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HIGHLIGHTS
� Revenue exceeds R10 billion
� Net operating profit up 15% to R1,4 billion
� Headline earnings of 425 cents per share
� Total dividend of 160 cents per share; final dividend of 100 cents per
share
� Exciting coal project developments
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NOTE TO EDITORS:
REPORTED RESULTS NOT COMPARABLE
The group�s audited financial results and actual physical information for the
12-month periods ended 31 December 2007 and 2006 respectively are not
comparable as a result of the empowerment transaction that resulted in the
creation of Exxaro Resources Limited (�Exxaro�) in November 2006.
The audited financial results for the 12-month period ended 31
December 2006 include Sishen Iron Ore Company (�SIOC�) fully consolidated for
10 months to October 2006 with Eyesizwe Coal (Pty) Ltd (�Eyesizwe�) only
consolidated for two months to December 2006 and an effective 20% holding in
SIOC equity accounted for the same two month period. The 2007 financial year,
however, has Eyesizwe fully consolidated and the effective 20% interest in
SIOC equity accounted, for the entire 12-month period.
COMPARABLE SUPPLEMENTARY RESULTS
Comparable unaudited supplementary financial results together with physical
information is additionally provided below for information purposes only, on
the assumption that Exxaro had been created with effect from 1 January
2006.
Comments are for comparable purposes based on an analysis of the
group�s audited financial results and physical information for the 12-month
period to
31 December 2007 compared with the unaudited supplementary financial results
and physical information compiled for the 12-month period to
31 December 2006.
_______________________________________________________________
Diversified South African-based resources group Exxaro Resources Limited
(Exxaro) today reported revenue of R10,16 billion for the 12-month period
ended 31 December 2007, an increase of 15%, while net operating profit
increased by R183 million to R1,44 billion.
The group experienced
strong demand at higher commodity prices despite the significant decrease in
LME zinc prices in the last quarter of 2007. This, together with a stronger
rand of R6,80 to the US dollar on 31 December 2007, resulted in revaluations
of stock to net realisable value in the base metals and mineral sands
businesses decreasing by R133 million compared to the end of 2006.
An average exchange rate
of R7,26 to the US dollar was realised compared with R6,76 for the
corresponding period in 2006. The significant strength of the
Australian dollar to the US dollar (USD 0,83 to the AUD realised against USD
0,75 for 2006), however, impacted negatively on the financial results of the
mineral sands operations in Australia.
EARNINGS
Attributable earnings for the period are R1,43 billion (418 cents per share)
representing a 48% increase on the comparable 2006 attributable earnings of
R962 million (307 cents per share). This includes Exxaro�s 20% interest in
the after-tax profits of SIOC amounting to R746 million, some R148 million
higher than for the comparable period.
Headline earnings
increased from R893 million to R1,45 billion with headline earnings per share
49% higher at 425 cents compared with 285 cents for the comparable
corresponding period.
CASH FLOW
Cash retained from operations of R2,31 billion was mainly applied to taxation
payments of R461 million, capital expenditure of R1,29 billion (consisting of
R727 million invested in new capacity and R569 million in sustaining and
environmental capital), an investment of R239 million in the Richards Bay
Coal Terminal (RBCT) to secure 2,5Mtpa export entitlement, and the interim
dividend payment of R211 million or 60 cents per share in September 2007. The
group had a net cash inflow of R388 million for the financial year.
After accounting for the
net surplus of R91 million on the repurchase of 10 million shares from Anglo
South Africa Capital (Pty) Ltd and the market placement of the same number of
new shares, as well as a dividend inflow of R373 million from SIOC,
cash and cash equivalents increased by R502 million before the repayment of
borrowings.
Net debt of R921 million
at 31 December 2006 decreased to
R483 million at a net debt to equity ratio of 5% on 31 December 2007. Net
debt will increase by the payment commitment of R2,35 billion, subject to the
disclosed price adjustments, for the acquisition of Namakwa Sands and a 26%
interest in Black Mountain/Gamsberg on conversion and subsequent cession of
their mining rights.
SAFETY, HEALTH AND
ENVIRONMENT
The group remains committed to achieving a working environment that is
fatality and injury free. Its safety awareness and preventative programmes
have been strengthened by further initiatives to enhance hazard
identification and safe behaviour by individuals. Despite excellent safety
achievements at several operations, regrettably four on-mine fatalities and
one public road fatality were suffered during the period under review. The
average lost time injury frequency rate (LTIFR) per 200 000 man-hours worked
for the reporting period, however, improved to 0,36 compared to 0,42 for the
corresponding period in 2006.
Nine of the group�s 12
operations have achieved both the international health and safety
certification (OHSAS 18001) and environmental certification
(ISO 14001). The group aims to have all business units fully compliant with
both certifications by December 2008.
In response to the
growing global threat of climate change, Exxaro has developed a clean energy
strategy as a dedicated response measure. Through this initiative Exxaro will
align all of its energy-related activities to South Africa�s Climate Change
Response Strategy, with a key output for 2008 being the company-wide carbon
footprint. This footprint will serve as a baseline against which
our energy efficiency progress will be measured, monitored, and improved.
The implementation of
HIV/Aids voluntary counselling and testing (VCT) and extension of
anti-retroviral programmes to all of the group�s businesses is also
progressing well with the majority of employees who tested HIV-positive
enrolled on the disease management programme. Thirty percent of the workforce
participated in the VCT programme by the end of 2007 and a renewed focus to
encourage participation by employees in the programme and, where necessary,
to enrol on the disease management programme, is planned for 2008.
POWER CONSTRAINTS
It is considered unlikely that future production at the coal mines will be
affected by Eskom�s load shedding/rationing programme. Most of the group�s
coal operations supply some or all their production to Eskom�s power
plants. However, both KZN Sands and Zincor have an agreement with the
electricity utility which may result in some 10% of production being lost.
The group supports the
initiative contemplated by Eskom to introduce stability into the power plant
fleet and electricity transmission grid and is committed to assist Eskom to
find longer-term solutions in terms of additional coal supply, and
consistency and quality of coal supply. Exxaro is also examining various
alternatives with regard to the conservation and use of electricity
throughout its operations.
CONVERSION OF MINING
RIGHTS
Exxaro is approaching the conversion of its old order mining rights to
new-order rights in two phases. It is firstly progressing the applications
which have been submitted for the conversion of the former Kumba
Resources-associated rights, excluding iron ore. This will be followed
by applications for the conversion of the former-Eyesizwe old order mining
rights. The scheduled date for submission of the latter is April 2008.
Exxaro held a workshop
with the Department of Minerals and Energy (DME) in July 2007 as part of the
conversion process to clarify and progress the applications for new order
mining rights. In addition to the conversion applications, Exxaro also lodged
applications for new order mining rights for mineral sands deposits at
Fairbreeze C Extension, Braeburn, UVS and Braeburn Extension close to its
existing Hillendale mine in KwaZulu-Natal, and coal reserves at Tshikondeni
Goni and Leeuwpan Extension. The outcome of the applications is awaited.
CHANGES TO THE BOARD
Subsequent to year-end, Ms N Nyembezi-Heita has resigned from the Board with
effect from 29 February 2008. The Board wishes to thank her for her
services as director and Chairperson of the Transformation, Remuneration,
Human Resources and Nomination Committee of the Board.
OUTLOOK
The acute shortage of skills in critical operational and project development
positions poses a significant challenge to the group. Retention strategies
and other programmes have been initiated to mitigate this risk.
Strong local and export
demand for coal products at increased prices linked to higher sales volumes
from the current project developments coming on stream, is expected to
increase the profit contribution from the group�s commercial coal
operations. The results of the mineral sands business are likely to be
adversely affected by the planned reline shut of Furnace 2 at Empangeni, a
continued strong Australian dollar and the mining of lower grade mineral
sands deposits. The current softer trend in zinc metal prices is expected to
persist. Continued buoyant iron ore market conditions should benefit the
group in respect of its equity interest in SIOC. A weaker Rand will
positively impact on US dollar denominated revenue.
The acute shortage of
skills in critical operational and project development positions poses a
significant challenge to the group. Retention strategies and other programmes
have been initiated to mitigate this risk.
FINAL DIVIDEND
The directors have declared a final dividend, dividend number 10 of 100 cents
per share in respect of the 2007 financial year. The dividend has been
declared in South African currency and is payable to the shareholders
recorded in the books of the company at close of business on Friday, 14 March
2008.
Ends
� View or download
the full results announcement on www.exxaro.com
� See Addendum 1
for Operational highlights; Addendum 2 for Growth opportunities
Editor�s Note:
Exxaro is one of the largest South African-based diversified resources
groups, with interests in the coal, mineral sands, base metals, industrial
minerals and iron ore commodities. www.exxaro.com
Enquiries:
Trevor Arran
Executive General Manager: Corporate Affairs & Investor Relations
Tel: +27 (0) 12 307 3292
Mobile: +27 (0) 83 609 1444
ADDENDUM 1:
OPERATIONAL HIGHLIGHTS
OPERATIONS
Coal
Production of power station coal was 353kt lower than the corresponding
period in 2006 as reduced output at Matla and Arnot was only partially offset
by increased production at the North Block Complex (NBC), Leeuwpan and
Grootegeluk mines. Lower production at the Eskom-tied mines - Matla and Arnot
- resulted from a delay in obtaining regulatory approval for a river
diversion and from difficult geological conditions.
Coking coal production
showed a marked increase of 466kt year-on-year due to improved performance at
Tshikondeni as well as the successful ramp-up of the GG6 plant at the
Grootegeluk mine.
Coal exports were 25%
lower than in 2006 primarily due to Exxaro�s decision to close the
underground mining operations during January 2007 at New Clydesdale Colliery
(NCC) as a result of unsafe mining conditions. To mitigate the loss of
production at NCC, commissioning of the Inyanda mine was fast-tracked and
first run-of-mine coal was supplied to NCC for beneficiation four months
after site establishment.
Leeuwpan mine's
reclaimer suffered a structural failure in September 2007 and is only
expected to be repaired in the third quarter of 2008. Front-end loaders
have been deployed to minimise the impact on sales.
Total sales to Eskom
were 439kt lower year on year in line with the decrease in production.
However, other domestic sales were significantly higher on the back of a 27%
increase in semi-soft coking coal sales to Arcelor Mittal in line with
increased demand.
Revenue increased by 15%
to R5,09 billion. This was due to significantly higher free on rail
export prices, increased selling prices to ArcelorMittal SA Limited
(ArcelorMittal) based on higher international coking coal prices and stronger
power station coal prices to Eskom.
Despite a lower
operating income at the tied mines brought about by a non-recurring payment
of R30 million from Eskom to Arnot for committed reserves in 2006, Exxaro
Coal achieved a record net operating income of R885 million, 43% higher
than in 2006. The higher revenue, the profitable turnaround at NBC and
the savings realised from integrating the Eyesizwe and Kumba Coal corporate
offices, offset inflationary pressures primarily in respect of labour and
diesel costs.
Mineral Sands
KZN Sands
KZN Sands reported improved production results from both furnaces for the
2007 financial year in contrast with the negative impact that the Furnace 1
shut had on production in the same period in 2006. Titanium slag tapped was
35,6kt higher at an annual production record of 186,6kt. Increased slag
throughput also boosted low manganese pig iron (LMPI) production. Ilmenite
production was aligned with higher smelter feed requirements, resulting in
48kt more than in 2006.
Business improvement
initiatives during the year focused on increasing smelter output at KZN Sands
with Furnace 1 and Furnace 2 achieving cold feed capacity of 92kt (84%)
and 94,6kt (86%) respectively.
The pre-heater was not
introduced as planned due to instability in the furnaces, exacerbated by
Eskom�s power supply shortages in the last quarter of the year. KZN
Sands will undertake a review in 2008 of the current furnace hearth
technology in use at the operation with the objective to improve the performance
of the furnaces.
Zircon and rutile
production declined due to lower mineral grades in the area mined during the
review period.
Revenue was R167 million higher due to increased chloride slag and LMPI
sales. Net operating loss increased by R43 million which includes a
R45 million write-down of the crude ilmenite stockpile from cost to net
realisable value due to the stronger rand at the end of the financial year.
Furnace 2 is due for a
scheduled maintenance shut in the latter part of 2008 which will result in
less slag and LMPI production in 2008 when compared to the 2007 financial
year.
The average minerals
sands in -situ grade at the Hillendale mine nearing the end of its life is
expected to be lower in 2008 until the mining and development of the
Fairbreeze and Braeburn deposits can commence upon obtaining the mining
rights.
Australia Sands
Revenue increased by 14% primarily as a result of substantially higher
synthetic rutile sales due to successful treatment of the ilmenite stockpile
and the rollover of 2006 sales following the unplanned shut of the kiln for
repairs and preventative maintenance in 2006.
Record pigment
production was maintained during the period due to continuous
de-bottlenecking of the pigment plant and business improvement initiatives.
Zircon and rutile volumes were sustained as initiatives to increase
recoveries were offset by reduced feed into the dry mill, in turn caused by
lower mining grades resulting in reduced concentrate production.
A planned five-week shut
for the synthetic rutile plant was successfully completed on schedule in July
2007. The benefits of the shut led to increased synthetic rutile production.
A successful two-week shut was also completed at the Cooljarloo mine and
included the replacement of the outer shell of the floating feed preparation
unit.
Net operating profit,
however, decreased substantially as the Australian dollar strengthened by
more than 20% against the US dollar to a 23-year high and continued cost
increases in energy consumables were not fully offset by modest price
increases for zircon and pigment.
The 2008 mining plan
indicates mining of a lower grade area for most of the year. This is expected
to result in marginally lower heavy minerals concentrate production.
Base Metals
Production of zinc concentrate at the Rosh Pinah mine of 95kt was 9% lower
than the equivalent period in 2006 attributable to floods in the early part
of the year in southern Namibia, industrial action at the mine in the second
half of the year as well as stoppages due to equipment and plant
failure. This also had a negative effect on lead production.
Production volumes at
the Zincor refinery increased from 90kt in 2006 to 101kt in 2007 underpinned
by the improved quality of imported zinc concentrates and plant performance
which in turn positively impacted on zinc recoveries of up to almost
92%. Zincor successfully completed a rebuild of the no. 4 roaster
similar to roaster no. 3 that was rebuilt in the second half of 2006,
resulting in a marked improvement in the roaster throughput in the plant.
Similar to 2007, capital
expenditure in 2008 at both Rosh Pinah and Zincor will focus on the
replacement of mining and plant equipment including the rebuild of the two
small roasters and the realignment and major maintenance of the cell house at
Zincor.
Revenue increased by 15%
to R2,73 billion with an operating margin of 25% as a result of a 2% increase
in the average rand zinc price for the year to
R22 824 per tonne compared to R22 311 per tonne in 2006. This was
partially offset by inflationary production cost increases, and a write-down
to net realisable value of zinc stocks in the amount of R88 million resulting
from the decline in LME zinc prices converted to rand terms, at the end of
the reporting year.
Production ramp-up from
50ktpa to 110ktpa at the Chifeng refinery has reached 80% of design capacity
at year-end. Exxaro has an effective 22% interest in the expanded
operation. The significant decline in demand for zinc, especially zinc
alloys, in the local Chinese market as well as the sharp decline in prices at
year end combined with the higher operating expenditure during the ramp-up
phase, resulted in Exxaro�s equity accounted interest reducing from a profit
of
R40 million in 2006 to a loss of R18 million in 2007.
Completion of the
transaction to divest a 43,8% interest in Rosh Pinah Zinc Corporation (Pty)
Limited (�Rosh Pinah�) to Namibian shareholder groupings is targeted for the
first half of 2008, effectively reducing Exxaro�s shareholding in Rosh Pinah
to 50,04%. Exxaro will continue to manage the mine in terms of a management
agreement.
A total of 13kt
representing 30% of Rosh Pinah�s projected lead sales up to June 2010 were
hedged at forward prices ranging from US$1 700 to US$940 per tonne to
accommodate the stand-alone funding structure arranged for the
divestment. A further 30% of an intended 60% of the projected zinc
sales up to mid 2011 were hedged subsequent to year-end at prices ranging
from US$2 098 to US$2 435 per tonne.
Industrial Minerals
Production at both the FerroAlloys plant and the Glen Douglas mine remained
in line with the previous corresponding period. Net operating income declined
at the Glen Douglas mine by R3 million as a result of higher maintenance
expenditure and lower off-take of higher premium metallurgical dolomite
products by Arcelor Mittal.
ADDENDUM 2:
GROWTH OPPORTUNITIES
Coal
Ramp-up of the GG6 project has reached 90% of the design capacity of
750 ktpa. In addition to supplementing semi-soft coking coal to
ArcelorMittal�s South African coking plants, the project contributes to
alleviating the shortage of market coke for the ferro-alloy industry.
A supply agreement for
45 years was awarded to Exxaro Coal by Eskom in March 2007 to supply 8,5Mtpa
of power station coal from the Grootegeluk mine to Eskom�s new 2 400MW Medupi
power station consisting of three generating units adjacent to the Matimba
power station. Feasibility studies are underway to also supply the planned
additional three generating units of Medupi which could increase the total
coal supply from the Grootegeluk mine to the new power station to 14,6Mtpa.
Capital expenditure on
the char project for the production of char for the
ferro-alloy industry from a four retort facility at the Grootegeluk mine
ramping up to 160ktpa in 2008, has been revised to R320 million from R296
million due to contractor skills shortages and scope changes.
The completion of the
feasibility study to investigate the viability of a market coke plant has
been extended to 2008 to allow for more test work on the coking
characteristics of the process. If viable, the plant will produce high
quality market coke from semi soft coking coal produced at Grootegeluk
mine.
In May 2007 Exxaro was
awarded 2,5Mtpa export entitlement through RBCT by means of a subscription
process in addition to the existing 0,8Mtpa entitlement. Exxaro also
purchased a further 1Mtpa export entitlement through RBCT from Billiton
Energy Coal South Africa Limited for R212 million, bringing the total export
allocation to 4,3Mtpa. On completion of the RBCT Phase V expansion scheduled
for the second quarter of 2009, Exxaro will receive a further 2Mtpa export
entitlement through the South Dunes Coal Terminal Company, bringing the total
entitlement to 6,3Mtpa.
Construction of the
beneficiation plant at Inyanda is progressing well with hot commissioning
planned for the second quarter of 2008. The R269 million Inyanda coal mine
will produce up to 1,5Mtpa of product.
The capital cost of the
Mafube expansion project, in which Exxaro is a 50:50 joint venture partner
with Anglo Coal, is expected to be approximately
R1,9 billion on completion. Construction commenced in July 2006 with the
first coal to the washing plant delivered in January 2008 and ramp-up to full
capacity expected in seven months.
Mining of the
Eerstelingsfontein reserves near Belfast to supply 1Mtpa power station coal
to Eskom is targeted for 2008 on receipt of environmental approvals. The
feasibility study on the project has been completed and mining authorisation
was received. In addition, expanded production of up to 2,4Mtpa from the
Blesbok product at Belfast is currently underway to meet the increased demand
for power station coal.
In terms of the 50:50
joint venture agreement between Exxaro and Anglo Coal Australia, exploration
of the coking coal resource on the adjacent properties of Moranbah South and
Grosvenor South in Queensland, Australia is progressing according to
schedule. Exploration in 2008 will focus on geophysical work to
delineate potential long-wall mining resources. Moranbah South has the
potential to produce about 3,5Mtpa of quality hard coking coal from
underground long-wall mining for at least 20 years.
The Board has approved
the development of the Diepspruit reserve at NCC with implementation planned
for the third quarter of 2008 subject to regulatory approvals. The R136
million project will produce 1,3Mtpa run of mine coal for beneficiation at
NCC to supply the export market.
Minerals sands
The start of construction of the Fairbreeze mine, south of KZN Sands�
existing Hillendale mine in KwaZulu-Natal, has been delayed to October 2008
subject to the approval of mining rights. The water-use licence has
been approved and production is planned to start in July 2010.
Feasibility studies on
the Port Durnford project, located to the immediate
south-west of Hillendale mine, are on track for completion by December
2008. The project, if viable, could potentially supply the current KZN
Sands furnaces for over 25 years.
The Toliara Sands
project in south-western Madagascar comprises two exploration areas, Ranob�
and Monombo-Marombe. Hand-auger drilling in the Monombo-Marombe area
indicates resources capable of supplying long-term ilmenite feedstock to the
Exxaro KZN Sands furnace complex. Further exploration drilling in this area
is planned for 2008. Completion of the feasibility study for the Ranob�
deposit is targeted for the end of 2008.
The feasibility study on
the pigment plant expansion to 160ktpa at the Tiwest Kwinana facility was
completed in the last quarter of 2007. A decision on implementation by Exxaro
and its joint venture partner, Tronox Inc., is planned for the first half of
2008.
Bankable feasibility
studies on the Dongara project, which forms part of the Tiwest joint venture,
are ongoing. With a 20Mt reserve and 10% heavy minerals, the project will
provide supplementary feedstock for Tiwest�s mineral separation plant and
synthetic rutile facility. As a result of increased life expectancy at the
Tiwest dry mine at Cooljarloo, production at Dongara is planned to start in
early 2011.
Base Metals
A feasibility study is currently being undertaken on the further expansion of
the Chifeng refinery with a capacity increase in the order of 130kt.
The outcome of this study is expected to be completed by mid 2008 after which
Exxaro will review its participation in the expanded operation.
AlloystreamTM
The Furnace 1 feasibility study of the AlloyStream� technology, which allows
for the demonstration of this furnace�s beneficiation of manganese ore, is
planned for completion during the second half of 2008. The AlloyStream�
technology could also lend itself to the production of ferro-nickel for which
test work and pilot campaigns are planned for 2008.
Ends
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