficient liquidity to withstand an
interruption to our operations and will remain a going concern for the foreseeable future.
We will provide a detailed account of FYE20 business performance when we announce our financial results
on 18 March 2021.
Yours sincerely
Riaan Koppeschaar
Finance Director
MACRO-ECONOMIC ENVIRONMENT
GLOBAL ECONOMY AND COMMODITY PRICES
During 2020, the global economy recorded the worst downturn since the 1930s. Global real GDP for 2020
is expected to contract by 4.2%, compared to a growth of 2.6% in 2019. Aggressive fiscal and monetary
stimulus by governments and central banks, respectively, were injected into the global economy to soften
the downturn and, in turn, support economic recovery.
Current Chinese economic data remains highly supportive of strong steel demand, accelerating credit
growth and ongoing improvements in fixed investment and the purchasing managers’ index, along with
strength in the property sector. As a result, Chinese steel production remained elevated throughout the
period under review and, despite improved global iron ore supply, the market balance was tight with strong
iron ore prices.
The titanium dioxide (TiO2) pigment market fundamentals softened with high supply, most notably from
China, and weakened global demand. The willingness to spend, by a weakened consumer base and
behavioural changes to end markets, which TiO2 is most exposed to, have negatively influenced overall
demand levels during 2020.
The Brent crude oil market was characterised by the significant impact of COVID-19 measures, collapsing
demand and the Saudi Arabian and Russian price war. During 2020, for the first time ever, the United
States, Russia and Saudi Arabia, the world’s three largest oil producers, cooperated to boost oil prices from
historically low levels. However, a resurgence in COVID-19 cases, towards the end of 2020, has deterred
the recovery in demand.
OPERATIONAL PERFORMANCE
COAL
COAL: MARKETS
The easing of the COVID-19 lockdowns resulted in an increase in offtake by most of our domestic
customers. Although there is still a good demand for sized products, the domestic market is still destocking
excess product that accumulated over the last six months due to lower demand during the lockdown.
We saw a good recovery in demand for coal from India and the rest of the world as lockdown restrictions
were eased and industries resumed production. The API4 index returned to some stability before gaining
momentum in November with highs of US$70. Internationally there remains a risk of the potential effect of
second-round COVID-19 lockdowns and uncertainty around the stand-off between China and Australia.
COAL: PRODUCTION AND SALES VOLUMES
The table below shows a year-on-year comparison of production and sales performance between FY19
and FYE20, as well as a comparison between FYE20 and previous guidance.
TABLE 1: COAL PRODUCTION AND SALES VOLUMES (‘000 tonnes)
Production Sales
FY19 FYE20 FYE20 % change FY19 FYE20 FYE20 % change
Actual Previous Current Previous Actual Previous Current Previous
guidance2 forecast1 guidance guidance2 forecast1 guidance
Thermal 43 203 44 444 44 926 1 43 503 45 262 45 501 1
Commercial: 25 683 26 680 26 875 1
Waterberg
- Eskom 23 157 24 819 25 170 1
- domestic 1 287 920 961 4
Commercial: 11 529 11 607 12 025 4
Mpumalanga
- Eskom 2 241 640 - (100)3
- domestic 1 733 1 735 1 786 3
Production Sales
FY19 FYE20 FYE20 % change FY19 FYE20 FYE20 % change
Actual Previous Current Previous Actual Previous Current Previous
guidance2 forecast1 guidance guidance2 forecast1 guidance
Exports: 9 087 11 008 11 559 5
commercial
Tied4 5 991 6 157 6 026 (2) 5 998 6 140 6 025 (2)
Metallurgical 2 074 2 220 2 316 4 1 030 1 002 1 122 12
Commercial: 2 074 2 220 2 316 4 1 030 1 002 1 122 12
domestic
Total (excluding 45 277 46 664 47 242 1 44 533 46 264 46 623 1
buy-ins)
Thermal coal buy- 305 429 432 1
ins
Total (including 45 582 47 093 47 674 1 44 533 46 264 46 623 1
buy-ins)
(1)Based on the latest internal management forecast assumptions. Final numbers may differ by ±5%.
(2)Provided in 30 June results presentation in August 2020.
3Eskom supply agreements not yet concluded.
4Matla mine supplying its entire production to Eskom.
Commercial mines
Production
Thermal coal production from Waterberg is expected to increase by 4% against FY19 in line with
increased Eskom demand from Medupi Power Station. Production at the Mpumalanga commercial mines
is expected to be 4% higher than in FY19 due to the ramping up at Belfast, partly offset by the negative
impacts of the pandemic on production and markets at Leeuwpan, ECC and Mafube
.
Metallurgical coal production is anticipated to be 4% higher than FY19.
Coal buy-ins are expected to be 42% higher than FY19, mainly to fulfil supply commitments in 1Q20.
Thermal coal production at Matla is expected to be in line with FY19.
Total coal production is expected to be slightly higher than previous market guidance, with higher
production from ECC, as a result of quicker recovery from the COVID-19 lockdown than previously
anticipated and the mining of the Dorstfontein West 4-seam, partly offset by slightly lower production from
Matla, due to a delayed return to a three-shift system following COVID-19 lockdown.
Sales
The expected 27% year-on-year increase in export sales volumes is driven by the availability of additional
export product from our own operations and buy-ins.
Total sales to Eskom are expected to decrease by 1% compared to FY19 as a result of lower sales from
Leeuwpan and ECC where the new coal supply agreements have still not been concluded, partially offset
by higher offtake from Grootegeluk.
Our domestic thermal coal sales volumes are expected to decrease by 9%, mainly due to lower demand
from AMSA and the cement industries at Grootegeluk and ECC, partly offset by higher availability of product
for the domestic market from Leeuwpan and Belfast.
Thermal coal sales at Matla is forecasted to be in line with FY19.
Total coal sales are therefore expected to be in line with previous market guidance, with a 5% increase
in exports due to higher product availability, partly offset by lower Eskom sales from Mpumalanga at
Leeuwpan and ECC as well as less Matla product available as stated above.
COAL: LOGISTICS AND INFRASTRUCTURE
Transnet Freight Rail (TFR) railed 58.8Mt to RBCT from January to end October 2020, which is equivalent
to an annualised tempo of 68Mtpa.
The performance from Grootegeluk improved from 4.8 trains per week in 2019 to 6.75 trains per week from
January to October 2020 and is expected to achieve just over 2Mt in the calendar year 2020 compared to
1.35Mt in 2019. However, cable theft on the export line remains problematic and is negatively impacting
our ability to ramp up export volumes from Grootegeluk.
COAL: MAJOR CONTRACTS UPDATE
Matla mine
The Matla Mine 1 Relocation project commenced with construction in August 2020 and is on schedule.
Exxaro continues to engage Eskom on additional funding to complete the full scope of the project.
Eskom force majeure
Eskom continued to take coal as per the contractual volumes and lifted the force majeure on 6 August 2020.
FERROUS: SISHEN IRON ORE COMPANY PROPRIETARY LIMITED (SIOC)
Guidance on SIOC’s equity-accounted results will be provided when we have reasonable certainty on their
FYE20 financial results.
ENERGY: CENNERGI PROPRIETARY LIMITED (CENNERGI)
The effective date of the consolidation of the Cennergi results into the Exxaro group is 1 April 2020. Total
generation output for the year-to-date is marginally below (-2%) planned numbers due to lower wind
conditions. Equipment performance and Eskom grid availability remain according to plan.
CAPITAL ALLOCATION
Exxaro’s focus remains on optimising and implementing our portfolio of growth and sustaining capital.
COAL: CAPEX
TABLE 2: COAL CAPEX (R’million)
FY19 FYE20 FYE20 % change
Actual Previous Current Previous
guidance2 forecast1 guidance
Sustaining 2 245 2 088 1 980 (5)
Waterberg 1 753 1 478 1 485 -
Mpumalanga 475 588 473 (20)
Other 17 22 22 -
Expansion 3 572 1 400 1 111 (21)
Waterberg 1 198 843 716 (15)
Mpumalanga 2 301 557 395 (29)
Other 73
Total 5 817 3 488 3 091 (11)
(1)Based on the latest internal management forecast assumptions and estimates, excluding tied operations. Final
numbers may differ by ±5%.
(2)Provided in 30 June results presentation in August 2020.
Coal capital expenditure for FYE20 is expected to be about 47% lower compared to FY19. This is mainly
driven by:
• lower GG6 expansion spend, due to project delays linked to the pandemic as reported previously; and
• Belfast and the Grootegeluk’s rapid load out station project reaching completion.
FYE20 capex is expected to be 11% lower than the guidance provided in August 2020, primarily due to
delays in the GG6 expansion project and lower than anticipated capitalisation of net costs on the Belfast
project. Sustaining capital is expected to be 5% lower due to capex and cash flow preservation initiatives
at Leeuwpan and ECC to mitigate the impact of the pandemic.
WATERBERG
GG6 expansion
On the GG6 expansion project the overall schedule is impacted by an additional delay of six months due
to the COVID-19 lockdown period and contractor performance, which included the Group Five business
rescue impact in 2019 and the appointment of a replacement contractor, resulting in an overall 12-month
delay from the originally approved timeline. The current estimated capital overrun of approximately 10% for
the GG6 project is still as per previous guidance provided. The forecast final cost to completion is expected
to be R5.2 billion with project close out expected in 1Q22. The project and operations teams continue to
look for opportunities to optimise capex and mitigate negative impacts on the business.
Rapid load out station
Grootegeluk’s Rapid load out station project is aligned with TFR’s North-West corridor expansion project
and on 30 September 2020 it was successfully handed over to the Grootegeluk complex for operation. The
project close will be completed within the allocated budget by the end of 2020. The delay in project
completion did not affect the TFR ramp-up schedule.
Thabametsi mine
We are in the process of finalising our options regarding the future of this resource, given the latest
announcements that the independent power producer (IPP) is unlikely to continue due to the withdrawal
of key stakeholders.
MPUMALANGA
Belfast
The project close will be completed by the end of 2020 with full ramp up in 2021.
PORTFOLIO OPTIMISATION
TITANIUM DIOXIDE (TiO2): TRONOX HOLDINGS plc (Tronox)
We remain committed to our stated strategy to monetise our remaining stake in Tronox Holdings plc over
time and in the best possible manner, taking into account prevailing market conditions.
SALE OF NON-CORE ASSETS AND INVESTMENTS
Exxaro is in the final stages of concluding an agreement for the sale of its 26% shareholding in Black
Mountain Mining Propriety Limited.
Further to the announcement on the Stock Exchange News Service (SENS) of the JSE Limited on 20
February this year, and as part of its sustainable growth approach, we conducted an internal portfolio review
to evaluate and optimise our current portfolio of coal operations and projects. We resultantly undertook a
strategic decision to dispose of our total equity interest in ECC and Leeuwpan having identified these assets
as non-core to the future objectives of Exxaro.
The resultant sales process is well underway and good progress has been made notwithstanding the
COVID-19 environment. There has been significant interest in both assets and we are close to finalizing
the disposal of ECC. The disposal process for Leeuwpan continues. The ECC transaction should be
announced in 1Q20 with the Leeuwpan transaction announcement to follow thereafter.
SUSTAINABLE DEVELOPMENT
Our sustainability strategy and sustainable development approach continue to be refined in the context of
the Just Transition. With the event of COVID-19, our embedded safety and health strategies and
stakeholder relations have enabled us to respond timeously and effectively to the pandemic.
HEALTH: MANAGING LIVES AND LIVELIHOODS
Exxaro’s coal operations were declared an essential service to ensure continued coal supply for
electricity generation in response to the pandemic. Consequently, we were able to maintain 100%
operating capacity for most of our operations since the commencement of the lockdowns, with
the exception of our Matla operation, which has been operating at 80%. Matla has since operated
at 100% capacity from the beginning of October 2020. As such employee and community safety
and health were paramount to, firstly, minimise the spread of COVID-19 while maintaining
production performance and secondly, responding promptly to ensure effective recovery.
In line with our Health and Wellness Strategy, which focuses on Diagnosis, Management and
Prevention of diseases, we have successfully commissioned two COVID-19 laboratories at
Grootegeluk mine in Limpopo and Matla mine servicing all Mpumalanga operations. Since
commissioning during this second half of the financial year, the two laboratories have successfully
tested over 2500 employees, which has stood us in good stead in identifying COVID-19 risks. We
are awaiting the issue of appropriate certification to enable public testing for community members.
Since the onset of the pandemic the infection rate across the group has steadily declined to 12%
of the peak in July 2020. A total number of 777 employees have been infected since the onset of
the pandemic, with a recovery rate of 96%. We continue to implement our COVID-19 preventative
measures in line with the Government regulations, such as social distancing, washing and
sanitising of hands. Remote working continues for the corporate office and other office-based
employees at the operations.
Through our collaboration efforts, we partnered with World Vision (a global NGO) for continued
community support in relation to COVID-19 response as well as with our industry peers and the
education department to support 1500 learners during their spring camps in the Waterberg and
Nkangala Districts to ensure continued learning.
‘JUST TRANSITION’ JOURNEY1 – A HOLISTIC RESPONSE TO CLIMATE CHANGE
Our Task Force on Climate-related Financial Disclosures (TCFD) analysis highlighted the increasing risk of
carbon price exposure as Global Climate Action is focused on meeting the Paris Agreement target of 2oC
(and below) by the end of the century. We are confident that attaining our carbon neutrality target for scope
1 and scope 2 emissions by 2050, combined with making our business portfolio climate resilient in a low
carbon world through our energy and minerals strategy, will mitigate the financial impact of the carbon
exposure risk. Our considered social interventions include Sustainable Impact strategies that will involve,
among others, regenerative rehabilitation and repurposing of relevant assets, such as our land, in order to
develop new industries beyond coal mining for the livelihoods of local communities.
We are committed to implementing the TCFD recommendations, which will support our communicated
strategic direction. We started with an assessment process prior to the lockdown and due to the setback
from the pandemic, the publication of the recommendation report has been delayed. We expect to complete
the assessment and publication of the report by the end of this year.
1 Adapted from the National Planning Commission, Department of Planning, Monitoring and Evaluation, Republic of
South Africa, the ‘Just Transition’ is a framework that encompasses a range of social interventions and the expanded
renewable energy programme needed to secure workers’ jobs and the livelihoods of wider society, especially the most
vulnerable, viz, poor and working class communities, when economies are shifting to sustainable production, including
avoiding climate change, protecting biodiversity, and ending war, among other challenges.
GOVERNANCE – A NOTE FROM THE BOARD
Our continuous engagement with shareholders on material issues affecting the company remains a priority
following a governance roadshow in the 4th quarter of 2019, led by the Chairman of the Board and
Chairman of the remuneration sub-committee, to address shareholder concerns related to our executive
remuneration structures. We have addressed several of those concerns, resulting in a successful AGM in
May 2020. During the roadshow, we also committed to continuing with the governance roadshows to keep
shareholders updated on progress with our strategy developments and the structuring of executive
compensation. Regretfully, we have not been able to fulfil this commitment due to a demanding Board
schedule as we have been addressing Board member replacements to rebalance our diversity in terms of
race, gender and skills to align with our strategic direction. We will plan and inform shareholders of the
governance roadshow in the new year and continue to engage shareholders appropriately till then.
MINING AND PROSPECTING RIGHTS
Our interaction with the Department of Mineral Resources and Energy (DMRE), Department of Human
Settlements, Water and Sanitation (DHSWS) and other state departments have been impacted by the
pandemic. Although this has resulted in the delay of processing applications, we have made progress in
the following areas:
The DMRE has confirmed that the Matla mining right renewal application, that was submitted in
August 2019, lapses on 4 March 2025;
The granting of the Leeuwpan graves relocation permit and Leeuwpan OI West integrated water
use licence.
Certain applications are still in process at the DMRE and DHSWS:
Section 102 application to amend Matla mining right to swap coal reserves as part of a commercial
deal;
The execution of the consolidation of two Leeuwpan mining rights into a single mining right;
Environmental authorisation and integrated water use licence for Dorstfontein West discard dump
expansion project; and
The execution of a section 102 application at Grootegeluk to incorporate the two farms on which
we have mining infrastructure.
OUTLOOK FOR 1H21
ECONOMIC CONTEXT
Global economic growth recovery is anticipated to continue into 2021. However, the resurgence of COVID-
19 infections will weigh on the extent of such economic recovery as caution holds back much-needed
household and corporate expenditure. However, progress in the development of a vaccine is encouraging
and a fully approved and effective vaccine is expected to be widely available by 2Q21.
The impact of the pandemic on South Africa’s fragile public finances has been devastating. As a result, the
much-anticipated Economic Reconstruction and Recovery Plan was released by the President of South
Africa on 15 October 2020. If fully implemented, the plan is expected to lay a solid foundation for a higher
economic growth path in the longer term.
During 2020, the ZAR depreciated to an all-time low (1H20) before it retracted significantly (2H20). The
reversion to a riskier financial market environment during 2H20, as a result of the easing of global COVID-
19 lockdown restrictions, together with the uncertainty associated with the US elections supported the ZAR.
The rand/dollar exchange rate is expected to remain volatile during 2021.
During November 2020, further sovereign credit rating downgrades by both Fitch and Moody’s have the
potential to increase South Africa’s debt service cost above the levels estimated in the recent
Medium-Term Budget Policy Statement (MTBPS). However, Standard & Poor affirmed their current
sovereign credit rating for South Africa.
COMMODITY MARKETS AND PRICE
In the Atlantic thermal coal market supplier cutbacks, as a result of persistent low prices, have the potential
to swing the market into balance. In Asia, thermal coal prices are supportive as the Indian market recovers,
coupled with Indonesian supply cutbacks.
China’s strong demand for iron ore together with a seasonal drop in global supply (Brazil, Australia and
China) should support the iron ore markets into 2021. However, as the year progresses, a softening in the
iron ore market is anticipated as global seaborne supply recovers, with Chinese steel production stabilising
at lower levels compared to 2020.
OPERATIONAL PERFORMANCE
We anticipate the demand and pricing for coal domestically to remain relatively stable, as customers return
to normal operations.
On the international front, we expect that the related impacts of the pandemic on coal markets will continue
into 1Q21 as the second wave grips parts of the world.
We will continue the rollout of the integrated operations centres (IOCs) across our operations, thereby
enabling operational insights and in-time decision making which will assist us in our journey to improve our
safety, productivity as well as cost performance.
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 Thursday,
3 December 2020 starting at 12:00 SAST.
PARTICIPANT TELEPHONE NUMBERS (Assisted):
Johannesburg (Telkom) 010 201 6800
Johannesburg (Neotel) 011 535 3600
UK 0 333 300 1418
Other countries (Neotel) +27 11 535 3600
Other countries (Telkom) +27 10 201 6800
USA and Canada 1 508 924 4326
PLAYBACK
A playback will be available one hour after the end of the conference until 14 December 2020. To access
the playback, dial one of the following numbers using the playback code 37914#:
South Africa 010 500 4108
UK 0 203 608 8021
Australia 073 911 1378
USA 1 412 317 0088
International +27 10 500 4108
LEAD SPONSOR
Absa Bank Limited (acting through its Corporate and Investment Banking division).
JOINT SPONSOR
Tamela Holdings Proprietary Limited
EDITOR’S NOTE
Exxaro is one of the largest South Africa-based diversified resources companies, with main interests in
the coal, titanium dioxide, iron ore and energy commodities. www.exxaro.com
Annual financial results for the year ended 31 December 2020 will be announced on (or around) 18 March
2021.
ENQUIRIES
Mzila Mthenjane, Executive Head: Stakeholder Affairs
Tel: + 27 12 307 7393
Mobile: +27 83 417 6375
Email: Mzila.mthenjane@exxaro.com
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
FY19 – Financial year ended 31 December 2019
FYE20 – Financial year ending 31 December 2020
1Q21 – First quarter ending 31 March 2021
2Q21 – Second quarter ending 30 June 2021
1H20 – Six-month period ended 30 June 2020
2H20 – Six-month period ending 31 December 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.
3 December 2020
Lead Sponsor to Exxaro Resources Limited
Absa Corporate and Investment Bank, a division of Absa Bank Limited
Joint Sponsor to Exxaro Resources Limited
Tamela Holdings Proprietary Limited
Date: 03-12-2020 08:06:00
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