Exxaro Resources Ltd Annual Report 2009

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 February March August February March/April August September The cover of this document is printed on Trucard Recycled 330gsm. It contains 50% postconsumer de-inked pulp, is FSC certiﬁ ed and carries the NAPM recycled mark. The body 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 determined and offset. 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 – 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. > TEAMWORK – WE SUCCEED TOGETHER THROUGH A CLIMATE OF RESPECT AND EQUALITY. > COMMITTED TO EXCELLENCE – WE TAKE OWNERSHIP, PROVIDE VISIBLE LEADERSHIP AND ENCOURAGE COLLABORATION, COMMITMENT AND CREATIVITY FOR THE BENEFIT OF ALL. > HONEST RESPONSIBILITY – WE SPEAK THE TRUTH AND ACCEPT ACCOUNTABILITY FOR OUR ACTIONS. Annual report FOR THE YEAR ENDED 31 DECEMBER 2009 E X X A R O A N N U A L R E P O R T 2 0 0 9 THE EXXARO GROUP CONTENTS Group in brief Strategic focus areas Business objectives, highlights and group structure With assets of R23 billion, Exxaro is among the top 2 Key ratios 40 companies on the JSE Limited (JSE) by market capitalisation, and one of the 30 best-performing constituents of the JSE’s Socially Responsible Investment index. Exxaro is a diverse resources group with a portfolio spanning coal, mineral sands, base metals and iron 3 Geographical locations 4 Group at a glance (operations) 6 Group review at a glance (ﬁ nancials) 8 Summary of business operations 10 Chairman’s statement 14 Chief executive ofﬁ cer’s review 20 Financial review 32 Macro-economic and commodity review 38 Business operations review ore and operations in South Africa, Australia, Namibia 49 Growth and China. Exxaro has an unfolding pipeline of growth projects that is arguably among the best in its peer group. The group’s reviewed strategic focus, record of innovation and focus on sustainable development underpin its promise to contribute to the economic growth of South Africa. ABOUT THIS REPORT Guided by global best-practice standards and ongoing consultation with 51 Review of mineral resources and reserves 66 Executive committee 68 Directorate Governance and Sustainability 72 Corporate governance 78 Shareholder information 79 Shareholders’ analysis 81 Risk management 84 Sustainable development 86 Approach to safety and sustainable development 91 Safety and sustainable development performance 113 Economic performance 115 Social performance 125 Society 126 Legislative compliance/mining charter scorecard 131 Independent assurance statement to the directors and management of Exxaro Resources Limited stakeholders, Exxaro publishes an integrated annual report detailing the 133 GRI indicator index (cid:71)(cid:70)(cid:78)(cid:60)(cid:73)(cid:64)(cid:69)(cid:62)(cid:23)(cid:71)(cid:70)(cid:74)(cid:74)(cid:64)(cid:57)(cid:64)(cid:67)(cid:64)(cid:75)(cid:80) www.exxaro.com group’s economic, social and environmental performance. The full report is also available on www.exxaro.com and on CD, where pertinent case studies are included. Copies of this information are available on request (contact details are on the inside back cover). Supplementary ﬁ nancial information 137 Group cash value added statements 138 Selected group ﬁ nancial data translated into US dollars 139 Deﬁ nitions Financial statements 141 Annual ﬁ nancial statements Administration 259 Notice of annual general meeting 263 Biographies of directors up for re-election 275 Form of proxy BASTION GRAPHICS www.exxaro.com 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 February March August February March/April August September The cover of this document is printed on Trucard Recycled 330gsm. It contains 50% postconsumer de-inked pulp, is FSC certiﬁ ed and carries the NAPM recycled mark. The body 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 determined and offset. 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 – 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. > TEAMWORK – WE SUCCEED TOGETHER THROUGH A CLIMATE OF RESPECT AND EQUALITY. > COMMITTED TO EXCELLENCE – WE TAKE OWNERSHIP, PROVIDE VISIBLE LEADERSHIP AND ENCOURAGE COLLABORATION, COMMITMENT AND CREATIVITY FOR THE BENEFIT OF ALL. > HONEST RESPONSIBILITY – WE SPEAK THE TRUTH AND ACCEPT ACCOUNTABILITY FOR OUR ACTIONS. Annual report FOR THE YEAR ENDED 31 DECEMBER 2009 E X X A R O A N N U A L R E P O R T 2 0 0 9 THE EXXARO GROUP CONTENTS Group in brief Strategic focus areas Business objectives, highlights and group structure With assets of R23 billion, Exxaro is among the top 2 Key ratios 40 companies on the JSE Limited (JSE) by market capitalisation, and one of the 30 best-performing constituents of the JSE’s Socially Responsible Investment index. Exxaro is a diverse resources group with a portfolio spanning coal, mineral sands, base metals and iron 3 Geographical locations 4 Group at a glance (operations) 6 Group review at a glance (ﬁ nancials) 8 Summary of business operations 10 Chairman’s statement 14 Chief executive ofﬁ cer’s review 20 Financial review 32 Macro-economic and commodity review 38 Business operations review ore and operations in South Africa, Australia, Namibia 49 Growth and China. Exxaro has an unfolding pipeline of growth projects that is arguably among the best in its peer group. The group’s reviewed strategic focus, record of innovation and focus on sustainable development underpin its promise to contribute to the economic growth of South Africa. ABOUT THIS REPORT Guided by global best-practice standards and ongoing consultation with 51 Review of mineral resources and reserves 66 Executive committee 68 Directorate Governance and Sustainability 72 Corporate governance 78 Shareholder information 79 Shareholders’ analysis 81 Risk management 84 Sustainable development 86 Approach to safety and sustainable development 91 Safety and sustainable development performance 113 Economic performance 115 Social performance 125 Society 126 Legislative compliance/mining charter scorecard 131 Independent assurance statement to the directors and management of Exxaro Resources Limited stakeholders, Exxaro publishes an integrated annual report detailing the 133 GRI indicator index (cid:71)(cid:70)(cid:78)(cid:60)(cid:73)(cid:64)(cid:69)(cid:62)(cid:23)(cid:71)(cid:70)(cid:74)(cid:74)(cid:64)(cid:57)(cid:64)(cid:67)(cid:64)(cid:75)(cid:80) www.exxaro.com group’s economic, social and environmental performance. The full report is also available on www.exxaro.com and on CD, where pertinent case studies are included. Copies of this information are available on request (contact details are on the inside back cover). Supplementary ﬁ nancial information 137 Group cash value added statements 138 Selected group ﬁ nancial data translated into US dollars 139 Deﬁ nitions Financial statements 141 Annual ﬁ nancial statements Administration 259 Notice of annual general meeting 263 Biographies of directors up for re-election 275 Form of proxy BASTION GRAPHICS www.exxaro.com STRATEGIC FOCUS AREAS Exxaro has ﬁ ve strategic focus areas: Exxaro’s business strategy is guided by ﬁ ve areas where the group believes it must perform well to claim competitive advantage and provide an attractive investment case. We explain these focus areas below, together with our understanding of each and the relevant performance examples. The CEO’s review (page 14) provides more detail in relevant areas and our business objectives set out targeted ﬁ nancial and non-ﬁ nancial indicators. What this means to Exxaro > Low-cost producer > Achieve performance targets > Continuous review of performance > Skilled, competent and value-driven workforce > Well-established safety and sustainable development principles > Diversiﬁ ed by commodity, products and geography > Annual real growth in net operating proﬁ t Capacity to increase and expand growth > aspirations > Robust growth pipeline > Healthy ﬁ nancial status > Responsible, safe operations > Regulatory compliance > Access to good-quality resources > Protect intellectual property > Positive stakeholder relations > Representative and fair workplace > Say what we do and do what we say > > Develop, empower and retain skilled people Be a preferred supplier to local and overseas customers > Employees live the vision and values > Employee involvement > Provide opportunities for development Continuous improvement with related > recognition and reward Focus on the development of Exxaro’s high performance culture > 1 Achieve operational excellence 2 Improve Exxaro’s portfolio 3 Ensure Exxaro’s sustainability 4 Protect and build Exxaro’s reputation Examples of performance > R750 million cost savings > 45Mtpa total coal production > 50% increase in steam coal exports > Stable zinc performance despite challenges > KZN Sands furnaces exceed 200kt > Integrated and transparent reporting > Expansion through focused growth in mega carbon projects > Divest from the zinc commodity > Stop development of Fairbreeze mineral sands mine Investigate ways to increase iron ore footprint and renewable energy projects > > Debt/equity ratio of 29% > R1 billion capex savings > R31,4 million contributed to socio-economic development, corporate and other initiatives > Good corporate governance > 90% compliance on eight of nine mining charter transformation requirements > Reliable supplier to Eskom > Constituent of the JSE Socially Responsible Investment index Total dividend to Mpower employee beneﬁ ciaries – R39 million 5 Develop Exxaro’s leadership and people > > > > 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 Resources Target 2010 Target Actual 2009 2009 Actual 2008 Actual 2007 Actual 20061 FINANCIAL TARGETS1 > Return on equity (ROE) (%) > Return on capital employed (ROCE) (%) > EBITDA interest cover (times) NON-FINANCIAL TARGETS > Safety – fatalities – lost-time injury frequency rate (per 200 000 hours) > Safety, health and environmental certiﬁ cation (number) 2010 > Employment equity – management (%) – women (%) > HIV/Aids voluntary testing and counselling (%) (long-term target 95%) > Human resources development (% spend of payroll) > Mining learnerships > Procurement from HDSA companies (%) > Community development (% of NPAT2) > Energy efﬁ ciency and carbon emissions reduction – 2012 (%) > HDSA ownership (%) 2014 25 28 >4 0 8 15 7 3 30 36 14 5 15 23 10 5 0 0,17 0,21 0,33 0,39 0,36 17 40 12 47 1 (10) 26 17 40 12 50 6,0 700 45 1 (10) 26 13 48 13,8 58 5,0 691 45 1,8 9 42 13 64 5,2 678 39 9 36 12 30 6,5 408 35 52 56 56 6 0,42 10 35 11 41 5,1 341 37 1 Financial targets set against a peer group of companies while actual ratios are based on statutory ﬁ nancial results that have not been restated for comparative purposes. Key ratios are shown on page 2. No ﬁ nancial ratios are reported for 2006 as Exxaro was only created in November 2006. Financial targets for 2010 being ﬁ nalised 2 NPAT = Net proﬁ t after tax OUR GROUP STRUCTURE (as at 31 December 2009) 15% Industrial Development Corporation 55% 9,5% Eyesizwe▲ Eyabantu▲ 9,5% Tiso▲ Anglo American plc* 9,73% BEE Holdco 52,26% Exxaro MPOWER# 2,98% HIGHLIGHTS Financial and > operational resilience in a global recession that has affected demand and prices for commodities > > > Revenue of R15 billion Coal production and sales exceed 45Mt – a target set in November 2006 Achieved targeted savings of R750 million and reduced capital expenditure by over R1 billion > 200 cents per share dividend declared LOWLIGHTS Three fatalities > recorded in single incident > Net operating proﬁ t affected by R1,4 billion impairment at KZN Sands > Currency strength impacted on earnings 11% Basadi Ba Kopane▲ Minorities (free ﬂ oat) 35,03% 20% SISHEN IRON ORE COMPANY As at 31 December 2009 * 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. Best Company To Work For survey by Deloitte – Exxaro among top 10 in large-company category Corporate Research Foundation – Exxaro in 6th place in survey of our human resource processes Corporate Research Foundation – 7th in SA’s Leading Managers initiative 100% 100% 100% COAL SANDS BASE METALS & INDUSTRIAL MINERALS STRATEGIC FOCUS AREAS Exxaro has ﬁ ve strategic focus areas: Exxaro’s business strategy is guided by ﬁ ve areas where the group believes it must perform well to claim competitive advantage and provide an attractive investment case. We explain these focus areas below, together with our understanding of each and the relevant performance examples. The CEO’s review (page 14) provides more detail in relevant areas and our business objectives set out targeted ﬁ nancial and non-ﬁ nancial indicators. What this means to Exxaro > Low-cost producer > Achieve performance targets > Continuous review of performance > Skilled, competent and value-driven workforce > Well-established safety and sustainable development principles > Diversiﬁ ed by commodity, products and geography > Annual real growth in net operating proﬁ t Capacity to increase and expand growth > aspirations > Robust growth pipeline > Healthy ﬁ nancial status > Responsible, safe operations > Regulatory compliance > Access to good-quality resources > Protect intellectual property > Positive stakeholder relations > Representative and fair workplace > Say what we do and do what we say > > Develop, empower and retain skilled people Be a preferred supplier to local and overseas customers > Employees live the vision and values > Employee involvement > Provide opportunities for development Continuous improvement with related > recognition and reward Focus on the development of Exxaro’s high performance culture > 1 Achieve operational excellence 2 Improve Exxaro’s portfolio 3 Ensure Exxaro’s sustainability 4 Protect and build Exxaro’s reputation Examples of performance > R750 million cost savings > 45Mtpa total coal production > 50% increase in steam coal exports > Stable zinc performance despite challenges > KZN Sands furnaces exceed 200kt > Integrated and transparent reporting > Expansion through focused growth in mega carbon projects > Divest from the zinc commodity > Stop development of Fairbreeze mineral sands mine Investigate ways to increase iron ore footprint and renewable energy projects > > Debt/equity ratio of 29% > R1 billion capex savings > R31,4 million contributed to socio-economic development, corporate and other initiatives > Good corporate governance > 90% compliance on eight of nine mining charter transformation requirements > Reliable supplier to Eskom > Constituent of the JSE Socially Responsible Investment index Total dividend to Mpower employee beneﬁ ciaries – R39 million 5 Develop Exxaro’s leadership and people > > > > 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 Resources Target 2010 Target Actual 2009 2009 Actual 2008 Actual 2007 Actual 20061 FINANCIAL TARGETS1 > Return on equity (ROE) (%) > Return on capital employed (ROCE) (%) > EBITDA interest cover (times) NON-FINANCIAL TARGETS > Safety – fatalities – lost-time injury frequency rate (per 200 000 hours) > Safety, health and environmental certiﬁ cation (number) 2010 > Employment equity – management (%) – women (%) > HIV/Aids voluntary testing and counselling (%) (long-term target 95%) > Human resources development (% spend of payroll) > Mining learnerships > Procurement from HDSA companies (%) > Community development (% of NPAT2) > Energy efﬁ ciency and carbon emissions reduction – 2012 (%) > HDSA ownership (%) 2014 25 28 >4 0 8 15 7 3 30 36 14 5 15 23 10 5 0 0,17 0,21 0,33 0,39 0,36 17 40 12 47 1 (10) 26 17 40 12 50 6,0 700 45 1 (10) 26 13 48 13,8 58 5,0 691 45 1,8 9 42 13 64 5,2 678 39 9 36 12 30 6,5 408 35 52 56 56 6 0,42 10 35 11 41 5,1 341 37 1 Financial targets set against a peer group of companies while actual ratios are based on statutory ﬁ nancial results that have not been restated for comparative purposes. Key ratios are shown on page 2. No ﬁ nancial ratios are reported for 2006 as Exxaro was only created in November 2006. Financial targets for 2010 being ﬁ nalised 2 NPAT = Net proﬁ t after tax OUR GROUP STRUCTURE (as at 31 December 2009) 15% Industrial Development Corporation 55% 9,5% Eyesizwe▲ Eyabantu▲ 9,5% Tiso▲ Anglo American plc* 9,73% BEE Holdco 52,26% Exxaro MPOWER# 2,98% HIGHLIGHTS Financial and > operational resilience in a global recession that has affected demand and prices for commodities > > > Revenue of R15 billion Coal production and sales exceed 45Mt – a target set in November 2006 Achieved targeted savings of R750 million and reduced capital expenditure by over R1 billion > 200 cents per share dividend declared LOWLIGHTS Three fatalities > recorded in single incident > Net operating proﬁ t affected by R1,4 billion impairment at KZN Sands > Currency strength impacted on earnings 11% Basadi Ba Kopane▲ Minorities (free ﬂ oat) 35,03% 20% SISHEN IRON ORE COMPANY As at 31 December 2009 * 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. Best Company To Work For survey by Deloitte – Exxaro among top 10 in large-company category Corporate Research Foundation – Exxaro in 6th place in survey of our human resource processes Corporate Research Foundation – 7th in SA’s Leading Managers initiative 100% 100% 100% COAL SANDS BASE METALS & INDUSTRIAL MINERALS Group in brief Exxaro Annual Report 2009 I 1 KEY RATIOS RATIOS Proﬁ tability and asset management1 Return on net assets (%) Return on ordinary shareholders’ equity – Attributable earnings (%) – Headline earnings (%) Return on invested capital (%) Return on capital employed (%) Operating margin (%)2 Solvency and liquidity Net ﬁ nancing cost cover (times) – EBIT3 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 1 A number of key ratios in 2009 have been adversely affected by the R1 435 million impairment at the KZN Sands operation. 2 Margin is 12% if the KZN Sands impairment is excluded. 3 Ratio is four times if the KZN Sands impairment is excluded. WE CREATE VALUE FOR ALL STAKEHOLDERS At 31 December 2009 Unaudited Rm 2008 Unaudited Rm 17 8 19 12 15 2 1 7 2 29 1,3 6 36 30 32 28 36 18 10 14 2 18 0,7 1 (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:48) 18% 58% 9% 15% (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) 21% 62% 7% 10% ■(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: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: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: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) 2 I Exxaro Annual Report 2009 GEOGRAPHICAL LOCATIONS Amsterdam Zug CHINA 18 Beijing NAMIBIA 19 South Africa 10 1 24 2 3 23 24 South Africa 15 9 14 AUSTRALIA Perth 16 17 12 Brisbane MPUMALANGA 22 20 21 GAUTENG Middelburg 13 Witbank 7 11 5 8 6 4 Detailed maps on page 52, 64 and 65 Coal 1 Grootegeluk (GG) 2 GG expansion for Medupi power station 3 Char Plant phase 2 4 Leeuwpan 5 Arnot 6 Matla 7 North Block Complex 8 New Clydesdale 9 Tshikondeni 10 Mmamabula Central (Botswana gas project) 1 1 Inyanda 12 Moranbah South 13 Mafube* * Joint ventures and investments not operationally controlled. Mineral sands 14 KZN Sands 15 Namakwa Sands 16 Australia Sands 17 Kwinana expansion Base metals and industrial minerals 18 Chifeng Zinc Reﬁ nery* 19 Rosh Pinah 20 Zincor 21 Glen Douglas 22 FerroAlloys 23 Black Mountain* 24 Sishen Iron Ore Company* (Sishen and Thabazimbi mines) ■ Operations ● Growth projects ▲ Representative ofﬁ ces Exxaro Annual Report 2009 I 3 GROUP AT A GLANCE BUSINESSES Coal Mineral sands Base metals and industrial minerals INVESTMENTS Iron ore 2009 CONTRIBUTION TO GROUP REVENUE Eight managed coal mines produced 45,2Mtpa of power 65% R9 731 million station, steam and coking coal. All power station coal produced was supplied to the national power utility, Eskom, and municipal power stations. Grootegeluk is 23% one of the most efﬁ cient mining operations in the world, and operates the world’s largest coal beneﬁ ciation complex. There is a robust pipeline of greenﬁ eld and other expansion projects under way that will culminate in Exxaro becoming one of the largest coal producers in South Africa. Exxaro also produces char and related products for the rapidly growing ferroalloys industry. 65% Exxaro’s South African mineral sands operations include 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. Exxaro is one of the world’s largest suppliers of titanium dioxide feedstock and zircon. Collectively, the group’s mineral sands operations produced 245kt of slag, 185kt of zircon, 109kt of synthetic rutile and 53kt of pigment in 2009. 23% R3 508 million 23% 77% 11% R1 582 million* 11% 89% * Excludes revenue from industrial minerals and other businesses The Rosh Pinah zinc/lead mine in southern Namibia and Zincor electrolytic reﬁ nery in Gauteng are one of the few integrated zinc mining and reﬁ nery operations worldwide. Exxaro has an effective 22% interest in the Chifeng zinc reﬁ nery in China. In 2009, Rosh Pinah and Zincor produced 94kt of zinc concentrate and 87kt of zinc metal respectively. A dedicated plant in Pretoria manufactures high-quality, gas-atomised ferrosilicon while Glen Douglas 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 41,9Mtpa of lumpy and ﬁ ne iron ore in 2009. A total of 38,2Mtpa ore was sold of which 90% was exported. Sishen is one of the largest single open-pit mines in the world, known for its high grade and consistent product quality. 4 I Exxaro Annual Report 2009 OPERATIONS REGIONAL LOCATION OWNERSHIP 1 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 coal 2 Mpumalanga Division of Exxaro Coal (Pty) Limited Steam coal Mafube JV3 Mpumalanga Inyanda mine Mpumalanga Joint venture of Exxaro Coal Mpumalanga (Pty) Limited (50%) Division of Exxaro Coal (Pty) Limited Power station coal (Eskom) Steam coal Steam coal Exxaro reductants Limpopo Division of Exxaro Coal (Pty) Limited Arnot mine Mpumalanga Matla mine Mpumalanga New Clydesdale mine North Block Complex Mpumalanga 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 KZN Sands KwaZulu-Natal Subsidiaries of Exxaro Resources Limited and a division of Exxaro TSA Sands (Pty) Limited and Exxaro Sands (Pty) Limited Steam coal Char Power station coal (Eskom) Power station coal (Eskom) 11 260 Steam coal Power station coal (Eskom) Steam coal 795 2 545 572 Zircon Rutile Pig iron Chloride slag Sulphate slag Namakwa Sands Western Cape Division of Exxaro TSA Sands (Pty) Limited Zircon Rutile Pig iron Chloride slag Sulphate slag Australia Sands3 Australia Subsidiary of Exxaro Resources Limited which owns 50% in the Tiwest joint venture Zircon Rutile Synthetic rutile Leucoxene Pigment Zincor reﬁ nery Gauteng Division of Exxaro Base Metals (Pty) Limited Zinc metal Rosh Pinah mine Namibia Subsidiary of Exxaro Base Metals (Namibia) (Pty) Limited (50,04%) Chifeng reﬁ nery 3 China Associate (22,00%) Black Mountain 3 Mining (Pty) Limited Northern Cape Associate (26,00%) Glen Douglas mine Gauteng Subsidiary of Exxaro Resources Limited Sulphuric acid Zinc concentrate Lead concentrate Zinc metal Sulphuric acid Zinc concentrate Lead concentrate Metallurgical dolomite Aggregate Lime FerroAlloys Gauteng Subsidiary of Exxaro Resources Limited Atomised ferrosilicon Sishen mine Northern Cape Thabazimbi mine 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 SALES FOR 12 MONTHS TO 31 DECEMBER 20091 000 TONNES % EXPORT 44 7 19 100 93 96 100 67 100 100 100 100 100 67 100 100 100 100 100 100 100 100 100 100 87 84 15 275 1 241 1 842 1 306 1 291 259 1 140 700 375 1 776 11 31 5 213 21 14 52 68 25 95 23 86 76 19 30 14 50 15 54 93 122 96 19 29 94 14 18 376 767 68 5 4 885 2 753 85 286 1 100% ownership unless otherwise indicated. 2 Exxaro’s 50% share of the Mafube expansion project. 3 Sales tonnage reﬂ ects the group’s interest in the relevant subsidiary, joint venture or associate. Exxaro Annual Report 2009 I 5 GROUP REVIEW AT A GLANCE INCOME STATEMENTS Revenue Net operating proﬁ t1 Net ﬁ nancing cost Investment and post-tax equity income Tax Non-controlling interest Add back items for headline earnings Headline earnings Headline earnings per share (cents) Dividends per share (cents) Average realised exchange rate (R/US$) STATEMENTS OF CASH FLOWS Cash ﬂ ows from operating activities Cash ﬂ ows from investing activities Cash ﬂ ows from ﬁ nancing activities Net (decrease)/increase in cash and cash equivalents 1 Includes a R1 435 million impairment of the carrying value of the KZN Sands assets. 12 months ended 31 December 2009 Audited Rm 15 009 304 (415) 1 900 (766) C O P Y T O C O M E 1 491 2 514 729 200 8,39 (206) (1 414) 874 (746) 2008 Audited Rm 13 843 2 467 (241) 1 665 (510) 24 225 3 630 1 058 375 8,10 1 910 (3 756) 2 765 919 6 I Exxaro Annual Report 2009 STATEMENTS OF FINANCIAL POSITION Assets Non-current assets Property, plant and equipment Biological assets Intangible asset 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 Non-controlling 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)1 Earnings per ordinary share – Attributable earnings (cents) – Headline earnings (cents) Dividend per ordinary share (cents) Dividend cover (times) Net asset value per ordinary share (cents) At 31 December 2009 Audited Rm 2008 Audited Rm 11 869 41 87 1 966 629 1 217 1 023 6 311 86 23 229 12 908 1 12 909 4 347 1 853 75 995 407 2 594 49 23 229 3 731 11 309 34 79 1 849 1 083 1 577 1 769 5 407 78 23 185 12 996 128 13 124 3 650 1 746 31 1 257 500 2 827 50 23 185 2 381 At 31 December 2009 Audited Rm 2008 Audited Rm 357 345 297 729 200 1,48 3 616 355 343 993 1 058 375 2,65 3 697 1 Shares issued to MPower are classiﬁ ed as treasury shares and are excluded from the calculation of the weighted average number of shares. Exxaro Annual Report 2009 I 7 SUMMARY OF BUSINESS OPERATIONS 12 months ended 31 December 2009 2008 2007 2006 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 13 030 3 702 156 1 892 4 111 1 485 1 421 814 391 2 496 2 133 363 34 599 14 268 921 13 613 3 985 331 1 481 4 665 1 585 1 504 1 107 469 2 020 1 752 268 36 562 15 324 1 247 11 273 5 213 2 822 683 6 638 1 207 1 259 822 691 1 843 816 38 45 258 44 834 41 319 41 760 368 36 20 108 15 104 24 244 116 26 73 97 20 229 34 19 50 16 95 18 315 130 27 103 6 135 24 367 34 17 90 20 150 26 300 115 24 91 11 126 27 319 50 25 75 10 134 36 272 128 28 83 8 112 23 000 tonnes produced COAL Coking coal Grootegeluk Tshikondeni Power station coal (Eskom) Grootegeluk Leeuwpan Matla1 Arnot1 New Clydesdale1 North Block Complex1 Mafube Steam coal Grootegeluk Leeuwpan New Clydesdale1 North Block Complex1 Inyanda Mafube Char 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 Exxaro Annual Report 2009 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 Atomised ferrosilicon IRON ORE Sishen6 Thabazimbi6 Total iron ore production 12 months ended 31 December 2009 2008 2007 2006 207 33 16 109 14 53 94 14 87 142 29 20 18 371 762 72 5 174 29 13 113 16 43 94 15 87 129 23 20 17 422 788 63 6 216 36 17 100 16 54 95 15 101 147 23 22 15 543 749 54 6 227 36 18 98 14 54 104 18 90 142 16 21 18 661 672 59 6 7 878 511 8 389 6 808 532 7 340 5 946 535 6 481 5 738 484 6 222 1 Physical information includes Eyesizwe Coal mines for 12 months in 2006 even though only acquired effective 1 November 2006. 2 Physical information includes Namakwa Sands for 12 months from 1 January 2006 even though only acquired effective 1 October 2008. 3 Physical information reﬂ ects Exxaro Australia Sands’ 50% interest in the Tiwest joint venture. 4 Physical information reﬂ ects Exxaro’s 26% interest in Black Mountain Mining (Pty) Limited from 1 January 2006 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 Sishen Iron Ore Company. Exxaro Annual Report 2009 I 9 CHAIRMAN’S STATEMENT DEENADAYALEN KONAR ‘We recognise that to remain competitive and sustainable, it is vital that energy in its broadest context is dealt with as a strategic imperative. This spans every aspect from potential energy shortages and the rising costs of energy to climate change and its related environmental concerns.’ IN 2009, GOVERNMENTS AND COMPANIES AROUND THE WORLD FACED THE WORST ECONOMIC RECESSION SINCE THE SECOND WORLD WAR, WITH GDP GROWTH DROPPING SIX PERCENTAGE POINTS FROM 2007 TO NEGATIVE 1,9%. THE NET EFFECT WAS A LOSS OF CONFIDENCE, STRICTER CREDIT CRITERIA, DECLINING DEMAND, REDUCED SPENDING AND INVESTMENT, DECLINING PROPERTY PRICES AND SIGNIFICANT JOB LOSSES WORLDWIDE. 10 I Exxaro Annual Report 2009 Although experts initially thought the with 2009 possibly ranking among the ﬁ ve As a member of the Chamber of South African economy would weather hottest years. As global understanding Mines, Exxaro fully supports the work the storm better than most, GDP growth of climate change, its associated risks the chamber is undertaking, both in tumbled over ﬁ ve percentage points. The and opportunities continues to develop, preparing for the charter review process domestic situation was compounded by investors are increasingly demanding and to achieve the policy objectives steep increases in electricity tariffs and more advanced corporate disclosure on of government’s medium-term strategic a rand that strengthened against the US carbon performance. framework. dollar from 9,97 in the ﬁ rst quarter to 7,50 in the fourth. We recognise that to remain competitive The work that has been done by the and sustainable, it is vital that energy chamber to date conﬁ rms the intuitive The global economic downturn initially in its broadest context is dealt with as understanding that competitiveness, only had a minor impact on Exxaro and a strategic imperative. This spans every transformation and sustainability cannot cost-savings initiatives early in the year aspect from potential energy shortages be independent goals. An industry that is were sufﬁ cient to brace us for the difﬁ cult and the rising costs of energy to climate not competitive in the global marketplace times we anticipated. But a combination change and its related environmental – no matter how zealous the commitment of external factors since September had concerns. Our multi-faceted approach to – will lack the essential capacity to reach a signiﬁ cant impact on Exxaro’s cash ﬂ ow energy is detailed on page 102. transformation benchmarks. Nor will it be and we had to re-evaluate the group’s able to support the performance drivers strategy by reviewing all projects, In February 2010, Exxaro’s energy underpinning international principles of commodities and businesses. and carbon management programme sustainability. was formally approved and the group Against this background, Exxaro’s results recommitted to saving 10% on energy Exxaro has met most of the key targets for the year are commendable, with efﬁ ciency and carbon emissions by 2012. set for 2009 in the existing mining revenue rising 8% despite sharply lower This pledge was communicated to each charter (page 126). Targets in the codes demand and prices for its key business unit, and the savings target of good practice have been incorporated commodities. The group-wide initiative is being incorporated into the relevant into our overall approach to sustainability to reduce costs resulted in savings of senior management performance criteria. and the relevant business plans. R750 million, while the thorough business It will also be included in the annual review – detailed by our chief executive business planning process. Sustainable development ofﬁ cer – has positioned the group to Exxaro takes its role as a leading and better manage prevailing economic Mining charter review and concerned corporate citizen seriously conditions and resume its growth codes of good practice and is ﬁ rmly committed to advancing the trajectory when markets improve. The proﬁ le of mining in South Africa’s principles and practice of sustainable Focus on energy and climate particularly relevant in a year targeted industrial and commercial domain was development. change for a review of the mining charter. Given the medium-term growth momen- At the recent climate conference in The charter, a product of tripartite tum in our business, we continue to make Copenhagen, the UN weather agency collaboration implemented in 2004, is substantial investments. Also essential noted that this decade is on track to be the template by which mining industry to our future growth and sustainability the warmest since records began in 1850, transformation is measured. is our ability to address the social and Exxaro Annual Report 2009 I 11 CHAIRMAN’S STATEMENT CONTINUED EXXARO HAS A NUMBER OF INITIATIVES UNDER WAY TO DEVELOP SKILLS, RAISE LITERACY LEVELS AMONG OUR OWN PEOPLE AND THOSE FROM OUR COMMUNITIES AND BUILD A POOL OF EXPERTISE THAT WILL TAKE SOUTH AFRICA INTO THE FUTURE. environmental issues that affect the stakeholders a full understanding of A speciﬁ c survey into the skills shortage in health and prosperity of the communities our initiatives. in which we operate. One of Exxaro’s core values is honest global best practices. We have used responsibility. By extension, this the guidelines of the Global Reporting Exxaro has long measured itself against Initiative (GRI) since 2004 and, in 2008, declared our sustainability report as a B+ level of application, in terms of GRI standards. This was externally veriﬁ ed, as it is again in 2009 (page 131). the mining industry estimated the shortfall at 50 000, particularly well-qualiﬁ ed, competent and experienced artisans. The industry trained about 1 800 artisans last year, over one third of these in Exxaro initiatives. At present, mining is the only industry exceeding its artisan training target, but given the low pass rate, more than twice as many artisans need to be trained each year to close the 50 000 shortfall Among other international protocols noted above. to which Exxaro subscribes, we are a signatory to the United Nations Global In addition, the Mining Qualiﬁ cations Compact which binds member companies Authority reports that nearly two thirds and countries to a common universal code of conduct (page 89). Skills development The economic climate of 2009 masked the impact of skills shortages in South Africa, given lower activity levels across the board. However, recent reports have of the local mining workforce are still illiterate, despite adult basic education and training (ABET) programmes being introduced 20 years ago. Exxaro has a number of initiatives under way to develop skills, raise literacy levels among our own people and those from our communities and build a pool responsibility covers our role as a corporate citizen, custodian of our environmental resources and the ethical code that guides our business practices. At every level, and in every business, Exxaro’s people are accountable for their actions. We are working towards entrenching the Exxaro brand as one that includes a strong sustainable development element. Admittedly, this is an ambitious target, given its multi-faceted dimensions, but we have made signiﬁ cant progress. We believe that sustainable development gives us our licence to operate and our commitment is therefore both a business and social imperative. While the concept of sustainability is estimated that the national artisan of expertise that will take South Africa interwoven throughout our business shortage might require public and into the future. In 2009, Exxaro had operations, we present a separate private-sector funding of R9 billion to 361 artisans and learners completing section in this report to give interested address. various courses (page 117). 12 I Exxaro Annual Report 2009 Corporate governance 2009. Ms Noluthando Langeni was Much has been achieved in the three In 2010, the recommendations of the third appointed to the board in her stead with years since Exxaro was formed and the King report on corporate governance in effect from 23 February 2010. board is conﬁ dent that much more will South Africa (King III) becomes effective. be achieved in years to come. We will King III requires very little change to the I thank these directors for their continue to beneﬁ t from the strength of way Exxaro conducts its business and contribution to the board. our operational capacity and investment those areas where we do not comply will for growth. be addressed. Having served as acting chairman since 2006, and as an independent non- I look forward to being part of Exxaro’s Good governance is the foundation of executive director for a number of years, ongoing success, conﬁ dent that we an ethical approach to business. The board continued its focus on promoting the high standards of conduct we expect I was elected as chairman of the board will continue creating value for all with effect from 23 February 2010. stakeholders. of our employees around the group, Dividend recognising that actions speak louder than words. One of the principal areas of non- compliance with King II was addressed shortly after year end when I was appointed independent non-executive chairman of the Exxaro group. Also in the current year, the Companies Act No 71 of 2008 is expected to come into effect. Although this was signed into law on 8 April 2009, the effective date is now expected to be October 2010. Again, Exxaro will address the few areas The board of directors declared a ﬁ nal cash dividend of 100 cents per share, taking the total dividend for 2009 to 200 cents per share. Dr Len Konar Chairman Appreciation Exxaro is home to some of the most 16 March 2010 formidable mining teams in the South African industry. Under the capable leadership of Sipho Nkosi and his executive management, the group has proved its mettle in a most challenging year. On behalf of the board, I thank every one of the people in this group required to comply with the new act. for the passion and energy they bring Directorate to Exxaro’s continued growth and development. I also thank my fellow Mr Philip Baum resigned on 15 July 2009 directors for their ongoing support and and Mr Chris Grifﬁ th was appointed in counsel, and invaluable contribution his stead. Ms Simangele Mngomezulu in upholding the highest standards of resigned with effect from 21 December corporate governance. Exxaro Annual Report 2009 I 13 CHIEF EXECUTIVE OFFICER’S REVIEW SIPHO NKOSI ‘Currently our strategic intent is to achieve operational excellence as a diversiﬁ ed, and low-cost, resources business which includes streamlining management and cost structures, maximising cash ﬂ ow and ensuring availability of sustaining and environmental and environmental capital. capital.’ THE 12 MONTHS TO 31 DECEMBER 2009 – ONLY EXXARO’S THIRD YEAR AS A LISTED, EMPOWERED RESOURCES GROUP – WILL LONG BE REMEMBERED FOR THE SHEER SCALE OF THE GLOBAL ECONOMIC MELTDOWN. FOR EXXARO, THE FIRST SIX MONTHS REFLECTED THE EFFORT PUT INTO MANAGING THIS DOWNTURN AND ITS KNOCK-ON EFFECT ON COMMODITY PRICES AND SUPPLY/DEMAND BALANCES, WITH COMMENDABLE INCREASES IN REVENUE, NET OPERATING PROFIT AND HEADLINE EARNINGS PER SHARE. 14 I Exxaro Annual Report 2009 In the second six months, some excellent greenﬁ elds development to supply KZN Sands operations during the operating performances were offset by independent power producers, the next ﬁ ve years while, in parallel, external factors, principally the stronger Mafutha coal-to-liquid joint venture investigating feedstock alternatives rand exchange rate and a sizeable with Sasol, as well as the Moranbah and the continuation of the business increase in electricity tariffs. South joint venture with Anglo Coal in should market conditions improve Strategy > We will strive to increase our coal > In the light of the southern African Australia. substantially. As depicted on the inside front cover, our export allocation and volumes to strategic focus areas are to: the metal markets, and develop > Achieve operational excellence downstream products such as > Improve Exxaro’s portfolio char and market coke in line with > Ensure Exxaro’s sustainability the government’s drive to add > Protect and build Exxaro’s reputation value to natural resources through > Develop Exxaro’s people and beneﬁ ciation. leadership. > We believe the fundamentals of iron ore are positive in the longer term, Currently our strategic intent is to achieve we have expertise and experience operational excellence as a diversiﬁ ed, in mining bulk ore commodities, and and low-cost, resources business which therefore we are considering ways includes streamlining management and to increase our footprint in this cost structures, maximising cash ﬂ ow commodity. and ensuring availability of sustaining > A review of the existing business and environmental capital. portfolio and growth pipeline has led to: energy shortages, we have various energy efﬁ ciency initiatives under way (page 102). Also, while we have a major focus on supplying the coal- ﬁ red power generation industry, as a responsible business we are evaluating and developing a growth pipeline of environmentally-friendly renewable energy projects in the wind, solar and co-generation arenas. Opportunities to supply independent power producers are also being examined. A funding strategy that includes potential partners is being developed to service the energy growth pipeline. A prioritised commodity strategy is – A programme to reconﬁ gure the geared to improve Exxaro’s portfolio. group’s zinc assets and ultimately This is in response to the current divest from these to enable economic climate and the need to align maximum value release for all existing resources and cost structures stakeholders. The zinc assets to best position the business to release account for some 2% of the group’s optimal value for all stakeholders. net assets and 10% of revenue. The Accordingly, the following developments current portfolio of zinc assets is We believe these measures provide a balance between our commodity and project portfolios and our longer-term growth aspirations. Our ongoing review of the business with particular emphasis on cost and balance sheet structures will ensure we remain optimally positioned to are taking place: shown on page 4. We will not make meet all stakeholder expectations. > An intensiﬁ ed focus has been placed further investments in the zinc on our carbon-related project pipeline. commodity. While our growth projects are detailed This encompasses the development – A decision not to proceed with later, it is pertinent for me to comment of mega mines in the Waterberg such the planned development of the on these here. Exxaro plans to spend as the Grootegeluk mine brownﬁ elds Fairbreeze mineral sands mine about R28 billion between now and expansion to supply Eskom’s new in KwaZulu-Natal. Exxaro will 2018 on developments in the resource- Medupi power station, the Thabametsi accordingly plan for closure of the rich Waterberg coal basin in Limpopo Exxaro Annual Report 2009 I 15 CHIEF EXECUTIVE OFFICER’S REVIEW CONTINUED “EXXARO PLANS TO SPEND ABOUT R28 BILLION BETWEEN NOW AND 2018 ON DEVELOPMENTS IN THE RESOURCE-RICH WATERBERG COAL BASIN IN LIMPOPO ALONE, AS WE AIM TO BECOME THE LARGEST COAL PRODUCER IN SOUTH AFRICA (CURRENTLY FOURTH) IN THE NEXT FEW YEARS.” 16 I Exxaro Annual Report 2009 alone, as we aim to become the largest 2009 resulted in the deaths of three > The R9,5 billion expansion of coal producer in South Africa (currently contractors and injuries to 12 others. Our Grootegeluk mine to supply Eskom’s fourth) in the next few years. We have a deepest condolences go to the families, new Medupi power station, currently unique advantage because Exxaro is the friends and colleagues involved. only company with a coal mine in the ﬁ eld – the massive and efﬁ cient Grootegeluk Incidents like these regrettably remind open-pit mine. Additionally, our deposits us that we still have much to achieve are in a shallow area and therefore more to reach our safety target of zero harm. The overall safety performance for the year was better than 2008, while the average lost-time injury frequency rate (LTIFR) per 200 000 man-hours worked stream. cost effective to mine. The Waterberg is the undisputed future of the coal industry and thus South Africa’s power supply, and central to our growth strategy. Exxaro’s planned projects in the Waterberg between now and 2018 are detailed in the Growth report on page 49. The commodity portfolio review announced in December 2009 noted our intention to explore opportunities in the energy markets. Clean energy initiatives encompassing co-generation, carbon credit trading, and renewable energy (wind and solar projects) are also progressing well. Safety The ﬁ rst two CEO Safety Summits took place, in February and October, and will become bi-annual events to keep employees focused on safety always, all the way (page 91). improved by 15% to 0,33, compared to the target of 0,21 and 2008’s actual performance of 0,39. The year in review During 2009, Exxaro achieved many of its goals, honing its strategy for the journey ahead, and putting systems in place to guide operations into the future. New sites began producing, employees were recognised for their innovation and commitment to the group, and each of the operations contributed signiﬁ cantly to the communities in which they are based. During the year, we also concentrated on employees’ total wellbeing. Apart from the focus on heart health – South Africa’s biggest cause of illness and death – we trained over 200 HIV/Aids peer educators and rolled out a new HIV/Aids initiative, under construction. An estimated 2 000 contractor jobs are being created during the mine’s expansion phase, with a further 7 000 jobs involved in constructing the power station. A signiﬁ cant number of permanent jobs will be created once the mine and power station come on > Several operations achieved new safety records, including Namakwa Sands, Grootegeluk, Rosh Pinah, Arnot, Zincor, and North Block Complex. Arnot, New Clydesdale, Matla and Namakwa Sands launched safety awareness initiatives. > Thirteen business units are now ISO 14001 and OHSAS 18001 certiﬁ ed. The remaining four business units have programmes in place to be certiﬁ ed by the end of 2010. Notably, our AlloyStream pilot plant received the highest score of all companies in 27 countries participating in the ISO 14001 audit in 2009. > A group-wide cost-reduction initiative produced operational cost savings of R750 million. > FerroAlloys has developed ultra-high dense medium separation technology that increases the density at which beneﬁ ciation plants can operate (processing iron ore is challenging as conventional beneﬁ ciation plants can only treat high-grade ore and large quantities of iron ore are therefore The safety of our employees has never the ACT programme (page 95). been more of a priority than it was in 2009, with the group rallying stakeholders to Highlights focus on ways of achieving a zero-harm > Several new projects ramped up, environment. including the Diepspruit shaft at rejected). If plants can process lower New Clydesdale, and the char plant density ore, it will allow iron ore mines Tragically, an explosion in the maintenance at Grootegeluk (page 40). Expansion to exploit low-grade ore bodies such contractors’ storage area near the of the Tiwest Kwinana plant is also as waste dumps. The technology is Zincor reﬁ nery plant in September under way. currently being tested in a pilot plant. Exxaro Annual Report 2009 I 17 CHIEF EXECUTIVE OFFICER’S REVIEW CONTINUED > Hot commissioning of the char plant at > In the third quarter, Exxaro received draw on the group’s collective innovation Grootegeluk began in June 2009 with notice that Eskom was reviewing and expertise in dealing with the issues full production by December 2009 – certain commercial terms contained we face. Our people have an excellent part of our long-term strategy to grow in the Medupi coal supply and offtake and long-standing track record of rising with the ferrochrome industry. agreement signed in September 2008, above tough circumstances to make this > Exxaro’s Evergreen awards are the including the coal price escalation an even greater organisation. platform for our people to make a difference. Apart from recognising ongoing personal development, we encourage innovation in production methods, creativity in safety systems and structures, and the study of the environment. This outstanding performance from employees who have remained loyal and passionate about Exxaro and what we do, even in the current difﬁ cult times, underscores the progress we have made since our inception just three years ago. A new category has been added to the Evergreen awards to recognise achievements in addressing the challenges of energy and climate change. > Exxaro launched its ﬁ rst housing subsidy that assists employees at certain levels to buy their ﬁ rst home. > Exxaro again participated in the Deloitte Best company to work for survey to benchmark the group to the standards of an employer of choice. Deloitte congratulated our group for the signiﬁ cant shift in year-on- year results, with employees noting the improvement in management style, values and culture, HR policies and procedures, job satisfaction, innovation, and change management. Lowlights The review period presented other mechanism and coal delivery ramp- up. Pending the outcome of the review My sincerest thanks to Dr Len Konar for process, Exxaro’s funding programme his guidance and wise counsel as acting was temporarily suspended in chairman. We look forward to his ongoing December 2009 as was the placement contribution as chairman. of additional contracts associated with the project. The review process is Prospects expected to be concluded in the ﬁ rst The rate of recovery from the global quarter of 2010. recession remains uncertain, despite a > Following the commodity portfolio number of positive indicators. review discussed earlier, Exxaro withdrew from the Igoda coal export Exxaro expects global demand for venture with Sasol Mining and coal to increase, with demand for local divested from the iron ore project in power station coal expected to remain Turkey as it did not meet the group’s strong. Domestic demand for steam and investment criteria. metallurgical coal is, however, expected to Operational overview be ﬁ rmer but remain subdued in 2010. Coal exports may be affected by the availability All operations delivered commendable of rail and port allocation at RBCT. production results combined with cost savings and optimisation initiatives. For the mineral sands commodities, Full details of operational activities higher production and sales volumes are provided on pages 38 to 48 in the are anticipated at prices which, although business operations review. still under pressure, are showing signs of Conversion of mining rights recovery. We continue to engage with relevant The base metals business is expected to stakeholders to process registration remain under pressure in 2010 as a global of new-order mining rights granted, as zinc oversupply may result in downward well as the converted old-order mining pressure on zinc prices in the second half rights of the former Kumba Resources of 2010, while local demand is expected Limited. Approval of the conversion of to remain stable. the old-order mining rights of the former Eyesizwe Coal (Pty) Limited submitted in Based on current market expectations operational and strategic challenges, 2008 is awaited. including: > In September, three contractors Appreciation for iron ore price increases effective from 1 April 2010, coupled with strong demand, the equity accounted contribution from died in a gas explosion at Zincor Exxaro is fortunate to have such SIOC may have a positive impact on (page 93). exceptional people at every level who Exxaro’s earnings. 18 I Exxaro Annual Report 2009 The introduction of royalty payments from 1 March 2010 will have a negative impact on the group’s operating results, most notably for the coal business. Overall, the group’s consolidated results for 2010 will largely be driven by the recovery in demand and prices for its commodities, as well as by trading levels of the local and Australian currencies. The group will continue with its strong focus on capital prioritisation and working capital management, together with rigorous cost control. Exxaro has what it takes to continue and grow as a key South African-based resources group. By continuing to choose our operations carefully, and managing these efﬁ ciently, we believe the future holds abundant possibilities for Exxaro’s shareholders, employees and other stakeholders. Sipho Nkosi Chief executive ofﬁ cer 16 March 2010 Exxaro Annual Report 2009 I 19 FINANCIAL REVIEW WIM DE KLERK OVERVIEW 8% increase in revenue to R15 billion Proﬁ t affected by R1 435 million impairment at KZN Sands Currency strength impacted negatively on earnings Headline earnings of 729 cents per share Final dividend of 100 cents per share; total dividend of 200 cents per share Targeted savings realised through optimisation initiatives and prioritising capital expenditure CALENDAR 2009 PROVED EXXARO’S RESILIENCE IN DIFFICULT GLOBAL ECONOMIC CONDITIONS; SOLID RESULTS WERE REPORTED DESPITE LOWER DEMAND AND SOFTER PRICES FOR A NUMBER OF OUR PRODUCTS AMID A STRENGTHENING LOCAL CURRENCY. THE GROUP’S BALANCE SHEET REMAINS HEALTHY, INTERIM AND FINAL DIVIDENDS WERE DECLARED AND NET DEBT LEVELS REMAIN RELATIVELY LOW AS A FOUNDATION TO SECURE FUNDING FOR A SIGNIFICANT PART OF THE EXCITING GROWTH PIPELINE, MOST NOTABLY IN THE COAL BUSINESS. 20 I Exxaro Annual Report 2009 Introduction The group’s audited ﬁ nancial results for the 12-month period ended 31 December 2009 include a proportionately consolidated 50% interest in Mafube Coal Mining (Pty) Limited (Mafube) from 1 June 2009 as well as a R1 435 million impairment (the impairment) of the carrying value of the assets of KZN Sands after the decision not to proceed with the development of Fairbreeze mine. The results are therefore not comparable with the corresponding period in 2008 which only includes the acquisition of Namakwa Sands and a 26% interest in Black Mountain Mining (Pty) Limited (Black Mountain) with effect from 1 October and 1 November 2008 respectively. Fully comparable supplementary results have not been disclosed, however, analysis and comments in this report have been done by excluding the impairment due to the signiﬁ cant distortion it creates on inclusion. Overview of group operating results Table 1 R million Revenue Operating expenses Net operating proﬁ t before impairment Net operating proﬁ t margin (%) 12 months ended 31 December 2009 15 009 13 270 1 739 12 2008 13 843 11 376 2 467 18 Group revenue increased by 8% to R15 billion, with net operating proﬁ t reducing by R728 million to R1 739 million before the impairment. Export sales were recorded at weaker average exchange rates than in 2008. However, realised currency losses were incurred as foreign currency proceeds on export sales were repatriated at stronger exchange rate levels. Unrealised foreign currency losses were also incurred on revaluing monetary items in foreign currency at 31 December 2009. The coal business reported lower net operating proﬁ t as an increase in revenue, mainly due to higher export and local power station sales volumes, was more than offset by lower international coal prices and above-inﬂ ation increases in the cost of electricity, rail tariffs and labour costs, as well as realised and unrealised foreign currency losses. All three units in the mineral sands business reported operating losses on the back of lower demand for their products at generally softer prices. The two local operations, KZN Sands and Namakwa Sands, were also impacted by realised and unrealised foreign currency losses while the Australia Sands operation was affected by the Australian dollar (AUD) persisting at strong levels against the US dollar (USD). Lower realised zinc prices and lower demand for products resulted in the base metals business recording a small net operating loss. Exxaro Annual Report 2009 I 21 FINANCIAL REVIEW CONTINUED Segmental results Segmental results are shown in tables 2 and 3 Table 2 R million Revenue Coal Tied operations1 Commercial operations Mineral sands KZN Sands Namakwa Sands2 Australia Sands Base metals Rosh Pinah Zincor Inter-segmental Other Total Table 3 Net operating proﬁ t excluding the impairment (Rm)/margin (%) Coal Tied operations1 Commercial operations Mineral sands KZN Sands Namakwa Sands2 Australia Sands Base metals Rosh Pinah Zincor Other Other Total net operating proﬁ t Non-cash costs Earnings before interest, tax, depreciation, amortisation and impairment (EBITDA) 12 months ended 31 December 2009 2008 9 731 2 681 7 050 3 508 705 1 334 1 469 1 582 566 1 413 (397) 188 9 040 2 492 6 548 2 776 974 491 1 311 1 829 436 1 733 (340) 198 15 009 13 843 12 months ended 31 December 2009 1 905 75 1 830 (124) (12) (110) (2) (8) 105 (47) (66) (34) 1 739 1 224 2 963 % 20 3 26 19 12 20 2008 2 654 83 2 571 104 31 155 (82) (172) (14) (95) (63) (119) 2 467 976 3 443 % 29 3 39 4 3 32 18 25 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 Revenue and net operating proﬁ t included from the effective date of acquisition of 1 October 2008. 22 I Exxaro Annual Report 2009 Coal Revenue increased by 8% to R9 731 million as higher export volumes, combined with increased domestic power station coal sales at higher prices, were partially offset by lower domestic metallurgical and steam coal sales and lower export prices realised. Despite higher revenue, net operating proﬁ t decreased by 28% to R1 905 million, at an operating margin of 20%, as above-inﬂ ation increases in electricity, rail tariffs and labour increased the cost of sales. Costs were further impacted by realised and unrealised exchange rate losses and an increase in exploration expenditure for the Moranbah South project in Australia. The net operating proﬁ t from the tied operations was slightly down year-on-year as the environmental rehabilitation provision was reduced after extending the life-of-mine at Matla mine. Mineral sands KZN Sands Despite the increased production, revenue reduced by R269 million to R705 million as lower sales volumes of zircon, pig iron and chloride slag were recorded at softer prices. The net operating loss of R12 million before the impairment was R43 million worse than the corresponding period as lower revenue combined with realised and unrealised foreign currency losses were only partially offset by improvements in production efﬁ ciencies and cost savings. Namakwa Sands Net operating proﬁ t for only three months in 2008 of R155 million was followed by a loss in the 2009 ﬁ nancial year of R110 million. Softer prices, albeit at a marginally weaker local currency, realised and unrealised exchange rate losses, and the R55 million derecognition of the preheaters due to their deteriorated condition, all added to the weaker ﬁ nancial results. Australia Sands Revenue increased 12% to R1 469 million while net operating results improved from a loss of R82 million in 2008 to a loss of R2 million in 2009. This was achieved on the back of a much stronger production performance, higher pigment sales and higher average prices for both mineral and pigment products at a realised rate of USD0,79 to the AUD compared with USD0,84 in 2008. Base metals Revenue for the 12 months to 31 December 2009 decreased by 14% mainly as a result of the lower average realised US dollar zinc price. The average zinc price for 2009 of USD1 658 is 12% lower than in 2008 and was only partially offset by the slightly weaker local currency. A turnaround from a net operating loss in 2008 of R172 million to a loss of R8 million was reported due to cost-saving initiatives implemented as well as the upward revaluation of inventories at the Zincor reﬁ nery at year end. The impact of above-inﬂ ation increases in electricity and maintenance expenses is, however, still being felt. Other Production volumes at the FerroAlloys plant were slightly higher while Glen Douglas production volumes were lower due to unplanned plant stoppages. Sales volumes were lower at both Glen Douglas and FerroAlloys. Revenue for 2009 decreased marginally compared to the previous year due to lower demand and selling prices. Exxaro Annual Report 2009 I 23 FINANCIAL REVIEW CONTINUED Consolidated The following graph reconciles net operating proﬁ t for 2008 to the R1 739 million reported for 2009: Net operating profit: FY08 vs FY09 (unaudited) 4 000 3 500 3 000 2 500 m R 2 000 1 500 1 000 500 0 2 467 (367) 228 (498) (182) 355 (264) 1 739 FY 2008 Price Volume Exchange Inflation Cost Namakwa *Excluding impairment of R1 435 million at KZN Sands FY 2009 1 905 (124) (8) (34) (264) (264) 1 739 12 months ended 31 December 2009 1 739 2 (415) 1 898 (766) 2 458 345 712 2008 2 467 2 (241) 1 663 (510) 24 3 405 343 993 Coal 2 654 (464) Mineral Sands Base Metals Other Total 104 (172) (119) 61 36 2 467 (367) 369 (183) 46 (4) 228 (260) (132) (77) (29) (41) (72) (54) (15) (498) (182) (353) 362 213 133 355 Attributable earnings Table 4 R million Net operating proﬁ t excluding the impairment Income from investments Net ﬁ nancing cost Equity-accounted income – net of tax Taxation Minority interest Attributable earnings excluding the impairment Weighted average number of shares Attributable earnings (cents per share) 24 I Exxaro Annual Report 2009 Attributable earnings for the period, excluding the impairment, were R2 458 million (712 cents per share). This is signiﬁ cantly lower than the comparable 2008 attributable earnings of R3 405 million (993 cents per share) primarily due to lower operating results. Attributable earnings include Exxaro’s 20% share of the after-tax proﬁ ts of Sishen Iron Ore Company (Pty) Limited (SIOC) amounting to R1 762 million, a contribution of R13 million from the effective 22% interest in the Chifeng zinc reﬁ nery and an equity-accounted proﬁ t of R123 million from the 26% interest in Black Mountain. The impairment of the carrying value of the assets at KZN Sands resulted in Exxaro recording a number of deferred tax asset write- downs to reﬂ ect the group’s assessment of the likelihood of having sufﬁ cient future taxable income. In order to eliminate the distortion caused by posting the required deferred tax write downs, attributable earnings should, for information purposes only, be determined using a normalised effective tax rate of 28% as shown below. R million Net operating proﬁ t excluding the impairment Income from investments Net ﬁ nance cost Equity-accounted income – net of tax Taxation Minority interest Attributable earnings for information purposes Weighted average number of shares Attributable earnings (cents per share) for information purposes Net ﬁ nancing costs An analysis of the composition of the net ﬁ nancing cost was: R million Interest expense and loan costs Finance lease Interest income Interest adjustment on non-current provisions Total 12 months ended 31 December 2009 1 739 2 (415) 1 898 (371) 2 853 345 827 2008 2 467 2 (241) 1 663 (510) 24 3 405 343 993 12 months ended 31 December 2009 460 66 (145) 381 34 415 2008 283 63 (153) 193 48 241 The higher interest expense is due to higher debt levels after the acquisition of Namakwa Sands and a 26% interest in Black Mountain in the last quarter of 2008 as well as payment for the 50% joint venture interest in Mafube in July 2009. The interest adjustment on non-current provisions refers to unwinding of the discount rate for environmental rehabilitation provisions accounted for at net present value. Exxaro Annual Report 2009 I 25 FINANCIAL REVIEW CONTINUED Income from equity-accounted investments — post tax Table 5 R million SIOC Chifeng Black Mountain Total 12 months ended 31 December 2009 1 762 13 123 1 898 2008 1 856 (4) (189) 1 663 The results of SIOC are fully reported by Kumba Iron Ore Limited in its ﬁ nancial results to 31 December 2009. Production at the Chifeng reﬁ nery was in line with 2008. Equity-accounted income from this operation improved by R17 million to R13 million mainly due to reduced production costs as well as lower rates of environmental duties paid. Exxaro’s 26% share in Black Mountain, acquired in the last quarter of 2008, contributed R123 million to equity income due mainly to increased sales volumes. Taxation Due to the required deferred taxation asset write-downs subsequent to the impairment, the effective tax rate as disclosed is not meaningful. A reconciliation of the tax rate reﬂ ects the following: Percentage (%) > Effective tax rate including the impairment > Tax effect of: – Share of associates and joint ventures – Derecognition of deferred tax assets – Exempt income and special tax allowances – Assessed losses not provided for – Capital losses – Disallowable expenditure – Other > Corporate tax rate 42,8 29,6 (46,0) 4,3 (1,5) (1,3) (1,3) 1,4 28,0 Headline earnings Headline earnings, which exclude the impact of the impairment of the carrying value of assets in KZN Sands, were R2 514 million (729 cents per share), which is 31% lower than the R3 630 million (1 058 cents per share) in 2008. 26 I Exxaro Annual Report 2009 Headline earnings Table 6 R million Attributable earnings excluding the impairment Net impairment of property, plant and equipment (PPE) Share of associates’ impairments and adjustments Gains or losses on disposal of PPE and subsidiaries Taxation effect of adjustments Headline earnings Headline earnings per share 12 months ended 31 December 2009 2 458 (8) 88 (24) 2 514 729 2008 3 405 20 167 59 (21) 3 630 1 058 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 may, however, be lower to adequately provide for funding the current growth pipeline of projects, comply with contractually agreed loan covenants, and maintain healthy key ﬁ nancial metrics. While Exxaro was affected by the global recession, the group continued with both its interim and ﬁ nal dividend declarations in 2009. Due cognisance was however taken of the uncertainty of the global economic recovery, Exxaro’s capital risk proﬁ le as well as a prudent focus on cash ﬂ ow preservation. 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 30 June 2009 31 December 2009 Dividend (cps) R million Incl STC1 Date declared Date paid/payable R million 60 100 175 200 100 100 211 353 620 710 356 357 211 353 620 710 356 357 15 August 2007 10 September 2007 20 February 2008 17 March 2008 13 August 2008 22 September 2008 23 February 2009 30 March 2009 19 August 2009 28 September 2009 24 February 2010 19 April 2010 1 No STC is payable due to the utilisation of STC credits arising from the dividend receipts from SIOC. Total dividends declared for the 2009 ﬁ nancial year of R713 million equate to a dividend covered 3.5 times by attributable earnings and are paid or payable to the shareholders as follows: Gross dividend declared BEE Holdco Public Anglo American Exxaro empowerment scheme (Mpower) Total Rm 713 372 249 70 22 Final Rm Interim Rm 357 186 125 35 11 356 186 124 35 11 Exxaro Annual Report 2009 I 27 FINANCIAL REVIEW CONTINUED Cash ﬂ ow 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) Share issue Other movements in net debt (Increase) in net debt 12 months ended 31 December 2009 2 117 (2 323) (990) (992) (1 090) 1 754 11 (107) (1 620) 43 227 2008 3 574 (1 664) (470) (1 147) (3 157) 1 044 29 (55) (1 846) 31 (83) (1 350) (1 898) Cash retained from operations was R2 117 million. This was primarily used to fund net ﬁ nancing charges of R381 million, taxation payments of R892 million, dividend payments of R1 050 million and capital expenditure of R1 982 million, of which R990 million was invested in new capacity and R992 million applied to sustaining and environmental capital. After the receipt of R1 754 million in dividends, primarily from SIOC, and the R1 082 million outﬂ ow to ﬁ nalise the acquisition of the 50% interest in Mafube, the group had a net cash outﬂ ow of R1 620 million for the ﬁ nancial year. Net debt of R2 381 million at 31 December 2008 accordingly increased to R3 731 million at a net debt to equity ratio of 29% at 31 December 2009. Debt structure and ﬁ nancial covenants Compliance with the group’s ﬁ nancial loan covenants with its external ﬁ nanciers is shown below: Table 8 Net debt to equity (%) EBITDA interest cover (times) HDSCR1 CHDSCR2 Ratio Covenants 29 8 1,30 2,06 <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. 28 I Exxaro Annual Report 2009 Debt structure The group’s debt structure at 31 December 2009 is: Table 9 R million Long term Corporate Australia Sands Cash and cash equivalents Net debt Short-term standby facilities Drawn Available Repayment proﬁ le 4 754 4 144 610 (1 023) 3 731 736 555 181 1 300 2010 2011 2012 2013 After 2013 407 827 723 1 886 911 4 754 The ﬁ nal dividend for payment in April 2010 will amount to a further cash outﬂ ow of R357 million offset by dividend inﬂ ow from SIOC of approximately R600 million. Organisational structure The acquisition of the 50% interest in the Mafube joint venture was completed with effect from 1 June 2009 followed by payment of R1 082 million being made in July 2009. Following the commodity portfolio review detailed by the chief executive ofﬁ cer, Exxaro plans to reconﬁ gure its zinc assets to ultimately divest from them in an optimal manner. The portfolio of zinc assets includes the Zincor reﬁ nery in Springs, Gauteng, a 50,04% interest in the Rosh Pinah zinc and lead mine in Namibia, a 26% interest in Black Mountain which owns the Black Mountain zinc and lead mine and the Gamsberg zinc project in the Northern Cape, and an effective 22% interest in the Chifeng zinc smelter in China. The sale of Glen Douglas Dolomite (Pty) Limited remains imminent. The ﬁ nal evaluation of the iron ore project in Turkey concluded that it did not meet the group’s investment criteria and a decision was made to divest from the project. A total of 60% of Rosh Pinah’s projected zinc and lead concentrate sales are hedged to December 2011 at average forward prices ranging from USD2 216 to USD2 061 for zinc and USD1 967 to USD1 713 for lead. A detail of the hedging in place is as follows: Table 10 Zinc Lead Year 2010 2011 2010 2011 Tonnes hedged Average USD price Average ZAR price 26 400 26 700 53 100 5 172 5 500 10 672 2 216 2 061 2 139 1 713 1 967 1 840 19 944 19 976 19 960 15 690 19 065 17 378 Exxaro Annual Report 2009 I 29 FINANCIAL REVIEW CONTINUED Capital expenditure As announced on 1 December 2009, Exxaro reviewed its commodity portfolio and growth pipeline against the background of the prevailing economic climate to align resources with a commodity strategy best positioned to release optimal value for all stakeholders. Table 11 compares capital expenditure for the 12-month periods ended 31 December 2009 and 2008 together with an estimate for the 2010 ﬁ nancial year. Investment on expansion of the Grootegeluk mine at a revised capital cost of R9,5 billion over the next few years to supply Eskom’s adjacent Medupi power station, and the AUD118 million Tiwest Kwinana pigment expansion project for an additional 40ktpa production, has to date, and will continue to dominate cash outﬂ ows on capital expenditure in 2010 and beyond. Sustaining and environmental capital in 2010 includes replacement of primary mining equipment at the coal operations. Capital expenditure Table 11 R million Sustaining and environmental Expansion Coal1 Mineral sands Base metals Other Total Financial year 2010 Estimate 1 445 1 513 187 8 12 months ended 31 December 2009 992 492 486 12 2008 1 147 337 104 26 3 3 153 1 982 1 617 1 Includes capital expenditure on the Grootegeluk mine for Eskom’s Medupi power station in FY10 of R1 314 million, excluding capitalised interest. Acknowledgements I express my sincere appreciation to the previous ﬁ nance director, Dirk van Staden, for the solid platform from which I was able to operate and build, as well as to the very competent Exxaro ﬁ nance teams for their continued commitment, dedication, and valuable contributions. Wim de Klerk Finance director 16 March 2010 30 I Exxaro Annual Report 2009 0 0 1 o t d e s a b e R (cid:32) (cid:73) (cid:56) (cid:81) (cid:31) (cid:23) (cid:92) (cid:90) (cid:96) (cid:105) (cid:103) (cid:92) (cid:105) (cid:88) (cid:95) (cid:74) (cid:23) Relative performance for the period 1 January 2009 to 31 December 2009 140 130 120 110 100 90 80 70 60 42% 27% 27% 02 January 2009 15 March 2009 27 May 2009 07 August 2009 19 October 2009 31 December 2009 Exxaro Resources Limited FTSE/JSE All Share Index FTSE/JSE Resources Index (cid:74)(cid:95)(cid:88)(cid:105)(cid:92)(cid:23)(cid:103)(cid:105)(cid:96)(cid:90)(cid:92)(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:93)(cid:102)(cid:105)(cid:23)(cid:107)(cid:95)(cid:92)(cid:23)(cid:103)(cid:92)(cid:105)(cid:96)(cid:102)(cid:91)(cid:23)(cid:40)(cid:23)(cid:65)(cid:88)(cid:101)(cid:108)(cid:88)(cid:105)(cid:112)(cid:23)(cid:41)(cid:39)(cid:39)(cid:48)(cid:23)(cid:107)(cid:102)(cid:23)(cid:42)(cid:40)(cid:23)(cid:59)(cid:92)(cid:90)(cid:92)(cid:100)(cid:89)(cid:92)(cid:105)(cid:23)(cid:41)(cid:39)(cid:39)(cid:48) 120 100 80 60 40 20 0 R104,90 (cid:39)(cid:41)(cid:23)(cid:65)(cid:88)(cid:101)(cid:108)(cid:88)(cid:105)(cid:112)(cid:23)(cid:41)(cid:39)(cid:39)(cid:48) (cid:40)(cid:44)(cid:23)(cid:68)(cid:88)(cid:105)(cid:90)(cid:95)(cid:23)(cid:41)(cid:39)(cid:39)(cid:48) (cid:41)(cid:46)(cid:23)(cid:68)(cid:88)(cid:112)(cid:23)(cid:41)(cid:39)(cid:39)(cid:48) (cid:39)(cid:46)(cid:23)(cid:56)(cid:108)(cid:94)(cid:108)(cid:106)(cid:107)(cid:23)(cid:41)(cid:39)(cid:39)(cid:48) (cid:40)(cid:48)(cid:23)(cid:70)(cid:90)(cid:107)(cid:102)(cid:89)(cid:92)(cid:105)(cid:23)(cid:41)(cid:39)(cid:39)(cid:48) (cid:42)(cid:40)(cid:23)(cid:59)(cid:92)(cid:90)(cid:92)(cid:100)(cid:89)(cid:92)(cid:105)(cid:23)(cid:41)(cid:39)(cid:39)(cid:48) (cid:23)(cid:23)(cid:23)(cid:23)(cid:60)(cid:111)(cid:111)(cid:88)(cid:105)(cid:102)(cid:23)(cid:73)(cid:92)(cid:106)(cid:102)(cid:108)(cid:105)(cid:90)(cid:92)(cid:106)(cid:23)(cid:67)(cid:96)(cid:100)(cid:96)(cid:107)(cid:92)(cid:91) (cid:74)(cid:95)(cid:88)(cid:105)(cid:92)(cid:23)(cid:103)(cid:105)(cid:96)(cid:90)(cid:92)(cid:23)(cid:109)(cid:102)(cid:99)(cid:108)(cid:100)(cid:92)(cid:106)(cid:23)(cid:107)(cid:105)(cid:88)(cid:91)(cid:92)(cid:91)(cid:23)(cid:93)(cid:102)(cid:105)(cid:23)(cid:107)(cid:95)(cid:92)(cid:23)(cid:103)(cid:92)(cid:105)(cid:96)(cid:102)(cid:91)(cid:23)(cid:40)(cid:23)(cid:65)(cid:88)(cid:101)(cid:108)(cid:88)(cid:105)(cid:112)(cid:23)(cid:41)(cid:39)(cid:39)(cid:48)(cid:23)(cid:107)(cid:102)(cid:23)(cid:42)(cid:40)(cid:23)(cid:59)(cid:92)(cid:90)(cid:92)(cid:100)(cid:89)(cid:92)(cid:105)(cid:23)(cid:41)(cid:39)(cid:39)(cid:48) (cid:32) (cid:73) (cid:56) (cid:81) (cid:31) (cid:23) (cid:92) (cid:90) (cid:96) (cid:105) (cid:103) (cid:92) (cid:105) (cid:88) (cid:95) (cid:74) (cid:23) 3 000 2 500 2 000 1 500 1 000 500 0 120 100 80 60 40 20 9 0 - n a J - 2 0 9 0 - n a J - 6 1 9 0 - n a J - 0 3 9 0 - b e F - 3 1 9 0 - b e F - 7 2 9 0 - r a M - 3 1 9 0 - r a M - 7 2 9 0 - r p A - 0 1 9 0 - r p A - 4 2 9 0 - y a M - 8 0 9 0 - y a M - 2 2 9 0 - n u J - 5 0 9 0 - n u J - 9 1 l 9 0 - u J - 3 0 l 9 0 - u J - 7 1 l 9 0 - u J - 1 3 9 0 - g u A - 4 1 9 0 - g u A - 8 2 9 0 - p e S - 1 1 9 0 - p e S - 5 2 9 0 - t c O - 9 0 9 0 - t c O - 3 2 9 0 - v o N - 6 0 9 0 - v o N - 0 2 9 0 - c e D - 4 0 9 0 0 - c e D - 8 1 (cid:23)(cid:23)(cid:23)(cid:23)(cid:60)(cid:111)(cid:111)(cid:88)(cid:105)(cid:102)(cid:23)(cid:73)(cid:92)(cid:106)(cid:102)(cid:108)(cid:105)(cid:90)(cid:92)(cid:106)(cid:23)(cid:67)(cid:96)(cid:100)(cid:96)(cid:107)(cid:92)(cid:91) Exxaro Annual Report 2009 I 31 MACRO-ECONOMIC AND COMMODITY REVIEW In 2009, the world found itself in the worst During the fourth quarter of 2009, the Commodity demand depended increasingly economic recession since the Second world economy started emerging from on economic growth in China and, to a World War, with GDP growth falling to a the recession that had started in the same lesser extent, other emerging economies negative 1,9% after the 4,0% and 1,9% period a year earlier. In this quarter the in 2009. Expansion in China slowed only expansion in 2007 and 2008 respectively. year-on-year decline in economic activity from 9,6% in 2008 to 8,7% in 2009, The major factor in this decline was the of advanced economies was only 0,7%, mainly from decreasing international sub-prime meltdown and associated credit compared to 4,6% in the ﬁ rst quarter. It trade. In line with developed countries, crunch which originated in the USA, but is expected that positive growth will be China also injected massive stimulus then spread to the rest of the world. This recorded from the ﬁ rst quarter of 2010, into the economy in the form of ﬁ scal, resulted in a loss of conﬁ dence, tight credit, with most major developed economies monetary and ﬁ xed investment measures declining demand, reduced spending and participating in this turnaround. However, to arrest the decline in economic activity. investment, declining property prices and recovery will be slow – economic growth of These measures proved very effective, signiﬁ cant job losses worldwide. about 2,0% is expected in this economic with GDP growth accelerating from 6,2% The impact of the recession was felt fourth. GDP growth in 2010 is expected to most acutely in the advanced economies Although not impervious to conditions in increase to an average of 10,1%. grouping in 2010. in the ﬁ rst quarter of 2009 to 10,7% in the of the world, despite unprecedented advanced economies, emerging economies ﬁ scal and monetary stimulus measures fared signiﬁ cantly better in 2009. China In the world as a whole economic growth instituted by governments to ameliorate and India did particularly well, with the is forecast to recover to 3,2% in 2010, the consequences of the credit crisis. USA latter recording a GDP growth rate of compared to a trend growth rate of 3,5% GDP declined by 2,4% in 2009 and those 6,8% in 2009. The emerging economies as to 4,0% in the period preceding the of Western Europe and Japan by 4,0% and a group achieved 1,2% GDP expansion in recession. 5,1%, respectively. As a whole, economic 2009, compared to 5,8% in 2008 – growth output in the advanced economies of the in these countries is expected to improve The key risks to the global economy in world declined by 3,3% in 2009. to 5,7% in 2010. 2010 are viewed as further weakness (cid:58)(cid:102)(cid:100)(cid:103)(cid:88)(cid:105)(cid:88)(cid:107)(cid:96)(cid:109)(cid:92)(cid:23)(cid:62)(cid:59)(cid:71)(cid:23)(cid:94)(cid:105)(cid:102)(cid:110)(cid:107)(cid:95)(cid:23)(cid:105)(cid:88)(cid:107)(cid:92)(cid:106) (cid:32) (cid:92) (cid:94) (cid:101) (cid:88) (cid:95) (cid:90) (cid:23) (cid:28) (cid:31) (cid:23) (cid:95) (cid:107) (cid:110) (cid:102) (cid:105) (cid:94) (cid:71) (cid:59) (cid:62) (cid:23) 15 12 9 6 3 0 -3 (cid:40)(cid:48)(cid:48)(cid:39) (cid:40)(cid:48)(cid:48)(cid:40) (cid:40)(cid:48)(cid:48)(cid:41) (cid:40)(cid:48)(cid:48)(cid:42) (cid:40)(cid:48)(cid:48)(cid:43) (cid:40)(cid:48)(cid:48)(cid:44) (cid:40)(cid:48)(cid:48)(cid:45) (cid:40)(cid:48)(cid:48)(cid:46) (cid:40)(cid:48)(cid:48)(cid:47) (cid:40)(cid:48)(cid:48)(cid:48) (cid:41)(cid:39)(cid:39)(cid:39) (cid:41)(cid:39)(cid:39)(cid:40) (cid:41)(cid:39)(cid:39)(cid:41) (cid:41)(cid:39)(cid:39)(cid:42) (cid:41)(cid:39)(cid:39)(cid:43) (cid:41)(cid:39)(cid:39)(cid:44) (cid:41)(cid:39)(cid:39)(cid:45) (cid:41)(cid:39)(cid:39)(cid:46) (cid:41)(cid:39)(cid:39)(cid:47) (cid:41)(cid:39)(cid:39)(cid:48) (cid:23)(cid:23)(cid:23)(cid:23)(cid:58)(cid:95)(cid:96)(cid:101)(cid:88)(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(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:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:78)(cid:102)(cid:105)(cid:99)(cid:91)(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(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:74)(cid:102)(cid:108)(cid:105)(cid:90)(cid:92)(cid:49)(cid:23)(cid:62)(cid:99)(cid:102)(cid:89)(cid:88)(cid:99)(cid:23)(cid:64)(cid:101)(cid:106)(cid:96)(cid:94)(cid:95)(cid:107) 32 I Exxaro Annual Report 2009 in consumer demand due to high the rise in consumer prices going forward continued to underpin commodity demand unemployment, premature tightening will remain close to this benchmark. and prices. However, strong growth in of ﬁ scal and monetary policy, a sharp Signiﬁ cant increases in electricity prices commodity imports into China has led to rise in oil and other commodity prices, will continue to put pressure on the high levels of metal stocks in that country, and further failures of large ﬁ nancial inﬂ ation rate. both ofﬁ cial and unofﬁ cial, and of a speculative nature. If this overhang of stocks institutions. At the same time, the impact of stimulus measures will start waning. A combination of some of these factors could cause renewed negative global growth, leading to a w-shaped growth proﬁ le. The latter prospect is viewed as an uncomfortably high risk by many analysts. The possibility that pervasively low short-term interest rates could lead to the development of more asset bubbles, particularly in emerging economies, is also viewed as a risk. Although experts initially thought the South African economy would weather the storm better than most, this expectation proved illusory as GDP growth tumbled to a negative 2% in 2009 from 3,7% a year earlier, lagging the world economic downturn by about three months. On a quarterly basis, year-on-year growth declined from negative 0,7% in the ﬁ rst quarter of 2009 to negative 2,2% in the third, before the rate of decline eased to some 1,4% in the fourth quarter. GDP growth is expected to recover to 2,5% in 2010, depending on, and in line with, conditions in the rest of the world. On average, the rand weakened against the is not responsibly drawn down in 2010, it US dollar in 2009 compared to 2008, from could lead to rapid deterioration in commodity R8,25 to R8,44/dollar. However, increasing market fundamentals and prices. risk appetite of investors, premised on a healthy recovery of the world economy Spot metal prices, which had seen in 2010 and manifesting itself mainly in signiﬁ cant price declines in the second strong portfolio inﬂ ows, resulted in the half of 2008, generally started improving rand exchange rate strengthening against in the ﬁ rst or second quarter of 2009. The the US dollar during 2009. This rate monthly Economist Metals Price Index was declined from 9,97 in the ﬁ rst quarter to 89% higher in December compared to the 7,50 in the fourth. The rand is expected low in February 2009. Contract commodity to remain relatively strong compared to prices, on the other hand, which had the US dollar in 2010, which will have a achieved record levels in 2008, all saw detrimental impact on export earnings, precipitous falls in the prices negotiated although commodity prices seem to be with their customers as settlements were picking up. The latter are expected to be generally reached early in the year. volatile in 2010. Projections of global steel production Due to declining economic activity, indicate that crude output decreased by infrastructure bottlenecks in terms 107Mt, or about 8%, to 1 220Mt in 2009. of electricity supplies and transport In contrast to the rest of the world, and harbour capacities, as well as the production increased in China by 13,5% shortage of skilled and experienced to 568Mt. In the rest of the world, output human resources, eased temporarily declined by 21% compared to 2008 to in 2009. Increasing economic activity some 652Mt. China was responsible for in 2010 will put renewed pressure on about 47% of world raw steel production these infrastructure components. With in 2009, much higher than the 2008 ﬁ gure regard to export logistics through the of 38%. Steel output generally moved Richards Bay Coal Terminal, rail capacity sideways at low levels in the ﬁ rst four South Africa’s average annual consumer remained a serious problem even during months of 2009, but picked up steadily price inﬂ ation declined to 7,1% in 2009 the recession. from 9,9% in 2008, allowing for monetary relaxation by the Reserve Bank during this Commodity review over the rest of the year in both China and the rest of the world. General expectations are that in 2010 growth in steel demand in period. Inﬂ ation fell to the upper limit of Robust materials-intensive economic growth China will continue and recovery in the rest the Reserve Bank’s target range of 3 — 6% in China and other emerging economies, of the world will accelerate as the global in the fourth quarter. Expectations are that especially in the second half of 2009, economy recovers. Exxaro Annual Report 2009 I 33 MACRO-ECONOMIC AND COMMODITY REVIEW CONTINUED Low and stagnant steel production in Over the next ﬁ ve months, the price in steel production in China from May the early part of 2009, leading to a remained in the low- to mid-$60/t range, 2009, resulting in strong levels of iron ore negative outlook for coking coal market after which it increased to an average of import demand, led to an increase in the fundamentals, excess capacity and $71/t in December on increased demand spot price of ﬁ ne iron ore in that country, easing of supply bottlenecks, resulted in after a very cold winter in the northern from an average of $64/t in April to $105/t signiﬁ cant decreases in the level of contract hemisphere, as well as a reoccurrence of in December. Continuing expansion of metallurgical coal prices negotiated between logistical bottlenecks. The latter situation, demand in China and recovery in demand in consumers and producers. The contract together with indications of increased the rest of the world, together with the fact price of hard coking coal declined by 57% import demand from China and India, are that the Australian and Brazilian currencies to $129/t and that of semi-soft coking coal positive factors for steam coal prices and had appreciated by more than 20% against by 65% to $85/t. Given the steady growth could see these increase by some 20% the US dollar, could see the iron ore price in steel production in China and the rest of in 2010. settlement being upwards of 40% in 2010. the world since contract prices were settled in 2009, as well as the expectation that Perceptions of an oversupplied iron ore The 2009 average LME cash zinc price was this would continue into 2010, the outlook market, based on the decline in economic $1 658/t, some 12% lower than the average for contract prices in 2010 seems much activity in late 2008 and early 2009, as well for 2008. Driven by worsening market improved. Benchmark prices, both for hard as declining spot iron ore prices in China, fundamentals, the zinc price fell to a low and semi-soft coking coal, are expected to led to a 35% decline in ﬁ ne iron prices of $1 060/t in February 2009. However, it improve by more than 40%. negotiated for 2009 and a 44% decrease then increased steadily, reaching a high of in that for lump ore. During the year, some $2 570/t by the end of the year. This price The average Richards Bay spot steam coal iron ore producers began selling more iron escalation was mostly due to commodity price for 2009, at $64,41/t, was 47% lower ore on the spot market, a trend that could, investment fund activity premised on than the average for 2008. The declining in time, lead to a signiﬁ cant change in the a rapid recovery in the world economy price trend of the second half of 2008 price-settling mechanism for the iron ore in 2010, as well as strong demand from continued until May 2009, with an average market, including much greater use of China. In addition, dollar weakness boosted price of $57/t achieved in that month. derivative instruments. Robust expansion commodity prices. (cid:69)(cid:102)(cid:100)(cid:96)(cid:101)(cid:88)(cid:99)(cid:23)(cid:95)(cid:96)(cid:106)(cid:107)(cid:102)(cid:105)(cid:96)(cid:90)(cid:88)(cid:99)(cid:23)(cid:90)(cid:102)(cid:101)(cid:107)(cid:105)(cid:88)(cid:90)(cid:107)(cid:23)(cid:96)(cid:105)(cid:102)(cid:101)(cid:23)(cid:102)(cid:105)(cid:92)(cid:23)(cid:103)(cid:105)(cid:96)(cid:90)(cid:92)(cid:106) (cid:32) (cid:108) (cid:107) (cid:100) (cid:91) (cid:38) (cid:90) (cid:74) (cid:76) (cid:31) (cid:23) (cid:92) (cid:90) (cid:96) (cid:105) (cid:71) 250 200 150 100 50 0 (cid:40)(cid:48)(cid:48)(cid:39) (cid:40)(cid:48)(cid:48)(cid:40) (cid:40)(cid:48)(cid:48)(cid:41) (cid:40)(cid:48)(cid:48)(cid:42) (cid:40)(cid:48)(cid:48)(cid:43) (cid:40)(cid:48)(cid:48)(cid:44) (cid:40)(cid:48)(cid:48)(cid:45) (cid:40)(cid:48)(cid:48)(cid:46) (cid:40)(cid:48)(cid:48)(cid:47) (cid:40)(cid:48)(cid:48)(cid:48) (cid:41)(cid:39)(cid:39)(cid:39) (cid:41)(cid:39)(cid:39)(cid:40) (cid:41)(cid:39)(cid:39)(cid:41) (cid:41)(cid:39)(cid:39)(cid:42) (cid:41)(cid:39)(cid:39)(cid:43) (cid:41)(cid:39)(cid:39)(cid:44) (cid:41)(cid:39)(cid:39)(cid:45) (cid:41)(cid:39)(cid:39)(cid:46) (cid:41)(cid:39)(cid:39)(cid:47) (cid:41)(cid:39)(cid:39)(cid:48) (cid:23)(cid:23)(cid:23)(cid:23)(cid:56)(cid:108)(cid:106)(cid:107)(cid:105)(cid:88)(cid:99)(cid:96)(cid:88)(cid:36)(cid:65)(cid:88)(cid:103)(cid:88)(cid:101)(cid:23)(cid:99)(cid:108)(cid:100)(cid:103)(cid:23)(cid:102)(cid:105)(cid:92)(cid:23)(cid:90)(cid:102)(cid:101)(cid:107)(cid:105)(cid:88)(cid:90)(cid:107)(cid:23)(cid:103)(cid:105)(cid:96)(cid:90)(cid:92)(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:56)(cid:108)(cid:106)(cid:107)(cid:105)(cid:88)(cid:99)(cid:96)(cid:88)(cid:36)(cid:65)(cid:88)(cid:103)(cid:88)(cid:101)(cid:23)(cid:93)(cid:96)(cid:101)(cid:92)(cid:23)(cid:102)(cid:105)(cid:92)(cid:23)(cid:90)(cid:102)(cid:101)(cid:107)(cid:105)(cid:88)(cid:90)(cid:107)(cid:23)(cid:103)(cid:105)(cid:96)(cid:90)(cid:92) (cid:74)(cid:102)(cid:108)(cid:105)(cid:90)(cid:92)(cid:49)(cid:23)(cid:56)(cid:68)(cid:60) 34 I Exxaro Annual Report 2009 The increase in the zinc price came amid declining from some $290/t in 2008 to of 2009, but demand started improving weak market fundamentals as reﬂ ected about $246/t in 2009. Contract TCs were during the second half of the year. Despite in a steady increase in LME stocks, around $194,5/t at a zinc basis price of the serious economic decline, prices for rising from 255kt in January to 489kt in $1 250/t. Spot TCs increased throughout high-grade titanium dioxide feedstocks held December, an increase of 92%. In addition, the year but were well below realised up reasonably well, in some instances due estimates of unreported stocks built up contract TCs due to the relatively tight to the fact that contracts were concluded in China ranged from 800kt to 1 000kt. concentrate market. Expansion in mine before the full impact of decreasing Besides this, Chinese authorities also production due to rising prices, as well as demand and destocking became apparent. established an ofﬁ cial stockpile of 160kt of the reﬁ ned zinc stock overhang, could see Although the feedstock market is still zinc metal. In the second half of the year, a concentrate market in surplus in 2010. in surplus, the outlook for 2010 is more increasing prices led to the start-up of Realised contract TCs are expected to be optimistic as the market tightens due to some zinc mine and smelter capacity that broadly similar to those of 2009. increasing demand and an inevitable need had been idled in 2008 and the ﬁ rst half for restocking. However, price increases, if of 2009. This was particularly signiﬁ cant Recessionary conditions in the world had any, are expected to be subdued. in China. The weak market fundamentals a severe impact on the titanium dioxide of 2009 are illustrated further by a reﬁ ned pigment industry in 2009, with demand The zircon industry also experienced a zinc surplus of about 1,1Mt during the expected to decline by about 9%. This period of destocking in the ﬁ rst half of year, compared to the surplus of 280kt in resulted in a signiﬁ cantly oversupplied 2009, but in line with titanium dioxide 2008. Restocking in the rest of the world market and the idling of several plants to feedstocks, saw an upturn in demand in as economies start to expand, as well as manage inventories. This caused industry the second half of the year, with offtake continued strong demand from China, is capacity utilisation to fall to below 80%. from China being a major driver. Zircon expected to lead to a decline in the market As a result, prices moved sideways during prices reﬂ ected demand fundamentals surplus in 2010 to about 500kt. However, the year in Western markets, following throughout the year, but started declining some experts believe the high zinc price the sharp decrease at the end of 2008. again towards the end of 2009. The Murray at the end of 2009 is not a true reﬂ ection In China, on the other hand, pigment Basin Stage 2 and Jacinth Ambrosia of market fundamentals and prices could demand accelerated from April, leading to projects started production towards move sideways or even decline from these cutbacks early in the year being reversed the end of 2009, ﬁ rmly establishing a levels during 2010. Injudicious release of and the industry producing at full capacity. new zircon and rutile-producing mineral large unofﬁ cial stockholdings, especially Pigment imports into China showed a province in Australia. The zircon market in China, could see extremely volatile similar picture. is expected to recover in 2010, albeit with market conditions and the price of zinc modest price adjustments. falling precipitously. Changes in the pigment industry’s capacity utilisation had an immediate The US dollar strengthened signiﬁ cantly Due to the signiﬁ cant cutbacks in mining impact on the titanium dioxide feedstock against the currencies of commodity- production in late 2008 and early 2009 industry. As demand decelerated, the exporting countries in the last quarter of more than neutralising cutbacks in the industry was forced to make cutbacks 2008 due to the sub-prime crisis in the reﬁ ning industry, the 2008 concentrate and operational adjustments, including US and subsequent events precipitating market surplus of some 200kt was whittled the temporary closure of some titanium a ﬂ ight from risk and capital outﬂ ows down to about 175kt. This, together with dioxide slag-producing furnaces in South from commodity-producing countries. lower prices, led to the realised contract Africa and Canada. Signiﬁ cant destocking These exchange rate levels were generally treatment charges on concentrate (TCs) of feedstocks occurred in the ﬁ rst half maintained in the ﬁ rst quarter of 2009. Exxaro Annual Report 2009 I 35 MACRO-ECONOMIC AND COMMODITY REVIEW CONTINUED However, as perceptions grew that the important. Capacity shortages in terms which would affect growth in demand world economy would recover relatively of contractors, machinery, equipment for bulk freight, will determine whether quickly, the ﬂ ight of capital from riskier and mining professionals worldwide also the expected shipping stock overhang is markets reversed and the US dollar abated. The signiﬁ cant retrenchments in actually realised. If it does, freight rates will generally started weakening against the mining industry in the last quarter of be put under pressure. China will remain a the currencies of commodity-exporting 2008 and ﬁ rst part of 2009 also stabilised major driver in this market. countries from April 2009. Despite later on. this trend, these currencies weakened According to the Metals Economics Group, modestly against the US dollar on an After falling to unsustainably low levels estimated planned non-ferrous exploration annual average basis. Expectations that at the end of 2008, global bulk freight spending for 2009 plummeted 42% to the weakening of the dollar will continue rates improved in 2009, with the Baltic $7,7 billion, after rising for six consecutive into 2010, on a view that the US Federal Dry Index increasing in a cyclical pattern years to a 19-year high of $13,2 billion in Reserve will not start tightening monetary by some 300% from January to December 2008. The global economic crisis and conditions until late in the year, could see 2009. Commodity import demand from declining prices for almost all mineral receipts from commodity exports in local China played a key role in the performance commodities took their toll on the industry. currencies decline. This will put pressure of the freight indices in 2009. In addition, This drop is the largest year-on-year on producers to try and claw back these delays in shipyard deliveries of bulk vessels decline in global exploration budgets (in losses in contract price negotiations. and a high rate of scrapping early in 2009 both dollar and percentage terms) since the resulted in the net change in the bulk study of global exploration spending began Mining costs generally declined in 2009 carrier ﬂ eet being consistent with that of in 1989. In time, this will result in capacity due to pressure from lower prices and, in 2008, contrary to expectations of a huge shortages when a sustained upturn in annual average terms, weaker producer increase in the ﬂ eet. Subsequently, this has demand is experienced. Investment in currencies. Lower energy prices, with the led to the rolling over of expectations of a exploration is expected to improve in 2010 average Brent crude oil price declining signiﬁ cant oversupply of ships into 2010. as access to ﬁ nancing, especially for junior by 37% from 2008 to 2009, were also The rate of economic recovery in the world, explorers, improves. (cid:69)(cid:102)(cid:100)(cid:96)(cid:101)(cid:88)(cid:99)(cid:23)(cid:95)(cid:96)(cid:106)(cid:107)(cid:102)(cid:105)(cid:96)(cid:90)(cid:88)(cid:99)(cid:23)(cid:90)(cid:102)(cid:88)(cid:99)(cid:23)(cid:103)(cid:105)(cid:96)(cid:90)(cid:92)(cid:106) (cid:32) (cid:107) (cid:38) (cid:27) (cid:74) (cid:76) (cid:31) (cid:23) (cid:92) (cid:90) (cid:96) (cid:105) (cid:71) 300 250 200 150 100 50 0 (cid:40)(cid:48)(cid:48)(cid:39) (cid:40)(cid:48)(cid:48)(cid:40) (cid:40)(cid:48)(cid:48)(cid:41) (cid:40)(cid:48)(cid:48)(cid:42) (cid:40)(cid:48)(cid:48)(cid:43) (cid:40)(cid:48)(cid:48)(cid:44) (cid:40)(cid:48)(cid:48)(cid:45) (cid:40)(cid:48)(cid:48)(cid:46) (cid:40)(cid:48)(cid:48)(cid:47) (cid:40)(cid:48)(cid:48)(cid:48) (cid:41)(cid:39)(cid:39)(cid:39) (cid:41)(cid:39)(cid:39)(cid:40) (cid:41)(cid:39)(cid:39)(cid:41) (cid:41)(cid:39)(cid:39)(cid:42) (cid:41)(cid:39)(cid:39)(cid:43) (cid:41)(cid:39)(cid:39)(cid:44) (cid:41)(cid:39)(cid:39)(cid:45) (cid:41)(cid:39)(cid:39)(cid:46) 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(cid:74)(cid:102)(cid:108)(cid:105)(cid:90)(cid:92)(cid:49)(cid:23)(cid:56)(cid:68)(cid:60)(cid:50)(cid:23)(cid:60)(cid:101)(cid:92)(cid:105)(cid:94)(cid:112)(cid:23)(cid:71)(cid:108)(cid:89)(cid:99)(cid:96)(cid:106)(cid:95)(cid:96)(cid:101)(cid:94) 36 I Exxaro Annual Report 2009 (cid:69)(cid:102)(cid:100)(cid:96)(cid:101)(cid:88)(cid:99)(cid:23)(cid:95)(cid:96)(cid:106)(cid:107)(cid:102)(cid:105)(cid:96)(cid:90)(cid:88)(cid:99)(cid:23)(cid:113)(cid:96)(cid:101)(cid:90)(cid:23)(cid:88)(cid:101)(cid:91)(cid:23)(cid:99)(cid:92)(cid:88)(cid:91)(cid:23)(cid:103)(cid:105)(cid:96)(cid:90)(cid:92)(cid:106) (cid:32) (cid:107) (cid:38) $ (cid:74) (cid:76) (cid:31) (cid:23) (cid:106) (cid:92) (cid:90) (cid:96) (cid:105) (cid:103) (cid:91) (cid:88) (cid:92) (cid:23) (cid:99) (cid:23) (cid:91) (cid:101) (cid:88) (cid:23) (cid:90) (cid:101) (cid:81) (cid:96) 3500 3000 2500 2000 1500 1000 500 0 (cid:39) (cid:48) (cid:48) (cid:40) (cid:40) (cid:48) (cid:48) (cid:40) (cid:41) (cid:48) (cid:48) 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(cid:74)(cid:102)(cid:108)(cid:105)(cid:90)(cid:92)(cid:49)(cid:23)(cid:64)(cid:36)(cid:69)(cid:92)(cid:107)(cid:50)(cid:23)(cid:57)(cid:105)(cid:102)(cid:102)(cid:98)(cid:23)(cid:63)(cid:108)(cid:101)(cid:107) (cid:23) ) t / $ (cid:74) (cid:76) (cid:31) (cid:23) (cid:106) (cid:92) (cid:90) (cid:96) (cid:105) (cid:103) (cid:101) (cid:102) (cid:90) (cid:105) (cid:96) (cid:113) (cid:23) (cid:91) (cid:101) (cid:88) (cid:23) (cid:98) (cid:90) (cid:102) (cid:107) (cid:106) (cid:91) (cid:92) (cid:92) (cid:93) (cid:23) (cid:70) (cid:75) (cid:96) (cid:41) 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(cid:39) (cid:41) (cid:42) (cid:39) (cid:39) (cid:41) (cid:43) (cid:39) (cid:39) (cid:41) (cid:44) (cid:39) (cid:39) (cid:41) (cid:45) (cid:39) (cid:39) (cid:41) (cid:46) (cid:39) (cid:39) (cid:41) (cid:47) (cid:39) (cid:39) (cid:41) (cid:48) (cid:39) (cid:39) (cid:41) (cid:23)(cid:23)(cid:23)(cid:23)(cid:81)(cid:96)(cid:105)(cid:90)(cid:102)(cid:101)(cid:23)(cid:103)(cid:105)(cid:96)(cid:90)(cid:92)(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:73)(cid:108)(cid:107)(cid:96)(cid:99)(cid:92)(cid:23)(cid:103)(cid:105)(cid:96)(cid:90)(cid:92)(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:58)(cid:95)(cid:99)(cid:102)(cid:105)(cid:96)(cid:91)(cid:92)(cid:23)(cid:106)(cid:99)(cid:88)(cid:94)(cid:23)(cid:103)(cid:105)(cid:96)(cid:90)(cid:92)(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:76)(cid:74)(cid:23)(cid:96)(cid:100)(cid:103)(cid:102)(cid:105)(cid:107)(cid:23)(cid:103)(cid:96)(cid:94)(cid:100)(cid:92)(cid:101)(cid:107)(cid:23)(cid:103)(cid:105)(cid:96)(cid:90)(cid:92)(cid:23) (cid:74)(cid:102)(cid:108)(cid:105)(cid:90)(cid:92)(cid:49)(cid:23)(cid:75)(cid:81)(cid:68)(cid:64) 450 400 350 300 250 200 150 100 50 0 (cid:32) (cid:92) (cid:107) (cid:88) (cid:105) (cid:107) (cid:101) (cid:92) (cid:90) (cid:101) (cid:102) (cid:90) (cid:23) (cid:107) (cid:38) $ (cid:74) (cid:76) (cid:31) (cid:23) (cid:92) (cid:94) (cid:105) (cid:88) (cid:95) (cid:90) (cid:23) (cid:107) (cid:101) (cid:92) (cid:100) (cid:107) (cid:88) (cid:92) (cid:105) (cid:107) (cid:23) (cid:90) (cid:101) (cid:96) (cid:113) (cid:23) (cid:91) (cid:92) (cid:106) (cid:96) (cid:99) (cid:88) (cid:92) (cid:73) ) t / $ (cid:74) (cid:76) (cid:31) (cid:23) (cid:92) (cid:90) (cid:96) (cid:105) (cid:103) (cid:23) (cid:107) (cid:101) (cid:92) (cid:100) (cid:94) (cid:71) (cid:96) 2500 2250 2000 1750 1500 1250 1000 750 500 250 0 Exxaro Annual Report 2009 I 37 BUSINESS OPERATIONS REVIEW COAL Revenue up 8% Signiﬁ cant increase in coal exports Inyanda at name-plate capacity 2010 Capital expenditure estimate 33% 67% ■ Sustaining and environmental (R760 million) ■ Expansion (R1 513 million) THE REVIEW PERIOD WAS A CHALLENGING ONE IN MANY RESPECTS COMPARED TO 2008. INTERNATIONAL COAL PRICES DECREASED SIGNIFICANTLY WHILE DOMESTIC DEMAND FOR METALLURGICAL AND STEAM COAL ALSO DECLINED. 38 I Exxaro Annual Report 2009 Operating results Total Revenue Net operating proﬁ t Capital expenditure Physical information Production (000 tonnes) Power station coal – Tied operations1 – Commercial operations Coking coal – Tied operations1 – Commercial operations Other coal Char Coal buy-ins Total Sales (000 tonnes) Eskom coal – Tied operations1 – Commercial mines Other domestic coal – Tied operations1 – Commercial mines Coal export2 Char Total 2009 Rm 9 731 1 905 924 2008 Rm 9 040 2 654 741 2009 2008 Variance Y-O-Y % 36 562 16 486 20 076 2 020 268 1 752 6 638 38 759 46 017 36 299 16 473 19 826 4 587 259 4 328 4 715 31 36 700 18 095 18 605 2 560 327 2 233 5 574 733 45 567 36 255 18 054 18 201 5 481 352 5 129 3 276 45 632 45 012 (138) (1 609) 1 471 (540) (59) (481) 1 064 38 26 450 44 (1 581) 1 625 (894) (93) (801) 1 439 31 620 (9) 8 (21) (18) (22) 19 4 1 (9) 9 (16) (26) (16) 44 1 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. Exxaro Annual Report 2009 I 39 BUSINESS OPERATIONS REVIEW CONTINUED The review period was a challenging one half of 2009, unfortunately later than Steam coal production was 19% higher at in many respects compared to 2008. planned. We aim to achieve full production 6,638Mtpa mainly due to the inclusion of International coal prices decreased by the end of the second quarter in 2010. production from Mafube of some 816kt signiﬁ cantly while domestic demand after Exxaro acquired a 50% interest in for metallurgical and steam coal also Total coal production volumes were the joint venture in June 2009. Higher declined. Exxaro was fortunate enough marginally higher than the previous year. production at Inyanda and North Block to partially offset softer demand and prices by increasing exports after securing additional export access at Richards Bay Coal Terminal (RBCT) from other RBCT users. Inyanda mine is producing at name-plate capacity and the joint venture with Anglo American on the Mafube operation was concluded in June 2009, resulting in additional production. Power station coal production at Eskom tied mines was 9% lower at 16,5Mtpa mainly as a result of an inrush of water at Matla’s number 2 mine which affected production for several months, but has subsequently been rectiﬁ ed. This was partially offset by increased production at Arnot mine after ramping up the opencast mining operations to full production. Additional emphasis was placed on value growth by downstream integration, of which the Sintel char plant at Grootegeluk is an example. The char plant The commercial mines increased production by 8% to over 20Mtpa to meet increased demand from Eskom. Coking coal production showed a marked Complex (NBC) mines was offset by lower production at Grootegeluk and Leeuwpan mines due to lower domestic steam coal demand. Production at NCC’s new Diepspruit shaft also ramped up slower than anticipated. Some 38kt of char was produced by the four new retorts successfully commissioned at Grootegeluk mine. Ramp-up to full production is expected in the second half of 2010. Sales to Eskom were in line with the previous year as increased sales volumes from the commercial operations were was commissioned in the second half of decrease year on year, down 21% to offset by lower sales volumes from the 2009. Although not currently running 2,0Mtpa, due to difﬁ cult geological tied operations mainly due to production at capacity, quality and demand for the conditions at Tshikondeni mine. Semi- challenges at Matla mine. product has exceeded our expectations. soft coking coal production decreased signiﬁ cantly at Grootegeluk mine on Domestic sales were 16% lower at The Diepspruit shaft at New Clydesdale lower demand from the steel and related 4,6Mtpa due to lower demand during the (NCC) was commissioned in the second industries. recessionary climate. 40 I Exxaro Annual Report 2009 In line with Exxaro Coal’s strategy, export volumes increased 44% year-on-year to 4 715Mtpa after Exxaro secured an additional export allocation at RBCT from other RBCT users. Exxaro Coal aims to create excep- tional value by being an innovative, integrated and synergistic coal and reductants company, with a global footprint, utilising and developing excellence in people and value-adding, Even though RBCT will have installed superior processes and structures to capacity of 91Mt per annum, forecasts achieve the annual target of 75Mt of indicate that Transnet Freight Rail (TFR) coal and 750kt of reductants by 2015 will only have the capability to transport by focusing on: 65Mt of coal in 2010. This will have a negative impact on new entrants into > > Operational excellence Responsible custodianship of RBCT via the Phase V development safety, health and sustainable scheduled for commissioning during development April 2010 as these participants had > Continued optimisation of market already in 2009 positioned themselves position to export through RBCT. Although RBCT > Value growth of the business > Organisational excellence including a high-performance culture. had capacity of 72Mt per annum in 2009, only 61,7Mt was exported compared with approximately 63Mt in 2008 mainly due to lower rail performance. Prospects for the coal commodity busi- ness are summarised in the chief executive ofﬁ cer’s review (page 14) and detailed in the commodity review (page 32). The growth aspirations are included in the report on page 49. Exxaro Annual Report 2009 I 41 BUSINESS OPERATIONS REVIEW CONTINUED MINERAL SANDS Record slag tapped from both furnaces at KZN Sands Lower demand at softer prices R1 435 million impairment at KZN Sands Good cost performance from all three business units 2010 Capital expenditure estimate 33% 67% ■ Sustaining and environmental (R356 million) ■ Expansion (R187 million) Operating results Total Revenue Net operating (loss)/proﬁ t1 Capital expenditure 1 Excludes the R1 435 million impairment at KZN Sands. 2009 Rm 3 508 (124) 826 2008 Rm 2 776 104 571 THE GLOBAL RECESSION IMPACTED ON DEMAND FOR ALL PRODUCTS DURING THE YEAR. DEMAND IMPROVED IN THE SECOND HALF OF THE YEAR BUT NOT TO THE FORECAST LEVELS ALTHOUGH CHLORIDE SLAG, ZIRCON AND PIGMENT PRICES INCREASED YEAR ON YEAR. 42 I Exxaro Annual Report 2009 Physical information 2009 2008 Variance Y-O-Y % (000 tonnes) KZN Sands Production – Ilmenite – Zircon – Rutile – Pig iron – Scrap pig iron – Slag tapped – Chloride slag – Sulphate slag Sales – Ilmenite – Zircon – Rutile – Pig iron – Scrap pig iron – Chloride slag – Sulphate slag Namakwa Sands1 Production – Ilmenite – Zircon – Rutile – Pig iron – Scrap pig iron – Slag tapped – Chloride slag – Sulphate slag Sales – Zircon – Rutile – Pig iron – Scrap pig iron – Chloride slag – Sulphate slag Australia Sands2 Production – Ilmenite – Zircon – Rutile – Synthetic rutile – Leucoxene – Pigment Sales – Zircon – Rutile – Synthetic rutile – Leucoxene – Pigment 1 Namakwa Sands is included from 1 January 2008, for comparable purposes. 2 Exxaro Sands Australia’s 50% interest in its Tiwest joint venture is disclosed. 368 36 20 108 15 205 104 24 21 14 52 6 68 25 244 116 26 73 126 97 20 95 23 86 76 19 207 33 16 109 14 53 30 14 50 15 54 229 34 19 50 16 112 95 18 40 36 14 64 7 101 17 315 130 27 103 6 166 135 24 135 27 82 1 145 26 174 29 13 113 16 43 35 14 62 17 44 139 2 1 58 (1) 93 9 6 (15) (12) (1) (33) 8 (71) (14) (1) (30) (6) (40) (38) (4) (40) (4) 4 (1) (69) (7) 33 4 3 (4) (2) 10 (5) (12) (2) 10 61 6 5 116 (6) 83 9 33 (42) (19) (14) (33) 47 (23) (11) (4) (29) (24) (28) (17) (30) (15) 5 (48) (27) 19 14 23 (4) (13) 23 (14) (19) (12) 23 Exxaro Annual Report 2009 I 43 BUSINESS OPERATIONS REVIEW CONTINUED The global recession impacted on demand KZN Sands Despite increased production, revenue for all products during the year. Demand KZN Sands had signiﬁ cantly higher reduced as lower sales volumes of zircon, improved in the second half of the year but not to the forecast levels although chloride slag, zircon and pigment prices increased year on year. In these trying production volumes, with both furnaces pig iron and chloride slag were recorded operational compared to one furnace at softer prices. being down for 10 months in 2008 after the water ingress incident in February Namakwa Sands operating circumstances, the three units in this business recorded a good cost 2008. The impact of the global recession on operations resulted in postponing the performance. Unfortunately, current depressed market fundamentals for the commodity led to the decision to discontinue the development of the Fairbreeze mine as replacement for the Hillendale mine at KZN Sands. Titanium slag tapped was 93kt higher at furnace 1 start-up which was shut down 205kt as both furnaces tapped more than for a reline at the end of March 2009. In 100kt of titanium slag. Low manganese addition, production activities at the mine pig iron and ilmenite production were and separation plants were temporarily respectively 58kt and 139kt higher than halted in August to preserve cash ﬂ ow in 2008, in line with increased slag and avoid building up stocks. This decision in turn invariably resulted in production. Zircon and rutile production the impairment of the carrying value of remained in line with 2008 despite the Total annual sales of 299kt were down the assets at KZN Sands to the value of decrease in run-of-mine tonnes as a result 28% on the previous year’s record of R1 435 million. of higher grades mined. 416kt. 44 I Exxaro Annual Report 2009 Australia Sands of USD0,79 to the AUD compared with Improvement initiatives led to pigment USD0,84 in 2008. production returning to 2007 levels, with 2009 production up 23% on 2008. The prospects for the mineral sands Zircon and rutile production increased commodity business are referred to in the as a result of higher grades and various chief executive ofﬁ cer’s review (page 19) improvement projects. Synthetic and elaborated on in the Commodity rutile production was slightly lower review (page 21). The growth aspirations following maintenance-related problems are included in the report on page 50. predominantly experienced in the second quarter of 2009. Revenue increased while net operating results improved. This was achieved on the back of a much stronger production performance, higher pigment sales and higher average prices for both mineral and pigment products at a realised rate The objective of the mineral sands business is to: > Maintain its position among leading global suppliers of titanium dioxide feedstock and zircon > Downstream value addition > Increase its share in the world chloride pigment market. Exxaro Annual Report 2009 I 45 BUSINESS OPERATIONS REVIEW CONTINUED BASE METALS Higher production of zinc metal despite downtime on acid plant Improved operating results assisted by cost savings Lower average realised LME zinc price 2010 Capital expenditure estimate 5% 95% ■ Sustaining and environmental (R167 million) ■ Expansion (R8 million) THE BUSINESS RECORDED STABLE PRODUCTION RESULTS DESPITE PLANT DOWNTIME AND AN EXPLOSION IN SEPTEMBER 2009 AT THE ZINCOR REFINERY. 46 I Exxaro Annual Report 2009 Operating results Total Revenue Net operating loss Capital expenditure Physical information Production (000 tonnes) Base metals 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 2009 Rm 1 582 (8) 139 2008 Rm 1 829 (172) 228 2009 2008 Variance Y-O-Y % 108 94 14 116 87 29 38 20 18 122 93 29 19 109 94 15 110 87 23 37 20 17 126 93 33 22 (1) (1) 6 6 1 1 (4) (4) (3) (1) (7) 5 26 3 6 (3) (12) (14) 1 Exxaro’s 26% interest in Black Mountain has been disclosed from 1 January 2008, for comparable purposes. 2 Exxaro’s effective interest in the Chifeng reﬁ nery is disclosed. Exxaro Annual Report 2009 I 47 BUSINESS OPERATIONS REVIEW CONTINUED Exxaro’s base metals business increased by R17 million to R13 million encompasses a 50,04% interest in the after a R4 million loss in 2008, mainly Rosh Pinah zinc and lead mine in southern due to reduced production costs and a Namibia, the Zincor reﬁ nery in Gauteng, reduction in the rates of environmental an effective 22% interest in the Chifeng duties paid. zinc reﬁ nery in Inner Mongolia, China, and a 26% interest in Black Mountain Exxaro’s 26% share in Black Mountain, Mining (Pty) Limited (Black Mountain). acquired in the last quarter of 2008, Lead and zinc concentrate production due mainly to increased sales volumes. at the Rosh Pinah mine was in line with 2008, with lead concentrate exports 14% The prospects for zinc are referred to in contributed R123 million to equity income lower than 2008. the chief executive ofﬁ cer’s review on page 19 and are further elaborated on in Production of zinc metal at the Zincor the Commodity review on page 21. reﬁ nery of 87kt was 338 tonnes more than in 2008, but adversely affected by downtime on the acid plant as well as the disruption caused by the explosion in September 2009. Domestic zinc metal sales were in line with 2008. Following the strategic decisions taken during the last quarter of 2009, the focus in the base metals commodity has been updated to: > secure a viable long-term quality The average zinc price for 2009 of feedstock supply for Zincor USD1 658 is 12% lower than in 2008 > quantify the upside life-of-mine and only partially offset by the slightly potential at Rosh Pinah weaker local currency. Production at the Chifeng reﬁ nery (China) was in line with 2008. Equity- accounted income from this operation > optimise the assets for divestment. Activities in the ﬁ nancial year ahead will focus on approaching potential suitors in the second half. 48 I Exxaro Annual Report 2009 GROWTH Capital expenditure and project pipeline As announced on 1 December 2009, Exxaro reviewed its commodity portfolio and growth pipeline against the background of the prevailing economic climate to align resources with a commodity strategy best positioned to release optimal value for all stakeholders. Following this review, Exxaro plans to reconﬁ gure its zinc assets to ultimately divest from them in an optimal manner. The portfolio of zinc assets includes the Zincor reﬁ nery in Springs, Gauteng, a 50,04% interest in the Rosh Pinah zinc and lead mine in Namibia, a 26% interest in Black Mountain which owns the Black Mountain zinc and lead mine and the Gamsberg zinc project in the Northern Cape, and an effective 22% interest in the Chifeng zinc smelter in China. Coal Grootegeluk expansion for Medupi Detail engineering on the expansion of the Grootegeluk mine to supply Eskom’s new Medupi power station with 14,6Mtpa of power station coal for 40 years is progressing to be able to supply ﬁ rst coal to Eskom in the second quarter of 2012. terms contained in the Medupi coal supply and offtake agreement signed on 19 September 2008, including the coal price escalation mechanism and the coal delivery ramp-up. Pending the outcome of the review process, Exxaro’s funding programme was temporarily suspended in December 2009 as was the placement of additional contracts associated with the project. The review process is expected to be concluded in the ﬁ rst quarter of 2010. Due to the delays in project execution, the capital cost associated with the project is now expected to increase from R9 billion to R9,5 billion. Thabametsi project Waterberg prospecting joint venture (project Mafutha) Exxaro entered into a prospecting joint venture agreement with Sasol Mining for the development of a new coal mine in the Waterberg to supply Sasol’s potential new 80 000 barrels-per-day inland coal-to-liquids facility. The project is in pre-feasibility stage and a decision to proceed to bankable feasibility study is expected in 2010. Waterberg infrastructure development An integrated infrastructure plan is being implemented for the Waterberg coalﬁ elds The Thabametsi project pre-feasibility with relevant stakeholders. Focus areas study to develop a potential greenﬁ elds include the supply of raw water to the mine adjacent to Grootegeluk mine is area as well as rail, road and housing scheduled for completion by end March infrastructure. 2010. If approved, Thabametsi would supply the market with power station Sintel char project and metallurgical coal. Implementation of this project is however linked to Eskom’s future developments in the Waterberg, together with the establishment by the Department of Energy of an appropriate enabling environment to allow for new- generation capacity in terms of Eskom’s multi-site base-load independent power producer (IPP) programme. The scope of the bankable feasibility study will only be ﬁ nalised after the details of After the successful commissioning of the Sintel char plant at Grootegeluk mine to produce reductants for the ferroalloy industry, Exxaro is currently evaluating the phase 2 expansion to produce a further 140ktpa of char. Moranbah South resource Exploration of the hard coking coal resource on the Moranbah South properties in the Bowen Basin of Queensland, Australia, is progressing well and results obtained are encouraging. This coincides with the start-up of the potential new-generation capacity power station. Full production from 2015 have been determined, after which the is anticipated. required technical studies will begin. The Exxaro received notice from Eskom in the of 2009 and are due to be completed venture with Anglo American, has the third quarter of 2009 that Eskom was during 2011. First coal production could potential to produce premium-quality seeking to review certain commercial be expected by 2015. hard coking coal. environmental studies started at the end Moranbah South, which is a 50% joint Exxaro Annual Report 2009 I 49 GROWTH CONTINUED Energy The commodity ﬁ ve years while, in parallel, investigating portfolio review other feedstock alternatives and the announced on 1 December 2009 continuation of the business should the stated the group’s intention to explore outlook for the mineral sands industry opportunities in energy markets. Clean improve substantially. energy initiatives encompassing co- generation, carbon credit trading, Kwinana and renewable energy (wind and solar The implementation of the Tiwest Kwinana projects), are progressing well. Development of the ﬁ rst ﬁ ve-spot test for the coal bed methane project in Botswana, with the aim of testing for economic gas ﬂ ow, is progressing well. Completion of the test work is planned for April 2010, after which the site will be operated until economic gas ﬂ ow has been attained. Clean energy initiatives include: > Solar – Pre-feasibility study on a 200MW plant at Lephalale. > Wind – Pre-feasibility study on a 100MW wind farm on South Africa’s West Coast. Mineral sands As a result of the decision not to continue with the development of Fairbreeze pigment expansion project to increase production by 40ktpa is progressing according to plan, with commissioning targeted for the second half of 2010. Exxaro is funding 100% of the expansion project, with capital expenditure now projected at some AUD118 million. Base metals Base metals activities are focused on the process of optimisation for divestment. Exxaro anticipates that potential suitors will be approached in the second half of 2010. Ferrous The ﬁ nal evaluation of the iron ore project in Turkey concluded that it did not meet the group’s investment criteria and a decision was made to divest from the project. mine, Exxaro will plan for the closure of Exxaro is considering ways to expand its the KZN Sands operations over the next footprint in the iron ore commodity. 50 I Exxaro Annual Report 2009 REVIEW OF MINERAL RESOURCES AND RESERVES The Mineral Resources and Ore Reserves the exploration work done, the extent of it appears. A list of Exxaro’s competent underpinning Exxaro’s current operations the geological potential, the mineability persons is available from the company and growth projects are summarised in and associated risks/opportunities to secretary on written request. the tables on pages 53 to 64. Mineral establish an eventual extraction outline Resources are reported inclusive of (EEO). Mineral Resources and Ore The processes and calculations associated those Mineral Resources that have been Reserves quoted fall within existing Exxaro with the estimate have been audited by converted to Ore Reserves and at 100%, resources mine or prospecting rights. internal competent persons and are audited irrespective of the percentage attributable Mining rights are of sufﬁ cient duration by external consultants when deemed to Exxaro, except for Gamsberg and Black (or convey a legal right to convert or essential to establish transparency. In the Mountain mines, because ﬁ gures received renew for sufﬁ cient duration) to enable case of mines or projects in which Exxaro from Anglo Base Metals represent resources all reserves to be mined in accordance does not hold the controlling interest, the exclusive of reserves. Signiﬁ cant changes with current production schedules. ﬁ gures have been compiled by competent in resource or reserve ﬁ gures are explained Mineral Resources and Ore Reserves by footnotes to each table. Resource were estimated by competent persons on estimations are based on resource models, an operational basis and in accordance which incorporate all new validated with the SAMREC Code (2007) for South geological information, updated geo- African properties and the JORC Code persons from the applicable companies and have not been audited by Exxaro. Resource and reserve estimation at Exxaro mines or projects in Australia were done by competent persons as deﬁ ned by the logical models and, if applicable, revised (2004) for Australian properties. Ore JORC Code (2004). resource deﬁ nitions and classiﬁ cations. Reserves in the context of this report The resource models are compiled as a rule have the same meaning as “Mineral between June and August of the reporting Reserves”, as deﬁ ned by the SAMREC year. Ore Reserves are estimated using the Code 2007. All competent persons have relevant modifying factors at the time of sufﬁ cient relevant experience in the reporting (mining, metallurgical, economic, style of mineralisation, type of deposit, marketing, legal, environmental, social and mining method and activity for which they governmental regulatory requirements). have taken responsibility, to qualify as a Mineral Resources in which Exxaro held “competent person” as deﬁ ned in these the controlling interest were reviewed codes at the time of reporting. These in 2009 to comply with “reasonable and competent persons have signed off their realistic prospects for eventual economic respective estimates in the original Mineral The person in Exxaro designated to take corporate responsibility for Mineral Resources and reserves, HJ van der Berg, the undersigned, has reviewed and endorsed the reported estimates. extraction” (SAMREC Code 2007). Resources and Ore Reserve statements HJ van der Berg Exxaro uses a systematic review process to the inclusion of the information in this Pr Sci Nat (400099/01) that measures the level of maturity of report in the form and context in which Manager mineral assets for the various operations and consent MSc (Geology), BSc (hon) Exxaro Annual Report 2009 I 51 REVIEW OF MINERAL RESOURCES AND RESERVES CONTINUED Exxaro’s tenure over its mineral assets, Exxaro mines. The progress will be the area was considered, but the potential as listed in the tables, was audited evaluated again early in 2010 to review is too low to warrant further interest. The and is conﬁ rmed with the following the status and ensure that decisions taken study on the Ranobe mineral sands projects consideration: the appeal against the remain valid or are adapted to comply with refusal of a prospecting right over several the growth strategy. farms included in the Leeuwpan Mineral Resource was addressed when a new Internationally the focus was on mining right, which covers these farms, investigation of the Moranbah hard coking was granted to Exxaro. The appeal against coal deposit in Queensland, Australia, an the refusal of a prospecting right, which iron ore project with associated base metal covers the Strehla Mineral Resource, has potential in Turkey and heavy mineral not yet been resolved. sands in Madagascar. Drilling also continued at the Rosh Pinah zinc mine in Namibia. Exxaro received written conﬁ rmation from Exploration drilling at Moranbah, which the Department of Mineral Resources is a 50:50 joint venture with Anglo Coal (DMR), dated 2 April 2009, which conﬁ rms Australia, was increased and a structural that all the ex-Kumba mining licences have study completed. The results were very been converted to mining rights. Apart positive and the project is moving into from the Glen Douglas mine, which was prefeasibility study phase. The viability executed in September 2009, execution of the iron ore project in Turkey was of the other conversions still needs to tested through small-scale experimental be scheduled by the DMR. With regard mining. Although the mining process was to the conversion of the ex-Eyesizwe successfully executed, results indicated mines, applied for in 2008, all additional that the achievable production rate would in Madagascar was ﬁ nalised in 2009 and the decision taken not to renew the option; the rights have therefore been relinquished. Drilling down to areas below the known ore bodies in the Rosh Pinah mine and exploration to the north of the mine in conjunction with the Anglo American group conﬁ rmed the potential to ﬁ nd additional zinc ore. Prospecting will continue in 2010. Exxaro recognises the importance and value of its mineral assets as the base of its present success and future sustainability. The drive to manage, optimise and grow the company’s mineral assets will therefore remain a focus area in 2010. Mineral asset risks and opportunities are being identiﬁ ed at each operation and growth project, and managed to improve utilisation and proﬁ tability, while pursuing safer working conditions and responsible environmental practices. Simultaneously, information requested by the DMR was be too small for Exxaro to be interested. the growth strategy will focus on adding submitted and the evaluation process is The investigation was therefore terminated. quality new resources to Exxaro’s mineral continuing. The delay in the conversion Simultaneously, the base metal potential in asset portfolio. or execution of converted rights does not put any of the mines at risk, because the COAL MINES AND PROJECTS IN SOUTH AFRICA old-order right remains in place until the minister takes a decision on the application for conversion and the conversion has been executed. Three new mining rights, which cover two small extensions to the Hillendale Mineral Resource and an extension to the Fairbreeze C resources, were executed. As a result of the economic climate and good management practice all growth projects, including exploration projects, were evaluated and prioritised during the year. Prospecting activities were focused on the Waterberg coalﬁ eld and a number of high-priority coal projects in Mpumalanga province, especially those close to existing 52 I Exxaro Annual Report 2009 COAL Coal Resources The table below details the total inclusive Coal Resources estimated as at 31 December 2009. Commodity Coal Operation1 Arnot mine6 Mpumalanga (captive market) (UG) Matla mine (captive market) (UG) Inyanda mine7 (OC) Leeuwpan mine (OC) Mafube mine8 (OC) NBC mine9 (North Block Complex) (OC) Belfast project (prospecting) (OC) NCC mine (New Clydesdale) (UG, OC) Coal Limpopo Grootegeluk mine10 (OC) % attributable to Exxaro2 Resource category 100 Measured Indicated Inferred TOTAL 100 Measured Indicated Inferred TOTAL 100 Measured Indicated Inferred TOTAL 100 Measured Indicated Inferred TOTAL 50 Measured Indicated Inferred TOTAL 100 Measured Indicated Inferred TOTAL 100 Measured Indicated Inferred TOTAL 100 Measured Indicated Inferred TOTAL 100 Measured Indicated Inferred TOTAL Grootegeluk West project11 100 Measured (prospecting) (OC) Indicated Inferred TOTAL Waterberg North project 100 Measured (prospecting) (OC) Indicated Inferred TOTAL Tonnes (million)3, 5 150,2 38,3 25,5 214,0 406,0 330,5 107,5 844,0 12,6 – – 12,6 181,7 2,8 – 184,5 121,1 – 57,3 178,4 30,7 5,1 0,2 36,0 107,7 3,7 7,1 Grade4 Raw Coal4 Raw Coal4 Raw Coal4 Raw Coal4 Raw Coal4 Raw Coal4 Raw Coal4 Raw Coal4 Raw Coal4 – – Raw Coal4 Raw Coal4 Raw Coal4 – Raw Coal4 Raw Coal4 – Raw Coal4 Raw Coal4 Raw Coal4 Raw Coal4 Raw Coal4 Raw Coal4 Raw Coal4 Raw Coal4 Raw Coal4 Tonnes (million)3, 5 Grade4 % change 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 0,0 52,6 107,7 3,7 7,1 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 11,6 4,09 (18,7) (2,6) 0,9 (31,7) 118,5 Raw Coal4 118,5 Raw Coal 0 13,9 42,2 – 56,1 2 610 1 290 787 4 687 – 1 021 3 617 4 638 – – 2 176 2 176 Raw Coal4 Raw Coal4 – Raw Coal4 Raw Coal4 Raw Coal4 Raw Coal4 Raw Coal4 – Raw Coal4 Raw Coal4 Raw Coal4 – – Raw Coal4 Raw Coal4 16,8 40,3 – 57,1 4 117 1 347 96 5 559 17 5 357 590 5 963 – – 2 176 2 176 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 (1,8) (15,7) (22,2) 0 Exxaro Annual Report 2009 I 53 REVIEW OF MINERAL RESOURCES AND RESERVES CONTINUED Commodity Operation1 % attributable to Exxaro2 Resource category Tonnes (million)3, 5 Waterberg South project 100 Measured (prospecting) (OC) Tshikondeni mine (captive market) (UG) Indicated Inferred TOTAL 100 Measured Indicated Inferred TOTAL Coal Australia Moranbah South project12 50 Measured (prospecting) (UG) Indicated Inferred TOTAL Rounding-off of ﬁ gures may cause computational discrepancies. All changes more than 10% (signiﬁ cant) are explained. – – 699 699 24,0 10,1 – 34,1 56,0 150,0 60,4 266,4 Grade4 – – Raw Coal4 Raw Coal4 Raw Coal4 Raw Coal4 – Raw Coal Raw Coal4 Raw Coal4 Raw Coal4 Tonnes (million)3, 5 Grade4 % change – – 699 699 24,4 10,1 – 34,5 165,6 767,8 406,1 – – Raw Coal Raw Coal Raw Coal Raw Coal – Raw Coal Raw Coal Raw Coal Raw Coal 0 (1,0) Raw Coal4 1 339,5 Raw Coal NA 1 Mining method: OC – open-cut, UG – underground. 2 Figures are reported at 100% irrespective of percentage attributable to Exxaro and refer to 2009 only. 3 The tonnages are quoted in metric tonnes and million tonnes is abbreviated as Mt, Coal Resources are quoted on a Mineable Tonnage In-Situ (MTIS) and on a air-dried basis. 4 Coal qualities are reported in Table 1 and are quoted on a Mineable Tonnage In-Situ (MTIS) and on a air-dried basis. 5 Mineral Resources are quoted inclusive of Mineral Resources that have been modiﬁ ed to Ore Reserves unless otherwise stated. 6 The increase is the result of a change in the cut-off speciﬁ cation (2m to 1,8m minimum seam thickness), the update of the open cut Mooifontein model, the re-deﬁ nition of the resource boundary and a minor modiﬁ cation in classiﬁ cation methodology. 7 The reduction is the result of mining depletion (2,4Mt) and a revision of the geological model (0,5Mt). 8 Figures are received from Anglo Coal and were not audited by Exxaro, Coal Resources are quoted on a Mineable In-Situ (MTIS) basis and tonnes are in addition to those resources which have been modiﬁ ed to produce the reported Coal Reserves. The slight increase is the result of mining depletion (2,9Mt) being offset by additional drilling and revised geological model. 9 The update of the geological model (speciﬁ c the exclusion of “seam 2 upper-upper” from “seam 2” because of poor quality), the transfer of 8Mt to inventory because of the exclusion of boreholes with suspect quality and/or collar information and mine depletion (3,5Mt) resulted in the signiﬁ cant decrease. 10 The decrease is the result of production depletion (37Mt), revised resource classiﬁ cation methodology (~835Mt), which includes the exclusion of geophysical logged open holes for classiﬁ cation purposes as well as the revision of the resource, based on eventual economic extraction, which resulted in the exclusion of benches 1b, 7a and zone 1. The Coal Resource classiﬁ cation methodology implemented in 2008 has been reviewed and applied with certain modiﬁ cations in 2009. Measured resources are classiﬁ ed by a 500m drill grid spacing, but structurally complex areas require additional investigative drilling to increase the structural deﬁ nition for inclusion into the measured category. The exclusion of geophysical logged open holes in resource classiﬁ cation this year will be reviewed in 2010 after current investigations have been concluded. 11 The project area is adjacent to Grootegeluk and forms part of the geological model of the mine. The decrease and movement between the categories are the result of the exclusion of geophysical logged open holes in resource classiﬁ cation and the movement of 903Mt to inventory based on eventual economic extraction. 12 Figures are received from Anglo Coal Australia and not audited by Exxaro. Resources outside the 2009 long wall layout and the north-west board and pillar area are excluded from reporting this year and is part of the low potential resources. 54 I Exxaro Annual Report 2009 COAL RESOURCE QUALITIES Table 1 Operation Arnot mine Matla mine Inyanda mine Leeuwpan mine Mafube mine NBC mine Belfast project NCC mine Grootegeluk mine Grootegeluk West project Waterberg North project Waterberg South project Tshikondeni mine Moranbah project Seam/ layer/ formation Total Total Total TL2 BL2 Total Total Total Total Volksrust Formation Vryheid Formation Volksrust Formation Vryheid Formation Volksrust Formation Vryheid Formation Volksrust Formation Vryheid Formation Total Total Measured Resource Indicated Resource Inferred Resource Tonnes (Mt)1 CV MJ/Kg 150,1 406,0 12,6 104,8 76,8 121,1 30,0 107,7 13,9 23,6 21,5 25,3 16,0 25,0 23,4 20,4 24,6 25,0 % VM 23,9 23,0 24,0 17,0 19,0 23,5 21,2 23,4 26,5 % Ash 21,1 25,0 20,4 42,0 22,0 27,9 28,3 18,9 20,3 % S 1,0 1,0 1,9 0,9 1,0 0,8 0,9 1,1 1,2 Tonnes (Mt)1 38,3 330,5 – 1,6 1,2 – 5,1 3,7 42,1 CV MJ/Kg 23,9 20,7 – 11,3 25,7 – 20,0 24,2 23,2 % VM 23,7 22,4 – 10,8 9,7 – 21,2 22,1 23,7 % Ash 21,4 27,6 – 51,8 20,5 – 30,0 20,1 25,7 Tonnes (Mt)1 25,5 107,5 CV MJ/Kg 24,1 21,3 % S 0,9 0,7 – 0,4 1,1 – – – – 57,3 0,9 1,1 1,0 0,2 7,1 – – – – 22,1 21,4 24,4 – % VM 23,7 22,5 – – – 21,6 21,4 21,6 – % Ash 20,8 25,9 – – – 30,4 25,1 20,0 – % S 0,9 0,7 – – – 0,8 0,8 1,3 – 1 962 12,7 19,7 54,4 1,1 990 14,2 19,7 53,9 1,1 621 13,4 20,0 53,6 0,9 648 23,2 22,2 27,6 2,1 300 23,3 22,3 28,6 2,2 166 23,2 21,5 28,5 2,0 840 13,8 19,4 55,9 0,9 2 960 12,5 19,6 56,4 0,9 181 22,9 22,3 29,5 2,3 656 21,5 21,8 32,1 2,2 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 24,0 56,0 30,8 24,9 22,0 19,0 14,0 26,7 0,7 0,6 10,1 150,0 30,8 26,3 22,0 18,4 13,9 22,7 0,7 0,6 VM – volatile matter, S – sulphur, CV – caloriﬁ c value. Rounding-off of ﬁ gures may cause computational discrepancies. Coal qualities are quoted on a Mineable Tonnage In-Situ (MTIS) and on an air-dried basis. 1 The tonnages are quoted in metric tonnes and million tonnes is abbreviated as Mt. 2 TL – Top layer, BL – Bottom layer. 1 588 11,2 19,1 56,5 1,0 588 16,3 21,0 41,7 1,6 247 10,6 19,4 55,5 0,6 451 16,5 21,1 38,3 – – – – 60,4 27,2 17,9 20,9 4,2 – 0,6 Exxaro Annual Report 2009 I 55 REVIEW OF MINERAL RESOURCES AND RESERVES CONTINUED COAL Coal Reserves The table below details the total Coal Reserve estimated as at 31 December 2009. 2009 2008 Commodity Operation1 % attribu- table to Exxaro5 Reserve category ROM (Mt)2,3 Arnot mine (UG) Coal Mpumalanga (captive market) 100 Matla mine6 (UG) (captive market) Inyanda mine7 (OC) 100 Proved Probable TOTAL Proved Probable TOTAL Proved Probable TOTAL 72,6 10,2 82,8 201,1 132,1 333,2 11,6 0,4 12,0 Leeuwpan mine (OC) 100 Proved Probable TOTAL 88,3 64,8 153,1 Mafube mine8 (OC) 50 NBC9 (OC) (North Block Complex) Belfast project (OC) (prospecting) NCC mine (OC, UG) (New Clydesdale) Coal Limpopo Grootegeluk mine10 (OC) Tshikondeni mine11 (UG) (captive market) 100 100 100 100 100 Proved Probable TOTAL Proved Probable TOTAL Proved Probable TOTAL Proved Probable TOTAL 35,6 67,3 102,9 26,9 4,1 31,0 91,9 3,0 94,9 11,7 – 11,7 Proved Probable TOTAL 2 140 666 2 806 Proved Probable TOTAL 3,98 – 3,98 Saleable product (Mt)2,4 Coking coal N/A N/A N/A N/A N/A N/A A-grade export steam coal Thermal coal 70,4 9,9 80,3 200,1 131,5 331,6 Metal- lurgical coal N/A N/A N/A N/A N/A N/A 8,2 0,3 8,5 Export Thermal 4,2 – 4,2 Export 18,4 25,1 43,5 N/A N/A N/A 56,8 – 56,8 N/A N/A N/A 35,4 9,4 44,8 Thermal 8,2 21,2 29,4 24,5 3,7 28,2 29,9 – 29,9 7,6 – 7,6 Coking coal 96,4 33,0 129,4 Thermal coal 905,3 309,6 1 214,9 Metal- lurgical coal 9,5 23 32,5 Metal- lurgical coal N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Metal- lurgical coal 83,3 33,7 117,0 ROM (Mt)2,3 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 2 756 552 3 308 Saleable product (Mt)2,4 Coking coal N/A N/A N/A N/A N/A N/A A-grade export steam coal Thermal coal 85,7 1,2 86,9 109,7 262,9 372,6 Metal- lurgical coal N/A N/A N/A N/A N/A N/A 8,7 – 8,7 A-grade export steam coal 48,4 34,3 82,7 Thermal 11,4 20,9 32,3 24,2 19,6 43,8 29,9 – 29,9 8,6 – 8,6 Export 22,0 24,7 46,7 N/A N/A N/A 56,8 – 56,8 N/A N/A N/A Coking coal 124,0 28,1 152,1 Thermal coal 1 094,1 221,0 1 315,1 Metal- lurgical coal N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Metal- lurgical coal 105,3 14,9 120,2 2,11 – 2,11 N/A N/A N/A N/A N/A N/A 4,41 – 4,41 2,40 – 2,40 N/A N/A N/A N/A N/A N/A Mine life based on reserve (years) % change (5,2) (11,0) 17 33 (14,0) 5,1 5,3 21 (4,2) 20,4 (29,3) 0 (6,6) (15,2) (9,8) 8 40 7 55 7 Rounding-off of ﬁ gures may cause computational discrepancies. All changes more than 10% (signiﬁ cant) are explained. Reserves quoted are inclusive of reported Mineral Resources unless otherwise stated. 1 Mining method: OC – open-cut, UG – underground. 2 The tonnages are quoted in metric tonnes and million tonnes is abbreviated as Mt. 3 Coal Reserves are quoted on a run of mine (ROM) reserve tonnage basis which represents the tonnages delivered to the plant at an applicable moisture and quality. 4 Saleable reserve tonnage represents the product tonnes of coal available for sale on an applicable moisture basis. Qualities of saleable products are provided in Table 2. 5 Figures are reported at 100% irrespective of percentage attributable to Exxaro and refer to 2009 only. 6 The decrease is the result of mining depletion (11,27Mt), the exclusion 14Mt in seam 4 due to safety considerations and the exclusion of ~17Mt due to a change in classiﬁ cation methodology. 7 Decrease is the result of mining depletion (2,1Mt) and a revision of the geological model (0,5Mt). 8 Figures are received from Anglo Coal and were not audited by Exxaro. 9 Decrease is the result of the signiﬁ cant reduction in the resource base (refer to Coal Resource table). 10 The decrease is the result of mining depletion and the change from indicated to inferred resources (~450Mt) within the LOMP that occurred with the implementation of the revised classiﬁ cation methodology. 11 Mining depletion (~0,6Mt) and revised block scheduling changes (0,86Mt) have depleted the reserve. 56 I Exxaro Annual Report 2009 COAL RESERVE QUALITIES Table 2 Operation Seam/ layer THERMAL saleable (proved + probable) METALLURGICAL saleable (proved + probable) COKING saleable (proved + probable) Arnot mine Matla mine Inyanda mine Leeuwpan mine Mafube mine Belfast project NCC mine Grootegeluk mine Tshikondeni mine Total Total Total TL2 BL2 Total Total Total Total Volksrust Formation Vryheid Formation Total Tonnes (Mt)1 CV MJ/Kg % VM 80,3 331,2 8,5 44,8 4,2 43,5 29,4 29,9 7,6 24,3 19,8 27,5 21,0 26,8 27,5 23,6 27,6 27,7 24,0 20,4 25,1 20,0 16,0 25,2 21,3 21,8 28,0 % Ash 23,0 28,1 15,1 24,0 16,0 11,5 20,7 15,2 14,7 751 21,4 27,1 31,8 464 – 22,4 22,0 29,9 – – – % S 1,0 1,1 0,6 0,8 0,7 0,4 0,8 0,6 0,8 0,8 2,2 – Tonnes (Mt)1 CV MJ/Kg % VM % Ash % S Tonnes (Mt)1 CV MJ/Kg % VM % Ash % S – – – – 32,5 26,8 20,0 16,0 – 0,7 – – – – – 129 29,2 35,6 59,1 117 29,1 24,5 11,3 – – – – 0,6 – – 2,1 – – – 30,8 22,0 90,0 4,3 – 9,0 Saleable reserve tonnage represents the product tonnes of coal available for sale on an applicable moisture and air-dried quality basis. VM – volatile matter, S – sulphur, CV – caloriﬁ c value. Rounding-off of ﬁ gures may cause computational discrepancies. 1 Saleable product tonnages are quoted in metric tonnes and million tonnes is abbreviated as Mt. 2 TL – Top layer, BL – Bottom layer. Exxaro Annual Report 2009 I 57 REVIEW OF MINERAL RESOURCES AND RESERVES CONTINUED MINERAL SANDS Mineral Resources The table below details the total inclusive mineral sands resources estimated as at 31 December 2009. Commodity Operation1 2009 % attribu- table to Exxaro2 Resource category Tonnes (million)3 Grade % ilmenite 2008 Tonnes (million)3 Grade % ilmenite Mineral sands KwaZulu-Natal Hillendale mine + Braeburn + Braeburn Extension4 (OC) Fairbreeze A+B+C+C Ext (OC) Fairbreeze D (additional resource not included in Fairbreeze LOM) Block P (OC) Block P Extension project (prospecting) (OC) Port Durnford project5 (prospecting) (OC) 100 100 100 100 0 51 Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL 40,9 – – 40,9 202,1 26,9 – 229,0 – 9,2 – 9,2 – 40,6 – 40,6 3,27 – – 3,27 3,7 2,5 – 3,6 – 2,5 – 2,5 – 3,1 – 3,1 Rights have been relinquished due to poor current economical viability. 142,5 340,1 466,0 948,6 3,0 2,8 2,5 2,7 53,4 – – 53,4 202,1 26,9 – 229,0 – 9,2 – 9,2 – 40,6 – 40,6 – – 42,0 42,0 142,5 340,1 466,0 948,6 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 % change (23,5) 0 0 0 – 0 58 I Exxaro Annual Report 2009 Mineral sands resources continued Commodity Operation1 % attribu- table to Exxaro2 Mineral sands Eastern Cape Mineral sands Limpopo Eastern Cape project (Nombanjana, Ngcizele, Sandy Point old and recent) (OC) Gravelotte sand and pebbles (OC) Gravelotte rock (OC) Letsitele sand project (prospecting) (OC) Letsitele rock project (prospecting) (OC) Mineral sands Western Cape Namakwa Sands mine6 (OC) Mineral sands Madagascar Mineral sands Australia Ranobé – Upper sand unit (OC) Tiwest – Cooljarloo mine (OC) Jurien project (OC) Dongara project (prospecting) (OC) 100 100 100 100 100 100 0 50 50 50 Resource category 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 2009 Grade % ilmenite 4,6 3,3 3,9 4,5 9,1 – 4,0 7,6 – – 20,7 20,7 10,5 – – 10,5 – 25,9 – 25,9 % ilmenite 3,0 2,5 1,5 2,7 Tonnes (million)3 226,2 9,9 19,8 255,9 75,1 – 31,3 106,4 – – 112,3 112,3 12,5 – – 12,5 – 53,6 – 53,6 578,1 258,1 84,8 921,0 % zircon 0,7 0,7 0,3 0,6 Option has not been renewed due to poor current economical viability. 95,0 234,1 10,0 339,1 – 25,6 – 25,6 91,4 – – 91,4 % THM 2,9 2,3 2,4 2,5 – 6,0 6,0 4,5 – – 4,5 2008 Grade % ilmenite 4,5 – – 4,5 9,1 – 4,0 7,6 – – 20,7 20,7 10,5 – – 10,5 – 25,9 – 25,9 % ilmenite 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 Tonnes (million)3 232,9 – – 232,9 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 % change 9,8 0 0 0 0 10 – (4,3) 0 0 % zircon 0,9 0,8 0,6 0,8 – – – %THM – % total heavy minerals. Mineral Resources are quoted inclusive of Mineral Resources that have been modiﬁ ed to Ore Reserves unless otherwise stated. Rounding-off of ﬁ gures may cause computational discrepancies. All changes more than 10% (signiﬁ cant) are explained. 1 Mining method: OC – open-cut, UG – underground. 2 Figures are reported at 100% irrespective of percentage attributable to Exxaro and refer to 2009 only. 3 The tonnages are quoted in metric tonnes and million tonnes is abbreviated as Mt. 4 The decrease is the result of mining depletion (7,7Mt), redeﬁ nition of the ore-body ﬂ oor (~1Mt), loss of material due to backﬁ lling (~0,1Mt) and review and update of the geological model (~3,7Mt). The total resource estimate includes 15,5Mt of material within the legal mine boundary buffer and ~2,8 Mt of material located beneath current infrastructure. 5 Prefeasibility study has been ﬁ nalised during the reporting year and the project was put on hold due to poor current economical viability. 6 The operation was reviewed by Exxaro during the reporting year as well as externally audited. The increase is primarily the result of the inclusion of the OFSW unit in the east mine (~90Mt) and the update of the geological model with the new 2008/09 drilling information. Exxaro Annual Report 2009 I 59 REVIEW OF MINERAL RESOURCES AND RESERVES CONTINUED MINERAL SANDS Ore Reserves The table below details the total mineral sands reserves estimated as at 31 December 2009. Commodity Operation(1) % attribu- table to Exxaro2 Reserve category ROM (Mt)3 2009 2008 Grade Total heavy mineral (THM) composition % THM % ilmenite % zircon % rutile % leuco- xene ROM (Mt)3 Grade Total heavy mineral (THM) composition % THM % ilmenite % zircon % rutile % leuco- xene Mine life based on reserve (years) % change 100 Proved 18,9 7,0 56,2 7,3 4,0 2,0 25,8 7,5 55,0 6,5 3,7 1,9 Mineral sands KwaZulu-Natal Hillendale mine4 (OC) (including Braeburn and Braeburn Extension) Fairbreeze A+B+C+C Ext5 (OC) Probable TOTAL 100 Proved Mineral sands Gravelotte sand 100 Limpopo (OC) Mineral sands Namakwa Sands mine6 Western Cape (OC) 100 Proved Australia Tiwest 50 – Cooljarloo (OC) – Jurien (OC) 50 – Dongara (OC) 50 (prospecting) – 18,9 161,1 20,4 181,5 52,4 – 52,4 393,6 120,0 513,6 93,3 17,0 110,3 – 15,7 15,7 29,5 – 29,5 – 7,0 6,6 4,2 6,4 13,0 – 13,0 9,0 6,9 8,3 2,7 2,7 2,7 – 7,9 7,9 7,3 – 7,3 – 56,2 60,4 49,0 59,1 85,0 – 85 3,2 2,3 2,9 60,6 56,0 58,1 – 54,0 54,0 48,6 – 48,6 – 7,3 8,2 7,4 8,1 N/A – N/A 0,7 0,5 0,6 8,8 13,4 9,0 – 10,0 10,0 10 – 10,1 – 4,0 3,4 2,7 3,3 N/A – N/A 0,2 0,2 0,2 4,6 5,2 4,5 – 6,8 6,8 7,0 – 7,0 – 2,0 1,7 2,1 1,7 N/A – N/A 0,4 0,3 0,4 3,0 2,8 2,9 – 2,3 2,3 2,0 – 2,0 2,7 28,5 137,4 44,1 181,5 52,4 – 52,4 64,7 217,9 282,6 58,0 56,0 114,0 – 15,7 15,7 29,5 – 29,5 5,0 7,3 6,1 7,2 6,4 13,0 – 13,0 12,2 10,0 10,5 3,3 2,7 3,0 – 7,9 7,9 7,3 – 7,3 63,0 55,8 59,9 61,3 60,3 85,0 – 85 38,7 37,8 38,0 60,6 60,4 60,5 – 54,0 54,0 48,6 – 48,6 4,0 6,3 8,3 8,1 8,1 N/A – N/A 9,8 9,8 9,8 9,3 8,4 8,9 – 10,0 10,0 10 – 10,1 8,0 4,1 3,1 3,4 3,3 N/A – N/A 1,8 2,1 2,0 4,3 4,6 4,4 – 6,8 6,8 7,0 – 7,0 2,0 1,9 1,4 1,8 1,7 N/A – N/A 3,9 4,1 4,1 3,2 3,1 3,1 – 2,3 2,3 2,0 – 2,0 (33,6) 3 0 0 22 11 81,7 18 (3,2) 6 0 0 5,2 9,8 Probable TOTAL Proved Probable TOTAL Probable TOTAL Proved Probable TOTAL Proved Probable TOTAL Proved Probable TOTAL %THM – percent total heavy minerals. Rounding-off of ﬁ gures may cause computational discrepancies. All changes more than 10% (signiﬁ cant) are explained. Reserves quoted are inclusive of reported Mineral Resources unless otherwise stated. 1 Mining method: OC – open-cut, UG – underground. 2 Figures are reported at 100% irrespective of percentage attributable to Exxaro and refer to 2009 only. 3 The tonnages are quoted in metric tonnes and million tonnes is abbreviated as Mt. 4 The decrease is the result of mining depletion (7,7Mt) and reduction in the resource base. 5 The measured resources previously reported as probable based on the pending status of the Fairbreeze C Ext. mine right application were reclassiﬁ ed as proved reserves this year due to the granting of the mine right during the reporting period. 6 The change is the result of a review of the reserve model and the signiﬁ cant increase in the resource base. 60 I Exxaro Annual Report 2009 BASE METALS Mineral Resources The table below details the total inclusive base metal resources estimated as at 31 December 2009. Commodity Operation1 Base metals Namibia Rosh Pinah mine (zinc and lead) (UG) 2008 Grade %Zn 8,7 6,6 4,8 7,2 Tonnes (million)3 Mt 4,7 5,8 1,7 12,2 % change (4,5) %Pb 2,2 1,8 0,8 1,8 % attribu- table to Exxaro2 Resource category Tonnes (million)3 50,04 Measured Indicated Inferred TOTAL Mt 4,2 5,8 1,7 11,6 2009 Grade %Zn 8,5 6,7 4,8 7,1 %Pb 2,2 1,8 0,8 1,8 2009 % attribu- table to Exxaro2 Resource category Tonnes (million)3 Grade Commodity Base metals Northern Cape Operation1 Black Mountain Mining – Deeps and Broken Hill4,5 26 Measured (zinc, lead, copper and silver) (UG) – Swartberg4,6 (zinc, lead, copper and silver) (UG) Indicated Inferred TOTAL 26 Measured Indicated Inferred TOTAL Mt 7,2 5,8 7,3 20,3 – 17,3 24,5 41,8 Commodity Operation1 % attribu- table to Exxaro2 Resource category Tonnes (million)3 – Gamsberg North4,7 26 Measured (zinc) (OC) Indicated Inferred TOTAL Mt 43,3 57,5 53,3 154,1 Zn% Pb% Cu% Ag g/t 3,2 3,0 2,3 2,8 – 2,9 2,8 2,8 0,4 0,5 0,7 0,5 – 0,7 0,6 0,7 38,5 44,7 25,9 35,8 – 35,0 41,0 39,0 2,7 2,1 3,0 2,6 – 0,6 0,7 0,7 Grade Zn% 7,1 6,5 5,4 6,3 2008 Grade Zn% Pb% Cu% Ag g/t 3,4 4,3 1,4 3,0 – 2,9 2,8 2,8 0,6 0,6 1,1 0,8 – 0,7 0,6 0,7 47,0 58,0 14,0 40,0 – 35,0 41,0 39,0 3,7 3,7 4,4 3,9 – 0,6 0,7 0,7 Grade Zn% – – 4,1 4,1 % change 206 0 % change 184 Tonnes (million)3 Mt 1,6 2,6 2,4 6,6 – 17,3 24,5 41,8 Tonnes (million)3 Mt – – 54,2 54,2 %Zn – percent zinc, %Cu – percent copper, %Pb – percent lead, Ag g/t – grams per tonne silver. Mineral Resources are quoted inclusive of Mineral Resources that have been modiﬁ ed to Ore Reserves unless otherwise stated. Rounding-off of ﬁ gures may cause computational discrepancies. All changes more than 10% (signiﬁ cant) are explained. 1 Mining method: OC - open-cut, UG - underground. 2 Figures are reported at 100% irrespective of percentage attributable to Exxaro. 3 The tonnages are quoted in metric tonnes and million tonnes is abbreviated as Mt. 4 Figures received from Anglo Base Metals and were not audited by Exxaro. 5 Resources quoted are in addition to reported Ore Reserves. Broken Hill and the Deeps Mineral Resources are combined for reporting purposes as both deposits are geologically connected and make use of the same mining infrastructure. The decrease in Ore Reserves due to production has been partially offset through changed economic assumptions and updated resource modelling based on new information. The deﬁ nition of Mineral Resources for Broken Hill and the Deeps is based on the same 2009 economic and ﬁ nancial parameters as used for the deﬁ nition of Ore Reserves. 6 Mine was placed on care and maintenance in 2007. No Ore Reserves, all remaining resources are declared. 7 Resources quoted are in addition to reported Ore Reserves. These Mineral Resources were formerly referred to as Gamsberg. However the recent discovery of the Gamsberg East deposit has necessitated distinction between the two deposits; hence the renaming of Gamsberg to Gamsberg North. Towards the latter part of 2009, a new Gamsberg Mineral Resource model has been produced based on an extensive drilling campaign carried out during 2008 and 2009. Mineral Resources are deﬁ ned using geology and a cut-off grade (3% Zn) within an economic pit shell. In view of the signiﬁ cant changes (geological model, economic parameters and technological advancements) that have taken place since the 2000 feasibility study was completed, Ore Reserves have been reallocated to Mineral Resources and will be restated once a new feasibility study has been completed and approved. During 2009, some 11kt of material with an average grade of 8% Zn were mined via the exploration audit and processed at the Black Mountain concentrator. Exxaro Annual Report 2009 I 61 REVIEW OF MINERAL RESOURCES AND RESERVES CONTINUED BASE METALS Ore Reserves The table below details the total base metal reserves estimated as at 31 December 2009. 2009 2008 Commodity Operation1 % attributable to Exxaro2 Reserve category ROM (Mt)3 Grade Base metals Rosh Pinah mine4 (UG) (zinc and lead) Namibia 50,04 Proved Probable 2,8 2,0 %Zn 10,3 7,9 %Pb 2,5 1,7 ROM (Mt)3 Grade Saleable product Mine life based on reserve (years) % change Saleable product Zinc metal (x 1,000t) Lead metal (x 1,000t) 282 158 69 34 3,3 2,7 Zinc metal (x 1,000t) Lead metal (x 1,000t) 327 203 80 49 %Zn 10,1 7,4 2009 2008 % attribu- table to Exxaro2 Commodity Opera- tion1 Reserve category ROM (Mt)3 Grade %Zn %Pb Cu% Ag g/t Saleable product Zinc metal (x 1,000t) Lead metal (x 1,000t) Copper metal (x 1,000t) Silver metal (x 1,000t) ROM (Mt)3 Grade %Zn %Pb Cu% Ag g/t Saleable product Zinc metal (x 1,000t) Lead metal (x 1,000t) Copper metal (x 1,000t) Silver metal (x 1,000t) Mine life based on reserve (years) % change Base metals (zinc, lead, copper and silver) Black Mountain mining Deeps5 (UG) 26 Proved Probable 4,9 2,8 3,5 2,0 3,6 2,6 0,4 0,4 43 50 171,2 176,6 18,5 206,8 57,4 74,7 11,6 142,6 3,0 5,9 3,7 2,9 3,2 2,9 0,5 0,4 40 42 109,4 93,2 13,4 116.8 170,1 168,2 21,9 244.5 Commodity Operation1 Base metals (zinc) Gamsberg 6 (OC) % attributable to Exxaro2 26 2009 2008 Reserve category ROM (Mt)3 Proved Probable TOTAL – – – Grade %Zn – – – Saleable product Zinc metal (x 1,000t) – – – ROM (Mt)3 34,2 110,3 144,5 Grade %Zn 7,5 5,5 6,0 Saleable product Zinc metal (x 1,000t) 2,6 6,1 8,7 % change – %Zn – percent zinc, %Cu – percent copper, %Pb – percent lead, Ag g/t – grams per tonne silver. Reserves quoted are inclusive of reported Mineral Resources unless otherwise stated. Rounding-off of ﬁ gures may cause computational discrepancies. All changes more than 10% (signiﬁ cant) are explained. 1 Mining method: OC – open-cut, UG – underground. 2 Figures are reported at 100% irrespective of percentage attributable to Exxaro and refer to 2009 only. 3 The tonnages are quoted in metric tonnes and million tonnes is abbreviated as Mt. 4 The decrease is the result of mining depletion (~0,5Mt) and revised mine design based on updated economical assumptions (~0,7Mt). 5 Figures received from Anglo Base Metals and not audited by Exxaro. Reserves quoted are exclusive of Mineral Resources. The decrease in Ore Reserves due to production has been partially offset through changed economic assumptions and updated resource modelling based on new information. The deﬁ nition of Mineral Resources for Broken Hill and the Deeps is based on the same 2009 economic and ﬁ nancial parameters as used for the deﬁ nition of Ore Reserves. 6 Figures received from Anglo Base Metals and not audited by Exxaro. A prefeasibility study is currently in progress and no Ore Reserves are therefore reported. 62 I Exxaro Annual Report 2009 INDUSTRIAL MINERALS Mineral Resources The table below details the total inclusive industrial mineral resources estimated as at 31 December 2009. 2009 2008 Commodity Gauteng Operation1 Glen Douglas mine (metallurgical dolomite) OC Glen Douglas mine (aggregate dolomite) OC % attributable to Exxaro2 Resource category Tonnes (million)3 Grade % SiO2 <2,5 – <2,5 <2,5 Tonnes (million)3 179,2 – 125,2 304,4 Grade % SiO2 <2,5 – <2,5 <2,5 178,5 – 125,2 303,7 34,2 Raw material 36,1 Raw material – 193,7 227,9 – Raw material Raw material – 193,7 229,8 – Raw material Raw material % change (0,2) (0,8) 100 100 Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Mineral Resources are quoted inclusive of Mineral Resources that have been modiﬁ ed to Ore Reserves unless otherwise stated. %Sio2 – percent silica. Rounding-off of ﬁ gures may cause computational discrepancies. All changes more than 10% (signiﬁ cant) are explained. 1 Mining method: OC – open-cut, UG – underground. 2 Figures are reported at 100% irrespective of percentage attributable to Exxaro. 3 The tonnages are quoted in metric tonnes and million tonnes is abbreviated as Mt. Exxaro Annual Report 2009 I 63 REVIEW OF MINERAL RESOURCES AND RESERVES CONTINUED INDUSTRIAL MINERALS Ore Reserves The table below details the total inclusive industrial mineral reserves estimated as at 31 December 2009. Commodity Operation1 Industrial minerals Gauteng Glen Douglas (OC) Dolomite mine Glen Douglas (OC)4 Dolomite mine 2009 2008 % attribu- table to Exxaro2 100 100 Reserve category Proved Probable TOTAL Proved Probable TOTAL ROM (Mt)3 Grade % SiO2 <2,5 – <2,5 42,1 – 42,1 8,6 – 8,6 Raw dolomite – Raw dolomite Saleable product Metallurgical dolomite (Mt) 39,8 – 39,8 Aggregate (Mt) 8,5 – 8,5 ROM (Mt)3 Grade % SiO2 <2,5 – <2,5 Raw dolomite – Raw dolomite 42,8 – 42,8 10,5 – 10,5 Saleable product Metallurgical dolomite (Mt) 40,2 – 40,2 Aggregate (Mt) 9,8 – 9,8 % change (1) (18) MINERAL SAND MINES AND PROJECTS IN KWAZULU-NATAL 64 I Exxaro Annual Report 2009 BASE METAL AND INDUSTRIAL MINERAL MINES IN SOUTHERN AFRICA Exxaro Annual Report 2009 I 65 EXECUTIVE COMMITTEE 66 I Exxaro Annual Report 2009 Left: Sipho Nkosi (55) Chief executive ofﬁ cer BCom (hons)(econ), MBA (Univ Mass, USA), Diploma in Marketing Management, Advanced management leadership programme (Oxon) After six years at Ford Motor Company in South Africa as a market analyst, in 1986 Sipho moved to Anglo American Coal Corporation as a marketing coordinator. In 1992 he joined Southern Life Association as senior manager, strategic planning. In 1993 he was appointed marketing manager, new business development at Trans- Natal Coal Corporation, which later became Ingwe Coal Corporation. In 1997 he joined Asea Brown Boveri (South Africa) Limited as vice-president marketing, becoming managing director of ABB Power Generation in 1998. As founder of Eyesizwe Holdings, he served as chief executive ofﬁ cer. On 1 September 2007 he was appointed chief executive ofﬁ cer of Exxaro. Right: Wim de Klerk (46) Finance director BCom (hons), CA(SA), TEP (Darden), EMP (Harvard) Wim has served on the executive management team of Iscor, responsible for strategy and continuous improvement. From 2001, he was responsible for the mineral sands commodity business and assumed responsibility for the base metals businesses in 2008. He was appointed to his current position in March 2009. Trevor Arran (42) Executive general manager: sands and base metals BSc (hons)(econ geo), Advanced management programme (UP/GIBS), BEP, diploma project management Trevor has a wide mining background, supplemented by ﬁ nancial experience gained in equity markets, investment banking and new business. He assumed responsibility for his current portfolio in the ﬁ rst half of 2009. Left: Mxolisi Mgojo (49) Executive general manager: coal BSc (hons), MBA, Advanced management programme (Wharton) Previously at Eyesizwe Coal, he was responsible for marketing. Before assuming his current position, Mxolisi was responsible for the base metals and industrial minerals commodity business. Right: Retha Piater (55) Executive general manager: human resources BCom (hons), MBA, Advanced management programme (Insead) Retha has 23 years of human resources experience across the various business units and commodities, speciﬁ cally in the area of remuneration. Left: Dr Nombasa Tsengwa (45) Executive general manager: safety and sustainable development Senior secondary teacher’s diploma, BSc (hons), MSc, PhD (Biotechnology)(Univ of Maryland, USA), Advanced management programme (Insead) Prior to her appointment in 2003, Nombasa was the deputy director-general for the Department of Environmental Affairs and Tourism, and served as a corporate manager at the Council for Scientiﬁ c and Industrial Research (CSIR). Subsequent to year end, Nombasa assumed responsibility for the coal captive mines. Right: Ernst Venter (53) Executive general manager: business growth BEng (hons), MBA, Advanced management programme (Insead) Ernst has headed a number of portfolios including base metals, consulting services, mining technology, coal beneﬁ ciation, process development and plant metallurgy. Prior to assuming his current position, he was responsible for the coal commodity business. Left: Marie Viljoen (63) Company secretary Marie has 23 years’ experience in the ﬁ eld. She is responsible for the group’s corporate governance and business administration to comply with statutory and legal requirements. Right: Dr Willem van Niekerk (50) Executive general manager: corporate services BSc (hons), MSc, PhD (met eng)(Univ of Pretoria), BCom (Unisa), MBA (Henley), TEP (Darden) Willem started his career as a metallurgist with Iscor in 1985, progressing to general manager corporate technology by 2001. At Exxaro, he has headed Zincor and Australia Sands, and is now responsible for technology, information management, logistics and supply chain management. > Dirk van Staden retired with effect from 28 February 2009. Wim de Klerk was appointed as ﬁ nance director on 1 March 2009. Exxaro Annual Report 2009 I 67 DIRECTORATE 68 I Exxaro Annual Report 2009 Left: Sipho Abednego Nkosi (55) Chief executive ofﬁ cer BCom (hons)(econ), MBA (Univ Mass, USA), Diploma in marketing management, Advanced management leadership programme (Oxon) See page 66 Right: Willem Abraham de Klerk (46) Finance director BCom (hons), CA(SA), TEP (Darden), EMP (Harvard) See page 66 Left: Christopher Ivan Grifﬁ th (45) BEng (mining)(hons), professional engineer Chris is chief executive ofﬁ cer of Kumba Iron Ore, chairman of Sishen Iron Ore Company and a member of the Anglo American plc executive committee. Prior to his appointment at Kumba in 2008, he headed joint ventures for Anglo Platinum. Chris is a member of the South African Institute for Mining and Metallurgy and the Association of Mine Managers. Right: Jurie Johannes Geldenhuys (67) Independent non-executive director BSc (eng)(elec), BSc (eng)(min), MBA (Stanford), professional engineer Jurie spent 35 years with the Anglovaal Group in technical and executive capacities across numerous commodities, retiring as managing director of Avgold Limited in 2000. He was president of the Chamber of Mines (1993 – 1994) and served on several of its board committees. He also served on the Atomic Energy Council and National Water Advisory Council. He is currently non- executive chairman of Astral Food Limited and chairs its human resources and remuneration committee. Left: Uﬁ kile Khumalo (44) Non-executive director BSc (eng) (UCT), MAP (Wits), Senior executive development programme (Harvard), Advanced management programme (Insead) Uﬁ kile served with Sasol and Eskom as a senior engineer and Bevcan as a manufacturing manager prior to joining the Independent Development Corporation (IDC). He held several positions at the IDC, including head of international ﬁ nance; executive vice-president of industrial sectors and executive vice president of projects. He provided strategic direction in the industrial sectors on large projects, and was involved in evaluating investment proposals, contributing to successfully implementing the IDC’s development mandate. Right: Deenadayalen Konar (56) Independent non-executive director, chairman BCom, CA(SA), MAS, DCom Immediately after completing his articles at Ernst & Young, Len became an academic at the University of Durban-Westville. He then spent six years with the Independent Development Trust as head of investments and internal audit, prior to becoming a professional director of companies and consultant. He is past chairman and member of the external audit committee of the International Monetary Fund. Len is currently chairman of Steinhoff International and Mustek, and a board member of Illovo Sugar, Makalani, Sappi and JD Group and co-chairman of the implementation oversight panel of the World Bank in Washington. Vincent Zwelibanzi Mntambo (52) Non-executive director BJuris, LLB (Univ of North West, LLM (Yale) Zwelibanzi is executive chairman of ASG Business Solutions. He was previously a senior lecturer at the University of Natal, executive director of IMSSA, director- general of Gauteng Province and chairman of the Commission for Conciliation, Mediation and Arbitration of South Africa. He is chairman of Metrobus (Pty) Ltd, Mainstreet 333 (Pty) Ltd and a director of SA Tourism (Pty) Ltd and Aveng Ltd. Left: Richard Peter Mohring (62) Independent non-executive director BSc (eng)(mining), MDP, PMD (Harvard); professional engineer From 1972 to 1998, Rick held production, managerial and executive posts in the gold and coal divisions of the Rand Mines and Billiton groups. From 1998 until 2000, he was chief executive ofﬁ cer of NewCoal, an empowerment initiative set up by Anglo Coal and Ingwe Coal Corporation and the forerunner to Eyesizwe Coal, the largest BEE coal company in South Africa. Rick served as deputy chief executive ofﬁ cer of Eyesizwe Coal for three years. He retired in December 2003, and set up a private consulting company, Mohring Mining Consulting. Right: Nkululeko Leonard Sowazi (46) Non-executive director BA, MA (UCLA) Nkululeko is founding executive chairman of the Tiso Group, a black-controlled investment holding company with interests in natural resources, infrastructure and industrial services. He was previously executive deputy chairman of JSE-listed banking group, African Bank Investments Limited (ABIL) and managing director of the Mortgage Indemnity Fund. He is chairman of Idwala Industrial Holdings, Home Loan Guarantee Company, Financial Markets Trust, and serves on the boards of Aveng Ltd, Alstom South Africa, Trident Steel, Emira Property Fund and African Explosives Ltd. Left: Jeffrey van Rooyen (59) Independent non-executive director BCom, BCompt (hons), CA(SA), Competitive readiness programme (Columbia, USA) Director of various companies in the Uranus Group. Non-executive director of MTN Group and Pick n Pay Stores. Trustee of the International Accounting Standards Committee Foundation and member of the University of Pretoria’s faculty of economic and management sciences oversight board. Jeff was a partner in Deloitte and Touché, chairman of the Public Accountants and Auditors Board, CEO of the Financial Services Board and advisor to the Minister of Public Enterprises. He is a founder member and former president of the Association for the Advancement of Black Accountants of South Africa. Right: Dalikhaya Zihlangu (43) Non-executive director BSc (eng) (mining) (Wits), MDP (Unisa), MBA (Wits) Dalikhaya is chief executive ofﬁ cer of Eyabantu Capital Consortium. Between 1989 and 1994, he was a stoper/developer and shift boss at Vaal Reefs Gold Mining Company. From 1995 until 2002, he served as shift boss, mine overseer, operations manager and mine manager at Impala Platinum Limited, and then as chief executive ofﬁ cer of Alexkor Limited. He is a non-executive director of the South African National Oil and Gas Company (PetroSA), chairman of its human capital committee and a member of its business strategy committee. > Dirk van Staden retired with effect from 28 February 2009. Wim de Klerk was appointed as ﬁ nance director on 1 March 2009. > Philip Baum resigned as a non-executive director with effect from 15 July 2009. Chris Grifﬁ th was appointed as non-executive director on 16 July 2009 > Simangele Mngomezulu resigned as a non-executive director with effect from 21 December 2009. Exxaro Annual Report 2009 I 69 WE UNDERSTAND THAT REACHING OUR LONG-TERM GOALS REQUIRES SHORT-TERM ACTION. 70 I Exxaro Annual Report 2009 Governance and sustainability Exxaro Annual Report 2009 I 71 CORPORATE GOVERNANCE Highlights > Independent board, individual director performance assessments and peer evaluation of directors > Roll-out of a comprehensive induction programme for directors, which included: – Statutory and regulatory requirements relating to the governance and operations of the company – The organisation’s operations and business environment > Implementation of a new framework for delegation of authority in support of the board-approved policy and best- practice principles > Implementation of reinforced pro- cesses for conﬂ ict of interest > Introduction of a bi-annual CEO Safety Summit > Introduction of an ethical assessment panel compliance to the competition act and implementation of a structured compliance programme to ensure competition law compliance > Independent King II compliance accountable, not only to shareholders but of the business or the interests of to all stakeholders. shareholders and, if appropriate, obtains independent expert advice. Transparency and accountability have never proven more important than The board has a written charter that during the global ﬁ nancial crisis of the governs its powers, functions and last ﬁ nancial year. Exxaro’s effective responsibilities. There is a clear distinction embedded governance processes have in Exxaro between the roles of chairman allowed it to critically evaluate and re- and chief executive ofﬁ cer to ensure evaluate capital projects to create value unfettered powers of decision making. for the beneﬁ t of internal and external stakeholders within existing ﬁ nancial The board selects and appoints the constraints. company secretary and recognises the pivotal role to be played by the company The review of capital projects is only secretary in achieving good corporate one of a number of governance processes governance. within the organisation. Exxaro’s governance processes are guided The board meets at least ﬁ ve times a by the: > Memorandum and articles of year. association > Board charter > > Board committees’ terms of reference Companies Act 61 of As a truly South African company, we support and actively drive transformation in everything we do and therefore we 1973, as are proud that the majority of our board members are historically disadvantaged > Listings Requirements of the JSE South Africans. Limited > King codes > Global Reporting Initiative. Our board consists of: > independent Four non-executive directors, unconnected to the organisation > Six non-executive directors > Two executive directors. assessment > Launching a high-level review of The board The board is ultimately accountable existing governance practices against and responsible to shareholders for the the compliance requirements of performance and affairs of Exxaro. The > Independent assessment of amended King III. board therefore retains full and effective In assessing the status of directors, the control over Exxaro and gives strategic principles of the Listings Requirements of Sound corporate governance is implicit direction to management. The board is the JSE Limited were used. in our values, culture, processes, also responsible for ensuring compliance organisational structure and operations. with all relevant laws, regulations and The board collectively provides To ensure that the tone is set for codes. accountability and transparency, scrutinising, monitoring and strategic functions, and maintains strict corporate governance practices are The board regularly evaluates economic, conﬁ dentiality of all information relating driven from our board of directors through political, social and legal issues, as well as to the business of Exxaro. The board to management and all employees. any other relevant external matters that is familiar with issues of concern to This ensures management remains may inﬂ uence or affect the development shareholders. 72 I Exxaro Annual Report 2009 Attendance Board 2009 D Konar (Chairman) PM Baum WA de Klerk JJ Geldenhuys CI Grifﬁ th U Khumalo SEA Mngomezulu VZ Mntambo RP Mohring SA Nkosi NL Sowazi J van Rooyen DJ van Staden D Zihlangu P = present X = apology pre/post appointment Appointed 20 27 to board Feb March 29 May 15 Jul 18 Aug 01 Oct 30 Nov Present Apology 1 Jun 01 17 Feb 04 1 Mar 09 1 Jun 01 16 Jul 09 28 Nov 06 13 Aug 08 28 Nov 06 28 Nov 06 18 Oct 01 28 Nov 06 13 Aug 08 1 Jun 01 28 Nov 06 P X P X P X P P P X P P P P P P P P P P P X P X P X P P P X P P P X P P P X P P P P P P P X P P P P P P X P P P P P P P P P P P X P P P X X P P P P P P P X P P P P P P 7 1 6 7 3 4 5 6 7 6 3 6 1 6 0 3 0 0 0 3 2 1 0 1 4 1 0 1 Committees of the board The committees assist in the execution of board duties, powers and authorities. The board delegates to each of the committees the authority required to enable the committees to fulﬁ l their respective functions through formal board-approved terms of reference. Delegating authority to board committees or management does not mitigate or discharge the board and its directors of their duties and responsibilities. This is reﬂ ected in the Exxaro delegations of authority framework (the framework) which is managed by the ofﬁ ce of the company secretary. The framework has been adopted by all wholly-owned In the spirit of transparency and full disclosure, each committee’s independent chairman reports formally to the board after each meeting on all matters within their duties and responsibilities. This includes recommendations on steps to be taken. Board committees and members are authorised to obtain independent outside professional advice when considered necessary. The company secretary assists the board committees and members in obtaining any such professional advice. Audit, risk and compliance committee The committee for is appointing auditors and ensuring the company’s ﬁ nancial reporting is accurate responsible subsidiaries. and complete. The committee assists in: > Ensuring effective internal ﬁ nancial controls are in place > Overseeing the external audit function > Reviewing the integrity of risk control systems and risk policies > Evaluating the qualiﬁ cation and independence of the external auditor* > Evaluating the scope and effectiveness of the external audit function* > Evaluating the competency level of the ﬁ nance director* > > Appointment of the chief audit executive Compliance with legal and regulatory requirements. * Evaluation performed and concluded at the committee’s November 2009 meeting. Exxaro Annual Report 2009 I 73 Appointed to committee 20 Feb 29 May 18 Aug 30 Nov Present Apology 13 Aug 08 11 Feb 02 30 May 07 30 May 07 P P P P P P P P P P P X P P P P P P P P P P P P P P P P P 4 4 4 3 4 1 4 4 0 0 0 1 0 0 0 0 CORPORATE GOVERNANCE CONTINUED The committee, in carrying out its duties, Attendance has due regard to the principles of governance and code of best practice as contained in the King reports. Audit 2009 J van Rooyen (Chairman) D Konar RP Mohring NL Sowazi WA de Klerk DJ van Staden SA Nkosi R Strydom* P = present X = apology invitees * Chief Audit Executive post retirement The committee meets at least four times a year. Due to the heavily regulated environment within which Exxaro operates, emphasis has been placed on the need to implement effective compliance processes in line with the standards of the Compliance Institute of South Africa. The terms of reference of the audit, risk and compliance committee describe the committee’s oversight responsibility in managing compliance risk. The following compliance-related memorandums were submitted to the committee and the board for noting: > Directors’ liability in terms of safety and environmental statutes > Directors’ liability in terms of the Transformation, remuneration, human resources and nomination committee The purpose of this committee is to: > Guide, monitor, review and evaluate Exxaro’s progress on transformation, the following responsibilities for the nomination element are carried out: > recommendations Providing on the composition of the board and board committees and ensuring that the board of directors consists of individuals who are equipped to fulﬁ l with speciﬁ c reference to the the role of directors of the company three primary pillars – employment > Annual revision of corporate Competition Act 1 of 2009 (that seeks equity, community involvement and to amend the Competition Act 89 of preferential procurement 1998) > Make recommendations on appoint- > Gap analysis on the draft King III ments, remune ration policies and governance guidelines and related documents and providing recommendations to the board as deemed advisable > Providing comments and suggestions on committee structures of the report and actions required by the board and management ahead of King III coming into effect > The impact of the proposed Companies Act, Act no 71 of 2008. Exxaro’s compliance policy describes the process and the roles and responsibilities of individuals responsible practices for the company’s executive directors, senior management and board, committee operations, other employees member qualiﬁ cations and member > Review compliance with all statutory appointment and best-practice requirements for labour and industrial relations management. > Establishing and maintaining procedures for interested parties to communicate with board members > Reviewing and recommending to the board its annual training programme for implementation of the compliance Although this is a combined committee, > Maintaining procedures for reviewing process. a process is in place to ensure that board members’ interests. 74 I Exxaro Annual Report 2009 Although the board chairman is not a member of the committee, a separate agenda is in operation for nomination committee matters and the board chairman chairs this part of the meeting. Attendance TREMCO 2009 RP Mohring (Chairman) PM Baum JJ Geldenhuys VZ Mntambo WA de Klerk D Konar SA Nkosi DJ van Staden P = present X = apology invitees pre/post appointment Appointed to committee 19 Feb 15 May 17 Aug 30 Oct Present Apology 1 Mar 08 16 Mar 04 1 Jun 08 9 May 07 P P P P P P X P P P P P P P P P X P P P X P X P P P P 4 1 4 3 3 4 3 1 0 1 0 1 1 0 1 0 Safety and sustainable development (S&SD) committee The name of this committee was changed the audit, risk and compliance committee > Report to the board on developments, on S&SD matters, related risks and their trends and/or signiﬁ cant legislation management within Exxaro. on S&SD matters relevant to Exxaro’s operations, its assets and employees from safety, health and environment In executing this governance function, > Identify those issues and elements committee in 2009 to reﬂ ect its the committee will: arising from national and international obligations to the environment, > Assess the effectiveness of protocols applicable to Exxaro’s S&SD employees and those communities management’s approach towards, > Ensuring the company reports impacted by Exxaro’s operations in and activities in, managing S&SD- annually through an integrated support of sustainable development. related risks sustainability report on S&SD issues. > Review signiﬁ cant S&SD incidents, The committee’s purpose is to provide performance indicators and The committee meets at least three advice to the board and, as necessary, to compliance times a year. Attendance S&SD 2009 JJ Geldenhuys (Chairman) RP Mohring D Zihlangu WA de Klerk SA Nkosi P = present X = apology A = absent without apology invitees pre/post appointment Appointed to committee 19 Feb 28 May 17 Aug 27 Nov Present Apology 11 Apr 02 1 Jun 08 18 Apr 07 P P A P P P P P P P P P P P P P P 4 4 3 1 4 0 0 0 0 0 Exxaro Annual Report 2009 I 75 CORPORATE GOVERNANCE CONTINUED Management committees Executive committee The executive committee (Exco) is constituted in terms of Exxaro’s articles of association to assist the CEO in managing the group. Exco assists the CEO to guide and control the overall direction of the company and acts as a medium of communication and coordination between the business units, corporate service departments and subsidiary companies and the board. Collectively and individually, the members of the executive committee must: > Oversee the ﬁ nancial, operational and safety performance of Exxaro > Guide Exxaro in its relations with shareholders and key stakeholders, including employees, regulators, politicians, environmental interest groups and the media > Develop group strategy for board approval > Receive and consider regular reports from businesses in Exxaro to monitor and manage ﬁ nancial performance > Ensure coordination between business units as well as corporate service departments > Continually review the adequacy of reporting arrangements and effectiveness of internal control and risk management > Approve or recommend to the board expenditure and other ﬁ nancial commitments as speciﬁ ed in the framework for the delegation of authority > Acts as a responsible corporate citizen and follow an ethical culture. The committee ensures that new opportunities ﬁ t Exxaro’s portfolio and determines strategic priorities. It oversees strategic initiatives and investigations into the viability of potential investment projects throughout the group. The committee discusses and challenges as Exxaro’s portfolio performance well as initiatives and projects. Initiatives aligned with the current strategy are included in proceedings of the investment review committee. to terminate the current strategy or to proceed with initiatives or projects that are not included in the current strategy are subject to agreed governance procedures. Recommendations in intended strategic initiatives Investment review committee is investment review committee The constituted as a management committee to assist the CEO with the management process of the group. for committee oversees approval The processes investments, designed to ensure that these are aligned to the group’s agreed strategies and values, identiﬁ ed and evaluated, risks are investments are to produce the maximum shareholder value within an acceptable risk framework and appropriate risk management strategies are pursued. fully optimised The main purpose of the committee is to review investments in a structured, formal and transparent manner to ensure that: > Each project meets the strategic, investment require- technical and ments of the company, which includes the identiﬁ cation and management of all project-related risks Critical decisions, project parameters and are followed and addressed prior to governance processes > Each project enhances the portfolio value of the company. The offshore review committee fulﬁ ls a similar governance function for Exxaro’s offshore subsidiaries, with executive management Exxaro’s interests at offshore structures. representing Offshore review committee This committee assists the board to ﬁ nancially co-ordinate Exxaro’s portfolio of offshore investments and interests. The primary responsibilities of committee include: > the Financial control and governance of Exxaro’s offshore investments and multi-disciplinary interests Efﬁ cient ﬁ nancial structuring Providing for the funding of offshore investments and expenditure Ensuring ﬁ nancial reporting, auditing and tax-related issues are properly managed Ensuring the company’s overseas ofﬁ ces staffed, are managed and utilised. effectively > > > > The offshore review committee meets quarterly, or more frequently if required. Sustainability The Exxaro brand is built on a strong vision — everything we do and deliver today will allow others to realise their vision tomorrow. At Exxaro, we look beyond the current commodities and operations and see the impact we have on people and the planet. Exxaro is committed to good corporate citizenship which requires economic performance while considering the long- term impact of business operations on stakeholders and the environment. Sustainability is a cornerstone of the Exxaro group and our approach is Portfolio review committee The portfolio review committee is > constituted as a strategy management committee to assist the CEO with portfolio management. committing funds 76 I Exxaro Annual Report 2009 and 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 and internal communications across a range of platforms. Marketing communication In line with its corporate values, Exxaro communicates regularly and openly with all stakeholders. At all times, our laws, communications adhere to the standards and voluntary codes of accepted marketing communication in the areas where we operate. During the year, no incidents of non-compliance were recorded. embedded in the ﬁ rst of our corporate values: empowered to grow and contribute. Our aim is to encourage entrepreneurship as far as possible to transform this value into reality for as many stakeholders as possible (page 122). Black economic empowerment codes of good practice While we understand that companies need to verify the BEE status of suppliers in terms of the Codes of Good Practice, its reporting to the Exxaro conﬁ nes 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 Exxaro, we ensured that the: > Majority of voting rights are exercised by HDSA shareholders without any restrictions Majority of proﬁ ts accrue to black people Majority of the board comprises black people The target exceeds the mining charter target for management. employment equity > > > > > > 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 icts of interest Provide a mechanism for the objective review of personal outside interests. By implementing the above, the company is in a position to: > interests, provided Allow individuals, where appropriate, to acquire and maintain personal outside that these do not interfere with, or have the potential to interfere with, their duties to the company, or improperly inﬂ uence the judgements expected of them when acting on behalf of the company Protect individuals from misplaced charges of any conﬂ ict of interest by providing a mechanism for the approval objective (including conditional approval) of appropriate personal outside interests held by individuals Avoid any unjustiﬁ ed perception of bias or self-interest by individuals acting the company has approved the holding of personal outside interests by such individuals. situations where review and in > > Disclosure policy The board has adopted a formal policy of continual disclosure of interests to ensure full and timely disclosure by directors. interests policy Conﬂ ict of interests Exxaro has a comprehensive conﬂ ict to of directors, management and employees in regulating conditions that constitute or could constitute a conﬂ ict. that applies The primary objectives of this policy are to: > Promote business-related conﬂ icts of interest transparency and avoid 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 that information to the market. disclosing after stakeholder Broader communication plans have been implemented. The group believes in clear, transparent, concise and timely dissemination of relevant information to all stakeholders. This is achieved through a multitude of channels and media, including written, electronic Exxaro Annual Report 2009 I 77 SHAREHOLDER INFORMATION Shareholder information Market listings and other information The principal market for Exxaro is the JSE Limited. As a constituent of the All Share Top 40 Index (ALSI40 Index), Exxaro shares trade through the STRATE system. on behalf of its US ADR shareholders. Contact Computershare or BoNY for further details. Shareholder communication General shareholder enquiries Computershare the registrar is for Exxaro. All general enquiries and correspondence concerning shareholders Closing JSE share prices are published in (other than shares held in ADR form) most national and regional South African should be directed to the registrar. newspapers and are available during the Computershare’s contact details are on day on the Exxaro and other websites. the inside back cover. Shareholders must Share prices are also available on I-Net notify Computershare promptly in writing Bridge, Reuters and Bloomberg. of any change of address. Exxaro has an over-the-counter All enquiries concerning shares held in sponsored American depositary receipt ADR form should be directed to BoNY, (ADR) facility with the Bank of New York with contact details set out on the inside (BoNY) under a deposit agreement. For back cover. additional information, please refer to the BoNY website: www.adrbny.com. Shareholders can obtain details about ADR holders ADR holders may instruct BoNY on how their own shareholding on the internet. Full details, including how to gain secure access to this personalised enquiry facility, shares represented by their ADRs should are provided on the Computershare be voted. Registered holders of ADRs will website: www.computershare.com. 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 Publication of ﬁ nancial statements Shareholders wishing to view the annual for forwarding shareholder information report or interim report in electronic to their clients and will be provided with rather than paper form can access it on copies of annual and interim reports for the Exxaro website: www.exxaro.com. this purpose. Dividend determination Dividends are determined Major shareholders As of 31 December 2009, the one entity in South known to Exxaro as owning more than African rand (ZAR) and are declared 10% of its shares is Main Street 333 payable in the same currency by the (Pty) Limited with 186 550 873 shares group. ADR shareholders are paid in representing 52,26% of the number of US dollars by the group’s ADR bank, shares in issue. This entity is commonly BoNY. BoNY effects the conversion of referred to as BEE Holdco (refer to ZAR-determined dividends in US dollars page 129). 78 I Exxaro Annual Report 2009 SHAREHOLDERS’ ANALYSIS at 31 December 2009 Issued share capital: 356 940 200 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 Other (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:92)(cid:105)(cid:106) (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) 2,98% 2,26% 9,73% Number of shareholders % of shareholders Number of shares % of issued capital 14 250 2 545 367 135 25 82,27 14,69 2,12 0,78 0,14 4 764 072 7 632 635 20 245 742 36 784 654 287 513 097 17 322 100,00 356 940 200 1,33 2,14 5,67 10,31 80,55 100,00 Number of shareholders % of shareholders Total shareholding % of issued capital 1 380 2 542 431 37 35 64 1 0,01 2,19 186 549 411 36 775 160 14,67 31 904 602 2,49 0,21 0,20 0,37 0,01 31 212 720 23 592 018 14 721 727 11 679 164 10 618 974 13 440 77,59 7 881 247 76 313 1 1 0,44 1,81 0,01 0,00 960 678 806 810 236 227 1 462 52,26 10,30 8,94 8,74 6,61 4,12 3,27 2,98 2,21 0,27 0,23 0,07 0,00 17 322 100,00 356 940 200 100,00 (cid:62)(cid:92)(cid:102)(cid:94)(cid:105)(cid:88)(cid:103)(cid:95)(cid:96)(cid:90)(cid:23)(cid:106)(cid:103)(cid:99)(cid:96)(cid:107)(cid:23)(cid:102)(cid:93) (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) 4,85% 1,00% 0,56% 2,59% 52,26% 91,00% ■(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: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: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: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: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: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: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: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) Exxaro Annual Report 2009 I 79 SHAREHOLDERS’ ANALYSIS CONTINUED Public/non-public shareholders Public shareholders Non-public shareholders Directors and associates Main Street 333 (Pty) Ltd* Anglo American Corporation Exxaro Employee Empowerment Kumba Management Share Trust *Directors’ holdings of 18 548 286 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 SA Nkosi VZ Mntambo D Zihlangu NL Sowazi WA de Klerk D Konar Number of shareholders % of shareholders Total shareholding % of issued capital 17 310 11 7 1 1 1 1 99,93 118 980 067 0,06 0,04 0,01 0,01 0,01 0,01 237 960 133 18 548 286 168 002 587 34 730 282 10 618 974 1 783 716 33,33 66,67 5,20 47,07 9,73 2,98 0,50 Total shareholding % of issued capital 186 550 873 34 730 282 8 061 047 10 618 974 52,26 9,73 2,26 2,98 Total shareholding % of issued capital 324 815 582 91,00 9 244 751 3 569 402 17 311 599 1 998 865 2,59 1,00 4,85 0,56 356 940 200 100,00 Number of shares 8 016 068 5 529 881 2 818 552 2 181 590 1 462 168 18 548 286 % of shares 2,25 1,55 0,79 0,61 0,00 0,00 5,20 Please note that indirect beneﬁ cial holdings of Nkosi, Mntambo, Zihlangu and Sowazi were held under Main Street 333 (Pty) Limited 80 I Exxaro Annual Report 2009 RISK MANAGEMENT Risk philosophy Effective risk management (ERM) is central to maintaining and improving a competitive advantage while adapting to changes in the business environment. The underlying principle of ERM or enterprise-wide risk management is that every entity exists to provide value for its shareholders. Exxaro’s ERM adopts a holistic approach to managing uncertainty, representing both risk and opportunity. The aim is to establish the acceptable level of risk in each area of business, which should be as low as reasonably practical, while taking full advantage of the highest returns possible to maximise shareholder wealth. In all risk management activities, compliance with the King III Code of Corporate Practice and Conduct is a fundamental principle. Risk appetite The audit, risk and compliance committee appetite and ensures it is aligned with (corporate governance) and other group strategy. Exxaro’s risk appetite compliance issues. is a function of its ability to withstand unexpected losses and their impact on the group’s ability to continue as a going concern. In addition, risk appetite is determined by obtaining robust risk information that enables management to assess overall capital needs and enhance capital allocation capability. Risk culture Risk owners are responsible for continuously monitoring the ever- changing risk proﬁ le of the environment in which they operate. The internal environment encompasses 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 reviewed. The top business risks, appropriately categorised and based on impact and likelihood of occurrence, together with mitigating control measures, are the whole organisation and sets the basis disclosed below in descending order. for how risk is viewed and addressed by These top business risks have been all responsible employees. It takes into approved by the executive committee, account the risk management philosophy, the audit, risk and compliance committee of the board approves Exxaro’s risk risk appetite, integrity and ethical values of the board, and the board itself. High-level business risks Risk STRATEGIC Impact Probability Control measures Future of KZN Sands operation High High Continuous review of viability should signiﬁ cant sustainable changes transpire in market fundamentals of the commodity. Retention of new mining rights and High High Prioritisation of prospecting rights. Engaging prospecting rights with non-governmental organisation and relevant authorities. Ensure compliance with all legal and regulatory requirements. Funding current operations and value-added High High Ranking value-adding opportunities in an approved growth within balance sheet and equity- raising constraints commodity strategy aligned growth process and within an acceptable capital structure, underpinned by cash ﬂ ow generation and preservation, giving credence to maintaining Exxaro’s empowerment status. Exxaro Annual Report 2009 I 81 RISK MANAGEMENT CONTINUED High-level business risks Risk Impact Probability Control measures STRATEGIC continued Longer-term decline in commodity prices High Medium Exploring alternatives to raise equity given the affecting dividend payouts, and impacting on stable BEE shareholder structure group’s equity-raising restrictions. Continuous business improvement. Optimised use of operating assets. Maintain healthy balance sheet through judicious consideration of growth aspirations and global market conditions. Medium-term reserve conﬁ rmation for High Medium Redeﬁ ne and conﬁ rm physical properties of ore Namakwa Sands reserve at Namakwa Sands; investigate redesign and product blending opportunities. Long-term, viable, quality zinc concentrate High Medium Continued exploration activity at Rosh Pinah supply to zinc reﬁ nery in Springs zinc mine and identiﬁ cation of other viable zinc concentrate supply sources. Lengthy process of executing new mining Medium Medium Ensure compliance with mining charter rights requirements. Continuous engagement with Department of Mineral Resources. Securing a strategic partner for Australia Medium Medium Actively participate in securing a preferred Sands operation OPERATIONAL technology partner in good ﬁ nancial standing for Australia Sands. Anticipated signiﬁ cant price increases for High High Participation in industry forums that engage with electricity combined with power supply uncertainty, and the impact of interruptions on safety, production and proﬁ tability Eskom and the National Energy Regulator of South Africa (NERSA). Investigation into co-generation. Implementation of power-saving initiatives and examination of alternatives for conserving and using electricity throughout operations. Commitment to assist Eskom with additional coal supply to achieve stability in power grid. Above-inﬂ ation increases in certain input Medium High Strategic sourcing and long-term contracting with and maintenance costs as well as availability reliable suppliers. Continuous business improvement concerns on certain materials PROFITABILITY initiatives and knowledge sharing. Volatility in currencies combined with impact High High Judicious hedging policy. Continuous business of forecast macroeconomic parameters and commodity prices on operating margins, returns on investments, project cost escalation in respect of growth aspirations, and loan covenant compliance improvement initiatives with rigorous tracking. Optimised use of operating assets to leverage beneﬁ ts of higher throughput. Investigate downstream integration opportunities and diversiﬁ cation of markets and product sector. Rail and port infrastructure constraints High High Collaborate with Transnet Freight Rail; upgrade inhibiting coal exports and ability to transfer zinc feedstock to zinc reﬁ nery loading facilities; engage with Richards Bay Coal Terminal (RBCT) shareholders on additional export allocation; engage to fully utilise Exxaro’s RBCT allocation of 6,3Mtpa; evaluate viability of acquiring own rolling stock. 82 I Exxaro Annual Report 2009 High-level business risks Risk Impact Probability Control measures PROFITABILITY continued Impact of the buoyant construction and High Medium Maintain database on escalations of major engineering market on the cost of capital projects commodity items based on industry trends and own experience to ensure comprehensive provision for escalation on project costing and timing of long-lead items. Prolonged depressed global economic Medium Low Restructure to be proﬁ table throughout the downturn impacting on demand and prices commodity cycle. Ensure a ﬁ t-for-purpose support services offering. HUMAN RESOURCES Attraction and retention of key skills Medium Medium Implementation of effective retention strategy for key impacting on current production and future growth 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 Strategy to comply with code of practice. ENVIRONMENT Risks posed by continuously changing High High Continuous monitoring of work performed in line environment legislation, including delays in with rehabilitation strategy. Process hazard reviews permit approvals Pressure from authorities to guarantee environmental liability shortfall. SAFETY AND SUSTAINABLE DEVELOPMENT on emissions. Continuous engagement with authorities. Ongoing rehabilitation managed out of operational budgets while Exxaro Environmental Rehabilitation Fund provides for ﬁ nal closure costs. Poor safety record resulting in government, Medium Medium Enhancing safety awareness and preventative labour union and other stakeholder intervention programmes through a strong focus on hazard identiﬁ cation and visible felt leadership. Focusing on outcomes of 2009 CEO Safety Summits. HIV/Aids pandemic Medium Medium Improve voluntary counselling and testing enrolment by creating a conducive environment for disclosure and treatment participation. Exxaro Annual Report 2009 I 83 SUSTAINABLE DEVELOPMENT SIPHO NKOSI RESPONSIBLE BUSINESS PRACTICES REMAIN A LONG-TERM VALUE PROPOSITION FOR EXXARO: IT MAKES BUSINESS SENSE TO INVEST IN CREATING A SUSTAINABLE ENVIRONMENT IN WHICH TO OPERATE, BASED ON UNIVERSAL VALUES, ACCOUNT- ABILITY AND TRANSPARENCY. IT’S SIMPLY ALSO THE RIGHT THING TO DO. In preparing this report, we drew on stakeholder feedback, a review of current standards and conventions (including Global Reporting Initiative (GRI), UN Global Compact, Organisation for Economic Co-operation and Development (OECD) guidelines on multinational enterprises, International Labour Organisation (ILO) conventions 69 and 176, as well as UN declaration of human rights) in developing material themes that will guide this and future reports. These themes include: > Implementation and maintenance of ethical business practices and sound systems of corporate governance > Integration of sustainable development considerations in corporate decision- making processes > Implementation of risk management strategies based on credible data sets > Adherence to fundamental human rights and respect of cultures, customs and values in dealings with stakeholders > Contributing to the social, economic and institutional development of our communities > Implementing effective, sustained and transparent engagement strategies with all stakeholder groups, as well as explicit responsiveness to stakeholder concerns > Demonstrating understanding of and implementing responses to the business case for sustainability. Distilling these themes into those most material to the South African resources sector highlights the need for: > Ongoing improvement of occupational our sustainable development initiatives emerged in the form of synergies across commodity businesses, disciplines and divisions. Perhaps the best example of this is our carbon footprinting project which prompted the vegetative study, which in turn informed our water management study and each site’s biodiversity action plan. We have also made solid progress in our ability to report meaningful data off a common information technology platform. This has been most evident in the areas of energy, air quality monitoring and socio- economic development. health and safety performance Message from the chief executive ofﬁ cer I believe 2009 was a year that truly tested the depth of mining companies’ commitments to sustainable development — and at every level. Faced with myriad challenges in protecting the economic innovative bottom solutions to honour our commitments to the social and environmental bottom lines by making available funds work harder and by ensuring that every initiative beneﬁ ted the maximum number of people. line, we developed In this respect, Exxaro proved its mettle. The beneﬁ t of integrating our safety, health and environment division with 84 I Exxaro Annual Report 2009 > Ongoing improvement of environmental The group’s performance on the key elements environmental accreditation (ISO performance, particularly water use, of sustainable development — economic, 14001) – Matla, North Block Complex, energy consumption and efﬁ ciency, and social and environmental — was again Inyanda and AlloyStream. In particular, waste and land management mixed during 2009. On the positive side, we AlloyStream scored so highly in the > Transparency in engaging with considerably improved our ranking in the ISO 14001 audit that in February stakeholders on controversial topics South African Carbon Disclosure Project, 2010 it received an award for best or situations reinforcing the progress made towards best performance worldwide. > Continued progress against require- practice. We exceeded the group target for ments of the mining charter HIV/Aids voluntary counselling and testing, This takes the total to 13 of 17 > Management of HR challenges, ie skills and made good progress in our drive on operations accredited to date. The ﬁ nal shortages and employment equity water management. four operations have been scheduled > Use of integrated approaches to land for accreditation in 2010. use planning to contribute to conserving Given the strategic importance of every biodiversity > Understanding impacts of climate efﬁ ciency to conservation and generation report was ranked among the leaders aspect of energy — from consumption and Our 2008 sustainable development change on the company and its long- — we have broadened the scope of our in several industry surveys (page 88). term sustainability internal data management and external While this is encouraging, it reinforces > Demonstrating an understanding reporting (page 125). Underscoring this our resolve to report on sustainability of product stewardship including focus, a new category has been added issues as well as we do on the ﬁ nancial responsible product design, use, re-use, to Exxaro’s internal awards to recognise aspects of our business, because recycling and disposal of products achievements in addressing the challenges we believe our stakeholders deserve > Ongoing, integrated planning and of energy and climate change. It has no less. provision for mine closure. become a strategic imperative to address the cost and impact of Exxaro’s energy In our quest to be a truly responsible Combining these themes with our consumption — pricing, supply security and business in all respects, Exxaro vision of creating unrivalled value for the impact of our consumption on climate reports against the guidelines of all stakeholders through our processes, change all need to be considered, and we the Global Reporting Initiative 2006 thinking and passion translates into want to recognise the contributions our (GRI G3, at externally assured B+ measurable targets in the longer term: > Sustainable returns to our shareholders people make in addressing these. The level), as a signatory of the United ﬁ rst Evergreen awards in this category Nations’ (page 135) Global Compact, — including our own people. The return will recognise the individual, projects and a constituent of the JSE Socially on equity target for 2009 was 25%, and business units that have shown Responsible Investment (SRI) Index. actual performance was 8% (page 26) > An injury-free work environment — the target for 2009 was a lost-time injury achievements in addressing energy and climate change issues in their work. Responsible business practices remain a long-term value proposition frequency rate of 0,21 against the actual Areas where we missed our targets include for Exxaro: it makes business sense rate of 0,33 (page 93) our disappointing safety performance, to invest in creating a sustainable > A healthy workforce — with an albeit an improvement of 15% on 2008 environment in which to operate, based appropriate balance between individual LTIFR levels. We deeply regret the deaths on universal values, accountability and responsibility and healthy working of three contractors at Zincor during transparency. It’s simply also the right conditions (page 93) the year, and the loss of a colleague in a thing to do. > Responsible use of our natural resources non-reportable incident, and extend our (pages 95 to 112). Performance We understand that reaching our long- term goals requires short-term action. Our condolences to their families and friends. Our renewed commitment to safety and the incremental progress made during the year is detailed on page 91. Sipho Nkosi material issues for 2009 are discussed In 2009, four operations obtained Chief executive ofﬁ cer on page 87 and cross-referenced to the both international heath and safety relevant sections. accreditation (OHSAS 18001) and 16 March 2010 Exxaro Annual Report 2009 I 85 APPROACH TO SAFETY AND SUSTAINABLE DEVELOPMENT During the year, Exxaro’s approach to sustainable development was crystallised after a thorough review of the group’s strategy, business drivers and structures. This review highlighted that the group has, in recent years, moved up the safety and sustainability ladder from being: > Reactive — focused on cost management, simpler and fewer standards, key processes and systems informed by compliance to legal requirements > Risk-based approach — focused on statutory and non-statutory compliance > To beyond compliance — establishing local industry leadership in safety and sustainable development. Our approach principles: > Visible felt is based on speciﬁ c leadership with strong commitment from group executives > Safety and sustainable development as an integral value of our business > Resource optimisation > Performance measured against set targets > Reporting and transparency > A caring culture that transcends the mine gate Business case for integrated safety and sustainable development Maintain elevated brand/corporate reputation Maintain international management and reporting standards Employer of choice Self - sustaining communities Gaining and maintaining licence to operate and grow Optimisation and efﬁ ciency of resources Investment of choice Approved material S&SD thrusts Value creation Improved standards of living Enhanced resource conservation High S&SD performance culture Maintain stakeholder trust Mining charter Enhanced work/life balance Identify and reduce S&SD risk Improved attraction/ retention of workforce ●● Company value ●● Stakeholder value > International sustainability standards – Greenhouse gas management and and reporting > Stakeholder focus and improved – Clean Development Mechanism disclosure relations with stakeholders. – Water management – Waste management > Effective stakeholder management > Motivated workforce, committed to > Living up to our promises > Legal compliance as one of the steps Various independent audits and ratings1 have conﬁ rmed either this progress or towards a sustainable business. its outcomes. In line with our strategy, Driven by an integrated safety and sustainable development (S&SD) business, our target now moves to the ﬁ nal rung of this ladder — entrenching the Exxaro brand as one that includes a strong sustainable development element. This is a position of industry leadership that encompasses: > Integrating sustainability objectives in the design, planning and operating of our business to make S&SD an integral part of strategy, business systems and processes sustainable development is an integral part continuous improvement of our value proposition to stakeholders. > Investment of choice However, we acknowledge that achieving > Unqualiﬁ ed external assurance reports and maintaining industry leadership is a > Safe and healthy operation. journey of continuous improvement. To entrench Exxaro as a long-term sustainable business, our focus is on ensuring our group is recognised for: > Good corporate governance > Good environmental stewardship > Cleaner production – Mitigating climate change impacts This strategic choice — entrenching sustainable development as part of the Exxaro brand — dictates both our mandate and outcomes. Implementation is being built on three reinforcing and inter- dependent sustainability pillars, shown on the following page. 1 Department of Minerals and Energy Presidential audit 2007, Ernst & Young external assurance (2008), ACCA sustainability reporting award (2007) and JSE SRI best-performer category (2008). 86 I Exxaro Annual Report 2009 Underpinned by the business case for sustainable development and the triple bottom-line drivers in each area, our approach is determined by a formal charter that deﬁ nes our goals and our commitment to stakeholders. The business case and charter are, in turn, guided by the need to earn our legal, social and market “licences to operate”, as shown below. To achieve these licences, we focus on identifying and reducing risk in ﬁ ve strategic sub-divisions — safety, health and hygiene, socio-economic development, environment and compliance — while remaining cognisant of the inter-linked nature of these divisions. Simultaneously, we need to balance the group’s economic interests and risks with the social and environmental concerns of our stakeholders. Accordingly, Exxaro implements speciﬁ c interventions and developmental projects guided by the social needs of the community, interested and affected parties, and by the national priorities of society at large, including: > Education, training and skills development > Healthcare promotion, particularly HIV/ Aids programmes > Job creation, SMME (small, medium and micro enterprises) and other business opportunity development > Conservation of environment and awareness programmes > Infrastructure development. This comprehensive process resulted in short- and long-term focus areas for Exxaro, which are continually assessed against the group’s changing risk proﬁ le. These are detailed in their respective sections and summarised below: > Safety (page 91) – CEO Safety Summit — top ﬁ ve issues – Contractor management Pillars of sustainable development SOCIAL Socio-economic development Enterprise development Employee wellness Skills development Social impact of operations on neighbouring communities Zero harm and zero tolerance Human rights Employee practices ECONOMIC Energy, greenhouse gases and climate change (impact management) Preferential procurement Beneﬁ ciation Economic instruments (eg taxes, CDM) JSE/SRI, GRI assurance Carbon-disclosure project Sustainability ENVIRONMENTAL Minimise impacts (air, water, land and biodiversity) Waste minimisation and recycling Authorisations Rehabilitation Cleaner production Liability management Natural resources use (eco-efﬁ ciency) > Health performance tracking (page 93) – Sector targets > Compliance (page 125) – Assurance standard – Corporate health and hygiene – JSE/SRI standards targets – Statistics and reporting – HIV/Aids strategy > Environment (page 95) – Corporate targets – Resource optimisation > Socio-economic development (page 121) – Mining charter/codes of good practice for the minerals industry – Social and labour plans – Key performance indicators, – Stakeholder engagement statistics and reporting Integrated safety and sustainable development approach guarantees our licences to operate Legal licence to operate Social licence to operate Market licence to operate The national environmental management act (green laws) Biodiversity manage- ment policy Integrated pollution and waste management policy t c a s a e r a d e t c e t o r P t c a y t i s r e v i d o B i t c a e n o z l a t s a o C t c a y t i l a u q r i A l a t n e m n o r i v n E t c a n o i t a v r e s n o c e t s a W t c a t n e m e g a n a m r e t a W t c a t n e m e g a n a m A D R P M A S H M A S H O s n a l p r u o b a l d n a l a i c o S c i m o n o c e l a c o L s n a l p t n e m p o e v e d l t c e j o r P e r u s o l c s i D n o b r a C I R G / I R S / E S J t n e m p o l e v e d e l b a n i a t s u S I I I d n a I I g n K i e c n a r u s s a d n a t i d u a l a n r e t x E r e t r a h c i g n n M i Stakeholder engagement All elements managed in an integrated manner Exxaro Annual Report 2009 I 87 APPROACH TO SAFETY AND SUSTAINABLE DEVELOPMENT CONTINUED Stakeholder engagement Engaging with our stakeholders is fundamental to creating value for all our investors as well as building solid relationships with authorities and interested and affected parties. Good progress has been made in effectively and strategically aligning stakeholder engagement across the group. > Authorities — consultation at national, independent validation of the efforts and provincial, district and local level achievements of our people even more > Regulators — senior Exxaro members highly. Awards received during the review meet with ofﬁ cials from relevant period included: government departments > Namakwa Sands achieved NOSCAR > Industry bodies — Exxaro’s chief status for the fourth consecutive year. executive ofﬁ cer has just begun his This is the National Occupational Safety third term as president of the Chamber Association’s (NOSA) highest award of Mines, and the group actively in safety, health and environment risk participates in chamber issues management — and most prized because To further strengthen stakeholder > Investors — regular interaction between it takes years to achieve and a minute to engagement, Exxaro applies the management and investor community lose AA1000SES standard which is based on the processes tabled below, and supported by a new integrated software system to manage stakeholder engagement more effectively. includes ﬁ nancial results presentations, > Namakwa Sands was also recognised by roadshows, site visits and individual NOSA for its successful implementation meetings. Investors have complete and maintenance of SHEQ management access to group operations and systems. Competing against 126 management companies worldwide, Namakwa Sands > Media — regular interaction won the international mining award for Exxaro communicates with each between management and media mines using the integrated NOSA SHE stakeholder group in a number of ways: representatives system — for the second consecutive > Employees are invited to provide > Communities — in addition to the year. The company’s environmental views and comments on any aspects stakeholder engagement process, and radiation manager received the within the group through bi-monthly business units’ management members international environmental coordinator newsletters, an intranet, regular serve on municipal forums for award for the second consecutive year, employee surveys and feedback from integrated development planning and while the SHEQ manager at Namakwa’s various forums local economic development, and smelter was named international SHE > Customer perceptions are regularly through external service surveyed actively participate in capacity-building risk manager — mining. These awards initiatives are based on the 2009 NOSA grading providers > Interest groups — Exxaro is building audit results > Supplier interaction is ongoing through external perception surveys, forums and strong relationships with relevant non- > In 2009 Exxaro moved up to 12th place government bodies and interest groups. in the Carbon Disclosure Project of other initiatives > Trade unions — regular consultation with all recognised unions by the group’s Awards While being recognised by our peers and South Africa. This is a commendable achievement and a signiﬁ cant improvement on the group’s ﬁ rst employee relations management unit industry bodies is encouraging, we value submission in 2008 Progress on stakeholder engagement Process Progress in 2009 > Develop a database with all stakeholders > In-house software programme for socio- > Engage with stakeholders in developing a economic development, which includes proactive approach > Determine material issues > Respond on all issues stakeholder management, has been rolled out > Twelve of 13 business units have been trained and are implementing this module > Ensure completeness (ie ensure that materiality > The system will be fully operational by end 2010 issues are appropriately addressed and that a > Namakwa Sands will implement the new system risk management plan is in place) during 2010 88 I Exxaro Annual Report 2009 (page 102) and air quality management (page 99). > Chifeng Reﬁ nery — Exxaro has an in effective 22% economic interest > Exxaro’s internal newsletter was named best internal newsletter for the second consecutive year by the South African Publication Forum > Exxaro’s 2008 annual report was ranked among 16 considered excellent in the prestigious annual Ernst & Young Excellence in Sustainability Reporting awards > Exxaro was ranked seventh in the Publisher’s Choice Top 10 in SA’s Leading Managers 2009/10, an annual survey spearheaded by CRF South Africa to strengthen business leadership in the country, assist in sustaining stakeholder conﬁ dence in the economy and develop the next generation of business leaders > Exxaro again qualiﬁ ed for the 2009 JSE SRI index, and was ranked among the 30 best performers > Zincor was recognised for its outstanding social commitment to the community by the Eastern Gauteng Chamber of Commerce and Industry > AlloyStream received top international honours in the 2009 ISO 14001 audit when it received the highest score of all companies from 27 countries. Report scope and boundary Exxaro’s 2009 annual report includes the group’s sustainable development performance. This integrates our economic, social and environmental results for a group-wide understanding, and sets out the challenges and opportunities ahead. The sustainable development report is also available at www.exxaro.com. The methodologies for determining speciﬁ c indicators are described in the Exxaro was formed in November 2006 by merging the former Kumba Resources and Eyesizwe operations. While this process is largely complete, consolidation of the Namakwa Sands business only started towards the end of 2008. This has made data comparability challenging in some areas. Throughout these processes, however, Exxaro’s earlier adoption of triple bottom-line reporting has remained a cornerstone of our commitment to sustainable development and of our determination to entrench global safety best and practices in all operations. Exxaro therefore reports against the 2006 guidelines of the Global Reporting Initiative (G3), and the content of the 2009 report has again been prepared in line with GRI intermediate application level B+. development sustainable As a signatory to the United Nations Global Compact, Exxaro also reports annually on progress in upholding the 10 universally accepted principles of human rights, labour, the environment and anti- corruption. Sustainability performance in this report spans the 12 months from 1 January to 31 December 2009. In addition to this printed report and the web site, the full report is also available on CD (contact details on page 275). This report excludes operations where we do not have management control: > Australia Sands — principal asset is its 50% ownership in the Tiwest joint text, eg injuries (page 93), carbon footprint venture an existing reﬁ nery facility in Inner Mongolia, China > Mafube coal mine — joint venture in Mpumalanga, South Africa. In determining material issues to include in this report, Exxaro uses the methodology recommended by G3 which spans external and internal factors: > External – Key sustainability issues raised by stakeholders – Sectoral issues and challenges reported by peers and industry bodies such as the Chamber of Mines – Relevant legislation and voluntary agreements (local and international) of strategic signiﬁ cance to the group and its stakeholders – High-proﬁ le sustainability issues, impacts or opportunities, from climate change to HIV/Aids > Internal – Exxaro’s values, policies, strategies, processes and targets – The interests and expectations of stakeholders for whom our corporate progress is paramount, including employees, shareholders and suppliers – Key risks deﬁ ned by corporate risk methodologies – Critical factors for Exxaro’s success, including the synergy between our operations and the universal aims of sustainable development. Exxaro Annual Report 2009 I 89 APPROACH TO SAFETY AND SUSTAINABLE DEVELOPMENT CONTINUED JSE Socially Responsible Investment (SRI) index compliance Exxaro was again ranked among the 30 best performers on the JSE’s revised SRI index in 2009. This index identiﬁ es best practice in corporate social responsibility and corporate governance in a benchmark index. Exxaro is classiﬁ ed as having a high environmental impact because it is involved in mining and metals. Solid progress is being made in areas that do not yet fully comply with JSE requirements, providing quantitative objectives and targets for certain areas, and reporting on strategic moves towards sustainability. speciﬁ cally internal Assurance – broad-based veriﬁ cation record Exxaro’s (accuracy, and monitor completeness of management information and any data gaps in the group. the quality and consistency) systems In line with our commitment to the triple bottom line, an integral part of reporting to stakeholders is having the quality of our disclosure independently assured. Each year, the safety and sustainable indicators development and physical sites selected for external assurance are assessed to ensure this process adds maximum value to stakeholders. Ernst & Young’s report appears on page 135. performance The outcome of this process identiﬁ ed a number of material issues pertinent to business sustainability. These are disclosed in the risk management section (page 81). Issues that directly affect sustainable development include: > Safety — fatalities > Retrenchments > Legislated targets such as those in the mining charter or for black economic empowerment > Health — HIV/Aids > Climate change and energy use > Environment — water use, biodiversity, rehabilitation, waste and air quality > SHE management systems, eg ISO 14001 > Diversity of our people > Human rights > Socio-economic development. These issues are detailed and quantiﬁ ed in the respective sections of this report. Ongoing feedback from a range of stakeholders helps us to contextualise certain issues better for more informed understanding by readers. Feedback is a critical element of our reporting process and the completed feedback form included in this report should be directed to: Hilton Atkinson Manager: corporate communications Email: Hilton.atkinson@exxaro.com Telephone: +27 12 307 4843 Fax: +27 12 307 4760 Mobile: +27 83 609 1452 www.exxaro.com 90 I Exxaro Annual Report 2009 SAFETY AND SUSTAINABLE DEVELOPMENT PERFORMANCE Our safety and sustainable development governance model begins with meeting legislative requirements as a minimum standard. Sophisticated risk management systems and processes are then modelled around key risks for implementation at operational level. A risk-based approach informs the way resources are also allocated and used in the group to ensure ongoing progress towards and beyond legal compliance. During the reporting period, no ﬁ nes or sanctions for non-compliance with environmental laws and regulations were imposed on any Exxaro operation. ISO/OHSAS certiﬁ cation four operations obtained In 2009, international health and safety both and (OHSAS accreditation environmental accreditation (ISO 14001) – Matla, North Block Complex, Inyanda and AlloyStream. This takes the total to 13 of 17 operations accredited to date. Another four operations have been scheduled for accreditation in 2010. 18001) to the Notably, AlloyStream was certified for the occupational health and safety management system according to the BS OHSAS 18001:2007 standard, for environmental management systems 14001:2004 according standard and recertified for the updated quality management systems according to the ISO 9001:2008 standard. In the ISO 14001 audit, AlloyStream received the highest score of all companies from 27 countries in the 2009 audit. included ISO see www.exxaro.com/case_studies ALLOYSTREAM IS WORLD CLASS Notably, Namakwa Sands achieved OHSAS 18001:2004 certiﬁ cation, and was the ﬁ rst operation in the Western Cape to achieve OHSAS 18001:2007 certiﬁ cation. Namakwa Sands has also consistently ISO 9001 and retained 14001, ISO Safety Highlights > Exxaro ended the year with an LTIFR of action taken where necessary. Only by adopting a consistent zero-tolerance approach to safety violations, with 0,33, a 15% improvement on the 0,39 consistent consequences, can Exxaro recorded in 2008 but disappointingly effectively protect the lives of higher than the target of 0,21. employees. > Tshikondeni improved its safety per- > Knowledge — training for life formance in 2009, recording only seven LTIs and 24 minor injuries. This is a 60% improvement in LTIFR and 27% improvement in minor injuries on 2008. see www.exxaro.com/case_studies SMALL MINE, BIG HEART Safety always, all the way In October 2009, Exxaro held its second CEO Safety Summit under the theme Safety always, all the way to report back on issues highlighted at the inaugural summit in March when the group identiﬁ ed challenges that presented barriers to sound safety practices. The summits Exxaro will establish a standard safety training programme across the group, for all job categories. Training will become an ongoing sustainable process to ensure every employee can identify and respond to a dangerous situation. > Identifying risks — formal process Reinforcing the need to take two minutes to conduct a mini-HIRA — a task that could prevent injury or save a life by becoming a conscious action, not just a thoughtless habit. The mini-HIRA standard will be revised and training material developed to ensure all employees understand how to conduct involved a range of stakeholders to one. identify key areas that will make a tangible > Communication — daily difference to safety performance, including Talking about safety and having the consequence management, safety tools to keep safety at top-of-mind training, culture (the Exxaro safety way awareness are key to ensuring safety of life), mini-HIRA (hazard identiﬁ cation practices become a way of life for group and risk assessment) and communication. employees. Task teams are driving a broad spectrum of action plans in these areas. Exxaro has had the support of government, the Chamber of Mines and its recognised unions in implementing its safety improvement plan, which includes: > Leadership in making safety a way of life Exxaro’s leaders will set the example for safe behaviour (visible felt leadership) by being directly involved in safety visits, and ensuring compliance to safe work practices. > Zero-tolerance approach The 13 zero-tolerance safety rules relate to: > Being under the inﬂ uence of drugs or alcohol at the workplace > Lifting heavy equipment > Roof support in underground mines > Conﬁ ned spaces > Working at heights > Energy and machine isolation > Vehicle safety and operating a vehicle, equipment or machinery without authorisation > Explosives Exxaro introduced the 13 zero-tolerance safety rules that will become part of > Working with electricity > Gas explosion and gas areas every employee’s conditions of service. > Safety devices Employees who violate or ignore these > Permit work ISO 17025 certiﬁ cations. rules will be investigated and disciplinary > Site-speciﬁ c rules. Exxaro Annual Report 2009 I 91 SAFETY AND SUSTAINABLE DEVELOPMENT PERFORMANCE CONTINUED Safety pledge Signed by Exxaro stakeholders in March 2009 We, at the Exxaro Resources group of companies, and all our stakeholders, in a relationship of mutual trust and respect, will further evolve our safety culture of zero harm in which we, while consciously learning from our own and others’ mistakes and caring for each other, lead with safety excellence, benchmarked against industry best practices. Keeping our people safe Our ultimate target remains zero injuries and, therefore, zero fatalities. To reach this goal, we have an incremental target of a 30% improvement in safety performance each year. We aim to achieve this through stringent application of management protocols, programmes and systems. Formal management-worker health and safety committees are in place at all operations, and meet regularly to ensure we reach our targets. The strategic review of our safety practices highlighted key risks facing limited hazard our group, particularly awareness, varied safety competency and non-adherence to corporate safety standards. Collectively, these may result in the perception of Exxaro being an unsafe business — a perception that carries material risk to our sustainability. Accordingly, we have developed a timeline to Exxaro’s desirable state that includes: > Zero fatalities > Zero lost-time injuries > Visible, felt leadership as a key driver of safety excellence in Exxaro > Zero repeat incidents. Timeline to desirable state 2009 CEO Safety Summit outcomes: 1 Set up task teams to address focus areas 2010 — 2011 Review priorities 2012 — 2015 Review priorities 1 Review safety improvement plans (SIPs) 1 Annual CEO safety summit to challenge safety performance 2 Develop safety communication 2 Set up and train peer review 2 Annual revision of SIPs strategy teams 3 Consistent disciplinary code 3 Conduct group-wide 3 Periodic peer reviews applied equally across all levels 4 Revised HIRA standard to be understood and applied by all 5 Revised visible felt leadership standard consistently applied across Exxaro 6 Safety improvement plans as a result of ﬁ rst summit 7 Standardised incident investigation process peer reviews to promote implementation of SIPs 4 SIP progress reports every quarter 5 CEO safety summit 2010 to discuss progress and challenges 6 Continue benchmarking and sourcing best practices Although key risks differ by operation, Exxaro has a policy in place that details the the group’s major challenges are vehicle group’s approach to identifying, preparing incidents, energy and machinery isolation, for and responding to emergency situations and risk awareness and discipline at affecting employees and surrounding all levels. Skills shortages continue to communities. This spans all known types magnify these challenges and, accordingly, of emergency including ﬁ re, ﬂ ood, bomb ensuring the group has sufﬁ cient trained threats, etc. Emergency situations that people remains a priority. have occurred have been well handled, demonstrating the comprehensiveness of Improving safety performance extends to both policy and training. A good example contractors at all Exxaro operations as is the intervention to address risks part of a formal programme: associated with the outbreak of H1N1 — as a > Contractors are managed as part of result, the outbreak had no impact on any Exxaro’s workforce of Exxaro’s operations. > Adherence to corporate contractor management standards is enforced by All lost-time injuries are investigated by the each operation’s contractor manager relevant business unit manager, while all > Monthly inspections ensure compliance fatalities are investigated by a committee > Induction and medical examinations with the appropriate skills, headed by an are required by all contractors before independent chairman. Each business starting work unit tracks its adherence to standards and > Contractors participate in monthly SHE legislation through a programme of self- meetings at operations. assessments and corporate audits. 92 I Exxaro Annual Report 2009 Exxaro set a target of zero fatalities, and an LTIFR (lost-time injury frequency rate per 200 000 hours worked) of 0,21 for 2009. Despite a steady reduction in the LTIFR from 0,52 in 2005 to 0,36 in 2007, actual performance was 0,33 in 2009. This is a 15% improvement on the LTIFR of 0,39 recorded in 2008. In risk-speciﬁ c terms, the leading cause of injury was lifting and material handling. The safety of our people is fundamental to our business, and we will not rest until we achieve our safety goals through collective responsibility, commitment and ongoing focus. The fatality frequency rate per million man- hours worked in 2009 was 0,07, compared to 0,13 in 2008. Our target remains zero, as no death is acceptable. Despite excellent safety performances at several mines, we regrettably lost three contractors during the year in an explosion at a contractor’s site at Zincor, and a colleague in a non- reportable vehicle fatality at Arnot. This case was thoroughly investigated, and the lessons learned incorporated into our safety programmes to create an injury- free work environment. Health and hygiene Highlights > Major HIV/Aids training, counselling and testing drive at 11 business units – with 83% of employees who attended training sessions electing to be tested. This represents 58% of the Exxaro workforce, against the group target of 50% > Of 6 684 employees tested (half had not tested before), 12% were HIV positive > 299 HIV-positive people are enrolled on the company’s HIV management programme > 161 people are on ART (anti-retroviral treatment) > 224 peer educators were (against group target of 200) trained > New holistic occupational TB standard > New standard on managing hazardous chemical substances. Reducing employee exposure to health risks remains a priority for Exxaro. Our risks are typical of a mining group. Business units identify, rank and quantify their risks, and then implement programmes to mitigate the impact. Workplace exposures are linked to individuals and this forms the basis of the medical surveillance programme. noise and dust, and this is reﬂ ected in the occupational disease proﬁ le. Newly diagnosed cases are submitted to the compensation authorities for conﬁ rmation that they are work-related, and serve as an early indicator of the possible occupational disease burden. Accepted cases are awarded compensation. Our targets are to: > Reduce NIHL (noise-induced hearing loss) to less than 10% loss of hearing (shift from baseline) per individual by 2013 > Reduce compensation costs for occupational diseases > Reduce incidence of HIV > Raise awareness of health and hygiene The occupational health risks to which most Exxaro employees are exposed are programme. Timeline to desirable state 2009 1 Status report on noise and dust-control programmes 2 50% VCT 2010 — 2011 Review priorities 2012 — 2015 Review priorities 1 Track cases with >5% loss of hearing (shift from baseline) 3 A total of 200 peer educators 2 Reduce percentage of trained 4 Implement TB standard at three business units employees exposed to OEL dust and fumes 3 70% VCT and 50% retention on treatment programme 4 TB treatment provided at 50% of business units 5 Occupational risk and exposure proﬁ ling standard 6 Baseline study of indirect costs of HIV/Aids 7 Awareness campaign on noise, dust and thermal stress at all business units 1 No cases >10% NIHL 2 >80% VCT; >70% retention on treatment programme 3 >85% TB cases complete treatment 4 Reduce new HIV infections by 5% 5 Reduce indirect costs due to HIV/Aids by 5% from baseline Key: OEL — occupational exposure limit; VCT — voluntary counselling and testing Exxaro Annual Report 2009 I 93 SAFETY AND SUSTAINABLE DEVELOPMENT PERFORMANCE CONTINUED Meeting mining sector targets Dust and noise-reduction targets set by the mining industry aim to reduce the number of NIHL and silicosis cases. This depends on: > Minimising noise and dust exposure to below occupational exposure levels (OEL) > Reducing the time spent by employees in noisy and dusty areas > Proper use of personal protective equipment. Initiatives to reduce noise include: > Enclosing machines with open cabins > Boxing work benches > Installing silencers on auxiliary fans > Training. (cid:58)(cid:108)(cid:100)(cid:108)(cid:99)(cid:88)(cid:107)(cid:96)(cid:109)(cid:92)(cid:23)(cid:90)(cid:102)(cid:100)(cid:103)(cid:92)(cid:101)(cid:106)(cid:88)(cid:107)(cid:92)(cid:91)(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)(cid:49)(cid:23)(cid:41)(cid:39)(cid:39)(cid:45)(cid:36)(cid:41)(cid:39)(cid:39)(cid:48) (cid:41)(cid:44) (cid:41)(cid:39) (cid:40)(cid:44) (cid:40)(cid:39) (cid:44) (cid:39) (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: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:92) (cid:106) (cid:88) (cid:92) (cid:106) (cid:96) (cid:91) (cid:94) (cid:101) (cid:108) (cid:67) (cid:23) ■(cid:23)(cid:23)(cid:41)(cid:39)(cid:39)(cid:45)(cid:23)(cid:23)(cid:23)(cid:23)■(cid:23)(cid:23)(cid:41)(cid:39)(cid:39)(cid:46)(cid:23)(cid:23)(cid:23)(cid:23)■(cid:23)(cid:23)(cid:41)(cid:39)(cid:39)(cid:47)(cid:23)(cid:23)(cid:23)(cid:23)■(cid:23)(cid:23)(cid:41)(cid:39)(cid:39)(cid:48) and occupational TB. Efforts to reduce was issued for the group to ensure uniform and comprehensive management of employees with TB. The risks of TB include: > Spread of TB in the communities where employees and contractors live > Signiﬁ cant risk of co-worker infection (10 to 18 people are infected by one active TB patient) > The high prevalence rate of HIV (which compromises individual immune systems) is a known risk factor for developing TB, therefore TB and HIV/Aids programmes need to be reinforced > Workplace exposure to mining dust is a contributing factor to TB. Initiatives to reduce dust include: > Removal of coal crusher at one of our sites employees’ high noise exposure continue. Given the dramatic increase in TB rates in There is also increased susceptibility to South Africa and in the mining industry TB possibly fuelled by individuals with in recent years (below), it is important to > Extraction fans at primary and compromised immune systems. There manage TB and HIV holistically through secondary crushers have been no cases of silicosis. better surveillance, diagnosis, treatment and monitoring. At each business unit, TB Tuberculosis New cases of non-occupational TB education initiatives reach employees at least once a year. These include information increased from 2008 (63) to 2009 (83 out on symptoms and the importance of early of 11 180 employees). A new TB standard diagnosis for effective treatment. Adhering Tuberculosis in the mining industry TB is a growing health problem globally and in South Africa, as reﬂ ected in the 80% increase in case notiﬁ cation of this disease in the local population over the last ﬁ ve years. This indicates the rising burden of disease in the community, inability of the public health system to fully control it, and high incidence of HIV/Aids given that over 60% of TB patients are also HIV-positive. As such, a successful HIV/Aids programme is critical to the management and success of a TB programme. The high rate of occupational TB in the mining industry is largely due to exposure to airborne pollutants — especially silica dust — as well as (six months) can poorly ventilated working and living conditions. The relatively long treatment to period interrupted treatment with a defaulter rate of over 10%, which in turn can cause multiple drug-resistant TB strains. lead TB is curable. It needs to be proactively using wetting methods managed to reduce dust levels, and wearing respirators. In addition, infection control, good diagnostic capacity, education on the disease, a good health infrastructure and resources are required. In the mining industry, periodic medical surveillance provides an opportunity for routine TB screening. > Use of water in stockpile areas > Dust suppression on opencast surface roads > Increased ventilation in underground sections > Wet plants > Training. Occupational diseases Reported cases are those newly diagnosed and submitted to the compensation authorities to conﬁ rm that they are work related and eligible for compensation. In 2009 Exxaro reported 90 occupational diseases: this is an early indicator of the possible occupational disease burden. Tracking this data indicates potential cases that could be compensated and provides an opportunity to reinforce preventive programmes. In 2009, Exxaro had 20 occupational disease cases accepted for compensation: 11 cases of NIHL, two cases of pneumo- coniosis, one of occupational lung disease and six of occupational TB. There has been a general decrease in occupational diseases, except for NIHL 94 I Exxaro Annual Report 2009 (cid:73)(cid:92)(cid:103)(cid:102)(cid:105)(cid:107)(cid:92)(cid:91)(cid:23)(cid:88)(cid:101)(cid:91)(cid:23)(cid:88)(cid:90)(cid:90)(cid:92)(cid:103)(cid:107)(cid:92)(cid:91)(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:23)(cid:90)(cid:88)(cid:106)(cid:92)(cid:106)(cid:23)(cid:93)(cid:102)(cid:105)(cid:23)(cid:41)(cid:39)(cid:39)(cid:48) (cid:44)(cid:39) (cid:43)(cid:39) (cid:42)(cid:39) (cid:41)(cid:39) (cid:40)(cid:39) (cid:39) (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:92) (cid:106) (cid:88) (cid:92) (cid:106) (cid:96) (cid:91) (cid:94) (cid:101) (cid:108) (cid:67) (cid:23) (cid:88) (cid:100) (cid:95) (cid:107) (cid:106) (cid:56) (cid:106) (cid:96) (cid:107) (cid:96) (cid:107) (cid:88) (cid:100) (cid:105) (cid:92) (cid:59) (cid:106) (cid:96) (cid:106) (cid:102) (cid:107) (cid:106) (cid:92) (cid:89) (cid:106) (cid:56) (cid:33) (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:73)(cid:92)(cid:103)(cid:102)(cid:105)(cid:107)(cid:92)(cid:91)(cid:23)(cid:31)(cid:48)(cid:39)(cid:32)(cid:23)(cid:23)(cid:23)(cid:23)■(cid:23)(cid:23)(cid:56)(cid:90)(cid:90)(cid:92)(cid:103)(cid:107)(cid:92)(cid:91)(cid:23)(cid:31)(cid:41)(cid:39)(cid:32) (cid:33)(cid:23)(cid:71)(cid:105)(cid:92)(cid:109)(cid:96)(cid:102)(cid:108)(cid:106)(cid:99)(cid:112)(cid:23)(cid:110)(cid:102)(cid:105)(cid:98)(cid:92)(cid:91)(cid:23)(cid:96)(cid:101)(cid:23)(cid:88)(cid:101)(cid:23)(cid:88)(cid:106)(cid:89)(cid:92)(cid:106)(cid:107)(cid:102)(cid:106)(cid:23)(cid:90)(cid:102)(cid:100)(cid:103)(cid:88)(cid:101)(cid:112)(cid:37) end of 2009, 58% of our employees had participated in voluntary counselling and testing. This compares very favourably with our target to get at least 50% of all employees at each site to test for HIV. A major awareness campaign during the year helped group employees understand the importance of their HIV status and provided information to help them make appropriate lifestyle choices such as joining a treatment programme or keeping their status negative. Exxaro’s HIV/Aids service offers employees support focused on four key areas: Prevention: > Employees are trained and offered the (cid:71)(cid:92)(cid:105)(cid:90)(cid:92)(cid:101)(cid:107)(cid:88)(cid:94)(cid:92)(cid:23)(cid:102)(cid:93)(cid:23)(cid:107)(cid:105)(cid:88)(cid:96)(cid:101)(cid:92)(cid:91)(cid:23)(cid:92)(cid:100)(cid:103)(cid:99)(cid:102)(cid:112)(cid:92)(cid:92)(cid:106)(cid:23)(cid:110)(cid:95)(cid:102)(cid:23) (cid:95)(cid:88)(cid:109)(cid:92)(cid:23)(cid:90)(cid:102)(cid:100)(cid:103)(cid:99)(cid:92)(cid:107)(cid:92)(cid:91)(cid:23)(cid:63)(cid:64)(cid:77)(cid:23)(cid:107)(cid:92)(cid:106)(cid:107)(cid:96)(cid:101)(cid:94) (cid:40)(cid:39)(cid:39) (cid:47)(cid:39) (cid:45)(cid:39) (cid:43)(cid:39) (cid:41)(cid:39) (cid:39) (cid:99) (cid:98) (cid:108) (cid:92) (cid:94) (cid:92) (cid:107) (cid:102) (cid:102) (cid:105) (cid:62) (cid:96) (cid:101) (cid:92) (cid:91) (cid:101) (cid:102) (cid:98) (cid:95) (cid:106) (cid:75) (cid:96) (cid:99) (cid:92) (cid:101) (cid:88) (cid:89) (cid:102) (cid:63) (cid:38) (cid:99) (cid:102) (cid:90) (cid:88) (cid:101) (cid:105) (cid:108) (cid:59) (cid:58) (cid:57) (cid:69) (cid:88) (cid:91) (cid:101) (cid:88) (cid:112) (cid:101) (cid:64) (cid:106) (cid:91) (cid:101) (cid:88) (cid:74) (cid:69) (cid:81) (cid:66) (cid:23) (cid:101) (cid:88) (cid:103) (cid:110) (cid:108) (cid:92) (cid:92) (cid:67) (cid:105) (cid:102) (cid:90) (cid:101) (cid:81) (cid:96) (cid:107) (cid:102) (cid:101) (cid:105) (cid:56) (cid:23) (cid:92) (cid:90) (cid:96) (cid:93) (cid:93) (cid:102) (cid:92) (cid:107) (cid:88) (cid:105) (cid:102) (cid:103) (cid:105) (cid:102) (cid:58) (cid:99) (cid:106) (cid:88) (cid:94) (cid:108) (cid:102) (cid:59) (cid:101) (cid:92) (cid:62) (cid:23) (cid:99) to this new standard is expected to reduce opportunity to test for HIV the risk of developing, contracting and > Peer educators are trained and spreading multiple- and extensively drug- resistant TB in Exxaro. supervised in conducting prevention programmes and providing information Hazardous chemical substances A new hazardous chemicals standard was issued to the group in 2009 in compliance with legislative (Hazardous Substances Act 15 of 1973) and international requirements (such as OHSAS 18001; ISO 14001; SANS 10232, 10234 and 10238). In terms of this to colleagues > Condoms are distributed. Detection: > Voluntary HIV testing. Treatment: > Employees who test positive for HIV can enrol on a treatment programme standard, each business unit has to develop through their own medical aid, or a site-speciﬁ c procedure, database and through Exxaro’s outsourced service training programme to eliminate and reduce provider. the possibility of harm to Exxaro employees and contractors by the end of 2010. H1N1 (swine ﬂ u) There was minimal impact of H1N1 on Exxaro, with only three cases reported across the group and the individuals recovered fully. Exxaro will continue to monitor and manage potential risks as the ﬂ u season approaches. Care and support: > A service provider call centre stays in touch with people registered on the programme > Trained peer educators provide information about HIV/Aids to colleagues > Health professionals are available on site to provide technical support to peer educators. Environmental management Highlights > Exxaro ranks among the leaders in carbon disclosure standards in South Africa > Water efﬁ ciency investigation under way > Electricity usage baseline established for all operations. Exxaro’s core focus is on conserving natural resources and reducing the burden of pollutants on the environment by: > Complying with all applicable environ- mental legislation — as a starting point. Our aim is to exceed compliance > Developing innovative policies and programmes for addressing environ- mental impacts. All South African operations have environ- mental management programmes (EMPs) as required under the Mineral and Petroleum Resources Development Act (MPRDA) and the National Environmental Management Act (NEMA). North Block Complex’s EMP expired and is being updated, while the EMP amendment to Arnot’s Mooifontein is also under way. All HIV/Aids see www.exxaro.com/case_studies EMPs are key indicators in ensuring that The prevalence of HIV/Aids across Exxaro MAKING A DIFFERENCE IN THE Exxaro becomes a sustainable business. is currently estimated at 12%. At the HIV/AIDS PANDEMIC Exxaro also adopts the precautionary Exxaro Annual Report 2009 I 95 SAFETY AND SUSTAINABLE DEVELOPMENT PERFORMANCE CONTINUED approach recommended by NEMA in evaluating the environmental impacts of business opportunities. by dedicating a resource to oversee the environmental authorisation process. To enhance implementation of these legal requirements and the sustainable use of natural resources, standards for air quality management, water management, biodiversity management and rehabilitation management have been completed and will be implemented in 2010. Key risks and management activities A strategic review of key environmental risks from Exxaro’s mining activities during the year highlighted: > Air pollution, water pollution, water- supply security and surface disturbance > Cost of, and provision for, environmental liabilities The in-house environmental specialist unit has increased its scope of services > Compliance to statutory and non- statutory environmental requirements. As such, we have developed a timeline to Exxaro’s desirable state that includes: > Sustainable ecological systems at all Exxaro operations > Stable rehabilitation fund with a gradual decline in environmental liabilities as these liabilities are addressed during active operation > Full environmental to sustainable development requirements > No asset risk and reduction in land- compliance holding costs. Timeline to desirable state 2009 2010 — 2011 1 Develop and implement air quality management Review priorities 2012 — 2015 Review priorities plans – Inyanda, KZN Sands and Zincor 2 EIA-EMP amendments (14)* 3 Eight site-closure reviews 4 Ferroland divestment (Gravelotte and Hlobane) 5 Approval of closure EMPR for Hlobane 6 Develop and implement integrated water-use licence (Glen Douglas, Tshikondeni opencast and Eerstelingsfontein project)* 7 Assurance preparedness – all ﬁ ndings 8 Biodiversity action plans 1 Review performance on air-quality management plans for Grootegeluk, New Clydesdale, Matla 2 Review performance on integrated water-use licence for Namakwa Sands, Arnot, North Block Complex, Glisa, Grootegeluk and selected projects 3 EIA-EMP amendments 4 Ferroland divestment from Durnacol, Manketti 5 Biodiversity action plans – Arnot-Matla, North Block Complex, Grootegeluk, KZN Sands, Namakwa Sands, Rosh Pinah 6 Water business case investigation 7 Implementation of closure activities at Northﬁ elds and KZN Sands according to plan 1 Exxaro-wide strategic environmental risk assessment 2 Water business case implementation 3 Review implementation of closure activities at mines in closure 4 Environmental liability management process (EERF, Arnot-Matla) * Most of these have at least a 12-month cycle Key: EIA — environmental impact assessment; EMP — environmental management plan; EMPR — environmental management plan report; EERF — Exxaro environmental rehabilitation fund 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, reviewed and updated for Glen Douglas, Tshikondeni, Leeuwpan and Grootegeluk water treatment plant > Water balances were developed, revised and updated for Tshikondeni, Grootegeluk, Leeuwpan, North Block Complex Eerstelingsfontein project, Glen Douglas, Matla and KZN Sands central processing complex (CPC). Integrated water management Exxaro is committed to best-practice guidelines developed by the Department of Water Affairs in 2008/9 and the following measures, among others, are constantly implemented at all business units: > Dirty water areas are identiﬁ ed and demarcated > Dirty water is captured from dedicated areas and stored in suitable holding facilities > Concurrent rehabilitation efforts ensure maximum clean water run-off > Dirty water areas are kept to a minimum > Erosion protection on water conveyance systems > Re-use and reclamation of water in the dirty-water system. Water-use deﬁ nitions have been stan- dardised across business units via the Exxaro water management standard. This group-wide standard guides business units in tracking compliance against legal and reporting requirements for water. 96 I Exxaro Annual Report 2009 Water efﬁ ciency projects at Exxaro These projects have been integrated into the new Exxaro water-efﬁ ciency project scheduled for completion in 2010. Business unit Description Grootegeluk Matla Arnot Leeuwpan Inyanda Tshikondeni New Clydesdale > In pit storage of stormwater run-off for plant utilisation (after pH neutralisation plant to avoid corrosion) > Dewatering of the Basalt aquifer and re-use as process water > The Basalt aquifer is fed mainly by seepage from the unlined pollution control dams, stockpile areas and slimes facility > Water recovery from the slimes disposal facility is re-used as process water > Excess water from underground is being considered for distribution to Eskom as process water > No formal water reclamation used in plant plan in place > Water recovery from the slimes disposal facility > Storm water run-off recycled and re-used via the process water dams > Water reclamation from the slimes facility is used as process water > Stormwater run-off from the plant area is captured and returned to the plant for re-use > Pit water from groundwater ﬂ ow and run-off is pumped back to the dirty-water facilities for re-use > Co-disposal facility with water reclamation which is re-used in the plant > Stormwater run-off collected in lined pollution control dams at shaft areas and re-used as process water > Slimes disposal with percolated water recovery for re-use in the plant area > Stormwater run-off at the plant area is recycled back as process water > Pit stormwater run-off is used for dust suppression North Block Complex > Excess water from pit and stormwater run-off is collected in pollution control dams for dust suppression Zincor Glen Douglas KZN Sands Namakwa Sands > Rainwater collection from roofs is used to augment process water > Borehole abstraction used to draw back pollution plume and augment process water > Stormwater run-off into opencast areas used as process water in the plant area > Reclamation of rainwater to augment water from Umgeni Water > Seepage and run-off at CPC is collected and used as process water > Seawater is used as process water > Process water is recycled from the disposal facilities and re-used in the plant Total water withdrawal by source North Block Complex Tshikondeni Glen Douglas Rosh Pinah Zincor KZN Sands Namakwa Sands Source Municipal Unwa Dam, boreholes Municipal NAM-Water Municipal, boreholes, rainwater harvest Municipal Olifants River (Western Cape), seawater Source Arnot Eskom Glisa Grootegeluk Inyanda Mokolo Dam, boreholes, pit water Mokolo Dam boreholes Olifants River (Mpumalanga), boreholes Leeuwpan Boreholes Matla Eskom New Clydesdale Olifants River (Mpumalanga) (cid:78)(cid:88)(cid:107)(cid:92)(cid:105)(cid:23)(cid:108)(cid:106)(cid:92)(cid:23)(cid:90)(cid:102)(cid:101)(cid:106)(cid:108)(cid:100)(cid:103)(cid:107)(cid:96)(cid:102)(cid:101)(cid:23)(cid:103)(cid:92)(cid:105)(cid:23)(cid:57)(cid:76)(cid:23)(cid:31)(cid:94)(cid:105)(cid:102)(cid:108)(cid:103)(cid:23)(cid:107)(cid:102)(cid:107)(cid:88)(cid:99)(cid:23)(cid:41)(cid:35)(cid:46)(cid:40)(cid:23)(cid:68)(cid:100)(cid:42)(cid:32) (cid:43)(cid:28) (cid:44)(cid:28) (cid:43)(cid:28) (cid:40)(cid:28) (cid:46)(cid:28) (cid:43)(cid:40)(cid:28) (cid:41)(cid:28) (cid:41)(cid:44)(cid:28) (cid:42)(cid:28) (cid:40)(cid:28) (cid:45)(cid:28) (cid:40)(cid:28) ■(cid:23)(cid:23)(cid:56)(cid:105)(cid:101)(cid:102)(cid:107)(cid:23) ■(cid:23)(cid:23)(cid:58)(cid:95)(cid:88)(cid:105)(cid:23)(cid:71)(cid:99)(cid:88)(cid:101)(cid:107) ■(cid:23)(cid:23)(cid:62)(cid:105)(cid:102)(cid:102)(cid:107)(cid:92)(cid:94)(cid:92)(cid:99)(cid:108)(cid:98)(cid:23) ■(cid:23)(cid:23)(cid:64)(cid:101)(cid:112)(cid:88)(cid:101)(cid:91)(cid:88)(cid:23) ■(cid:23)(cid:23)(cid:67)(cid:92)(cid:92)(cid:108)(cid:110)(cid:103)(cid:88)(cid:101) ■(cid:23)(cid:23)(cid:68)(cid:88)(cid:107)(cid:99)(cid:88)(cid:23) ■(cid:23)(cid:23)(cid:69)(cid:92)(cid:110)(cid:23)(cid:58)(cid:99)(cid:112)(cid:91)(cid:92)(cid:106)(cid:91)(cid:88)(cid:99)(cid:92)(cid:23)(cid:58)(cid:102)(cid:99)(cid:99)(cid:92)(cid:105)(cid:112) ■(cid:23)(cid:23)(cid:69)(cid:102)(cid:105)(cid:107)(cid:95)(cid:23)(cid:57)(cid:99)(cid:102)(cid:90)(cid:98)(cid:23)(cid:58)(cid:102)(cid:100)(cid:103)(cid:99)(cid:92)(cid:111) ■(cid:23)(cid:23)(cid:75)(cid:106)(cid:95)(cid:96)(cid:98)(cid:102)(cid:101)(cid:91)(cid:92)(cid:101)(cid:96) ■(cid:23)(cid:23)(cid:66)(cid:81)(cid:69)(cid:23)(cid:74)(cid:88)(cid:101)(cid:91)(cid:106) ■(cid:23)(cid:23)(cid:69)(cid:88)(cid:100)(cid:88)(cid:98)(cid:110)(cid:88)(cid:23)(cid:74)(cid:88)(cid:101)(cid:91)(cid:106) ■(cid:23)(cid:23)(cid:62)(cid:99)(cid:92)(cid:101)(cid:23)(cid:59)(cid:102)(cid:108)(cid:94)(cid:99)(cid:88)(cid:106) ■(cid:23)(cid:23)(cid:73)(cid:102)(cid:106)(cid:95)(cid:23)(cid:71)(cid:96)(cid:101)(cid:88)(cid:95) ■(cid:23)(cid:23)(cid:81)(cid:96)(cid:101)(cid:90)(cid:102)(cid:105) Percentages have been rounded Exxaro Annual Report 2009 I 97 SAFETY AND SUSTAINABLE DEVELOPMENT PERFORMANCE CONTINUED > Avoiding negative environmental > Financial resources allocated to water impact or damage management: – Purchase of water – Water management – Water release/discharge > Water-related ﬁ nancial liabilities for operational and closure phases. Although this process is still in its infancy, the outcome from the ﬁ rst phase of data analysis will assist in identifying gaps, risks and assessing different business units’ water-use patterns, available water resources, and potential for developing water reclamation schemes. Phase 1 will be completed in July 2010. see www.exxaro.com/case_studies MAKING REHABILITATION WORK FOR WATER CONSERVATION Waste management A group-wide policy on waste manage- ment that will address material issues related to waste streams, such as disposal of hazardous as well as general waste generated from Exxaro operations, has been prioritised for 2010. The business case for water management Exxaro has embarked on a three-phased process to develop a strategic water management plan for all business units, spanning water efﬁ ciency, water reclamation and water re-use initiatives. In ﬁ nding a solution that beneﬁ ts our group, government and communities > Manage, minimise or eliminate post- closure liability: proactive positioning to make water available to other water users > Offset against anticipated waste discharge changes > Proﬁ le of water being elevated in feasibility assessments as a sensitive alike, the strategic drivers behind this parameter. project include: > The limited water resources available Phase 1 began in November 2009 and in certain parts of South Africa to support new or expanding mining and was rolled forward to 2010. Data listed below is being gathered as part of the mineral projects > High cost of inter-basin transfer of water to support development projects (R5-10/m3 and increasing) > Compliance requirements — water-use phase 1 investigation: > Geographical and water-related location of each operation > Water efﬁ ciency, both in terms of use and development as a resource > Water infrastructure and related licensing requires re-use as per the investment Department of Water Affairs’ hierarchy > Legal and regulatory requirements and of water management on mining and compliance for operational and closure industrial facilities phases Developing a strategic water management plan Phase 1 Phase 2 Phase 3 Company-wide assessment of water supply, water management and water liabilities to establish the size of the water resource that may be available to the water business. Water market and business opportunities. Learning from worldwide trends. This will establish local and regional demand for water by users able to purchase the water. Business case for Exxaro entering the water market as a viable enterprise development. 98 I Exxaro Annual Report 2009 Air quality management Exxaro has implemented an air quality In applying this framework, particularly the emission inventory step, across our management framework for quantifying operations, it is evident that most of our and determining the impact of our ambient pollution impacts associated with ambient emissions, and managing non- emissions are particulate matter or dust compliance and continuous improvement from mining activities. In addition, Exxaro (below). This approach, which is aligned also operates smelting operations in its particulate matter (represented as PM10), sulphur dioxide (SO2) and nitrogen oxide (NOx). Emissions from mining operations Dust-generating activities (ie blasting, to the requirements of the 2007 national mineral sands and base metals commodity vehicle entrainment and wind erosion of framework for air quality management businesses. Emissions from these smelters exposed operational areas) are challenges in South Africa, provides a standardised are regulated by a registration certiﬁ cate the group addresses daily through methodology across the group for issued by the chief air pollution control environmental management measures quantifying emissions and determines ofﬁ cer in the Department of Water and such as dust-suppressant agents (eg Dust- the appropriate action in mitigating their Environmental Affairs (DWEA). Emissions A-Side) on haul roads, applying water to impact. of concern from these smelters are secondary unpaved operational roads Air quality management framework Business unit’s emission inventory Point sources (eg stacks) Line sources (roads) Area sources (discard dumps) Volume sources (fuel storage tanks) and vegetating topsoil and overburden material. All our mining operations monitor daily fallout dust rates and results are assessed against the national standards (SANS) set out in ﬁ gure 1. Air quality impact assessment If above government emission requirements Result of emission inventory If below government emission requirements Air quality dispersion modelling Development and implement air quality management plan s t u p n I Meteorological data Developing monitoring network Developing mitigation plan Compliance reporting (monthly and annual reports) Yes Pivot compliance: reporting below emissions limits No for three consecutive reporting periods Inputs Meteorological data Digital terrain data Emission inventory Figure 1: National standards (SANS) Level Target Action residential Action industrial Alert threshold Dust fallout rate (mg/m2/day) Permitted frequency 300 600 1 200 2 400 Three in any year, no sequential months Three in any year, no sequential months None. First exceedance requires remediation and compulsory report to authorities Figure 2: Results from Exxaro’s monitoring points Operation Coal Mineral sands and base metals Points monitored with single-unit fallout dust bucket Average number of exceedances – 2009 60 36 600mg/m2/day 9 3 As % of total 13 8 Exxaro Annual Report 2009 I 99 SAFETY AND SUSTAINABLE DEVELOPMENT PERFORMANCE CONTINUED Exxaro has implemented a management key performance indicator that tracks compliance against the “action residential limit”. Even though our operations are classiﬁ ed under industrial targets, we recognise that some operations are close to densely populated areas. Tracking compliance against the residential limit provides a standardised management approach that aims to move our operation into the long-term target of 300mg/m2/day (ﬁ gure 2, page 99). On average, the operations in the coal commodity business exceeded the 600mg/ m2/day limit 13% of the time in 2009. Most of these exceedances were recorded in the winter and spring months. The mineral sands and base metals commodity business exceeded the limit 8% of the time. Emissions from smelting operations All our registration certiﬁ cates issued in terms of section 10 of the Atmospheric Pollution Prevention Act, 1965 (Act 45 of 1965). These stipulate smelters have Figure 3: Performance of smelters acceptable stack emissions for particulate matter at KZN Sands smelters; particulate matter, NOx and SO2 at Namakwa Sands; and SO2 at the zinc smelter. The table below shows the performance of our smelters against permit conditions (ﬁ gure 3). Biodiversity management is threatened by Global biodiversity human development — including mining. Climate change is expected to exacerbate this effect. As such, conservation is becoming increasingly important. Exxaro- owned and -managed land has signiﬁ cant biodiversity given the wide geographical spread of the group’s operations. As part of the process of developing biodiversity management plans for each business unit, a comprehensive study was undertaken to determine vegetation types on all land held by Exxaro and quantify greenhouse gas reduction as a result of vegetation. 1 values carbon tier determined. Agriculture, forestry and other land-use practices were included to provide for a more accurate and complete carbon footprint, accounting for the various business units and the group as a whole. Based on aerial photographs and GIS land use and vegetation maps, a carbon vegetation type map for each operation (mines and smelters) was compiled. The carbon quantities captured within the 32 types of vegetation in land under operational control are estimated to be around 30 million tonnes. The data on vegetative carbon stocks within various land use practices assists Exxaro’s environmental practitioners in executing their environmental and rehabilitation activities. A summary of biodiversity management is shown overleaf. see www.exxaro.com/case_studies MANKETTI’S FABULOUS FROGS The boundaries and vegetative mapping were completed in 2009 and preliminary see www.exxaro.com/case_studies NATURE’S BALANCE RESTORED Business unit No of points Pollutant Permitted emission rate Namakwa Sands KZN Sands Zincor 2 2 2 15 2 PM SO2 NOx PM SO2 30 500 700 50 24 Units mg/m3 (24hr average) mg/m3 (1hr average) mg/m3 (1hr average) mg/m3 mg/m3 Assessment frequency Bi-annually Bi-annually Bi-annually Quarterly Continuous Exceedance of permitted emission rate (2009) 0 0 0 5 1 Formal biodiversity management policy in place In terms of a policy approved in September 2008, Exxaro’s intention on biodiversity is to be a mining company that leads by example in protecting, enhancing and conserving South Africa’s biodiversity to ensure that the right of future generations to a healthy, complete and rich biodiversity is entrenched, and to ensure sustainability in terms of biodiversity through biodiversity management and/or offset areas that reﬂ ect duty-to-care principles. Group operations are mandated to ensure that biodiversity conservation and the use of natural resources through mining co-exist through proper planning, decision-making, conservation and offsets. The objectives of this policy are focused on the protection and conservation of biodiversity-rich areas of undisturbed areas, preventing or limiting destruction of Red Data faunal and ﬂ oral species and eradication and control of alien invasive species by means of practical and cost-effective management skills, programmes and action plans. 100 I Exxaro Annual Report 2009 Biodiversity management Description Inyanda Tshikodeni KZN Sands Rosh Pinah Zincor Namakwa Sands Coal Sands and base metals CPC BSB CPS Smelter KZN - Hillendale & Port Durnford Location/size of land owned, leased, managed or adjacent to protected areas of high biodiversity value Land adjacent to protected areas √ √ X √ Adjacent to Kruger National Park, within Gariep Centre of Plant Endemism Signiﬁ cant impacts of activities, product and services on biodiversity in protected areas and areas of high biodiversity value outside protected areas Size of land assessed (hectares) Buildings (farm buildings, mine buildings, etc) Cultivation Grassland/dune scrub Mine tailings/pits/bare soil/airﬁ elds Open water Plantations/woodland Grassland (natural) Grassland secondary/ transformed grassland Open bushveld Riparian forest Sand banks Stream vegetation (bushveld) Thicket and encroached bushveld Transformed/degraded bushveld Wetland grassland Bushveld Floodplain bushveld Inland forest Mopani bushveld Mountain bushveld Coastal forest Sugar cane Desert wash Habitats protected/restored Protected Restored 1748 12 249 18 4 57 1 372 35 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 X Red data species relocated to offset area under MTPBA management Strategies, actions and plans for managing impacts on biodiversity Exxaro biodiversity strategy (draft) Management plan (EMPR) √ √ Biodiversity action plans (BAP) √ First BAP draft under way Relocation strategy of Frithia humilis with SANBI and MTPBA √ Recorded Frithia humilis — Relocated in conjunction with SANBI and MTPBA IUCN red list and national conservation lists species affected by operations Note: Figures have been rounded 66 1 25 2 3 0 16 0 5 0 0 0 0 0 0 8 0 0 0 0 0 0 5 0 X X √ √ √ BAP draft under way X None recorded to date 22 386 72 709 0 132 197 103 0 0 663 473 177 412 4 469 590 40 4 457 27 235 5 710 3 921 0 0 0 √ Kruger National Park Adjacent to protected area - impacts of mining limited due to under- ground activities √ √ √ Draft update of certain sections in 2010 √ Various species recorded but not currently affected by underground mining operations. Potential that future opencast operations may impact on red data listed species 5 419 181 342 526 391 0 25 0 157 0 0 0 23 0 0 4 0 0 0 0 0 679 3 091 0 X X √ √ Only Hillendale — Port Durnford no mining activities √ BAP draft under way — Hillendale only √ Recorded and currently affected (Hillendale – habitat transfor- mation) √ 0 √ X √ √ √ √ 0 0 Area not assessed 2009 √ X √ √ √ X √ √ X X X √ Recorded and affected by mining activity √ Recorded and affected by mining activity √ Recorded and affected by mining activity √ Adjacent to RAMSAR Site 296 38 0 0 107 0 9 24 113 0 0 0 0 0 0 3 0 0 0 0 0 0 0 0 √ RAMSAR site √ Wetland with red data species √ √ √ BAP draft in compi- lation √ Recorded but not currently affected – population of Kniphoﬁ a typhoides stable and healthy √ Adjacent to Sperr Gebied/ Richtersveld National Park/ endemic hotspot area 1 251 23 0 0 121 0 0 0 0 0 0 616 0 0 0 0 0 0 0 0 455 0 0 35 √ X √ √ X √ Recorded various IUCN red data plant species – affected during previous exploration activities. High number of endemic species present and recorded. Exxaro Annual Report 2009 I 101 SAFETY AND SUSTAINABLE DEVELOPMENT PERFORMANCE CONTINUED Mine rehabilitation 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 from the feasibility stage of any mining operation through all operational phases and, ultimately, to prepare for efﬁ cient mine closure. This framework informs physical processes and ﬁ nancial provisions, including rehabilitation performance indicators. this data, Business units are already reporting on these indicators each quarter. By closely monitoring rehabilitation backlogs are identiﬁ ed before undue ﬁ nancial liabilities occur. The goal of the environmental rehabilitation department is report against set ongoing rehabilitation budgets per business unit, in terms of volumes and ﬁ nance. to were completed for four operations and submitted to DMR. Others are scheduled for 2010. see www.exxaro.com/case_studies MINE CLOSURE PLAN IN ACTION Energy and climate change The Exxaro brand is built on a strong vision: everything we do and deliver today will allow others to realise their vision tomorrow. At Exxaro, we look beyond the current commodities and operations and see the impact we have on people and the planet. to that recognises Exxaro remain competitive and sustainable, it is critical that potential energy shortages; the rising costs of energy; climate change and its related environmental concerns are dealt with as a strategic imperative. Exxaro contributed R38 million in 2009 and had R422 million in its trust fund at 31 December 2009 for mine closure activities. rehabilitation provisions annually also informs potential rehabilitation optimisation alternatives that will decrease the closure liabilities of mines in the long term. Updating During the year, closure-cost reviews were completed at eight operations. Five inactive sites have been included in this review process. Performance assess- ments against EMPR (environmental report) objectives management plan Exxaro’s carbon footprint represents almost total 1% of South Africa’s emissions. This is depicted in ﬁ gure 1 for 2006 to 2009, divided by the source of the emissions. Figure 2 shows the updated baseline for 2006, the ﬁ rst year for which a detailed carbon footprint was calculated. In line with the international carbon reporting protocol, the baseline is updated to show data (accuracy), the inclusion of additional sources of greenhouse gas or GHG emissions, and the inclusion of a new business unit purchased after 2006. (cid:60)(cid:111)(cid:111)(cid:88)(cid:105)(cid:102)(cid:23)(cid:41)(cid:39)(cid:39)(cid:48)(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) (cid:61)(cid:96)(cid:94)(cid:108)(cid:105)(cid:92)(cid:23)(cid:40)(cid:49)(cid:23)(cid:60)(cid:106)(cid:107)(cid:96)(cid:100)(cid:88)(cid:107)(cid:92)(cid:91)(cid:23)(cid:107)(cid:102)(cid:107)(cid:88)(cid:99)(cid:23)(cid:93)(cid:102)(cid:102)(cid:107)(cid:103)(cid:105)(cid:96)(cid:101)(cid:107)(cid:23)(cid:89)(cid:112)(cid:23) (cid:90)(cid:102)(cid:101)(cid:107)(cid:105)(cid:96)(cid:89)(cid:108)(cid:107)(cid:102)(cid:105)(cid:23)(cid:31)(cid:68)(cid:107)(cid:23)(cid:58)(cid:70)(cid:41)(cid:92)(cid:32) (cid:42)(cid:35)(cid:44) (cid:42)(cid:35)(cid:39) (cid:41)(cid:35)(cid:44) (cid:41)(cid:35)(cid:39) (cid:40)(cid:23)(cid:35)(cid:44) (cid:40)(cid:35)(cid:39) (cid:39)(cid:35)(cid:44) (cid:41)(cid:39)(cid:39)(cid:47) (cid:41)(cid:39)(cid:39)(cid:48) (cid:39) (cid:41)(cid:39)(cid:39)(cid:46) (cid:41)(cid:39)(cid:39)(cid:45) ■(cid:23)(cid:23)(cid:60)(cid:99)(cid:92)(cid:90)(cid:107)(cid:105)(cid:96)(cid:90)(cid:96)(cid:107)(cid:112) ■(cid:23)(cid:23)(cid:61)(cid:108)(cid:94)(cid:96)(cid:107)(cid:96)(cid:109)(cid:92)(cid:23)(cid:92)(cid:100)(cid:96)(cid:106)(cid:106)(cid:96)(cid:102)(cid:101)(cid:106) ■(cid:23)(cid:23)(cid:56)(cid:101)(cid:107)(cid:95)(cid:105)(cid:88)(cid:90)(cid:96)(cid:107)(cid:92) ■(cid:23)(cid:23)(cid:61)(cid:108)(cid:92)(cid:99) ■(cid:23)(cid:23)(cid:70)(cid:108)(cid:107)(cid:106)(cid:102)(cid:108)(cid:105)(cid:90)(cid:92)(cid:91)(cid:23)(cid:107)(cid:105)(cid:88)(cid:101)(cid:106)(cid:103)(cid:102)(cid:105)(cid:107)(cid:88)(cid:107)(cid:96)(cid:102)(cid:101) (cid:61)(cid:96)(cid:94)(cid:108)(cid:105)(cid:92)(cid:23)(cid:41)(cid:49)(cid:23)(cid:76)(cid:103)(cid:91)(cid:88)(cid:107)(cid:92)(cid:91)(cid:23)(cid:41)(cid:39)(cid:39)(cid:45)(cid:23)(cid:89)(cid:88)(cid:106)(cid:92)(cid:99)(cid:96)(cid:101)(cid:92)(cid:23)(cid:107)(cid:102)(cid:107)(cid:88)(cid:99)(cid:23) (cid:93)(cid:102)(cid:102)(cid:107)(cid:103)(cid:105)(cid:96)(cid:101)(cid:107)(cid:23)(cid:89)(cid:112)(cid:23)(cid:90)(cid:102)(cid:101)(cid:107)(cid:105)(cid:96)(cid:89)(cid:108)(cid:107)(cid:102)(cid:105)(cid:23)(cid:31)(cid:68)(cid:107)(cid:23)(cid:58)(cid:70)(cid:41)(cid:92)(cid:32) (cid:41)(cid:35)(cid:48) (cid:41)(cid:35)(cid:46) (cid:41)(cid:35)(cid:44) (cid:41)(cid:35)(cid:42) (cid:41)(cid:35)(cid:40) (cid:40)(cid:35)(cid:48) (cid:40)(cid:35)(cid:46) (cid:92) (cid:101) (cid:96) (cid:99) (cid:23) (cid:92) (cid:106) (cid:88) (cid:89) (cid:45) (cid:39) (cid:39) (cid:41) (cid:97) (cid:23) (cid:91) (cid:88) (cid:88) (cid:107) (cid:88) (cid:59) (cid:61) (cid:60) (cid:23) (cid:99) (cid:102) (cid:105) (cid:107) (cid:92) (cid:71) (cid:23) (cid:61) (cid:60) (cid:92) (cid:101) (cid:88) (cid:95) (cid:107) (cid:92) (cid:68) (cid:96) (cid:92) (cid:107) (cid:88) (cid:91) (cid:92) (cid:100) (cid:105) (cid:92) (cid:107) (cid:101) (cid:64) (cid:23) (cid:61) (cid:60) (cid:112) (cid:107) (cid:96) (cid:90) (cid:96) (cid:105) (cid:107) (cid:90) (cid:92) (cid:60) (cid:99) (cid:97) (cid:23) (cid:23) (cid:91) (cid:88) (cid:88) (cid:107) (cid:88) (cid:91) (cid:92) (cid:101) (cid:88) (cid:95) (cid:107) (cid:92) (cid:68) (cid:62) (cid:71) (cid:67) (cid:92) (cid:107) (cid:96) (cid:90) (cid:88) (cid:105) (cid:95) (cid:107) (cid:101) (cid:56) (cid:92) (cid:101) (cid:102) (cid:107) (cid:106) (cid:92) (cid:100) (cid:67) (cid:96) (cid:106) (cid:92) (cid:109) (cid:96) (cid:106) (cid:102) (cid:103) (cid:111) (cid:60) (cid:99) (cid:106) (cid:88) (cid:62) (cid:23) (cid:99) (cid:102) (cid:106) (cid:88) (cid:74) (cid:74) (cid:68) (cid:69) (cid:88) (cid:91) (cid:101) (cid:88) (cid:112) (cid:101) (cid:64) (cid:106) (cid:112) (cid:102) (cid:99) (cid:99) (cid:23) (cid:56) (cid:102) (cid:105) (cid:105) (cid:92) (cid:61) (cid:97) (cid:91) (cid:88) (cid:23) (cid:107) (cid:105) (cid:102) (cid:103) (cid:106) (cid:101) (cid:88) (cid:105) (cid:107) (cid:23) (cid:99) (cid:88) (cid:96) (cid:105) (cid:92) (cid:107) (cid:88) (cid:68) (cid:92) (cid:101) (cid:96) (cid:99) (cid:23) (cid:92) (cid:106) (cid:88) (cid:89) (cid:45) (cid:39) (cid:39) (cid:41) (cid:91) (cid:92) (cid:107) (cid:88) (cid:91) (cid:103) (cid:76) (cid:23) South Africa’s approach South Africa has developed long-term mitigation scenarios, the basis of which was accepted by cabinet in July 2008 as a framework to manage the country’s greenhouse gas emissions. The mitigation policy adopted by cabinet includes: > Increasing the price on carbon through an escalating CO2 tax, or an alternative market mechanism > > > > Setting targets for electricity generated from both renewable and nuclear energy sources by the end of the next two decades Laying the basis for a net zero-carbon electricity sector in the long term Incentivising renewable energy through feed-in tariffs Exploring and developing carbon capture and storage for coal-ﬁ red power stations, and not approving new coal-ﬁ red power stations without carbon- capture readiness. (cid:63)(cid:92)(cid:90)(cid:107)(cid:88)(cid:105)(cid:92) (cid:40)(cid:44)(cid:23)(cid:39)(cid:39)(cid:39) (cid:40)(cid:41)(cid:23)(cid:39)(cid:39)(cid:39) (cid:48)(cid:23)(cid:39)(cid:39)(cid:39) (cid:45)(cid:23)(cid:39)(cid:39)(cid:39) (cid:42)(cid:23)(cid:39)(cid:39)(cid:39) (cid:39) (cid:91) (cid:92) (cid:89) (cid:105) (cid:108) (cid:107) (cid:106) (cid:96) (cid:91) (cid:91) (cid:101) (cid:88) (cid:67) (cid:23) (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:91) (cid:101) (cid:88) (cid:67) 102 I Exxaro Annual Report 2009 Energy and climate challenges are broad; solutions are enormously challenging, and Exxaro recognises the need to address all three imperatives, namely energy security, economic productivity and environmental impact. The energy and carbon management programme Purpose: to be recognised as a leader in energy management by minimising energy intensity while working towards becoming a carbon-neutral business. included initiatives around the regulatory environment, energy efﬁ ciency, the implementation of cleaner technologies and reputational issues to thrive in a low- carbon economy. In 2009, this map was further reﬁ ned and now includes a strong supporting programme. The programme Energy security > Secure supply > Reliability In recent years, Exxaro has consolidated focuses on operational management its approach to clean energy at group level. and energy project development and The formation of a strategic map in 2007 implementation. Economic productivity > Growth in demand > Price volatility Risks and oppor- tunities Environmental impact > Climate change > Land and water use > Carbon emissions These issues are increasingly being incorporated as part of Exxaro’s long- term business strategy. A dual approach is currently being implemented: > Firstly, energy an and Exxaro’s green timeline 2010 > Exxaro is developing renewable energy projects, one solar and two wind > Exxaro’s budget for the energy and carbon management programme is approximately R9 million > This programme is broadened to focus on climate change and associated risks > Exxaro becomes involved in industry engagement on future policies 2009 > Exxaro pays a large amount for electricity (more than R600 million) and forecasts electricity costs for 2011 to be some R1,3 billion > Exco approves energy and carbon strategy framework > Exxaro participates in SA Research Centre for Carbon Capture and Storage with local and carbon international partners management programme has been implemented, dealing with both mitigation and adaptation issues > Secondly, as noted by the CEO (page 15), after careful consideration, Exxaro is evaluating and developing a growth pipeline of environmentally friendly energy projects. Some of these initiatives are outlined in the growth section on page 49. These two programmes are linked by Exxaro’s drive to become carbon neutral and the need to thrive in a low-carbon economy. 2008 2007 2006 > Exxaro score in CDP leadership index improves by 9 percentage points > Special budget approved to enable comprehensive response to energy, carbon and climate change management to enable and achieve the group’s vision > South Africa realises the extent of its energy crisis > Exxaro starts energy efﬁ ciency forum with champions at each business unit > Dedicated manager appointed to focus on energy projects and opportunities > Exxaro placed ﬁ fth in South Africa’s CDP leadership index chapter for the energy-intensive sector > Exxaro sponsors UNISA Chair in Business and Climate Change for three years > Exxaro spends R460 million on electricity > Exxaro forms clean energy forum > Group reports on carbon emissions for the ﬁ rst time (1,9 million tonnes of CO2e) > Exxaro spends R358 million on electricity > Electricity is highlighted as a major cost to the group > At inception, Exxaro chooses green as a corporate colour as a symbol of sustainability and growth > Exxaro adopts the Energy Efﬁ ciency Accord signed by Kumba Resources Exxaro Annual Report 2009 I 103 SAFETY AND SUSTAINABLE DEVELOPMENT PERFORMANCE CONTINUED We elaborate on the most advanced of these focus areas below: Focus area: energy efﬁ ciency improvement projects During the year, the electricity baseline was established for all business units in preparation for Eskom’s power conservation programme (PCP). The consequences of PCP and recent electricity price increase forecasts have added impetus to the group’s drive to achieve energy-efﬁ cient production. Modelling the impact of electricity price increases over the next three years is an exercise absorbing much corporate time across South Africa, especially given the quantum of approved increases and the impact on most companies’ bottom lines. Exxaro has invested in this exercise, which forms the business case for much of the strategy. Purpose: to co-ordinate the identi- ﬁ cation, assessment and imple- mentation of projects to improve energy efﬁ ciency at current operations. Improvements in energy efﬁ ciency are needed to remain competitive while dealing with climate change and its related environmental concerns. In particular, Exxaro commits to: > Reducing costs by reducing energy consumption from 2006 baseline by 10% by 2012 > Increasing energy efﬁ ciency > Promoting the use of sustainable and renewable energy > Promoting the use of clean technologies. The energy and carbon management strategy drives the programme It deals with both operational management and energy project development and implementation, and has six focus areas. s e u l a v d n a n o i s s i m , n o i s i v o r a x x E y g e t a r t s y t i l i b a n i a t s u S Regulatory and stakeholder requirements l a n o i t a r e p O t n e m e g a n a m t c e j o r p y g r e n E d n a t n e m p o l e v e d n o i t a t n e m e l p m i Energy and carbon footprint data Management and monitoring processes and systems Energy consumption management Consumption management platform Energy trading platform A platform for electricity trading (PCP/RTC, cogen and renewables) Energy efﬁ ciency improvement projects Energy efﬁ ciency improvements and current operations Energy and carbon efﬁ ciency speciﬁ cations for capital projects Energy and carbon efﬁ cient capital project implementation Becoming carbon neutral Clean energy project implementation y t i n u t r o p p o d n a n o i t c e t o r p t e k r a M s e i c i l o p d n a s e l p i c n i r p e g n a h c e t a m i l c d n a y g r e n E Reporting Assurance Regulatory and stakeholder requirements Focus area: Energy and carbon footprint data Purpose: to enable the production of consistently auditable and veriﬁ able energy and carbon footprint report for Exxaro by: > Implementing effective energy- management processes and systems > Developing effective organisational roles and responsibilities. A more effective reporting system for energy data has been developed and implemented at all business units. This will become the basis of reporting on carbon disclosure and carbon footprint statistics. Phase 1, electricity and fuel data, will be extended to include other energy sources in future phases. Focus area: Energy consumption management Purpose: > To enable efﬁ cient and timely control of energy consumption at the operational, commodity business and Exxaro level > To optimise energy consumption at current operations by applying sound operational principles. Updated metering equipment is being installed at our business units to facilitate: > Consumption management (including managing Eskom’s power conservation programme allocations) > Tracking and verifying electrical efﬁ ciency initiatives > Veriﬁ cation of electricity accounts. A centralised view of business unit consumption is a future requirement. 104 I Exxaro Annual Report 2009 Focus area: energy and carbon management guidelines for capital projects Purpose: to develop guidelines: > To govern the Exxaro process in the asset life cycle for optimal energy use > To ensure energy optimisation is aligned with the project management process. To reach our goal of leadership in energy management, we are further developing synergies between Exxaro Technology, the project management ofﬁ ce and individual business units, focusing on: > Guidelines, responsibility matrices, the procedures and checklists project ofﬁ ce to establish and maintain for an energy focus during all phases of a project life cycle, from concept phase, through the feasibility process to detail design and implementation > Guidelines to ensure project speciﬁ cations and quality assurance plans have speciﬁ c energy-related content > Maintaining energy benchmarks for all operations > Identifying and maintaining energy comparison tables of major equipment > Guidelines to ensure energy considerations are included in planning and executing maintenance > Guidelines to ensure all relevant training is available so that staff are aware of the risks and opportunities related to energy > Guidelines to ensure business related issues when evaluating projects, PCP, carbon credits, tax incentives. tested on a These guidelines were comprehensive evaluation of energy- efﬁ cient alternatives and renewable energy types versus equivalent conventional products. Results are now included in the ﬁ nancial model for further pre-feasibility studies. Focus area: becoming carbon neutral Purpose: to develop the roadmap to becoming carbon neutral by: > Determining carbon footprint — determine baseline, restate and update annually (footprint calculated since 2006 — ISO 14064) > Reducing carbon footprint — becoming more energy efﬁ cient, buying renewable electricity, reducing bio-diesel, consumption, and using the carbon market > Offsetting remaining emissions — carbon market transactions, social responsibility investment > Developing renewable energy projects, eg solar and wind. Exxaro is making progress with a feasibility study on co-generation to produce some 15MW of electricity from waste energy at our Namakwa Sands operation. This project has a potential saving of almost 150 000 tonnes of CO2e per annum and offers signiﬁ cant ﬁ nancial beneﬁ ts via improvement considers all energy- carbon credits. Further co-generation studies are under way for projects at our own and other organisations’ operations with a potential 150MW generation capacity, equating to a potential 1,5Mt CO2e per annum. The objective is to minimise energy waste, thus increasing energy efﬁ ciency. The carbon footprint of electricity from these sources is virtually zero. Such co- generation projects would also qualify under the Clean Development Mechanism project under the Kyoto protocol. While the global economic slowdown has delayed the implementation of co- generation, Exxaro remains committed to reducing its carbon footprint by implementing these projects as well as renewable energy initiatives which are subject to the roll-out of an enabling policy environment. The group is also committed to participating in carbon capture and storage developments through: > Playing an active role in the establishment of the South African Centre for Carbon Capture and Storage (SA Centre for CCS) > Co-sponsoring the 2009 CCS Conference, organised by the SA Centre for CCS at which world experts were the leading speakers > Preparing for its coal bed methane project. Exxaro Annual Report 2009 I 105 SAFETY AND SUSTAINABLE DEVELOPMENT PERFORMANCE CONTINUED Vegetation of Namakwa Sands site Globally, soils are estimated to contain approximately 1 500 gigatonnes of organic carbon, more than the total carbon in vegetation and the atmosphere. Modiﬁ ed agricultural practices with increased biodiversity is a recognised method of carbon sequestration as soil can act as an effective carbon sink, offsetting as much as 20% of carbon dioxide emissions annually. In tandem with the CDP reporting process, a vegetative study was conducted during the year (page 100). The study revealed a baseline for the impact of the Exxaro group of 29Mt carbon (enhanced 32Mt carbon). (cid:60)(cid:111)(cid:111)(cid:88)(cid:105)(cid:102)(cid:203)(cid:106)(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:96)(cid:101)(cid:23)(cid:107)(cid:95)(cid:92)(cid:23)(cid:58)(cid:59)(cid:71) (cid:92) (cid:105) (cid:102) (cid:90) (cid:74) (cid:47)(cid:39) (cid:46)(cid:39) (cid:45)(cid:39) (cid:44)(cid:39) (cid:43)(cid:39) (cid:42)(cid:39) (cid:41)(cid:39) (cid:40)(cid:39) (cid:39) (cid:45)(cid:43) (cid:46)(cid:42) (cid:41)(cid:39)(cid:39)(cid:47) (cid:41)(cid:39)(cid:39)(cid:48) (national electricity response > NERT team) > Energy efﬁ ciency accord through the technical committee facilitated by the National Business Institute (NBI) > Industry energy policy-inﬂ uence workshops > World Wildlife Fund (WWF) round table event > South African Chamber of Commerce and Industry’s (SACCI) electricity dialogue > National trade delegation to the UK in March 2010. Exxaro is also involved in the initiatives of: > South African Independent Power Producers Association (SAIPPA) Carbon disclosure project reporting Exxaro again participated in the Carbon Given that 2,6Mt carbon enhancement Disclosure Project (CDP). The CDP is the equates to 10Mt CO2e, a ten-year rehabilitation plan could potentially yield 1Mt CO2e per annum. Further investigation and planning is under way. Governance The various working groups tasked with leading proponent of climate change and carbon disclosure, with a strong and growing history of corporate disclosure through its annual questionnaires and database of corporate responses. In 2009 the CDP represented more than 475 investors with US$55 trillion of assets under energy initiatives report to a steering management; a total of 1 800 companies committee headed by the executive general participated worldwide, including 77% of manager, business growth, who is also a the FTSE Global 500. Companies listed member of the executive committee. on the JSE have participated for the last > Coaltech 2020 > Fossil Fuel Foundation > Peace Parks Foundation > SA Centre for Carbon Capture and local international and Storage with partners > Clinton Foundation. see www.exxaro.com/case_studies SUPPORTING BIODIVERSITY BEYOND EXXARO Three years ago, Exxaro began sponsoring the Chair in Business and Climate Change at Unisa. The vision is to create a centre three years; in 2009 68% of the top 100 of excellence in business and climate Shortly after year end, the executive companies (by market capitalisation) change research, education and advocacy. committee conﬁ rmed its support for on the JSE responded, compared with a In practice. One of the early landmarks of the energy and carbon management global average response rate of 55%. programme and recommitted to saving this project was the publication of Climate Change: A Guide for Corporates by Unisa 10% on energy efﬁ ciency and carbon As a stakeholder in the mining industry, Press in 2009. emissions by 2012. This pledge was Exxaro actively participates in shaping formalised and communicated to each appropriate policies in South Africa The research includes a review of the impact business unit, with energy savings targets becoming a measurable indicator in senior management performance contracts, through many channels, including: > The Chamber of Mines > NERSA (National Energy Regulator of and part of the annual business planning South Africa) of the Copenhagen meeting, delineating green economies, and quantifying the opportunities for green jobs as well as critically evaluating the relationship process. > EIUG (Energy Intensive Users Group) between business and climate change. 106 I Exxaro Annual Report 2009 Risks and opportunities of climate change Exxaro is exposed to physical risks from climate change. These include excessive rain, droughts, disrupted transport infrastructure and increased vulnerability of local communities and workforces. An independent physical climate-risk assessment of Exxaro’s operations in southern Africa was carried out in early 2009. Climate variables and their potential impacts Variable Derived variable Potential impacts Average temperature > Increased evaporation impacts on Day-time temperature mine water balance > Increased cost of cooling and chilling > Dust control impacts – scrubbing, sensitive equipment Number of days per year exceeding > Worker fatigue 30,2°C Annual rainfall > Load on chilling plants too high > Water availability to mine Seasonal timing of rainfall > Need for increased dam storage The report details preliminary work to Rainfall Average storm size > Operational interruptions > Erosion of roads and slimes dams Frequency of traditional 100-year > Mine ﬂ ooding storm > Infrastructure damage > Slimes dam breakage True size of 100-year storm > Mine design, plant protection and Frequency of high wind speeds > Structure design drainage Wind speed Average wind speed > Dust control impacts — scrubbing, sensitive equipment assess the risks climate change pose to Exxaro’s operations. In doing so, a standard risk approach was taken, ie risk is a function of both the natural climate hazard and vulnerability of the underlying infrastructure, population and socio- economic activities to these hazards. Consequently, it sources information on both hazards and vulnerability to assess which combinations of these could pose the greatest risks. The next steps in addressing these challenges have been initiated by prioritising the impacts in conjunction with the group’s risk manager. A roadshow to all business units by the second quarter of 2010 will highlight these risks, raise awareness and start the process of developing and implementing appropriate action plans. Exxaro Annual Report 2009 I 107 SAFETY AND SUSTAINABLE DEVELOPMENT PERFORMANCE CONTINUED Environmental performance To enhance environmental term clean-up activities and a negative The table opposite sets out reportable incidents impact on shareholder value (eg over environmental incidents across the management and reporting, Exxaro R500 000 in damage has deﬁ nitely has introduced a standardised incident occurred) management system in all business units to ensure the effective management of all incidents, leading to a safer and more sustainable work environment. The system provides an integrated platform to track and manage incidents; identiﬁ es the root causes of incidents and ensures proper incident reporting and management. Environmental incidents are categorised as level 1, 2 and 3. > Level 3 — Environmental incidents with immediate and irreversible on-site, remote-area impacts, will involve long- > Level 2 — Environmental incidents with reversible on-site and immediate surrounding impacts, will involve more than 48 hours in clean-up activities and a negative impact on shareholder value (eg R50 000—500 000 in damage has deﬁ nitely occurred) > Level 1 — Environmental incidents with reversible on-site impacts, will involve immediate clean-up and a negative impact on shareholder value (eg under R50 000). group. A total of 20 level 2 incidents were reported during 2009. All level 2 incidents were reported to the relevant regulatory authorities. Corrective actions to remedy the incidents and prevent them from recurring were approved by authorities prior to implementation. There were no signiﬁ cant (level 3) incidents reported in 2009. Case study — Carbon offset project Exxaro undertook to offset the environmental impact of 4 Emission reductions must be permanent (making sure this annual report and the internal group newsletter. the emission reductions are not temporary) Accordingly, the carbon footprint of the paper, printing 5 The offset project should result in community beneﬁ ts. and distribution was quantiﬁ ed under the international greenhouse gas reporting protocol Exxaro’s annual report and newsletter emissions were offset by installing a 300-litre solar geyser and additional To ensure the integrity of an offset project, ﬁ ve criteria as monitoring and veriﬁ cation equipment at a cost of over set by the World Bank must be followed: R40 000. In line with our commitment to socio-economic 1 The project must be additional (making sure the project is development, we looked for an organisation, such as an old- not claiming reductions that would already occur) age home, hospice or children’s home, that could beneﬁ t 2 It must result in real emission reductions (making sure most from this initiative. Olievenhoutbosch is a low-cost project activity is monitored and emission reductions housing area close to Exxaro’s Pretoria head ofﬁ ce and claimed are veriﬁ ed) Badimorogo is a home in the area offering full-time care 3 Emission reductions from the offset project must not to eight elderly residents. The solar geyser will reduce the be double-counted (making sure the same emission home’s monthly running costs. reductions are not sold to several buyers at the same time) 108 I Exxaro Annual Report 2009 Environmental incidents – level 2 Business unit Level Description Receiving environment Inyanda KZN Sands Grootegeluk KZN Sands Namakwa Sands KZN Sands Grootegeluk Inyanda KZN Sands KZN Sands KZN Sands Namakwa Sands Namakwa Sands KZN Sands KZN Sands KZN Sands Namakwa Sands KZN Sands Inyanda Inyanda 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 Overﬂ ow of contaminated water into a clean water area Stacks exceeded APPA permit requirements Pollution control dam not functioning well — spilling into clean areas Excessive visual smoke and particulate matter in atmosphere Contaminated water spillage into clean areas Contaminated water overﬂ ow to a river due to blocked drainage trench Pollution control dam overﬂ ow to clean areas Soil pollution from coal spillage Clogging of dewatering cyclones systems resulting in water pollution Stacks exceeded APPA permit requirements Overﬂ ow of contaminated water into surrounding community properties Water and soil pollution caused by ﬂ ooding of sewage treatment plant Water from the mine damaged farm road on neighbouring farm Stacks exceeded APPA permit requirements Water Air Water Air Soil Water Water Soil Water Air Water/soil Water/soil Soil Air Leaching of run-of-mine pipeline — in situ material from the operation into a Water/soil neighbour’s property Water from the mine damaged neighbouring property Erosion of sensitive area due to high rainfall Water/soil Soil Release of rainwater in controlled manner into a river to prevent dam wall failure Water Coal and hydrocarbon spillage Overﬂ ow of water from the dam to neighbouring properties Soil Water/soil Environmental incidents – group Business unit 2009 2008 2009 2008 2009 2008 Level 1 Level 2 Level 3 Coal Arnot Char Plant Grootegeluk Inyanda Leeuwpan Matla New Clydesdale Colliery North Block Complex Tshikondeni Mineral sands KZN Sands Namakwa Sands Base metals and industrial minerals Glen Douglas Rosh Pinah Zincor 495 75 23 135 37 28 51 72 26 48 339 79 260 527 47 0 141 Total 1 361 Level 1: Minor impact and/or non-compliance Level 2: Intermediate impact and/or non-compliance Level 3: Major impact and/or non-compliance 458 88 n/a 208 n/a 27 26 99 0 10 201 130 71 338 36 0 101 997 6 0 0 2 4 0 0 0 0 0 14 10 4 0 0 0 0 20 5 0 n/a 3 n/a 0 0 0 0 2 10 10 0 12 0 0 2 27 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 n/a 0 n/a 0 0 0 0 0 0 0 0 0 0 0 0 0 Exxaro Annual Report 2009 I 109 SAFETY AND SUSTAINABLE DEVELOPMENT PERFORMANCE CONTINUED Consumption per business unit 1 January – 31 December 2009 Business unit 2009 2008 2009 2008 2009 2008 Electricity (GJ) Diesel (GJ) Sasol Gas (GJ) Coal Arnot Char Plant Grootegeluk Inyanda Leeuwpan Matla New Clydesdale Colliery North Block Complex Tshikondeni2 Mineral Sands KZN Sands3 Namakwa Sands4 Glen Douglas Rosh Pinah Zincor Total 1 835 131 1 789 423 2 199 610 2 258 568 201 082 197 946 341 106 496 510 9 266 n/a 5 272 n/a 904 342 895 540 727 756 714 827 22 997 n/a 134 678 n/a 76 144 78 656 427 349 555 532 463 723 468 587 64 618 68 061 37 566 35 406 158 273 85 873 5 184 4 993 307 630 300 515 114 828 108 295 32 929 37 252 0 0 0 0 0 0 0 0 0 0 0 0 n/a 0 n/a 0 0 0 0 0 4 214 567 2 051 525 481 817 173 422 307 040 319 020 2 298 182 1 464 023 71 067 79 854 307 040 319 020 1 916 384 587 502 410 750 93 567 44 809 131 483 61 296 54 351 161 225 146 383 61 169 61 579 1 491 559 1 517 962 31 137 27 666 7 747 291 5 636 776 2 835 029 2 575 586 307 040 319 038 0 0 0 0 0 0 18 0 0 18 Base metals and industrial minerals 1 697 593 1 795 828 153 602 143 596 1 Total energy ﬁ gures comprise electricity, diesel, petrol and sasol gas; ﬁ gures are based on invoices from suppliers. 2 2008 electricity consumption has been restated due to a calculation error. 3 Recommissioned furnace in 2009 ramping up to production. 4 Only four months’ data presented for 2008. Eco-efﬁ ciency Coal Mineral Sands Base Metals and Industrial Minerals Energy (GJ/t) Water (m3/t) Energy (GJ/t) Water (m3/t) Energy (GJ/t) Water (m3/t) 2009 2008 0,11 0,31 5,09 0,09 0,27 4,65 13,24 27,00 1,29 1,90 1,28 2,11 110 I Exxaro Annual Report 2009 Petrol used (GJ) Total energy use (GJ)1 Water (m3) Saleable product (Kt) 2009 2008 2009 2008 2009 2008 2009 2008 14 899 18 223 4 049 640 4 066 214 11 345 080 11 623 896 37 195 43 721 3 307 5 134 545 494 699 589 1 045 197 770 720 5 211 4 967 0 n/a 14 538 n/a 62 165 n/a 37 n/a 4 623 5 448 1 636 721 1 615 815 6 673 009 6 484 680 13 521 18 215 n/a 0 0 157 675 n/a 778 205 n/a 746 n/a 503 492 634 188 414 856 808 636 2 585 2 778 5 035 4 705 533 377 541 352 1 573 593 1 581 907 11 254 13 199 0 0 1 933 3 888 0 0 0 195 839 121 279 274 493 302 244 312 814 305 508 1 103 1 029 049 2 936 149 690 148 483 522 459 646 660 1 087 5 007 312 2 545 053 13 029 937 14 771 649 0 2 676 289 1 862 897 11 115 338 14 238 349 3 888 1 087 2 331 023 682 156 1 914 599 533 300 395 395 0 0 414 1 851 591 1 939 855 2 731 962 3 206 356 414 106 501 186 247 289 315 1 051 324 0 0 222 394 207 963 1 149 524 968 039 1 522 696 1 545 645 1 293 123 1 186 993 785 2788 268 984 659 325 1 440 1 228 121 91 1034 3187 341 547 438 110 1 519 1 312 115 91 19 183 19 724 10 908 543 8 551 122 27 106 979 29 601 901 39 619 45 787 Exxaro Annual Report 2009 I 111 SAFETY AND SUSTAINABLE DEVELOPMENT PERFORMANCE CONTINUED Business unit Coal Arnot Char Grootegeluk Inyanda Leeuwpan Matla New Clydesdale Colliery North Block Complex Tshikondeni Mineral Sands KZN Sands Namakwa Sands Base Metals & Industrial Minerals Glen Douglas Rosh Pinah Zincor Total * Electricity purchased 1/1 000 ** Diesel purchases 0,0027096/1 000 CO2 from electricity purchased (Kt)* CO2 from diesel (Kt)** 2009 509,7 55,9 2,6 251,2 6,4 21,0 128,8 10,4 1,4 32,0 1 170,7 638,4 532,3 471,4 12,4 45,0 414,0 2 151,9 2008 517,1 57,2 n/a 259,0 n/a 22,7 135,4 10,2 1,3 31,3 592,7 422,9 169,7 518,8 38,0 42,3 438,5 1 628,5 2009 163,1 25,3 0,4 54,0 10,0 31,7 4,8 11,7 22,8 2,4 35,7 5,3 30,5 11,4 4,5 4,5 2,3 2008 167,2 36,8 n/a 52,9 n/a 41,1 5,0 6,4 22,3 2,8 12,8 5,9 6,9 10,6 4,0 4,6 2,0 210,2 190,7 112 I Exxaro Annual Report 2009 ECONOMIC PERFORMANCE Economic value generated and distributed Component Comment 2009 Direct economic value generated > Revenues Economic value distributed > Operating costs Revenue as deﬁ ned per the accounting policy on page 174 R15 009 million (page 180) Payments to suppliers, non-strategic investments, royalties, and facilitation payments R14 705 million (page 180) > Employee wages and beneﬁ ts Total monetary outﬂ ows for employees (current payments, not future commitments) R3 253 million (see note 3 to AFS* on page 180) > Payments to providers of capital All ﬁ nancial payments made to the providers of the organisation’s capital. Interest expense and loan costs of R460 million (note 5 to AFS* on page 183) > Payments to government (by country) Gross taxes > Community investments Voluntary contributions and investment of funds in the broader community (includes donations) Note 7 and 25.3 to AFS* on page 184 and 203 R31,4 million contributed to socio-economic development, corporate and other initiatives (page 122) 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 137 Retirement and medical plans All permanent employees must belong to a deﬁ ned-contribution retirement fund. By deﬁ nition, contributions are fully funded with no employer funding liability, and all recognised funds are registered in terms of the Pension Funds Act. Retirement funds are adequately funded as per the actuarial valuations on 31 December 2008, available from the funds. The actuarial valuations as at 31 December 2009 are being completed. At 31 December 2009, the rand value of all employer subsidies of retirement funds was R197 million (2008: R166 million). retirement legislative amendments Pending that aim to make membership of a national basic fund and medical aid compulsory continue to present a challenge to corporate South Africa. Draft legislation was expected in mid-2009 and the group will prepare an appropriate action plan once this is published. In terms of agreements with labour unions, is voluntary medical aid membership for employees in the bargaining units at Exxaro Resources, Exxaro Coal and Glen Douglas Dolomite. At all other group employers and for the management and specialist category of employees, medical aid is compulsory. At 31 December 2009, Exxaro had 8 706 employees (78% of the workforce) who belonged to medical aids with stipulated representing employer R70 million (2008: R51 million). subsidies, Accredited medical aid funds have been structured to exclude any employer liability for post-retirement medical beneﬁ ts for either existing or past employees. However, there are post-retirement medical liabilities for certain employees of Matla, a division within the coal business, as well as at Namakwa Sands. Market presence Approximately 83% of all employees’ remuneration is based on collective agreements with trade unions determining minimum wages for each grade. Other employees’ (management and specialist is based on category) performance and market competitiveness. remuneration Less than 1% of the workforce is governed issued by by sectoral determinations the Department of Labour for farm and forestry workers. Those employed by the company receive substantially more 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. 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. Preferential procurement practices During the year, Exxaro reviewed and implemented a policy that aligns the business to the recently promulgated Department of Mineral Resources (DMR) codes of good practice and broad-based socio-economic empowerment charter for the South African mining industry. This preferential procurement policy tasks the group to use its purchasing power to Exxaro Annual Report 2009 I 113 ECONOMIC PERFORMANCE CONTINUED ensure that external suppliers are engaged (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:23)(cid:90)(cid:102)(cid:100)(cid:103)(cid:88)(cid:101)(cid:96)(cid:92)(cid:106) and every effort is made to contract with suppliers that have strong empowerment credentials or are making a tangible effort to transform their businesses to comply with BEE legislation. Our commitment to procuring from historically disadvantaged South African (HDSA) companies is reﬂ ected in solid progress since 2005 when the level of discretionary spending with these (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:41)(cid:39)(cid:39)(cid:44) (cid:41)(cid:39)(cid:39)(cid:45) (cid:41)(cid:39)(cid:39)(cid:46) (cid:41)(cid:39)(cid:39)(cid:47) (cid:41)(cid:39)(cid:39)(cid:48) (cid:41)(cid:39)(cid:40)(cid:39) companies was 24%, compared to 39% ■(cid:23)(cid:23)(cid:71)(cid:92)(cid:105)(cid:93)(cid:102)(cid:105)(cid:100)(cid:88)(cid:101)(cid:90)(cid:92)(cid:23)(cid:23)(cid:23)(cid:23)■(cid:23)(cid:23)(cid:75)(cid:88)(cid:105)(cid:94)(cid:92)(cid:107) (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:45)(cid:39) (cid:44)(cid:39) (cid:43)(cid:39) (cid:42)(cid:39) (cid:41)(cid:39) (cid:40)(cid:39) (cid:39) (cid:41)(cid:39)(cid:39)(cid:48) (cid:41)(cid:39)(cid:40)(cid:39) (cid:41)(cid:39)11 (cid:41)(cid:39)(cid:40)(cid:41) (cid:41)(cid:39)(cid:40)(cid:42) (cid:41)(cid:39)(cid:40)(cid:43) see www.exxaro.com/case_studies ENTERPRISE DEVELOPMENT THROUGH PREFERENTIAL PROCUREMENT in 2008. With the promulgation of the DMR codes of good practice, our policy review now incorporates BEE expenditure targets speciﬁ ed in terms of capital goods, operational goods, services, black women ownership and SMMEs. For the review period, the target of 45% was marginally exceeded (45,03%), representing R3 billion spent with HDSA-owned companies. The target for 2010 is 47%, rising incrementally to 56% by 2014. Exxaro’s major suppliers are encouraged to transform and secure accreditation in line with the codes of good practice, but with an indication of their narrow-based status. In line with Exxaro’s future expenditure, companies likely to have increased and longer-term business relationships with the group are viewed as strategic partners for transformation. These suppliers are encouraged to form partnerships with local SMMEs in areas of group operations. Categorising expenditure as required by the DMR codes of good practice remains an industry-wide challenge. The targets shown graphically are annual percentages and reporting is in line with prevailing mining legislation. As a group, we continue to give preference to companies that demonstrate HDSA involvement, development and support in ownership, management and skills development. 114 I Exxaro Annual Report 2009 SOCIAL PERFORMANCE Our people Exxaro’s current staff complement was 11 180 at 31 December 2009. Supported At Exxaro, we follow a total remuneration In the bargaining units, there are 9 288 approach that has guaranteed and employees, with 1 892 employees in the variable components. The group’s vision, management and specialist category. All are by the leading practices developed in mission, business strategy and culture full-time employees with only one person in recent years, we concentrate on exceeding drive this remuneration philosophy and Gauteng being a part-time employee (in a compliance targets in South Africa by strategy as do governance structures bargaining unit). In Gauteng, 16 employees training and development to maximise and external statutory regulations (SA in the management and specialist category individual potential, equality and safety in Revenue Services, King III and IFRS II). The the workplace, meeting our employment components include guaranteed pay, short- equity targets and improving standards term incentives and long-term incentives of living in our stakeholder communities. such as share schemes and beneﬁ ts. All Collectively, our initiatives are also components are benchmarked against the contributing to reducing the shortage of external market to ensure Exxaro remains skills in our industry. competitive. After nearly two years of planning, process design, system development, testing This approach was studied by an international authority on remuneration and training, the new integrated HR who rated it in line with global best management system went live in March. practices, and with the top 40 companies This gives the group a consolidated and listed on the JSE. standard process and systems landscape that is integrated with Exxaro e-learning, Wage agreements governing remuneration medical surveillance and access control are in place at all group employers, while systems, ensuring end-to-end business formal processes determine remuneration process integration. This advanced for non-unionised employees. Six- environment supersedes all legacy monthly market surveys ensure that total systems and enhances Exxaro’s ability remuneration is market related. At all to monitor, control, enforce compliance levels, minimum conditions of employment (medical and induction expiries, overtime exceed the requirements of South Africa’s and leave liability), ensures accurate and Basic Conditions of Employment Act. timely business information, and effective forecasting of people-related information During the year, there were again no (employees and contracting workforce). reported incidents of discrimination in This sophisticated system gives managers the group. are expatriates. Two are based in China, one in Australia, one in The Netherlands, 11 in Namibia and one in Switzerland. The regional distribution is as follows: Region Gauteng KwaZulu-Natal Limpopo Mpumalanga Western Cape Namibia Total Bargain- ing unit 1 045 617 2 715 3 697 736 478 9 288 Manage- ment and specialist category 645 183 450 266 248 100 1 887 Total 1 690 800 3 165 3 963 984 578 11 180 The challenge of ﬁ nding suitable skills to staff new projects is ongoing. Exxaro has an active retention programme to maintain scarce skills that accounts for 2 — 3% of total payroll. 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 immediate access to a “single view” of There are two main categories of salaries are based on performance and all essential employee information, and employees in Exxaro: employees in not gender. The breakdown of male/female enables employees to manage much of bargaining units and the management and employees per category and region is their own routine HR information. specialist category. shown below. Region Gauteng KwaZulu-Natal Limpopo Mpumalanga Western Cape Namibia Total Bargaining unit Management and specialist category Male 823 534 2 450 3 252 642 442 8 143 Female Male Female 222 83 265 445 94 36 444 141 389 224 202 71 1 145 1 471 201 42 61 42 46 29 421 Total 1 690 800 3 165 3 963 984 578 11 180 Exxaro Annual Report 2009 I 115 SOCIAL PERFORMANCE CONTINUED Employment equity Exxaro’s employment equity reports for reﬂ ect the following level of representation white females as per the mining charter per occupational level by designated groups deﬁ nition) and split between permanent the period 1 August 2008 to 31 July 2009, (historically disadvantaged South Africans and temporary employees: as submitted to the Department of Labour, or HDSAs — blacks, coloureds, Indians and Male Female Foreign nationals Level Top management Senior management Professional, specialists and middle management Temporary employment service labour Skilled technical, academically qualiﬁ ed and junior management – general managers – temporary employment service labour – other – temporary employment service labour Semi-skilled staff – temporary employment service labour Unskilled staff – temporary employment service labour A 3 22 201 4 77 3 947 49 3 328 65 1 003 278 I 0 8 31 0 10 0 38 1 16 0 0 0 C 0 2 10 0 1 0 18 0 4 1 1 0 W 13 145 356 9 150 2 996 44 119 21 29 7 Total permanent employees 5 581 103 36 1 808 Total temporary employment service labour 399 1 1 83 Total staff complement 5 980 104 37 1 891 Bursars Learners Contract workers Total non-permanent Total employees 72 387 70 529 6 509 5 7 1 13 117 1 3 1 5 35 112 72 219 42 2 110 B – black I – Indian C – coloured W – white A 1 3 66 0 7 0 191 16 228 12 124 9 620 37 657 33 105 17 155 812 I 0 1 21 0 1 0 21 1 9 0 1 0 54 1 55 4 0 1 5 C 0 2 2 0 1 0 W 1 24 85 0 11 0 24 306 0 7 0 2 0 38 0 38 0 2 1 3 19 64 7 5 2 496 28 524 11 1 25 37 M 0 1 1 0 0 0 3 0 F 0 0 0 0 0 0 Total 18 208 773 13 258 5 0 2 544 0 130 74 0 3 849 0 6 0 85 0 85 0 0 0 0 0 106 0 1 171 0 296 0 8 821 0 550 0 9 371 0 0 0 0 161 617 188 966 60 41 561 85 0 10 337 116 I Exxaro Annual Report 2009 Literacy and numeracy Exxaro continues to offer sponsored, voluntary adult basic education and (ABET) programmes at all training commodity businesses. Exxaro carries the full cost of these programmes, some R1,3 million in 2009. The expenditure lower than 2008 is without a signiﬁ cant decrease in the number of employees trained, due to the computerisation and optimisation of facilities and more effective deployment of facilitators. Candidates are screened and counselled to ensure they can make informed decisions, and an incentive scheme is in place for each level completed to encourage more employees to become functionally literate and numerate. More than 1 000 employees have passed one or more ABET levels since the inception of this programme. In 2009, Exxaro again made good progress towards the target of offering every one the opportunity to become functionally literate and to participate in ABET classes. During the year, 311 employees completed various ABET levels successfully, a 32% increase on the prior year. Of these, 24 passed ABET level 4, 78 passed level 3, 57 level 2, 113 level 1 and 39 pre-ABET. Equally, the number of non-employees completing different ABET levels continues (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) (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:42)(cid:44)(cid:39) (cid:42)(cid:39)(cid:39) (cid:41)(cid:44)(cid:39) (cid:41)(cid:39)(cid:39) (cid:40)(cid:44)(cid:39) (cid:40)(cid:39)(cid:39) (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: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:41)(cid:39)(cid:39)(cid:46)(cid:23) (cid:41)(cid:39)(cid:39)(cid:47)(cid:23) (cid:41)(cid:39)(cid:39)(cid:48)(cid:23) (cid:28) (cid:47)(cid:39) (cid:46)(cid:39) (cid:45)(cid:39) (cid:23)(cid:23)(cid:23)(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:46)(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:35)(cid:23)(cid:45)(cid:47)(cid:28)(cid:23)(cid:96)(cid:101)(cid:23)(cid:41)(cid:39)(cid:39)(cid:48)(cid:23)(cid:23)(cid:23) to rise, with 320 completing an ABET level during the year. Across the group, 68% of employees had NQF level 1 or above qualiﬁ cation in December 2009 (68% in September 2008). Exxaro has accredited ABET training centres at Grootegeluk, Tshikondeni, Matla and Arnot mines. The group’s annual training reports and workplace skills plans, submitted to and approved by Mining Qualiﬁ cations Authority (MQA), contain sections on the number of ABET candidates completing various levels and planned for the years ahead. The group has some 93% of employees with at least NQF level 1. Sands Speciﬁ c ABET successes in 2009 include: > KZN participating. the ABET started programme in 2007 at its Hillendale mine operation with 31 permanent employees Twenty- four went on to ABET level 2 English literacy and, in 2008, 13 ABET learners from ECMP started English literacy level 1. In September, 23 permanent literacy employees received English Training and education At Exxaro, we believe in empowering all staff with the knowledge and skills they need to help us grow the company, but also to develop personally. In 2009, Exxaro employees have successfully completed more than 8 200 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 2009, this was 5% (excluding the 1% skills levy) or an investment of R125,6 million. Through Exxaro’s human resource development policy, we aim to: > Develop and sustain core competencies and maximise human resources to meet the group’s strategic objectives and improve operational performance > Create a learning culture by assisting and facilitating the process in which employees and their dependants take responsibility for improving their own educational and competency levels, to the mutual beneﬁ t of the individual and level-2 certiﬁ cates. the organisation Functionally literate and numerate Yes/no > Ensure integration and uniformity in all learning and development processes by All staff leveraging technologies What percentage of staff has been given the opportunity to be functionally literate and numerate? Do you have classrooms for literacy and numeracy training? Do you have full-time employed staff to conduct training? Do you provide training during work hours? What incentives are there for employees to participate in these learning programmes Yes Yes Yes Learner grant Functionally literate and numerate Total staff count Number of employees below ABET Level 3 Number of employees on ABET Level 3 Number of employees above ABET Level 3 Number of people 11 180 2 236 345 8 599 > Support and reinforce our values through various learning and develop- ment initiatives > Ensure learning and development initiatives are career-focused and aligned with business objectives > Establish life-long learning as the major thrust of learning and development. In 2009, Exxaro continued its broader focus on skills development. Where our primary focus was traditionally on engineering learnerships, our skills development objective has broadened to include other learnerships and especially skills programmes, while steadily increasing the number of engineering learnerships. Exxaro Annual Report 2009 I 117 SOCIAL PERFORMANCE CONTINUED During the year, e-learning was Chamber of Mines’ education advisory Employees in the bargaining unit are implemented at Arnot, Matla, North Block committee, the MQA sector skills planning not part of Exxaro’s formal performance Complex, New Clydesdale, Inyanda and committee and standards-generating management system; their development Namakwa Sands, while existing systems bodies of the MQA. were upgraded at remaining Exxaro business units. Training to assist employees in managing proﬁ le, formal career plan and individual career endings is part of the social and preference. The performance management is driven by individual development plans derived from an employee’s job In 2009, on average, 519 engineering labour plan for each mine, submitted process is entrenched in the culture of learners were registered and trained at to and monitored by the Department of Exxaro. the Colliery Training Centre in Witbank Mineral Resources as part of the process and Grootegeluk’s Grovos training centre. of renewing mining licences for each Grovos has become a national trade test mine. In these plans, Exxaro included a centre, where members of the public can ﬁ ve-year engineering learnership plan complete any trade test. for 2007 to 2011. To put this contribution into perspective, In monitoring our artisan retention strategy, Exxaro alone constitutes more than 25% the ratio of learnerships in the pipeline to of all engineering learnerships registered the number of artisans employed in various with the MQA. Exxaro’s training in trades is reported to Exxaro’s executive engineering learnerships will lead to committee each month. full artisan status in trades such as electrician, ﬁ tter, plater, diesel mechanic The impact of skills retention and and millwright. Artisans are considered availability on current production scarce and critical skills in South Africa and future growth is one we keenly and all these trades appear on the understand. To retain technical and country’s scarce skills list. engineering competence in the group, aggressive retention and succession- The number of other learnerships and planning strategies are in place for skills programmes has also increased sig- technical categories, among others. We niﬁ cantly in recent years, peaking towards also regularly benchmark remuneration, the end of 2009. By then, there were provide comprehensive training and 33 people registered in mining learner- identify growth opportunities at every ships, 51 in plant learnerships/bursars and level. This includes continuously 88 in administrative/services learner ships. rotating and exposing our own talent to When combined with engineering multidisciplinary project teams. learnerships, this brought the total number of learners in learnerships/skills All non-bargaining unit employees programmes to 691. receive formal performance and career development reviews bi-annually. All All new management and specialist category employees receive formal training on the performance management process and system to reinforce the concept that reward is driven by performance. Performance management is also included in a web-based induction programme. All training and development is based on a thorough needs analysis, taking cognisance of business strategy, identiﬁ ed skills deﬁ ciencies via the performance management process, succession planning requirements, employee career progress, and the relevant employment equity plans. Personal development emphasises the joint responsibility of employees to man- age their career growth. Accordingly, 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. Exxaro’s human resources development management members are assessed Speciﬁ c strategies to ensure the professionals continue to contribute throughout the year as the basis for accelerated learning and development signiﬁ cantly to the national and sectoral individual succession programmes of black people, women and people with transformation process through and talent management. These disabilities include: membership and participation in bodies assessments are also linked to reward and > Fast-tracking employees with leadership such as Business Unity South Africa, remuneration. and management potential 118 I Exxaro Annual Report 2009 > Accelerated development for course at the University of Pretoria. of losing key knowledge workers, and R89 154 622 offered employment at Exxaro, hensive succession-planning process occupation-based skills > Adult basic education > Life skills programmes > Learnerships. Skills development Skills development spend Description Spent Total leviable amount (payroll) Total training spend Total training spend on black people Total training spend on black women Total training spend on white women Description Black people Black women White women Black disabled people Black disabled women R2 553 904 649 R125 659 658 R11 320 652 R9 211 650 Number of learners on programmes 312 45 1 2 1 Career development Exxaro’s strategy is to ensure 80% of all new appointments are made internally. We therefore have an integrated process that is aligned with both our strategy and industry needs to provide a steady ﬂ ow of qualiﬁ ed talent to tackle our growth and expansion projects. In 2009, there were some 252 trainees involved in programmes supporting internal advancement. The overarching objective is to ensure that trainees entering the group are empowered, challenged and appropriately rewarded: > Exxaro People Development Initiative: Candidates must be grade 12 students brought new people up to speed more from Exxaro mining communities who rapidly. want to study for a mining-related degree or diploma. On completing their studies, candidates may be considered Leadership development Exxaro has ongoing formal leadership for an Exxaro bursary > Bursary programme: development initiatives, mentorship programmes and succession-planning Exxaro granted around 30 bursaries workshops involving senior management in 2009 to school leavers interested and employees. Building and retaining in mining-related disciplines such a pool of current and future leaders as engineering, geology and mine is a priority for the group and surveying. Graduates are generally appropriate initiatives include a compre- depending on the current need in that and enhancing strategic leadership ﬁ eld, mostly through the group’s competencies. formal three-year professionals-in- training programme. There are currently 145 bursars studying at South African Employee turnover Between 1 January and 31 December 2009, institutions at a cost of R10 million: Exxaro recorded an average employee more than two-thirds are historically turnover rate of 4% (2008: 7%), primarily disadvantaged South Africans and because of death, resignation, dismissal 26% are women > Professionals-in-training and disability. The turnover rate by employee group is show below: 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, Terminations January – December 2009 Employment equity – occupational categories % of work- force Number and formal training from profes- sional bodies. In 2009, there were Senior ofﬁ cials, managers, legislators 81 professionals in training throughout Professionals Exxaro in a R30-million programme: 77% are from designated groups and 26% of those are women 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 Technicians/associated professionals Clerks and administrative workers Service and sales workers Craft and related trades Plant and machine operators Labourers and elementary occupations 6 6 4 2 0 6 2 3 39 30 41 29 0 92 99 34 The Exxaro Foundation sponsors on core competencies required for 25 previously disadvantaged students Exxaro’s sustainability. In practice, these each year for a 12-month bridging communities have lowered the risk Exxaro Annual Report 2009 I 119 SOCIAL PERFORMANCE CONTINUED independent deﬁ ned contribution funds. The employer contribution to retirement funds in the group ranges from 10% to 18% of employee pensionable earnings, and is expensed as it occurs. All retirement funds are governed by the South African Pension Funds Act (1956), with no members on deﬁ ned-beneﬁ t plans. In October 2009, employees participating in Exxaro’s Mpower (empowerment participation scheme holding around 3% of Exxaro’s shares to broaden share participation among workers) received their ﬁ fth dividend payment. Since inception in November 2006, each of the beneﬁ ciaries of the Mpower scheme (9 289 at 31 December 2009) received over R3 900 in dividends. After group-wide elections, the ﬁ rst representative board of trustees took ofﬁ ce in May 2009. The group continues to focus on home ownership. To comply with the mining charter and our own business needs, a new long-term housing strategy was developed in 2008. During the year, the group introduced a ﬁ ve-year subsidy for ﬁ rst-time home- buyers who are permanent employees. This was particularly welcome given the unprecedented scarcity of bank mortgage ﬁ nance in 2009. Linked to the bank lending rate, the subsidy reduces each year as bond repayments become more affordable. To date, 194 employees have beneﬁ ted from this subsidy to make home-ownership more affordable. While Exxaro’s housing policy focuses on Number of employees 2009 2008 929 594 1 343 8 314 822 389 1 336 7 588 Home owners (bought company property) Hostels Single quarters Rental and other Total 11 180 10 135 Exxaro provides meals at two operations where the quality and nutritional value are determined by a dietician. Qualiﬁ ed staff continually monitor adherence to contractual obligations. Employees have accessible mechanisms to engage both management and suppliers on food issues. Employee wellness External service providers manage employee assistance 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. Diversity and equal opportunity When we created Exxaro — the largest black-owned mining company in the country — we stated our intention of being the best example of how South African companies could and should be run. We made a commitment to our people to ensure their progress and to build up the skills base we needed to fulﬁ l our vision. Employment equity is just one of the ways in which we are doing this. home ownership, employees receive a While employment equity is certainly housing or living-out allowance to assist a legal issue, with strict targets them in obtaining accommodation. Land imposed by both the mining charter has been made available for housing at and the government’s black economic Grootegeluk where some 800 units will empowerment codes, for Exxaro it is also be built over the next three years. a moral imperative. National Labour relations Almost 70% of Exxaro’s employees are represented by afﬁ liated unions, of predominantly Mineworkers (NUM) (55%), and Solidarity (9,8%). Other recognised unions are Mineworkers Union of Namibia (MUN), National Union of Metalworkers in South Africa (NUMSA), and United Association of South Africa (UASA). Union Negotiations for improved wages and conditions of employment are conducted in various in-house forums and through the Chamber of Mines. Exxaro has a disciplinary code that is used when necessary. The code is based on the principle of fairness as required by labour law. Supervisors have the skill to implement the code. Employees in the bargaining unit receive several beyond minimum legislative requirements (below). beneﬁ ts Employee beneﬁ ts Through collective bargaining, full-time employees receive a range of beneﬁ ts — many exceeding minimum stipulations — including: > Retirement fund membership subsidised by the employer > Medical aid membership subsidised by the employer > Housing allowance/company accommodation > Guaranteed annual holiday bonuses/13th cheque for bargaining unit employees > Travel allowances > Annual leave, sick leave, family responsibility leave leave, maternity > On-target bonuses, share appreciation rights schemes, standby and call outs, etc as well as payment for overtime worked. Retirement and other beneﬁ ts for all permanent employees are provided by 120 I Exxaro Annual Report 2009 At the heart of our employment equity charter targets. A committee representing can be owned, managed and maintained strategy lie detailed plans developed by all the group’s business units is mandated by that community. Unlike a donation, each business unit in consultation with its to implement these initiatives. Exxaro’s role in these projects extends employees and unions. These are updated beyond providing funds. This includes and progress reported to the board Exxaro operations introduced 220 girls to active involvement in applying funds, quarterly and government annually. the world of mining in 2009 as part of the as well as a project management role. By following these plans, each unit ensures that recruitment and skills development are conducted responsibly, promoting Take a Girl Child to Work initiative. A “local” community is deﬁ ned as one in the immediate area of Exxaro’s Human rights As a responsible corporate citizen, Exxaro operations. transformation without affecting existing largely complies with labour legislation in During the year, a strategic review of positions in the company. Each business South Africa and with International Labour Exxaro’s socio-economic development unit has a formally assigned senior Organisation guidelines. As a signatory to strategy highlighted the following key manager for employment equity, and the United Nations Global Compact, the an employment equity forum that is group encourages freedom of association risks: > Delayed approval to close any mine responsible for ensuring appropriate and collective bargaining, ensures child because of non-compliance with social plans are developed, executed, monitored labour is not tolerated and that forced or and labour plans and communicated to employees. compulsory labour is not practised. > Reputational risk (ineffective stake- Pleasingly, and despite the ongoing Induction programmes ensure employees shortage of skills, Exxaro exceeded 2009 are educated about human rights. Policies mining charter targets well ahead of time on discrimination, harassment and racism holder engagement) > Loss of investment opportunities > Adversarial relationship with neighbours. in both the management and women in are in place, as are structures to protect Accordingly, we have developed a timeline core mining categories. This reﬂ ects the employees’ human rights in the workplace. constant focus on internal promotion, All security personnel are fully trained to Exxaro’s desirable state that includes: > Sustainable communities as a result individual development and skills retention after appointment on human rights of social and labour plans and other in our aim to be a preferred employer. aspects relevant to each operation. investment The group’s performance against the Refresher courses also cover human > Our stakeholders become our mining charter’s revised targets appears rights issues. ambassadors on page 126. Women in mining initiatives Attracting women to work in the group’s Socio-economic development Socio-economic development projects refer to the application of funds, goods > Measurable improvement in quality of life and poverty eradication > Clear strategic objectives for investment > Successful mine closure where Exxaro core business remains a focus area, and labour to provide sustainable exits. despite Exxaro already exceeding mining services for the local community, which Timeline to desirable state 2009 2010 — 2011 2012 — 2015 1. Measurable SED indicators in place 2. Clear SED governance in place Review priorities 1. SIA conducted at all business units 2. Investment objectives developed and aligned 3. Measurable outcomes of stakeholder engagement Review priorities 1. SLPs implemented and aligned to Dept of Mineral Resources requirements 2. Strategy/plan developed for SLPs 3. SLPs for all business units approved 4. SED adheres to JSE/SRI, GRI indicators and ICMM principles 5. Investment ensures real and sustained economic growth Key: SED – socio-economic development; SIA – social impact assessment; SLP – social and labour plan. Exxaro Annual Report 2009 I 121 SOCIAL PERFORMANCE CONTINUED Our social development initiatives are they beneﬁ t from the mine’s presence in on enterprise development, infrastructure determined by the Exxaro Chairman’s multiple ways. Fund and Exxaro Foundation Trust. Under development and poverty alleviation as requested by the Department of the overarching framework of Exxaro’s Exxaro’s policy is to actively recruit labour Mineral Resources. Each project is sustainable development strategy from local communities wherever possible, being implemented over a ﬁ ve-year and policies, trustees are mandated and training initiatives focus on developing period. After projects are approved by to ensure resources are allocated to the skills of community members to fulﬁ l the trustees, the business units begin projects and donations that both meet the group’s requirements. the objectives of the trusts and are implementing each project according to milestones determined by the social and inherently sustainable. In 2009, Exxaro contributed over labour plans. R31,4 million to socio-economic develop- Focus areas All Exxaro’s sustainable development activities, including social development projects and donations, are focused on areas deemed relevant and strategic ment projects, corporate projects and Over the next four years, the number of other initiatives. At 1,8% of 2008 net jobs to be created according to social and proﬁ t after tax and 3,29% of a normalised labour plan projects that started in 2008 net proﬁ t after tax for 2009, this compares will exceed 670. Indirectly, these projects well to the compliance target of 1% in the will beneﬁ t over 11 400 people. to South Africa’s socio-economic codes of good practice for the minerals development. These focus areas are industry. reviewed from time to time with attention currently on: > Formal education > Skills development building and capacity (cid:41)(cid:39)(cid:39)(cid:48)(cid:23)(cid:88)(cid:99)(cid:99)(cid:102)(cid:90)(cid:88)(cid:107)(cid:92)(cid:91)(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:31)(cid:73)(cid:42)(cid:40)(cid:35)(cid:43)(cid:100)(cid:32) 31% 16% > Enterprise development > Health and welfare > Environment > Infrastructure (related economic projects) > Agriculture > Tourism > Sport and recreation. to socio- 2% 3% 25% 23% To ensure we achieve our strategy, we believe it is important to create public- private partnerships (PPPs) on all our projects. Although not all our social and labour plans have been approved by the Department of Mineral Resources, those already in place are mainly implemented according to set targets. These plans focus on communities close to our operations, the source of ■(cid:23)(cid:23)(cid:60)(cid:91)(cid:108)(cid:90)(cid:88)(cid:107)(cid:96)(cid:102)(cid:101) ■(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: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: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)(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: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:64)(cid:101)(cid:93)(cid:105)(cid:88)(cid:106)(cid:107)(cid:105)(cid:108)(cid:90)(cid:107)(cid:108)(cid:105)(cid:88)(cid:99)(cid:23)(cid:91)(cid:92)(cid:109)(cid:92)(cid:99)(cid:102)(cid:103)(cid:100)(cid:92)(cid:101)(cid:107) Socio-economic focus areas Project implementation Socio-economic development projects in some 70% of our workforce, to ensure the group’s social and labour plans focus see www.exxaro.com/case_studies PLANNING FOR EXPANSION see www.exxaro.com/case_studies HOUSING PROJECT IN MARAPONG see www.exxaro.com/case_studies KZN SANDS CHANGES LIVES see www.exxaro.com/case_studies ZIKULISE SME DEVELOPMENT AND SKILLS CENTRE see www.exxaro.com/case_studies INCUBATOR HATCHES see www.exxaro.com/case_studies CLEAN START AT NAMAKWA SANDS see www.exxaro.com/case_studies THREE STEPS TO BETTER SCHOOLING see www.exxaro.com/case_studies SPINNING FOR CHARITY 122 I Exxaro Annual Report 2009 Selection of projects and donations: 2009 Mine Project/donation Beneﬁ ciaries Tshikondeni Alternative energy (zinc-air fuel cells) project in Guyuni Three direct jobs, 990 indirect project beneﬁ ciaries Sanari Entrepreneurial Centre established in Sanari, near the mine. Exxaro partnered with National Development Agency and Department of Labour to develop a business and training centre for this community. Musunda Citrus Farm – the Musunda community near Tshikondeni Mine has been given a sustainable alternative to its high rates of poverty and unemployment – a 20-hectare farming project supported by the operation that will see the village beneﬁ t from tomato, mango and orange farming. The community has already harvested its ﬁ rst crop of tomatoes. Makuya farmers’ cooperative – Exxaro is partnering with Department of Agriculture, Forestry and Fisheries. 32 direct jobs, 81 indirect project beneﬁ ciaries 13 direct jobs, 120 indirect project beneﬁ ciaries 25 direct jobs, 400 indirect project beneﬁ ciaries Corporate commitment Exxaro assists the University of Pretoria’s community project for the maintenance engineering department. n/a Grootegeluk KZN Sands 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. Skills offered include welder/planter, ABET, maintenance operator and civil skills. Support to Abbotspoort drop-in-centre near Grootegeluk Mine to care for the growing number of orphans in the area. Eco-friendly housing, roadbuilding and enterprise development project (see case study – Housing project in Marapong). SME development and support centre (in partnership with the European Union, Absa and uThungulu District Municipality) was constructed last year and is now fully operational. The centre offers community members the opportunity to learn skills such as art and decoration, furniture-making, sewing and beading, etc (see case study – Zikulise SME development). In Ezingeni, a hydroponics tunnel project was started to produce tomatoes for local retailers. The project was recently expanded to four tunnels in partnership with BHP Billiton, and an upmarket packing and cooling facility built. Vusani agricultural integrated farming where local youth have been trained to operate a successful piggery producing pigs for the local market, and a well-developed nursery. 1 710 learners over a ﬁ ve-year period. In 2009, 121 learners enrolled for ABET courses, and 102 for civil skills 18 direct jobs, 65 orphans 24 direct jobs, 5 home owners, 101 indirect project beneﬁ ciaries 224 direct jobs, 1 120 indirect project beneﬁ ciaries Seven direct jobs, 35 indirect project beneﬁ ciaries Nine direct jobs and 45 indirect beneﬁ ciaries Namakwa Sands Koekenaap water-pumping facilities to pump fresh water from the existing reservoir to households. 827 beneﬁ ciaries Exxaro Annual Report 2009 I 123 SOCIAL PERFORMANCE CONTINUED Mine Project/donation Beneﬁ ciaries Namakwa Pholla Park project – providing electricity to informal 400 households, beneﬁ ting approximately 1 600 people Sands households. Main infrastructure completed. As informal households are moved to a designated area, these will be connected to electricity infrastructure. To date, over 100 houses have been connected. West Coast College – skills development project. These facilities beneﬁ t almost 200 students per annum Following the establishment of a computer laboratory in currently, with a potential increase to 300. Nine community 2007, training facilities for electrical and ﬁ tting learnerships bursaries were allocated in 2009 were enhanced in 2008 and 2009. The welding workshop was upgraded in 2009. A formal community bursary trust was established with the ﬁ rst bursaries awarded in 2009. Lutzville West – a freshwater dam was built to provide the 4 280 people living in the Lutzville West community community with water-storage facilities. With all preparatory work completed, construction began in 2010. Hydroponics farming – project to develop skills and create Estimated 20 permanent jobs for unemployed members of jobs. The site has been identiﬁ ed and water rights local communities and up to 40 seasonal jobs secured. The project will begin in 2010. Rosh Pinah Due to the large inﬂ ux of people to the area, the need was 23 teachers, 650 learners identiﬁ ed to expand the existing primary school which already accommodates 600 learners. New teachers were employed and a campaign to provide a better standard education started. The improved school will make Rosh Pinah town a better place to raise children and Rosh Pinah Zinc Corporation an ideal employer. Zincor In Vukuzenzele, an informal settlement near the Zincor All inhabitants of Vukuzenzele 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 in the near future. Arnot A hydroponics garden was started near Arnot Mine which 25 jobs in year 1, 95 direct jobs over ﬁ ve years, will expand into a commercial farm over ﬁ ve years. 332 indirect project beneﬁ ciaries New A hydroponics garden was started where local community 65 direct jobs, 227 indirect project beneﬁ ciaries Clydesdale members and mine employees can receive training in agricultural skills. North Block A Saturday school for matriculants was established. 328 learners Complex A coal-yard project has been started near Siyathuthuka 40 temporary jobs (erect infrastructure), township to meet demand for coal (98% of community 10 permanent jobs members use coal stoves to heat their houses). Support to Emakhazeni Municipality to electrify Two direct jobs created 30 houses. Upgraded Khayalami High School laboratory and library, One job created and supplied library with books. Additional educator employed for Belfast Academy to One direct job created assist the school with the shortage of educators. 124 I Exxaro Annual Report 2009 SOCIETY Monitoring and evaluation currently We are implementing a monitoring and evaluation system to Beneﬁ ciation technology department In November 2009, Exxaro Compliance While Exxaro exceeds legislative standards launched in several areas, we recognise that ongoing measure progress and identify challenges. its ﬁ rst downstream coal beneﬁ ciation This system is aligned with Exxaro’s internal venture when the char plant alongside socio-economic development technology Grootegeluk mine was ofﬁ cially opened. platform. Scheduled to be fully operational The char plant is Exxaro Reductants’ ﬁ rst by mid-2009, implementation was delayed business unit, supplying a key ingredient to by prevailing economic conditions. However, the fast-growing ferroalloys manufacturing it will be fully operational by March 2010 industry. It is also the ﬁ rst step in the with 12 of 13 business units already trained group’s strategy of supplying a full range in its use. of reductants to South Africa’s metals industry by using its coal reserves in the Waterberg to their full potential. The char plant has created 1 500 direct and indirect jobs for people from the Lephalale community — and access to an improved way of life. compliance is an essential element of our statutory licence to operate. Accordingly, we have established a dedicated unit to monitor and maintain our compliance levels and reduce the signiﬁ cant risks of non- compliance. Part of this unit’s responsibility is meeting the timeline towards Exxaro’s desirable future state that includes: > Full compliance legislation to (no liabilities) > ISO/OHSAS certiﬁ cation for all business units > Diminishing compensation for environ- mental impacts > Standard for reporting on JSE SRI/UN Global Compact/GRI implemented. Timeline to desirable state 2009 2010 – 2011 2012 – 2015 1 2 3 4 Legal registers for all business units updated in terms of amended laws Reporting standard to comply with JSE SRI /GRI B+/UN Global Compact/ external assurance SHE integrated audits and reports 80% of business units using common information management system Review priorities for the year Review priorities for the year 1 2 3 4 5 Review management standards against amended legislation Improve best-practice guide based on 2009 assurance report 1 2 3 Risk model for effective resourcing Audits and maintenance of systems Electronic compliance registers (based on GRI A+) Business processes aligned to GRI A+ 4 Compliance audit (ongoing) Integrated audits (including social and labour plans) Single information management system for reporting Exxaro Annual Report 2009 I 125 LEGISLATIVE COMPLIANCE/ MINING CHARTER SCORECARD In 2009, the Department of Mineral Resources promulgated codes of good practice for the mining industry. Simultaneously, industry progress against targets in the existing mining charter has been reviewed, and the accompanying scorecard reﬁ ned where necessary. The table below reﬂ ects progress to date and new targets. In the past ﬁ ve years, Exxaro has made steady progress to exceed many of the charter’s targets, most notably those for transformation at management level, women in mining and building the pool of industry skills. 2010 mining charter scorecard Met Progress 2009 Human resources development Functional literacy and numeracy for employees Target 2005: > Skills development expenditure 100% > Learning programmes 100% > Functional literacy and numeracy 100% Yes Are there career paths for HDSA employees Not applicable Yes Exxaro’s policy is to invest an appropriate amount of total payroll each year on human resources development. In 2009, this was 6% (excluding 1% skills levy) or an investment of R114 million. Fully company sponsored, voluntary ABET programmes running at all mines. Good progress made in 2009 towards our target of offering everybody the opportunity to become functionally literate and to participate in ABET classes. In 2009: > 311 employees and 320 non-employees enrolled on various ABET levels > Financial incentive scheme for all identiﬁ ed ABET learners implemented > Skills development expenditure 6% > Learning programmes 97% as per employment equity report > Functional literacy and numeracy rate of group: 78% HRD policy in place dealing with accelerated development. Formal succession planning and individual development plans rigorously used for all management and professional categories. HDSA employees receive special career planning consideration and mentor support Are empowerment groups being mentored Not applicable Yes Formal plans in place Employment equity Has the company published its employment equity plan and achievements Is there a plan to achieve a set target for HDSA participation in management Targets by 2009 > Top management 40% > Senior management 40% > Middle management 40% > Junior management 40% > Women in mining 10% Yes Yes Employees have been consulted and plans are available for reference at each business unit Exxaro is legally required to comply with the management target of 40% as set in the Mining Charter. Targets and goals have been set and discussed with employee representatives. Management representation at 31 December 2009 was 48%. 126 I Exxaro Annual Report 2009 2010 mining charter scorecard Met Progress 2009 Is this plan being implemented Not applicable Has a talent pool been identiﬁ ed Not applicable Is there a plan to achieve a set target for women participation in management Migrant labour Is the company not discriminating against migrant labourers Not applicable Mine community and rural development Did the company participate in the formation of integrated development plans Not applicable Are these plans for local mining community and major labour- sending areas Not applicable What has been the process of consultation with local community Not applicable Yes Yes Yes Yes Yes Yes Yes How much has been spent on integration development Compliance target 1% of net proﬁ t after tax Yes Plans are implemented and progress monitored regularly Exxaro has a succession plan system in place to fast-track women and women in mining. > Actual women participation in management 13,77% Exxaro complies with government and industry policies of non-discrimination against foreign labourers All interventions being implemented by Exxaro are part of the integrated development plans of involved authorities, required legislation of the Department of Mineral Resources and indicated community needs All interventions are undertaken in the communities near our mines or as indicated by local government To identify real needs of involved communities, the integrated development plans of local and district government are being used as social impact assessments to identify socio-economic needs in the community Socio-economic development investment in 2009: Total investment of R31 444 178. Measured against Exxaro’s 2008 net proﬁ t after tax (excluding equity contributions), this represents 1,8%, well above the compliance target. The split per focus area at operation level is: education 17%, skills development and capacity building 25%, enterprise development 23%, health and welfare 3%, environmental stewardship 1% and infrastructural development 31%. Exxaro also implements projects at corporate level, split among focus areas: health and welfare 17%, environment 13%, enterprise development 2%, skills development 57% and education 11% Exxaro Annual Report 2009 I 127 LEGISLATIVE COMPLIANCE/ MINING CHARTER SCORECARD CONTINUED 2010 mining charter scorecard Met Progress 2009 Compliance target 2014: 100% conversion of hostels to single accommodation apartments/housing units Housing and living conditions Has the company provided housing for miners Is the company improving the standards of housing Are hostels being upgraded Are hostels converted to family units Has the company offered the option of home ownership to miners Is there a plan in place to improve housing and living conditions Does the company currently have measures in place to improve nutrition provided to miners Are there plans in place to further improve nutrition in future Not applicable Not applicable Yes Yes Yes No Yes Yes Yes Yes The housing policy for the Exxaro group in South Africa is focused on home ownership. An additional subsidy policy to assist ﬁ rst-time home owners at business units has been implemented. Bargaining unit employees receive either a housing allowance or living-out allowance for accommodation. At some subsidiaries, bargaining unit employees receive an all-inclusive package (housing allowance consolidated in salary). These allowances are determined through collective bargaining. Management and specialist category employees receive an all-inclusive package. The split of accommodation is: > 594 employees live in hostels. Hostels are being converted into single quarters or family housing or closed down > 1 343 employees reside in single quarters > 420 employees live in family housing > 1 002 employees rent company houses > 7 821 employees provide their own accommodation Plans are being developed to convert hostels at Tshikondeni and Arnot to single accommodation. Exxaro provides meals at two operations where the quality and nutritional value are determined by a dietician. Qualiﬁ ed staff continually monitor adherence to contractual obligations. Employees have accessible mechanisms to engage both management and suppliers on food issues. Nutritional plans are continually updated 128 I Exxaro Annual Report 2009 2010 mining charter scorecard Met Progress 2009 Procurement Are HDSAs given preferred supplier status Compliance 0-5 Years > Local suppliers (goods) 20% > Local suppliers (services) 50% > Local suppliers (consumables) > Local SMMEs > BEE suppliers: 15% 10% 50% black-owned 15% 30% black women owned 15% 6-10 30% 70% 30% 20% 20% 20% Has the current level of procurement from HDSA companies been identiﬁ ed in terms of capital goods, consumables and services Is there commitment to progress procurement from HDSAs of capital goods, consumables and services Ownership and joint ventures Is there HDSA participation in terms of ownership equity Has the company managed to have attributable units of production of 15% over ﬁ ve years Has the company managed to have attributable units of production of 26% over 10 years Demonstrable HDSA ﬁ duciary participation at board level: > 40% target on executive committee Ownership scorecard > Target 26% by 2014 Yes Yes Yes Yes Yes Yes In 2009, Exxaro reviewed and implemented a policy aligned to the recently promulgated Department of Mineral Resources codes of good practice and broad-based socio economic empowerment charter for the South African mining industry. The group’s preferential procurement policy tasks the business to use its purchasing power to ensure that external suppliers are engaged and every effort made to contract with suppliers that have strong BEE credentials or are making a tangible effort to transform their businesses to be BEE compliant. The target for 2009 was set at 45% procurement from HDSA companies and marginally exceeded at 45,03%. With the promulgation of the DMR codes, our policy now incorporates BEE spend targets speciﬁ ed in terms of capital goods, operational goods, services, black women ownership and SMMEs. Our performance tracking system has been aligned to the policy. Through its preferential procurement policy, Exxaro has afﬁ rmed its commitment to accelerating procurement from HDSAs by requiring every business to contribute towards achieving speciﬁ c percentage spend targets on capital goods, services and consumables. After the Kumba empowerment transaction, a new company was formed and listed on the JSE as Exxaro Resources Limited. In terms of the empowerment transaction, Exxaro’s only major shareholder is Main Street 333 (Pty) Limited, commonly referred to as BEE Holdco. This BEE entity holds 53% of the shares in Exxaro. The entities that in turn hold shares in BEE Holdco are Eyesizwe SPV (54,1%); Eyabantu SPV (9,7%); Tiso SPV (9,7%); Women’s Group SPV (11,2%) and IDC (15,3%). A structure for shareholder development is in place. Exxaro Annual Report 2009 I 129 LEGISLATIVE COMPLIANCE/ MINING CHARTER SCORECARD CONTINUED 2010 mining charter scorecard Met Progress 2009 Beneﬁ ciation Has the current level of beneﬁ ciation been identiﬁ ed Compliance target 42% annual production from reﬁ ne stage Yes Has the baseline level of beneﬁ ciation been identiﬁ ed Is there an indication how the baseline can be grown to qualify for an offset Reporting Is the company reporting progress on its commitment annually in its annual report Yes Not applicable Yes The mineral sands business is investigating downstream beneﬁ ciation opportunities for titania slag and zircon. A number of new production technologies were investigated with the aim of establishing a local titanium metal-production facility. Investigations and studies are ongoing In coal, the market coke project is another example of downstream beneﬁ ciation. Exxaro is investigating the feasibility of producing market coke as a reductant to the chrome industry. Certain technology evaluation accompanies this initiative 130 I Exxaro Annual Report 2009 INDEPENDENT ASSURANCE STATEMENT TO THE DIRECTORS AND MANAGEMENT OF EXXARO RESOURCES LIMITED Scope of our engagement The Sustainability Section (the Report) of Exxaro Resources Limited’s (Exxaro) 2009 Annual Report for the period ending 31 December 2009, has been prepared by the Directors and management of Exxaro (Management). Management is responsible for the collection and presentation of information within the Report and for maintaining adequate records and internal controls that are designed to support the sustainability reporting process. There are currently no prescribed requirements relating to the preparation, publication and veriﬁ cation of sustainability reports. Our responsibility, in accordance with Management’s request, was to carry out a reasonable assurance engagement over two key performance indicators and a limited assurance engagement over twelve key performance indicators; the self-declared GRI G3 B+ application level; assertions in terms of mining charter requirements; legal compliance of operations in terms of environmental management programme reports (EMPRs); and the Report’s adherence to the AccountAbility’s 1000 Principle Standards (AA1000PS) 2008 principles of materiality, responsiveness and inclusivity. Our responsibility in performing our assurance activities is to the Management of Exxaro only and in accordance with the terms of reference for this engagement as agreed with them. We do not accept or assume any responsibility for any other purpose or to any other person or organisation. Any reliance any such third party may place on the Report is entirely at its own risk. Our assurance engagement was planned and performed in accordance with the International Federation of Accountants’ (IFAC) International Standard on Assurance Engagements (ISAE) 3000, Assurance Engagements Other Than Audits or Reviews of Historical Financial Information. The Report has been evaluated using the following criteria: the principles of Materiality, Responsiveness and Inclusivity as set out in AA1000PS; as well as against the application of the Global Reporting Initiative G3 Sustainability Reporting Guidelines (the Guidelines). Work performed In order to form our conclusions we undertook the steps outlined below: > Interviewed a selection of Exxaro’s management for functional and divisional area as well as sustainable development issues to understand the current status of sustainable development activities and progress made during the reporting period. responsible > Performed a high-level benchmarking exercise of the material issues and areas of performance covered in the sustainable development reports of Exxaro’s peers. > Reviewed a selection of external media reports to determine the level of inclusion and discussion of material topics in the Report. > Reviewed selected documents relating to aspects of Exxaro’s performance linked to sustainable development, to test the coverage of topics within the Report. > Reviewed the Report to check whether material topics and performance issues, identiﬁ ed during the performance of our engagement, had been adequately disclosed. > Tested the processes used to record, collect, consolidate and report the fourteen key performance indicators listed below, by testing the indicators at Group level and at selected business units, as well as random samples of data related to these key performance indicators. > Reasonable assurance – audited two performance following the indicators — Fatalities indicator — Socio-economic (SED) project spend development > Limited assurance – reviewed the following twelve key performance indicators — Health and safety data (Lost Time Injuries (LTI); LTI Frequency Rate (LTIFR); Noise Induced Hearing Loss (NIHL); Occupational Tuberculosis (TB); and Pneumoconiosis) — Environmental data (Electricity; Diesel Hazardous waste disposed of; Indirect CO2 emissions (limited to electricity and diesel use); Level 2 and 3 incidents; Water use; and Land Disturbed vs. rehabilitated) > Mining Charter commitments > Legal compliance of operations in terms of Environmental Management Programme Reports (EMPRs) > Reviewed whether Exxaro’s reporting has applied the GRI G3 Guidelines to a level described on page 133. > We have sought to answer the in order for following questions, us to evaluate the Report against the of materiality, responsiveness and inclusivity as set out in AA1000PS speciﬁ cally as follows: > Materiality: principles — Has Exxaro provided a balanced representation of material issues concerning sustainability performance? its — Has Exxaro included sustainability performance from all material entities in its deﬁ ned boundary for its reporting of identiﬁ ed material issues? information — Are there any material aspects that are not addressed in the Report? > Responsiveness: Exxaro to material issues in a balanced and comprehensive manner in the Report? > Inclusivity: responded — Has — How has Exxaro identiﬁ ed and engaged with stakeholders? — How has stakeholder Exxaro managed participation its process? — How has Exxaro responded to stakeholder concerns? Level of assurance Our evidence gathering procedures have been designed to obtain limited assurance (as set out in ISAE 3000) on which to base our conclusions for twelve key performance indicators; the self-declared GRI G3 B+ application level; assertions in terms of mining charter requirements; legal compliance of operations in terms of environmental management programme the Report’s reports adherence to the AA1000 PS. The procedures conducted do not provide all the evidence that would be required in a reasonable assurance engagement and, accordingly, we do not express a reasonable assurance opinion. Our (EMPRs); and Exxaro Annual Report 2009 I 131 INDEPENDENT ASSURANCE STATEMENT TO THE DIRECTORS AND MANAGEMENT OF EXXARO RESOURCES LIMITED CONTINUED procedures relating to the two key performance indicators for which we provided reasonable assurance indicated within the work performed discussion have, however, provided sufﬁ cient evidence for us to provide a ‘reasonable level’ of assurance. While we considered the effectiveness of Management’s internal controls when determining the nature and extent of our procedures, our review was not designed to provide assurance on internal controls. was conducted Limitations of our scope > The review of the key performance indicators at Grootegeluk (Coal, Limpopo); Matla (Coal, Mpumalanga; and Namakwa Sands (Mineral sands; Western Cape), while additional data points which contributed signiﬁ cantly to the key performance indicators were selected among the remaining sites > We have not reviewed and consequently do not provide any assurance on historical data, except if assured in our prior year assurance engagement (2008). > When considering responsiveness under AA1000PS we did not attend any stakeholder engagement activities. > We provide no assurance over the web content relating to sustainability information. Our conclusions Subject to our limitations of scope noted above and on the basis of our procedures for this assurance engagement, we provide the following conclusions: Materiality Indicators: Based on the work performed: > The indicators Fatalities and SED spend reported by Management are fairly stated in all material aspects, based on the collation of information reported at the various locations and on internal reporting mechanisms; and > Nothing has come to our attention that causes us to believe that there are any errors that would materially affect the following indicators - (LTI, LTIFR, NIHL, Occupational TB, Pneumoconiosis, 132 I Exxaro Annual Report 2009 incidents and Electricity, Diesel, Hazardous waste, indirect CO2 emissions, Water use, level 2 and 3 land disturbed vs. rehabilitated) reported by Management. Nothing has come to our attention that causes us to believe that data pertaining to these key indicators has not been properly collated from information reported at the various locations and in line with the internal reporting mechanisms. The report: Based on our work performed, nothing has come to our attention that causes us to believe that: > Any material aspects concerning Exxaro’s sustainability performance have been excluded from the Report. > Any material issues have been excluded from, or misstatements made, in relation to information on which Exxaro has made judgements in respect to the content of the Report. > The information or explanations on statements or assertions on Exxaro’s sustainability activities presented in the Report that we have reviewed, has been misstated. Responsiveness Based on our work performed, nothing has come to our attention that causes us to believe that any issues of stakeholder interest were not included in the Report’s scope and content. Inclusivity Based on our work performed, nothing has come to our attention that causes us to believe that any material issues were excluded or misstated in relation to the content of the Report. Mining Charter Commitments Based on our work performed, nothing has come to our attention that causes us to believe that Management’s assertions relating to Mining Charter commitments are not fairly stated. Legal compliance of operations in terms of EMPRs Based on our work performed, nothing has come to our attention that causes to believe us that Management’s assertions relating to legal compliance of operations in terms of EMPRs are not fairly stated. GRI Based on our work performed, including consideration of the Report, and elements of the annual report, nothing has come to our attention that causes us to believe that Management’s assertion that their sustainability the requirements of the B+ application level of the Guidelines is not fairly stated. reporting meets Selected observations We note that: > Exxaro formalised its and has sustainability communicated strategy, and in process of is implementing across all Business Units which is reﬂ ected in improved recording, monitoring and management of sustainability indicators at the Business Unit level. > Controls should be improved at Group level, however, to improve processes to collate data provided by site for reporting purposes > Effective internal communication strategies and initiatives have been instrumental the embedment of sustainability within the corporate culture. facilitating in in Our Independence and Assurance Team The ﬁ rm and all professional personnel involved this engagement are independent of Exxaro and our team have not performed any work for Exxaro that may conﬂ ict with our ability to express independent assurance over this Report. Our team is drawn from our Climate Change and Sustainability Services Department and has the required competencies and experience for this engagement. Ernst & Young Inc 17 March 2010 GRI INDICATOR INDEX Index to Global Reporting Initiative G3 indicators GRI Topic Economic EC1 EC2 EC3 EC4 EC5 EC6 EC7 EC8 EC9 EN1 EN2 EN3 EN4 EN5 EN6 EN7 EN8 EN9 Economic value generated and distributed Financial implications, risks and opportunities due to climate change Coverage of deﬁ ned beneﬁ t plan obligations Signiﬁ cant ﬁ nancial assistance from government Standard entry-level wage compared to local minimum wage Policy, practices, and spending on local suppliers Procedures for local hiring, proportion of senior management hired from local community Development and impact of infrastructure investments and services for public beneﬁ t Signiﬁ cant indirect economic impacts Environmental Materials Materials used by weight or volume, % products from secondary materials Percentage recycled input materials Energy Direct consumption by primary energy source Indirect consumption by primary source Energy saved from conservation and efﬁ ciency improvements Reductions from energy-efﬁ cient or renewable energy-based products and services Initiatives to reduce indirect energy consumption, reductions achieved Water Total water withdrawal by source Sources signiﬁ cantly affected by withdrawal EN10 Percentage and volume recycled and reused Biodiversity EN11 Location/size land owned/leased/managed/adjacent to protected areas, areas of high biodiversity value EN12 Signiﬁ cant impacts of activities. EN13 Habitats protected or restored EN14 Strategies, actions and plans for managing impacts on biodiversity EN15 IUCN Red List species and national conservation list species in areas affected by operations Page 113 107 113, 120 zero 120 113, 114 122 n/a 122 110, 111 n/m 110 n/a 102 – 107 102 – 107 102 – 107 97 n/m 97 101 101 101, 102 100 – 102 101 Key: n/m — not measured n/r — not reported n/a — not applicable Exxaro Annual Report 2009 I 133 GRI INDICATOR INDEX GRI Topic Emissions, efﬂ uents, and waste EN16 Total direct and indirect greenhouse gas emissions EN17 Other relevant indirect greenhouse gas emissions EN18 Initiatives to reduce greenhouse gas emissions, reductions achieved EN19 Emissions of ozone-depleting substances EN20 NOx, SOx, and other signiﬁ cant air emissions by type and weight EN21 Total water discharge by quality and destination EN22 Total weight of waste by type and disposal method EN23 Total number and volume of signiﬁ cant spills EN24 Waste transported under terms of Basel Convention (Annex I, II, III, VIII) EN25 Identity, size, protected status, and biodiversity value of water bodies and related habitats signiﬁ cantly affected by discharges of water and runoff Products and services EN26 Initiatives to mitigate environmental impacts of products, extent of mitigation EN27 Percentage of products sold and packaging materials reclaimed by category Compliance EN28 Signiﬁ cant ﬁ nes, sanctions for non-compliance with environmental laws and regulations Transport EN29 Signiﬁ cant impacts of transporting products, and members of workforce EN30 Total environmental protection expenditures and investments by type Social performance: labour practices and decent work LA1 LA2 LA3 LA4 LA5 LA6 LA7 LA8 Employment Workforce by employment type, employment contract, and region Number and rate of employee turnover by age group, gender, and region Beneﬁ ts for full-time employees not provided to temporary/part-time employees Labour/management relations Percentage employees covered by collective bargaining agreements Minimum notice period on signiﬁ cant changes, including speciﬁ ed in collective agreements Occupational health and safety Percentage workforce represented in formal joint health and safety committees Rates of injury, occupational diseases, work-related fatalities Education, training, counselling, prevention, and risk-control programmes to assist workforce members, their families or community members with serious diseases LA9 Health and safety topics covered in formal agreements with trade unions Training and education LA10 Average hours of training per year per employee by employee category LA11 Programmes for skills management and lifelong learning that support continued employability LA12 Percentage of employees receiving regular performance and career development reviews Page 102, 112 n/a n/r n/a 99 – 100 n/r n/r 109 n/r n/r 95 – 112 n/a zero 91 n/r n/r 115 119 120 115, 120 120 92 93, 94 93 – 95 115, 120 n/r 117 – 118 118 Key: n/m — not measured n/r — not reported n/a — not applicable 134 I Exxaro Annual Report 2009 GRI INDICATOR INDEX GRI Topic Diversity and equal opportunity LA13 Composition of governance bodies and breakdown of employees per category: gender, age group, minority group membership, and other indicators of diversity LA14 Ratio of basic salary of men to women by employee category Social performance: human rights Investment and procurement practices HR1 HR2 HR3 Percentage and number of signiﬁ cant investment agreements with human rights clauses or screening Percentage signiﬁ cant suppliers and contractors screened on human rights and actions taken Total hours and percentage employee training on aspects of human rights relevant to operations Non-discrimination HR4 Total number of incidents of discrimination and actions taken Freedom of association and collective bargaining HR5 HR6 HR7 Operations where right to freedom of association and collective bargaining is at signiﬁ cant risk, actions taken to support rights Operations with signiﬁ cant risk for incidents of child labour, measures to eliminate Operations with signiﬁ cant risk of forced or compulsory labour, measures to eliminate Security practices HR8 Percentage security personnel trained in policies/procedures on human rights relevant to operations Indigenous rights HR9 Number of violations involving rights of indigenous people and actions taken Social performance: society Community Page 116 115 n/r n/r 121 115 n/m n/m n/m 121 n/r SO1 Programmes/practices to manage impacts on communities, including entering, operating, and exiting 122 – 124 Signiﬁ cant incidents affecting communities, grievance mechanisms to resolve, outcomes Programmes that address artisanal and small-scale mining Resettlement policies and activities: – Number households resettled – Practices on resettlement/compensation, alignment with World Bank directive Operations with closure plans. Policy, stakeholder engagement processes, frequency of review, ﬁ nancial provisions for closure Process for identifying local communities’ land and customary rights, including indigenous peoples, grievance mechanisms to resolve disputes Approach to identifying, preparing for and responding to emergency situations affecting employees, communities, environment Corruption SO2 SO3 SO4 Percentage and number of business units analysed for risks related to corruption Percentage of employees trained in anti-corruption policies and procedures Actions taken in response to incidents of corruption n/r n/a n/r 102 n/r 92 n/r n/r 89 Key: n/m — not measured n/r — not reported n/a — not applicable Exxaro Annual Report 2009 I 135 GRI INDICATOR INDEX CONTINUED GRI Topic Public policy SO5 SO6 Public policy positions and participation in public policy development and lobbying Total value of ﬁ nancial and in-kind contributions to political parties, politicians, and related institutions Anti-competitive behaviour SO7 Legal actions for anti-competitive behaviour, anti-trust and monopoly practices, outcomes Compliance SO8 Signiﬁ cant ﬁ nes, sanctions for non-compliance with laws and regulations Social performance: product responsibility Customer health and safety PR1 PR2 PR3 PR4 PR5 PR6 PR7 Life cycle stages in which impacts of products and services are assessed for improvement, percentage of signiﬁ cant products and services categories subject to such procedures Number non-compliances with regulations and voluntary codes on health and safety impacts of products and services during life cycle, by types of outcomes Products and service labelling Type of information required, percentage of signiﬁ cant products concerned Incidents of non-compliance with regulations and voluntary codes on labelling Practices related to customer satisfaction Marketing communications Programmes for adherence to laws, standards, and voluntary codes Incidents of non-compliance Customer privacy PR8 Substantiated complaints on breaches of customer privacy and losses of customer data Compliance PR9 Signiﬁ cant ﬁ nes for non-compliance concerning provision and use of products and services. Page n/r zero zero, 72 zero n/r n/a n/a n/a n/a 77 zero, 77 n/a n/a Key: n/m — not measured n/r — not reported n/a — not applicable 136 I Exxaro Annual Report 2009 GROUP CASH VALUE ADDED STATEMENTS for the year ended 31 December 2009 (unaudited) The value added statement shows the wealth the group has created through mining, beneﬁ ciation, trading and investing operations. The statement below summarises the total cash wealth created and how it was disbursed among the group’s stakeholders, leaving a retained amount which was reinvested in the group for the replacement of assets and further development of operations. 31 December 2009 Rm Wealth created % 31 December 2008 Rm Wealth created % Cash generated Cash derived from sales and services Income from investments and interest received Paid to suppliers for materials and services Cash value added Cash utilised to: Remunerate employees for services Pay direct taxes to the state Provide lenders with a return on borrowings Provide shareholders with cash dividends Cash disbursed among stakeholders Cash retained in the group to maintain and develop operations Notes to the group value added statement 1. Taxation contribution Direct taxes (as above) Value added taxes levied on purchases of goods and services Gross contributions 2. Additional amounts collected by the group on behalf of government Value added tax and other duties charged on turnover Employees’ tax deducted from remuneration paid Unemployment Insurance Fund Withholding tax 3. Levies paid to government Rates and taxes paid to local authorities Royalties paid to government Workers’ Compensation Fund Unemployment Insurance Fund Skills Development Levy (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:48) 18% 58% 9% 15% 100 44 7 5 15 71 29 14 812 1 754 (10 802) 5 764 3 502 892 526 1 050 5 970 (206) 892 1 915 2 807 1 976 652 32 2 660 35 80 6 32 30 183 100 61 15 9 18 103 (4) 12 789 1 044 (7 235) 6 598 2 871 487 346 984 4 688 1 910 487 1 541 2 028 1 861 613 21 16 2 511 22 71 4 21 19 137 (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) 21% 62% 7% 10% ■(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: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: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: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) Exxaro Annual Report 2009 I 137 SELECTED GROUP FINANCIAL DATA TRANSLATED INTO US DOLLARS for the year ended 31 December 2009 (unaudited) The group statutory 2009 ﬁ nancial statements have been expressed in US dollars for information purposes. The average US dollar/rand of US$1:R8,35 (2008: US$1:R8,25) has been used to translate the income and statement of cash ﬂ ows, while the statement of ﬁ nancial position has been translated at the closing rate on the last day of the reporting period US$1:R7,3973 (2008: US$1:R9,3560). INCOME STATEMENTS Revenue Operating expenses NET OPERATING PROFIT Net ﬁ nancing costs Income from equity accounted investments PROFIT BEFORE TAX Income tax expense PROFIT FOR THE YEAR Proﬁ t attributable to: Owners of the parent Non-controlling interests ATTRIBUTABLE EARNINGS PER SHARE (CENTS) HEADLINE EARNINGS HEADLINE EARNINGS PER SHARE (CENTS) STATEMENTS OF FINANCIAL POSITION at 31 December 2009 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 Other Non-current assets classiﬁ ed as held for sale TOTAL ASSETS EQUITY AND LIABILITIES Equity attributable to owners of the parent Non-controlling interests Non-current liabilities Interest-bearing borrowings Deferred tax, provisions and ﬁ nancial liabilities Current liabilities Interest-bearing borrowings Other Non-current liabilities classiﬁ ed as held for sale TOTAL EQUITY AND LIABILITIES NET DEBT (refer deﬁ nitions on page 139) STATEMENTS OF CASH FLOWS for the year ended 31 December 2009 Cash ﬂ ows from operating activities Cash ﬂ ows from investing activities Cash ﬂ ows from ﬁ nancing activities NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS 138 I Exxaro Annual Report 2009 2009 USD million 1 797 (1 761) 36 (50) 228 214 (92) 122 122 122 36 301 87 1 605 6 12 266 85 164 138 853 12 3 141 1 745 588 395 55 351 7 3 141 504 (25) (169) 105 (89) 2008 USD million 1 678 (1 379) 299 (29) 202 472 (62) 410 413 (3) 410 120 440 128 1 209 4 8 198 116 169 189 577 8 2 478 1 389 14 390 324 53 303 5 2 478 254 232 (455) 335 112 DEFINITIONS ATTRIBUTABLE CASH FLOW PER ORDINARY SHARE Cash ﬂ ow from operating activities after adjusting for participation of non-controlling interests therein divided by the weighted average number of ordinary shares in issue during the year. CAPITAL EMPLOYED Total equity plus net debt minus non-current ﬁ nancial asset. CASH AND CASH EQUIVALENTS Comprises cash on hand and current accounts in bank, net of bank overdrafts, together with any highly liquid investments readily convertible to known amounts of cash and not subject to signiﬁ cant risk of changes in value. CURRENT RATIO Current assets divided by current liabilities. DIVIDEND COVER Attributable earnings per ordinary share divided by dividends per ordinary share. DIVIDEND YIELD Dividends per ordinary share divided by the closing share price on the JSE Limited. EARNINGS PER ORDINARY SHARE – ATTRIBUTABLE EARNINGS BASIS Earnings attributable to owners of the parent divided by the weighted average number of ordinary shares in issue during the year. – HEADLINE EARNINGS BASIS Earnings attributable to owners of the parent adjusted for proﬁ ts and losses on items of a capital nature recognising the tax and non-controlling interests impacts on these adjustments, divided by the weighted average number of ordinary shares in issue during the year. FINANCING COST COVER – EBIT – net operating proﬁ t (before interest and tax) divided by net ﬁ nancing cost NET EQUITY PER ORDINARY SHARE Equity attributable to owners of the parent divided by the number of ordinary shares in issue at the year end. NUMBER OF YEARS TO REPAY INTEREST-BEARING DEBT Interest-bearing debt divided by cash ﬂ ow from operating activities before dividends paid. OPERATING MARGIN Net operating proﬁ t as a percentage of revenue. OPERATING PROFIT PER EMPLOYEE Net operating proﬁ t divided by the average number of employees during the year. RETURN ON CAPITAL EMPLOYED Net operating proﬁ t plus income from non-equity-accounted investments plus income from investments in associates as a percentage of average capital employed. RETURN ON ORDINARY SHAREHOLDERS’ EQUITY – ATTRIBUTABLE EARNINGS Attributable earnings attributable to owners of the parent as a percentage of average equity attributable to owners of the parent. – HEADLINE EARNINGS Headline earnings attributable to owners of the parent as a percentage of average equity attributable to owners of the parent. RETURN ON INVESTED CAPITAL Net operating proﬁ t plus income from non-equity-accounted investments plus income from investments in associates as a percentage of the average invested capital. RETURN ON NET ASSETS Net operating proﬁ t plus income from non-equity-accounted investments plus income from investments in associates as a percentage of the average net assets. – EBITDA – net operating proﬁ t (before interest, tax, depreciation, amortisation, impairment charges and net deﬁ cit/surplus on sale of investments and assets) divided by net ﬁ nancing cost. REVENUE PER EMPLOYEE Revenue divided by the average number of employees during the year. HEADLINE EARNINGS YIELD Headline earnings per ordinary share divided by the closing share price on the JSE Limited. TOTAL ASSET TURNOVER Revenue divided by average total assets. INVESTED CAPITAL Total equity, interest-bearing debt, non-current provisions and net deferred tax less cash and cash equivalents. NET ASSETS Total assets less current and non-current liabilities less non- controlling interests which equates to equity of owners of the parent. NET DEBT TO EQUITY RATIO Interest-bearing debt less cash and cash equivalents as percentage of total equity. WEIGHTED AVERAGE NUMBER OF SHARES IN ISSUE The number of shares in issue at the beginning of the year, increased by shares issued during the year, weighted on a time basis for the period in which they have participated in the income of the group. In the case of shares issued pursuant to a share capitalisation award in lieu of dividends, the participation of such shares is deemed to be from the date of issue. Exxaro Annual Report 2009 I 139 EXXARO REVIEWED ITS PORTFOLIO AND GROWTH PIPELINE AGAINST THE BACKGROUND OF THE PREVAILING ECONOMIC CLIMATE TO ALIGN RESOURCES WITH A COMMODITY STRATEGY BEST POSITIONED TO RELEASE OPTIMAL VALUE FOR ALL STAKEHOLDERS. 140 I Exxaro Annual Report 2009 Group annual financial statements for the year ended 31 December 2009 Financials CONTENTS Financial statements 142 Directors’ responsibility for ﬁ nancial reporting 142 Certiﬁ cate by company secretary 143 Independent auditors’ report 144 Report of the directors 147 Directors’ remuneration 160 Income statements and statements of comprehensive income 161 Statements of ﬁ nancial position 162 Statements of cash ﬂ ows 163 Group statement of changes in equity 164 Company statement of changes in equity 165 Notes to annual ﬁ nancial statements Annexures 252 1 Non-current interest-bearing borrowings 254 2 Investment in associates, joint ventures and other investments 256 3 Investment in subsidiaries Administration 259 Notice of annual general meeting 263 Biographies of directors up for election 275 Form of proxy ibc Administration ibc Shareholders’ diary Exxaro Annual Report 2009 I 141 DIRECTORS’ RESPONSIBILITY FOR FINANCIAL REPORTING TO THE MEMBERS OF EXXARO RESOURCES LIMITED The directors are of the opinion, based on the information and The directors of the company are responsible for maintaining explanations given by management and the internal auditors, and adequate accounting records, the preparation of the annual on comments made by the external auditors on the results of their ﬁ nancial statements of the company and the group and to develop audit conducted for the purpose of expressing their opinion on the and maintain a sound system of internal control to safeguard annual ﬁ nancial statements, that the internal accounting controls shareholders’ investments and the group’s assets. In presenting the are adequate, such that the ﬁ nancial records may be relied on for accompanying annual ﬁ nancial statements, International Financial preparing the ﬁ nancial statements and maintaining accountability Reporting Standards have been followed, applicable accounting for assets and liabilities. policies have been used and prudent judgements and estimates have been made. The directors have reviewed the group’s ﬁ nancial budgets with its underlying business plans for the period to 31 December 2010. In order for the directors to discharge their responsibilities, In the light of the current ﬁ nancial position and existing borrowing management has developed and continues to maintain a system facilities, they consider it appropriate that the annual ﬁ nancial of internal control aimed at reducing the risk of error or loss in a statements be prepared on the going-concern basis. cost-effective manner. Such systems can provide reasonable but not absolute assurance against material misstatement or loss. Against this background, the directors of the company accept The directors, primarily through the audit, risk and compliance responsibility for the annual ﬁ nancial statements, which were committee which consists only of non-executive directors, meet approved by the board of directors on 24 February 2010 and are periodically with the external and internal auditors, as well as signed on its behalf by: executive management to evaluate matters concerning accounting policies, internal control, auditing, ﬁ nancial reporting and risk management. The group’s internal auditors independently evaluate the internal controls and co-ordinate their audit coverage with the external auditors. The external auditors are responsible for reporting SA Nkosi on the ﬁ nancial statements. The external and internal auditors have Chief executive ofﬁ cer WA de Klerk Finance director unrestricted access to all records, property and personnel as well as to the audit, risk and compliance committee. The directors are The external auditors have audited the annual ﬁ nancial statements not aware of any material breakdown in the functioning of these of the company and group and their unmodiﬁ ed report appears on controls and systems during the year under review. page 143. CERTIFICATE BY COMPANY SECRETARY In terms of the Companies Act, 61 of 1973 of South Africa, as amended, I, MS Viljoen, in my capacity as company secretary, con- ﬁ rm that for the year ended 31 December 2009, the company has lodged with the Registrar of Companies all such returns as are required of a public company in terms of this Act and that all such returns are true, correct and up to date. MS Viljoen Company secretary 24 February 2010 142 I Exxaro Annual Report 2009 INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF EXXARO RESOURCES LIMITED We have audited the annual ﬁ nancial statements and group circumstances, but not for the purpose of expressing an opinion annual ﬁ nancial statements of Exxaro Resources Limited, which on the effectiveness of the entity’s internal control. An audit also comprise the directors’ report, the statement of ﬁ nancial position includes evaluating the appropriateness of accounting principles and the consolidated statement of ﬁ nancial position as at used and the reasonableness of accounting estimates made by 31 December 2009, the income statement and the consolidated the directors, as well as evaluating the overall ﬁ nancial statement income statement, the statement of comprehensive income and the presentation. consolidated statement of comprehensive income, the statement of changes in equity and the consolidated statement of changes We believe that the audit evidence we have obtained is sufﬁ cient in equity and the statement of cash ﬂ ows and the consolidated and appropriate to provide a basis for our audit opinion. statement of cash ﬂ ows for the year then ended, a summary of signiﬁ cant accounting policies and other explanatory notes, as set OPINION out on pages 144 to 258. In our opinion, the ﬁ nancial statements present fairly, in all material respects, the ﬁ nancial position of the company and of the group as DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL at 31 December 2009, and of their ﬁ nancial performance and their STATEMENTS cash ﬂ ows for the year then ended in accordance with International The company’s directors are responsible for the preparation and Financial Reporting Standards, and in the manner required by the fair presentation of these ﬁ nancial statements in accordance with Companies Act of South Africa. International Financial Reporting Standards, and in the manner required by the Companies Act of South Africa. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of ﬁ nancial statements that are free from material misstatement, whether due Deloitte & Touche to fraud or error; selecting and applying appropriate accounting Registered auditors policies; and making accounting estimates that are reasonable in Per BW Smith the circumstances. Partner AUDITORS’ RESPONSIBILITY Our responsibility is to express an opinion on these ﬁ nancial 24 February 2010 statements based on our audit. We conducted our audit in Buildings 1 and 2, Deloitte Place accordance with International Standards on Auditing. Those The Woodlands Ofﬁ ce Park standards require that we comply with ethical requirements and Woodlands Drive, Sandton plan and perform the audit to obtain reasonable assurance whether the ﬁ nancial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence Operating Ofﬁ cer), GM Pinnock (Audit), DL Kennedy (Tax Legal about the amounts and disclosures in the ﬁ nancial statements. The and Risk Advisory), L Geeringh (Consulting), L Bam (Corporate procedures selected depend on the auditor’s judgement, including Finance), CR Beukman (Finance), TJ Brown (Clients and Markets), the assessment of the risks of material misstatement of the ﬁ nancial NT Mtoba (Chairman of the Board), CR Qually (Deputy Chairman National Executive: GG Gelink (Chief Executive), AE Swiegers (Chief statements, whether due to fraud or error. In making those risk of the Board) assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the ﬁ nancial statements in order to design audit procedures that are appropriate in the A full list of partners and directors is available on request. Exxaro Annual Report 2009 I 143 REPORT OF THE DIRECTORS The directors have pleasure in presenting the annual ﬁ nancial The board of directors is ultimately responsible to monitor debt statements of Exxaro Resources Limited (Exxaro) and the group levels, return on capital as well as compliance with contractually for the year ended 31 December 2009. agreed loan covenants. For the year under review the following key NATURE OF BUSINESS Exxaro, incorporated in South Africa, is a mining group of companies focusing on extracting and processing a range of minerals and metals including coal, mineral sands, base metals and selected industrial minerals. Exxaro also holds a 20% interest in Sishen Iron Ore Company (Pty) Limited which extracts and processes iron ore. CORPORATE GOVERNANCE The board endorses the Code of Corporate Practice and Conduct as set out in the King III Report on Corporate Governance and has satisﬁ ed itself that Exxaro has complied throughout the period in all material aspects with the King III Code. A detailed report appears on page 72. REGISTRATION DETAILS Exxaro is a listed company on the JSE Limited. The company registration number is 2000/011076/06. The registered ofﬁ ce is Roger Dyason Road, Pretoria West, Republic of South Africa, 0183. ACTIVITIES AND FINANCIAL RESULTS Detailed reports on the activities and performance of the group and the various divisions of the group are contained in the reports on pages 4 and 5 and pages 8 and 9 and in the business operations review on pages 38 to 48. These reports are unaudited. CAPITAL MANAGEMENT As a diversiﬁ ed mining company Exxaro is exposed to the cyclical price movements associated with its suite of commodities. The group’s policy is therefore to ensure that it maintains a robust capital structure with strong ﬁ nancial metrics underpinned by adequate borrowing facilities to withstand a signiﬁ cant downturn in commodity cycles. Growth opportunities, debt levels and dividend distributions to shareholders are considered against this backdrop. metrics were achieved: Net debt/equity ratio (%) Net ﬁ nancing cost cover – EBITDA (times) Return on capital employed (%) (refer deﬁ nitions on page 139) 2009 29 7 15 2008 18 14 36 The capital base consists of total shareholders’ equity as disclosed, as well as interest-bearing borrowings. As a new generation empowerment company with a 55% BEE shareholding, Exxaro is constrained from issuing equity, and its memorandum and articles accordingly incorporate various provisions limiting the issue of new shares or alterations of its share capital that could result in a loss of its empowerment status. The group aims to cover its annual net funding requirements through longer-term loan facilities with maturities spread evenly over time. Although the intention is to progress to distributing 50% of attributable earnings to shareholders, adequate provision is made for future commitments and working capital requirements in determining the level of interim and ﬁ nal dividends to shareholders. The group may from time to time purchase its own shares in the open market. These share purchases are primarily intended to settle the group’s various employee share incentive schemes. The group does not, however, have a deﬁ ned share buy-back plan. During the year under review the group complied with all its contractually agreed loan covenants. There were no changes in the group’s approach to capital management during the year, however, the impact on demand and prices for Exxaro’s commodities brought about by the global ﬁ nancial crisis, has reinforced the need for cash ﬂ ow preservation and judicious capital management. 144 I Exxaro Annual Report 2009 Neither the company nor any of its subsidiaries are subject to DIVIDEND PAYMENTS externally imposed regulatory capital requirements. Dividend number 13 PROPERTY, PLANT AND EQUIPMENT Interim dividend number 13 of 100 cents per share was declared in South African currency in respect of the period Capital expenditure for the period amounted to R1 982 million ended 30 June 2009. The dividend was paid on Monday, (2008: R1 617 million). SHAREHOLDERS’ RESOLUTIONS 28 September 2009 to shareholders recorded in the books of the company at the close of business on Friday, 25 September 2009. To comply with the requirements of Strate, the last day to trade At the eighth annual general meeting of shareholders, held on cum dividend was Thursday, 17 September 2009. The shares 8 May 2009, the following resolutions were passed: commenced trading ex dividend on Friday, 18 September 2009 • renewal of the authority that the unissued shares be placed and the record date was Friday, 25 September 2009. under the control of the directors • general authority to issue shares for cash Dividend number 14 • special resolution to authorise directors to repurchase company Final dividend number 14 of 100 cents per share was declared shares. in South African currency in respect of the period ended 31 December 2009. The dividend payment date is Monday, Exxaro and its subsidiaries have passed no other special or ordinary 19 April 2010 to shareholders recorded in the books of the shareholders’ resolutions of material interest or of substantive company at the close of business on Friday, 16 April 2010. To nature. SHARE CAPITAL comply with the requirements of Strate, the last day to trade cum dividend is Friday, 9 April 2010. The shares will commence trading ex dividend on Monday, 12 April 2010 and the record date is Friday, The total number of shares in issue increased during the year to 16 April 2010. 356 940 200. The increase can be summarised as follows: Date of issue Number of shares 355 036 600 Opening balance Issued in terms of the Kumba Management Share Option Scheme due to options exercised at prices ranging from R61,40 to R104,50 Closing balance 7 January 2009 to 29 December 2009 1 903 600 356 940 200 Capital (Pty) Limited. SUBSEQUENT EVENTS INVESTMENTS AND SUBSIDIARIES The ﬁ nancial information in respect of investments and interests in subsidiaries of the company is disclosed in annexures 2 and 3 to the ﬁ nancial statements. During July 2009 the group invested R1 082 million in Mafube Coal Mining (Pty) Limited, its joint venture with Anglo South Africa SHAREHOLDERS An analysis of shareholders and shareholdings appears on page 79 of the annual report. The directors are not aware of any matter or circumstance that has arisen since the end of the ﬁ nancial period not dealt with in this report or in the group ﬁ nancial statements that would signiﬁ cantly affect the operations or the results of the group. DIRECTORATE AND SHAREHOLDINGS The names of the directors in ofﬁ ce at the date of this report are set out on page 152. Exxaro Annual Report 2009 I 145 REPORT OF THE DIRECTORS CONTINUED The following non-executive directors resigned during 2009: AUDIT COMMITTEE • 15 July 2009 – Mr PM Baum The audit committee has reviewed the scope as well as the • 21 December 2009 – Ms SEA Mngomezulu. independence and objectivity of the external auditors. The Mr CI Grifﬁ th was appointed as a non-executive director to the as deﬁ ned by the Companies Act and the committee has approved committee has satisﬁ ed itself that the external auditor is independent board on 16 July 2009. the audit fees for the period. The audit committee has nominated Deloitte & Touche as external auditor for the 2010 ﬁ nancial year, Ms N Langeni was appointed as a non-executive director to the and BW Smith as the designated partner, for approval at the annual board on 23 February 2010. general meeting. Refer to the section on corporate governance on page 74 for further details on the composition, role, purpose and The acting chairman, Dr D Konar, was elected as chairman of the principal functions of the audit committee. board with effect from 23 February 2010. INDEPENDENT AUDITORS On 28 February 2009, Mr DJ van Staden retired as ﬁ nance The auditors of the company, Deloitte & Touche, and BW Smith as director and Mr WA de Klerk was appointed as ﬁ nance director on the designated partner, will continue in ofﬁ ce in accordance with 1 March 2009. section 270(2) of the Companies Act, 1973, of South Africa. In terms of article 15.2 of the articles of association, the following ACCOUNTING POLICIES directors appointed to the board with effect from 16 July 2009 and The accounting policies are consistent with those applied 23 February 2010, respectively, will retire and, being eligible, offer in the annual ﬁ nancial statements for the year ended themselves for re-election: • Mr CI Grifﬁ th • Ms N Langeni 31 December 2008. IFRS 8 Operating Segments and the amendments to IAS 1 Presentation of Financial Statements, issued in September 2008, The directors below are required to retire by rotation in terms of were early adopted during 2008. article 16.1 of the articles of association, and being eligible, offer themselves for re-election at the forthcoming annual general meeting: • Mr JJ Geldenhuys • Mr U Khumalo • Mr RP Mohring COMPANY SECRETARY The company secretary is MS Viljoen. The company secretary’s registered address is: Roger Dyason Road Pretoria West 0183 South Africa PO Box 9229 Pretoria 0001 South Africa 146 I Exxaro Annual Report 2009 DIRECTORS’ REMUNERATION This report on remuneration and related matters covers issues DIRECTORS’ SERVICE CONTRACTS which are the concern of the board as a whole, in addition to All executive directors’ normal contracts are subject to six calendar those which were dealt with by the transformation, human months’ notice. Non-executive directors are not bound by service resources, remuneration and nomination committee (TREMCO). contracts. REMUNERATION POLICY There are no restraints of trade associated with the contracts of TREMCO has a clearly deﬁ ned mandate from the board aimed at: executive directors. • ensuring that the company’s chairman, directors and senior executives are fairly rewarded for their individual contributions to The service contract of Mr DJ van Staden terminated on the company’s overall performance; and 28 February 2009. • ensuring that the company’s remuneration strategies and packages, including the incentive schemes, are related to performance, are suitably competitive and give due regard to the interests of the shareholders and the ﬁ nancial and commercial health of the company. Exxaro Annual Report 2009 I 147 DIRECTORS’ REMUNERATION CONTINUED SUMMARY OF REMUNERATION for the year ended 31 December 2009 Executive directors SA Nkosi WA de Klerk3 DJ van Staden4 Less: gains on share scheme Add: share-based payment expense Total remuneration paid by Exxaro Non-executive directors PM Baum5,6 JJ Geldenhuys CI Grifﬁ th5,7 U Khumalo Dr D Konar (chairman) VZ Mntambo RP Mohring SEA Mngomezulu8 NL Sowazi J van Rooyen D Zihlangu Basic salary R Fees for services R Performance bonuses1 R 4 051 228 2 232 764 489 511 6 773 503 2 373 637 1 708 603 308 427 4 390 667 123 720 379 440 76 850 184 440 570 000 247 440 469 440 184 440 240 737 274 440 247 440 2 998 387 1 All incentive schemes are performance related and were approved by the board. The three-tier short-term incentive scheme applies to all employees throughout the group. 2 Includes travel allowances. 3 Appointed on 1 March 2009. 4 Retired on 28 February 2009. 5 Fees paid to the respective employer and not the individual. 6 Resigned on 15 July 2009. 7 Appointed on 16 July 2009. 8 Resigned on 21 December 2009. Retirement amounts paid or received by executive directors are paid or received under deﬁ ned contribution retirement funds. 148 I Exxaro Annual Report 2009 Beneﬁ ts and allowances2 R Retirement fund contributions R Gains on management share option scheme R 1 644 031 368 187 217 551 51 117 636 855 1 644 031 135 713 215 838 426 980 778 531 35 241 19 693 11 696 66 630 Other R 4 728 2 843 529 8 100 Total R 6 933 493 6 021 630 1 276 564 14 231 687 (1 644 031) 3 288 279 15 875 935 123 720 414 681 76 850 184 440 570 000 247 440 489 133 184 440 240 737 274 440 259 136 3 065 017 Exxaro Annual Report 2009 I 149 DIRECTORS’ REMUNERATION CONTINUED SUMMARY OF REMUNERATION for the year ended 31 December 2008 Executive directors SA Nkosi MJ Kilbride4 DJ van Staden Less: gains on share scheme Add: share-based payment expense Total remuneration paid by Exxaro Non-executive directors PM Baum5 JJ Geldenhuys U Khumalo Dr D Konar (chairman) VZ Mntambo RP Mohring PKV Ncetezo6 NMC Nyembezi-Heita7 NL Sowazi D Zihlangu J van Rooyen8 SEA Mngomezulu8 Basic salary R Fees for services R Performance bonuses1 R Beneﬁ ts and allowances2 R Retirement fund contributions R 3 940 689 1 921 492 2 986 122 8 848 303 1 868 425 3 556 731 5 772 393 11 197 549 141 925 359 779 284 288 785 992 324 773 199 583 301 816 826 172 181 570 267 083 146 427 540 686 206 990 307 146 68 997 38 125 193 284 206 990 64 545 55 642 23 427 21 357 7 314 8 735 1 All incentive schemes are performance related and were approved by the board. The three-tier short-term incentive scheme applies to all employees 2 277 485 60 833 throughout the group. 2 Includes travel allowances. 3 Includes interest accrued on gains held in trust until vested. 4 Retired on 31 August 2008. 5 Fees paid to the respective employer and not the individual. 6 Retired on 30 April 2008. 7 Retired on 29 February 2008. 8 Appointed on 13 August 2008. Retirement amounts paid or received by executive directors are paid or received under deﬁ ned contribution retirement funds. 150 I Exxaro Annual Report 2009 Medical fund contributions R Gains on management share option scheme3 R Compensation on retirement from executive ofﬁ ce R 13 248 11 776 13 248 38 272 263 715 5 414 223 2 229 942 3 128 218 2 493 657 8 542 441 Other R 4 375 2 138 3 263 9 776 Total R 6 293 435 11 729 437 14 719 290 32 742 162 (2 493 657) 1 856 744 32 105 249 181 570 290 510 146 427 540 686 206 990 328 503 76 311 38 125 193 284 215 725 64 545 55 642 2 338 318 Exxaro Annual Report 2009 I 151 DIRECTORS’ REMUNERATION CONTINUED Directors’ beneﬁ cial interest in Exxaro shares at 31 December 2009 Director SA Nkosi WA de Klerk JJ Geldenhuys CI Grifﬁ th U Khumalo Dr D Konar (chairman) VZ Mntambo RP Mohring NL Sowazi J van Rooyen D Zihlangu Directors’ non-beneﬁ cial interest in Exxaro shares at 31 December 2009 Director SA Nkosi WA de Klerk JJ Geldenhuys CI Grifﬁ th U Khumalo Dr D Konar (chairman) VZ Mntambo RP Mohring NL Sowazi J van Rooyen D Zihlangu Direct Indirect 8 016 068 1 462 168 5 529 881 2 181 590 2 818 552 54 950 152 I Exxaro Annual Report 2009 Directors’ beneﬁ cial interest in Exxaro shares at 31 December 2008 Director SA Nkosi DJ van Staden PM Baum JJ Geldenhuys U Khumalo Dr D Konar SEA Mngomezulu VZ Mntambo RP Mohring NL Sowazi J van Rooyen D Zihlangu Direct Indirect 8 016 068 565 168 5 529 881 2 181 590 2 818 552 There has been no change to the interest of directors in share capital since the year-end. On 31 December 2009 Mr SA Nkosi held 2,3% (2008: 2,3%) and Mr MZ Mntambo held 1,6% (2008: 1,6%) directly or indirectly in the share capital of the company. No director held any non-beneﬁ cial interest in Exxaro shares at 31 December 2008. Exxaro Annual Report 2009 I 153 DIRECTORS’ REMUNERATION CONTINUED DIRECTORS’ SHARE OPTIONS AND RESTRICTED SHARE AWARDS The following options and rights in shares in the company were outstanding in favour of directors of the company under the company’s share option schemes: Management share option scheme for the year ended December 2009 Executive director WA de Klerk Options held at 31 December 2009 Exercise price R Exercisable period Proceeds if exercisable at 31 December 2009 R 3 230 29 130 8 750 13,62 12,90 19,62 16/03/2011 16/03/2011 22/04/2012 337 535 3 044 085 914 375 Total 41 110 4 295 995 1 Based on a share price of R104,50 which prevailed on 31 December 2009. Management share option scheme for the year ended December 2008 Executive director DJ van Staden Total Options held at 31 December 2008 12 440 12 440 Exercise price R Exercisable period 12,90 16/03/2011 Proceeds if exercisable at 31 December 2008 R 894 436 894 436 1 Based on a share price of R71,90 which prevailed on 31 December 2008. Management cash-settled options for the year ended December 2008 The cash-settled options represent phantom option awards made to executive directors and a number of senior managers as compensation for not being eligible to receive share option grants due to their involvement in the empowerment transaction. The phantom option awards also have a grant price, vesting periods and lapse periods as other share option awards but are classiﬁ ed as cash-settled since shares will not be issued when exercised. Options held at 31 December 2009 Exercise price R Exercisable period Proceeds if exercisable at 31 December 2009 R Executive director DJ van Staden 1 Based on a share price of R71,90 which prevailed on 31 December 2008. 154 I Exxaro Annual Report 2009 Options exercised during the year Exercise price R Sale price/market price R Pre-tax gain R Date exercised Pre-tax gain if exercisable at 31 December 20091 R 293 542 2 668 308 742 700 2 140 4 000 2 840 1 710 9 790 11,48 11,48 10,76 10,76 10,76 3 704 550 20 480 92,11 91,20 91,51 91,30 91,00 172 548 318 880 229 330 137 723 785 550 1 644 031 26/10/2009 26/10/2009 26/10/2009 26/10/2009 26/10/2009 Options exercised during the year Exercise price R Sale price/market price R Pre-tax gain R Date exercised Pre-tax gain if exercisable at 31 December 20081 R 733 960 733 960 Pre-tax gain if exercisable at 31 December 20091 R Options exercised during the year Exercise price R Sale price/market price R Pre-tax gain R Date exercised 17 550 19,62 136,00 2 042 469 13/06/2008 Exxaro Annual Report 2009 I 155 DIRECTORS’ REMUNERATION CONTINUED Management share appreciation right scheme for the year ended December 2009 Executive director SA Nkosi WA de Klerk Rights held at 31 December 2009 Exercise price R Exercisable period 38 680 41 780 67 430 147 890 19 330 16 410 37 760 73 500 60,60 112,35 67,07 60,60 112,35 67,07 01/03/2014 01/04/2015 01/04/2016 01/03/2014 01/04/2015 01/04/2016 1 Based on a share price of R104,50 which prevailed on 31 December 2009. It is assumed that directors will not exercise rights which are out of the money. Management share appreciation right scheme for the year ended December 2008 Executive director SA Nkosi Rights held at 31 December 2009 38 680 41 780 80 460 Exercise price R Exercisable period 60,60 112,35 01/03/2014 01/04/2015 1 Based on a share price of R71,90 which prevailed on 31 December 2008. It is assumed that directors will not exercise rights which are out of the money. Management share scheme – long-term incentive plan for the year ended December 2009 Executive director SA Nkosi WA de Klerk Rights held at 31 December 2009 Exercise price R Exercisable period 38 682 41 782 67 438 147 902 19 334 16 418 37 764 73 516 01/03/2010 01/04/2011 01/04/2012 01/03/2010 01/04/2011 01/04/2012 Proceeds if exercisable at 31 December 2009 R 4 042 060 7 046 435 11 088 495 2 019 985 3 945 920 5 965 905 Proceeds if exercisable at 31 December 2009 R 2 781 092 2 781 092 Proceeds if exercisable at 31 December 2009 R 4 042 269 4 366 219 7 047 271 15 455 759 2 020 403 1 715 681 3 946 338 7 682 422 1 Based on a share price of R104,50 which prevailed on 31 December 2009. 156 I Exxaro Annual Report 2009 Pre-tax gain if exercisable at 31 December 20091 R Options exercised during the year Exercise price R Sale price/market price R Pre-tax gain R Date exercised 1 698 052 2 523 905 4 221 957 848 587 1 413 357 2 261 944 Pre-tax gain if exercisable at 31 December 20091 R 437 084 437 084 Pre-tax gain if exercisable at 31 December 20091 R 4 042 269 4 366 219 7 047 271 15 455 759 2 020 403 1 715 681 3 946 338 7 682 422 Options exercised during the year Exercise price R Sale price/market price R Pre-tax gain R Date exercised Options exercised during the year Exercise price R Sale price/market price R Pre-tax gain R Date exercised Exxaro Annual Report 2009 I 157 DIRECTORS’ REMUNERATION CONTINUED Management share scheme – long-term incentive plan for the year ended December 2008 Executive director SA Nkosi Rights held at 31 December 2009 38 682 41 782 80 464 Exercise price R Exercisable period 01/03/2010 01/04/2011 Proceeds if exercisable at 31 December 2009 R 2 781 236 3 004 126 5 785 362 1 Based on a share price of R71,90 which prevailed on 31 December 2008. Management share scheme – deferred bonus plan for the year ended December 2009 Rights held at 31 December 2009 Exercise price R Exercisable period Proceeds if exercisable at 31 December 2009 R Executive director SA Nkosi WA de Klerk 361 718 2 573 213 2 315 6 620 466 13 266 212 542 1 398 182 1 644 3 000 326 7 304 86,45 111,88 111,88 89,61 68,63 65,58 91,08 86,45 111,88 111,88 89,61 68,63 65,58 91,08 01/10/2010 01/04/2011 01/04/2011 01/10/2011 01/04/2012 04/05/2012 01/10/2012 01/10/2010 01/04/2011 01/04/2011 01/10/2011 01/04/2012 04/05/2012 01/10/2012 1 Based on a share price of R104,50 which prevailed on 31 December 2009. It is assumed that directors will not exercise rights which are out of the money. Management share scheme – deferred bonus plan for the year ended December 2008 Executive director SA Nkosi Rights held at 31 December 2009 361 718 2 573 213 3 865 Exercise price R 86,45 111,88 111,88 89,61 Exercisable period 01/10/2010 04/01/2011 01/04/2011 01/10/2011 1 Based on a share price of R71,90 which prevailed on 31 December 2008. It is assumed that directors will not exercise rights which are out of the money. 158 I Exxaro Annual Report 2009 37 725 22 259 241 918 691 790 48 697 1 042 389 22 154 19 019 171 798 313 500 34 067 560 538 Proceeds if exercisable at 31 December 2009 R Options exercised during the year Exercise price R Sale price/market price R Pre-tax gain R Date exercised Pre-tax gain if exercisable at 31 December 20091 R 2 781 236 3 004 126 5 785 362 Pre-tax gain if exercisable at 31 December 20091 R Options exercised during the year Exercise price R Sale price/market price R Pre-tax gain R Date exercised 6 515 3 172 83 044 257 633 6 252 356 616 3 826 2 710 58 974 116 752 4 374 186 636 Pre-tax gain if exercisable at 31 December 20091 R Options exercised during the year Exercise price R Sale price/market price R Pre-tax gain R Date exercised Exxaro Annual Report 2009 I 159 INCOME STATEMENTS AND STATEMENTS OF COMPREHENSIVE INCOME for the year ended 31 December 2009 Revenue Operating (expenses)/income NET OPERATING PROFIT/(LOSS) Interest income Interest expense Income from investments Income from equity-accounted investments PROFIT BEFORE TAX Income tax expense PROFIT FOR THE YEAR Proﬁ t attributable to: Owners of the parent Non-controlling interests GROUP COMPANY Notes 2 3 5 5 6 14 7 2009 Rm 15 009 (14 705) 304 145 (560) 2 1 898 1 789 (766) 1 023 1 023 1 023 2008 Rm 13 843 (11 376) 2 467 153 (394) 2 1 663 3 891 (510) 3 381 3 405 (24) 3 381 2009 Rm 1 009 (4 320) (3 311) 51 (390) 6 731 3 081 (2) 3 079 2008 Rm 915 758 1 673 50 (169) 1 319 2 873 7 2 880 3 079 2 880 3 079 2 880 STATEMENTS OF COMPREHENSIVE INCOME PROFIT FOR THE YEAR OTHER COMPREHENSIVE INCOME: Exchange differences on translating foreign operations Cash ﬂ ow hedges Share of comprehensive income of associates Share-based payment movement Income tax relating to components of other comprehensive income Net (loss)/gain recognised in other comprehensive income for the year, net of tax 26 TOTAL COMPREHENSIVE INCOME FOR THE YEAR Total comprehensive income attributable to: Owners of the parent Non-controlling interests ATTRIBUTABLE EARNINGS PER SHARE (CENTS) 8 – basic – diluted 1 023 3 381 3 079 2 880 (35) (474) 8 118 142 (241) 782 919 (137) 782 297 286 193 520 187 92 (115) 877 4 258 4 117 141 4 258 993 943 3 83 9 95 3 174 (3) 66 63 2 943 3 174 2 943 3 174 2 943 160 I Exxaro Annual Report 2009 STATEMENTS OF FINANCIAL POSITION for the year ended 31 December 2009 GROUP COMPANY Notes 2009 Rm 2008 Rm 2009 Rm ASSETS Non-current assets Property, plant and equipment Biological assets Intangible assets Investments in associates and joint ventures Investments in subsidiaries Deferred tax Financial assets Total non-current assets Current assets Inventories Trade and other receivables Current tax receivable Cash and cash equivalents Total current assets Non-current assets classiﬁ ed as held for sale TOTAL ASSETS EQUITY AND LIABILITIES Capital and reserves Share capital and premium Other components of equity Retained earnings Equity attributable to owners of the parent Non-controlling interests Total equity Non-current liabilities Interest-bearing borrowings Non-current provisions Financial liabilities Deferred tax Total non-current liabilities Current liabilities Trade and other payables Interest-bearing borrowings Current tax payable Current provisions Total current liabilities Non-current liabilities classiﬁ ed as held for sale TOTAL EQUITY AND LIABILITIES NET DEBT 11 12 13 14 15 23 16 17 18 19 20 21 22 27 23 24 21 22 19 11 869 11 309 41 87 34 79 1 966 1 849 629 1 217 15 809 3 133 3 121 57 1 023 7 334 86 1 083 1 577 15 931 2 481 2 924 2 1 769 7 176 78 23 229 23 185 2 141 2 046 8 721 12 908 1 12 909 4 347 1 853 75 995 7 270 2 510 407 57 27 3 001 49 23 229 3 731 2 098 2 190 8 708 12 996 128 13 124 3 650 1 746 31 1 257 6 684 2 366 500 440 21 3 327 50 23 185 2 381 2008 Rm 176 6 157 104 41 6 478 5 073 478 5 551 13 12 042 2 276 946 5 025 8 247 240 10 6 668 87 11 7 016 7 090 14 343 7 447 18 14 481 2 318 1 041 7 038 10 397 10 397 8 247 3 335 28 2 708 24 31 3 363 2 763 359 362 817 205 10 721 1 032 14 481 3 354 12 042 2 435 Exxaro Annual Report 2009 I 161 STATEMENT OF CASH FLOWS for the year ended 31 December 2009 GROUP COMPANY Notes 2009 Rm 2008 Rm CASH FLOWS FROM OPERATING ACTIVITIES Cash generated by/(utilised in) operations Net ﬁ nancing costs Tax paid Dividends paid CASH FLOWS FROM INVESTING ACTIVITIES Investments to maintain operations Investments to expand operations Investment in intangible assets Proceeds from disposal of property, plant and equipment Investment in other non-current assets Acquisition of joint ventures and associates Acquisition of subsidiaries and other business operations Income from equity-accounted investments Income from investments Foreign currency translations 25.1 25.2 25.3 25.4 25.5 25.6 25.7 25.8 25.9 25.10 2 117 (381) (892) (1 050) (206) (992) (990) (19) 11 (1 090) 1 752 2 (88) (1 414) 3 574 (193) (487) (984) 1 910 (1 147) (470) 29 (179) (221) (2 757) 1 042 2 (55) (3 756) NET CASH OUTFLOW (1 620) (1 846) 2009 Rm (788) (337) (1 066) (2 191) (88) (19) 2008 Rm (140) (117) 18 (973) (1 212) (61) (2) (795) (50) 2 131 1 1 230 (961) 1 319 1 1 207 (5) CASH FLOWS FROM FINANCING ACTIVITIES Non-current interest-bearing borrowings raised Net movement of other non-current interest-bearing borrowings Non-current interest-bearing borrowings repaid Current interest-bearing borrowings (repaid)/raised Proceeds from issuance of share capital Increase in loans from non-controlling interests NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of year CASH AND CASH EQUIVALENTS AT END OF YEAR CALCULATION OF MOVEMENT IN NET DEBT: Net cash outﬂ ow as above Add: – shares issued – loans from non-controlling interests – non-cash ﬂ ow movements in net debt applicable to currency translation differences of transactions denominated in foreign currency – non-cash ﬂ ow movements in net debt applicable to currency translation differences of net debt items of foreign entities – hedging of share-base payment exposure 1 572 2 725 1 301 2 463 (674) 157 42 (2 113) (355) 150 32 826 177 (135) 478 343 172 306 478 (658) (93) 43 10 874 (746) 1 769 1 023 (418) 426 31 1 2 765 919 850 1 769 (1 620) (1 846) 43 10 31 1 340 (352) 25.10 (123) 282 (14) INCREASE IN NET DEBT (1 350) (1 898) 162 I Exxaro Annual Report 2009 GROUP STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2009 Other components of equity Foreign currency trans- lations Rm Financial instru- ments re- valuation Rm Equity- settled reserve Rm Retained income Rm Attribu- table to owners of the parent Rm Non- con- trolling interests Rm Total equity Rm Share capital Rm Share premium Rm 4 2 063 527 437 7 138 968 113 6 235 9 804 19 9 823 3 429 4 117 141 4 258 31 31 2 1 1 31 2 1 (957) (957) (7) (27) (7) (984) 4 2 094 964 (162) 43 145 1 081 8 708 12 996 128 13 124 (142) 160 1 063 (137) 919 43 782 43 (1 050) (1 050) (1 050) 10 10 4 2 137 802 3 1 241 8 721 12 908 1 12 909 OPENING BALANCE AT 1 JANUARY 2008 Total comprehensive income Issue of share capital Non-controlling interests additional contributions Liquidation dividend from subsidiary Net proﬁ t on dilution of interest in a subsidiary Dividends paid BALANCE AT 31 DECEMBER 2008 Total comprehensive income Issue of share capital1 Non-controlling interests additional contributions Dividends paid2 BALANCE AT 31 DECEMBER 2009 Dividend paid per share (cents) in respect of the 2008 ﬁ nancial year Dividend paid per share (cents) in respect of the 2009 interim period Final dividend payable per share (cents) in respect of 2009 ﬁ nancial year 375 100 100 1 Issued to the Kumba Resources Management Share Trust due to options exercised. 2 The STC on these dividends amount to Rnil after taking into account STC credits (2008: Rnil). Foreign currency translation reserve The foreign currency translation reserve comprises all foreign exchange differences arising from the translation of the ﬁ nancial statements of foreign entities that are not integral to the operations of the group. Financial instruments revaluation reserve The ﬁ nancial instruments revaluation reserve comprises the effective portion of the cumulative net change in the fair value of cash ﬂ ow hedging instruments where the hedged transaction has not yet occurred. Equity-settled reserve The equity-settled reserve represents the fair value of services received and settled by equity instruments granted. Exxaro Annual Report 2009 I 163 COMPANY STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2009 Other components of equity Foreign currency trans- lations Rm (3) (3) 3 Share capital Rm Share premium Rm 4 2 240 32 4 2 272 42 4 2 314 Equity- settled reserve Rm Retained income Rm Total equity Rm 883 3 118 6 245 66 2 880 2 943 (973) (973) 32 949 5 025 8 247 92 3 079 3 174 (1 066) (1 066) 42 1 041 7 038 10 397 375 100 100 OPENING BALANCE AT 1 JANUARY 2008 Total comprehensive income Cash dividends paid Issue of share capital BALANCE AT 31 DECEMBER 2008 Total comprehensive income Cash dividends paid1 Issue of share capital2 BALANCE AT 31 DECEMBER 2009 Dividend paid per share (cents) in respect of the 2008 ﬁ nancial year Dividend paid per share (cents) in respect of the 2009 interim period Final dividend payable per share (cents) in respect of 2009 ﬁ nancial year 1 The STC on these dividends amount to Rnil after taking into account STC credits (2008: Rnil). 2 Issued to the Kumba Resources Management Share Trust due to options exercised. 164 I Exxaro Annual Report 2009 NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 31 December 2009 1. ACCOUNTING POLICIES Principal accounting policies The principal accounting policies of the group and the On 22 May 2008, the International Accounting Standards Board issued its latest standard, titled Improvements to Financial Reporting Standards 2008. The standard included disclosures made in the annual ﬁ nancial statements comply 35 amendments to various standards. These standards have with International Financial Reporting Standards effective for been applied, where relevant, to the ﬁ nancial statements for the group’s ﬁ nancial year. the period ended 31 December 2009: The ﬁ nancial statements are prepared on the historical cost for annual periods beginning on or after 1 January 2009 basis, except for the revaluation to fair value of ﬁ nancial • Amended IAS 19 Employee Beneﬁ ts, effective for annual instruments and biological assets. Where comparative periods beginning on or after 1 January 2009 ﬁ nancial information is reported, the accounting policies have • Amended IAS 20 Accounting for Government Grants and been applied consistently for all periods. Disclosure of Government Assistance, effective for annual • Amended IAS 16 Property, Plant and Equipment, effective periods beginning on or after 1 January 2009 Adoption of new and revised standards and • Amended IAS 27 Consolidated and Separate Financial interpretations Statements, effective for annual periods beginning on or The following standards and interpretations have been after 1 January 2009 applied, where relevant, to the ﬁ nancial statements for the • Amended IAS 28 Investments in Associates, effective for period ended 31 December 2009: annual periods beginning on or after 1 January 2009 • Amended IFRS 2 Share-based Payments, effective for • Amended IAS 29 Financial Reporting in Hyperinﬂ ationary annual periods beginning on or after 1 January 2009 Economies, effective for annual periods beginning on or • IFRS 7 Financial Instruments: Disclosures, effective for after 1 January 2009 periods beginning on or after 1 January 2009 • Amended IAS 31 Interests in Joint Ventures, effective for • Amended IAS 1 Presentation of Financial Statements, annual periods beginning on or after 1 January 2009 effective for annual periods beginning on or after 1 January • Amended IAS 32 Financial Instruments: Presentation, 2009, amendments relating to disclosure of puttable effective for annual periods beginning on or after instruments and obligations arising on liquidation 1 January 2009 • Amended IAS 18 Revenue, effective for annual periods • Amended IAS 36 Impairment of Assets, effective for annual beginning on or after 1 January 2009 periods beginning on or after 1 January 2009 • Revised IAS 23 Borrowing Costs, effective for annual • Amended IAS 38 Intangible Assets, effective for annual periods beginning on or after 1 January 2009 periods beginning on or after 1 January 2009 • IFRIC 13 Customer Loyalty Programmes, effective for • Amended IAS 39 Financial Instruments: Recognition and annual periods beginning on or after 1 July 2008 Measurement, effective from 1 January 2009 • IFRIC 15 Agreements for the Construction of Real • Amended IAS 40 Investment Property, effective for annual Estate, effective for annual periods beginning on or after periods beginning on or after 1 January 2009 1 January 2009 • Amended IAS 41 Agriculture, effective for annual periods • IFRIC 16 Hedges of Net Investment in a Foreign Operation, beginning on or after 1 January 2009. effective for annual periods beginning on or after 1 October 2008 These amendments did not have a signiﬁ cant impact on the • Circular 3/2009 Headline Earnings, effective for reports measurement or disclosure and presentation of items included issued on or after 31 August 2009. in the ﬁ nancial statements. The adoption of the amendments to IFRS 7 resulted in The following standards were early adopted during 2008 and additional disclosures regarding fair value measurements and have been applied, where relevant, to the ﬁ nancial statements liquidity risks. Adoption of the other new or revised standards for the years ended 31 December 2008 and 31 December did not have a signiﬁ cant impact on the measurement or 2009: disclosure and presentation of items included in the ﬁ nancial • IFRS 8 Operating Segments, effective for annual periods statements. beginning on or after 1 January 2009. Exxaro Annual Report 2009 I 165 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 1. ACCOUNTING POLICIES (continued) • Amended IAS 36 Impairment of Assets, effective for annual Adoption of new and revised standards and interpretations (continued) • Revised IAS 1 Presentation of Financial Statements, effective for annual periods beginning on or after 1 January 2009, revision requiring a statement of comprehensive income. The implementation of IFRS 8 led to differences in the basis of segmentation compared to previous periods. As a result, new operating segments were identiﬁ ed. IAS 1 and IFRS 8 are disclosure standards and have no other impact on the measurement or recognition of items included in the ﬁ nancial statements and accordingly the adoption thereof has had no effect on the proﬁ t or equity for 2008 or 2009. At the date of authorisation of these ﬁ nancial statements, the following standards and interpretations were in issue but not yet effective: • Amended IFRS 1 First-time Adoption of International Financial Reporting, effective for annual periods beginning on or after 1 July 2009 • Amended IFRS 2 Share-based Payments resulting from April 2009 Annual improvements to IFRS, effective for annual periods beginning on or after 1 July 2009 • Amended IFRS 2 Share-based Payments, effective for annual periods beginning on or after 1 January 2010 • Revised IFRS 3 Business Combinations, effective for annual periods beginning on or after 1 July 2009 • Amended IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, effective for annual periods beginning on or after 1 July 2009 • Amended IFRS 8 Operating Segments, effective for annual periods beginning on or after 1 January 2010 • IFRS 9 Financial instruments – Classiﬁ cation and Measurement, effective for annual periods beginning on or after 1 January 2013 • Amended IAS 1 Presentation of Financial Statements, for annual periods beginning on or after effective 1 January 2010 • Amended IAS 7 Statement of Cash Flows, effective for annual periods beginning on or after 1 January 2010 • Amended IAS 17 Leases, effective for annual periods beginning on or after 1 January 2010 • Amended IAS 24 Related Party Disclosures, effective for annual periods beginning on or after 1 January 2011 • Revised IAS 27 Consolidated and Separate Financial Statements, effective for annual periods beginning on or after 1 July 2009 • Revised IAS 28 Investments in Associates, effective for annual periods beginning on or after 1 July 2009 • Revised IAS 31 Interests in Joint Ventures, effective for annual periods beginning on or after 1 July 2009 • Amended IAS 32 Financial Instruments: Presentation, for annual periods beginning on or after effective 1 February 2010 166 I Exxaro Annual Report 2009 periods beginning on or after 1 January 2010 • Amended IAS 38 Intangible Assets, effective for annual periods beginning on or after 1 January 2010 • Amended IAS 39 Financial Instruments: Recognition and Measurement, effective from 1 July 2009 • Amended IAS 39 Financial Instruments: Recognition and Measurement, effective for annual periods ending on or after 30 June 2009 • Amended IAS 39 Financial Instruments: Recognition and Measurement amendments resulting from 1 April 2009 Annual Improvements to IFRS, effective for annual periods beginning on or after 1 January 2010 • Amended IFRIC 9 Reassessment of Embedded Derivatives, for annual periods beginning on or after effective 1 July 2009 • IFRIC 14 IAS 19 The limit on a Deﬁ ned Beneﬁ t Asset, Minimum Funding Requirements and their Interaction, effective for annual periods beginning on or after 1 January 2011 • IFRIC 17 Distributions of Non-cash Assets to Owners, for annual periods beginning on or after effective 1 July 2009 • IFRIC 18 Transfers of Assets from Customers, effective from 1 July 2009. • IFRIC 19 Extinguishing Liabilities with Equity Instruments, effective for annual periods on or after 1 January 2011. Financial The adoption of IFRS 3, together with IAS 27, IAS 28 and IAS 31 will have a signiﬁ cant impact on the accounting and disclosure of business combinations and the accounting for the carrying value of investments on partial disposals of investments for transactions effected on or after the effective date. The adoption of the amended IFRS 2 will result in different treatment of share-based payment transactions in the accounts of the group’s subsidiaries, but will have no impact on the group’s treatment of share-based payments. The directors believe that none of the other new or revised standards and interpretations will have an effect other than enhanced disclosure. Basis of consolidation The group annual ﬁ nancial statements present the consolidated ﬁ nancial position and changes therein, operating results and cash ﬂ ow information of the company and its subsidiaries. Subsidiaries are those entities in which the group has an interest of more than half of the voting rights or the power to exercise control so as to obtain beneﬁ ts from their activities. The results of subsidiaries are included for the duration of the period in which the group exercises control over the subsidiary. All intercompany transactions and resultant proﬁ ts or losses between group companies are eliminated on consolidation. 1. ACCOUNTING POLICIES (continued) Where necessary, accounting policies for subsidiaries are changed to ensure consistency with the policies adopted by the group. If it is not practical to change the policies, the appropriate adjustments are made on consolidation to ensure consistency within the group. The results of special purpose entities that, in substance, are controlled by the group, are consolidated. The company carries its investments in subsidiaries at cost less accumulated impairment losses. Goodwill Goodwill is reﬂ ected at cost less accumulated impairment losses, if any. It represents the excess of the cost of a business combination over the fair value of the group’s share of the identiﬁ able net assets and contingent liabilities of that entity at the date of acquisition. Goodwill is assessed for impairment on an annual basis. The gain or loss on disposal of an entity includes the balance of goodwill relating to the entity. Negative goodwill arising on a business combination represents the excess of the fair value of the net identiﬁ able assets and contingent liabilities of the entity acquired over the cost of acquisition, and is recognised immediately in proﬁ t or loss. Investments in associates and joint ventures The company carries its investments in associates and joint ventures at cost less accumulated impairment losses. An associate is an entity over which the group has the ability to exercise signiﬁ cant inﬂ uence, but which it does not control. A joint venture is an entity jointly controlled by the group and one or more other venturers in terms of a contractual arrangement requiring unanimous consent for strategic ﬁ nancial and operating decisions. It may involve a corporation, partnership or other entity in which the group has an interest. Investments in associates are accounted for in the group ﬁ nancial statements using the equity method for the duration of the period in which the group has the ability to exercise signiﬁ cant inﬂ uence. Equity-accounted income represents the group’s proportionate share of proﬁ ts of these entities and the share of tax thereon. The retained earnings of an associate, net of any dividends, are classiﬁ ed as distributable reserves. Where the group’s share of losses of an associate exceeds the carrying amount of the associate, the investment in the associate is carried at nil value. Additional losses are only recognised to the extent that the group has incurred further funding obligations or provided guarantees or sureties in respect of the associate. Investments in joint ventures are accounted for in the group ﬁ nancial statements using the proportionate consolidation method. Where necessary, the results of associates and joint ventures are restated to ensure consistency with group policies. Unrealised proﬁ ts and losses are eliminated. The group’s interest in associates and joint ventures is carried in the statement of ﬁ nancial position at an amount that reﬂ ects its share of the net assets and the unimpaired portion of goodwill on acquisition. Goodwill on the acquisition of associates and joint ventures is treated in accordance with the group’s accounting policy for goodwill. Property, plant and equipment Land and extensions under construction are stated at cost and are not depreciated. Buildings, including certain non- mining residential buildings and all other items of property, plant and equipment are reﬂ ected at cost less accumulated depreciation and accumulated impairment losses. Depreciation is charged on a systematic basis over the estimated useful lives of the assets after taking into account the estimated residual value of the assets. Useful life is either the period of time over which the asset is expected to be used or the number of production or similar units expected to be obtained from the use of the asset. Moulds and refractory furnace relines are depreciated based on the usage thereof. Items of property, plant and equipment are capitalised in components where components have a different useful life to the main item of property, plant and equipment to which the component can be logically assigned. The estimated useful lives of assets and their residual values are re-assessed periodically with any changes in such accounting estimates being adjusted in the ﬁ nancial year of re-assessment and applied prospectively. Exxaro Annual Report 2009 I 167 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 1. ACCOUNTING POLICIES (continued) Property, plant and equipment (continued) The estimated useful lives of items of property, plant and equipment are: 2009 Coal Mineral sands Buildings and infrastructure (including residential buildings) Mineral properties Fixed plant and equipment Mobile equipment, built-in process computers, underground mining equipment and reconditionable spares Loose tools and computer equipment Development costs Refractory relines Site preparation, mining development and exploration 2 – 25 years 2 – 25 years 2 – 25 years 13 000 – 40 000 hours or 1 – 14 years 1 – 5 years 8 – 20 years n/a 0 – 25 years 3 – 40 years 3 – 29 years 1 – 30 years 3 – 25 years 3 – 15 years 10 – 20 years 4 – 6 years 3 – 29 years Base metals Industrial minerals Other Buildings and infrastructure (including residential buildings) Mineral properties Fixed plant and equipment Mobile equipment, built-in process computers, underground mining equipment and reconditionable spares Loose tools and computer equipment Development costs Refractory relines Site preparation, mining development and exploration 2 years – indeﬁ nite n/a 2 – 50 years 2 – 15 years 2 – 8 years n/a n/a 7 – 25 years 10 – 25 years n/a 5 – 25 years 5 – 15 years 5 years n/a n/a 20 years 20 – 25 years n/a 5 – 10 years 2 – 5 years 3 – 5 years n/a n/a 6 years 2008 Coal Mineral sands Buildings and infrastructure (including residential buildings) Mineral properties Fixed plant and equipment Mobile equipment, built-in process computers, underground mining equipment and reconditionable spares Loose tools and computer equipment Development costs Refractory relines Site preparation, mining development and exploration 2 – 25 years 2 – 25 years 2 – 25 years 16 000 – 40 000 hours or 2 – 16 years 2 – 10 years 8 – 20 years n/a 2 – 25 years 3 – 40 years 3 – 29 years 2,5 – 29 years 2,5 – 20 years 2,5 – 10 years 4 – 10 years 4 – 6 years 3 – 29 years Base metals Industrial minerals Other Buildings and infrastructure (including residential buildings) Mineral properties Fixed plant and equipment Mobile equipment, built-in process computers, underground mining equipment and reconditionable spares Loose tools and computer equipment Development costs Refractory relines Site preparation, mining development and exploration 2 years – indeﬁ nite n/a 2 – 50 years 2 – 15 years 2 – 8 years n/a n/a 7 – 25 years 10 – 25 years n/a 5 – 25 years 5 – 15 years 5 years n/a n/a 20 years 20 – 25 years n/a 5 – 10 years 5 years 3 – 5 years n/a n/a 6 years 168 I Exxaro Annual Report 2009 1. ACCOUNTING POLICIES (continued) For a sale and leaseback transaction that results in a ﬁ nance Maintenance and repairs which neither materially add to the lease, any excess of sales proceeds over the carrying amount value of assets nor appreciably prolong their useful lives are is deferred and recognised on the straight-line basis over the taken to proﬁ t or loss. period of the lease. Direct attributable expenses relating to mining and other Leases of assets to the group under which all the risks and major capital projects, site preparations and exploration are beneﬁ ts of ownership are effectively retained by the lessor, capitalised until the asset is brought to a working condition are classiﬁ ed as operating leases. Payments made under for its intended use. These costs include dismantling and site operating leases are charged against income on the straight- restoration costs to the extent that these are recognised as a line basis over the period of the lease. provision. Financing costs directly associated with the construction evaluated for recognition, classiﬁ cation as a ﬁ nance or or acquisition of qualifying assets are capitalised at interest operating lease, measured and accounted for accordingly. Arrangements that contain the right to use an asset are rates relating to loans speciﬁ cally raised for that purpose, or at the average borrowing rate where the general pool of group Biological assets borrowings was utilised. Capitalisation of borrowing costs Biological assets are measured on initial recognition and at ceases when the asset is substantially complete. each ﬁ nancial year-end at their fair value less estimated point- Directly attributable costs associated with the acquisition, proﬁ t or loss for the period in which it arises. Plantations development and installation of certain software are capitalised. are measured at their fair value less estimated point-of-sale Such assets are depreciated using the amortisation methods costs. The fair value of the plantations is determined by an and periods applicable to computer equipment. independent appraiser, based on the Faustman Formula as of-sale costs and any change in value is included in the net Gains and losses on the disposal of property, plant and fair value less estimated point-of-sale costs, fair value being equipment are taken to proﬁ t or loss. determined by the age and size of the animals and the market applied within the forestry industry. Livestock is measured at Leased assets price. Market price is determined on the basis that the animal is sold to be slaughtered. Livestock held for sale is classiﬁ ed Leases involving plant and equipment whereby the lessor as consumable biological assets (inventories). Game is provides ﬁ nance to the group with the asset as security and measured at fair value less estimated point-of-sale costs, where the group assumes substantially all the beneﬁ ts and fair value being determined as the market price. Market price risks of ownership, are classiﬁ ed as ﬁ nance leases. Assets is determined with reference to the most recent live auction acquired in terms of ﬁ nance leases are capitalised at the selling prices. Game held for sale is classiﬁ ed as consumable lower of fair value and the present value of the minimum lease biological assets (inventories). payments at inception of the lease and depreciated over the useful life of the asset. The capital element of future obligations Intangible assets under the leases is included as a liability in the statement of An intangible asset is recognised at cost if it is probable ﬁ nancial position. Each lease payment is allocated between that future economic beneﬁ ts will ﬂ ow to the enterprise and the liability and ﬁ nance charges so as to achieve a constant the cost can be reliably measured. Amortisation is charged rate on the ﬁ nance balance outstanding. The interest element on a systematic basis over the estimated useful lives of the of the ﬁ nance charge is charged against income over the intangible assets. lease period using the effective interest rate method. Exxaro Annual Report 2009 I 169 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 1. ACCOUNTING POLICIES (continued) the carrying amount of the cash-generating unit exceeds its Intangible assets (continued) recoverable amount. Subsequent expenditure on capitalised intangible assets is capitalised only if it increases the future beneﬁ ts embodied in A previously recognised impairment loss is reversed if there the speciﬁ c asset to which it relates. has been a change in the estimates used to determine the Intangible assets with ﬁ nite useful lives are amortised on the carrying amount that would have been determined (net the straight-line basis over their estimated useful lives. The of depreciation) had no impairment loss been recognised in amortisation methods and estimated remaining useful lives prior years. For goodwill a recognised impairment loss is not are reviewed at least annually. reversed. recoverable amount, however not to an amount higher than The estimated maximum useful lives of intangible assets in Financial instruments respect of patents, licences and franchises are 25 years. The Recognition carrying amounts are reviewed at each ﬁ nancial year-end to A ﬁ nancial instrument is recognised when the group becomes determine whether there is any indication of impairment. a party to a contract which entitles it to receive contractually Research, development and exploration costs ﬁ nancial assets that require delivery within the timeframe Research, development and exploration costs are charged established by regulation or market convention (regular-way against income until they result in projects that are evaluated purchases) are recognised at trade date, which is the date on as being technically or commercially feasible, the group which the group commits to acquire the asset. agreed cash ﬂ ows on the instrument. All acquisitions of has sufﬁ cient resources to complete development and can demonstrate how the asset will generate future economic Derecognition beneﬁ ts, in which event these costs are capitalised and The group derecognises a ﬁ nancial asset when the contractual amortised on the straight-line basis over the estimated useful rights to the cash ﬂ ows from the asset expire, or when it life of the project or asset. The carrying amounts are reviewed transfers the rights to receive the contractual cash ﬂ ows on at each ﬁ nancial year-end to determine whether there is any the ﬁ nancial asset in a transaction in which substantially all indication of impairment. Impairment of assets the risks and rewards of ownership of the ﬁ nancial assets are transferred. Any interest in ﬁ nancial assets transferred that is created or retained by the group is recognised as a separate The carrying amounts of assets are reviewed at each ﬁ nancial asset or liability. year-end to determine whether there is any indication of impairment. If any such indication exists, the recoverable The group may enter into transactions whereby it transfers amount is estimated as the higher of the net selling price and assets recognised on its statement of ﬁ nancial position, but the value in use. retains either all risks and rewards of the transferred assets or a portion of them. If all, or substantially all, risks and rewards In assessing value in use, the expected future cash ﬂ ows are are retained, then the transferred assets are not derecognised discounted to their present value using a pre-tax discount rate from the statement of ﬁ nancial position. that reﬂ ects current market assessments of the time value of money and the risks speciﬁ c to the asset. An impairment loss The rights and obligations retained in the transfer of ﬁ nancial is recognised whenever the carrying amount exceeds the instruments are recognised separately as assets and liabilities recoverable amount. as appropriate. In transfers where control over the asset is retained, the group continues to recognise the asset to the For an asset that does not generate cash inﬂ ows largely extent of its continuing involvement, determined by the extent independent of those from other assets, the recoverable to which it is exposed to changes in the value of the transferred amount is determined for the cash-generating unit to which asset. the asset belongs. An impairment loss is recognised whenever 170 I Exxaro Annual Report 2009 1. ACCOUNTING POLICIES (continued) sale ﬁ nancial assets are classiﬁ ed as such because they Financial instruments (continued) Non-derivative ﬁ nancial instruments do not fall within the classiﬁ cation of loans and receivables, held to maturity investments or ﬁ nancial assets at fair value Non-derivative ﬁ nancial instruments comprise investments in through proﬁ t or loss. Gains or losses on available-for-sale equity and debt instruments, trade and other payables, cash ﬁ nancial assets are recognised directly in equity, except for and cash equivalents, loans and borrowings and trade and impairment losses and foreign exchange gains and losses on other receivables. monetary items. When the ﬁ nancial asset is derecognised, the cumulative gain or loss previously recognised in equity is Non-derivative ﬁ nancial instruments are recognised initially recognised in proﬁ t or loss. at fair value plus, in the case where ﬁ nancial instruments are not fair valued through proﬁ t or loss, any directly attributable Financial instruments not at fair value through proﬁ t or loss, transaction costs. Subsequent to initial recognition, non- and not available-for-sale derivative ﬁ nancial instruments are measured as described • Receivables below. Long-term receivables and trade and other receivables are measured at amortised cost using the effective interest Cash and cash equivalents comprise cash balances and call method. Effective interest rate method is a method of deposits. Bank overdrafts that are repayable on demand form calculating the amortised cost of a ﬁ nancial asset or liability an integral part of the group’s cash management system and (or group of ﬁ nancial assets or ﬁ nancial liabilities) and are included as a component of cash and cash equivalents allocating the interest income or interest expense over the for purposes of the cash ﬂ ow statements. Cash and cash relevant period. Amortised cost is the amount at which the equivalents are measured at amortised cost. long-term receivables and trade and other receivables are measured at initial recognition, minus principal repayments, Financial instruments at fair value through proﬁ t or loss plus or minus the cumulative amortisation using the effective The group has designated ﬁ nancial assets and liabilities at fair interest rate method of any difference between the initial value through proﬁ t or loss when either: amount recognised and the maturity amount, minus any • the assets or liabilities are managed, evaluated and reported reduction for impairment or uncollectibility. internally on a fair value basis; • Loans and borrowings • the designation eliminates or signiﬁ cantly reduces an Loans and borrowings are measured at amortised cost accounting mismatch which would otherwise arise; or using the effective interest rate method. • the assets or liabilities contain an embedded derivative that • Payables signiﬁ cantly modiﬁ es the cash ﬂ ows that would otherwise Trade and other payables are reported at amortised cost, be required under the contract and has to be separately namely original debt less principal repayments and any disclosed and fair-valued through proﬁ t or loss. amortisation using the effective interest rate method. • Investment in equity instruments All of the group’s ﬁ nancial instruments designated as at fair The fair value of investments is based on quoted bid value through proﬁ t or loss were designated as such as prices for listed securities or valuations derived from it is believed that the designation signiﬁ cantly reduces an discounted cash ﬂ ow models for unlisted securities. Equity accounting mismatch which would otherwise arise. instruments for which fair values cannot be measured Subsequent to initial recognition, ﬁ nancial instruments equity instruments classiﬁ ed as available-for-sale are sold designated or classiﬁ ed as at fair value through proﬁ t or loss or impaired, the accumulated fair value adjustments are are measured at fair value with changes in fair value recognised included in the proﬁ t or loss statement as gains and losses in proﬁ t or loss. from investment securities. reliably are recognised at cost less impairment. When Available-for-sale ﬁ nancial assets The group has designated certain assets as available-for- sale ﬁ nancial assets. In other circumstances available-for- Exxaro Annual Report 2009 I 171 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 1. ACCOUNTING POLICIES (continued) Cash ﬂ ow hedges Financial instruments (continued) When a derivative is designated as a hedge of the variability Financial instruments not at fair value through proﬁ t or loss, in cash ﬂ ows attributable to a particular risk associated with and not available-for-sale (continued) • Held to maturity investments a recognised asset or liability or a highly probable forecast transaction that could affect proﬁ t or loss, the effective portion Investments with a ﬁ xed maturity that management has of changes in the fair value of the derivative is recognised the intent and ability to hold to maturity are classiﬁ ed as directly in equity. The amount recognised in equity is removed held to maturity. These investments are included in non- and included in proﬁ t or loss in the same period as the hedged current assets, except for maturities within 12 months from item’s cash ﬂ ows affect proﬁ t or loss under the same income the ﬁ nancial year-end date, which are classiﬁ ed as current statement line item as the hedged item. Any ineffective portion assets. of changes in the fair value of the derivative is recognised immediately in proﬁ t or loss. Held to maturity investments are carried at amortised cost using the effective interest rate method. If the derivative expires or is sold, terminated, or exercised, or Derivative ﬁ nancial instruments no longer meets the criteria for cash ﬂ ow hedge accounting, or the designation is revoked, then hedge accounting is The group holds derivative ﬁ nancial instruments to hedge discontinued and the amount recognised in equity remains its foreign currency, interest rate and price risk exposures. in equity until the forecast transaction affects proﬁ t or loss. If Embedded derivatives are separated from the host contract the forecast transaction is no longer expected to occur, then and accounted for separately if the economic characteristics hedge accounting is discontinued and the balance in equity is and risks of the host contract and the embedded derivative recognised immediately in proﬁ t or loss. are not closely related, a separate instrument with the same terms as the embedded derivative would meet the deﬁ nition Economic hedges of a derivative, and the combined instrument is not measured Hedge accounting is not applied to derivative instruments at fair value through proﬁ t or loss. that economically hedge monetary assets and liabilities denominated in foreign currencies. Changes in the fair value Derivative instruments are recognised initially at fair value; of such derivatives are recognised in proﬁ t or loss as part of attributable transaction costs are recognised in proﬁ t or loss foreign currency gains and losses. when incurred. Subsequent to initial recognition, derivative instruments are measured at fair value, and changes in fair Net investments in foreign operation hedges value accounted for as described below. When a derivative, or a non-derivative ﬁ nancial liability, is Fair value hedges designated as a hedge of a net investment in a foreign operation instrument, the effective portion of changes in the When a derivative is designated as a hedge of the change in fair value of the hedging instrument is recognised directly fair value of a recognised asset or liability or a ﬁ rm commitment, in equity, in the foreign currency translation reserve. Any changes in the fair value of the derivative are recognised ineffective portion of changes in the fair value of the derivative immediately in proﬁ t or loss together with changes in the fair instrument is recognised immediately in proﬁ t or loss. The value of the hedged item that are attributable to the hedged amount recognised in equity is removed and included in proﬁ t risk. or loss on disposal of the foreign operation. If the derivative expires or is sold, terminated, or exercised, or Separable embedded derivatives no longer meets the criteria for fair value hedge accounting, or Changes in the fair value of separable embedded derivatives the designation is revoked, hedge accounting is discontinued. are recognised immediately in proﬁ t or loss. Any adjustment up to that point, to a hedged item for which the effective interest rate method was used, is amortised to proﬁ t or loss as part of the recalculated effective interest rate of the item over its remaining life. 172 I Exxaro Annual Report 2009 1. ACCOUNTING POLICIES (continued) Determining fair values Financial instruments (continued) Impairment of ﬁ nancial assets The determination of fair values of ﬁ nancial assets and ﬁ nancial liabilities is based on quoted market prices or A ﬁ nancial asset is assessed at each reporting date to dealer price quotations for ﬁ nancial instruments traded in determine whether there is any objective evidence that it is active markets. For all other ﬁ nancial instruments fair value is impaired. A ﬁ nancial asset is considered to be impaired if determined by using generally accepted valuation techniques. objective evidence indicates that one or more events have Valuation techniques include net present value techniques, had a negative effect on the estimated future cash ﬂ ows of the discounted cash ﬂ ow method, comparison to similar that asset. An impairment allowance is raised when there is instruments for which market observable prices exist, and an indication of impairment and a write-off is only effected valuation models. The group uses widely recognised valuation when the debtor is deemed to be fully impaired and not models for determining the fair value of common and more recoverable. simple ﬁ nancial instruments like interest rate and currency swaps. For these ﬁ nancial instruments, inputs into models are An impairment loss in respect of a ﬁ nancial asset measured available on the market. at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future The fair value of long and medium-term borrowings is cash ﬂ ows discounted at the original effective interest rate. calculated using quoted market prices, or where such prices An impairment loss in respect of an available-for-sale ﬁ nancial are not available, discounted cash ﬂ ow analysis using the asset is calculated by reference to its fair value. applicable yield curve for the duration of the borrowing is used. The fair value of ﬁ nancial assets and ﬁ nancial liabilities Individually signiﬁ cant ﬁ nancial assets are tested for impairment with standard terms and conditions and traded on active liquid on an individual basis. The remaining ﬁ nancial assets are markets, is determined with reference to quoted market prices. assessed collectively in groups that share similar credit risk The fair value of other ﬁ nancial assets and ﬁ nancial liabilities characteristics. (excluding derivative instruments) is determined in accordance with generally accepted pricing models based on discounted All impairment losses are recognised in proﬁ t or loss. Any cash ﬂ ow analysis using prices from widely available current cumulative loss in respect of an available-for-sale ﬁ nancial market transactions. The fair value of derivative instruments asset recognised previously in equity is transferred to proﬁ t or is calculated using quoted prices. Where such prices are not loss. available, use is made of discounted cash ﬂ ow analyses for the duration of the instruments for non-optional derivatives, An impairment loss is reversed if the reversal can be related and option pricing models for optional derivatives. objectively to an event occurring after the impairment loss was recognised. For ﬁ nancial assets measured at amortised cost Financial guarantee contracts and available-for-sale ﬁ nancial assets that are debt securities, Financial guarantees are contracts that require the group to the reversal is recognised in proﬁ t or loss. For available-for- make speciﬁ ed payments to reimburse the holder for a loss sale ﬁ nancial assets that are equity securities, the reversal is it incurs because a speciﬁ ed debtor fails to make payment recognised directly in equity. when due in accordance with the terms of a debt instrument. Offset Financial guarantee liabilities are initially recognised at their fair Financial assets and liabilities are set off and the net amount value, and the initial fair value is amortised over the life of the presented in the statement of ﬁ nancial position when, and ﬁ nancial guarantee. only when, the group has a legal right to set off the amounts and intends either to settle on a net basis or to realise the The guarantee liability is subsequently carried at the higher of asset and settle the liability simultaneously. 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. Exxaro Annual Report 2009 I 173 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 1. ACCOUNTING POLICIES (continued) Financial instruments (continued) Net ﬁ nance costs date. Gains or losses arising on translation are credited to or charged against income. Finance income comprises interest income on funds invested Foreign entities including available-for-sale ﬁ nancial assets and hedging The ﬁ nancial statements of foreign entities are translated into instruments that are recognised in proﬁ t or loss. Interest South African rand as follows: income is recognised as it accrues in proﬁ t or loss, using the • assets and liabilities at rates of exchange ruling at the effective interest rate method. reporting date • income, expenditure and cash ﬂ ow items at weighted Finance expenses comprise interest expense on borrowings average rates and agreements for the use of assets classiﬁ ed as ﬁ nance • goodwill and fair value adjustments arising on acquisition at leases in terms of IFRIC 4, unwinding of the discount on rates of exchange ruling at the reporting date. provisions, and dividends on preference shares classiﬁ ed as liabilities. All borrowing costs are recognised in proﬁ t or loss All resulting exchange differences are reﬂ ected as part of using the effective interest rate method. shareholders’ equity. On disposal, such translation differences are recognised in the income statement as part of the Foreign currency gains and losses are reported on a net cumulative gain or loss on disposal. basis. Fees and commission Foreign currency hedges are dealt with in the ﬁ nancial Foreign currency hedges Fees and commission income and expenses that are integral instruments accounting policy. to the effective interest rate on a ﬁ nancial asset or ﬁ nancial liability are included in the measurement of the effective Exchange rate used interest rate. The average US dollar to South African rand conversion rate, where applicable, of US$1: R8,35 (2008: US$1: R8,25) has Other fees and commission expenses relate mainly to been used to translate the income and statements of cash transaction and service fees and are expensed as the services ﬂ ows while the statement of ﬁ nancial position has been are received. Inventories translated at the closing rate at the last day of the reporting period US$1: R7,40 (2008: US$1: R9,36). Inventories are valued at the lower of cost, determined on Revenue recognition the moving average basis, and net realisable value. The Revenue, which excludes value added tax, represents the cost of ﬁ nished goods and work-in-progress comprises gross value of goods invoiced. raw materials, direct labour, other direct costs and ﬁ xed production overheads, but excludes interest charges. Fixed Export revenues are recorded according to the relevant production overheads are allocated on the basis of normal sales terms, when the risks and rewards of ownership are capacity. Write-downs to net realisable value and inventory transferred. losses are expensed in the period in which the write-downs or losses occur. Foreign currencies Transactions and balances Revenue from the sale of goods is recognised when signiﬁ cant risks and rewards of ownership of the goods are transferred to the buyer. Transactions denominated in foreign currencies are translated Revenue arising from services and royalties is recognised on at the rate of exchange ruling at the transaction date. the accrual basis in accordance with the substance of the relevant agreements. Monetary items denominated in foreign currencies are translated at the rate of exchange ruling at the reporting 174 I Exxaro Annual Report 2009 1. ACCOUNTING POLICIES (continued) Annual contributions are made to the group’s Environmental Interest and dividend income Rehabilitation Fund, created in accordance with statutory Interest is recognised on the time proportion basis, taking requirements, to provide for the funding of the estimated cost account of the principal outstanding and the effective rate of pollution control and rehabilitation during, and at the end over the period to maturity, when it is determined that such of the life of mines. The Exxaro Environmental Rehabilitation income will accrue to the group. Fund is consolidated. Dividends are recognised when the right to receive payment is Expenditure on plant and equipment for pollution control is established. Income tax expense capitalised and depreciated over the useful lives of the assets whilst the cost of ongoing current programmes to prevent and control pollution and to rehabilitate the environment is charged Income tax expense represents the sum of the tax currently against proﬁ t or loss as incurred. payable and deferred tax. Deferred tax The tax currently payable is based on taxable proﬁ t for the Deferred tax is provided using the balance sheet liability year. Taxable proﬁ t differs from proﬁ t as reported in the income method on all temporary differences between the carrying statement because it excludes items of income or expense amounts for ﬁ nancial reporting purposes and the amounts that are taxable or deductible in other years in determination used for tax purposes. of taxable proﬁ t (temporary differences), and it further excludes items that are never taxable or deductible (non-temporary A deferred tax asset is recognised to the extent that it is differences). The group’s liability for tax is calculated using tax probable that future taxable proﬁ ts will be available against rates that have been enacted or substantively enacted by the which the associated unused tax losses and deductible reporting date. Provisions temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at Provisions are recognised when the group has a present each reporting date and reduced to the extent that it is no legal or constructive obligation as a result of past events, for longer probable that sufﬁ cient taxable proﬁ ts will be available which it is probable that an outﬂ ow of economic beneﬁ ts will to allow all or part of the asset to be recovered. be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Where the Deferred tax is calculated using taxation rates that have been effect of discounting to present value is material, provisions enacted at the reporting date. The effect on deferred tax of are adjusted to reﬂ ect the time value of money, and where any changes in taxation rates is charged or credited to the appropriate, the risk speciﬁ c to the liability. income statement, except to the extent that it relates to items previously charged or credited directly to equity. Decommissioning and environmental rehabilitation Provision is made for environmental rehabilitation and Deferred tax assets and liabilities are offset when there is a decommissioning costs where either a legal or constructive legally enforceable right to set off current tax assets against obligation is recognised as a result of past events. Estimates current tax liabilities and when they relate to income taxes are based upon costs that are regularly reviewed and adjusted levied by the same taxation authority and the group intends, as appropriate for new circumstances. and has the ability, to settle its current tax assets and liabilities on a net basis. Where a provision is made for dismantling and site restoration costs, an asset of similar initial value is raised and amortised in accordance with the group’s accounting policy for property, plant and equipment. Exxaro Annual Report 2009 I 175 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 1. ACCOUNTING POLICIES (continued) Short and long-term beneﬁ ts Employee beneﬁ ts Post-employment beneﬁ ts Retirement The cost of all short-term employee beneﬁ ts, such as salaries, bonuses, housing allowances, medical and other contributions, is recognised during the period in which the The group provides deﬁ ned contribution retirement funds employee renders the related service. for the beneﬁ t of employees, the assets of which are held in separate funds. These funds are funded by contributions The vesting portion of long-term beneﬁ ts is recognised and from employees and the group, taking account of the provided for at ﬁ nancial year-end, based on current total cost recommendations of independent actuaries. The group’s to company. contribution to the deﬁ ned contribution fund is charged to the income statement in the year to which it relates. Termination beneﬁ ts The group does not provide guarantees in respect of returns employment is terminated before the normal retirement date in the deﬁ ned contribution funds. or whenever an employee accepts voluntary redundancy in Termination beneﬁ ts are payable whenever an employee’s exchange for these beneﬁ ts. Provision for severance beneﬁ ts is made in accordance with the Namibian law for the Namibian operations. As the The group recognises termination beneﬁ ts when it has severance beneﬁ ts are only payable on retirement or the demonstrated its commitment to either terminate the involuntary termination of service from the side of the employer, employment of current employees according to a detailed this is accounted for as a post-retirement service. The plan is a formal plan without possibility of withdrawal or to provide deﬁ ned beneﬁ t obligation. The cost of providing these beneﬁ ts termination beneﬁ ts as a result of an offer made to encourage is determined based on the projected unit credit method and voluntary redundancy. If the beneﬁ ts fall due more than actuarial valuations are performed at every reporting date. 12 months after the reporting date, they are discounted to The deﬁ ned beneﬁ t obligation presented in the statement of present value. ﬁ nancial position represents the sum of the present value of the obligation less the fair value of plan assets plus/minus any Equity compensation beneﬁ ts balance of unrecognised actuarial gains or losses, minus any Senior management, including executive directors, have been balance of unrecognised past service costs. granted share options and share appreciation rights (SARs). The share appreciation rights are subject to achievement Unrecognised actuarial gains or losses are recognised in of performance-related criteria before vesting. Grants are proﬁ t or loss based on the corridor method. In other words, based on existing ordinary shares and can be purchased or an excess of the balance of unrecognised gains or losses over the purchase can be deferred. The option or purchase price 10% of the greater of the present value of the obligation or fair equals the market price on the date preceding the date of the value of the plan assets is recognised in proﬁ t or loss over the grant. expected remaining working lives of participating employees. Past service cost is recognised immediately to the extent that either be: the beneﬁ ts are vested and recognised over the remaining • purchased and, if vesting according to the rules of the period until vesting for beneﬁ ts that are unvested. scheme, recorded in share capital and share premium at When the options or SARs vest and are exercised, they can the amount of the option price; or Medical • payment can be deferred resulting in no increase in share A post-retirement medical contribution obligation exists for a capital or share premium until paid for and vesting according selective number of in-service and retired employees of the to the rules of the scheme. accredited medical aid funds. This beneﬁ t is no longer offered to employees. The actuarially determined liability is raised as a non-current provision. 176 I Exxaro Annual Report 2009 1. ACCOUNTING POLICIES (continued) Employee beneﬁ ts (continued) Post-employment beneﬁ ts (continued) Equity compensation beneﬁ ts (continued) committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classiﬁ cation. The fair value of the options or SARs granted to senior Segment reporting management, including executive directors, have been Exxaro is a mining group of companies focusing on extracting determined at grant date using a suitable option pricing model and processing a range of minerals and metals including coal, and are expensed over the vesting period of the options or mineral sands, base metals, and selected industrial minerals. SARs with a corresponding increase in equity. Exxaro also holds a 20% interest in Sishen Iron Ore Company (Pty) Limited which extracts and processes iron ore. For cash-settled share-based payments, a liability equal to the portion of the goods or services received is recognised at the Segments are based on the group’s different products and current fair value determined at each ﬁ nancial year-end. operations as well as the physical location of these operations Dividend and associated products. The group’s reportable segments are tied coal operations, commercial coal operations, KZN Dividends paid are recognised by the company when the Sands, Namakwa Sands, Australia Sands, Rosh Pinah, shareholder’s right to receive payment is established. Zincor, other base metals and other. The basis of segment reporting is representative of the internal structure used for These dividends are recorded and disclosed as dividends management reporting. paid in the statement of changes in equity. Cash and cash equivalents Dividends proposed or declared subsequent to the year-end For the purpose of the cash ﬂ ow statement, cash and cash are not recognised at the ﬁ nancial year-end, but are disclosed equivalents comprise cash on hand, deposits held on call, in the notes to the ﬁ nancial statements. and investments in money market instruments, net of bank Secondary tax on companies overdrafts, all of which are available for use by the group unless otherwise stated. The carrying amount of these assets Tax costs incurred on dividends are included in the taxation approximates their fair value. line in the income statement in the year in which the related dividends are declared. Judgements made by management Discounted operations and non-current assets estimates (as mentioned below) have been made by held for sale management in the process of applying the group’s Discontinued operations are signiﬁ cant, distinguishable accounting policies that have the most signiﬁ cant effect on components of an enterprise that have been sold, the amounts recognised in the ﬁ nancial statements: abandoned or are the subject of formal plans for disposal or • the identiﬁ cation of special purpose entities controlled by The following judgements, apart from those involving discontinuance. the group which must be consolidated (refer note 28); • in applying IFRS 5 Non-current Assets Held for Sale The proﬁ t or loss on the sale or abandonment of a discontinued and Discontinued Operations, management has operation is determined from the formalised discontinuance made judgements as to which non-current assets and date. discontinued operations fall within the scope of the standard and had to be reclassiﬁ ed and measured in terms If the carrying amount of a non-current asset or disposal of IFRS 5; group will be recovered principally through a sale transaction • in applying IFRS 2 Share-based Payments, management rather than through continuing use, such an asset is classiﬁ ed has made certain judgements in respect of the fair value as a non-current asset held for sale and measured at the option pricing models to be used in determining the various lower of the carrying amount and fair value less cost to sell. share-based arrangements in respect of employees, This condition is regarded as met only when the sale is highly as well as the variable elements used in these models probable and the asset (or disposal group) is available for (refer note 30). immediate sale in its present condition. Management must be Exxaro Annual Report 2009 I 177 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 1. ACCOUNTING POLICIES (continued) estimate, the discount rate used and the expected date of Judgements made by management (continued) closure of mining activities in determining the present value • in applying IFRIC 4 Determining whether an Arrangement of environmental and decommissioning provisions. Estimates contains a Lease, and IAS 17 Leases, contractual are based upon costs that are regularly reviewed, by internal agreements were assessed to determine whether they and external experts, and adjusted as appropriate for new convey the right to use an asset and their classiﬁ cation as circumstances. Refer note 22. either an operating or a ﬁ nance lease • in applying IFRS 8, the identiﬁ cation of reportable operating Post-retirement obligations segments of the group For deﬁ ned beneﬁ t schemes, management is required to • in applying IAS 19 Employee Beneﬁ ts, the identiﬁ cation make annual estimates and assumptions about future returns as to the nature of beneﬁ ts provided by each scheme and on classes of schemes assets, future remuneration changes, thereby determine the classiﬁ cation of each scheme. employee attrition rates, administration costs, changes in Key assumptions made by management in applying expected remaining periods of service of employees. In making accounting policies these estimates and assumptions, management considers The following key assumptions concerning the future, and advice provided by external advisers, such as actuaries. Refer beneﬁ ts, inﬂ ation rates, exchange rates, life expectancy and other key sources of estimation uncertainty at the ﬁ nancial note 22. year-end, may have a signiﬁ cant risk of causing a material adjustment to the carrying amounts of assets and liabilities Other provisions within the next ﬁ nancial year if the assumption or estimation For other provisions, estimates are made of legal or constructive changes signiﬁ cantly: Going concern obligations resulting in the raising of provisions, and the expected date of probable outﬂ ow of economic beneﬁ ts to assess whether the provision should be discounted. Refer Management considers key ﬁ nancial metrics and loan note 22. covenant compliance in its approved medium-term budgets, together with its existing term facilities, to conclude that the Impairments and impairment reversals going-concern assumption used in the compiling of its annual Impairment tests are performed when there is an indication of ﬁ nancial statements, is relevant. impairment of assets or a reversal of previous impairments of Share-based payments assets. For share-based payments estimates are made in determining Management therefore has implemented certain impairment the fair value of equity instruments granted. The assumptions indicators and these include movements in exchange are used in the Black-Scholes methodology and the Monte rates, commodity prices and the economic environment its Carlo valuation methodology and includes assumptions businesses operate in. regarding future dividend yield, risk-free rate, expected employee attrition rate, expected share volatility and expected Estimates are made in determining the recoverable amount option life. Refer note 30. of assets which includes the estimation of cash ﬂ ows and discount rates used. Environmental and decommissioning provision Provision is made for environmental and decommissioning In estimating the cash ﬂ ows, management bases cash ﬂ ow costs where either a legal or constructive obligation is projections on reasonable and supportable assumptions recognised as a result of past events. Estimates are made that represent management’s best estimate of the range of in determining the present obligation of environmental and economic conditions that will exist over the remaining useful decommissioning provisions, which include the actual life of the assets, based on publicly available information. 178 I Exxaro Annual Report 2009 1. ACCOUNTING POLICIES (continued) Mineral resources Key assumptions made by management in applying Management makes estimates of mineral resources and accounting policies (continued) ore reserves in accordance with the SAMREC Code (2000) Impairments and impairment reversals (continued) for South African properties and the JORC Code (2004) for The discount rates used are pre-tax rates that reﬂ ect the Australian properties. Such estimates relate to the category for current market assessment of the time value of money and the resource (measured, indicated or inferred), the quantum the risks speciﬁ c to the assets for which the future cash ﬂ ow and the grade. estimates have not been adjusted. Contingent liabilities Black economic empowerment (BEE) credentials The difference between the fair value of equity instruments Management considers the existence of possible obligations issued as part of an empowerment transaction, and the which may arise from legal action as well as the possible non- identiﬁ able consideration received for such issue, represents compliance of the requirements of completion guarantees a BEE credential expense that does not meet the recognition and other guarantees provided. The estimation of the amount criteria of an intangible asset and is expensed through the disclosed is based on the expected possible outﬂ ow of income statement. economic beneﬁ ts should there be a present obligation. Refer note 31. Deferred tax assets Deferred tax assets are recognised based on the probability that sufﬁ cient future taxable income will be available to reduce the asset carried. This requires management to make assumptions on a subsidiary by subsidiary level of future taxable income in determining the deferred tax asset to be raised. Refer note 23. Useful life and residual values The depreciable amount of assets is allocated on a systematic basis over their useful lives. In determining the depreciable amount management makes certain assumptions in respect of the residual value of assets based on the expected estimated amount that the entity would currently obtain from disposal of the asset, after deducting the estimated cost of disposal. If an asset is expected to be abandoned the residual value is estimated at zero. In determining the useful lives of assets management considers the expected usage of assets, expected physical wear and tear, legal or similar limits of assets such as mineral rights as well as obsolescence. Exxaro Annual Report 2009 I 179 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 GROUP COMPANY Notes 2009 Rm 2008 Rm 2009 Rm 2008 Rm 15 009 13 843 15 009 13 843 1 009 1 009 915 915 2. REVENUE Sale of goods Services 3. OPERATING EXPENSES Cost by type – Raw materials and consumables – Staff costs – salaries and wages – share-based payments – termination beneﬁ ts – pension and medical costs – Income from sale of investment – General charges – Share-based payment: BEE credential expense – Railage and transport – Repairs and maintenance – Impairment charges and reversals of non-current 3 538 3 497 3 253 91 4 245 2 837 1 008 1 585 2 644 84 12 215 (7) 2 137 2 677 1 434 20 2 481 894 4 (612) (100) (8) 35 508 37 34 389 1 5 3 273 6 25 9 (1) (1) assets 4 1 435 – Impairment charges, reversals and write-offs of trade and other receivables1 – Energy – Depreciation of property, plant and equipment – Amortisation of intangible assets – Movement in inventories – Own work capitalised – Sublease rentals received 11 13 217 761 1 123 13 (1 295) (97) (13) Cost by function – Costs of goods sold/services rendered – Selling and distribution costs – Sublease rentals received – Impairment charges and reversals of non-current assets – Impairment charges, reversals and write-offs of trade and other receivables1 – Income from sale of investment 14 705 11 376 4 320 12 199 867 (13) 10 744 625 (8) 4 1 435 217 20 2 (7) 1 048 (1) 3 273 14 705 11 376 4 320 52 427 42 11 35 (1 726) 376 1 8 (1) (2) 4 15 (758) 971 (1) (2) (1 726) (758) 1 Consequent to the impairment of the KZN Sands businesses, intergroup loans receivable by the company (included in trade and other receivables) were impaired to an amount of R3 273 million. 180 I Exxaro Annual Report 2009 GROUP COMPANY Notes 2009 Rm 2008 Rm 2009 Rm 2008 Rm 3. OPERATING EXPENSES (continued) Cost by function (continued) The above costs are stated after including: Auditors’ remuneration – audit fees – other services Consultancy fees Contingent rentals paid Contingent rentals received Currency exchange differences – net realised losses/(proﬁ ts) on currency exchange differences – net unrealised losses/(proﬁ ts) on currency exchange differences Depreciation and amortisation – buildings – mineral properties – residential buildings – buildings and infrastructure – machinery, plant and equipment – leased assets under ﬁ nance lease – site preparation, mining development, exploration and rehabilitation – amortisation of intangible assets Directors’ emoluments (refer to the report of the directors, page 144) – executive directors – remuneration received by directors of the company – bonuses and cash incentives – compensation on retirement from executive ofﬁ ce – non-executive directors – remuneration received by directors of the company Exploration expenditure Fair value (gains)/losses on ﬁ nancial assets at fair value through proﬁ t or loss: – designated upon initial recognition – held for trading – ineffectiveness arising from cash ﬂ ow hedges losses/(gains) Fair value (gains)/losses on ﬁ nancial liabilities at fair value through proﬁ t or loss: – designated upon initial recognition – held for trading 11 11 11 11 11 11 11 13 16 1 166 12 (37) 576 45 1 180 6 125 767 9 35 13 15 3 149 10 (27) (476) (39) 3 165 5 99 584 10 28 4 115 50 (19) (465) 60 (7) 26 11 130 (54) 55 (7) 5 1 78 8 8 5 1 74 1 (6) 25 15 12 11 9 2 (1) 9 11 4 3 (1) (465) 3 Exxaro Annual Report 2009 I 181 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 Notes 4 22 3. OPERATING EXPENSES (continued) Gains on held to maturity investments disclosed at amortised cost Impairment charges and reversals of non-current assets Inventories write-down to net realisable value Inventories previously written down reversed Movement in provisions Net losses on disposal or scrapping of property, plant and equipment Net proﬁ t on disposal of investment Operating lease rentals expenses – property – equipment Operating sublease rentals received – property Reconditionable spares usage Research and development costs Share-based payment: BEE credentials Impairment charges, reversals and write-offs of trade and other receivables1 GROUP 2009 Rm 1 435 2 23 84 15 71 (13) 4 7 217 2008 Rm (40) 20 128 (136) 236 65 (7) 46 61 (8) 1 5 2 2 COMPANY 2009 Rm 2008 Rm (40) (1) 4 4 5 (1 726) 41 14 2 (2) 7 14 (1) 3 3 273 1 Consequent to the impairment of the KZN Sands businesses, intergroup loans receivable by the company (included in trade and other receivables) were impaired to an amount of R3 273 million. Note: Pensions Retirement amounts paid or receivable are paid or received under deﬁ ned contribution retirement funds. Operating lease arrangements – contingent rent received The group has entered into various operating lease arrangements, of which some will include contingent rent received. The major arrangements’ basis to determine contingent rent received is the useful life of property, plant and equipment. Operating lease arrangements – contingent rent paid The basis to determine contingent rent paid is the difference between ﬁ xed escalations as speciﬁ ed in the contracts and Producer Price Index (PPI) escalations. 182 I Exxaro Annual Report 2009 GROUP COMPANY 2009 Rm 2008 Rm 2009 Rm 2008 Rm 4. IMPAIRMENT CHARGES NON-CURRENT ASSETS Included in operating expenses are the following impairment losses: Impairment on property, plant and equipment1 Total impairment charges Reversal of impairment of property, plant and equipment Total impairment reversals 1 435 1 435 Total impairments and reversals before tax 1 435 21 21 (1) (1) 20 (1) (1) (1) 1 The decision not to develop the Fairbreeze Mineral Sands mine had a negative effect on the carrying value of the KZN Sands operation at 31 December 2009. The two Sands businesses in KZN are viewed as a single economic unit as the operations are interdependent and neither can operate economically without the other. The recoverable amount of the assets has been determined by the calculation of its value in use for which a discount rate of 8,4% was used compared to 7,4% used for the similar calculation performed on 31 December 2008. The impairment amounts to R1 435 million. The carrying value of expenditure capitalised during the development phase on the Market Coke and Belfast projects was impaired in 2008 based on the uncertainty of the recoverable amount. GROUP COMPANY 5. NET FINANCING COSTS Interest expense and loan costs Finance leases – interest Interest income Net interest expense Interest adjustment on non-current provisions (refer note 22) Borrowing costs capitalised during the year amounted to R6 million (2008: Rnil) Included in interest expense are the following: Interest expense on ﬁ nancial liabilities measured at amortised cost Interest expense on bank overdrafts Interest expense on ﬁ nancial liabilities designated at fair value through proﬁ t or loss Included in interest income are the following: Interest income on unimpaired loans and receivables Interest income on unimpaired available-for-sale ﬁ nancial assets Interest income on cash and cash equivalents Interest income on ﬁ nancial assets designated at fair value through proﬁ t or loss Net fee costs on ﬁ nancial liabilities not at fair value through proﬁ t or loss 2009 Rm 460 66 (145) 381 34 415 450 9 1 (38) (13) (75) (19) 5 2008 Rm 283 63 (153) 193 48 241 250 4 (37) (69) (47) 11 2009 Rm 388 (51) 337 2 339 386 2 2008 Rm 167 (50) 117 2 119 163 4 (1) (50) (49) (1) 5 8 Exxaro Annual Report 2009 I 183 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 GROUP COMPANY 2009 Rm 2008 Rm 2009 Rm 2008 Rm 4 616 371 4 987 144 138 282 1 744 1 037 6 731 1 319 (24) (24) 4 22 26 (9) (1) 3 (7) 2 (7) 2 2 462 (51) 411 343 1 344 36 14 50 (46) 7 (39) 766 2 2 757 757 (95) (12) (107) 8 8 (97) (68) (165) 1 16 510 6. INCOME FROM INVESTMENTS Subsidiaries Unlisted shares – dividends – net interest received Associates – dividends Other Listed shares – dividends Total 7. INCOME TAX EXPENSE Charge to income South African normal tax – Current – current year – prior year – Deferred – current year – prior year – rate adjustment Foreign normal tax – Current – current year – prior year – Deferred – current year – prior year Secondary Tax on Companies Non-residents withholding tax Total 184 I Exxaro Annual Report 2009 GROUP COMPANY 2009 % 2008 % 2009 % 2008 % 42,8 13,1 0,1 (0,2) 7. INCOME TAX EXPENSE (continued) Reconciliation of tax rates Tax as a percentage of proﬁ t before tax Tax effect of – assessed losses not provided – capital (losses)/proﬁ ts – disallowable expenditure – reclassiﬁ cation of previously disallowable expenditure – exempt income – special tax allowances – share of associates and joint ventures – tax rate differences – rate change on deferred tax balance – Secondary Tax on Companies (STC) – withholding tax – Controlled Foreign Company proﬁ ts (CFC) – foreign exchange differences – prior year adjustment – derecognition of deferred tax asset – write-down of subsidiaries’ loans (1,5) (1,3) (1,3) 2,2 2,1 29,6 0,5 (0,8) 1,7 (46,0) (0,3) 0,2 (0,7) 1,1 1,0 11,9 0,4 0,3 (0,1) (0,4) (0,1) (0,1) 1,7 Standard tax rate 28,0 28,0 Effective tax rate for operations, excluding income from equity-accounted investments, impairment charge and share of tax thereon 57,8 22,7 (0,2) 57,8 17,2 (0,4) 11,4 (29,7) 28,0 28,0 Exxaro Annual Report 2009 I 185 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 GROUP COMPANY 2009 Rm 2008 Rm 2009 Rm 2008 Rm 8. EARNINGS PER SHARE Basic headline earnings per share is calculated by dividing the headline earnings by the weighted average number of ordinary shares in issue during the year. Headline earnings (R million) (refer note 10) Weighted average number of ordinary shares in issue (million) Headline earnings per share (cents) For the diluted headline earnings per share the weighted average number of ordinary shares is adjusted to assume conversion of not yet released purchased shares and options under the Management Share Scheme, net of shares held by the Scheme for releasing purposes. Diluted headline earnings per share is calculated by dividing headline earnings by the adjusted weighted average number of shares in issue. Weighted average number of ordinary shares in issue (million) as calculated above Adjusted for options and net purchased shares in terms of the Management Share Scheme (million) Weighted average number for diluted headline earnings per share (million) Diluted headline earnings per share (cents) Basic attributable earnings per share is calculated by dividing the net proﬁ t attributable to owners of the parent by the weighted average number of ordinary shares in issue during the year. Proﬁ t for the year attributable to owners of the parent (R million) Weighted average number of ordinary shares in issue (million) Basic earnings per share (cents) For the diluted attributable earnings per share the weighted average number of ordinary shares is adjusted as above. 2 514 3 630 345 729 343 1 058 345 13 358 702 343 18 361 1 006 1 023 3 405 345 297 343 993 Diluted earnings per share (cents) 286 943 For the current year, shares under option had an effect on the adjusted weighted average number of shares in issue as the average option price attached to the option shares was lower than the average market price. 9. DIVIDEND Dividends paid during the year: Cash dividends Paid to minorities STC on these dividends amounts to nil (2008: nil) after taking into account STC credits. 186 I Exxaro Annual Report 2009 1 050 1 050 957 27 984 1 066 973 1 066 973 10. RECONCILIATION OF GROUP HEADLINE EARNINGS Profit for the year attributable to owners of the parent Adjusted for: – IAS 16 Impairment of Property, Plant and Equipment – IAS 16 Gains or Losses on Disposal of Property, Plant and Equipment – IAS 28 Share of Associates’ IAS 16 – Gains or losses on Disposal of Property, Plant and Equipment HEADLINE EARNINGS 1 435 88 (8) 1 515 (24) 2 (22) For the year ended 31 December 2009 Gross Rm Tax Rm Non- controlling interest Rm Net Rm 1 023 1 435 62 (6) (2) (2) 2 514 Profit for the year attributable to owners of the parent Adjusted for: – IAS 16 Impairment of Property, Plant and Equipment – IAS 16 Gains or Losses on Disposal of Property, Plant and Equipment – IAS 16 Reversal of Impairment of Property, Plant and Equipment – IAS 27 Gains on Disposal of Subsidiary – IAS 28 Share of Associates’ IAS 16 – Gains or Losses on Disposal of Property, Plant and Equipment – IAS 28 Share of Associates’ IAS 39 – Recycling of Remeasurements from Equity to the Income Statement, including a hedge of net investment in a foreign entity but excluding cash flow hedges – IAS 36 Impairment Reversal of Investment HEADLINE EARNINGS GROUP HEADLINE EARNINGS PER SHARE FOR THE YEAR ENDED 31 DECEMBER HEADLINE EARNINGS PER SHARE (refer note 8) – basic – diluted For the year ended 31 December 2008 Gross Rm Tax Rm Non- controlling interest Rm 21 66 (1) (7) 2 4 161 246 (20) (1) (21) 2009 cents 729 702 Net Rm 3 405 21 46 (1) (7) 1 4 161 3 630 2008 cents 1 058 1 006 Exxaro Annual Report 2009 I 187 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 Site preparation, mining develop- ment, exploration and rehabili- tation Rm Extensions under con- struction Rm 776 87 17 1 887 339 (2) Total Rm 17 625 1 982 39 1 228 (36) (230) 2 7 (606) (3) 86 (4) 1 591 20 723 5 487 1 123 72 (97) 45 (4) 6 626 38 829 1 435 (36) 2 228 (36) 2 1 589 11 869 11 81 972 355 35 5 395 63 79 142 435 11. PROPERTY, PLANT AND EQUIPMENT Land and buildings Rm Mineral proper- ties Rm Resi- dential land and buildings Rm Buildings and infra- structure Rm Machinery, plant and equipment Rm 184 106 2 262 349 87 1 (78) 562 1 1 18 9 282 2 640 575 180 5 5 147 27 2 7 (4) 1 2 309 403 10 060 1 020 7 81 (4) (1) 7 167 15 704 (186) (5) 51 150 180 2 969 11 809 42 6 727 125 5 (3) 5 (3) 856 227 445 3 787 776 44 (94) 30 (1) 4 542 495 911 672 1 406 20 765 48 6 6 542 1 869 132 1 441 5 861 GROUP 2009 Gross carrying amount At beginning of year Additions Changes in decommissioning assets Increase in joint venture Disposals of items of property, plant and equipment Net reclassification to non-current assets classified as held for sale Exchange differences on translation Other movements At end of year Accumulated depreciation At beginning of year Depreciation charges Increase in joint venture Accumulated depreciation on disposals of items of property, plant and equipment Exchange differences on translation Other movements At end of year Impairment of assets At beginning of year Impairment charges (refer note 4) Disposals of items of property, plant and equipment At end of year Net carrying amount at end of year 188 I Exxaro Annual Report 2009 11. PROPERTY, PLANT AND EQUIPMENT (continued) Land and buildings Rm Mineral proper- ties Rm Resi- dential land and buildings Rm Buildings and infra- structure Rm Machinery, plant and equipment Rm Site preparation, mining develop- ment, exploration and rehabili- tation Rm Extensions under con- struction Rm Total Rm 665 39 1 131 852 13 898 1 617 GROUP 2008 Gross carrying amount At beginning of year Additions Changes in decommissioning assets Acquisition of subsidiary and other business operations Disposals of items of property, plant and equipment Net reclassification from non-current assets classified as held for sale Exchange differences on translation Other movements At end of year Accumulated depreciation At beginning of year Depreciation charges Accumulated depreciation on disposals of items of property, plant and equipment Net reclassification from non-current assets classified as held for sale Exchange differences on translation Other movements At end of year Impairment of assets At beginning of year Impairment reversals Impairment charges At end of year Net carrying amount at end of year 169 12 2 200 101 19 28 (1) (1) 1 147 37 5 (1) (1) 2 42 19 1 (1) 2 (17) 184 12 3 (14) 1 30 31 2 262 381 165 10 19 575 6 6 1 746 152 8 7 886 543 60 280 1 703 (7) (383) (2) (18) 21 127 (78) 154 175 2 309 10 060 644 99 3 464 594 (1) 31 44 776 316 28 (9) (291) (2) (9) 12 (10) 727 227 (55) 79 (4) 3 787 496 (1) 227 495 (1) 13 1 355 63 63 36 241 (4) (2) 2 (369) 104 2 272 (397) (101) 240 (8) 1 887 17 625 4 854 894 (303) (66) 114 (6) 5 487 809 (1) 21 829 17 21 38 183 1 681 105 1 355 5 778 358 1 849 11 309 The net carrying amount of machinery, plant and equipment includes: Assets held under finance leases (refer note 21) – cost – accumulated depreciation For details of property, plant and equipment pledged as security refer to annexure 1. A register of land and buildings is available for inspection at the registered office of the company. 2009 Rm 2008 Rm 197 69 128 196 60 136 Exxaro Annual Report 2009 I 189 104 66 (83) 87 Total Rm 229 88 (4) 1 314 53 25 (4) 74 87 240 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 11. PROPERTY, PLANT AND EQUIPMENT (continued) Land and buildings Rm Mineral proper- ties Rm Resi- dential land and buildings Rm Buildings and infra- structure Rm Machinery, plant and equipment Rm Site preparation, mining develop- ment, exploration and rehabili- tation Rm Extensions under con- struction Rm COMPANY 2009 Gross carrying amount At beginning of year Additions Disposals of items of property, plant and equipment Other movements At end of year Accumulated depreciation At beginning of year Depreciation charges Accumulated depreciation on disposals of items of property, plant and equipment At end of year Net carrying amount at end of year 11 1 12 5 5 7 114 22 (4) 83 215 48 25 (4) 69 146 190 I Exxaro Annual Report 2009 11. PROPERTY, PLANT AND EQUIPMENT (continued) Land and buildings Rm Mineral proper- ties Rm Resi- dential land and buildings Rm Buildings and infra- structure Rm Machinery, plant and equipment Rm COMPANY 2008 Gross carrying amount At beginning of year Additions Disposals of items of property, plant and equipment Other movements At end of year Accumulated depreciation At beginning of year Depreciation charges Accumulated depreciation on disposals of items of property, plant and equipment At end of year Impairment of assets At beginning of year Impairment reversals At end of year Net carrying amount at end of year 11 11 5 5 6 82 2 (7) 37 114 34 15 (1) 48 1 (1) 66 Site preparation, mining develop- ment, exploration and rehabili- tation Rm Extensions under con- struction Rm 80 61 (37) 104 Total Rm 173 63 (7) 229 39 15 (1) 53 1 (1) 104 176 Exxaro Annual Report 2009 I 191 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 12. BIOLOGICAL ASSETS GROUP 2009 Carrying amount At beginning of year (Losses)/gains attributable to physical and price changes Net reclassification to inventory At end of year Fair value of biological assets can be split as follows: – mature – immature The plantation was valued by Mr JM Potgieter, an independent appraiser, on 20 November 2009. 2008 Carrying amount At beginning of year Gains attributable to physical and price changes Disposals Net reclassification from inventory At end of year Fair value of biological assets can be split as follows: – mature – immature Plantation Rm Livestock Rm Game Rm Total Rm 8 (1) 7 4 3 7 6 3 (1) 8 6 2 8 6 3 (2) 7 7 7 6 (1) 1 6 6 6 20 9 (2) 27 27 27 18 3 (2) 1 20 20 20 34 11 (4) 41 38 3 41 30 6 (4) 2 34 32 2 34 Plantations consist of wattle and bluegum trees. Livestock consists of cattle and horses. Game consists of rhino, buffalo, warthog, giraffe, ostrich and a large variety of antelope. GROUP COMPANY 2009 Rm 2008 Rm 2009 Rm 2008 Rm 121 19 3 143 42 13 1 56 87 108 4 9 121 32 4 4 2 42 79 19 19 9 9 10 13. INTANGIBLE ASSETS Patents, licences and franchises Gross carrying amount At beginning of year Additions Transfers from other assets Exchange differences At end of year Accumulated amortisation At beginning of year Amortisation charge Transfers from other assets Exchange differences At end of year Net carrying amount at end of year 192 I Exxaro Annual Report 2009 GROUP COMPANY 2009 Rm 2008 Rm 2009 Rm 2008 Rm 14. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES Associated unlisted companies 1 965 1 848 Joint ventures (Unlisted) – incorporated Total 1 1 1 966 1 1 1 849 Refer to annexure 2 for market and directors’ valuations of investments. ASSOCIATE COMPANIES JOINT VENTURES Investments Rm Loans1 Rm Total Rm Investments Rm Loans Rm Total Rm 2009 GROUP At beginning of year Net share of results Per income statement Elimination of intergroup profits Dividends paid Exchange difference adjustments Share of reserve movements At end of year (refer annexure 2) 1 816 1 776 1 776 (1 752) (38) 8 1 810 32 123 122 1 155 1 848 1 899 1 898 1 (1 752) (38) 8 1 965 1 1 1 1 ASSOCIATE COMPANIES JOINT VENTURES Investments Rm Loans Rm Total Rm Investments Rm Loans Rm Total Rm 757 2 1 850 (1 042) 62 187 1 816 219 (187) 32 757 221 1 663 (1 042) 62 187 1 848 2008 GROUP At beginning of year Additional interests acquired Transfer (to)/from other assets Net share of results Dividends paid Exchange difference adjustments Share of reserve movements At end of year (refer annexure 2) Aggregate post-acquisition reserves: – associate companies – joint ventures Total 1 1 1 1 2009 Rm 1 466 2 982 4 448 2008 Rm 1 515 2 525 4 040 1 These loans are interest free and have no fixed repayment terms. These loans have been subordinated to other debt until such time that the associate’s assets exceed its liabilities. Exxaro Annual Report 2009 I 193 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 15. INVESTMENTS IN SUBSIDIARIES Shares at cost less impairment losses Indebtedness – by subsidiaries – to subsidiaries Total (refer annexure 3) Less: current portion included in trade and other receivables Less: current portion included in trade and other payables Non-current portion 16. FINANCIAL ASSETS Environmental Rehabilitation Trust asset Long-term receivables Derivatives Investments (refer annexure 2) For details refer to note 27 on financial instruments. 17. INVENTORIES Finished products Work-in-progress Raw materials Plant spares and stores Merchandise GROUP COMPANY 2009 Rm 2008 Rm 2009 Rm 2008 Rm 3 322 3 290 10 358 (105) 10 253 (7 012) 105 3 346 6 668 11 11 7 895 (626) 7 269 (5 028) 626 2 867 6 157 10 31 41 422 420 375 1 217 1 404 659 527 537 6 3 133 342 488 360 387 1 577 1 022 467 465 522 5 2 481 Included above are inventories relating to Exxaro Sands (Pty) Limited, Rosh Pinah Zinc Corporation (Pty) Limited and Exxaro Base Metals (Pty) Limited which might be sold or utilised in production over more than 12 months. Included in merchandise are biological assets held for sale classified as inventories. Inventory sold in which delivery is delayed at the buyer’s request, but the buyer takes title amounting to Rnil (2008: Rnil). Included in inventories is Rnil (2008: R86 million) pledged as security for liabilities. 194 I Exxaro Annual Report 2009 18. TRADE AND OTHER RECEIVABLES Trade receivables Other receivables Indebtness by subsidiaries (refer note 15) Indebtness by subsidiaries Specific allowances for impairment Derivative instruments (refer note 27.1) Specific allowances for impairment Collective allowances for impairment Trade receivables are stated after the following allowances for impairment: Specific allowances for impairment At beginning of year Impairment loss recognised Impairment loss reversals Other reconciling items At end of year Of which relates to: Trade receivables Other receivables Subsidiaries Collective allowances for impairment At beginning of year Impairment loss recognised Other reconciling items At end of year Of which relates to: Trade receivables 19. NON-CURRENT ASSETS CLASSIFIED AS HELD FOR SALE Assets Property, plant and equipment Financial assets Inventories Trade and other receivables Tax receivable Liabilities Non-current provisions Deferred tax liabilities Trade and other payables Total at end of year GROUP COMPANY 2009 Rm 2 620 673 51 (221) (2) 3 121 (9) (220) 3 5 (221) (217) (4) (221) (2) (2) (2) (2) 38 17 8 18 5 86 (28) (9) (12) (49) 37 2008 Rm 2 183 496 256 (9) (2) 2 924 (4) (5) 4 (4) (9) (8) (1) (9) (3) (1) 2 (2) (2) (2) 36 15 8 14 5 78 (27) (7) (16) (50) 28 2009 Rm 2008 Rm 45 7 012 10 285 (3 273) 34 (1) 33 5 028 5 028 13 (1) 7 090 5 073 (1) (3 273) (3 274) (1) (3 273) (3 274) (3) 2 (1) (1) (1) 18 18 13 13 18 13 Included above are the assets and liabilities of a subsidiary, Glen Douglas Dolomite (Pty) Limited, classified as held for sale (disposal group) and other assets and liabilities classified as held for sale. Management is committed to the sale of the disposal group and the assets and liabilities which will be disposed of within the next 12 months. The disposal group is included in the other segment results and the other assets and liabilities are included in the commercial coal operations segment. Exxaro Annual Report 2009 I 195 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 20. SHARE CAPITAL Share capital at par value Authorised 500 000 000 ordinary shares of R0,01 each Issued 356 940 200 (2008: 355 036 600) ordinary shares of R0,01 each Share premium Shares held by Kumba Resources Management Share Trust and the Exxaro Employee Empowerment Participation Scheme Trust (MPower) Total The Kumba Resources Management Share Trust and the MPower have been consolidated. Refer to statement of changes in equity (pages 162 and 163) for details of movements. Reconciliation of authorised shares not issued (million) Number of authorised unissued ordinary shares at beginning of year Number of shares repurchased during the year Number of shares issued during the year Number of unissued authorised shares at end of year GROUP COMPANY 2009 Rm 2008 Rm 2009 Rm 2008 Rm 5 5 5 5 4 2 314 (177) 2 141 4 2 272 (178) 2 098 4 2 314 4 2 272 2 318 2 276 145 (2) 143 147 (2) 145 145 (2) 143 147 (2) 145 The following resolutions pertain to the unissued ordinary shares under the control of the directors until the forthcoming annual general meeting: 1. Subject to the provisions of the Companies Act, 61 of 1973, as amended (the Act), and the requirements of the JSE Limited (JSE), the directors be and are hereby authorised to allot and issue at their discretion such number of the remaining authorised but unissued ordinary shares of one cent each in the capital of the company as may be required to be allotted and issued pursuant to the Share Incentive Scheme (the scheme). 2. Directors are authorised to issue the unissued ordinary shares of one cent each in the capital of the company (after setting aside so many shares as may be required to be allotted and issued by the company pursuant to the scheme for cash, without restrictions to any public shareholder, as defined by the JSE Listings Requirements, as and when suitable opportunities arise, subject to the following conditions: • this authority shall not extend beyond the next annual general meeting or 15 months from the date of this annual general meeting, whichever date is earlier; • 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, five percent or more of the number of shares in issue prior to the issue/s; • the shares be issued to public shareholders as defined by the JSE and not to related parties; • 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; and • in determining the price at which an issue of shares be made in terms of this authority, the maximum discount permitted will be ten percent of the weighted average traded price of the shares over the 30 days prior to the date that the price of the issue is determined or agreed to by the directors. In the event that shares have not traded in the said 30 day period a ruling will be obtained from the committee of the JSE. 3. Directors are authorised to acquire from time to time shares issued by the company, provided: • 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; • 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 date; • that an announcement containing full details of such repurchases is published as soon as the company has repurchased shares constituting, on a cumulative basis, three percent of the number of shares in issue prior to the repurchases and for each three percent, on a cumulative basis, thereafter; • 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; • that at any one time, the company may only appoint one agent to effect any repurchase; • that the repurchase of shares will not take place during a prohibited period and will not affect compliance with the shareholders’ spread requirements as laid down by the JSE; and • that 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. The above authorities are valid until the next annual general meeting. 196 I Exxaro Annual Report 2009 GROUP COMPANY 2009 Rm 2008 Rm 2009 Rm 2008 Rm 362 617 617 1 701 200 200 3 697 (362) 3 335 205 278 369 669 1 392 2 913 (205) 2 708 21. INTEREST-BEARING BORROWINGS Non-current borrowings Summary of loans by financial year of redemption 2009 2010 2011 2012 2013 2014 2015 onwards Total non-current borrowings (refer annexure 1) Current portion included in current liabilities Total Details of interest rates payable on borrowings are shown in annexure 1. Included in the above interest-bearing borrowings are obligations relating to finance leases (refer note 11). Details are: Minimum lease payments: – less than one year – more than one year and less than five years – more than five years Total Less: Future finance charges Present value of lease liabilities Representing lease liabilities: – current – non-current (more than one year and less than five years) – non-current (more than five years) Total 407 827 723 1 886 304 607 4 754 (407) 4 347 63 256 3 302 3 621 3 361 260 5 13 242 260 500 328 419 794 1 611 85 413 4 150 (500) 3 650 59 255 3 367 3 681 3 428 253 5 17 231 253 Exxaro entered into numerous operating and finance lease arrangements. All major lease arrangements are renewable if there is mutual agreement between the parties to the arrangements with some contracts specifying extension periods. Arrangements containing escalation clauses are usually based on CPI or PPI indexes. None of the lease arrangements contain restrictive clauses that are unusual to the particular type of lease. There were no defaults or breaches in terms of interest-bearing borrowings during both reporting periods. At 31 December 2008 Rosh Pinah Corporation (Pty) Limited (Rosh Pinah), a subsidiary in which Exxaro holds 50,0264%, was, however, in breach of certain provisions of a facilities agreement entered into with a number of financial institutions. The breach was waived by the financial institutions conditional upon Rosh Pinah settling the funding obtained by no later than 31 March 2009. The funding was subsequently settled in March 2009. The liability was included in the current portion of non-current borrowings for 2008. Exxaro Annual Report 2009 I 197 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 22. PROVISIONS Environ- mental rehabili- tation Rm Decom- missioning Rm Restruc- turing Rm Post- retirement medical obligation Rm Post- retirement defined benefit obligation Rm Cash- settled share- based payment Rm GROUP 2009 At beginning of year Charge to operating expenses Additional provision Unused amounts reversed Interest adjustment (refer note 5) Provisions capitalised to property, plant and equipment Increase in joint venture Utilised during year Exchange differences Reclassification to non- current assets held for sale At end of year Current portion included in current liabilities Total non-current provisions 2008 At beginning of year Charge to operating expenses Additional provision Unused amounts reversed Interest adjustment (refer note 5) Provisions capitalised to property, plant and equipment Acquisition of subsidiary and other business operations Utilised during year Exchange differences Reclassification to non- current assets held for sale At end of year Current portion included in current liabilities Total non-current provisions 1 274 395 27 68 12 12 16 30 (12) 4 (1) 1 323 (21) 1 302 1 020 222 222 35 27 (10) 5 (25) 1 274 (15) 1 259 (3) 2 (5) 8 39 3 442 442 263 2 2 8 104 13 7 (2) 395 395 7 7 2 77 77 36 9 10 (1) 1 22 68 68 8 (5) 30 (6) 24 31 4 (8) 27 (6) 21 3 3 3 3 3 4 4 (2) 5 5 6 3 6 (3) (6) 3 3 Total Rm 1 767 23 28 (5) 34 39 30 (19) 7 (1) 1 880 (27) 1 853 1 356 236 240 (4) 48 104 62 (24) 12 (27) 1 767 (21) 1 746 198 I Exxaro Annual Report 2009 22. PROVISIONS (continued) Environ- mental rehabili- tation Rm Decom- missioning Rm Restruc- turing Rm Post- retirement medical obligation Rm Post- retirement defined benefit obligation Rm Cash- settled share- based payment Rm COMPANY 2009 At beginning of year Charge to operating expenses Additional provisions Interest adjustment (refer note 5) Utilised during year Total non-current provisions 2008 At beginning of year Charge to operating expenses Additional provisions Unused amounts reversed Interest adjustment (refer note 5) Utilised during year Total non-current provisions 21 2 23 19 2 21 3 4 4 (2) 5 5 4 7 (3) (6) 3 Total Rm 24 4 4 2 (2) 28 24 4 7 (3) 2 (6) 24 Environmental rehabilitation Provision is made for environmental rehabilitation costs where either a legal or constructive obligation is recognised as a result of past events. Estimates are based upon costs that are regularly reviewed and adjusted as appropriate for new circumstances. Decommissioning The decommissioning provision relates to decommissioning of property, plant and equipment where either a legal or constructive obligation is recognised as a result of past events. Estimates are based upon costs that are regularly reviewed and adjusted as appropriate for new circumstances. Funding of environmental and decommissioning rehabilitation Contributions towards the cost of the mine closure are also made to the Exxaro Environmental Rehabilitation Fund and the balance of the fund amounted to R429 million (2008: R349 million) at year-end. Of this amount R422 million (2008: R342 million) is included in financial assets and R7 million (2008: R7 million) in trade and other receivables of the group. Cash flows will take place when the mines are rehabilitated. Exxaro Annual Report 2009 I 199 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 22. PROVISIONS (continued) Restructuring The liability includes accruals for plant and facility closures, including the dismantling costs thereof, and employee termination costs, in terms of the announced restructuring plans for the Hlobane and Durnacol mines. Provision is made on a piecemeal basis only for those restructuring obligations supported by a formally approved plan. The restructuring for Durnacol mine will be completed within the next seven years and for Hlobane mine in the next 16 years. Post-retirement medical obligation After the merger with Eyesizwe (Pty) Limited in November 2006 and the successful creation of Exxaro, it was discovered that a post- employment healthcare benefit had been provided to a group of continuation and in-service members on the Witbank Coal Medical Aid Scheme and the BHP Billiton SA Medical Scheme. This benefit, which is no longer offered, applied to selective employees previously employed by Eyesizwe or Ingwe Coal and comprises a subsidy of contributions. 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 defined benefit 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 upon the death of the primary member, either pre- or post-retirement. This benefit, which is no longer offered, applied to employees employed prior to 2001 by Namakwa Sands. The obligation represents a present value amount, which is actuarially valued on an annual basis. Any surplus or deficit arising from the valuation is recognised in the income statement. The provision is expected to be utilised over the expected lives of the participants of the scheme. Post-retirement defined benefit obligation Provision for severance benefits is made in accordance with the Namibian law for the Namibian operations. As the severance benefits are only payable on retirement or the involuntary termination of service from the side of the employer, this is accounted for as a post- retirement service. The plan is a defined benefit obligation. The cost of providing these benefits is determined based on the projected unit credit method and actuarial valuations are performed at every reporting date. The defined benefit obligation presented in the statement of financial position represents the sum of the present value of the obligation less the fair value of plan assets plus/minus any balance of unrecognised actuarial gains or losses, minus any balance of unrecognised past service costs. The provision is expected to be utilised over the expected lives of the participants of the scheme. Cash-settled share-based payment Exxaro offered a cash-settled payment, based on the company’s share price performance, to certain individuals who were under an embargo and not entitled to accept share scheme offers, due to their involvement in the empowerment transaction. The payments will be made over the next five years depending on the share price performance of the company and the contracts of the individuals. 23. DEFERRED TAX The movement on the deferred tax account is as follows: At beginning of year Currency revaluation of opening balance Increase in joint venture Items charged directly to other components of equity – current Transferred to non-current assets held for sale Income statement charge – current (refer note 7) – prior – rate change At end of year GROUP COMPANY 2009 Rm 174 5 26 (142) (2) 297 8 366 2008 Rm 345 (7) 115 (7) (192) (68) (12) 174 2009 Rm 2008 Rm (104) (97) (9) 4 22 (87) (9) (1) 3 (104) 200 I Exxaro Annual Report 2009 23. DEFERRED TAX (continued) Comprising: Deferred tax liabilities – property, plant and equipment – bad debt reassessment – foreign tax losses carried forward – inventories – leave pay accrual – financial instruments – provisions – Exxaro Environmental Rehabilitation asset – decommissioning provision – share-based payments – hedge premium – restoration provision – prepayments – unrealised profits – assessed losses Deferred tax assets – provisions – property, plant and equipment – Exxaro Environmental Rehabilitation asset – decommissioning provision – income received in advance – financial instruments – share-based payments – hedge premium – unrealised foreign exchange profit/(loss) – restoration provision – inventories – bad debt reassessment – lease liability – leave pay accrual – prepayments – tax losses carried forward – derecognition of deferred tax assets – foreign tax losses carried forward GROUP COMPANY 2009 Rm 2008 Rm 2009 Rm 2008 Rm 1 113 (46) 6 (31) (6) 86 (6) (6) 2 (95) 7 (25) (4) 995 (88) 137 22 (9) (126) (17) (1) 98 (109) (3) (1) (72) (13) 14 (1 017) 822 (266) (629) 366 1 154 (1) (20) (2) (30) 201 (40) 81 (5) 2 (1) (77) 5 (7) (3) 1 257 (1) 399 15 (10) (3) (99) 4 (4) (102) (157) (1) (70) (28) 6 (870) (162) (1 083) 174 (2) 4 (13) (1) (6) (5) (64) (87) (87) (1) 2 4 3 (3) (6) (8) (95) (104) (104) Calculated tax losses – Tax losses available for setting off against future South African taxable income 3 646 3 118 229 339 – Tax losses available for setting off against future foreign taxable income 950 650 The total deferred tax assets raised with regard to assessed losses amount to R465 million (2008: R1 055 million), and are mainly attributable to the Exxaro sands businesses. The total deferred tax assets not raised amount to R877 million (2008: R100 million). Exxaro Annual Report 2009 I 201 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 24. TRADE AND OTHER PAYABLES Trade payables Other payables Leave pay accrual Indebtness to subsidiaries (refer note 15) Derivative instruments (refer note 27.1) 25. NOTES TO THE CASH FLOW STATEMENT 25.1 CASH GENERATED BY/(UTILISED IN) OPERATIONS Net operating profit/(loss) Adjusted for non-cash movements – liquidation dividend – depreciation and amortisation – impairment charges and reversals – impairment charges and reversal of trade and other receivables – provisions – exploration cost – foreign exchange revaluations and fair value adjustments – reconditionable spares usage – net loss on disposal or scrapping of property, plant and equipment – net profit on disposal of investments – share-based payment expenses Working capital movements – increase in inventories – increase in trade and other receivables – increase/(decrease) in trade and other payables – utilisation of provisions (refer note 22) Cash generated by/(utilised in) operations 25.2 NET FINANCING COSTS Net financing costs Financing costs not involving cash flow (refer note 22) GROUP COMPANY 2009 Rm 932 1 307 226 45 2 510 2008 Rm 935 1 150 218 63 2 366 2009 Rm 24 176 20 105 34 359 2008 Rm 17 130 31 626 13 817 304 2 467 (3 311) 1 673 1 136 1 435 217 23 2 4 84 83 3 288 (643) (612) 103 (19) 2 117 (415) 34 (381) 1 898 20 236 40 (10) 1 65 (7) 81 3 792 (513) (471) 790 (24) 3 574 (241) 48 (193) 34 3 273 3 7 30 36 (365) (457) (2) (788) (339) 2 (337) 15 (1) 4 (6) 5 (1 726) 37 1 (691) 556 (6) (140) (119) 2 (117) 202 I Exxaro Annual Report 2009 GROUP COMPANY 2008 Rm (137) (782) (1) 433 (487) (957) (27) (984) (1 119) (28) (1 147) (470) (470) (179) (179) 2009 Rm 2008 Rm (10) 24 (14) 8 10 18 (1 066) (973) (1 066) (973) (88) (88) (795) (795) (61) (61) (2) (2) (49) (1) (50) 25. NOTES TO THE CASH FLOW STATEMENT (continued) 25.3 NORMAL TAXATION PAID Amounts (unpaid)/receivable at beginning of year Amounts charged to the income statements Arising on translation of foreign entities Amounts unpaid/(receivable) at end of year 25.4 DIVIDENDS PAID Amounts unpaid at beginning of year Dividends declared and paid Dividends declared and paid by subsidiaries to minorities Amounts unpaid at end of year 25.5 INVESTMENTS TO MAINTAIN OPERATIONS Replacement of property, plant and equipment Reconditional spares 25.6 INVESTMENTS TO EXPAND OPERATIONS Expansion and new technology 25.7 INVESTMENT IN OTHER NON-CURRENT ASSETS Increase in associates, joint ventures and other investments Increase in investments in subsidiaries (Increase)/decrease in non-current financial assets Increase in investment in joint venture During July 2009, the group invested R1 082 million in Mafube Coal Mining (Pty) Limited, its joint venture with Anglo South Africa Capital (Pty) Limited, which is included in the coal segment results. The increase consists of the following: Property, plant and equipment Non-current financial assets Inventories Trade and other debtors Deferred tax Provisions Trade and other payables 2009 Rm (433) (461) 2 (892) (1 050) (1 050) (960) (32) (992) (990) (990) (1 082) (8) (1 090) 1 156 3 36 49 (26) (30) (106) 1 082 Exxaro Annual Report 2009 I 203 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 GROUP COMPANY 2009 Rm 2008 Rm 2009 Rm 2008 Rm 25. NOTES TO THE CASH FLOW STATEMENT (continued) 25.8 INCOME FROM EQUITY-ACCOUNTED INVESTMENTS Income from equity-accounted investments as per income statement Dividends received from equity-accounted investments Non-cash flow income from equity-accounted investments 25.9 INCOME FROM INVESTMENTS Income from investments as per income statement Non-cash flow dividends in specie received from subsidiary 25.10 FOREIGN CURRENCY TRANSLATION RESERVE At beginning of year Closing balance Movement Unrealised (losses)/profits in relation to foreign transactions Revaluation of non-current loans Less: Arising on translation of foreign entities: – inventories – trade and other receivables – financial assets – trade and other payables – utilisation of provision – taxation paid – property, plant and equipment acquired – intangible assets – investments acquired – non-current loans – minority loans – share capital 1 898 1 752 (1 898) 1 752 1 663 1 042 (1 663) 1 042 2 2 964 802 (162) (48) (172) (294) (20) (30) (8) (5) (1) 43 2 (30) (123) 1 (123) (88) 2 2 527 964 437 84 (199) 377 51 71 (5) (10) (12) 10 124 6 72 282 (212) (55) 25.11 TRANSLATION OF FOREIGN CASH AND CASH EQUIVALENTS Translation differences on cash and cash equivalents 67 32 6 731 1 319 (4 600) 2 131 1 319 (3) 3 (3) 4 3 3 1 (3) (3) 1 (3) 1 (4) 1 204 I Exxaro Annual Report 2009 26. OTHER COMPREHENSIVE INCOME 2009 2008 GROUP Exchange differences on translating foreign operations Currency translation differences – Less: Reclassification adjustments for exchange differences realised on liquidation of subsidiaries Share of other comprehensive income of associates Share-based payments movements Financial instruments fair value movements recognised in equity on cash flow hedges: (Losses)/gains arising during the year COMPANY Currency translation differences Share-based payments movement Before-tax amount Rm Net-of-tax amount Rm Tax Rm Before-tax amount Rm (35) (35) (62) (62) (97) (97) 8 118 (474) (474) (383) 3 83 86 15 189 189 142 9 9 8 133 (285) (285) (241) 3 92 95 193 215 22 187 92 520 520 992 (3) 66 63 Tax Rm 57 57 (172) (172) (115) Net-of-tax amount Rm 250 272 22 187 92 348 348 877 (3) 66 63 Exxaro Annual Report 2009 I 205 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 27. FINANCIAL INSTRUMENTS 27.1 CARRYING AMOUNTS AND FAIR VALUE AMOUNTS OF FINANCIAL INSTRUMENTS The tables below set out the group’s and company’s classification of each class of financial assets and liabilities, as well as their fair values. At fair value through profit or loss Held for trading Rm Designated Rm 429 422 7 429 17 446 153 153 28 28 181 51 51 51 75 75 45 45 120 GROUP 2009 ASSETS Non-current assets Property, plant and equipment Biological assets Intangible assets Investments in associates and joint ventures Deferred tax Financial assets, consisting of: – Exxaro Environmental Rehabilitation Trust asset – Richards Bay Coal Terminal (RBCT) – Ndzalama game reserve – Long-term receivables Total non-current assets Current assets Inventories Trade and other receivables Tax receivable Derivative financial instruments Cash and cash equivalents Total current assets Non-current assets classified as held for sale Total assets EQUITY AND LIABILITIES Capital and reserves Share capital Non-distributable reserves Retained earnings/(loss) Equity attributable to equity holders of the parent Minority interest Total equity Non-current liabilities Interest-bearing borrowings Non-current provisions Derivative financial instruments Deferred tax Total financial non-current liabilities Current liabilities Trade and other payables Derivative financial instruments Interest-bearing borrowings Tax Current provisions Total current liabilities Non-current liabilities classified as held for sale Total liabilities 206 I Exxaro Annual Report 2009 Held-to- maturity investments at amortised cost Rm Loans and receivables at amortised cost Rm Available-for- sale financial assets at fair value Rm Financial liabilities at amortised cost Rm Non-financial assets and liabilities at cost Rm Total carrying amount Rm Fair value of financial instruments Rm Maximum exposure of the carrying amount to credit risk Rm 420 420 420 2 649 1 023 3 673 23 4 116 368 368 368 368 11 869 41 87 1 966 629 14 592 3 133 421 57 3 611 47 18 249 2 141 2 046 8 721 12 908 1 12 909 211 1 853 995 3 059 92 49 57 27 225 37 16 231 11 869 41 87 1 966 629 1 217 422 368 7 420 15 809 3 133 3 070 57 51 1 023 7 334 86 23 229 2 141 2 046 8 721 12 908 1 12 909 4 347 1 853 75 995 7 270 2 465 45 407 57 27 3 001 49 23 229 1 217 422 368 7 420 2 649 57 51 1 023 1 217 422 368 7 420 2 649 57 51 1 023 40 40 4 136 75 2 373 45 330 57 12 3 983 3 983 2 373 330 2 703 12 6 698 Exxaro Annual Report 2009 I 207 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 27. FINANCIAL INSTRUMENTS (continued) 27.1 CARRYING AMOUNTS AND FAIR VALUE AMOUNTS OF FINANCIAL INSTRUMENTS (continued) GROUP 2008 ASSETS Non-current assets Property, plant and equipment Biological assets Intangible assets Investments in associates and joint ventures Deferred tax Financial assets, consisting of: – Exxaro Environmental Rehabilitation Trust asset – Richards Bay Coal Terminal (RBCT) – Igoda – Mafube – Ndzalama game reserve – Derivatives – Long-term receivables Total non-current assets Current assets Inventories Trade and other receivables Tax receivable Derivative financial instruments Cash and cash equivalents Total current assets Non-current assets classified as held for sale Total assets EQUITY AND LIABILITIES Capital and reserves Share capital Non-distributable reserves Retained earnings Equity attributable to equity holders of the parent Minority interest Total equity Non-current liabilities Interest-bearing borrowings Non-current provisions Derivative financial instruments Deferred tax Total financial non-current liabilities Current liabilities Trade and other payables Derivative financial instruments Interest-bearing borrowings Tax Current provisions Total current liabilities Non-current liabilities classified as held for sale Total liabilities At fair value through profit or loss Held for trading Rm Designated Rm 360 360 360 256 256 616 31 31 63 63 94 348 342 6 348 15 363 127 127 123 123 250 As disclosed in the table above, financial liabilities with a carrying amount and fair value of R181 million (2008: R250 million) have been designated at fair value through profit or loss. The carrying amount of the financial liabilities designated at fair value through profit or loss at 31 December 2009 was the same as the contractual amount at maturity date for the year ended 31 December 2009 (2008: R2 million lower than the contractual amount ) for the group. 208 I Exxaro Annual Report 2009 Held-to- maturity investments at amortised cost Rm Loans and receivables at amortised cost Rm Available-for- sale financial assets at fair value Rm Financial liabilities at amortised cost Rm Non-financial assets and liabilities at cost Rm Total carrying amount Rm Fair value of financial instruments Rm Maximum exposure of the carrying amount to credit risk Rm 488 488 488 2 668 2 1 769 4 439 19 4 946 381 351 25 5 381 381 11 309 34 79 1 849 1 083 14 354 2 481 2 481 44 16 879 2 098 2 190 8 708 12 996 128 13 124 249 1 746 1 257 3 252 4 21 25 50 16 451 11 309 34 79 1 849 1 083 1 577 342 351 25 5 6 360 488 15 931 2 481 2 668 2 256 1 769 7 176 78 23 185 2 098 2 190 8 708 12 996 128 13 124 3 650 1 746 31 1 257 6 684 2 303 63 500 440 21 3 327 50 23 185 3 274 3 274 2 303 373 440 3 116 6 390 1 577 342 351 25 5 6 360 488 2 688 2 256 1 769 1 577 342 351 25 5 6 360 488 2 688 2 256 1 769 34 34 2 303 63 532 440 Exxaro Annual Report 2009 I 209 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 27. FINANCIAL INSTRUMENTS (continued) 27.1 CARRYING AMOUNTS AND FAIR VALUE AMOUNTS OF FINANCIAL INSTRUMENTS (continued) At fair value through profit or loss Held for trading Rm Designated Rm 11 11 11 11 34 34 34 34 34 34 COMPANY 2009 ASSETS Non-current assets Property, plant and equipment Intangible assets Investments in associates and joint ventures Investments in subsidiaries Deferred tax Financial assets, consisting of: – Exxaro Environmental Rehabilitation Trust asset – Derivatives Total non-current assets Current assets Trade and other receivables Derivative financial instruments Tax receivable Cash and cash equivalents Total current assets Non-current assets classified as held for sale Total assets EQUITY AND LIABILITIES Capital and reserves Share capital Non-distributable reserves Retained earnings/(loss) Equity attributable to equity holders of the parent Total equity Non-current liabilities Interest-bearing borrowings Derivatives Non-current provisions Total financial non-current liabilities Current liabilities Trade and other payables Derivative financial instruments Interest-bearing borrowings Total current liabilities Total equity and liabilities 210 I Exxaro Annual Report 2009 Held-to- maturity investments at amortised cost Rm Loans and receivables at amortised cost Rm Available-for- sale financial assets at fair value Rm Financial liabilities at amortised cost Rm Non-financial assets and liabilities at cost Rm Total carrying amount Rm Fair value of financial instruments Rm Maximum exposure of the carrying amount to credit risk Rm 3 346 3 346 7 056 343 7 399 10 745 3 346 3 346 11 11 11 7 056 34 14 343 11 11 11 7 056 34 14 343 240 10 3 322 87 240 10 6 668 87 11 11 3 658 7 016 7 056 34 14 343 7 447 18 14 481 2 318 1 041 7 038 10 397 10 397 14 18 3 676 2 318 1 041 7 038 10 396 10 396 28 28 24 24 10 448 3 335 3 335 301 362 663 3 998 3 335 3 335 28 3 363 325 34 362 721 14 481 325 34 362 Exxaro Annual Report 2009 I 211 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 27. FINANCIAL INSTRUMENTS (continued) 27.1 CARRYING AMOUNTS AND FAIR VALUE AMOUNTS OF FINANCIAL INSTRUMENTS (continued) COMPANY 2008 ASSETS Non-current assets Property, plant and equipment Intercompany loans debits Investments in subsidiaries Deferred tax Financial assets, consisting of: – Exxaro Environmental Rehabilitation Trust asset – Derivatives Total non-current assets Current assets Trade and other receivables Tax receivable Derivative financial instruments Cash and cash equivalents Total current assets Non-current assets classified as held for sale Total assets EQUITY AND LIABILITIES Capital and reserves Share capital Other components of equity Retained earnings Total equity Non-current liabilities Interest-bearing borrowings Derivative financial instruments Non-current provisions Total financial non-current liabilities Current liabilities Trade and other payables Interest-bearing borrowings Current tax payable Derivative instruments Total current liabilities Total liabilities At fair value through profit or loss Held for trading Rm Designated Rm 10 10 10 10 31 31 31 13 13 44 31 31 13 13 44 As disclosed in the table above, there were no financial liabilities designated at fair value through profit or loss as at 31 December 2009 for the company. 212 I Exxaro Annual Report 2009 Held-to- maturity investments at amortised cost Rm Loans and receivables at amortised cost Rm Available-for- sale financial assets at fair value Rm Financial liabilities at amortised cost Rm Non-financial assets and liabilities at cost Rm Total carrying amount Rm Fair value of financial instruments Rm Maximum exposure of the carrying amount to credit risk Rm 2 867 2 867 5 060 478 5 538 13 8 418 176 3 290 104 3 570 3 570 2 276 946 5 025 8 247 24 24 8 271 176 6 157 104 41 10 31 6 478 2 867 2 867 41 10 31 41 10 31 5 060 5 060 5 060 13 478 13 13 478 13 2 708 31 804 205 10 13 478 5 551 13 12 042 2 276 946 5 025 8 247 2 708 31 24 2 763 804 205 10 13 1 032 12 042 2 708 2 708 804 205 10 1 019 3 727 Exxaro Annual Report 2009 I 213 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 27. FINANCIAL INSTRUMENTS (continued) 27.1 CARRYING AMOUNTS AND FAIR VALUE AMOUNTS OF FINANCIAL INSTRUMENTS (continued) The Exxaro Environmental Rehabilitation Trust Fund (EERF) was created and complies with the requirements of both the minerals and petroleum resources activities. The EERF receives, holds and invests funds contributed by the Exxaro group of companies for the rehabilitation or management of negative environmental impacts associated with mining and exploration activities. The EERF receives, holds and invests funds contributed by the Exxaro mining operations, which contributions are aimed at providing for sufficient funds at date of estimated closure of mining activities to address the rehabilitation and environmental impacts. The trustees of the fund are appointed by Exxaro and consist of sufficiently qualified Exxaro employees capable of fulfilling their fiduciary duties. The funds are invested by Exxaro’s in-house treasury department with reputable financial institutions in accordance with a strict mandate to ensure capital preservation and real growth. Funds accumulated for a specific mine or exploration project can only be utilised for the rehabilitation and environmental impacts of that specific mine or project. If a mine or exploration project withdraws from the fund for whatever valid reason, the funds accumulated for such mine or exploration project are transferred to a similar fund approved by the Commissioner of South African Revenue Services. The fund can not be closed down without the permission of the Commissioner of the South African Revenue Services. R67 million (2008: R143 million) of the investments designated at fair value through profit or loss and the EERF are equity investments listed on the JSE Limited. Included in the long-term receivables is an amount of R420 million (2008: R481 million) recoverable from Eskom in respect of the rehabilitation and environmental expenditure of the Matla and Arnot mines at the end-of-life of these mines. The corresponding anticipated liability is disclosed as part of non-current provisions (refer note 22). A 2% increase in the JSE industry average at reporting date would have increased equity by Rnil (2008: R1,1 million) after tax; an equal change in the opposite direction would have decreased equity by Rnil (2008: R1,1 million). The impact on profit or loss would have been an increase or decrease of Rnil (2008: R1 million) after tax. The analysis has been performed on the same basis for 2008. There were no allowances for impairments on long-term receivables or investments in equity instruments at cost during the period under review. 214 I Exxaro Annual Report 2009 27. FINANCIAL INSTRUMENTS (continued) 27.1 CARRYING AMOUNTS AND FAIR VALUE AMOUNTS OF FINANCIAL INSTRUMENTS (continued) FAIR VALUES Fair value hierarchy level Financial assets and liabilities at fair value have been categorised in the following hierarchy structure: Level 1 – Quoted prices (unadjusted) in active markets for identical assets and liabilities. Level 2 – Inputs other than quoted prices included in Level 1 that are either directly or indirectly observable for the asset/liability. Level 3 – Inputs for the asset/liability that are not based on observable market data (unobservable inputs). Fair value Rm Level 1 Rm Level 2 Rm Level 3 Rm Description GROUP 2009 Financial assets held for trading at fair value through profit or loss – Current derivatives Financial assets designated as at fair value through profit or loss – Exxaro Environmental Rehabilitation Trust – Ndzalama game reserve Available-for-sale financial assets – Richards Bay Coal Terminal Financial liabilities held for trading at fair value through profit or loss – Non-current derivatives – Current derivatives Financial liabilities designated as at fair value through profit or loss – Non-current interest-bearing borrowings – Current interest-bearing borrowings 422 422 51 51 429 422 7 368 368 120 75 45 181 153 28 51 51 120 75 45 181 153 28 351 7 7 368 368 375 Total 1 148 422 Reconciliation of Level 3 hierarchy Opening balance Movement during the year Total gains or losses for the period recognised in profit or loss Purchases Sales Transfers out of Level 3 Closing balance Ndzalama game reserve Rm Richards Bay Coal Terminal Rm 6 1 7 351 50 (33) 368 Igoda Rm 25 Mafube Rm 5 (25) (5) Exxaro Annual Report 2009 I 215 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 27. FINANCIAL INSTRUMENTS (continued) 27.1 CARRYING AMOUNTS AND FAIR VALUE AMOUNTS OF FINANCIAL INSTRUMENTS (continued) FAIR VALUES Description COMPANY 2009 Financial assets held for trading at fair value through profit or loss – Current derivatives Financial assets designated as at fair value through profit or loss – Exxaro Environmental Rehabilitation Trust Fair value Rm Level 1 Rm Level 2 Rm Level 3 Rm 34 34 11 11 34 34 At 31 December 2009 the carrying amounts of cash and cash equivalents, trade and other receivables and trade and other payables approximate their fair values due to the short-term maturities of these assets and liabilities. Of the financial assets and liabilities as at 31 December 2009 and 2008, the interest-bearing borrowings had their fair values determined based on published price quotation in active market. The borrowings’ net present value (NPV) is calculated using the nominal annual compounding annually (NACA) rate. No financial assets and liabilities had their fair value determined using valuation techniques during the year ended 31 December 2009 or 2008. For the financial year ended 31 December 2009, the investment in Richards Bay Coal Terminal (RBCT) had no active market available. RBCT is the largest single export coal terminal in the world and is situated in Richards Bay. It is a 24-hour shipment/ export operation. Exxaro acquired 8 662 shares (1,20% stake) in RBCT through the merger of the former Eyesizwe (Pty) Limited and Kumba Resources Limited which was valued at R2 million on 1 November 2006. Additional 10 000 shares were acquired in RBCT on 30 June 2008 for R213 million. These shares were purchased at a price of US$30 million. The 10 000 ordinary shares entitle Exxaro to a 1,39% shareholding in RBCT. The 10 000 shares also entitle Exxaro to 1Mt of export allocation. All the shareholders in RBCT acquire equity instruments in order to obtain the right to export coal. The South Dunes Coal Terminal (SDCT) also holds an investment in RBCT, of which Exxaro Coal (a 100% subsidiary of Exxaro Resources Limited) holds 33% in SDCT, with the effective value of R186 million at 31 December 2009 (2008: R136 million). All this, coupled with minor wharfage expenses, results in the overall investment in RBCT with a carrying value of R401 million (2008: R351 million). The fair value could not be measured reliably because RBCT shares do not form part of an active market as there are no other shares available in South Africa. Willing buyers and sellers can not be found at any time (restricted to a select few) of the same nature (homogenous) and prices are not available to the public. Although one could attach a certain set of market influences that significantly affect the value of such shares, the volatility of eg freight rates would cause the valuation to vary significantly. The fair value of the financial instruments at initial recognition was determined to be the transaction price. Upon initial recognition no differences existed as a result of the fair value upon initial recognition differing to the value of the financial instrument determined using a valuation technique. Subsequent to initial recognition, as the fair value of the investment in RBCT could not be measured reliably, the investment has been carried at cost. The carrying value of the investment in RBCT is R401 million (2008: R351 million). It is not anticipated that the RBCT investments will be disposed of in the near future as the group has no intent to dispose of it. 27.2 RECLASSIFICATION OF FINANCIAL ASSETS No reclassification of financial assets occurred during the period. 216 I Exxaro Annual Report 2009 27. FINANCIAL INSTRUMENTS (continued) 27.3 STATEMENT OF CHANGES IN EQUITY Included in the statement of “other comprehensive income non-owner related movements” are the following pre-tax adjustments relating to financial instruments: Effective portion of change in fair value of cash flow hedge Amount removed from equity and included in initial carrying amount or cost of non-financial asset The above amounts are all included in the hedging reserve. 27.4 RISK MANAGEMENT GROUP COMPANY 2009 Rm 2008 Rm 2009 Rm (256) 2008 Rm 256 (256) 256 27.4.1 Financial risk management The group’s corporate treasury function (other than Exxaro Australia Sands (Pty) Limited which operates on a decentralised basis but within the approved group policies), provides financial risk management services to the business, co-ordinates access to domestic and international financial markets, and monitors risks. These risks include market risk (including foreign currency risk, interest rate risk and price risk), credit risk and liquidity risk. The group’s objectives, policies and processes for measuring and managing these risks are detailed below. The group’s management of capital is detailed in the report of the directors. The group seeks to minimise the effects of these risks by using derivative financial instruments to hedge these risk exposures. The use of derivative financial instruments is governed by the group’s policies approved by the board of directors, which provide written principles on foreign exchange risk, interest rate risk, credit risk, the use of financial derivatives and non- derivative financial instruments, and the investment of excess liquidity. Compliance with policies and exposure limits is reviewed by the internal auditors on a continuous basis and results are reported to the board audit committee. The group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. The group enters into financial instruments to manage and reduce the possible adverse impact on earnings and cash flows of changes in interest rates, foreign currency exchange rates and commodity prices. Compliance with policies and exposure limits is reviewed by the internal auditors annually, with the results being reported to the audit committee. 27.4.2 Market risk management Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates, commodity prices and equity prices, will affect the group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk. The group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates (see 27.4.2.1 below), commodity prices (see 27.4.2.2 below) and interest rates (see 27.4.2.3 below). The group enters into a variety of derivative financial instruments to manage its exposure to interest rate, foreign currency risks and commodity price risks, including: – Forward foreign exchange contracts (FECs) and currency options to hedge the exchange rate risk arising on the export of coal, base metal and mineral sands products as well as imported capital expenditure – Forward interest rate contracts to manage interest rate risk – Interest rate swaps to manage the risk of rising interest rates – Forward exchange contracts to hedge the commodity prices arising on the export of zinc and lead. 27.4.2.1 Foreign currency risk management The group undertakes transactions denominated in foreign currencies, hence exposures to exchange rate fluctuations arise. The currency in which transactions are entered into is mainly denominated in US dollars (USD), euros, and Australian dollars (AUD). Exchange rate exposures are managed within approved policy parameters utilising FECs, currency options and currency swap agreements. The group maintains a fully covered exchange rate position in respect of foreign currency borrowings and imported capital equipment resulting in these exposures being fully converted to rand. Trade-related import exposures are managed through the use of economic hedges arising from export revenue as well as through FECs. Trade-related export exposures are hedged using FECs and options with specific focus on short-term receivables. Exxaro Annual Report 2009 I 217 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 27. FINANCIAL INSTRUMENTS (continued) 27.4 RISK MANAGEMENT (continued) 27.4.2 Market risk management (continued) 27.4.2.1 Foreign currency risk management (continued) Uncovered foreign debtors at 31 December 2009 amount to US$142 million (2008: US$65 million), whereas uncovered cash and cash equivalents amount to R40 million (2008: R53 million). All capital imports were fully hedged. There were no imports (other than capital imports) which were not fully hedged during both 2009 and 2008. Monetary items have been translated at the closing rate at the last day of the reporting period US$1: R7,40 (2008: US$1: R9,36). The FECs which are used to hedge foreign currency exposure mostly have a maturity of less than one year from the reporting date. When necessary, FECs are rolled over at maturity. Pre-tax unrealised exchange gains amounting to Rnil (2008: R9 million), arising from the revaluation of Exxaro Australia Sands Pty Limited foreign currency loans for which an economic hedge exists through specific future export sales revenue, were recognised in equity as hedge accounting was applied. The following significant exchange rates applied for both group and company during the year: 2009 United States dollar Euro Australian dollar 2008 United States dollar Euro Canadian dollar Australian dollar Average spot rate Average achieved rate Closing spot rate 8,39 11,63 6,60 8,25 12,04 7,71 6,93 7,48 10,90 6,77 8,10 11,90 7,98 7,07 7,40 10,64 6,64 9,36 13,18 7,67 6,48 Foreign currency Material FECs and currency options, which relate to specific balance sheet items, that do not form part of a hedging relationship or for which hedge accounting was not applied at 31 December 2009 and 31 December 2008, are summarised as follows: Market- related value Rm Foreign amount million Contract value Rm Recog- nised fair value profits/ (losses) Rm 164 22 175 11 47 5 53 6 GROUP 2009 Exports United States dollar – FECs 2008 Exports United States dollar – FECs 218 I Exxaro Annual Report 2009 27. FINANCIAL INSTRUMENTS (continued) 27.4 RISK MANAGEMENT (continued) 27.4.2 Market risk management (continued) 27.4.2.1 Foreign currency risk management (continued) Cash flow hedges – foreign currency risk The group has entered into certain forward exchange contracts, which relate to specific foreign commitments not yet due and export earnings for which the proceeds are not yet receivable. Details of the contracts at 31 December 2009 and 31 December 2008 are as follows: GROUP 2009 Imports United States dollar – FECs Euro – FECs Less than three months Six months Total Less than three months Three months Total Exports United States dollar – FECs Less than three months United States dollar – Note holders loan One year > three years Total Market- related value Rm Foreign currency million Contract value Rm Recog- nised fair value in equity Rm 12 2 14 11 2 13 133 12 432 577 3 3 1 1 18 2 58 78 10 3 13 10 2 12 135 12 432 579 1 1 1 1 (2) (2) Note: In respect of a US$60 million (2008: 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. Exxaro Annual Report 2009 I 219 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 27. FINANCIAL INSTRUMENTS (continued) 27.4 RISK MANAGEMENT (continued) 27.4.2 Market risk management (continued) 27.4.2.1 Foreign currency risk management (continued) Cash flow hedges – foreign currency risk (continued) With respect to the above-mentioned cash flow hedges, the future expected cash flows are represented below: Expected future cash flows – United States dollar – FECs – Euro – FECs – United States dollar – Note holders loan Expected gain/(loss) in profit or loss (at maturity) – United States dollar – FECs – Euro – FECs – United States dollar – Note holders loan GROUP 2008 Imports United States dollar – FECs Euro – FECs Less than three months Three months Total Less than three months Total Exports United States dollar – Note holders loan Less than three months Three months Six months United States dollar – Note holders loan > three years Attributable to tax Total 2010 Rm 135 12 (2) 1 2011 Rm >2011 Rm Total Rm 12 432 135 12 444 (2) 1 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 (2008: 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. 220 I Exxaro Annual Report 2009 27. FINANCIAL INSTRUMENTS (continued) 27.5 RISK MANAGEMENT (continued) 27.4.2 Market risk management (continued) 27.4.2.1 Foreign currency risk management (continued) Cash flow hedges – foreign currency risk (continued) With respect to the above-mentioned cash flow hedges, the future expected cash flows are represented below: Expected future cash flows – United States dollar – FECs – Euro – FECs – United States dollar – Note holders loan Expected gain/(loss) in profit or loss (at maturity) – United States dollar – FECs – Euro – FECs – Canadian dollar – FECs – United States dollar – Note holders loan 2009 Rm > 2009 Rm Total Rm 141 19 561 561 2009 Rm 141 19 (27) (1) (9) Market- related value Rm Foreign currency million Contract value Rm (27) (1) (9) Recog- nised fair value in equity Rm COMPANY 2009 Imports Euro – FECs Less than three months Total 1 1 1 1 With respect to the above-mentioned cash flow hedges, the future expected cash flows are represented below: Expected future cash flows – United States dollar – FECs – Euro – FECs 2009 Rm 2010 Rm 2011 Rm Total Rm 1 1 Exxaro Annual Report 2009 I 221 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 27. FINANCIAL INSTRUMENTS (continued) 27.4 RISK MANAGEMENT (continued) 27.4.2 Market risk management (continued) 27.4.2.1 Foreign currency risk management (continued) Cash flow hedges – foreign currency risk (continued) Market- related value Rm Foreign currency million Contract value Rm Recog- nised fair value in equity Rm COMPANY 2008 Imports United States dollar – FECs Less than three months Total 1 1 0,1 0,1 1 1 With respect to the above-mentioned cash flow hedges, the future expected cash flows are represented below: Expected future cash flows – 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 while 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$1) represents a weakening of the rand against the US$, which results in a loss incurred of R0,40. The opposite applies for a decrease in the exchange rate. GROUP United States dollar Euro COMPANY United States dollar PROFIT OR LOSS EQUITY 2009 Rm 2008 Rm 2009 Rm 2008 Rm 167 248 (28) (4) 17 115 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 R11,0:€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. 222 I Exxaro Annual Report 2009 27. FINANCIAL INSTRUMENTS (continued) 27.4 RISK MANAGEMENT (continued) 27.4.2 Market risk management (continued) 27.4.2.2 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 flow price hedges for coal at year-end are insignificant due to limited hedged exports and fixed price agreements. As of 31 December 2009 the net fair value of commodity derivatives reflected a R87 million loss (2008: R583 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 R13 million (2008: R21 million). Prices for future purchases and sales of goods and services are generally established on normal commercial terms through agents or directly 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 flow volatility. Price hedging is also undertaken for future lead sales at Rosh Pinah. The potential profit 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 2008. There is no impact on the profit or loss for both 2009 and 2008. Lead Zinc PROFIT OR LOSS EQUITY 2009 Rm 2008 Rm 2009 Rm (2) (11) 2008 Rm (3) (18) 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 flow hedges – commodity risk The forward hedged position at balance sheet date is shown below: 2009 Recognised transactions Lead Price Currency Zinc Price Currency Attributable to: – tax – minority shareholders Market- related value Rm Tons Foreign currency million Contract value Rm Recog- nised fair value in equity Rm 10 675 53 100 138 158 1 237 1 070 20 20 114 85 186 186 1 056 1 185 2 603 239 2 613 (48) 28 (181) 115 (18) (9) (113) Exxaro Annual Report 2009 I 223 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 27. FINANCIAL INSTRUMENTS (continued) 27.4 RISK MANAGEMENT (continued) 27.4.2 Market risk management (continued) 27.4.2.2 Commodity risk management Cash flow hedges – commodity risk (continued) With respect to the above-mentioned hedges, the future expected cash flows are represented below: Expected future cash outflows Lead Zinc 2008 Recognised transactions Lead Price Currency Zinc Price Currency Attributable to: – tax – minority shareholders 2010 Rm 162 917 2011 Rm Total Rm 210 931 372 1 848 Market- related value Rm Tons Foreign currency million Contract value Rm Recog- nised fair value in equity Rm 18 825 81 750 161 314 939 1 337 30 30 173 130 276 276 1 356 1 166 2 751 363 3 074 115 (38) 416 (171) (134) (99) 90 With respect to the above-mentioned hedges, the future expected cash flows are represented below: Expected future cash outflows Lead Zinc Expected gain/(loss) in profit or loss (at maturity) Lead Zinc 2009 Rm 2010 Rm 2011 Rm 2012 Rm Total Rm 138 736 20 181 151 847 16 174 214 867 39 138 49 71 552 2 521 7 9 82 501 224 I Exxaro Annual Report 2009 27. FINANCIAL INSTRUMENTS (continued) 27.4 RISK MANAGEMENT (continued) 27.4.2 Market risk management (continued) 27.4.2.3 Interest rate risk management The group is exposed to interest rate risk as it borrows and deposits funds at both fixed and floating interest rates on the money market. The risk is managed by maintaining an appropriate mix between fixed and floating rate borrowings taking into account future interest rate expectations. The risk is also managed by entering into interest rate swaps. The financial institutions chosen are subject to compliance with the relevant regulatory bodies. A proportion of term through borrowings entered into at floating interest rates in anticipation of a decrease in the interest rate cycle. The interest rate repricing profile is summarised below: 1 – 6 months Rm 7 – 12 months Rm Beyond 1 year Rm Total borrowings Rm At 31 December 2009 Term borrowings (under the IFRS 7 scope) % of total borrowings At 31 December 2008 Term borrowings (under the IFRS 7 scope) % of total borrowings 3 790 100 3 336 86 704 4 494 100 561 14 3 897 100 The group makes use of interest rate derivatives to hedge specific exposures in the interest rate repricing profile of existing borrowings. 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 Rm Floating interest payable % Floating interest receivable % Fixed interest payable % Fixed interest receivable Recog- nised fair value gain/(loss) Rm At 31 December 2009 Local Interest rate derivatives beyond one year: – Interest rate swaps At 31 December 2008 Local Interest rate derivatives beyond one year: – Interest rate swaps 675 3m Jibar 11,1 (13) 675 3m Jibar 11,1 2 The following table reflects the potential impact on earnings, given a movement in interest rates of 50 basis points: Increase of 50 basis points in interest rate Decrease of 50 basis points in interest rate 2009 Rm 2008 Rm 2009 Rm 2008 Rm Profit/(loss) (18) (16) 18 16 Exxaro Annual Report 2009 I 225 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 27. FINANCIAL INSTRUMENTS (continued) 27.4 RISK MANAGEMENT (continued) 27.4.3 Liquidity risk management Liquidity risk is the risk that the group will not be able to meet its financial obligations as they fall due. The group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient 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 flows 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 financial 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 GROUP 2009 Rm 16 136 4 754 11 382 2008 Rm 16 245 4 150 12 095 The group’s capital base, the borrowing powers of the company and the group were set at 125% of shareholders’ funds for both the 2009 and 2008 financial 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, financial risk management policies and procedures are entrenched to ensure the timeous matching of orders placed with goods received notes or services acceptances and invoices. 226 I Exxaro Annual Report 2009 27. FINANCIAL INSTRUMENTS (continued) 27.4 RISK MANAGEMENT (continued) 27.4.3 Liquidity risk management (continued) Maturity profile of financial instruments The following table details the group’s contractual maturities of financial liabilities: Maturity Carrying amount Rm Con- tractual cash flows Rm 0 – 12 months Rm 1 – 2 years Rm 2 – 5 years Rm More than 5 years Rm GROUP 2009 Financial assets Exxaro Environmental Rehabilitation Trust asset Richards Bay Coal Terminal (RBCT) Ndzalama game reserve Derivatives Long-term receivables Trade and other receivables Cash and cash equivalents Percentage profile (%) Financial liabilities Interest-bearing borrowings Trade and other payables Derivatives Percentage profile (%) Derivative financial liabilities (included in the above) Foreign exchange forward contracts used for hedging – Sell (rand inflow) Other forward exchange contracts – Buy (rand outflow) 439 368 7 51 420 2 673 1 023 4 980 100 4 494 2 385 120 6 999 100 175 24 320 235 420 975 20 439 368 7 51 420 2 673 1 023 4 980 100 4 494 2 385 120 6 999 100 51 2 673 1 023 3 746 75 407 2 385 45 2 832 40 11 33 108 99 7 44 1 214 4 742 3 345 75 817 12 3 350 48 Exxaro Annual Report 2009 I 227 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 27. FINANCIAL INSTRUMENTS (continued) 27.4 RISK MANAGEMENT (continued) 27.4.3 Liquidity risk management (continued) Maturity Carrying amount Rm Con- tractual cash flows Rm 0 – 12 months Rm 1 – 2 years Rm 2 – 5 years Rm More than 5 years Rm 342 351 25 5 6 488 2 668 2 616 1 769 34 6 306 100 3 897 2 303 94 440 6 734 100 342 351 25 5 6 488 2 668 2 616 1 769 34 6 306 100 3 897 2 303 94 440 6 734 100 4 4 25 53 98 1 281 228 25 5 6 487 2 668 2 220 1 769 34 4 697 75 495 2 303 63 440 3 301 49 363 33 392 6 185 3 1 032 16 323 2 812 267 75 (44) 398 6 2 768 41 267 4 GROUP 2008 Financial assets Exxaro Environmental Rehabilitation Trust asset Richards Bay Coal Terminal (RBCT) Igoda Mafube Ndzalama game reserve Long-term receivables Trade and other receivables Tax receivable Derivatives Cash and cash equivalents Non-current assets held for sale Percentage profile (%) Financial liabilities Interest-bearing borrowings Trade and other payables Derivatives Current tax payable Percentage profile (%) Derivative financial liabilities (included in the above) Foreign exchange forward contracts used for hedging – Sell Other forward exchange contracts – Buy 23 53 228 I Exxaro Annual Report 2009 27. FINANCIAL INSTRUMENTS (continued) 27.4 RISK MANAGEMENT (continued) 27.4.3 Liquidity risk management (continued) Maturity Carrying amount Rm Con- tractual cash flows Rm 0 – 12 months Rm 1 – 2 years Rm 2 – 5 years Rm More than 5 years Rm Company 2009 Financial assets Exxaro Environmental Rehabilitation Trust asset Trade and other receivables Derivative financial instruments Cash and cash equivalents Percentage profile (%) Financial liabilities Interest-bearing borrowings Trade and other payables Derivatives Percentage profile (%) Derivative financial liabilities (included in the above) Foreign exchange forward contracts used for hedging – Buy 11 10 402 34 343 10 791 100 3 697 301 32 4 030 100 1 11 10 402 34 343 10 791 100 3 697 301 32 4 030 100 10 402 34 343 10 779 99,9 362 301 32 695 17 11 11 0,1 619 2 716 619 16 2 716 67 Exxaro Annual Report 2009 I 229 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 27. FINANCIAL INSTRUMENTS (continued) 27.4 RISK MANAGEMENT (continued) 27.4.3 Liquidity risk management (continued) Maturity Carrying amount Rm Con- tractual cash flows Rm 0 – 12 months 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 Derivatives Cash and cash equivalents Non-current assets held for sale Percentage profile (%) Financial liabilities Interest-bearing borrowings Trade and other payables Derivatives Taxation Percentage profile (%) Derivative financial liabilities (included in the above) Foreign exchange forward contracts used for hedging – Buy 10 7 927 44 478 13 8 472 100 2 913 804 44 10 3 771 100 1 10 7 927 44 478 13 8 472 100 2 913 804 44 10 3 771 100 7 927 13 478 13 8 431 99 205 804 13 10 1 032 27 10 31 41 1 278 2 430 31 309 8 2 430 65 27.4.4 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 financial institutions of high credit standing. The group exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded are spread among 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 confirmed 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 specific loss component that relates to individually significant 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 financial assets. 230 I Exxaro Annual Report 2009 27. FINANCIAL INSTRUMENTS (continued) 27.4 RISK MANAGEMENT (continued) 27.4.4 Credit risk management (continued) At the reporting date, the amount of change in the fair value of financial liabilities designated at fair value through profit or loss, attributable to credit risk is as follows: Cumulative Current financial year GROUP COMPANY 2009 Rm 2008 Rm (2) (8) 2009 Rm 2008 Rm Exposure to credit risk The carrying amount of financial assets represents the maximum credit exposure. None of the financial instruments below was held as collateral for any security provided. The maximum exposure to credit risk at both reporting dates was equal to the carrying value of financial assets for both group and company. Detail of the trade receivables credit risk exposure: GROUP COMPANY 2009 % 2008 % 2009 % 2008 % By industry Manufacturing (including structural metal and steel) Public utilities Other By geographical area South Africa Asia Europe USA Other 25 32 43 100 41 9 21 15 14 100 53 23 24 100 47 15 22 14 2 100 The group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. Exxaro Annual Report 2009 I 231 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 27. FINANCIAL INSTRUMENTS (continued) 27.4 RISK MANAGEMENT (continued) 27.4.4 Credit risk management (continued) Exposure to credit risk (continued) Financial guarantees are contracts that require the group to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. Guarantee provided by banks to secure financing The carrying amount of the financial assets at reporting date was: Neither past due nor impaired – trade and other receivables – other financial assets – intercompany loan debits – derivative financial instruments – tax receivable – non-current assets held for sale – cash and cash equivalents Past due – trade and other receivables Total financial assets Impaired – trade and other receivables GROUP COMPANY 2009 Rm 2008 Rm 2009 Rm 2008 Rm 4 978 2 671 1 217 51 17 1 023 1 1 6 257 2 619 1 217 616 2 34 1 769 49 49 10 791 10 402 12 34 343 8 472 32 10 7 895 44 13 478 4 980 6 306 10 791 8 472 233 16 3 289 16 Financial assets including impaired receivables 5 213 6 322 14 080 8 488 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 financial assets with renegotiated terms during the 2009 or 2008 reporting periods. Trade and other receivables age analysis Past due but not impaired One – 30 days overdue 31 – 60 days overdue 61 – 90 days overdue >90 days overdue Total carrying amount of financial instruments past due but not impaired Past due and impaired >90 days overdue Total carrying amount of financial instruments past due and impaired Total carrying amount of financial instruments past due or impaired GROUP COMPANY 2009 Rm 2008 Rm 2009 Rm 2008 Rm 1 1 2 233 235 28 15 4 7 54 (5) (5) 3 289 49 3 289 16 16 232 I Exxaro Annual Report 2009 27. FINANCIAL INSTRUMENTS (continued) 27.4 RISK MANAGEMENT (continued) 27.4.4 Credit risk management (continued) Before the financial 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. No collateral was held by the Exxaro group as security and other enhancement over the financial assets during the years ended 31 December 2009 or 2008. Loans and receivables designated at fair value through profit or loss. The group had no loans and receivables designated as at fair value through profit 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 respect to the transaction with that third party. The carrying value of financial assets that may be repledged or resold by counterparties is as follows: Non-current other financial assets Trade and other receivables Cash and cash equivalents GROUP COMPANY 2009 Rm 2008 Rm 2009 Rm 41 45 86 2008 Rm 360 272 102 734 These transactions are conducted under terms that are usual and customary to standard lending and borrowing activities. No financial assets were repledged during the year under review for collateral purposes. Guarantees The group did not during the period obtain financial or non-financial assets by taking possession of collateral it holds as security or calling on guarantees. There were no guarantees provided by banks to secure financing during the financial years ended 31 December 2009 or 2008. For all other guarantees, refer to note 31 on contingent liabilities. 27.4.5 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. Exxaro Annual Report 2009 I 233 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 28. 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 while income is disclosed in note 14. There were no finance costs or expenses in respect of bad debts or doubtful debts incurred with regard to the joint ventures or the associates during the financial years ended 31 December 2009 or 2008. 2009 Joint ventures Rm Associates Rm 2008 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 (refer note 18) – included in trade and other payables (refer note 24) – included in cash and cash equivalents (refer annexure 2) – included in financial assets (refer note 16 and annexure 2) 48 164 1 28 10 311 38 79 223 162 3 5 1 22 217 135 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 2009 Rm 189 38 36 263 Special purpose entities The group has an interest in the following special purpose entities which are consolidated unless otherwise indicated: Entity Nature of business 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 Trust fund for mine closure Employee share incentive trust Local social economic development1 Local social economic development1 Local social economic development – bridging classes1 Management share incentive trust 1 Non-profit organisations. 65 34 2 9 2008 Rm 145 46 40 231 234 I Exxaro Annual Report 2009 28. RELATED PARTY TRANSACTIONS (continued) 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 30. Key management personnel For Exxaro Resources Limited other than the executive and non-executive directors, no other key management personnel were identified. Refer to page 148 and 149 for details on directors’ remuneration. For the group, for 2009 and 2008, the executive committee has been identified as being key management personnel. Short-term employee benefits Termination benefits Share-based payments – related expense Total compensation paid to key management personnel 2009 Rm 34 7 41 2008 Rm 47 9 7 63 Shareholders The principal shareholders of the company at 31 December 2009 are detailed in the “Analysis of Shareholders” schedule on page 79 and 80 of the annual report. Contingent liabilities Details are disclosed in note 31. Exxaro Annual Report 2009 I 235 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 29. OPERATING SEGMENTS Information regarding the group’s reportable segments is presented below. Analysis of the group’s profit or losses and assets and liabilities by reportable segment: Segment profit or loss Segment revenue Total revenue Intersegmental External Segment net operating profit/(loss) Interest income (external) Interest expense Interest adjustment on non-current provisions (refer note 22) Depreciation and amortisation of intangible assets Impairment charge and reversals Income tax expense/(income) Net surplus on disposal of investment Other non-cash flow items not disclosed above Cash inflow from operations Cash generated by 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 Total liabilities Additions in non-current assets1 Coal Tied operations Commercial operations 2009 Rm 2008 Rm 2009 Rm 2008 Rm 2 681 2 492 7 050 6 548 75 2 2 681 2 492 7 050 6 548 83 1 830 2 571 67 30 31 35 61 54 467 370 (60) 42 (38) 42 1 (42) 33 478 21 705 22 139 177 185 111 71 237 2 482 3 033 199 1 943 2 780 924 740 22 2 623 1 491 8 566 5 836 623 1 491 8 588 5 838 795 1 606 1 486 816 899 60 763 133 20 5 409 22 950 2 525 2 658 881 2 006 740 1 Excluding financial instruments, deferred tax, post-employment benefit assets, intercompany loans, investments in subsidiaries. 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 revenue (15% and 31% (2008: 20% and 28%)). The total amount of revenue from these two customers was R2 249 million and R4 643 million respectively (2008: R2 626 million and R3 800 million respectively). 236 I Exxaro Annual Report 2009 KZN Sands Mineral sands Namakwa Sands Australia Sands Rosh Pinah Base metals Zincor Other base metals Other Total 2009 Rm 2008 Rm 2009 Rm 2008 Rm 2009 Rm 2008 Rm 2009 Rm 2008 Rm 2009 Rm 2008 Rm 2009 Rm 2008 Rm 2009 Rm 2008 Rm 2009 Rm 2008 Rm 705 974 1 334 491 1 469 1 311 974 1 334 (110) 3 31 5 62 1 170 (3) 147 491 1 469 1 311 (2) (82) 155 4 18 21 48 66 10 10 161 168 5 32 566 (397) 169 105 5 7 12 55 436 (340) 96 (14) 13 16 (2) 42 1 016 397 1 413 (47) 1 1 18 53 1 393 340 1 733 (95) 2 (66) (63) 7 15 42 (1) 1 705 (1 447) 3 50 (7) 171 1 435 358 29 (71) 21 (180) 22 (4) (9) (75) (7) 29 188 (311) (113) 88 30 66 103 (87) 23 210 121 23 182 260 131 218 86 43 203 188 (2) 26 85 5 11 (35) 94 41 319 87 259 182 126 557 187 69 93 69 133 (65) (70) 136 1 188 198 15 009 13 843 188 (34) 60 389 4 39 37 40 45 52 198 15 009 13 843 304 2 467 (119) 145 153 56 526 346 167 34 48 3 1 136 898 32 (1) (24) 1 435 766 96 6 38 413 3 288 2 117 20 510 (7) 414 3 792 3 574 5 (7) 3 (67) (84) (193) 1 762 93 1 856 79 1 898 1 982 1 663 1 617 179 502 58 (12) (82) 211 83 63 38 20 331 297 629 1 083 1 943 3 252 3 415 3 571 3 453 2 924 473 1 097 1 110 1 002 65 67 986 1 013 20 634 20 253 2 122 3 754 3 473 3 559 3 371 3 135 448 1 229 1 025 109 496 426 299 473 183 64 426 87 496 259 299 182 2 789 448 1 229 1 134 557 187 247 69 1 097 316 284 (4) 596 97 1 193 563 1 065 505 16 579 69 505 133 292 395 41 (39) 4 6 1 202 289 1 (44) (21) (64) 252 1 674 2 991 4 105 11 12 4 128 119 1 966 1 849 1 647 2 957 23 229 23 185 9 268 8 364 3 292 995 1 257 12 57 440 34 3 338 10 320 10 061 3 090 4 782 325 Exxaro Annual Report 2009 I 237 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 29. OPERATING SEGMENTS (continued) 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 2009 Rm 2008 Rm 2009 Rm 2008 Rm 9 279 8 758 12 580 12 424 4 3 445 886 31 1 364 15 009 19 2 823 959 33 1 251 13 843 335 55 1 079 206 74 645 14 049 13 349 1 Excluding financial instruments, deferred tax, post-employment benefit assets, intercompany loans, investments in subsidiaries. No asymmetrical (irregular) allocations to reportable segments occurred during the periods under review. There were no material changes in total assets disclosed from the last annual financial statements. Total segment revenue, which excludes value added tax, represents the gross value of goods invoiced. Export revenue is recorded according to the relevant sales terms, when the risks and rewards of ownership are transferred. The group uses the basis of significant 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 profit 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 were no differences in the way segment assets and liabilities are measured for reportable segments or group purposes. There were no differences in the way segment profit or loss is measured in comparison to the previous annual period or between the reportable segments’ profits or losses and the group’s profit or loss. 30. EMPLOYEE BENEFITS Retirement funds Independent funds provide retirement and other benefits for all permanent employees, retired employees, and their dependants. At the end of the financial year, the main defined contribution retirement funds to which Exxaro was a participating employer, were as follows: – Exxaro Selector Pension Fund and Exxaro Selector Provident Fund – Iscor Employees Umbrella Provident Fund – Mine Workers Provident Fund – Namakwa Sands Employees Provident Fund – Sentinel Mining Industry Retirement Fund. In compliance with the Pension Fund 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 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). 238 I Exxaro Annual Report 2009 30. EMPLOYEE BENEFITS (continued) Retirement funds (continued) Defined contribution funds Membership of each fund at 31 December 2009 and 31 December 2008 and employer contributions to each fund were as follows: GROUP Exxaro Selector Funds Iscor Employees Umbrella Provident Fund Mine Workers Provident Fund Namakwa Sands Employees Provident Fund Sentinel Mining Industry Retirement Fund Other funds COMPANY Exxaro Selector Funds Iscor Employees Umbrella Provident Fund Sentinel Mining Industry Retirement Fund Working members1 Working members1 Employer contributions Employer contributions 2009 Number 2008 Number 2009 Rm 2008 Rm 2 516 3 625 893 1 906 1 177 421 10 538 702 131 38 871 2 470 3 587 870 1 900 830 478 10 135 668 144 30 842 66 37 12 15 31 8 169 25 1 2 28 62 34 2 15 22 12 147 23 1 2 26 1 Working members who are contributing members to an accredited retirement fund. Due to the nature of these funds the accrued liabilities by definition equate to the total assets under control of these funds. Defined benefit funds Exxaro previously disclosed its interest as a participating employer in the closed defined benefit funds namely the Mittal Steel South Africa Pension Funds and Iscor Retirement Fund. Such interest was disclosed while final confirmation 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. Both such final confirmations were received in 2007. The group has a defined benefit obligation for the provision of severance benefits to employees of the Namibian operations in accordance with Namibian law. As the severance benefits are only payable on retirement or the involuntary termination of services from the side of the employer, this is accounted for as a post-retirement service. This plan is a defined benefit obligation. No other post-retirement benefits are provided to these employees. The most recent actuarial valuations of the present value of the defined benefit obligation were carried out at 31 December 2009 by Alexander Forbes. The present value of the defined obligation, and the related current service cost and past service cost, were measured using the projected unit credit method. The principal assumptions used for the purposes of the actuarial valuations were as follows: Discount rate Inflation rate Salary increase rate Amounts recognised in profit or loss in respect of the defined benefit plan were as follows: Current service cost The expense for the year is included in the employee benefits expense in the income statement. 2010 % 9,50 5,75 7,25 2009 % 7,50 4,00 5,50 2009 Rm 1 Exxaro Annual Report 2009 I 239 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 30. EMPLOYEE BENEFITS (continued) Retirement funds (continued) Defined benefit funds (continued) Reconciliation of the opening and closing balances of the present value of the defined obligation: Balance sheet amounts at beginning of year Plus current service cost Plus actuarial gains or less actuarial losses Refer note 22 for detail on liability. Determination of estimated post-retirement expense for the next financial year: Current service cost Interest cost Expense 2009 Rm 3 7 10 2010 Rm 1 1 2 Medical funds The group and company contribute to defined benefit medical aid schemes for the benefit 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 R75 million (2008: R70 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. Eyesizwe’s contribution to the post- retirement medical aid obligation for the year ended 31 December 2009 amounted to R1,4 million (2008: R1,5 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 defined benefit 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 benefit, 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 benefits 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) in December 2006. Kumba Resources was renamed Exxaro Resources Limited (Exxaro) on 27 November 2006. As Sishen Iron Ore was a wholly owned subsidiary of Kumba Resources before the unbundling of Kumba Iron Ore, senior employees and directors of Sishen Iron Ore 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. 240 I Exxaro Annual Report 2009 30. EMPLOYEE BENEFITS (continued) Equity compensation benefits (continued) 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 five 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 five years commencing on the first 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 first anniversary of offer date; – additional 20% after second anniversary of offer date; – additional 20% after third anniversary of offer date; – additional 25% after fourth anniversary of offer date; – additional 25% after fifth anniversary of offer date. The options not exercised lapse by the seventh anniversary of the offer date. 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 option with reference to the volume weighted average price (VWAP) at which Exxaro and Kumba Iron Ore traded for the first 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 the Kumba Management Share Option 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 (20 November 2008). The Kumba Iron Ore options held by Exxaro employees lapse 42 months after the date of unbundling (20 May 2010). 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, remuneration, human resources 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 final 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 difficult to firstly 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 benefits up to the date of the unbundling. The extent to which the conditions were satisfied 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 benefit of the participant for a pledge period of three years. Exxaro Annual Report 2009 I 241 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 30. EMPLOYEE BENEFITS (continued) Equity compensation benefits (continued) 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 with 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; • 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 43 150 shares are outstanding at 31 December 2009 (2008: 73 690). Exxaro made the first annual grant in the Share Appreciation Rights 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 first 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 six percent in the three years. In 2011 and 2012 the minimum increase in HEPS to achieve is CPI plus eight percent and CPI plus 10 percent 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 entitle them to dividends of Exxaro in the five-year period ending November 2011. By the end of the five-year period or capital appreciation period, the units that employee beneficiaries hold in the Trust, will be sold. The capital distribution is the profit that is made on the share units after it is sold and the outstanding loan (used to buy the shares) to Exxaro is settled. 242 I Exxaro Annual Report 2009 30. EMPLOYEE BENEFITS (continued) Equity compensation benefits (continued) 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, DBP 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, remuneration, human resources 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 one percent of the shares then in issue in the share capital of Exxaro. As at 31 December 2009, the maximum number of shares approved and allocated by shareholders for the purposes of the schemes, 30 million (2008: 30 million) represent 8,4% (2008: 8,5%) of the issued shares. Of the total of 30 million shares, 19,9 million (2008: 21,1 million) shares are available in the share scheme for future offers to participants, while 10,1 million (2008: 8,9 million) shares (2,8% 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 2009 Million 30,0 (9,8) (0,3) 19,9 2008 Million 30,0 (7,6) (1,3) 21,1 At 31 December 2009 the company’s loan from the Kumba Resources Management Share Trust amounted to R39 539 138 (2008: R51 199 278). The loan is interest free and has no fixed repayment terms. This amount is reflected 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 R2 078 809 095 (2008: R1 358 122 343). Details of the schemes and plans are: Outstanding at beginning of year Exercised Lapsed/cancelled2 Outstanding at end of year Options1 Exxaro employees Kumba Iron Ore employees December 2009 ’000 December 2008 ’000 December 2009 ’000 December 2008 ’000 3 554 (1 067) (192) 2 295 5 070 (1 464) (52) 3 554 1 272 (928) 344 1 869 (560) (37) 1 272 1 No further grants are made under these schemes and plans that are being phased out have been replaced by the new share incentive schemes. 2 Exercise price range for lapsed/cancelled options: R12,16 – R47,73 (2008: R7,52 – R40,18). Exxaro Annual Report 2009 I 243 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 30. EMPLOYEE BENEFITS (continued) 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 Exxaro employees Kumba Iron Ore employees Deferred Purchase1 December 2009 ’000 December 2008 ’000 December 2009 ’000 December 2008 ’000 4 200 (4 000) 200 5 200 (1 000) 4 200 400 400 400 400 Deferred Bonus Plan Long-Term Incentive Plan2 December 2009 ’000 December 2008 ’000 December 2009 ’000 December 2008 ’000 18 55 (1) (5) 67 2 16 18 906 772 (21) (107) 1,550 481 462 (3) (34) 906 1 No further grants are made under these schemes and plans that are being phased out have been replaced by the new share incentive schemes. 2 There is no amount payable by participants on vesting. They will be awarded rights to ordinary shares in the company. Outstanding at beginning of year Issued 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 period/deferred purchase shares at reporting date paid (R million) Expiry date Exercise price per share (share price range) (R) Total proceeds if rights are immediately exercised/ deferred purchase shares immediately paid (R million) Phantom scheme SARS December 2009 ’000 December 2008 ’000 December 2009 ’000 December 2008 ’000 74 (31) 43 98 (24) 74 3 097 3 194 (8) (432) 5 851 1 422 1 820 (5) (140) 3 097 Long-Term Incentive Plan Deferred Bonus Plan December 2009 December 2008 December 2009 December 2008 2012/2013 69,06 – 85,00 2011/2012 102,14 – 112,35 2012/2013 65,58 – 91,08 2011/2012 89,61 – 111,88 53,4 51,8 4,0 SARS 2,0 December 2009 December 2008 2016 62,83 – 112,35 2014/2015 98,38 – 155,69 222 200 244 I Exxaro Annual Report 2009 30. EMPLOYEE BENEFITS (continued) Details of options/deferred purchase shares exercised during the year are as follows: Exercise price per share (share price range) (R) – Exxaro employees in Exxaro (post-unbundling) – Exxaro employees In Kumba Iron Ore Options Long-Term Incentive Plan December 2009 December 2008 December 2009 December 2008 91,40 – 104,50 48,00 – 160,85 76,50 – 77,30 60,6 (post unbundling) 140,00 – 306,17 107,00 – 376,00 – Kumba Iron Ore employees in Exxaro (post unbundling) Total proceeds if shares are issued (R million) 63,16 – 78,00 541,6 3,86 – 47,73 424,8 0,2 0,2 Deferred Bonus Plan Deferred purchase December 2009 December 2008 December 2009 December 2008 Exercise price per share (share price range) (R) Total proceeds if shares are issued (R million) 77,32 86,45 65,75 – 66,50 0,3 65,00 0,1 Phantom scheme1 SARS December 2009 December 2008 December 2009 December 2008 Exercise price per share (share price range) (R) Total proceeds if shares are issued (R million) 76,00 – 91,28 136,00 – 136,09 67,83 – 92,00 0,2 60,60 0,32 1 The phantom option awards are classified as cash settled since no shares will be issued when exercised. Terms of the options and deferred purchase shares outstanding at 31 December 2009 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 Expiry date 2010 2011 2012 2013 7,32 – 11,59 19,90 – 19,62 13,72 – 32,84 33,47– 47,73 71 60,60 – 102,14 437 69,06 – 112,35 717 63,45 – 67,07 1 070 2 295 64,8 424 415 711 1 550 94,8 Deferred Bonus Plan Deferred purchase Expiry date Exercise price R Out- standing ’000 2010 86,45 2011 89,60 – 111,88 65,58 – 91,08 2012 2 14 51 67 5,2 Exercise price R 18,36 Out- standing 200 200 TOTAL Total proceeds if shares are issued (R million) TOTAL Total proceeds if shares are issued (R million) Exxaro Annual Report 2009 I 245 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 30. EMPLOYEE BENEFITS (continued) Share options held by Exxaro employees in Exxaro (continued) SARS Exercise price R Out- standing ’000 Phantom scheme Exercise price R Out- standing ’000 Expiry date 2010 2012 2014 59,42 – 104,99 2015 62,83 – 155,69 2016 63,45 – 92,51 TOTAL Total proceeds if shares are issued (R million) Share options held by Exxaro employees in Kumba Iron Ore: TOTAL Total proceeds if shares are issued (R million) Share options held by Kumba Iron Ore employees in Exxaro: Expiry date 2010 TOTAL Total proceeds if shares are issued (R million) Options Exercise price R 6,91 – 47,73 Expiry date 2010 Out- standing 000 344 344 9 19,62 19,62 1 179 1 723 2 949 5 851 10 33 43 Options Exercise price R 15,38 – 97,74 Out- standing ’000 1 018 1 018 49,9 Deferred purchase Exercise price R 21,06 Out- standing 000 400 400 The exercise prices of the options held by Exxaro employees in Exxaro and Kumba Iron Ore respectively at 31 December 2008 and 31 December 2009, have been recalculated with reference to the VWAP split of 32,81% for Exxaro and 67,19% for Kumba Iron Ore. The last date for exercising these options is 20 May 2010. Terms of the options and deferred purchase shares outstanding at 31 December 2008 are as follows: Share options held by Exxaro employees in Exxaro: Long-Term Incentive Plan Out- standing 000 465 441 Exercise Out- price standing 000 R 287 60,60 – 102,14 150 112,35 737 1 080 1 300 3 554 90 906 78 Options Exercise price R Expiry date 9,60 – 20,34 2009 2010 7,52 – 19,62 2011 11,09 – 16,62 2012 13,72 – 32,84 2013 33,47 – 47,73 TOTAL Total proceeds if shares are issued (R million) 246 I Exxaro Annual Report 2009 30. EMPLOYEE BENEFITS (continued) Share options held by Exxaro employees in Exxaro (continued) Deferred Bonus Plan TOTAL Total proceeds if shares are issued (R million) Exercise price R Expiry date 2010 86,45 2011 86,60 – 111,88 SARS Exercise price R Expiry date 2012 2014 58,33 – 104,99 112,35 2015 TOTAL Total proceeds if shares are issued (R million) Share options held by Exxaro employees in Kumba Iron Ore: TOTAL Total proceeds if shares are issued (R million) Expiry date 2009 2010 Options Exercise price R 40,62 - 16,11 6,91 - 47,73 12,90 - 13,62 19,62 Expiry date 2009 2010 2011 2012 Out- standing ’000 148 1 118 4 2 1 272 33,1 TOTAL Total proceeds if shares are issued (R million) Deferred purchase Exercise price R 6,97 – 9,17 18,36 Out- standing ’000 4 000 4 000 Phantom scheme Out- standing ’000 Exercise price R 59,80 – 100,10 Out- standing ’000 74 Out- standing ’000 2 16 18 2,0 1 338 1 759 3 097 276,2 74 Options Exercise price R Out- standing ’000 22,04 – 41,66 14,98 – 97,74 217 2 819 3 036 157,5 Deferred purchase Exercise price R Out- standing ’000 21,06 400 400 Exxaro Annual Report 2009 I 247 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 30. EMPLOYEE BENEFITS (continued) 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) Options December 2009 December 2008 1 346 500 7,34 – 47,73 1 488 390 3,84 – 47,43 1 018 210 15,38 – 97,74 3 036 340 7,80 – 97,74 343 890 6,91 – 47,73 1 271 090 6,91 – 47,73 Long-Term Incentive Plan ’000 Options ’000 Deferred Bonus Plan ’000 Deferred purchase ’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 906 906 644 1 550 1 550 18 18 49 67 67 4 826 3 554 1 272 (2 187) 2 639 2 295 344 Directors’ interests in shares For details refer to the report of the directors. SARS ’000 3 097 3 097 4 4 (4) 2 754 5 851 5 851 Total ’000 8 851 7 579 1 272 1 256 10 107 9 763 344 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 modification. 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 modification 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 modification amounted to R12,55 while the incremental fair value for a repriced option amounted to R14,93. 248 I Exxaro Annual Report 2009 30. EMPLOYEE BENEFITS (continued) Fair value of equity-settled share-based payment transactions with employees (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 (%) 2009 2008 Exxaro Kumba Iron Ore Exxaro Kumba Iron Ore 49,00 34,76 13,12 37,90 3,11 4 8,26 10,0 110,00 71,18 26,86 37,90 3,08 4 8,26 10,0 49,00 34,76 13,12 37,90 3,11 4 8,26 9,26 110,00 71,18 26,86 37,90 3,08 4 8,26 9,26 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 2009 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 2008 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 74,20 67,70 44,20 5,00 8,52 8,58 10,0 86,25 85,00 40,4 5,0 9,20 8,89 10,0 SARs vesting in 4 years 74,20 67,70 43,19 5,50 8,68 8,65 10,0 86,25 85,00 40,4 5,50 9,59 8,94 10,0 SARs vesting in 5 years 74,20 67,70 42,19 6,00 8,96 8,72 10,0 86,25 85,00 40,4 6,00 9,48 8,94 10,0 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. 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 (%) 04/01/2009 74,20 7,85 6,39 N/A 04/01/2008 110,35 8,88 2,81 N/A 28/2/2007 61,24 7,70 4,08 36,80 Three years from date of grant 10,29 Three years from date of grant 10,29 Three years from date of grant 10,29 Exxaro Annual Report 2009 I 249 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2009 30. EMPLOYEE BENEFITS (continued) Fair value of equity-settled share-based payment transactions with employees (continued) 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 (%) Time to vesting Expected employee attrition (%) 04/01/2009 77,06 7,49 6,66 N/A Three years from date of grant 15,00 04/01/2008 111,88 8,88 2,77 N/A Three years from date of grant 15,00 28/2/2007 61,24 7,70 4,08 36,80 Three years from date of grant 15,00 04/01/2009 71,00 8,20 3,00 37,00 28/11/2011 100 04/01/2008 71,00 8,20 3,00 37,00 28/11/2011 100 31/1/2007 71,00 8,20 3,00 37,00 28/11/2011 100 71,90 56,00 – 100,10 22/4/2005 – 1/12/2005 22/4/2005 – 1/12/2005 91,40 8,47 – 8,58 6,54 – 6,75 4,91 – 5,36 11,32 – 12,96 48,50 Mainly over five years in tranches 50,08 – 55,98 Mainly over five years in tranches 22/4/2005 – 1/12/2005 8,54 – 8,70 4,12 34,25 Mainly over five years in tranches GROUP COMPANY 2009 Rm 2008 Rm 2009 Rm 2008 Rm 31. CONTINGENT ASSETS AND LIABILITIES Contingent assets 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 first half of 2010. Surrender fee on prospect rights, exploration rights and mining rights. Contingent liabilities Contingent liabilities at balance sheet date, not otherwise provided for in these annual financial statements, arising from: – guarantees in the normal course of business from which it is anticipated that no material liabilities will arise – other1 99 59 562 155 135 57 523 64 48 1 3 1 Includes the group’s share of contingent liabilities of associates and joint ventures of R61 million (2008: R57 million). The increase in 2008 and 2009 is mainly attributable to guarantees to the Department of Minerals and Energy in respect of environmental liabilities on immediate closure of mining operations. These contingent liabilities have no tax impact. The timing and occurrence of any possible outflows are uncertain. 250 I Exxaro Annual Report 2009 32. COMMITMENTS GROUP COMPANY 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 financed 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 financed by ArcelorMittal SA Limited and Eskom respectively 2009 Rm 97 78 2008 Rm 78 48 2009 Rm 2008 Rm 3 550 889 1 420 2 711 565 456 18 70 A trust known as New Africa Mining Fund (the Fund) was established during 2003 to make portfolio investments in junior mining projects within 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 expired on 28 February 2009. Thereafter up until 28 February 2013 no new investments in new funds may be undertaken by the fund, however, Exxaro may still be required to invest funds into established investments limited to the initial R20 million commitment. GROUP COMPANY 2009 Rm 2008 Rm 2009 Rm 2008 Rm 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 five years – more than five years Total Operating sublease receivable Non-cancellable operating lease rentals are receivable as follows: – less than one year – more than one year and less than five years Total 44 42 6 92 1 3 4 34 35 8 77 8 7 15 9 7 16 Exxaro Annual Report 2009 I 251 ANNEXURE 1 NON-CURRENT INTEREST-BEARING BORROWINGS LOCAL Unsecured loans Secured loans Final repay- ment date Rate of interest per year (payable half-yearly) Rate of interest per year (payable half-yearly) 2009 2008 GROUP COMPANY Fixed % Floating % Fixed % Floating % 2009 Rm 2008 Rm 2009 Rm 2008 Rm 2009 2009 2009 2011 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2015 2016 2011 2011 2012 2013 2025 2026 2031 2032 10,540 8,510 8,510 8,510 8,610 8,510 8,610 8,510 8,610 8,510 8,610 8,510 7,610 9,120 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 1,780 14,980 12,570 14,140 13,480 13,480 13,480 13,580 13,480 13,580 13,480 13,580 14,350 1 2 3 4 5 6 7 8 9 109 167 300 5 150 415 675 675 125 125 224 224 143 3,337 2 2 1 10 24 13 84 115 251 6 150 415 540 675 100 125 180 224 48 60 180 1,000 181 3,884 2 1 1 8 24 12 86 126 260 300 150 415 675 675 125 125 224 224 150 415 540 675 100 125 180 224 48 60 180 1,000 3,697 2,913 252 I Exxaro Annual Report 2009 Final repay- ment date Rate of interest per year (payable half-yearly) Rate of interest per year (payable half-yearly) 2009 2008 GROUP COMPANY Fixed % Floating % Fixed % Floating % 2009 Rm 2008 Rm 2009 Rm 2008 Rm 2016 6,640 5,620 6,640 2010 7,850 7,850 610 610 10 11 561 561 1 4,754 4,150 3,697 2,913 FOREIGN Unsecured loans (US$) FOREIGN Secured loan (AUD) Total non-current interest-bearing borrowings (refer note 21) 1 The interest is based on US PPI and settled in rands based on the US$/ZAR exchange rate. The PPI NACS on 31 December 2008 was 1,78%. 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 R1 million (2008: R2 million). 3 Finance lease agreement between FerroAlloys (Pty) Limited and African Qxygen Limited (Afrox) in respect of machinery and equipment with a book value of Rnil (2008: Rnil). 4 Finance lease agreement between Exxaro Sands (Pty) Limited and Eskom in respect of buildings with a book value of R1 million (2008: 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 R4 million (2008: R6 million). 6 Finance lease agreement between Exxaro TSA Sands (Pty) Limited and Mhlathuze Water in respect of a plant with a book value of R20 million (2008: R21 million). 7 Finance lease agreement between Exxaro TSA Sands (Pty) Limited and Eskom in respect of buildings with a book value of R13 million (2008: 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 R43 million (2008: R45 million). Finance lease agreement between Exxaro Sands (Pty) Limited and Kusasa Bulk Terminals (Phase 2) in respect of a plant with a book value of R47 million (2008: R49 million). 9 10 US$60 million senior notes (fixed interest rate) 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$45 million (variable interest rate), of which US$21 million was drawn on 31 December 2009 (US$nil 31 December 2008). 11 Finance lease agreement in respect of computer equipment with a book value of Rnil (2008: R1 million). Exxaro Annual Report 2009 I 253 ANNEXURE 2 INVESTMENT IN ASSOCIATES, JOINT VENTURES AND OTHER INVESTMENTS Nature of busi- ness1 Country of incor- poration2 Number of shares held Percent- age holding Group carrying amount Company carrying amount Year-end other than 31 De- cember 2009 % 2008 % 2009 Rm 2008 Rm 2009 Rm 2008 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 Mafube Coal Mining (Pty) Limited 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 Terminal3 Other Total other investments (refer note 16) TOTAL INVESTMENTS The investments are valued at balance sheet 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 26,00 A & M CH 58 520 000 38,00 38,00 A & M CH 42 500 000 25,00 25,00 155 102 35 32 132 37 A RSA 240 000 000 20,00 20,00 1 673 1 647 1 965 1 848 50 50,00 50 50,00 50,00 30 June RSA NAM RSA RSA A C A E C A A 1 333 33,33 33,33 1 50,00 50,00 NAM 31,00 31,00 31,00 50,00 50,00 50,00 50,00 1 1 1 1 368 7 351 36 375 387 2 341 2 236 14 165 13 162 408 387 Where the above entities’ financial year-ends are not coterminous with that of the company, financial information has been obtained from published information or management accounts as appropriate. 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. 3 Included in the directors’ valuation of 2009 is an amount of R33 million in respect of RBCT, which is classified as part of other debtors. 254 I Exxaro Annual Report 2009 The group’s effective share of balance sheet, income statement and cash flow items in respect of associated companies and joint ventures is as follows: INCOME STATEMENTS Revenue Operating expenses NET OPERATING PROFIT Net financing (costs)/income PROFIT BEFORE TAXATION Taxation PROFIT FOR THE YEAR Profit for the year attributable to ordinary shareholders BALANCE SHEETS Non-current assets Current assets TOTAL ASSETS Equity and liabilities EQUITY ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT Non-current liabilities Interest-bearing borrowings Non-current provisions Deferred taxation and other Current liabilities Interest-bearing borrowings Other Associated companies Joint ventures 2009 Rm 2008 Rm 2009 Rm 2008 Rm 5 419 (2 686) 2 733 (49) 2 684 (785) 1 899 1 899 2 714 1 302 4 016 4 803 (2 290) 2 513 (64) 2 449 (806) 1 643 1 643 1 967 1 847 3 814 1 484 (1 500) 1 319 (1 392) (16) (5) (21) (21) (21) (73) (21) (94) (94) (94) 3 591 1 506 5 097 1 981 1 156 3 137 1 759 1 614 2 913 2 533 990 126 521 112 508 555 143 412 670 420 TOTAL EQUITY AND LIABILITIES 4 016 3 814 CASH FLOW STATEMENTS Net cash flows from operating activities Net cash flows from investing activities Net cash flows from financing activities Foreign currency translations NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 159 (835) (2) 29 (649) 836 (359) 96 4 577 165 249 64 28 1 678 5 097 216 (567) 275 (76) 128 207 16 15 238 3 137 81 (248) 7 38 (122) Exxaro Annual Report 2009 I 255 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 Coal Botswana Holding (Pty) Limited4 Exxaro Employee Empowerment Participation Scheme Trust Exxaro Environmental Rehabilitation Fund Exxaro FerroAlloys (Pty) Limited Exxaro Foundation Exxaro Holdings (Pty) Limited Exxaro Holdings Sands (Pty) Limited Exxaro Insurance Company Limited Exxaro On-Site (Pty) Limited Exxaro People Development Initiative Exxaro Properties (Groenkloof) (Pty) Limited Exxaro TSA Sands (Pty) Limited Exxaro Sands (Pty) Limited Ferroland Grondtrust (Pty) Limited Glen Douglas Dolomite (Pty) Limited5 Kumba Base Metals Namibia (Pty) Limited6 Kumba Resources Management Share Trust Merrill Lynch Insurance PCC Limited Rocsi Holdings (Pty) Limited Skyprops 112 (Pty) Limited 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 (Pty) Limited (75%) Exxaro Coal Mpumalanga (Pty) Limited Exxaro Coke (Pty) Limited RSA RSA RSA RSA RSA RSA RSA RSA RSA Bot RSA RSA RSA RSA RSA RSA RSA RSA RSA RSA RSA RSA RSA RSA NAM RSA ILE RSA RSA RSA AUS AUS NAM HK NE Bot RSA RSA 256 I Exxaro Annual Report 2009 Issued capital unlisted ordinary shares R 1 1 1 200 1 000 Interest of company Investment in shares Indebtedness 2009 R 2008 R 2009 Rm 2008 Rm 1 746 163 1 2 518 966 1 000 1 746 163 1 2 518 966 1 000 1 5 500 000 1 247 712 500 1 247 712 500 1 200 1 000 32 742 723 1 000 4 787 M H H B A H M T A H T T M T H H I C E B M A D A C T I H H 1 1 1 566 827 40 000 50 1 459 517 297 1 869 951 859 5 000 000 1 459 517 297 1 869 951 859 5 000 000 1 510 200 2 10 000 1 510 6 003 355 2 1 510 6 003 355 2 1 647 044 943 100 653 722 945 44 389 208 653 722 945 44 389 208 5 000 A A 11 C 2 038 299 354 100 H 1 354 H 119 209 P 200 P 100 000 A 1 M 16 2 375 (22) 28 11 2 413 760 (10) 11 3 651 250 10 5 693 818 4 (40) 308 20 (42) (1) 3 262 (2) (51) 90 20 (51) (1) 3 69 616 (490) Country of incor- poration2 Nature of business3 Issued capital unlisted ordinary shares Interest of company Investment in shares Indebtedness R 2009 R 2008 R 2009 Rm 2008 Rm INDIRECT INVESTMENTS Exxaro Finance Ireland Exxaro Holdings (Australia) Pty Limited Exxaro International BV Exxaro International Coal Trading BV Exxaro International Trading BV Exxaro Investments (Australia) Pty Limited Exxaro Maden Arama ve Madencilik Ltd Sti Exxaro Madencilik Sanayi Ve Ticaret Anonim Sirketi (76%) Exxaro Mineral Sands BV Exxaro Reductants (Pty) Limited Exxaro Sands Holdings BV Ferrowest (Pty) Limited (95%) Inyanda Coal (Pty) Limited Magnetic Minerals Pty Limited6 Omacor Sac Oreco Leasing Limited Pigment Holdings Pty Limited Rosh Pinah Mine Holdings (Pty) Limited Rosh Pinah Zinc Corporation (Pty) Limited (50,0264%) Senbar Holdings Pty Limited Synthetic Rutile Holdings Pty Limited The Vryheid (Natal) Railway Coal and Iron Company Limited Ticor (Overseas) Holdings Pty Limited6 Ticor Chemical Company Pty Limited Ticor Energy Pty Limited6 Ticor Finance (ACT) Pty Limited Ticor Resources Pty Limited Ticor Titanium Australia Pty Limited6 Tific Pty Limited TiO2 Corporation NL Yalgoo Minerals Pty Limited IRL AUS NE NE NE AUS TUR TUR NE RSA NE RSA RSA AUS PERU MAU AUS NAM NAM AUS AUS RSA AUS AUS AUS AUS AUS AUS AUS AUS AUS F H H C C H P P P M H B A A G F C H A C C A H G F F H H H H A 893 656 391 5 662 037 172 866 172 866 5 32 512 6 436 530 134 973 1 169 999 136 500 000 1 000 31 740 964 10 1 10 1 000 2 280 10 10 3 675 10 10 10 10 8 111 062 10 10 85 101 240 48 216 010 1 1 4 25 (21) TOTAL INVESTMENT IN SUBSIDIARIES (refer note 15) 3 322 307 534 3 289 564 811 10 253 7 269 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 – Ilse 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, G – Dormant, H – Holdings, I – Insurance, M – Manufacturing, P – Exploration, T – Trust. 4 A wholly owned subsidiary of Exxaro Coal (Pty) Limited in 2008 – transferred to Exxaro Resources Limited in 2009. 5 Reclassified during 2008 as non-current asset classified as held for sale. 6 Deregistered during 2009. Exxaro Annual Report 2009 I 257 ANNEXURE 3 CONTINUED INVESTMENTS IN SUBSIDIARIES TERMS AND CONDITIONS OF INDEBTNESS TO AND FROM SUBSIDIARIES LOCAL Unsecured loans Final repay- ment date 2009 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2015 2016 Rate of interest per year (payable half-yearly) Rate of interest per year (payable half-yearly) 2009 2008 Fixed % Floating % Fixed % Floating % 8,510 8,510 8,510 8,610 8,510 8,610 8,510 8,610 8,510 8,610 8,610 7,610 9,120 12,570 13,480 13,480 13,480 13,580 13,480 13,580 13,480 13,580 14,350 Total unsecured non-current loans Interest bearing current loans payable/(receivable)1 Current portion of non-current loans Non interest bearing current loans Current loans Total 1 Interest charged at average overnight money market rates. 2009 Rm 150 342 405 675 100 100 134 224 36 60 120 1 000 3 346 509 330 6 068 6 907 10 253 2008 Rm 300 150 415 540 675 100 125 181 224 157 2 867 (3 100) 247 7 256 4 402 7 269 258 I Exxaro Annual Report 2009 NOTICE OF ANNUAL GENERAL MEETING Notice is hereby given that the ninth annual general meeting of members of Exxaro will be held at the Exxaro Corporate Centre, Roger Dyason Road, Pretoria West, Gauteng, South Africa, at 10:30 on Friday, 21 May 2010. The following business will be transacted and resolutions proposed, with or without modiﬁ cation: 1. ORDINARY RESOLUTION NUMBER 1 Approval of ﬁ nancial statements To receive and adopt the annual ﬁ nancial statements of the group for the period ended 31 December 2009, including the directors’ report and the report of the auditors thereon. 2. 3. 4. 5. ORDINARY RESOLUTION NUMBER 2 Re-appointment of independent auditors To ratify the re-appointment of Deloitte & Touche as auditors of the company and to appoint BW Smith as the designated audit partner for the ensuing year. ORDINARY RESOLUTION NUMBER 3 Auditors’ fees To authorise the directors to determine the auditors’ remuneration for the period ended 31 December 2009. ORDINARY RESOLUTION NUMBER 4 Re-election of directors In terms of article 15.2 of the articles of association of the company, Mr CI Grifﬁ th, appointed to the board with effect from 16 July 2009 and Ms N Langeni, appointed to the board with effect from 23 February 2010, will retire and, being eligible, offer themselves for re-election. Abbreviated curricula vitae in respect of Mr CI Grifﬁ th and Ms N Langeni are set out on page 263 of the annual report. ORDINARY RESOLUTION NUMBER 5 Re-election of directors To re-elect the following directors who retire by rotation in terms of article 16.1 of the articles of association of the company, and who are eligible for re-election: 5.1 JJ Geldenhuys 5.2 U Khumalo 5.3 RP Mohring An abbreviated curriculum vitae in respect of each director offering himself for re-election is set out on page 263 of this report. 6. ORDINARY RESOLUTION NUMBER 6 Remuneration of non-executive directors To approve the proposed remuneration for the period 1 January 2010 to 31 December 2010: Chairman Director Audit committee chairman Audit committee member Board committee chairman Board committee member Current Proposed R399 600 R433 600 R184 440 R200 120 R170 400 R184 880 R90 000 R97 650 R132 000 R143 220 R63 000 R68 340 Exxaro Annual Report 2009 I 259 NOTICE OF ANNUAL GENERAL MEETING CONTINUED 7. 8. 8.1 8.2 8.3 8.4 8.5 ORDINARY RESOLUTION NUMBER 7 Renewal of the authority that 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, and the Listings Requirements of the 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 be required, subject to article 3.2 of the articles of association of the company, to be allotted and issued by the company pursuant to the company’s approved employee share incentive schemes.” 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 provisions of the Companies Act, 61 of 1973, as amended, and the Listings Requirements of the JSE, the directors are hereby authorised, by way of a general authority, to allot and issue ordinary shares for cash on the following basis, after setting aside so many shares as may be required, subject to article 3.2 of the articles of association of the company, to be allotted and issued by the company pursuant to the schemes, to any public shareholder, as deﬁ ned by the Listings Requirements of the JSE, as and when suitable opportunities arise, subject to the following conditions: this authority shall not extend beyond the next annual general meeting or 15 months from the date of this annual general meeting, whichever date is earlier; 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; the shares be issued to public shareholders as deﬁ ned by the JSE and not to related parties; 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; and 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 30 days prior to the date that the price of the issue is agreed between the issuer and the party subscribing for the securities. In the event that shares have not traded in the said 30-day period, a ruling will be obtained from the committee of the JSE.” 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. ORDINARY RESOLUTION NUMBER 9 “Resolved that, in accordance with the amendments to Schedule 14 of the JSE Listings Requirements, the amendments be made to: • the Deferred Bonus Plan 2006 • the Long-term Incentive Plan 2006 • Share Appreciation Right Scheme 2006 established and approved by shareholders of the company in 2006 (“the 2006 Incentive Plans”) in order to give effect to the amendments summarised in the Appendices attached to the Notice of Annual General Meeting be and are hereby approved.” In terms of the JSE Listings Requirements: • the approval of a 75% majority of votes of all shareholders, present or represented by proxy, is required to approve the ordinary resolution to approve the amended 2006 Incentive Plans; and • equity securities held by a share trust or scheme will not have their votes at a general meeting or an annual general meeting taken into account for the purposes of resolutions proposed in terms of the JSE Listings Requirements. The amended 2006 Incentive Plans will be available for inspection at the ofﬁ ces of the company at Roger Dyason Road, Pretoria West, during normal ofﬁ ce hours on business day from Tuesday, 20 April 2010 until Thursday, 20 May 2010. 260 I Exxaro Annual Report 2009 10. ORDINARY RESOLUTION NUMBER 10 “Resolved that subject to the adoption of ordinary resolution number 9 and in terms of sections 221 and 222 of the Companies Act No. 61 of 1973 (as amended), the allotment and issue of shares by the board, as a speciﬁ c authority, pursuant to the provisions of the 2006 Incentive Plans, of such allowable maximum number of ordinary shares as provided thereunder and subject to the terms and conditions of the 2006 Incentive Plans, be and is hereby approved.” 11. SPECIAL RESOLUTION NUMBER 1 Authority to repurchase shares “Resolved that by way of a general authority, the company or any subsidiary of the company may, subject to the Companies Act, 61 of 1973, as amended, (“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: 11.1 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; 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 date; that an announcement containing full details of such repurchases is published as soon as the company 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, thereafter; that the repurchase of shares shall not, in the aggregate, in any one ﬁ nancial year, exceed 20% of the company’s issued share capital at the time this authority is given; that at any one time, the company may only appoint one agent to effect any repurchase; that the repurchase of shares will not take place during a prohibited period (unless it forms part of a pre-announced 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; 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 ﬁ ve business days immediately preceding the date of repurchase.” 11.2 11.3 11.4 11.5 11.6 11.7 The reason for this special resolution number 1 is, and the effect thereof will be to grant, in terms of the provisions of the Act and the Listings Requirements of the JSE, and subject 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 speciﬁ c intention with regard to the utilisation of this authority, which will only be used if the circumstances are appropriate. A general repurchase of the company’s shares shall not be effected before the JSE has received written conﬁ rmation from the company’s sponsor to the effect that the directors have considered the solvency and liquidity of the company as required in terms of Section 85(4) of the Act. 12. To transact such other business as may be transacted at an annual general meeting. Exxaro Annual Report 2009 I 261 NOTICE OF ANNUAL GENERAL MEETING CONTINUED DISCLOSURES REQUIRED IN TERMS OF THE LISTINGS REQUIREMENTS OF THE JSE The following information is provided in accordance with paragraph 11.26 of the Listings Requirements of the JSE and relates to special resolution number 1. WORKING CAPITAL STATEMENT The directors of the company agree that they will not undertake any repurchase unless: • the company and the group will be able, in the ordinary course of business, to pay its debts; • the assets of the company and the group have been consolidated, fairly valued in accordance with International Financial Reporting Standards, in excess of its consolidated liabilities; • the share capital and reserves of the company and the group will be adequate for ordinary business purposes; and • the working capital resources of the company and the group will be adequate for ordinary business purposes. LITIGATION STATEMENT Other than disclosed or accounted for in these annual ﬁ nancial statements, the directors of the company, whose names are given on page 68 and 69 of these annual ﬁ nancial 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 ﬁ nancial 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 68 and 69 of these ﬁ nancial statements, collectively and individually accept full 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 Other than the facts and developments reported on in these annual ﬁ nancial statements, there have been no material changes in the affairs, ﬁ nancial or trading position of the group since the signature date of this annual report and the posting date thereof. The following further disclosures required in terms of the Listings Requirements of the JSE are set out in accordance with the reference pages in these annual ﬁ nancial statements of which this notice forms part: • Directors and management – refer to pages 66 to 69 of this report; • Major shareholders of the company – refer to page 80 of this report; • Directors’ interest in the company’s shares – refer page 80 of this report; • Share capital of the company – refer page 79 of this report. In terms of Schedule 14 of the Listings Requirements of the JSE, equity securities held by a share trust or a scheme will not have their votes at a general meeting or annual general meeting taken into account for the purposes of resolutions proposed in terms of the Listings Requirements. By order of the board MS Viljoen Company Secretary Pretoria 16 March 2010 262 I Exxaro Annual Report 2009 SHORT BIOGRAPHIES OF EXXARO DIRECTORS SEEKING RE-ELECTION Name: JJ Geldenhuys – Jurie (67) Designation: Non-executive director and chairman of the safety and sustainable development committee Academic qualiﬁ cations: BSc (eng)(elec), BSc (eng)(min); MBA (Stanford), professional engineer Experience: From 1965 to 1980, Jurie held production and managerial posts on the gold, platinum and copper zinc mines of the then Anglovaal Group. From 1981 till retirement he served in technical and executive capacities involving gold, base metals, coal, ferrous metals and industrial minerals. He retired as managing director of Avgold Limited in 2000 and continued serving the group in a consulting capacity till 2002. Previously served on the boards of Anglovaal Limited, Avmin Limited, Freegold Consolidated Mines Limited, Hartebeestfontein Gold Mining Company Limited, Lorraine Gold Mines Limited, Eastern Transvaal Gold Mines Limited, Iscor Limited and Sallies Limited. Served as the Chamber of Mines president (1993 – 1994) and on the Chamber’s executive council, gold producers’ committee and various other chamber- related board committees. Has also served on the Atomic Energy Council and the National Water Advisory Council. Currently non-executive director and chairman of Astral Food Limited (chairman of the human resources and remuneration committee). Name: CI Grifﬁ th – Chris (45) Academic qualiﬁ cations: BEng (mining)(hons), professional engineer Experience: Chris is chief executive ofﬁ cer of Kumba Iron Ore, chairman of Sishen Iron Ore Company and a member of the Anglo American plc executive committee. Prior to his appointment at Kumba in 2008, he headed joint ventures for Anglo Platinum. Chris is a member of the South African Institute for Mining and Metallurgy and the Association of Mine Managers. Name: U Khumalo – Uﬁ kile (44) Designation: Non-executive director Academic qualiﬁ cations: BSc (eng) (UCT), MAP (Wits), Senior executive development programme (Harvard), Advanced management programme (Insead) Experience: Uﬁ kile served with Sasol and Eskom as a senior engineer and Bevcan as a manufacturing manager prior to joining the IDC. He held several positions during 1999 – 2005, including head, international ﬁ nance; executive vice-president industrial sectors and executive vice- president; projects. He provided strategic direction in the industrial sectors on large projects. He was also involved in evaluating investment proposals thus contributing to successfully implementing the IDC’s development mandate. Name: N Langeni – Noluthando (66) Designation: Non-executive director Academic qualiﬁ cations: BA (Cur), Diploma in Nursing Education Experience: Noluthando is the group chief executive ofﬁ cer of Bambizandla Holdings. She was also appointed as director to the boards of the National African Women’s Alliance (NAWA), Basadi ba Kopane Investments (Pty) Ltd, the South African Women in Mining Investment Holdings (SAWIMIH) and Protea Hotel Group. She was previously the CEO of NAWA and a lecturer at the College of Nursing in Natal. Name: RP Mohring – Rick (62) Designation: Non-executive director and chairman of TREMCO Academic qualiﬁ cations: BSc (eng)(mining), MDP, PMD (Harvard); professional engineer Experience: From 1972 to 1998, Rick held production, managerial and executive posts in the gold and coal divisions of the Rand Mines and Billiton groups. From 1998 to 2000, he was chief executive ofﬁ cer of NewCoal, a black empowerment initiative set up by Anglo Coal and Ingwe Coal Corporation to identify a suitable BEE group to purchase certain assets belonging to the vendors and establish a new BEE coal company. Eyesizwe Coal, the largest BEE coal company in South Africa, was formed in November 2000 through this process. From 2000 until 2003, Rick was deputy chief executive ofﬁ cer of Eyesizwe Coal, responsible for the operational control of mines producing 25Mtpa of coal, new business development, technical services and health and safety. After 37 years in the mining industry, Rick retired from Eyesizwe Coal in December 2003, and set up a private consulting company, Mohring Mining Consulting. Exxaro Annual Report 2009 I 263 NOTICE OF ANNUAL GENERAL MEETING CONTINUED EXPLANATORY NOTES TO RESOLUTIONS FOR CONSIDERATION AT THE ANNUAL GENERAL MEETING ORDINARY BUSINESS Resolution 1: Approval of ﬁ nancial statements The directors must present to shareholders at the annual general meeting the annual ﬁ nancial statements incorporating the directors’ report and the report of the auditors, for the period ended 31 December 2009. These are contained in the annual report. Resolution 2: Re-appointment of independent auditors The reason for proposing ordinary resolution number 2 is to conﬁ rm the re-appointment of Deloitte & Touche as external auditors of the company and to appoint BW Smith as the designated audit partner. Deloitte & Touche were appointed as the company’s 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. Resolution 4 and 5: Re-election of directors Under the articles of association, one third of the directors are required to retire at each annual general meeting and may offer themselves for re-election. In addition, any person appointed to ﬁ ll a casual vacancy on the board of directors, or as an addition thereto, is similarly required to retire and is eligible for re-election at the next annual general meeting. Biographical details of the directors, who are offering themselves for re-election, appear on page 263. Resolution 6: Remuneration of non-executive directors The company in general meeting as per the articles of association shall from time to time determine the remuneration of non-executive directors, subject to shareholders’ approval. Resolution 7 and 8: Directors’ control of unissued ordinary shares The existing authorities relating to resolutions 7 and 8 are due to expire at the forthcoming annual general meeting. The directors consider it advantageous to renew these authorities to enable the company to take advantage of business opportunities, which might arise in the future. Resolution 9 The current 2006 Incentive Plans are not fully compliant with the JSE Listings Requirements. The reason for and effect of resolution 9 is to address the non-compliance further to the amendments to Schedule 14 of the JSE Listings Requirements and to be in line with current corporate governance best practice. Resolution 10 The reason for and effect of this ordinary resolution is that it will allow the board to issue new shares to meet the obligations under the 2006 Incentive Plans, up to the allowable maximum provided for in ordinary resolution number 9. Approval is necessary to implement the 2006 Incentive Plans effectively. SPECIAL BUSINESS Special Resolution 1: General authority to permit the repurchase of shares The reason for the special resolution is to grant the directors of the company a general authority for the acquisition of the company’s shares by the company, or a subsidiary of the company. The effect of the special resolution, once registered, will be to permit the company or any of its subsidiaries to repurchase such securities subject to the limitations applicable. This authority will only be used if circumstances are appropriate. 264 I Exxaro Annual Report 2009 APPENDIX 1 AMENDMENTS TO THE RULES OF THE EXXARO LONG TERM INCENTIVE PLAN 2006 The rules of the Long Term Incentive Plan 2006 (“LTIP”) be and are hereby amended as follows: 1. Name of Plan Change the name of the Plan from “Newco Company Long Term Incentive Plan 2006” to “Exxaro Resources Limited Long Term Incentive Plan 2006”. 2. Clause 2.1.1 Amend the deﬁ nition of “the Act” by adding the words “or as replaced in its entirety;”. 3. Clause 2.1.8 Amend the deﬁ nition of “the Company” by replacing the existing wording with “Exxaro Resources Limited (Registration number 2000/011076/06);” 4. Clause 2.1.13 Amend the deﬁ nition of “Employee” by deleting the words “including a Director (executive and non-executive) of the Group;” 5. Clause 2.1.21 Amend the deﬁ nition of “Participant” by deleting the words “but excludes non-executives who are members of the Committee” 6. Clause 2.1.25 Amend the deﬁ nition of “Plan” by replacing the words “Newco Company” with “Exxaro Resources Limited” 7. Clause 2.6 Add a new clause 2.6 which reads as follows: “2.6 Where required, the meaning of any expression not speciﬁ cally included in the deﬁ nition clause shall be interpreted based on the meaning of such expression as applied in the human resources policies and procedures of the Company.” 8. Clause 3 Replace clause 3 in its entirety by the following new clause 3: “3. THE PLAN The Exxaro Resources Limited Long Term Incentive Plan 2006 is hereby constituted. The Plan shall be administered for the purpose and in the manner as set out herein.” 9. Clause 5.1 Replace clause 5.1 in its entirety by the following new clause 5.1: “5.1 Shares available for the Plan Subject to the provisions of clause 9, the aggregate number of Shares which may be allocated under the Plan when added to the total number of unexercised SARs allocated previously under this Plan and any Shares allocated to employees under any other managerial share scheme operated by the Company, shall not exceed 30 000 000 (thirty million) and this number may not be exceeded without shareholders’ approval as envisaged in clause 16.2. Notwithstanding the afore going, Shares which are not subsequently issued to a Participant for whatever reason, will revert back to the Plan.” 10. Clause 5.2 Delete clause 5.2 in its entirety. Exxaro Annual Report 2009 I 265 APPENDIX 1 CONTINUED 11. Clause 5.3 Amend the numbering of clause 5.3 to read 5.2 and replace clause 5.3.1 in its entirety by the following new clause 5.2.1: “5.2 Individual limit 5.2.1 The maximum number of Shares allocated to all unvested awards granted to any Participant, in respect of this Plan and any other managerial scheme operated by the Company, shall not exceed the limit determined from time to time by the directors, which number of shares shall not exceed 600 000 (six hundred thousand). Amend the numbering of clause 5.3.2 to read 5.2.2. Amend the numbering of clause 5.3.2 to read 5.2.3 12. New Clause 5.3 Add a new clause 5.3: “5.3 Adjustments to number of shares and limits 5.3.1 The Committee must adjust the maximum number of Shares which may be allocated under the Plan as per clause 5.1 above on a proportionate basis to take account of a sub-division or consolidation of shares; and 5.3.2 the Committee may, without the prior approval of shareholders in a general meeting, adjust the maximum number of Shares allocated to all unvested awards granted to any Participant as per clause 5.2.1 above on a proportionate basis to take account of any capitalisation issue, special dividend, rights issue or reduction of capital; provided that the Auditors shall conﬁ rm in writing to the JSE, at the time that such adjustment is ﬁ nalised, that any adjustment has been properly calculated on a reasonable and equitable basis. Such adjustment should give a Participant the same proportion of the Company’s share capital as that to which he would have been entitled prior to the adjustment. 5.3.3 The issue of shares as consideration for an acquisition, the issue of shares for cash and the issue of shares or a vendor consideration placing will not be regarded as a circumstance requiring adjustment in terms of clauses 5.3.1 and 5.3.2 above. 5.3.4 Any adjustment made in accordance with 5.3.1 and/or 5.3.2 above will be reported in the Company’s annual ﬁ nancial statements for the period during which the adjustment is made. 13. Clause 6.1 • • • • Change the heading of clause 6.1 to read as follows: “Time when SARs may be granted and basis of Grant” Include a clause number 6.1.1 in respect of the existing paragraph under clause 6.1. Add the following wording to the end of clause 6.1.1: “The Grant made as contemplated herein will be dated as at the date of the decision of the Committee to make the Grant and no back-dating of Grants will be allowed under any circumstances.” Amend the wording of clause 6.1 by adding the following paragraph at the end of the existing clause as clause 6.1.2: “6.1.2 A Grant as contemplated above will be made annually on the basis of: 6.1.2.1 the Participant’s grade and annual income; 6.1.2.2 the Performance Condition as approved by the Committee having been satisﬁ ed; and 6.1.2.3 market related benchmarks.” 14. Clause 9 Replace clause 9 in its entirety by the following new clause 9: “The main intention of the Plan is to settle the beneﬁ ts by delivering Shares to the Participant. The Company may, on the instruction of the Committee and the Directors, settle the SARs by issuing new shares, subject to the provisions of clause 5. Alternatively the Participating Company will, on instruction of the Committee and the Directors, procure the funds for the purchase of the Shares in the market and will instruct any third party to acquire and deliver the Shares to Employees employed by such Participating Company. Any Shares so acquired through the market will not be taken into account when calculating the number of shares utilised by the Plan as envisaged in clause 5.1 above. Notwithstanding the foregoing, the Participating Company may, on instruction of the Directors and the Committee, and as a fallback provision only, pay any Participant an equivalent amount in cash in lieu of any Shares.” 266 I Exxaro Annual Report 2009 15. Clause 10.1 Amend the wording of clause 10.1 by: • • Deleting the heading “General” and replace with “Resignation and dismissal” Deleting wording of clause 10.1 in order for clause 10.1 to read as follows: “If a Participant’s employment with any Participating Company terminates for any lawful reason other than as set out in clause 10.2 before the Vesting Date, he will cease to be entitled to any rights associated with the Grant.” 16. Clause 10.2 Amend the heading of clause 10.2 by deleting the words “or any other circumstances which the Committee may consider appropriate” and include the word “or” before “death . . .”. Amend the wording of clause 10.2 by deleting the words “or any other circumstances which the Committee may consider appropriate” and include the word “or” before “death . . .”. 17. Clause 11 Add a new clause 11.4: “11.4 If the Company is placed in liquidation for purposes other than reorganisation, the Grant shall ipso facto lapse from date of liquidation.” 18. Clause 14 Amend the wording of clause 14.1 by adding the following wording: “14.1 It is speciﬁ cally recorded that the provisions of paragraphs 3.63 to 3.74 of the JSE Listings Requirements will apply mutatis mutandis to any dealings by the Company or the Plan involving Shares relating to the Plan.” Add a new clause 14.11: “14.11 Shares will only be issued or purchased as contemplated in clause 9 above once a Participant has been formally identiﬁ ed.” 19. Clause 16.2 Replace clause 16.2 in its entirety by the following new clause 16.2: “16.2 Subject to the provisions of clause 16.3 below, the provisions relating to: 16.2.1 the category of persons to whom or for the beneﬁ t of whom securities may be purchased or issued under the Plan (the Participants); 16.2.2 the maximum number of shares as contemplated in clause 5.1 above; 16.2.3 the maximum number of shares as contemplated in clause 5.2 above; 16.2.4 the amount, if any payable on application or acceptance of the Grant; 16.2.5 the basis for determining the price, if any and regardless of the form it takes, payable by Participants and the period after or during which such payment must be made; 16.2.6 the voting, dividend, transfer and other rights, including those arising on a liquidation of the Company, attaching to the Shares; 16.2.7 the basis upon which the Grants are made; 16.2.8 the treatment of Grants (Vested and Unvested) in instances of mergers, takeovers or corporate actions; 16.2.9 the rights of Participants who leave the employment of the Company or Participating Company whether by termination, resignation, retirement or death insofar as their early departure from the Plan is concerned; and 16.2.10 the provisions of this clause 16.2, may not be amended without approval by ordinary resolution of shareholders of the Company, holding not less than 75% of all the voting rights cast at the general meeting where the approval is sought by shareholders present or represented by proxy at the general meeting.” 20. Clause 16.5 Amend the wording of clause 16.5 by adding the words “Subject to clause 16.2, the Committee…” at the beginning of the clause. Exxaro Annual Report 2009 I 267 APPENDIX 2 AMENDMENTS TO THE RULES OF THE EXXARO SHARE APPRECIATION RIGHT SCHEME 2006 The rules of the Share Appreciation Right Scheme 2006 (“SARS”) be and are hereby amended as follows: 1. Name of Scheme Change the name of the Plan from “Newco Company Share Appreciation Right Scheme 2006” to “Exxaro Resources Limited Share Appreciation Right Scheme 2006”. 2. Clause 2.1.1 Amend the deﬁ nition of “the Act” by adding the words “or as replaced in its entirety;”. 3. Clause 2.1.8 Amend the deﬁ nition of “the Company” by replacing the existing wording with “Exxaro Resources Limited (Registration number 2000/011076/06);” 4. Clause 2.1.12 Amend the deﬁ nition of “Employee” by deleting the words “including a Director (executive and non-executive) of the Group;” 5. Clause 2.1.23 Amend the deﬁ nition of “Participant” by deleting the words “but excludes non-executives who are members of the Committee” 6. Clause 2.1.32 Amend the deﬁ nition of “the Scheme” by replacing the existing wording with “the Exxaro Resources Limited Share Appreciation Right Scheme 2006 constituted by this document, as amended from time to time;” 7. Clause 2.6 Add a new clause 2.6 which reads as follows: “2.6 Where required, the meaning of any expression not speciﬁ cally included in the deﬁ nition clause shall be interpreted based on the meaning of such expression as applied in the human resources policies and procedures of the Company.” 8. Clause 3 Replace clause 3 in its entirety by the following new clause 3: “3. THE SCHEME The Exxaro Resources Limited Share Appreciation Right Scheme 2006 is hereby constituted. The Scheme shall be administered for the purpose and in the manner as set out herein.” 9. Clause 5.1 Replace clause 5.1 in its entirety by the following new clause 5.1: “5.1 Shares available for the Scheme Subject to the provisions of clause 9, the aggregate number of Shares which may be allocated under the Scheme when added to the total number of unexercised SARs allocated previously under this Scheme and any Shares allocated to employees under any other managerial share scheme operated by the Company, shall not exceed 30 000 000 (thirty million) and this number may not be exceeded without shareholders’ approval as envisaged in clause 16.2. Notwithstanding the afore going, Shares which are not subsequently issued to a Participant for whatever reason, will revert back to the Scheme.” 10. Clause 5.2 Delete clause 5.2 in its entirety. 268 I Exxaro Annual Report 2009 11. Clause 5.3 Amend the numbering of clause 5.3 to read 5.2 and replace clause 5.3.1 in its entirety by the following new clause 5.2.1: “5.2 Individual limit 5.2.1 The maximum number of Shares allocated to all unvested awards granted to any Participant, in respect of this Scheme and any other managerial scheme operated by the Company, shall not exceed the limit determined from time to time by the directors, which number of shares shall not exceed 600 000 (six hundred thousand). Amend the numbering of clause 5.3.2 to read 5.2.2. Amend the numbering of clause 5.3.3 to read 5.2.3 12. New Clause 5.3 Add a new clause 5.3: “5.3 Adjustments to number of shares and limits 5.3.1 The Committee must adjust the maximum number of Shares which may be allocated under the Scheme as per clause 5.1 above on a proportionate basis to take account of a sub-division or consolidation of shares; and 5.3.2 the Committee may, without the prior approval of shareholders in a general meeting, adjust the maximum number of Shares allocated to all unvested awards granted to any Participant as per clause 5.2.1 above on a proportionate basis to take account of any capitalisation issue, special dividend, rights issue or reduction of capital; provided that the Auditors shall conﬁ rm in writing to the JSE, at the time that such adjustment is ﬁ nalised, that any adjustment has been properly calculated on a reasonable and equitable basis. Such adjustment should give a Participant the same proportion of the Company’s share capital as that to which he would have been entitled prior to the adjustment. 5.3.3 The issue of shares as consideration for an acquisition, the issue of shares for cash and the issue of shares or a vendor consideration placing will not be regarded as a circumstance requiring adjustment in terms of clauses 5.3.1 and 5.3.2 above. 5.3.4 Any adjustment made in accordance with 5.3.1 and/or 5.3.2 above will be reported in the Company’s annual ﬁ nancial statements for the period during which the adjustment is made.” 13. Clause 6.1 • • • • Change the heading of clause 6.1 to read as follows: “Time when SARs may be granted and basis of Grant” Include a clause number 6.1.1 in respect of the existing paragraph under clause 6.1. Add the following wording to the end of clause 6.1.1: “The Grant made as contemplated herein will be dated as at the date of the decision of the Committee to make the Grant and no back-dating of Grants will be allowed under any circumstances.” Amend the wording of clause 6.1 by adding the following paragraph at the end of the existing clause as clause 6.1.2: “6.1.2 A Grant as contemplated above will be made annually on the basis of: 6.1.2.1 the Participant’s grade and annual income; 6.1.2.2 the Performance Condition as approved by the Committee having been satisﬁ ed; and 6.1.2.3 market related benchmarks.” 14. Clause 7 Amend clause 7 by deleting clauses 7.4 to 7.9. Exxaro Annual Report 2009 I 269 APPENDIX 2 CONTINUED 15. Clause 9 Replace clause 9 in its entirety by the following new clause 9: “The main intention of the Scheme is to settle the beneﬁ ts by delivering Shares to the Participant. The Company may, on the instruction of the Committee and the Directors, settle the SARs by issuing new shares, subject to the provisions of clause 5. Alternatively the Participating Company will, on instruction of the Committee and the Directors, procure the funds for the purchase of the Shares in the market and will instruct any third party to acquire and deliver the Shares to Employees employed by such Participating Company. Any Shares so acquired through the market will not be taken into account when calculating the number of shares utilised by the Scheme as envisaged in clause 5.1 above. Notwithstanding the foregoing, the Participating Company may, on instruction of the Directors and the Committee, and as a fallback provision only, pay any Participant an equivalent amount in cash in lieu of any Shares.” 16. Clause 10.1 Amend the wording of clause 10.1 by: • • Deleting the heading “General” and replace with “Resignation and dismissal” Deleting wording of clause 10.1 in order for clause 10.1 to read as follows: “If a Participant’s employment with any Participating Company terminates for any lawful reason other than as set out in clause 10.2, all unexercised (Vested and Unvested) SARs will lapse on such cessation.” 17. Clause 10.2 Amend the heading of clause 10.2 by deleting the words “or any other circumstances which the Committee may consider appropriate” and include the word “or” before “death . . .”. Amend the wording of clause 10.2 by deleting the words “or any other circumstances which the Committee may consider appropriate” and include the word “or” before “death . . .”. 18. Clause 11 Add a new clause 11.4: “11.4 If the Company is placed in liquidation for purposes other than reorganisation, the Grant shall ipso facto lapse from date of liquidation.” 19. Clause 14 Amend clause 14.1 by adding the following wording: “It is speciﬁ cally recorded that the provisions of paragraphs 3.63 to 3.74 of the JSE Listings Requirements will apply mutatis mutandis to any dealings by the Company or the Scheme involving Shares relating to the Scheme.” Add a new clause 14.11: “14.11 Shares will only be issued or purchased as contemplated in clause 9 above once a Participant has been formally identiﬁ ed.” 20. Clause 16.2 Replace clause 16.2 in its entirety by the following new clause 16.2: “16.2 Subject to the provisions of clause 16.3 below, the provisions relating to: 16.2.1 the category of persons to whom or for the beneﬁ t of whom securities may be purchased or issued under the Scheme (the Participants); 16.2.2 the maximum number of shares as contemplated in clause 5.1 above; 16.2.3 the maximum number of shares as contemplated in clause 5.2 above; 16.2.4 the amount, if any payable on application or acceptance of the SAR; 16.2.5 the basis for determining the price, if any and regardless of the form it takes, payable by Participants and the period after or during which such payment must be made; 270 I Exxaro Annual Report 2009 16.2.6 the voting, dividend, transfer and other rights, including those arising on a liquidation of the Company, attaching to the Shares; 16.2.7 the basis upon which the Grants are made; 16.2.8 the treatment of Grants (Vested and Unvested) in instances of mergers, takeovers or corporate actions; 16.2.9 the rights of Participants who leave the employment of the Company or Participating Company whether by termination, resignation, retirement or death insofar as their early departure from the Scheme is concerned; and 16.2.10 the provisions of this clause 16.2, may not be amended without approval by ordinary resolution of shareholders of the Company, holding not less than 75% of all the voting rights cast at the general meeting where the approval is sought by shareholders present or represented by proxy at the general meeting.” 21. Clause 16.5 Amend the wording of clause 16.5 by adding the words “Subject to the provisions of clause 16.2, the Committee…” at the beginning of the clause. 22. Clause 16.6 Correct the number of this clause to read “16.6”. Exxaro Annual Report 2009 I 271 APPENDIX 3 AMENDMENTS TO THE RULES OF THE EXXARO RESOURCES DEFERRED BONUS PLAN The rules of the Exxaro Resources Deferred Bonus Plan (“the DBP”) be and are hereby amended as follows: 1. Name of Plan Change the name of the Plan from “Newco Company Deferred Bonus Plan 2006” to “Exxaro Resources Limited Deferred Bonus Plan 2006”. 2. 3. 4. 5. 6 7. 8. 9. Clause 2.1.1 Amend the deﬁ nition of “the Act” by adding the words “or as replaced in its entirety;”. Clause 2.1.8 Amend the deﬁ nition of “the Company” by replacing the existing wording with “Exxaro Resources Limited (Registration number 2000/011076/06);” Clause 2.1.12 Amend the deﬁ nition of “Employee” by deleting the words “including a Director (executive and non-executive) of the Group;” Clause 2.1.21 (new) Insert a new clause 2.1.21 to read as follows: “2.1.21 “Matching Shares” the Shares forming part of the Matching Award;” Clause 2.1.22 Amend the deﬁ nition of “Participant” by deleting the words “but excludes non-executives who are members of the Committee” Clause 2.1.24 Amend the deﬁ nition of “Plan” by replacing the existing wording with “the Exxaro Resources Limited Deferred Bonus Plan 2006 constituted by this document, as amended from time to time;” Clause 2.1.25 Amend the deﬁ nition of “Pledge Period” by deleting the words “Letter of Grant” and replacing these with the words “Offer to Participate” Clause 2.6 Add a new clause 2.6 which reads as follows: “2.6 Where required, the meaning of any expression not speciﬁ cally included in the deﬁ nition clause shall be interpreted based on the meaning of such expression as applied in the human resources policies and procedures of the Company.” 10. Clause 3 Replace clause 3 in its entirety by the following new clause 3: “3. THE PLAN The Exxaro Resources Limited Deferred Bonus Plan 2006 is hereby constituted. The Plan shall be administered for the purpose and in the manner as set out herein.” 11. Clause 4.3 Insert the following at the end of clause 4.3: “Such selection will be made based on the Employee’s seniority and performance.” 12. Clause 5.1 Replace clause 5.1 in its entirety by the following new clause 5.1: “5.1 Shares available for the Plan Subject to the provisions of clause 10, the maximum number of Matching Shares which may be allocated under the Plan when added to the total number of unvested Matching Awards allocated previously under this Plan and any Shares allocated to employees under any other managerial share scheme operated by the Company, shall not exceed 30 000 000 (thirty million) and this number may not be exceeded without shareholders’ approval as envisaged in clause 17.2. Notwithstanding the afore going, Matching Shares which are not subsequently issued to a Participant for whatever reason, will revert back to the Scheme.” 13. Clause 5.2 Delete clause 5.2 in its entirety. 272 I Exxaro Annual Report 2009 14. Clause 5.3. – Amend the numbering of clause 5.3 to read 5.2 and replace clause 5.3.1 in its entirety by the following new clause 5.2.1: “5.2 5.2.1 Individual limit The maximum number of shares allocated to all Unvested awards granted to any Participant, in respect of this Plan and any other managerial scheme operated by the Company, shall not exceed the limit determined from time to time by the directors, which number of shares shall not exceed 600 000 (six hundred thousand). – Amend the numbering of clause 5.3.2 to read 5.2.2 – Amend the wording of clause 5.2.2 by deleting the word “Grant” at the end of the paragraph and replacing this with the word “Offer”. – Amend the numbering of clause 5.3.3 to read 5.2.3 15. New Clause 5.3 Add a new clause 5.3: “5.3 5.3.1 Adjustments to number of shares and limits The Committee must adjust the maximum number of Matching Shares which may be allocated under the Plan as per clause 5.1 above on a proportionate basis to take account of a sub-division or consolidation of shares; and the Committee may, without the prior approval of shareholders in a general meeting, adjust the maximum number of shares allocated to all Unvested awards granted to any Participant as per clause 5.2.1 above on a proportionate basis to take account of any capitalisation issue, special dividend, rights issue or reduction of capital; provided that the Auditors shall conﬁ rm in writing to the JSE, at the time that such adjustment is ﬁ nalised, that any adjustment has been properly calculated on a reasonable and equitable basis. Such adjustment should give a Participant the same proportion of the Company’s share capital as that to which he would have been entitled prior to the adjustment. The issue of shares as consideration for an acquisition, the issue of shares for cash and the issue of shares or a vendor consideration placing will not be regarded as a circumstance requiring adjustment in terms of clauses 5.3.1 and 5.3.2 above. Any adjustment made in accordance with 5.3.1 and/or 5.3.2 above will be reported in the Company’s annual ﬁ nancial statements for the period during which the adjustment is made. 5.3.2 5.3.3 5.3.4 16. Clause 6.1.1 Amend the wording of clause 6.1.1 by adding the following sentence at the end of the clause: “The Offer made as contemplated herein will be dated as at the date of the decision of the Committee to make the Offer and no back- dating of Offers will be allowed under any circumstances.” 17. Clause 6.2.1.1 Amend the wording of clause 6.2.1.1 by adding the following at the end of the existing clause: “. . . Pledged Shares, which amount shall be calculated based on the Participant’s grade.” 18. Clause 6.2.4 Delete the wording of clause 6.2.4 in its entirety and replace with the following new clause 6.2.4: “6.2.4 An Offer to Participate accepted by an Employee will take effect from the Date of Offer. An Offer to Participate which is not accepted by an Employee within the period referred to in clause 6.2.2.2, will lapse and will be deemed never to have been offered. No consideration is payable on the lapse of the Offer.” 19. Clause 7.5 Amend the wording of clause 7.5 by adding the words “Subject to clause 7.6 below.” at the beginning of the clause. 20. Clause 7.6 (new) Insert a new clause 7.6 to read as follows: “ 7.6 Notwithstanding the above the Participant shall have no voting rights in respect of the Pledged Shares until such time as the Pledged Shares are either released or withdrawn, whatever the case may be, from the escrow.” 21. Clause 9.7 Delete clause 9.7 with the heading “Special Circumstances” in its entirety. 22. Clause 10 Replace clause 10 in its entirety by the following new clause 10: “The Company may, on the instruction of the Committee and the Directors, settle the Matching Award by issuing new shares, subject Exxaro Annual Report 2009 I 273 APPENDIX 3 CONTINUED to the provisions of clause 5. Alternatively the Participating Company will, on instruction of the Committee and the Directors, procure the funds for the purchase of the Shares in the market and will instruct any third party to acquire and deliver the Shares to Employees employed by such Participating Company. Any Shares so acquired through the market will not be taken into account when calculating the number of shares utilised by the Plan as envisaged in clause 5.1 above.” 23. Clause 11.1 Amend the wording of clause 11.1 by: • • • • Deleting the heading “General” and replace with “Resignation and dismissal” Deleting the reference to “10.2” and replace with “11.2” Deleting the words “unless the Committee decides otherwise.” Adding the following to the end of clause 11.1: – “Pledged Shares shall be released to the Participant as soon as reasonably possible.” 24. Clause 11.2 Amend the heading of clause 11.2 by deleting the words “or any other circumstances which the Committee may deem appropriate” and by adding the word “or” before the word “death”; Amend the wording of clause 11.2 by: • deleting the words “or any other circumstances which the Committee may deem appropriate” and by adding the word “or” before the word “death”; and inserting the words “the Committee may” • 25. Clause 12 Add a new clause 12.4: “12.4 If the Company is placed in liquidation for purposes other than reorganisation, the Matching Award shall ipso facto lapse from date of liquidation.” 26. Clause 15 Amend the wording of clause 15.1 by adding the following wording: “15.1 It is speciﬁ cally recorded that the provisions of paragraphs 3.63 to 3.74 of the JSE Listings Requirements will apply mutatis mutandis to any dealings by the Company or the Plan involving Shares relating to the Plan.” Add a new clause 15.11: “15.11 Shares will only be issued or purchased as contemplated in clause 10 above once a Participant has been formally identiﬁ ed.” 27. Clause 17.2 Replace clause 17.2 in its entirety by the following new clause 17.2: “17.2 Subject to the provisions of clause 17.3 below, the provisions relating to: 17.2.1 the category of persons to whom or for the beneﬁ t of whom securities may be purchased or issued under the Plan (the Participants); 17.2.2 the maximum number of shares as contemplated in clause 5.1 above; 17.2.3 the maximum number of shares as contemplated in clause 5.2 above; 17.2.4 the voting, dividend, transfer and other rights, including those arising on a liquidation of the Company, attaching to the shares and to any Matching Awards; 17.2.5 the basis upon which the Matching Awards are made; 17.2.6 the treatment of Matching Awards (vested and unvested) in instances of mergers, takeovers or corporate actions; 17.2.7 the rights Participants who leave the employment of the Company or Participating Company whether by termination, resignation, retirement or death insofar as their early departure from the Plan is concerned; and 17.2.8 the provisions of this clause 17.2, may not be amended without approval by ordinary resolution of shareholders of the Company, holding not less than 75% of all the voting rights cast at the general meeting where the approval is sought by shareholders present or represented by proxy at the general meeting.” 28. Clause 17.5 Amend the wording of clause 17.5 by adding the words “Subject to clause 17.2, the Committee . . .” at the beginning of the clause. 274 I Exxaro Annual Report 2009 FORM OF PROXY EXXARO RESOURCES LIMITED (Incorporated in the Republic of South Africa) (Registration number: 2000/011076/06) JSE share code: EXX ISIN code: ZAE000084992 ADR Code: EXXAY (“Exxaro” or “the company”) (cid:71)(cid:70)(cid:78)(cid:60)(cid:73)(cid:64)(cid:69)(cid:62)(cid:23)(cid:71)(cid:70)(cid:74)(cid:74)(cid:64)(cid:57)(cid:64)(cid:67)(cid:64)(cid:75)(cid:80) 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 10:30 on Friday, 21 May 2010, at the Exxaro Corporate Centre, Roger Dyason Road, Pretoria West, Gauteng, South Africa or at any adjournment thereof, I/We of (address) being the holder/s of 1. shares in the company, do hereby appoint: or, failing him/her 2. 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 10:30 on Friday, 21 May 2010 at the Exxaro Corporate Centre, Roger Dyason Road, Pretoria West, Gauteng, South Africa 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 2009 audited group ﬁ nancial statements 2. Resolution to re-appoint Deloitte & Touche as auditors and to appoint BW Smith as the designated audit partner 3. Resolution to authorise the directors to determine auditors’ remuneration 4. Resolution to re-elect director required to retire in terms of article 15.2 of the articles of association 4.1 CI Grifﬁ th 4.2 N Langeni 5. Resolution to re-elect directors required to retire by rotation in terms of article 16.1 of the articles of association 5.1 JJ Geldenhuys 5.2 U Khumalo 5.3 RP Mohring 6. Resolution to approve non-executive directors’ remuneration for the period 1 January 2010 to 31 December 2010 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 in terms of a general authority 9. Resolution to approve amendments to the 2006 Incentive Plans 10. Resolution to authorise directors to issue and allot shares in terms of the 2006 Incentive Plans 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 ﬁ t. Signed at day of 2010 this Signature Assisted by me, where applicable (name (“Exxaro” or “the company”) and signature) Please read the notes on the reverse side hereof. Exxaro Annual Report 2009 I 275 NOTES TO THE FORM OF PROXY 1. 1.1 1.2 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. A form of proxy is only to be completed by those ordinary shareholders who are: holding ordinary shares in certiﬁ cated form; or recorded on sub-register electronic form in ‘own name’. If you have already dematerialised your ordinary shares through a Central Securities Depository Participant (CSDP) or broker and wish to attend the annual general meeting, you must request your CSDP or broker to provide you with a Letter of Representation or you must instruct your CSDP or broker to vote by proxy on your behalf in terms of the agreement entered into between yourself and your CSDP or broker. A member may insert the name of a proxy or the names of two alternative proxies of the member’s choice in the space. The person whose name stands ﬁ rst on the form of proxy and who is present at the annual general meeting of shareholders will be entitled to act to the exclusion of those whose names follow. On a show of hands a member of the company present in person or by proxy shall have one (1) vote irrespective of the number of shares he/she holds or represents, provided that a proxy shall, irrespective of the number of members he/she represents, have only one (1) vote. On a poll a member who is present in person or represented by proxy shall be entitled to that proportion of the total votes in the company, which the aggregate amount of the nominal value of the shares held by him/her bears to the aggregate amount of the nominal value of all the shares issued by the company. A member’s instructions to the proxy must be indicated by the insertion of the relevant numbers of votes exercisable by the member in the appropriate box provided. Failure to comply with the above will be deemed to authorise the proxy to vote or to abstain from voting at the annual general meeting as he/she deems ﬁ t in respect of all the member’s votes exercisable thereat. A member or the proxy is not obliged to use all the votes exercisable by the member or by the proxy, but the total of the votes cast and in respect of which abstention is recorded may not exceed the total of the votes exercisable by the member or by the proxy. Forms of proxy must be lodged at, or posted to Computershare Investor Services (Pty) Limited, to be received not later than 48 hours before the time ﬁ xed for the meeting (excluding Saturdays, Sundays and public holidays). For shareholders on the South African register: Computershare Investor Services (Pty) Ltd Ground Floor 70 Marshall Street Johannesburg 2001 PO Box 61051 Marshalltown 2107 www.computershare.com Tel: +27 11 370 5000 Over-the-counter American depositary receipt (ADR) holders: Exxaro has an ADR facility with The Bank of New York (BoNY) under a deposit agreement. ADR holders may instruct BoNY as to how the shares represented by their ADRs should be voted. American Depositary Receipt Facility (ADR) Bank of New York 101 Barclay Street New York, NY 10286 www.adrbny.com shareowners@bankofny.com Tel: +(00-1) 888 815 5133 The completion and lodging of this form of proxy will not preclude the relevant member from attending the annual general meeting and speaking and voting in person thereat to the exclusion of any proxy appointed in terms hereof. Documentary evidence establishing the authority of a person signing this form of proxy in a representative capacity or other legal capacity must be attached to this form of proxy, unless previously recorded by the transfer secretaries or waived by the chairman of the annual general meeting. Any alteration or correction made to this form of proxy must be initialled by the signatory/ies. Notwithstanding the aforegoing, the chairman of the annual general meeting may waive any formalities that would otherwise be a prerequisite for a valid proxy. If any shares are jointly held, all joint members must sign this form of proxy. If more than one of those members is present at the annual general meeting either in person or by proxy, the person whose name ﬁ rst appears in the register shall be entitled to vote. 276 I Exxaro Annual Report 2009 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 February March August February March/April August September The cover of this document is printed on Trucard Recycled 330gsm. It contains 50% postconsumer de-inked pulp, is FSC certiﬁ ed and carries the NAPM recycled mark. The body 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 determined and offset. 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 – 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. > TEAMWORK – WE SUCCEED TOGETHER THROUGH A CLIMATE OF RESPECT AND EQUALITY. > COMMITTED TO EXCELLENCE – WE TAKE OWNERSHIP, PROVIDE VISIBLE LEADERSHIP AND ENCOURAGE COLLABORATION, COMMITMENT AND CREATIVITY FOR THE BENEFIT OF ALL. > HONEST RESPONSIBILITY – WE SPEAK THE TRUTH AND ACCEPT ACCOUNTABILITY FOR OUR ACTIONS. Annual report FOR THE YEAR ENDED 31 DECEMBER 2009 E X X A R O A N N U A L R E P O R T 2 0 0 9 THE EXXARO GROUP CONTENTS Group in brief Strategic focus areas Business objectives, highlights and group structure With assets of R23 billion, Exxaro is among the top 2 Key ratios 40 companies on the JSE Limited (JSE) by market capitalisation, and one of the 30 best-performing constituents of the JSE’s Socially Responsible Investment index. Exxaro is a diverse resources group with a portfolio spanning coal, mineral sands, base metals and iron 3 Geographical locations 4 Group at a glance (operations) 6 Group review at a glance (ﬁ nancials) 8 Summary of business operations 10 Chairman’s statement 14 Chief executive ofﬁ cer’s review 20 Financial review 32 Macro-economic and commodity review 38 Business operations review ore and operations in South Africa, Australia, Namibia 49 Growth and China. Exxaro has an unfolding pipeline of growth projects that is arguably among the best in its peer group. The group’s reviewed strategic focus, record of innovation and focus on sustainable development underpin its promise to contribute to the economic growth of South Africa. ABOUT THIS REPORT Guided by global best-practice standards and ongoing consultation with 51 Review of mineral resources and reserves 66 Executive committee 68 Directorate Governance and Sustainability 72 Corporate governance 78 Shareholder information 79 Shareholders’ analysis 81 Risk management 84 Sustainable development 86 Approach to safety and sustainable development 91 Safety and sustainable development performance 113 Economic performance 115 Social performance 125 Society 126 Legislative compliance/mining charter scorecard 131 Independent assurance statement to the directors and management of Exxaro Resources Limited stakeholders, Exxaro publishes an integrated annual report detailing the 133 GRI indicator index (cid:71)(cid:70)(cid:78)(cid:60)(cid:73)(cid:64)(cid:69)(cid:62)(cid:23)(cid:71)(cid:70)(cid:74)(cid:74)(cid:64)(cid:57)(cid:64)(cid:67)(cid:64)(cid:75)(cid:80) www.exxaro.com group’s economic, social and environmental performance. The full report is also available on www.exxaro.com and on CD, where pertinent case studies are included. Copies of this information are available on request (contact details are on the inside back cover). Supplementary ﬁ nancial information 137 Group cash value added statements 138 Selected group ﬁ nancial data translated into US dollars 139 Deﬁ nitions Financial statements 141 Annual ﬁ nancial statements Administration 259 Notice of annual general meeting 263 Biographies of directors up for re-election 275 Form of proxy BASTION GRAPHICS www.exxaro.com 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 February March August February March/April August September The cover of this document is printed on Trucard Recycled 330gsm. It contains 50% postconsumer de-inked pulp, is FSC certiﬁ ed and carries the NAPM recycled mark. The body 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 determined and offset. 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 – 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. > TEAMWORK – WE SUCCEED TOGETHER THROUGH A CLIMATE OF RESPECT AND EQUALITY. > COMMITTED TO EXCELLENCE – WE TAKE OWNERSHIP, PROVIDE VISIBLE LEADERSHIP AND ENCOURAGE COLLABORATION, COMMITMENT AND CREATIVITY FOR THE BENEFIT OF ALL. > HONEST RESPONSIBILITY – WE SPEAK THE TRUTH AND ACCEPT ACCOUNTABILITY FOR OUR ACTIONS. Annual report FOR THE YEAR ENDED 31 DECEMBER 2009 E X X A R O A N N U A L R E P O R T 2 0 0 9 THE EXXARO GROUP CONTENTS Group in brief Strategic focus areas Business objectives, highlights and group structure With assets of R23 billion, Exxaro is among the top 2 Key ratios 40 companies on the JSE Limited (JSE) by market capitalisation, and one of the 30 best-performing constituents of the JSE’s Socially Responsible Investment index. Exxaro is a diverse resources group with a portfolio spanning coal, mineral sands, base metals and iron 3 Geographical locations 4 Group at a glance (operations) 6 Group review at a glance (ﬁ nancials) 8 Summary of business operations 10 Chairman’s statement 14 Chief executive ofﬁ cer’s review 20 Financial review 32 Macro-economic and commodity review 38 Business operations review ore and operations in South Africa, Australia, Namibia 49 Growth and China. Exxaro has an unfolding pipeline of growth projects that is arguably among the best in its peer group. The group’s reviewed strategic focus, record of innovation and focus on sustainable development underpin its promise to contribute to the economic growth of South Africa. ABOUT THIS REPORT Guided by global best-practice standards and ongoing consultation with 51 Review of mineral resources and reserves 66 Executive committee 68 Directorate Governance and Sustainability 72 Corporate governance 78 Shareholder information 79 Shareholders’ analysis 81 Risk management 84 Sustainable development 86 Approach to safety and sustainable development 91 Safety and sustainable development performance 113 Economic performance 115 Social performance 125 Society 126 Legislative compliance/mining charter scorecard 131 Independent assurance statement to the directors and management of Exxaro Resources Limited stakeholders, Exxaro publishes an integrated annual report detailing the 133 GRI indicator index (cid:71)(cid:70)(cid:78)(cid:60)(cid:73)(cid:64)(cid:69)(cid:62)(cid:23)(cid:71)(cid:70)(cid:74)(cid:74)(cid:64)(cid:57)(cid:64)(cid:67)(cid:64)(cid:75)(cid:80) www.exxaro.com group’s economic, social and environmental performance. The full report is also available on www.exxaro.com and on CD, where pertinent case studies are included. Copies of this information are available on request (contact details are on the inside back cover). Supplementary ﬁ nancial information 137 Group cash value added statements 138 Selected group ﬁ nancial data translated into US dollars 139 Deﬁ nitions Financial statements 141 Annual ﬁ nancial statements Administration 259 Notice of annual general meeting 263 Biographies of directors up for re-election 275 Form of proxy BASTION GRAPHICS www.exxaro.com

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