HILTON ATKINSON
Manager, Corporate Communication
Corporate Affairs & Strategy
Tel: + 27 12 307-4843
Fax: + 27 12 307-4760
Mobile: + 27 083 609 1452
Email hilton.atkinson@exxaro.com
www.exxaro.com
NEWS RELEASE
For immediate release
18 August 2011
reviewed group interim financial results AND unaudited PHYSICAL INFORMATION for the six-month period ENDED 30 june 2011
OVERVIEW
? Decrease in LTIFR to 0,22; regrettably one fatality
? Revenue increased by 22% to R9,6 billion
? Net operating profit up 20% to R1,6 billion (despite impairment at Zincor)
? Headline earnings per share up 53% to 1 045 cents per share
? Interim dividend of 300 cents per share; covered 3 times by attributable earnings
Note:
Comments on operating results are based on a comparison of the group?s reviewed financial results and unaudited physical information for the six-month periods ended
30 June 2011 and 2010 respectively.
Diversified South African-based resources group Exxaro Resources Limited (Exxaro) today reported group consolidated revenue of R9,6 billion for the six months ended 30 June 2011, a 22% increase when compared with the same period in 2010.
REVENUE
?The coal and mineral sands business were the main contributors to the increase,? said Sipho Nkosi, Exxaro?s chief executive officer.
Revenue was recorded at a stronger average exchange rate of R7,21 to the US Dollar compared to R7,81 in the corresponding period in 2010. For the Australian mineral sands business the comparative average exchanges rates were USD0,96 and USD0,87 respectively.
?Revenue from the coal business was 22% higher at R5,8 billion, due primarily to increased export sales at higher international selling prices,? added Nkosi.
?Looking at the mineral sands business, revenue improved 36% to R2,9 billion, mainly due to the long anticipated increases in selling prices complemented by increased demand.?
Revenue from the base metals business was in line with that of the corresponding period in 2010 as the higher average LME zinc selling prices and export volumes were offset by a stronger local currency to the US dollar.
NET OPERATING PROFIT
?The higher consolidated revenue recorded translated into higher consolidated net operating profit of R1,6 billion, an increase of 20% as the group continued to benefit from strong demand at generally higher selling prices, albeit at stronger operating currencies,? said Nkosi.
The coal business reported a 36% increase in net operating profit of R1,6 billion (at an operating margin of 28%). An increase in export volumes at higher international selling prices, combined with higher non-Eskom local sales at higher prices, were partially offset by lower power station coal volumes to Eskom, and inflationary pressures on distribution and maintenance costs.
The mineral sands business reported a consolidated net operating profit of R652 million, driven by more favourable selling prices, strong demand, improved operational efficiencies and continued cost containment, despite the impact of stronger local and Australian currencies.
KZN Sands recorded a marginal loss of R6 million compared to a profit of R61 million in the corresponding period in 2010 which, however, included a non-recurring insurance payment receipt of R98 million.
Namakwa Sands and Australia Sands recorded net operating profit increases of R247 million and R324 million respectively. The higher profits were recorded at respective operating margins of 25% and 32%. Included in Australia Sands is a profit of R24 million from the disposal of the interest in the Kwinana pigment plant expansion.
A net operating loss of R125 million was recorded for the base metals operations prior to accounting for the impairment as continued operating challenges at the Zincor refinery were compounded by higher than inflation increases in electricity and maintenance expenditure and a stronger local currency. After an evaluation of the carrying value of the Zincor refinery, also taking due cognisance of the announcement made by the group on 29 July 2011, an impairment loss of R439 million was recorded, resulting in a consolidated net operating loss of R564 million. Moreover, a deferred tax asset or R153 million was derecognised at Zincor based on the expectation of it no longer being able to be utilised with available future taxable income.
Earnings
Attributable earnings, inclusive of Exxaro?s 20% interest in the post-tax profits of Sishen Iron Ore Company (Pty) Limited (SIOC) amounting to R2,4 billion, as well as the respective R5 million and R147 million contributions from the equity interests in Chifeng and Black Mountain, increased by 33% from R2,4 billion to R3,2 billion (or 921 cents per share).
Headline earnings recorded, which exclude the impact of any impairments, was R3,6 billion (or 1 045 cents per share). This represents a 53% increase on the corresponding 2010 earnings of R2,4 billion (at 683 cents per share).
Cash flow
Cash retained from operations was R2,4 billion from which taxation payments of R207 million, the final dividend for the 2010 financial year of R1,06 billion and capital expenditure payments of R1,8 billion were made. A total of R1,3 billion of the capital expenditure was invested in new capacity while R528 million was for sustaining and environmental purposes. A total of R1,3 billion of the capital investment in new capacity was for the expansion of Grootegeluk mine to supply Eskom?s Medupi power station.
After accounting for R1,6 billion of dividends received from associate companies, a net cash inflow of R1,3 billion was recorded and contributed to the significant reduction in net debt in the six months to 30 June 2011.
Net debt of R2,2 billion at 31 December 2010 decreased to R996 million at 30 June 2011 reflecting a debt to equity ratio of 5%.
Subsequent to the interim reporting date, Exxaro will pay the interim dividend of some R1 billion and receive a dividend of R1,9 billion from SIOC.
SAFETY & SUSTAINABLE DEVELOPMENT
?Despite strengthened safety awareness and prevention programmes through various initiatives to enhance hazard identification and safe behaviour, regrettably one fatality was suffered during the period under review,? added Nkosi.
?Shuttle car operator Mandla Piet Mabaso was fatally injured underground at New Clydesdale Colliery (NCC) on 16 February 2011. Subsequent to the interim reporting date, a further two fatalities occurred. On 8 July 2011, Johannes Jan Drotschie, a fitter at Matla, was fatally injured underground, while Colman Selebalo Thobejane, a contractor working for Isambane at Arnot mine, was fatally injured on surface on 11 July 2011. Our condolences are extended to the family and friends of the deceased,? said Nkosi.
The average lost time injury frequency rate (LTIFR) per 200 000 man-hours worked for the six-month period improved to 0,22 from 0,25 at 31 December 2010.
?Wellness of employees remains paramount with progress evident in the implementation of an HIV/AIDS voluntary counselling and testing programme. The target for testing for 2011 is 75% of employees compared to the 70% achieved in 2010,? said Nkosi.
All 16 operational business units are now ISO 14001 and OHSAS 18001 certified. Certification for the Grootegeluk Medupi Expansion Project (GMEP), which is still under construction, is in progress.
Conversion of mining rights
Engagement with the relevant stakeholders continues in order to process the registration of the new order mining rights granted. The conversion of mining rights for Arnot and Glisa (a part of NBC) is underway Three mining rights converted for Tshikondeni, Matla and Strathrae (also part of NBC) still await execution by the Department of Mineral Resources (DMR). New order mining rights for Belfast are in different phases of application and processing.
Changes to the board and company secretariat
Maria Susanna (Marie) Viljoen, Company Secretary of Exxaro since 1 August 2001, has retired with effect from 30 June 2011. The board of directors has appointed Catharina Helena (Carina) Wessels as Group Company Secretary with effect from 1 July 2011 in her stead. Carina holds LLB and LLM degrees, is an admitted advocate of the High Court of South Africa, and is a Fellow and Senior Vice-President of the Chartered Secretaries Southern Africa.
Outlook
The positive market recovery for coal in terms of price and demand are set to continue in the second half of 2011, amidst the existing logistical challenges.
Following the commissioning of Phase V expansion at Richards Bay Coal Terminal (RBCT), Exxaro?s export entitlement should be 6,3Mtpa, but only some 2,9Mtpa of this will be available in 2011. The remainder of the exports planned can only be achieved by selling on a free-on-rail basis, the lease of export entitlement, and exports via Maputo in Mozambique.
Market conditions on the mineral sands business are favourable and the demand for all products is strong. The upward trend in prices should continue in the medium-term given current supply and demand imbalances.
Subsequent to the in-principle decision announced on 29 July 2011 to permanently cease the production of zinc at Zincor, Exxaro is contemplating the retrenchment of Zincor employees unless a feasible alternative is identified.
The equity accounted contribution from SIOC should continue to be positively impacted by anticipated higher iron ore prices and continued strong demand.
The strength of the local currency and Australian dollar against the US dollar will continue to impact on the group?s financial results. At 30 June 2011, Exxaro has USD234 million of hedging in place at an average exchange rate of R7,34 for the local operations and USD27 million at an average rate of USD 0,99 to the AUD for the Australian operation.
The financial information on which the outlook statement is based has not been reviewed nor reported on by the group?s external auditors.
interim dividend
The board of directors has declared an interim cash dividend number 17 of 300 cents per share in respect of the 2011 interim period. The dividend has been declared in South African currency and is payable to shareholders recorded in the register of the company at the close of business on Friday, 23 September 2011.
In compliance with the requirements of Strate, the electronic and custody system used by the JSE, the following dates are applicable:
Last date to trade cum dividend Friday, 16 September 2011
Shares trade ex dividend Monday, 19 September 2011
Record date Friday, 23 September 2011
Payment date Monday, 26 September 2011
Ends
- See Addendum 1 for Operational highlights; Addendum 2 for Capital expenditure and project pipeline
Editor?s Note:
Exxaro is one of the largest South African-based diversified resources groups, with interests in the coal, mineral sands, base metals and iron ore commodities. www.exxaro.com
Enquiries:
Wim de Klerk
Finance director
Tel: + 27 12 307 4848
Mobile: +27 82 652 5145
Email: wim.deklerk@exxaro.com
ADDENDUM 1:
OPERATIONAL HIGHLIGHTS
Coal
Production
Total coal production volumes decreased by 10% as a result of lower power station coal volumes.
The commercial mines? power station coal production was 574kt or 6% lower than in the corresponding period. This was mainly due to lower production at Grootegeluk as a result of lower demand by Eskom, partially offset by higher production at Leeuwpan due to the crush and screen plant commissioned during 2010 leading to full period production in 2011. Equipment availability problems experienced by North Block Complex (NBC) also adversely impacted production.
Power station coal production volumes were lower than the same period in 2010 mainly due to lower production at the Eskom tied mines. The underground production at Arnot was negatively affected by geological conditions and technical challenges, as well as the closure of the Mooifontein operations in the first quarter of 2011 which also contributed negatively to the lower production at Arnot mine.
Coking coal production increased marginally due to higher production at Grootegeluk based on increased demand, mainly from ArcelorMittal South Africa (AMSA) while Tshikondeni?s production was higher resulting from the mini-pits started in the first half of 2011.
Steam coal production was 8% higher with higher production at Leeuwpan. This was as a result of operational improvements to the dense medium separator (DMS) plant feed tempo being complemented by the benefit of improved coal availability after additional overburden stripping. Higher production was also recorded at Grootegeluk and the Mafube joint venture on the back of higher international demand and throughput improvements respectively. However, this was partially offset by lower production at NBC and at NCC due to the closure of Haasfontein in the first half of 2011.
The char plant production was 58% higher than the corresponding period due to improved availability and feed rate.
Sales
Sales to Eskom were lower following the lower production.
Other domestic sales were 14% higher due to higher demand from AMSA in addition to higher spot sales from Leeuwpan.
Exxaro?s coal strategy is to increase export volumes which contributed to a 13% improvement in exports mainly due to higher railings by TFR despite the 21-day maintenance shut and the derailments in the first half of 2011.
Reductants? higher production in turn resulted in the 42% higher sales from the Char plant.
Mineral sands
Production
At KZN Sands, heavy minerals concentrate (HMC) production was 32kt lower due to the Hillendale mine nearing its end of life, resulting in 4kt lower zircon and 1kt lower rutile production. The lower HMC, together with the fact that only one furnace was operational for the full period under review (after Furnace 2 suffered a burn through in October 2010) also resulted in lower titanium slag production.
Namakwa Sands recorded higher zircon and rutile production of 6kt and 3kt respectively. With greater uptimes of the furnaces, titanium slag production increased with 31kt.
At Australia Sands, synthetic rutile production increased due to improved consistency in production together with the reduction of coal quality problems which adversely affected the plant in the past. Zircon production was marginally lower as a result of harder digging conditions.
Pigment production was significantly higher following the commissioning and ramp- up of the pigment plant expansion, combined with improved performance from the existing plant. On 30 June 2011, Tronox Western Australia exercised its reinstatement right to buy back into the pigment plant expansion culminating in a subsequent net cash inflow of R469 million to Australia Sands thereby compensating Exxaro for the funding of the entire expansion.
Sales
Total sales volumes were in line with the previous year albeit at a different overall product mix at lower favourable selling prices.
Base Metals
Production
Zinc concentrate production at Rosh Pinah was 9kt lower resulting from a planned shut in May 2011. The shut was originally planned for the second half of 2011.
Production of zinc metal at the Zincor refinery of 41kt was marginally lower and can be attributed to downtime in the acid plant and throughput limitations on the purification circuit.
Sales
Dispatches of zinc concentrate were 24% lower due to logistical challenges following the heavy rains in Namibia in the first quarter of 2011.
Zinc metal exports were 30% higher at 17kt, based on increased demand.
A total of 60% of Rosh Pinah?s projected zinc and lead concentrate sales were hedged during the 2008 for the period July 2008 to December 2011 at forward prices ranging from US$2 215 to US$1 887 for zinc and US$2 385 to US$ 1 771 for lead. Actual hedging gains were R19 million more than the corresponding period in spite of lower commodity prices. These hedges mature in the second half of 2011.
ADDENDUM 2:
Capital expenditure and project pipeline
The group continues to take due cognisance of the pace of the recovery in the global economy as well as macro economic fundamentals in its evaluation and prioritisation of growth projects in line with the group?s approved commodity strategy.
Coal
Construction of GMEP to supply Eskom with 14,6Mtpa of coal for the Medupi power station, continues to progress well and is anticipated to be completed on time and within budget.
The detailed design for first coal supply has been completed for most disciplines, with some minor work continuing to the end of August 2011. Overall project progress was at 54% completion on 30 June 2011. The total project capital expenditure spent to date is some R2 billion with total capital expenditure for the project still forecast at R9,5 billion. Total funds committed to date amount to approximately R5 billion.
The R4,5 billion bridge loan facility with a consortium of financiers is still in place with first draw-down of the loan now only expected in the third quarter of 2011.
Thabametsi is a prospective greenfields mine adjacent to Grootegeluk mine in the Waterberg. The development of the project will coincide with the Department of Energy?s (DOE?s) formalisation, establishment and implementation of the National Integrated Resource Plan 2010 (NIRP 2010). The NIRP 2010, issued at the end of March 2011, indicates that coal-fired base-load Independent Power Producer (IPP) power stations have been brought forward in the energy mix, paving the way for the development of Thabametsi as a supplier of coal to a base-load IPP. First coal production could be achieved by 2016/17, but is dependent on the Waterberg IPP and water supply development schedules.
Exxaro entered into a prospecting joint venture agreement with Sasol Mining to investigate the commercial viability of the development of a new coal mine in the Waterberg to supply Sasol?s potential new 80 000 barrels per day inland coal-to-liquids facility (Project Mafutha). Project Mafutha is still in a pre-feasibility study phase. The activities on the project have been scaled down pending the satisfactory outcome on work relating to primary areas such as gasification demonstration testing and the government?s participation and support for the project..
The integrated infrastructure plan for the Waterberg coalfields is being implemented with relevant stakeholders to provide for the supply of raw water to the area as well as rail, road and housing requirements.
The sintel char plant at Grootegeluk mine to produce reductants for the ferroalloy industry has been fully commissioned with all four retorts in operation. Exxaro is progressing its evaluation of the phase 2 expansion to produce a further 140ktpa of char as well as a bankable feasibility study to produce market coke from semi-soft coking coal at Grootegeluk. These studies are now only expected to be completed during the first half of 2012.
The bankable feasibility study which includes comprehensive specialist studies as required by relevant environmental and water legislation in respect of the Belfast project are still in process and will be submitted to the relevant authorities in the fourth quarter of 2011. Start-up and first production is still anticipated in 2014.
Exploration of the hard coking coal resource on the Moranbah South properties in the Bowen Basin of Queensland, Australia is continuing, with the joint venture partners still targeting conclusion of the feasibility study in the latter part of 2012. This project is a 50% joint venture with Anglo American and has the potential to produce premium-quality hard coking coal.
Energy
The initiative to form an energy company with equity funding partners to focus on a number of cleaner energy projects has progressed well with short-listed potential strategic equity partners conducting their respective due diligence studies on a number of existing energy projects
A bankable feasibility study for a 14MW co-generation plant at Namakwa Sands has been completed. Construction is scheduled to start in January 2012 with commercial operation anticipated to be in November 2012. The total capital expenditure for the project is estimated to be R252 million, with registration for carbon credits under way.
The pre-feasibility study for the 60MW co-generation plant at Grootegeluk mine is in the final stages and is expected to be completed by end 2011. This market coke co-generation operation has the potential to produce electricity from coke oven off-gas.
Gas is now being flared from all five holes of the five-spot coal bed methane project in Botswana, with an increasingly positive indication of the potential for economic gas flow to be proven. It is expected to have a much clearer indication of the potential for economic gas flow by the end of 2011.
The facilitation for the development of a 600MW coal fired power station in the Waterberg is under way. Non-binding term sheets for the off-take of 1 150MW of electricity have been signed between Exxaro and industrial off-takers as previously reported. The project is one of the options being investigated to enable the Thabametsi Coal mine near Grootegeluk. While the pre-feasibility study has progressed, a formal request for proposal for a 600MW coal-fired base-load power station was issued to IPPs on 14 June 2011. Evaluation and selection to short-list the IPPs has commenced in order to select the preferred IPP by end of 2011.
Mineral Sands
A decision was taken by the Exxaro board of directors to proceed with the development of the Fairbreeze mine as a replacement feedstock producer for Hillendale mine at KZN Sands during the first half of 2011. Detailed design has commenced on the Fairbreeze project and construction is expected to commence in the second half of 2011, subject to customary regulatory and environmental approvals. These are expected to be obtained in the second half of 2011. A reversal or partial reversal of the previous impairments of the carrying value of the assets at KZN Sands will also be considered in the second half of 2011. The Hillendale ore body will be depleted by the end of 2012 after which the plant will be relocated to a central position at Fairbreeze. The commissioning is anticipated to occur in the first half of 2014.
Ferrous
Exxaro made an off-market takeover bid for Australian junior miner Territory Resources on 23 May 2011 of A$0,46 per share. The majority of Territory?s Board supported Exxaro?s offer, however, this was overturned when Noble Resources, the biggest shareholder of Territory at 32%, made a A$0,50 per share, unconditional on-market counter offer for the company on 9 June 2011. Exxaro declined the opportunity to raise its offer. The group continues to evaluate opportunities aligned with its strategy to establish a direct footprint in iron ore.
The construction of the 5,3m diameter ferromanganese furnace (Project Letaba), in partnership with Assmang Limited to commercialise Exxaro?s AlloystreamTM technology, is progressing as planned. The demonstration facility is still scheduled to be completed in the second half of 2011.
Base Metals
The formal process to divest from Exxaro?s zinc business commenced in May 2011 with invitations being sent to interested parties. Exxaro received indicative offers for only Rosh Pinah mine from a number of parties who were subsequently shortlisted to conduct a detailed due diligence with the view to submit final binding bids. It is planned to have the process completed by the end of 2011 subject to obtaining certain regulatory approvals. No offers were received for the Zincor operation.. In the meantime, the Zincor operation has been appropriately impaired as a result of significant changes in the manner in which the asset is expected to be used coupled with a reassessment of the asset?s carrying value subsequent to the announcement made on 29 July 2011.
Ends