Exxaro Resources Ltd Annual Report 2008

Plain-text annual report

ADMINISTRATION Secretary and registered ofﬁ ce MS Viljoen Exxaro Resources Limited Roger Dyason Road Pretoria West Pretoria 0183 PO Box 9229, Pretoria 0001 South Africa Telephone +27 12 307 5000 Company registration number: 2000/011076/06 JSE share code: EXX ISIN code: ZAE000084992 Auditors Deloitte & Touche Private Bag X6 Gallo Manor 2052 Commercial bankers Absa Bank Limited SHAREHOLDERS’ DIARY FINANCIAL YEAR-END ANNUAL GENERAL MEETING REPORTS AND ACCOUNTS Announcement of annual results Annual Report Interim report for the half-year ending 30 June DISTRIBUTION Final dividend declaration Payment Interim dividend declaration Payment Corporate law advisers CLS Consulting Services (Pty) Limited United States ADR Depositary The Bank of New York 101 Barclay Street New York NY 10286 United States of America Sponsor Deutsche Securities (SA) (Pty) Limited 3 Exchange Square 87 Maude Street Sandton 2196 Registrars Computershare Investor Services (Pty) Limited Ground Floor, 70 Marshall Street Johannesburg, 2001 PO Box 61051 Marshalltown 2107 31 December April/May Published February March August February March August September The front section of this document is printed on Magno Matt paper. This paper only uses wood from sustainable forests, is manufactured from TCF (totally chlorine free) pulp and is acid free. The back section of this document is printed on Cartridge 120gsm. A minimum of 30% ﬁ bre used in making this paper comes from well-managed forests independently certiﬁ ed according to the rules of the Forest Stewardship Council. Carbon offset The carbon footprint arising from the paper production, printing and distribution of this annual report will be assessed and offset by installing one solar geyser at a charitable organisation by December 2009. We will disclose this information in our next report. BASTION GRAPHICS POWERING POSSIBILITY EXXARO CORPORATE CENTRE Pretoria, South Africa P: +27 12 307 5000 F: +27 12 307 4760 Roger Dyason Road, Pretoria West 0183, South Africa PO Box 9229, Pretoria 0001, South Africa www.exxaro.com E X X A R O A N N U A L R E P O R T 2 0 0 8 POWERING POSSIBILITY WHAT DRIVES EXXARO VISION Through our innovation and growth, we will be a powerful source of endless possibilities. MISSION We create unrivalled value for all stakeholders of our diversiﬁ ed resources business through our processes, thinking and passion. VALUES EMPOWERED TO GROW AND CONTRIBUTE TEAMWORK COMMITTED TO EXCELLENCE HONEST RESPONSIBILITY Developing and deploying our knowledge and ingenuity to achieve our vision. We focus on people, create freedom to innovate and collaborate, respect individuality, have fun and rise to challenges. We succeed together through a climate of respect and equality. We take ownership, provide visible leadership and encourage collaboration, commitment and creativity for the beneﬁ t of all. We speak the truth and accept accountability for our actions. ANNUAL REPORT 2008 COVER PICTURE: Safety: Plant operator Eric Mashaba is part of the team at North Block Complex mine which was Proﬁ tability: The performance turnaround named best-performing coal mine in South Africa by the of KZN Sands was assisted by mineral sands South African Colliery Managers’ Association in recognition of technology expertise acquired with the 26 years of fatality-free shifts (page 13). Namakwa Sands transaction. THE EXXARO GROUP With assets of R23 billion, Exxaro is one of the top 40 companies on the JSE Limited (JSE) by market capitalisation, and a constituent of the JSE’s Socially Responsible Investment index. Exxaro is a diverse mineral resources group – with a portfolio spanning coal, mineral sands, base metals and iron ore – and operates in South Africa, Australia and Namibia. Reﬂ ecting the beneﬁ ts of this diverse portfolio, Exxaro has an unfolding pipeline of growth projects that is arguably among the best in its peer group. The group’s strong positioning in each of its chosen commodity markets, locally or internationally, record of innovation and focus on sustainable development underpin its promise to change the face of mining. ABOUT THIS REPORT Guided by consultation with stakeholders, Exxaro produces an integrated annual report detailing our economic, social and environmental performance. Following feedback on earlier reports, we have repositioned all content relating to sustainable development in a dedicated section. So, while sustainable development is inextricably woven through our operations and our reporting, interested readers will ﬁ nd all the information required in the governance and sustainability section. In addition, case studies that illustrate our approach are available on our website and indicated in this report by for ease of reference. To facilitate discussion with stakeholders on Exxaro’s corporate reporting, particularly this annual report, a blog will be run during April 2009. You are invited to participate on www.exxaro.com www.exxaro.com ADMINISTRATION Secretary and registered office MS Viljoen Exxaro Resources Limited Roger Dyason Road Pretoria West Pretoria 0183 PO Box 9229, Pretoria 0001 South Africa Telephone +27 12 307 5000 Company registration number: 2000/011076/06 JSE share code: EXX ISIN code: ZAE000084992 Auditors Deloitte & Touche Private Bag X6 Gallo Manor 2052 Commercial bankers Absa Bank Limited SHAREHOLDERS’ DIARy FINANCIAL YEAR-END ANNUAL GENERAL MEETING REPORTS AND ACCOUNTS Announcement of annual results Annual Report Interim report for the half-year ending 30 June DISTRIBUTION Final dividend declaration Payment Interim dividend declaration Payment Corporate law advisers CLS Consulting Services (Pty) Limited United States ADR Depositary The Bank of New York 101 Barclay Street New York NY 10286 United States of America Sponsor Deutsche Securities (SA) (Pty) Limited 3 Exchange Square 87 Maude Street Sandton 2196 Registrars Computershare Investor Services (Pty) Limited Ground Floor, 70 Marshall Street Johannesburg, 2001 PO Box 61051 Marshalltown 2107 31 December April/May Published February March August February March August September The front section of this document is printed on Magno Matt paper. This paper only uses wood from sustainable forests, is manufactured from TCF (totally chlorine free) pulp and is acid free. The back section of this document is printed on Cartridge 120gsm. A minimum of 30% fibre used in making this paper comes from well-managed forests independently certified according to the rules of the Forest Stewardship Council. Carbon offset The carbon footprint arising from the paper production, printing and distribution of this annual report will be assessed and offset by installing one solar geyser at a charitable organisation by December 2009. We will disclose this information in our next report. BASTION GRAPHICS POWERING POSSIBILITY EXXARO CORPORATE CENTRE Pretoria, South Africa P: +27 12 307 5000 F: +27 12 307 4760 Roger Dyason Road, Pretoria West 0183, South Africa PO Box 9229, Pretoria 0001, South Africa www.exxaro.com E X X A R O A N N U A L R E P O R T 2 0 0 8 POWERING POSSIBILITY WHAT DRIVES EXXARO VISION Through our innovation and growth, we will be a powerful source of endless possibilities. MISSION We create unrivalled value for all stakeholders of our diversified resources business through our processes, thinking and passion. VALUES EMPOWERED TO gROW AND CONTRIBUTE TEAMWORK COMMITTED TO EXCELLENCE HONEST RESPONSIBILITy Developing and deploying our knowledge and ingenuity to achieve our vision. We focus on people, create freedom to innovate and collaborate, respect individuality, have fun and rise to challenges. We succeed together through a climate of respect and equality. We take ownership, provide visible leadership and encourage collaboration, commitment and creativity for the benefit of all. We speak the truth and accept accountability for our actions. ANNUAL REPORT 2008 COVER PICTURE: Safety: Plant operator Eric Mashaba is part of the team at North Block Complex mine which was Profitability: The performance turnaround named best-performing coal mine in South Africa by the of KZN Sands was assisted by mineral sands South African Colliery Managers’ Association in recognition of technology expertise acquired with the 26 years of fatality-free shifts (page 13). Namakwa Sands transaction. THE EXXARO gROUP With assets of R23 billion, Exxaro is one of the top 40 companies on the JSE Limited (JSE) by market capitalisation, and a constituent of the JSE’s Socially Responsible Investment index. Exxaro is a diverse mineral resources group – with a portfolio spanning coal, mineral sands, base metals and iron ore – and operates in South Africa, Australia and Namibia. Reflecting the benefits of this diverse portfolio, Exxaro has an unfolding pipeline of growth projects that is arguably among the best in its peer group. The group’s strong positioning in each of its chosen commodity markets, locally or internationally, record of innovation and focus on sustainable development underpin its promise to change the face of mining. ABOUT THIS REPORT Guided by consultation with stakeholders, Exxaro produces an integrated annual report detailing our economic, social and environmental performance. Following feedback on earlier reports, we have repositioned all content relating to sustainable development in a dedicated section. So, while sustainable development is inextricably woven through our operations and our reporting, interested readers will find all the information required in the governance and sustainability section. In addition, case studies that illustrate our approach are available on our website and indicated in this report by for ease of reference. To facilitate discussion with stakeholders on Exxaro’s corporate reporting, particularly this annual report, a blog will be run during April 2009. You are invited to participate on www.exxaro.com www.exxaro.com POWERING POSSIBILITY ADMINISTRATION Secretary and registered office MS Viljoen Exxaro Resources Limited Roger Dyason Road Pretoria West Pretoria 0183 PO Box 9229, Pretoria 0001 South Africa Telephone +27 12 307 5000 Company registration number: 2000/011076/06 JSE share code: EXX ISIN code: ZAE000084992 Auditors Deloitte & Touche Private Bag X6 Gallo Manor 2052 Commercial bankers Absa Bank Limited SHAREHOLDERS’ DIARy FINANCIAL YEAR-END ANNUAL GENERAL MEETING REPORTS AND ACCOUNTS Announcement of annual results Annual Report Interim report for the half-year ending 30 June DISTRIBUTION Final dividend declaration Payment Interim dividend declaration Payment Corporate law advisers CLS Consulting Services (Pty) Limited United States ADR Depositary The Bank of New York 101 Barclay Street New York NY 10286 United States of America Sponsor Deutsche Securities (SA) (Pty) Limited 3 Exchange Square 87 Maude Street Sandton 2196 Registrars Computershare Investor Services (Pty) Limited Ground Floor, 70 Marshall Street Johannesburg, 2001 PO Box 61051 Marshalltown 2107 31 December April/May Published February March August February March August September The front section of this document is printed on Magno Matt paper. This paper only uses wood from sustainable forests, is manufactured from TCF (totally chlorine free) pulp and is acid free. The back section of this document is printed on Cartridge 120gsm. A minimum of 30% fibre used in making this paper comes from well-managed forests independently certified according to the rules of the Forest Stewardship Council. Carbon offset The carbon footprint arising from the paper production, printing and distribution of this annual report will be assessed and offset by installing one solar geyser at a charitable organisation by December 2009. We will disclose this information in our next report. BASTION GRAPHICS POWERING POSSIBILITY EXXARO CORPORATE CENTRE Pretoria, South Africa P: +27 12 307 5000 F: +27 12 307 4760 Roger Dyason Road, Pretoria West 0183, South Africa PO Box 9229, Pretoria 0001, South Africa www.exxaro.com E X X A R O A N N U A L R E P O R T 2 0 0 8 POWERING POSSIBILITY WHAT DRIVES EXXARO VISION Through our innovation and growth, we will be a powerful source of endless possibilities. MISSION We create unrivalled value for all stakeholders of our diversified resources business through our processes, thinking and passion. VALUES EMPOWERED TO gROW AND CONTRIBUTE TEAMWORK COMMITTED TO EXCELLENCE HONEST RESPONSIBILITy Developing and deploying our knowledge and ingenuity to achieve our vision. We focus on people, create freedom to innovate and collaborate, respect individuality, have fun and rise to challenges. We succeed together through a climate of respect and equality. We take ownership, provide visible leadership and encourage collaboration, commitment and creativity for the benefit of all. We speak the truth and accept accountability for our actions. ANNUAL REPORT 2008 COVER PICTURE: Safety: Plant operator Eric Mashaba is part of the team at North Block Complex mine which was Profitability: The performance turnaround named best-performing coal mine in South Africa by the of KZN Sands was assisted by mineral sands South African Colliery Managers’ Association in recognition of technology expertise acquired with the 26 years of fatality-free shifts (page 13). Namakwa Sands transaction. THE EXXARO gROUP With assets of R23 billion, Exxaro is one of the top 40 companies on the JSE Limited (JSE) by market capitalisation, and a constituent of the JSE’s Socially Responsible Investment index. Exxaro is a diverse mineral resources group – with a portfolio spanning coal, mineral sands, base metals and iron ore – and operates in South Africa, Australia and Namibia. Reflecting the benefits of this diverse portfolio, Exxaro has an unfolding pipeline of growth projects that is arguably among the best in its peer group. The group’s strong positioning in each of its chosen commodity markets, locally or internationally, record of innovation and focus on sustainable development underpin its promise to change the face of mining. ABOUT THIS REPORT Guided by consultation with stakeholders, Exxaro produces an integrated annual report detailing our economic, social and environmental performance. Following feedback on earlier reports, we have repositioned all content relating to sustainable development in a dedicated section. So, while sustainable development is inextricably woven through our operations and our reporting, interested readers will find all the information required in the governance and sustainability section. In addition, case studies that illustrate our approach are available on our website and indicated in this report by for ease of reference. To facilitate discussion with stakeholders on Exxaro’s corporate reporting, particularly this annual report, a blog will be run during April 2009. You are invited to participate on www.exxaro.com www.exxaro.com POWERING POSSIBILITY CONTENTS gROUP AT A gLANCE gROUP IN BRIEF Inside flap What drives Exxaro Inside flap Group at a glance 1 Highlights and lowlights 1 Group structure 2 Business objectives 3 Comparable key ratios 3 Creating value for all stakeholders 4 Geographical locations 6 Comparable group review at a glance 8 Summary of business operations 10 Focus areas 12 Chief executive officer’s review 18 Macro-economic and commodity review 22 Financial review 32 Business operations review 43 Growth 46 Review of mineral resources and reserves 56 Executive committee 58 Directorate gOVERNANCE & SUSTAINABILITy 62 Corporate governance 69 Shareholder information 70 Shareholders’ analysis 72 Risk management 74 Sustainable development 81 SHE performance 92 Economic performance 95 Social performance 104 Society 107 Legislative compliance/mining charter scorecard 110 Independent assurance statement to the directors and management of Exxaro Resources Limited 113 GRI indicator index SUPPLEMENTARy FINANCIAL INFORMATION 115 Group cash value added financial statements 116 Supplementary financial information 118 Selected group financial data translated into US dollars 120 Definitions FINANCIAL STATEMENTS 122 Annual financial statements ADMINISTRATION 230 Notice of annual general meeting 233 Biographies of directors up for re-election 235 Form of proxy IBC Administration and shareholders’ diary BUSINESSES Eight managed coal mines produce 44,8Mtpa of power station, steam and coking coal. All power station coal produced is supplied to the national power utility, Eskom. Grootegeluk is one of the most efficient mining operations in the world, and operates the world’s largest coal beneficiation complex. There is a strong pipeline of greenfield and expansion projects under way that will culminate in Exxaro becoming one of the largest coal Coal producers in South Africa. 2008 COMPARABLE CONTRIBUTION TO GROUP REVENUE 60% R9 040 million OPERATIONS REGIONAL LOCATION OWNERSHIP PRODUCTS Grootegeluk mine Limpopo Division of Exxaro Coal (Pty) Limited Leeuwpan mine Mpumalanga Division of Exxaro Coal (Pty) Limited Tshikondeni mine Limpopo Division of Exxaro Coal (Pty) Limited Power station coal (Eskom) Semi-soft coking coal Steam coal Power station coal (Eskom) Steam coal Coking coal (ArcelorMittal) Mafube coal1 Inyanda mine Mpumalanga Mpumalanga Division of Exxaro Coal (Pty) Limited Steam coal Division of Exxaro Coal (Pty) Limited Steam coal Exxaro reductants Limpopo Division of Exxaro Coal (Pty) Limited Steam coal Arnot mine Matla mine Mpumalanga Mpumalanga New Clydesdale mine Mpumalanga North Block Complex Mpumalanga Division of Exxaro Coal Mpumalanga (Pty) Limited Division of Exxaro Coal Mpumalanga (Pty) Limited Division of Exxaro Coal Mpumalanga (Pty) Limited Division of Exxaro Coal Mpumalanga (Pty) Limited Power station coal (Eskom) Power station coal (Eskom) Power station coal (Eskom) Steam coal Power station coal (Eskom) Steam coal Exxaro’s South African mineral sands operations are 28% R4 142 million Mineral Sands – RSA KwaZulu-Natal Mineral sands housed in KZN Sands and the Western Cape operations of Namakwa Sands. In Australia, our interests are housed in Australia Sands whose principal asset is 50% of the Tiwest joint venture with Tronox Inc. With the acquisition of Namakwa Sands effective 1 October 2008, Exxaro is now one of the world’s largest suppliers of titanium dioxide feedstock and zircon. Collectively, Exxaro’s mineral sands operations produced 272kt of slag, 193kt of zircon, 113kt of synthetic rutile and 43kt of pigment in 2008. Namakwa Sands Northern Cape Australia Sands2 Australia Subsidiaries of Exxaro Resources Limited and a division of Exxaro TSA Sands (Pty) Limited Ilmenite Zircon Rutile Pig iron Chloride slag Sulphate slag Division of Exxaro TSA Sands (Pty) Limited Zircon Rutile Pig iron Chloride slag Sulphate slag Zircon Rutile Synthetic rutile Leucoxene Subsidiary of Exxaro Resources Limited The Rosh Pinah zinc/lead mine in southern Namibia and 12% R1 829 million* Zincor refinery Base metals in the world. Exxaro has an interest in the Chifeng zinc the Zincor electrolytic refinery in Gauteng comprise one of the few integrated zinc mining and refinery operations Rosh Pinah mine Gauteng Namibia Division of Exxaro Base Metals (Pty) Limited Subsidiary of Exxaro Base Metals (Namibia) (Pty) Limited (50,04%) Chifeng refinery3 China Associate (22,00%) Black Mountain Mining (Pty) Limited Northern Cape Associate (26,00%) * Excludes industrial minerals Glen Douglas mine Gauteng Subsidiary of Exxaro Resources Limited FerroAlloys Gauteng Subsidiary of Exxaro Resources Limited Atomised ferrosilicon Sishen mine4 Northern Cape Thabazimbi mine4 Limpopo Division of Sishen Iron Ore Company (Pty) Limited Division of Sishen Iron Ore Company (Pty) Limited Lump ore Fine ore Lump ore Fine ore Zinc metal Sulphuric acid Zinc concentrate Lead concentrate Zinc metal Sulphuric acid Zinc concentrate Lead concentrate Metallurgical dolomite Aggregate Lime and Industrial minerals INVESTMENTS Iron ore refinery in China. During the year, Rosh Pinah and Zincor produced 109kt of zinc concentrate and 87kt of zinc metal respectively. A dedicated plant in Pretoria manufactures high-quality, gas-atomised ferrosilicon, while the Glen Douglas dolomite quarry provides a range of products for the steel, construction and agricultural sectors. Exxaro holds 20% of Sishen Iron Ore Company (Pty) Limited. The company operates the Sishen and Thabazimbi mines, producing some 34Mtpa of lumpy and fine iron ore, two-thirds of which is exported. Sishen is one of the largest single open-pit mines in the world, known for its high grade and consistent product quality. 1 Sales tonnes disclosed reflect Exxaro Coal’s 50% of the Mafube expansion project. 2 Sales tonnes disclosed reflect Exxaro Australia Sands’ 50% interest in the Tiwest joint venture. 3 Sales tonnes disclosed represent the effective interest in the physical information of the Chifeng (Hongye) refinery. 4 Sales tonnes disclosed represent the effective interest in the physical information of Sishen Iron Ore Company (Pty) Limited. NFD – Not for disclosure SALES FOR 12 MONTHS TO DECEMBER 2008 000 TONNES % EXPORTS 14 374 2 172 1 482 1 216 1 605 352 639 788 57 4 865 13 189 184 864 2 427 560 40 36 14 64 101 17 135 27 82 145 26 35 14 62 17 98 115 86 22 28 11 NFD NFD 419 756 66 6 3 715 2 387 228 280 15 19 24 100 81 89 70 95 100 100 100 70 100 100 85 100 100 100 100 100 100 100 100 76 91 CONTENTS gROUP AT A gLANCE gROUP IN BRIEF Inside flap What drives Exxaro Inside flap Group at a glance 1 Highlights and lowlights 1 Group structure 2 Business objectives 3 Comparable key ratios 3 Creating value for all stakeholders 4 Geographical locations 6 Comparable group review at a glance 8 Summary of business operations 10 Focus areas 12 Chief executive officer’s review 18 Macro-economic and commodity review 22 Financial review 32 Business operations review 43 Growth 46 Review of mineral resources and reserves 56 Executive committee 58 Directorate gOVERNANCE & SUSTAINABILITy 62 Corporate governance 69 Shareholder information 70 Shareholders’ analysis 72 Risk management 74 Sustainable development 81 SHE performance 92 Economic performance 95 Social performance 104 Society 107 Legislative compliance/mining charter scorecard 110 Independent assurance statement to the directors and management of Exxaro Resources Limited 113 GRI indicator index SUPPLEMENTARy FINANCIAL INFORMATION 115 Group cash value added financial statements 116 Supplementary financial information 118 Selected group financial data translated into US dollars 120 Definitions FINANCIAL STATEMENTS 122 Annual financial statements ADMINISTRATION 230 Notice of annual general meeting 233 Biographies of directors up for re-election 235 Form of proxy IBC Administration and shareholders’ diary BUSINESSES Eight managed coal mines produce 44,8Mtpa of power station, steam and coking coal. All power station coal produced is supplied to the national power utility, Eskom. Grootegeluk is one of the most efficient mining operations in the world, and operates the world’s largest coal beneficiation complex. There is a strong pipeline of greenfield and expansion projects under way that will culminate in Exxaro becoming one of the largest coal Coal producers in South Africa. 2008 COMPARABLE CONTRIBUTION TO GROUP REVENUE 60% R9 040 million OPERATIONS REGIONAL LOCATION OWNERSHIP PRODUCTS Grootegeluk mine Limpopo Division of Exxaro Coal (Pty) Limited Leeuwpan mine Mpumalanga Division of Exxaro Coal (Pty) Limited Tshikondeni mine Limpopo Division of Exxaro Coal (Pty) Limited Power station coal (Eskom) Semi-soft coking coal Steam coal Power station coal (Eskom) Steam coal Coking coal (ArcelorMittal) Mafube coal1 Inyanda mine Mpumalanga Mpumalanga Division of Exxaro Coal (Pty) Limited Steam coal Division of Exxaro Coal (Pty) Limited Steam coal Exxaro reductants Limpopo Division of Exxaro Coal (Pty) Limited Steam coal Arnot mine Matla mine Mpumalanga Mpumalanga New Clydesdale mine Mpumalanga North Block Complex Mpumalanga Division of Exxaro Coal Mpumalanga (Pty) Limited Division of Exxaro Coal Mpumalanga (Pty) Limited Division of Exxaro Coal Mpumalanga (Pty) Limited Division of Exxaro Coal Mpumalanga (Pty) Limited Power station coal (Eskom) Power station coal (Eskom) Power station coal (Eskom) Steam coal Power station coal (Eskom) Steam coal Exxaro’s South African mineral sands operations are 28% R4 142 million Mineral Sands – RSA KwaZulu-Natal Mineral sands housed in KZN Sands and the Western Cape operations of Namakwa Sands. In Australia, our interests are housed in Australia Sands whose principal asset is 50% of the Tiwest joint venture with Tronox Inc. With the acquisition of Namakwa Sands effective 1 October 2008, Exxaro is now one of the world’s largest suppliers of titanium dioxide feedstock and zircon. Collectively, Exxaro’s mineral sands operations produced 272kt of slag, 193kt of zircon, 113kt of synthetic rutile and 43kt of pigment in 2008. Namakwa Sands Northern Cape Australia Sands2 Australia Subsidiaries of Exxaro Resources Limited and a division of Exxaro TSA Sands (Pty) Limited Ilmenite Zircon Rutile Pig iron Chloride slag Sulphate slag Division of Exxaro TSA Sands (Pty) Limited Zircon Rutile Pig iron Chloride slag Sulphate slag Zircon Rutile Synthetic rutile Leucoxene Subsidiary of Exxaro Resources Limited The Rosh Pinah zinc/lead mine in southern Namibia and 12% R1 829 million* Zincor refinery Base metals in the world. Exxaro has an interest in the Chifeng zinc the Zincor electrolytic refinery in Gauteng comprise one of the few integrated zinc mining and refinery operations Rosh Pinah mine Gauteng Namibia Division of Exxaro Base Metals (Pty) Limited Subsidiary of Exxaro Base Metals (Namibia) (Pty) Limited (50,04%) Chifeng refinery3 China Associate (22,00%) Black Mountain Mining (Pty) Limited Northern Cape Associate (26,00%) * Excludes industrial minerals Glen Douglas mine Gauteng Subsidiary of Exxaro Resources Limited FerroAlloys Gauteng Subsidiary of Exxaro Resources Limited Atomised ferrosilicon Sishen mine4 Northern Cape Thabazimbi mine4 Limpopo Division of Sishen Iron Ore Company (Pty) Limited Division of Sishen Iron Ore Company (Pty) Limited Lump ore Fine ore Lump ore Fine ore Zinc metal Sulphuric acid Zinc concentrate Lead concentrate Zinc metal Sulphuric acid Zinc concentrate Lead concentrate Metallurgical dolomite Aggregate Lime and Industrial minerals INVESTMENTS Iron ore refinery in China. During the year, Rosh Pinah and Zincor produced 109kt of zinc concentrate and 87kt of zinc metal respectively. A dedicated plant in Pretoria manufactures high-quality, gas-atomised ferrosilicon, while the Glen Douglas dolomite quarry provides a range of products for the steel, construction and agricultural sectors. Exxaro holds 20% of Sishen Iron Ore Company (Pty) Limited. The company operates the Sishen and Thabazimbi mines, producing some 34Mtpa of lumpy and fine iron ore, two-thirds of which is exported. Sishen is one of the largest single open-pit mines in the world, known for its high grade and consistent product quality. 1 Sales tonnes disclosed reflect Exxaro Coal’s 50% of the Mafube expansion project. 2 Sales tonnes disclosed reflect Exxaro Australia Sands’ 50% interest in the Tiwest joint venture. 3 Sales tonnes disclosed represent the effective interest in the physical information of the Chifeng (Hongye) refinery. 4 Sales tonnes disclosed represent the effective interest in the physical information of Sishen Iron Ore Company (Pty) Limited. NFD – Not for disclosure SALES FOR 12 MONTHS TO DECEMBER 2008 000 TONNES % EXPORTS 14 374 2 172 1 482 1 216 1 605 352 639 788 57 4 865 13 189 184 864 2 427 560 40 36 14 64 101 17 135 27 82 145 26 35 14 62 17 98 115 86 22 28 11 NFD NFD 419 756 66 6 3 715 2 387 228 280 15 19 24 100 81 89 70 95 100 100 100 70 100 100 85 100 100 100 100 100 100 100 100 76 91 HIGHLIGHTS Record results from coal Significant proﬁ t contribution from mineral sands Acquisition of Namakwa Sands places Exxaro among global leaders in integrated mineral sands market Good progress on conversion of mining rights Mining charter targets exceeded for race and gender, 30% increase in learnerships Reinforced safety policy and corporate standards implemented LOWLIGHTS Disappointing safety performance Operating loss from base metals and Australia Sands GROUP STRUCTURE 15% Industrial Development Corporation 55% 9,5% Eyesizwe Eyabantu 9,5% Tiso 11% Basadi Ba Kopane Anglo American plc* BEE Holdco 52,54% Exxaro MPOWER# 2,99% Minorities (free ﬂ oat) 9,78% 100% 100% 100% As at 31 December 2008 * Held through Anglo South Africa Capital (Pty) Ltd. These are special purpose vehicles for shareholders in our black-owned holding company. # Employee share ownership programme. d e m r o f r e p e w w o H 34,69% 20% SISHEN IRON ORE COMPANY E x x a r o A n n u a l R e p o r t 2 0 0 8 I 1 BUSINESS OBJECTIVES Exxaro’s business objectives are measurable indicators of performance. At every level, and in different ways, our teams are accountable for these objectives. Exxaro Kumba Target Target Actual 2009 2008 2008 Actual 2007 Actual Actual Actual 2006 2005 2004 FINANCIAL TARGETS1 • Return on equity (ROE) (%) • Return on capital employed (ROCE) (%) • EBITDA interest cover (times) >4 NON-FINANCIAL TARGETS 25 28 >4 30 36 14 15 24 9 33 59 20 12 17 7 8 28 12 40 5,7 16 • Safety – fatalities – lost-time injury frequency rate (per 200 000 hours) • Safety, health and environmental certiﬁ cation (OHSAS 18001 and ISO 14000) (number of business units) • Employment equity – management (%) – women (%) • HIV/Aids voluntary testing and 0 0 5 5 6 4 2 0,21 0,21 0,39 0,36 0,42 0,52 0,51* 15 40 12 95 15 40 12 at least 9 36 12 10 35 11 10 32 13 9 42 13 64 counselling (%) (longer 50% at • Human resources development (% spend of payroll) • Mining learnerships • Procurement from HDSA companies (%) • HDSA ownership (%) 2008 2014 term) each site (group) 30 41 54 6,0 40 56 56 5,2 678 39 56 56 6,5 408 35 56 56 45 56 56 5,1 341 37 6,3 503 24 56 56 1 Financial targets are set with reference to a peer group of companies while actual ratios are based on statutory ﬁ nancial results that have not been restated for comparable purposes. Comparable key ratios are shown on page 3. No ﬁ nancial ratios are reported for 2006 as the empowerment transaction that led to the creation of Exxaro in November 2006 resulted in the ratios not been meaningful. Certain ﬁ nancial targets for 2009 will only be ﬁ nalised in the ﬁ rst quarter of 2009 due to the signiﬁ cant impact of the global economic meltdown in the second half of 2008. 2 I E x x a r o A n n u a l R e p o r t 2 0 0 8 COMPARABLE KEY RATIOS RATIOS Proﬁ tability and asset management Return on net assets (%) Return on equity attributable to owners of the parent – Attributable earnings (%) – Headline earnings (%) Return on invested capital (%) Return on capital employed (%) Operating margin (%) Solvency and liquidity Net ﬁ nancing cost cover (times) – EBIT Net ﬁ nancing cost cover (times) – EBITDA Current ratio (times) Net debt to equity (%) Net debt to earnings before interest, tax, depreciation and amortisation (times) Number of years to repay interest-bearing debt 12 months ended 31 December 2008 2007 39 30 32 28 34 19 6 9 2 18 0,6 1 24 14 14 16 20 14 4 6 3 31 1,2 2 Key ratios for 2007 and 2008 have been restated for comparable purposes to include Namakwa Sands as well as the equity- accounted 26% interest in Black Mountain Mining (Pty) Limited as if effective from 1 January 2007. WE CREATE VALUE FOR ALL STAKEHOLDERS (cid:58)(cid:88)(cid:106)(cid:95)(cid:23)(cid:91)(cid:96)(cid:106)(cid:89)(cid:108)(cid:105)(cid:106)(cid:92)(cid:91)(cid:23)(cid:88)(cid:100)(cid:102)(cid:101)(cid:94)(cid:23) (cid:106)(cid:107)(cid:88)(cid:98)(cid:92)(cid:95)(cid:102)(cid:99)(cid:91)(cid:92)(cid:105)(cid:106)(cid:23)(cid:41)(cid:39)(cid:39)(cid:47) (cid:58)(cid:88)(cid:106)(cid:95)(cid:23)(cid:91)(cid:96)(cid:106)(cid:89)(cid:108)(cid:105)(cid:106)(cid:92)(cid:91)(cid:23)(cid:88)(cid:100)(cid:102)(cid:101)(cid:94)(cid:23) (cid:106)(cid:107)(cid:88)(cid:98)(cid:92)(cid:95)(cid:102)(cid:99)(cid:91)(cid:92)(cid:105)(cid:106)(cid:23)(cid:41)(cid:39)(cid:39)(cid:46) (cid:41)(cid:40)(cid:28) (cid:46)(cid:28) (cid:40)(cid:39)(cid:28) (cid:46)(cid:28) (cid:46)(cid:28) (cid:40)(cid:43)(cid:28) (cid:45)(cid:41)(cid:28) (cid:46)(cid:41)(cid:28) ■(cid:23)(cid:23)(cid:73)(cid:92)(cid:100)(cid:108)(cid:101)(cid:92)(cid:105)(cid:88)(cid:107)(cid:92)(cid:23)(cid:92)(cid:100)(cid:103)(cid:99)(cid:102)(cid:112)(cid:92)(cid:92)(cid:106)(cid:23)(cid:93)(cid:102)(cid:105)(cid:23)(cid:106)(cid:92)(cid:105)(cid:109)(cid:96)(cid:90)(cid:92)(cid:106)(cid:23) ■(cid:23)(cid:23)(cid:71)(cid:88)(cid:112)(cid:23)(cid:91)(cid:96)(cid:105)(cid:92)(cid:90)(cid:107)(cid:23)(cid:107)(cid:88)(cid:111)(cid:92)(cid:106)(cid:23)(cid:107)(cid:102)(cid:23)(cid:107)(cid:95)(cid:92)(cid:23)(cid:106)(cid:107)(cid:88)(cid:107)(cid:92) ■(cid:23)(cid:23)(cid:71)(cid:105)(cid:102)(cid:109)(cid:96)(cid:91)(cid:92)(cid:23)(cid:99)(cid:92)(cid:101)(cid:91)(cid:92)(cid:105)(cid:106)(cid:23)(cid:110)(cid:96)(cid:107)(cid:95)(cid:23)(cid:88)(cid:23)(cid:105)(cid:92)(cid:107)(cid:108)(cid:105)(cid:101)(cid:23)(cid:102)(cid:101)(cid:23)(cid:89)(cid:102)(cid:105)(cid:105)(cid:102)(cid:110)(cid:96)(cid:101)(cid:94)(cid:106)(cid:23) ■(cid:23)(cid:23)(cid:71)(cid:105)(cid:102)(cid:109)(cid:96)(cid:91)(cid:92)(cid:23)(cid:106)(cid:95)(cid:88)(cid:105)(cid:92)(cid:95)(cid:102)(cid:99)(cid:91)(cid:92)(cid:105)(cid:106)(cid:23)(cid:110)(cid:96)(cid:107)(cid:95)(cid:23)(cid:90)(cid:88)(cid:106)(cid:95)(cid:23)(cid:91)(cid:96)(cid:109)(cid:96)(cid:91)(cid:92)(cid:101)(cid:91)(cid:106) (cid:198) We have a multi-stakeholder (cid:198) Commitment to communities approach to business where we operate (cid:198) Track record of value release (cid:198) Supporting national initiatives for shareholders (cid:198) Proud to be an employer of choice (cid:198) Exemplary corporate governance is a hallmark of our business philosophy E x x a r o A n n u a l R e p o r t 2 0 0 8 I 3 GEOGRAPHICAL LOCATIONS Amsterdam Zug CHINA 19 Beijing AUSTRALIA 12 Perth 18 NAMIBIA 20 16 South Africa ■ Operations ● Growth projects ▲ Representative ofﬁ ces 4 I E x x a r o A n n u a l R e p o r t 2 0 0 8 Coal 1 Grootegeluk (GG) 1a GG expansion for Medupi power station Leeuwpan Arnot Matla North Block Complex (NBC) New Clydesdale Tshikondeni Belfast Mmamabula Central (Botswana gas project) Eerstelingsfontein Inyanda Moranbah South Mafube* RBCT Phase V* 2 3 4 5 6 7 8 9 10 11 12 13 14 Mineral sands 15 16 17 18 KZN Sands Toliara Sands Namakwa Sands Australia Sands Base metals and industrial minerals 19 20 21 22 23 24 25 Chifeng Zinc Reﬁ nery* Rosh Pinah Zincor Glen Douglas FerroAlloys Black Mountain* Sishen Iron Ore Company* 23 21 22 GAUTENG MPUMALANGA Middelburg 13 8 Witbank 11 6 5 10 3 4 2 9 1 1a 7 25 14 15 25 24 17 Detailed maps on page 55 * Joint ventures and investments not operationally controlled. t n i r p t o o f o r a x x E e h T E x x a r o A n n u a l R e p o r t 2 0 0 8 I 5 COMPARABLE GROUP REVIEW AT A GLANCE The supplementary information on pages 6 and 7 has been compiled using the following assumptions: – Namakwa Sands was consolidated from 1 January 2007. – the 26% equity interest in Black Mountain Mining (Pty) Limited was equity accounted from 1 January 2007, despite the actual consolidation and equity accounting from 1 October and 1 November 2008 respectively. 12 months ended 31 December 2008 Unaudited Rm 2007 Unaudited Rm 15 209 2 811 (457) 1 603 (546) 24 228 3 663 1 068 375 8,10 2 131 (973) 2 765 3 923 11 449 1 640 (453) 685 (500) (20) 22 1 374 403 160 7,26 1 507 (4 123) (453) (3 069) COMPARABLE INCOME STATEMENTS Revenue Net operating proﬁ t Net ﬁ nancing costs Investment and equity income Income tax expense Minority interest Add back items for headline earnings Headline earnings Headline earnings per share (cents) Dividends per share (cents) Average realised exchange rate (R/US$) COMPARABLE STATEMENTS OF CASH FLOWS Cash ﬂ ows from operating activities Cash ﬂ ows from investing activities Cash ﬂ ows from ﬁ nancing activities Net increase/(decrease) in cash and cash equivalents 6 I E x x a r o A n n u a l R e p o r t 2 0 0 8 GROUP STATEMENTS OF FINANCIAL POSITION Assets Non-current assets Property, plant and equipment Biological assets Intangible assets Investments in associates and joint ventures Deferred tax Financial assets Current assets Cash and cash equivalents Inventories, trade and other receivables Non-current assets classiﬁ ed as held for sale Total assets Equity and liabilities Capital and reserves Equity attributable to owners of the parent Minority interest Total equity Non-current liabilities Interest-bearing borrowings Non-current provisions Financial liabilities Deferred tax Current liabilities Interest-bearing borrowings Other Non-current liabilities classiﬁ ed as held for sale Total equity and liabilities Net debt ANALYSIS PER SHARE Number of shares in issue (million) Weighted average number of shares in issue (million) Earnings per ordinary share – Attributable earnings (cents) – Headline earnings (cents) Dividend declared per ordinary share (cents) Dividend cover (times) Net asset value per ordinary share (cents) Attributable cash ﬂ ow per ordinary share (cents) At 31 December 2008 Unaudited Rm 2007 Unaudited Rm 11 309 10 343 34 79 1 849 1 083 1 577 1 769 5 407 78 30 76 712 732 1 046 850 4 101 2 23 185 17 892 12 996 128 13 124 3 650 1 746 31 1 257 500 2 827 50 23 185 2 381 355 343 1 002 1 068 375 2,67 3 661 681 9 728 19 9 747 3 798 1 414 1 065 74 1 794 17 892 3 022 353 341 396 403 160 2,48 2 756 440 E x x a r o A n n u a l R e p o r t 2 0 0 8 I 7 SUMMARY OF BUSINESS OPERATIONS 000 tonnes produced 2008 2007 2006 2005 12 months ended 31 December 2 560 2 233 327 36 700 14 581 1 188 13 230 4 865 115 2 721 5 574 1 387 1 801 984 561 841 2 962 2 499 463 34 246 14 510 956 2 496 2 133 363 34 599 14 268 921 2 273 1 859 414 34 164 14 060 513 13 030 13 613 12 470 3 702 156 1 892 4 111 1 485 1 421 814 391 3 985 331 1 481 4 665 1 585 1 504 1 107 469 4 976 361 1 784 5 523 1 551 1 442 996 1 534 44 834 41 319 41 760 41 960 229 367 319 356 34 19 50 16 95 18 315 130 27 103 6 135 24 34 17 90 20 150 26 300 115 24 91 11 126 27 50 25 75 10 134 36 272 128 28 83 8 112 23 47 23 89 8 134 30 316 129 29 99 130 25 COAL Coking coal Grootegeluk Tshikondeni Power station coal (Eskom) Grootegeluk Leeuwpan Matla1 Arnot1 New Clydesdale1 North Block Complex1 Steam coal Grootegeluk Leeuwpan New Clydesdale1 North Block Complex1 Inyanda Total coal production KZN SANDS Ilmenite Zircon Rutile Pig iron Scrap pig iron Chloride slag Sulphate slag NAMAKWA SANDS2 Ilmenite Zircon Rutile Pig iron Scrap pig iron Chloride slag Sulphate slag 8 I E x x a r o A n n u a l R e p o r t 2 0 0 8 000 tonnes produced AUSTRALIA SANDS3 Ilmenite Zircon Rutile Synthetic rutile Leucoxene Pigment BASE METALS Rosh Pinah (zinc concentrate) Black Mountain (zinc concentrate)4 Zincor (zinc metal) Zincor (sulphuric acid) Chifeng (zinc metal)5 Rosh Pinah (lead concentrate) Black Mountain (lead concentrate)4 INDUSTRIAL MINERALS Glen Douglas Metallurgical dolomite Aggregate Lime FerroAlloys 12 months ended 31 December 2008 2007 2006 2005 174 29 13 113 16 43 94 15 87 129 23 20 17 422 788 63 216 36 17 100 16 54 95 15 101 147 23 22 15 543 749 54 227 36 18 98 14 54 104 18 90 142 16 21 18 661 672 59 220 35 16 111 12 53 126 17 102 168 15 25 16 689 666 26 Atomised ferrosilicon 6 6 6 6 IRON ORE Sishen6 Thabazimbi6 Total iron ore production 6 808 532 7 340 5 946 535 6 481 5 738 28 458 484 2 529 6 222 30 987 1 Physical information includes Eyesizwe Coal mines for 12 months in 2005 even though only acquired effective 1 November 2006. 2 Physical information includes Namakwa Sands for 12 months from 2005 even though only acquired effective 1 October 2008. 3 Physical information reﬂ ects Exxaro Australia Sands' 50% interest in the Tiwest joint venture with Tronox Incorporated, Western Australia. 4 Physical information reﬂ ects Exxaro's 26% interest in Black Mountain Mining (Pty) Limited from 2005 even though only acquired effective 1 November 2008. 5 Physical information represents the effective interest in Chifeng (Hongye) reﬁ nery. 6 Physical information from 2006 reﬂ ects Exxaro's 20% interest in SIOC. E x x a r o A n n u a l R e p o r t 2 0 0 8 I 9 FOCUS AREAS FOCUS AREAS Each year, Exxaro conducts a comprehensive groupwide analysis of risks. These are grouped, and ranked by both impact and probability, as well as the effectiveness of the control measure, to form the group’s risk management framework for the next period. These high-level risks and control measures are reviewed at board level. In our industry, some risks are perennially high on the table (page 72) and require ongoing management. Others change in line with prevailing economic, social and environmental circumstances. In the long term, apart from the scale of human tragedy, poor safety records could undermine the business as a whole, increase our cost of funding and affect our share price. In addressing this challenge, we have aggressively reinforced a multi-pronged approach (page 81) spanning, among others, enhanced safety awareness and preventative programmes, a strong focus on hazard identiﬁ cation and Visible Felt Leadership. Our ultimate goal for safety is an injury-free workplace. To reach this target, we aim to improve our lost- time injury frequency rate by 30% each year. For the immediate future, Exxaro’s key challenges are safety, proﬁ tability and operational issues. The context and In August 2008, chief executives of Chamber of Mines mitigating strategies for each of these issues are detailed member companies met to deliberate on sustainable ways in in this section. which a culture of health and safety could be strengthened and how working environments could effectively be made Safety The safety of employees heads the operational and strategic safer and healthier. Endorsing the target of zero harm and the milestones that have been agreed with tripartite agenda of Exxaro as it does for other partners to achieve this objective, the chief executives also corporate members of the Chamber acknowledged the principle that safety is a core value that of Mines. In 2008, more than must always take precedence over production (page 74). 140 people lost their lives in surface Exxaro fully subscribes to this principle. and underground accidents on South African mines. Although the 2008 January-September fatality Proﬁ tability Maintaining a strong balance sheet with a cash-preservation rate was 15% lower than for the focus, together with judicious consideration of both same period last year, industry sustaining capital and growth aspirations, further supported leaders unanimously agree it is not acceptable. Apart from by continuous business improvement at all operations, is of the grief and distress suffered by the families of miners who paramount importance in the current global recessionary are injured or killed, there is profound understanding and environment. acceptance of the ethical business threat to industries with unsatisfactory health and safety records. Operational The key risks faced by our operations are energy (primarily Exxaro employs over 10 000 people, many of whom work security of supply) and, following the global economic in the world’s most challenging environments. Our 2008 meltdown which started in the second half of 2008, low safety performance was disappointing (page 82). The commodity prices and contracting markets. key risks in our diverse mining operations are lifting and material handling, energy and machine isolation, vehicle safety, ground control, working at heights and a number Energy The national electricity crisis in early 2008 had an immediate of site-speciﬁ c issues. For our group, the short-term detrimental impact on the business of mining and continues impact of an unacceptable safety record could result in to present consequences that require remedial attention intervention by: • Government revoking mining licences • Strike action by labour unions • Other stakeholders – leading to difﬁ culty in attracting and retaining the required skills, lack of community support, lobbies/protests or boycotts and declining investor interest. and accurate assessment. In January 2008, compelled to avert an almost certain countrywide blackout, Eskom declared a force majeure and cut the supply of power to the mining industry by 50%. With electricity being imperative to the safety and survival of employees in underground working environments (over 50% 10 I E x x a r o A n n u a l R e p o r t 2 0 0 8 of electricity used in deep-level mines is for cooling, Low commodity prices and ventilation and pumping), most of South Africa’s mines had contracting markets no alternative but to suspend operational activities. Calendar 2008 was very much a year of two halves, with record prices in The shutdown lasted for seven days, with a cost to the the ﬁ rst half matched by equally economy in lost mineral sales and lost production of dramatic collapses in the second and R12 billion. The value of mining equities quoted on the bleak prospects for 2009 for many JSE declined by a staggering R85 billion. This was a direct commodities: consequence of investment community concern about the industry’s viability under the threat of power curtailment. Equally, the more than 25% drop in mining gross domestic product (GDP) effectively halved the country’s economic growth rate from 5% in the fourth quarter of 2007 to • Hard coking coal’s 200% price increase in 2008 is expected by commodity analysts to be followed by a 50% drop in price in 2009. The patterns were similar for semi-soft coking coal and low-volatile PCI benchmark coal, and more pronounced for the spot price of steam slightly more than 2% in the ﬁ rst quarter of 2008. coal. Given that Eskom’s low reserve margins are expected to remain a serious risk for the next several years until additional capacity comes on stream, the Chamber of Mines and its individual members have been closely involved in initiatives focused on electricity conservation and efﬁ ciency. The chamber is also developing a protocol for handling electricity supply emergencies based on sectoral contributions to the national economy, which will be presented to government for approval. Exxaro was one of the early signatories of the Energy Efﬁ ciency Accord, in its previous form as Kumba Resources. Since then, the Eskom request for a 10% electricity saving requires a more urgent response. In April 2008 Exxaro’s energy efﬁ ciency team met to outline the company’s strategy to address the crisis and to develop savings projects for implementation in the short, medium and long term. These energy-saving ideas are currently in various stages of implementation, and include the conversion to low- energy lighting; conversion to solar appliances for hot-water applications; right-sizing of electrical motors; use of high-efﬁ ciency pumps, fans and motors; improved power-factor correction; and demand- side management projects. Alternative energy sources are being investigated at various sites where both solar and wind power could be generated. These projects are currently entering pre-feasibility phase. Capturing process energy in off-gas streams is also being investigated at various sites, creating the possibility of offsetting the company’s carbon footprint. • The spot price for iron ore in China moved from US$170 to between US$60 and US$75/t in six months. Market expectations for 2009 are 30 – 40% lower for Australian benchmark spot prices. • The 2009 market forecast for the London Metal Exchange cash zinc price is considerably lower than the prior year, albeit up from December’s 2008 lows. • The rising trend for titanium dioxide prices in 2008 could be reversed by lower demand in 2009, while feedstock prices are expected to move sideways. • Zircon prices are also forecast to move sideways in 2009 as the global economic slowdown is expected to result in a more balanced supply and demand situation. However, countering this gloomy outlook to some extent, mining costs are expected to come down in 2009, helped by declining energy costs. The worldwide slowdown in activity levels should lessen the shortage of contractors, equipment and mining professionals, and freight rates are the best they have been for many years. A weaker rand and the Australian dollar at levels more in line with its historical average exchange rate to the US dollar will positively reﬂ ect in the realised proceeds of US dollar-denominated sales revenue, offset to some extent by its adverse impact on foreign currency-linked capital and operational costs. While extremely challenging, Exxaro’s operations are focused on managing these conditions through relentlessly pursuing operational efﬁ ciency, cost management and increased – but safe – productivity. In addition and as a group, our diversiﬁ cation strategy and product and geographic market spread afford some protection against prevailing market conditions. E x x a r o A n n u a l R e p o r t 2 0 0 8 I 11 CHIEF EXECUTIVE OFFICER’S REVIEW Our performance reﬂ ects the beneﬁ ts of diversiﬁ cation in the most volatile global market in living memory. Sipho Nkosi Chief executive ofﬁ cer HIGHLIGHTS • 36% increase in revenue to R13,8 billion • Headline earnings of 1 058 cents per share • Signiﬁ cant maiden contribution from successfully integrated Namakwa Sands • Final dividend of 200 cents per share; total dividend of 375 cents per share 12 I E x x a r o A n n u a l R e p o r t 2 0 0 8 Exxaro’s performance in its second full year of operating as a listed, empowered mineral resources group reﬂ ects • Through strategic focus and innovative thinking, Rosh Pinah has extended its life of mine until 2018, a far cry the beneﬁ ts of diversiﬁ cation in a volatile global market, from four years ago when the mine had a life of less than with record ﬁ nancial results from our coal business and ﬁ ve years and faced closure. a signiﬁ cant proﬁ t contribution from our mineral sands operations. We recorded several major milestones during • A groupwide business improvement programme has already identiﬁ ed savings of R190 million as part of our the period, particularly in our coal business. These included process of continuous improvement. a 40-year coal-supply agreement for Eskom’s Medupi power station, the full ramp-up of Mafube mine, and our new • Exxaro has sponsored a research chair at the Unisa Centre for Corporate Citizenship to develop a core body Inyanda mine exceeding capacity to reach 1,8Mtpa. We also of knowledge on climate change in South Africa. completed the Namakwa Sands acquisition to strengthen our mineral sands portfolio and made good progress on • We opened a new international ofﬁ ce in Switzerland to service the European steam coal market. Market demand, conversion and new mining rights applications. Business environment The global economic slowdown accelerated markedly in the second half of the year, impacting on the South African strong prices and Exxaro’s focus on value-in-use marketing are expected to underpin an increase in international coal exports to at least 10Mtpa over the next eight years. • An Exxaro employee made history in July 2008 when he became one of 21 000 torch bearers – and the only South economy as well. Local gross domestic product growth of African – to carry the Olympic ﬂ ame on its four-month 3,2% was well below the 5,1% achieved in the prior year and journey around the world to the host city of Beijing. the outlook for 2009 is for further contraction to around 1,9%. The macro-economic review on page 18 details global The review period however presented some considerable economic performance during the year and the outlook for 2009. challenges: • Regrettably, ﬁ ve employees lost their lives, despite ongoing and company-wide initiatives to enhance safety In some commodity markets it was decidedly a year of two awareness. Disappointingly, we also fell far short of our halves, characterised by volatile supply and demand levels. target for lost-time injuries (page 82). Oil and bulk commodities reached record levels in the ﬁ rst half, but prices collapsed in the second half. Base metals and • Our base metals division recorded an operating loss for the year, through a combination of production disruptions, industrial minerals followed suit. The cycle of rising iron ore lower revenue, increased operating costs and higher and coal prices is expected to reverse in 2009, while zinc provisions for environmental rehabilitation. prices have come down substantially from high 2007 levels. • Limited power supply and a total plant blackout following a transformer failure at Zincor caused major delays However, some perhaps unexpected beneﬁ ts emerged from and plant instability in the second half of the year. Rosh this gloomy picture: ﬁ rstly the upward spiral in mining costs Pinah was similarly affected by equipment failures, plant and project capital costs was arrested and, secondly, the availability and the impact of an unstable power supply. worldwide shortage of skills and equipment was alleviated by the plethora of announced cutbacks and project deferrals. We expect this trend will continue for much of 2009. Powering possibility Individual performances during the year have further entrenched the hallmark of this group to power possibility: • Exxaro’s North Block Complex was named best-performing coal mine in South Africa by the South African Colliery Managers’ Association in recognition of 26 years of Safety The group again recorded a poor safety performance, with ﬁ ve fatalities in the review period, while the average lost- time injury frequency rate (LTIFR) per 200 000 man-hours worked was 0,39 which is well above the target for 2008 of 0,21 (page 82). We deeply regret the loss of our colleagues and extend our sincere condolences to their families, friends and colleagues. fatality-free shifts. We are determined to meet our target of zero harm in all • Following the successful rebuild of the no 4 roaster in 2007, Zincor simultaneously rebuilt roasters no 1 and 2 at our operations and have begun implementing revised safety policy and corporate management standards across the a cost of some R28 million during the year as part of the group – detailed on page 82 drive to ensure plant efﬁ ciency, availability and increased output. The South African mining industry as a whole is trying to be • We concluded the empowerment transaction in which Namibian shareholders acquired a further 43% of Rosh more consistent in how it applies safety standards, and one of the behaviours it encourages is zero tolerance for safety Pinah lead-zinc mine. As part of this landmark transaction, violations. Among other things, this means that safety the mine’s employees now hold 3% of the share capital behaviour needs to be as much part of performance reviews and will share in its growth and prosperity. and recognition as it is an individual responsibility. E x x a r o A n n u a l R e p o r t 2 0 0 8 I 13 CHIEF EXECUTIVE OFFICER’S REVIEW continued In November 2007, the former president of South Africa, resulting in record operating results from Namakwa Sands. Thabo Mbeki, announced the implementation of health Higher production from all operations should beneﬁ t this and safety audits. All Exxaro mining operations have now business in 2009. been audited, and results indicate the extent to which our operations comply with health and safety requirements. In base metals, the record high price environment in 2006 We were particularly pleased with results from our and 2007 has been followed by signiﬁ cantly lower local and coal operations which, at 73%, exceeded the average international demand and resultant unfavourable pricing. Department of Minerals and Energy scores of 70% for coal The oversupply of concentrate has only partially been offset and 66% for all mines. The outcomes from these audits and by higher treatment charges. The business is expected our own investigations will form the framework to reﬁ ne to remain under pressure in 2009 given depressed zinc and improve our practices. markets and poor zinc metal prices. Externally facilitated, our ﬁ rst CEO’s Safety Summit was convened in March 2009. A second summit is planned for Operational performance Despite challenges during the year, most notably the extent October 2009 at which progress against targets will be of the global economic meltdown and unavailability of plant mapped and agreement reached on further improvements. capacity in the mineral sands and base metals businesses, At Exxaro, safety is our foremost priority. Our North Block there were a number of notable achievements: • Record annual production and sale of power station coal Complex is a prime example of what can be achieved through to Eskom. diligent application of safety standards. We plan to drive our safety initiatives and programmes aggressively throughout • Increased production of coal from Inyanda (above design capacity) and North Block Complex, combined with new the organisation. reserves and capacity at the latter mine. Operational overview Exxaro’s coal business units recorded good operating • Record synthetic rutile production at Australia Sands following the successful kiln shut in 2007. • Annual records for zircon, titanium slag and pig iron performances complemented by additional production from production at the newly acquired Namakwa Sands. Inyanda and North Block Complex. Total production volumes neared the 45Mt mark. • Efﬁ ciency improvements at Namakwa Sands translating into a record chlorinatable slag ratio of 84,5% and iron recovery rate of 91,3%. Coal markets continued to beneﬁ t from strong local and • Zincor completed its roaster rebuild programme in the international demand which translated into favourable coal acid plant to position itself for improved efﬁ ciencies. pricing despite signiﬁ cant softening in international prices as the global economic meltdown in the second half of 2008 took effect. Expansion of Grootegeluk mine to supply power New operations Commissioning and ramp-up to full capacity of the Mafube station coal to Eskom’s Medupi power station is underway expansion project has been completed. The mine will produce following the conclusion of a long-term supply agreement 3Mtpa of export steam coal and 2Mtpa of power station coal. on the back of unabated local demand. Discussions continue Exxaro’s 50% joint venture participation with Anglo Coal, with Transnet on rail capacity to use Exxaro’s export although still awaiting fulﬁ lment of all conditions precedent, entitlement of 6,3Mtpa by end 2009. added 733kt to overall export volumes allowing the group to beneﬁ t from higher average export prices during the year. The mineral sands business was complemented by the The Inyanda mine was also successfully commissioned and acquisition of Namakwa Sands from Anglo Operations ramped up to design capacity of 1,5Mpta. Limited with effect from 1 October 2008. Feedstock supply levels continued to affect markets while the global economic crisis is expected to compound the negative Energy In South Africa, coal has attracted much media attention impact on pigment demand. Exxaro’s 2008 ﬁ nancial during the year, with coal-ﬁ red power stations contributing results were again negatively inﬂ uenced by the strength some 92% of South Africa’s energy-generating capability. of the Australian currency against the US dollar, despite While energy is an immediate focus area for Exxaro, as the weakening of the former in the last quarter of 2008. detailed on page 87, several issues are worth noting here, Zircon enjoyed good global demand and pricing in 2008, given their importance to our long-term growth. 14 I E x x a r o A n n u a l R e p o r t 2 0 0 8 Although Eskom is planning to shift to a 30% nuclear Namakwa Sands’ products are sold mainly on international mix within the next 15 years, coal will continue to play a markets, and for an entity that operates in one of South signiﬁ cant role in power generation. Given that South Africa Africa’s most beautiful but challenging environments on needs to double its generating capacity by 2025 to support South Africa’s west coast, it boasts signiﬁ cant market share. current growth rates while keeping costs down means a In 2007, Namakwa Sands produced 10% of the world’s zircon, continued reliance on coal, which is still the cheapest source 8% of its titanium dioxide slag, and 5% each of its rutile and of power generation. high-purity pig iron. Namakwa Sands has a well-established customer base across the world, and its incorporation into Currently the fourth-largest coal producer in the country, Exxaro will more than double the group’s production of Exxaro is one of the largest suppliers to Eskom, accounting zircon, and effectively double its pig iron capacity. for more than 30% of total power station demand. With the Waterberg expansions, Exxaro could become one of the With Namakwa Sands in our stable, Exxaro is now the third- largest coal producers in South Africa. largest integrated titanium dioxide feedstock group in the world. The beneﬁ ts are considerable – ranging from a single The coal supply agreement for Eskom’s new base-load marketing team for the mineral sands business, to shared power station, Medupi, was signed in September 2008, infrastructure, furnace technology and mineral separation underscoring the valued and long-standing business technology. relationship Exxaro has built with the power utility. In terms of the agreement, Grootegeluk will supply an This makes Exxaro unique in that various mineral sands average of 14,6Mtpa of power station-grade coal for the technologies representing the entire value chain, from mine next 40 years through a R9-billion brownﬁ elds expansion to pigment, are housed in one group. of the mine. The mine will increase production through a seven-day continuous operations programme to supply The strategy behind our continued presence in the mineral additional coal to the adjacent Matimba power station. sands market is now unfolding. We have always believed we Two new beneﬁ ciation plants will be constructed at the need to offer our stakeholders a balanced portfolio and, from mine to process new production for Medupi. Grootegeluk the outset, we have chosen to protect the group’s interests has the largest washing and beneﬁ ciation complex in the by spreading the risk to deliver value to our stakeholders, world. Production from the new section of Grootegeluk is including our employees, over the longer term. This planned for the end of 2011, with ramp-up to full production underpins our strategy of a moderately diversiﬁ ed portfolio by 2014. with the building blocks of our sands business remaining sound as it is a dollar-denominated market where prices These investments by Exxaro and Eskom will have a are contracted annually and often for three- to ﬁ ve-year signiﬁ cant beneﬁ t for the local, provincial and ultimately terms. Together with our leading position as a long-term national economy. Direct jobs created during construction power station coal supplier to Eskom, this should provide will peak at about 9 500 (8 000 from Eskom’s investment, considerable protection against market ﬂ uctuations and and 1 500 from Exxaro’s) and thousands of indirect jobs will times of economic uncertainty. With demand for titanium be created. Some 550 permanent jobs will be created at dioxide feedstocks growing internationally, accompanied Grootegeluk mine alone. by supply constraints, we remain optimistic about this As a key role player in the mining industry, it is our responsibility to become more energy efﬁ cient, to promote the use of clean technologies, and to fast-track coal mining Integration In just two years, Exxaro has proved its ability to integrate projects. In turn, it is government’s responsibility to ensure acquisitions and mould these into a cohesive group. The approval of mining rights and to provide a context in which process of integrating Namakwa Sands is currently well strategy. private investors can – and are encouraged to – invest in under way. independent power producers. Mineral sands acquisition Effective 1 October 2008, we began the formal process of An integral element in creating value in the current economic environment has been to develop a focused group by integrating our people, attitudes, processes and systems integrating Namakwa Sands into Exxaro. to function as a single entity. During the year, this meant E x x a r o A n n u a l R e p o r t 2 0 0 8 I 15 CHIEF EXECUTIVE OFFICER’S REVIEW continued consolidating the strategies and best practices of all the Calendar 2009 also marks the end of the ﬁ rst cycle of the different teams in our group. With the integration of people mining charter and its attendant scorecard. The process of under way early in the year, and succession planning bedded reviewing the charter against progress and developments down, the focus shifted to processes and systems. in the past ﬁ ve years begins in April and is expected to take some time to ﬁ nalise. Exxaro has made good progress A project to optimise enterprise resource planning was against scorecard targets (page 107), but our ultimate aim initiated in the ﬁ rst quarter. This included migrating is closely aligned to the intention and spirit of the charter various business units on to Exxaro’s enterprise-wide – equitable participation in the country’s natural resources, resource planning system. By mid-2009, this will ensure with fair and representative workplaces. more effective groupwide governance, decision-making, recording of business activities, risk management and During the year, Exxaro’s applications to convert the mining greater ability to identify opportunities for continuous rights associated with former Kumba Resources operations improvement. Strategy Our strategy is to consolidate in the short term, optimise growth plans over the medium term and innovate in the were granted. The process for executing these conversions should be completed in the current year. Applications to convert former Eyesizwe Coal mining rights were submitted in June 2008. longer term. In light of global challenges, I believe it is more pertinent to review our immediate strategy (the year Sustainable development This year, I have separated my review for the convenience ahead) in this report. In our current consolidation phase our of stakeholders. Our comprehensive sustainability report short-term goals are to focus on operational excellence, to begins on page 74 with a message that outlines our strategy, optimise cash ﬂ ow and implement the new organisational progress and targets. This is supported by illustrative case structure. Given the credit crisis and worldwide economic studies available in a dedicated section in our electronic meltdown in the second half of 2008, the group is reviewing annual report, on www.exxaro.com/case_studies its capital expenditure programmes, including sustaining capital, as well as the project pipeline. We will focus on successfully implementing committed expansions while Transformation The genesis of today’s Exxaro Resources has been a case reprioritising other identiﬁ ed growth opportunities. These study in transformation. On unbundling from Iscor in 2001, projects are detailed on page 43. the groundwork was done under the Kumba Resources banner to create a group that offered equal opportunity to all A continuous business improvement programme is under stakeholders. This ethos permeated the 2006 transactions way to preserve the group’s cash ﬂ ow and ensure availability to create Exxaro, South Africa’s ﬂ agship empowerment of sustaining capital. Exxaro is well positioned to weather this economic storm: • We are a major (and proven) supplier to Eskom • We have a growing role as a steam coal exporter increased • Production has been sustainably in our group in the mining industry. Among Exxaro’s shareholders are over 9 000 of our own employees and communities that enable us to trade. At a time when many black economic empowerment groups are struggling with onerous debt burdens, mineral sands operations and the marketing strategy Exxaro’s black shareholders are seeing the fruits of consolidated their investment. To date, shareholders in BEE Holdco • An asset management and plant efﬁ ciency programme is under way in our zinc business. We are exploring (page 109), which owns some 53% of Exxaro, have received dividends totalling R994 million. Our own alternative markets and reviewing strategic options. people, through the MPOWER trust, have beneﬁ ted from Legislation In recent years, the legislative environment for South Africa’s We have achieved the targets set by the mining charter for mining industry has changed signiﬁ cantly. We welcome the transformation (page 96 and 107), but we will not be satisﬁ ed deferment of the draft royalty bill – this is a valuable respite until transformation is truly widespread and our workforce in the current economic climate. a fully representative demographic slice of South Africa. over R28 million in dividends. 16 I E x x a r o A n n u a l R e p o r t 2 0 0 8 Directorate and governance Best-practice governance remains the standard at Exxaro, Prospects After two years, Exxaro is proving its mettle in the facilitated by the skills and experience of a dedicated board commodities market – having grown admirably through of directors. good times and bad. In August 2008, Mike Kilbride retired after more than The group is expected to continue beneﬁ ting from strong 30 years in the mining industry, predominantly with our demand for local power station coal. However, coking coal group and most recently as chief operating ofﬁ cer. Mike sales could be lower at reduced prices. Steam coal sales played an invaluable role in shaping today’s Exxaro and volumes should increase but at lower international prices. we wish him well in this new phase of his life. There is now a direct reporting line between the heads of Exxaro’s commodity businesses and the chief executive ofﬁ cer. Subsequent to the year end, Dirk van Staden retired as ﬁ nancial director of Exxaro after 12 years with the group and its predecessors, during which he played an instrumental role in almost every corporate transaction. His career spanned 34 years in the corporate environment and we thank him for an exceptional contribution and extend our very best wishes for a healthy and rewarding retirement. Dirk is succeeded by Wim de Klerk, a chartered accountant by profession, miner by experience, and long part of the Exxaro team who will head the competent Exxaro ﬁ nance team. Increased production volumes at all mineral sands operations, a full 12 months’ contribution from Namakwa Sands together with the local and Australian currencies remaining at their present weaker levels, should improve prospects for this business in 2009 if market demand and prices remain at current stable levels. The base metals business is expected to remain under pressure in 2009 as a result of continued depressed market conditions and zinc prices. The equity accounted contribution from Sishen Iron Ore Company will be affected by market demand and the level of iron ore price adjustments effective from 1 April 2009. During the year, Ms Nonkululeko Nyembezi-Heita and Ms Pinkie Ncetezo resigned from the board. We thank these directors for their contributions while in ofﬁ ce. Accordingly, the group will concentrate on capital prioritisation and working capital management together with continuous business improvement initiatives and cost control to offset lower demand and price challenges. Ms Simangele Mngomezulu and Mr Jeffrey van Rooyen were appointed as non-executive directors in August 2008. Both directors add to the expertise and diversity of the Exxaro board. We thank Dr Len Konar for continuing to serve as Exxaro’s acting chairman during the period. While the process of appointing an independent chairman has been more protracted than we envisaged, progress is being made. Appreciation It has been a year of highlights and challenges, at times formidable challenges. The spirit and dedication our people brought to dealing with the challenges was inspiring, as was their delight in celebrating the milestones. Exxaro is fortunate to have exceptional people at every level and I thank each of you for the valuable role you play in our success. We also continue to enjoy a mutually beneﬁ cial relationship with our empowerment partners and we will concentrate on entrenching this partnership as we grow. Consolidated results for 2009 will largely be driven by the extent to which global recessionary conditions impact on demand and prices for the group’s commodities as well as the trading levels of the local and Australian currencies. However, the uncertain market outlook remains a key factor to the group’s results for 2009. Sipho Nkosi Chief executive ofﬁ cer 17 March 2009 E x x a r o A n n u a l R e p o r t 2 0 0 8 I 17 MACRO-ECONOMIC AND COMMODITY REVIEW World gross domestic product (GDP) growth continued to fourth, taking annual growth to 9,0% compared to 13,0% in slow during 2008, reaching 2,3% after declining to 4,0% 2007. This was mainly the result of sharply decreasing in 2007 from 4,1% the previous year. The slowdown was international trade. In line with developed countries, China particularly pronounced in the second half of the year, with also instituted major monetary easing and infrastructure growth of only 2,2% and 0,3% recorded in the third and investment measures to arrest the decline in economic fourth quarters respectively. The major factor in this decline activity. GDP growth in 2009 is expected to decline further was the sub-prime meltdown and associated credit crunch to an average of 5,9%. which originated in the USA, but then spread to the rest of the world. This was followed by a loss of conﬁ dence from The key risks to the global economy are believed to be businesses and consumers which, in turn, resulted in tight an unduly timid response to the crisis from governments credit, declining demand, reduced spending and investment, globally as well as further deterioration in conﬁ dence from job losses, declining property prices and collapsing stock businesses and consumers alike. On the positive side, the markets all over the world. precipitous fall in energy prices would boost economic The impact on the world’s advanced economies was severe, recovery. with negative economic growth recorded in all regions The South African economy was not immune to the in the fourth quarter. Respective government efforts to economic problems that affected the rest of the world, curtail adverse economic developments through signiﬁ cant with GDP growth declining in 2008 to 3,1% from 5,1% in monetary easing and massive ﬁ scal stimulus measures were 2007. On a year-on-year basis, growth decreased from not successful in the short term and an economic recession 3,8% in the ﬁ rst quarter to an estimated 1,6% in the fourth. in the developed world in 2009 is a foregone conclusion. Consumer price inﬂ ation rose signiﬁ cantly above the This recession is described globally as probably the worst Reserve Bank’s target range of 3 – 6%, with the average since the Great Depression of the 1930s. for the year at 11,5%, almost double the upper range of the target. However, due to the deteriorating economic outlook Previous arguments about a decoupling between the globally and locally, the bank’s tight monetary stance was economies of developed and emerging nations proved reversed towards the end of the year. Falling oil prices will erroneous. The travails of the developed world spilled over assist in easing inﬂ ation in 2009, but strong increases in to the rest of the world following the collapse in commodity electricity prices will counteract this. Inﬂ ation is expected to prices, leading to the drying up of capital ﬂ ows to and capital drop to within the Reserve Bank target range in the second ﬂ ight from developing economies, and sharp falls in world half of 2009. A ﬂ ight from risk by investors resulted in a trade. Emerging-market GDP growth rates fell from 7,3% in weakening of the rand exchange rate against the US dollar the ﬁ rst quarter of 2008 to 3,1% in the fourth quarter. and this trend is expected to continue in 2009. This will have Economic growth in China remained the main driver of manufacturing industries, even though the mining industry commodity demand in 2008, but expansion in that country is now operating in an environment of weak and volatile slowed from 10,6% in the ﬁ rst quarter to 6,8% in the commodity prices. a positive impact on the export earnings of the mining and Comparative GDP growth rates ) e g n a h c % ( h t w o r g P D G 16 14 12 10 8 6 4 2 0 – 2 – 4 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 — — China — South Africa — World — United States Source: Global Insight 18 I E x x a r o A n n u a l R e p o r t 2 0 0 8 Due to declining economic activity, infrastructure bottlenecks a high of US$177,45/tonne in August and then collapsing – electricity supplies and transport and harbour capacities, to US$78,50/tonne at the end of the year. The outlook for as well as the shortage of skilled and experienced human 2009 is cloudy, with the prospect of lower demand due to resources – will probably ease temporarily, although the the global economic recession further dampened by the situation remains tight. Coal rail capacity to Richards Bay possibility of greater Chinese exports due to lower offtake in remains a serious constraint. that country. The impact of restricted logistical capacity will thus also not be as pronounced as in 2008. All in all, prices Real GDP growth of only 1,0% is expected in 2009, but further could stabilise around the US$65/tonne level, but further negative developments internationally will continue having an weakness in the oil price could have a negative impact on adverse impact on economic expansion in South Africa. this view. Commodity review In 2008, continuing robust materials-intensive economic Tight market conditions in the ﬁ rst half of 2008 resulted in Australian benchmark iron ore prices for the Asian growth in China and other emerging economies in the ﬁ rst basin increasing by 96,5%. The impact of world economic half pushed oil and other bulk commodity prices to record conditions is, however, best illustrated by the spot iron ore levels. This was the ﬁ fth consecutive year of increasing price in China. This collapsed from over US$170/tonne at the prices for these commodities, and supply bottlenecks end of July to less than US$60/tonne towards the end of supported these price levels. Base metal prices, on the other October. Prices subsequently recovered to US$75/tonne by hand, peaked in 2007 and declined in the ﬁ rst part of 2008 December. The second half of 2008 was also characterised due to easing market fundamentals. The situation changed by consumers defaulting on offtake agreements and dramatically in the second half of the year, following the announcements of production cutbacks and postponed economic crises in developed economies. This resulted in expansion projects by iron ore producers. Consensus a collapse in prices for oil and bulk commodities trading forecasts of Australian benchmark prices for 2009 indicate on a spot basis, with base metal prices following suit. The a 30% decline. impact on contract prices will also be keenly felt once these come up for renegotiation. The 2008 average London Metals Exchange (LME) cash zinc price was US$1 875/tonne, some 42% lower than the average Projections of global steel production indicate that crude for 2007. The decrease was driven by worsening market output decreased by 14Mt ( 1,2%) to 1 330Mt in 2008. Again, it fundamentals, reﬂ ected in a reﬁ ned zinc surplus of about was a tale of two halves, with output increasing in the ﬁ rst ﬁ ve 190kt developing during the year, compared to the surplus months of the year and then declining. Production increased of 245kt in 2007. The zinc price declined steadily in the by some 13Mt, or 2,7%, in China, with output starting to fall in ﬁ rst nine months of the year from about US$2 400/tonne July, resulting in a collapse in spot steel prices in that country, to US$1 700/tonne. In October the price started dropping similar to the experience in the rest of the world. China was precipitously to US$1 063/tonne, followed by a period of responsible for some 36% of world raw steel production in extreme price volatility in a band between US$1 250/tonne 2008, somewhat higher than in 2007. and $1 040/tonne, ending the year at US$1 120/tonne. Low prices since October were driven by expectations of declining Due to continuing favourable demand conditions in the demand due to the global economic crisis, increasing zinc ﬁ rst half of 2008, strengthened by unresolved supply stocks and divestment from commodity investment funds. In bottlenecks, an increase of over 200% in the benchmark 2008 LME zinc stocks increased from 88kt to 253kt, primarily hard coking coal price was negotiated for 2008. However, due to expanding zinc production in the ﬁ rst part of the year decreasing steel production and the collapse in steel prices in and stagnant demand in the second part. Low zinc prices the second half have put pressure on coking coal producers, and the dismal demand outlook led to western-world smelter with several having production cutbacks announced by capacity cutbacks of more than 500kt being announced by the end of 2008. The outlook for contract prices in 2009 the end of the year. seems bleak and expectations are that the benchmark price could fall by more than 50%. Contract semi-soft coking and This trend was also evident in the concentrate market, low-volatile PCI benchmark coal prices increased by more where western-world closures and cutbacks amounting than 250% in 2008, but the outlook for 2009 is similar to to a production loss of almost 800kt in 2009 were that of hard coking coal, with respective settlements again announced by the end of 2008. Treatment charges expected to be more than 50% lower. favoured the reﬁ ning industry in 2008 due to oversupply The average Richards Bay spot steam coal price for 2008, charges were around US$300/tonne at a zinc basis price at US$120,88/tonne, was 92% higher than the average for of US$2 000/tonne. Spot treatment charges declined in 2007. The price pattern displayed by other commodities was 2008 to under realised contract treatment charges due to also evident for steam coal, with the RBCT price reaching a decreasing concentrate surplus. A concentrate deﬁ cit is in the concentrate market. Contract treatment E x x a r o A n n u a l R e p o r t 2 0 0 8 I 19 MACRO-ECONOMIC AND COMMODITY REVIEW continued expected in 2009, resulting in signiﬁ cantly lower treatment While the dollar generally continued to weaken against the charges being realised. Due to the concentrate and reﬁ ned currencies of commodity-exporting countries in the ﬁ rst half zinc production cutbacks, the surplus in the zinc market of 2008, the sub-prime crisis in the US and subsequent events in 2009 is expected to be much lower than originally precipitated a ﬂ ight from risk, leading to capital outﬂ ows envisaged. This could result in zinc prices actually increasing from most commodity-producing countries and signiﬁ cant somewhat from end-2008 levels to a forecast average of weakening of the relevant currencies against the US dollar about US$1 250/tonne. from August. This should bring some relief to commodity producers struggling with declining prices in terms of their A small supply deﬁ cit was recorded in the titanium dioxide local currency receipts from commodity exports. pigment industry in 2008, resulting in a rising price trend for most of the year. However, the increasing production trend The signiﬁ cant increases in mining costs and mining of the ﬁ rst half was reversed once the ramiﬁ cations of the project capital costs since 2005 continued into 2008, but economic crisis, in terms of pigment demand, became clear. the economic crisis arrested this trend and the outlook This resulted in slightly negative output growth for the year. is for mining costs to decline in 2009, with falling energy The extremely adverse impact of the worldwide economic prices being a major factor. Capacity shortages in terms of slump on some major demand sectors for pigment products, contractors, machinery, equipment and mining professionals namely the auto industry and housing sector, bodes poorly worldwide also abated and signiﬁ cant retrenchments in the for pigment demand in 2009. mining industry in the last quarter of 2008 are expected to Titanium dioxide feedstock prices generally improved persist into 2009. moderately in 2008. In particular, the market for chloride Global bulk freight rates reﬂ ected commodity prices in 2008. feedstock was tight, primarily due to supply disruptions such The Baltic Dry Index rose by more than 100% from January as the KZN Sands furnace shutdown, gas and electricity supply to June, but started tumbling as demand for ships dried up, disruptions, the sinking of the Sierra Rutile dredge, closure of ending the year some 90% lower than its high in June. It was several smaller mining operations and slow production ramp- estimated in late November that about 20% of the world’s up from new producers. During the year, no new feedstock ‘Cape-size’ ﬂ eet was at anchor because of low demand. The projects were approved. In view of the muted demand outlook bulk freight market is expected to remain depressed in 2009, for the pigment industry in 2009, the feedstock industry will but with freight rates improving from the extremely low levels also probably face a period of market surplus, with prices at the end of 2008. expected to generally move sideways. Planned global exploration expenditure in 2008 indicated a Zircon prices declined in the ﬁ rst ﬁ ve months of 2008, sixth consecutive annual increase, or some 26% over 2007. primarily against expectations of an oversupplied market. However, the crash in global commodity markets resulted in However, the market turned out to be tight, leading to concerns signiﬁ cant cutbacks in the last quarter of the year. This will about supply availability. This led to some precautionary buying cause the average increase for the year to be lower than and increasing prices in the second half. The global economic planned. Exploration expenditure in 2009 will be signiﬁ cantly slowdown is, however, expected to lead to the tightness in the lower than in 2008. In time, this will lead to capacity shortages market reducing and prices moving sideways. when demand shows a sustained upturn. Nominal historical benchmark iron ore prices ) u t m d / c S U ( e c i r P 250 200 150 100 50 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 — Australia-Japan lump iron ore price — — Australia-Japan ﬁ ne iron ore price Source: AME 20 I E x x a r o A n n u a l R e p o r t 2 0 0 8 Nominal historical coal prices ) t / $ S U ( e c i r P 350 300 250 200 150 100 50 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 — — Hard-coking coal benchmark price — — Semi-soft coking coal benchmark price — RBCT spot steam coal price Source: AME; SA Coal Report Nominal historical zinc and lead prices ) t / $ S U ( e c i r p d a e l d n a c n Z i 3 500 3 000 2 500 2 000 1 500 1 000 500 0 450 400 350 300 250 200 150 100 50 ) e t a r t n e c n o c / $ S U ( e g r a h c t n e m t a e r t c n i z d e s i l a e 0 R 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 — — LME spot lead price — Zinc treatment charge — LME spot zinc price Source: AME; Brook Hunt Nominal historical titanium dioxide pigment, feedstock and zircon prices ) t / $ S U ( s e c i r p n o c r i z d n a k c o t s d e e f 2 O T i 900 800 700 600 500 400 300 200 100 0 2 500 2 250 2 000 1 750 1 500 1 250 1 000 750 500 250 0 ) t / $ S U ( e c i r p t n e m g P i 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 — — Zircon price — Rutile price — Chloride slag price — US pigment price Source: TZMI E x x a r o A n n u a l R e p o r t 2 0 0 8 I 21 FINANCIAL REVIEW The group experienced strong demand at higher commodity prices despite the signiﬁ cant decrease in LME zinc prices. Dirk van Staden Financial director Introduction Calendar 2008 marked the completion of the remaining Overview of comparable group operating results signiﬁ cant components of the November 2006 Table 1 empowerment transaction that resulted in the creation of Exxaro. The acquisition of Namakwa Sands and a 26% interest in Black Mountain (Mining) (Pty) Limited (Black Mountain) became effective on 1 October and 1 November 2008 respectively. Accordingly, unless otherwise indicated, comments are for comparable purposes based on an analysis of the group’s unaudited comparable supplementary ﬁ nancial results (pages 116 to 117) and physical information compiled (inside ﬂ ap and page 8) for the 12 months ended 31 December 2008 and 2007 respectively as if both Namakwa Sands and the interest in Black Mountain were acquired on 1 January 2007. The unaudited comparable supplementary ﬁ nancial results consolidate Namakwa Sands while equity accounting for the 26% interest in Black Mountain. 22 I E x x a r o A n n u a l R e p o r t 2 0 0 8 R million Revenue Operating expenses Net operating proﬁ t Net operating proﬁ t margin (%) Unaudited 12 months ended 31 December 2008 15 209 12 398 2 811 2007 11 449 9 809 1 640 19 14 The coal business reported record revenue and net operating proﬁ t as strong demand resulted in increased sales at higher prices despite a signiﬁ cant softening in international prices in the last quarter of the reporting period following the global economic meltdown. The sands business reported a higher consolidated net operating proﬁ t compared to 2007 as a proﬁ t contribution from KZN Sands and a substantially An average exchange rate of R8,10 to the US dollar higher proﬁ t from Namakwa Sands more than offset a loss was realised on exports compared with R7,26 for the in the Australian operation. Signiﬁ cantly lower average zinc corresponding 12-month period in 2007. The continued prices and an increased environmental provision resulted in strength of the Australian dollar to the US dollar at the base metals business reporting an operating loss. US$0,84 continued to impact negatively on the ﬁ nancial results of the mineral sands operations in Australia, despite Revenue increased by 33% to R15,2 billion with net operating the weakening of the Australian dollar in the last quarter proﬁ t R1,2 billion higher at R2,8 billion. of 2008. Segmental results Comparable segmental results are shown in tables 2 and 3. Table 2 R million Revenue Coal Tied operations1 Commercial operations Mineral sands KZN Sands Australia Sands Namakwa Sands2 Base metals Rosh Pinah Zincor Inter-segmental Other Total Table 3 Net operating proﬁ t (Rm)/margin (%) Coal Tied operations1 Commercial operations Mineral sands KZN Sands Australia Sands Namakwa Sands2 Base metals Rosh Pinah Zincor Other Other Total net operating proﬁ t Non-cash costs Earnings before interest, tax, depreciation and amortisation (EBITDA) Unaudited 12 months ended 31 December 2008 2007 9 040 2 492 6 548 4 142 974 1 311 1 857 1 829 436 1 733 (340) 198 15 209 5 087 1 768 3 319 3 464 984 1 188 1 292 2 732 941 2 558 (767) 166 11 449 Unaudited 12 months ended 31 December % 29 3 39 11 3 27 19 26 2007 885 88 797 99 (157) 60 196 688 457 298 (67) (32) 1 640 919 2 559 2008 2 654 83 2 571 448 31 (82) 499 (172) (14) (95) (63) (119) 2 811 1 093 3 904 % 17 5 24 3 5 15 25 49 12 14 22 1 Tied operations refer to mining operations that supply their entire production to either Eskom or ArcelorMittal SA Limited in terms of contractual arrangements. 2 Takes into account Namakwa Sands from 1 January 2007, for comparable purposes. E x x a r o A n n u a l R e p o r t 2 0 0 8 I 23 FINANCIAL REVIEW continued Coal Revenue increased by 78% to more than R9 billion due maintenance-related issues, an emergency shut at a critical raw material supplier, the rebuild of all four chlorinators to signiﬁ cantly higher average international coal prices and gas supply interruptions in the ﬁ rst quarter of 2008, linked to global oil and energy increases, and stronger coupled with the continued strong Australian dollar. The demand. Domestic prices followed this upward trend with weaker Australian dollar, at an average rate of 0,77 US cents international prices, however, declining in the last quarter for the six months ended 31 December 2008, together with of 2008 following the global economic crisis. improved mineral production, led to a net operating proﬁ t of R57 million in the second half of 2008 against a loss of The commodity business reported an annual record net R139 million in the ﬁ rst half. operating proﬁ t of R2,7 billion, an increase of 200% despite inﬂ ationary pressures, primarily in diesel and labour costs, exploration costs for Moranbah South in Australia and higher Namakwa Sands Exxaro acquired Namakwa Sands on 1 October 2008 for an expenditure on projects in the Waterberg and Mpumalanga adjusted consideration of R2 783 million made up as follows: province. Despite higher revenue, net operating proﬁ t from tied operations decreased slightly as lower environmental provisions resulting from the conﬁ rmed longer life of certain mines was passed on to Eskom in terms of the supply agreements. Mineral sands KZN Sands The KZN mineral sands operation reported revenue R10 million lower than the R984 million reported in the corresponding period in 2007 in line with lower production volumes as a result of the Furnace 2 water ingress incident in February 2008. However, net operating proﬁ t increased by R188 million to R31 million, due to improved prices, a weaker local currency and cost savings. Net operating proﬁ t includes a R52 million ﬁ xed asset de-recognition in respect of the damaged Furnace 2. Australia Sands Revenue increased by 10% to R1,3 billion based on increased sales of synthetic rutile and zircon at higher prices. Net operating proﬁ t, however, declined by R142 million from the corresponding period in 2007 to a reported loss of R82 million in 2008. This was due to lower pigment production, plant • Cash consideration • Price adjustments – Working capital – MSP Project 1 000 – Tax recoupment – paid in Jan 09 Rm 2 015 199 448 121 2 783 The capitalised price adjustments will result in either a subsequent cash inﬂ ow or additional future deduction from taxable income in KZN Sands. Record production and sales at stronger zircon and average pig iron prices, combined with a weaker local currency, resulted in record revenue and net operating proﬁ t for the period of R1,9 billion and R499 million respectively. Base metals Revenue decreased by 33% to R1 829 million while net operating proﬁ t reduced from a proﬁ t of R688 million in 2007 to a loss of R172 million in 2008 as a result of a 42% decrease in the average zinc price for the year to US$1 874 per tonne, coupled with above-inﬂ ation increases in electricity, diesel and labour, higher maintenance expenses and an R87 million increase in the environmental rehabilitation provision at the Zincor reﬁ nery. The following graph reconciles comparable net operating proﬁ t for 2007 to that of R2 811 million for 2008: m R 6 000 5 000 5 000 4 500 4 000 3 500 3 000 2 500 2 000 1 500 1 000 500 0 1 640 1 183 (557) (772) 1 038 324 (45) 2 811 December 2007 Price Volume Exchange rate Cost Inﬂ ation Other December 2008 24 I E x x a r o A n n u a l R e p o r t 2 0 0 8 Industrial minerals The group is currently evaluating the proposed divestment Comparable attributable earnings Table 4 of its interest in the Glen Douglas dolomite mine and has accordingly disclosed its interest as a non-current asset and liability held for sale. Pro-forma EBITDA The pro-forma comparable EBITDA contributions of the various businesses, on the assumption that Exxaro’s equity accounted investments of 26% in Black Mountain, 20% in Sishen Iron Ore Company (Pty) Limited (SIOC) and the 22% effective in Chifeng, are included in comparable EBITDA, are shown in the respective pie charts. EBITDA contributions 12 months 2008* R million Net operating profit Income from investments Net financing cost Equity accounted income Taxation Minority interest Comparable attributable earnings Weighted average number of shares Comparable attributable earnings (cents per share) Unaudited 12 months ended 31 December 2008 2 811 2 (457) 1 601 (546) 24 3 435 2007 1 640 2 (453) 683 (500) (20) 1 352 343 341 1 002 396 15% 40% 45% Comparable net financing costs An analysis of the composition of the comparable net financing cost is: ■ Coal R3 084 million ■ Iron ore R2 726 million ■ Mineral sands R998 million EBITDA contributions 12 months 2007 14% 19% 34% 33% ■ Coal R1 290 million ■ Iron ore R1 243 million ■ Base metals R711 million ■ Mineral sands R528 million * Base metals EBITDA contribution was negative in 2008. Earnings Attributable earnings for the period are R3 435 million or 1 002 cents per share, representing a 154% increase on comparable 2007 attributable earnings of R1 352 million or 396 cents per share. R million Interest expense and loan costs Finance lease Interest income Interest adjustment on non- current provisions Total Unaudited 12 months ended 31 December 2008 499 63 (153) 409 48 457 2007 391 59 (96) 354 99 453 The higher comparable interest expense is due to the assumption that the acquisition prices of Namakwa Sands and the interest in Black Mountain were paid on 1 January 2007. The interest adjustment on non-current provisions refers to unwinding of the discount rate for environmental rehabilitation provisions accounted for at net present value. The reduction in 2008 is due to the confirmed longer life of certain mines that are tied operations to Eskom. E x x a r o A n n u a l R e p o r t 2 0 0 8 I 25 FINANCIAL REVIEW continued Comparable income from equity-accounted investments Table 5 Unaudited 12 months ended 31 December R million SIOC Chifeng Zinc Black Mountain Total 2008 1 856 (4) (251) 1 601 2007 746 (18) (45) 683 Comparable headline earnings Headline earnings, which exclude the impact of the impairment of the carrying value of assets in the earnings of Black Mountain, are R3 663 million or 1 068 cents per share; 167% higher than the R1 374 million or 403 cents per share of the previous reporting period. Table 6 Unaudited 12 months ended 31 December 2008 2007 3 435 1 352 20 169 59 (20) 3 663 18 (10) 17 (3) 1 374 1 068 403 The results of SIOC are fully reported by Kumba Iron Ore Limited in its publication of ﬁ nancial results to 31 December 2008. Production at Chifeng reﬁ nery was 101kt for the year R million Comparable attributable earnings – Net impairment of property, plant and equipment (PPE) compared to design capacity of 110ktpa. An equity accounted – Share of associates’ loss of R4 million was incurred compared to a loss of R18 million for the corresponding period in 2007. Following Exxaro’s decision in the ﬁ rst half of 2008 not to participate in the planned expansion of the Chifeng reﬁ nery by a further 100ktpa, the project has been indeﬁ nitely postponed in light of the substantial decline in demand for zinc metal. Exxaro acquired a 26% interest in Black Mountain with effect from 1 November 2008 for R221 million, made up as follows: • Cash consideration • Working capital adjustment • Gamsberg exploration expenditure Rm 180 37 4 221 impairments and adjustments – Gains or losses on disposal of PPE and subsidiaries – Taxation effect of adjustments Comparable headline earnings Comparable headline earnings per share Dividends Exxaro’s intention remains to progress to distributing 50% of attributable earnings to shareholders by means of interim and ﬁ nal dividend declarations. Dividend declarations in the medium term, however, may be lower to adequately provide for funding growth projects, comply with contractually agreed loan covenants, and maintain healthy key ﬁ nancial metrics. Taking these factors into account, as well as the uncertain commodity market outlook, the board declared a ﬁ nal Exxaro’s share of R251 million of the R965 million loss dividend of R2,00. This, together with the interim dividend reported by Black Mountain has been taken to account in of R1,75, results in a total dividend of R3,75 for the year. the illustrative ﬁ gures. This includes R161 million for the Total dividends declared for the 2008 ﬁ nancial year of impairment by Black Mountain of the carrying value of its R1 330 million equate to a dividend covered 2,6 times by assets. attributable earnings and are paid or payable to shareholders as follows: Taxation The corporate rate of 28% is reduced to an effective rate of 13% primarily due to: • Share of associates and joint ventures differences mainly Exxaro’s equity accounted share of SIOC’s post-tax earnings • Prior-year adjustment • Reclassiﬁ cation of previously disallowed expenses, and exempt income • Disallowable expenditure (11,9%) (1,7%) (2,1%) 0,7% 26 I E x x a r o A n n u a l R e p o r t 2 0 0 8 Gross dividend declared BEE Holdco Public Anglo Exxaro empowerment scheme (MPOWER) Total Rm 1 330 699 460 131 40 Final Rm 710 373 246 70 21 Interim Rm 620 326 214 61 19 Since the creation of Exxaro in November 2006, the following dividends have been declared: Period ended 30 June 2007 31 December 2007 30 June 2008 31 December 2008 Dividend (cps) R million R million incl STC1 Date declared Date paid/ payable 60 100 175 200 535 211 353 620 710 211 353 620 710 15 August 2007 10 September 2007 20 February 2008 17 March 2008 13 August 2008 22 September 2008 23 February 2009 30 March 2009 1 894 1 894 1 No STC is payable due to the use of STC credits from dividend receipts from SIOC. Cash ﬂ ow (Actual as reported) Table 7 R million Net cash retained from operations Net ﬁ nancing cost, taxation and dividends Cash used in investing activities • New capacity • Sustaining and environmental capital Acquisition of investments and operations Dividends received Proceeds on sale of non-core assets and investments Other Cash (outﬂ ow)/inﬂ ow Share issue Increase in net debt on acquisition of a subsidiary Other movements in net debt (Increase)/decrease in net debt 12 months ended 31 December 2008 3 574 (1 664) (470) (1 147) (3 157) 1 044 29 (55) (1 846) 31 (83) (1 898) 2007 2 308 (801) (727) (569) (257) 379 50 5 388 114 (25) (39) 438 E x x a r o A n n u a l R e p o r t 2 0 0 8 I 27 FINANCIAL REVIEW continued Cash retained from operations was R3 574 million. This was mainly applied to taxation payments of R487 million, dividend Debt structure and ﬁ nancial covenants Compliance with the group’s ﬁ nancial loan covenants with payments of R984 million in March and September 2008 its external ﬁ nanciers is as follows: respectively, ﬁ nance charges of R193 million and capital expenditure of R1 617 million of which R470 million was invested in expansion capacity and R1 147 million in sustaining and environmental capex. Expansion capacity consisted mainly of the Sintel char plant, Inyanda coal mine and the pigment plant expansion in Western Australia. After the payments before year-end of R2 662 million and R221 million respectively for the acquisition of Namakwa Sands and a 26% interest in Black Mountain, the group had a net cash outﬂ ow of R 1 846 million. Net debt of R483 million at 31 December 2007 accordingly increased to R2 381 million at a net debt to equity ratio of 18% on 31 December 2008. Debt structure The group’s debt structure at 31 December 2008 was: Debt structure R million Long-term – Corporate – Australia Sands Cash and cash equivalents Net debt Short-term standby facilities Net debt to equity (%) EBITDA interest cover (times) HDSCR1 CHDSCR2 Ratio Covenants 18 14 5,28 4,91 <125 >4 >1,3 >1,5 1 Historical debt service cover ratio (HDSCR) being cash earnings, less unfunded capital expenditure and taxation, plus dividends received (collectively referred to as free cash ﬂ ow), divided by mandatory capital and interest payments on ﬁ nancing facilities. 2 Cumulative HDSCR being cash and cash equivalents at the beginning of the period, plus free cash ﬂ ow, less dividends paid, divided by mandatory capital and interest payments on ﬁ nancing facilities. Dividend payments may not result in this being less than 1,5. During the year the group complied with all its contractually agreed loan covenants, except for the stand-alone funding package arranged for Rosh Pinah Zinc Corporation (Rosh Pinah) of R200 million to facilitate the disposal of a 43% interest to Namibian stakeholder groupings. Loan covenants were breached mainly as a result of the collapse in zinc prices in the second half of 2008 as well as above-inﬂ ation cost increases at the mine. Funding banks have, however, agreed to waive the breaches based on a contracted undertaking to settle the loans by 31 March 2009. At year-end Exxaro has provided shareholder loan funding of R67 million to Rosh Pinah. Drawn 4 150 3 588 562 (1 769) 2 381 Available 1 761 1 200 561 Repayment proﬁ le 500 328 419 794 2009 2010 2011 2012 2 109 After 2012 4 150 1 100 The ﬁ nal dividend for payment in March 2009 will amount to a further cash outﬂ ow of R710 million, offset by a dividend inﬂ ow from SIOC of R1 123 million. 28 I E x x a r o A n n u a l R e p o r t 2 0 0 8 Organisational structure The divestment of a 43% interest in Rosh Pinah to Namibian shareholder groupings, effectively reducing Exxaro’s shareholding to 50,04%, became effective on 1 July 2008. Exxaro continues to manage the mine in terms of a management agreement. At 31 December 2008 a total of 18kt representing 60% of Rosh Pinah’s projected lead sales were hedged forward until 2011 at an average price per tonne of R16 089 and 78kt representing 60% of Rosh Pinah’s projected zinc sales at an average price of R19 619. Details of the hedging in place are as follows: Zinc Lead Year 2008 2009 2010 2011 2008 2009 2010 2011 Tonnes hedged 13 500 26 400 26 400 26 700 93 000 2 750 6 675 5 175 5 500 20 100 Average Average USD price 2 256 2 521 2 216 2 061 2 187 1 814 1 591 1 713 1 967 1 756 ZAR price 17 854 18 939 19 944 19 976 19 365 14 625 13 509 15 692 19 066 15 744 Capital expenditure Table 8 compares capital expenditure for the 12-month in 2009 includes replacement of primary mining equipment at the coal operations and the replacement programme for periods ended 31 December 2008 and 2007 together with the ﬂ otation circuit at Rosh Pinah. an estimate for the 2009 ﬁ nancial year. Following the credit crisis and global economic meltdown Investment on the expansion of Grootegeluk mine at a capital in the second half of 2008, Exxaro is reviewing its capital cost of R9 billion over the next few years to supply Eskom’s expenditure programme, including sustaining capital, as adjacent Medupi power station, and the AU$100 million well as its project pipeline. The group will focus on the Tiwest Kwinana pigment expansion project for an additional successful implementation of committed expansions while 40ktpa production, will dominate cash outﬂ ows on capital reprioritising other identiﬁ ed growth opportunities. expenditure in 2009. Sustaining and environmental capital Table 8 Capital expenditure R million Sustaining and environmental Expansion • Coal • Mineral sands • Base metals • Other Total Financial year 2009 Estimate 805 1 312 811 75 24 12 months ended 31 December 2008 1 147 337 104 26 3 2007 569 678 16 21 12 3 027 1 617 1 296 Major cash ﬂ ow commitments for investments not included in capital expenditure: – Mafube coal joint venture (50%) 713 E x x a r o A n n u a l R e p o r t 2 0 0 8 I 29 fInancIal revIew continued Changes to International Financial Reporting Standards (IFRS) The financial statements have been prepared in accordance with IFRS, with accounting policies consistent with those applied for the corresponding period ended 31 December 2007. An actuarial valuation of the employer liability was performed in 2007 and a provision was raised in the amount of R36,3 million, of which R33,7 million was simultaneously raised as a receivable, being recoverable from Eskom as part of tied coal supply arrangements. The latest actuarial valuation of this liability at 31 December 2008 is R42 million with R42 million as a receivable from Eskom. Exxaro did, however, early-adopt the following standards in 2008: • IAS 1 Presentation of financial statements: including a statement of comprehensive income to separately disclose ‘other comprehensive income’ being items of income and expenses that are non-owner related and not recognised in profit or loss, and which were previously recognised directly in equity. • IFRS 8 Operating segments: Disclosure of the components or segments that management uses to make decisions on operational issues. The implementation led to differences in the basis of segmentation compared to previous periods. As a result, new operating segments have been identified. IAS 1 and IFRS 8 are disclosure standards and have no other impact on the recognition or measurement of items and accordingly their adoption has no effect on profit or equity for the year. A further post-retirement benefit liability was acquired at an actuarial valuation of R25 million on the acquisition of the assets and liabilities of Namakwa Sands. Exxaro is a participating employer in a number of defined contribution funds that provide retirement, death and disability benefits to employees. Exxaro no longer participates in any defined benefit funds. Share price performance A year-on-year comparison to 31 December 2008 shows the volume-weighted average share price was R103,72 against R75,49 for the previous year. Daily trade in shares averaged 1 158 198 in 2008 compared to 849 137 in the previous period, an increase of 30% illustrating strongly improved liquidity. During the year the share price peaked at R159,50 in June 2008 (against a high of R107,00 in the previous financial period) and bottomed at R53,50 in October 2008 versus a low of R51,75 in January 2007. Post-retirement benefit liability Accredited medical aid funds are structured to exclude any For the period Exxaro performed in line with the FTSE/JSE Resources Index but underperformed the FTSE/JSE All employer liability for post-retirement medical benefits in Share Index by 5%. respect of either existing or past employees. The merger with Eyesizwe and creation of Exxaro in acknowledgements As this is my final financial review of the group, I thank November 2006 resulted in the need to raise a provision Sipho Nkosi, our chief executive officer, and the board of for post-employment healthcare benefits that had been directors for their guidance and support during my term as provided to a group of continuation and in-service members financial director. My best wishes accompany them in the on the Witbank Coal Medical Aid Scheme and BHP Billiton future governance and strategic direction of the group. SA Medical Scheme. This benefit, which is no longer offered, applied to selective employees previously employed I also express my sincere appreciation to the very competent by Eyesizwe or Ingwe Coal and comprises a subsidy of Exxaro finance teams for their commitment, dedication and contributions. valuable contributions. ManagEMEnt tEaM Rian Strydom (42) General manager: financial accounting Riaan Koppeschaar (38) General manager: corporate finance and treasury Sakkie Prinsloo (55) Group manager: taxation 30 I E x x a r o A n n u a l R e p o r t 2 0 0 8 Relative performance for the period 1 January 2008 to 31 December 2008 0 0 1 o t d e s a b e R 160 140 120 100 80 60 40 (27%) (31%) (31%) 01/02/2008 02/23/2008 04/15/2008 06/06/2008 07/28/2008 07/28/2008 09/18/2008 11/09/2008 12/31/2008 — — Exxaro Resources Limited — FTSE/JSE All Share Index — FTSE/JSE Resources Index Source: I-Net Bridge Share price and volume traded for the period 1 January 2008 to 31 December 2008 ) 0 0 0 ( d e d a r t e m u o V l 5 000 4 500 4 000 3 500 3 000 2 500 2 000 1 500 1 000 500 0 180 160 140 120 100 80 60 40 20 0 ) R A Z ( e c i r p e r a h S 8 0 / 2 / 1 8 0 / 6 1 / 1 8 0 / 0 3 / 1 8 0 / 3 1 / 2 8 0 / 7 2 / 2 8 0 / 2 1 / 3 8 0 / 6 2 / 3 8 0 / 9 / 4 8 0 / 3 2 / 4 8 0 / 7 / 5 8 0 / 1 2 / 5 8 0 / 4 / 6 8 0 / 8 1 / 6 8 0 / 2 / 7 8 0 / 6 1 / 7 8 0 / 0 3 / 7 8 0 / 3 1 / 8 8 0 / 7 2 / 8 8 0 / 0 1 / 9 8 0 / 4 2 / 9 8 0 / 8 0 / 0 1 8 0 / 2 2 / 0 1 8 0 / 5 / 1 1 8 0 / 9 1 / 1 1 8 0 / 3 / 2 1 8 0 / 7 1 / 2 1 8 0 / 1 3 / 2 1 — — Volume traded — Share price Source: I-Net Bridge E x x a r o A n n u a l R e p o r t 2 0 0 8 I 31 BUSINESS OPERATIONS REVIEW Coal OVERVIEW Calendar 2008 was an exceptional period for Exxaro Coal, with Inyanda and Mafube coming on line and contributing to group results. 2009 Capital expenditure estimate 19% ●● Sustaining and environmental ●● Expansion * A R713 million commitment in 2009 is also expected for the 50% Mafube coal joint venture participation. 81% HIGHLIGHTS • Record annual revenue of R9 billion and net operating proﬁ t of R2,7 billion • Total production volumes reach 45Mt • Higher production from Inyanda and North Block Complex • Construction of Grootegeluk expansion on track to supply Medupi power station. Above: Haul trucks at shift change, Grootegeluk mine, Limpopo. 32 I E x x a r o A n n u a l R e p o r t 2 0 0 8 The positive turnaround at North Block Complex (NBC) in with the objective of developing solutions for sustainable 2007 underpinned further growth at this mine in the review improvements on the coal line. period with additional capacity now available due to mining new reserves. Despite rail logistical challenges and in line with the strategic intent to increase Exxaro Coal’s presence in the steam coal The decision to discontinue underground activities at export market, production from the new mines Mafube and New Clydesdale mine for safety reasons in the prior year Inyanda together with Exxaro’s increased export entitlement created the opportunity to accelerate the development at the Richards Bay Coal Terminal (RBCT), boosted export of the Inyanda export coal mine through New Clydesdale volumes by 80% from 1,8mt to 3,3mt in 2008. Phase V beneﬁ ciating Inyanda’s run-of-mine production, enabling it of RBCT will be commissioned in 2009, although future to capture valuable export income for the group. allocations of rail and port capacity have not yet been ﬁ nalised. With the introduction of additional rolling stock After a catastrophic failure in 2007 as previously reported, by Transnet Freight Rail in the ﬁ rst quarter of 2009, rail Leeuwpan mine’s stacker reclaimer was repaired and performance is expected to improve. recommissioned in early 2009. Front-end loaders were deployed from September 2007 to minimise the impact With international coal prices being linked to global oil on the business and performed above expectations under and energy price increases, they rose to record levels in difﬁ cult circumstances. the ﬁ rst half of 2008 with domestic prices following this trend. International prices, however, softened considerably Exxaro’s joint venture participation in the Mafube expansion in the second half of the reporting period following the project with Anglo Coal has been delayed as certain global economic crisis. Exxaro Coal was able to optimally conditions precedent are still outstanding. Despite this, capture value from both international and domestic price the Mafube mine ramped up during the year and Exxaro’s movements. 50% share of export product added 733kt to overall export volumes, allowing the group to beneﬁ t from prevailing Exxaro Coal supplied the ﬁ rst 3,3Mt of the total 10Mt higher export prices. undertaking to Eskom as part of Eskom’s request for 40Mt additional power station coal from the coal industry. South African coal exports have declined 13% from 72Mt in Additional tonnage was supplied from NBC and Grootegeluk 2005 to approximately 63Mt in 2008, primarily due to rail mines with the balance of 5,8Mt in 2009 and 0,9Mt in 2010 logistics. Discussions with Transnet Freight Rail continue coming from the Grootegeluk, NBC and Leeuwpan mines. Physical information and operating results Overall production volumes were 9% higher than in 2007. Production and sales volumes are reﬂ ected below: 2008 2007 Variance Y-O-Y % Production (000 tonnes) Power station coal – Tied operations1 – Commercial operations Coking coal – Tied operations1 – Commercial operations Other commercial operations Total Sales (000 tonnes) Eskom – Tied operations1 – Commercial mines Other domestic – Tied operations1 – Commercial mines Export commercial mines2 Total 36 700 18 095 18 605 2 560 327 2 233 5 574 44 834 36 255 18 054 18 201 5 481 352 5 129 3 276 45 012 34 246 16 732 17 514 2 962 463 2 499 4 111 41 319 34 226 16 699 17 527 5 237 449 4 788 1 821 41 284 2 454 1 363 1 091 (402) (136) (266) 1 463 3 515 2 029 1 355 674 244 (97) 341 1 455 3 728 7 8 6 (14) (29) (11) 36 9 6 8 4 5 (22) 7 80 9 1 Tied operations refer to mines that supply their entire production to either Eskom or ArcelorMittal SA Limited in terms of contractual agreements. 2 Includes steam coal exports from Exxaro’s 50% share of the Mafube expansion project. E x x a r o A n n u a l R e p o r t 2 0 0 8 I 33 BUSINESS OPERATIONS REVIEW continued Operating results Total Revenue Net operating proﬁ t Capital expenditure on new capacity Rm 9 040 2 654 337 Other domestic sales were affected by lower production at Tshikondeni and a 13% decrease in sales to ArcelorMittal SA Limited in line with reduced demand in the steel and ferroalloy industry in the last quarter of 2008. The coal business was able to offset some of these lower sales volumes through additional sales from Leeuwpan and North Power station coal production at the Eskom-tied mines was Block Complex to the domestic market. signiﬁ cantly higher due to a good turnaround at Arnot after successfully implementing improvement initiatives. Exxaro’s commercial mines, most notably North Block Complex, Prospects In 2009, the focus will remain on optimising current assets increased production to supply higher demand from Eskom. as well as ensuring the successful commissioning and ramp- North Block Complex started mining new reserves and up of the Sintel char plant at Grootegeluk and development increased overall capacity. of the Diepspruit reserve at New Clydesdale. Coking coal production, however, decreased by 402kt in The coal business is expected to continue experiencing 2008 due to challenging geological and mining conditions at strong demand for local power station coal. However, coking Tshikondeni mine. In addition, Grootegeluk mine used its no coal sales are anticipated to be lower at reduced prices 6 plant-tipping capacity to channel run-of-mine tonnages to in line with lower demand from the steel and ferroalloy produce additional power station coal from the no 2 washing industry. Steam coal sales volumes, in turn, should increase plant, contributing to the reduction in coking coal production. but at lower international prices. Steam coal production was signiﬁ cantly higher than All applications for new-order mining rights for the coal the previous year mainly due to Inyanda ramping up in business have been granted, except for the Weltevreden 2008, good production levels at Leeuwpan resulting from deposit adjacent to Leeuwpan mine which is under additional overburden removal in 2007 and increased consideration by the Department of Minerals and Energy. production at North Block Complex. Sales of power station coal to Eskom increased by 2Mt to 2008 by successfully commissioning projects scheduled 36,3Mt as a result of improved production performance at for the new ﬁ nancial year. Effective cost-management and tied operations and demand from the electricity utility to improvement initiatives will be pursued to ensure proﬁ tability increase stock levels at various power stations. even during a prolonged recessionary environment. Exxaro Coal aims to improve on the solid performance in 34 I E x x a r o A n n u a l R e p o r t 2 0 0 8 STRATEGIC OBJECTIVES We will create exceptional value by being an innovative MANAGEMENT TEAM Mxolisi Mgojo (48) coal and reductants company, with a global footprint, Executive general manager and by utilising and developing excellence in people and superior processes. We aim to achieve our 2015 target of 75Mt of coal and 750kt of reductants by focusing on: • Operational excellence • Responsible custodianship of safety, health, environment and quality issues • Continued optimisation of market position • Value growth of the business Leon Groenewald (42) Manager: ﬁ nance Mongezi Veti (43) Area general manager: Arnot, New Clydesdale and Tshikondeni Johan Wepener (51) • Organisational excellence including high-performance Area general manager: Leeuwpan, Inyanda, North Block culture, sustainability and transformation. Complex and Mafube E x x a r o A n n u a l R e p o r t 2 0 0 8 I 35 BUSINESS OPERATIONS REVIEW continued Mineral sands OVERVIEW On 1 October 2008, Namakwa Sands became part of Exxaro, making the group one of the largest suppliers of titanium dioxide feedstock and zircon in the world and allowing it to be uniquely positioned in the global minerals sands industry. 2009 Capital expenditure estimate ●● Sustaining and environmental ●● Expansion 22% 78% HIGHLIGHTS • Consolidated proﬁ t recorded • Signiﬁ cant maiden proﬁ t contribution from Namakwa Sands • Several production records at all operations Above: Smelter operations at KZN Sands, KwaZulu-Natal. 36 I E x x a r o A n n u a l R e p o r t 2 0 0 8 The mineral sands technology expertise acquired with the Despite growing titanium dioxide pigment demand from Namakwa Sands transaction has assisted in the proﬁ table developing countries, declining GDP increases in developed turnaround of the KZN operation. The three operations economies, compounded by the global economic crisis, (Australia Sands, KZN Sands and Namakwa Sands) now resulted in lower demand and only marginal price increases boast a complementary set of products and technologies, in 2008. Demand for feedstocks, zircon and low manganese with a group consolidated marketing strategy other than for pig iron (LMPI) remained strong in 2008 as evidenced by pigment, which is marketed by Tronox, Exxaro’s partner in higher prices. Prices in 2009 for feedstocks, LMPI and zircon the Tiwest joint venture. will remain challenging and are expected to move sideways. Physical information and operations review Production and sales volumes for 2008 and 2007 are disclosed below: 2008 2007 Variance Y-O-Y % KZN Sands Production (000 tonnes) – Ilmenite – Zircon – Rutile – Pig iron – Scrap pig iron – Chloride slag – Sulphate slag Sales – Ilmenite – Zircon – Rutile – Pig iron – Scrap pig iron – Chloride slag – Sulphate slag Namakwa Sands1 Production (000 tonnes) – Ilmenite – Zircon – Rutile – Pig iron – Scrap pig iron – Chloride slag – Sulphate slag Sales – Zircon – Rutile – Pig iron – Scrap pig iron – Chloride slag – Sulphate slag 229 34 19 50 16 95 18 40 36 14 64 7 101 17 315 130 27 103 6 135 24 135 27 82 1 145 26 367 34 17 90 20 150 26 50 27 18 91 8 163 29 300 115 24 91 11 126 27 115 26 86 1 124 30 (138) – 2 (40) (4) (55) (8) (10) 9 (4) (27) (1) (62) (12) 15 15 3 12 (5) 9 (3) 20 1 (4) – 21 (4) (38) – 12 (44) (20) (37) (31) (20) 33 (22) (30) (13) (38) (41) 5 13 13 13 (45) 7 (11) 17 4 (5) – 17 (13) 1 Namakwa Sands has been included from 1 January 2007 for comparable purposes 2Australia Sands’ 50% interest in its Tiwest joint venture is disclosed E x x a r o A n n u a l R e p o r t 2 0 0 8 I 37 BUSINESS OPERATIONS REVIEW continued Australia Sands2 Production (000 tonnes) – Ilmenite – Zircon – Rutile – Synthetic rutile – Leucoxene – Pigment Sales – Zircon – Rutile – Synthetic rutile – Leucoxene 2008 2007 Variance Y-O-Y % 174 29 13 113 16 43 35 14 62 17 216 36 17 100 16 54 29 16 57 17 (42) (7) (4) 13 – (12) 6 (2) 5 – (19) (19) (24) 13 – (20) 21 (13) 9 – 1 Namakwa Sands has been included from 1 January 2007 for comparable purposes 2 Exxaro Sands Australia’s 50% interest in its Tiwest joint venture is disclosed Operating results Total Comparable revenue Comparable net operating proﬁ t Capital expenditure on new capacity KZN Sands Australia Sands Rm 4 142 448 104 Record synthetic rutile production was achieved in 2008 resulting from stable operating conditions following the kiln shut in 2007. Although mineral production was lower as a result of dredging operations moving through lower ore grade areas, successful business improvement initiatives to increase yield and recoveries partially offset the negative KZN Sands reported lower production as a result of the variances. The 2009 mine plan indicates a higher grade than Furnace 2 water ingress incident at the end of February 2008, 2008 which should positively impact on mineral production with only Furnace 1 being operational for the remainder of in the new year. the year. Continuous improvement initiatives are impacting positively on production, with the Furnace 2 start up in early Pigment production was substantially lower than the December 2008 ramping up according to plan. comparative period in 2007 as a result of maintenance- related issues, an emergency shut at one of the critical raw Titanium slag produced at 113kt was 63kt lower than the material suppliers, the rebuild of all four chlorinators and comparable period in 2007. Furnace 1 performed well by interruptions in gas supply in the ﬁ rst quarter of 2008. producing more than 95kt of slag, equivalent to 87% of Several initiatives have been implemented to improve the cold feed capacity. Low manganese pig iron production was performance of the pigment plant and, in December 2008, in line with the decreased slag throughput while ilmenite pigment production improved to pre-2008 levels. A stronger production was aligned with lower smelter feed requirements pigment production performance is expected in 2009. at 138kt lower than the corresponding period in 2007. 38 I E x x a r o A n n u a l R e p o r t 2 0 0 8 Namakwa Sands Exxaro acquired effective ownership of Namakwa Sands STRATEGIC OBJECTIVES • Maintain position among leading global suppliers of on 1 October 2008 for an adjusted consideration of titanium dioxide feedstock and zircon R2 783 million. The breakdown of the acquisition price is • Downstream value addition detailed in the ﬁ nancial review. • Increase share in world chloride pigment production MANAGEMENT TEAM Wim de Klerk (45) Executive general manager Mellis Walker (42) Manager: ﬁ nance Annual records were achieved for zircon, titanium slag and pig iron production. The record zircon production was attributable to higher grades and improved plant efﬁ ciencies. Record smelter production resulted from Furnace 2 operating on full power of 35MW following the de-bottlenecking of process difﬁ culties which increased slag and iron tapped despite power cutbacks in the ﬁ rst quarter of 2008. Efﬁ ciency improvements at the smelter operations include annual records reported for the chlorinatable (CP) slag ratio at 84,5% compared to a previous best of 82,5%, and iron recovery at 91,3% compared to the previous record of 90,3%. Prospects At Namakwa Sands the optimisation of mine planning and scheduling in 2009 is receiving priority to ensure optimal matching of current technology and driving integrated business improvement initiatives. The containment of unit costs at all operations will be embarked on, with identiﬁ ed savings initiatives aimed at realising proﬁ table contributions from all three business operations. Increased production volumes from all mineral sands operations and a full 12 months’ contribution from Namakwa Sands, together with the local and Australian currencies remaining at their present weaker levels, should beneﬁ t this business in 2009 if market demand and prices remain at current stable levels. E x x a r o A n n u a l R e p o r t 2 0 0 8 I 39 BUSINESS OPERATIONS REVIEW continued Base metals OVERVIEW A year characterised by signiﬁ cantly lower zinc metal demand and prices. 2009 Capital expenditure estimate ●● Sustaining and environmental ●● Expansion 44% 56% HIGHLIGHTS • Rebuild of roasters in Zincor’s acid plant completed • Crushing circuit at Rosh Pinah mine refurbished • Major plant maintenance programmes to be completed in 2009 Above: Preparing for underground blasting at Rosh Pinah mine, Namibia. 40 I E x x a r o A n n u a l R e p o r t 2 0 0 8 Exxaro’s base metals business encompasses the operations in November 2006 and has as strategic intent the possible of Rosh Pinah zinc and lead mine in southern Namibia supply of concentrate from the adjacent Gamsberg project (now 50,04% held), the Zincor zinc reﬁ nery in Gauteng, a to the Zincor reﬁ nery. 22% effective interest in the Chifeng zinc reﬁ nery in Inner Mongolia, China and, with effect from 1 November 2008, a The record-high price environment in 2006 and 2007 has 26% interest in Black Mountain Mining (Pty) Limited. been followed by signiﬁ cantly lower zinc metal prices due to lower local and international demand. The average zinc price The interest in Black Mountain was acquired for an for the year of US$1 874 per tonne was 42% lower than the adjusted consideration of R221 million as fully disclosed equivalent average of US$3 231 in 2007. Higher treatment in the ﬁ nancial review. The acquisition formed part of the charges only marginally offset the impact of lower prices. empowerment transaction that led to the creation of Exxaro Physical information and operating results Production and sales volumes for 2008 and 2007 are reﬂ ected below: Production (000 tonnes) Zinc concentrate – Rosh Pinah – Black Mountain1 Zinc metal – Zincor – Chifeng2 Lead concentrate – Rosh Pinah – Black Mountain1 Zinc metal sales – Domestic – Export Lead concentrate – Rosh Pinah Export 2008 2007 Variance Y-O-Y % 94 15 87 23 20 17 93 33 22 95 15 101 23 22 15 93 29 19 (1) – (14) – (2) 2 – 4 3 (1) – (14) – (9) 13 – 14 16 1 Exxaro’s 26% interest in Black Mountain has been disclosed from 1 January 2007 for comparable purposes. 2 Exxaro’s effective interest in the Chifeng reﬁ nery is disclosed. E x x a r o A n n u a l R e p o r t 2 0 0 8 I 41 BUSINESS OPERATIONS REVIEW continued Operating results Total Revenue Net operating loss Capital expenditure on new capacity Rm 1 829 (172) 26 STRATEGIC OBJECTIVES • Securing a long-term, viable, quality feedstock supply for Zincor • Operational improvement at current businesses Production of zinc metal at Zincor reﬁ nery of 87kt was 14% MANAGEMENT TEAM Wim de Klerk (45) lower than 2007. This was due to limited power supply and Executive general manager a total plant blackout following a transformer failure that caused major delays and instability throughout the plant in Mellis Walker (42) the second half of 2008, as well as the extended shut and Manager: ﬁ nance rebuild of two roasters in the acid plant. Zinc metal sales, however, remained in line with 2007 despite a drastic reduction in the second half when the global economic crisis caused a sharp decline in the local market. Production of zinc concentrate at Rosh Pinah mine of 94kt is in line with 2007 although lower metal content grades were recorded. This was caused by plant stoppages and instability from equipment failures at the crushing and ﬂ otation circuits of the plant and failures due to an unstable electricity supply. A capital replacement programme of the ﬂ otation circuit is planned for the second half of 2009 while the crushing circuit was fully refurbished in the second half of the review period. Zinc concentrate railed from Rosh Pinah was 11% lower as problems with the availability of railway wagons led to lower imports of cement into Namibia and subsequent backhaul of concentrate. Lead sales were higher than 2007 due to rescheduled shipments. Prospects Completion of the major capital replacement and refurbishment programmes, with plant stability, is a focus area for 2009. The base metals business is expected to remain under pressure in 2009 given continued depressed market conditions and zinc prices. Working capital management together with cost control and business improvement initiatives will be required to offset interim lower demand and price challenges. 42 I E x x a r o A n n u a l R e p o r t 2 0 0 8 GROWTH Following the credit crisis and global economic meltdown Market coke in the second half of 2008, Exxaro is reviewing its capital A feasibility study on producing high-quality market coke expenditure programmes, including sustaining capital, from semi-soft coking coal produced at Grootegeluk mine as well as its project pipeline. The group will focus on is under review. successfully implementing committed expansions while reprioritising other identiﬁ ed growth opportunities. Mafube coal mine Coal Grootegeluk Medupi expansion Commissioning of the Mafube expansion project, at a capital cost of R1,9 billion, in which the group is a 50:50 joint venture partner with Anglo Coal, has been completed and Exxaro board approval for the coal supply agreement and ramp-up to full capacity was reached by end-2008. At full implementation of the project to expand Grootegeluk mine, production, the mine will produce 3Mtpa of export steam at a capital cost of R9 billion, was obtained in August 2008. coal and 2Mtpa of power station coal. In September 2008 an agreement was concluded with Eskom for the supply of 14,6Mtpa of power station coal Inyanda coal mine for 40 years from Grootegeluk mine to Eskom’s adjacent Commissioning of the beneﬁ ciation plant at the Medupi power station, currently under construction. The R290-million Inyanda mine was successfully completed in ﬁ rst coal is to be supplied in the last quarter of 2011 with full the second quarter of 2008. Full production of 1,5Mtpa, production from 2014. Waterberg mine mostly for the export market, was exceeded by the end of the year. A pre-feasibility study and geological exploration work on a The Blackhill railway siding has been successfully potential greenﬁ elds mine adjacent to Grootegeluk mine is commissioned and is being operated at design capacity. This being progressed. This potential mine has the capability of is currently the only train-loading facility in Exxaro where supplying the market with power station and metallurgical Jumbo railway wagons can be loaded to full capacity. coal. Sintel char project Eerstelingsfontein reserve All mining authorisations and regulatory approvals for The commissioning of the Sintel char plant at Grootegeluk mining the Eerstelingsfontein reserves near Belfast to mine to produce reductants for the ferroalloy industry is supply 1Mtpa of product to the local market have been behind schedule. This is due to delays experienced with obtained. Full production is expected by the second quarter construction contractors. Ramp-up of the facility began in of 2009. August 2008 but was delayed to February 2009 when the refractory lining of the four retorts failed during the heating process. All retorts should be commissioned by end-June 2009, with full production of 160ktpa estimated by the end of the year. E x x a r o A n n u a l R e p o r t 2 0 0 8 I 43 GROWTH continued Botswana Gas project Moranbah South resource Exxaro has concluded an agreement with Sekaname Exploration of the hard coking coal resource on the adjacent (Pty) Limited to begin a coal-bed methane exploration properties of Moranbah South and Grosvenor South in programme in Botswana. The focus of the study will be Queensland, Australia, in joint venture with Anglo Coal to prove economic gas ﬂ ow rates from coal-bed methane Australia, is progressing according to schedule. Exploration seams. The purpose of the joint venture, in which Exxaro is focused on geological work to delineate long-wall has a 75% interest, is to explore the feasibility of creating a mining resources. The potential for bord-and-pillar mining gas-based energy business. operations will also be explored. Moranbah South has the potential to produce large volumes of premium-quality hard coking coal. Diepspruit reserve Mineral sands Fairbreeze mine The feasibility study for the construction of the Fairbreeze mine, south of the existing Hillendale mine, is being updated Development of the Diepspruit reserve at New Clydesdale with start of construction targeted for the second half of (NCC) is planned to produce its ﬁ rst coal by the second 2009. Production is planned for the ﬁ rst half of 2011 after quarter of 2009. At full production, the R136-million project mining Braeburn and Braeburn extension in the next three will produce 1,3Mtpa run-of-mine coal for beneﬁ ciation at years. NCC for supply to the export steam coal market. Co-generation project Port Durnford mine The feasibility study for Port Durnford mine, south-west of Hillendale mine, will be completed in 2010. This mine could Exxaro formed a joint venture with Promethium Carbon to supply the KZN furnaces for more than 20 years, if proven develop co- and on-site generation projects of up to 200MW viable. each. The bankable feasibility phase for some of these projects is nearing completion and discussions are under Centane deposit way with host parties on offtake agreements and contractual A drilling campaign to conﬁ rm the Shell-Rhoex results for arrangements. It is anticipated that three projects will be the Centane deposit in Eastern Cape took place in August initiated in 2009. 2008. Samples analysis will be completed in 2009. 44 I E x x a r o A n n u a l R e p o r t 2 0 0 8 Toliara Sands The Toliara Sands project’s feasibility study for the Ranobé Base and other metals Turkey iron ore and base metal opportunity deposit in south-western Madagascar is still under way. Exploration activities in Turkey are still in their early Further process work is being done on ilmenite product from stages with further participation being critically reviewed the Ranobé deposit. An aerial radiometric and magnetic in the current depressed economic environment. The area survey was completed for the northern Monombo-Marombe includes zinc, lead copper and iron ore prospects. A total of area. Results from this survey will determine whether to R110 million was expensed for the year on acquisition and continue with further drilling. exploration costs. Kwinana pigment expansion More than 11 000 metres of mainly iron ore-focused Implementation of the Tiwest Kwinana pigment expansion exploration drilling was completed between April and project for an additional 40ktpa production is on track, with October 2008. Exploration activities have been suspended commissioning targeted for the ﬁ rst quarter of 2010. Exxaro for the winter and will resume again in the second quarter is funding 100% of the A$100-million expansion project. of 2009. Dongara Technical evaluation on a bulk ore sample is also in progress The Dongara feasibility study, which forms part of the at the Exxaro research and development test facilities. Tiwest joint venture, is under way and will be completed Results are expected towards the end of 2009. by 2009. Given the increased life expectancy of the Tiwest current dry mine operation at Cooljarloo, production at Chifeng reﬁ nery Dongara is not planned to start before 2011. This deposit The feasibility study to expand Chifeng reﬁ nery by a has the potential to provide feedstock to the Tiwest mineral further 100ktpa was completed in the ﬁ rst half of 2008. separation plant for six years. Alternatives for Dongara After reviewing the prospect, Exxaro concluded that the are being investigated. Exploration at Cooljarloo West has planned expansion does not meet its investment criteria, started and will continue in 2009. and decided not to participate. The expansion plans have since been indeﬁ nitely delayed as a result of the substantial decline in demand for zinc metal. E x x a r o A n n u a l R e p o r t 2 0 0 8 I 45 REVIEW OF MINERAL RESOURCES AND RESERVES The mineral resources and ore reserves underpinning persons is available from the company secretary on written Exxaro’s current operations and growth projects are request. summarised in the tables on pages 48 to 55. Mineral resources are reported inclusive of ore reserves and The processes and calculations associated with the estimate at 100%, irrespective of the percentage attributable to have been audited by internal competent persons and, on a Exxaro, except in the case of Gamsberg and Black Mountain three- to four-year cycle basis, by external consultants. In because ﬁ gures received from Anglo Base Metals represent the case of Namakwa Sands, which was acquired by Exxaro in resources exclusive of reserves. Signiﬁ cant changes in the 2008, the ﬁ gures listed in the tables represent the tonnages resource or reserve ﬁ gures have been explained by relevant quoted in the Anglo American 2007 ﬁ nancial statements, footnotes attached to each table. Mineral resources and depleted by tonnages mined during the reporting period. ore reserves were estimated by competent persons on an operational basis and in accordance with the Samrec The person within Exxaro designated to take corporate Code (2007) for South African properties and the Jorc responsibility for mineral resources and ore reserve, HJ van Code (2004) for Australian properties. Ore reserves in the der Berg, the undersigned, has reviewed and endorsed the context of this report have the same meaning as “mineral reported estimates. reserves”, as deﬁ ned by the Samrec Code of 2007. All the competent persons have sufﬁ cient relevant experience in the style of mineralisation, type of deposit, mining method and activity for which they have taken responsibility, to qualify as a “competent person” as deﬁ ned in these codes. These competent persons have signed off their respective estimates in the original mineral resources and ore reserve HJ Van Der Berg statements for the various operations and consent to the MSc (Geology), BSc (Hons) inclusion of the information in this report in the form and Pr Sci Nat (400099/01) context in which it appears. A list of Exxaro’s competent Manager Mineral Assets 46 I E x x a r o A n n u a l R e p o r t 2 0 0 8 Comment Exxaro’s tenure over its mineral assets as listed in the Anglo Coal Australia, has conﬁ rmed that it is a valuable tables was audited and is conﬁ rmed with the following coking coal resource. The pace of exploration will be consideration. The appeal against the refusal of a prospecting increased in 2009 to facilitate the start of a feasibility study right over several farms included in the Leeuwpan and on certain areas by 2010. The other international resources Strehla mineral resource ﬁ gures is still pending. This issue growth opportunity – namely iron ore in Turkey – was pursued is being addressed at senior level and positive progress has through an intense exploration programme during the eight- been made. The new mining right application over certain month long exploration cycle (April to November) and the Leeuwpan properties is still under consideration by the potential for a small, but proﬁ table, operation established. Department of Minerals and Energy (DME). The 2009 programme will focus on taking the potential mineral resource to pre-feasibility/feasibility level and an Exxaro applied for the conversion of all ex-Kumba old- investment decision. Base metal potential in Turkey will also order mining licences to new-order mining rights in 2005. be evaluated in 2009 to determine whether it ﬁ ts Exxaro’s Additional information requested by the DME has been growth strategy. At Rosh Pinah zinc mine, boreholes based provided. Applications for the conversion of all ex-Eyesizwe on the conceptual extension of the ore model intersected mines were submitted in 2008, well ahead of the ﬁ nal date good mineralisation and drilling to delineate the mineralised for submission on 30 April 2009. Exxaro received written area will continue in 2009. conﬁ rmation from the DME in December 2008 that the ex-Kumba mining licences have been converted. The DME The objective to manage and grow Exxaro’s mineral assets needs to schedule the execution of these rights. was strongly pursued during the review period and will continue in 2009, with distinct focus on prioritised targets. Exxaro’s coal resources in the Waterberg coalﬁ eld, both in The approach will be to enhance understanding of the the form of the existing mining area and prospecting rights, mineral resources through the innovative integration and are regarded as one of the cornerstones of the company’s interpretation of available information and by tracking value future, and their management and optimisation will remain creation. The foremost objective will be to support Exxaro’s a focus area in 2009. Prospecting rights in the Mpumalanga quest to continually improve on safe working conditions. coalﬁ eld are being prioritised to determine the optimum ﬁ t Equally important are the mineral resources needed to in the company’s growth strategy. sustain Exxaro’s competitiveness through the challenges Internationally, additional exploration done on the Moranbah mineral assets available on which to base its growth strategy South project in Queensland, Australia, in co-operation with when the cycle turns positive again. ahead, but ultimately it is critical to ensure Exxaro has the E x x a r o A n n u a l R e p o r t 2 0 0 8 I 47 REVIEW OF MINERAL RESOURCES AND RESERVES continued Table 1: Exxaro’s Mineral Resource estimates for 2007 and 2008 Mineral resource estimates reported here are inclusive of ore reserve estimates reported in table 2; resources have been estimated in accordance with the Samrec and Jorc codes with respect to South African and Australian operations/projects 2008 2007 % attribu- table to Exxaro Resource category Tonnes (million) Grade Tonnes (million) respectively. Commodity Operation Coal Mpumalanga Arnot mine (1) (captive market) Matla mine (2) (captive market) Inyanda mine (3) 100 100 100 Leeuwpan mine (4) 100 Mafube mine 50,0 NBC mine (5) (North Block Complex) Belfast project (6) (prospecting) NCC mine (7) (New Clydesdale) Strehla project (prospecting) Coal Limpopo Grootegeluk mine (8) 100 100 100 100 100 Grootegeluk West project (9) (prospecting) 100 Waterberg South project (prospecting) 100 48 I E x x a r o A n n u a l R e p o r t 2 0 0 8 Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL 176,8 8,5 6,5 191,8 256,5 483,0 71,3 810,8 15,5 – – 15,5 186,6 2,8 – 189,4 122,5 – 54,3 176,8 32,4 20,2 – 52,6 107,7 3,7 7,1 118,5 16,8 40,3 – 57,1 – 22,5 – 22,5 4 117 1 347 96 5 559 17 5 357 590 5 963 – – 699 699 Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal – – Raw coal Raw coal Raw coal – Raw coal Raw coal – Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal – Raw coal – Raw coal – Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal – – Raw coal Raw coal Grade Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal – Raw coal Raw coal – – Raw coal Raw coal Raw coal – Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal – Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal – Raw coal – Raw coal – Raw coal Raw coal Raw coal Raw coal Raw coal – – Raw coal Raw coal % change (27,0) 95,3 (14,6) 11,7 (2,8) – 242,9 124,6 39,0 0,0 2,7 12,7 171,7 74,0 17,1 262,8 302,3 112,8 – 415,1 18,1 – – 18,1 163,1 6,5 – 169,6 58,2 41,9 81,8 182,0 7,1 8,3 – 15,4 23,9 24,0 4,8 52,7 13,7 27,4 – 41,1 – 22,5 – 22,5 774 3 534 1 107 5 415 – – 5 290 5 290 Not reported – Raw coal 0,0 Commodity Operation Coal Limpopo (continued) Waterberg North project (prospecting) Tshikondeni mine (captive market) Coal Australia Moranbah South project (10) (prospecting) Commodity Operation Mineral sands KwaZulu-Natal Hillendale Mine + Braeburn + Braeburn Extension (11) Fairbreeze A+B+C+C Ext (mining right) Fairbreeze D (mining right, additional resource not included in Fairbreeze LOM) Block P (mining right) Block P Extension project (prospecting) Port Durnford project (12) (prospecting) Mineral sands Eastern Cape Eastern Cape project (prospecting) (Nombanjana, Ngcizele, Sandy Point old and recent) 2008 2007 % attribu- table to Exxaro Resource category Tonnes (million) Grade Tonnes (million) Grade % change 100 100 50 Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL – – 2 176 2 176 24,4 10,1 – 34,5 165,6 767,8 406,1 1 339,5 – – Raw coal Raw coal Raw coal Raw coal – Raw coal Raw coal Raw coal Raw coal Raw coal Not reported Raw coal Raw coal Raw coal – Raw coal Raw coal Raw coal Raw coal Raw coal – 25,3 10,1 – 35,4 53,4 494,3 762,3 1 310,0 2008 2007 0,0 (2,7) 2,3 % attribu- table to Exxaro Resource category Tonnes (million) Grade % Ilmenite Tonnes (million) Grade % Ilmenite % change 100 100 100 100 100 51 100 Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL 53,4 – – 53,4 202 27 – 229 – 9,2 – 9,2 – 40,6 – 40,6 – – 42 42 142,5 340,1 466,0 948,6 232,9 – – 232,9 3,35 – – 3,35 3,7 2,5 – 3,6 – 2,5 – 2,5 – 3,1 – 3,1 – – 2,7 2,7 3,0 2,8 2,5 2,7 4,5 – – 4,5 62,6 – – 62,6 202 27 – 229 – 9,2 – 9,2 – 40,6 – 40,6 – – 42 42 – 1 004,6 117,3 1 121,9 232,9 – – 232,9 3,53 – – 3,53 3,7 2,5 – 3,6 – 2,5 – 2,5 – 3,1 – 3,1 – – 2,7 2,7 – 2,8 2,9 2,9 4,5 – – 4,5 (14,6) 0,0 0,0 0,0 0,0 (15,4) 0,0 E x x a r o A n n u a l R e p o r t 2 0 0 8 I 49 REVIEW OF MINERAL RESOURCES AND RESERVES continued Commodity Operation Mineral sands Limpopo Gravelotte sand and pebbles (mining right) Gravelotte rock (mining right) Letsitele sand project (prospecting) Letsitele rock project (prospecting) Mineral sands Western Cape Namakwa Sands mine (13) Mineral sands Madagascar Ranobé – Upper sand unit (prospecting) Mineral sands Australia Tiwest– Cooljarloo mine (14) – Jurien project (mining right) – Dongara project (15) (prospecting) Commodity Operation Base metals Namibia Rosh Pinah mine (zinc and lead) 2008 2007 % attribu- table to Exxaro Resource category Tonnes (million) Grade % Ilmenite Tonnes (million) Grade % Ilmenite % change 100 100 100 100 100 100 50 50 50 Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL 75,1 – 31,3 106,4 – – 112,3 112,3 12,5 – – 12,5 – 53,6 – 53,6 181,3 393,2 262,9 837,4 208,8 320,4 181,3 710,5 62,5 281,8 10,0 354,3 – 25,6 – 25,6 91,4 – – 91,4 9,1 – 4,0 7,6 – – 20,7 20,7 10,5 – – 10,5 – 25,9 – 25,9 3,9 3,6 2,4 3,3 4,8 4,0 3,5 4,1 % THM 3,4 2,4 2,4 2,6 – 6,0 – 6,0 4,5 – – 4,5 75,1 – 31,3 106,4 – – 112,3 112,3 12,5 – – 12,5 – 53,6 – 53,6 208,8 320,4 181,3 710,5 117 297 25 439 – 25,6 – 25,6 1,3 75,4 – 76,7 9,1 – 4,0 7,6 – – 20,7 20,7 10,5 – – 10,5 – 25,9 – 25,9 Not reported 4,8 4,0 3,5 4,1 % THM 2,7 2,4 1,8 2,4 – 6,0 – 6,0 6,9 6,6 – 6,6 0,0 0,0 0,0 0,0 0,0 (19,3) 0,0 19,2 2008 2007 % attribu- table to Exxaro 50,04 Resource category Tonnes (million) Grade Tonnes (million) Grade % change Measured Indicated Inferred TOTAL % Zn 8,7 6,6 4,8 7,2 % Pb 2,2 1,8 0,8 1,8 4,7 5,8 1,7 12,2 5,0 6,4 1,7 13,1 % Zn 8,6 6,4 4,9 7,1 % Pb 1,9 1,8 0,9 (1,8) (7,1) 50 I E x x a r o A n n u a l R e p o r t 2 0 0 8 Commodity Operation Base metals Northern Cape Black Mountain Mining (16) – Deeps mine (zinc, lead, copper and silver) – Broken Hill mine (zinc, lead, copper and silver) – Swartberg mine (zinc, lead, copper and silver) Gamsberg mine (16) (zinc) Commodity Operation Industrial minerals Gauteng Glen Douglas mine (metallurgical dolomite) Glen Douglas mine (aggregate dolomite) % attribu- table to Exxaro Resource category Tonnes (million) 2008 Grade Zn% Pb% Cu% Ag g/t 26 26 26 26 Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL 1,1 2,5 2,4 6,0 0,5 0,1 – 0,6 – 17,3 24,5 41,8 – – 54,2 54,2 4,4 3,7 4,4 4,1 2,2 2,4 – 2,3 – 0,6 0,7 0,7 – – 4,1 4,1 4,0 4,5 1,4 3,2 1,9 1,1 – 1,8 – 2,9 2,8 2,8 – – – – 0,6 0,6 1,1 0,8 0,7 0,2 – 0,6 – 0,7 0,6 0,7 – – – – Not reported in 2007 Not reported in 2007 Not reported in 2007 Not reported in 2007 53,0 59,0 14,0 40,0 33,0 36,0 – 34,0 – 35,0 41,0 39,0 – – – – 2008 2007 % attribu- table to Exxaro Resource category Tonnes (million) 100 100 Measured Indicated Inferred TOTAL Measured Indicated Inferred 179,2 – 125,2 304,4 36,1 – 193,7 TOTAL 229,8 Grade % SiO2 <2,5 – <2,5 <2,5 Raw material – Raw material Raw material Tonnes (million) 180,3 – 125,2 305,5 37,7 – 193,7 231,4 Grade % SiO2 <2,5 – <2,5 <2,5 Raw material – Raw material Raw material % change (0,4) (0,7) The tonnages are quoted in metric tonnes and million tonnes is abbreviated as Mt. Rounding-off of ﬁ gures may cause computational discrepancies. Figures are reported at 100% irrespective of percentage attributable to Exxaro. All changes more than 10% (signiﬁ cant) are explained. 1 The review of geological information during the reporting period and subsequent creation of a new geological model has resulted in the decrease. 2 The increase is primarily the result of the creation of a new geological model incorporating 84 new drill holes drilled since 2004 and the inclusion of additional resources in areas previously excluded from the statement. 3 The change is the result of mining depletion. 4 The signiﬁ cant increase was the result of the re-classiﬁ cation of underground to opencast resources (~27,3Mt) due to a revised business plan. 5 Revised business plan including opencast mining of seams 3, 4 (previously not reported) and 2 (previously reported as underground) at Glisa resulted in a signiﬁ cant increase in the resource. 6 Increase is mainly the result of re-classiﬁ cation of previously underground resources to opencastable resources (revised business case) and inclusion of additional resources previously excluded from the statement. 7 The signiﬁ cant change is mainly the result of adding coal resources by drilling areas previously not included. 8 Changes within various categories are the result of updating the geological model in 2008 (48 additional holes) and re-classiﬁ cation of measured resources. 9 A prospecting right adjacent to Grootegeluk mine. Changes in various categories are due to additional drilling, creation of a new geological model and re-classiﬁ cation of resources. 10 The 2007 and 2008 ﬁ gures as estimated by Anglo Coal Australia covering the joint-venture area. 11 The decrease is the result of mining depletion. 12 Extensive drilling (~30 000m), the update of the geological model (cut-off changed from 3% THM to 3% ilmenite) and subsequent exclusion of areas previously reported on, resulted in the changes within categories and overall decrease. 13 Operation was acquired in October 2008. Figures were calculated by depleting the Anglo American audited 2007 statement. 14 Mine plan changes to access higher grades (by excluding areas of lower grade and stripping additional low-grade ore as overburden) has resulted in a ~41Mt loss. 15 Extensive drilling (~64 000m), creation of a new geological model, and re-optimisation of the resource areas resulted in the signiﬁ cant change. 16 Shareholding in project obtained in 2008. Figures received from Anglo Base Metals. Resources are additional to reserves. E x x a r o A n n u a l R e p o r t 2 0 0 8 I 51 REVIEW OF MINERAL RESOURCES AND RESERVES continued Table 2: Exxaro’s ore reserves estimates for 2007 and 2008 Ore reserve estimates reported here are included in the mineral resource estimates of table 1. They have been estimated in accordance with the SAMREC and JORC codes with respect to South African and Australian operations/projects respectively. Commodity Operation % attribu- table to Exxaro Coal Mpumalanga Arnot mine (17) (captive market) 100 Matla mine (18) (captive market) Inyanda mine (19) 100 Leeuwpan mine 100 Mafube mine (20) 50 100 NBC mine (21) (North Block Complex) Belfast project (22) 100 NCC mine (23) (New Clydesdale) Coal Limpopo Grootegeluk (24) mine Tshikondeni mine (captive market) 100 100 100 2008 2007 Reserve category ROM (Mt) Grade Saleable product (Mt) ROM (Mt) Grade Saleable product (Mt) % change Coking coal Thermal coal Metallur– gical coal N/A N/A N/A N/A N/A N/A N/A 85,7 N/A 1,2 N/A 86,9 N/A 137,3 N/A 258,5 N/A 395,8 A-grade export steam coal 8,7 8,7 48,4 34,3 N/A N/A 82,7 Export Thermal N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 105,3 14,9 120,2 22,0 24,7 46,7 N/A N/A N/A 56,8 – 56,8 N/A N/A N/A 11,4 20,9 32,3 24,2 19,6 43,8 29,9 – 29,9 8,6 – 8,6 124,0 1 094, 1 221,0 28,1 1 315,1 152,1 N/A 2,6 N/A – N/A 2,6 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 97,3 – 97,3 203,3 67,3 270,6 16,3 – 16,3 95,2 42,4 137,6 44,3 – 44,3 4,9 – 4,9 22,0 21,1 43,1 10,5 0,6 11,1 739 2 041 2 780 4,3 – 4,3 Coking coal Thermal coal Metallur– gical coal N/A N/A N/A N/A N/A N/A 94,3 – 94,3 201,3 66,6 267,9 N/A N/A N/A N/A N/A N/A A-grade export steam coal 10,2 – 10,2 N/A N/A N/A 76,9 Export Thermal 12,08 23,92 – – 12,08 23,92 4,8 N/A – N/A N/A 14,6 10,3 24,9 N/A N/A N/A 37,9 111,9 149,8 2,4 – 2,4 4,8 7,4 9,0 16,4 7,7 0,4 8,1 348 954 1 302 N/A N/A N/A 53,0 23,9 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 35,7 59,9 95,6 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – (10,3) 38,4 (14,8) 5,6 142,5 799 (120,3) 12,5 19,0 3,5 Proved Probable TOTAL Proved Probable TOTAL Proved Probable TOTAL Proved Probable TOTAL Proved Probable TOTAL Proved Probable TOTAL Proved Probable TOTAL Proved Probable TOTAL Proved Probable TOTAL Proved Probable TOTAL 86,1 1,2 87,3 110,3 264,2 374,5 13,9 – 13,9 88,0 57,4 145,4 40,6 66,8 107,4 24,2 19,6 43,8 91,9 3,0 94,9 12,5 – 12,5 2756 552 3 308 4,41 – 4,41 52 I E x x a r o A n n u a l R e p o r t 2 0 0 8 Commodity Operation % attribu- table to Exxaro 2008 2007 Reserve category ROM (Mt) Grade Total heavy mineral (THM) composition ROM (Mt) Grade Total heavy mineral (THM) composition % change % THM % Ilmenite % Rutile % Zircon % Leuco- xene % THM % Ilmenite % Rutile % Zircon % Leuco- xene Hillendale mine (25) (including Braeburn and Braeburn Extension) Fairbreeze A+B+C+ C ext (26) Gravelotte sand (mining right) 100 Proved Probable 25,8 2,7 7,5 5,0 55,0 63,0 3,7 8,0 6,5 4,0 1,9 2,0 19,1 2,7 8,2 5,0 53,0 63,0 4,0 4,0 6,0 8,0 2,0 2,0 TOTAL 28,5 7,3 55,8 4,1 6,3 1,9 21,8 7,8 54,0 4,0 6,0 2,0 30,5 100 100 Proved Probable TOTAL 137,4 44,1 181,5 6,1 7,2 6,4 59,9 61,3 60,3 3,1 3,4 3,3 8,3 8,1 8,1 1,4 1,8 1,7 137,4 44,1 181,5 6,1 7,2 6,4 Proved Probable TOTAL 52,4 – 52,4 13,0 – 13,0 85,0 – 85 N/A – N/A N/A – N/A N/A – N/A 52,4 – 52,4 13,0 – 13,0 60 61 60 85 – 85 3,1 3,4 3,3 N/A – N/A 8 8 8 N/A – N/A 1,4 1,8 1,7 N/A – N/A 0,0 0,0 Not reported Mineral sands KwaZulu- Natal Mineral sands Limpopo Mineral sands Western Cape Mineral sands Australia Namakwa Sands mine (27) 100 Proved Probable TOTAL 64,7 217,9 282,6 12,2 10,0 10,5 Tiwest – Cooljarloo mine (28) – Jurien (mining right) – Dongara project (29) (prospecting) 50 50 50 Proved Probable 58,0 56,0 TOTAL Proved Probable TOTAL Proved 114,0 – 15,7 15,7 29,5 Probable TOTAL – 29,5 3,3 2,7 3,0 – 7,9 7,9 7,3 – 7,3 38,7 37,8 38,0 60,6 60,4 60,5 – 54,0 54,0 48,6 – 48,6 1,8 2,1 2,0 4,3 4,6 4,4 – 6,8 6,8 7,0 – 7,0 9,8 9,8 9,8 9,3 8,4 8,9 – 10,0 10,0 10 – 10 3,9 4,1 4,1 3,2 3,1 3,1 – 2,3 2,3 2,0 – 2,0 41 95 136 – 15,7 15,7 – 20,2 20,2 2,7 2,9 2,8 – 7,9 7,9 – 10,2 10,2 59 61 61 – 54,0 54,0 – 50 50 4,7 4,4 4,5 – 6,8 6,8 – 6,7 6,7 10 9 10 – 10 10 – 8 8 2,8 3,1 3,0 – 2,3 2,3 – 1,3 1,3 (16,1) 0,0 46,0 E x x a r o A n n u a l R e p o r t 2 0 0 8 I 53 REVIEW OF MINERAL RESOURCES AND RESERVES continued Commodity Operation % attribu- table to Exxaro Base metals (zinc and lead) Namibia Rosh Pinah mine (30) 50,04 Commodity Operation % attribu- table to Exxaro 2008 2007 Reserve category ROM (Mt) Grade Saleable product (Mt) ROM (Mt) Grade Saleable product (Mt) % change zinc metal (x 1 000t) lead metal (x 1 000t) % Zn % Pb zinc metal (x 1 000t) lead metal (x 1 000t) % Zn % Pb Proved Probable TOTAL 3,3 2,7 6,0 10,1 7,4 8,9 2,4 1,8 2,2 327 203 530 80 49 129 3,3 5,0 8,3 9,4 6,2 7,5 2,0 1,9 1,9 310 312 622 64 96 160 (27,9) 2008 Reserve category ROM (Mt) Grade Saleable product (Mt) % Zn % Pb Cu % Ag g/t zinc metal (x 1 000t) lead metal (x 1 000t) copper metal (x 1 000t) silver metal (x 1 000t) Base metals (zinc, lead, copper and silver) Northern Cape Black Mountain Mining (31) – Deeps mine Gamsberg mine 26 26 Proved Probable TOTAL Proved Probable TOTAL 2,9 5,9 8,8 34,2 110,3 144,4 3,7 2,9 3,2 7,5 5,5 6,0 3,2 2,9 3,0 – – – 2008 0,4 0,4 0,4 – – – 40 42 41 – – – 109,4 170,1 279,5 2,6 6,1 8,7 93,2 168,2 261,4 – – – 116,8 244,5 361,3 – – – 13,4 21,9 35,3 – – – 2007 Not reported in 2007 Not reported in 2007 Commodity Operation % attribu- table to Exxaro Reserve category ROM (Mt) Industrial minerals Gauteng Glen Douglas Dolomite mine 100 Proved Probable TOTAL Glen Douglas Dolomite mine 100 Proved Probable TOTAL 42,8 - 42,8 10,5 - 10,5 Grade % SiO2 <2,5 - <2,5 Raw dolomite – Raw dolomite Saleable product (Mt) Metallurgical dolomite (Mt) 40,2 – 40,2 Aggregate (Mt) 9,8 – 9,8 ROM (Mt) 43,4 – 43,4 11,3 – 11,3 Grade % SiO2 <2,5 – <2,5 Raw dolomite – Raw dolomite Saleable product (Mt) Metallurgical dolomite (Mt) 40,8 – 40,8 Aggregate (Mt) 10,6 – 10,6 % change (1,4) (6,8) Note Tonnages are quoted in metric tonnes and million tonnes is abbreviated as Mt. Rounding-off of ﬁ gures may cause computational discrepancies. Figures are reported at 100% irrespective of percentage attributable to Exxaro. All changes more than 10% (signiﬁ cant) are explained. 17 The change is the result of mining depletion, a decrease in the resource base and a new mine plan. Revised cut-off parameters (mine height and maximum acceptable mining slope angle) have been implemented. 18 Change is the result of the signiﬁ cant increase in the resource base. 19 Change is the result of mining depletion. 20 The transfer of ~67Mt of additional resources (outside LOM plan in 2007) to LOM plan has resulted in the signiﬁ cant increase in the reserve. Figures estimated by Anglo Coal. 21 Change is the result of signiﬁ cant increase in the resource base. 22 Project is included pending the approval of the mining right. The change is the result of increase in the resource base. 23 The change reported is the result of an increase in the resource base. 24 The change is the result of the signiﬁ cant increase in the indicated and measured resource categories. 25 The new mining right for Braeburn Extension (~12,8Mt) was granted and executed during the reporting period and it is therefore included for the ﬁ rst time as a reserve. The mining right for Braeburn, although granted, has not been executed and is therefore only reported as a probable reserve. 26 Fairbreeze C is included pending the approval of a mining right. 27 The ﬁ gures were calculated by depleting the Anglo audited 2007 statement. 28 The netto decrease is the result of mining depletion and the decrease in the resource base. 29 The change is the result of increase in the resource base and re-optimisation of mine plan. 30 Inﬁ ll drilling has contributed to a ~1,6Mt gain but economic considerations exclude mining of lowgrade ore (~3,7Mt) previously included. The changes however have resulted in a higher Zn and Pb headgrade. 31 Shareholding in projects obtained in 2008. Figures received from Anglo Base Metals. 54 I E x x a r o A n n u a l R e p o r t 2 0 0 8 Map depicting Exxaro’s mineral sands mines, projects and smelter in KwaZulu-Natal. Map depicting Exxaro’s coal mines and projects in relation to the coalﬁ elds in Limpopo, Mpumalanga and Gauteng. E x x a r o A n n u a l R e p o r t 2 0 0 8 I 55 EXECUTIVE COMMITTEE Sipho Nkosi (54) Chief executive ofﬁ cer Mxolisi Mgojo (48) Executive general manager, commodity operations: coal BCom (Hons)(Econ), MBA (Univ Mass, USA), Diploma in Marketing BSc (Hons), MBA, AMP (Whanton) Management Sipho began his career as a market analyst with Ford Motor Company coal logistics. Until June 2008, Mxolisi was responsible for the South Africa in 1980. In 1986 he moved to Anglo American Coal base metals and industrial minerals commodity business when he Previously at Eyesizwe Coal, he was responsible for marketing and Corporation as a marketing coordinator. In 1992 he joined Southern assumed his current position. Life Association as senior manager, strategic planning. In 1993 he was appointed marketing manager, new business development at Trans- Retha Piater (54) Natal Coal Corporation, which later became Ingwe Coal Corporation. Executive general manager: human resources In 1997 he joined Asea Brown Boveri (South Africa) Limited as vice BCom (Hons), MBA, Advanced Management Programme (Insead) president marketing. He joined ABB Power Generation in 1998 as managing director. As founder of Eyesizwe Holdings, he served as Retha has 22 years of human resources experience across the chief executive ofﬁ cer. On 1 September 2007 he was appointed chief various business units and commodities, speciﬁ cally in the area of executive ofﬁ cer of Exxaro. remuneration. Dirk van Staden (59) Financial director Dr Nombasa Tsengwa (44) Executive general manager – safety and sustainable development BIuris, LLB, Advanced Management Programme (Insead) Senior secondary teacher’s diploma, BSc (Hons), MSc, PhD (Biotechnology)(Univ of Maryland, USA), Advanced Management Dirk joined Iscor in 1997 as general manager, corporate treasury. Prior Programme (Insead) to that, he was employed by the IDC as general manager responsible for international and project ﬁ nance, treasury operations and legal Prior to her appointment in 2003, Nombasa was the deputy director- services. In June 2001 he was appointed executive director, ﬁ nance general for the Department of Environmental Affairs and Tourism, of the former Kumba Resources Limited. and served as a corporate manager at the Council for Scientiﬁ c and Trevor Arran (41) Executive general manager: corporate affairs and strategy Ernst Venter (52) BSc (Hons)(Econ Geo), AMP (UP/GIBS), BEP, Diploma Project Executive general manager: growth Industrial Research (CSIR). Management BEng (Hons), MBA, Advanced Management Programme (Insead) Trevor has a wide mining background, supplemented by ﬁ nancial Ernst has headed a number of portfolios including base metals, experience gained in equity markets, investment banking and new Zincor, consulting services, mining technology, coal beneﬁ ciation, business. Wim de Klerk (45) Executive general manager, commodity operations: sands and base metals BCom (Hons), CA(SA), TEP, EMP (Harvard) process development and plant metallurgy. Prior to assuming his current position, he was responsible for the coal commodity business. Marie Viljoen (62) Company secretary After joining Iscor in 1996, Wim served on the executive management Marie has 22 years’ experience in the ﬁ eld. She assumes team of Iscor, responsible for strategy and continuous improvement. responsibility for the group’s corporate governance and business From 2001, he was responsible for Exxaro’s mineral sands commodity administration to ensure alignment with statutory and legal business and assumed additional responsibility for the base metals compliance requirements. businesses in 2008. Dr Humphrey Mathe (58) • Mike Kilbride retired as chief operating ofﬁ cer on 31 August 2008, and Dirk van Staden as ﬁ nancial director subsequent to the end of Executive general manager: corporate services the ﬁ nancial year, on 28 February 2009. MSc (Expl Geol), PhD (Univ Natal), Advanced Management Programme (Insead) Responsibilities include engineering, projects and research and development. Previously at Eyesizwe Coal, he served as head of the technical and new business development division. 56 I E x x a r o A n n u a l R e p o r t 2 0 0 8 POWERING POSSIBILITY Sipho Nkosi Dirk van Staden Trevor Arran Wim de Klerk Dr Humphrey Mathe Mxolisi Mgojo Retha Piater Dr Nombasa Tsengwa Ernst Venter Marie Viljoen E x x a r o A n n u a l R e p o r t 2 0 0 8 I 57 DIRECTORATE 1 Sipho Abednego Nkosi (54) Chief executive ofﬁ cer 10 Nkululeko Leonard Sowazi (45) Non-executive director BCom (Hons)(Econ), MBA (Univ Mass, USA), Diploma in BA, MA (Urban and reg plan) (UCLA) Marketing Management 2 Dirk Johannes van Staden (59) Financial director BIuris, LLB, Advanced Management Programme (Insead) 3 Philip Michael Baum (54) Non-executive director BCom, LLB, H DIP Tax Law 4 Jurie Johannes Geldenhuys (66) Independent non-executive director 11 Jeffrey van Rooyen (59) Independent non-executive director BCom, BCompt (Hons), CA(SA) 12 Dalikhaya Zihlangu (42) Non-executive director BSc (Min Eng), MDP, MBA (Wits) • Nonkululeko Nyembezi-Heita resigned as non-executive director with effect from 29 February 2008. • Pinkie Kedibone Veronica Ncetezo resigned as non-executive director with effect from 30 April 2008. BSc (Eng)(Elec), BSc (Eng)(Min), MBA (Stanford), Pr Eng • Michael James Kilbride retired as chief operating ofﬁ cer and executive director on 31 August 2008. • Dirk van Staden retired as ﬁ nancial director subsequent to the end of the ﬁ nancial year, on 28 February 2009. 5 Uﬁ kile Khumalo (43) Non-executive director BSc (Eng), MSc Eng, MAP, SEDP (Harvard) 6 Deenadayalen Konar (55) Independent non-executive director BCom, CA(SA), MAS, DCom 7 Simangele Esther Ann-Maria Mngomezulu (54) Non-executive director Diploma public relations, Diploma community development, Certiﬁ cate Executive Preparation Programme 8 Vincent Zwelibanzi Mntambo (51) Non-executive director BJuris, LLB, LLM 9 Richard Peter Mohring (61) Independent non-executive director BSc (Eng)(Mining), MDP, PMD (Harvard); Pr Eng 58 I E x x a r o A n n u a l R e p o r t 2 0 0 8 POWERING POSSIBILITY Sipho Abednego Nkosi Dirk Johannes van Staden Philip Michael Baum Jurie Johannes Geldenhuys Uﬁ kile Khumalo Deenadayalen Konar Simangele Mngomezulu Vincent Zwelibanzi Mntambo Richard Peter Mohring Nkululeko Leonard Sowazi Jeffrey van Rooyen Dalikhaya Zihlangu E x x a r o A n n u a l R e p o r t 2 0 0 8 I 59 60 I E x x a r o A n n u a l R e p o r t 2 0 0 8 E x x a r o A n n u a l R e p o r t 2 0 0 8 I 61 Social development: Grootegeluk mine is rolling out a housing project as part of its social and labour plan commitment where ﬁ ve ground-breaking new houses are being built in Lephalale in partnership with the town’s local government. Here Onicca Mﬁ sa, one of the 24 local people trained in building skills, puts ﬁ nishing touches to one of the houses. POWERING POSSIBILITY GOVERNANCE & SUSTAINABILITY About this section: 62 CORPORATE GOVERNANCE 62 Board and board sub-committees 70 SHAREHOLDERS’ ANALYSIS 72 RISK MANAGEMENT 74 SUSTAINABLE DEVELOPMENT 74 Message from CEO 76 Approach 81 Safety 82 Health 84 Environment 92 Economic 95 Society 107 MINING CHARTER 110 INDEPENDENT ASSURANCE STATEMENT 113 GRI INDEX Highlights of the year Key governance highlights and developments included: • Review of board charter and board committees’ terms of reference • Compilation and implementation of groupwide delegation of authority policy and framework • Compilation of groupwide conﬂ ict of interests policy • Compilation of groupwide compliance policy Key sustainability highlights included: • HIV/Aids policy revised • Improved environmental reporting • Stakeholder engagement further improved • Mining charter targets largely exceeded CORPORATE GOVERNANCE Exxaro is a company of the 21st century and therefore To ensure excellent corporate governance practices are understands that diversity, empowerment and development entrenched in the group, all our operations are obliged to at every level can only be achieved through effective, subscribe to the spirit and principles of King II. While the transparent and accountable leadership. Exxaro board takes overall responsibility for compliance with King II, directors of subsidiaries are required to continually Exxaro’s leadership recognises that good corporate monitor compliance with these principles within their legal governance practices are essential in maintaining high entities. standards of integrity, professionalism and ethical behaviour. Exxaro’s directors are fully committed to embedding the principles of transparency and accountability in our various business operations, ensuring we create value for all stakeholders. In making good governance a hallmark of our group, the directors are guided by established tenets in creating long- term value for all: • Adherence to sound principles of direction and management • Implementation of best practices in corporate management • Understanding conceptual issues in corporate governance, international including a review of national and developments to gain a better appreciation of corporate governance systems and mechanisms • Clarification of issues pertaining to the board of directors and management • Recognition of shareholder/stakeholder rights and responsibilities. Best-practice corporate governance structures ensure a dynamic cycle of improvement where every individual is guided by a common set of values as we expand our quality portfolio of assets. At Exxaro, our values guide the way this organisation is managed and controlled. These values appear on the first flap. In compliance with the mining charter, Exxaro is one of the largest black-owned and managed resources companies listed on the JSE, comfortably exceeding charter requirements with a 53% black economic empowerment (BEE) shareholding. Ethics In line with Exxaro’s value of honest responsibility, compliance with the group’s code of ethics is monitored by the group risk manager and company secretary, and ethical behaviour is encouraged throughout the group by communicating regularly with employees, using a number of different communication channels. During the year, all business units were assessed for risks related to corruption and fraud. Training in anti- corruption policies and procedures is integrated into the group induction programme for new employees and during annual competence update training for existing staff. Formal disciplinary measures are in place to deal with any identified incidents of corruption and fraud. In addition to Exxaro’s other compliance and enforcement activities, a reporting hotline (whistle-blowing) is in place through which all stakeholders can report suspected corruption, conflicts of interest, contraventions of group values or other reportable irregularities, with guaranteed anonymity. Details of the reporting mechanisms: Hotline: 0800 20 35 79 Hotmail: Exxaro@tip-offs.com. Alleged irregularities reported on the hotline are fully investigated. Some resulted in criminal prosecution. Exxaro regularly participates in industry initiatives focused on developing equitable public policies for the mining sector. However, the group does not directly or indirectly support political parties or, individual politicians through financial or in-kind contributions. Compliance with King II The Exxaro board, committees and management believe compliance is key in maintaining the group’s values. The group supports the provisions and principles of corporate Board of directors Functions The board is the focal point of Exxaro’s corporate governance as defined by the King II report and the Listings governance system, with ultimate accountability and Requirements of the JSE, and complied in all material responsibility for the company’s performance and affairs. respects with the Code of Corporate Practices and Conduct The board charter details the purpose and composition in King II and the requirements of the JSE during the review of the board, responsibilities of board members, period. requirements for board meetings and remuneration of 62 I E x x a r o A n n u a l R e p o r t 2 0 0 8 directors. The charter was reviewed during the year to assess compliance with the current regulatory framework Appointments and succession planning Within its powers, the entire board selects and appoints and international best practices. directors, including the CEO and executive directors, on the recommendations of the transformation, human resources, During the review period, the Exxaro board completed a remuneration and nomination committee (TREMCO). self-assessment of its performance. We intend to establish formal board evaluation procedures in future. All appointments are based on a formal and transparent The primary responsibility of the board is to determine appropriate for Exxaro, its industry and its transformation process. Candidates are selected against criteria deemed the company’s purpose and values and provide strategic objectives. direction. It is also responsible for identifying key risk areas and performance indicators, monitoring performance The chairman is appointed for a term not exceeding one against agreed objectives, advising on ﬁ nancial matters year and is nominated from the ranks of independent non- and reviewing the performance of executive management against deﬁ ned objectives and industry standards. executive directors. Composition The board is an appropriate mix of skills, experience, retire and may be nominated for re-election every three years. No director may hold ofﬁ ce for more than three demographic diversity and personalities to ensure effective consecutive periods. The retirement age for non-executive leadership and sound governance. directors is 70 years, effective at the annual general meeting To ensure efﬁ cient staggering of director rotation, directors As a truly South African company we support and actively drive transformation in everything we do, and we are proud that the majority of our board members are historically disadvantaged South Africans. The board currently comprises 12 directors: • Four independent non-executive directors • Two executive directors • Six non-executive directors. after the date on which they turned 70. Accountability Exxaro’s directors bring appropriate judgement to bear on the issues at hand. Non-executive directors understand Exxaro’s mission, strategy and business and add varied expertise to the group. We believe open communication with our directors is a priority in ensuring their accountability. Therefore all material information is disseminated to them between In categorising the capacity of each director as executive, board meetings. non-executive or independent, Exxaro is guided by the guidelines of King II. Independence There is a clear distinction in Exxaro between the roles of The company secretary is responsible for the duties set out in section 268G of the Companies Act. In terms of Exxaro policy, directors have free access to the company secretary and to independent professional advisers, chairman and chief executive ofﬁ cer (CEO) to ensure no whether in legal, technical or accounting areas, at the one has unfettered powers of decision-making. Identifying company’s expense. suitable candidates for the role of independent chairman has taken longer than anticipated. During the year our acting chairman, Dr Len Konar, ensured continuity in Remuneration TREMCO considers and submits recommendations to the the board’s activities. Appointed in 2001, Dr Konar is an board on fees to be paid to each non-executive director. independent non-executive director, responsible for the Any changes to fees are recommended by the board and effective functioning of the board in his acting capacity. submitted to shareholders at the annual general meeting The CEO is in charge of the company as a whole and directly responsible to the board. Among other things, he is In line with generally accepted governance practices, responsible for ensuring the company achieves its strategic independent non-executive directors do not have service and ﬁ nancial objectives, and for monitoring its day-to-day contracts, are not members of the group’s pension scheme operational requirements. and are not given incentive awards. for approval prior to implementation and payment. E x x a r o A n n u a l R e p o r t 2 0 0 8 I 63 CORPORATE GOVERNANCE continued Non-executive directors’ remuneration is summarised below: Non-executive remuneration Name PM Baum JJ Geldenhuys U Khumalo Dr D Konar SEA Mngomezulu VZ Mntambo RP Mohring PKV Ncetezo** NMC Nyembezi-Heita* NL Sowazi J van Rooyen D Zihlangu Attendance Board meetings PM Baum JJ Geldenhuys U Khumalo MJ Kilbride Dr D Konar (acting chairman) SEA Mngomezulu VZ Mntambo RP Mohring PKV Ncetezo SA Nkosi NMC Nyembezi-Heita NL Sowazi J van Rooyen DJ van Staden D Zihlangu √ Attended • Apologies * Resigned on 29 February 2008 ** Resigned on 30 April 2008 *** Retired on 31 August 2008 Fees for services R 181 570 267 083 146 427 540 686 55 642 206 990 307 146 68 997 38 125 193 284 64 545 206 990 Beneﬁ ts and allowances R 23 427 21 357 7 314 8 735 Total R 181 570 290 510 146 427 540 686 55 642 206 990 328 503 76 311 38 125 193 284 64 545 215 725 Appointed to board 17 Feb 04 1 June 01 28 Nov 06 1 June 01 1 June 01 13 Aug 08 28 Nov 06 28 Nov 06 28 Nov 06 18 Oct 01 28 Nov 06 28 Nov 06 13 Aug 08 1 June 01 28 Nov 06 19 Feb 23 May 30 Jul 12 Aug 28 Nov • √ √ √ √ – √ √ √ √ √ √ – √ √ √ √ • • √ – • √ ** √ * • – √ √ • √ √ √ √ – • √ ** √ * √ – √ √ • √ √ √ √ – √ √ ** √ * √ – √ √ √ √ √ *** √ √ √ √ ** √ * √ √ √ √ 64 I E x x a r o A n n u a l R e p o r t 2 0 0 8 Board committees The board has appointed three committees to assist in Role, purpose and principal functions The committee reviews the principles, policies and practices effectively discharging its responsibilities. All committees adopted in preparing the ﬁ nancial statements of the fulﬁ l their responsibilities within clearly deﬁ ned written company and its subsidiaries. It also ensures that interim terms of reference, which deal explicitly with their purpose and annual ﬁ nancial statements and any other formal and function, reporting procedures and written scope of announcements on the company’s ﬁ nancial performance authority. comply with the Companies Act, the JSE Listings Requirements and International Financial Reporting These terms of reference were reviewed during the year and Standards. changes made where necessary to reﬂ ect our continuous drive to comply with regulatory changes and international The committee reviews the work of the group’s external and best practices. internal auditors to ensure the adequacy and effectiveness of Exxaro’s ﬁ nancial, operating, compliance and risk To ascertain committees are subject to regular evaluation by the board. their performance and effectiveness, management controls. To ensure that board committees effectively discharge the committee, details which services may or may not be Exxaro’s policy on non-audit services, reviewed annually by their responsibilities, the chairman of the board provides quarterly feedback to the board on their performance and achievement of their mandate. Audit, risk and compliance committee Composition and meeting procedures The committee consists of four members and the majority (including the chairman) are independent directors. provided by Exxaro’s external auditors and covers: • Basic accounting assistance • Payroll services • Tax services • Human resources services • Information technology services • Appraisal or valuation services • Legislative and administrative decision-making and Executive directors, the senior audit partner and head of the corporate governance outsourced internal audit function also attend meetings and • Internal audit and risk management. have unrestricted access to the chairman and committee members. Non-executive directors may also attend by This policy was complied with in the year under review. invitation. When required, suitably qualiﬁ ed people may be co-opted to render specialist services. The committee meets at least four times a year. Attendance Director Dr D Konar (chairman) RP Mohring NL Sowazi J van Rooyen √ Attended • Apologies Appointed to committee 11 Feb 02 30 May 07 30 May 07 13 Aug 08 18 Feb √ √ • — 23 May √ √ • — 12 Aug √ √ √ — 28 Nov √ √ √ √ E x x a r o A n n u a l R e p o r t 2 0 0 8 I 65 CORPORATE GOVERNANCE continued Safety, health and environment committee (SHE) Composition and meeting procedures The role of the committee is to: • Oversee independent assurance of sustainability The committee consists of ﬁ ve members with an independent performance chairman. The CEO and executive general manager: safety • Oversee the development of policies and guidelines for its and sustainable development attend meetings as standing speciﬁ c ﬁ elds invitees. Executive general managers of commodity businesses, human resources and technology management attend • Review the policies and performance of the group on the progressive implementation of safety and sustainability policies • Encourage independently managed subsidiaries, meetings by invitation. Suitably qualiﬁ ed people may be associates and signiﬁ cant investments to develop their co-opted onto the committee when necessary to render own policies, consistent with those of the group specialist services. • Receive reports on substantive safety and sustainability risks and liabilities The committee meets at least three times a year. • Monitor key indicators on accidents and incidents Role, purpose and principal functions and, where appropriate, ensure this information is communicated to other companies managed by or The purpose of the committee is to develop the framework, associated with the company policies and guidelines for health, environmental and safety • Consider for adoption substantive national and management and sustainable development group-wide. international regulatory and technical developments • Facilitate participation, co-operation and consultation on related matters with government, national and international organisations, supranational authorities, other companies and other relevant associations. Appointed to committee 17 April 29 July 11 April 02 11 April 02 1 June 08 18 April 07 √ √ – √ √ √ √ √ 31 Oct √ *** √ √ Attendance Director JJ Geldenhuys (chairman) MJ Kilbride RP Mohring D Zihlangu √ Attended *** Retired on 31 August 2008 TREMCO Composition and meeting procedures The committee consists of four members, chaired by an independent director. The CEO, ﬁ nancial director (FD), executive general manager: human resources, and compensation and beneﬁ ts advisers may be invited to attend any meeting. Suitably qualiﬁ ed people may be co-opted onto the committee to render the specialist services required to assist the committee in its deliberations on any particular matter. The committee meets at least four times a year. 66 I E x x a r o A n n u a l R e p o r t 2 0 0 8 Role, purpose and principal functions The purpose of the committee is to: • Make recommendations on the composition of the board and board committees and ensure that the board consists of individuals equipped to fulﬁ l the role of director of the company • Guide, monitor, review and evaluate the company’s progress on transformation, speciﬁ cally employment equity, community involvement and preferential procurement Attendance Director NMC Nyembezi-Heita (chairman) RP Mohring (chairman) PM Baum JJ Geldenhuys VZ Mntambo PKV Ncetezo √ Attended • Apologies ** Resigned on 30 April 2008 * Resigned on 29 February 2008 • Ensure the company’s remuneration strategies, packages and schemes are related to achieving business objectives and delivering shareholder value • Ensure compliance with statutory and best-practice relations labour and requirements on industrial management, and that appropriate human resources strategies, policies and practices are in place. Appointed to committee 19 Feb 15 May 30 Jul 29 Oct 9 May 07 1 Mar 08 16 Mar 04 1 Jun 08 9 May 07 9 May 07 √ — • — √ √ * √ √ — √ ** * √ • √ √ ** * √ √ √ √ ** Executive committee The executive committee (Exco) is chaired by the CEO and consists of 10 members. It meets formally every six weeks and informally weekly. Management committees The strategic co-ordination forum The forum met every six weeks until the retirement of the chief operating ofﬁ cer on 31 August 2008. This forum will be replaced by the portfolio review committee, chaired by Exco is mandated, empowered and held accountable for the CEO. implementing the strategies, business plans and policies determined by the Exxaro board. It is also responsible for managing and monitoring the business affairs of the The mandate of this forum is to: • Ensure alignment of strategy execution and new company in line with board-approved plans and budgets, developments prioritising the allocation of capital and other resources and establishing best management and operating practices. • Determine strategic priorities and co-ordinate, support and monitor strategic initiatives throughout the group • Allocate resources and accountabilities for investigations Exxaro follows a structured process to ensure it invests in or studies. projects aligned with group strategy and which yield the required returns. In this process two forums are engaged: an initial assessment is completed by the strategic co-ordination Investment review committee The committee meets monthly and its primary responsibility forum and a comprehensive review is then undertaken by the is to undertake comprehensive investment reviews and investment review committee. The offshore review committee assess the technical feasibility and ﬁ nancial viability of assists the board in ﬁ nancially co-ordinating Exxaro’s portfolio proposed capital projects or investments prior to these of offshore investments and interests. requests being presented to the executive committee and Exxaro board for approval. E x x a r o A n n u a l R e p o r t 2 0 0 8 I 67 CORPORATE GOVERNANCE continued In fulﬁ lling these objectives, the committee ensures that: • Each project meets the strategic, technical and investment Disclosure policy The board has adopted a formal policy of continual requirements deﬁ ned by the board disclosure of interests to ensure full and timely disclosure • Critical decisions, project parameters and potential risks are adequately addressed and researched prior to by directors. recommending the commitment of funds • Each project enhances the portfolio value of Exxaro. Offshore review committee The committee meets quarterly, or more frequently, if required. Its primary responsibilities include: • Financial control and governance of Exxaro’s offshore investments and multi-disciplinary interests • Efﬁ cient ﬁ nancial structuring • Providing for offshore investment funding and expenditure • Ensuring ﬁ nancial reporting, auditing and tax-related issues are properly managed • Ensuring the company’s overseas ofﬁ ces are effectively staffed, managed and used. Intellectual property committee Exxaro acknowledges the importance of intellectual property and its proper management. This committee ensures possible innovations are exploited and, if appropriate, patented and properly maintained. Copyright, trademark and possible infringement issues are also addressed. The committee also comprises the company secretary, representatives of the ﬁ nance and technology departments, and Exxaro’s legal representatives. Sustainability Sustainability is a cornerstone of the Exxaro group and our Conﬂ icts of interest Exxaro has drawn up a comprehensive conﬂ icts of interest policy that applies to all directors, management and employees in regulating conditions which could or do constitute a conﬂ ict. The primary objectives of this policy are to: • Provide guidance on the behaviour expected in accordance with the company’s values • Promote transparency and avoid business-related conﬂ icts of interest • Ensure fairness in dealing with the interests of all employees, other affected individuals, and the company • Document the process for disclosure, approval and review of activities that may amount to actual, potential or perceived conﬂ ict of interests • Provide a mechanism for the objective review of personal outside interests. External communications Brieﬁ ng analysts, investors and fund managers is an important element of maintaining investor relations. However, we will only provide “price-sensitive” information after disclosing that information to the market. Broader stakeholder communication plans have been approach is embedded in the ﬁ rst of our corporate values: implemented. The group believes in clear, transparent, “empowered to grow and contribute”. Our aim is to encourage concise and timely dissemination of relevant information entrepreneurship as far as possible to transform this value to all stakeholders. This is achieved through a multitude into reality for as many stakeholders as possible (page 74). of channels and media, including written, electronic and Black economic empowerment codes of good practice While we understand that companies need to verify the BEE verbal presentations. Speciﬁ cally, there are a number of mechanisms for stakeholders to interact with the board and its sub-committees. These include annual general meetings, representative forums, internal communications across a status of suppliers in terms of the Codes of Good Practice, range of platforms and more. Exxaro conﬁ nes its reporting to the requirements set out in the Mineral and Petroleum Resources Development Act and its associated mining charter scorecard. Our approach to transformation and empowerment, however, ﬁ ts well with the requirements of the BBBEE codes and scorecard. In structuring the new group, we ensured that the: • Majority of voting rights are exercised by HDSAs • Majority of proﬁ ts accrue to black people • Majority of the board comprises black people. 68 I E x x a r o A n n u a l R e p o r t 2 0 0 8 Marketing communication In line with its corporate values, Exxaro communicates regularly and openly with all stakeholders. At all times, our communications adhere to the laws, standards and voluntary codes of accepted marketing communication in the areas where we operate. During the year, no incidents of non-compliance were recorded. SHAREHOLDER INFORMATION Market listings and other information The principal market for Exxaro is the JSE. As a constituent of the All Share Top 40 index (ALSI 40 index), Exxaro shares trade through the STRATE system. access to this personalised enquiry facility, are provided on the Computershare website: www.computershare.com Publication of ﬁ nancial statements Shareholders wishing to view the annual report or interim Closing JSE share prices are published in most national and report in electronic rather than paper form can access it on regional South African newspapers and are available during the Exxaro website: www.exxaro.com the day on the Exxaro and other websites. Share prices are also available on I-Net Bridge, Reuters and Bloomberg. Shareholder information Major shareholders Exxaro has an over-the-counter sponsored American As of 31 December 2008, the one entity known to Exxaro depositary receipt (ADR) facility with the Bank of as owning more than 10% of its shares is Main Street 333 New York (BoNY) under a deposit agreement. For (Pty) Limited with 186 550 873 shares representing 52,54% additional information, please refer to the BoNY of the number of shares in issue. This entity is commonly website: www.adrbny.com referred to as BEE Holdco (refer to page 109). ADR holders ADR holders may instruct BoNY on how shares represented by their ADRs should be voted. Registered holders of ADRs will have annual and interim reports mailed to them at their recorded address. Brokers or ﬁ nancial institutions that hold ADRs for shareholder clients are responsible for forwarding shareholder information to their clients and will be provided with copies of annual and interim reports for this purpose. Dividend determination Dividends are determined in South African rand (ZAR) and are declared payable in the same currency by the group. ADR shareholders are paid in US dollars by the group’s ADR bank, BoNY. BoNY effects the conversion of ZAR-determined dividends in US dollars on behalf of its US ADR shareholders. Contact Computershare or BoNY for further details. Shareholder communication General shareholder enquiries Computershare is the registrar for Exxaro. All general enquiries and correspondence concerning shareholders (other than shares held in ADR form) should be directed to the registrar. Computershare’s contact details are on the inside back cover. Shareholders must notify Computershare promptly in writing of any change of address. All enquiries concerning shares held in ADR form should be directed to BoNY. Shareholders can obtain details about their own shareholding on the internet. Full details, including how to gain secure E x x a r o A n n u a l R e p o r t 2 0 0 8 I 69 SHAREHOLDERS’ ANALYSIS at 31 December 2008 Issued share capital: 355 036 600 Shareholder spread 1 – 1 000 shares 1 001 – 10 000 shares 10 001 – 100 000 shares 100 001 – 1 000 000 shares 1 000 001 shares and over Category Black economic empowerment Corporate holdings Unit trusts/mutual funds Pension funds Custodians Investment trusts Insurance companies Exxaro Employee Empowerment Private investors Charity Other funds/holdings American depositary receipts Number of shareholders % of shareholders Number of shares % of issued capital 16 618 2 670 551 120 27 83,15 13,36 2,75 0,60 4 787 182 7 892 799 17 031 860 35 587 755 0,14 289 737 004 1,35 2,22 4,80 10,02 81,61 19 986 100,00 355 036 600 100,00 Number of shareholders % of shareholders Total shareholding % of issued capital 1 390 2 582 451 40 41 71 1 0,01 186 550 873 1,95 39 105 250 12,92 34 595 502 2,26 0,20 0,20 0,35 0,01 26 270 183 23 772 833 12 122 987 11 452 301 10 618 974 15 976 79,94 8 491 230 80 351 1 0,40 1,75 0,01 968 148 852 092 236 227 52,54 11,01 9,74 7,40 6,70 3,42 3,23 2,99 2,39 0,27 0,24 0,07 19 986 100,00 355 036 600 100,00 (cid:57)(cid:92)(cid:101)(cid:92)(cid:93)(cid:96)(cid:90)(cid:96)(cid:88)(cid:99)(cid:23)(cid:106)(cid:95)(cid:88)(cid:105)(cid:92)(cid:95)(cid:102)(cid:99)(cid:91)(cid:96)(cid:101)(cid:94)(cid:23) (cid:42)(cid:28)(cid:23)(cid:102)(cid:105)(cid:23)(cid:100)(cid:102)(cid:105)(cid:92) (cid:42)(cid:35)(cid:39)(cid:39)(cid:28) (cid:42)(cid:35)(cid:47)(cid:41)(cid:28) (cid:48)(cid:35)(cid:46)(cid:47)(cid:28) (cid:62)(cid:92)(cid:102)(cid:94)(cid:105)(cid:88)(cid:103)(cid:95)(cid:96)(cid:90)(cid:88)(cid:99)(cid:23)(cid:106)(cid:103)(cid:99)(cid:96)(cid:107)(cid:23)(cid:102)(cid:93)(cid:23) (cid:89)(cid:92)(cid:101)(cid:92)(cid:93)(cid:96)(cid:90)(cid:96)(cid:88)(cid:99)(cid:23)(cid:106)(cid:95)(cid:88)(cid:105)(cid:92)(cid:95)(cid:102)(cid:99)(cid:91)(cid:92)(cid:105)(cid:106) (cid:40)(cid:35)(cid:44)(cid:42)(cid:28) (cid:39)(cid:35)(cid:48)(cid:40)(cid:28) (cid:39)(cid:35)(cid:44)(cid:45)(cid:28) (cid:45)(cid:35)(cid:41)(cid:40)(cid:28) (cid:44)(cid:41)(cid:35)(cid:44)(cid:43)(cid:28) (cid:48)(cid:39)(cid:35)(cid:46)(cid:48)(cid:28) ■(cid:23)(cid:23)(cid:68)(cid:88)(cid:96)(cid:101)(cid:23)(cid:74)(cid:107)(cid:105)(cid:92)(cid:92)(cid:107)(cid:23)(cid:42)(cid:42)(cid:42)(cid:23)(cid:31)(cid:71)(cid:107)(cid:112)(cid:32)(cid:23)(cid:67)(cid:96)(cid:100)(cid:96)(cid:107)(cid:92)(cid:91)(cid:23) ■(cid:23)(cid:23)(cid:56)(cid:101)(cid:94)(cid:99)(cid:102)(cid:23)(cid:56)(cid:100)(cid:92)(cid:105)(cid:96)(cid:90)(cid:88)(cid:101)(cid:23)(cid:58)(cid:102)(cid:105)(cid:103)(cid:102)(cid:105)(cid:88)(cid:107)(cid:96)(cid:102)(cid:101) ■(cid:23)(cid:23)(cid:71)(cid:108)(cid:89)(cid:99)(cid:96)(cid:90)(cid:23)(cid:64)(cid:101)(cid:109)(cid:92)(cid:106)(cid:107)(cid:100)(cid:92)(cid:101)(cid:107)(cid:23)(cid:58)(cid:102)(cid:105)(cid:103)(cid:102)(cid:105)(cid:88)(cid:107)(cid:96)(cid:102)(cid:101)(cid:23) ■(cid:23)(cid:23)(cid:60)(cid:111)(cid:111)(cid:88)(cid:105)(cid:102)(cid:23)(cid:60)(cid:100)(cid:103)(cid:99)(cid:102)(cid:112)(cid:92)(cid:92)(cid:23)(cid:60)(cid:100)(cid:103)(cid:102)(cid:110)(cid:92)(cid:105)(cid:100)(cid:92)(cid:101)(cid:107) ■(cid:23)(cid:23)(cid:74)(cid:102)(cid:108)(cid:107)(cid:95)(cid:23)(cid:56)(cid:93)(cid:105)(cid:96)(cid:90)(cid:88)(cid:23) ■(cid:23)(cid:23)(cid:76)(cid:101)(cid:96)(cid:107)(cid:92)(cid:91)(cid:23)(cid:74)(cid:107)(cid:88)(cid:107)(cid:92)(cid:106)(cid:23)(cid:102)(cid:93)(cid:23)(cid:56)(cid:100)(cid:92)(cid:105)(cid:96)(cid:90)(cid:88)(cid:23)(cid:88)(cid:101)(cid:91)(cid:23)(cid:58)(cid:88)(cid:101)(cid:88)(cid:91)(cid:88) ■(cid:23)(cid:23)(cid:76)(cid:101)(cid:96)(cid:107)(cid:92)(cid:91)(cid:23)(cid:66)(cid:96)(cid:101)(cid:94)(cid:91)(cid:102)(cid:100)(cid:23) ■(cid:23)(cid:23)(cid:73)(cid:92)(cid:106)(cid:107)(cid:23)(cid:102)(cid:93)(cid:23)(cid:60)(cid:108)(cid:105)(cid:102)(cid:103)(cid:92) ■(cid:23)(cid:23)(cid:73)(cid:92)(cid:106)(cid:107)(cid:23)(cid:102)(cid:93)(cid:23)(cid:107)(cid:95)(cid:92)(cid:23)(cid:110)(cid:102)(cid:105)(cid:99)(cid:91) 70 I E x x a r o A n n u a l R e p o r t 2 0 0 8 Public/non-public shareholders Public shareholders Non-public shareholders Directors and associates Main Street 333 (Pty) Ltd* Anglo American Corporation Exxaro Employee Empowerment Assore Ltd Kumba Management Share Trust * Directors’ holdings of 18 546 091 excluded. Beneﬁ cial shareholders holding 3% or more Main Street 333 (Pty) Limited Anglo American Corporation Public Investment Corporation Exxaro Employee Empowerment Geographic split of beneﬁ cial shareholders South Africa United States of America and Canada United Kingdom Rest of Europe Rest of the world Directors Nkosi, SA Mntambo, VZ Zihlangu, D Sowazi, NL Van Staden, DJ Konar, D Total Number of shareholders % of shareholders Total shareholding % of issued capital 19 975 99,95 122 239 574 12 0,06 232 797 026 6 1 1 1 1 1 0,03 18 546 824 0,01 168 004 782 0,01 0,01 0,01 0,01 34 730 282 10 618 974 600 000 296 164 34,43 65,57 5,22 47,32 9,78 2,99 0,17 0,08 19 986 100,00 355 036 600 100,00 Total shareholding % of issued capital 186 550 873 52,54 34 730 282 13 554 640 10 618 974 9,78 3,82 3,00 Total shareholding % of issued capital 322 349 860 90,79 22 024 931 5 436 199 3 232 186 1 993 424 6,21 1,53 0,91 0,56 355 036 600 100,00 Number of shares 8 016 068 5 529 881 2 818 552 2 181 590 565 168 18 546 824 % of shares 2,26 1,56 0,79 0,61 0,00 0,00 5,22 * Please note that indirect beneﬁ cial holdings of Nkosi, Mntambo, Zihlangu and Sowazi were held under Main Street 333 (Pty) Limited. E x x a r o A n n u a l R e p o r t 2 0 0 8 I 71 RISK MANAGEMENT Risk philosophy Exxaro maintains an integrated enterprise-wide risk operational risks and appropriate mitigating strategies. Business unit managers play an important role in identifying management (ERM) programme to guide individual business units in their risk management endeavours to either prevent or reduce the adverse impacts of operational losses, earnings surprises and reputational damage. Risk appetite The audit, risk and compliance committee of the board Risk identiﬁ cation process The risk management process is continuous, with well- deﬁ ned steps. Risks from all sources are identiﬁ ed and once they pass a set materiality threshold, a formal process begins in which causal factors and consequences are identiﬁ ed and the correlation with other risks and mitigating controls is approves Exxaro’s risk appetite within the board-approved reviewed. risk philosophy and methodology. Exxaro’s risk-bearing capacity is a function of its ability to withstand unexpected The top business risks, appropriately categorised and losses and the impact of such losses on the group’s ability to based on impact and likelihood of occurrence, together continue as a going concern. Risk culture Risk owners are responsible for continuously monitoring both the existing and ever-changing risk proﬁ le of the environment in which they operate. with mitigating control measures, are disclosed below in descending order. These top business risks have been approved by the executive committee, the audit, risk and compliance committee of the board, and the board itself. High-level business risks Risk • Strategic Lengthy process of executing new mining rights and possible restrictive conditions attached to converting rights Impact Probability Control measures High High Ensure compliance with mining charter requirement. Continuous engagement with the Department of Minerals and Energy (DME). • Strategic High High Finalise sands feedstock reserve prioritisation. Conﬁ rmation of long-term viable quality feedstock resource for KZN Sands smelter. • Strategic High High Long-term viable quality zinc concentrate supply to zinc reﬁ nery in Springs. • Strategic High High Funding of value-added growth within balance sheet and equity-raising constraints. Continued exploration activity at Rosh Pinah zinc mine and identiﬁ cation of viable zinc concentrate supply sources. Ranking value-adding opportunities in a strategy aligned growth process and within an acceptable capital structure underpinned by cash ﬂ ow generation and preservation. • Strategic High Medium Continuous business improvement. Optimised use of Longer term decline in commodity prices affecting dividend payouts thereby negatively impacting on stable BEE shareholder structure. • Operational High High Anticipated signiﬁ cant price increases for electricity combined with power supply uncertainty, and the impact of interruptions on safety, production and proﬁ tability. • Operational High High KZN Sands – not achieving cold feed furnace production capacity at both furnaces. operating assets. Maintain a healthy balance sheet through judicious consideration of growth aspirations and global market conditions. Participation in industry forums that engage with Eskom and the National Energy Regulator of South Africa (NERSA). Investigation into co-generation. Implementation of power saving initiatives and examination of alternatives with regard to the conservation and use of electricity throughout operations. Commitment to assist Eskom with additional coal supply required to achieve stability in the power grid. Continuous improvement combined with projects and complementary technologies to maintain achievement of nameplate capacity, including ongoing investigation into alternative hearth technology. 72 I E x x a r o A n n u a l R e p o r t 2 0 0 8 Impact High Risk • Profitability Volatility in currencies combined with impact of forecast macro-economic parameters and commodity prices on operating margins, returns on investments, project cost escalation in respect of growth aspirations and loan covenant compliance. • Profitability High High Impact on buoyant construction and engineering market on the cost of capital projects. • Profitability High High Infrastructure constraints inhibiting coal exports and ability to transfer zinc feedstock to zinc refinery. • Human resources High High Attraction and retention of key skills impacting on current production and future growth. • Safety High High Unacceptable safety record resulting in government, labour union and other stakeholder intervention. • Safety HIV/Aids pandemic. High High • Environmental High High Risks posed by continuously changing and onerous environmental legislation. • Reputational Medium High Impact to imminent changes to the mining charter and potential application of BBBEE legislation. Probability Control measures High Judicious hedging policy. Continuous business improvement initiatives with rigorous tracking. Optimised use of operating assets to leverage benefits of higher throughput. Investigate downstream integration opportunities and diversification of markets and product sector. Maintaining a database on escalation of major commodity items based on industry trends and own experience to ensure comprehensive provision for escalation on project costing and timing of long-lead items. Engagement to obtain expansion of the Coallink rail capacity in order to fully utilise Exxaro’s Richards Bay Coal Terminal allocation of 6,3Mtpa by the end of 2009. Implementation of effective retention strategy for key disciplines. Remain an employer of choice due to: – regularly benchmarked market-related remuneration – comprehensive training and development – growth opportunities. Focus on innovative recruitment initiatives and succession planning. Continuous rotation and exposure of own talent in multidisciplinary project teams. Enhancement of safety awareness and preventative programmes through a strong focus on hazard identification and visible felt leadership. Improve voluntary counselling and testing enrolment by creating a conducive environment for disclosure and treatment participation. Continuous monitoring of work performed in line with rehabilitation strategy. Ongoing rehabilitation is managed out of operational budgets while Exxaro Environmental Rehabilitation Fund provides for the final closure costs. Continuous engagement with authorities. Proactive planning to ensure compliance in terms of ownership, preferential procurement and employment equity. E x x a r o A n n u a l R e p o r t 2 0 0 8 I 73 SUSTAINABLE DEVELOPMENT Sustainable development is a cornerstone of the Exxaro group, embedded in our strategy and the ﬁ rst of our corporate values which states “empowered to grow and contribute”. To be truly effective, however, we believe empowerment must be a two-way process between Exxaro and our stakeholders. Message from the chief executive ofﬁ cer During the year, as part of reviewing the structure and strategy of Exxaro, we streamlined certain divisions, resulting in a safety and sustainable development (S&SD) division that incorporates all the elements of triple bottom- line reporting: social, environmental and economic. The head of S&SD, a well-qualiﬁ ed and experienced senior executive, reports directly to me and to the board through a focused board sub-committee (page 66). By creating an integrated department, targets can be closely aligned with the group’s short- and long-term strategies, national priorities and expressed stakeholder needs. In essence, our mission is to create unrivalled value for all stakeholders through our processes, thinking and passion. Breaking this down into measurable targets in the longer term means: • Sustainable returns to our shareholders – including our own people • An injury-free work environment – one where every employee has the freedom to grow and develop • A healthy workforce – with an appropriate balance between individual responsibility and healthy working conditions • Responsible use of our natural resources. Reaching our long-term goals requires short-term action, focused on: • Maximising efﬁ ciencies in the current economic climate • Reducing the number of injuries (page 81) • Managing our use of natural resources (pages 84, 87 and 91). The analysis on page 10 contextualises the focus areas for our group at present. Managing a mining group in the 21st century, particularly the safety, health, environmental (SHE) and social aspects, requires an unprecedented level of statutory and non- statutory compliance. More importantly, we believe it requires a genuine desire to preserve at every level – in the skills of people, in the resources of our planet and in the prosperity of our communities. This requires a holistic view of the strategic issues that inﬂ uence SHE. For Exxaro, these include: • Legislation in different territories • Corporate strategy: • Continually becoming more proactive • Finding the correct balance between generic policies, eg Exxaro’s I care rules, and the operational needs of each business unit 74 I E x x a r o A n n u a l R e p o r t 2 0 0 8 • Commodity choices – the group risk environment do on ﬁ nancial aspects of our business. We believe today’s where our current dominance in coal presents a high- stakeholders deserve no less. risk proﬁ le • Efﬁ ciency and cost management In November 2008, the second annual report from South • International SHE issues (Namibia, Australia, China, etc) Africa’s Carbon Disclosure Project – part of a global • Business unit strategy/needs and risk minimisation initiative that tracks companies’ greenhouse gas emissions, • Stakeholder perceptions. targets and responses to climate change – was released. The local survey covers the top 100 companies on the JSE. SHE services are statutory by nature; whatever is new or Interestingly, in the carbon-intensive sector, Exxaro was being discontinued depends on legislative changes or ranked ﬁ fth against far more established companies in the changes in risk proﬁ le. These, in turn, inform work volumes. metals and mining sector. Managing these volumes while meeting stakeholder needs is an ongoing challenge, and not speciﬁ c to our group or In our quest to be a truly responsible business in all respects, industry. Performance Exxaro became a signatory of the United Nations Global Compact in 2007 – the world’s largest voluntary corporate citizenship initiative that outlines 10 universally accepted Exxaro’s performance on the key elements of sustainable principles on human rights, labour, the environment and development – economic, social and environmental – during anti-corruption. This is another tangible illustration of the the year was mixed. On the positive side, we established a group’s commitment to sustainable development. Exxaro is carbon footprint for the group and clariﬁ ed our strategy on already voluntarily working towards complying with various energy, revised our HIV/Aids strategy and initiated a major local and international sustainability protocols, including drive on water management. We also exceeded 2009 mining the Global Reporting Initiative (GRI) and the JSE’s Socially charter targets for employment equity at management Responsible Investment (SRI) index. level and for women in mining, and increased the number of registered mining learnerships by more than 60%. Today Exxaro is one of over 6 200 global compact signatories in 120 countries, and one of more than 1 000 organisations Areas where we missed our targets include our disappointing in nearly 60 countries using GRI guidelines. safety performance, which is being vigorously addressed (page 81). Exxaro operations without international health Responsible business practices are a long-term value and safety (OHSAS 18001) and environmental standards proposition for Exxaro: it makes business sense for us to (ISO 14001) in place are well advanced in their preparations invest in creating a sound environment in which to operate, and should achieve certiﬁ cation in 2009. based on universal values, accountability and transparency. It’s also the right thing to do and we do it with passion. We were pleasantly surprised to be judged the best newcomer – extractive industries in the 2007 Association of Chartered Certiﬁ ed Accountants (ACCA) sustainability reporting awards. Surprised, because as a new group formed from two established companies, we knew that much work was needed to standardise systems and ensure Sipho Nkosi meaningful reporting. We said as much in our 2007 report. Chief executive ofﬁ cer However, receiving this prestigious award has reinforced our resolve to report on sustainability issues as well as we 17 March 2009 E x x a r o A n n u a l R e p o r t 2 0 0 8 I 75 APPROACH TO SUSTAINABLE DEVELOPMENT We believe sustainable development is integral as part of our value proposition to stakeholders. In July 2008, the safety and sustainable development division was created to ensure that Exxaro has a sustainable development platform with a clear programme. While the targets and objectives of this division are still being developed, cognisance will be given to priorities raised in the 2002 World Summit on Sustainable Development, and we are carefully examining the issues raised at that summit that give rise to sustainable development programmes in organisations, including: • Role of mining in communities • Role of ethics in business • Environmental care • Due diligence • Social responsibility • Operating within the legal framework • Participating in the legal process. We have already distilled these into three major areas, graphically shown below: Sustainable development focus areas • Safety & health of people • Workplace issues • Natural resource management & rehabilitation • Energy efﬁ ciency & cleaner production • • • • • Community development Enterprise development External impacts Skills development Stakeholder engagement SYNERGIES • • • • • • • Ethics Legal issues Risk management Governance issues Shareholder rights Reporting Stakeholder trust The existing safety, health and environment (SHE) and Nations Global Compact, and the International Council sustainable development structures across the group are on Mining and Minerals. In line with our commitment, being reviewed in line with Exxaro’s strategy. Underpinned sustainability is a key performance indicator in the economic, by a comprehensive analysis of the business case for social and environmental aspects of our business. sustainable development and the triple bottom-line drivers in each area, our approach is determined by formal charters The business case for sustainable development is graphically that deﬁ ne our goals and commitment to stakeholders. shown overleaf, with the outer ring representing areas These charters are, in turn, guided by South African that add value for Exxaro and the inner ring value for our legislation, recommendations on corporate governance stakeholders – the ultimate aim, however, is creating value and international benchmarks such as the Global Reporting for all. Initiative (GRI) and its sectoral supplements, the United 76 I E x x a r o A n n u a l R e p o r t 2 0 0 8 The business case for sustainable development (SD) Maintain international management and reporting standards Elevated sustainable development brand Employer of choice Self- sustaining communities Gaining and maintaining licence to operate and grow Optimisation and efﬁ ciency of resources Investor of choice Approved material SD thrusts Value creation Improved standards of living Enhanced resource conservation Mining charter Enhanced work/life balance High SD performance culture Maintain stakeholder trust Identify and reduce SD risk ■■ Company value ■■ Stakeholder value Improved attraction and retention of workforce We believe sustainable development is integral as part of our In ﬁ nding the balance between economic interests and social value proposition to stakeholders. Our shareholders need to and environmental concerns of our stakeholders, Exxaro understand the coherent process that underpins the way we implements speciﬁ c interventions and developmental do business: from the strategy that drives our growth, to projects guided by the social needs of the community, and our keen understanding of the risks that may impede that by the national priorities of society at large, including: strategy and the commitment of our management teams to • Education, training and skills development achieving proﬁ tability and sustainability. Therefore, we are • Healthcare promotion, particularly HIV/Aids programmes giving equal emphasis to strategic growth and sustainable • Job creation, SMME (small, medium and micro enterprises) development, acknowledging that Exxaro’s success in South and other business opportunity development Africa rests on their interdependence. To ensure continual • Conservation of environment, including awareness improvement, our strategy is regularly reviewed. programmes • Infrastructure development. To remain abreast of the changing needs of our stakeholders and the impact of our operations and initiatives, Exxaro As a mining group, our challenge is to demonstrate that the businesses have completed socio-economic assessments of way we approach our business contributes to sustainable most of their operations. Through this process and continual development. This means balancing the opportunities community engagement forums, Exxaro has been able to for growth and development that responsible citizenship establish a relationship of trust within communities where presents and ensuring that the social, environmental it operates. and economic impacts of mining – positive and negative – are managed in an open and accountable way. This will E x x a r o A n n u a l R e p o r t 2 0 0 8 I 77 APPROACH TO SUSTAINABLE DEVELOPMENT continued require leadership in promoting sustainability as a business The methodologics for determining speciﬁ c indicators are philosophy. described in the text, eg injuries (page 82), carbon footprint (page 87) and air quality management (page 86). Accordingly, our operations have social and labour plans and environmental management plans, most of which Stakeholder engagement have been approved by authorities. These plans guide the Stakeholder engagement is fundamental to create value implementation of a balanced approach between Exxaro’s for all our employees, interested and affected parties as interests and the social and environmental concerns of the well as with authorities. Effective and strategically aligned community. stakeholder engagement within Exxaro will lead to more equitable and sustainable socio-economic development and By stipulating leadership in sustainable development as will enable better management of risk and reputation. one of the elements of our strategic framework, we have committed ourselves to setting and achieving targets that will To strengthen stakeholder engagement, Exxaro has adopted ensure the legacy we leave is positive for today’s children and AccountAbility AA1000SES Standards, which include the tomorrow’s leaders. following processes: Through triple bottom-line reporting, charting our progress • To engage with stakeholders in developing a proactive towards these targets is a measurable performance indicator approach for every level of management, and the responsibility of • To determine material issues • To develop a database with stakeholders every person in our group. Scope of report • To respond on all issues • To ensure completeness. Exxaro’s 2008 annual report includes the group’s sustainable In 2008, Exxaro developed a software system for socio- development performance, integrating our economic, economic development which focuses mainly on stakeholder social and environmental results for the year for a group- engagement. In addition to the processes of AA1000SES, wide understanding. It also sets out the challenges and the system also focuses on project management, donations opportunities that lie ahead. (cash contributions), donations-in-kind (non-monetary), volunteerism and reporting against the requirements of Although the group is only two years old in its present the mining charter and codes of good practice. The system form, the process of merging the former Kumba Resources was installed in ﬁ ve of our operations by July 2008, and by and Eyesizwe operations is almost complete and the mid-2009 will be fully implemented and operational at all consolidation of the Namakwa Sands operations began in business units. October 2008. This makes data comparability challenging in some areas. Throughout these processes, however, the Communication between Exxaro and each stakeholder group group’s earlier adoption of triple bottom-line reporting has is facilitated in a number of ways: remained a cornerstone of our commitment to sustainable • Employees are invited to provide views and comments development and of our determination to entrench global on internal communication within the group through best practices in all operations. Exxaro therefore reports bi-monthly newsletters, an intranet, regular employee against the 2006 guidelines of the Global Reporting surveys and feedback from various forums. Initiative (G3), and the content of the 2008 report has been • Customer perceptions are regularly surveyed through prepared in line with GRI intermediate application level B+. external service providers 78 I E x x a r o A n n u a l R e p o r t 2 0 0 8 • Supplier interaction is continual through external South Africa, Exxaro competed against 30 companies perception surveys, forums and other initiatives and was speciﬁ cally commended for its high standard of • Trade unions – regular consultation with all recognised reporting and exceptional coverage of human resources- unions by the group’s employee relations management related issues, governance and ﬁ nancial disclosure unit • Government – consultation is at national, provincial, district and local level • Regulators – senior Exxaro members meet with ofﬁ cials from different and relevant government departments • Industry bodies – Exxaro’s chief executive ofﬁ cer has just begun his second term as president of the Chamber of Mines, and the group actively participates in chamber issues • Investors – there is regular interaction between management and the investor community, from ﬁ nancial results presentations to roadshows, open days, site visits and individual meetings. Full use is made of technology to give investors complete access to group operations and management • Media – regular interaction takes place between management and media representatives • Exxaro’s internal newsletter, xxplore, took the trophy in the annual South African Publication Forum competition • A supply-chain management initiative between Grootegeluk mine and Hitachi to improve the availability of Hitachi trucks at the mine won a major pan-African accolade in 2008. Judged the “best cross-functional teamwork project” at the Institute of Purchasing South Africa (IPSA) awards, it has boosted production at Grootegeluk with considerable cost savings. This rewarding partnership has also facilitated breakthrough design changes for these trucks which will beneﬁ t users across South Africa. Report scope and boundary Sustainability performance in this report spans the 12 months from 1 January to 31 December 2008. For the review period, Exxaro reports against the revised GRI guidelines, referred to as G3 to differentiate them from • Communities – in addition to stakeholder engagement GRI’s 2002 guidelines. plans, operational management members serve on municipal forums for integrated development planning and local economic development, and actively participate in capacity-building initiatives Although Namakwa Sands only ofﬁ cially became part of the group in October 2008, data from this operation is included. This report excludes the following operations where we do • Interest groups – Exxaro is building strong relationships not have management control: with relevant non-government bodies and interest groups • Australia Sands – principal asset is its 50% ownership in such as the Centre for Corporate Citizenship, African the Tiwest joint venture with Tronox Incorporated. Institute for Corporate Citizenship, National Business • Chifeng Reﬁ nery – as a ﬁ rst step for potential investment Initiative and others. in China, Exxaro has an equity joint venture with an existing reﬁ nery facility. Exxaro owns 38% of Phase 2 and Across the group, issues raised by stakeholders are 25% of Phase 3 in this venture, resulting in an effective appropriately channelled. These issues are considered 22% economic interest in the expanded operation. and included in the risk evaluation process, as set out on • Mafube page 72. Responses are supplied as soon as practical and disseminated across the organisation. Awards In determining material issues to include in this report, Exxaro has used the methodology recommended by G3 which spans external and internal factors: • Exxaro’s ﬁ rst sustainability report (integrated into the • External: 2007 annual report) was judged best newcomer – large • Key sustainability issues raised by stakeholders enterprises at the annual Association of Chartered Certiﬁ ed Accountants (ACCA) awards. Hosted by ACCA • Sectoral issues and challenges reported by peers and industry bodies such as the Chamber of Mines E x x a r o A n n u a l R e p o r t 2 0 0 8 I 79 APPROACH TO SUSTAINABLE DEVELOPMENT continued • Relevant legislation and voluntary agreements (local Exxaro is classiﬁ ed as having an overall high environmental and international) of strategic signiﬁ cance to the group impact because it is involved in mining and metals. Ranked and its stakeholders among the 21 best performers on the SRI, Exxaro exceeds • High-proﬁ le sustainability issues, impacts or the minimum JSE requirement for environmental policy opportunities, from climate change to HIV/Aids. by including all key issues and speciﬁ cally the following • Internal: elements: • Exxaro’s values, policies, strategies, processes and • responsibility at board level with supporting resources targets • the SHE committee is responsible for monitoring and • The interests and expectations of stakeholders for performance, using consulting forums to inform whom our corporate progress is paramount, including executive management employees, shareholders and suppliers • commitment to use objectives and targets • Key risks deﬁ ned by corporate risk methodologies • commitment to monitoring and auditing • Critical factors for Exxaro’s success, including the • commitment to public reporting synergy between our operations and the universal • globally applicable corporate operating standards aims of sustainable development. • commitment to stakeholder involvement The outcome of this process identiﬁ ed numerous material issues detailed in the risk management section on page 72. Solid progress is being made in areas that do not yet fully We have focused on the top three – safety, proﬁ tability and comply with JSE SRI requirements, speciﬁ cally providing operational – in this report (page 10). objectives and targets for all key areas, and reporting on • commitment to address product or service impact. strategic moves towards sustainability: Ongoing feedback from a range of stakeholders helps us • Exxaro provides compliance objectives on biodiversity, to contextualise certain issues better for more informed rehabilitation, water, air quality and greenhouse gas. understanding by readers. Feedback is a critical element of However, targets are only for energy emissions at present. our reporting process and should be directed to: Targets are being determined for other key impact areas. Hilton Atkinson – manager: corporate communication in Exxaro’s revised SHE policy and the group executive • Strategic moves towards sustainability are now covered Email: Hilton.atkinson@exxaro.com Telephone: +27 12 307 4843 Fax: +27 12 307 4760 Mobile: +27 83 609 1452 www.exxaro.com SRI compliance committee commitment statement. Assurance – broad-based veriﬁ cation Exxaro has internal systems to record and monitor the quality (accuracy, fullness and consistency) of management information and any data gaps in the group. Exxaro again qualiﬁ ed for inclusion in the JSE’s revised In line with our commitment to the triple bottom line, an Socially Responsible Investment (SRI) index in November integral part of reporting to stakeholders is assurance on 2008. This index identiﬁ es best practice in corporate social the quality of disclosure. Previous integrated annual reports responsibility and corporate governance in a benchmark have been externally assured, albeit on a limited range of index. elements. In this report, we have extended our approach to assurance by commissioning a more in-depth external assurance report by Ernst & Young (page 110). 80 I E x x a r o A n n u a l R e p o r t 2 0 0 8 SAFETY, HEALTH AND ENVIRONMENT PERFORMANCE We aspire to be a good international citizen through our endeavours to contribute to sustainable development challenges facing the world Commitment to safety, health, environment and sustainable development Safety, health and environment (SHE) is an integral part of our business and a critical pillar of our success in achieving fatalities by 20% per annum for the following 10 years. When members met at a summit in 2005, they realised not much progress had been made. sustainable development. As part of our programme of Accordingly, the chamber has adopted a Mining Occupational continual improvement towards our vision of zero harm, Safety and Health best-practice system, with the deadline we publicly report on our safety, health and environment of 2013 for achieving these industry-wide goals. Four task performance. teams will address particular issues, namely noise, dust, falls of ground, capacity building and leadership. One example We aspire to be a good international citizen through our of the work being done by a task team is investigation endeavours to contribute to sustainable development into a fogging system that could reduce dust in mining challenges facing the world, hence our keen interest and operations. participation in SHE issues beyond the call of law and, most importantly, on international treaties to which South Africa At Exxaro, we are working towards a 30% per annum overall is a signatory. safety improvement. We are earning from processes used abroad, and focusing on adopting the new system identiﬁ ed We will sustain our SHE programmes through smart by the chamber. partnerships with all our stakeholders and periodically review our policy and management standards to ensure Keeping our people safe they are appropriate and relevant to the organisation. Our target is zero injuries and, therefore, zero fatalities. Our aim is to achieve this through stringent application of A formal SHE policy informs most of our SHE-related work management protocols, programmes and systems. Formal beyond our mine gates or work that the government may management-worker health and safety committees are in perceive as contributing to the well-being of South Africans. place at all operations, and meet regularly to ensure we reach those targets. Our SHE governance model has a focused compliance approach, meeting legislative requirements as a minimum. Immediate management action is supporting our drive Proper risk management systems and processes are then towards zero harm, with highlights already recorded at modelled around key risks for implementation at operational these business units including: level. A risk-based approach also informs the way resources • Stafﬁ ng high-risk areas with additional safety are allocated and used within the group to ensure precision, practitioners progress and dedicated responsibilities towards legal • Retraining safety representatives compliance. • Coaching and reinforcing the practice of using mini-HIRAs (hazard identiﬁ cation and risk assessments) before every During the reporting period, no signiﬁ cant ﬁ nes, sanctions task for non-compliance with environmental laws and regulations • Implementation of a structured visible felt leadership were imposed on any Exxaro operations. Safety At industry level (VFL) programme (a formal and monitored process in which leaders spend time with employees at work to focus on safety, reinforce positive behaviour and correct negative actions). Safety is one of the biggest issues facing the South African and international mining industries, and local experts have Although key risks differ by operation, the group’s major set new goals and deadlines for getting the country’s safety challenges are vehicle incidents, energy and machinery statistics in line with global standards. isolation, and risk awareness and discipline at all levels. Skills shortages effectively exacerbate these challenges and In 2003, the mining sector set a series of sector targets on ensuring the group has sufﬁ cient trained people remains a safety and health, with the goal of reducing injuries and priority. E x x a r o A n n u a l R e p o r t 2 0 0 8 I 81 SAFETY, HEALTH AND ENVIRONMENT PERFORMANCE continued A number of initiatives were launched in 2007 to address including ﬁ re, ﬂ ood, bomb threats, etc. Emergency situations these risks, supported by corporate audits and incident that have occurred have been well handled, demonstrating investigations in the review period. Results to date have the comprehensiveness of both policy and training. been satisfactory: • The roll out of revised I Care fatal risk controls is ensuring Exxaro set a target of zero fatalities and lost-time injury special emphasis on the risks responsible for fatalities at frequency rate (LTIFR) per 200 000 man-hours worked Exxaro and the preventive measures in place to manage of 0,21 for 2008, a 30% reduction on the LTIFR target for these risks better 2007. While there has been a steady reduction in the LTIFR • Revised HIRA standards have been rolled out to all from 0,52 in 2005 to 0,36 in 2007, actual performance operations and are ensuring a higher level of risk was 0,39 in 2008. In risk-speciﬁ c terms, the leading cause identiﬁ cation and mitigation of injuries was lifting and materials handling, followed • Vehicle safety – revised standards have set a minimum by energy and machine isolation, vehicle safety, ground compliance level for vehicles to operate on company control and working at heights. We are disappointed that property or be used for company business we again missed our target in a year when the focus was • Visible felt leadership – improved communication and on completing the integration of the former Eyesizwe and understanding of key safety risks between management Kumba Resources’ systems, standards and procedures. The and employees to improve risk awareness and proactively safety of our people is fundamental to our business, and address and mitigate safety risks on the ﬂ oor before we will not rest until we achieve our safety goals through accidents occur. collective responsibility, commitment and ongoing focus. An initiative focused on incident notiﬁ cation, investigation The fatality frequency rate per million man-hours worked and communication is in the ﬁ nal stages of development. This in 2008 was 0,13. Our target remains zero, as any death will include proper application of lessons learned. is unacceptable. Despite excellent safety performances at several mines, we regrettably lost ﬁ ve colleagues during the All lost-time injuries are investigated by the relevant business year, four of whom were employed by contractors at Exxaro unit manager. All fatalities are investigated by a committee operations. There were two fatalities at Matla – one in March with the appropriate skills, headed by an independent and one in November, and one each at Hlobane in February, chairman. Each business unit tracks its adherence to Grootegeluk in September and Leeuwpan in October standards and legislation through a programme of self- (non-reportable incident that happened outside working assessments and corporate audits. hours). Each case was thoroughly investigated, and lessons learned incorporated into our safety programmes to create Exxaro’s initiatives to improve safety performance extend to an injury-free work environment. contractors at all operations as part of a formal programme: • Contractors are managed as part of Exxaro’s workforce The improved safety performance in the ﬁ nal quarter of the • Corporate contractor management standards are in place year could indicate that initiatives implemented throughout and adherence is enforced by each operation’s contractor the year are beginning to have an impact on behaviour. manager • Monthly inspections to ensure compliance • Induction and medicals are required by all contractors before starting work Health and hygiene Exxaro is committed to reducing employee exposure to health risks in the workplace. We have also committed • Contractors participate in monthly SHE meetings at resources in responding to the major challenge of HIV/Aids. operations. Key risks A policy is in place that details Exxaro’s approach to As a mining group, our major health and hygiene risks are identifying, preparing for and responding to emergency noise, dust and thermal stress. Other risks include gases situations affecting employees and surrounding and illumination. These vary by commodity and by type of communities. This spans all known types of emergency operation. 82 I E x x a r o A n n u a l R e p o r t 2 0 0 8 In a systematic process that includes a hygiene surveillance see www.exxaro.com/case_studies programme, business units identify, rank and quantify their ARNOT TAKES ACTION risks. Workplace exposures are linked to individuals, and this informs the medical surveillance programme. (cid:58)(cid:108)(cid:100)(cid:108)(cid:99)(cid:88)(cid:107)(cid:96)(cid:109)(cid:92)(cid:23)(cid:102)(cid:90)(cid:90)(cid:108)(cid:103)(cid:88)(cid:107)(cid:96)(cid:102)(cid:101)(cid:88)(cid:99)(cid:23)(cid:91)(cid:96)(cid:106)(cid:92)(cid:88)(cid:106)(cid:92)(cid:106) To improve our management of identiﬁ ed workplace risks in the enlarged group more effectively, standards for hazardous chemicals and tuberculosis will be implemented in 2009. A group-wide awareness campaign that focused on the key risks (noise, dust and thermal stress) was introduced at all business units, emphasising the importance of employees caring for their own health today, to live a quality life in future – even after retirement. Creating awareness of the importance of individuals taking responsibility for their own health and that of their colleagues in the workplace is central to employees understanding the need to comply with procedures aimed at reducing adverse health effects. see www.exxaro.com/case_studies ZINCOR WORKPLACE WELLNESS Meeting mining sector targets One of the targets set by the mining sector on noise and silicosis was to ensure that employees entering the industry after December 2008 would not develop noise-induced hearing loss or silicosis. Following the baseline audit we conducted in 2007 to assess Exxaro’s readiness to meet sector targets, our business units began to implement appropriate corrective actions to enable them to meet these goals. Occupational diseases In 2008, Exxaro had 22 occupational disease cases accepted for compensation. These included ﬁ ve cases of noise-induced hearing loss (NIHL), two cases of pneumoconiosis, and 15 cases of occupational tuberculosis (TB). The increase in occupational TB cases from two in 2007 to 15 in the review period can be explained by the fact that in 53% of the cases, there were co-existing medical conditions which may have contributed to increased susceptibility to occupational TB. We will continue to focus on implementing hearing conservation and dust control programmes to reduce employee exposure to aggravating risks in the workplace. (cid:44)(cid:39) (cid:43)(cid:39) (cid:42)(cid:39) (cid:41)(cid:39) (cid:40)(cid:39) (cid:39) (cid:106) (cid:92) (cid:106) (cid:88) (cid:90) (cid:23) (cid:93) (cid:102) (cid:102) (cid:69) (cid:23) (cid:67) (cid:63) (cid:69) (cid:64) (cid:96) (cid:106) (cid:96) (cid:106) (cid:102) (cid:101) (cid:102) (cid:90) (cid:102) (cid:100) (cid:108) (cid:92) (cid:101) (cid:71) (cid:106) (cid:96) (cid:106) (cid:102) (cid:90) (cid:96) (cid:99) (cid:96) (cid:74) (cid:92) (cid:106) (cid:88) (cid:92) (cid:106) (cid:96) (cid:91) (cid:94) (cid:101) (cid:108) (cid:67) (cid:23) (cid:57) (cid:75) (cid:23) (cid:99) (cid:88) (cid:101) (cid:102) (cid:96) (cid:107) (cid:88) (cid:103) (cid:108) (cid:90) (cid:90) (cid:70) ■(cid:23)(cid:23)(cid:41)(cid:39)(cid:39)(cid:42)(cid:23) ■(cid:23)(cid:23)(cid:41)(cid:39)(cid:39)(cid:45)(cid:23) (cid:23) ■(cid:23)(cid:23)(cid:41)(cid:39)(cid:39)(cid:43)(cid:23) ■(cid:23)(cid:23)(cid:41)(cid:39)(cid:39)(cid:46)(cid:23) ■(cid:23)(cid:23)(cid:41)(cid:39)(cid:39)(cid:44) ■(cid:23)(cid:23)(cid:41)(cid:39)(cid:39)(cid:47) HIV/Aids HIV/Aids remains a challenging disease in South Africa, with one out of every six people living with HIV/Aids in the world found in South Africa. Exxaro HIV prevalence is currently estimated at 14%. At the end of 2008, 64% of our employees had participated in voluntary counselling and testing. However, at some sites less than half the employees have tested. Our target for 2009 is to get at least 50% of all employees at each site to test for HIV. The group’s HIV/Aids programme was reviewed and the strategy revised to address identiﬁ ed implementation gaps. The major strategic objectives of Exxaro’s HIV/Aids programme are to: • Reduce risk of infection. This includes providing a workplace programme focused on prevention, early detection, treatment and support • Reduce the cost of intervention by quantifying and reducing direct, indirect and systemic costs E x x a r o A n n u a l R e p o r t 2 0 0 8 I 83 SAFETY, HEALTH AND ENVIRONMENT PERFORMANCE continued • Minimise impact on ﬁ nancial returns by reducing becomes a sustainable business. Given that the principles absenteeism, retaining skills and increasing productivity of the precautionary approach recommended by GRI are • Improve the health of employees and business embedded in these pieces of legislation, Exxaro adopts sustainability (by improving employee wellness and the precautionary approach in evaluating business prolonging lives). opportunities. The range of services available to employees includes: To enhance implementation of these legal requirements and • Telephonic support through a call centre the sustainable use of natural resources, draft standards for • Lifestyle and nutrition counselling managing air quality, water, biodiversity, rehabilitation and • Anti-retroviral readiness and adherence counselling incidents have been completed. • Anti-retroviral treatment • Monitoring of side effects and adverse drug reactions In pursuit of sustainable development, Exxaro is responding • Post exposure prophylaxis. to the global threat of climate change, beginning with successfully determining the group’s carbon footprint. One of our challenges has been ensuring adherence to This process will allow us to identify opportunities in our treatment and this will be an area of focus in 2009. Training will operations to reduce greenhouse gases (page 87). be provided to encourage employees to be more supportive to HIV positive employees and peer educators will be equipped A dedicated in-house environmental management specialist with skills to help colleagues adhere to treatment. unit is making good progress in addressing environmental Progress on achieving Exxaro’s strategic objectives will be tracked over time by introducing targets on training, testing Key risks and management activities enrolments and adherence to treatment. Key environmental risks from Exxaro’s mining and mineral risks and impacts to enhance Exxaro’s legal compliance. see www.exxaro.com/case_studies COMBATING HIV THROUGH EDUCATION Environmental management Conserving natural resources and reducing the burden of pollutants to the natural environment remains our core focus in this ﬁ eld. We strive to achieve this by: • Complying with all applicable environmental legislation – as a minimum standard • Developing innovative policies and programmes for addressing environmental impacts. All our South African operations have environmental management programmes required under the Mineral and Petroleum Resources Development Act (MPRDA) and the National Environmental Management Act (NEMA), which is one of the key indicators in ensuring that Exxaro processing activities include: • Water and waste management • Air quality and climate change • Biodiversity and land management • Rehabilitation and environmental liability management. Water and waste management To manage Exxaro’s waste water risks, the following management actions were taken during the review period: • Integrated water and waste management plans were developed for Matla and the char plant. All other Exxaro operations have plans in place, except Arnot, Glen Douglas and Glisa which are planned for 2009. • Water balances were revised and updated for Zincor, the char plant and KZN Sands’ Hillendale mine. In progress are Glen Douglas, Matla, Arnot and KZN Sands’ central processing complex. 84 I E x x a r o A n n u a l R e p o r t 2 0 0 8 Water efﬁ ciency projects at Exxaro Business unit Description Grootegeluk • In-pit storage of stormwater runoff for plant use with a pH neutralisation plant to avoid corrosion • Dewatering of Basalt aquifer as process water, the Basalt aquifer is fed mainly by seepage from unlined pollution control dams, stockpile areas and slimes facility • Water recovery from slimes disposal facility Matla • Excess water from underground is being considered for distribution to Eskom as process water subject to water quality Leeuwpan Inyanda • Water recovery from slimes disposal facility • Stormwater runoff that accumulates in pit and plant area recycled via process water dams • Water reclamation through the press ﬁ lter at plant reclaims water from the slimes • Water reclamation from slimes facility • Stormwater runoff from plant area captured and returned to plant for re-use • Pit water from groundwater ﬂ ow and runoff pumped back to dirty water facilities for re-use • Sewage biologically treated with an option for re-use Tshikondeni • Co-disposal facility with water reclamation back to plant for re-use • Stormwater runoff collected in lined pollution control dams at shaft areas for re-use in process water system New Clydesdale • Slimes disposal underground with percolated water recovery for re-use in plant area with zero abstraction from Olifants River for coal-washing purposes • Stormwater runoff at plant area recycled back as process water. • Pit stormwater runoff used for dust suppression at Vaalkranz North North Block Complex Zincor • Excess water from Blesbok pit and stormwater runoff collected in pollution control dams for dust suppression. • Rainwater collection from roofs to augment process water requirements • Borehole abstraction used to draw back seepage water from aquifer to curb spread of pollution plume and augment process water supply to plant Glen Douglas • Stormwater runoff into open-cast areas used as process water in plant area KZN Sands • Hillendale has reduced water consumption from Umgeni Water during rainfall season due to reclamation of stormwater runoff to plant • Seepage and runoff at central processing centre collected and used as process water for various purposes Namakwa Sands • At mineral separation plant and smelter, process water recycled from disposal facilities back to plant E x x a r o A n n u a l R e p o r t 2 0 0 8 I 85 Safety, health and envIronment performance continued Considering South Africa’s status as a water-scarce country, in November Exxaro and other major coal producers signed a joint initiative to collaborate on water management issues in the highveld region of Mpumalanga province in an attempt to find innovative long-term solutions. Other signatories are Anglo Coal SA, BHP Billiton Energy Coal SA, Xstrata and Eskom. In the year ahead, water management will be a significant area of focus for Exxaro, focusing on various aspects from security of supply to water efficiency, waste water management and pollution control. Water withdrawal by source Source Arnot Eskom Glisa Inyanda Leeuwpan Matla New Clydesdale North Block Complex Tshikondeni Boreholes Eskom Olifants River (Mpumalanga) Municipal Unwa Dam, boreholes Olifants River, (Mpumalanga) boreholes Mokolo Dam, boreholes, pit water Glen Douglas Rosh Pinah Zincor KZN Sands Namakwa Sands Municipal NAMWater Municipal, boreholes, rainwater harvest Municipal Olifants River, (Western Cape), seawater see www.exxaro.com/case_studies Zincor WatEr rEsourcE consErvation and rEclamation air quality management Using the Exxaro air quality management framework, Exxaro’s air quality management activities are aimed at 75% of business operations completed detailed emissions ensuring compliance with the requirements of the South inventory and dispersion models during the year, and 93% African National Environmental Management Air Quality of our operations monitor ambient concentration of dust Act, limiting impacts on the receiving environment and key fallout from mining activities. Monitoring activities at KZN receptors by adopting a continuous improvement approach Sands and Grootegeluk have been expanded to include through innovative environmental management. PM10 (smaller particle matter suspended in air) using active analysers with remote data loggers and offsite data quality Given the nature of our diverse businesses, certain activities control and checks. present greater challenges for adequate air quality management such as emissions generated from: • Blasting • Spontaneous combustion of discard dumps • Mineral ore-processing and handling activities • Wind erosion of exposed mining and operational areas • Entrainment of dust from unpaved operational roads • Tail-pipe gaseous emissions of on-site vehicles. As a group, Exxaro does not produce ozone-depleting substances. In addition, the group does not report on NOX and SOX emissions as this is only relevant at two operations, Zincor refinery and KZN Sands. Monitoring systems are being established at these operations. see www.exxaro.com/case_studies roastEr rEbuild at Zincor hElps addrEss fugitivE gasEous Emissions climate change, energy and greenhouse gases Energy management Exxaro has adopted a consolidated approach with all related issues integrated under the energy management steering committee. This previously functioned as the clean energy forum but has been realigned to increase the prioritisation and management focus given to this important issue. 86 I E x x a r o A n n u a l R e p o r t 2 0 0 8 The scope of the steering committee includes operational Mitigation and clean-energy opportunities energy management issues as well as the implementation The Exxaro Chair in Business and Climate Change is based at of projects to enable Exxaro to thrive in a low-carbon Unisa’s College of Economic and Management Sciences. The economy. The forum is led by an executive general manager, R3-million three-year sponsorship will help in developing a and comprises senior management from corporate services core body of knowledge on climate change in South Africa and business units. Topics addressed include: to assist local businesses to adapt to, and reduce the effects • Regulatory environment of, climate change. This reinforces Exxaro’s commitment • Energy consumption data reporting to achieving clean energy standards and remaining • Energy security • Energy efﬁ ciency competitive while dealing effectively with climate change, potential energy shortages, related environmental concerns • Mitigation and clean-energy opportunities and rising costs of energy. • Integration with sustainability management. The forum’s objectives include establishing a cross- renewable energy projects with the potential of generating functional management structure to address all energy- 250 – 400MW, in either wind or solar generation. The group related issues, and ensuring the development of a is also progressing with a feasibility study on co-generation comprehensive energy-consumption and carbon footprint to produce some 200MW of electricity from waste energy Exxaro has initiated a pre-feasibility study on two reporting framework. Energy efﬁ ciency such as furnace off-gas and waste heat at its own and at other organisations’ operations. The objective is to minimise energy waste, thus increasing energy efﬁ ciency dramatically. The Exxaro remains committed to the energy efﬁ ciency accord carbon footprint of electricity from these sources is virtually signed in 2005 and, by participating in the energy efﬁ ciency zero and would reduce Exxaro’s carbon footprint. technical committee (facilitated by the National Business Initiative), is playing a leading role in industry collaboration Carbon disclosure project with the DME and other government agencies. As noted in the chief executive’s sustainable development Exxaro uses just under 1% of all the electricity generated by response to climate change issues in the group’s ﬁ rst message, Exxaro was recognised for its comprehensive Eskom. In 2006, Exxaro produced 379 443 tonnes of carbon dioxide equivalent (CO2e) through the consumption of petrol and diesel and more than 1,5 million tonnes of CO2e from purchasing electricity from the Eskom grid. Establishing these quantities – and investigating ways to reduce them – was the ﬁ rst step towards reaching Exxaro’s 2015 goal of improving energy efﬁ ciency by 15%. In 2007, the group’s electricity bill was R256 million – 3% of total operating expenses. This cost per tonne may increase signiﬁ cantly over the next four years purely as a result of tariff increases, which will be partially mitigated by the extensive energy efﬁ ciency initiatives being undertaken. participation in the carbon disclosure project. This process assesses four issues surrounding climate change namely: • Climate change risks and opportunities – identify strategic risks and opportunities and their implications • Greenhouse gas (GHG) emissions accounting – determine actual absolute GHG emissions • Performance – against targets and plans to reduce GHG emissions • Governance – determine responsibility and management approach to climate change. see www.exxaro.com/case_studies CO-GENERATION ON THE WEST COAST E x x a r o A n n u a l R e p o r t 2 0 0 8 I 87 SAFETY, HEALTH AND ENVIRONMENT PERFORMANCE continued Case study – Guyuni’s people see the light Houses in the Guyuni community in Limpopo, near Exxaro’s Tshikondeni mine, had never enjoyed the simple luxury of electricity until Exxaro partnered with the Alternative Energy Development Corporation (AEDC) to bring zinc air fuel cells to the village. Exxaro is serious about improving the quality of life of the communities around its mines. All households have been equipped with zinc-air fuel cells, and community members now enjoy the beneﬁ ts of proper lighting and power for radios, cellphone chargers and small appliances drawing less than 35W. They are also saving money – the operating cost of the cells is less than the cost of candles and parafﬁ n. In addition to cheaper, better-quality light, community members now have the opportunity to use the energy to create their own employment. The cells can be used to power haircutters, sewing machines, soldering irons and for charging cordless power tools. They can even power a computer with internet access. A service shop has been established to service fuel cells and other electrical items, and to supply new fuel cell anodes. The shop will also receive a much-needed photocopier as a value-added service to the community and its learners. These cells are kind to the environment – once their energy is exhausted, the zinc anodes are fully recycled, so no pollution or toxic chemicals are created in the recharging process. A vegetable garden was set up in the community where waste water is used and zinc oxide serves as a fertiliser. Easy, affordable energy The zinc-air fuel cell can power lights, radios, small TVs, cellphone chargers and other small appliances that draw less than 35W. • The cells are designed to deliver uninterrupted power for up to 240 hours before the anode needs changing • The fuel set comes in a neat carry case with a plug outlet • If more energy is required, the cells can be linked in parallel – so two cells can power a fridge that requires 60W • AEDC also supplies a range of appliances compatible with the cells, including a deep freeze, colour TV and DVD player combo, an anti-malaria vapourising unit, and a PC and ﬂ at-screen LCD monitor combination. 88 I E x x a r o A n n u a l R e p o r t 2 0 0 8 Biodiversity management Conservation is becoming increasingly important as climate change impacts on habitats and the richness of global biodiversity. Exxaro-owned and managed land has signiﬁ cant biodiversity given the wide geographical distribution of the group’s operations. A summary of the biomes, vegetation types and associated business units is available at www.exxaro.com PROGRESSIVE MANAGEMENT OF BIODIVERSITY Desktop studies Biodiversity baseline Mapping of (including Precis list) assessment vegetation units Biodiversity action plans Completed for all Exxaro operations Operations completed: Operations completed: • Tshikondeni • Tshikondeni • Fairbreeze Ext C • Fairbreeze Ext C • Glen Douglas • Glen Douglas • Zincor • Zincor • New Clydesdale • New Clydesdale • Grootegeluk Balance of operations Balance of operations scheduled for 2009. scheduled for 2009. Scheduled for 2009: all operations see www.exxaro.com/case_studies A ZEBRA NAMED INYANDA (cid:60)(cid:111)(cid:111)(cid:88)(cid:105)(cid:102)(cid:23)(cid:41)(cid:39)(cid:39)(cid:47)(cid:23)(cid:105)(cid:92)(cid:95)(cid:88)(cid:89)(cid:96)(cid:99)(cid:96)(cid:107)(cid:88)(cid:107)(cid:96)(cid:102)(cid:101)(cid:23) (cid:103)(cid:92)(cid:105)(cid:93)(cid:102)(cid:105)(cid:100)(cid:88)(cid:101)(cid:90)(cid:92)(cid:23)(cid:106)(cid:107)(cid:88)(cid:107)(cid:108)(cid:106) Exxaro’s mine rehabilitation policy and management standard is based on a legal and risk approach – a system of chronological steps to optimise ongoing rehabilitation at operational business units and prepare for efﬁ cient mine closure. It also emphasises the fact that rehabilitation starts at the feasibility stage of a mining operation. This will now inform physical processes and ﬁ nancial provisions, including rehabilitation performance indicators. Most business units are already reporting on these indicators each quarter. By closely monitoring this data, rehabilitation backlogs can be identiﬁ ed before undue ﬁ nancial liabilities occur. The goal of the environmental rehabilitation department is to report against set ongoing rehabilitation budgets per business unit, in terms of volumes and ﬁ nance. Exxaro contributed R54,9 million in 2008 and had R342 million in its trust fund at 31 December 2008 for mine closure activities. Annually updating rehabilitation provisions also guides potential rehabilitation optimisation alternatives that will decrease the closure liabilities of mines in the long term. (cid:63)(cid:92)(cid:90)(cid:107)(cid:88)(cid:105)(cid:92)(cid:106) (cid:43)(cid:39)(cid:23)(cid:39)(cid:39)(cid:39) (cid:42)(cid:44)(cid:23)(cid:39)(cid:39)(cid:39) (cid:42)(cid:39)(cid:23)(cid:39)(cid:39)(cid:39) (cid:41)(cid:44)(cid:23)(cid:39)(cid:39)(cid:39) (cid:41)(cid:39)(cid:23)(cid:39)(cid:39)(cid:39) (cid:40)(cid:44)(cid:23)(cid:39)(cid:39)(cid:39) (cid:40)(cid:39)(cid:23)(cid:39)(cid:39)(cid:39) (cid:44)(cid:23)(cid:39)(cid:39)(cid:39) (cid:39) (cid:42)(cid:45)(cid:23)(cid:41)(cid:48)(cid:44) (cid:91) (cid:92) (cid:89) (cid:105) (cid:108) (cid:107) (cid:106) (cid:96) (cid:91) (cid:88) (cid:92) (cid:105) (cid:56) (cid:23) (cid:41)(cid:45)(cid:23)(cid:40)(cid:39)(cid:44) (cid:112) (cid:107) (cid:96) (cid:99) (cid:96) (cid:89) (cid:88) (cid:96) (cid:99) (cid:23) (cid:101) (cid:102) (cid:96) (cid:107) (cid:88) (cid:107) (cid:96) (cid:99) (cid:96) (cid:89) (cid:88) (cid:95) (cid:92) (cid:73) (cid:40)(cid:39)(cid:23)(cid:40)(cid:48)(cid:39) (cid:91) (cid:92) (cid:107) (cid:88) (cid:107) (cid:96) (cid:99) (cid:96) (cid:89) (cid:88) (cid:95) (cid:92) (cid:105) (cid:23) (cid:88) (cid:92) (cid:105) (cid:56) E x x a r o A n n u a l R e p o r t 2 0 0 8 I 89 SAFETY, HEALTH AND ENVIRONMENT PERFORMANCE continued Land management are included in the table on the following page together with Land management is aimed at reducing or preventing a schedule of environmental incidents. various business-related risks, such as: • Safety – previously mined areas, ie inactive sites that are scheduled for later rehabilitation and pose a safety risk in Corporate integrated safety, health and environment audits the interim Internal integrated safety, health and environment audits • Environment – risk assessments of all inactive sites conducted by the head of the safety and sustainable • Illegal occupation or invasion of land – settling disputes. development division, and executive general managers, have ISO/OHSAS certiﬁ cation now been rolled out across group operations. With three mines audited to date, areas identiﬁ ed for improvement include: Nine of Exxaro’s 15 operations have both the international • Adherence to standards and procedures health and safety certiﬁ cation (OHSAS 18001) and • Severe skills shortages in safety management environmental certiﬁ cation (ISO 14001). While we did not (establishment of professionals-in-training programme meet our target of having all operations internationally for safety practitioners and implementation of skills certiﬁ ed in 2008, preparations are well advanced and retention programme) certiﬁ cation of the outstanding business units is expected • Application of site-speciﬁ c procedures and tracking in the current year. To date, one operation has completed operational adherence to standards and legislation through the conversion to OHSAS 18001:2007. a programme of self-assessments and corporate audits. Environmental performance – 2008 Exxaro is also actively participating in representative To measure continuous improvement, all business industry forums to ensure the group develops and applies operations have guidelines for reporting on relevant diesel, best practices at all operations. gas, electricity and water use performance indexes. These Case study – Innovation and nature work hand in hand In our prior report, we outlined the environmental challenges faced with expanding Matla while preserving one of the larger wetland systems in Mpumalanga’s highveld, the sensitive and highly important Blesbokspruit/Rietspruit ecosystem. In an example of innovation and nature working hand in hand, the team at Matla are going below the wetland using undermining, a technique typically used when a mine extends under a building, roadway or town. The team has adapted this approach into an innovative engineering design that allows them to extend Matla’s underground shortwall mining operation with minimal impact on the Blesbokspruit/Rietspruit wetland that lies above the surface. The Matla wetland management project is one of Exxaro’s key biodiversity conservation projects. It is unique in that the water ﬂ ow and function of the wetland is protected through a shortwall mining design that allows for even subsidence of the area. The entire wetland area will drop by 1,8m, thus avoiding the formation of ponds and ensuring the continued natural ﬂ ow of water. The ﬂ ow of water into the wetland is controlled in a way that protects the ecosystem and allows mining to continue without the risk of ﬂ ooding. The Blesbokspruit/Rietspruit wetland is one of the larger and more sensitive wetland systems in the area. Mining these coal reserves could have destroyed 120 hectares of identiﬁ ed non-channelled riparian wetland and another 132 hectares of the seasonally inundated non-channelled ﬂ oodplain at the bottom of the valley. This innovative solution has ensured that the normal wetland function and biodiversity will remain intact. 90 I E x x a r o A n n u a l R e p o r t 2 0 0 8 Commodity business: 1 January – 31 December 2008 Electricity (Gj) Diesel (Gj) Sasol Gas (Gj) Petrol used (Gj) Total energy use (Gj) * Commodity business 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 Exxaro Coal 1 692 223 1 816 119 2 258 568 1 380 903 Exxaro Base Metals 1 795 828 1 852 900 143 596 145 703 0 18 0 0 Mineral Sands 2 051 525 1 983 715 173 422 72 944 319 020 320 593 18 223 13 421 3 969 015 3 210 442 414 1 087 584 1 939 855 1 999 187 0 2 545 053 2 377 251 * Total energy ﬁ gures comprise electricity, diesel, petrol and Sasol gas. Commodity business Exxaro Coal Exxaro Base Metals Mineral Sands Commodity business Exxaro Coal Exxaro Base Metals Mineral Sands Commodity business Exxaro Coal Exxaro Base Metals Mineral Sands Water (m3) Product (Kt) Energy per tonne 2008 2007 2008 2007 11 623 896 7 746 713 44 834 000 40 534 259 3 206 356 3 844 548 1 603 000 1 664 507 14 771 649 10 307 560 1 201 000 684 273 2008 0,09 1,21 2,12 Electricity per tonne Diesel per tonne Water per tonne 2008 0,04 1,12 1,71 2007 0,04 1,11 2,90 2008 0,05 0,09 0,14 2007 0,03 0,09 0,11 2008 0,26 2,00 12,30 2007 0,08 1,20 3,47 2007 0,19 2,31 15,06 CO2 from electricity purchased (tonnes)** CO2 from diesel (tonnes)*** 2008 517 519 593 2007 483 493 528 2008 2007 167 238 102 325 10 633 12 841 10 797 5 405 ** Electricity purchased x 1,04 *** Diesel purchased x 2,69 ÷ 1 000 Reported CO2 emissions reﬂ ect burning fossil fuels and electricity consumption. CO2 emissions from processes (spontaneous combustion, ﬂ aring, etc) are not currently reported as methodologies are still being developed and reviewed for the relevant operations. Please note that CO2 emission ﬁ gures in the 2007 report were overstated by a factor of 1 000 due to the use of kilowatt hours as opposed to megawatt hours in the conversion calculation. These are therefore restated in this report. Commodity business Exxaro Coal Exxaro Base Metals Mineral Sands Total Level 1: minor impact and/or non-compliance Level 2: intermediate impact and/or non-compliance Level 3: major impact and/or non-compliance Environmental incidents Level 1 Level 2 Level 3 458 137 201 796 5 2 10 17 0 0 0 0 E x x a r o A n n u a l R e p o r t 2 0 0 8 I 91 ECONOMIC PERFORMANCE Generally residents from local communities are employed at business units, except in areas where speciﬁ c skills are not available. About 70% of employees at the various business units are recruited from local communities. Economic value generated and distributed Component Comment 2008 Direct economic value generated • Revenues Economic value distributed • Operating costs • Employee wages and beneﬁ ts • Payments to providers of capital Net sales plus revenues from ﬁ nancial investments and sales of assets R13 843 million (page 140) Payments to suppliers, non-strategic investments, royalties, and facilitation payments Total monetary outﬂ ows for employees (current payments, not future commitments) All ﬁ nancial payments made to the providers of the organisation’s capital. R11 376 million (page 140, 158) R2 644 million (see note 3 to AFS* on page 158) Interest expense and loan costs of R283 million (note 4 to AFS* on page 161) Note 7 and 25.3 to AFS* on page162 and 179 R19,8 million page 104 • Payments to government (by country) Gross taxes • Community investments Voluntary contributions and investment of funds in the broader community (includes donations) Economic value retained (calculated as economic value generated less economic value distributed) * AFS = annual ﬁ nancial statements Investments, equity release, etc Value-added statement on page 115 Retirement and medical plans Medical aid membership is voluntary under agreements All permanent employees must belong to a deﬁ ned- for employees in the bargaining units at Exxaro Resources, contribution retirement fund. By deﬁ nition these are fully Exxaro Coal and Glen Douglas Dolomite. At all other group funded with no employer funding liability, and all recognised employers and for the management and specialist category funds are registered with the Pension Funds Board. These of employees, medical aid is compulsory. are adequately funded as per the latest actuarial valuations on 31 December 2007 available from the funds. At 31 December 2008, Exxaro had 8 038 employees (79,3% of the workforce) who belonged to medical aids The rand value of all employer contributions to retirement with stipulated employer subsidies, representing R51 million funds for the year was R166 million (2007: R144 million). (2007: R61 million). The challenge faced by corporate South Africa remains Accredited medical aid funds have been structured to exclude unresolved in terms of pending legislative amendments any employer liability for post-retirement medical beneﬁ ts in that aim to make membership of a national basic retirement respect of either existing or past employees. However, there fund and medical aid compulsory. Draft legislation is only is post-retirement medical liability for certain employees of expected in mid-2009, after which the group will prepare an Matla Coal as well as Namakwa Sands. The employer liability appropriate action plan. at 31 December 2008 has been actuarially valued and is appropriately disclosed in the ﬁ nancial statements and in the ﬁ nancial review on page 22. 92 I E x x a r o A n n u a l R e p o r t 2 0 0 8 Market presence see www.exxaro.com/case_studies Approximately 74% of all employees’ remuneration is based INVESTING IN RESEARCH on collective agreements with trade unions determining minimum wages for each grade. Other employees’ remuneration is based on performance and market competitiveness. Less than 1% of the workforce is governed by sectoral determinations issued by the Department of Labour for farm and forestry workers. Those employed by the company are substantially better off than the minimum requirements stipulated by the Basic Conditions of Employment Act. In all cases, minimum conditions of employment in Exxaro exceed the requirements of the Act. (cid:59)(cid:96)(cid:106)(cid:107)(cid:105)(cid:96)(cid:89)(cid:108)(cid:107)(cid:96)(cid:102)(cid:101)(cid:23)(cid:102)(cid:93)(cid:23) (cid:92)(cid:100)(cid:103)(cid:99)(cid:102)(cid:112)(cid:92)(cid:92)(cid:106)(cid:23)(cid:103)(cid:92)(cid:105)(cid:23)(cid:105)(cid:92)(cid:94)(cid:96)(cid:102)(cid:101) (cid:44)(cid:35)(cid:41)(cid:28) (cid:40)(cid:44)(cid:35)(cid:44)(cid:28) Preferential procurement practices Exxaro continues to follow the narrow-based standard for mining houses in reporting expenditure with historically disadvantaged South Africans (HDSAs). Hopefully, this statutory anomaly can be addressed in the mining charter review scheduled for 2009 to deal with conﬂ icting legislation speciﬁ c to the mining industry (codes of good practice from Department of Trade and Industry (dti) versus stipulations of Department of Minerals and Energy). The availability and capacity of rating agencies veriﬁ ed by the South African National Accreditation system remains a challenge in transforming the supplier industry. Exxaro has policies, guidelines and systems in place to promote procurement from HDSA companies in the stipulated categories of capital goods, consumables and (cid:45)(cid:35)(cid:46)(cid:28) services. As a group, we have long given preference (cid:42)(cid:45)(cid:35)(cid:43)(cid:28) (cid:41)(cid:46)(cid:35)(cid:42)(cid:28) (cid:47)(cid:35)(cid:47)(cid:28) ■(cid:23)(cid:23)(cid:62)(cid:88)(cid:108)(cid:107)(cid:92)(cid:101)(cid:94)(cid:23) ■(cid:23)(cid:23)(cid:66)(cid:81)(cid:69) ■(cid:23)(cid:23)(cid:67)(cid:96)(cid:100)(cid:103)(cid:102)(cid:103)(cid:102)(cid:23) ■(cid:23)(cid:23)(cid:68)(cid:103)(cid:108)(cid:100)(cid:88)(cid:99)(cid:88)(cid:101)(cid:94)(cid:88) ■(cid:23)(cid:23)(cid:69)(cid:88)(cid:100)(cid:96)(cid:89)(cid:96)(cid:88)(cid:23) ■(cid:23)(cid:23)(cid:78)(cid:92)(cid:106)(cid:107)(cid:92)(cid:105)(cid:101)(cid:23)(cid:58)(cid:88)(cid:103)(cid:92) Generally residents from local communities are employed at business units, except in areas where speciﬁ c skills are not available. About 70% of employees at the various business units are recruited from local communities. to companies that demonstrate HDSA involvement, development and support in ownership, management and skills development. Over the years, we have tracked our performance on procurement from HDSA companies, which indicates good progression from 2004 at 16%, 2005 (24%), 2006 (37%) and 2007 (35%). The target for 2007 was speciﬁ cally set at 35% to provide for the introduction of the dti’s codes of good practice. The performance for 2008 was a commendable 39% against a target of 40%, inﬂ uenced largely by the transition to the dti codes. In rand terms, this represented R2,36 billion spent with HDSA-owned, -empowered and -inﬂ uenced companies. The target for 2009 is set at 45%. E x x a r o A n n u a l R e p o r t 2 0 0 8 I 93 ECONOMIC PERFORMANCE continued Close monitoring, tracking and stakeholder engagement form partnerships with local HDSAs in areas of group continues to ensure strong partnerships with suppliers. operations. We also encourage transformation in areas Exxaro’s major suppliers are encouraged to transform, and such as employment equity, skills development, enterprise secure accreditation in line with the codes of good practice, development and employee share ownership plans. but with an indication of their narrow-based status. In line with Exxaro’s future expenditure, companies that as required by the mining charter – remains an industry- are likely to have increased and longer-term business wide challenge. The targets shown graphically are annual relationships with the group are viewed as strategic partners percentages, and reporting is in line with the current mining for transformation. These suppliers are encouraged to charter. Accurately tracking spending on suppliers by category – (cid:71)(cid:105)(cid:102)(cid:90)(cid:108)(cid:105)(cid:92)(cid:100)(cid:92)(cid:101)(cid:107)(cid:23)(cid:93)(cid:105)(cid:102)(cid:100)(cid:23)(cid:63)(cid:59)(cid:74)(cid:56) (cid:71)(cid:105)(cid:92)(cid:93)(cid:92)(cid:105)(cid:92)(cid:101)(cid:107)(cid:96)(cid:88)(cid:99)(cid:23)(cid:103)(cid:105)(cid:102)(cid:90)(cid:108)(cid:105)(cid:92)(cid:100)(cid:92)(cid:101)(cid:107)(cid:23)(cid:107)(cid:88)(cid:105)(cid:94)(cid:92)(cid:107)(cid:106) (cid:28) (cid:44)(cid:39) (cid:43)(cid:39) (cid:42)(cid:39) (cid:41)(cid:39) (cid:40)(cid:39) (cid:39) (cid:43)(cid:44)(cid:28) (cid:42)(cid:48)(cid:28) (cid:42)(cid:46)(cid:28) (cid:42)(cid:44)(cid:28) (cid:41)(cid:43)(cid:28) (cid:40)(cid:45)(cid:28) (cid:39)(cid:43) (cid:39)(cid:44) (cid:39)(cid:45) (cid:39)(cid:46) (cid:39)(cid:47) (cid:39)(cid:48) ■(cid:23)(cid:23)(cid:75)(cid:88)(cid:105)(cid:94)(cid:92)(cid:107) (cid:45)(cid:39) (cid:44)(cid:39) (cid:43)(cid:39) (cid:28) (cid:42)(cid:39) (cid:41)(cid:39) (cid:40)(cid:39) (cid:39) (cid:44)(cid:41)(cid:35)(cid:41)(cid:28) (cid:43)(cid:48)(cid:28) (cid:43)(cid:44)(cid:28) (cid:43)(cid:39)(cid:28) (cid:39)(cid:47) (cid:39)(cid:48) (cid:40)(cid:39) (cid:40)(cid:40) 94 I E x x a r o A n n u a l R e p o r t 2 0 0 8 SOCIAL PERFORMANCE The skills shortage hits where it hurts most – business’s bottom line. And while everyone is ﬁ shing from the same skills pond, not everyone is contributing to it. Exxaro’s current staff complement is 10 135, including In the bargaining units, there are 8 096 employees, with Namakwa Sands. Building on the leading practices 2 039 employees in the management and specialist entrenched in recent years, we focus on exceeding category. All are full-time employees with only one person in compliance targets in South Africa through training and Gauteng being a part-time employee (in a bargaining unit). development to maximise individual potential – and reduce the shortage of skills in our industry (page 97) – equality and safety in the workplace, meeting our employment equity targets and improving standards of living in our In Gauteng, 15 employees in the management and specialist category are expatriates. Two are based in China, one in Australia, one in The Netherlands, 10 in Namibia and one in Switzerland. The regional distribution is as follows: stakeholder communities. Following the merger between Kumba Resources and Eyesizwe Coal, the process of aligning and standardising all human resource processes – from stafﬁ ng, training and development, performance management, talent management, reward and recognition, through to e-learning – will culminate in an integrated human resource systems environment early in 2009. This will give managers immediate access to a “single view” of all essential employee information, and improved contractor management. Region Gauteng KwaZulu-Natal Limpopo Mpumalanga Namibia Western Cape Manage- ment and specialist category Bargaining unit 906 511 2 346 3 191 436 706 671 167 416 495 96 194 Total 1 577 678 2 762 3 686 532 900 Wage agreements that govern remuneration are in place new projects is ongoing. Exxaro has an active The challenge of ﬁ nding suitable skills to staff at all group employers, while formal processes determine the remuneration of non-unionised employees. Six-monthly market surveys ensure that total remuneration is market related. At all levels, minimum conditions of employment exceed the requirements of South Africa’s Basic Conditions of Employment Act. During the year, there were no reported incidents of discrimination in the group. There are two main categories of employees in Exxaro: employees in bargaining units and the management and specialist category. programme to retain scarce skills that accounts for 2–3% of total payroll (page 97). Since collective agreements determine speciﬁ c guaranteed minimum salaries, there is no discrimination between salaries of men and women. In the management and specialist category, all employees are on performance contracts and individual salaries are based on performance and not gender. The breakdown of male/female employees per category and region is shown below. Gender breakdown by category and region: at 31 December 2008 Region Gauteng KwaZulu-Natal Limpopo Mpumalanga Namibia Western Cape Total Bargaining unit Management and specialist category Male 735 454 2 137 2 835 406 614 7 181 Female Male Female 171 57 209 356 30 92 915 476 134 367 431 69 162 1 639 195 33 49 64 27 32 400 Total 1 577 678 2 762 3 686 532 900 10 135 E x x a r o A n n u a l R e p o r t 2 0 0 8 I 95 SOCIAL PERFORMANCE continued During the year, a third-party audit by a leading industry expert conﬁ rmed that all relevant Exxaro policies fully complied with South Africa’s Employment Equity Act 55 of 1998. Exxaro’s employment equity reports for the period 1 October 2007 to 30 September 2008, as submitted to the Department of Labour, reﬂ ect the following level of representation per occupational level by designated groups (historically disadvantaged South Africans or HDSAs – blacks, coloureds, Indians and white females as per mining charter deﬁ nition) and split between permanent and temporary employees: Employment equity – 1 October 2007 – 30 September 2008 Level Male Female Top management Senior management Professional, specialists and middle management Skilled technical, academically qualiﬁ ed and junior management Semi-skilled staff Unskilled staff Total permanent employees Total temporary employment service labour B 5 0 20 0 186 2 57 0 868 45 3 146 92 1 047 231 I 1 0 7 0 30 1 10 0 35 0 21 0 0 0 C 0 0 4 0 22 0 1 0 W 18 0 156 16 396 45 149 7 154 1 079 0 470 1 2 0 68 140 33 28 8 B 1 0 2 0 I 0 0 1 0 45 20 0 3 0 158 20 179 16 128 11 1 0 0 22 2 9 0 0 0 C 0 0 2 0 3 0 0 0 37 2 85 0 2 0 W 1 0 24 3 99 4 7 0 306 51 86 16 2 0 Foreign nationals Male Female 0 0 2 0 0 0 0 0 10 0 89 0 17 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Total 26 0 218 19 801 53 227 7 2 669 188 4 225 158 1 226 250 5 329 104 653 1 966 516 52 129 525 118 0 10 067 370 1 3 177 47 563 3 55 2 131 74 599 0 118 0 675 0 10 742 Total staff complement 5 699 105 654 2 143 B – blacks I – Indians C – coloureds W – whites 96 I E x x a r o A n n u a l R e p o r t 2 0 0 8 Literacy and numeracy There are now accredited ABET training centres at Exxaro offers sponsored, voluntary adult basic education Grootegeluk, Tshikondeni, Matla and Arnot mines. The and training (ABET) programmes at all commodity group’s annual training reports and workplace skills businesses, except where employees are fully literate. Exxaro plans, submitted to and approved by Mining Qualiﬁ cations carries the full cost of these programmes, totalling some Authority (MQA), contain sections on the number of ABET R3,3 million in 2008. Candidates are screened and counselled candidates completing various levels and planned for the to ensure they are able to make informed decisions, and an years ahead. incentive scheme is in place for each level completed to encourage more employees to become functionally literate In compliance with the national skills strategy, KZN Sands, and numerate. More than 1 000 employees have passed one Namakwa Sands, Grootegeluk and the corporate centre or more ABET level since inception of this programme. already have more than 70% of their employees on NQF level 1 and higher. Good progress was made in 2008 towards our target of offering everybody the opportunity to become functionally Speciﬁ c ABET successes in 2008 include: literate and to participate in ABET classes. Almost double • KZN Sands’ Hillendale Mine had 32 ABET graduates the number of employees completed various ABET levels during the year, all of whom have gone to the next step in compared to the previous year. In 2008, 236 employees their literacy training. Fifteen contractor employees were completed various ABET levels successfully – of these, enrolled in the level 1 programme later in the year. 14 passed ABET level 4, 29 passed level 3, 45 level 2, 98 level • At Matla, two full-time educators run the ABET 1 and 50 pre-ABET. Equally, the number of non-employees programmes and at least 90 employees each year attend completing different ABET levels more than doubled in the 13-week full-time courses. The success of this approach is review period. Across the group, 68% of employees had reﬂ ected in Matla’s 100% ABET pass rate in 2008. an NQF level 1 and above qualiﬁ cation in September 2008 (66% in September 2006). Training and education (cid:56)(cid:57)(cid:60)(cid:75)(cid:23)(cid:99)(cid:92)(cid:109)(cid:92)(cid:99)(cid:106)(cid:23)(cid:90)(cid:102)(cid:100)(cid:103)(cid:99)(cid:92)(cid:107)(cid:92)(cid:91) link, Exxaro is determined not to have any weak links in its Understanding that a chain is only as strong as its weakest (cid:41)(cid:42)(cid:45) (cid:41)(cid:41)(cid:42) (cid:69)(cid:108)(cid:100)(cid:89)(cid:92)(cid:105)(cid:23)(cid:102)(cid:93)(cid:23)(cid:103)(cid:92)(cid:102)(cid:103)(cid:99)(cid:92) (cid:41)(cid:44)(cid:39) (cid:41)(cid:39)(cid:39) (cid:40)(cid:44)(cid:39) (cid:40)(cid:41)(cid:47) (cid:28) (cid:40)(cid:39)(cid:39) (cid:48)(cid:42) skills development process. We believe in empowering all staff with the knowledge and skills they need to help us grow the company, but also to develop personally. Since the group’s formation in 2006, Exxaro employees have successfully completed almost 25 000 different training courses, specialist and development programmes. Exxaro’s policy is to invest an appropriate amount of total payroll each year on human resource development. In 2008, this was 5,2% (excluding the 1% skills levy) or an investment of over R100 million. (cid:45)(cid:47) aims to: Through our human resource development policy, Exxaro (cid:45)(cid:45) (cid:44)(cid:39) (cid:39) (cid:106) (cid:92) (cid:92) (cid:112) (cid:102) (cid:103) (cid:100) (cid:60) (cid:99) (cid:99) (cid:106) (cid:92) (cid:92) (cid:112) (cid:102) (cid:103) (cid:100) (cid:92) (cid:36) (cid:101) (cid:102) (cid:69) (cid:106) (cid:92) (cid:92) (cid:112) (cid:102) (cid:103) (cid:100) (cid:60) (cid:99) (cid:99) (cid:106) (cid:92) (cid:92) (cid:112) (cid:102) (cid:103) (cid:100) (cid:92) (cid:36) (cid:101) (cid:102) (cid:69) ■(cid:23)(cid:23)(cid:41)(cid:39)(cid:39)(cid:47) ■(cid:23)(cid:23)(cid:41)(cid:39)(cid:39)(cid:46)(cid:23) ■(cid:23)(cid:23)(cid:69)(cid:72)(cid:61)(cid:23)(cid:99)(cid:92)(cid:109)(cid:92)(cid:99)(cid:23)(cid:40)(cid:49)(cid:23)(cid:45)(cid:45)(cid:28)(cid:23)(cid:96)(cid:101)(cid:23)(cid:41)(cid:39)(cid:39)(cid:45)(cid:35)(cid:23)(cid:45)(cid:47)(cid:28)(cid:23)(cid:96)(cid:101)(cid:23)(cid:41)(cid:39)(cid:39)(cid:47)(cid:23) (cid:23) • Develop and sustain core competencies and maximise human resources to meet its strategic objectives and improve its operational performance • Create a learning culture by assisting and facilitating the process by which employees and their dependants take responsibility for improving their own educational and competency levels, to the mutual beneﬁ t of the individual and the organisation E x x a r o A n n u a l R e p o r t 2 0 0 8 I 97 SOCIAL PERFORMANCE continued • Ensure integration and uniformity in all learning and which, when combined with engineering learnerships, development processes through leveraging technologies brought the total number of people in learnerships/skills • Support and reinforce the values of the company, through programmes to 678. various learning and development initiatives • Ensure learning and development initiatives are career- Exxaro’s human resources development professionals focused and aligned with business objectives • Establish life-long learning as the major thrust of learning and development. In 2008, Exxaro reﬁ ned the focus on skills development. Where our primary focus was previously on engineering learnerships, the skills development objective in Exxaro has broadened to include other learnerships and especially skills programmes, while steadily increasing the number of engineering learnerships. Although the numbers vary as learners qualify and new are contributing signiﬁ cantly to the national and sectoral transformation process through membership and participation in bodies such as Business Unity South Africa, Chamber of Mines’ education advisory committee, the MQA sector skills planning committee and standards-generating bodies of the MQA. Training to assist employees in managing career endings is included in the social and labour plan for each mine, submitted to and monitored by the Department of Minerals and Energy as part of the process of renewing mining recruits enter the system, on average Exxaro currently licences for each mine. Exxaro also included a ﬁ ve-year has over 600 learners registered in engineering and engineering learnership plan for 2007 to 2011. other learnerships/skills programmes. This is a meaningful improvement on the prior year’s levels of 400. In monitoring our artisan retention strategy, the ratio In 2008, on average, 170 engineering learners were employed in various trades is reported to Exxaro’s executive registered and trained at the Colliery Training Centre in committee each month. of learnerships in the pipeline to the number of artisans Witbank, while 245 engineering learners were registered at Grootegeluk’s Grovos Engineering Training Centre. More than 100 artisans qualiﬁ ed at the Grovos training centre alone. To put this contribution into perspective, Exxaro alone constitutes more than 20% of all engineering learnerships registered with the MQA. Exxaro’s training in engineering learnerships will lead to full artisan status in trades such as electrician, ﬁ tter, plater, diesel mechanic and millwright. Artisans are considered scarce and critical skills in South Africa and all these trades appear on the country’s scarce skills list. Exxaro keenly understands the impact on current production and future growth of skills retention and availability. To retain technical and engineering competence in the group, a retention strategy has been introduced for technical categories, among others, together with an aggressive succession-planning strategy. Exxaro regularly benchmarks remuneration, provides comprehensive training and identiﬁ es growth opportunities at every level. This includes continual rotation and exposure of our own talent in multidisciplinary project teams. All non-bargaining unit employees receive formal The number of other learnerships and skills programmes performance and career development reviews bi-annually. has also increased signiﬁ cantly, reaching the highest levels All management members are assessed throughout the towards the end of 2008. By then, there were 40 people year and this becomes the basis for individual succession registered in mining learnerships, 230 in plant learnerships/ programmes and talent management. These assessments bursars and 16 in administrative/services learnerships, are also linked to reward and remuneration. 98 I E x x a r o A n n u a l R e p o r t 2 0 0 8 While employees in the bargaining unit are not part of industry needs to provide a steady ﬂ ow of qualiﬁ ed talent Exxaro’s formal performance management system, their to tackle our growth and expansion projects. In 2008, there development is driven by individual development plans were some 233 trainees involved in programmes supporting derived from an employee’s job proﬁ le, formal career plan internal advancement. The overarching objective is to and individual preference. The performance management ensure that trainees entering the company are empowered, process is entrenched in the culture of Exxaro. challenged and appropriately rewarded: All new management and specialist category employees Foundation sponsors 30 previously disadvantaged receive formal training on the performance management students each year for a 12-month bridging course at process and system to reinforce the concept that reward is the University of Pretoria. Candidates must be grade • Exxaro People Development Initiative: the Exxaro driven by performance. Performance management is also included in a web-based induction programme. 12 students from Exxaro mining communities who want to study for a mining-related degree or diploma. On completing their studies, candidates may be considered All training and development is based on a thorough needs for an Exxaro bursary. analysis, taking cognisance of business strategy, identiﬁ ed skills deﬁ ciencies via the performance management process, succession planning requirements, employee career pathing, and the relevant employment equity plans. Personal development emphasises the joint responsibility of employees to manage their career growth. As such, Exxaro provides ﬁ nancial assistance to permanent employees with potential to further their education through part-time studies of certain recognised, approved courses and programmes. Employees nominated by the company to attend courses or programmes are fully sponsored for tuition, examinations, travel, accommodation costs and study leave. Speciﬁ c strategies to ensure the accelerated learning and development of black people, women and people with disabilities include: • Fast-tracking employees with leadership and management potential • Bursary programme: Exxaro grants around 35 bursaries each year to school leavers interested in mining-related disciplines such as engineering, geology and mine surveying. Graduates are generally offered employment at Exxaro, depending on the current need in that ﬁ eld, mostly through the group’s formal three-year professionals-in-training programme. There are currently 142 bursars studying at South African institutions at a cost of R9,7 million: more than two-thirds are historically disadvantaged South Africans and 30% are women. • Professionals-in-training programme: the three-year programme bridges the gap between academic theory and the work environment. Each professional-in-training has a mentor who supervises exposure to the various commodities, leadership and management training, and formal training from professional bodies. In 2008, there were 91 professionals-in-training throughout Exxaro in a R32-million programme: 77% are from designated groups • Accelerated development for occupationally based skills and 26% of those are women. • Adult basic education • Life skills programmes • Learnerships. Career development Communities of practice: Exxaro has communities of practice for effective development and sharing of knowledge, best practices and lessons across the group. The focus is primarily on core competencies required for Exxaro’s In line with Exxaro’s strategy to ensure that 80% of all new sustainability. In practice, these communities have lowered appointments are made internally, we have a well-integrated the risk of losing key knowledge workers, and brought new process that is carefully aligned with our strategy and people up to speed more rapidly. E x x a r o A n n u a l R e p o r t 2 0 0 8 I 99 SOCIAL PERFORMANCE continued Leadership development: Formal leadership development Negotiations for improvement of wages and conditions of initiatives, mentorship programmes and succession- employment are done in-house and through the Chamber planning workshops involving senior management and of Mines. employees are conducted throughout the year. Building and retaining a pool of current and future leaders is a priority for Exxaro has a disciplinary code that is used when necessary. Exxaro and appropriate initiatives include a comprehensive The code is based on the principle of fairness as required succession-planning process and enhancing strategic by labour law. Supervisors have the skill to implement leadership competencies. Employee turnover Between 1 January and 31 December 2008, Exxaro recorded an average employee turnover rate of 7%. The primary reasons for terminations were death, resignations, dismissals and disabilities. The turnover rate by employee group is shown below: the code. Through collective bargaining, employees receive several beneﬁ ts beyond minimum legislative requirements below. Conditions of employment for employees in bargaining units are centrally negotiated each year. Employee beneﬁ ts Turnover rate by employee group Full-time employees receive a range of beneﬁ ts – many Terminations Jan – Dec 2008 exceeding minimum stipulations – including: • Retirement fund membership subsidised by the Employment equity – occupational categories % of total workforce Number Senior ofﬁ cials, managers, legislators Professionals Technicians/associated professionals Clerks and administrative workers Service and sales workers Craft and related trades Plant and machine operators Labourers and elementary occupations Labour relations 0,49 0,61 0,51 0,73 0,03 2,24 1,60 0,78 50 62 52 74 3 227 162 79 employer • Medical aid membership subsidised by the employer • Housing allowance/company accommodation • Guaranteed annual bonuses/13th cheque for bargaining unit employees • Travel allowances • Annual leave, sick leave, maternity leave, family responsibility leave • Incentive schemes, share appreciation rights schemes, standby and call-out allowances, etc as well as payment for overtime worked. Retirement and other beneﬁ ts for all permanent employees are provided by independent deﬁ ned contribution funds. Almost 80% of Exxaro’s employees are represented The employer contribution to retirement funds in the group by afﬁ liated unions, predominantly National Union of ranges from 10% to 18% of employee pensionable earnings, Mineworkers (NUM 69,8%), and Solidarity (7,0%). Other and is expensed as it is occurred. All retirement funds are recognised unions are Mineworkers Union of Namibia (MUN), governed by the South African Pension Funds Act (1956), National Union of Metalworkers in South Africa (NUMSA), with no members on deﬁ ned-beneﬁ t plans. and United Association of South Africa (UASA). 100 I E x x a r o A n n u a l R e p o r t 2 0 0 8 The group continues to focus on home ownership. To comply Where meals are provided, the quality and nutritional value with the mining charter and our own business needs, a of these meals are determined by a dietician. Qualiﬁ ed staff new long-term housing strategy has been developed. continually monitor the fulﬁ lment of contractual obligations. While Exxaro’s housing policy focuses on home ownership, Employees have accessible mechanisms to engage both employees receive a housing or living-out allowance to management and suppliers on food issues. assist them in obtaining accommodation. Land has been made available for housing at Grootegeluk where some Employee wellness 800 units will be built over the next four years. External service providers manage employee assistance Housing categories Home owners (bought company property) Hostels Single quarters Rental and other Total programmes for our people and their dependants at all business units. These have been particularly successful in ensuring a fast and efﬁ cient response to employees suffering trauma because of work-related and community- based events. see www.exxaro.com/case_studies PUTTING ROOFS OVER HEADS AND FOOD ON TABLES 2008 number of employees 822 389 1 336 7 588 10 135 Building tiny skills The KZN Sands sustainable development team has come up with an innovative way to ensure people in their rural communities are given a fair start. As part of its sustainable development strategy, KZN Sands has built a crèche in the Somopho area, outside eMpangeni. The crèche is manned by qualiﬁ ed educators who use a variety of games and building exercises to teach their young pupils essential coordination skills. Interestingly, coordination has proven to be the main reason why many applicants from rural communities fail to qualify for learnerships at KZN Sands: they fail the basic hand/eye coordination test. Through the new crèche, KZN Sands aims to build a solid educational foundation so that future generations don’t have to suffer the same fate. Later in the year, and as part of Arbor Week, trees were planted in the crèche grounds. The 40 registered learners at the crèche range from a few months to four years. Older groups are taught the ofﬁ cial grade R syllabus. Currently registered as a non-proﬁ t organisation, the crèche will become a formal pre-school by 2010. Case study – Equity in action Empowering women to play a more active role in Exxaro, the mining industry and the country is a strategic priority. But, for Exxaro, it is about far more than just making our workforce more representative. It is also a way in which we can combat the current skills shortage. More than half of South Africa’s population are women and, therefore, so is half the country’s talent. Yet, in the mining industry, companies are struggling to increase the percentage of women in core mining skills to just one-tenth of their workforces. We need to develop and channel this talent into areas where it is needed most, with technical skills as our priority. Exxaro is investigating a number of ways to boost the role of women in the group, with good results: • 19% of Exxaro’s senior to middle management level is made up of women • Almost 13% of the group’s permanent workforce are women. E x x a r o A n n u a l R e p o r t 2 0 0 8 I 101 SOCIAL PERFORMANCE continued Diversity and equal opportunity transformation without affecting existing positions in the When we created Exxaro – the largest black-owned mining company. Each business unit has a formally assigned senior company in the country – we stated our intention of being manager for employment equity, and an employment equity the best example of how South African companies can forum that is responsible for ensuring appropriate plans and should be run. We made a commitment to our people are developed, executed, monitored and communicated to to ensure their progress and to build up the skills base we employees. need to fulﬁ l our vision. Employment equity is just one of the ways in which we are doing this. Pleasingly, and despite the shortage of skills, Exxaro has exceeded 2009 mining charter targets ahead of time in both While employment equity is certainly a legal issue, with the management and women in core mining categories. This strict targets imposed by both the mining charter and the reﬂ ects the constant focus on internal promotion, individual government’s black economic empowerment codes, for development and skills retention in our aim to be a preferred Exxaro it is also a moral imperative. employer. The group’s performance against the mining charter’s complete set of targets appears on page 107. At the heart of our employment equity strategy are detailed plans developed by each business unit in consultation Women in mining initiatives with employees and unions. These are updated and Women in mining initiatives were established and progress reported quarterly to the board and annually to implemented to attract women to work in the core business government. of the company. A committee representing all the business units of Exxaro has been established to implement and to By following these plans, each unit ensures that recruitment execute these initiatives. and skills development are conducted responsibly, promoting Employment equity progress (cid:63)(cid:59)(cid:74)(cid:56)(cid:23)(cid:105)(cid:92)(cid:103)(cid:105)(cid:92)(cid:106)(cid:92)(cid:101)(cid:107)(cid:88)(cid:107)(cid:96)(cid:102)(cid:101)(cid:23)(cid:96)(cid:101)(cid:23)(cid:88)(cid:99)(cid:99)(cid:23) (cid:100)(cid:88)(cid:101)(cid:88)(cid:94)(cid:92)(cid:100)(cid:92)(cid:101)(cid:107)(cid:23)(cid:90)(cid:88)(cid:107)(cid:92)(cid:94)(cid:102)(cid:105)(cid:96)(cid:92)(cid:106) (cid:78)(cid:102)(cid:100)(cid:92)(cid:101)(cid:23)(cid:31)(cid:88)(cid:99)(cid:99)(cid:23)(cid:99)(cid:92)(cid:109)(cid:92)(cid:99)(cid:106)(cid:32) (cid:44)(cid:39) (cid:43)(cid:39) (cid:42)(cid:39) (cid:28) (cid:41)(cid:39)(cid:28) (cid:41)(cid:39) (cid:43)(cid:41)(cid:28) (cid:42)(cid:45)(cid:28) (cid:42)(cid:46)(cid:28) (cid:41)(cid:47)(cid:28) (cid:41)(cid:47)(cid:28) (cid:40)(cid:39) (cid:39) (cid:39)(cid:42) (cid:39)(cid:43) (cid:39)(cid:44) (cid:39)(cid:45) (cid:39)(cid:46) (cid:39)(cid:47) (cid:28) (cid:40)(cid:44) (cid:40)(cid:41) (cid:48) (cid:45) (cid:42) (cid:39) (cid:40)(cid:42)(cid:28) (cid:40)(cid:41)(cid:28) (cid:40)(cid:41)(cid:28) (cid:40)(cid:40)(cid:28) (cid:40)(cid:40)(cid:28) (cid:40)(cid:39)(cid:28) (cid:39)(cid:42) (cid:39)(cid:43) (cid:39)(cid:44) (cid:39)(cid:45) (cid:39)(cid:46) (cid:39)(cid:47) 102 I E x x a r o A n n u a l R e p o r t 2 0 0 8 Human rights Induction programmes ensure employees are educated As a responsible corporate citizen, Exxaro complies with about human rights. Policies on discrimination, harassment labour legislation in South Africa and with International and racism are in place, as are structures to protect Labour Organisation guidelines. Accordingly, the group employees’ human rights in the workplace. All security encourages freedom of association and collective bargaining, personnel are fully trained after appointment on human ensures that child labour is not tolerated and that forced or rights aspects relevant to each operation. Refresher courses compulsory labour is not practised. also cover human rights issues. see www.exxaro.com/case_studies DEVELOPING BUSINESS AND PERSONAL POTENTIAL Case study – Preserving west coast vegetation The newly acquired Namakwa Sands is a mineral sands mining operation at Brand se Baai, approximately 385km north of Cape Town along the west coast of South Africa. The area falls within the semi-arid portion of the Cape Floristic Region (CFR) and is acknowledged as the most biologically rich semi-arid region in the world, known for its unique habitats and diversity of species. Due to mining activities, the land is left totally bare and exposed to extreme conditions: • High wind speeds (up to 6m/sec) • Increased soil temperature • Reduced moisture content of the soil • Increased salinity in the growth medium (tailings from processing plants used as backﬁ ll material). The re-establishment of the same species under new exposed conditions is therefore extremely challenging. The process is divided into separate actions to develop and maintain a sustainable rehabilitation programme to ensure that the area’s biodiversity is restored to its fullest potential after mining: • Data capturing: Namakwa Sands adopted a GIS database in which all historical and current rehabilitation practices are captured for future reference. This data, together with monitoring results, can be used to identify best rehabilitation practices and opportunities for continual improvement • Monitoring: An external botanical specialist annually surveys controlled and rehabilitated areas. Monitoring results is a way of determining the success of speciﬁ c rehabilitation efforts against current closure objectives • Topsoil recovery: The removal and ﬁ nal placement of topsoil is closely monitored and surveyed monthly • Wind erosion protection: Shade nets are used as windbreaks to minimise the movement of sand and protect newly established vegetation. Windbreaks are maintained for ﬁ ve to six years until the established vegetation can replace their function. Almost 3 000km of windbreaks have been erected to cover 2 100ha • Harvesting: Indigenous seeds are harvested per specie from approved areas during the summer months • Sowing: Indigenous seeds are sowed in areas where rehabilitation earthworks have been completed and stabilised with windbreaks. A total of 862kg of indigenous seeds were sowed over 500ha in 2008 • Transplantation: Young indigenous plant species are transplanted from areas to be mined to the area where rehabilitation earthworks have been completed and the areas stabilised with windbreaks • Propagation: A nursery was established at the beginning of 2007 to propagate indigenous plant species from seeds and cuttings in a protected environment to improve the individual species survival rate. The nursery also provides the opportunity to propagate indigenous plants that cannot be transplanted. E x x a r o A n n u a l R e p o r t 2 0 0 8 I 103 SOCIETY Improving quality of life is fundamental to the projects we support and the partnerships we initiate Social development From 2008, Exxaro’s socio-economic development strategy It is group policy to actively recruit labour from local communities wherever possible. Training initiatives and policy will incrementally move away from ad hoc concentrate on developing the skills of community members philanthropic donations to funding or implementing to fulﬁ l the group’s requirements. longer-term, strategic programmes for measurable and lasting change within disadvantaged communities close to In 2008, no signiﬁ cant ﬁ nes or sanctions for non-compliance our operations. In each of the following focus areas, the with labour laws or regulations were imposed. objective is job creation and improving the quality of life within communities near our operations: • Skills development and capacity building • Formal education • Enterprise development • Health and welfare • Environmental stewardship. To ensure we achieve our strategy, we believe it is important to create public-private partnerships on all our projects. These partnerships are mainly informal although, during the year, Exxaro has had discussions with government on integrating formal public-private partnerships from 2009. At each of our operations, social and labour plans were developed by engaging and consulting with relevant authorities and communities. These plans focus on (cid:28)(cid:23)(cid:106)(cid:103)(cid:92)(cid:101)(cid:91)(cid:23)(cid:102)(cid:101)(cid:23)(cid:106)(cid:102)(cid:90)(cid:96)(cid:102)(cid:36)(cid:92)(cid:90)(cid:102)(cid:101)(cid:102)(cid:100)(cid:96)(cid:90) (cid:93)(cid:102)(cid:90)(cid:108)(cid:106)(cid:23)(cid:88)(cid:105)(cid:92)(cid:88)(cid:106)(cid:23)(cid:89)(cid:112)(cid:23)(cid:60)(cid:111)(cid:111)(cid:88)(cid:105)(cid:102)(cid:23)(cid:58)(cid:95)(cid:88)(cid:96)(cid:105)(cid:100)(cid:88)(cid:101)(cid:203)(cid:106)(cid:23) (cid:61)(cid:108)(cid:101)(cid:91)(cid:23)(cid:88)(cid:101)(cid:91)(cid:23)(cid:60)(cid:111)(cid:111)(cid:88)(cid:105)(cid:102)(cid:23)(cid:61)(cid:102)(cid:108)(cid:101)(cid:91)(cid:88)(cid:107)(cid:96)(cid:102)(cid:101)(cid:23)(cid:41)(cid:39)(cid:39)(cid:47) (cid:41)(cid:44)(cid:28) (cid:45)(cid:28) (cid:43)(cid:45)(cid:28) (cid:40)(cid:46)(cid:28) (cid:45)(cid:28) ■(cid:23)(cid:23)(cid:74)(cid:98)(cid:96)(cid:99)(cid:99)(cid:106)(cid:23)(cid:91)(cid:92)(cid:109)(cid:92)(cid:99)(cid:102)(cid:103)(cid:100)(cid:92)(cid:101)(cid:107)(cid:23)(cid:88)(cid:101)(cid:91)(cid:23)(cid:23)(cid:23) (cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:90)(cid:88)(cid:103)(cid:88)(cid:90)(cid:96)(cid:107)(cid:112)(cid:23)(cid:89)(cid:108)(cid:96)(cid:99)(cid:91)(cid:96)(cid:101)(cid:94) ■(cid:23)(cid:23)(cid:60)(cid:101)(cid:109)(cid:96)(cid:105)(cid:102)(cid:101)(cid:100)(cid:92)(cid:101)(cid:107)(cid:88)(cid:99)(cid:23)(cid:106)(cid:107)(cid:92)(cid:110)(cid:88)(cid:105)(cid:91)(cid:106)(cid:95)(cid:96)(cid:103) ■(cid:23)(cid:23)(cid:61)(cid:102)(cid:105)(cid:100)(cid:88)(cid:99)(cid:23)(cid:92)(cid:91)(cid:108)(cid:90)(cid:88)(cid:107)(cid:96)(cid:102)(cid:101)(cid:23) ■(cid:23)(cid:23)(cid:63)(cid:92)(cid:88)(cid:99)(cid:107)(cid:95)(cid:23)(cid:88)(cid:101)(cid:91)(cid:23)(cid:110)(cid:92)(cid:99)(cid:93)(cid:88)(cid:105)(cid:92) ■(cid:23)(cid:23)(cid:60)(cid:101)(cid:107)(cid:92)(cid:105)(cid:103)(cid:105)(cid:96)(cid:106)(cid:92)(cid:23)(cid:91)(cid:92)(cid:109)(cid:92)(cid:99)(cid:102)(cid:103)(cid:100)(cid:92)(cid:101)(cid:107)(cid:23) communities close to our operations, the source of 70% of In 2008, Exxaro spent R19,8 million on socio-economic our workforce on average, to ensure they beneﬁ t from the development projects, which includes over R5 million in mine’s presence in multiple ways. donations. Case study – Contributing to an industry challenge Exxaro convened a skills debate in March 2008, with panellists from Business Unity South Africa, the Chamber of Mines and its own business units. Key points from the debate included: • Companies must focus on employment branding as opposed to company branding • Businesses must look internally – skills theft is a reality and companies that don’t invest in skills, will steal them • Companies can achieve much through short-term measures, such as adopting a school, while macro issues are being addressed at government level • Mining companies must identify and promote role models who can raise the industry’s proﬁ le at schools, and promote it as an exciting career opportunity • Public-private partnerships are essential. The only way to change the current landscape is for schools, academia, business and government to join forces • Businesses should second their experts to academic institutions to meet the need for top-quality training, rather than luring academics through lucrative positions • Mining companies must attract more women to the industry • Industry needs a better database of available skills, wasting undue time looking for talent in the wrong places • National bodies, SETAs and industry must co-ordinate their efforts to avoid the mismatch between what these bodies do and what industry actually needs. We must adopt a country, not company, approach. The war will not be won by companies working individually, especially when they are all ﬁ ghting for the same skills. 104 I E x x a r o A n n u a l R e p o r t 2 0 0 8 The planned number of jobs to be created over a ﬁ ve-year period in social and labour plan projects that started in 2008 will exceed 660. In addition to job creation, the projects will beneﬁ t over 4 200 people indirectly. Selection of projects and donations: 2008 – 2012 Mine Project/donation Beneﬁ ciaries Tshikondeni Alternative energy project in Guyuni (see page 88) The Sanari Entrepreneurial Centre was established in Sanari, near Tshikondeni Mine. Exxaro partnered with the National Development Agency and Department of Labour to develop a business and training centre for Sanari). Sanari community ( Masunda Citrus Farm ( Masunda). 3 direct jobs, 990 indirect project beneﬁ ciaries 20 direct jobs, 200 indirect project beneﬁ ciaries 12 direct jobs, 120 indirect project beneﬁ ciaries Tshikondeni Tshikondeni Tshikondeni Exxaro partnered with the Department of Agriculture in the Makuya farmers’ co-operative ( Makuya). 40 direct jobs, 400 indirect project beneﬁ ciaries Corporate commitment Exxaro established the chair in Business and Climate Change at Unisa to focus on carbon footprinting and climate change issues that companies should consider ( Unisa). Corporate commitment Exxaro assists the University of Pretoria’s community project for the maintenance engineering department. n/a n/a Grootegeluk Grootegeluk KZN Sands KZN Sands Grootegeluk Donation to Abbotspoort drop-in-centre near Grootegeluk Mine to care for the growing number of orphans in the area. Each year, a sizeable investment is made in technical and civil skills development in the Lephalale area with the help of several local training institutions. Offered skills include welder/planter, ABET, maintenance operator and building. SME development and support centre was constructed last year and is now fully operational. Exxaro partnered with the European Union, Absa and uThungulu District Municipality to offer community members a centre where they can learn skills like art and decoration, furniture- making, pottery and jewellery production. In Ezingeni, a hydroponics garden was started which produces tomatoes for local retailers. The garden was recently expanded in partnership with BHP Billiton. 18 direct jobs, 65 orphans 1 710 learners over a ﬁ ve-year period 350 direct jobs, 1 750 indirect project beneﬁ ciaries 15 direct jobs, 75 indirect project beneﬁ ciaries Eco-friendly housing, roadbuilding and enterprise development project. 24 direct jobs, ﬁ ve home owners, 101 indirect project beneﬁ ciaries see www.exxaro.com/case_studies CHANGING THE FACE OF A TOWN see www.exxaro.com/case_studies THEIR FUTURE IS A CLICK AWAY E x x a r o A n n u a l R e p o r t 2 0 0 8 I 105 SOCIETY continued Mine Rosh Pinah Zincor Arnot New Clydesdale Leeuwpan Project/donation Due to the large inﬂ ux of people to the area, the need was identiﬁ ed to expand the existing primary school which already accommodates 600 learners. New teachers were employed and a campaign to provide a better education standard started. The improved school will make Rosh Pinah town a better place to raise children and Rosh Pinah Zinc Corporation an ideal employer. In Vukuzenzele, an informal settlement near the Zincor plant in Springs, a refuse project educates residents about a healthy environment, hygiene and welfare. Refuse is collected monthly. Given its success to date, Ekhurhuleni Metropolitan Municipality will take over the project from mid-2009. Beneﬁ ciaries 15 teachers, 600 learners all inhabitants of Vukuzenzele settlement A hydroponics garden was started near Arnot mine which will expand into a commercial farm over ﬁ ve years. 95 direct jobs, 332 indirect project beneﬁ ciaries A hydroponics garden was started where local community members and mine employees can receive training in agricultural skills. A laundry and dry-cleaning enterprise was started to meet demand from mine workers and Delmas residents. A pick-up and delivery service is included for servicing clients further away. 65 direct jobs, 227 indirect project beneﬁ ciaries 7 direct jobs, 25 indirect project beneﬁ ciaries Monitoring and evaluation We are currently implementing monitoring and evaluation software to measure progress and identify challenges. This system will be aligned with Exxaro’s internal socio-economic development technology platform which will be fully operative by June 2009. 106 I E x x a r o A n n u a l R e p o r t 2 0 0 8 LEGISLATIVE COMPLIANCE/MINING CHARTER SCORECARD Mining charter scorecard In 2009, industry progress against the mining charter will be reviewed, and the accompanying scorecard reﬁ ned where necessary. In the past ﬁ ve years, Exxaro has made steady progress and exceeds many of the charter’s targets, most notably those for transformation at management level, women in mining and building the pool of industry skills. Requirements Progress Human resources development • Pay skills development levy • Submit workplace skills plans and annual training reports • Provide and encourage employees to become functionally literate Interface with MQA? Yes, through submitting statutory reports and serving on sector skills planning committee and technical reference groups Formulated a comprehensive skills audit? MQA is researching the required format of a skills audit acceptable to all stakeholders. Exxaro will implement this format once available Interface with education authorities, scholarships to promote mining- related educational advancement? • Bridging school, bursary and professionals-in-training programmes in place • Contributing to fund to enhance faculty remuneration at two universities offering higher education in the mining ﬁ eld • Through participation in educational structures of Business Unity SA and Chamber of Mines, Exxaro contributes to transforming broader education in the country Increasing number of learnerships in the mining industry? If so by how much? Exxaro has increased its learnerships and skills programmes signiﬁ cantly – to 678: 392 in engineering learnerships, 230 in plant learnerships, 40 in mining learnerships and 16 in administration/services learnerships. Skills training opportunities to prepare for mine closure? No mine closures. All mines have sections on post-mining training processes and plans in their social and labour plans, submitted to the Department of Minerals and Energy Functional literacy and numeracy in consultation with labour? Career paths and opportunities for HDSA? Systems for mentoring empowerment groups as a means of capacity building? Employment equity Published employment equity plan and achievements? Targets in junior and senior management categories? • Fully company-sponsored, voluntary ABET programmes running at all mines (some since 1992) • Currently, 2 920 employees have qualiﬁ cation 3 year Attributable to tax Total Market related value Rm Foreign currency million Contract value Rm Recog- nised fair value in equity Rm 3 1 4 18 18 75 56 37 561 730 3 1 4 19 19 57 44 41 552 694 1 1 8 6 4 60 78 (1) (1) (18) (12) 4 (9) 3 (32) Note: In respect of a US$60 million (2007: US$60 million) loan liability of Exxaro Australia Sands Pty Limited, an economic hedge exists between US$ revenue and US$ borrowings. Accordingly, future sales proceeds to be applied to the repayment of US$ borrowings are recorded at the historical exchange rate effective at the date of loan draw down. With regard to the above-mentioned cash ﬂ ow hedges, the future expected cash ﬂ ows are represented below: Expected future cash ﬂ ows – United States Dollar – FECs – Euro – FECs – United States Dollar – Note holders loan Expected gain/(loss) in proﬁ t or loss (at maturity) – United States Dollar – FECs – Euro – FECs – United States Dollar – Note holders loan 2009 Rm 141 19 (27) (1) 2010 Rm >2010 Rm Total Rm 141 19 561 (27) (1) (9) 561 (9) 194 I E x x a r o A n n u a l R e p o r t 2 0 0 8 29. FINANCIAL INSTRUMENTS (continued) RISK MANAGEMENT (continued) 29.5 29.5.2.1 Foreign currency risk management (continued) Market related value Rm Foreign currency million Contract value Rm Recog- nised fair value in equity Rm 9 4 13 62 3 26 1 92 1 1 62 3 27 1 93 1 1 (1) (1) GROUP 2007 Imports United States Dollar – FECs Less than 3 months 3 months 6 months 1 year Total Less than 3 months Total Euro – FECs Exports United States Dollar – Note holders loan > 3 year Attributable to tax Total 397 397 60 60 304 304 93 (31) 62 Note: In respect of a US$60 million (2007: US$60 million) loan liability of Exxaro Australia Sands Pty Limited, an economic hedge exists between US$ revenue and US$ borrowings. Accordingly, future sales proceeds to be applied to the repayment of US$ borrowings are recorded at the historical exchange rate effective at the date of loan draw down. With regard to the above-mentioned cash ﬂ ow hedges, the future expected cash ﬂ ows are represented below: 2008 Rm 2009 Rm >2009 Rm Total Rm Expected future cash ﬂ ows – United States Dollar – FECs – Euro – FECs – United States Dollar – Note holders loan Expected gain/(loss) in proﬁ t or loss (at maturity) – United States Dollar – Note holders loan 93 1 93 1 304 304 93 93 Market related value Rm Foreign currency million Contract value Rm Recog- nised fair value in equity Rm COMPANY 2008 Imports United States Dollar – FECs 3 months Total 1 1 0,1 0,1 1 1 E x x a r o A n n u a l R e p o r t 2 0 0 8 I 195 NOTES TO ANNUAL FINANCIAL STATEMENTS continued for the year ended 31 December 2008 29. FINANCIAL INSTRUMENTS (continued) RISK MANAGEMENT (continued) 29.5 29.5.2.1 Foreign currency risk management (continued) With regard to the above-mentioned cash ﬂ ow hedges, the future expected cash ﬂ ows are represented below: 2008 Rm 1 Market related value Rm 2009 Rm >2010 Rm Total Rm 1 Recog- nised fair value in equity Rm Foreign currency million Contract value Rm Expected future cash ﬂ ows – United States Dollar – FECs COMPANY 2007 Imports United States Dollar – FECs Less than 3 months Total 1 1 0,2 0,2 1 1 With respect to the above-mentioned cash ﬂ ow hedges, the future expected cash ﬂ ows are represented below: Expected future cash ﬂ ows – United States Dollar – FECs 2009 Rm 2010 Rm 2008 Rm 1 Total Rm 1 Foreign currency sensitivity The following table includes outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% increase in foreign currency rates and details the group and company sensitivity thereto. Foreign currency denominated monetary items such as cash balances, trade receivables, trade payables and loans have been included in the analysis. A positive number represents a gain whilst a negative number represents a loss. For exports (US$), an increase in the exchange rate of the Rand (ZAR) against the dollar (US$) (eg, FEC taken out on exports at R6,10: US$1, with actual rate coming out at R6,50: US$1) represents a weakening of the Rand against the US dollar, which results in a loss incurred of R0,40. The opposite applies for a decrease in the exchange rate. PROFIT OR (LOSS) EQUITY GROUP United States dollar Euro COMPANY United States dollar 2008 Rm 248 115 2007 Rm 68 2 21 2008 Rm (4) 2007 Rm (29) 2 For imports (Euro), an increase in the exchange rate of the Rand (ZAR) against the Euro (eg, FEC taken out on exports at R10,00: €1, with actual rate coming out at R11,00: €1) represents a weakening of the Rand against the Euro, which results in a gain incurred of R1,00. The opposite applies for a decrease in the exchange rate. A 10% decrease in the Rand against each foreign exchange rate would have an equal but opposite effect on the above, on the basis that all other variables remain constant. 196 I E x x a r o A n n u a l R e p o r t 2 0 0 8 29. FINANCIAL INSTRUMENTS (continued) RISK MANAGEMENT (continued) 29.5 29.5.2.2 Commodity risk management The group entered into commodity derivatives to hedge certain of its export product exposures, in terms of lead and zinc prices. Cash ﬂ ow price hedges for coal at year-end are insigniﬁ cant due to limited hedged exports and ﬁ xed price agreements. As of 31 December 2008 the net fair value of commodity derivatives reﬂ ected a R583 million loss (2007: R92 million). The potential loss in fair value for such commodity hedging derivatives from a hypothetical adverse 10% move against Exxaro’s position in commodity prices would be approximately R21 million (2007: R2 million). Prices for future purchases and sales of goods and services are generally established on normal commercial terms through agents or direct with suppliers and customers. Price hedging is undertaken on a limited scale for future zinc sales at Rosh Pinah Zinc Corporation (Pty) Limited and Exxaro Base Metals (Pty) Limited to secure operating margins and reduce cash ﬂ ow volatility. Price hedging is also undertaken for future lead sales at Rosh Pinah. The potential proﬁ t or loss in accounting for changes in fair value for such commodity hedging derivatives assuming an adverse 10% move in commodity prices is demonstrated below. This analysis assumes that all other variables remain constant. The analysis is performed on the same basis for 2007. There is no impact on the proﬁ t or loss for both 2008 and 2007. Lead Zinc EQUITY 2008 Rm (3) (18) 2007 Rm (2) A 10% positive move against the above commodity prices at 31 December would have had the equal but opposite effect on the above derivatives to the amounts shown above, on the basis that all other variables remain constant. Cash ﬂ ow hedges – commodity risk The forward hedged position at balance sheet date is shown below: 2008 Recognised transactions Lead Price Currency Zinc Price Currency Attributable to: – tax – minority shareholders Market related value Rm Foreign currency million Contract value Rm Tons Recog- nised fair value in equity Rm 18 825 161 314 30 30 276 276 81 750 939 1 337 173 130 1 356 1 166 2 751 363 3 074 115 (38) 417 (171) (134) (99) 90 With respect to the above-mentioned hedges, the future expected cash ﬂ ows are represented below: 2009 2010 2011 2012 Total Expected future cash outﬂ ows Lead Zinc Expected gain/(loss) in proﬁ t or loss (at maturity) Lead Zinc 138 736 151 847 214 867 49 71 552 2 521 201 190 177 15 583 E x x a r o A n n u a l R e p o r t 2 0 0 8 I 197 NOTES TO ANNUAL FINANCIAL STATEMENTS continued for the year ended 31 December 2008 29. FINANCIAL INSTRUMENTS (continued) RISK MANAGEMENT (continued) 29.5 29.5.2.2 Commodity risk management (continued) 2007 Recognised transactions Lead Price Attributable to: – tax – minority shareholders Market related value Rm Tons Foreign currency million Contract value Rm Recog- nised fair value in equity Rm 13 000 213 18 121 13 000 213 18 121 (92) 34 4 (54) With respect to the above-mentioned hedges, the future expected cash ﬂ ows are represented below: Expected future cash outﬂ ows Expected gain/(loss) in proﬁ t or loss (at maturity) 2008 2009 2010 66 (37) 34 (30) 21 (25) Total 121 (92) 29.5.2.3 Interest rate risk management The group is exposed to interest rate risk as it borrows and deposits funds at both ﬁ xed and ﬂ oating interest rates on the money market. The risk is managed by maintaining an appropriate mix between ﬁ xed and ﬂ oating rate borrowings taking into account future interest rate expectations. The risk is also managed where borrowings were entered into at ﬂ oating interest rates in anticipation of a decrease in the interest rate cycle. The interest rate repricing proﬁ le is summarised below: At 31 December 2008: Term borrowings (under the IFRS 7 scope) Percentage of total borrowings (%) 1 – 6 months Rm 7 – 12 months Rm Beyond 1 year Rm Total borrowings Rm 3 336 86 561 14 3 897 100 At 31 December 2007: Term borrowings (under the IFRS 7 scope) Percentage of total borrowings (%) The group makes use of interest rate derivatives to hedge speciﬁ c exposures in the interest rate repricing proﬁ le of existing borrowings. 1 089 100 681 63 408 37 The value of borrowings hedged by interest rate derivatives, the instruments used and the respective rates applicable to these contracts are as follows: Borrow- ings hedged Amount Floating interest payable % Floating interest receivable % Fixed interest payable % Fixed interest receivable % Re- cognised fair value gain/(loss) % LOCAL At 31 December 2008 Interest rate derivatives beyond 1 year: – Interest rate swaps At 31 December 2007 675 3m Jibar 11,1 1,5 198 I E x x a r o A n n u a l R e p o r t 2 0 0 8 29. FINANCIAL INSTRUMENTS (continued) RISK MANAGEMENT (continued) 29.5 29.5.2.3 Interest rate risk management (continued) The following table reﬂ ects the potential impact on earnings, given a movement in interest rates of 50 basis points: INCREASE DECREASE 2008 Rm (16) 2007 Rm (3) 2008 Rm 16 2007 Rm 3 Proﬁ t or (loss) The impact on equity is less than a million. 29.5.3 Liquidity risk management Liquidity risk is the risk that the group will not be able to meet its ﬁ nancial obligations as they fall due. The group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufﬁ cient liquidity to meet its liabilities when due, under normal and stressed conditions, without incurring unacceptable losses or risking damage to the group’s reputation. The ultimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriate liquidity risk management framework for the management of the group’s short, medium and long-term funding and liquidity management requirements. The group manages liquidity risk by monitoring forecast cash ﬂ ows in compliance with loan covenants and ensuring that adequate unutilised borrowing facilities are maintained. The group aims to cover at least its net debt requirements through long-term borrowing facilities. Financial guarantee liabilities are initially recognised at their fair value, and the initial fair value is amortised over the life of the ﬁ nancial guarantee. The guarantee liability is subsequently carried at the higher of this amortised amount and the present value of any expected payment if a payment under the guarantee has become probable. Financial guarantees are included within other liabilities. Borrowing capacity is determined by the directors in terms of the articles of association, from time to time: Amount approved Total borrowings Unutilised borrowing capacity 2008 Rm 16 245 4 150 12 095 2007 Rm 12 254 1 333 10 921 The group’s capital base, the borrowing powers of the company and the group were set at 125% of shareholders’ funds for both the 2008 and 2007 ﬁ nancial years. Standard payment terms for the majority of trade payables is the end of the month following the month in which the goods are received or services are performed. A number of trade payables do however have shorter contracted payment periods. To avoid incurring interest on late payments, ﬁ nancial risk management policies and procedures are entrenched to ensure the timeous matching of orders placed with goods received notes or services acceptances and invoices. E x x a r o A n n u a l R e p o r t 2 0 0 8 I 199 NOTES TO ANNUAL FINANCIAL STATEMENTS continued for the year ended 31 December 2008 29. FINANCIAL INSTRUMENTS (continued) RISK MANAGEMENT (continued) 29.5 29.5.3 Liquidity risk management (continued) Maturity profi le of fi nancial instruments The following table details the group’s contractual maturities of ﬁ nancial liabilities: MATURITY Con- tractual cash ﬂ ows Rm Carrying amount Rm 0 – 12 months Rm 1 – 2 years Rm 2 – 5 years Rm More than 5 years Rm 342 342 4 4 53 281 25 98 220 363 33 1 228 25 5 6 487 2 668 2 1 769 34 4 697 75 495 2 303 63 440 3 301 49 392 6 185 3 1 032 16 323 2 812 267 75 (44) 398 6 2 768 41 267 4 351 25 5 6 616 488 2 668 2 1 769 34 6 306 100 3 897 2 303 94 440 6 734 100 351 25 5 6 616 488 2 668 2 1 769 34 6 306 100 3 897 2 303 94 440 6 734 100 53 23 GROUP 2008 Financial assets Exxaro Environmental Rehabilitation Trust asset Richards Bay Coal Terminal (RBCT) Igoda Mafube Ndzalama game reserve Derivatives Long-term receivables Trade and other receivables Taxation receivable Cash and cash equivalents NCACHFS Percentage proﬁ le (%) Financial liabilities Interest-bearing borrowings Trade and other payables Derivatives Current tax payable Percentage proﬁ le (%) Derivative ﬁ nancial liabilities (included in the above) Foreign exchange forward contracts used for hedging – Sell (Rand inﬂ ow) Other forward exchange contracts – Buy (Rand outﬂ ow) 200 I E x x a r o A n n u a l R e p o r t 2 0 0 8 29. FINANCIAL INSTRUMENTS (continued) RISK MANAGEMENT (continued) 29.5 29.5.3 Liquidity risk management (continued) MATURITY Con- tractual cash ﬂ ows Rm Carrying amount Rm 0 – 12 months Rm 1 – 2 years Rm 2 – 5 years Rm More than 5 years Rm 274 274 82 45 147 290 2 25 5 6 429 1 884 47 850 3 812 100 1 089 1 353 96 137 2 675 100 1 884 47 850 2 781 73 69 1 353 96 137 1 655 62 2 290 25 5 428 6 1 89 2 47 1 895 24 96 525 399 96 4 525 19 399 15 290 2 25 5 6 429 1 884 47 850 3 812 100 1 089 1 353 96 137 2 675 100 143 91 GROUP 2007 Financial assets Exxaro Environmental Rehabilitation Trust asset Richards Bay Coal Terminal (RBCT) New Africa Mining Fund Igoda Mafube Ndzalama game reserve Long-term receivables Trade and other receivables Derivative ﬁ nancial instruments Cash and cash equivalents Percentage proﬁ le (%) Financial liabilities Interest-bearing borrowings Trade and other payables Derivative ﬁ nancial instruments Current tax payable Percentage proﬁ le (%) Derivative ﬁ nancial liabilities (Included in the above) Foreign exchange forward contracts used for hedging – Sell (Rand inﬂ ow) Other forward exchange contracts – Buy (Rand outﬂ ow) E x x a r o A n n u a l R e p o r t 2 0 0 8 I 201 NOTES TO ANNUAL FINANCIAL STATEMENTS continued for the year ended 31 December 2008 29. FINANCIAL INSTRUMENTS (continued) RISK MANAGEMENT (continued) 29.5 29.5.3 Liquidity risk management (continued) MATURITY Con- tractual cash ﬂ ows Rm Carrying amount Rm 0 – 12 months Rm 1 – 2 years Rm 2 – 5 years Rm More than 5 years Rm COMPANY 2008 Financial assets Exxaro Environmental Rehabilitation Trust asset Trade and other receivables Derivative ﬁ nancial instruments Intercompany loan debits Cash and cash equivalents NCACHFS Percentage proﬁ le (%) Financial liabilities Interest-bearing borrowings Trade and other payables Derivatives Current tax payable Percentage proﬁ le (%) Derivative ﬁ nancial liabilities (Included in the above) Foreign exchange forward contracts used for hedging – Buy (Rand outﬂ ow) 10 32 44 7 895 478 13 8 472 100 2 913 804 44 10 3 771 100 1 10 32 44 7 895 478 13 8 472 100 2 913 804 44 10 3 771 100 32 13 5 028 478 13 5 564 65 205 804 13 10 1 032 27 10 31 2 140 2 181 26 727 727 9 278 2 430 31 309 8 2 430 65 202 I E x x a r o A n n u a l R e p o r t 2 0 0 8 29. FINANCIAL INSTRUMENTS (continued) RISK MANAGEMENT (continued) 29.5 29.5.3 Liquidity risk management (continued) MATURITY Con- tractual cash ﬂ ows Rm Carrying amount Rm 0 – 12 months Rm 1 – 2 years Rm 2 – 5 years Rm More than 5 years Rm COMPANY 2007 Financial assets Exxaro Environmental Rehabilitation Trust asset New Africa Mining fund Intercompany loan debits Trade and other receivables Current tax receivable Cash and cash equivalents Percentage proﬁ le (%) Financial liabilities Interest-bearing borrowings Trade and other payables Percentage proﬁ le (%) Derivative ﬁ nancial liabilities (Included in the above) Forecasted transactions – Buy 8 2 4 966 67 8 306 5 357 100 505 327 832 100 2 8 2 4 966 67 8 306 5 357 100 505 327 832 100 4 516 67 8 306 4 897 91 55 327 382 46 8 2 369 379 7 369 369 44 81 81 2 81 81 10 29.5.4 Credit risk management Credit risk relates to potential default by counterparties on cash and cash equivalents, investments, trade receivables and hedged positions. The group limits its counterparty exposure arising from money market and derivative instruments by only dealing with well-established ﬁ nancial institutions of high credit standing. The group exposure and the credit ratings of its counterparties are continually monitored and the aggregate value of transactions concluded are spread amongst approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the board annually. Trade receivables consist of a number of customers with whom Exxaro has long-standing relationships. A high portion of term supply arrangements exists with such clients resulting in limited credit exposure which exposure, where dictated by customer creditworthiness or country risk assessment, is further mitigated through a combination of conﬁ rmed letters of credit and credit risk insurance. Exxaro establishes an allowance for non-recoverability or impairment that represents its estimate of incurred losses in respect of trade and other receivables and investments. The main components of this allowance are a speciﬁ c loss component that relates to individually signiﬁ cant exposures, and a collective loss component established for groups of similar assets in respect of losses that have historical data of payment statistics for similar ﬁ nancial assets. E x x a r o A n n u a l R e p o r t 2 0 0 8 I 203 NOTES TO ANNUAL FINANCIAL STATEMENTS continued for the year ended 31 December 2008 29. FINANCIAL INSTRUMENTS (continued) 29.5 RISK MANAGEMENT (continued) 29.5.4 Credit risk management (continued) At the reporting date, the amount of change in the fair value of ﬁ nancial liabilities designated at fair value through proﬁ t or loss, attributable to credit risk was as follows: Cumulative Current ﬁ nancial year GROUP COMPANY 2008 Rm (2) (8) 2007 Rm 6 6 2008 Rm 2007 Rm Exposure to credit risk The carrying amount of ﬁ nancial assets represents the maximum credit exposure. The maximum exposure to credit risk at both reporting dates was equal to the carrying value of ﬁ nancial assets for both group and company. Details of the trade receivables credit risk exposure GROUP COMPANY 2008 % 2007 % 2008 % 2007 % By industry Manufacturing (including structural metal and steel) Public utilities Other By geographical area South Africa Asia Europe USA Other 53 23 24 100 48 15 22 14 1 100 70 19 11 100 50 4 20 25 1 100 The group does not have any signiﬁ cant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. Financial guarantees are contracts that require the group to make speciﬁ ed payments to reimburse the holder for a loss it incurs because a speciﬁ ed debtor fails to make payment when due in accordance with the terms of a debt instrument. GROUP COMPANY The carrying amount of the ﬁ nancial assets at reporting date Neither past due nor impaired – trade and other receivables – other ﬁ nancial assets – intercompany loan debits – derivative ﬁ nancial instruments – tax receivable – NCACHFS – cash and cash equivalents Past due or impaired – trade and other receivables Total ﬁ nancial assets 2008 Rm 2007 Rm 2008 Rm 2007 Rm 6 257 2 619 1 217 616 2 34 1 769 49 49 6 306 3 560 1 632 1 031 47 850 252 252 8 472 32 10 7 895 44 13 478 5 346 4 580 10 450 306 3 3 3 812 8 472 5 349 The group strives to enter into sales contracts with clients which stipulate the required payment terms. It is expected of each customer that these payment terms are adhered to. Where trade receivables balances become past due, the normal recovery procedures are followed to recover the debt, where applicable new payment terms may be arranged to ensure that the debt is fully recovered. Therefore the credit quality of the above assets deemed to be neither past due nor impaired is considered to be within industry norms. There were no ﬁ nancial assets with renegotiated terms during the 2008 or 2007 reporting periods. 204 I E x x a r o A n n u a l R e p o r t 2 0 0 8 29. FINANCIAL INSTRUMENTS (continued) RISK MANAGEMENT (continued) 29.5 29.5.4 Credit risk management (continued) GROUP COMPANY 2008 Rm 2007 Rm 2008 Rm 2007 Rm Age analysis of ﬁ nancial assets Past due but not impaired 1 – 30 days overdue 31 – 60 days overdue 61 – 90 days overdue >90 days overdue Total carrying amount of ﬁ nancial instruments past due but not impaired Past due and impaired >90 days overdue Total carrying amount of ﬁ nancial instruments past due and impaired Total carrying amount of ﬁ nancial instruments past due or impaired 28 15 4 7 190 16 18 27 54 251 (5) (5) 49 1 1 252 3 3 3 Before the ﬁ nancial instruments can be impaired, they are evaluated for the possibility of any recovery as well as the length of time at which the debt has been long outstanding. Loans and receivables designated at fair value through proﬁ t or loss. The group had no loans and receivables designated as at fair value through proﬁ t or loss during the period. Collateral The group may require collateral in respect of the credit risk on derivative transactions with a third party. The amount of credit risk is the positive fair value of the contract. Collateral may be in the form of cash or in the form of a lien over a debtor's assets, entitling the group to make a claim for current and future liabilities. The group is also exposed to a situation where a third party may require collateral with regard to the transaction with that third party. The carrying value of ﬁ nancial assets that may be repledged or resold by counterparties are as follows: Non-current other ﬁ nancial assets Trade and other receivables Cash and cash equivalents 2008 Rm 360 272 102 734 GROUP COMPANY 2007 Rm 2008 Rm 2007 Rm 11 11 These transactions are conducted under terms that are usual and customary to standard lending and borrowing activities. No ﬁ nancial assets of the group were repledged during the year under review for collateral purposes. E x x a r o A n n u a l R e p o r t 2 0 0 8 I 205 NOTES TO ANNUAL FINANCIAL STATEMENTS continued for the year ended 31 December 2008 29. FINANCIAL INSTRUMENTS (continued) RISK MANAGEMENT (continued) 29.5 29.5.4 Credit risk management (continued) Guarantees The group did not during the period obtain ﬁ nancial or non-ﬁ nancial assets by taking possession of collateral it holds as security or calling on guarantees. There were no guarantees provided by banks to secure ﬁ nancing during the ﬁ nancial years ended 31 December 2008 or 2007. For all other guarantees, refer to note 33 on contingent liabilities. 29.5.5 Other price risks The group is exposed to equity price risks arising from equity investments. Equity investments are held for strategic rather than trading purposes. The group does not actively trade these investments. 30. RELATED PARTY TRANSACTIONS During the year the company and its subsidiaries, in the ordinary course of business, entered into various sale and purchase transactions with associates and joint ventures. These transactions occurred under terms that are not more or less favourable than those arranged with third parties. ASSOCIATES AND JOINT VENTURES Details of investments in associates and joint ventures are disclosed in note 14 and annexure 2 whilst income is disclosed in note 14. There were no ﬁ nance costs or expenses in respect of bad debts or doubtful debts incurred with regard to the joint ventures or the associates during the ﬁ nancial years ended 31 December 2008 or 2007. 2008 2007 Joint ventures Rm Associates Rm Joint ventures Rm Associates Rm Items of income and expense incurred during the year are as follows: – group sales of goods – group purchases of goods and services The outstanding balances at year-end are as follows: – included in trade and other receivables – included in trade and other payables – included in cash and cash equivalents – included in ﬁ nancial assets 3 5 1 22 217 135 65 34 2 9 1 3 16 337 74 86 8 2 6 During both years under review, there was no provision raised for doubtful debts related to the outstanding balances above. SUBSIDIARIES Details of income from, and investments in, subsidiaries are disclosed in notes 6 and 15 respectively, as well as in annexure 3. Corporate service fee from subsidiaries The following corporate service fees were received by Exxaro Resources Limited for essential services rendered: Exxaro Coal (Pty) Limited Exxaro Base Metals (Pty) Limited Exxaro Sands (Pty) Limited 2008 Rm 145 46 40 231 2007 Rm 94 52 41 187 206 I E x x a r o A n n u a l R e p o r t 2 0 0 8 30. RELATED PARTY TRANSACTIONS (continued) SPECIAL PURPOSE ENTITIES The group has an interest in the following special purpose entities which are consolidated unless otherwise indicated: Entity Ferrosure (South Africa) Insurance Company Limited1 Exxaro Environmental Rehabilitation Fund Exxaro Employee Empowerment Participation Scheme Trust Exxaro Foundation Exxaro Chairman's Fund Exxaro People Development Initiative Kumba Resources Management Share Trust Merrill Lynch Insurance PCC Limited3 1 Consolidated until September 2008. 2 Non-proﬁ t organisations. 3 Consolidated until July 2008. Nature of business Insurance captive Trust fund for mine closure Employee share incentive trust Local social economic development2 Local social economic development2 Local social economic development – bridging classes2 Management share incentive trust Offshore insurance captive DIRECTORS Details relating to directors’ emoluments and shareholdings (including options) in the company are disclosed in the report of the directors. SENIOR EMPLOYEES Details relating to option and share transactions are disclosed in note 32. KEY MANAGEMENT PERSONNEL For Exxaro Resources Limited other than the executive and non-executive directors, no other key management personnel were identiﬁ ed. Refer to page 127 for details on directors' remuneration. For the group, for 2008, the executive committee has been identiﬁ ed as being key management personnel. For the group, for 2007, the directors of the major subsidiaries have been identiﬁ ed as being key management personnel. The major subsidiaries are considered to be the following: – Exxaro Coal (Pty) Limited – Exxaro TSA Sands (Pty) Limited – Exxaro Sands (Pty) Limited – Exxaro Australia Sands Pty Limited – Exxaro Base Metals (Pty) Limited – Exxaro International BV Short-term employee beneﬁ ts Termination beneﬁ ts Share-based payments – related expense Total compensation paid to key management personnel 2008 Rm 47 9 7 63 2007 Rm 59 9 4 72 SHAREHOLDERS The principal shareholders of the company at 31 December 2008 are detailed in the “Analysis of Shareholders” schedule on page 70 of the annual report. CONTINGENT LIABILITIES Details are disclosed in note 33. E x x a r o A n n u a l R e p o r t 2 0 0 8 I 207 NOTES TO ANNUAL FINANCIAL STATEMENTS continued for the year ended 31 December 2008 31. OPERATING SEGMENTS Information regarding the group's reportable segments is presented below. Amounts reported for the prior year have been restated to conform to the requirements of IFRS 8. Analysis of the group's proﬁ t or losses and assets and liabilities by reportable segment: Segment revenue Total revenue Inter-segmental External Segment net operating proﬁ t/(loss) Interest income (external) Interest expense (external) Interest (income)/expense on non-current provisions Depreciation and amortisation of intangible assets Impairment charge and (reversals) Income tax expense/(income) Net surplus on disposal of investment Other non-cash ﬂ ow items not disclosed above Cash inﬂ ow/(outﬂ ow) from operations Cash generated by/(utilised in) operations Income/(loss) from equity-accounted investments Capital expenditure Segment assets and liabilities Deferred tax assets Assets (external excluding deferred tax) Investments in associates (equity accounted) Total assets Liabilities (external) Deferred tax liabilities Current tax payable (receivable) Total liabilities Additions in non-current assets1 Number of permanent employees Coal Tied operations Commercial operations 2008 Rm 2007 Rm 2008 Rm 2007 Rm 2 492 1 768 6 548 3 319 2 492 83 1 (38) 42 1 768 88 1 14 33 45 33 25 6 548 2 571 30 35 54 370 21 705 3 319 797 15 6 29 339 18 229 111 237 199 217 350 394 71 3 033 2 780 47 1 201 1 183 740 876 1 491 1 285 2 9 790 2 6 793 1 491 795 133 22 950 1 285 665 141 11 817 3 535 3 385 9 792 1 486 763 409 2 658 740 2 746 6 795 1 042 762 66 1 870 1 144 2 486 1 Excluding ﬁ nancial instruments, deferred tax, post-employment beneﬁ t assets, intercompany loans, investments in subsidiaries. 208 I E x x a r o A n n u a l R e p o r t 2 0 0 8 Mineral sands Base metals Other Total KZN Sands Namakwa Sands Australia Sands Rosh Pinah Zincor Other 2008 Rm 2007 Rm 2008 Rm 2007 Rm 2008 Rm 2007 Rm 2008 Rm 2007 Rm 2008 Rm 2007 Rm 2008 Rm 2007 Rm 2008 Rm 2007 Rm 2008 Rm 2007 Rm 974 984 491 1 311 1 188 974 31 5 62 1 170 984 (157) 11 62 2 162 491 155 21 5 32 1 311 (82) 18 66 10 168 1 188 60 37 37 9 134 436 (340) 96 (14) 13 16 (2) 42 941 (767) 174 457 7 1 393 340 1 733 (95) 2 1 791 767 2 558 298 2 3 34 15 42 22 30 29 (100) 21 (180) 57 (4) 176 (75) 87 (113) 88 30 52 57 142 23 210 121 131 218 86 (5) 189 162 (2) 26 85 (2) 489 441 94 41 319 5 333 153 259 61 126 187 132 93 84 133 86 502 3 252 485 2 576 (12) 3 571 211 2 924 41 2 990 1 097 490 3 754 496 3 061 432 3 559 448 496 259 653 432 62 642 448 2 789 1 025 3 135 1 025 109 3 031 743 134 1 134 187 333 877 132 343 1 097 316 284 (4) 596 97 532 490 187 10 4 201 84 571 63 1 002 1 065 505 505 133 671 1 126 1 126 339 12 85 436 86 679 198 166 13 843 10 157 (63) 7 (67) 11 2 (1) (6) 2 (64) (73) (18) 3 39 116 158 4 (31) (27) 7 16 5 (7) 3 (67) (84) (193) 20 67 202 289 1 (44) (21) (64) 252 15 198 (119) 56 167 3 32 (1) (24) 96 6 38 1 856 79 297 (2 941) 1 647 (997) 3 292 12 34 3 338 325 948 166 (32) 12 93 1 17 44 9 (6) (94) 746 57 13 843 10 157 2 467 1 444 153 96 346 212 48 99 898 763 20 17 510 512 (7) 414 3 792 3 574 1 663 1 617 325 2 549 2 308 728 1 296 201 1 083 732 (1 613) 20 253 13 686 1 849 757 23 185 15 175 8 364 4 138 1 257 1 077 440 137 10 061 5 352 4 782 1 576 10 458 9 031 641 (771) 726 18 2 746 61 909 E x x a r o A n n u a l R e p o r t 2 0 0 8 I 209 NOTES TO ANNUAL FINANCIAL STATEMENTS continued for the year ended 31 December 2008 31. OPERATING SEGMENTS (continued) The group relies on two of its major customers for its revenue from the tied coal operations, commercial coal operations, Zincor and the other reportable segments. These two external customers account for at least 10% or more individually of the group’s revenues (20% and 28% (2007: 22% and 27%)). The total amount of revenue from these two customers was R2 626 million and R3 800 million respectively (2007: R2 217 million and R2 760 million, respectively). Information about geographical areas Sourced from country of domicile – South Africa Sourced from foreign countries – Rest of Africa – Europe – Asia – Australia – Other Total segment External revenue Carrying amount of non-current assets1 2008 Rm 2007 Rm 2008 Rm 2007 Rm 8 758 7 156 12 423 7 112 19 2 823 959 33 1 251 13 843 5 996 397 9 1 594 10 157 206 1 74 645 230 22 110 1 626 13 349 9 100 1 Excluding ﬁ nancial instruments, deferred tax, post-employment beneﬁ t assets, intercompany loans, investments in subsidiaries. No asymetrical (irregular) allocations to reportable segments occurred during the periods under review. There were no material changes in total assets disclosed from the last annual ﬁ nancial statements. Total segment revenue, which excludes value added tax, represents the gross value of goods invoiced. Export revenue are recorded according to the relevant sales terms, when the risks and rewards of ownership are transferred. The group uses the basis of signiﬁ cant marketing regions to allocate external revenues to the individual countries. Total segment revenue further includes operating revenues directly and reasonably allocable to the segments. Segment revenue includes sales made between segments. These sales are made on a commercial basis. Segment net operating proﬁ t equals segment revenue less segment expenses and includes impairment charges, -reversals and negative goodwill. Segment expenses represent direct or reasonably allocable operating expenses on a segment basis. Segment assets and liabilities include directly and reasonably allocable assets and liabilities. This information is not regularly provided to the chief decision-maker. There are no differences in the way segment assets and liabilities are measured for reportable segments or group purposes. There are no differences in the way segment proﬁ t or loss is measured in comparison to the previous annual period nor between the reportable segments' proﬁ ts or losses and the group’s proﬁ t or loss. 210 I E x x a r o A n n u a l R e p o r t 2 0 0 8 32. EMPLOYEE BENEFITS Retirement funds Independent funds provide retirement and other beneﬁ ts for all permanent employees, retired employees, and their dependants. At the end of the ﬁ nancial year, the main deﬁ ned contribution retirement funds to which Exxaro was a participating employer, were as follows: • Exxaro Selector Pension Fund and Exxaro Selector Provident Fund; • Iscor Employees’ Provident Fund; • Mine Workers Provident Fund; • Namakwa Sands Employees Provident Fund; • Sentinel Mining Industry Retirement Fund. In compliance with the Pension Funds Act, after the unbundling of Kumba Iron Ore Limited, Sishen Iron Ore Company employees were transferred to the newly created Kumba Iron Ore Selector Pension and Provident Fund during the previous ﬁ nancial year, after all regulatory approvals had been obtained. Members pay a contribution of 7%, with the employer’s contribution of 10% to the above funds, being expensed as incurred. All funds registered in the Republic of South Africa are governed by the South African Pension Funds Act of 1956 (the Act). Deﬁ ned contribution funds Membership of each fund at 31 December 2008 and 31 December 2007 and employer contributions to each fund were as follows: GROUP Exxaro Selector Funds Iscor Employees’ Provident Fund Mine Workers Provident Fund Namakwa Sands Employees Provident Fund Sentinel Mining Industry Retirement Fund Other funds COMPANY Exxaro Selector Funds Iscor Employees’ Provident Fund Sentinel Mining Industry Retirement Fund Working members 2008 Number Working members 2007 Number Employer contri- butions 2008 Rm Employer contri- butions 2007 Rm 2 470 3 587 870 1 900 830 478 10 135 668 144 30 842 2 323 3 402 1 914 754 924 9 317 611 146 23 780 62 34 2 15 22 31 166 23 1 2 26 52 28 14 20 30 144 18 1 1 20 Due to the nature of these funds the accrued liabilities by deﬁ nition equates to the total assets under control of these funds. E x x a r o A n n u a l R e p o r t 2 0 0 8 I 211 NOTES TO ANNUAL FINANCIAL STATEMENTS continued for the year ended 31 December 2008 32. EMPLOYEE BENEFITS (continued) Deﬁ ned beneﬁ t funds Exxaro previously disclosed its interest as a participating employer in the closed deﬁ ned beneﬁ t funds namely the Mittal Steel South Africa Pension funds and Iscor Retirement Fund. Such interest was disclosed while ﬁ nal conﬁ rmation was awaited on either the approval by the Registrar of Pension Funds of the scheme for the apportionment of an existing surplus, or the permission to not submit a surplus apportionment scheme in terms of section 15B of the Act. The approval by the Registrar for the fund not to submit a surplus apportionment was received in 2007. Medical funds The group and company contribute to deﬁ ned beneﬁ t medical aid schemes for the beneﬁ t of permanent employees and their dependants who choose to belong to one of a number of employer accredited schemes. The contributions charged against income amounted to R70 million (2007: R61 million). Exxaro has a post-retirement medical obligation to a limited number of in-service and retired employees belonging to two medical schemes for which an actuarially determined liability has been raised. The corresponding asset which represents the amount recoverable from Eskom for the captive mines has been recognised and is included in long-term receivables. Exxaro Coal Mpumalanga’s (previously known as Eyesizwe Coal) contribution to the post-retirement medical aid obligation for the year ended 31 December 2008 amounted to R1,5 million (2007:R1 million). As part of the business combination with Namakwa Sands on 1 October 2008 a post-retirement medical obligation was acquired. The post-retirement liability is of a deﬁ ned beneﬁ t nature, and consists of an implicit promise to pay a portion of members’ post-retirement medical aid contributions. This liability is also generated in respect of dependants who are offered continued membership of the medical aid on the death of the primary member, either pre- or post-retirement. This beneﬁ t, which is no longer offered, applied to employees employed prior to 2001 by Namakwa Sands. Contributions, if any, will be offset against the liability. No contributions were made for the two months ended 31 December 2008. Equity compensation beneﬁ ts The shareholders of Kumba Resources Limited (Kumba Resources) approved on 2 November 2006 an empowerment transaction which in essence entailed the unbundling of Kumba’s iron ore business. Kumba Iron Ore Limited (Kumba Iron Ore) which listed on 20 November 2006, owned 74% of Sishen Iron Ore Company (Pty) Limited (Sishen Iron Ore) from December 2006. Kumba Resources was renamed Exxaro Resources Limited (Exxaro) on 27 November 2006. As Sishen Iron Ore Company was a wholly owned subsidiary of Kumba Resources before the unbundling of Kumba Iron Ore Limited, senior employees and directors of Sishen Iron Ore Company were eligible to participate in the Kumba Resources management share incentive plans. In order to place, as far as possible, all participants in the Kumba Resources Management Share Option Scheme in the position they would have been in if they were shareholders of Kumba Resources at the time of the implementation of the empowerment transaction, the schemes continued in Exxaro and in Kumba Iron Ore, subject to certain amendments that were made to the Kumba Resources Management Share Option Plan. Kumba Resources operated the Kumba Management Deferred Purchase Share Scheme and the Kumba Management Share Option Scheme for senior employees and executive directors of Kumba Resources. The Kumba Management Deferred Purchase Share Scheme consisted of a combination of an option scheme, a purchase scheme and a deferred purchase scheme and governed to maturity the share scheme rights and obligations of employees which were in existence at the time of transfer of the employees from Iscor to Kumba Resources on unbundling of Kumba Resources effective July 2001. Participants of the Exxaro and Kumba Iron Ore Management Deferred Purchase schemes who have been granted deferred purchase shares received an Exxaro share and a Kumba Iron Ore share for every deferred purchase share held under the original purchase agreement. The Kumba Management Share Option Scheme consists of the granting of options in respect of ordinary Kumba Resources shares, at market value, to eligible participants. Shares and/or options held in terms of Kumba Management Deferred Purchase Share Scheme are released in ﬁ ve equal tranches commencing on the second anniversary of an offer date and expire on the ninth anniversary of an offer date. Options granted in terms of the Kumba Management Share Option Scheme can be exercised over ﬁ ve years commencing on the ﬁ rst anniversary of the offer date. If the options are accepted by participants, the vesting periods, unless decided otherwise by the directors, are as follows: • 10% after ﬁ rst anniversary of offer date; • additional 20% after second anniversary of offer date; • additional 20% after third anniversary of offer date; • additional 25% after 4th anniversary of offer date; • additional 25% after 5th anniversary of offer date. The options not exercised lapse by the seventh anniversary of the offer date. 212 I E x x a r o A n n u a l R e p o r t 2 0 0 8 32. EMPLOYEE BENEFITS (continued) Equity compensation beneﬁ ts (continued) Participants of the Exxaro and Kumba Iron Ore Management Share Option schemes exchanged each of their Kumba Resources options for an Exxaro option and a Kumba Iron Ore option. The strike price of each Kumba Resources option was apportioned between the Exxaro option and the Kumba Iron Ore options with reference to the volume weighted average price (VWAP) at which Exxaro and Kumba Iron Ore traded for the ﬁ rst 22 days post the implementation of the empowerment transaction. The VWAP was calculated as 32,81% for Exxaro and 67,19% for Kumba Iron Ore. The Exxaro employees’ options in Exxaro schemes are released on the dates that the original options would have vested. Their options relating to Kumba Iron Ore are released on the earlier of: • the date that the original options would have vested; or • 24 months from the date of unbundling. The Kumba Iron Ore options held by Exxaro employees lapse 42 months after the date of unbundling. The same periods apply to Kumba Iron Ore employees’ options in Exxaro. According to the rules of the Long-term Incentive Plan (LTIP) executive directors and senior employees of Exxaro and its subsidiaries are awarded rights to a number of ordinary Exxaro shares. The vesting of the LTIP awards are conditional upon the achievement of group performance levels (established by the transformation, human resources, remuneration and nominations committee of the board) over a performance period of three years. The extent to which the performance conditions are met governs the number of shares that vest. The performance conditions set for the initial grant were as follows: • the total shareholder return (TSR) condition: the Exxaro TSR will be compared to the TSR of a peer group over the three-year performance period, averaged over a six-month period. The peer group comprises at least 16 members; • the return on capital employed (ROCE) condition: the ROCE measure is a return on capital employed measure with a number of adjustments. Targets are set by the committee based on existing ROCE performance in the base year of an LTIP and planned ROCE performance in the ﬁ nal year of the LTIP performance period. Kumba Resources, at its election, would have settled the conditional awards by issuing new shares or by instructing any third party to acquire and deliver the shares to the participants. Kumba Resources, however, elected to collapse the scheme before the implementation of the empowerment transaction, since it would have been impractical to ﬁ rstly measure the performance post the unbundling and also to take into account that employees of both Exxaro and Kumba Iron Ore needed to be compensated for accrued/vested beneﬁ ts up to the date of the unbundling. The extent to which the conditions were satisﬁ ed up to the date of the unbundling, determined the number of shares deemed to vest for each participant. The cash settlement amount payable to each participant was determined by multiplying the number of shares deemed to vest in each participant by the 30-day VWAP of Kumba Resources shares as at the last practicable date prior to the posting of the transaction documentation to Kumba Resources shareholders. According to the Deferred Bonus Plan (DBP) rules, executive directors and senior employees of Kumba Resources and its subsidiaries had the opportunity to acquire shares (pledged shares) on the open market with 50% of the after-tax component of their annual bonus. After the pledged shares have been acquired, the shares are held by an escrow agent for the absolute beneﬁ t of the participant for a pledge period of three years. A participant may at its election dispose of and withdraw the pledged shares from escrow at any stage. However, if the pledged shares are withdrawn from escrow, before the expiry of the pledge period, the participant forfeits the matching award. The participant will qualify for a matching award at the end of the pledge period on condition that the participant is still employed and the pledged shares are still in escrow. The matching award entitles a participant to a number of shares equal in value to the pledged shares. Upon vesting, the pledged shares and the matching award are transferred and released to the participant and rank pari passu in all respects with the existing issued shares of Exxaro. The company may settle the matching award by issuing new shares or, alternatively, instruct any third party to acquire and deliver the shares to the participant. The scheme was also collapsed before the implementation of the empowerment transaction. Participants received 6 012 matching shares in total. After the collapse of Kumba Resources LTIP and DBP schemes, Exxaro Resources awarded and will in future award rights in accordance to the rules of the new schemes. As a result of restrictions related to the empowerment transaction of Kumba Resources, certain executives and senior managers who participated in the Kumba Resources Management Share Option Scheme were not able to receive certain grants of options which would normally have been made in the ordinary course of operations. The human resources and remuneration committee of Kumba Resources consequently awarded “phantom options” to the affected participants within the following framework: • awards of “phantom options” were made, with the grant price, vesting dates, and lapse periods set to be the same as those of the options awardable; • on exercise, the participants are paid (in cash) the difference between the market price (volume weighted average price on the day preceding exercise) and the grant price; E x x a r o A n n u a l R e p o r t 2 0 0 8 I 213 NOTES TO ANNUAL FINANCIAL STATEMENTS continued for the year ended 31 December 2008 32. EMPLOYEE BENEFITS (continued) Equity compensation beneﬁ ts (continued) • all other rules and arrangements in respect of the amended Kumba Resources Management Share Option Scheme were replicated for the Kumba Resources Phantom Share Option Scheme; • the Kumba Resources Phantom Share Option Scheme was replicated for Kumba Iron Ore; • Exxaro and Kumba Iron Ore entered into an agreement that facilitates the settlement of obligations towards participants of the Phantom Option Schemes. Accounting costs for Exxaro and Kumba Iron Ore Phantom Option Schemes require recognition under IFRS 2 Share- based Payment using the treatment for cash-settled share-based payments. This treatment is more volatile than that of the conventional (equity-settled) scheme and the liability will require marking to market at each reporting period. Under the above scheme 73 690 shares are outstanding at 31 December 2008 (2007: 98 140). Exxaro made the ﬁ rst annual grant in the Share Appreciation Right Scheme (SARs) to participants in 2007, as well as new appointments. Under the rules of the scheme, participants obtain the right to receive a number of Exxaro shares to the value of the difference between the exercise price and the grant (or offer) price. The performance period’s ﬁ rst review is on 1 March 2010 when the rights will vest if Exxaro's headline earnings per share (HEPS) increased by a minimum of Consumer Price Index (CPI) plus 6% in the three years. In 2011 and 2012 the minimum increase in HEPS to achieve is CPI plus 8% and CPI plus 10% respectively. The committee has the discretion to determine the settlement method, being shares or cash. Exxaro also created an Employee Empowerment Participation Scheme (MPower) whereby employees in junior levels are given the opportunity to share in the growth of the company. Employees are awarded share units which entitles them to dividends of Exxaro in the ﬁ ve-year period ending November 2011. By the end of the ﬁ ve-year period or capital appreciation period, the units that employee beneﬁ ciaries hold in the Trust, will be sold. The capital distribution is the proﬁ t that is made on the share units after it is sold and the outstanding loan (used to buy the shares) to Exxaro is settled. No further awards will be made in terms of the old (Kumba) share incentive plans. The awards already granted and still outstanding are being phased out. Only SARs, LTIPs, DBPs and MPower schemes remain. Exxaro will be limited to issuing a maximum of 30 million shares, which amounts to approximately 10% of the number of issued shares as at the date of the general meeting where approval was given. Notwithstanding the foregoing, Exxaro may on instruction of the Exxaro board and the transformation, human resources, remuneration and nomination committee, and as a fallback provision only, pay an Exxaro employee participating in the share incentive plans an equivalent amount in cash in lieu of any Exxaro shares. The maximum number of Exxaro shares to which any one eligible participant is entitled in total in respect of all schemes albeit by the way of an allotment and issue of Exxaro shares and/or the grant of options shall not exceed 1% of the shares then in issue in the share capital of Exxaro. As at 31 December 2008, the maximum number of shares approved and allocated by shareholders for the purposes of the schemes, 30 million (2007: 30 million) represent 8,5% (2007: 8,5%) of the issued shares. Of the total of 30 million shares, 21,1 million (2007: 21,1 million) shares are available in the share scheme for future offers to participants, while 8,9 million (2007: 8,9 million) shares (2,5% of the issued shares) are allocated as options, LTIP, DBP, deferred purchase shares, or SARS to participants. Details are as follows: Number of shares approved by shareholders Options, LTIP, DBP, deferred purchase instruments and SARS held by Exxaro employees/participants Options and deferred purchase instruments held by Kumba Iron Ore employees/participants 2008 Million 30,0 (6,6) (1,3) 22,1 2007 Million 30,0 (7,0) (1,9) 21,1 At 31 December 2008 the company’s loan from the Kumba Resources Management Share Trust amounted to R51 199 278 (2007: R67 142 835). The loan is interest free and has no ﬁ xed repayment terms. This amount is reﬂ ected as an intercompany current loan in the company's accounts and eliminated at group level. The market value of the shares available for utilisation at the end of the year amounted to R1 358 122 343 (2007: R2 188 055 019). 214 I E x x a r o A n n u a l R e p o r t 2 0 0 8 32. EMPLOYEE BENEFITS (continued) Equity compensation beneﬁ ts (continued) Details of the schemes and plans are: Outstanding at beginning of year Issued Transferred to Kumba Iron Ore1 Transferred from Kumba Iron Ore2 Adjustments Exercised Lapsed/cancelled3 Outstanding at end of year Options4 Exxaro employees Kumba Iron Ore employees Dec 2008 ’000 5 070 (1 464) (52) 3 554 Dec 2007 ’000 6 451 (333) 102 10 (1 044) (116) 5 070 Dec 2008 ’000 1 869 (560) (37) 1 272 Dec 2007 ’000 2 258 333 (102) 9 (569) (60) 1 869 1 Exercise price range for transferred to Kumba Iron Ore: nil (2007: R8,48 – R42,32). 2 Exercise price range for transferred from Kumba Iron Ore: nil (2007: R8,48 – R33,47). 3 Exercise price range for lapsed/cancelled options: R7,52 – R40,18 (2007: R8,48 – R60,60). 4 No further grants are made under these schemes and plans that are being phased out have been replaced by the new share incentive plans. Outstanding at beginning of year Exercised Lapsed/cancelled Outstanding at end of year Outstanding at beginning of year Issued Exercised Lapsed/cancelled Outstanding at end of year Deferred purchase2 Exxaro employees Kumba Iron Ore employees Dec 2008 ’000 5 200 (1 000) 4 200 Dec 2007 ’000 6 560 (1 360) Dec 2008 ’000 400 Dec 2007 ’000 820 (420) 5 200 400 400 Deferred bonus plan Long-term incentive plan1 Dec 2008 ’000 2 16 18 Dec 2007 ’000 2 2 Dec 2008 ’000 481 462 (3) (34) 906 Dec 2007 ’000 491 (10) 481 1 There is no amount payable by participants on vesting. They will be awarded rights to ordinary shares in the company. 2 No further grants are made under these schemes and plans that are being phased out have been replaced by the new share incentive plans. E x x a r o A n n u a l R e p o r t 2 0 0 8 I 215 NOTES TO ANNUAL FINANCIAL STATEMENTS continued for the year ended 31 December 2008 32. EMPLOYEE BENEFITS (continued) Equity compensation beneﬁ ts (continued) Outstanding at beginning of year Issued Conversion to deferred purchase scheme Exercised Lapsed/cancelled Outstanding at end of year Details of issues during the period are as follows: Expiry date Exercise price (share price range) (R) Total proceeds if options are exercised at reporting date/deferred purchase shares at reporting date paid (R million) Phantom scheme SARs Dec 2008 ’000 98 (24) 74 Dec 2007 ’000 98 98 Dec 2008 ’000 1 422 1 820 (5) (140) 3 097 Long-term incentive plan1 Deferred bonus plan Dec 2008 Dec 2007 Dec 2008 2009 102,14 –112,35 2009 60,60 – 72,84 2009 89,61 – 111,88 Dec 2007 ’000 1 453 (31) 1 422 Dec 2007 2009 86,45 51,8 29,9 2,0 0,2 Expiry date Exercise price per share (share price range) (R) Total proceeds if options are exercised at reporting date (R million) Details of options/deferred purchase shares exercised during the year are as follows: SARs Dec 2008 Dec 2007 2014/2015 98,38 – 155,69 200,0 2014 58,33 – 87,22 88,4 Options Long-term incentive plan Dec 2008 Dec 2007 Dec 2008 Dec 2007 Exercise price per share (share price range) (R) – Exxaro employees in Exxaro (post-unbundling) – Exxaro employees In Kumba Iron Ore (post- 48,00 – 160,85 51,74 – 110,00 60,6 unbundling) 107,00 – 376,00 109,90 – 300,00 – Kumba Iron Ore employees in Exxaro (post-unbundling) Total proceeds (R million) 3,86 – 47,73 424,8 53,15 – 108,03 325,1 0,2 216 I E x x a r o A n n u a l R e p o r t 2 0 0 8 32. EMPLOYEE BENEFITS (continued) Equity compensation beneﬁ ts (continued) Exercise price per share (share price range) (R) Total proceeds (R million) Deferred bonus plan Deferred purchase Dec 2008 86,45 Dec 2007 Dec 2008 65,00 0,1 Phantom scheme1 SARs Exercise price per share (share price range) (R) Total proceeds (R million) 136,00 – 136,09 1 The phantom option awards are classiﬁ ed as cash-settled since no shares will be issued when exercised. Dec 2008 Dec 2007 Dec 2008 60,60 0,3 Terms of the options and deferred purchase shares outstanding at 31 December 2008 are as follows: Dec 2007 65,00 Dec 2007 Expiry date 2009 2010 2011 2012 2013 Total Options Long-term incentive plan Exercise price R Out- standing ’000 Exercise price R Out- standing ’000 9,60 – 20,34 7,52 – 19,62 11,09 – 16,62 13,72 – 32,84 33,47 – 47,73 287 60,60 – 102,14 150 112,35 737 1 080 1 300 3 554 89,9 465 441 906 78,2 Total proceeds if options are exercised at reporting date (R million) Equity compensation beneﬁ ts held by Exxaro employees in Exxaro Expiry date 2010 2011 Total Total proceeds if options are exercised at reporting date/deferred purchase shares at reporting date paid (R million) Expiry date 2012 2014 2015 Total Total proceeds if options are exercised at reporting date (R million) Deferred bonus plan Deferred purchase Exercise price R Out- standing ’000 86,45 86,60 – 111,88 2 16 18 2,0 Exercise price R 6,97 – 9,17 18,36 Out- standing ’000 4 4 SARs Phantom scheme Exercise price R Out- standing ’000 Exercise price R Out- standing ’000 58,33 – 104,99 112,35 59,80 – 100,10 1 338 1 759 3 097 276,2 74 74 E x x a r o A n n u a l R e p o r t 2 0 0 8 I 217 NOTES TO ANNUAL FINANCIAL STATEMENTS continued for the year ended 31 December 2008 32. EMPLOYEE BENEFITS (continued) Equity compensation beneﬁ ts (continued) Share options held by Exxaro employees in Kumba Iron Ore: Expiry date 2009 2010 Total Total proceeds if options are exercised at reporting date (R million) Share options held by Kumba Iron Ore employees in Exxaro: Options Exercise price R Out- standing ’000 22,04 – 41,66 14,98 – 97,74 217 2 819 3 036 157,5 Expiry date 2009 2010 2011 2012 Total Total proceeds if options are exercised at reporting date/deferred purchase shares at reporting date paid R million) Options Deferred purchase Exercise price R Out- standing ’000 Exercise price R Out- standing ’000 40,62 – 16,11 6,91 – 47,73 12,90 – 13,62 19,62 148 1 118 4 2 1 272 33,1 21,06 400 400 The exercise prices of the options held by Exxaro employees in Exxaro and Kumba Iron Ore respectively at 31 December 2007, have been recalculated with reference to the volume-weighted average price (VWAP) split of 32,81% for Exxaro and 67,19% for Kumba Iron Ore. The last date for exercising these options is 2 May 2010. Terms of the options and deferred purchase shares outstanding at 31 December 2007 are as follows: Share options held by Exxaro employees in Exxaro: Options Long-term incentive plan Exercise price R Out- standing ’000 Exercise price R Out- standing ’000 8,48 – 20,34 9,48 – 20,34 7,52 – 19,62 11,09 – 14,78 13,72 – 32,84 33,47 – 47,73 697 409 60,60 – 72,84 194 941 1 378 1 451 5 070 112,7 481 481 29,6 Deferred bonus plan Deferred purchase Exercise price R Out- standing ’000 Exercise price R Out- standing ’000 6,97 – 9,17 18,36 – 23,26 2 2 0,2 4 000 1 200 5 200 0 1 Expiry date 2008 2009 2010 2011 2012 2013 Total Total proceeds if options are exercised at reporting date (R million) Expiry date 2009 2010 Total Total proceeds if options are exercised at reporting date/deferred purchase shares at reporting date paid (R million) 218 I E x x a r o A n n u a l R e p o r t 2 0 0 8 32. EMPLOYEE BENEFITS (continued) Equity compensation beneﬁ ts (continued) Expiry date 2012 2014 Total Total proceeds if options are exercised at reporting date (R million) SARs Phantom scheme Exercise price R Out- standing ’000 Exercise price R Out- standing ’000 58,33 – 87,22 59,80 – 100,10 98 98 1 422 1 422 87,9 Share options held by Exxaro employees in Kumba Iron Ore: Expiry date 2008 2009 2010 Total Total proceeds if options are exercised at reporting date (R million) Share options held by Kumba Iron Ore employees in Exxaro: Options Exercise price R Out- standing ’000 17,37 – 41,66 19,42 – 41,66 11,11 – 97,74 517 338 3 877 4 732 222,4 Options Deferred purchase Exercise price R Out- standing ’000 Exercise price R Out- standing ’000 Expiry date 2008 2009 2010 Total Total proceeds if options are exercised at reporting date/deferred purchase shares at reporting date paid (R million) 8,48 – 19,93 3,84 – 16,11 6,91 – 47,73 159 207 1 503 1 869 42,4 Details of options vested but not sold during the year are as follows: Exxaro employees in Exxaro (post-unbundling) Number of shares Exercise price (share price range) (R) Exxaro employees in Kumba Iron Ore (post-unbundling) Number of shares Exercise price (share price range) (R) Kumba Iron Ore employees in Exxaro (post-unbundling) Number of shares Exercise price (share price range) (R) 21,06 400 400 Dec 2008 Dec 2007 4 977 311 3,84 – 47,43 1 559 130 3,86 – 47,73 3 036 340 7,80 – 97,74 1 221 160 15,38 – 97,74 1 271 560 6,91 – 47,73 570 070 3,84 – 47,73 E x x a r o A n n u a l R e p o r t 2 0 0 8 I 219 NOTES TO ANNUAL FINANCIAL STATEMENTS continued for the year ended 31 December 2008 32. EMPLOYEE BENEFITS (continued) Equity compensation beneﬁ ts (continued) Long-term Incentive Plan ’000 Deferred Bonus Plan ’000 Deferred Purchase ’000 Options ’000 Exxaro shares/options only Number of shares vesting at beginning of year – Exxaro employees in Exxaro – Kumba Iron Ore employees in Exxaro Net change during the year Number of shares vesting at end of year – Exxaro employees in Exxaro – Kumba Iron Ore employees in Exxaro 6 939 5 070 1 869 (2 113) 4 826 3 554 1 272 Directors’ interests in shares For details refer to the report of the directors. 481 481 425 906 906 2 2 16 18 18 5 5 5 5 SARs ’000 1 422 1 422 1 675 3 097 3 097 Total ’000 8 849 6 980 1 869 3 8 852 7 580 1 272 Fair value of equity-settled share-based payment transactions with employees The group applies IFRS 2 to grants of shares, share options or other equity instruments that are granted. In determining the fair value of services received as consideration for equity instruments, measurement is referenced to the fair value of the equity instruments granted. The group applied the transitional provisions of IFRS 2 and applied the principles to grants that were granted after 7 November 2002. Kumba Resources listed on 26 November 2001 and the volatility of its share price since then has been used to determine the calculations. The changes to the schemes brought about by the empowerment transaction were treated as a modiﬁ cation. The services received were measured at the grant date fair value of the original equity instruments granted. Any incremental increase in the fair value of the equity instruments granted is recognised over the revised vesting period. The fair value of the options issued under the Management Share Option Scheme was determined immediately before and after the modiﬁ cation using the Black-Scholes option pricing model. The weighted average incremental fair value granted per option at the original strike price as a result of the modiﬁ cation amounted to R12,55 while the incremental fair value for a repriced option amounted to R14,93. 220 I E x x a r o A n n u a l R e p o r t 2 0 0 8 32. EMPLOYEE BENEFITS (continued) Equity compensation beneﬁ ts (continued) The Black-Scholes methodology is used to calculate the fair value of options granted to employees. The inputs to the model are as follows: Share price (R) Weighted average exercise price range – original strike price (R) Weighted average exercise price range – repriced strike price (R) Annualised expected volatility (%) Option life (years) (weighted average) Dividend yield (%) Risk-free interest rate (%) (weighted average) Expected employee attrition (%) 2008 2007 Exxaro Kumba Iron Ore Exxaro Kumba Iron Ore 49,00 110,00 49,00 110,00 34,76 71,18 34,76 71,18 13,12 37,90 3,11 4 8,26 9,26 26,86 37,90 3,08 4 8,26 9,26 13,00 37,90 3,11 4 8,26 6,69 26,86 37,90 3,08 4 8,26 6,69 The Black-Scholes methodology is used to calculate the fair value of Share Appreciation Rights (SARs) granted to employees. The inputs to the model as at 31 December 2008 are as follows: Share price (R) Weighted average exercise price range Annualised expected volatility (%) Option life (years) (weighted average) Dividend yield (%) Risk-free interest rate (%) (weighted average) Expected employee attrition (%) The inputs to the model as at 31 December 2007 were as follows: Share price (R) Weighted average exercise price range Annualised expected volatility (%) Option life (years) (weighted average) Dividend yield (%) Risk-free interest rate (%) (weighted average) Expected employee attrition (%) SARs vesting in 3 years SARs vesting in 4 years SARs vesting in 5 years 86,25 18,11 40,40 3 9,20 8,89 5 61,24 60,60 36,78 5 2,98 7,70 6,69 86,25 18,11 40,40 4 9,59 8,94 5,5 61,24 60,60 36,78 5,5 3,13 7,64 6,69 86,25 18,11 40,40 5 9,48 8,94 6 61,24 60,60 36,78 6 3,08 7,64 6,69 The Monte Carlo valuation methodology is used to calculate the fair value of long-term incentive plan, deferred bonus plan and MPower grants to employees. E x x a r o A n n u a l R e p o r t 2 0 0 8 I 221 NOTES TO ANNUAL FINANCIAL STATEMENTS continued for the year ended 31 December 2008 32. EMPLOYEE BENEFITS (continued) Equity compensation beneﬁ ts (continued) The inputs to the LTIP model are as follows: Date of grant Share price at grant date (R) Risk-free rate (%) Dividend yield (%) Expected volatility (%) Time to vesting Expected employee attrition (%) The inputs to the DBP model are as follows: Date of grant Share price at grant date (R) Risk-free rate (%) Dividend yield (%) Expected volatility (%) Time to vesting Expected employee attrition (%) The inputs to the MPower model are as follows: Date of grant Share price at grant date (R) Risk-free rate (%) Dividend yield (%) Expected volatility (%) Vest date Vesting probability The inputs to the Phantom scheme model are as follows: Date of grant Share price at grant date (R) Risk-free rate (%) Dividend yield (%) Expected volatility (%) 2008 01/04/2008 2007 28/2/2007 110,35 8,88 2,81 N/A three years from date of grant 13,24 61,24 7,70 4,08 36,80 three years from date of grant 5,54 01/04/2008 28/2/2007 111,88 8,88 2,77 N/A three years from date of grant 9,00 61,24 7,70 4,08 36,80 three years from date of grant 4,45 31/01/2007 71,00 8,20 3,00 37,00 28/11/2011 100 31/1/2007 71,00 8,20 3,00 37,0 28/11/2011 100 22/4/2005 – 1/12/2005 22/4/2005 – 1/12/2005 71,90 8,47 – 8,58 11,32 – 12,96 48,50 56,00 – 100,10 8,54 – 8,70 4,12 34,25 Mainly over ﬁ ve years in tranches 0 Time to vesting Expected employee attrition (%) Over three years in tranches 0 222 I E x x a r o A n n u a l R e p o r t 2 0 0 8 33. CONTINGENT ASSETS AND LIABILITIES Contingent asset An outstanding insurance claim for the Furnace 2 incident at Exxaro TSA Sands (Pty) Limited for which it is probable that settlement will be received in the second half of 2009. Surrender fee on prospect rights, exploration rights and mining rights. Contingent liabilities1 Contingent liabilities at balance sheet date, not otherwise provided for in these annual ﬁ nancial statements, arising from: – guarantees in the normal course of business from which it is anticipated that no material liabilities will arise: – other2 GROUP COMPANY 2008 Rm 2007 Rm 2008 Rm 2007 Rm 135 57 523 64 165 36 1 3 1 1 The increase in 2008 is mainly attributable to guarantees to the Department of Minerals and Energy in respect of environmental liabilities on immediate closure of mining operations. 2 Includes the group’s share of contingent liabilities of associates and joint ventures of R57 million (2007: R22 million). These contingent liabilities have no tax impact. The timing and occurrence of any possible outﬂ ows are uncertain. E x x a r o A n n u a l R e p o r t 2 0 0 8 I 223 NOTES TO ANNUAL FINANCIAL STATEMENTS continued for the year ended 31 December 2008 34. COMMITMENTS Capital commitments at balance sheet date Capital expenditure contracted for plant and equipment Capital expenditure authorised for plant and equipment but not contracted The above includes the group’s share of capital commitments of associates and joint ventures. Capital expenditure will be ﬁ nanced from available cash resources, funds generated from operations and available borrowing capacity. Capital expenditure contracted relating to captive mines Tshikondeni, Arnot and Matla, which will be ﬁ nanced by ArcelorMittal SA Limited and Eskom respectively. GROUP COMPANY 2008 Rm 2007 Rm 2008 Rm 2007 Rm 889 450 2 711 1 278 456 157 78 48 33 24 70 72 A trust known as The New Africa Mining Fund was established during 2003 to make portfolio investments in junior mining projects within the Republic of South Africa and elsewhere on the continent of Africa. Exxaro, as an investor participant to the fund, has committed to contribute R20 million towards the fund. The Fund Manager can draw down this balance or any portion as and when required, by serving a 10-day notice to Exxaro. The commitment period commenced on 1 March 2003 and expires on 28 February 2009. On 19 January 2007 Exxaro announced that, pursuant to the empowerment transaction, it had exercised the option to acquire the Namakwa Sands mineral sands operation and a 26% interest in a company to be formed to hold the Black Mountain lead-zinc mine and the Gamsberg zinc project. The transaction was valued at R2 353 million at 31 December 2007. The conversion of mining rights and cession thereof to Exxaro was obtained during 2008 and the transaction was completed (refer note 27). Operating lease commitments The future minimum lease payments under non-cancellable operating leases are as follows: – less than one year – more than one year and less than ﬁ ve years – more than ﬁ ve years Total Operating sublease receivable Non-cancellable operating lease rentals are receivable as follows: – less than one year Total GROUP COMPANY 2008 Rm 2007 Rm 2008 Rm 2007 Rm 9 7 16 46 8 54 34 35 8 77 70 48 8 126 1 1 224 I E x x a r o A n n u a l R e p o r t 2 0 0 8 ANNEXURE 1 NON-CURRENT INTEREST-BEARING BORROWINGS Final repayment date Rate of interest per year (payable half‑yearly) Rate of interest per year (payable half‑yearly) 2008 2007 GROUP COMPANY Fixed % Floating % Fixed % Floating % 2008 Rm 2007 Rm 2008 Rm 2007 Rm LOCAL Unsecured loans Secured loans 2009 2009 2011 2012 2013 2013 2013 2013 2013 2013 2013 2013 2016 2011 2011 2012 2013 2025 2026 2031 2032 1,780 14,980 14,140 12,570 13,480 13,480 13,480 13,580 13,480 13,580 13,480 13,580 14,350 6,890 1 12,360 12,460 12,300 12,130 17,490 11,420 13,540 8,330 10,710 22,200 32,930 12,130 17,490 11,420 13,540 8,330 10,710 22,200 32,930 FOREIGN Unsecured loans (US$) FOREIGN Secured loan (AU$) Total non-current interest-bearing borrowings (refer note 21) 2016 6,640 6,640 2010 7,850 7,850 300 150 300 150 415 675 675 125 125 224 224 2 913 450 109 167 5 300 150 415 675 675 125 125 224 224 143 3 337 2 2 1 10 24 13 84 115 251 561 561 1 1 151 300 150 80 681 3 2 1 11 25 13 81 106 242 408 408 2 2 4 150 1 333 2 913 450 2 3 4 5 6 7 8 9 10 11 1 The interest is based on US PPI and settled in rand based on the USD/ZAR exchange rate. The PPI NACS on 31 December 2008 is 1,78% (31 December 2007 6,89%). Finance leases recognised due to IFRIC 4 Determining whether an Agreement contains a Lease: 2 Finance lease agreement between Exxaro Sands (Pty) Limited and Mhlathuze Water in respect of a plant with a book value of R2 million (2007: R2 million). 3 Finance lease agreement between FerroAlloys (Pty) Limited and African Oxygen Limited (Afrox) in respect of machinery and equipment with a book value of R0 million (2007: R0 million). 4 Finance lease agreement between Exxaro Sands (Pty) Limited and Eskom in respect of buildings with a book value of R1 million (2007: R1 million). 5 Finance lease agreement between Exxaro TSA Sands (Pty) Limited and Air Products in respect of a plant with a book value of R6 million (2006: R8 million). 6 Finance lease agreement between Exxaro TSA Sands (Pty) Limited and Mhlathuze Water in respect of a plant with a book value of R21 million (2007: R23 million). 7 Finance lease agreement between Exxaro TSA Sands (Pty) Limited and Eskom in respect of buildings with a book value of R14 million (2007: R14 million). 8 Finance lease agreement between Exxaro Sands (Pty) Limited and Kusasa Bulk Terminals (Phase 1) in respect of a plant with a book value of R45 million (2007: R47 million). 9 Finance lease agreement between Exxaro Sands (Pty) Limited and Kusasa Bulk Terminals (Phase 2) in respect of a plant with a book value of R49 million (2007: R51 million). 10 US$60 million senior notes issued by Ticor Finance (A.C.T) Pty Limited, an entity controlled by Exxaro Australia Sands Pty Limited, and a syndicated loan facility of US$60 million, of which US$0 million was drawn on 31 December 2008 (US$17 million 31 December 2007). 11 Finance lease agreement in respect of computer equipment with a book value of R1 million (2007: R2 million). E x x a r o A n n u a l R e p o r t 2 0 0 8 I 225 ANNEXURE 2 INVESTMENT IN ASSOCIATES, JOINT VENTURES AND OTHER INVESTMENTS Nature of business1 Country of incor- poration2 Number of shares held Percentage holding Group carrying amount Company carrying amount 2008 % 2007 % 2008 Rm 2007 Rm 2008 Rm 2007 Rm ASSOCIATED COMPANIES Unlisted Black Mountain Mining (Pty) Limited Chifeng Kumba Hongye Zinc Corporation Limited Chifeng NFC Kumba Hongye Zinc Corporation Limited Sishen Iron Ore Company (Pty) Limited Total associated companies (refer note 14) JOINT VENTURES Incorporated Unlisted RoshSkor Township (Pty) Limited South Dunes Coal Terminal Co. (Pty) Limited Thakweneng Mineral Resources (Pty) Limited Rosh Pinah Health Care (Pty) Limited Unincorporated Moranbah Coal Project Tiwest INVESTMENT COMPANIES Unlisted Richards Bay Coal Terminal Other Total other investments (refer note 16) TOTAL INVESTMENTS The investments are valued at reporting date. Listed shares are valued at market value and unlisted shares at directors’ value. Unlisted investments in associates – directors’ valuation Unlisted other investments – directors’ valuation A RSA 260 26,00 A & M CH 58 520 000 38,00 38,00 A & M A CH 42 500 000 RSA 240 000 000 25,00 20,00 25,00 20,00 C A E C A A NAM RSA RSA NAM AUS AUS 50 1 333 1 31 50,00 33,33 50,00 31,00 50,00 33,33 50,00 50,00 50,00 50,00 50,00 95 21 641 757 32 132 37 1 647 1 848 1 1 351 36 387 2 236 290 38 328 1 085 13 162 9 110 387 328 2 2 1 ¹ A – Mining, C – Service, E – Exploration, M – Manufacturing. ² RSA – Republic of South Africa, CH – People’s Republic of China, NAM – Namibia, AUS – Australia 226 I E x x a r o A n n u a l R e p o r t 2 0 0 8 The group’s effective share of balance sheet, income statement and cash ﬂ ow items in respect of associated companies and joint ventures is as follows: ASSOCIATED COMPANIES JOINT VENTURES INCOME STATEMENTS Revenue Operating expenses NET OPERATING PROFIT Net ﬁ nancing (costs)/income PROFIT BEFORE TAX Income tax expense PROFIT FOR THE YEAR Proﬁ t for the year attributable to owners of the parent STATEMENTS OF FINANCIAL POSITION Non-current assets Current assets TOTAL ASSETS Equity and liabilities EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT Non-current liabilities Interest-bearing borrowings Non-current provisions Deferred tax and other Current liabilities Interest-bearing borrowings Other TOTAL EQUITY AND LIABILITIES STATEMENTS OF CASH FLOWS Net cash ﬂ ows from operating activities Net cash ﬂ ows from investing activities Net cash ﬂ ows from ﬁ nancing activities Foreign currency translations Net increase/(decrease) in cash and cash equivalents 2008 Rm 4 803 (2 290) 2 513 (64) 2 449 (806) 1 643 1 643 1 967 1 847 3 814 1 614 555 143 412 670 420 3 814 836 (359) 96 4 577 2007 Rm 2 935 (1 749) 1 186 (68) 1 118 (356) 762 762 1 333 898 2 231 757 241 63 315 537 318 2 231 498 (482) (44) (15) (43) 2008 Rm 1 319 (1 392) (73) (21) (94) (94) (94) 1 981 1 156 3 137 2007 Rm 1 192 (1 112) 80 6 86 1 87 87 1 643 1 120 2 763 2 533 2 324 128 207 16 15 238 3 137 81 (248) 7 38 (122) 81 152 16 1 189 2 763 258 (204) (89) (31) (66) E x x a r o A n n u a l R e p o r t 2 0 0 8 I 227 ANNEXURE 3 INVESTMENTS IN SUBSIDIARIES1 Country of incor- poration2 Nature of business3 DIRECT INVESTMENTS AlloyStream (Pty) Limited AlloyStream Holdings (Pty) Limited Clipeus Investment Holdings (Pty) Limited Colonna Properties (Pty) Limited Cullinan Refractories Limited Exxaro Base Metals and Industrial Minerals Holdings (Pty) Limited Exxaro Base Metals (Pty) Limited Exxaro Chairman’s Fund Exxaro Coal (Pty) Limited Exxaro Employee Empowerment Participation Scheme Trust Exxaro Environmental Rehabilitation Fund Exxaro FerroAlloys (Pty) Limited Exxaro Foundation Exxaro Holdings (Pty) Limited4 Exxaro Holdings Sands (Pty) Limited Exxaro Insurance Company Limited Exxaro People Development Initiative Exxaro Properties (Groenkloof) (Pty) Limited Exxaro Properties (Kloofzicht) (Pty) Limited5 Exxaro Properties (Princess Grant) (Pty) Limited5 Exxaro TSA Sands (Pty) Limited Exxaro Sands (Pty) Limited Ferroland Grondtrust (Pty) Limited Ferrosure (South Africa) Insurance Company Limited6 Glen Douglas Dolomite (Pty) Limited7 Kumba Base Metals Namibia (Pty) Limited Kumba Resources Management Share Trust Merrill Lynch Insurance PCC Limited Mineral Exploration Company of Southern Africa (Pty) Limited5 Rocsi Holdings (Pty) Limited8 Skyprops 112 (Pty) Limited Ticor (Bermuda) Holdings Limited9 Ticor (Bermuda) Minerals Limited9 RSA RSA RSA RSA RSA RSA RSA RSA RSA RSA RSA RSA RSA BVI & RSA RSA RSA RSA RSA RSA RSA RSA RSA RSA RSA RSA NAM RSA ILE RSA BVI & RSA RSA BER BER M H H B A H M T A T T M T H H I E B B B M A D I A C T I B H H H H INDIRECT INVESTMENTS Coastal Coal (Pty) Limited Exxaro Australia Pty Limited Exxaro Australia Sands Pty Limited Exxaro Base Metals (Namibia) (Pty) Limited Exxaro Base Metals China Limited Exxaro Base Metals International BV Exxaro Coal Botswana Holding (Pty) Limited Exxaro Coke (Pty) Limited Exxaro Finance Ireland RSA AUS AUS NAM HK NE Bot RSA IRL 5 000 A A 11 A 2 038 299 354 100 H 1 354 C 119 209 A 2 P 1 M 893 656 391 C 228 I E x x a r o A n n u a l R e p o r t 2 0 0 8 Issued capital- unlisted ordinary shares R 1 1 1 200 1 000 Interest of company Investment in shares Indebtedness 2008 R 2007 R 2008 Rm 2007 Rm 1 746 163 1 2 518 966 1 000 1 746 163 1 2 518 966 1 000 10 11 2 1 5 500 000 1 247 712 500 1 247 712 500 413 222 1 000 1 000 760 1 783 1 1 1 1 566 827 40 000 50 459 517 297 1 869 951 859 5 000 000 459 517 297 1 1 1 510 200 2 10 000 1 1 510 6 003 355 2 1 1 1 1 510 6 003 355 2 10 10 000 1 2 200 647 044 943 100 74 836 653 722 945 44 389 208 200 653 722 945 143 502 000 (10) 11 (7) 5 5 693 818 4 2 205 710 4 (67) (40) (63) (1) 1 (2) (51) 90 20 (51) (1) 3 69 Interest of company Investment in shares Indebtedness 2008 R 2007 R 2008 Rm 2007 Rm 1 (490) 21 (21) 5 Country of incor- poration2 Nature of business3 Issued capital- unlisted ordinary shares Exxaro Maden Arama ve Madencilik Ltd. Sti. Exxaro Madencilik Sanayi Ve Ticaret Anonim Sirketi (76%) Exxaro Mineral Sands BV Exxaro Holdings (Australia) Pty Limited Exxaro International BV Exxaro International Trading BV Exxaro International Coal Trading BV Exxaro Investments (Australia) Pty Limited Exxaro Sands Holdings BV Exxaro Coal Mpumalanga (Pty) Limited10 Ferrowest (Pty) Limited (95%) Inyanda Coal (Pty) Limited Magnetic Minerals Pty Limited Omacor Sac Oreco Leasing Limited Pigment Holdings Pty Limited Rocit Investments (Pty) Limited Rosh Pinah Mine Holdings (Pty) Limited Rosh Pinah Zinc Corporation (Pty) Limited (50,04%) Senbar Holdings Pty Limited Synthetic Rutile Holdings Pty Limited The Vryheid (Natal) Railway Coal and Iron Company Limited Ticor (Overseas) Holdings Pty Limited Ticor Chemical Company Pty Limited Ticor Chemicals Ghana Pty Limited5 Ticor Energy Pty Limited Ticor Finance (A.C.T) Pty Limited Ticor Resources Pty Limited Ticor Titanium Australia Pty Limited Tific Pty Limited TiO2 Corporation NL Yalgoo Minerals Pty Limited TUR TUR NE AUS NE NE NE AUS NE RSA RSA RSA AUS PERU MAU AUS RSA NAM NAM AUS AUS RSA AUS AUS GHANA AUS AUS AUS AUS AUS AUS AUS R 32 512 6 436 530 134 973 5 662 037 172 866 172 866 5 169 999 100 000 136 500 000 1 000 31 740 964 10 1 10 1 000 1 000 2 280 10 10 3 675 10 10 10 10 10 8 111 062 10 10 85 101 240 48 216 010 P P A H H C C H H A B A A C F C H H A C C A H M C F F H H H A A TOTAL INVESTMENTS IN SUBSIDIARIES (refer note 15) 3 289 564 811 1 513 735 958 7 269 4 788 1 At 100% holding except where otherwise indicated 2 RSA – Republic of South Africa, AUS – Australia, NAM – Namibia, HK – Hong Kong, BVI – British Virgin Islands, ILE – Isle of Man, IRL – Ireland, MAU – Mauritius, NE – Netherlands, BER – Bermuda, Bot – Botswana, TUR – Turkey 3 A – Mining, B – Property, C – Service, D – Land management, E – Section 21 company, F – Finance, H – Holdings, I – Insurance, M – Manufacturing, P – Exploration, T – Trust 4 Exxaro Holdings (BVI) SA was converted into a South African company as Exxaro Holdings (Pty) Limited 5 Deregistered during 2008 6 Shares sold during 2008 7 Reclassified during 2008 as non-current asset classified as held-for-sale 8 Rocsi Holdings (BVI) Limited was converted into a South African company as Rocsi Holdings (Pty) Limited 9 Liquidated during 2008 10 Previously Eyesizwe Coal (Pty) Limited E x x a r o A n n u a l R e p o r t 2 0 0 8 I 229 NOTICE OF ANNUAL GENERAL MEETING Notice is hereby given that the eighth annual general meeting An abbreviated curriculum vitae in respect of each director of members of Exxaro Resources Limited will be held at the offering themselves for re-election is set out on page 233 of Exxaro Corporate Centre, Roger Dyason Road, Pretoria West, the annual report. Gauteng, South Africa, at 10:00 on Friday, 8 May 2009. The following business will be transacted and resolutions Remuneration of non-executive directors proposed, with or without modification: To approve the proposed remuneration for the period 6. ORDINARY RESOLUTION NUMBER 6 1. ORDINARY RESOLUTION NUMBER 1 Approval of financial statements To receive and adopt the annual financial statements of the group for the period ended 31 December 2008, including the directors’ report and the report of the auditors thereon. 2. ORDINARY RESOLUTION NUMBER 2 Re-appointment of independent auditors To ratify the re-appointment of Deloitte & Touche as auditors of the company and Mr BW Smith as the designated partner for the ensuing year. 3. ORDINARY RESOLUTION NUMBER 3 Auditors’ fees To authorise the directors to determine the auditors’ remuneration for the period ended 31 December 2008. 4. ORDINARY RESOLUTION NUMBER 4 Re-election of directors In terms of article 15.2 of the articles of association, the following directors appointed to the board with effect from 13 August 2008 will retire and, being eligible, offer themselves for re-election: 4.1 SEA Mngomezulu 4.2 J van Rooyen An abbreviated curriculum vitae in respect of each director offering themselves for re-election is set out on page 233 of the annual report. 5. ORDINARY RESOLUTION NUMBER 5 Re-election of directors To re-elect the following directors who retire by rotation in terms of clause 16.1 of the articles of association of the company, and who are eligible for re-election: 5.1 VZ Mntambo 5.2 NL Sowazi 5.3 D Zihlangu 1 January 2009 to 31 December 2009: : Chairman Director : Audit committee chairman : : Audit committee member Board committee chairman : : Board committee member Current R Proposed R 333 853 166 927 106 833 53 417 80 125 40 063 399 600 184 440 170 400 90 000 132 000 63 000 7. ORDINARY RESOLUTION NUMBER 7 Renewal of the authority that the unissued shares be placed under the control of the directors “Resolved that subject to the provisions of article 3.2 of the articles of association of the company, the provisions of the Companies Act, 61 of 1973, as amended, (the Act), and the Listings Requirements of JSE Limited (JSE), the directors are hereby authorised to allot and issue at their discretion until the next annual general meeting of the company authorised but unissued shares for such purposes as they may determine, after setting aside so many shares as may, subject again to article 3.2 of the articles of association of the company, be required to be allotted and issued by the company pursuant to the company’s approved employee share incentive schemes (the schemes).” 8. ORDINARY RESOLUTION NUMBER 8 General authority to issue shares for cash “Resolved that subject to article 3.2 of the articles of association of the company, the Act, and the Listings Requirements of the JSE, the directors are hereby authorised, by way of a general authority, to allot and issue ordinary shares and/or any options/convertible securities that are convertible into ordinary shares for cash on the following basis, after setting aside so many shares as may, subject again to article 3.2 of the articles of association of the company, be required to be allotted and issued by the company pursuant to the schemes, to any public shareholder, as defined by the Listings Requirements of the JSE, as and when suitable opportunities arise, subject to the following conditions: 230 I E x x a r o A n n u a l R e p o r t 2 0 0 8 8.1 this authority shall not extend beyond the next 9. SPECIAL RESOLUTION NUMBER 1 annual general meeting or fifteen months from the Authority to repurchase shares date of this annual general meeting, whichever date “Resolved that by way of a general authority, the company is earlier; 8.2 a press announcement giving full details, including the impact on net asset value and earnings per share, be published at the time of any issue representing, on a cumulative basis within one year, 5% or more of the number of shares in issue prior to the issue/s; 8.3 the shares be issued to public shareholders as defined by the JSE and not to related parties; 8.4 any issue in the aggregate in any one year shall not exceed 15% of the number of shares of the company’s issued ordinary share capital (including the number to be issued in the future as a result of the exercise of options or conversion of convertible securities issued in the same financial year); and 8.5 in determining the price at which an issue of shares be made in terms of this authority, the maximum discount permitted will be 10% of the weighted average traded price of the shares over the thirty days prior to the date that the price of the issue is agreed in writing between the issuer and the party/ or any wholly owned subsidiary of the company may, subject to the Act, article 36 of the articles of association of the company or articles of association of a subsidiary respectively and the Listings Requirements of the JSE, from time to time purchase shares issued by itself or shares in its holding company, as and when deemed appropriate.” Pursuant to the above, the following additional information, required in terms of the Listings Requirements of the JSE, is submitted. It is recorded that the general repurchase will be subject to the following limitations: 9.1 that the repurchase is effected through the order book operated by the JSE trading system and is done without any prior understanding or arrangement between the company and the counterparty; 9.2 that this authority shall not extend beyond 15 months from the date of this resolution or the date of the next annual general meeting, whichever is the earlier parties subscribing for the securities. In the event date; that shares have not traded in the said thirty day 9.3 that an announcement containing full details of such period a ruling will be obtained from the committee repurchases is published as soon as the company of the JSE.” In respect of any options and convertible securities has repurchased shares constituting, on a cumulative basis, 3% of the number of shares in issue prior to the repurchases, and for each 3%, on a cumulative basis, granted/issued for cash, if the discount to the market thereafter; price at the time of exercise of the option or conversion of the convertible security is not known at the time of the grant/issue of the option or convertible security, or if it is known that the discount will exceed 10% of the 30-day weighted average traded price of the security at the date of exercise, then the grant/issue will be subject to the company providing its shareholders with a fairness opinion complying with Schedule 5 of the JSE Listings Requirements from an independent expert acceptable to the JSE, indicating whether or not the issue is fair as far as the company’s shareholders are concerned. The approval of a 75% majority of the votes cast by shareholders present or represented by proxy at the meeting is required for ordinary resolution number 8 to become effective. 9.4 that the repurchase of shares shall not, in the aggregate, in any one financial year, exceed 20% of the company’s issued share capital at the time this authority is given; 9.5 that at any one time, the company may only appoint one agent to effect any repurchase; 9.6 that the repurchase of shares will not take place during a prohibited period (unless it forms part of a repurchase programme which meets the requirements of the JSE) and will not affect compliance with the shareholders’ spread requirements as laid down by the JSE; 9.7 shares issued by the company may not be acquired at a price greater than 10% above the weighted average traded price of the company’s shares for the five business days immediately preceding the date of repurchase; E x x a r o A n n u a l R e p o r t 2 0 0 8 I 231 NOTICE OF ANNUAL GENERAL MEETING continued 9.8 The sponsor will sign off on working capital as per • the share capital and reserves of the company and the Schedule 25 of the Listings Requirements of the JSE group will be adequate for ordinary business purposes for prior to the commencement of the general repurchase a period of 12 (twelve) months after the date of the notice and after the directors pass the resolution relating to of the annual general meeting of the company; and the solvency and liquidity of the company as required • the working capital resources of the company and the in terms of section 85 (4) of the Act.” The reason for this special resolution number 1 is, and the effect thereof will be to grant, in terms of the provisions of the group will be adequate for ordinary business purposes for a period of 12 (twelve) months after the date of the notice of the annual general meeting of the company. Act and the Listings Requirements of the JSE, and subject Litigation statement to the terms and conditions embodied in the articles of the company or any subsidiary and the said special resolution, a general authority to the directors to approve the repurchase by the company of its own shares. At present the directors have no specific intention with regard to the utilisation of this authority, which will only be used if the circumstances are appropriate. 10. To transact such other business as may be transacted at an annual general meeting. DISCLOSURES REQUIRED IN TERMS OF THE LISTINGS REQUIREMENTS OF THE JSE In accordance with paragraph 11.26 of the Listings Requirements of the JSE, the following information is provided in terms of special resolution number 1. Other than disclosed or accounted for in these annual financial statements, the directors of the company, whose names are given on page 58 and 59 of these annual financial statements, are not aware of any legal or arbitration proceedings, pending or threatened against the group, which may have or have had a material effect on the group’s financial position in the 12 months preceding the date of this notice of annual general meeting. Directors’ responsibility statement The directors, whose names are given on page 58 and 59 of these financial statements, accept responsibility for the accuracy of the information given in this special resolution, and certify that to the best of their knowledge and belief there are no facts that have been omitted which would make any statements false or misleading and that all reasonable enquiries to ascertain such facts have been made. Material changes Working capital statement The directors of the company agree that they will not undertake any repurchase of its shares unless: Other than the facts and developments reported on in these annual financial statements, there have been no material changes in the affairs, financial or trading position of the group since the signature • the company and the group will be able, in the ordinary date of this annual report and the posting date thereof. course of business, to pay its debts for a period of 12 (twelve) months after the date of the notice of the The following further disclosures required in terms of the annual general meeting of the company; Listings Requirements of the JSE are set out in accordance • the assets of the company and the group (which latter with the reference pages in these annual financial statements have been consolidated, fairly valued in accordance with of which this notice forms part: International Financial Reporting Standards), will be in • Directors and management – refer to pages 56 to 59 of this excess of its liabilities and consolidated liabilities (recognised report; and measured in accordance with the accounting policies • Major shareholders of the company – refer to page 71 of used in the latest audited consolidated annual financial this report; statements) for a period of 12 (twelve) months after the date • Directors’ interests in the company’s shares – refer page 71 of the notice of the annual general meeting of the company; of this report; • Share capital of the company – refer page 70 of this report. 232 I E x x a r o A n n u a l R e p o r t 2 0 0 8 FURTHER DISCLOSURE REQUIRED IN TERMS OF THE SHORT BIOGRAPHIES OF EXXARO DIRECTORS COMPANIES ACT SEEKING RE-ELECTION The following information is provided in terms of special Name: SEA Mngomezulu – Simangele (54) resolution number 1: Designation: Non-executive director The company shall not make any payment in whatever form Academic qualifications: diploma in public relations, diploma in to acquire any share issued by the company if there are community development, certificate in executive preparation reasonable grounds for believing that: programme (a) the company is, or would after the payment be, unable to Experience: Simangele Mngomezulu worked at Anglo pay its debts as they become due in the ordinary course of American Corporation of SA as an assistant information business; or retrieval officer for 15 years. She is the owner of Thandelike (b) the consolidated assets of the company fairly valued Investments & NESA Mining, chairperson of Black Economic would after the payment be less than the consolidated Empowerment Cleaning Association (BEECA), CEO of South liabilities of the company. By order of the board MS Viljoen Company secretary Pretoria 23 February 2009 African Women in Mining Association (SAWIMA), member of the advisory board for the Minister for Minerals and Energy, member of the mining industry tripartite HIV and Aids committee. Name: J van Rooyen – Jeff (59) Designation: Non-executive director Academic qualifications: BCom, BCompt (Hons), CA(SA) Experience: In February 1984 Jeff van Rooyen started his own auditing practice, J van Rooyen & Co, to address the financial services needs of the black community in general and black business in particular. Due to the rapid growth of the practice, a joint venture was established with Deloitte & Touche in 1988. In April 1995 he was seconded by Deloitte & Touche as special adviser to the Minister of Public Enterprises. In 2000 Jeff was appointed as chief executive officer of the Financial Services Board and to his current position as chief executive and founding member of Uranus Investment Holdings (Pty) Limited. Name: VZ Mntambo – Zwelibanzi (51) Designation: Non-executive director Academic qualifications: BJuris, LLB, LLM Experience: Zwelibanzi is executive chairman of ASG Business Solutions. He was previously senior lecturer at the University of Natal; executive director of IMSSA; director-general of Gauteng province and non-executive chairman of the Commission for Conciliation, Mediation and Arbitration. He has extensive experience in business strategy, performance management, labour mediation and arbitration. Name: NL Sowazi – Nkunku (45) Designation: Non-executive director Academic qualifications: BA, MA (UCLA) Experience: Nkululeko is founding executive of the Tiso Group, a BEE investment holding company with interests in natural resources, infrastructure and industrial services. Nkululeko was E x x a r o A n n u a l R e p o r t 2 0 0 8 I 233 NOTICE OF ANNUAL GENERAL MEETING continued previously executive deputy chairman of JSE listed banking Resolution 4 and 5: Re-election of directors group, African Bank Investments Limited (ABIL) and managing Under the articles of association, one third of the directors are director of the Mortgage Indemnity Fund (Pty) Limited. He required to retire at each annual general meeting and may offer is chairman of Idwala Industrial Holdings, the Home Loan themselves for re-election. In addition, any person appointed Guarantee Company, the Financial Markets Trust, and serves to fill a casual vacancy on the board of directors, or as an on the boards of Aveng Limited, Alstom South Africa, Trident addition thereto, is similarly required to retire and is eligible for Steel, EMIRA property fund and African Explosives Limited. re-election at the next annual general meeting. Biographical Name: D Zihlangu – Rain (42) Designation: Non-executive director details of the directors, who are offering themselves for re- election, appear on page 233. Academic qualifications: BSc (Min Eng) (Wits); MDP (SBL, Resolution 6: Remuneration of non-executive directors Unisa); MBA (WBS, Wits) The company in general meeting as per the articles of Experience: Dalikhaya is the chief executive officer of Eyabantu association shall from time to time determine the remuneration Capital Consortium. Between 1989 and 1994 he was a stoper/ of directors, subject to shareholders’ approval. developer and shift boss at Vaal Reefs Gold Mining Company. From 1995 until 2002, he was a shift boss, mine overseer, Resolution 7 and 8: Directors’ control of unissued ordinary operations manager and mine manager at Impala Platinum shares Limited. Dalikhaya was the chief executive officer of Alexkor The existing authorities relating to resolutions 7 and 8 are Limited from 2002 until 2005. due to expire at the forthcoming annual general meeting. The directors consider it advantageous to renew these authorities EXPLANATORY NOTES TO RESOLUTIONS FOR to enable the company to take advantage of future business CONSIDERATION AT THE ANNUAL GENERAL MEETING opportunities. Ordinary business Resolution 1: Approval of financial statements Special business The directors must present to shareholders at the annual Special resolution 1: General authority to permit the general meeting the annual financial statements incorporating repurchase of shares the directors’ report and the report of the auditors, for the The reason for the special resolution is to grant the directors period ended 31 December 2008. These are contained within of the company a general authority for the acquisition of the the annual report. company’s shares by the company, or by a wholly owned subsidiary of the company. Resolution 2: Re-appointment of independent auditors The reason for proposing ordinary resolution number 2 is to The effect of the special resolution, once registered, will be to confirm the re-appointment of Deloitte & Touche as external permit the company or any of its subsidiaries to repurchase auditors of the company and Mr BW Smith as the designated such securities subject to the limitations applicable. This partner. Deloitte & Touche was appointed as the company’s authority will only be used if circumstances are appropriate. statutory auditors since 16 February 2004. Resolution 3: Auditors’ fees It is usual for this matter to be left to the directors, as they will be conversant with the amount of work that was involved in the audit. The chairman will therefore move a resolution to this effect authorising the directors to attend to this matter. 234 I E x x a r o A n n u a l R e p o r t 2 0 0 8 FORM OF PROXY EXXARO RESOURCES LIMITED (Incorporated in the Republic of South Africa) (Registration No. 2000/011076/06) (“Exxaro” or “the company”) JSE Share code: EXX ISIN code: ZAE 000084992 POWERING POSSIBILITY TO BE COMPLETED BY CERTIFICATED SHAREHOLDERS AND DEMATERIALISED SHAREHOLDERS WITH “OWN NAME” REGISTRATION ONLY For completion by registered members of Exxaro unable to attend the annual general meeting of the company to be held at 10:00 on Friday, 8 May 2009, at the Exxaro Corporate Centre, Roger Dyason Road, Pretoria West, South Africa or at any adjournment thereof, I/We of (address) being the holder/s of 1. 2. shares in the company, do hereby appoint: or, failing him/her or, failing him/her the chairman of the annual general meeting, as my/our proxy to attend, speak and, on a poll, vote on my/our behalf at the annual general meeting of members to be held at 10:00 on Friday, 8 May 2009 at Exxaro Corporate Centre, Roger Dyason Road, Pretoria West, Gauteng or at any adjournment thereof, and to vote or abstain from voting as follows on the ordinary and special resolutions to be proposed at such meeting: For Against Abstain Ordinary business 1. Resolution to adopt the 2008 audited group financial statements 2. Resolution to re-appoint Deloitte & Touche as auditors 3. Resolution to authorise the directors to determine auditors’ remuneration 4. Resolution to re-elect directors required to retire in terms of article 15.2 of the articles of association 4.1 SEA Mngomezulu 4.2 J van Rooyen 5. Resolution to re-elect directors required to retire by rotation in terms of article 16.1 of the articles of association 5.1 VZ Mntambo 5.2 NL Sowazi 5.3 D Zihlangu 6. Resolution to approve the non-executive directors’ remuneration for the period 1 January 2009 to 31 December 2009 7. Resolution to authorise directors to allot and issue unissued ordinary shares 8. Resolution to authorise directors to allot and issue ordinary shares for cash Special business 1. Special resolution to authorise directors to repurchase company shares Please indicate with an “X” in the appropriate spaces provided above how you wish your vote to be cast. If no indication is given, the proxy may vote or abstain as he/she sees fit. Signed at Signature this day of 2009 Assisted by me, where applicable (name and signature) Please read the notes on the reverse side hereof. E x x a r o A n n u a l R e p o r t 2 0 0 8 I 235 NOTES 1. A form of proxy is only to be completed by those ordinary shareholders who are: For shareholders on the South African register: Computershare Investor Services (Pty) Ltd 1.1 holding ordinary shares in certificated form; or Ground Floor 1.2 recorded on sub-register electronic form in ‘own 70 Marshall Street name’. Johannesburg 2001 2. If you have already dematerialised your ordinary shares PO Box 61051 through a Central Securities Depository Participant (CSDP) Marshalltown or broker and wish to attend the annual general meeting, 2107 you must request your CSDP or broker to provide you with www.computershare.com a letter of representation or you must instruct your CSDP Tel: +27 11 370 5000 or broker to vote by proxy on your behalf in terms of the agreement entered into between yourself and your CSDP or broker. Over-the-Counter American Depositary Receipt (ADR) holders: Exxaro has an ADR facility with The Bank of New York 3. A member may insert the name of a proxy or the names (BoNY) under a deposit agreement. ADR holders may of two alternative proxies of the member’s choice in the instruct BoNY as to how the shares represented by their space. The person whose name stands first on the form ADRs should be voted. of proxy and who is present at the annual general meeting of shareholders will be entitled to act to the exclusion of American Depositary Receipt Facility (ADR) those whose names follow. Bank of New York 101 Barclay Street 4. On a show of hands a member of the company present in New York, NY 10286 person or by proxy shall have one (1) vote irrespective of www.adrbny.com the number of shares he/she holds or represents, provided shareowners@bankofny.com that a proxy shall, irrespective of the number of members Tel: +(00-1) 888 815 5133 he/she represents, have only one (1) vote. On a poll a member who is present in person or represented by proxy 7. The completion and lodging of this form of proxy will not shall be entitled to that proportion of the total votes in the preclude the relevant member from attending the annual company, which the aggregate amount of the nominal general meeting and speaking and voting in person thereat value of the shares held by him/her bears to the aggregate to the exclusion of any proxy appointed in terms hereof. amount of the nominal value of all the shares issued by the company. 8. Documentary evidence establishing the authority of a person signing this form of proxy in a representative 5. A member’s instructions to the proxy must be indicated by capacity or other legal capacity must be attached to this the insertion of the relevant numbers of votes exercisable form of proxy, unless previously recorded by the transfer by the member in the appropriate box provided. Failure secretaries or waived by the chairman of the annual to comply with the above will be deemed to authorise the general meeting. proxy to vote or to abstain from voting at the annual general meeting as he/she deems fit in respect of all the member’s 9. Any alteration or correction made to this form of proxy votes exercisable thereat. A member or the proxy is not must be initialled by the signatory/ies. obliged to use all the votes exercisable by the member or by the proxy, but the total of the votes cast and in respect 10. Notwithstanding the aforegoing, the chairman of the of which abstention is recorded may not exceed the total annual general meeting may waive any formalities that of the votes exercisable by the member or by the proxy. would otherwise be a prerequisite for a valid proxy. 6. Forms of proxy must be lodged at, or posted to 11. If any shares are jointly held, all joint members must sign Computershare Investor Services (Pty) Limited, to be this form of proxy. If more than one of those members is received not later than 48 hours before the time fixed for present at the annual general meet either in person or by the meeting (excluding Saturdays, Sundays and public proxy, the person whose name first appears in the register holidays). shall be entitled to vote. 236 I E x x a r o A n n u a l R e p o r t 2 0 0 8 ADMINISTRATION Secretary and registered office MS Viljoen Exxaro Resources Limited Roger Dyason Road Pretoria West Pretoria 0183 PO Box 9229, Pretoria 0001 South Africa Telephone +27 12 307 5000 Company registration number: 2000/011076/06 JSE share code: EXX ISIN code: ZAE000084992 Auditors Deloitte & Touche Private Bag X6 Gallo Manor 2052 Commercial bankers Absa Bank Limited SHAREHOLDERS’ DIARy FINANCIAL YEAR-END ANNUAL GENERAL MEETING REPORTS AND ACCOUNTS Announcement of annual results Annual Report Interim report for the half-year ending 30 June DISTRIBUTION Final dividend declaration Payment Interim dividend declaration Payment Corporate law advisers CLS Consulting Services (Pty) Limited United States ADR Depositary The Bank of New York 101 Barclay Street New York NY 10286 United States of America Sponsor Deutsche Securities (SA) (Pty) Limited 3 Exchange Square 87 Maude Street Sandton 2196 Registrars Computershare Investor Services (Pty) Limited Ground Floor, 70 Marshall Street Johannesburg, 2001 PO Box 61051 Marshalltown 2107 31 December April/May Published February March August February March August September The front section of this document is printed on Magno Matt paper. This paper only uses wood from sustainable forests, is manufactured from TCF (totally chlorine free) pulp and is acid free. The back section of this document is printed on Cartridge 120gsm. A minimum of 30% fibre used in making this paper comes from well-managed forests independently certified according to the rules of the Forest Stewardship Council. Carbon offset The carbon footprint arising from the paper production, printing and distribution of this annual report will be assessed and offset by installing one solar geyser at a charitable organisation by December 2009. We will disclose this information in our next report. BASTION GRAPHICS POWERING POSSIBILITY EXXARO CORPORATE CENTRE Pretoria, South Africa P: +27 12 307 5000 F: +27 12 307 4760 Roger Dyason Road, Pretoria West 0183, South Africa PO Box 9229, Pretoria 0001, South Africa www.exxaro.com E X X A R O A N N U A L R E P O R T 2 0 0 8 POWERING POSSIBILITY WHAT DRIVES EXXARO VISION Through our innovation and growth, we will be a powerful source of endless possibilities. MISSION We create unrivalled value for all stakeholders of our diversified resources business through our processes, thinking and passion. VALUES EMPOWERED TO gROW AND CONTRIBUTE TEAMWORK COMMITTED TO EXCELLENCE HONEST RESPONSIBILITy Developing and deploying our knowledge and ingenuity to achieve our vision. We focus on people, create freedom to innovate and collaborate, respect individuality, have fun and rise to challenges. We succeed together through a climate of respect and equality. We take ownership, provide visible leadership and encourage collaboration, commitment and creativity for the benefit of all. We speak the truth and accept accountability for our actions. ANNUAL REPORT 2008 COVER PICTURE: Safety: Plant operator Eric Mashaba is part of the team at North Block Complex mine which was Profitability: The performance turnaround named best-performing coal mine in South Africa by the of KZN Sands was assisted by mineral sands South African Colliery Managers’ Association in recognition of technology expertise acquired with the 26 years of fatality-free shifts (page 13). Namakwa Sands transaction. THE EXXARO gROUP With assets of R23 billion, Exxaro is one of the top 40 companies on the JSE Limited (JSE) by market capitalisation, and a constituent of the JSE’s Socially Responsible Investment index. Exxaro is a diverse mineral resources group – with a portfolio spanning coal, mineral sands, base metals and iron ore – and operates in South Africa, Australia and Namibia. Reflecting the benefits of this diverse portfolio, Exxaro has an unfolding pipeline of growth projects that is arguably among the best in its peer group. The group’s strong positioning in each of its chosen commodity markets, locally or internationally, record of innovation and focus on sustainable development underpin its promise to change the face of mining. ABOUT THIS REPORT Guided by consultation with stakeholders, Exxaro produces an integrated annual report detailing our economic, social and environmental performance. Following feedback on earlier reports, we have repositioned all content relating to sustainable development in a dedicated section. So, while sustainable development is inextricably woven through our operations and our reporting, interested readers will find all the information required in the governance and sustainability section. In addition, case studies that illustrate our approach are available on our website and indicated in this report by for ease of reference. To facilitate discussion with stakeholders on Exxaro’s corporate reporting, particularly this annual report, a blog will be run during April 2009. You are invited to participate on www.exxaro.com www.exxaro.com POWERING POSSIBILITY ADMINISTRATION Secretary and registered ofﬁ ce MS Viljoen Exxaro Resources Limited Roger Dyason Road Pretoria West Pretoria 0183 PO Box 9229, Pretoria 0001 South Africa Telephone +27 12 307 5000 Company registration number: 2000/011076/06 JSE share code: EXX ISIN code: ZAE000084992 Auditors Deloitte & Touche Private Bag X6 Gallo Manor 2052 Commercial bankers Absa Bank Limited SHAREHOLDERS’ DIARY FINANCIAL YEAR-END ANNUAL GENERAL MEETING REPORTS AND ACCOUNTS Announcement of annual results Annual Report Interim report for the half-year ending 30 June DISTRIBUTION Final dividend declaration Payment Interim dividend declaration Payment Corporate law advisers CLS Consulting Services (Pty) Limited United States ADR Depositary The Bank of New York 101 Barclay Street New York NY 10286 United States of America Sponsor Deutsche Securities (SA) (Pty) Limited 3 Exchange Square 87 Maude Street Sandton 2196 Registrars Computershare Investor Services (Pty) Limited Ground Floor, 70 Marshall Street Johannesburg, 2001 PO Box 61051 Marshalltown 2107 31 December April/May Published February March August February March August September The front section of this document is printed on Magno Matt paper. This paper only uses wood from sustainable forests, is manufactured from TCF (totally chlorine free) pulp and is acid free. The back section of this document is printed on Cartridge 120gsm. A minimum of 30% ﬁ bre used in making this paper comes from well-managed forests independently certiﬁ ed according to the rules of the Forest Stewardship Council. Carbon offset The carbon footprint arising from the paper production, printing and distribution of this annual report will be assessed and offset by installing one solar geyser at a charitable organisation by December 2009. We will disclose this information in our next report. BASTION GRAPHICS POWERING POSSIBILITY EXXARO CORPORATE CENTRE Pretoria, South Africa P: +27 12 307 5000 F: +27 12 307 4760 Roger Dyason Road, Pretoria West 0183, South Africa PO Box 9229, Pretoria 0001, South Africa www.exxaro.com E X X A R O A N N U A L R E P O R T 2 0 0 8 POWERING POSSIBILITY WHAT DRIVES EXXARO VISION Through our innovation and growth, we will be a powerful source of endless possibilities. MISSION We create unrivalled value for all stakeholders of our diversiﬁ ed resources business through our processes, thinking and passion. VALUES EMPOWERED TO GROW AND CONTRIBUTE TEAMWORK COMMITTED TO EXCELLENCE HONEST RESPONSIBILITY Developing and deploying our knowledge and ingenuity to achieve our vision. We focus on people, create freedom to innovate and collaborate, respect individuality, have fun and rise to challenges. We succeed together through a climate of respect and equality. We take ownership, provide visible leadership and encourage collaboration, commitment and creativity for the beneﬁ t of all. We speak the truth and accept accountability for our actions. ANNUAL REPORT 2008 COVER PICTURE: Safety: Plant operator Eric Mashaba is part of the team at North Block Complex mine which was Proﬁ tability: The performance turnaround named best-performing coal mine in South Africa by the of KZN Sands was assisted by mineral sands South African Colliery Managers’ Association in recognition of technology expertise acquired with the 26 years of fatality-free shifts (page 13). Namakwa Sands transaction. THE EXXARO GROUP With assets of R23 billion, Exxaro is one of the top 40 companies on the JSE Limited (JSE) by market capitalisation, and a constituent of the JSE’s Socially Responsible Investment index. Exxaro is a diverse mineral resources group – with a portfolio spanning coal, mineral sands, base metals and iron ore – and operates in South Africa, Australia and Namibia. Reﬂ ecting the beneﬁ ts of this diverse portfolio, Exxaro has an unfolding pipeline of growth projects that is arguably among the best in its peer group. The group’s strong positioning in each of its chosen commodity markets, locally or internationally, record of innovation and focus on sustainable development underpin its promise to change the face of mining. ABOUT THIS REPORT Guided by consultation with stakeholders, Exxaro produces an integrated annual report detailing our economic, social and environmental performance. Following feedback on earlier reports, we have repositioned all content relating to sustainable development in a dedicated section. So, while sustainable development is inextricably woven through our operations and our reporting, interested readers will ﬁ nd all the information required in the governance and sustainability section. In addition, case studies that illustrate our approach are available on our website and indicated in this report by for ease of reference. To facilitate discussion with stakeholders on Exxaro’s corporate reporting, particularly this annual report, a blog will be run during April 2009. You are invited to participate on www.exxaro.com www.exxaro.com

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