Exxaro Resources Ltd Annual Report 2010

Plain-text annual report

INTEGRATED ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2010 (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) PROFILE One of the largest black empowerment mining companies on the JSE Limited, Exxaro Resources is a constituent of the JSE’s Top 40 index and one of the best-performing constituents of the JSE’s Socially Responsible Investment index. At year end, Exxaro had assets of R28,6 billion. Exxaro is a diverse resources group with a portfolio CONTENTS Group in brief Material issues 2 Values 2 Highlights 3 Business objectives 4 Key ratios 5 Shareholder structure 5 Group at a glance 8 Locations 9 Financial summary 10 Summary of business operations of coal, mineral sands and base metals assets as well Year under review as a signiﬁcant indirect interest in iron ore. The group has operations in South Africa, Australia, Namibia and China, and a pipeline of growth projects that is arguably among the best in its peer group. The group’s strategic focus, record of innovation and commitment to sustainable development underpin its promise to contribute to the economic growth of South Africa. ABOUT THIS REPORT Guided by global best-practice standards, including the Global Reporting Initiative (GRI) guidelines, King III and new legislation in South Africa, and ongoing consultation with stakeholders, Exxaro produces an integrated annual report detailing the group’s economic, social and environmental performance. Any forward-looking information or statements in this report must not be construed as an ofﬁcial forecast nor relied on. The ﬁnancial information on which any forward-looking information is based has also not been reviewed nor reported on by Exxaro’s auditors. This report is only available in English. www.exxaro.com PLEASE TURN OVER Information management 14 Approach to sustainable development 16 Risk management 21 22 Strategic focus areas 25 Stakeholder engagement 30 Report scope and boundary 32 Macro-economic and commodity review 38 Chairman’s statement 44 Chief executive ofﬁcer’s review 48 Financial and operational review 60 Growth Performance review 64 Review of mineral resources and reserves 78 Safety 83 Health and hygiene 91 Environment 120 Social performance 120 Human resources 129 Procurement 131 Socio-economic development Governance review 140 Executive committee 142 Directorate 144 Regulatory compliance and corporate governance 148 Corporate governance 156 Mining charter scorecard 160 Remuneration report 168 Shareholder information and analysis 170 Assurance report 175 GRI indicator index Financial statements 183 Annual ﬁnancial statements Administration 304 Notice of annual general meeting 308 Biographies of directors up for re-election 309 Form of proxy IBC Administration and shareholders’ diary MATERIAL ISSUES These material issues were identiﬁed by consulting with stakeholders and using GRI guidelines (page 173). They are grouped and indexed according to Exxaro’s risk map (page 17) where applicable, and cross-referenced to detailed explanations elsewhere in this report where necessary. Issue > Water Availability, security of supply, efﬁcient and responsible use of scarce water resources L A T N E M N O R V N E I E C N A M R O F R E P L A I C O S E C N A M R O F R E P > Hazardous waste management > Air quality management > Climate change > Cleaner production > Energy and greenhouse gases > Biodiversity management Avoidance, minimisation, management and disposal of hazardous as well as general waste generated from Exxaro operations Quantifying and determining the impact of emissions from Exxaro operations; managing non-compliance and ensuring continuous improvement. Focus includes dust from mining activities and emissions from smelters Projected temperature increases could reduce water availability signiﬁcantly in southern Africa, reduce agricultural yields across the continent, and place millions of people at risk of coastal ﬂooding each year. From a South African perspective, the eastern part could experience higher rainfall while the western part could face water scarcity Reduce environmental footprint from waste production and water use Improve energy efﬁciency and increase use of renewable energy Conserving biodiversity-rich sections, eradicating and controlling alien invasive species > Closure and rehabilitation > Signiﬁcant environmental incidents Continual review of rehabilitation assessments and implementation plans Consider third-party applications for mines in closure Retaining our licence to operate through regulatory and legislative compliance > Socio-economic development (projects, donations) Approval and implementation of local economic development projects and donations as per social and labour plans > Social and labour plans > Community engagement > Development of artisanal and small scale mining > Employment opportunities > Support for development of small businesses and supply chain management (procurement, local procurement and empowerment) Granting and execution of submitted plans Consultation with all authorities and interested and affected parties Identiﬁcation of small-scale mining projects Preference for recruiting from areas surrounding current operations and labour-sending areas Employment equity progressively addressed in employment practices Facilitating socio-economic development and empowerment Response Integrated water and waste management programme implemented. Comprehensive plans being developed for each business unit in addition to studies on water reclamation and reuse Hazardous waste management targets will be set in 2011 after approval of a policy document Updated targets will be set in 2011 to ensure compliance, as a minimum, with applicable national standards Risk map Page 3, 9 95 — 98 3 3 99 105 The risks and related opportunities have been integrated into a climate change response strategy 7, 9 100 Budget allocation for numerous related projects requested Developed energy management and tracking system; studies under way on renewable energy projects Biodiversity action plans developed for ﬁve operating units, with balance to be completed in 2011. Expenditure of R30 million in 2010 expected to increase in subsequent years as plans are implemented. Sponsoring research on biodiversity at selected universities, including speciﬁc studies at Exxaro operations and areas surrounding these operations Performance assessments against approved environmental management programmes completed at eight operations and submitted to relevant authorities. Good progress with social and rehabilitation plans at closed mines, Durnacol and Hlobane Continuous discipline in complying to regulatory and legal requirements Socio-economic funds paid to business units to implement projects and donations totalled 2,5% of net proﬁt after tax of managed operations in 2010. Total contribution to socio-economic development projects, corporate commitment and donations was R38,6 million With the focus on sustainability, ﬁnancial support for the following university chairs was approved in December 2010: > Exxaro chair in global change and sustainability at Wits: R12,5 million (2011–2015) > Exxaro chair in business and climate change at Unisa: R7,5 million (renewed support for 2011–2015) > Exxaro chair on the interface between biodiversity and business at Pretoria: R3,4 million (2011–2013) Mining right conversions and new-order approvals for most of our operations have been granted In terms of the social and labour plans and other socio-economic development-related activities, engagement with all relevant stakeholders takes place at each business unit At Grootegeluk mine, a feasibility study has been conducted for the Re a Dira small-scale mining project. This will be considered for approval in 2011 90% of Exxaro’s learnership intake as well as some 80% of unskilled and semi-skilled employees are from areas surrounding current operations, and 60% of these are from designated groups. The housing project at Medupi created a number of employment opportunities for people from the Lephalale area Exxaro allocated over R13 million to developing enterprises, the bulk of its socio-economic development funding R3,8 billion of group procurement spend went to HDSA suppliers; 50% of the total discretionary procurement spend 3, 7 3, 7 3 3 3 3 3 3 3 3, 10 3 105 100 — 105 107 — 112 112 115 — 116 132 132 132 132 132 123 129 MATERIAL ISSUES CONTINUED > Safe workplace (fatalities, lost-time injuries, health and safety systems) > Inadequate awareness of health and hygiene issues > Employers to meet legislated targets on noise and dust by 2013 Issue > Healthy people (occupational diseases, HIV/Aids testing and treatment, healthcare, medical surveillance) > High prevalence of HIV in South Africa and mining industry > High incidence of TB in South Africa and in the industry > Increase in cases of multidrug resistant strains due to patient non-compliance with treatment protocols > Training and development > Career development Initiatives are required to address literacy and numeracy levels as well as to ensure continuous focus on the training and development of artisans, skills and leadership development, and the removal of development barriers To develop and sustain core competencies and maximise human capital to meet our strategic objectives and improve operational performance Individual development plans required for all employees > Employment equity Achieving regulatory and legislative targets > Employee relations and wellness Equalisation of conditions of employment in coal businesses Adverse implications of industrial action S E E Y O L P M E > Decent wages and beneﬁts (retirement and medical plans) Freedom of association Collective bargaining Wellness Wages Retirement funds Medical schemes Post-retirement liability for medical scheme > Housing and living conditions Home ownership Hostels > Women in mining Women in core positions > Contractor management Policy and process Control Note 1: On Exxaro’s risk register but not in the top 20 based on residual risk ratings. Response > Fatalities and lost-time injuries both down on 2009 but target remains zero for both indicators > Reviewed health and hygiene strategic framework, highlighting key health risks to be communicated to employees > Developed and implemented a tool for reporting early cases of hearing loss to management to ensure proactive mitigation Risk map Page 3 78 — 90 > New management and reporting standards introduced. HIV testing above target, while all Note 1 83 — 90 incidents of occupational diseases declining > Exxaro HIV/Aids strategy implemented > TB management standard implemented, providing a guide for managers, employees and healthcare professionals > A R3-million assessment workshop was opened at Grovos in Lephalale in April 2010 > 180 ABET learners in 2010 > 379 artisan learners at various stages of qualiﬁcation A formal succession programme is in place for all employees in the management and specialist category Progressive implementation of individual development plans for all Exxaro’s employees Achieving the target for senior management level is an industry-wide challenge, but more women from designated groups are being appointed in core positions Subsequent to a wage demand in 2009, management and organised labour from the coal businesses embarked on a process to progressively equalise conditions of employment Employees at the KZN Sands operation embarked on a three-week strike in September 2010. Exxaro supports amicable resolution without the need for industrial action Employees have freedom of association and can join a union of their choice. Labour relations at all Exxaro operations are managed to best facilitate progress towards an amicable and mutually beneﬁcial resolution Trade unions with sufﬁcient members at a speciﬁc employer are recognised and these unions represent their members in collective bargaining processes An employee assistance programme has been rolled out to all operations and is available for all employees to use Wages compare well in the industry as determined by six-monthly market surveys. Exxaro complies with all requirements of the Basic Conditions of Employment Act and in most instances exceeds minimum requirements All employees belong to a retirement fund. Employer contribution ranges between 10% and 18% Where employees are members of accredited medical schemes, Exxaro subsidises contributions Certain employees of Exxaro Coal Mpumalanga and Namakwa Sands qualify for a post-retirement contribution towards a medical scheme from their employer but no new entrants are allowed to these arrangements. Adequate provision for actuarially valued liabilities is made in the ﬁnancial statements Exxaro’s strategy was revised to comply with the new mining charter. The focus is still on home ownership and employees receive (either as an allowance or part of inclusive package) a housing or living-out allowance. In addition, 232 employees beneﬁt from a home ownership subsidy At all operations, except Tshikondeni, there is one person per room in the hostels; at Tshikondeni some rooms have two occupants. Meals are provided at Matla and Tshikondeni, and the quality and nutritional value are determined by a dietician Although Exxaro already exceeds the prior mining charter target of having 10% of the workforce staffed by women, attracting women (speciﬁcally from designated groups) to the group’s core business remains a focus area. At present, women represent 7% of all learnerships for future core positions and 29% of our bursar and professional in-training programmes A group policy and process was developed to standardise contractor management. The HR management system is used to capture contractors Operations are responsible for managing contractors, ensuring progressive compliance to Exxaro’s policies and procedures while monitoring data integrity 10 10 3, 10 10 120 — 128 120 — 128 120 — 128 120 — 128 PLEASE TURN OVER 10 120 — 128 10 128 10 128 Note 1 129 MATERIAL ISSUES CONTINUED C I M O N O C E E C N A M R O F R E P D N A S C I H T E E C N A N R E V O G > Economic value generated and Transparency in disclosure to stakeholders Issue distributed Market presence > Black economic empowerment Board structure – leadership and governance > Code of ethics > Black ownership and control > Stakeholder engagement (business partners, shareholders, employees etc) > Material stewardship > Fraud prevention > Risk management Code of ethics required to support the entrenched group value system Legal and regulatory compliance in South Africa Ensure stakeholder concerns are identiﬁed and addressed To reduce the impact of fraud on the group’s resources and ensure that measures in place serve as a deterrent to perpetrating fraud Integrated enterprise risk management fundamental to identifying and managing all risks in the organisation Note 1: On Exxaro’s risk register but not in the top 20 based on residual risk ratings. N/A: Not applicable. Response Risk map Page Cash value-added statement (page 179) reﬂects Exxaro’s cash taxation contribution to the ﬁscus, amounts collected on behalf of government, and cash payments to external suppliers for goods and services Exxaro is the largest black empowered group on the JSE in terms of direct shareholding, while its day-to-day management is the responsibility of an empowered and representative executive committee Zero-tolerance code of ethics in place with compliance monitored by an ethics committee. Includes conﬂict-of-interest declarations and decisions More than 50% of Exxaro is black owned and controlled Exxaro is forming stakeholder engagement forums at each operation as well as a stakeholder panel at the corporate ofﬁce. A socio-economic assessment will be conducted at every business unit in 2011 to capture and publish all stakeholder concerns, with detailed management responses Sustainable supply chain management introduced, reﬂecting close collaboration with suppliers Zero-tolerance approach to fraud. Effective anonymous reporting hotline in place for a number of years. Managed by an ethics committee with access to experienced forensic team 3 3 14 3 3 3 14 179 154 149 5 28 129 149 Entrenched and integrated enterprise risk management philosophy, policy, methodology and practice in the group. Risk management is integral to all strategic, business planning, and day-to-day activities N/A 16 f e i r b n i p u o r G Group in brief EXXARO INTEGRATED ANNUAL REPORT 2010 1 DIVIDER PAGE 1 – BACK (GROUP IN BRIEF) 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. HIGHLIGHTS > Improvement in safety performance with lost-time injury frequency rate down 24% to 0,25 > Global economic recovery faster than anticipated, resulting in generally increased demand and higher prices > Revenue up 14% to more than R17 billion > Net operating proﬁt increased R897 million to R2,6 billion, excluding the 2009 KZN Sands impairment > Coal production up to 47Mt > Commissioning and nameplate production capacity achieved at Kwinana pigment plant and char plant > Total dividend declared of 500 cents per share > Net cash inﬂow of R1,4 billion > Net debt to equity at 13% > Healthy ﬁnancial metrics, well positioned for growth > Development of Fairbreeze approved subject to regulatory and environmental authorisation > Grootegeluk Medupi Expansion Project (GMEP) on time and within budget LOWLIGHTS > Two fatalities; two too many > Continued logistical challenges for coal exports > Substantial furnace downtime at KZN Sands and Namakwa Sands > Currency strength impacted on earnings 2 EXXARO INTEGRATED ANNUAL REPORT 2010 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. FINANCIAL TARGETS1 2 Return on equity (ROE) – attributable earnings (%) Net operating margin (%) 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 certification (number) Employment equity – management (%)3 Functional literacy4 (%) (2014:100) HIV/Aids voluntary testing and counselling (%) (long-term target 95%) Human resources development (% spend of payroll) Learnerships5 Procurement from HDSA companies (%) (2014:56) Community development (% of net profit after tax)6 Energy efficiency (%)7 HDSA ownership 2014 (%) Target 2011 Target 2010 Actual 2010 Actual 2009 Actual 2008 Actual 2007 >25 >20 >28 >4 0 0 17 100 75 50 >1,0 3 >25 >20 >28 >4 0 34 15 38 9 2 19 12 25 7 3 30 18 36 14 5 15 14 23 10 5 0,21 0,25 0,33 0,39 0,36 17 40 70 70 >3 363 47 1,0 4 26 14 50 79 70 5,1 379 50 2,5 0 52 13 48 70 58 5,0 691 45 1,8 52 9 42 64 5,2 678 39 9 36 30 6,5 408 35 56 56 1 Actual financial ratios disclosed exclude the impact of impairments. 2 Where relevant, actual financial ratios have been restated to ensure comparability. 3 Employment equity target is based on compliance with the mining charter. 4 Below NQF level 1. 5 Learnerships include all disciplines, eg mining, engineering and plant. Average number in the system. 6 Funds transferred to business units for implementation of social and labour plan projects. 7 Total target is 10% by end 2012. Target for 2012 is 3%. EXXARO INTEGRATED ANNUAL REPORT 2010 3 KEY RATIOS RATIOS Profitability 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 (%) Solvency and liquidity Net financing cost cover (times) – EBIT Net financing cost cover (times) – EBITDA Current ratio (times) Net debt to equity (%)2 Net debt to earnings before interest, tax, depreciation and amortisation (times) Number of years to repay interest-bearing debt At 31 December 2010 Unaudited Rm 20091 Unaudited Rm 42 34 34 31 38 15 6 9 2 13 0,6 1 28 19 19 20 25 12 4 7 2 29 1,3 6 1 To achieve comparability, the impact of the R1 435 million impairment of the KZN Sands assets in 2009 has been excluded. 2 Ratio calculated excluding contingent liabilities of R1 007 million (2009: R875 million). If included, ratio would be 18% (2009: 36%). WE CREATE VALUE FOR ALL STAKEHOLDERS Cash disbursed among stakeholders 2010 18% Cash disbursed among stakeholders 2009 18% 7% 7% 68% 15% 58% Remunerate employees for services Provide lenders with a return on borrowings Pay direct taxes to the state Provide shareholders with cash dividends 4 EXXARO INTEGRATED ANNUAL REPORT 2010 9% Remunerate employees for services Provide lenders with a return on borrowings Pay direct taxes to the state Provide shareholders with cash dividends SHAREHOLDER STRUCTURE OUR GROUP STRUCTURE (as at 31 December 2010) 15% Industrial Development Corporation 55% 9,5% Eyesizwe(cid:86) Eyabantu(cid:86) 9,5% Tiso(cid:86) 11% Basadi Ba Kopane(cid:86) Anglo American plc* 9,70% BEE Holdco 52,10% Exxaro MPOWER# 2,97% Minorities (free ﬂoat) 35,23% 100% 100% 100% COAL SANDS BASE METALS & INDUSTRIAL MINERALS 20% SISHEN IRON ORE COMPANY As at 31 December 2010 * Held through Anglo South Africa Capital (Pty) Ltd. (cid:86) These are special purpose vehicles for shareholders in our black-owned holding company. # Employee share ownership programme. A detailed analysis of the registered shareholders of Exxaro appears in the regulatory compliance and corporate governance report on pages 168 to 169. EXXARO INTEGRATED ANNUAL REPORT 2010 5 GROUP AT A GLANCE BUSINESSES 2010 CONTRIBUTION TO GROUP REVENUE 61% R10 515 million 39% Eight managed coal mines produce 46,8Mtpa of power station, steam and coking coal. All power station coal produced is supplied to the national power utility, Eskom, and municipal power stations. Grootegeluk is one of the most efﬁcient mining operations in the world, and operates the world’s largest coal beneﬁciation complex. There is a robust pipeline of greenﬁeld and 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. 61% 27% R4 640 million 27% 73% 12% R1 995 million 12% 88% 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 the Tiwest joint venture (with Tronox Inc), the world’s largest integrated titanium minerals production and manufacturing company. Exxaro is one of the world’s largest suppliers of titanium dioxide feedstock and zircon. Collectively, the group’s minerals sands operations produced 284kt of slag, 196kt of zircon, 90kt of synthetic rutile and 57kt of pigment in 2010. The Rosh Pinah zinc/lead mine in southern Namibia and Zincor electrolytic reﬁnery in Gauteng are among the few integrated zinc mining and reﬁnery operations worldwide. Exxaro has an interest in the Chifeng zinc reﬁnery in China. In 2010, Rosh Pinah and Zincor produced 120kt each of zinc concentrate and zinc metal. A dedicated plant in Pretoria manufactures high-quality, gas-atomised ferrosilicon while the Glen Douglas dolomite mine provides a range of products for the steel, construction and agricultural sectors. The interest in the Glen Douglas operation was sold with effect from 1 January 2011. Exxaro is also progressing the divestment of its base metals interest. Exxaro holds 20% of Sishen Iron Ore Company (Pty) Limited. The company’s two mines produced some 43,3Mtpa of lumpy and ﬁne iron ore; 43,1Mt was sold, and more than 85% of sales from Sishen mine exported. Sishen is one of the largest single open-pit mines in the world, known for its high grade and consistent product quality. COAL MINERAL SANDS BASE METALS AND INDUSTRIAL MINERALS INVESTMENTS IRON ORE 6 EXXARO INTEGRATED ANNUAL REPORT 2010 SALES FOR 12 MONTHS TO 31 DECEMBER 20101 000 TONNES % EXPORT3 OPERATIONS REGIONAL LOCATION OWNERSHIP1 Grootegeluk mine Limpopo Division of Exxaro Coal (Pty) Limited Leeuwpan mine Mpumalanga Division of Exxaro Coal (Pty) Limited PRODUCTS Power station coal (Eskom) Semi-soft coking coal Steam coal Power station coal (Eskom) Steam coal Tshikondeni mine Limpopo Division of Exxaro Coal (Pty) Limited Coking coal (ArcelorMittal) Mafube coal Mafube JV2 Mpumalanga Division of Exxaro Coal (Pty) Limited Steam coal Mpumalanga Joint venture of Exxaro Coal Mpumalanga (Pty) Limited (50%) Power station coal (Eskom) Steam coal Inyanda mine Mpumalanga Division of Exxaro Coal (Pty) Limited Exxaro reductants Limpopo Division of Exxaro Coal (Pty) Limited Arnot mine Mpumalanga Matla mine Mpumalanga New Clydesdale mine Mpumalanga Division of Exxaro Coal Mpumalanga (Pty) Limited Division of Exxaro Coal Mpumalanga (Pty) Limited Division of Exxaro Coal Mpumalanga (Pty) Limited Steam coal Steam coal Char Power station coal (Eskom) Power station coal (Eskom) 12 265 Power station coal (Eskom) Steam coal % % North Block Complex Mpumalanga Division of Exxaro Coal Mpumalanga (Pty) Limited Power station coal (Eskom) Steam coal KZN Sands KwaZulu-Natal Subsidiaries of Exxaro Resources Limited and a division of Exxaro TSA Sands (Pty) Limited and Exxaro Sands (Pty) Limited Namakwa Sands Northern Cape Division of Exxaro TSA Sands (Pty) Limited Australia Sands2 Australia Subsidiary of Exxaro Resources Limited which owns 50% in the Tiwest joint venture Zincor reﬁnery Gauteng Rosh Pinah mine Namibia Division of Exxaro Base Metals (Pty) Limited Subsidiary of Exxaro Base Metals (Namibia) (Pty) Limited (50,04%) Chifeng reﬁnery2 China Associate (22,44%) Black Mountain Mining (Pty) Limited2 Northern Cape Associate (26,00%) Zircon Rutile Pig iron Scrap iron Chloride slag Sulphate slag Zircon Rutile Pig iron Chloride slag Sulphate slag Zircon Rutile Synthetic rutile Leucoxene Pigment Zinc metal Sulphuric acid Zinc concentrate Lead concentrate Zinc metal Sulphuric acid Zinc concentrate Lead concentrate Glen Douglas mine Gauteng Subsidiary of Exxaro Resources Limited Metallurgical dolomite FerroAlloys Gauteng Subsidiary of Exxaro Resources Limited Atomised ferrosilicon Aggregate Lime Sishen mine2 Northern Cape Thabazimbi mine2 Limpopo Division of Sishen Iron Ore Company (Pty) Limited (20%) Division of Sishen Iron Ore Company (Pty) Limited (20%) Lump ore Fine ore Lump ore Fine ore 1 100% ownership unless otherwise indicated. 2 Sales tonnage reﬂects the group’s interest in the relevant subsidiary, joint venture or associate. 3 Export sales denote sales in any country other than South Africa. EXXARO INTEGRATED ANNUAL REPORT 2010 7 14 904 1 754 1 584 1 805 1 162 260 1 321 949 32 1 784 24 122 4 173 96 710 2 236 518 55 29 108 3 136 19 147 31 86 128 20 41 19 30 16 55 90 125 98 20 29 51 18 19 410 783 45 6 5 155 3 069 74 324 17 4 23 98 83 98 86 96 87 100 100 100 100 83 100 96 100 100 100 100 100 100 100 100 100 100 86 91 LOCATIONS Amsterdam Zug CHINA 17 Beijing NAMIBIA 18 South Africa AUSTRALIA Perth 16 12 Brisbane 10 9 1 2 3 24 MPUMALANGA Middleburg 22 23 South Africa 14 15 21 19 20 13 Witbank 11 8 6 4 7 5 GAUTENG Detailed maps on page 65 and 77 Coal 1 Grootegeluk (GG) 2 Grootegeluk Medupi Expansion Project (GMEP) 3 Char Plant phase 2 4 Leeuwpan 5 Arnot 6 Matla 7 North Block Complex 8 New Clydesdale 9 Tshikondeni 10 Mmamabula Central (coal bed methane project) 1 1 Inyanda 12 Moranbah South 13 Mafube* Mineral sands 14 KZN Sands 15 Namakwa Sands 16 Australia Sands Base metals and industrial minerals 17 Chifeng Zinc Reﬁnery* 18 Rosh Pinah 19 Zincor 20 Glen Douglas 21 FerroAlloys 22 Black Mountain* 23 Sishen Iron Ore Company* (Sishen and Thabazimbi mines) Operations Growth projects Representative ofﬁces * Joint ventures and investments not operationally controlled. 8 EXXARO INTEGRATED ANNUAL REPORT 2010 FINANCIAL SUMMARY INCOME STATEMENTS Revenue Net operating profit1 Net financing 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 flows from operating activities Cash flows from investing activities Cash flows from financing activities Net increase/(decrease) in cash and cash equivalents 12 months ended 31 December 2010 Audited Rm 17 155 2 636 (455) 3 719 (665) (27) (22) 5 186 1 495 500 7,72 2 364 (978) (269) 1 117 2009 Audited Rm 15 009 304 (415) 1 900 (766) 1 491 2 514 729 200 8,39 (206) (1 414) 874 (746) As at 31 December 2010 Audited Rm 2009 Audited Rm 2 140 6 977 85 28 609 13 305 46 75 3 880 726 1 375 STATEMENT 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 classified 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 classified as held-for-sale Total equity and liabilities Net debt ANALYSIS PER SHARE2 Number of shares in issue (million) Weighted average number shares in issue (million)3 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) 1 Includes a R1 435 million impairment of the carrying value of the KZN Sands assets in 2009. 2 To achieve comparability, the impact of the R1 435 million impairment of the KZN Sands assets in 2009 has been excluded, where relevant. 3 Shares issued to Mpower are classiﬁed as treasury shares and are excluded from the calculation of the weighted average number of shares. 716 3 237 52 28 609 2 220 1 501 1 495 500 3,00 4 870 3 644 2 193 – 1 353 17 437 (23) 17 414 358 347 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 3 731 357 345 712 729 200 3,56 3 616 EXXARO INTEGRATED ANNUAL REPORT 2010 9 SUMMARY OF BUSINESS OPERATIONS 000 tonnes produced COAL Coking coal Grootegeluk Tshikondeni Power station coal (Eskom) Grootegeluk Leeuwpan Matla Arnot New Clydesdale North Block Complex Mafube Steam coal Grootegeluk Leeuwpan New Clydesdale North Block Complex Inyanda Mafube Char 12 months ended 31 December 2010 2009 2008 2007 2 419 2 134 285 36 767 14 924 1 688 12 288 4 173 2 674 1 020 7 502 1 441 1 408 850 697 1 779 1 327 114 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 2 560 2 233 327 36 700 14 581 1 188 13 230 4 865 115 2 271 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 1 486 1 421 814 391 Total coal production 46 802 45 258 44 834 41 319 KZN SANDS Ilmenite Zircon Rutile Pig iron Scrap iron Chloride slag Sulphate slag 236 33 17 71 12 113 29 368 36 20 108 15 104 24 229 34 19 50 16 95 18 367 34 17 90 20 150 26 10 EXXARO INTEGRATED ANNUAL REPORT 2010 000 tonnes produced NAMAKWA SANDS1 Ilmenite Zircon Rutile Pig iron Scrap iron Chloride slag Sulphate slag AUSTRALIA SANDS2 Ilmenite Zircon Rutile Synthetic rutile Leucoxene Pigment BASE METALS Rosh Pinah (zinc concentrate) Black Mountain (zinc concentrate)3 Zincor (zinc metal) Zincor (sulphuric acid) Chifeng (zinc metal)4 Rosh Pinah (lead concentrate) Black Mountain (lead concentrate)3 INDUSTRIAL MINERALS Glen Douglas Metallurgical dolomite Aggregate Lime FerroAlloys Atomised ferrosilicon IRON ORE5 Sishen Thabazimbi Total iron ore production 12 months ended 31 December 2010 2009 2008 2007 251 128 28 82 119 23 231 35 18 90 13 57 101 19 90 144 30 19 18 410 773 57 6 244 116 26 73 97 20 207 33 16 109 14 53 94 14 87 142 29 20 18 371 762 72 5 315 130 27 103 6 135 24 174 29 13 113 16 43 94 15 87 129 23 20 17 422 788 63 6 300 115 24 91 11 126 27 216 36 17 100 16 54 95 15 101 147 23 22 15 543 749 54 6 8 268 410 8 678 7 878 511 8 389 6 808 532 7 340 5 946 535 6 481 1 Physical information includes Namakwa Sands for 12 months from 1 January 2007 even though only acquired effective 1 October 2008. 2 Physical information reﬂects Exxaro Australia Sands’ 50% interest in the Tiwest joint venture. 3 Physical information reﬂects Exxaro’s 26% interest in Black Mountain Mining (Pty) Limited from 1 January 2007 even though only acquired effective 1 November 2008. 4 Physical information represents the effective interest in Chifeng (Hongye) reﬁnery. 5 Physical information from 2007 reﬂects Exxaro’s 20% interest in Sishen Iron Ore Company. EXXARO INTEGRATED ANNUAL REPORT 2010 11 12 EXXARO INTEGRATED ANNUAL REPORT 2010 DIVIDER PAGE 2 — FRONT (YEAR UNDER REVIEW) Year under review i w e v e r r e d n u r a e Y EXXARO INTEGRATED ANNUAL REPORT 2010 13 DIVIDER PAGE 2 — BACK (YEAR UNDER REVIEW) APPROACH TO SUSTAINABLE DEVELOPMENT DISCLOSURE ON MANAGEMENT APPROACH Sustainability is generally deﬁned as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” For Exxaro this means ensuring we do not undermine the capacity of the natural environment to provide services, and that we do not contribute to any instability in the communities in which we operate. It also means balancing three aspects of business — economic, environmental and social — and integrating the requirements of each of these into the group’s planning, decision-making and operations. In line with the World Business Council for Sustainable Development and other global benchmarks, sustainability is a critical thread woven through our broader strategy (page 22) and the different areas of our business. Spanning corporate governance, ethics, workplace issues, intellectual property and stakeholder relations, the key beneﬁts include: > Eco-efﬁciency = reduced costs, costs avoided (eg through new technology) and optimal investment strategies > Quality management = better risk management, greater responsiveness in volatile markets, more motivated and committed staff, and enhanced intellectual capital > Licence to operate = lower costs of compliance, improved reputation with key stakeholders and greater inﬂuence with regulators > Market advance = stronger brands, greater customer loyalty, lower cost of capital, new products and processes, attracting (and retaining) the right talent > Sustainable proﬁts = new business/increased market share and enhanced shareholder value. SUSTAINABLE PROFITS ECO- EFFICIENCY MARKET ADVANCE QUALITY MANAGEMENT LICENCE TO OPERATE 14 EXXARO INTEGRATED ANNUAL REPORT 2010 SAFETY AND SUSTAINABLE DEVELOPMENT POLICY At Exxaro Resources we actively care for the health and safety of our people, the environment, surrounding communities and our resources by ensuring sustainable development in all our activities. Exxaro is committed to: > Consulting with employees, representatives and other stakeholders in appropriate forums to develop, communicate and review responsible and innovative policies, programmes and guidelines that safeguard the community, employees, contractors, other stakeholders and the environment, while providing ﬂexibility to meet the needs of our businesses > Achieving high standards of environmental care and providing a safe and healthy workplace for employees, contractors and other relevant stakeholders > Ensuring an appropriate organisational structure and adequate resources to manage sustainable development, including safety, health and environmental matters and comply with legislation > Implementing internationally accepted and appropriate standards for safety, occupational health and hygiene, environment and stakeholder engagement management systems > Complying with all applicable legislation and international obligations as a minimum requirement and implementing effective company standards, programmes and processes to manage risks > Maintaining continuous hazard and aspect identiﬁcation and risk assessment for safety, occupational health and sustainable development in general > Maintaining competence and awareness on relevant safety and sustainable development matters through training, mentoring and communication to employees and contractors > Conserving natural resources and reducing the environmental burden of waste generation and emissions to air, water and land through strategies focusing on reducing, reusing, recycling and responsible disposal of waste > Preventing injury, ill health, pollution and continually improving safety and sustainable development management and performance > Establishing objectives, targets and continuously improving operations in terms of safety and sustainable development performance and management systems > Ensuring that all incidents leading to fatalities, environmental impact, injury, occupational diseases, damage to property, process losses, compliance notices, regulatory ﬁnes and penalties are reported and investigated thoroughly to determine all contributing factors and promptly implementing corrective and preventive actions > Establishing and maintaining appropriate controls, including periodic audits and reviews, to ensure this policy is effectively implemented, updated and available to interested and affected parties > Maintaining a high level of emergency preparedness and response to manage any potential emergency. This policy informs the entire safety and sustainable development function as we aspire to be a responsible corporate citizen that contributes to mitigating sustainable development challenges in our operating environments, as well as international treaties to which South Africa is a signatory. EXXARO INTEGRATED ANNUAL REPORT 2010 15 RISK MANAGEMENT DISCLOSURE ON MANAGEMENT APPROACH Risk philosophy Effective risk management is central to maintaining competitive advantage and adapting to changes in the internal and external business environment. The underlying principle of integrated enterprise-wide risk management (ERM) is that risk management must form part of all strategic, business planning and day-to-day operational activities. 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 South Africa’s King III is achieved by coordinating and integrating these activities for effective integrated risk management governance. Risk owners are responsible for continuous identiﬁcation, assessment, mitigation and management of risks within the existing and ever-changing risk proﬁle of the environment in which they operate. The internal auditors and chief audit executive, being responsible for the combined assurance process, evaluate the effectiveness of the risk management process and report to the audit, risk and compliance committee (audit committee) which, in turn, provides assurance to the board. Risk appetite The audit committee approves Exxaro’s consolidated risk appetite for residual risks (ie the result after applying mitigation or control measures to the inherent risks identiﬁed and assessed), and ensures this is aligned with the group strategy. Exxaro’s risk appetite is a function of its ability to withstand unexpected losses and their impact on the group’s ability to continue as a going concern. Differentiated risk appetites apply at different levels throughout the group. The top residual risks at different levels in the organisation receive continuous and enhanced attention and are subject to periodic monitoring and reporting by risk owners to reduce the residual risk rating. Risk identiﬁcation and assessment process The risk management process is continuous, with well-deﬁned steps. Risks from all sources are identiﬁed and once they pass a set materiality threshold, a formal process begins in which causal factors and consequences are identiﬁed and the correlation with other risks and mitigating controls is reviewed. The top residual business risks, appropriately categorised and based on impact and likelihood of occurrence, together with mitigating control measures, are disclosed below in descending order. These risks do not exceed Exxaro’s risk appetite but have the highest residual risk rating, warranting disclosure and continuous management as per the decision of the executive committee, audit, risk and compliance committee of the board, and the board itself. 16 EXXARO INTEGRATED ANNUAL REPORT 2010 EXXARO’S TOP RESIDUAL BUSINESS RISK MAP FOR 2010 Financial 18 14 12 20 17 3 2 6 8 100% 4 1 5 15 19 Strategic 9 10 16 Legend for 2010 residual business risk map Compliance 7 11 13 Residual risk rating (%) Scores range from 71-100 Scores range from 39-70 Scores range from 0-38 Operations 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. Infrastructure constraints impacting on current operations and growth aspirations (100) Commodity price and currency volatility impacting on proﬁtability, investment returns, project evaluations and BEE shareholding structure (80) Inability to maintain a licence to operate due to non-compliance with all applicable legal and regulatory frameworks (80) Potential delays to operations and projects associated with the time taken to obtain approval for mining and environmental rights (80) Lack of security of, and cost of electricity, impacting adversely on safety and sustainable operations (80) Inadequate regulatory changes to enable meaningful participation in IPPs in the South African industry (80) Climate change impacting adversely on sustainable operations (64) Late commissioning of growth projects fundamental to Exxaro’s future sustainability (60) Insufﬁcient supply of clean water for sustainable operations and communities (51) Insufﬁcient attraction and retention of key skills negatively impacting on current operations and growth aspirations (48) Risks associated with the closure of current operations (48) Adverse impact of above inﬂation increases on operating costs, proﬁtability, and cost of capital projects (48) Insufﬁcient security of critical materials due to scarcity and price (48) Fraud perpetrated resulting in quantiﬁable losses (40) Risk of not successfully implementing improvement project initiatives (Project Siyaya) thereby not realising revenue, cost reduction and increased operational efﬁciency targets (32) Funding of current operations and growth aspirations hampered by balance sheet capacity and other resource constraints (32) Risk of previous versions of software applications impacting negatively on information security and availability (32) Investment opportunities do not yield expected returns (32) Resource nationalisation resulting in sub-optimal utilisation of resources (24) 16. 17. 18. 19. 20. Reliance on a non-managed operation for ﬁnancial stability (20) Residual risk ratings (percentages) are disclosed in brackets after the description of the residual risk. EXXARO INTEGRATED ANNUAL REPORT 2010 17 RISK MANAGEMENT CONTINUED High-level business risks Risk and category Impact Probability Control measures (mitigation) Strategic and operations High High Continuous collaboration with Transnet Freight Rail. Infrastructure constraints impacting on current operations and growth aspirations Upgrade loading facilities. Leasing or acquiring export entitlement. Evaluate viability of own rolling stock Strategic and ﬁnancial High High Continuous business improvement initiatives with Commodity price and currency volatility impacting on proﬁtability, investment returns, project evaluations, loan covenant compliance and BEE shareholding structure rigorous tracking. Optimised use of operating assets to leverage beneﬁts of higher throughput. Increased manpower productivity. Pursue downstream beneﬁciation and integration. Diversiﬁcation of markets and product sector. Restructure, if necessary, to be proﬁtable throughout commodity cycles Strategic and compliance High High Engagement with relevant authorities and non- Inability to maintain a licence to operate due to non-compliance with applicable legal and regulatory frameworks governmental organisations. Ensure gap identiﬁcation and progressive compliance with revised mining charter, King III report on governance for South Africa, environmental and other legislation to ensure sustainable operations within the framework of a responsible corporate citizen Compliance and operations High High Continuous engagement with relevant authorities. Potential delays to current operations and projects associated with the time taken to obtain approval for mining and environmental rights Operations Lack of security, and cost, of electricity impacting on safety and sustainable operations Ensure compliance with legal and regulatory requirements to progress approvals required High High Participation in industry forums that engage with Eskom and the National Energy Regulator of South Africa (NERSA). Investigation into co-generation and other renewable energy sources. Implementing power-sharing initiatives and examining alternatives for conserving electricity in operations. Continued commitment to Eskom to assist where possible with additional coal supply to achieve stability in the power grid Strategic Inadequate regulatory changes to enable meaningful participation in IPPs in the South African industry High Medium Ongoing engagement and participation in regulatory processes and continued lobbying of decision makers 18 EXXARO INTEGRATED ANNUAL REPORT 2010 Risk and category Operations Impact Probability Control measures (mitigation) High Medium Continuous research and industry participation to Climate change impacting on sustainable understand and quantify impacts to ensure mitigation operations Strategic Late commissioning of growth projects critical to Exxaro’s sustainability initiatives are current and effective Medium Medium Robust project management discipline. Knowledge sharing from experiences with previous projects Strategic and operations Medium Medium Continuous enhancement of current water management Insufﬁcient supply of clean water for sustainable operations and communities programmes combined with investigation of additional mitigation initiatives Strategic and operations High Medium Implementation of effective retention strategy for key Insufﬁcient attraction and retention of key skills impacting negatively on current operations and growth aspirations 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 multi-disciplinary project teams Operations High Medium Restructure, where necessary and where possible, to be Risks associated with the closure of current operations proﬁtable throughout commodity cycles Continuous improvement to enhance efﬁciencies, productivity and proﬁtability Investigate downstream opportunities or alternative applications for current technology Financial High Medium Ensure comprehensive provision for escalation on Adverse impact of above-inﬂation increases on operating costs, proﬁtability and costs of capital projects project costing and timing of long-lead items. Continuous business improvement initiatives and knowledge sharing Operations High Medium Strategic sourcing and long-term contracting with Insufﬁcient security of critical materials reliable suppliers. Implement mitigation plans to avert or due to scarcity and price minimise potential impact EXXARO INTEGRATED ANNUAL REPORT 2010 19 RISK MANAGEMENT CONTINUED Risk and category Financial Fraud perpetrated, resulting in quantiﬁable losses Impact Probability Control measures (mitigation) High High Sound and entrenched internal controls and governance. Discipline with procedural compliance. Zero tolerance to fraud. Strong and experienced forensic investigation capability. Continuous internal audit of controls and assurance of effective functioning Strategic High Medium Robust execution of initiatives complemented by Risk of not successfully implementing improvement project initiatives thereby not realising targets for revenue, cost reduction and increased operational efﬁciency tracking to conﬁrm set targets are realised Strategic and operations High Medium Ranking value-adding opportunities in an approved Funding of current operations and growth aspirations hampered by balance sheet capacity and other resource constraints commodity strategy-aligned growth process and acceptable capital structure, underpinned by cash ﬂow generation and preservation, giving credence to maintaining Exxaro’s empowerment status Explore alternatives to raise equity given the group’s equity-raising restrictions Compliance High Medium Centralised control and enforcement of discipline Risk of previous versions of software applications impacting on information security and availability Financial Investment opportunities do not yield expected returns combined with training opportunities on updated software applications High Medium Applying conservative and strict criteria for project evaluation. Continuous update of prices and macro- economic parameters complemented by a comprehensive risk analysis Strategic High Low Inﬂuence decision-making through collective lobbying Resource nationalisation resulting in sub-optimal utilisation of resources and discussions at participative industry forums Financial High Low Focus on sustainability of managed operations in Reliance on non-managed operation for isolation ﬁnancial stability Due to a different assessment of the impact, probability or control measures, or a combination of these, certain business risks disclosed in 2009 now have a residual risk rating that no longer warrants disclosure or the risk no longer exists, namely: > Future of the KZN Sands operation > Medium-term reserve conﬁrmation for Namakwa Sands > Long-term, viable quality zinc concentrate supply to Zincor > Securing a strategic partner for Australia Sands > Poor safety record resulting in government, labour union and stakeholder intervention > HIV/Aids pandemic. 20 EXXARO INTEGRATED ANNUAL REPORT 2010 INFORMATION MANAGEMENT Information technology is an integral part also appointed a general manager: of doing business today as it is information management. This senior fundamental to the support, sustainability executive is mandated to ensure Exxaro and growth of Exxaro. It cuts across all has an integrated system capable of aspects, components and processes in supplying meaningful and accurate data on business and is therefore not only an sustainability elements in reporting to operational enabler for Exxaro, but an stakeholders within the new ﬁnancial year. important strategic asset that can be leveraged to create opportunities and As part of our ERP strategy, we are gain competitive advantage. migrating the group to the latest version of SAP enterprise reporting at a total However, by its nature, information capital cost of R268 million. Given the technology also presents signiﬁcant risks legacy issues and disparate systems so and must be well governed and controlled common to a merged group, we have to ensure the function supports the opted for a two-phased approach to the group’s strategic objectives. In exercising overall execution of this project. The ﬁrst their duty of care, Exxaro directors ensure phase, focused on design/blueprinting, that prudent and reasonable steps have was initiated in November 2010 and been taken in information management completed in February 2011. The second governance. phase is implementing the new solution; this will begin in March 2011 and be One of Exxaro’s strategic focus areas is completed by October 2011. achieving operational excellence. This involves simplifying, standardising and Oversight for information management optimising core processes and structures (IM) in Exxaro falls under the new across the group to ensure a common strategic business programme. It is method of executing Exxaro business, and monitored by the ﬁnance director, having exceptional services that support general manager IM, and the executive its growth and operational excellence. general managers for coal, sands and A strategic business programme was committee meets quarterly, with ad hoc launched (page 45) to address these and meetings as required, and reports to the other strategic goals such as generating audit, risk and compliance committee of base metals and corporate services. The unrivalled value in return on capital the board. employed, and creating robust businesses that share, optimise cost structures, The IM executive committee is mandated improve throughput and optimise their to ensure proper ICT (information and sales mix. communications technology) governance and policies are in place, that overarching Technology plays a key role in enabling this ICT strategic direction is aligned to vision. Accordingly we launched an Exxaro’s strategy. The committee will also investigation in September 2010 to monitor ICT value delivery and understand the key business drivers and performance, functional sustainability and technology requirements of our business compliance with statutory requirements programme and determine the most and corporate governance. This includes appropriate enterprise resource planning consultative processes with stakeholders (ERP) strategy to enable our vision. We such as employees and organised labour. Governance of information management All activities in the information management (IM) domain are governed by the following principles: > Strategic alignment — ensuring IM strategy is aligned with business strategy and that IM delivers against the strategy > Delivering value — optimising expenditure, proving the value of IM by delivering new investments that support the enterprise > Risk management — safeguarding information communication and technology assets and information, disaster recovery and continuity of operations > Resource management — making informed decisions about focus and priority for the use of information technology (IT) resources (ﬁnance, people, applications, technology, facilities, data), ensuring appropriate IT and related business resources are available to enable IM to deliver on expectations > Performance management — tracking project delivery and monitoring all information and communications technology (ICT) services to ensure operational excellence. EXXARO INTEGRATED ANNUAL REPORT 2010 21 STRATEGIC FOCUS AREAS Exxaro’s business strategy is guided by areas below, together with our relevant areas and our business objectives ﬁve areas where the group believes it understanding of each and the relevant set out targeted ﬁnancial and non- must perform well to claim competitive performance examples. The CEO and ﬁnancial indicators (page 3). advantage and provide an attractive ﬁnancial and operational reviews investment case. We explain these focus (pages 44 and 48) provide more detail in Strategic focus area Implementation Measure Results and target Ensure Exxaro’s sustainability Integrated approach to risk management Access to good quality long-term resources Responsible, safe operations Risk management part of strategy, business planning and day-to-day operations Life of mine Environmental footprint, performance against safety and health objectives Regulatory compliance Corporate citizenship Responsible corporate citizenship footprint. Governance ratings (JSE) and Socially Responsible Investment Index (SRI) Healthy balance sheet and ﬁnancial metrics Financial performance Protected intellectual property Appropriate new technology development Patent and trademark registrations and protection Technology pipeline aligned with strategy Entrenched integrated enterprise-wide risk management governance in place (page 16) Long-term resources are aligned with commodity strategy (page 60, 64) Prudent ongoing rehabilitation and provision for closure Fatalities and lost-time injuries lower than in 2009; target remains zero (page 78) Integrated water and waste management programmes implemented (page 95) HIV and TB management strategies implemented (page 88, 89) Progressive compliance with King III and revised mining charter (page 144, 156) One of the best-performing constituents of the JSE’s SRI Index (page 30) Socio-economic spend of 2,5% of net proﬁt after tax from managed operations (page 131) Debt to equity ratio of 13% Compliance achieved with all loan covenants Healthy ﬁnancial metrics; geared for growth Refer to the ﬁnancial and operational review on page 48 Intellectual property committee formed from internal resources and legal advisors to ensure protection and currency of patents and licenses where applicable 22 EXXARO INTEGRATED ANNUAL REPORT 2010 Strategic focus area Implementation Measure Results and target Protect and build Exxaro’s reputation Positive stakeholder engagement Representation and fair workplace Publicity/media coverage. Feedback from stakeholder interaction initiatives Recognition as an employer of choice Legislative and regulatory compliance Transparent and compliant reporting Industry leader in transformation Integrated and transparent reporting of economic, social and environmental performance Compliance with revised mining charter Develop Exxaro’s leadership and people Preferred local and export supplier Living our values and brand Feedback from customers Internal and external surveys Develop effective leaders Ensure right talent for operational management and growth Reward and remunerate for innovation and productivity Recognise our people as our strength Leadership interventions, cross-discipline exposure, and management rotation Benchmarked remuneration Staff turnover rate Internal recognition awards Refer to stakeholder engagement summary on pages 25 to 28 Rated second among the mining companies that participated in the Deloitte Best Company to Work For survey Progressive compliance with employment equity targets (page 123, 156) Entrenched and compliant employment practices supported by a code of ethics and underpinned by a grievance and disciplinary policy 2010 integrated annual report More than 50% black ownership Representative board and executive committee overseeing strategy and day-to-day management Progressive compliance with employment equity targets 50% of discretionary procurement spend went to HDSA suppliers Refer to stakeholder engagement summary on page 25 Internal 360° peer evaluations reﬂect Exxaro value entrenchment among employees Refer to social performance report on pages 120 to 128 Exxaro’s Best Company to Work For rating in 2010 was slightly lower than 2009, primarily because of the restructuring programme under way (page 45) EXXARO INTEGRATED ANNUAL REPORT 2010 23 STRATEGIC FOCUS AREAS CONTINUED Strategic focus area Implementation Measure Results and target Improve Exxaro’s portfolio Top-quartile performer in peer group Solid performance and growth throughout the commodity cycle Innovation and technological development supporting Exxaro’s drive for continuous improvement and growth aspirations JSE SRI Index rating Return on capital employed (ROCE) comparison to peer group Compound annual growth rate (CAGR) for revenue and net operating proﬁt (EBIT) Internal capacity and experience of technology resources Research and development (R&D) capacity and progress Well-articulated growth strategy with robust and balanced opportunity and project pipeline Funding capacity to support strategy realisation Unambiguous growth strategy known to all stakeholders Healthy ﬁnancial metrics External ﬁnancial support Credit rating Achieve operational excellence Physical production performance Market share and reliability of supply Consistently achieve annual stretched performance targets Rigorous performance reviews for operations and support services Effective project execution on time and within budget Low-cost producer Position on cash cost curve One of the best-performing constituents of the JSE’s SRI Index ROCE at 38% exceeds internal target and externally determined benchmark CAGR for revenue and EBIT at 19% and 52% respectively since creation of Exxaro Management of mega project development, eg Grootegeluk mine expansion for Medupi (GMEP) performed with internal resources Development of current application of AlloystreamTM technology by internal R&D resources Refer to strategy in CEO report on page 45 and growth report on page 60 Debt to equity ratio of 13%; healthy ﬁnancial metrics; compliance with all external loan covenants; appetite from ﬁnanciers for Exxaro’s mega-project ﬁnancing (R4,5bn bridge facility for GMEP in place); formal credit rating to be considered in 2011 Coal production marginally higher in 2010; aspiration to become the largest coal producer in South Africa in the next few years (currently second) — 75Mt coal and 750kt reductants per year Increase coal export volumes and be a reliable local supplier Char plant ramped up to nameplate capacity in last quarter of 2010. Pigment plant expansion at Kwinana in Australia ramped up to nameplate capacity in 2010 Maintain position among leading global suppliers of titanium dioxide and zircon, and increase share of global chloride pigment market Cash production costs year on year on average below external inﬂation indicators due to disciplined cost management Business optimisation project (Siyaya) aims to introduce a more effective operating model with beneﬁts of increased revenue and lower service costs 24 EXXARO INTEGRATED ANNUAL REPORT 2010 STAKEHOLDER ENGAGEMENT Engaging with our stakeholders is fundamental to creating value for all our investors. It also builds solid relationships with authorities and interested and affected parties. To further strengthen stakeholder engagement, Exxaro applies the AA1000SES standard based on the processes shown below. This is supported by a new integrated software system to manage stakeholder engagement more effectively. Exxaro communicates with each stakeholder group in a number of ways: Stakeholder group Objective Issues raised Progress Employees are invited to comment on any aspect of the group through bi-monthly newsletters, intranet, regular employee surveys and feedback from various forums Customer perceptions are surveyed through external service providers and by regular interaction Supplier interaction is ongoing through external perception surveys, forums and other initiatives To maintain informed and supportive employees Retrenchment procedures Strategic business optimisation programme Long-term security of supply Long-term security of supply Effectiveness of planned procure-to-pay process To ensure customers view Exxaro as a reliable supplier and partner > Capitalise on our purchasing power to drive socio-economic empowerment, transformation and development in South Africa > Maintain a constructive and positive preferential procurement relationship between Exxaro and its suppliers Trade unions — regular consultation with all recognised unions by the group’s employee relations management unit To maintain a collaborative relationship with accredited trade unions Retrenchment procedures Strategic business optimisation programme Information-sharing sessions held. Opportunity to participate in consultation phase facilitated Continuous engagement on mutually beneﬁcial contractual arrangements Target exceeded for 2010. Progress against targets in new mining charter tracked quarterly Ongoing engagement In 2010, Exxaro notiﬁed unions of the planned retrenchment of a maximum of 300 employees. Through consultation, we are still examining all options to limit the effect of restructuring on our people EXXARO INTEGRATED ANNUAL REPORT 2010 25 STAKEHOLDER ENGAGEMENT CONTINUED Stakeholder group Objective Issues raised Progress To maintain informed and supportive relationships with authorities and regulators at all levels that are important to Exxaro’s business aspirations Progress with mining right conversions and approvals Issuing of water permits and environmental approvals Authorities — consultation at national, provincial, district and local level. Key government departments with which Exxaro interacts include mineral resources, water affairs, labour, environmental affairs and trade and industry Regulators — senior Exxaro members meet with ofﬁcials from relevant government departments Industry bodies To participate in industry forums instrumental to Exxaro’s business Revised mining charter. Industry safety initiatives Relationships at national and international level are handled by senior management. Local and regional government relations are handled by experienced members of Exxaro safety and sustainable development department. Understanding that sound government relations facilitate the group’s compliance/licensing requirements (mining rights, water permits, etc) Exxaro will centralise accountability for national/international relations, as well as oversight of all group stakeholder relations, as part of the group’s strategic business optimisation programme Exxaro’s chief executive ofﬁcer has completed his third term as president of the Chamber of Mines, and the group actively participates in chamber issues Investors — regular interaction between management and investor community includes ﬁnancial results presentations, roadshows, site visits and individual meetings. Investors may request access to group operations and management To nurture solid relationships with investors, fund managers and investment analysts to ensure that Exxaro’s strategy, business plans and reported results are understood Clarity on mineral sands strategy Progress with energy portfolio Progress with divesting zinc interests Formal programme being developed to communicate strategy, challenges and targets to local and international investors Media — regular interaction between management and media representatives To maintain informed and supportive media stakeholders Coverage on mining groups’ alleged non-compliance with environmental legislation Proactive interactions for insight on Exxaro’s strategy and developments: news releases, site visits, brieﬁngs, interviews. Media relations to manage ad hoc issues 26 EXXARO INTEGRATED ANNUAL REPORT 2010 Stakeholder group Objective Issues raised Progress Communities — in addition to the stakeholder engagement process, business units’ management members serve on municipal forums for integrated development planning and local economic development, and actively participate in capacity-building initiatives To consult with stakeholder communities on their needs, project planning and implementation To provide details of stakeholders, basis for identiﬁcation, engagement, stakeholder concerns, use of engagement information To demonstrate commitment to stakeholder involvement on social sustainability issues through policy and implementation Interest groups — Exxaro is building strong relationships with relevant non-government bodies and interest groups Collaboration and partnering with interest groups that are important to Exxaro’s business operations Employment opportunities and environmental impacts Some environmental groups raised issues with the JSE and in the media about mining companies’ compliance with environmental standards, and whether JSE standards for membership of the Socially Responsible Investment index need to be raised. For Exxaro, issues included the alleged absence of water licences at speciﬁc operations and unauthorised mining operations at another By June 2011 we aim to have a standardised strategy and systems in place to formalise: > Identifying stakeholders > Analysing stakeholder issues > Formulating company responses > Implementing stakeholder engagement plans for each operation > Training all relevant employees in the approach to stakeholder engagement Exxaro satisﬁed the JSE that the required water licences had been issued, and that no unauthorised mining activities were being undertaken at Arnot’s Mooifontein section. Exxaro also demonstrated that an innovative solution was being implemented at Matla to preserve and minimise mining impacts on the wetland (page 97) EXXARO INTEGRATED ANNUAL REPORT 2010 27 STAKEHOLDER ENGAGEMENT CONTINUED Commitment to external initiatives As part of our goal of leadership in sustainability, Exxaro actively participates in initiatives that beneﬁt both the industry and South Africa. Initiative Purpose Progress Community health project To create HIV awareness and encourage Projects initiated at Arnot, Leeuwpan and HIV testing in communities surrounding North Block Complex in 2010. This will be our business units. We aim to create an followed by Inyanda, Matla and New environment that has no stigma against Clydesdale in 2011 people living with HIV/Aids Exxaro chair in earth science at University Encourage research and dialogue Support initiated until 2013 of Pretoria University of Pretoria community-based Develop standards and protocols Standards and protocols periodically project module reviewed Exxaro chair in business and climate Encourage research and dialogue Support renewed until 2015 change at Unisa Exxaro chair for global change and Promote thought leadership New support to 2013 sustainability at Wits Mineral Education Trust Fund Pool industry resources to support Annual contribution of over R1 million National Business Initiative tertiary education in the South African minerals industry and jointly seek solutions to related challenges To ensure a coordinated response to issues such as climate change and water Corporate membership Exxaro participates in the Carbon Disclosure Project (CDP) programme for energy and water to ensure responsible stewardship Bridging school Enable school leavers to pursue tertiary Annual funding of over R2 million education 28 EXXARO INTEGRATED ANNUAL REPORT 2010 Case study — Grootegeluk expansion embodies Exxaro’s approach to sustainability Grootegeluk mine’s expansion for Medupi (GMEP) is one of the largest mining growth projects in southern Africa, and bears testimony to Exxaro’s ability to successfully plan, develop and implement projects of this magnitude. On completion, this expansion will make Grootegeluk the largest coal operation in the world, producing around 33Mtpa of power station, coking and steam coal. Realising the catalystic effect GMEP would have on the region and its infrastructure, Exxaro spearheaded the formation of the Lephalale Development Forum. This body brings together national, provincial and local government, other industry participants and civil society to meet the socio-economic development challenges that the Lephalale municipality would face. The R9,5 billion GMEP project, near Lephalale in Limpopo province, entered a new phase in June 2010 as project team members moved on site to start construction. At present, GMEP is scheduled to begin supplying 14,6Mtpa coal to Eskom’s new power station (Medupi) from the second quarter of 2012, coinciding with the commissioning of the expansion project. Full coal production is expected from 2014/2015. The bulk of the long lead-time and major supply contracts for the project were ﬁnalised in mid-2010, including contracts for the supply of stackers and reclaimers, as well as the in-pit crushing system (a mobile system that enables operations teams to crush run-of-mine material as the mine pit advances. Material is then transported via conveyor belt to processing plants. Civil construction is well underway. What this means to Exxaro > Grootegeluk will be able to supply the Medupi power station with over 14Mtpa of coal for the next 40 years from a beneﬁciation plant that has been designed to be energy efﬁcient and zero efﬂuent > It will enable Exxaro to increase its volumes available for export, and develop downstream products such as char and market coke in line with government’s drive to add value to natural resources through beneﬁciation. What it means to local labour > Through Exxaro’s housing project (page 94), more than R25 million has been spent with(cid:3)local suppliers and sub-contractors. At year end, the project had employed close to 500 local contractors, around 50% of its total labour force > Around 100 people have been trained by Exxaro contractors as part of the group’s socio-economic development plan. This includes health and safety training as well as specialised technical skills. What it means to the region > Additional housing, education, health and welfare services, sport and recreation facilities are being planned, in conjunction with regional stakeholders > The capacity of the local water-treatment works (which supplies most of the municipal area with potable water) is being doubled at a capital cost of R100 million. This will supply 40 megalitres of drinking-quality water per day, which is expected to meet the region’s needs into the foreseeable future. The upgrade started in April 2010 and will be completed by August 2011. EXXARO INTEGRATED ANNUAL REPORT 2010 29 REPORT SCOPE AND BOUNDARY Exxaro’s 2010 integrated annual report Initiative (G3), and the content of this Ongoing feedback from a range of covers the group’s ﬁnancial and non- report has again been prepared in line stakeholders helps us to contextualise ﬁnancial performance. This integrates our with GRI intermediate application certain issues better for more informed economic, social and environmental level B+. results for a group-wide understanding, understanding by readers. Feedback is a critical element of our reporting process and sets out the challenges and As a signatory to the United Nations and the completed feedback form included opportunities ahead. The report is also Global Compact, Exxaro also reports in this report should be directed to: available at www.exxaro.com. annually on progress in upholding the Ramesh Chhagan ten universally accepted principles of Manager: Risk and Sustainable The methodologies for determining human rights, labour, the environment Development speciﬁc indicators are described in the and anti-corruption. E-mail: ramesh.chhagan@exxaro.com text, eg injuries, carbon footprint and air Telephone: +27 12 307 4038 quality management. Sustainability performance in this report Fax: +27 12 307 5338 spans the 12 months from 1 January to Mobile: +27 83 609 1446 Exxaro was formed in November 2006 by 31 December 2010. In addition to the www.exxaro.com merging the former Kumba Resources printed report and web site, the report is and Eyesizwe operations. While this also available on CD. process is largely complete, consolidation of the Namakwa Sands business only This report excludes operations where we started towards the end of 2008. This has made data comparability challenging in do not have management control: > Australia Sands — principal asset is a JSE Socially Responsible Investment (SRI) index Exxaro was again ranked among the best performers on the JSE’s revised SRI index in 2010. This index identiﬁes best practice some areas. Throughout these processes, 50% ownership of Tiwest joint venture in corporate social responsibility and however, Exxaro’s earlier adoption of > Chifeng Reﬁnery — Exxaro has an corporate governance in a benchmark triple bottom-line reporting has remained effective 22% economic interest in an index. Exxaro is classiﬁed as having a high a cornerstone of our commitment to existing reﬁnery facility in Inner environmental impact because it is sustainable development and of our Mongolia, China involved in mining and metals. determination to entrench global safety > Mafube coal mine — joint venture in and sustainable development best Mpumalanga, South Africa. Solid progress is being made in areas that practices in all operations. Exxaro > Sishen Iron Ore Company — Exxaro has do not yet fully comply with JSE therefore reports against the 2006 a 20% equity interest guidelines of the Global Reporting In determining material issues to include in this report, Exxaro uses the methodology recommended by G3 which spans external and internal factors: External Internal > Key sustainability issues raised > Exxaro’s values, policies, strategies, by stakeholders processes and targets > Sectoral issues and challenges reported by peers and industry bodies such as the Chamber of Mines > The interests and expectations of stakeholders for whom our corporate progress is paramount, including employees, shareholders and suppliers > Relevant legislation and > Key risks deﬁned by corporate risk voluntary agreements (local and international) of strategic signiﬁcance to the group and its stakeholders > High-proﬁle sustainability issues, impacts or opportunities, from climate change to HIV/Aids methodologies > Critical factors for Exxaro’s success, including the synergy between our operations and the universal aims of sustainable development. The outcome of this process identiﬁed a number of material issues pertinent to business sustainability. These are disclosed on the foldout at the start of this report and cross referenced to detailed commentary in relevant sections. requirements, speciﬁcally providing quantitative objectives and targets for certain areas, and reporting on strategic moves towards sustainability. Assurance — broad-based veriﬁcation Exxaro’s internal systems record and monitor the quality (accuracy, completeness and consistency) of management information and any data gaps in the group. In line with our commitment to the triple bottom line, having the quality of our disclosure independently assured is an integral part of reporting to stakeholders. Each year, the performance indicators 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 172. 30 EXXARO INTEGRATED ANNUAL REPORT 2010 Awards and recognition Tshwane International Trade and Infrastructure Investment Award of excellence — alternative and renewable energies conference category Energy Cybernetics — inaugural Energy Barometer awards First place — corporate head ofﬁce category — for actual operational efﬁciency SANAS reassessment — full decade of excellence since ﬁrst Namakwa Sands laboratories at the smelter and mineral achieving IS 17025 accreditation in 2000 separation plant NOSCAR — ﬁfth consecutive award Namakwa Sands — making it one of the top performing mines in the country on safety, health and environment management standards (only 80 of 13 000 companies using the NOSA system have achieved this level of SHE performance) Nedbank Capital Green Mining awards Exxaro won joint ﬁrst place in the socio-economic category for its Zikhulise SME development and skills training centre project in KwaZulu-Natal. The group was runner-up in the prestigious sustainability category for the Lephalale eco-housing initiative, and the only company to feature twice in the awards. Now in their ﬁfth year, the Green Mining awards acknowledge the contribution responsible mining and mineral beneﬁciation makes to economic development in Africa SAICE Engineering Excellence awards A KZN Sands team scooped Project of the Year and overall 2010 Innovation trophy at the annual Engineering Excellence awards, held by the South African Institute of Chemical Engineers. The awards recognise innovation and excellence in the ﬁeld of chemical engineering and pit some of the best engineering projects in the country against each other. The Innovation accolade is widely regarded as the most prestigious award for a chemical engineer in South Africa. The same team has also been nominated in four categories for the international awards for innovation and excellence, held in the United Kingdom 2009 integrated annual report Ranked among the 15 excellent reports by Ernst & Young’s Excellence in Sustainability Reporting 2010 Corporate Research Foundation’s Best Employers survey 2010 Exxaro was ranked seventh among the top large-sized employers Carbon Disclosure Project 2010 (more than 4 000 employees) Exxaro took part in the Carbon Disclosure Project and again improved its performance signiﬁcantly; it was ranked fourth out of 74 of the top 100 JSE listed companies Exxaro was also one of the few mining companies to voluntarily participate in the ﬁrst CDP water project 2010 Shenhua Cup International Mining Skills Competition, China Matla won: (1) gold in the continuous miner operations category; (2) silver in electrical fault-ﬁnding (long-wall shearer); and (3) bronze for long-wall mining operations EXXARO INTEGRATED ANNUAL REPORT 2010 31 MACRO-ECONOMIC AND COMMODITY REVIEW Following on the global recession of 2009, 6,4% due to monetary tightening in these The key risks to the global economy in the world economy was characterised by a countries and slowing growth in the 2011 are the possibility of more sovereign two-speed recovery in 2010. Whereas the export markets of Europe and Japan. debt problems in Europe, as well as advanced economies recorded real GDP However, economic expansion in these possible premature and excessive ﬁscal (gross domestic product) growth of some countries will remain the major engine of and monetary tightening in this region 2,8%, the economies of emerging markets growth in the world economy in 2011. which would result in very weak growth. In expanded by a much better 7,0%. The emerging markets, on the other hand, world as a whole recorded real GDP Economic expansion in the USA is there is the risk that central banks may growth of 3,9%, with developing countries expected to pick up steam in 2011, with the not react quickly enough to counter the growing at a fair rate of 4,0%. country expected to record a respectable inﬂationary threat and that price increases real GDP growth rate of 3,2% based could thus spiral out of control. Conversely, Despite unprecedented monetary easing primarily on private-sector recovery and excessive tightening would constrain and stimulatory measures in advanced the continuation of ﬁscal stimulus. The economic growth. In the USA, the major economies, these countries continued to sovereign and banking-debt crisis is risk appears to be the possibility that the face conditions typiﬁed by tight credit, expected to continue to weigh on property market could continue to stagnant consumer demand and business conﬁdence in Europe, with more countries, stagnate, pushing a recovery in this investment, declining housing demand such as Spain, Portugal and Belgium, market beyond 2011. This risk is shared by and prices, and high unemployment. In thought to be at risk. Economic growth of some countries in Europe, notably the UK, addition, banking and sovereign debt some 1,6% could be realised in Western Spain, France and Sweden. crises, notably in Greece and Ireland, continued to undermine conﬁdence in the Europe. After a healthy recovery in 2010, Japan’s real GDP growth is forecast to Other economic risks facing the world developed world, especially in Europe. stall temporarily, reaching only about 1,2% include the spectre of increased Real GDP growth in the USA and Western in 2011. Europe advanced by 2,9% and 1,7% protectionism, currency manipulation and capital controls due to real or perceived respectively, while Japan’s GDP increased Real GDP growth in China is anticipated to exchange rate imbalances, the possibility by an exceptional 4,0%. be 9,5% in 2011. As with many other of equity and property bubbles in emerging economies, the slowdown in emerging economies, and spikes in the In emerging markets, on the other hand, growth is expected to be precipitated by prices of oil, food and other commodities monetary easing and stimulatory ﬁscal and monetary tightening and worldwide. The latter could continue to measures had the desired effect and these depressed market conditions in Europe give rise to social unrest, especially in countries continued to grow at a healthy and Japan. Economic expansion in India, countries with high unemployment. pace in 2010. China recorded real however, is not expected to suffer much, economic expansion of 10,3% and India with real GDP growth of 8,3% forecast 8,5%. Improved intra-regional trade in for 2011. south-east Asia countered muted demand conditions in the major consumer markets of the USA and Europe. However, rising Comparative GDP growth rates inﬂationary pressures in emerging economies caused governments to resort to monetary-tightening measures in the second half of 2010, resulting in a moderate slowdown in growth generally. In 2011, the two-speed recovery is likely to remain a feature of the global economy. Real GDP growth of some 3,5% is expected worldwide, with growth in advanced economies decreasing to an expected rate of 2,4% due to the persistence of conditions noted earlier and the need for ﬁscal tightening in Europe especially. Economic growth in emerging markets is expected to decline moderately to about 16 14 12 10 8 6 4 2 0 -2 -4 ) e g n a h c % ( h t w o r g P D G 32 EXXARO INTEGRATED ANNUAL REPORT 2010 1 9 9 1 2 9 9 1 3 9 9 1 4 9 9 1 5 9 9 1 6 9 9 1 7 9 9 1 8 9 9 1 9 9 9 1 0 0 0 2 1 0 0 2 2 0 0 2 3 0 0 2 4 0 0 2 5 0 0 2 6 0 0 2 7 0 0 2 8 0 0 2 9 0 0 2 0 1 0 2 China South Africa World United States Following on the dismal economic growth rand is expected to remain strong in 2011, prices increased by some 28% and steel performance during the worldwide at an average exchange rate of 7,15 against and stainless steel prices improved by recession in 2009, South Africa’s real GDP the US dollar. A strong rand will continue about 30%. Besides commodity growth recovered, albeit slower than to put pressure on export earnings and on production and utilisation, mineral expected, to 2,7% in 2010. Despite high the competitiveness of exporters. Factors markets were inﬂuenced by supply consumer debt levels, strict bank lending that could have a major impact on the disruptions, including weather-, rules, continued job losses and elevated exchange rate include stronger-than- infrastructure-, labour- and politically- energy costs, real private consumption expected economic growth in the USA and related events, exchange rate movements expenditure increased at a healthy 4,7%. further sovereign debt woes in Europe. and investment demand, with the impact of the last factor continuing to increase. Expectations are that accommodative monetary policy, together with Commodity review China, and to a lesser extent India and Estimates are that global crude steel strengthening real disposable income and other emerging economies, remained the production increased by 15,0%, or by an increase in consumer conﬁdence, will major engine of growth for commodity 184Mt, in 2010 compared to 2009. In China result in improving demand conditions demand in 2010. Robust materials- crude steel production expanded by about and the economic recovery gaining intensive real ﬁxed asset investment and 53Mt (9,3%) compared to 2009, totalling momentum in 2011, leading to real GDP industrial production growth, rising by about 627Mt. Production in the rest of the growth increasing to 3,6%. This is, 12,5% and 15,3% respectively, meant world thus rose by some 20,0%, or about however, still signiﬁcantly below potential. China again accounted for the major 131Mt, to 787Mt. However, this recovery in local High household debt, a strong currency, uncertainty on future macro portion of the increase in commodity demand in 2010 with that country being crude steel production in the rest of the world has left output still some 4,8% policy, high wage costs, electricity responsible for over 30% of world demand below the level of 2008, prior to the global shortages and sharply higher electricity for almost all major mineral commodities. economic recession. Growth in global steel prices, infrastructure inadequacy and production is expected to continue in 2011, skills shortages will continue to constrain In 2010 commodity prices improved across with emerging and advanced economies the economy. Economic developments the board, led by bulk prices, as advanced participating in this expansion. Output of elsewhere in the world will also continue economies started recovering after the crude steel is expected to increase by to have a signiﬁcant impact on economic recession and emerging markets some 5% — 10%. However, shortages of conditions in South Africa. continued to grow at a healthy pace. The raw materials, particularly due to weather- Economist Metals Price Index, based on related supply disruptions, could hamper South Africa’s average annual consumer base metals prices, rose by 22%, crude oil steel production. price inﬂation declined to 4,3% in 2010 from 7,1% in 2009, allowing for further monetary relaxation by the Reserve Bank during this period. On a quarterly basis, the inﬂation rate started levelling off in the fourth quarter, at 3,5%, with increases in administered prices and above-inﬂation wage demands limiting the downward potential. The average inﬂation rate in 2011 is expected to remain at the level of 2010. The rand continued to strengthen against the US dollar in 2010, recording an average rate of 7,32 compared to 8,44 in 2009. The rand strengthened signiﬁcantly in the last quarter of 2010, due mainly to investment ﬂows into the country as emerging markets became the destination of choice for foreign investors seeking higher yields for their investments. The Nominal historical contract iron ore prices ) t / $ S U ( e c i r P 140 120 100 80 60 40 20 0 1 9 9 1 2 9 9 1 3 9 9 1 4 9 9 1 5 9 9 1 6 9 9 1 7 9 9 1 8 9 9 1 9 9 9 1 0 0 0 2 1 0 0 2 2 0 0 2 3 0 0 2 4 0 0 2 5 0 0 2 6 0 0 2 7 0 0 2 8 0 0 2 9 0 0 2 0 1 0 2 Australia-Asia lump ore contract price Australia-Asia fine ore contract price EXXARO INTEGRATED ANNUAL REPORT 2010 33 MACRO-ECONOMIC AND COMMODITY REVIEW CONTINUED In the international coking coal market, early-2011 could see prices rise signiﬁcantly increasing by more than 25% in these two the pricing mechanism underwent in the ﬁrst quarter of 2011 or longer. countries, whereas exports from Indonesia fundamental change in 2010, moving from Benchmark semi-soft coking coal and low- and Colombia rose by some 17% and 10% annual benchmark contract pricing to vol PCI coal saw price rises above 80% in respectively. Export volumes from quarterly or even monthly pricing. The 2010. Given the forecast tight market Australia and South Africa were stagnant coking coal market remained structurally conditions for coking coal in 2011, these due to logistical bottlenecks. The torrential tight in 2010, driven primarily by rising swing metallurgical products could enjoy rains in north-eastern Australia in early import demand from China and India and another year of strong price increases. 2011 will cause steam prices to remain well demand recovery in the rest of the world, above the USD110/t mark in the ﬁrst part especially Europe. On the supply side, The average Richards Bay spot steam coal of 2011 with the average price probably traditional swing producers, the USA and price for 2010 of USD91,21/t was some also reaching a level above USD110/t. Canada, rose to the occasion by ﬁlling the 42% higher than the average for 2009. Logistical capacity for seaborne coal is gap in the market. The average spot After starting the year at about USD83/t, expected to remain lower than demand in coking coal price in 2010 was USD222/t, the price ranged between USD82-95/t 2011, which will also support higher prices. some 53% higher than the average for until the end of October, after which it South Africa will not be able to capture 2009. Structurally the coking coal market started rising signiﬁcantly to exceed the potential additional value in the is expected to remain tight in 2011, with USD120/t at the beginning of 2011. The market given that the ramp-up of rail average prices probably remaining at price increase was driven by weather- capacity is much slower than that of levels similar to 2010. However, signiﬁcant related supply disruptions, ﬁrstly in the port. disruption to coking coal production and transport in Queensland, Australia, due to in Indonesia and Colombia and then Australia towards the end of the year. In 2010 the iron ore contract price torrential rains over end-2010 and Demand from India and China saw imports settlement mechanism between iron ore Nominal historical coal prices ) t / $ S U ( e c i r P 350 300 250 200 150 100 50 0 1 9 9 1 2 9 9 1 3 9 9 1 4 9 9 1 5 9 9 1 6 9 9 1 7 9 9 1 8 9 9 1 9 9 9 1 0 0 0 2 1 0 0 2 2 0 0 2 3 0 0 2 4 0 0 2 5 0 0 2 6 0 0 2 7 0 0 2 8 0 0 2 9 0 0 2 0 1 0 2 Hard coking coal contract price Semi-soft coking coal contract price RBCT steam coal spot price producers and steel mills generally changed from an annual contract to quarterly contracts, the latter being based on a trailing three-month average of spot prices for market transactions in China. Monthly Chinese spot prices for ﬁne ore increased from about USD100/t at the beginning of 2010 to about USD180/t in June, before dropping to USD140/t in September. The last quarter saw prices rising again to USD170/t in December, for an average of USD142/t for the year. This was about 90% higher than the comparable price in 2009. The Chinese spot iron ore price trend followed the steel production trend in that country. During the year Chinese imports of iron ore declined by about 2%, but domestic 34 EXXARO INTEGRATED ANNUAL REPORT 2010 production was signiﬁcantly higher than 2010, dollar weakness and commodity in stockpiles that keep on increasing. in 2009. Iron ore imports in the rest of the investment demand pushed prices to an Nevertheless, commodity investment world expanded by about 30%, consistent average of USD2 281/t in December. demand should sustain prices and an with the recovery in steel production. The average price of some USD2 200/t is global iron ore market is expected to In 2010 zinc demand grew by about 14%, forecast for 2011. remain tight in 2011 and prices are with advanced and emerging economies, therefore forecast to increase by more including China, contributing equally in Following an approximate 9% increase in than 20% on average. However, should a percentage terms. Due to relatively high mine production in 2010, zinc concentrate shortage of coking coal, due to ﬂooding in zinc prices during the year, reﬁned zinc production is expected to increase only by north-eastern Australia, cause steel production rose by 12%, resulting in a about 5% in 2011. Forecasts are that the production to be curtailed, iron ore market surplus of about 900kt. This concentrate market will be in modest demand and prices could come under caused zinc stocks to continue expanding, oversupply, but that realised contract zinc pressure. with LME inventories rising from about treatment charges in 2011 will be lower 489kt at the beginning of 2010 to some than 2010, as a result of spot zinc In 2010 the average LME cash zinc price 701kt at the end of the year. treatment charges being much lower than was USD2 162/t, some 31% higher than in realised contract treatment charges for all 2009. In the ﬁrst half of 2010, the zinc In 2011 reﬁned zinc production is expected of 2010, with the gap widening in the price declined from an average of to expand by only about 3%, while demand second half of the year. A zinc treatment USD2 434/t in January to USD1 743/t in is projected to expand by 6%, primarily charge of USD210/t of concentrate is June, with market fundamentals and a strengthening dollar dictating the price driven by China and other emerging in the economies. This should result forecast for 2011. trend. However, in the second half of market surplus declining by 40%, but also Due to the economic recession, the Nominal historical zinc and lead prices ) t / $ S U ( s e c i r p d a e l d n a c n Z i 3 500 3 000 2 500 2 000 1 500 1 000 500 0 1 9 9 1 2 9 9 1 3 9 9 1 4 9 9 1 5 9 9 1 6 9 9 1 7 9 9 1 8 9 9 1 9 9 9 1 0 0 0 2 1 0 0 2 2 0 0 2 3 0 0 2 4 0 0 2 5 0 0 2 6 0 0 2 7 0 0 2 8 0 0 2 9 0 0 2 0 1 0 2 Zinc LME spot price Lead LME spot price Zinc realised treatment charge (US$/t concentrate) titanium dioxide pigment industry cut back production in 2009 to match demand, resulting in low capacity utilisation rates. Inventories were also drawn down to historically low levels. In addition three western plants were closed permanently during the recession, leading to net capacity declining by 5%. In 2010, demand recovered at a higher-than- expected rate of about 10%, with consumption increasing both in advanced and emerging economies. Industry efforts to ramp-up production to meet demand and replenish inventories were not entirely successful, due to production disruptions. The tight market in 2010 resulted in average worldwide titanium dioxide pigment prices rising at a healthy 13% during the year. Continued low inventory levels and expanding demand should produce another tight market in 2011 with a further increase in pigment prices. EXXARO INTEGRATED ANNUAL REPORT 2010 35 MACRO-ECONOMIC AND COMMODITY REVIEW CONTINUED Nominal historical TiO2 pigment, feedstock and zircon prices 1 000 900 800 700 600 500 400 300 200 100 0 ) t / $ S U ( s e c i r p n o c r i z d n a k c o t s d e e f 2 O T i 2 500 2 250 2 000 1 750 1 500 1 250 1 000 750 500 250 0 ) t / $ S U ( e c i r p t n e m g i P 1 9 9 1 2 9 9 1 3 9 9 1 4 9 9 1 5 9 9 1 6 9 9 1 7 9 9 1 8 9 9 1 9 9 9 1 0 0 0 2 1 0 0 2 2 0 0 2 3 0 0 2 4 0 0 2 5 0 0 2 6 0 0 2 7 0 0 2 8 0 0 2 9 0 0 2 0 1 0 2 Zircon price Rutile price Chloride slag price US import pigment price In 2010 higher-than-expected increases in of low industry proﬁtability. This leaves demand for titanium dioxide feedstock the supply industry with very little scope from the pigment industry, estimated at 16%, led to a tight market during the year, for new output expansion in the short to medium term and higher prices are clearly despite producers ramping up production needed to induce new project to operate at close to full capacity. Supply development. In addition, signiﬁcant cost disruptions, noticeably labour- and pressures are being recorded in the production-related events in southern industry, notably electricity prices in Africa, exacerbated market tightness. South Africa. Contracts that cap price Average prices for titanium feedstocks increases will also start expiring across generally moved sideways or increased the industry between 2011 and 2013, and moderately. However, towards the end of will not be renewed. Together, these 2010, the outlook for noteworthy factors point to signiﬁcant feedstock price feedstock price increases in 2011 gained increases in the next few years. In 2011 ground with producers and consumers price improvements of around 15% and alike realising that markets, especially for more are anticipated. high-grade feedstocks, would probably remain tight in the next few years and During the economic recession, production could move into signiﬁcant deﬁcit in the of zircon was curtailed to match demand the mining industry by surprise, with inventories being drawn down appreciably and a market deﬁcit developing. This, coupled to the fact that no signiﬁcant new production capacity is likely to come on stream before 2012, led to zircon prices increasing markedly in the second half of 2010. This trend is expected to continue into 2011 as world markets face a supply- constrained future. Average international bulk zircon prices rose by a projected 26% in 2010. The average annual zircon price in 2011 is expected to be more than 60% higher than in 2010. In 2010 the dollar weakened by 5% — 15% against the currencies of major commodity-exporting countries. This softening was generally caused by the accommodative monetary policy in the USA and investment ﬂows into emerging markets, as well as countries like Australia, where higher investment yields could be realised. The weaker dollar resulted in actual commodity-price increases in local currency units to be lower than price rises achieved in dollar terms. It also placed pressure on the dollar-denominated cash costs of companies operating in these countries. Conversely, the strengthening of the Chinese yuan against the dollar decreased the cost of commodity imports into China. The weakening of the dollar against the currencies of commodity- exporting countries is expected to continue in 2011, but at a much more medium term. This outlook is the result of and to reduce high inventory levels. modest rate. serious underinvestment in the feedstock However, the rapid recovery in demand in industry over the last ﬁve years because 2010, driven primarily by China, caught 36 EXXARO INTEGRATED ANNUAL REPORT 2010 Mining costs generally increased in 2010 In 2010, according to the Metals Economics due to strong commodity demand from Group, estimated worldwide non-ferrous emerging economies and some recovery exploration spending improved by 44% to from advanced economies requiring USD21,1 billion. This followed on the fall of capacity restarts and expansions. 42% in 2009 due to the economic Stronger producer currencies and higher recession. The increase coincided with energy prices added to these pressures. improved commodity prices and greater Generally lower grades and expensive access to ﬁnancing for junior explorers. infrastructure requirements also put The increase in exploration spending signiﬁcant pressure on the cost of new occurred over a broad front, including projects. major, intermediate and junior companies and most countries. However, exploration Global bulk freight rates were extremely expenditure was still 16% below the record volatile in 2010. The Baltic Dry Index level of 2008, indicating that the appetite increased by 35% in the ﬁrst ﬁve months for risk had not returned to levels of the year, then declined by 60% over the experienced prior to the recession. next two months. A recovery of 76% in the Increasing resource nationalism ensuing two months was followed by a fall worldwide continued to add to the risk of 43% to the end of December, to a level faced by explorers. Exploration 45% below that at the beginning of the year. The major demand drivers of the expenditure is expected to continue rising in 2011. market were the bulk commodity import needs of China and India, which grew strongly but were overshadowed by the rise in capacity of the shipping ﬂeet. Estimates are that the Cape-size ﬂeet grew by a net 214 ships to 1 172 vessels, or 22%. As another signiﬁcant increase is expected in the shipping ﬂeet in 2011, freight rates are projected to remain low. EXXARO INTEGRATED ANNUAL REPORT 2010 37 CHAIRMAN’S STATEMENT LEN KONAR reminder of how much more needs to be done to improve mine safety all over the world. In South Africa, we exceeded the 20% annual milestone agreed by the mine health and safety ‘The Chilean mine rescue in October 2010 was an unmitigated triumph but an equally stark tripartite alliance stakeholders, reducing the number of fatalities in the industry by 24%.’ MORE IMPORTANTLY, THERE HAS BEEN A 59% IMPROVEMENT SINCE 2003. RECORDING THIS PROGRESS AT INCREASING OPERATIONAL DEPTHS, COMBINED WITH A NATIONAL SKILLS SHORTAGE AND SLOW INDUSTRY ADVANCES IN FOSTERING A GENERAL CULTURE OF SAFETY, IS AN EXCEPTIONAL ACHIEVEMENT. 38 EXXARO INTEGRATED ANNUAL REPORT 2010 Equally exceptional was the June 2010 According to the Chamber of Mines, in Russia and Australia. The mining industry launch of a strategy for sustainable 2009 total coal sales revenue exceeded has a pivotal role to play in developing growth and meaningful transformation of R65 billion, followed by platinum group people and communities, and investing in the South African mining industry. This metals or PGMs at R58 billion and then the necessary research and development was an important milestone in gold at R49 billion — together accounting to beneﬁciate our minerals in support of collaboration between government, the for over 70% of South Africa’s mineral sustainable economic growth. The mining industry and organised labour. sales in that year. Critically, it is also a fundamental acknowledgement by all stakeholders that But South Africa’s mining sector has the prosperity of South Africa is shrunk over the 16 years to 2009, inseparably linked to the successful compared to a global average growth rate operational imperatives of its world-class of 5%. The reasons for this are manifold, and dynamic mining sector. including those beyond the industry’s control, such as a volatile rand/dollar The mining industry is vital to South exchange rate and the global economic Africa’s economy, accounting for around recession. However other constraining 9% of GDP, and 1 million direct and indirect factors are now being addressed, to a jobs of the 9 million people formally greater or lesser extent. These include employed. It accounts for more than 50% infrastructural challenges, bureaucratic of the country’s merchandise exports and delays, regulatory uncertainty, the balance is, by far, South Africa’s biggest earner of between productivity and cost, and the foreign exchange. The mining industry pool of available skills. accounts for about 35% of the value of the JSE and maintains its proﬁle as a We remain concerned at the high levels of signiﬁcant contributor to the development unemployment in South Africa compared of infrastructure, quite frequently in deep to major emerging economies, as well as rural areas of South and southern Africa the continued challenges of poverty and where very little other economic activity inequality. We must be vigilant in ensuring takes place. In the areas of secondary that ongoing above-inﬂation wage beneﬁciation and ﬁnal fabrication, about increases are matched by productivity R200 billion in value is added to South gains. Africa’s minerals with the country being self-sufﬁcient in steel and cement, and a In the past year, we succeeded in being the major producer of ferroalloys, chemicals, best World Cup hosts. We need to build on plastics and synthetic fuels. These that momentum and spirit and — in line initiatives save the country some with President Jacob Zuma’s recent state R20 billion in imports and about 90% of of the nation address — meet the South Africa’s total electricity generation challenges of job creation and functioning is derived from power stations fuelled by schools to produce new generations of commitment of the major mining companies to this path is evident in a range of collaborative initiatives: the mining industry growth and development task team, the revised mining charter, and the tripartite action plan on health and safety. With ongoing cooperation between government, labour and the mining industry, we can ensure mining remains a force in the South African economy. Focus on water, energy and climate change Nine of the world’s 10 warmest years have occurred since 2000, and 2010 was one of the hottest globally since records began. According to the UN World Meteorological Association, over the past century the global average has climbed from 13,6°C to 14,4°C. Rising temperatures have obvious implications, particularly in water-scarce regions such as southern Africa. Last year, I noted that energy in its broadest context must be dealt with as a strategic imperative — we need to take a multi-faceted approach to this issue. As part of this process, Exxaro recommitted to saving 10% on energy efﬁciency and carbon emissions by 2012 — a savings target that would be included in the annual business planning process. We are locally mined coal. citizens ready to play their rightful role in now in the second year of the three-year a new and improved South Africa, as well pledge, and we will strive even harder in As chairman of one of South Africa’s as beyond our borders. 2011 to achieve these targets. major coal producers, it gives me great pleasure to disclose that by sales value, South Africa has been rated as the richest Equally, we acknowledge the view that coal has become the largest component mineral resource holder in the world, well human activity, especially in burning of our country’s mining industry. ahead of resource-rich countries such as fossil fuels, contributes to increasing the EXXARO INTEGRATED ANNUAL REPORT 2010 39 CHAIRMAN’S STATEMENT CONTINUED ACKNOWLEDGING THE POTENTIAL SEVERITY OF WATER ISSUES — SUPPLY, QUALITY AND ACCESS — IN SOUTH AFRICA, EXXARO LAUNCHED AN INTEGRATED WATER AND WASTE MANAGEMENT PROGRAMME DURING THE YEAR. concentration of greenhouse gas Exxaro also voluntarily participated in the While the charter has achieved the emissions in the atmosphere; this in turn ﬁrst CDP water disclosure initiative and difﬁcult balance needed between the contributes to global warming and will continue to do so (page 95). imperatives of transformation and ultimately climate change that affects encouraging investment in the South social and economic wellbeing and the Regulatory environment African mining industry, the ecological balance in different ways Several key developments were ﬁnalised interpretation of some provisions will be across the world. As a responsible mining during the review period. These included important. These include the need for group, Exxaro continues to participate in agreements by the industry’s tripartite clarity on the continued recognition of the Carbon Disclosure Project (CDP) stakeholders (government, the mining empowerment transactions that have and has again improved its performance sector and organised labour) on strategic established independent and viable signiﬁcantly. In 2010, Exxaro was ranked imperatives, particularly transformation historically disadvantaged South African fourth out of 74 of the top 100 JSE-listed and growth, that will guide and direct (HDSA) mining companies. The companies. mining sector decision-makers well into requirements and possible offsets the future. The aim is to elevate the relating to beneﬁciation also remain It is now widely accepted that the ﬁrst industry to higher levels of effective unclear, especially when the restrictive effects of climate change will be performance so that it is able to maintain impact of potential electricity supply experienced in the areas of water and and increase its contribution to national constraints on possible beneﬁciation water management. socio-economic development and activities is taken into account. The The overriding objectives of the prosperity. procurement requirements in the charter will remain challenging but we programme are to: Intrinsically linked to realising this aim is acknowledge the importance of > Ensure a cost-effective integrated the revised mining charter which was developing HDSA enterprises; our approach to water management published in September 2010. Following commitment is reﬂected in the solid > Be environmentally responsible extensive consultation, we believe the progress made in this ﬁeld (page 129). > Be ecologically sustainable. Department of Mineral Resources has succeeded in producing a reasonably The mining industry’s regulatory Accordingly, we commissioned an expert balanced charter. In the new charter, some framework has been critically examined analysis on water reclamation and re-use targets are speciﬁed in more detail which and work has begun on a review of the across our group. This formed the basis of adds the important element of certainty, Mineral and Petroleum Resources developing a detailed action plan to always a top-end consideration in Development Act, the MPRDA. Proposed address water and waste management for investment decisions. New targets relating amendments are expected to be ﬁnalised Exxaro. The plan addresses all key to the sustainability of the industry have in 2011. components — from risk management to been added and the scorecard has been stakeholder engagement — against improved. We welcome the elevation of measurable progress markers. health and safety performance to charter level. 40 EXXARO INTEGRATED ANNUAL REPORT 2010 Given that infrastructural inefﬁciency is companies are measured. We support the permeates throughout each company. another area of concern affecting transition to integrated reporting Exxaro is making good progress on both industry growth and competitiveness, the espoused by King III and the Global aspects. tripartite stakeholders decided to Reporting Initiative (GRI), believing this establish a long-term infrastructure approach will clearly communicate how planning mechanism for the sector. The Exxaro aligns sustainable development Transformation and skills development primary purpose of this initiative is to considerations with core enterprise-wide South Africa is currently producing thoroughly research the infrastructural strategy. needs of the industry and provide inputs around 5 600 qualiﬁed artisans each year, well below the annual target of 12 500 set to all other national infrastructural As part of our reporting process this by the Department of Higher Education processes. The ultimate intention is to year, we used a multi-disciplinary and Training. Exxaro has, similar to fast-track speciﬁc infrastructural approach to identifying the group’s previous years, contributed more than its interventions so that mining commodities material issues. These impacts were proportionate share to skills development can more effectively and in greater tested with a corporate stakeholder in the wider industry in an attempt to quantities be conveyed to global demand forum comprising interested and address the ongoing shortage of skills in destinations. affected parties. Feedback from the the country. Through our talent pipeline forum was incorporated into divisional programme for graduates, we are Sustainable development plans to manage these issues and addressing future shortages of critical Embedding sustainable practices as part approved by Exxaro’s executive skills as part of our commitment to skills of corporate strategy offers valuable committee. Functional heads have development within a broader socio- environmental and social beneﬁts, as well committed to managing these issues by economic development framework. as greater business and shareholder value either setting speciﬁc performance in the long term. Exxaro has joined leading targets or committing to do so in 2011. Corporate governance companies around the world in Exxaro and its directors are fully entrenching this approach. We were pleased to again be ranked committed to sound corporate governance among the 15 reports regarded as and to the principles of fairness, While the business imperative to remain excellent in the 2010 Ernst & Young transparency, accountability, responsibility proﬁtable must be central to all Exxaro’s Excellence in Sustainability Reporting and integrity in dealing with shareholders actions, we recognise that sustainability survey. We understand that reporting to and all other stakeholders. We endorse and social responsibility issues have a stakeholders and providing assurance in a the King III report on corporate direct inﬂuence on our ability to perform balanced way on ﬁnancial and non- governance released on 1 September 2009, in future. ﬁnancial performance is an evolving and have begun to implement these discipline. At Exxaro, much effort goes recommendations. Sustainable development, or its end goal into distilling this information each year to of sustainability, is a cornerstone of present an honest picture of the group to Good governance is the foundation of our Exxaro’s business, strategy and culture. all stakeholders. We therefore welcome ongoing ethical approach to business. The We aim to make Exxaro an undisputed local and global initiatives under way to board continued to focus on promoting leader in sustainability. Equally, reporting develop standards for integrated the high standards of conduct we expect on and providing assurance to reporting. This will make stakeholder of our employees, customers and suppliers stakeholders each year on ﬁnancial and reporting more meaningful by entrenching around the world, recognising that our non-ﬁnancial performance is becoming a a culture of sustainability and engaging leadership and actions speak louder standard against which responsible board members to ensure that this than words. EXXARO INTEGRATED ANNUAL REPORT 2010 41 CHAIRMAN’S STATEMENT CONTINUED A comprehensive governance report is business objectives with long-term changes to the risk management process published on pages 140 to 169 of this shareholder interests. Exxaro’s strategic were necessary. report. The tone at the top and on the objectives focus on delivering sustainable board has fostered an environment that value over time. reinforces the commitment to high ethical Safety, health and environment Health and safety remain top priorities for standards, compliance with legal The board of directors and executive the board and group as a whole. requirements and resistance to market management measure Exxaro’s progress pressures for short-term results. against these strategic objectives. We are committed to enforcing compliance Progress is then benchmarked using both with the requirements of the South Our vision, our values and our commitment ﬁnancial and non-ﬁnancial measures and African Occupational Health and Safety to accountability will keep us focused on performance is appropriately rewarded. Act 1993 (Act 85 of 1993). Management our pursuit of excellence, regardless of remains dedicated to identifying potential how challenging the road ahead is. A detailed remuneration report appears hazards and reducing risks at all our on page 160. operations. We believe in the importance of our culture and ethics in business. Integrated risk management Our efforts in addressing environmental Exxaro’s long-standing traditions of Over the years, we have embedded robust issues are constantly developing and we ﬁnancial strength, long-term customer risk, capital management and internal are committed to protecting the relationships and entrepreneurial, yet controls group-wide. environment. responsible, management are as important as ever. Events during the year have powerfully Dividend Directorate reinforced the need for boards to have a While acknowledging the need for prudent clear understanding of the risks their cash ﬂow management in an uncertain The following changes took place in our businesses face. We believe the Exxaro global economic environment, Exxaro’s directorate during the year. Ms Simangele board and its committees have set a high solid operational and ﬁnancial results, and Mngomezulu resigned, effective standard and we continue to improve the extensive growth aspiration, supported 21 December 2009, and Ms N Langeni was manner in which we evaluate, formulate, the board’s declaration of a ﬁnal dividend welcomed as her successor with effect communicate and manage the broad for the 2010 ﬁnancial year of 300 cents from 23 February 2010. spectrum of risks to which our businesses per share (2009: 100 cents). This brings Remuneration are exposed. the total dividend for the year to 500 cents per share (2009: 200 cents), covered At Exxaro, we are committed to the Our existing risk practices, frameworks three times by attributable income. principle of sensible market-related and procedures proved relatively robust Particularly pleasing, some R27 million remuneration, structured to align our during the review period and no major accrues to Exxaro’s non-management 42 EXXARO INTEGRATED ANNUAL REPORT 2010 category employees in terms of an success, operationally and in creating industry more competitive. Mining is one employee share ownership plan value for all stakeholders. of the government’s top ﬁve priority implemented subsequent to the creation of the group in 2006. Since inception of Prospects growth areas and our industry is expected to be a major contributor to the the share ownership plan, these employees Prospects for the mining industry in South government’s new growth path target of have beneﬁted from dividend declarations Africa are arguably more robust at present creating ﬁve million jobs by 2020. worth R66 million. than any time since 2007, qualiﬁed by the need for cost containment across the Exxaro is ready to play its role in achieving Appreciation sector and fears of a protracted recovery this vision, ﬁrstly because we are a South The past two years have been among the from the recession. African company and, secondly, because most challenging in mining history. The in a world with a growing population and young Exxaro group has weathered this However, and to follow on from my limited resources, there will always be with commitment and passion, opening remarks, to avoid missing out on demand for minerals and commodities. underscoring its depth of mining and the next commodities boom, South Africa management talent. Sipho Nkosi, who needs to prioritise infrastructural Through the resources, expertise and also completed his third consecutive investment, particularly rail, ports and experience base of the wider group, our term as president of the Chamber of electricity supply. In tandem, as an goal is to unlock value for shareholders Mines in the review period, and his industry, we also need to concentrate on associated with our portfolio of executive team have led by example in innovation and beneﬁciation in a investments. spearheading Exxaro’s continued growth supportive regulatory environment. and development. Behind them is a formidable team of almost 11 000 These challenges will not be addressed by dedicated professionals — we thank every government alone. Electricity supply is one of you. probably the single-biggest constraint to growth in the local mining sector. But Thanks too to my fellow board members meeting this need will take time. Recent for their input and counsel, and ongoing developments spearheaded by the contribution to the highest standards of Chamber of Mines illustrate an corporate governance. unprecedented level of cooperation Dr Len Konar Chairman between mining companies, labour and 15 March 2011 Exxaro continues to make sterling government to put the industry on a progress since its formation four years sustainable growth path — one that ago and we are conﬁdent that the incorporates transformation and groundwork has been laid for continued addresses the salient issues to make the EXXARO INTEGRATED ANNUAL REPORT 2010 43 CHIEF EXECUTIVE OFFICER’S REVIEW SIPHO NKOSI operational performances, notable progress in the safety ﬁeld, technological breakthroughs, and pleasing progress in realising our growth opportunities, particularly the Grootegeluk ‘Exxaro’s fourth year as a listed empowered group was characterised by several excellent mine expansion for Eskom’s Medupi power station (known as GMEP).’ THE GROUP’S SOLID PERFORMANCE FOR 2010 IS REFLECTED IN CONSOLIDATED REVENUE RISING 14% TO R17,2 BILLION AND NET OPERATING PROFIT BY 52% TO R2,6 BILLION ON GENERALLY HIGHER SALES VOLUMES AND COMMODITY PRICES, AND DESPITE THE IMPACT OF A STRONGER RAND AND AUSTRALIAN DOLLAR TO THE US DOLLAR. 44 EXXARO INTEGRATED ANNUAL REPORT 2010 Strategic intent Exxaro’s strategic intent major expansion project at its Kwinana environment: how to improve the return is to be a pigment plant, increasing production on capital employed to support the diversiﬁed mining company with the following commodity-speciﬁc aspirations: capacity by 40 000tpa to around group’s growth plans; how to align and 150 000tpa. This will meet growing global optimise operational structures and > Coal demand for its core product, titanium processes in business units; and how to — Develop mega mines such as GMEP dioxide pigment. — Increase export volumes as well as entrench a culture of continuous improvement in the group. volumes to the metals market Further growth initiatives aligned with — Develop downstream value-adding Exxaro’s strategic intent appear in the The key elements of the proposed services products such as char and market growth report from page 60. approach are largely internal and have coke — Pursue viable hard coking coal projects > Mineral sands Compliance At the time of writing, mining rights These include a clearer distinction between the role of the corporate ofﬁce conversions had been granted for all but (managing the group from a strategy, risk been well communicated to employees. — Maintain position among leading two of Exxaro’s operations. All Exxaro’s and governance perspective by setting global suppliers of titanium dioxide and zircon, and increase share of global chlorine pigment market > Iron ore new operations (or extensions to existing direction, implementing policies and operations) have mining rights and safeguarding the group) and the services approved environmental management unit (providing efﬁcient services to and social and labour plans, except Belfast. internal clients, with no corporate control — Increase Exxaro’s footprint by adding Final revisions for this operation were functions). The services function will a direct, managed operational asset submitted to the department for measure performance, set continuous > Energy consideration. — Pursue viable clean-energy improvement targets, deﬁne clear service catalogues and manage Exxaro’s services alternatives as part of a drive to The compliance status of Exxaro’s offering. achieve energy security. operations is disclosed in the governance Progress against strategic intent > Excellent progress has been made on our R9,5 billion GMEP to supply Eskom’s Medupi power station with 14,6Mtpa of coal for 40 years. First coal is due to be supplied in early 2012. The project was at 41% overall completion by section on page 146 and 147. Most importantly for external stakeholders, the proposals address the Optimising our business To realise our strategy, we initiated an relatively high cost of Exxaro’s services, which are at the upper end of industry intense business-improvement process in benchmarks. The proposed solution will 2009. Known as Siyaya, two specialised move Exxaro to the lower end of that scale teams were mandated to explore how best by 2015 by entrenching a culture of to help the group become operationally continuous and disciplined improvement excellent — a high-performing, low-cost to enhance the group’s long-term 31 January 2011, and remains on and sustainable business. competitive advantage and optimise schedule and within budget. productivity. > On 23 February 2011, the Exxaro board In October 2010, a proposed solution for approved the development of Fairbreeze subject to normal regulatory and the way forward was approved in principle, The Siyaya services and core teams have subject to the consultation process, by the identiﬁed ways to potentially save over environmental approvals. Fairbreeze Exxaro board. R700 million in costs, while releasing will replace Hillendale mine which is > The services element of Siyaya was around R900 million in untapped revenue nearing the end of its life of mine. tasked with redesigning Exxaro’s potential. > The four retorts at the char plant services environment to better support reached nameplate capacity in the last the group’s operations, growth These proposals, if implemented, could quarter of 2010. aspirations and to achieve operational result in a signiﬁcant restructure of the excellence. group. About 1 300 employees could be In October our Western Australia-based joint venture, Tiwest, commissioned a > The Siyaya core project focused on key affected, either through minor or challenges in Exxaro’s operational substantial changes to their jobs, a EXXARO INTEGRATED ANNUAL REPORT 2010 45 CHIEF EXECUTIVE OFFICER’S REVIEW CONTINUED GROUP SAFETY PERFORMANCE FOR THE YEAR SHOWED EXCELLENT PROGRESS AT SEVERAL OPERATIONS, WITH FATALITIES DECREASING FROM FOUR TO TWO AND A RECORD 24% IMPROVEMENT IN THE LOST-TIME INJURY FREQUENCY RATE TO 0,25. reduction in the number of positions or As an industry, we improved our safety In the foreword to the 2010 Carbon location changes. Exxaro has already record by 24% in 2010, making it the best Disclosure Project, CEO Paul Dickinson announced that a maximum of safety year in South Africa’s mining made an interesting observation: 300 employees might be retrenched. history. In no small measure, this reﬂects These are exciting times for business, with However, the group will do everything possible to limit the impact on employees and all options will be investigated, including. > Offering voluntary severance packages at Exxaro’s discretion > Limiting external and temporary staff appointments > Strictly managing ﬁlling of vacancies > Critically considering the use of external contractors > Offering early retirement at Exxaro’s discretion > Limiting excessive overtime > Redeploying or reskilling employees. Exxaro has started a formal consultation process with trade unions, in accordance with the Labour Relations Act. The process applies only to the following employers: Exxaro Resources, Exxaro Coal, Exxaro Coal Mpumalanga, Exxaro Reductants, Exxaro TSA Sands, Exxaro Sands and Ferroalloys. Therefore Zincor, Rosh Pinah Zinc Corporation, Glen Douglas and Ferroland are excluded from the process. Safety While the lost-time injury frequency rate the cooperation of the Department of signiﬁcant changes coming to the way we Mineral Resources, the leadership of produce and consume energy. New power organised labour and fellow mineworkers. from low- or zero-emission sources is an It is also testimony to the myriad initiatives urgent priority for climate change policy under way at each of the Chamber of that simultaneously helps deliver energy Mines’ member companies. security. New technologies such as smart grids, electric vehicles, alternative fuel Among proposed changes to the Mine sources, advanced telepresence Health and Safety Act is a clause that videoconferencing, are showing a clear stipulates prison sentences for chief case for business growth with reduced executives found guilty of contravening emissions. The opportunities for business safety regulations. We welcome this are enormous — it is through the intelligent enforcement in the interests of a safer, investment of capital into the right growing industry. The established mining solutions, identiﬁed by the business industry has already demonstrated its community, that we will achieve the low- deep commitment to safety, recording a carbon future we need. 24% decrease in mining fatalities in 2010. In addition, 40 000 safety representatives The CDP report also presented some will be trained across the industry in the thought-provoking context for climate next four years as part of several change: initiatives to curb fatalities and reach August 2010 (the month in which this CDP international performance standards analysis was undertaken) was an by 2013. interesting month in the global greenhouse: it saw ﬁre, drought and Energy The broader energy issues — securing record-breaking temperatures in Russia, ﬂoods in Pakistan, a “once-in-a-1 000-year supply, reducing cost, reducing the impact storm” in Tennessee, mudslides in China, of climate change and limiting and a 260km2 ice-sheet break off a environmental impact — continue to be Greenland glacier. Not only was there an was weaker than our internal target elevated as a strategic priority for many obvious and profound human cost to these of 0,21, the steady improvement is businesses, including Exxaro. The events, there were also visible impacts on encouraging given that it reﬂects the all- chairman has commented on water, the global market: wheat prices hit a important behavioural change. energy and climate change in more detail. 22-month high; stock and bond trading 46 EXXARO INTEGRATED ANNUAL REPORT 2010 was at one stage curbed in Russia by as Chaired by Dr Len Konar, our board of Base metal prices are widely expected much as 60% after wildﬁres east of directors plays an invaluable and to be lower in the first half of 2011. Moscow; and unseasonal wet weather constructive role in our development and Production and sales volumes should be delayed the ofﬂoading of sugar from a governance, for which we are most in line with those achieved in 2010 with record 122 ships at Brazil’s ports, causing grateful. the logistical chain to Zincor remaining one market analyst to suggest that a challenge. weather-related issues will result in “this The loyal support of our customers and year’s worst-performing commodity to suppliers around the world remains a The group’s consolidated results for 2011 rise more than gold. mainstay of our group while we value the will continue to be affected by the trading co-operation from regulatory authorities levels of the local currency and Australian Exxaro aims to be a carbon-neutral group which is playing an integral and important dollar against the US dollar. — offsetting its carbon emissions in a role in our aspirations. number of ways from planting trees to cleaner production and energy efﬁciency. At the same time, we believe the active Prospects Given the prevailing uncertainty of the participation of business across all sectors strength and pace of an economic is essential in developing national policy recovery in 2011, Exxaro will continue with that ﬁnds the appropriate balance prudent capital prioritisation and working between environmental effectiveness, capital management while pursuing Sipho Nkosi economic efﬁciency and social equity. To business improvement initiatives. Chief executive ofﬁcer meet the government’s commitment to a +30% reduction in emissions by 2020 will Coal export volumes, at higher 15 March 2011 require accelerated focus on energy international prices, are expected to efﬁciency across all sectors, a signiﬁcantly remain in line with the tonnage achieved expanded low-carbon electricity supply in 2010 despite the build up by Transnet programme, introducing carbon-capture Freight Rail to increase its total export and storage technologies, achieving rail rate to Richards Bay Coal Terminal to ambitious targets for vehicle efﬁciency, 70Mtpa. Prices to the domestic market electric vehicles and passenger modal for similar volumes should reﬂect normal shifts, and promoting enhanced inﬂation increases, however supply agricultural practices. agreements with pricing mechanisms Appreciation History has proven that challenging times linked to hard coking coal prices should reﬂect a considerable increase. bring out the best and the worst in people. The positive price trends for mineral Throughout the review period, I have been sands products recorded in the second inspired and humbled by the dedication half of 2010 are expected to continue and passion evident at every level of our while demand should remain strong in group. Exxaro is indeed fortunate to have the medium to long term until supply and people of this calibre. demand imbalances are corrected. EXXARO INTEGRATED ANNUAL REPORT 2010 47 FINANCIAL AND OPERATIONAL REVIEW WIM DE KLERK recession as gains from generally greater demand at higher selling prices for Exxaro’s commodities, coupled with disciplined cost management, more than offset the negative ‘Calendar 2010 saw Exxaro beneﬁt from a faster-than-expected recovery from the global impact of a stronger local and Australian currency to the US dollar.’ THE GROUP’S BALANCE SHEET AND KEY FINANCIAL METRICS REMAIN HEALTHY AND PROVIDE A SOLID PLATFORM TO SUPPORT ITS GROWTH ASPIRATIONS. EXXARO REPORTED RECORD EARNINGS SINCE ITS CREATION IN NOVEMBER 2006, IN TURN RESULTING IN A RECORD DIVIDEND DECLARATION TO SHAREHOLDERS. 48 EXXARO INTEGRATED ANNUAL REPORT 2010 12 months ended 31 December 2010 20091 10 515 2 952 7 563 4 640 1 288 1 551 1 801 1 787 674 1 598 (485) 213 9 731 2 681 7 050 3 508 705 1 469 1 334 1 582 566 1 413 (397) 188 17 155 15 009 2 690 186 2 504 179 (66) 138 107 (113) 143 (171) (85) (120) 1 905 75 1 830 (124) (12) (2) (110) (8) 105 (47) (66) (34) 2 636 1 739 OVERVIEW > Revenue increased 14% to R17,2 billion > Comparable net operating proﬁt up 52% to R2,6 billion > Headline earnings per share up 105% to 1 495 cents per share > Net cash inﬂow of R1,4 billion > Net debt to equity of 13% > Healthy ﬁnancial metrics COMPARABLE SEGMENTAL RESULTS R million REVENUE Coal Tied operations Commercial operations > Total dividend of 500 cents per share Mineral sands covered three times by attributable KZN Sands earnings INTRODUCTION The group’s audited ﬁnancial results and actual physical information for the Australia Sands Namakwa Sands Base metals Rosh Pinah 12-month periods ended 31 December Zincor 2010 and 2009 are not comparable due to the R1 435 million impairment of the carrying value of the assets of KZN Sands, accounted for on 31 December 2009, and the inclusion of the 50% proportionally Inter-segmental Other Total external revenue NET OPERATING PROFIT consolidated interest in Mafube Coal Coal Mining (Pty) Limited (Mafube) for Tied operations Commercial operations Mineral sands KZN Sands Australia Sands Namakwa Sands Base metals Rosh Pinah Zincor Other Other Total 12 months compared to seven months in 2009. To be meaningful, comparable supplementary ﬁnancial results are disclosed in this review by excluding the 2009 impairment of the carrying value of the assets of KZN Sands. After fulﬁlling all suspensive conditions, Glen Douglas dolomite mine was sold to Afrimat Limited effective 1 January 2011. The operating results of Glen Douglas are therefore still included for 12 months in 2010. An average exchange rate of R7,72 (spot average R7,30) to the US dollar (USD) was realised compared to R8,39 for the corresponding period. In addition, unrealised foreign currency losses on the revaluation of monetary items denominated in foreign currency were recorded based on the relative strength of the local currency to the USD at 31 December 2010. The relative strength of the Australian dollar (AUD), most notably in the second half of 2010 when it traded around parity against the USD, continued to impact negatively on the ﬁnancial results of the mineral sands operations in Australia. An average rate of 1 Unaudited due to restatement of net operating profit of KZN Sands in 2009. USD0,87 cents (spot average of USD0,92 export sales volumes at higher export cents) to the AUD was realised compared prices. with USD0,76 cents in 2009. Revenue Group consolidated revenue increased by Mineral sands Revenue increased by 32% to over R4,6 billion with increased sales volumes 14% to R17,2 billion due to generally higher realising at higher prices. sales volumes and commodity prices despite the impact of a stronger local and Australian currency. Base metals Revenue increased by 13% mainly as a result of the higher zinc price at an Coal Revenue was up 8% due to higher average zinc price for 2010 of USD2 161 per tonne; 30% higher than in 2009 when an domestic sales volumes at lower realised average price of USD1 665 per tonne was prices being only partially offset by lower realised. EXXARO INTEGRATED ANNUAL REPORT 2010 49 FINANCIAL AND OPERATIONAL REVIEW CONTINUED Net operating proﬁt Group consolidated comparable net operating proﬁt was R897 million or 52% higher at R2,6 billion at an operating margin of 15% compared with 12% in 2009. Coal The coal business reported a 41% increase in net operating proﬁt to R2 690 million at an operating margin of 26% with higher export selling prices, higher sales volumes to ArcelorMittal South Africa Limited (AMSA) and Eskom, offset by lower sales prices domestically, lower export volumes and a stronger average realised local currency. Net operating income for the year for the Higher revenue assisted in achieving a tied mines increased 148% mainly due to consolidated net operating proﬁt, the non-recurring impact of Matla’s scope increasing from a comparable loss in 2009 change in life of mine in the previous year of R124 million to a proﬁt of R179 million. together with the inﬂation-related Unlike 2009, where all three businesses increase in 2010 in terms of supply reported net operating losses, only KZN agreements with Eskom and AMSA. Sands reported a loss in 2010. Mineral sands The mineral sands business reported a Base metals Despite higher revenue, a net operating consolidated net operating proﬁt as loss of R113 million was reported due to higher sales volumes at higher prices, production challenges at Zincor reﬁnery. supported by disciplined cost This was exacerbated by the higher cost management, were instrumental in associated with external zinc concentrate offsetting the signiﬁcant impact of the purchased, higher selling and distribution, relative strength of both the local currency electricity, labour, rehabilitation as well as and AUD to the USD. maintenance expenses. The following graph reconciles comparable net operating proﬁt for 2009 to that reported for 2010: Comparable net operating profit: FY09* vs FY10 n o i l l i m R 3 000 2 500 2 000 1 500 1 000 500 0 -500 -1 000 Coal Mineral Sands Base Metals Other Total FY09 1 905 (124) (8) (34) Price Volume Exchange Inflation 564 504 141 12 764 674 7 8 (178) (486) 102 18 (544) (329) (198) (108) (27) (662) Cost (36) (191) (247) (97) (571) FY10 2 690 179 (113) (120) 2 636 1 739 1 221 1 453 *Excludes impairment of R1 435 million at KZN Sands in FY09 50 EXXARO INTEGRATED ANNUAL REPORT 2010 OPERATIONS UNAUDITED PHYSICAL INFORMATION (000 TONNES) 12 months ended 31 December 6 months ended 30 June 2010 2009 2010 2009 Coal Production – Power station coal Tied operations1 Commercial operations – Coking coal Tied operations1 Commercial operations – Other coal – Char Coal buy-ins Total Sales – Eskom coal Tied operations1 Commercial operations – Other domestic coal Tied operations1 Commercial operations – Coal export – Char Total Mineral sands2 Production – Ilmenite – Zircon – Rutile – Synthetic rutile – Pig iron (LMPI) – Scrap iron – Slag tapped – Chloride slag – Sulphate slag – Leucoxene – Pigment Total 36 767 16 461 20 306 2 419 285 2 134 7 502 114 36 562 16 486 20 076 2 020 268 1 752 6 638 38 759 18 269 8 365 9 904 1 187 124 1 063 3 518 49 46 802 46 017 23 023 36 428 16 438 19 990 5 044 260 4 784 4 106 122 36 299 16 473 19 826 4 587 259 4 328 4 715 31 18 379 8 356 10 023 2 447 117 2 330 1 842 52 18 583 8 704 9 879 922 129 793 3 061 430 22 996 18 494 8 700 9 794 1 920 130 1 790 2 389 45 700 45 632 22 720 22 803 718 196 63 90 153 12 262 232 52 13 57 819 185 62 109 181 15 331 201 44 14 53 367 424 94 28 51 81 8 141 84 16 7 25 97 33 54 95 7 171 104 19 7 25 1 848 2 014 902 1 036 EXXARO INTEGRATED ANNUAL REPORT 2010 51 FINANCIAL AND OPERATIONAL REVIEW CONTINUED UNAUDITED PHYSICAL INFORMATION (000 TONNES) 12 months ended 31 December 6 months ended 30 June 2010 2009 2010 2009 Sales – Zircon – Rutile – Synthetic rutile – Pig iron (LMPI) – Scrap iron – Chloride slag – Sulphate slag – Leucoxene – Pigment Total Base metals Production – Zinc concentrate Rosh Pinah Black Mountain – Zinc metal Zincor Chifeng3 – Lead concentrate Rosh Pinah Black Mountain Sales – Zinc metal sales – Domestic – Export Lead concentrate sales – Export 243 79 30 194 3 264 39 16 55 923 120 101 19 120 90 30 37 19 18 119 90 29 20 146 51 50 138 6 144 44 15 54 648 108 94 14 116 87 29 38 20 18 122 93 29 19 124 35 23 107 1 98 7 7 24 426 60 52 8 54 43 11 17 9 8 59 46 13 7 47 19 24 64 4 67 14 1 23 263 53 47 6 54 44 10 20 12 8 58 44 14 6 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 Exxaro Sands Australia’s interest in the Tiwest joint venture. 3 Exxaro’s effective interest in the Chifeng refinery is disclosed. Coal Production Volumes were marginally higher than the previous year. Power station coal production at the Eskom tied mines was 25kt lower due to adverse geological and technical issues at Arnot mine which were Production at the commercial operations only partially offset by higher production was marginally higher than in 2009 as at Matla mine. Production in 2009 at higher production at Leeuwpan mine after Matla mine was affected by a water commissioning the crushing and screening ingress incident for which successful plant in 2010, coupled with the inclusion of mitigation was implemented in 2010. production from Mafube for 12 months as 52 EXXARO INTEGRATED ANNUAL REPORT 2010 opposed to seven months in 2009, offset free-on-rail basis or though the lease of line with the decrease in smelter slag lower production at Grootegeluk mine and export entitlement. output. North Block Complex due to full stockpiles at Eskom. Sales of reductants from the char plant Furnace 2 at Namakwa Sands will be down improved threefold as 2010 was the ﬁrst for 103 days for a planned reline starting Coking coal production increased at full production and sales year. Quality and in February 2011. Grootegeluk and Tshikondeni mines as a demand for the product has exceeded our result of increased demand mainly from expectations. ArcelorMittal SA Limited (AMSA). The inclusion of production from the Mafube joint venture for the full year in Mineral sands Production At KZN Sands, there was a burn-through 2010 compared to seven months in 2009 at Furnace 2 on 26 October 2010. At Australia Sands, synthetic rutile production was lower due to the planned 38-day shut late in the year and maintenance-related challenges in the ﬁrst quarter of 2010. The synthetic rutile plant has a major shut every three years; as well as higher production at Fortunately there were no injuries but the the previous shut was in 2007. Grootegeluk, Leeuwpan, North Block incident resulted in both furnaces being Complex and New Clydesdale operations out of commission simultaneously for two The Kwinana pigment plant expansion in due to higher demand and improved months in the last quarter of 2010. Australia was successfully commissioned dispatches, offset by marginally lower Furnace 1 was shut on 1 July 2010 for a in late June 2010 and achieved nameplate production at Inyanda, led to a 13% planned reline and pre-heating has now production capacity of 40ktpa in October. increase in steam coal production. been completed, with ﬁrst production at the end of January 2011. Signiﬁcant supply interruptions from a key raw material supplier and an 11-day The char plant production was 200% shut in May to complete all the tie-ins for higher than the previous year as the plant Total run-of-mine tonnage was more than the expansion led to lower pigment only started production in the middle a million tonnes lower in 2010 as the production. of 2009. Sales Power station and coking coal sales to Hillendale mine in KwaZulu-Natal nears the end of its life of mine. As a consequence of this and lower grades, heavy mineral Sales Volumes at all three businesses concentrate was 73kt lower in 2010 generally increased on the back of Eskom and AMSA respectively were at 414kt. marginally higher than the previous year. stronger markets, further supported by higher selling prices. High stockpiles at Other domestic sales were however 10% Zircon and rutile production was 11kt and the end of 2009 were reduced signiﬁcantly, higher than in 2009 based on higher 1kt higher than the prior year respectively improving cash ﬂow. demand from AMSA which was met by as higher zircon production at Australia redirecting sales destined for the export Sands due to improved overall utilisation market from Grootegeluk; this in turn was of the dredge mine, coupled with improved only possible because of lower availability recoveries at Namakwa Sands despite Base metals Production Zinc concentrate production at a higher of trains and leased-in export entitlement. lower zircon head grades, more than grade at Rosh Pinah mine was 7kt higher offset lower production at KZN Sands than in 2009 with lead concentrate Exxaro Coal’s strategy to increase export resulting from the lower concentrate production 1kt lower. volumes was hampered by lower grade. availability of trains, the Transnet Freight Production of zinc metal at the Zincor Rail strike as well as less export Higher slag and pig iron production at reﬁnery of 90kt was more than 3kt higher entitlement available for leasing. Exxaro’s Namakwa Sands resulting from the Richards Bay Coal Terminal (RBCT) export beneﬁts of increasing side feed into the entitlement increased from 1,8Mt to 6,3Mt furnaces was not sufﬁcient to offset lower than in 2009 and can be attributed to less downtime on the acid plant. The 2009 production was also adversely affected by per annum with the commissioning of the furnace production at KZN Sands caused the accident in September 2009. Phase V expansion but Transnet Freight by extended furnace downtime. Total slag Rail’s constraints limited Exxaro’s export tapped was 69kt lower at 262kt while low capacity for 2010 at 3Mt per annum. The manganese pig iron (LMPI) was 28kt lower Sales Zinc metal sales were 2% lower due to remainder of exports were either sold on a at 153kt. Ilmenite production was lower in lower local demand. EXXARO INTEGRATED ANNUAL REPORT 2010 53 FINANCIAL AND OPERATIONAL REVIEW CONTINUED COMPARABLE EARNINGS R million Net operating profit excluding 2009 impairment Income from investments Net financing cost Equity-accounted income – net of tax Taxation2 Minority interest Attributable earnings excluding impairment Adjustments net of taxation impact Headline earnings Weighted average number of shares (millions) Attributable earnings (cents per share) Headline earnings per share (cents per share) 12 months ended 31 December 2010 2 636 2 (455) 3 717 (665) (27) 5 208 (22) 5 186 347 1 501 1 495 20091 1 739 2 (415) 1 898 (371) 2 853 56 2 909 345 827 843 1 Not audited due to the comparability adjustment of 2009 figures. 2 A normalised rate of 28% was used in 2009 for comparative purposes. Comparable attributable earnings, including Exxaro’s equity-accounted investment in associates, were R5 208 million or 1 501 cents per share, up 81% from 2009. Headline earnings were R5 186 million or 1 495 cents per share. This is a 105% increase on the disclosed 2009 earnings of R2 514 million at 729 cents per share, but 77% higher on comparable 2009 HEPS of 843 cents. Net ﬁnancing costs An analysis of the composition of the disclosed comparable net ﬁnancing cost is shown below: R million Interest expense and loan cost Finance lease Interest income Interest adjustment on non-current provisions Total 12 months ended 31 December 2010 321 70 (135) 256 199 455 2009 460 66 (145) 381 34 415 The higher interest expense is due to the higher interest adjustment on non-current provisions, namely the unwinding of the discount rate in respect of Exxaro’s environmental rehabilitation provisions accounted for at net present value, offset somewhat by a lower net interest expense due to lower net debt levels. 54 EXXARO INTEGRATED ANNUAL REPORT 2010 Income from equity accounted investments — net of tax Sishen iron ore company (Pty) Limited (SIOC) — 20% Chifeng — 22% effective interest Black Mountain — 26% Total 12 months ended 31 December 2010 3 623 8 86 3 717 2009 1 762 13 123 1 898 The results of SIOC are fully reported by Kumba Iron Ore Limited in its ﬁnancial results to 31 December 2010. Production at the Chifeng zinc reﬁnery was marginally higher than in 2009. Exxaro’s 26% share in Black Mountain, acquired in the last quarter of 2008, contributed R86 million to equity income; DIVIDENDS Exxaro intends to progress to distributing 50% of attributable earnings to shareholders by means of interim and ﬁnal dividend declarations. Dividend declarations in the medium term may, however, be lower to adequately provide for funding of the current growth pipeline of projects, comply with contractually loan covenants, and maintain agreed lower than the 2009 contribution of healthy key ﬁnancial metrics. R123 million. Based on the record earnings and healthy cash ﬂow position, the Exxaro board declared a total dividend of 500 cents per share for the 2010 ﬁnancial year; a dividend covered three times by attributable earnings. The dividend declarations took cognisance of Exxaro’s signiﬁcant short- to medium-term capital expenditure requirements. Taxation Excluding post-tax equity accounted income, the effective tax rate was 30%, marginally higher than the statutory rate of 28% due to the net effect of non-permanent differences. A reconciliation of the tax rate reﬂects the following: > Effective tax rate as a percentage of profit before tax > Tax effect of: – Share of associates and joint ventures – Prior-year tax – Special tax allowances – Exempt income – Other > Corporate tax rate Percentage (%) 11,3 17,6 (1,9) 1,3 0,7 (1,0) 28,0 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 30 June 2010 31 December 2010 Dividend (cps) R million R million including STC1 Date declared Date paid/ payable 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 11 August 2010 4 October 2010 211 353 620 710 356 357 715 211 353 620 710 356 357 715 1 074 1 074 23 February 2011 11 April 2011 60 100 175 200 100 100 200 300 1 No STC is payable due to the utilisation of STC credits arising from the dividend receipts from SIOC. EXXARO INTEGRATED ANNUAL REPORT 2010 55 FINANCIAL AND OPERATIONAL REVIEW CONTINUED Total dividends declared for the 2010 financial year of R1 789 million are paid or payable to shareholders as follows: R million Gross dividend declared BEE Holdco Public Anglo American Exxaro employee empowerment scheme (Mpower)1 1 50% of this dividend accrues to employee beneficiaries in the non-management category. Total 1 789 933 629 174 53 Final 1 074 560 378 104 32 Final interim 715 373 251 70 21 CASH FLOW R million Net cash retained from operations Net financing 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 inflow/(outflow) Share issue Other movements in net debt Decrease/(increase) in net debt 12 months ended 31 December 2010 4 106 (1 742) (1 522) (1 155) (149) 1 817 60 (29) 2009 2 117 (2 323) (990) (992) (1 090) 1 754 11 (107) 1 386 (1 620) 29 96 43 227 1 511 (1 350) 56 EXXARO INTEGRATED ANNUAL REPORT 2010 DEBT STRUCTURE AND FINANCIAL COVENANTS The group’s debt structure at 31 December 2010 is: R million Long term – Corporate – GMEP – Australia Sands Cash and cash equivalents Net debt Short-term facilities Drawn 4 360 3 576 784 (2 140) 2 220 Available 4 930 355 4 500 75 1 300 Repayment profile 2011 2012 2013 2014 After 2014 716 856 1 865 296 627 4 360 Cash retained from operations was the receipt of R1 817 million in dividends, Compliance with the group’s ﬁnancial loan R4 106 million for the group. This was primarily from SIOC, the group had net covenants with external ﬁnanciers is primarily used to fund net ﬁnancing cash inﬂow of R1 386 million for the shown below: charges of R256 million, taxation ﬁnancial year. The ﬁnal dividend for payments of R430 million, dividend payments of R1 056 million and capital payment in April 2011 will amount to a further cash outﬂow of R1 074 million expenditure of R2 677 million of which offset by the dividend inﬂow from SIOC R1 522 million was invested in new of R1 623 million. capacity and R1 155 million applied to Net debt to equity (%) EBITDA interest cover (times) HDSCR1 sustaining and environmental capital. Net debt of R3 731 million at 31 December CHDSCR2 Ratio Covenants 13 9 3,75 3,71 <80 >4 >1,3 >1,5 R918 million of expansion capacity 2009 accordingly decreased to expenditure was for the Grootegeluk R2 220 million at a net debt to equity ratio mine expansion for Medupi (GMEP). After of 13% at 31 December 2010. 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 flow), divided by mandatory capital and interest payments on financing facilities. 2 Cumulative HDSCR being cash and cash equivalents at the beginning of the period, plus free cash flow, less dividends paid, divided by mandatory capital and interest payments on financing facilities. Dividend payments may not result in this calculation being less than 1,5. EXXARO INTEGRATED ANNUAL REPORT 2010 57 FINANCIAL AND OPERATIONAL REVIEW CONTINUED ORGANISATIONAL STRUCTURE Activities to optimise Exxaro’s zinc asset portfolio continue to ultimately extract the most value in the divestment process, which is expected to start in 2011. COMMODITY PRICE AND CURRENCY HEDGING A total of 60% of Rosh Pinah’s projected zinc and lead concentrate sales was hedged in 2008 for the period July 2008 to December 2011 at forward prices operations as well as USD52 million at an ranging from USD2 215 to USD1 887 per average rate of USD0,87c to the AUD for tonne for zinc and USD2 385 to the Australian operation. USD1 771 per tonne for lead. Taking the favourable currency hedging in place on these hedged prices, the average ZAR price equates to R19 976 per tonne. These hedges will mature in 2011. CAPITAL EXPENDITURE More detail is provided in the growth report on page 60 of the capital expenditure summary detailed below. On 31 December 2010 Exxaro had USD106 million of hedging in place at an average exchange rate of R7,19 for local R million Sustaining and environmental – Coal – Mineral sands – Base metals – Other Expansion – Coal – Mineral sands – Base metals – Other Total GMEP (incl capitalised interest) Financial year 2012 Estimate Financial year 2011 Estimate 12 months ended 31 December 2010 12 months ended 31 December 2009 3 956 2 204 1 610 142 3 717 3 655 62 7 673 3 190 2 244 1 014 676 150 404 5 957 5 872 41 10 34 8 201 5 231 1 155 516 398 169 72 1 522 1 225 294 3 2 677 918 992 432 340 127 93 990 492 486 12 1 9827 58 EXXARO INTEGRATED ANNUAL REPORT 2010 Capital expenditure for 2010 and the Post 2012, sustaining capital expenditure medium term is dominated by is expected to revert to a normalised Grootegeluk’s Medupi expansion project, R1,3 billion per annum. known as GMEP. The GMEP capital disclosed includes capitalised interest. ACKNOWLEDGEMENTS I express my sincere appreciation to the Further capital expenditure warranting very competent Exxaro ﬁnance teams mention is: throughout the group for their continued > Primary equipment replacement: commitment, dedication and valuable contributions. — 2011 R263 million — 2012 R635 million — 2013 R608 million > Grootegeluk backﬁll project: — 2011 R243 million — 2012 R700 million — 2013 R368 million > Investment in developing Fairbreeze of R2,4 billion over the next two years Wim de Klerk (included in sustaining capital) Finance director > Co-generation at Namakwa Sands of R175 million > SAP upgrade of R214 million. 15 March 2011 Share price volumes traded for the period 1 January 2010 to 31 December 2010 0 0 0 ’ s e m u l o v e r a h S 8 000 7 000 6 000 5 000 4 000 3 000 2 000 1 000 0 0 1 - n a J - 1 0 0 1 - n a J - 1 2 0 1 - b e F - 0 1 0 1 - r a M - 2 0 0 1 - r a M - 2 2 0 1 - r p A - 1 1 0 1 - y a M - 1 0 0 1 - y a M - 1 2 0 1 - n u J - 0 1 0 1 - n u J - 0 3 0 1 - l u J - 0 2 0 1 - g u A - 9 0 0 1 - g u A - 9 2 0 1 - p e S - 8 1 0 1 - t c O - 8 0 0 1 - t c O - 8 2 0 1 - v o N - 7 1 0 1 - c e D - 7 0 0 1 - c e D - 7 2 Exxaro Resources volume Exxaro Resources price JSE All share JSE Resource 20 160 140 120 100 80 60 40 20 0 S h a r e p r i c e ( Z A R ) EXXARO INTEGRATED ANNUAL REPORT 2010 59 GROWTH Introduction In 2010, there was a strong recovery in Globally, capital allocation has become one of the most pressing strategic issues Thabametsi Thabametsi is a prospective greenﬁelds commodity markets and faster-than- anticipated recovery in the global economy. This renewed the focus on carbon, reductants, ferrous and energy growth projects in line with the group’s approved strategy to maintain a diversiﬁed, sustainable and proﬁtable business portfolio. for mining and metals companies. We mine adjacent to Grootegeluk mine in the believe correct capital allocation follows Waterberg, Limpopo province. a process of comprehensive risk Development of this project was originally management. By analysing scenarios planned to coincide with Eskom’s future and impacts, and setting strict minimum developments in the Waterberg as well as investment criteria against which the Department of Energy’s formalisation competing projects bid for scarce capital, and establishment of an appropriate we identify opportunities to preserve enabling environment, governed by the and grow shareholder value, reﬁne National Integrated Resource Plan 2010 One of the key risks to achieving this processes and controls and remain agile (NIRP 2010) to allow for new-generation goal is effective capital allocation. in a competitive market. Exxaro’s commodity strategy has been noted in the chief executive ofﬁcer’s report on page 45. The table provides a summary of a number of growth initiatives, followed by a brief description of some projects: Ownership Scope Estimated capex Status Estimated start up Coal Coal Coal Coal Coal GMEP 14,6Mtpa R9,5 billion Construction Char phase 2 140-280ktpa TBD Feasibility Belfast Market coke Moranbah South (Australia) (50%) 3-5Mtpa 1Mtpa 6Mtpa TBD TBD TBD Pre-feasibility Pre-feasibility Pre-feasibility Coal Thabametsi 6-17Mtpa TBD Pre-feasibility Sands Fairbreeze mine 300ktpa R2,4 billion Approved February 2011 2012 2013 2014 2014 2015 2016 2013 capacity in terms of Eskom’s multi-site base load independent power producer (IPP) programme. The draft NIRP 2010, released in October 2010, does not cater for any new coal- fired power generation development until 2027. The draft was subjected to a public-review process in December 2010 and is expected to be finalised early in 2011 after receiving comments from all stakeholders. Due to delays in these initiatives, Exxaro’s focus is now on first developing a smaller mine for coal supply to the Limpopo IPP envisaged in the draft NIRP 2010. A bankable feasibility study as well as the public consultation required for environmental Sands Dry mine replacement 100-200ktpa TBD Pre-feasibility 2013 approvals will begin once the scope for (Australia) (100%) Energy Co-generation Namakwa Sands 14MW TBD Feasibility Energy Wind energy 40-100MW TBD Pre-feasibility 2012 2014 Coal Grootegeluk mine expansion for Medupi (GMEP) The Medupi coal supply and offtake agreement became unconditional and binding on Exxaro and Eskom on 24 June 2010. In terms of the agreement, Exxaro will supply 14,6Mtpa to Medupi power station for a 40-year period post ramp-up. The total capital cost of GMEP is forecast at R9,5 billion. First coal delivery will begin in May 2012 and full commissioning is expected during 2014/15. Project detailed design was largely completed by the end of February 2011. Around 90% of the major construction packages and plant equipment packages have already been placed, and the balance will be placed during the first quarter of 2011. On-site construction has started with most bulk earthworks nearing completion. Civil work is well under way after major structural work was started in February 2011. Current indications are that the project will be completed within schedule and budget. The R4,5 billion bridge loan facility for GMEP was secured in the ﬁrst half of 2010 with a consortium of local and international ﬁnancial institutions. First drawdown of the loan is only expected in the second quarter of 2011. the Limpopo IPP has been determined and the final NIRP 2010 promulgated. First coal production could be expected by 2015/16, but depends on the Limpopo IPP and water-supply development schedules. Mafutha Exxaro has a prospecting joint-venture agreement with Sasol Mining to investigate the commercial viability of developing a new coal mine in the Waterberg to supply Sasol’s potential 80 000 barrels per day inland coal-to-liquids facility. The study is still in an extended pre-feasibility stage. Mining the 170kt bulk sample for large- scale gasiﬁcation testing at the Sasol Synfuels Secunda plant began in August 2009 and was completed in the second quarter of 2010. Gasiﬁcation tests are expected to be complete in the ﬁrst quarter of 2011. 60 EXXARO INTEGRATED ANNUAL REPORT 2010 Waterberg infrastructure development An integrated infrastructure plan continues to be developed for the Waterberg coalﬁelds with relevant remain encouraging. We anticipate that a second half of 2011 with the commercial feasibility study will be concluded in the second half of 2012, with ﬁrst production expected in 2015. Moranbah South, which joint venture with Anglo is a 50% operation date scheduled for the third quarter of 2012. Clean Development Mechanism-registration of this project is well advanced. stakeholders. Focus areas include the American, has the potential to produce > Exxaro continues to facilitate the some 6Mtpa of premium-quality hard development of a 600–1 200MW coal- supply of raw water to the area, rail, road, housing and job creation. Exxaro has completed phase I of its eco-friendly housing project in Lephalale, which received an award at the 2010 Nedbank coking coal. Energy The development of Exxaro’s energy Capital Green Mining Awards in the portfolio to explore opportunities in sustainability category. Sintel char and market coke The Sintel char plant at Grootegeluk energy markets is progressing according to plan. The focus is on cleaner-energy initiatives encompassing a combination of co-generation, carbon credit trading, mine to produce reductants for the renewable energy, coal-bed methane ferroalloy industry has been fully commissioned with all four retorts in operation. The plant reached overall design capacity in the last quarter of 2010. Exxaro is currently evaluating phase II expansion to produce a further 280ktpa of char as well as a study to development, and coal base-load project developments. Securing equity funding partners for these projects continues in parallel with investigations. ﬁred power station in the Waterberg (Limpopo IPP). Non-binding term sheets for the offtake of 1 150MW of electricity have been signed between Exxaro and industrial offtakers. The project is one of the options being investigated to enable the Thabametsi coal mine referred to earlier. Ferrous Iron ore Exxaro continues to evaluate opportunities aligned with its strategy to establish a direct footprint in the iron ore commodity. Coal-bed methane development Development of the ﬁrst ﬁve-spot test for AlloyStreamTM Exxaro successfully concluded an produce market coke from semi-soft the coal-bed methane project in Botswana, agreement to partner with Assmang coking coal at Grootegeluk mine as part of its strategy of downstream integration and beneﬁciation. These studies should be completed during 2011. Belfast Exxaro’s application for a mining right for to test for economic gas ﬂow, is in the ﬁnal stages. Five wells have been drilled and four of these have been fractured. Dewatering of the well ﬁeld is under way and gas ﬂow is steadily increasing. The in 2011 until wells will be operated Limited to commercialise its AlloyStreamTM technology to beneﬁciate manganese ore into high-carbon ferromanganese alloy. A large demonstration facility is planned to be completed in 2011. Major beneﬁts of this technology include lower electrical economical gas-ﬂow levels have been consumption and the use of the Belfast project has been accepted by obtained. unagglomerated ﬁne feed materials. the Department of Mineral Resources (DMR) and is being processed. Updated specialist environmental studies as required by the national environmental management and water acts will be submitted to the relevant authorities in the ﬁrst half of 2011. The pre-feasibility study was completed in December 2010 and the decision to proceed with a full feasibility study will be evaluated in the ﬁrst quarter of 2011. Depending on the outcome, start-up and ﬁrst production is anticipated in 2014. Moranbah South Exploration of the hard coking coal Clean energy initiatives: > The pre-feasibility study for a 100MW wind farm on South Africa’s west coast has been completed. An 80m mast was installed at Brand se Baai in March 2010. The study indicates an initial project of between 40MW and 66MW is viable. The bankable feasibility study is now under way with completion planned for Mineral sands Fairbreeze On 22 February 2011, the board approved the development of Fairbreeze mine as a replacement feedstock producer to Hillendale mine at KZN Sands, subject to obtaining the required regulatory and environmental approvals. A possible reversal or partial reversal of previous the third quarter of 2011. impairments of the carrying value of the > A pre-feasibility study for a 76MW wind assets will be considered simultaneously in the Tsitsikamma region farm is continuing. Exxaro has a 75% share in this project. This study should be completed by the end of 2011. by the board. resource on the Moranbah South property > A bankable feasibility study for a 14MW in the Bowen Basin of Queensland, Australia, is progressing well and results obtained during the pre-feasibility study co-generation plant at Namakwa Sands is in the ﬁnal stages. Construction of the power plant is planned for the EXXARO INTEGRATED ANNUAL REPORT 2010 61 62 EXXARO INTEGRATED ANNUAL REPORT 2010 DIVIDER PAGE 3 — FRONT (PERFORMANCE REVIEW) Performance review i w e v e r e c n a m r o f r e P EXXARO INTEGRATED ANNUAL REPORT 2010 63 REVIEW OF MINERAL RESOURCES AND RESERVES The Mineral Resources and Ore Reserves geological potential, the mineability and The processes and calculations associated underpinning Exxaro’s current operations associated risks/opportunities to establish with the estimate have been audited by and growth projects are summarised in an eventual extraction outline (EEO). internal competent persons and are the tables on pages 66 to 76. Mineral Resources are reported inclusive of those that have been converted to Ore Reserves and at 100% ownership, irrespective of the percentage attributable to Exxaro, except in the case of Black Mountain, Gamsberg and Swartberg, because ﬁgures received from Anglo Base Metals represent resources exclusive of reserves. Signiﬁcant changes in the resource or reserve ﬁgures have been explained by relevant footnotes to each table. Resource estimations are based on resource models, which incorporate all new validated geological information and, if applicable, revised resource deﬁnitions and classiﬁcations. The resource models are compiled as a rule between June and August of the reporting year. Ore Reserves are estimated using the relevant modifying factors at the time of reporting which include mining, metallurgical, economic, marketing, legal, environmental, social and governmental regulatory requirements. Mineral Resources in which Exxaro held the controlling interest have been reviewed during 2010 to comply with “reasonable and realistic prospects for Mineral Resources and Ore Reserves audited by external consultants when quoted fall within existing Exxaro deemed essential to establish Resources mine or prospecting rights. transparency. For mines or projects in Mining rights are of sufﬁcient duration (or which Exxaro does not hold the controlling convey a legal right to convert or renew interest, ﬁgures have been compiled by for sufﬁcient duration) to enable all competent persons from the applicable reserves to be mined in accordance with companies and have not been audited by current production schedules. Mineral Exxaro. Resource and reserve estimation Resources and Ore Reserves were at Exxaro mines and projects in Australia estimated by competent persons on an were done by competent persons as operational basis and in accordance with deﬁned by the JORC Code (2004). the SAMREC Code (2007) for South African properties and the JORC Code The person in Exxaro designated to take (2004) for Australian properties. Ore corporate responsibility for Mineral Reserves in the context of this report have Resources and reserves, HJ van der Berg, the same meaning as ‘Mineral Reserves’, the undersigned, has reviewed and as deﬁned by the SAMREC Code 2007. All endorsed the reported estimates. competent persons have sufﬁcient relevant experience in the style of mineralisation, type of deposit, mining method and activity for which they have taken responsibility, to qualify as a ‘competent person’ as deﬁned in these codes at the time of reporting. These HJ van der Berg competent persons have signed off their MSc (Geology), BSc (hon) respective estimates in the original Pr Sci Nat (400099/01) Mineral Resource and Ore Reserve Manager mineral assets eventual economic extraction” (SAMREC statements for the various operations and Code 2007). consent to the inclusion of the information in this report in the form and context in Exxaro uses a systematic review process which it appears. A list of Exxaro’s that measures the level of maturity of the competent persons is available from the exploration work done, the extent of the company secretary on written request. 64 EXXARO INTEGRATED ANNUAL REPORT 2010 the not with resource and Exxaro’s tenure over its mineral assets as listed in the tables was audited and is conﬁrmed following consideration: the deal to divest from Glen Douglas dolomite mine was concluded and the mine was transferred to Afrimat Limited with ministerial consent. The Glen reserve are Douglas therefore reported. Numerous conﬂicting prospecting right applications were lodged by junior companies over mineral areas held by Exxaro under a valid mining or a prospecting right. In many of those cases, the DMR has accepted the applications. Exxaro has submitted written objections to both the DMR and the applicant on all known conﬂicting applications. However, the conﬂicting applications are not regarded as a threat to any of the rights, because they are illegal. Nevertheless Exxaro in continuous consultation with the DMR to get these matters resolved. is It is anticipated that by the end of the minister’s moratorium on accepting new applications, all conﬂicting applications will have been addressed. The DMR has conﬁrmed in writing that the Grootegeluk, Tshikondeni, Gravelotte, Matla and Strathrae mines have been converted to new-order mining rights, but none of these mining rights has yet been the executed. The notiﬁcation conversion of Arnot and Glisa is still outstanding. All other Exxaro mines in South Africa are operating under a new- order mining right. for coal projects high-priority 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 coalﬁeld and a number of in Mpumalanga province, especially those close to existing Exxaro mines. Exploration drilling was conducted on priority targets and the conﬁdence in resource ﬁgures improved, as shown in the mineral resource tables overleaf. This includes additional drilling and geophysics done on in the Moranbah Reportable Queensland, increased resource level of signiﬁcantly. The present South Australia. project tonnes have conﬁdence in the mineral resource at this project will support the prefeasibility study, which is under way. present Exxaro recognises the importance and value of its mineral assets as the base of and its future success to manage, sustainability. The drive optimise and grow the company’s mineral assets will therefore remain a focus in 2011. Mineral asset risks and opportunities are being identiﬁed at each operation and growth project and managed to improve utilisation and proﬁtability, while pursuing safer working conditions and responsible environmental practices. Simultaneously, the growth strategy will focus on adding quality new resources to Exxaro’s mineral asset portfolio. pressure on mineral As a result of changes in the resources arena, both internally and internationally, the asset management has increased over recent years. Changing legislation and statutory requirements mean operational standards and procedures must be continually compliant. adjusted Environmentally, the inevitable visual impact of mining has put the industry under the spotlight. To manage its mineral assets responsibly under these conditions, Exxaro standards and modifying factors to apply the impact of is adapting remain to all these elements on mineral resource estimation and classiﬁcation. Although it complicates the estimation process, we regard it as the only way to identify, quantify and apply risks and opportunities in mineral asset optimisation and responsible utilisation. All spheres of the mining environment such as geology, the natural environment, safety as well as legal and statutory compliance has an impact especially on ore reserve estimation in Exxaro. management The result is that important industry drivers such as safety, proﬁtability and environmental are embedded in the way the mineral asset is evaluated in the ground. If these principles are applied continuously through the execution process, the mine will comply with statutory and legal requirements and be proﬁtable. However, a further consequence of this changing environment is that it places a the economic question-mark against mineability of poorer mineral deposits and puts pressure on the remaining high- quality deposits. The envisaged small- scale mining industry will ﬁnd it difﬁcult to comply with these requirements and may not develop as a viable branch of the industry in South Africa at all. Coal mines and projects in South Africa EXXARO INTEGRATED ANNUAL REPORT 2010 65 REVIEW OF MINERAL RESOURCES AND RESERVES CONTINUED COAL Coal Resources The table below details the total inclusive Coal Resources estimated as at 31 December 2010 Commodity Operation1 Coal Mpumalanga Arnot mine6 (UG) (captive market) Matla mine (>18MJ/kg) (UG) (captive market) Matla mine (Low CV, 15-18MJ/kg)7 (UG) (captive market) Matla mine (Total)7 (captive market) (UG) Inyanda mine (OC) Leeuwpan mine (OC) Mafube mine8 (OC) NBC mine9 (OC) (North Block Complex) NCC mine (UG/OC) (New Clydesdale) Glisa South project10 (OC) (prospecting) Belfast project11 (OC) (prospecting) % attributable to Exxaro2 Resource category Tonnes (million)3, 5 2010 100 100 100 100 100 100 50 100 100 100 100 Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL 169,3 46,0 48,8 264,1 313,5 335,4 179,7 828,5 129,4 28,7 39,1 197,2 442,9 364,1 218,8 1 025,8 11,4 – – 11,4 179,7 2,8 – 182,5 112,4 – 52,0 164,4 26,0 5,1 0,2 31,3 11,5 42,2 – 53,7 20,0 47,1 9,4 76,6 83,2 24,2 25,9 133,3 2009 Tonnes (million)3, 5 150,2 38,3 25,5 214,0 406,0 330,5 107,5 844,0 Grade4 Raw Coal4 Raw Coal4 Raw Coal4 Raw Coal4 Raw Coal4 Raw Coal4 Raw Coal4 Raw Coal4 Not reported Not reported 12,6 – – 12,6 181,7 2,8 – 184,5 121,1 – 57,3 178,4 30,7 5,1 0,2 36,0 13,9 42,2 – 56,1 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 Not reported 107,7 3,7 7,1 118,5 Raw Coal4 Raw Coal4 Raw Coal4 Raw Coal4 % change 23,4 (1,8) N/A N/A (9,5) (1,1) (7,9) (13,1) (4) N/A 13 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 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 66 EXXARO INTEGRATED ANNUAL REPORT 2010 Commodity Operation1 Coal Limpopo Grootegeluk mine12 (OC) Grootegeluk West project (OC) (prospecting) Waterberg North project13 (OC) (prospecting) Waterberg South project14 (OC) (prospecting) Tshikondeni mine (UG/OC) (captive market) Coal Australia Moranbah South project15 (UG) (prospecting) % attributable to Exxaro2 Resource category Tonnes (million)3, 5 2010 100 100 100 100 100 50 Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL Measured Indicated Inferred TOTAL 2 559 1 541 787 4 887 – 2 579 2 249 4 828 – – 2 253 2 253 – – 895 895 23,5 10,1 – 33,6 146,4 325,4 136,5 608,2 2009 Tonnes (million)3, 5 2 610 1 290 787 4 687 – 1 021 3 617 4 638 – – 2 176 2 176 – – 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 Coal4 Raw Coal4 Raw Coal4 – – Raw Coal4 Raw Coal4 – – Raw Coal4 Raw Coal4 Raw Coal4 Raw Coal4 – Raw Coal Raw Coal4 Raw Coal4 Raw Coal4 Raw Coal4 % change 4,3 4,1 – – 3,5 28 (1,6) 128,3 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 Rounding off of figures may cause computational discrepancies. All changes more than 10% (significant) 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 2010 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 an air-dried basis. 4 Coal qualities are reported in Table 1 and are quoted on a Mineable Tonnage In Situ (MTIS) and on an air-dried basis. 5 Coal Resources are quoted “inclusive” of Coal Resources that have been modified to Coal Reserves unless otherwise stated. 6 The increase of ~50Mt is the result of the review of the geological database (update of new holes and correction of historical holes), subsequent update of the geological model improving seam interpretation and a change in the quality cut-off parameters used (35% Ash). 7 Lower CV (15-18MJ/kg) coal from Seam 4 is utilised at Matla Mine 3 in addition to the Coal Resources (>18MJ/kg CV) previously reported. The inclusion of these Coal Resources resulted in a significant increase in the Total Resource base. 8 Estimates are received from Anglo American and were not audited by Exxaro. 9 The decrease of 4,7Mt is due to mining depletion. 10 The project area is adjacent to the NBC mine and is reported for the first time following four years of extensive exploration. 11 The increase of 14,8Mt (13%) is the result of the inclusion of potentially opencastable seams 3 and 4, not reported in 2009. 12 Mining depletion of 36,7Mt has been positively offset by the increase in resource as a result of the update of the geological model with new drill hole information. 13 The increase of ~77Mt is the result of new drilling information. 14 The increase of ~196Mt is the result of new drilling information. 15 Estimates are received from Anglo American and not audited by Exxaro. The significant increase is primarily the result of the upgrading of Goonyella Middle (GM) Seam resources (~350Mt) from low potential to reportable resources based on extensive exploration work. EXXARO INTEGRATED ANNUAL REPORT 2010 67 REVIEW OF MINERAL RESOURCES AND RESERVES CONTINUED COAL RESOURCE QUALITIES Table 1 Seam/ Layer/ Formation Operation Arnot mine Matla mine Seam 2 Seam 1 Seam 4 (Low CV) Seam 4 Seam 2 Inyanda mine Main Reserve Pegasus – South Reserve TC2 BC2 Leeuwpan mine NBC mine Mafube mine Seam 2 Seam 1 NBC main orebody Strathrae East Eerstelings- fontein Glisa South project NCC mine Belfast project Grootegeluk mine Grootegeluk West project Waterberg North project Waterberg South project A Grade Coal B Grade Coal Seam 4 Seam 3 Seam 2 Volksrust Formation Vryheid Formation Volksrust Formation Vryheid Formation Volksrust Formation Vryheid Formation Volksrust Formation Vryheid Formation Measured Resource Tonnes (Mt)1 164,3 5,0 CV MJ/kg % VM % Ash 20,6 20,6 18,9 30,1 23,9 25,3 129,4 233,0 80,5 17,2 19,5 24,0 22,1 22,7 24,0 33,6 30,7 19,1 10,3 25,2 23,9 20,6 % S 1,0 1,5 0,8 1,1 0,9 1,9 1,1 24,2 24,2 20,9 1,7 112,8 66,9 115,1 3,2 16,60 23,9 22,5 20,4 17,50 21,8 22,4 22,7 40,10 22,1 23,9 31,3 0,90 1,1 0,8 0,9 21,7 19,7 21,2 29,9 0,5 3,7 24,7 22,9 19,0 24,3 22,6 18,2 20,0 19,0 20,3 32,0 10,8 25,5 23,8 20,2 0,8 23,2 21,6 23,2 2,2 6,3 74,7 15,9 21,4 24,7 20,9 23,1 23,0 40,2 27,8 18,2 0,9 0,8 0,8 0,9 0,7 0,7 1,2 1,0 1,1 2010 Indicated Resource CV MJ/kg % VM % Ash 20,8 24,0 19,4 29,9 23,8 25,0 Tonnes (Mt)1 44,6 1,3 28,7 133,6 201,8 – – 1,6 1,2 – – 5,1 – – 36,0 29,4 20,7 – – 51,8 20,5 16,9 19,9 22,9 – – 11,3 25,7 – – 22,0 22,7 23,7 – – 10,8 9,7 – – 20,0 21,1 29,9 – – – – – – 47,1 19,0 20,9 31,8 14,0 26,2 24,8 20,3 28,2 22,9 25,3 26,6 1,0 1,8 21,3 13,4 21,1 24,1 19,1 22,8 22,8 47,8 28,5 19,9 1 842 12,3 19,4 55,4 1,0 1 273 13,2 19,9 54,1 717 23,2 22,2 27,6 2,1 268 23,3 22,3 28,6 % S 0,9 2,7 1,0 1,0 1,0 – – 0,7 0,7 – – 0,9 – – 1,0 0,9 0,9 1,1 1,5 1,0 1,0 2,2 Inferred Resource Tonnes (Mt)1 46,3 2,6 CV MJ/kg % VM % Ash 20,2 24,4 19,8 29,8 24,2 24,8 39,1 129,0 50,7 16,3 19,9 20,6 21,3 22,8 20,4 37,5 29,1 29,8 – – – – 10,7 34,5 – – – – 21,8 20,2 – – – – 22,7 22,4 – – – – 25,6 31,3 0,2 21,5 21,4 25,0 – – – – – – – – % S 0,9 3,0 1,3 1,0 1,0 – – – – 0,9 1,0 0,8 – – 9,4 21,0 21,6 27,6 1,0 – – 2,3 1,1 22,5 – – 12,7 20,7 22,9 – – 19,2 22,7 21,9 – – 50,0 29,3 22,7 610 13,2 19,2 55,1 177 23,2 21,5 28,5 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 2 149 11,1 19,3 56,9 0,9 1 800 10,1 18,7 58,8 430 20,4 21,9 32,1 2,2 449 19,5 21,6 34,2 – – – – – – – – – – – – – – – – 14,0 22,8 – – – – 1 468 10,8 19,0 56,8 785 18,1 21,7 36,2 354 14,1 23,2 44,9 541 17,1 21,6 36,1 0,7 – – – – 0,6 136,5 27,0 17,9 21,9 0,6 – – 0,8 1,1 1,1 1,3 2,0 0,9 2,1 0,9 1,8 1,1 2,1 – 23,5 30,8 Total Tshikondeni mine Moranbah project 26,0 146,4 VM – volatile matter, S – sulphur, CV – calorific value Rounding-off of figures may cause computational discrepancies. Coal qualities are quoted on a Mineable Tonnage In-Situ (MTIS) and on an air-dried basis 325,4 Total 18,2 26,9 30,8 22,0 10,1 19,0 22,0 25,7 14,0 0,7 0,6 1 The tonnages are quoted in metric tonnes and million tonnes is abbreviated as Mt. 2 TC – Top Coal, BC – Bottom Coal 68 EXXARO INTEGRATED ANNUAL REPORT 2010 COAL Coal Reserves The table below details the total Coal Reserve estimated as at 31 December 2010. Commodity Operation1 % attribut- able to Exxaro5 Reserve category ROM (Mt)2, 3 Saleable product (Mt)2, 4 ROM (Mt)2, 3 Saleable product (Mt)2, 4 % change 2010 2009 Life of Mine Plan (LoMP) (Years) Coal Mpumalanga Arnot mine7 (UG) 100 Proved (captive market) Inferred Resources in LoMP6 Probable TOTAL 46,4 11,6 58,0 6,3 Matla mine8 (UG) 100 Proved 132,4 (captive market) Inferred Resources in LoMP6 Probable 149,5 TOTAL 281,9 57 9,4 0,4 9,8 – 78,1 73,6 Inyanda mine9 (OC) 100 Proved Probable TOTAL Inferred Resources in LoMP6 Leeuwpan mine10 (OC) 100 Proved Probable Inferred Resources in LoMP6 – TOTAL 151,7 Coking coal Thermal coal Metal- lurgical coal Coking coal Thermal coal Metal- lurgical coal N/A N/A N/A N/A N/A N/A 43,6 10,9 54,5 131,7 148,8 280,5 N/A N/A N/A 72,6 10,2 82,8 N/A N/A 201,1 132,1 N/A 333,2 N/A N/A N/A N/A N/A N/A 70,4 9,9 80,3 200,1 131,5 331,6 N/A N/A N/A N/A N/A N/A A-grade export steam coal A-grade export steam coal 6,6 0,3 6,9 11,6 0,4 12,0 8,2 0,3 8,5 (29,9) 11,6 (15,4) 33 (18,4) 4,2 Export Thermal Metal- lurgical 5,5 – 5,5 25,6 21,4 47,0 12,4 20,3 88,3 64,8 32,7 153,1 Export Thermal 4,2 – 4,2 35,4 9,4 44,8 Metal- lurgical 9,5 23 32,5 (0,9) 22 EXXARO INTEGRATED ANNUAL REPORT 2010 69 REVIEW OF MINERAL RESOURCES AND RESERVES CONTINUED COAL continued Coal Reserves continued Commodity Operation1 % attribut- able to Exxaro5 2010 2009 Reserve category ROM (Mt)2, 3 Saleable product (Mt)2, 4 ROM (Mt)2, 3 Saleable product (Mt)2, 4 % change Export Thermal Metal- lurgical Export Thermal Metal- lurgical Life of Mine Plan (LoMP) (Years) Coal Mpumalanga (continued) Mafube mine11 (OC) 50 Proved 30,1 Probable – TOTAL 30,1 Inferred Resources in LoMP6 NBC12 (OC) 100 Proved (North Block Complex) Probable TOTAL Inferred Resources in LoMP6 NCC mine13 (OC, UG) 100 Proved (New Clydesdale) Probable – – 27,2 27,2 – 7,6 2,3 TOTAL 10,0 Inferred Resources in LoMP6 Belfast project14 (UG/OC) (prospecting) Inferred Resources in LoMP6 100 Proved Probable TOTAL – – 67,3 67,3 0,8 Coal Limpopo Grootegeluk mine (OC) 100 Proved 2 056 Probable 913 14,8 – 14,8 N/A N/A N/A N/A N/A N/A – 21,6 21,6 97,6 58,9 6,9 – 6,9 – 17,0 17,0 5,6 0,9 6,5 – 35,4 35,4 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 35,6 67,3 102,9 26,9 4,1 31,0 11,7 – 11,7 91,9 3,0 94,9 900,5 356,9 91,0 21,9 2 140 666 18,4 25,1 43,5 N/A N/A N/A N/A N/A N/A 56,8 – 56,8 96,4 33,0 8,2 21,2 29,4 24,5 3,7 28,2 7,6 – 7,6 29,9 – 29,9 905,3 309,6 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 83,3 33,7 (70,8) 6 (12,1) 6,3 (14,7) 6 (29,1) 21,1 TOTAL 2 969 156,5 1 257,4 112,9 2 806 129,4 1 214,9 117,0 5,8 54 Inferred Resources in LoMP6 302 Tshikondeni mine (UG/OC) (captive market) 100 Proved 3,65 Probable – TOTAL 3,65 1,85 – 1,85 N/A N/A N/A 3,98 – 3,98 2,11 – 2,11 N/A N/A N/A (8,3) 6 Inferred Resources in LoMP6 – Rounding off of figures may cause computational discrepancies. All changes more than 10% (significant) 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 a 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 2010 only. 6 Inferred resources in Life of Mine Plan (LoMP) refer to Inferred Resources considered for the Life of Mine Plan. 7 The decrease (30%) is the result of mining depletion (4,5Mt) and the exclusion of the envisaged open-cast areas due to technical investigations and pending authorisations. 8 The net decrease of ~51Mt is the result of mining depletion (12,8Mt), changes in the resource base, exclusion (~40Mt) of potential stooping areas underlying environmentally sensitive wetlands and the exclusion of Coal Reserves in Seam 2 attributed to safety conditions. 9 The net decrease is primarily the result of mining depletion (~2,3Mt). The Pegasus-South ore body which is situated within the mine right area, but to the immediate north of the main ore body, has not been converted to Coal Reserves because of ongoing technical and environmental studies. 10 Measured Resources (reserve blocks OJ, OL, OI) have been converted to Probable Reserves due to metallurgical studies in progress and pending authorisations. 11 Figures are received from Anglo American and were not audited by Exxaro. Probable Reserves and Inferred Resources (considered for LoMP, ~66,6Mt) were excluded pending the approval for conversion of prospecting right to mining right. Application for conversion to mining right will be submitted, pending the completion of the Environmental Management Plan (EMP). Anglo American Thermal Coal has reasonable expectation that such conversion will not be withheld. 12 The decrease (3,7Mt) is the result of mining depletion. The Coal Reserve was moved to the Probable Reserve category pending the outcome of technical investigations. The Reserve consists of the NBC main orebody (~23,97Mt), Strathrae East (0,57Mt) and Eerstelingsfontein (2,67Mt). The decrease in saleable product is the result of a revised product specification adopted in 2010. 13 The decrease of 1,7Mt (~14%) is the result of mine depletion and a change in the resource base. The Haasfontein Reserves (~2,3Mt) was moved to the Probable Reserve category during the alignment of mining activities to environmental compliances. 14 The decrease in the Reserve is the result of the re-evaluation of the economics of the project and changes in proposed mine methods. The Reserve has been moved to the Probable Reserve category due to pending mine right and environmental authorisations. 70 EXXARO INTEGRATED ANNUAL REPORT 2010 COAL RESERVE QUALITIES Table 2 Operation Seam/Layer Thermal saleable (proved + probable) Metallurgical saleable (proved + probable) Coking saleable (proved + probable) Arnot mine Matla mine Seam 4 Seam 2 Inyanda mine Leeuwpan mine Mafube mine TC2 BC2 NBC Export NBC Main orebody Strathrae East Eerstelings- fontein NCC mine Belfast project Thermal Export Grootegeluk mine Volksrust Formation Vryheid Formation Tshikondeni mine Tonnes (Mt)1 CV MJ/kg 54,2 130,9 151,0 7,6 24,3 18,7 21,7 27,5 % VM 24,0 N/A N/A 25,0 % Ash 23,0 39,3 23,9 15,0 47,0 22,7 20,0 22,7 – 6,9 14,8 14,0 0,5 2,4 6,5 21,6 35,4 – 23,9 27,5 22,3 24,7 23,3 27,6 22,9 27,4 – 21,3 25,1 22,4 22,9 22,6 25,7 N/A 24,7 – 19,8 11,5 21,9 19,0 18,3 15,2 N/A 12,0 % S Tonnes (Mt)1 CV MJ/kg % VM % Ash % S Tonnes (Mt)1 CV MJ/kg % VM % Ash % S – – – – 38,2 26,6 23,0 15,5 – 0,6 1,0 N/A N/A 0,7 0,5 – 0,6 0,4 0,8 0,7 0,9 N/A 0,4 816,1 21,4 27,4 31,4 0,8 – – – – – 127,5 29,4 35,8 10,3 1,0 441,3 21,5 21,9 31,7 2,7 112,9 27,6 23,4 15,0 0,6 – – – – – 1,85 30,8 22,0 14,0 0,7 Saleable reserve tonnage represents the product tonnes of coal available for sale on a applicable moisture and air-dried quality basis. VM – volatile matter, S – sulphur, CV – calorific value Rounding off of figures may cause computational discrepancies. 1 Saleable product tonnages are quoted in metric tonnes and million tonnes is abbreviated as Mt. 2 TC – Top Coal, BC – Bottom Coal. EXXARO INTEGRATED ANNUAL REPORT 2010 71 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 2010. Commodity Operation1 Mineral Sands KwaZulu-Natal Hillendale mine (including Braeburn + Braeburn Extension)4 (OC) % attributable to Exxaro2 Resource category Tonnes (million)3 2010 Grade % Ilmenite Tonnes (million)3 2009 Grade % Ilmenite % change 100 Measured 33,2 2,97 40,9 3,27 Indicated Inferred TOTAL Fairbreeze A + B + C + C Ext + D5 100 Measured (OC) Block P (OC) Indicated Inferred TOTAL 100 Measured Indicated Inferred TOTAL Port Durnford project6 51 Measured (prospecting) (OC) Indicated Inferred TOTAL – – 33,2 156,1 55,7 9,0 220,9 – 40,6 – 40,6 142,5 340,1 466,0 948,6 – – 2,97 4,29 2,56 1,92 3,76 – 3,1 – 3,1 3,0 2,8 2,5 2,7 Mineral Sands Eastern Cape Mineral Sands Limpopo Eastern Cape project 100 Measured (Nombanjana, Ngcizele, Sandy Point old and recent)7 (OC) Will apply for closure Indicated Inferred TOTAL Gravelotte sand and 100 Measured pebbles (OC) Gravelotte rock (OC) Indicated Inferred TOTAL 100 Measured Indicated Inferred TOTAL Letsitele sand project 100 Measured (prospecting) (OC) Indicated Inferred TOTAL Letsitele rock project 100 Measured (prospecting) (OC) Indicated Inferred TOTAL 75,1 – 31,3 106,4 – – 112,3 112,3 12,5 – – 12,5 – 53,6 – 53,6 9,1 – 4,0 7,6 – – 20,7 20,7 10,5 – – 10,5 – 25,9 – 25,9 72 EXXARO INTEGRATED ANNUAL REPORT 2010 – – 40,9 202,1 26,9 – 229,0 – 40,6 – 40,6 142,5 340,1 466,0 948,6 226,2 9,9 19,8 255,9 75,1 – 31,3 106,4 – – 112,3 112,3 12,5 – – 12,5 – 53,6 – 53,6 – – 3,27 3,72 2,50 – 3,60 – 3,1 – 3,1 3,0 2,8 2,5 2,7 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 (18,9) (4) 0 0 N/A 0 0 0 0 Mineral Sands Australia Tiwest – Cooljarloo mine9 (OC) Mineral Sands Resources continued Commodity Operation1 % attributable to Exxaro2 2010 2009 Resource category Tonnes (million)3 Grade Tonnes (million)3 Grade % change % Ilmenite % Zircon % Ilmenite % Zircon Mineral Sands Western Cape (OC) Namakwa Sands mine8 100 Measured Indicated Inferred TOTAL 50 Measured Indicated Inferred TOTAL 344,0 385,9 199,5 929,4 232,3 193,0 – 425,4 – 62,3 36,5 98,8 – 25,6 – 25,6 55,2 12,0 15,9 83,1 3,27 2,07 2,31 2,57 % THM 2,3 1,9 – 2,1 % THM – 2 2 2 – 6,0 6,0 4,5 4,8 4,0 4,5 0,82 0,49 0,65 0,64 0,7 0,7 0,3 0,6 578,1 258,1 84,8 921,0 95,0 234,1 10,0 339,1 3,0 2,5 1,5 2,7 % THM 2,9 2,3 2,4 2,5 % THM Not reported in 2009 – – 25,6 – 25,6 91,4 – – 91,4 – – 6,0 – 6,0 4,5 – – 4,5 0,9 25,4 N/A 0 (9) – Cooljarloo West project10 50 Measured (OC) – Jurien project (OC) Indicated Inferred TOTAL 50 Measured Indicated Inferred TOTAL – Dongara project11 50 Measured (prospecting) (OC) Indicated Inferred TOTAL % THM – percent total heavy minerals Mineral Resources are quoted inclusive of Mineral Resources that have been modified to Ore Reserves unless otherwise stated. Rounding off of figures may cause computational discrepancies. All changes more than 10% (significant) 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 2010 only. 3 The tonnages are quoted in metric tonnes and million tonnes is abbreviated as Mt. 4 The decrease is primarily the result of mining depletion (~6Mt). 5 Geological models were revised and updated and Fairbreeze area D, previously reported separately, is now included in the Net Resource. 6 The project is reviewed due to changed economical assumptions. The prospecting right has lapsed and a new application has been submitted, outcome is pending. 7 Exxaro decided to disinvest as a result of technical and environmental constraints. 8 The movements within the resource categories are mainly the result of a revised resource classification and orebody delineation. 9 The increase of 86,6Mt (~25%) and the movement between the various resource categories, are the result of a combination of factors. Mining depletion (~24Mt), the update of the geological model that incorporates new information obtained through an extensive exploration drilling programme executed during the last two years, as well as the implementation of a larger, lower grade pit shell due to revised economical assumptions, are the primary contributors to the increase. 10 The project is reported for the first time this year. 11 Movements between the resource categories are the result of the review and update of the historical geological models. EXXARO INTEGRATED ANNUAL REPORT 2010 73 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 2010. Commodity Operation1 % attribut- able to Exxaro2 Reserve category ROM (Mt)3 2010 2009 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 Life of Mine Plan (LoMP) (Years) % change 100 Proved 11,6 6,37 54,89 6,88 3,90 2,02 18,9 7,03 56,19 7,25 3,98 1,99 Mineral Sands KwaZulu-Natal Hillendale mine5 (OC) (including Braeburn and Braeburn Extension) Probable TOTAL Inferred Resources in LoMP4 Fairbreeze A+B+C+ C Ext and D6 (OC) 100 Proved Probable TOTAL Mineral Sands Limpopo Inferred Resources in LoMP4 Gravelotte sand 100 Proved (OC) Probable TOTAL Inferred Resources in LoMP4 Mineral Sands Western Cape Namakwa Sands mine7 (OC) 100 Proved Probable TOTAL Inferred Resources in LoMP4 Australia Tiwest 50 Proved – Cooljarloo (OC)8 Probable TOTAL Inferred Resources in LoMP4 – Jurien (OC) 50 Proved Probable TOTAL Inferred Resources in LoMP4 – Dongara (OC) (prospecting) 50 Proved Probable TOTAL Inferred Resources in LoMP4 – 6,37 – 54,89 7,74 5,02 7,24 13,0 – 13,0 12,67 9,87 10,50 2,3 2,1 2,2 – 7,9 7,9 7,3 – 7,3 62,73 56,19 61,54 85,0 – 85,0 28,57 28,06 28,19 59,2 57,7 58,9 – 54,0 54,0 48,6 – 48,6 – 6,88 8,52 7,81 8,39 N/A – N/A 8,45 6,38 6,95 9,2 9,8 9,4 – 10,0 10,0 10,1 – 10,1 – 3,90 3,46 3,29 3,43 N/A – N/A 2,05 1,72 1,81 5,1 4,8 5,0 – 6,8 6,8 7,0 – 7,0 – 2,02 1,71 1,50 1,67 N/A – N/A 4,50 4,05 4,19 2,8 3,4 2,9 – 2,3 2,3 2,0 – 2,0 – 18,9 – 7,03 – 56,19 161,1 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 6,64 4,16 6,36 13,0 – 13,0 8,96 6,94 8,34 2,7 2,7 2,7 – 7,9 7,9 7,3 – 7,3 60,39 49,04 59,11 85,0 – 85,0 35,49 32,85 34,77 60,6 56,0 58,1 – 54,0 54,0 48,6 – 48,6 – 7,25 8,19 7,36 8,09 N/A – N/A 8,15 7,49 7,55 8,8 13,4 9,0 – 10,0 10,0 10,1 – 10,1 – 3,98 3,43 2,69 3,34 N/A – N/A 2,23 2,16 2,16 4,6 5,2 4,5 – 6,8 6,8 7,0 – 7,0 – 1,99 1,65 2,07 1,70 N/A – N/A 4,58 4,18 4,56 3,0 2,8 2,9 – 2,3 2,3 2,0 – 2,0 (38,6) 1,5 (23) 10 0 11 14,5 20 163,2 12 0 0 5,2 9,8 – 11,6 – 114,3 25,4 139,6 3,0 52,4 – 52,4 – 133,1 454,8 587,9 109 232,3 58,0 290,3 – – 15,7 15,7 – 29,5 – 29,5 – % THM – per cent total heavy minerals Rounding off of figures may cause computational discrepancies. All changes more than 10% (significant) are explained. Reserves quoted are inclusive of reported Mineral Resources unless otherwise stated. 1 Mining method: OC – open-cut, UG – underground. 3 The tonnages are quoted in metric tonnes and million tonnes is abbreviated as Mt. 4 Inferred Resources in Life of Mine Plan (LoMP) refer to Inferred Resources considered for the Life of Mine Plan. 5 The decrease of ~7,3Mt is the result of mining depletion. Resource of 18,2Mt is not converted to Reserve mainly because of infrastructure. 6 The decrease of ~41Mt is mainly the result of a change in cut-off grade and movements within the resource categories. 7 The increase of 74Mt is primarily due to a review of the economic assumptions resulting in the inclusion of material previously regarded as uneconomical. The East OFS Reserve (~180Mt) has been moved to the Probable Reserve category until further technical studies have been concluded. 8 The increase of 180Mt is the result of the positive change in the resource base and the implementation of a new larger, lower-grade pit shell based on reviewed economic assumptions. 74 EXXARO INTEGRATED ANNUAL REPORT 2010 BASE METALS Mineral Resources The table below details the total inclusive Base Metal Resources estimated as at 31 December 2010. Commodity Operation1 Base Metals Namibia Rosh Pinah mine (zinc and lead) (UG) 2010 2009 % attribut- able to Exxaro2 Resource category Tonnes (million)3 Grade 50,04 Measured Indicated Inferred TOTAL Mt 4,2 5,2 2,9 12,3 % Zn 9,16 6,94 5,72 7,42 % Pb 2,12 2,29 0,99 1,92 Tonnes (million)3 Mt 4,2 5,8 1,7 11,7 2010 2009 % Zn 8,51 6,66 4,81 7,06 Commodity Base Metals Northern Cape Resource category Tonnes (million)3 Grade Tonnes (million)3 % attribut- able to Exxaro2 Operation1 Black Mountain Mining – Deeps & Broken Hill4, 5 26 Measured (zinc, lead, copper and silver) (UG) Indicated Inferred TOTAL – Swartberg4, 6 26 Measured (zinc,lead,copper and silver) (UG) Indicated Inferred TOTAL Mt 3,7 6,0 9,6 19,3 – 16,4 31,9 48,3 Commodity Operation1 % attribut- able to Exxaro2 Resource category Tonnes (million)3 – Gamsberg North4, 7 26 Measured (zinc) (OC) Indicated Inferred Mt 43,3 57,5 53,3 TOTAL 154,1 % Zn % Pb % Cu Ag g/t 3,57 3,92 2,60 3,20 – 2,91 2,73 2,79 0,38 0,49 0,53 0,49 – 0,64 0,67 0,66 41,17 56,99 24,85 37,96 – 35,4 32,2 33,3 2,67 3,09 2,75 2,84 – 0,68 0,65 0,66 Grade % Zn 7,09 6,47 5,39 6,27 Mt 7,2 5,8 7,3 20,3 – 17,3 24,5 41,8 Tonnes (million)3 Mt 43,3 57,5 53,3 154,1 Grade % Zn % Pb % Cu 3,16 3,02 2,26 2,80 – 2,87 2,79 2,82 0,37 0,45 0,73 0,52 – 0,70 0,61 0,65 2,74 2,10 2,95 2,63 – 0,63 0,68 0,66 Grade % Zn 7,09 6,47 5,39 6,27 Grade % change % Pb 2,15 1,81 0,81 1,79 Ag g/t 38,50 44,69 25,94 35,78 – 35,0 41,0 39,0 5,4 % change (5) 15 % change 0 % 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 modified to Ore Reserves unless otherwise stated. Rounding off of figures may cause computational discrepancies. All changes more than 10% (significant) 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 2010 only. 3 The tonnages are quoted in metric tonnes and million tonnes is abbreviated as Mt. 4 Figures received from Anglo American 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. 6 Mine was placed on care and maintenance in 2007. No Ore Reserves, all remaining resources are declared. The increase is the result of a re-evaluation of the cut-off and the use of updated 2010 economic assumptions. 7 Mineral Resources were formerly referred to as Gamsberg. EXXARO INTEGRATED ANNUAL REPORT 2010 75 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 2010. 2010 2009 ROM (Mt)3 Grade Saleable product Grade Saleable product 3,7 2,8 6,5 – % Zn 9,10 7,13 8,25 % Pb 1,97 2,06 2,01 2010 zinc metal (x 1 000t) lead metal (x 1 000t) ROM (Mt)3 336,0 198,9 535,0 72,8 57,5 130,3 2,8 2,0 4,8 % Zn 10,25 7,91 9,26 % Pb 2,50 1,68 2,16 2009 zinc metal (x 1 000t) lead metal (x 1 000t) % change Life of Mine Plan (LoMP) (Years) 281,8 158,4 440,2 68,7 33,8 102,5 36 9,5 ROM (Mt)3 % attribut- able to Exxaro2 Reserve category Grade Saleable product ROM (Mt)3 Grade Saleable product % Zn % Pb % Cu Ag g/t zinc metal (x 1 000t) lead metal (x 1 000t) copper metal (x 1 000t) silver metal (t) % Zn % Pb % Cu Ag g/t zinc metal (x 1 000t) lead metal (x 1 000t) copper metal (x 1 000t) silver metal (t) % change Life of Mine Plan (LoMP) (Years) 26 Proved 3,6 2,75 3,76 0,33 41,07 98,5 134,9 11,8 147,3 4,9 3,52 3,64 0,38 42,51 171,2 176,6 18,5 206,8 % attribut- able to Exxaro2 Reserve category Commodity Operation1 Base Metals Namibia (zinc and lead) Rosh Pinah mine5 (UG) 50,04 Proved Probable TOTAL Inferred Resources inside LoMP4 Commodity Operation1 Base Metals Northern Cape (zinc, lead, copper and silver) Black Mountain mining Deeps6 (UG) Probable TOTAL 3,27 3,01 2,80 3,28 0,43 0,38 47,47 44,27 117,1 215,6 100,3 235,1 15,4 27,2 170,0 317,3 2,8 7,7 2,03 2,97 2,64 3,27 0,41 0,39 50,41 45,43 57,4 74,7 228,5 251,6 11,6 30,0 142,6 349,5 (7) 8 3,6 7,2 9,6 Inferred Resources inside LoMP4 % Zn – percent zinc, % Cu – percent copper, % Pb – percent lead, Ag g/t – grams per tonne silver, N/A – not applicable Reserves quoted are inclusive of reported Mineral Resources unless otherwise stated. Rounding off of figures may cause computational discrepancies. All changes more than 10% (significant) 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 2010 only. 3 The tonnages are quoted in metric tonnes and million tonnes is abbreviated as Mt. 4 Inferred Resources in Life of Mine Plan (LoMP) refer to Inferred Resources considered for the Life of Mine Plan. 5 The decrease of mining depletion (~0,7Mt) was offset by an increase of ~2,4Mt due to a change in the resource base and revised economic assumptions resulting in a net increase of 1,7Mt. 6 Figures received from Anglo American and not audited by Exxaro. Reserves quoted are exclusive of reported Mineral Resources. 76 EXXARO INTEGRATED ANNUAL REPORT 2010 Mineral sand mines and projects in KwaZulu-Natal Base metal and industrial mineral mines in Southern Africa EXXARO INTEGRATED ANNUAL REPORT 2010 77 SAFETY Disclosure on management approach Keeping our people safe Our safety and sustainable development incremental target of improving safety awareness, varied safety competency performance by 30% each year. This is and non-adherence to corporate safety measured by the lost-time injury standards. Collectively, these may result frequency rate — or LTIFR, a standard in in the perception of Exxaro being an governance model begins with meeting the mining industry. unsafe business — a perception that carries material risk to our sustainability. legislative requirements as a minimum standard. Sophisticated risk manage- ment systems and processes are then modelled around key risks for implementation at operational level. A risk-based approach also informs the way resources are allocated and used in the group to ensure ongoing progress towards and beyond legal compliance. Every lost-time injury is investigated by Accordingly, we have developed a the relevant business unit manager, while timeline (opposite) to Exxaro’s desirable all fatalities are investigated by a state that includes: committee with the appropriate skills, > Zero fatalities headed by an independent chairman. > Zero lost-time injuries These are reported to the board and Exco. > Hazard identiﬁcation and risk Each business unit tracks its adherence to assessments (HIRA) standards and legislation through a > Visible felt leadership as a key driver programme of self-assessments and of safety excellence in Exxaro To ensure effective communication, corporate audits. > Zero repeat incidents Exxaro’s ofﬁcial language is English. All formal communication takes place in English, while remaining sensitive to local conditions. Fanakalo (the hybrid language traditionally used in South African mines) is not encouraged and no training and development takes We aim to achieve this target through Exxaro also has a policy detailing the stringent application of management protocols, programmes and systems. approach to identifying, preparing for and responding to emergency situations Formal management-worker health and affecting employees and surrounding safety committees are in place at all communities. This spans all known operations, and meet regularly to ensure types of emergency including ﬁre, ﬂood, place in that language. we reach our targets. bomb threats, etc. Emergency situations that have occurred in recent years have Our ultimate target remains zero injuries and, therefore, zero fatalities. To reach this goal, we have an The 2009 strategic review of our safety been well handled, demonstrating the practices highlighted key risks facing our effectiveness of both policy and group, particularly limited hazard training. 78 EXXARO INTEGRATED ANNUAL REPORT 2010 Safety During the reporting period, no ﬁnes or sanctions for non-compliance with safety and health laws and regulations were imposed on any Exxaro operation. 2009 2010-2011 CEO Safety Summit outcomes: Review priorities 1 Set up task teams to address focus 1 Review safety improvement plans areas (SIPs) √ √ 2012-2015 Review priorities 1 Annual CEO safety summit to challenge safety performance 2 Develop safety communication 2 Set up and train peer review teams 2 Annual revision of SIPs strategy 3 Consistent disciplinary code applied 3 Conduct group-wide peer reviews to 3 Periodic peer reviews equally across all levels promote implementation of SIPs 4 Revised HIRA standard to be 4 SIP progress reports every quarter understood and applied by all 5 Revised visible felt leadership 5 CEO safety summits 2010 to discuss standard consistently applied across progress and challenges Exxaro 6 Safety improvement plans as a result 6 Continue benchmarking and of ﬁrst summit sourcing best practices 7 Standardised incident investigation 7 Develop competency on revised process HIRA standard √ √ √ √ 4 Develop competency on revised HIRA standard Flying the safety ﬂag Since May 2010, every Exxaro operation has ﬂown a ‘safe day’ ﬂag for each day without a lost-time injury. These highly visible ﬂagpoles keep safety awareness high and celebrate every day without injury. In this the eight months of campaign, ﬂags were raised on 205 of 245 working days — reﬂecting a safety-day rate of 84% at Exxaro. Safety targets Exxaro has committed R60 million over ﬁve years (2009-2013) to achieve its safety targets: > Zero fatalities — actual for 2010 is two fatalities > 0,21 lost-time injury frequency rate per 200 000 hours for 2010; annual improvement of 30% — actual for 2010 0,25 Highlights > Actual LTIFR of 0,25 is an annual improvement of 24%, below the target > North Block Complex achieved 20 000 fatality-free shifts in November 2010 > Arnot engineers developed a remote of 30% but steady progress > Namakwa Sands wins NOSA Top 100 Mining Companies safety award for device that enables electricians to switch oil circuit breakers from at least 20m away — a safety innovation with third consecutive year, competing group-wide application. against over 120 international companies using the NOSA SHE management system > KZN Sands’ Hillendale shift C and residue dam B teams have maintained their outstanding safety records since 2001 (zero fatalities and zero lost-time injuries) > Namakwa Sands’ smelter reached 1 134 LTI-free days by year end > Namakwa Sands’ separation plants Safety summits In 2009 Exxaro initiated its group-wide CEO Safety Summits under the theme Safety Always, All the Way. These bi- annual summits involve a range of stakeholders to identify key areas that will make a tangible difference to safety performance: consequence management, safety training, culture (the Exxaro safety way of life), mini-HIRA (hazard celebrated one year without a lost-time identiﬁcation and risk assessment) and injury in June 2010 and reached 569 communication. days by year end EXXARO INTEGRATED ANNUAL REPORT 2010 79 SAFETY CONTINUED Safety improvement plans in action Following the 2009 safety summits, Exxaro’s safety programme, Safety Always All The Way, was launched across the group in 2010. Since then, the people of Exxaro have been ﬂying their Safe Day ﬂags high, and monitoring and measuring their progress each step of the way. The people of Exxaro are ﬂying the safety ﬂag high, celebrating every “Safe Day” (LTI-free day) by hoisting safety symbol ﬂags at operations countrywide. 100% 90% 80% 70% 60% 50% h t n o m r e p s y a d e f a s % 25 Safe Days 25 Safe Days 26 Safe Days 26 Safe Days 24 Safe Days 23 Safe Days 26 Safe Days 28 Safe Days 27 Safe Days 23 Safe Days May 2010 June 2010 Jul 2010 Aug 2010 Sept 2010 Oct 2010 Nov 2010 Dec 2010 Jan 2011 Feb 2011 Health and hygiene Occupational health hazards affect a large number of workers globally — the ILO estimates that some 200 000 workers globally lose their lives at work and 68-157 million new cases of occupational diseases occur from various exposures in the workplace. In South Africa, the Department of Mineral Resources reported 177 fatalities but over 10 000 cases of occupational diseases in the mining industry in 2008. In 2009, this proportion had changed to 167 fatalities but over 8 000 cases of occupational diseases. Importantly, deaths due to these diseases will often occur several years after the employee has left the industry. At Exxaro, the trend of more occupational diseases than fatalities each year is similar but not nearly as pronounced: > In 2008, 22 occupational diseases and ﬁve fatalities > In 2009, 26 occupational diseases and four fatalities. Healthy employees are essential for a safe workplace. Because the health effects of workplace hazards on an employee may only manifest years after initial exposure, it is important that every employee is made aware of his/her role in preventing occupational diseases, their impact and the means to mitigate the effects of potential exposure to workplace hazards. Accordingly, Exxaro employees are made aware of hazards in the work environment, and the risk they pose to employee health: > Health risks are identiﬁed; quantiﬁed and monitored through a ventilation and occupational hygiene surveillance programme > Monitor health through the medical surveillance programme, to check that people are in good health > Employees are: — encouraged to be vigilant about conditions that could affect their own safety and health or that of their colleagues — provided with information on the health implications of exposure to the risk — made aware of measures that should be taken for them to maintain their health. > The exposure risk to workplace hazards is managed through a hierarchy of controls by: — eliminating the hazard at source — substituting the equipment that generates the hazard — controlling levels of exposure by either moving employees out of the work area or providing personal protective equipment. Employees are also made aware of the contribution of occupational diseases to the quality of life and loss of potential income and are encouraged to comply with mitigation measures in place in the workplace. Environment Sustainable development issues are central to Exxaro’s business, particularly the use of natural resources like water, air, biodiversity and land. Using these responsibly means: > Ensuring all activities are properly authorised > Using energy and water as efﬁciently as possible > Ensuring activities are conducted responsibly, from the twin perspectives of compliance and natural resource use. 80 EXXARO INTEGRATED ANNUAL REPORT 2010 With the support of government, Chamber subsequently developed and introduced of Mines and Exxaro’s recognised unions, at Arnot uses initial/early examination to this focus on safety is producing tangible combat problems experienced with fall-of- beneﬁts. By year end, ﬁve business units ground incidents and is yielding impressive had worked for 12 months without a lost- results. Since its implementation, Arnot time injury (LTI) and the group LTIFR had has recorded no lost-time injuries from improved by 24% (page 82). falls of ground, while production is up Following on the CEO Safety Summit held in April 2010, the Exxaro safety Safety achievements over 20% post training. improvement plan was rolled out to all business units. This plan focuses on training VFL change champions (change through visible felt leadership), communicating Exxaro’s zero-tolerance safety rules, rolling out the safety training Grootegeluk Inyanda matrix, safety communication guidelines Matla mine 2 and mini hazard identiﬁcation and risk Matla coal operations assessments (HIRA). This programme will continue in 2011, supplemented by the introduction of health, environment and related issues to enhance awareness and participation. Matla mine 3 Tshikondeni Arnot Coal New Clydesdale Matla mine 1 One of the most notable safety Matla central performances of the review period came North Block Complex Fatality-free production shifts 1 000 1 000 1 000 1 000 2 000 2 000 5 000 5 000 8 000 10 000 19 000 Case study — No injuries for 1 000 days at Namakwa Sands In December, Namakwa Sands’ smelter reached a major safety milestone of 1 134 days without a lost-time injury. This is especially signiﬁcant considering a complete furnace reline and two partial relines were under way at the same time. Also under construction were a product storage shed, residue dam and new fume-extraction plant. All these activities involved large numbers of contractors in addition to inherent risks of a smelter the environment (where molten metal is tapped at 1 600°C, carbon monoxide gas is released during the tapping process and large mobile machinery is used in the smelting operation). The smelter’s previous LTI-free record was 486 days, reﬂecting beneﬁts of the current and ongoing focus on safety. Case study — Safety at Namakwa Sands Until recently, the high moisture content of material on the mill stockpile at Namakwa Sands’ west mine presented a serious safety risk in the form of mud rushes. Other potential risks included loss of production and equipment damage. To address this, a project team developed and constructed a new oversize screening system. Screening out oversize material (+30mm) allows this to bypass the run-of- mine stockpile and regular screens, and feed directly into the oversize stockpile. Construction started in January 2010, and the ﬁrst feed went through in July. The regular screens are now more efﬁcient, and Exxaro’s engineers estimate that only 7% of the moisture is now discharged into the mill stockpile versus 15% before. Slurry rushes inside and outside the mill feed tunnel have been eliminated and the mill can now be fed safely and continuously. The project was completed without a single lost-time injury. from Namakwa Sands, which was also ranked ﬁrst in the Top 100 Mining Companies category at the annual National Occupational Safety Association (NOSA) awards. This was the third consecutive win for Namakwa Sands, with its mine and smelter competing against 126 other international mining companies using NOSA SHE management systems. To qualify globally for entry, companies ﬁrst have to win their regional competitions in which they are evaluated on their compliance to recognised SHE management standards, legal compliance and actual performance and experience. This is done during the annual NOSA grading audit conducted at all Exxaro’s Namakwa Sands operations and companies using the same management system. Equally notable, Exxaro’s Arnot was selected as the pilot site for the South African coal sector as part of the mining industry’s occupational safety and health (MOSH) fall-of-ground initiative. The customised training intervention EXXARO INTEGRATED ANNUAL REPORT 2010 81 SAFETY CONTINUED Challenges Although key risks differ by operation, LTIFR Exxaro’s major challenges are vehicle incidents, energy and machinery isolation, and risk awareness and discipline at all levels. Skills shortages exacerbate these challenges and, accordingly, the group concentrates on ensuring sufﬁcient trained people are in place (page 124). Improving safety performance extends to contractors at all Exxaro operations as part of a formal programme: > Contractors are managed as part of Exxaro’s workforce > Adherence to corporate contractor management standards is enforced by each operation’s contractor manager > Monthly inspections ensure compliance > Induction and medical examinations are required by all contractors before starting work > Contractors participate in monthly SHE meetings at operations. Safety statistics Exxaro set a target of zero fatalities, and an LTIFR (per 200 000 hours worked) of 0,21 for 2010. Despite a steady reduction in the LTIFR from 0,52 in 2005, actual d e k r o w s r u o h 0 0 0 0 0 2 0,5 0,4 0,3 0,2 0,1 0 Fatalities 5 4 3 2 1 0 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 performance was 0,25 in 2010. This is a Tshikondeni in March 2010 when he was With all but three operations certiﬁed, the record 24% improvement on the LTIFR of caught between two vehicles in a towing focus now shifts to maintaining and 0,33 in 2009. In risk-speciﬁc terms, the process. In June 2010, an employee was improving these standards. leading cause of injury was lifting and injured in a fall of ground, and passed materials handling. The safety of our away in December 2010. An autopsy Notably, Exxaro Reductants received people remains fundamental to our report from an independent pathologist is integrated ISO and OHSAS accreditation business, and we will not rest until we awaited to determine whether he for environment, risk and quality achieve our safety goals through collective succumbed to injuries as a result of this standards. While ISO 14001 (environment) responsibility, commitment and ongoing accident. These cases were thoroughly and OHSAS 18001 (occupational health focus. investigated, and the lessons learned and safety) are corporate requirements, incorporated into our safety programmes the Reductants team believed it was The fatality frequency rate per million to create an injury-free work environment equally important to be accredited to the manhours worked in 2010 was a commendable 0,04, compared to 0,07 in 2009. Our target remains zero, as no ISO/OHSAS certiﬁcation In 2010, another operation obtained both ISO 9001 (quality) standard. This was a singular achievement, given that plant commissioning occurred in parallel with death is acceptable. Despite excellent international health and safety accreditation processes. safety performances at several mines, we accreditation (OHSAS 18001) and regrettably lost a contractor employee at environmental accreditation (ISO 14001). 82 EXXARO INTEGRATED ANNUAL REPORT 2010 HEALTH AND HYGIENE Keeping our people healthy Occupational health services aim to > Monitoring and evaluation The occupational health hazards to > Consultation, information, instruction which most Exxaro employees are protect and promote workers’ safety, and training health and wellbeing, improve their > Continuous improvement. working conditions and working exposed are noise and dust, and this is reﬂected in the occupational disease proﬁle. Newly diagnosed cases are environment. Business units identify, rank and quantify submitted to the compensation their risks, and then implement authorities for conﬁrmation that they Industry statistics show that programmes to mitigate the impact. are work-related, and serve as an early occupational diseases account for Workplace exposures are linked to indicator of the possible occupational around 50 times more cases than individuals and this forms the basis of the disease burden. Accepted cases are safety-related fatalities. In addition, medical surveillance programme. awarded compensation. occupational diseases are often slow to manifest and long lasting, underscoring the importance of proactive initiatives to keep workforces healthy. In line with our drive to achieve zero harm, our vision for health is to have a work environment that has no adverse health effects on our employees and affected communities. In 2010, we reviewed our health and hygiene strategic framework to improve our proactive management of health. We also updated our reporting framework Health & Hygiene Strategic Framework 5. Consultation, Information, Instruction & Training REVIEW EVIE REEVIEW ting r o p e R hemical he C C R e porting 1. Identiﬁcation & Classiﬁcation of Risks P h y PLAPLAAAN PLAN ANP s i c a l (cid:136)(cid:3) (cid:3)Chemical Burns (cid:136)(cid:3) (cid:3)Vapour Exposed Diseases (cid:136)(cid:3) TB (cid:136)(cid:3) (cid:3)(cid:51)(cid:71)(cid:71)(cid:18)(cid:3)(cid:3)(cid:37)(cid:87)(cid:88)(cid:76)(cid:81)(cid:69)(cid:3) (cid:52)(cid:83)(cid:77)(cid:87)(cid:83)(cid:82)(cid:77)(cid:82)(cid:75) (cid:136)(cid:3) HIV/AIDS (cid:136)(cid:3) Bio-hazards (cid:136)(cid:3) Chronic Diseases (cid:136)(cid:3) TB (cid:136)(cid:3) (cid:3)Other Communicable Diseases R e p o r t i n g 2. Assessment Assess Su & Surveillance to help us track the implementation of 4. Monitoring & Evaluation our strategy. The diagram shows the stressors to which our employees are exposed and the health conditions that may arise. Managing these issues spans: > Identifying and classifying risks > Assessment and surveillance > Prevention and control of risks R e p o rting (cid:136)(cid:3) NIHL (cid:136)(cid:3) Lung Diseases (cid:136)(cid:3) Thermal Stress (cid:136)(cid:3) Fatigue (cid:136)(cid:3) Radiation Biological 3. Prevention and/or Control of Risks DO R e p orting (cid:55)(cid:88)(cid:86)(cid:73)(cid:87)(cid:87)(cid:83)(cid:86)(cid:87) (cid:39)(cid:83)(cid:82)(cid:72)(cid:77)(cid:88)(cid:77)(cid:83)(cid:82)(cid:87) EXXARO INTEGRATED ANNUAL REPORT 2010 83 HEALTH AND HYGIENE CONTINUED 2009 1 Status report on noise and 2010-2011 1 Review priorities Status Strategy revised 2012-2015 1 Review priorities dust-control programmes 2 50% VCT 2 Track cases with >5% loss Implemented 2 No cases >10% NIHL of hearing (shift from baseline) 3 A total of 200 peer 3 Reduce percentage of In progress 3 >80% VCT; educators trained employees exposed to OEL dust and fumes >70% retention on treatment programme 4 Implement TB standard at 4 70% VCT and 50% 38% retention on treatment 4 >85% TB cases complete three business units retention on treatment programme treatment programme 5 TB treatment provided at 2011 audit to assess 5 Reduce new HIV infections 50% of business units implementation by 5% 6 Occupational risk and Under development 6 Reduce indirect costs due exposure proﬁling standard 7 Baseline study of indirect In progress costs of HIV/Aids 8 Awareness campaign on In progress noise, dust and thermal stress at all business units to HIV/Aids by 5% from baseline Health and hygiene targets statistics team include: > Reduce NIHL (noise-induced > Reached our target of a 70% testing > Training occupational hygienists on the > Developed standard for reporting and management. Projects undertaken by this hearing loss) to less than 10% loss rate for HIV. use of the hearing protection device tool developed by MOSH (page 86) to 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 programme. Highlights > Interdisciplinary approach to health management implemented > Pilot site Matla reduced dust levels by 40% in a MOSH project that will be rolled out to other sites and by other companies in the mining industry (page 86) > Introduced early reporting of noise- induced hearing loss to proactively identify and minimise noise exposure to employees and enable Exxaro to track the effectiveness of its control programmes > Revised corporate standard for medical surveillance Acknowledging that collaboration across assist in selecting appropriate devices departments is essential for health for various employee categories and hygiene initiatives to succeed, > Refresher training on reading X-rays during the year Exxaro formalised its to identify early markers of lung interdisciplinary approach to health diseases management in a forum represented by > Developing procurement guidelines for technology, information management, selecting equipment based on noise human resources and supply chain levels. Medical aid Production changes Employment beneﬁts Candidates/recruits HHHHuman Humann rerereeesosososososooururururururu cecececececessssss resources New positions Absenteeism HHHealth and eae ltth annnnndddddd hyhyhyhyyygigigigigigigieneneneneneneneeeeee hygiene Transfers Sick notes Wellness Contractors Contractors PPE Equipment Chemicals New area MiMine Mine plplplplllanananananananninininininingngngngngng plppp anningggg PPPrPrPrPrPrPrPrPPrPPrrococococococococococcocococurururururururururururururururu ememememememememememememememememeeneneneneneneneneneneneeneeentttttttttttt PProcuremennt New processes PPrPrPrPrPrPrPrPrPPrPPrrojojojojojojojojojojojojojojojjjececececececececeeceeceeececttttstststsstststststs Projects Collaboration across departments essential for health and hygiene to be a success 84 EXXARO INTEGRATED ANNUAL REPORT 2010 Reporting standards Exxaro has ﬁnalised a new management standard on health and hygiene reporting criteria across the group. In terms of this > Assessing the health status of employees by regularly collecting relevant health information to detect adverse health effects at the earliest 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 standard, business units will report to the opportunity and ensure continued depends on: executive committee monthly, quarterly ﬁtness to work > Minimising noise and dust exposure to and annually on key health and hygiene > Enabling management to take below occupational exposure levels issues including noise, airborne pollutants, appropriate and timely corrective action (OEL) hazardous chemicals, thermal stress, to safeguard the health and wellbeing > Reducing the time spent by employees fatigue, biological hazards and radiation. of employees in noisy and dusty areas Detailed monthly reports will provide a > Improving risk management by > Proper use of personal protective holistic view of health and hygiene identifying adverse health effects equipment. standards and trends across the group. among employee groups exposed to similar occupational hazards Initiatives to reduce noise include: This will enable management to more (homogeneous exposure groups) > Enclosing machines with open cabins effectively monitor the risk identiﬁcation > Enabling employees to be fully informed > Boxing work benches and assessment process, comply with of the risks associated with their work > Installing silencers on auxiliary fans legislation and reporting requirements for and procedures to minimise those risks > Training. listed companies, and track the implementation of programmes against set targets. and prevent occupational diseases > Identifying occupational disease from previous and current occupational Initiatives to reduce dust include: > Removal of coal crusher at one of our exposure, and referring affected sites Medical surveillance A new standard was developed in 2010 covering medical surveillance of employees and contractors in terms of the employees for conﬁrmation of diagnosis, > Extraction fans at primary and treatment where appropriate, secondary crushers rehabilitation and proper placement > Use of water in stockpile areas > Submitting claims for compensation > Dust suppression on opencast surface Mine Health and Safety Act (29 of 1996), where necessary. roads Occupational Diseases in Mines and Works Act (78 of 1993 as amended), Occupational Health and Safety Act (85 of 1993), National Nuclear Regulator Act (47 of 1999) and Compensation for Injuries and Diseases Act (130 of 1993). > Increased ventilation in underground As per legislative requirements, all employees and contractors are required to undergo medical surveillance in terms sections > Wet plants > Training. of the risk assessment. This spans: > Pre-employment/pre-placement medical examination The objectives of Exxaro’s new risk-based > Periodic medical examination medical surveillance standard include: > Early detection of adverse health effects > Transfer medical examination > Out-of-cycle medical examination and occupational diseases from > Exit medical examination. workplace exposure EXXARO INTEGRATED ANNUAL REPORT 2010 85 HEALTH AND HYGIENE CONTINUED Case study — Reducing dust at Matla Exxaro’s Matla coal mine was selected as a pilot site for the mines occupational safety and health initiative, known as MOSH. Given that the impact of dust is a key issue in preventing silicosis in the industry, the ﬁrst project at Matla focused on reducing dust both on surface and underground. In tandem with assessing available dust-suppression systems, Matla initiated a broad and consultative communication process with employees, facilitated by union representatives. For the surface installation, the project addressed the high dust load at the plant secondary crushers. Automatically activated, a micro dust-suppression system produces atomised mist that has reduced respirable and total dust levels by more than 90%. Underground, previous measurements had indicated high dust levels in intake airways. Using a fogger dust-suppression system at major points and air-scrubbing technology for airways, bunkers and silos, respirable dust levels dropped over 40% while total dust was reduced by more than 30%. Key lessons learned from the pilot site have industry-wide application. These range from the importance of risk assessment to facilitating communication by involving unions and related associations. Case studies Reducing tuberculosis cases at Matla In 2009, 12 accepted cases of pulmonary TB were from Matla. A three-year analysis of data on results of personal coal-dust levels, number of TB cases (reported and accepted for compensation) and affected occupations showed a correlation between increased dust exposure levels and the number of TB cases. The analysis also identiﬁed speciﬁc problematic work areas and work areas where personal dust levels were decreasing. Actions implemented to control or reduce dust levels included: > Suppression to reduce respirable dust levels > Investigating new technology for respirators. In 2010, Matla also had 12 accepted cases of occupational TB. However, two of these were ﬁrst reported in 2005, which means a 20% decrease in accepted TB cases for the review period. Reducing cases of noise-induced hearing loss (NIHL) at Matla Given that around two-thirds of NIHL cases accepted for compensation by Exxaro in 2009 were from Matla, an investigation was conducted to: > Determine the proportion of personal noise samples exceeding 85dB(A) over an eight-hour shift > Identify the number of noise sources and their sound levels > Identify the number of people exposed to these noise levels and affected occupations. Corrective action included: > Identifying priority equipment for replacement > Supplying customised hearing protection devices to employees exposed to noise levels >90dB(A) > Conducting hearing conservation awareness campaign. In 2010 improvement was evident: Matla reported no new cases of NIHL; and had two cases accepted for compensation as opposed to 11 cases in 2009. 86 EXXARO INTEGRATED ANNUAL REPORT 2010 Occupational diseases Two pieces of legislation of Mines, unions and Department of an early indicator of the possible govern Health respectively) for former occupational disease burden. These compensation: Compensation for Occupational Injuries and Diseases Act (COIDA) and the Occupational Diseases in Mines and Works Act which provides for medical beneﬁts for former employees. Therefore, Exxaro educates employees on beneﬁts they can access in their own health management but, more importantly, focuses on improving their health to avoid unnecessary or premature loss of life. Exxaro is also participating in a tri- partite initiative (employers-employees- government represented by the Chamber Cumulative occupational diseases mineworkers to improve access to medical were occupational TB (52); NIHL (12); beneﬁts as envisaged by the act. Internally pneumoconiosis (23); dermatitis (1) and we will also focus on education and work-related upper-limb disease (WRULD) awareness of the beneﬁts of preventive (1). Tracking this data indicates potential measures in the workplace for employee cases that could be compensated and health and wellbeing, as well as employees provides an opportunity to reinforce beneﬁts provided for by legislation. preventive programmes. Reported cases are those newly diagnosed In 2010, Exxaro had 35 occupational and submitted to the compensation disease cases accepted for compensation: authorities to conﬁrm they are work nine of NIHL, two of pneumoconiosis, 21 of related and eligible for compensation. In occupational TB, two of dermatitis, and 2010 Exxaro reported 89 occupational one WRULD. The ﬁve-year trend is shown diseases (compared to 85 in 2009): this is below. s e s a c d e t p e c c A 25 20 15 10 5 0 NHL Pneumoniocosis Silicosis Occupational TB Lung disease Dermatitis WRULD 2006 2007 2008 2009 2010 EXXARO INTEGRATED ANNUAL REPORT 2010 87 the TB in South Africa South Africa has largest tuberculosis (TB) burden in the world with 900-1 000 new cases per 100 000 people each year. In this country, the high rate of HIV prevalence (70%) among TB patients contributes to the death rate of people with HIV/Aids. The coal-mining industry’s focus on TB in recent years is reﬂected in statistics well below the industry level. Of almost 4 500 cases of occupational TB reported in 2009 by the mining industry, only 207 were from collieries. This translates to a rate of 345/100 000 compared to 900/100 000 in the broader mining industry. Some 10 000 new cases of multidrug- resistant TB occur each year in South Africa — indicating failure in the control of TB. Although treatment is available at primary healthcare facilities, resource constraints and other social issues make treatment supervision and follow-up difﬁcult. The Chamber of Mines has initiated a review of TB programmes in the industry and Exxaro will mining review its own programme in 2011 to assess the implementation of its own TB management standard. HEALTH AND HYGIENE CONTINUED In 2010, there was a decrease in NIHL, but TB and HIV holistically through better no decrease in pneumoconiosis and surveillance, diagnosis, treatment and occupational TB. Efforts to reduce monitoring. At each business unit, TB employees’ high noise exposure continue. education initiatives reach employees at There is also increased susceptibility to least once a year. These include TB, possibly fuelled by the increase in the information on symptoms and the number of individuals with compromised importance of early diagnosis for effective immune systems. There have been no treatment. Adhering to this new standard cases of silicosis. is expected to reduce the risk of developing, contracting and spreading In 2011, Exxaro will concentrate on a multiple- and extensively drug-resistant hearing conservation programme, TB in Exxaro. This programme will be ensuring each business unit has a reviewed in 2011. dedicated and functioning committee to report and investigate incidents of hearing loss above 5% and to review that unit’s noise-related procurement policy and criteria. This will be supplemented by awareness campaigns across the group and system accurate reporting. improvements for more Tuberculosis New cases of non-occupational TB increased from 2008 (63) to 2009 (83 out of 11 180 employees). In 2010, there were 30 new cases. The new TB standard issued for the group in 2009 to ensure uniform and comprehensive management of employees with TB has been implemented. This disease remains a focus for Exxaro’s health and hygiene team, given the scope Number of TB cases 100 80 60 40 20 0 2008 2009 2010 of related risks, including: > Spread of TB in the communities where Areas for improvement that will inﬂuence the number of TB cases will be identiﬁed employees and contractors live from the TB programme audit conducted > Signiﬁcant risk of co-worker infection in 2011. Ensuring early enrolment of HIV- (10 to 18 people are infected by one positive employees onto the HIV active TB patient) management programme will also ensure > The high prevalence rate of HIV (which early identiﬁcation and treatment of compromises individual immune patients co-infected with HIV and TB. systems) is a known risk factor for developing TB, therefore TB and HIV/ Aids programmes need to be reinforced H1N1 (swine ﬂu) There was one recorded case of H1N1 in > Workplace exposure to mining dust is a Exxaro in 2010 compared to three cases contributing factor to TB. reported across the group in 2009. The individual was treated and recovered fully. Given the dramatic increase in TB rates in Exxaro will continue to monitor and South Africa and in the mining industry in manage potential risks as the ﬂu season recent years, it is important to manage approaches. 88 EXXARO INTEGRATED ANNUAL REPORT 2010 HIV/Aids Material issue — healthy people While there is effective treatment for people infected with HIV, the disease is running rampant globally, with two-thirds of the HIV burden being in sub-Saharan Africa. More than 33 million people are estimated to be living with HIV (including 2 million children) — 5,7 million of these are in South Africa, the highest prevalence in the world. Mining is one of the industries bearing the brunt of Aids-related deaths (along with transport, heavy construction, agriculture and ﬁshing). A recent report from the Actuarial Society of South Africa estimates the mining industry’s Aids-related death costs at 3,4% of total salary cost. The society believes that without the rollout of anti-retroviral programmes and other initiatives, associated insurance claims could have reached R3 billion in 2010 instead of the R2,4 billion paid out. At Exxaro, we have devoted considerable time and cost to educating our people about this pandemic and the latest results are indeed encouraging. With appropriate counselling and support, 70% of our workforce has now been voluntarily tested and the numbers enrolling on treatment programmes are rising steadily. The prevalence of HIV/Aids across Exxaro is currently estimated at 13%, compared to 25% across the industry. At the end of 2010, we had reached our target of a 70% testing rate for HIV, reﬂecting the impact of extensive campaigns to inform and counsel employees ahead of testing. Our target for 2011 is to have 75% of our employees participate voluntary counselling and testing. in Other initiatives include: > Peer educators are supported each month in sessions for debrieﬁng and training > Exxaro has started a programme to destigmatise HIV/Aids in the group and encourage employees to enrol on the HIV management programme and access treatment timeously > The projected number of HIV-infected people not enrolled on the treatment programme is tracked monthly to encourage 13% of Exxaro employees (projected to be HIV positive) to enrol on the HIV management programme. > Ongoing awareness campaigns help the group employees understand importance of their HIV status and information for appropriate provide lifestyle choices such as joining a treatment programme or keeping their status negative. has initiated Community HIV programme Exxaro community programmes at Arnot, Leeuwpan and North Block Complex, which will be rolled out to three other sites (Inyanda, Matla and New Clydesdale) in 2011. situational analysis Following a in communities around each of the business units, groups were identiﬁed for HIV/Aids training. The aim is to provide HIV education and encourage related testing in communities around our business units to foster: > Lower-risk lifestyles > Increased access to available ARV treatment programmes > An overall reduction in HIV/Aids-related stigma that makes it easy for our employees to openly discuss their status both within the company and outside, and support existing initiatives. Arnot has completed training the ﬁrst group of 35 community peer educators from the Mafube, Beestepan, Mooifontein and Rietkuil communities. Community learners were enthusiastic and talked openly about many of the problems facing the community, including the difﬁculty in talking to their children about HIV/Aids issues. For an HIV/Aids programme to from all it needs support succeed, The statistics show Exxaro is making headway in its ﬁght against the spread of HIV/Aids. Since December 2008: > 10 376 people have attended HIV training > 9 319 (90%) were counselled > 8 696 (84%) were tested and 8 343 (80%) know their status > 3 933 had never tested before (or not in the prior two years) > 1 163 tested HIV positive; and 583 (50%) were testing for the ﬁrst time > 7 483 tested HIV negative; and 3 317 (40%) had never tested before > 115 more people enrolled onto the HIV management programme in 2010, bringing the total to 448 > 323 are on anti-retroviral treatment stakeholders in the community who represent religious, cultural and moral values: > Community members highlighted the link between HIV and poverty, alcohol lack of abuse, migrant education labour and > One learner said “There is a need for a coordinated and robust programme that delivers life skills programmes. Our culture might have made us who we are, but who we become is up to us” > Many learners recognised they needed to become HIV ambassadors in their their own community and within families. One learner stated “This course is going to build a strong relationship between me and my family because we will understand the danger of HIV”. three traditional At Leeuwpan, HIV/Aids training will be provided to three groups: 35 community members, health practitioners and 40 caregivers from the Ekhukhanyeni Drop-in Centre near Leeuwpan. The centre provides cooked meals for orphans and vulnerable children, home visits and referrals for chronically ill conduct patients. caregivers The EXXARO INTEGRATED ANNUAL REPORT 2010 89 HEALTH AND HYGIENE CONTINUED awareness campaigns and training on various wellness topics. They are monitored by a supervisor who conducts audits. Caregivers have no formal HIV/ Aids training and little training in ﬁrst aid. They have 379 patients on their database and about 70 orphans. > Management consultations > Personal emotional: In 2010 depression has been a particular challenge for employees across Exxaro’s operations — we believe this is a stark reﬂection of the impact of two years of economic turmoil and tests units business Wellness Most arranged in 2010. Service wellness days providers conduct different health- screening advise participants on lifestyle issues. These days are open to employees, family members broader community. Although participation is voluntary, attendance is very good and contributes to the effectiveness of our wellness programme. and the safety, production requirements and the company’s values. We recognise that employees and their families face a range of chronic and life-threatening diseases with social and ﬁnancial implications. We strive to minimise these implications through our comprehensive and proactive employee wellness programmes. > Work-related reasons > Financial: Again reﬂecting the economic climate, some 1 900 of our people have garnishee and maintenance orders deducted from their monthly pay. On average, affected employees are each paying R470 monthly against these orders. Every effort is being made to help their obligations and regain their ﬁnancial footing. these employees fulﬁl Exxaro is aware of social, psychological and mental health challenges and has programmes in place at all business units to manage these challenges both reactively and proactively. Exxaro also has a programme focusing on executive wellness. This consists of a holistic assessment as well as general support to the executive team. The importance of employee wellness is recognised in terms of ethical, legislative, empower programmes Wellness employees to manage their own wellbeing by raising awareness and disseminating information through work-site posters, booklets, an annual wellness calendar, and wellness days at business units that include health screenings. Exxaro’s HIV/Aids service Exxaro’s HIV/Aids service offers employees support focused on four key areas: Prevention: > Employees are trained and offered the opportunity to test for HIV > Peer educators are trained and supervised in conducting prevention programmes and providing information to colleagues > Condom distribution. Detection: > Voluntary HIV testing. Treatment: > Employees who test positive for HIV can enrol on a treatment programme through their own medical aid, or through Exxaro’s outsourced service provider. 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. At North Block Complex, HIV/Aids training and support will be provided to two existing projects in the Siyathuthuka community just outside Belfast: > The Impilo Ende coal yard — provide HIV/ Aids training to members of an existing project sponsored by North Block Complex > Sizimisele Home-based Care which has been operating since 2006. A team of 12 caregivers provides Siyathuthuka community with home-based care services and HIV/Aids awareness. They assist around 90 patients with chronic diseases and also provide services for orphaned and vulnerable children, TB patients are schoolchildren and old people who cannot take care of themselves). of whom (some Employee wellness To ensure support for any of our people experiencing difﬁculties, an employee assistance programme provides access to an external counselling service. The is a preventive measure programme that helps employees take the necessary steps to manage personal concerns, and assists management in minimising productivity issues. The overall objective is early identiﬁcation, referral and resolution of personal and work-related problems before they affect job performance and productivity. To achieve this, various role players are trained to recognise and deal with personal issues that may be affecting a staff member’s work performance and provide guidance on how to use the employee assistance programme as a management tool. the employee During the review period, our people accessed assistance programme service for the following reasons in order of priority: > Couple and family issues > Dependency 90 EXXARO INTEGRATED ANNUAL REPORT 2010 ENVIRONMENT Disclosure on management approach Exxaro’s core focus is on conserving natural resources and reducing the burden of pollutants on the environment by: > Minimising the use of natural resources > Complying with all statutory environmental requirements as a minimum and actively participating in all non-statutory environmental compliance requirements such as the Carbon Disclosure Project and its new water disclosure initiative, among others. Our aim is to exceed statutory compliance > Developing innovative policies and programmes for addressing environmental impacts and use of natural resources. All Exxaro’s South African operations have environmental management programmes (EMPs) as required under the Mineral and Petroleum Resources Development Act (MPRDA) and the National Environmental Management Act (NEMA). While a record number of integrated water use licences were approved in the review period, the Department of Water Affairs directed the Arnot Mooifontein open-cast operation to cease using a haul road constructed over a water course. The Department of Mineral Resources directed North Block Complex’s Glisa operation to update and submit its EMPR. Both directives have been fully complied with. North Block Complex’s EMP is being updated to align all activities with environmental management plan reporting requirements, while the EMP amendment to Arnot’s Mooifontein operation is being considered by the authorities. All EMPs are key indicators in ensuring that Exxaro remains a sustainable business. Exxaro also adopts the precautionary principle entrenched in NEMA in evaluating all the environmental impacts of business opportunities. To enhance implementation of these legal requirements and the sustainable use of natural resources, group standards for air quality management, water management, biodiversity management, rehabilitation and mine closure management, and incident management were implemented in 2010. A strategic review of key environmental risks from Exxaro’s mining activities in 2009 highlighted: > Air quality management, water quality management, water security and surface disturbance > Cost of, and provision for, environmental liabilities > Lead time for securing environmental authorisations > Increasing statutory and non-statutory environmental requirements. Exxaro believes conservation is becoming increasingly important, given the enormous value of biodiversity and tourism to the South African economy. Accordingly, Exxaro intends to be a mining company that leads by example in protecting, enhancing and conserving the country’s biodiversity and demonstrating that mining activities can co-exist with world-class biodiversity conservation initiatives. That way, we ensure the right of future generations to a healthy, complete and rich environment. Under this policy, various conservation measures are being implemented that underscore Exxaro’s commitment to entrench duty- of-care principles. EXXARO INTEGRATED ANNUAL REPORT 2010 91 ENVIRONMENT CONTINUED Exxaro’s green timeline 2011 > Continue to develop cleaner energy initiatives encompassing a combination of co-generation, carbon credit trading, renewable energy, coal-bed methane development and coal base load projects. 2010 > Exxaro participated in the inaugural CDP water project > Record number of integrated water use licences approved > Major water management programme introduced > Sophisticated fume-extraction system installed at Namakwa Sands, with noticeable reduction of visible fumes > Final feasibility study under way on using furnace offgas to co-generate electricity > Developing renewable energy projects > Exxaro pays R912 million for electricity > Group budget for energy and carbon management programme is R9 million — programme broadened to focus on climate change and associated risks > Exxaro involved in industry engagement on future policies. 2009 > Exxaro pays over R600 million for electricity > Energy and carbon strategy framework approved > Exxaro participates in SA Research Centre for Carbon Capture and Storage with local and international partners > Exxaro score in CDP leadership index improves 9 percentage points > Comprehensive response developed to energy, carbon and climate change management to enable and achieve the group’s vision. 2008 > South Africa realises the extent of its energy crisis > Energy efﬁciency forum established, champions at each business unit > Exxaro places ﬁfth 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. 2007 > Carbon emissions reported for the ﬁrst time (1,9 million tonnes of CO2e) > Exxaro spends R358 million on electricity. 2006 > Electricity highlighted as a major cost to the group > Exxaro adopts Energy Efﬁciency Accord. 92 EXXARO INTEGRATED ANNUAL REPORT 2010 Feature case study — Grootegeluk expansion illustrates Exxaro’s approach to environmental impact The energy-efﬁciency goals set by the Department of Mineral Resources were analysed and incorporated into the housing plans. One of the key points to consider was that, wherever possible, the efﬁcient use of renewable energy (such as solar water heating, solar architecture, and energy-efﬁcient appliances) had to be used. The houses were carefully planned with the following features: > Units face north-east, between trees for better temperature regulation and efﬁcient lighting > Houses have insulation for better temperature regulation to save on energy costs > Grey-water recycling — recycled water used for toilets, gardens and washing cars, etc > House built with overhanging roofs to capture rainwater that can be used for cooking, washing and gardening > Solar systems to heat water, save electricity and reduce greenhouse emissions. EEEEEEEEEEEEEEEEEEEEEEEEXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXAAAAAAAAAAAAAAAAAAAAAAAAAAARRRRRRRRRRRRRRRRRRRRRRRRRRRRROOOOOOOOOOOOOOOOOOOOOOO LLLLLLLLLLLLLLLLLLLEEEEEEEEEEEEEEEEEEEEEEEEEEPPPPPPPPPPPPPPPPPPPPPPPPPPPPPHHHHHHHHHHHHHHHHHHHHHAAAAAAAAAAAAAAAAAAAAAAAAALLLLLLLLLLLLLLLLLLLLAAAAAAAAAAAAAAAAAAAAAAAAAAALLLLLLLLLLLLLLLLLLLEEEEEEEEEEEEEEEEEEEEEEEEEE GGGGGGGGGGGGGGGGGGGGGGGGGOOOOOOOOOOOOOOOOOOOOOEEEEEEEEEEEEEEEEEEEEEEEEESSSSSSSSSSSSSSSSSSSSSSSSS GGGGGGGGGGGGGGGGGGGGGGGRRRRRRRRRRRRRRRRRRRRRRRRRRRRREEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEENNNNNNNNNNNNNNNNNNNNNNNN EXXARO LEPHALALE GOES GREEN EXXARO LEPHALALE GOES GREEN EEEEEEEXXXXXXXXXXXAAAAAARRRRROOOO LLLLLLEEEEEEEPPPPHHHHAAAALLLLLLAAAAAAALLLLLEEEEEEE GGGGGGOOOOEEEEEESSSSSSS GGGGGGRRRREEEEEEEEEEEEENNNNNN Houses positioned between trees for shade Evaporative cooling system Solar panels heating up water Hot air escaping through louvres in roof Reuse rainwater captured in watertank Shade provided on walls with big roof overhang Green housing The purpose of the project was to build eco-friendly houses that did not rely on electricity supplies as their main sources of energy, guided by the following objectives: > Construct 797 housing/ﬂat units of mixed architectural design, combining eco-friendly, renewable energy and ordinary building techniques to satisfy Exxaro’s housing needs. > Create a speciﬁc mix of housing types and location to ensure affordability across the range of income groups in the group. > Complete the project within the time, cost and quality constraints determined by Exxaro. > Ensure housing units meet the energy-efﬁciency goals set by the Department of Mineral Resources. These goals include energy savings for buildings. > Housing units should comply to all relevant legislation. > Endeavour to use local resources to promote economic growth and skills development: 50-70% local labour to be trained in key construction skills by the end of the project. > The project was governed by Exxaro’s BEE policies: contract awards had to comply with strict broad-based black economic empowerment codes. Prior to embarking on the Lephalale housing project, Exxaro piloted ﬁve eco-friendly houses in nearby Marapong. Sustainability aspects addressed included piloting environmentally friendly building materials and appliances, such as eco-friendly bricks, zinc- fuel battery systems to power lights and small electrical appliances, to prove their cost-effectiveness for future Exxaro housing projects and the provincial housing department. In addition, to meet housing demand in the area, Exxaro initiated the Lephalale Development Forum in conjunction with Eskom, Sasol, all levels of government and local stakeholders. The forum concentrates on infrastructure, housing, education, health and welfare services, sport and recreation facilities. EXXARO INTEGRATED ANNUAL REPORT 2010 93 ENVIRONMENT CONTINUED Feature case study — Grootegeluk expansion illustrates Exxaro’s approach to environmental impact continued A compliance certiﬁcate was submitted with building plans for approval from the Lephalale Municipality. This project cuts across all sustainable development areas. In the social arena, it offers mixed and affordable housing types; environmentally there is reduced requirement for energy and water; while economically it has provided skills training and small enterprise development. In maximising the impact of a R590 million budget, the project also provided a number of beneﬁts to the community and Exxaro employees: > In Marapong, 24 direct jobs were created in constructing the eco-friendly houses and there were 101 indirect beneﬁciaries > In Lephalale, 1 124 employees were housed in mixed-use houses and ﬂats > Green alternatives were incorporated in building these houses and ﬂats. Energy savings are estimated at 2 334MWh per annum, at 2 400 tonnes CO2e > Of 1 023 contractors, 50% were from the local community (many of whom ﬁrst had to complete artisan training offered by Exxaro and the European Union to build the required base of skills) > The project has constructed infrastructure for Lephalale Municipality to support the housing units — including roads, water recycling systems > In Grootegeluk, 41 people were trained and mentored in-house on road construction and brick-making > Entrepreneurial training has been offered by Exxaro to those showing interest > Exxaro has funded an upgrade of the water reticulation and sewerage system in Grootegeluk > There has been a signiﬁcant improvement in infrastructure at Lephalale which will contribute to its maintenance and growth > The community is more environmentally responsible. 2011 2012 2012 — 2015 1 Develop and implement air quality Review priorities 1 Review performance on air-quality Review priorities 1 Exxaro-wide strategic environmental management plans — Inyanda, KZN management plans for Grootegeluk, risk assessment Sands and Zincor 2 EIA-EMP amendments (14) 3 Eight site-closure reviews New Clydesdale, Matla 2 Water business case implementation 2 Review performance on integrated 3 Review implementation of closure water-use licence for Namakwa Sands, activities at mines in closure 4 Ferroland divestment (Gravelotte and Arnot, North Block Complex, Glisa, 4 Environmental liability management Hlobane) Grootegeluk and selected projects process (EERF, Arnot-Matla) 5 Approval of closure EMPR for Hlobane 3 EIA-EMP amendments 6 Develop and implement integrated 4 Ferroland divestment from Hlobane water-use licence (Glen Douglas, and Gravelotte Tshikondeni opencast and Eerstelingsfontein project) 5 Biodiversity action plans — Arnot- Matla, North Block Complex, 7 Assurance preparedness — all ﬁndings Grootegeluk, KZN Sands, Namakwa 8 Biodiversity action plans Sands, Rosh Pinah 6 Roll out of recommendations from the water business study 7 Implementation of closure activities at Northﬁelds and KZN Sands according to plan 8 Transfer of Glen Douglas environmental provisions to new owners Afrimat 9 Approval of closure EMPRs for Durnacol and Hlobane 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 94 EXXARO INTEGRATED ANNUAL REPORT 2010 Highlights > Water management management programme was ﬁnalised, > Waste management (domestic waste programme drawing on internal and external expertise, and industrial residues) introduced, supported by revised policy and funds approved for implementation. > Water and salt balances and management standard The programme is based on a wide- > Monitoring and auditing systems. > Group standards implemented for air ranging group water management policy quality management, biodiversity management, rehabilitation and mine closure management, and incident management and standard, and includes Exxaro’s waste The aim of this comprehensive programme management activities through integrated is to achieve responsible and sustainable water and waste management plans being water management use across Exxaro. developed for each business unit that The programme will concentrate on > Exxaro in top three mining companies encompass: relevant water-risk issues — from security on carbon disclosure standards in South Africa and participated in the ﬁrst water-disclosure initiative issued by > Quantitative impact assessment and of supply and water efﬁciency to water- prediction of future impacts (pollution cost management — and manage these to sources and receiving environment) ensure current and future anticipated global body, Carbon Disclosure Project > Water supply regulatory compliance. Exxaro also plans (CDP). > Water resource conservation and/or to create awareness of water issues > Record integrated water use licences reuse and reclamation through communication and training, and approved > Storm water management wider competency in water-management > Process water management issues through research and skills New water management programme Water management is a material issue for Exxaro. During the year a water > Water treatment > Pollution control dams > Groundwater management development. Initial areas of focus include reporting and assurance, measurements technology solutions and and data, management principles. tttttttttoooooooooorrrrrrrrryyyyyyyy aaaaaaaaaaannnnnnnnnnnddddddddddd SSSSSSSSSStttttttttaaaaaaaaaaakkkkkkkkkkkeeeeeeeeeeehhhhhhhhhhooooooooooolllllllllldddddddddddeeeeeeeeeerrrrrrr RRRRRRRRRRReeeeeeeeeeeqqqqqqqqqqquuuuuuuuuu Regulatory and Stakeholder Requirements tory and Stakeholder Requ RRRRRRRRRRReeeeeeeeeeeggggggggggguuuuuuuuuullllllllllaaaaaaaaaaatttooorrrryyy annndddddd SSSStttaakkkeeehhhhoollddeeeerrrrrrr RRRRReeeequuuuuuuuuuiiiiiiiiiirrrrrrrrreeeeeeeeeemmmmmmmmmmmeeeeeeeeeeennnnnnnnnnnttttttttttssssssssss Exxaro Strategy Vision, mission and values S & SD Strategy Water Strategy, Policy, and Standards d e n c Reportin g a Assura n Risk R e s p o n s e Water and Cost Management Supply, Efﬁ ciency, Waste, R e h a b Measurements and Data Compliance House in order, Main t a i n Technical Guidelines Operational and Pro j e c t s Technology Solutions Business Opportunities Water as commod i t y Knowledge, Skills, Competence and Researc h Coommmmmmununnicici atatttioioionsnsns PPPProrrr grgrramamammememeeee CoCoCoCoCoCoCommmmmmmmmmmmunununununununicicicicicicicatatatatatatatioioioioioioionsnsnsnsnsnsns PPPPP Prororororororogrgrgrgrgrgrgrgggg amamamamamamammememememememe CoCoCoCoCommmmmmmmmmunununununicicicicicatatatatatioioioioionsnsnsnsns PPPPPrororororogrgrgrgrgramamamamammememememe CoCoCoCoCoCoommmmmmmmmmmmmmmmununununununununiciccicicicici aatatatatatatattiooioioioioioionnsnsnsnsnsns PPPPPProrooororor grgrgrgrgrgrgrgrg amamamamamamamammmememememememe EXXARO INTEGRATED ANNUAL REPORT 2010 95 ENVIRONMENT CONTINUED Material issue — Water use For any company to truly understand its water use, and the impact of its activities on water, measurements and data on quality, quantity and cost are essential. Exxaro’s data on the ﬁrst two factors is relatively well established, and processes are being strengthened to ensure that cost is a standardised reporting indicator across our business units. Exxaro is investing in systems to more accurately measure water withdrawal by source at each operation. This will in turn provide a better understanding of our broader impact (water withdrawal, reduced access to water, loss of natural water resources, reduced agricultural activity) and our speciﬁc environmental impact (withdrawal impact on source, potential lowering of water table, reduced ﬂow, draining of wetlands, downstream activities). The group is also enhancing systems to measure total water discharge by quality and destination. This will enable us to address speciﬁc impacts of water discharge on the receiving environment, as well as other environmental issues around quality and quantity (including total dehydration of source, loss of wetlands and associated fauna and ﬂora, degradation of the quality of the resource due to pollution). To determine the level of reporting maturity on these factors across our operations, site visits began with Grootegeluk, Exxaro’s largest operation. Reportable data types DDaDaDaDaDaDaDaDaDaDaaDaDaaDaatttatatatatatatatatatatattatat ccccccccccccatatatatatatatatatatatatatattatateggegegegegegegegegegegeeggeggorororororororororororororororo iieieieieieieieieieieieieieieieesssssssssss Data categories Data categories DDDDDaaatatat ccaaatattegegegggororieieieesss gggggg ggg Quality Raw data Primary data Volume Source Estimations Secondary data • Evaporation • Seepage • Production • Losses • Recharge • Dust suppression • Chemistry • Biodiversity Two quality aspects, 1) Chemical composition, and 2) Impact on environment. • Processed • Potable • Seepage • Rainfall • Dams • Rivers • Boreholes Has characteristics associated with each source type. Some water data is acquired using estimations, since direct measurement is not possible or practical. Derived Tertiary data Water used Total water used is derived from a combination of the primary and secondary data categories. • Ground water Water volumes can be broadly grouped into ground and surface. Both are required to calculate the total water salt balance. Volumes • Surface water Quality Costs • Total water salt balance The data required for water management reporting was discussed. It can be categorised into three areas. Some sub-categories can represent both water inﬂows and water outﬂows, for example ‘seepages’. 96 EXXARO INTEGRATED ANNUAL REPORT 2010 A steering committee of subject-matter > New Clydesdale Colliery experts, environmentalists and members > KZN Sands (Fairbreeze) of senior management reports to the > Zincor (NRDF) Exxaro executive committee and board > Inyanda sub-committee for safety and sustainable development. The programme is While Exxaro already reports on water supported by a stakeholder engagement issues against relevant GRI indicators as and communications process that will be well as UN Global Compact principles, and rolled out in 2011. the ICMM sustainable development framework, standardised processes will One of the early successes of the enhance data from the new ﬁnancial year. programme was Exxaro’s recent submission to the ﬁrst CDP Water During the year, some environmental Disclosure, a voluntary but detailed groups raised issues with the JSE and in submission on water-related data that will the media about mining companies’ provide valuable insight into the water compliance with environmental standards, strategies of many of the largest and particularly about whether JSE companies in the world. standards for membership of the Socially Responsible Investment index needed to Water licensing Most of Exxaro’s operations have their the raised. Exxaro was among be companies singled out for attention, citing water use authorised under the old water the alleged lack of water licences at act. However, all operations have since speciﬁc operations and allegedly had their integrated water-use licences unauthorised mining operations at (or IWULs) submitted to the appropriate another. Exxaro was able to prove to the authorities for consideration and approval. JSE that the required water licences had Tshikondeni mine and mine pit expansion been issued, and that no unauthorised was the ﬁrst Exxaro operation to receive mining activities were being undertaken an integrated water-use licence — the at Arnot’s Mooifontein section. In addition, culmination of detailed consultation with Exxaro was able to prove that an authorities. Licences have since been innovative solution was being implemented approved for: > Grootegeluk mine at Matla to preserve and minimise mining impacts of the wetland (right). > Grootegeluk mine: Medupi expansion project (GMEP) > Char plant > Matla mine > Matla mine river diversion project > North Block Complex (Eerstelingsfontein) Exxaro has a proven record of environmental conservation and management, as illustrated in case studies in this report. Case study — Limiting wetland damage at Matla Exxaro’s planned expansion of underground operations at Matla coal mine in Mpumalanga will enable the group to increase capacity and supply the Eskom power station while preserving the ecologically sensitive and valuable wetland systems on the province’s Highveld. This unique wetland project combines an adaptation of the mining model with a 14km diversion of the Rietspruit River, a tributary of the Olifants River which in turn is a major water source for several mines in the area, including Exxaro’s Inyanda mine and New Clydesdale mine. As a result of the controlled impacts of mining and controlled water use, the ﬂow and functioning of the Rietspruit ecosystem has been maintained and its biodiversity protected. We believe this is a good example of mining innovation and nature working together: at Matla, we are going below the wetland using undermining, a technique typically used when a mine extends under a building, roadway or town. To date, Exxaro has spent R31 million on constructing the river diversion and another R1 million on monitoring biodiversity in the wetland project. Monitoring will continue until 2017 when mining ends at Matla. However we will continue to monitor the performance of the wetland for a further three years after mining has ceased to record post-mining conditions. Should results be positive after this period, monitoring will be stopped. EXXARO INTEGRATED ANNUAL REPORT 2010 97 ENVIRONMENT CONTINUED Water efﬁciency projects Business unit Description Grootegeluk 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 The beneﬁciation plant at Grootegeluk mine expansion for Medupi (GMEP) has been designed to be zero- efﬂuent in terms of water Matla Arnot Excess water from underground is being considered for distribution to Eskom as process water No formal water reclamation used in plant plan in place Leeuwpan Water recovery from the slimes disposal facility Inyanda Water reclamation from the slimes facility is used as process water Storm water run-off recycled and re-used via the process water dams Stormwater run-off from the plant area is captured and returned to the plant for re-use Pit water from groundwater ﬂow and run-off is pumped back to the dirty-water facilities for re-use Tshikondeni 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 Rainwater collection from roofs is used to augment process water Glen Douglas KZN Sands 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 Namakwa Sands Seawater is used as process water Process water is recycled from the disposal facilities and re-used in the plant Projects are now being tracked through the water steering committee Total water withdrawal by source Given the growing demand for water and scarcity of this natural resource in an arid South Africa, Exxaro is concentrating on optimising its water use by reusing and reclaiming contaminated water to the fullest possible extent. In doing so, Exxaro process, Exxaro will regularly update its can minimise raw-water abstraction. operational water balances and develop system changes to minimise consumption It is a permit condition for water use of raw water while preventing losses from licences to be audited; these audits will be the water reticulation system. coordinated through the new water management programme. As part of this 98 EXXARO INTEGRATED ANNUAL REPORT 2010 Water withdrawal by source l k c o B h t r o N l x e p m o C i n e d n o k i h s T l s a g u o D n e G l i h a n P h s o R r o c n Z i s d n a S N Z K Source Municipal, boreholes Unwa Dam, boreholes Municipal NAM-Water Municipal, boreholes, rainwater harvest Municipal (Waterboard — River abstraction) Major climatic region Temperate Highveld region Tropical summer rainfall area Temperate Highveld region Desert Temperate Highveld region Sub-tropical east coast region a w k a m a N s d n a S Olifants River (Western Cape seawater); Municipal (Smelter) Arid region t o n r A Source Eskom a s i l G Municipal, boreholes Major climatic region Temperate Temperate Highveld region Highveld region l k u e g e t o o r G a d n a y n I n a p w u e e L a l t a M w e N l e a d s e d y C l Mokolo Dam, Olifants River Boreholes Eskom boreholes, pit (Mpumalanga), Olifants River (Mpumalanga) water Tropical summer boreholes Temperate Temperate Temperate Temperate Highveld rainfall area region Highveld region Highveld region Highveld region Consumption per business unit (000m3) 30 25 20 15 10 5 0 Hazardous waste management In 2010, a multi-disciplinary task group incidents and to keep personal radiation exposure limits as low as possible. The was formed to focus on developing an integrated approach to managing air, water and biodiversity. Detailed action plans should be ﬁnalised in 2011. A company-wide policy on waste management will be ﬁnalised in 2011. This will address material issues, such as the avoidance, minimisation, management and disposal of hazardous as well as general waste generated from Exxaro group complies with the conditions of applicable authorisations and limits set by the International Commission on Radiological Protection or ICRP. This includes developing an appropriate policy, implementing radiation protection programmes to protect workers and members of the public, and enforcing an emergency preparedness policy that spans transportation and physical security operations. procedures. 2008 2009 2010 Radioactive materials are a potential risk at KZN Sands, Namakwa Sands and Zincor. Exxaro aims to have zero radiation To date, there have been no breaches of Exxaro’s licence conditions issued by the National Nuclear Regulator for radioactive waste. EXXARO INTEGRATED ANNUAL REPORT 2010 99 ENVIRONMENT CONTINUED Energy and climate change Management approach Given that energy and climate challenges are broad, and potential solutions complex, Exxaro is simultaneously addressing three imperatives: energy security, economic productivity and environmental impact. To remain competitive and sustainable, Exxaro is dealing with potential energy shortages, rising costs of energy, climate change and related environmental concerns as imperatives in the group’s long-term business strategy. A dual approach is currently being implemented: > An energy and carbon management programme is addressing mitigation and adaptation issues > Exxaro is evaluating and developing a growth pipeline of environmentally friendly energy projects. These two programmes are linked by Exxaro’s drive to become carbon neutral and the need to thrive in a low-carbon economy. Risks and opportunities of climate change Following an independent physical climate-risk assessment of Exxaro’s operations in southern Africa in early 2009, the key risks to the group from climate change are ﬂoods, droughts, heat, disrupted transport infrastructure and increased vulnerability of local communities and workforces. The possible implications are outlined below: > Flooding — Infrastructure damage leading to production losses — Pit and dam ﬂooding causing contamination of clean water and operating licence transgressions — Deterioration of product quality. > Drought — Water scarcity and increased cost of water for the whole region — Increased cost of land management — fauna, ﬂora and rehabilitation — Increased ﬁre hazards — Higher demand for dust suppression. > Heat — Fatigue from heat, humidity and dehydration leading to increased accidents — Evaporation from dams will upset mine water balance — Skills retention and talent management in unattractive environment. These risks, and related opportunities, were integrated into a climate change response strategy that requires an internal and external approach. MiMiMiMiMiMiMiMitititititititit gagagagagagagagaatititititititit ononononononono MMMMitigation ••• Energy planning • EEnernergy gy plaplaanninninninningngngng ••• Energy mix • Enerne gy gy mixmix ••• Methane emissions • MMethethe aneane emememmississississionionionionssss ••• Economic • EEconconomiomiccc insstrutrumenmentsts instruments ••• Energy efﬁciency • EEnernergy gy efﬁefﬁefﬁefﬁﬁcieciecieciencyncyncyncy accaccacccordordordord accord Climate change response strategy Data collection and management system CClCliim tate hchangee ClCllClClClClClClClllimimimimimimimimimimi atatatatatatatatatatattteeeeeeee chhhchchchchchchchchchchchhhhananananananananananananananananana ggggegegegegegegegegegegegegegegggegeg ppp rerererreeespspsppspspoononoonoo sesseseseseeseeeee response strategy ssststststststststststtrarararrararararaateteteettetetetetet gggygygygygygygyggggy • Carbon disclosure • CC• C• C• Carbarbarbarbarbarbarbarbbonononononononn disddisdisdisdisdisisdisdisclocloocloclocloclocloclocloclosursusursursursursursusursusurs eeeeeee prproproproproproprorop ojejejecjecjecejecjecctttt project pp oojjecct p oject AdAdAAdAdAdAdAdAdAdAdAdAdAdAdAdAdAdAdAdapapapapapapapapapapapapapapapapappapapapttatatatatatatatatataatatatataatatatittitititititititittititititititioononononononononononnonnononon Adaptation • Establish context • EEE• E• EEstastatastastastaastaabliblibbliblibliblibblishshshhshshsh cononconconconconconconconnntetextexttextextextetexttexxttttttt • RR• R• R• RRRiiskiskiskisksksks as aaas aanndndndnd • Risks and opportunities opppoppoppopppppportortortortorttuniuniuniiuniuniunititieitietietietietiesssss • Awareness raising ssssssss rairairairaiaia sinsinisinsinsinsinngggggg • A• A• A• AAwarwarrwarwareneeneeneeneenee • A• A• AAdapdapdadapdapapt at at aat at ctictictictictic onononon plaplaplaplalannsnsnsn • Adapt action plans • S• S• S• SSSSharharharharhharhare ge gge ge gge goodoodooodoodoodoodood prprprprprrprractactaactactactacticeiceceiceiceceiceicessssss Share good practices • Share good practices SSShhare ge ggoodood prpraactiices 100 EXXARO INTEGRATED ANNUAL REPORT 2010 Energy and carbon management programme The energy and carbon management strategy drives the programme shown below. It deals with both operational management and energy project development 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 efﬁciency improvement projects Energy efﬁciency improvements and current operations Energy and carbon efﬁciency speciﬁcations for capital projects Energy and carbon efﬁcient 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 Exxaro has consolidated its approach to clean energy at group level in recent years. The 2007 strategic map included initiatives around the regulatory environment, energy efﬁciency, implementation of cleaner technologies and reputational issues to thrive in a low- carbon economy. In 2009, this map was further reﬁned to include a strong supporting programme. In 2010, the focus has been on high energy-consumption areas, speciﬁcally electricity consumption. This includes special attention to items such as electric motors, lighting, water heating, conveyors and HVAC (heating, ventilation and air- conditioning). By questioning basic design and use factors, the energy teams have already made headway in all these areas. As an example, preliminary results on a conveyor installation at Grootegeluk show an efﬁciency saving of 25% — far above what was expected at concept and feasibility stage. These initiatives will in time be expanded to other business units including other sources of energy such as diesel, illuminating parafﬁn and petrol. This will The next step will be to critically evaluate facilitate an accurate measure of total current plant processes. Continual energy use from all sources across all improvement is embedded in Exxaro’s business units, and how this relates to culture and we believe there is solid production measurements such as run-of- potential to increase energy efﬁciency mine tonnes, making it easier to effectively and reduce emissions through operational compare and measure energy efﬁciency. and process improvements. Case study: Namakwa Sands The largest consumers of electricity at Namakwa Sands are the arc furnaces, accounting for over 90% of the electrical energy used at the smelter plant. Using furnace off-gas to generate electricity is one of the biggest opportunities for this business unit to become more energy efﬁcient. The project is at feasibility stage and all indications are that, once complete, it could generate around 13MW. Case study: Grootegeluk Despite difﬁcult test work to prove the technology, the Grootegeluk energy champions successfully implemented a variable speed drive pilot project. A conveyor installation direct-on-line starter was replaced by a variable speed drive, with an energy efﬁciency saving of 25%. With appropriate funding participation, Exxaro plans to roll out the project to other conveyor installations. Grootegeluk is already using an electricity-based trolley-assist system in the pit in which trucks use electricity rather than diesel. This translates to a cost saving of some R165 per truck. The saving for 2010 was some R8 million. EXXARO INTEGRATED ANNUAL REPORT 2010 101 ENVIRONMENT CONTINUED Energy and carbon footprint data Reﬂecting the investment and effort of recent years, Exxaro’s data management and reporting is steadily maturing. This is aligned with internal and external reporting requirements, and is moving onto the main systems platform. This will become the basis of reporting on carbon disclosure and carbon footprint statistics. Total CO2e Exxaro Group e 2 O C t o l i K 800 700 600 500 400 300 200 100 0 t o n r A l o c a n r u D m a e r t s y o l l A s y o l l a o r r e F s a l g u o D n e l G k u l e g e t o o r G e c i f f o d a e H e n a b o l H a d n a y n I a l t a M s d n a S N Z K n a p w u e e L D & R s t n a t c u d e R i h a n P h s o R i n e d n o k i h s T r o c n Z i s d n a S a w k a m a N e l a d s e d y C w e N l x e l p m o C k c o l B h t r o N 2010 2009 Energy consumption management Updated metering equipment was installed at our business units to facilitate: > Consumption management (including managing Eskom’s power conservation to programme allocations — refer sidebar) > Tracking electrical verifying and efﬁciency initiatives > Veriﬁcation of electricity accounts. Exxaro now has a centralised real-time metering capability, independent business unit monitoring and is ready for Eskom’s power conservation programme (page 103). Total energy Exxaro Group For the review period, actual average energy consumed was 12% lower than the collective Exxaro group baseline. The improved performance is a combined result of lower production in the current economic climate and work completed to get the largest Exxaro electricity baselines adjusted and accepted by Eskom. To date, Eskom has approved the Grootegeluk, Namakwa Sands smelter, Brand se Baai, Matla, KZN Sands smelter, Hillendale mine and Zincor baselines. These are subject to the new draft power change in conservation programme rules. ) 0 0 0 ’ ( ) J G ( n o i t p m u s n o c y g r e n e l a t o T 3 500 3 000 2 500 2 000 1 500 1 000 500 0 t o n r A l o c a n r u D m a e r t s y o l l A s y o l l a o r r e F s a l g u o D n e l G k u l e g e t o o r G e c i f f o d a e H e n a b o l H a d n a y n I a l t a M s d n a S N Z K n a p w u e e L D & R s t n a t c u d e R i h a n P h s o R i n e d n o k i h s T r o c n Z i s d n a S a w k a m a N e l a d s e d y C w e N l x e l p m o C k c o l B h t r o N 2010 2009 102 EXXARO INTEGRATED ANNUAL REPORT 2010 Review of South Africa’s energy efﬁciency strategy In 2010, the 2005 energy efﬁciency accord was reviewed and reconstituted as the Business Network for Leadership in Energy Efﬁciency. The review was prompted by the 2009 energy shortages, price increases and new national electricity-provision policies. The new business network facilitates the move towards mandatory requirements. It applies to all business sectors, and is intended to encourage business collaboration and leadership on energy issues, enhance interaction with government and provide a measure of ﬂexibility for the legislature. The overarching objective is to drive continuous improvement of energy efﬁciency in the SA business sector, in support of the national energy- efﬁciency strategy, leading to enhanced international competitiveness and greenhouse gas reductions. The network offers considerable value for businesses: > Effective management of energy, improved to leading competitiveness > Access to best practice, technical expertise and experience of others > Public reporting leading to public recognition and improved brand equity > Better understanding of regulatory requirements, resulting in targeted responses > Standardised reporting, approaches to measurement, monitoring and veriﬁcation > Constant feedback through member participation and interaction with government. Preparing for power outages Following the 2007/8 power outages that resulted in widespread load shedding, a multi-stakeholder working group was established to develop a national code of practice on how future load shedding and load curtailment should be managed. As part of this process, South Africa now has a speciﬁcation for the national power grid that provides three options for how customers like Exxaro are expected to act in a system emergency. Option 1: load shedding When instructed by the national system operator (Eskom), the customer must immediately reduce consumption by at least 25% by disconnecting loads automatically or manually. Option 2: load curtailment This happens in ﬁve stages, as shown below: Stage Type Customer action 0 1 2 3 4 Unscheduled (pre-agreed) Reduce consumption by 25% for two hours within an agreed time (typically 10 minutes Scheduled (notiﬁed) Reduce normal demand by 10% within two hours of notiﬁcation (excludes customers who participate under stage 0) Scheduled (notiﬁed) Scheduled (notiﬁed) Reduce normal demand by 20% within two hours of notiﬁcation Unscheduled (instructed) Reduce normal demand as instructed Option 3: demand market participation (DMP) This is an agreement between Eskom and customer to interrupt loads on a commercial basis. Customers who participate in DMP are exempt from stages 0, 1 and 2 load curtailment, and receive monetary compensation for the load curtailment. While this compensation will not make up for the potential loss in production, in some cases (Namakwa Sands and KZN Sands) the impact is minimal. What this means to Exxaro Namakwa Sands already participates in DMP and will be exempt from stages 0, 1 and 2. KZN Sands has selected the DMP option and is in the implementation stages. KZN Sands will also be exempt from stages 0, 1 and 2. As critical suppliers to Eskom, Zincor, Grootegeluk and Matla cannot allow their loads to be shed nor is DMP an option. These operations therefore have selected option 2 — load curtailment. Eskom’s power conservation programme The South African electricity supply/demand balance is overly tight, and latest forecasts indicate this could worsen from 2011 to 2012. This means availability rather than capacity is the key challenge, and that the security-of-supply risk is high. To mitigate this, Eskom’s power conservation programme (PCP) is scheduled for implementation in January 2011. While not yet ﬁnalised, the programme is focused on lowering absolute electrical consumption by 10% (for businesses) and charging punitive rates for exceeding agreed baselines. The ﬁnancial implications of this programme could be signiﬁcant. KZN Sands, Namakwa Sands, Zincor, Grootegeluk and Matla are the ﬁve largest consumers (90%) of electricity in Exxaro and would potentially be impacted by the implementation of PCP. As key suppliers, Matla and Grootegeluk are excluded from the programme. Exxaro’s energy team will monitor both the ﬁnalisation of the programme and consumption at business unit level to optimise performance in terms of consumption versus allocation. EXXARO INTEGRATED ANNUAL REPORT 2010 103 ENVIRONMENT CONTINUED South Africa’s energy debate The ongoing debate around South Africa’s energy industry, coupled with the fact that coal remains the country’s most affordable electricity resource, raises a serious question: how do we as a nation balance the need to reduce our carbon footprint with the need to provide signiﬁcantly more power at a price that keeps the industry competitive? The question of price versus demand is one of the issues central to the government’s recently released second integrated resource plan (IRP), a 20-year plan that predicts how much electricity the country will need in the next two decades, how this demand could be met, and what it will cost. The IRP 2010 sketches the ideal scenario for electricity generation in South Africa, the sources of that energy, and the price at which it will be sold to the industry and public. It takes into account carbon emissions, production costs, security of electricity supply, sustainable job creation and water use. The summary of the balanced scenario which the IRP 2010 proposes as the optimal electrical energy mix by 2030 envisages coal comprising 48% of the feedstock mix (compared to 80% at present), with baseload nuclear and renewable energies comprising 14% and 16% respectively (see pie chart below). Expectations are that the IRP 2010 proposal will be promulgated by early 2011. IRP 2010 balanced scenario 6% 5% 2% 9% 16% 14% Baseload coal Baseload nuclear Renewable energy (dispatchable) Peaking open cycle gas turbine Peaking pump storage Mid-merit gas Baseload import hydro 48% What does this mean for Exxaro? In its current draft, the IRP could have major implications for Exxaro’s business: > The only coal-ﬁred power to be implemented after Kusile will be in 2027. This will temper Exxaro’s current coal ambitions in South Africa > The signiﬁcant roll out of renewable energy sources supports Exxaro’s plans to develop its renewable energy business > The IRP gives an indication of the long-term electricity price, which is more than 150% of the current price. This will signiﬁcantly increase operating costs at Exxaro’s smelters. What does it mean for consumers? > The long-term electricity price is even higher than current indications from Eskom and the National Energy Regulator of South Africa. This will put households under even more ﬁnancial strain > The burden of higher electricity prices will make local industry less competitive on a global scale, which could affect employment > Positively, however, the draft IRP 2010 provides for the large-scale roll out of renewable and nuclear energy, which will result in cleaner air and fewer carbon emissions. 104 EXXARO INTEGRATED ANNUAL REPORT 2010 and change Energy efﬁciency improvement projects To remain competitive while dealing with related climate environmental is improving its energy efﬁciency and has committed to: > Reduce costs by improving energy efﬁciency from 2009 baseline by 10% by 2012 concerns, Exxaro its > Promoting the use of sustainable and renewable energy > Promoting the use of clean technologies. In 2009, the electricity baseline was established for all business units. In 2010, conducted at energy audits were Leeuwpan, North Block Complex, New Clydesdale, Tshikondeni, Grootegeluk, Namakwa Sands, Arnot, Matla, Inyanda, and KZN Sands, as well as the research and development unit and corporate ofﬁce. The top projects were identiﬁed and solutions are being investigated. common Becoming carbon neutral A feasibility study on co-generation to produce some 15MW of electricity from waste energy at our Namakwa Sands operation is well advanced. This project could save almost 150 000 tonnes of CO2e per annum and offers signiﬁcant ﬁnancial beneﬁts via 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 efﬁciency. The carbon footprint of electricity from these sources is virtually zero. the roll out of an enabling policy environment). The group is also participating in carbon capture and storage developments by playing an active role in establishing the South African Centre for Carbon Capture and Storage (SA Centre for CCS). Carbon disclosure project reporting Exxaro again participated in the Carbon Disclosure Project (CDP), the leading proponent of climate change and carbon disclosure. In 2010 the CDP represented over 530 investors with USD64 trillion of assets under management; a total of 1 800 companies participated worldwide, including around 80% of the FTSE Global 500. Companies listed on the JSE have participated for the last four years; in 2010 74% of the top 100 companies (by the JSE market capitalisation) on responded. Exxaro performed well on both CDP measures: > The carbon disclosure rating focuses on disclosure of emissions, the degree to which a company has identiﬁed its risks and opportunities from climate change, internal and structures for information management and governance. Exxaro ranked fourth with a score of 87% (compared to the ﬁrst mining company at 93%) performance the development of rating, introduced in 2010: this indicates the degree to which a company is taking positive actions that contribute to climate change mitigation, adaptation and transparency. Companies are ranked in four performance bands — leading, fast-following, on the journey and just starting. Exxaro was rated in the second category. carbon > The Despite delays due to the global economic slowdown, Exxaro remains committed to by carbon reducing implementing these projects as well as renewable energy initiatives (subject to footprint its Cleaner production Exxaro has several research projects under way to reduce its environmental footprint from waste production and water use. With a budget of over R1 700 million for the review period (mostly for scouting work), these include: > Dry beneﬁciation > Building environmental competency > Power generation from waste coal > Slimes community of practice > Water community of practice > Water conservation and puriﬁcation. some included By year end, dry beneﬁciation technologies were being tested for various applications, with in already Grootegeluk’s Medupi designs. In addition, solid progress has been made in raising awareness of the importance of water conservation and treatment, as well as slimes treatment, across the group’s business units. Air quality management Exxaro has implemented an air quality management framework for quantifying and determining the impact of our ambient emissions, and managing non- compliance and continuous improvement (below). This approach is aligned to the requirements of the 2007 national framework for air quality management in South Africa, and provides a standardised methodology across for quantifying emissions and determines the appropriate action in mitigating their impact. the group In applying this framework, particularly the emission inventory process, across our operations, it is evident that most of our ambient pollution impacts are associated with emissions of particulate In matter or dust mining activities. addition, Exxaro also operates smelting operations in its mineral sands and base metals commodity businesses. Emissions from these smelters are regulated by a registration certiﬁcate issued by the chief air pollution control ofﬁcer the Department of Water and Environmental Affairs (DWEA). Emissions of concern from these smelters are particulate matter (represented as PM10), sulphur dioxide (SO2) and nitrogen oxide (NOx). in EXXARO INTEGRATED ANNUAL REPORT 2010 105 ENVIRONMENT CONTINUED 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) 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 Emissions from mining operations Every day, Exxaro addresses the challenges of dust-generating activities (blasting, vehicle entrainment and wind erosion of exposed operational areas) through environmental management measures. These include dust-suppressant agents on haul roads, applying water to secondary unpaved operational roads, and vegetating topsoil and overburden material. All mining operations monitor daily fallout dust rates and results are assessed against national standards (SANS)(ﬁgure 1). Figure 1: National standards (SANS) Case study — Improving air quality at Namakwa Sands One of the biggest environmental challenges at the Namakwa Sands smelter has been solved by a new extraction plant that removes dust and fumes from the tapﬂoor during tapping operations. Namakwa Sands has an obligation to keep the West Coast environment as beautiful as it is, and provide a safe environment for employees. But the previous fume-extraction system had become inefﬁcient and conditions in the furnace building were unpleasant during taps. On a calm day the red dust hanging over the furnace building was visible from a distance. Construction of the new fume- extraction plant took 13 months at a cost of R63 million and, importantly, was completed without a lost-time injury. The plant uses the most modern ﬁltration equipment and energy-efﬁcient fans run at reduced power between taps. Most importantly, it improves conditions on the tapﬂoor. Level Target Action residential Action industrial Alert threshold Dust fallout rate (mg/m2/day) Permitted frequency 300 600 Three in any year, no sequential months 1 200 Three in any year, no sequential months 2 400 None. First exceedance requires remediation and compulsory report to authorities Figure 2: Results from Exxaro’s monitoring points Number of monthly exceedances 2010 Points monitored with single-unit fallout dust bucket 600mg/m2/day >3 months/year 1 200 mg/m2 day >3 months/year 58 36 9 10 5 7 4 5 1 2 Commodity Coal Mineral sands and base metals 106 EXXARO INTEGRATED ANNUAL REPORT 2010 Performance of smelters Business unit Namakwa Sands No of points 2 Pollutant PM KZN Sands Zincor 2 1 14 2 SO2 SO2 PM SO2 PM: particulate matter, SO2: sulphur dioxide Permitted emission rate Units 30 mg/m3 (24hr average) Assessed Bi-annually 500 mg/m3 (1hr Bi-annually average) 500 mg/m3 (1hr Quarterly average) 50 mg/m3 (24hr average) Quarterly 500 mg/m3 (1hr Continuous average) Number of exceedances recorded for 2010 0 0 0 2 0 Exxaro’s operations Although are classiﬁed under industrial targets, some are close to densely populated areas. As such, tracking compliance against the more stringent residential limit as opposed to limit provides a standardised and more appropriate management approach to move our operations towards the long-term target of 300mg/m2/day. industrial the The tables on page 106 give a consolidated view of our performance against air quality guidelines. In total, coal operations recorded four monthly exceedances of the industrial limit of 1 200mg/m2/day. The SANS guideline allows operations to have at most three exceedances per year without any reporting. Given the strong performance of our coal operations in 2010, the guideline industrial limit was exceeded by one month. The mineral sands and base metal operations also registered exceedances of the industrial limit for ﬁve months in 2010. We are concentrating on improving our mitigation measures for operational activities that contribute signiﬁcantly to dustfall. This will ensure fallout dust is reduced to national residential guidelines of 300mg/m2/day. Emissions from smelting operations All Exxaro’s smelters have registration certiﬁcates under section 10 of the Atmospheric Pollution Prevention Act, 1965, which has been superseded by the National Environment: Air Quality Act, 34 of 2004. These stipulate 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 performance of our smelters against permit conditions is shown below. Biodiversity management Exxaro-owned and -managed land has signiﬁcant biodiversity given the wide geographical spread of the group’s operations. As part of the process of biodiversity management developing plans for each business unit, a comprehensive study has determined vegetation types on all land held by Exxaro and quantiﬁed greenhouse gas reduction as a result of vegetation. The carbon quantities captured in the 32 types of vegetation land under operational control are estimated to be around tonnes. A summary of 30 million biodiversity management shown overleaf. in is terms of a formal biodiversity In management policy, revised in 2010, group operations are mandated to ensure that conserving biodiversity and using natural co-exist through mining resources through proper planning, decision making, conservation and offsets. The objectives of this policy focus on protecting and conserving biodiversity- rich sections of undisturbed areas, preventing or limiting destruction of Red Data faunal and ﬂoral species, and eradicating and controlling alien invasive species through practical and cost- effective management skills, programmes and action plans. A detailed management standard was issued at the end of the review period to guide business units implementing group policy. The standard aims to: > Ensure a cost-effective integrated in approach to biodiversity management > Be environmentally responsible in protecting and managing biodiversity > Be ecologically sustainable by ensuring biodiversity-rich areas are contained within mining right areas, to manage and monitor protected and threatened Red Data species, and control declared category 1, 2 and 3 declared invasive plants from spreading. Detailed desktop studies at all business units have been completed while specialist biodiversity assessments have been completed for Tshikondeni, Inyanda, New Clydesdale, Leeuwpan, KZN Sands and Namakwa Sands. Assessments are under way for Grootegeluk, North Block Complex and Arnot. Identiﬁcation, mapping and management plans for the control and eradication of category 1, 2 and 3 species were the biodiversity in assessments. Management plans for these species per business unit will be ﬁnalised included and implemented in 2011 although EXXARO INTEGRATED ANNUAL REPORT 2010 107 ENVIRONMENT CONTINUED implementation is already under way at where protected trees were impacted in West University on the ecology of the Grootegeluk and KZN Sands. Marking 2010 had approved permits for the relocated species began in January 2011, protected trees and compiling and removal/destruction and transport of in conjunction with SANBI (SA National submitting permit applications for various protected trees. Biodiversity Institute) and the Mpumalanga developments at Grootegeluk and Tourism and Parks Agency. Tshikondeni (the only two business units At Inyanda relocation of the Red Data where this was required to date) was species Frithia humilis was completed and To date, biodiversity action plans have conducted for various developments. All will be monitored until 2012. A post- been developed for ﬁve of Exxaro’s 17 activities at Grootegeluk and Tshikondeni graduate research project with the North operating units. The balance will be Biodiversity management Inyanda Zincor Tshikondeni Location/size of land owned, leased, managed or adjacent to protected areas of high biodiversity value Land adjacent to protected areas X (cid:22) (Next to RAMSAR site) (cid:22) Adjacent to Kruger National Park. Lies within the Gariep Centre of Plant Endemism Significant impacts of activities: total land owned/ leased/managed for production or extractive use Size of land assessed (ha) 1 747 295,5 22 385,89 Buildings (farm buildings, mine buildings, etc) 12 38,29 Buildings (farm buildings, mine buildings, etc) Cultivation Grassland scrub Mine tailings, pits, bare soil, airfields Open water 249 18 0 4 Bushveld 0 0 Cultivated fields 106,77 Floodplain bushveld 0 Inland forest 71,52 4 457,49 708,97 26,81 235,34 Plantations 57 9,34 Mine tailings, pits, bare soil, 131,76 Grassland (natural) 1 372 airfields 24,29 Mopani bushveld 5 710,09 Grassland secondary/ transformed grassland Wetland grassland Stream vegetation Sugarcane Degraded bushveld Thicket and encroached bushveld 35 113,4 Mountain bushveld 3 920,79 0 0 0 0 0 0 3,41 Open bushveld 0 Open water 0 0 0 0 0 Riparian forest Sand banks Stream vegetation (bushveld) Thicket and encroached bushveld Transformed/degraded bushveld 0 Wetland grassland 0 Woodland – – – – 662,98 196,69 472,92 176,67 412,01 4 469,23 589,52 40,19 102,91 22 385,89 Total 1 747 295,5 108 EXXARO INTEGRATED ANNUAL REPORT 2010 completed in 2011. Expenditure of around After a directive from the Department of Measures include ongoing mitigation R30 million in 2010 is expected to increase Water Affairs on the haul road in the initiatives and offset areas of similar as biodiversity action plans are fully eastern pit of Mooifontein operation, we biodiversity functionality. Stakeholders implemented and declared category 1, 2 stopped using and then closed this haul and interested and affected parties have and 3 alien invader species are eradicated. road. been duly consulted on these envisaged measures. During the year, biodiversity was affected We have prioritised rehabilitation of the at Arnot Mooifontein where mining affected wetland area to improve operations intruded on a wetland area. biodiversity and ecological functionality. Namakwa Sands Rosh Pinah KZN Sands KZN – Hillendale & Port Durnford (cid:22) (Close to Tongaland- Pondoland Regional Centre of Floral Endemism) CPC BSB CPS Smelter (cid:22) (Southern Namaqualand Strandveld Centre of Plant Endemism) 66,35 (cid:22) (Southern Namaqualand Strandveld Centre of Plant Endemism) 0 (cid:22) (Southern Namaqualand Strandveld Centre of Plant Endemism) 0 (cid:22) (Southern Namaqualand Strandveld Centre of Plant Endemism) 0 5 418,51 Buildings (farm buildings, mine buildings, etc) Coastal forest Cultivation (harvested sugar cane) Dune scrub Mine tailings, borrow pits, bare soil, airfields Plantations/ woodlots Secondary/ transformed grassland Stream vegetation Sugarcane Wetland grassland – – – – – – – 5 418,51 180,63 1,25 679,34 341,9 525,74 390,72 24,55 157,37 23,3 3 091,16 3,8 0 0 0 0 0 0 0,12 25,19 2,1 3,38 15,52 5,07 0 5,23 8,22 0,27 0 0 0 0 0 66,35 Not assessed in 2009/2010 0 0 0 (cid:22) (Adjacent to Sperr Gebied/ Richtersveld National Park/ endemic hotspot area 1 250,75 23,47 34,52 121,36 455,42 615,98 Buildings (farm buildings, mine buildings, etc) Desert wash Mine tailings, borrow pits, bare soil, airfields Mountain desert Sandy plains desert – – – – – – – – – – – – 0 0 0 0 0 0 0 0 0 0 0 1 250,75 EXXARO INTEGRATED ANNUAL REPORT 2010 109 ENVIRONMENT CONTINUED Biodiversity management Inyanda Zincor Tshikondeni Location/size of land owned, leased, managed or adjacent to protected areas of high biodiversity value Land adjacent to protected areas X (cid:22) (Next to RAMSAR site) (cid:22) Adjacent to Kruger National Park. Lies within the Gariep Centre of Plant Endemism Size of land assessed (ha) 1 747 295,5 22 385,89 Protected: X Restored Habitats protected/restored? Exxaro general biodiversity strategy (draft) Management plan (EMPR) Strategies, actions and plans for managing impacts on biodiversity Biodiversity action plans IUCN Red List and national conservation lists species affected by operations – Red Data species relocated to offset areas under MTPA (provincial) manage- ment (cid:22) (cid:22) Draft 2 under review to update category 1, 2 and 3 manage- ment measure Red Data species Frithia humilis relocated to three offset areas. Continuous monitoring by North West University till 2012. Research project on lifecycle started in 2011 (cid:22) (RAMSAR site) (cid:22) (wetland with Red Data) (cid:22) (Kruger National Park) Adjacent to protected area – limited impact due to underground mining activities (cid:22) (cid:22) (cid:22) (cid:22) Draft 2 under review to update manage- ment of Kniphofia sp manage- ment measure (cid:22) Recorded but not currently affected/ population of Kniphofia typhoides is stable and healthy Draft update of certain sections in 2010 incomplete (cid:22) Various species recorded in areas adjacent to current and future operations. Recorded but not currently affected by underground mining operations. Potential that future opencast operations may impact on Red Data listed species 110 EXXARO INTEGRATED ANNUAL REPORT 2010 KZN Sands KZN – Hillendale & Port Durnford (cid:22) (Close to Tongaland- Pondoland Regional Centre of Floral Endemism) 5 418,51 X (No mining activities at Port Durnford) X (cid:22) (cid:22) (Only Hillendale – Port Durnford no mining activities) Draft reviewed. Update category 1, 2 and 3 declared invader species management measure (Hillendale only) (cid:22) Recorded and currently affected (Hillendale – habitat transformation) Namakwa Sands Rosh Pinah CPC BSB CPS Smelter (cid:22) (Southern Namaqualand Strandveld Centre of Plant Endemism) 66,35 (cid:22) (Southern Namaqualand Strandveld Centre of Plant Endemism) 0 (cid:22) (Southern Namaqualand Strandveld Centre of Plant Endemism) 0 (cid:22) (Southern Namaqualand Strandveld Centre of Plant Endemism) 0 (cid:22) (Adjacent to Sperr Gebied/ Richtersveld National Park/ endemic hotspot area 1 250,75 (cid:22) X (cid:22) (cid:22) X (cid:22) X (cid:22) (cid:22) X (cid:22) X (cid:22) (cid:22) X X X (cid:22) (cid:22) (cid:22) X (cid:22) (cid:22) Completed but not submitted Biodiversity study complete as part of EMPR amendment. Require biodiversity action plan X None recorded to date (cid:22) Recorded and currently affected (cid:22) Recorded and currently affected (cid:22) Recorded and currently affected (cid:22) Recorded various IUCN Red Data plant species – affected during previous exploration activities. Dust is currently the biggest impact on Red Data flora species. High number of endemic species present and recorded. EXXARO INTEGRATED ANNUAL REPORT 2010 111 ENVIRONMENT CONTINUED Legal framework for managing biodiversity in Exxaro Biodiversity management in South Africa is based on the clause in the country’s constitution that stipulates ‘everyone has the right to an environment that is not harmful to their health or wellbeing and to have the environment protected, for the beneﬁt of present and future generations’. It is governed primarily by the National Environmental Management Act, and supporting legislation, summarised in the following legislative framework that guides Exxaro’s policy on biodiversity management: > National Environmental Management Act (NEMA) (Act No 107 of 1998, Mine rehabilitation) > National Environmental Management Biodiversity Act (NEMBA) (Act No 10 of 2004) and its annexures on threatened or protected species > National Environmental Management: Protected Areas Act (NEMPAA) (Act No 57 of 2003) > National Water Act (NWA) (Act No 36 of 1998) > Mineral and Petroleum Resource Development Act (MPRDA) (Act No 28 of 2003) > National Environmental Management: Air Quality Act (NEMAQA) (Act No 39 of 2004) > Environment Conservation Act (ECA) (Act No 73 of 1989) > Conservation of Agricultural Resources Act (CARA) (Act No 43 of 1983) > World Heritage Convention Act (WHCA) (Act No 49 of 1999) > National Forests Act (Act No 84 of 1998) > Draft integrated coastal management bill (2006) > Marine Living Resources Act (Act No 18 of 1998) > Marine Pollution (Intervention) Act (Act No 64 of 1987) > Dumping at Sea Control Act (Act No 58 of 1973) > Sea-Shore Act (Act No 21 of 1935): > Sea Fisheries Act (Act No 58 of 1973) In terms of Exxaro’s biodiversity policy, all related risks need to be identiﬁed, assessed and prioritised for all activities at business units. This includes the control and management of all Category 1 alien invaders, the protection and management of biodiversity hotspot areas/biodiversity-rich ecosystems, conservation of fauna and ﬂora of business units situated in or adjacent to sensitive areas such as centres of plant endemism (Fairbreeze, Rosh Pinah) sensitive ecological areas (Matla river diversion), adjacent to RAMSAR sites (Zincor) or adjacent to protected areas or areas of high sensitivity for the tourism industry (Tshikondeni). Mine rehabilitation Exxaro’s mine rehabilitation policy and management standard follows a legal and risk approach — chronological steps that optimise ongoing rehabilitation from feasibility stage through all operational phases and, ultimately, preparing for efﬁcient closure of any mining operation. This framework dictates physical processes, ﬁnancial provisions, and rehabilitation performance indicators. Business units report quarterly on these indicators. By monitoring this data, rehabilitation backlogs are identiﬁed before undue ﬁnancial liabilities are incurred. The goal of the environmental rehabilitation department is to budget for and schedule ongoing rehabilitation aligned with the mining plans of each business unit. Integral to this process is minimising any negative mining impacts on affected parties or the environment and communicating rehabilitation actions via established forums. Exxaro contributed roughly R68 million in 2010 and had R502,5 million in its trust fund at 31 December 2010 for mine-closure activities. Updating and revising rehabilitation provisions annually also highlights potential rehabilitation alternatives that could decrease the closure liabilities of mines in the long term. 112 EXXARO INTEGRATED ANNUAL REPORT 2010 Closure-cost reviews were completed at eight operations, including ﬁve inactive sites. Performance assessments against 15 000 the objectives of environmental 12 000 management plan reports were completed for eight operations and submitted to DMR. In line with the growing government focus on rehabilitation, Exxaro is ensuring that all group business units have reviewed their rehabilitation plans (with appropriate 9 000 6 000 3 000 schedules and budgets) and that these are 0 being implemented. 13 081,1 hectares 4 317,3 hectares Land disturbed Land rehabilitated During the period, the Department of Mineral Resources Mpumalanga served Arnot Colliery with a directive to submit an EMPR (environmental management plan report) performance assessment report. This is a regulatory tool introduced the to monitor by implementation of the EMPR. It is also a department requirement in terms of the Exxaro environmental liability management framework that operations conduct EMPR performance assessments, and that such assessments be reported to the department. Scheduling these assessments is done through the Exxaro environmental rehabilitation fund. The Arnot EMPR performance has since been completed and submitted to the department in Mpumalanga. Exxaro’s North Block Complex also Mine closure Exxaro has two mines at different stages Current mining legislation presents a number of risks speciﬁc to mine closure. of their closure plans — Durnacol and These include possible pressure from In 2010, R145 million was Hlobane. budgeted for mines in closure, spanning increase the affected communities to corporate contribution to mine-closure implementation of the relevant social social programmes which will escalate the plans and rehabilitating negative and longer-term ﬁnancial requirement. An latent environmental impacts. additional risk comes from third-party applications for continued mining at mines During the year, implementation of in closure (Hlobane and Durnacol). Durnacol’s social plan gained new Continued mining at these old workings momentum and projects such as the are exceptionally dangerous and any training centre, bakery and steelworks are incidents will have an impact on Exxaro’s now operational, underscoring solid image. Future liability is likely to escalate working relationship between this as new mining and old mining impacts community and Exxaro. Shaft-sealing and cannot be separated in terms of water dump rehabilitation activities during the quality, subsidence and crack formation. year have improved water, dust and visual With any mine closure, there is also the received a directive from the department impacts at Durnacol. risk that implementing the closure plan might not address all negative impacts. on the need to align mining activities (including the washing plant) with the EMPR. Since the processes of updating these documents had already started in 2010, the required EMPR update was ﬁnalised and submitted to the department At Hlobane, the group policy of completing Exxaro has prepared as fully as possible rehabilitation work manually has created for these contingencies in its existing job opportunities during the construction closure plans. phase. Crack and subsidence sealing at Hlobane has improved water quality in the in Mpumalanga. catchment area. EXXARO INTEGRATED ANNUAL REPORT 2010 113 ENVIRONMENT CONTINUED Broader industry participation As a stakeholder in the mining industry, publication of Climate Change: A Guide for Corporates (Unisa Press, 2009), the pace Environmental performance Exxaro has a standardised system in all Exxaro actively participates in shaping appropriate policies in South Africa through many channels, including: > The Chamber of Mines has accelerated considerably since the business units to ensure the effective appointment of Dr Godwell Nhamo. Since management of all incidents, leading to August 2009, four research papers have a safer and more sustainable work been published, nine conference papers environment. This integrated platform > NERSA (National Energy Regulator of presented, and related courses at honour’s tracks and manages incidents; identiﬁes South Africa) level proposed. The Exxaro group was root causes and ensures proper incident > EIUG (Energy Intensive Users Group) used as the ﬁrst of a series of case studies reporting and management. Environmental > NERT (National Electricity Response examining how companies intend incidents are categorised as: Team) operating in a low-carbon economy. The > Level 3 — Environmental incidents with > Energy efﬁciency accord through the Exxaro study was published in 2009. irreversible on-site, immediate and technical committee facilitated by the Dr Nhamo is also a member of the National remote-area impacts, will involve long- National Business Institute (NBI) Business Initiative (South Africa) climate term clean-up activities and a negative > Industry energy policy-inﬂuence change committee working group, and a impact on shareholder value (eg over workshops member of the Department of Trade and R500 000 in damage has deﬁnitely > World Wildlife Fund (WWF) round table Industry/Business Unity South Africa occurred) event climate change forum. Dr Nhamo was > Level 2 — Environmental incidents with > South African Chamber of Commerce named Unisa’s researcher of the year in reversible on-site and immediate Industry’s and dialogue (SACCI) electricity > National trade delegation to the UK in 2009, a signiﬁcant vote of conﬁdence in the chair’s activities. surrounding impacts, will involve more than 48 hours in clean-up activities and a negative impact on shareholder value March 2010 Given this important progress, Exxaro has (eg R50 000 — R500 000 in damage > SANBI (the national body for renewed its sponsorship of this chair until has deﬁnitely occurred) biodiversity). 2015. This will maintain the current > Level 1 — Environmental incidents with momentum and strengthen the chair’s reversible on-site impacts, will involve Exxaro is also involved in the initiatives of: > South African Independent Power critical research, advocacy and tuition immediate clean-up and a negative activities in advancing the business and impact on shareholder value (eg under Producers Association (SAIPPA) climate change agenda. R50 000). > Coaltech 2020 > Fossil Fuel Foundation > Peace Parks Foundation > SA Centre for Carbon Capture and From 2010, research will be streamlined to Reportable environmental incidents focus mainly on business and address across the group are shown alongside. A climate policy at national, regional and total of 30 level 2 incidents occurred in Storage with international and local international levels, including the 2010, and were reported to the relevant partners > Clinton Foundation. Four years ago, Exxaro began sponsoring the Chair in Business and Climate Change transition to a low-carbon economy (ie authorities. Corrective actions to remedy issues relating to green/sustainable the incidents and prevent them from procurement), energy and climate change, recurring were approved by authorities integrated reporting and other emerging prior to implementation. There were no areas. Research topics will address climate signiﬁcant (level 3) incidents reported at Unisa to create a centre of excellence in change and business issues on four key in 2010. business and climate change research, education and advocacy. While solid progress was made in the early years of thematic areas: mitigation, adaptation, greenhouse gas inventories, research and Fifteen of Exxaro’s 17 business units have development (including breakthrough ISO 14001 accreditation, reﬂecting the this sponsorship, including the landmark low-carbon technologies). global industry standards in place. 114 EXXARO INTEGRATED ANNUAL REPORT 2010 Case study — Carbon offset project Each year, Exxaro offsets the environmental impact of its annual report and group newsletter. The carbon footprint of the paper, printing and distribution is quantiﬁed under the international greenhouse gas reporting protocol. To ensure the integrity of an offset project, ﬁve criteria set by the World Bank must be followed: 1. The project must be additional (ensuring the project is not claiming reductions that would already occur) 2. It must result in real emission reductions (ensuring project activity is monitored and claimed emission reductions are veriﬁed) 3. Emission reductions from the offset project must not be double-counted (the same emission reductions cannot be sold to several buyers at the same time) 4. Emission reductions must be permanent 5. The offset project should result in community beneﬁts. In 2009, we installed a 300-litre solar-powered geyser at the Badirammogo Home in Olievenhoutbosch, a low-cost housing area close to Exxaro’s corporate centre. The home offers full-time care to eight elderly residents and will beneﬁt from the signiﬁcant reduction in monthly running costs. In 2010, we planted sufﬁcient trees in and around our operations to offset the impact of the annual report and Exxaro’s internal newsletter. Environmental incidents — group Commodity business EXXARO COAL Arnot Char plant Durnacol Grootegeluk Hlobane 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 CORPORATE OFFICE Alloystream Ferroalloys Head office R & D Total Level 1: Minor impact and/or non-compliance Level 2: Intermediate impact and/or non-compliance Level 3: Major impact and/or non-compliance Level 1 Level 2 Level 3 2010 2009 2010 2009 2010 2009 500 50 54 0 61 0 22 103 109 94 4 3 330 86 244 101 30 0 71 0 0 0 0 0 495 75 23 0 135 0 37 28 51 72 26 48 339 79 260 188 47 0 141 0 0 0 0 0 18 1 0 0 1 0 11 0 1 1 2 1 12 11 1 0 0 0 0 0 0 0 0 0 6 0 0 0 2 0 4 0 0 0 0 0 14 10 4 0 0 0 0 0 0 0 0 0 931 1022 30 20 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 EXXARO INTEGRATED ANNUAL REPORT 2010 115 ENVIRONMENT CONTINUED Environmental incidents — level 2 Business unit Grootegeluk Description Accidental diversion of reclaimed slimes Receiving environment Groundwater Matla Arnot KZN Sands — Hillendale KZN Sands — CPC KZN Sands — Hillendale KZN Sands — Hillendale KZN Sands — Hillendale KZN Sands — Hillendale KZN Sands — Hillendale KZN Sands — Hillendale KZN Sands — CPC KZN Sands — CPC North Block Complex Glisa North Block Complex Strathrae Tshikondeni Inyanda mine Inyanda mine Inyanda mine Inyanda railway siding Inyanda railway siding Inyanda mine dam water to an unlined slimes dam caused localised pollution. Graves were discovered during mining- related activities; area demarcated and South African Heritage Resource Agency (SAHRA) informed. Temporary silt damwall broke and caused slurry to run into ﬁeld. Failure of a slimes transfer pipeline Heritage resource Soil and natural vegetation Soil and natural vegetation feeding the residue dam. Burn-through on furnace 2 shell during a Air metal tap with dust and iron oxide fumes. Breach in berm caused sediment to wash off site into Umhlathuze River. Water from backﬁll cyclones breached the berm; discoloration of Umhlathuze River. Burst pipe caused slimes to spray onto neighbouring property. Subsoil saturated due to elevated water ingress from hydro cyclone underﬂow; discoloration and retarded growth of sugar cane in neighbouring ﬁeld. Blocked channel caused surface runoff to neighbouring properties with damage to tomato crops. HDPE pipe burst caused ROM to spill offsite. Stack emission exceeded permit requirements for particulate matter. Blockage in small disintegrator delivery line caused excessive visual smoke and particulate matter emissions Decant water from block B ﬂowing into a clean water environment. Slurry spill into the ﬁeld. Discharge of sewage. Dust concentrations exceeded air quality standards ﬁve times in 12 months. Coal sediment and contaminated water spilled into a clean environment Heavy rainfall caused return-water dam Surface water Surface water Soil and crops Subsoil and crops Surface water Soil Air Air Surface water Soil and natural vegetation Soil and natural vegetation Air Surface water Soil and groundwater level to exceed lined level. Dust concentrations exceeded air quality Air standards once in 12 months. Pollution control dam overﬂowed twice in 12 months. Evaporation dam overﬂowed Surface water Surface water 116 EXXARO INTEGRATED ANNUAL REPORT 2010 Consumption per business unit: 1 January — 31 December 2010 Electricity (GJ) Diesel (GJ)** Sasol gas (GJ) Petrol used (GJ) Total energy use (GJ)* Water (m3) 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 Commodity business COAL Arnot Char plant Durnacol Grootegeluk Hlobane Inyanda Leeuwpan Matla 1 956 915 1 835 131 2 126 313 2 199 610 188 997 201 082 232 783 341 106 18 517 9 266 318 – 4 574 5 750 5 272 – 962 169 904 342 640 167 727 756 32 – 1 409 – 25 972 22 997 140 017 134 678 88 354 76 144 558 251 427 349 491 807 463 723 68 640 64 618 New Clydesdale Colliery 53 440 37 566 125 202 158 273 North Block Complex 8 826 5 184 314 028 307 630 Tshikondeni*** 118 483 114 828 35 492 32 929 – – – – – – – – – – – – – – – – – – – – – – – – 15 808 14 899 4 099 036 4 049 640 10 830 228 11 345 080 3 140 3 307 424 920 545 494 755 441 1 045 197 – 198 3 818 215 – – – – 23 091 14 538 92 111 62 165 6 266 – – – 4 623 1 606 154 1 636 721 6 326 873 6 673 009 – – – 1 656 – – – 165 989 157 675 853 200 778 205 646 605 503 492 493 965 414 856 3 318 5 035 563 765 533 377 1 522 054 1 573 593 – – – – 178 642 195 839 295 505 274 493 322 854 312 814 336 776 1 103 5 120 1 933 159 095 149 690 154 303 522 459 MINERAL SANDS 3 682 239 4 214 567 497 116 481 817 257 426 307 040 5 741 3 888 4 442 522 5 007 312 11 419 905 13 029 937 KZN Sands*** 1 637 787 2 298 182 71 255 71 067 257 426 307 040 – – 1 966 468 2 676 289 8 983 419 11 115 338 Namakwa Sands 2 044 452 1 916 384 425 861 410 750 BASE METALS AND INDUSTRIAL MINERALS Glen Douglas Rosh Pinah Zincor 1 674 769 1 697 593 162 521 153 602 35 753 44 809 57 796 61 296 156 318 161 225 63 650 61 169 1 482 698 1 491 559 41 075 31 137 CORPORATE OFFICE 51 757 48 506 430 1 670 4 881 17 679 19 195 24 329 24 430 8 079 – – – 430 – – – – – – Alloystream Ferroalloys Head Office R & D Total – – – – – 1 335 – 1 335 – – – – – – – – – – – 5 741 3 888 2 476 054 2 331 023 2 436 486 1 914 599 401 401 – – 2 261 72 51 2 138 – 395 1 837 691 1 851 591 2 701 754 2 731 962 395 93 950 106 501 295 706 289 315 – – – – – – – 219 968 222 394 1 033 549 1 149 524 1 523 773 1 522 696 1 372 499 1 293 123 55 783 48 506 1 742 4 881 19 065 19 195 26 897 24 430 8 079 – – – – – – – – – – – 7 365 680 7 795 797 2 786 380 2 835 029 258 761 307 040 24 211 19 183 10 435 032 10 957 049 24 951 887 27 106 979 * Total energy figures comprise electricity, diesel, petrol and Sasol gas ** Figures are based on SAP issue reports *** Recommissioned furnace in 2009 ramping up to production Energy consumption was 4,8% lower in 2010 mainly due to the unplanned downtime on furnaces at KZN Sands. EXXARO INTEGRATED ANNUAL REPORT 2010 117 ENVIRONMENT CONTINUED Operational intensities Commodity business 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 Saleable product (kt) Energy/t Electricity/t Diesel/t Water/t COAL Arnot Char plant Durnacol Grootegeluk Hlobane 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 CORPORATE OFFICE Alloystream Ferroalloys Head Office R & D Total Eco-efﬁciency COAL MINERAL SANDS BASE METALS AND INDUSTRIAL MINERALS 44 436 36 412 4 167 5 211 114 – n/a – 18 426 13 521 – 1 830 3 149 – n/a 2 585 12 336 11 254 858 3 278 278 838 499 339 1 269 1 061 118 90 – – – – – 785 2788 268 984 659 325 1 440 1 228 121 91 – – – – – 0,10 0,10 0,20 – 0,09 – 0,09 0,21 0,05 0,21 0,10 0,57 5,30 3,94 7,29 1,45 0,09 1,86 0,11 0,10 0,40 – 0,12 – 0,21 0,19 0,05 0,25 0,11 0,56 10,60 2,98 7,61 1,28 0,08 1,82 0,05 0,05 0,16 – 0,05 – 0,01 0,03 0,04 0,06 0,00 0,43 4,39 3,28 6,02 1,32 0,03 1,32 0,05 0,04 0,25 – 0,07 – 0,03 0,03 0,04 0,05 0,00 0,43 4,28 3,49 5,89 1,18 0,04 1,33 17,01 16,78 16,55 16,43 – – – – – – – – – – – – – – – – – – – – 0,05 0,06 0 – 0,03 – 0,08 0,18 0,01 0,15 0,10 0,13 0,59 0,14 1,25 0,13 0,05 0,54 0,46 – – – – – 0,06 0,07 0,14 – 0,05 – 0,18 0,17 0,01 0,20 0,11 0,12 0,49 0,11 1,26 0,11 0,05 0,51 0,34 – – – – – 0,27 0,18 0,81 – 0,34 – 0,47 0,16 0,12 0,34 0,10 0,55 13,62 18,00 7,18 2,13 0,28 8,73 0,31 0,20 1,70 – 0,49 – 1,04 0,16 0,14 0,35 0,00 1,95 13,24 16,86 5,89 1,90 0,24 9,49 15,32 14,24 – – – – – – – – – – 46 544 38 836 0,25 0,27 0,17 0,20 0,07 0,07 0,59 0,70 Energy (GJ/t) Water (m3/t) Energy (GJ/t) Water (m3/t) Energy (GJ/t) Water (m3/t) 2010 0,1 0,27 5,3 13,62 1,45 2,13 2009 0,11 0,31 5,09 13,24 1,29 1,90 2008 0,09 0,27 4,65 27,00 1,28 2,11 118 EXXARO INTEGRATED ANNUAL REPORT 2010 CO2 from electricity purchased and diesel Commodity business 2010 2009 2010 2009 2010 2009 CO2 from electricity purchased (kt)* CO2 from diesel (kt)** Total CO2 emissions (kt) COAL Arnot Char plant Durnacol Grootegeluk Hlobane 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 Alloystream Ferroalloys Head Office R & D Total * Electricity purchased * 0,98/1 000 ** Diesel used * 0,00271/1 000 CORPORATE OFFICE 14,08 13,44 532,67 51,45 5,00 0,09 509,71 55,86 2,57 – 261,92 251,21 0,00 7,07 24,05 133,88 14,55 2,40 32,25 – 6,39 21,00 128,81 10,44 1,44 32,00 1 002,39 1 170,71 445,84 556,55 638,38 532,33 157,66 17,26 0,34 0,43 47,47 0,10 10,38 41,39 5,09 9,29 23,28 2,63 36,86 5,28 31,58 163,07 25,29 0,39 – 690,33 68,71 5,34 0,51 672,78 81,14 2,96 – 53,95 309,39 305,16 – 9,98 31,68 4,79 11,73 22,81 2,44 0,11 17,46 65,45 – 16,37 52,68 138,97 133,60 23,83 25,69 34,88 22,17 24,25 34,44 35,72 1 039,25 1 206,43 5,27 30,45 451,12 588,12 643,65 562,78 455,92 471,45 12,00 11,39 467,92 482,83 9,73 42,55 12,45 45,00 403,63 414,00 0,46 4,80 6,62 2,20 1,36 5,30 6,79 – 4,30 4,70 3,00 0,03 – – 0,03 – 4,54 4,54 2,31 – – – – – 14,03 47,25 16,99 49,54 406,63 416,31 14,11 13,44 0,46 4,80 6,66 2,20 1,36 5,30 6,79 – 1 990,97 2 151,87 206,52 210,17 2 197,49 2 362,04 EXXARO INTEGRATED ANNUAL REPORT 2010 119 SOCIAL PERFORMANCE Our people Disclosure on management approach Exxaro’s approach to its people is guided by a comprehensive suite of policies that covers employment, labour/management relations, occupational health and safety, training and education, and diversity and equal opportunity. For a number of reasons, South Africa is particularly challenged by the shortage of speciﬁc skills and a national plan is in place to address this. Known as critical or scarce competencies, attracting, retaining and developing these skills is a focal area for all mining companies and a competitive point of difference. Supported by the leading practices developed in recent years, Exxaro concentrates on exceeding compliance targets in South Africa by training and development to maximise individual potential, equality and safety in the workplace, meeting our employment equity targets and improving standards of living in our stakeholder communities. Collectively, our initiatives are also contributing to reducing the shortage of skills in our industry. Exxaro follows a total remuneration approach with guaranteed and variable components. The group’s vision, mission, business strategy and culture drive this philosophy and strategy, in tandem with governance structures and external statutory regulations (SA Revenue Services, King III and IFRS II). The components include guaranteed pay, short-term performance incentives and long- term incentives such as share schemes and other beneﬁts linked to longer-term targets to ensure sustainability. All components are benchmarked against the external market to ensure Exxaro remains competitive. Wage agreements on remuneration are in place at all group employers, while formal processes determine remuneration for non- unionised employees. Six-monthly market surveys ensure total remuneration is market related. At all levels, minimum conditions of employment exceed the requirements of South Africa’s Basic Conditions of Employment Act. 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 beneﬁt of the individual and the organisation > Ensure integration and uniformity in all learning and development processes by leveraging technologies > Support and reinforce our values through various learning and development 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. 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 the skills base we needed to fulﬁl our vision. Employment equity is just one of the ways in which we are doing this. While employment equity is certainly a legal issue, with strict targets imposed by both the mining charter and the government’s black economic empowerment codes, for Exxaro it is also a moral imperative. At the heart of our employment equity strategy are detailed plans developed by each business unit in consultation with its employees and unions. These are updated and progress reported to the board quarterly and government annually. By following these plans, each unit ensures that recruitment and skills development are conducted responsibly, encouraging transformation without affecting existing positions in the company. Each business unit has a formally assigned senior manager for employment equity, and an employment equity forum responsible for ensuring appropriate plans are developed, executed, monitored and communicated to employees. 120 EXXARO INTEGRATED ANNUAL REPORT 2010 Highlights > New R3 million assessment workshop opened in April at Grovos training centre in Lephalale > 201 learners enrolled in 2010 Workforce Exxaro’s staff complement was 10 937 at 31 December 2010, split into employees in bargaining units and the management and specialist category. In the bargaining units, there are 8 597 employees, with 1 913 employees in the management and specialist category. Regional distribution is shown below: Region Gauteng KwaZulu-Natal Limpopo Mpumalanga Western Cape Namibia Expatriates Local nationals* Total * Australia office. Bargaining unit Management and specialist category Temporary employees 880 529 2 395 3 552 771 469 1 8 597 151 64 16 153 35 8 611 167 480 294 253 98 4 6 Total 1 642 760 2 891 3 999 1 059 575 4 7 1 913 427 10 937 The HR management system introduced in and timely business information, and there is no discrimination between March 2009 is providing the group with effective forecasting of people-related salaries of men and women in this end-to-end business process integration, information (employees and contracting category. In the management and including e-learning and medical workforce). surveillance. This advanced environment specialist category, all employees are on performance contracts and individual has enhanced Exxaro’s ability to monitor, There were again no reported incidents of salaries are based on performance, not control and enforce compliance (medical discrimination in the group during the gender or race. and induction expiries, overtime and year. As collective agreements determine statutory leave). It also ensures accurate speciﬁc guaranteed minimum salaries, The breakdown of employees by gender and age is shown below. Region Gauteng KwaZulu-Natal Limpopo Mpumalanga Western Cape Namibia Expatriates Local nationals Total Bargaining unit Management and specialist category Temporary employees Male Female Male Female 702 466 2 144 3 110 673 438 7 533 178 63 251 442 98 31 1 1 064 411 134 416 250 204 71 4 5 1 495 200 33 64 44 49 27 1 418 Male 113 41 8 113 25 4 Female 38 23 8 40 10 4 Total 1 642 760 2 891 3 999 1 059 575 4 7 304 123 10 937 EXXARO INTEGRATED ANNUAL REPORT 2010 121 SOCIAL PERFORMANCE CONTINUED Bargaining unit Management and special Temporary employees 18-25 26-35 36-45 46-55 56-65 66-68 18-25 26-35 36-45 46-55 56-65 18-25 26-35 36-45 46-55 56-65 66-75 Total Gauteng KwaZulu-Natal Limpopo Mpumalanga Western Cape Namibia Expatriates Local nationals Total 239 56 820 1 014 73 88 117 10 213 246 7 27 20 4 19 20 10 1 1 38 55 181 302 103 51 237 274 588 1 079 326 193 249 134 593 910 262 110 1 157 50 142 87 60 33 2 1 213 64 154 91 102 31 2 4 730 2 697 2 259 2 290 620 1 74 532 661 161 34 122 82 70 29 1 499 60 15 43 14 11 4 62 13 2 44 17 2 22 17 5 69 10 3 25 9 5 27 2 3 13 16 3 6 1 25 7 1 4 4 4 2 2 1 1 642 760 2 891 3 999 1 059 575 4 7 147 140 126 71 39 41 9 10 937 The challenge of ﬁnding suitable skills to staff new projects is ongoing. Exxaro has an active retention programme to maintain scarce skills that accounts for 5-6% of total payroll. Equally, considerable attention is given to building a sustainable talent pipeline of skills in critical or scarce competencies. Employee turnover Between 1 January and 31 December 2010, Exxaro’s average employee turnover rate was 6% (2009: 4%), primarily because of death, resignation, dismissal and disability. The turnover rate by employee group is show below: Employment equity – occupational levels % of workforce Number Terminations January – December 2010 Top management Senior management Professional, specialist and middle management Skilled technical, academically qualified and junior management Semi-skilled and discretionary decision making Unskilled staff 0 0 0 1 5 0 6 Breakdown of turnover statistics Gender Race Reasons for terminations l i a s s m s D i d e n g s e R i 79 262 Turnover numbers Total F M A Grand total 602 61 541 371 C 59 I 14 d e d n o c s b W A 158 40 y t i l i b a s D i 66 h t a e D 85 122 EXXARO INTEGRATED ANNUAL REPORT 2010 Turnover by age groups 57 d e r i t e R 70 119 114 20-30 years 41-50 years 61-70 years 31-41 years 51-60 years 0 19 13 74 475 21 602 131 181 Employment equity The breakdown of Exxaro’s annual employment equity reports, as submitted to the Department of Labour, is shown below. As these reports are for the period 1 August 2009 to 31 July 2010, totals differ from year-end numbers. Top management Senior management Professional, specialists and middle management Skilled technical, academically qualified and junior management Semi-skilled and discretionary decision making Unskilled and defined decision making Total permanent Temporary employees Total Male C 1 2 I 5 A 2 9 W 3 63 A 2 Female C I 1 W 8 217 29 33 491 72 9 22 131 Foreign M F Total 6 91 2 1 015 1 9 1 206 213 42 1 251 228 51 24 358 11 2 3 386 3 536 447 11 272 317 79 9 59 71 4 801 929 5 899 41 5 940 692 2 694 30 91 2 110 32 91 2 142 159 778 16 794 2 141 3 144 3 559 20 579 56 2 58 6 98 1 129 4 10 428 116 98 4 10 544 A – African, I – Indian, C – Coloured, W – White. Excludes international employees and local nationals in Australia Percentage of employees with NQF level 1 qualiﬁcations and above 79% In 2010, 180 employees completed various ABET levels successfully (14 passed ABET level 4, 53 passed level 3, 34 level 2, 59 level 1 and 20 pre-ABET). Over 150 non- Exxaro employees completed different ABET levels during the year. 66% 68% 68% 2007 2008 2009 2010 Literacy and numeracy Exxaro’s target is to provide all employees with qualiﬁcations below NQF level 1 the opportunity to become functionally literate. Exxaro employees with a qualiﬁcation of below NQF level 1 now form 21% of the total workforce. Exxaro offers sponsored, voluntary adult basic education and training (ABET) programmes at all commodity businesses and carries the full cost of these programmes. This initiative amounted to R1,9 million in 2010, a signiﬁcant increase on the prior year (2009: R1,3 million). To ensure informed decisions, candidates are screened and counselled, and an incentive scheme for each level completed encourages more employees to become functionally literate and numerate. Almost 1 200 employees have passed one or more ABET levels since the inception of this programme. EXXARO INTEGRATED ANNUAL REPORT 2010 123 SOCIAL PERFORMANCE CONTINUED Exxaro has accredited ABET training centres at Grootegeluk, Tshikondeni, Matla and Arnot mines. An ABET centre was launched at North Block Complex in September 2009, while Tshikondeni centre introduced full-time classes in 2010. The group’s annual training reports and workplace skills plans, approved by the MQA, reﬂects the number of ABET candidates completing various levels as well as those planned for the years ahead. Functionally literate and numerate Total staff count Employees below ABET level 3 Employees on ABET level 3 Employees above ABET level 3 * Number of full-time employees. Training and education Number of people 2010 10 510* 1 683 511 8 316 2009 11 180 2 236 345 8 599 Material issue: Training and development The critical shortage of artisans in South Africa, and around the world, is affecting virtually every aspect of our economy from municipal service delivery to routine maintenance. At the heart of the issue lies the lack of suitably qualiﬁed candidates with the necessary entry skills, particularly in science and mathematics. These subjects are the basis of many trades. The situation is compounded by emigration, signiﬁcantly reduced corporate training because of the government’s SETA learnership programme, and the fact that almost half our existing artisan population is over the age of 50. South Africa is currently producing around 5 600 qualiﬁed artisans each year — well below the target of 12 500 set by the Department of Higher Education and Training. Estimates of the country’s requirement range from 50 000 to 80 000 artisans — our current artisan workforce is estimated at 1 340. In 2010, Exxaro had 379 people at different stages of their artisan qualiﬁcations. To put this contribution into perspective, Exxaro alone accounts for a sizeable portion of all engineering learnerships registered with the MQA. This training will lead to full artisan status in trades such as electrician, ﬁtter, plater, diesel mechanic and millwright. All these trades appear on South Africa’s scarce skills list. Exxaro’s human resources development professionals also contribute signiﬁcantly to the national and sectoral transformation process by participating in bodies such as Business Unity South Africa, Chamber of Mines’ education advisory committee, and the MQA’s sector skills planning committee and standards-generating bodies. 124 EXXARO INTEGRATED ANNUAL REPORT 2010 At Exxaro, we believe that empowering all termination as part of the social and management is also included in a web- staff with the knowledge and skills they labour plan for each mine. based induction programme. need to develop personally will also help us grow the company. In 2010, 7 013 To preserve technical and engineering Employees in the bargaining unit are not Exxaro employees successfully completed competence in the group, aggressive part of Exxaro’s formal performance some form of relevant development retention and succession-planning management system. Their development training. Exxaro’s policy is to invest an strategies are in place for technical is guided by individual development plans appropriate amount of total payroll each and other categories. Comprehensive based on the job proﬁle, formal career year on human resource development. In training and growth opportunities provide path and individual preference. 2010, this was 5,1% or an investment of continual rotation and exposure of talent R140 million (2009: 5% or R126 million). to multi-disciplinary teams. We encourage our people to accept joint responsibility in managing their career In 2010, the group continued its broader Across the group, training and growth. Exxaro ﬁnancially assists focus on skills development, moving development is based on a comprehensive permanent employees with potential to from engineering learnerships to include needs analysis, incorporating business continue their education through part- other learnerships and skills strategy, identiﬁed skills deﬁciencies via time studies of recognised, approved programmes. During the year, Exxaro the performance management process, courses and programmes. Employees enrolled 166 new engineering learners, succession-planning requirements, nominated by the company to attend 17 mining learners, 12 operator learners, employee career progress and courses or programmes are fully seven administrative learners and 18 the Grootegeluk for plant learners employment equity plans. tuition, examinations, sponsored travel, accommodation costs and study for Medupi expansion project. All employees outside bargaining units leave. receive formal performance and career The ratio of learnerships in the pipeline to development reviews bi-annually. Speciﬁc strategies to ensure the the number of artisans employed in Management members are assessed accelerated learning and development of various trades is monitored as part of our throughout the year as the basis for black people, women and people with artisan retention strategy. This ratio is individual succession plans and talent disabilities include: currently 1:3. management. These assessments are also > Fast-tracking employees with leadership linked to reward and remuneration. and management potential E-learning is an integral part of our > Accelerated development for training delivery approach and New management and specialist-category occupation-based skills implemented across the organisation. employees undergo training on the > Formal study assistance Portable skills training is provided to reinforce the concept that reward is > Life skills programmes assist employees in managing career driven by performance. Performance > Learnerships. performance management process to > Adult basic education Skills development Description 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 * Numbers as per skills development plan submitted to Department of Labour on 31 March 2010 Spent 2010* Rm 2 736 140 115 21 11 2009 Rm 2 045 126 89 11 9 EXXARO INTEGRATED ANNUAL REPORT 2010 125 SOCIAL PERFORMANCE CONTINUED Career development To ensure solid learning foundations, further skills development only takes place once employees have been declared competent in their current positions. In most cases, further development is focused on a career path in the department in which the employee is currently working. Exxaro’s strategy is to ensure 75% of all new appointments are made internally. Our integrated process is therefore aligned with both our strategy and industry needs to provide a steady ﬂow advancement. The overarching objective at a cost of R11 million: two-thirds are is to ensure that trainees entering the historically disadvantaged South group are empowered, challenged and Africans and 30% are women. appropriately rewarded: > Exxaro people development > Professionals-in-training initiative Exxaro granted 30 bursaries in 2010 to programme In this three-year programme that school leavers interested in technical blends academic theory with the work disciplines such as engineering, environment, each professional-in- geology and mine surveying. training has a mentor who supervises Candidates must be grade 12 students exposure to the various commodities, from Exxaro mining communities who leadership and management training, want to study for a technical degree or and formal training from professional diploma. On completing their studies, bodies. In 2010, there were candidates are considered for an 73 professionals in training throughout of qualiﬁed talent for our growth and Exxaro bursary. expansion projects. In 2010, there were 221 participants on programmes supporting internal > Bursary programme There are currently 118 bursars studying at South African institutions Exxaro in a R40-million programme: 65% are from designated groups and 29% of those are women. Getting the golden ticket In 2009, Exxaro introduced a programme to help employees obtain their government certiﬁcate of competence (GCC) in electrical or mechanical engineering. Given the pass rate of around 20%, obtaining the GCC offered by the Department of Mineral Resources has been a formidable obstacle to many engineers in the past. The Exxaro programme, developed by a manager in the engineering ﬁeld at Matla, prepares qualifying employees by building on the practical engineering exposure and training they have received in the years prior to registering for the GCC examination. Since the introduction of the course, Exxaro’s pass rate has risen from 20% to 50%. Grovos conducting trade tests Trainee electricians, ﬁtters and millwrights are enjoying the beneﬁts of the new R3-million assessment workshop that opened at the Grovos training centre in Lephalale in April. This is in line with legislation that requires training providers to conduct their ﬁnal trade tests at a different venue to where learners were trained. The launch of the assessment centre follows a series of improvements over the past four years, in which Grovos has increased the intake of new learners by 56%, while setting a record with an 89% qualiﬁcation rate in 2009. In 2010, the qualiﬁcation rate dropped slightly to 85%. The centre is now equipped to train 180 learners per year, many of whom will be placed at Grootegeluk to support its expansion plans. Case study — Exxaro learner management programme has industry-wide beneﬁts Exxaro’s learner management programme is instrumental in designing skills programmes for the engineering and mining disciplines in the coal industry. Once approved by the MQA, courses are loaded onto the MQA database for national use. In addition, Exxaro loads course material onto its own e-learning platform for other business units to use. During the year, two more groups of gas-testing and ﬂame-prooﬁng learners graduated. To date, 72 employees have been trained in gas-testing 720 unit standards and 38 employees in ﬂame-prooﬁng 141 unit standards. 126 EXXARO INTEGRATED ANNUAL REPORT 2010 Leadership development Formal leadership development initiatives, mentorship programmes and succession-planning workshops involving senior management and employees are ongoing. Building and retaining a pool of current and future leaders is a priority for the group and appropriate initiatives include a comprehensive succession-planning process and enhancing strategic leadership competencies. The professionals-in-training programme supports the success of critical skills in the management and specialist categories. The programme also assists in achieving the group’s employment equity targets. New leadership programme — (In)Credible Leadership Exxaro has developed a unique leadership philosophy dedicated to strategic business objectives and personal improvement on all levels. Hundreds of leaders in Exxaro have contributed to developing a sound philosophy that encourages leadership credibility ﬁrst and incredibility to follow. Credible Competence: Leaders have basic functional and managing competencies to lead. Self: Leaders have a value-centred, accountable and reﬂective character. People orientated: Leaders have basic rational skills including diversity, respect and constructive discipline. Communication: Leaders have foundational communication attitudes such as openness, listening and positive attitude. Incredible Involved: Leaders create a context for meaningful participation of teams through diversity, trust and alignment. Inspire: Leaders connect people with the dream and maintain motivation for the vision. Invest: Leaders facilitate knowledge and understanding of people. Inﬂuence: Leaders inﬂuence achievement of goals through respect, understanding and openness to change. Communities of practice Exxaro has communities of practice for effective development and sharing of knowledge, best practices and lessons across the group. The focus is primarily on core competencies required for Exxaro’s sustainability. In practice, these communities have lowered the risk of losing key knowledge workers, and In September 2010, members of NUM > Housing allowance and/or company employed in the bargaining unit at accommodation Exxaro Sands operations in KwaZulu- > Guaranteed annual holiday bonuses/ Natal went on strike over a wage dispute. 13th cheque for bargaining unit The strike was resolved after three employees weeks. Labour relations at all other > Travel/commuting allowances Exxaro operations are managed in such a > Standby and call-outs as well as way that they facilitate progress towards amicable and mutually beneﬁcial payment for overtime worked leave, sick > Annual leave, maternity brought new people up to speed more resolution. rapidly. leave, family responsibility leave > On-target short-term incentive schemes Labour relations Almost 70% of Exxaro’s employees are represented by afﬁliated unions, Exxaro has a disciplinary code that is used > Long-term incentives — either based on when necessary. The code is based on the share price appreciation or the principle of fairness as required by labour achievement of longer-term targets law. Supervisors have the skill to aimed at sustainable operations. predominantly National Union of implement the code. Mineworkers (NUM) (54,5%), and Solidarity (10,7%). Other recognised unions are Mineworkers Union of Namibia (MUN), National Union of Metalworkers in South Africa (NUMSA), and United Association of South Africa (UASA). Negotiations for improved wages and conditions of employment are conducted in various in-house forums and through Retirement and other beneﬁts for all Employee beneﬁts Through collective bargaining, full-time permanent employees are provided by independent deﬁned contribution funds. employees receive a range of beneﬁts — The employer contribution to retirement many exceeding legislative stipulations funds in the group ranges from 10% to for South Africa’s basic conditions of 18% of employee pensionable earnings, employment — including: and is expensed as it occurs. All retirement > Retirement fund membership including funds are governed by the South African contributions by the employer Pension Funds Act (1956), with no > Medical aid membership subsidised by members on deﬁned beneﬁt plans. the Chamber of Mines. the employer EXXARO INTEGRATED ANNUAL REPORT 2010 127 SOCIAL PERFORMANCE CONTINUED In 2010, employees participating in Exxaro’s Mpower (empowerment scheme holding around 3% of Exxaro’s shares to broaden share participation among Home owners (bought company property) workers) received their ﬁfth dividend Hostels payment. Since inception in November Single quarters 2006, each of the Mpower beneﬁciaries (9 289 at year end) has received some R5 670 in dividends. Rental and other Total Number of employees 2010 948 40 1 505 8 017 2009 929 594 1 343 8 314 2008 822 389 1 336 7 588 10 510 11 180 10 135 Housing Exxaro 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 two years ago. In 2009, the group introduced a ﬁve-year subsidy for ﬁrst-time homebuyers who are permanent employees. This was the welcome particularly given unprecedented scarcity of bank mortgage ﬁnance at that time. To date, 232 employees have beneﬁted from this subsidy to make home-ownership more affordable. While Exxaro’s housing policy focuses on home ownership, employees receive a housing or living-out allowance to assist them in obtaining accommodation. The total value of these allowances in 2010 was over R137 million. The steady increase in the number of In 2010, ﬁve women aiming to become home owners reﬂects the group’s miners began their training programme at commitment to facilitating affordable Tshikondeni. By the end of November, they ownership. At all operations, except had completed the ﬁrst phase of their Tshikondeni due to the current life of studies at the Colliery training college and mine, there is only one person per room in will train for another 12 months on-site the hostels; at Tshikondeni some rooms before qualifying as miners. have two occupants. Exxaro provides meals at Matla and Human rights Exxaro complies with labour legislation in Tshikondeni where the quality and South Africa and International Labour nutritional value are determined by a Organisation guidelines. As a signatory to dietician. Qualiﬁed staff continually the United Nations Global Compact, the monitor adherence to contractual group encourages freedom of association obligations. Employees have accessible and collective bargaining, ensures child mechanisms to engage both management labour is not tolerated and that forced or and suppliers on food issues. compulsory labour is not practised. Women in mining initiatives Although Exxaro already exceeds prior Induction programmes educate employees about human rights. Policies on mining charter targets of having 10% of discrimination, harassment and racism the workforce staffed by women, are in place, as are structures to protect attracting women to work in the group’s employees’ human rights in the workplace. core business remains a focus area. All security personnel are fully trained after appointment on human rights aspects relevant to each operation. Refresher courses also cover human rights issues. 128 EXXARO INTEGRATED ANNUAL REPORT 2010 SUSTAINABLE PROCUREMENT Disclosure on management approach Sustainable procurement Exxaro is adapting its supply chain operations to ensure we source, contract, lease, hire and procure goods and services from suppliers that practise sustainable development value-chain principles that minimise harm to ourselves, others, the environment and our planet. This will include implementing warehouse and inventory management practices that minimise waste and excessive consumption or use of our natural resources. Equally, our supply chain partners important in are addressing inefﬁciencies that might stakeholders impact negatively on health, hygiene, safety and the environment. Progress In the review period Exxaro developed a sustainable supply-chain philosophy that will be adopted across the group as an initial milestone in building competency in this ﬁeld. In terms of this philosophy, all employees and other stakeholders making procurement decisions are encouraged to support our supply-chain function in building relationships with suppliers that demonstrate commitment to sustainable business practices including: > Upholding basic human rights and complying to relevant labour legislation Preferential procurement Management approach on disclosure Preferential procurement The group’s preferential procurement policy tasks the business to capitalise on its purchasing power to ensure that, in business practices, we engage and contract with external suppliers with strong BEE credentials or that are making a tangible effort to transform their business to be BEE compliant. This is an important > Integrating sound health, safety and element of material stewardship. Since the promulgation of the new mining charter in September 2010, we have reviewed our policy and to accommodate multi- strategy national suppliers of capital goods that wish to contribute 0,5% of annual income generated from Exxaro into a special fund for the socio-economic development of local communities. hygiene management practices into all aspects of their businesses > Implementing effective and compliant environmental management in design, manufacturing and waste management processes > Commitment to Exxaro’s ethical code of conduct in dealing with internal and external stakeholders > Supporting and contributing to the economic and social development of communities in which Exxaro operates. All collaborative efforts with our stakeholders and partners will be carried out in the spirit of support for sustainable business practices, enhancing Exxaro’s level of competence in supply-chain sustainability. Current focus areas are strategic sourcing, supplier management, procurement, logistics and inventory management. EXXARO INTEGRATED ANNUAL REPORT 2010 129 SUSTAINABLE PROCUREMENT CONTINUED Procurement from HDSA suppliers ) % ( 60 50 40 30 20 10 0 2005 2006 2007 2008 2009 2010 % HDSA spend Preferential procurement targets 60 50 40 30 20 10 0 2009 2010 2011 2012 2013 2014 % HDSA spend Progress Our current policy incorporates BEE targets speciﬁed by expenditure on capital goods, operational goods and services. We have demonstrated our commitment to procuring from HDSA companies through steady progression from 16% in 2004 to over 45% in 2009. We exceeded our 2010 target of 47%, recording an actual procurement level of 50% from HDSA companies. For the review period, the 50% level achieved represents R3,8 billion spent with HDSA-owned companies, reﬂecting numerous BEE capital contracts for the Medupi project among others. The target for 2011 is 50%, rising incrementally to 56% by 2014. Accurately reﬂecting spending on suppliers by category as required by the mining charter is important to track our performance against targets and we have conﬁgured our systems to report quarterly ) % ( progress in terms of capital goods, consumable goods and services. Conﬁguring and developing our systems to track multi-national supplier contributions remains an industry-wide challenge. 130 EXXARO INTEGRATED ANNUAL REPORT 2010 SOCIO-ECONOMIC DEVELOPMENT Disclosure on management approach Communities Exxaro’s community activities are directly linked to its strategy by ensuring the group’s sustainability, and protecting and building its reputation by fostering mutually beneﬁcial relationships with local communities. A local community is deﬁned as a community in the immediate area of Exxaro’s operations and from labour-sending areas. In considering any project, our overarching objective is to alleviate poverty and improve the life of identiﬁed communities. This is even more important given the rural location of most of our operations — areas characterised by the level of unemployment and relevant development needs. Socio-economic development projects refer to the application of funds, goods and labour to provide sustainable services for the local community, which can be owned, managed and maintained by that community. Unlike a donation, Exxaro’s role in these projects extends beyond providing funds to active involvement in applying these funds, as well as a project management role. In South Africa, all mining groups are required to have social and labour plans supporting the key provisions of the mining charter. Exxaro’s social and labour plan strategy describes each plan as a set of initiatives designed to minimise any negative social impacts and maximise the positive social opportunities of mining operations. The objective is to ensure real sustainable development and growth in communities. An important element in Exxaro’s approach is generating new non-mining economic opportunities within identiﬁed local communities, particularly for local BEE companies and SMEs owned by disadvantaged groups. Exxaro’s role is to ensure that measures are in place to support the establishment and growth of SMEs and to develop effective linkages with funded, accredited training and development institutions. In terms of socio-economic development, Exxaro implements social responsibility strategies that reﬂect ongoing commitment from the company via the Exxaro Chairman’s Fund and Exxaro Foundation, aimed at entrenching the image of Exxaro as a caring corporate citizen in the community. Exxaro encourages volunteerism and participation in local economic development projects to create of a culture of socially conscious employees. EXXARO INTEGRATED ANNUAL REPORT 2010 131 SOCIO-ECONOMIC DEVELOPMENT CONTINUED Focus areas Exxaro’s sustainable Although not all our social and labour development plans have been approved by the activities, including socio-economic initiatives and donations, are focused on areas that are relevant and strategic to South Africa’s socio-economic development. Accordingly, we are Department of Mineral Resources, those already in place are mainly implemented according to set targets. These plans focus on communities close to our operations, as well as labour-sending Monitoring and evaluation currently We are implementing a monitoring and evaluation system to measure progress and identify challenges. This system is also aligned with Exxaro’s internal socio-economic development technology platform. It will be fully currently focusing on: > Formal education > Skills development and capacity building > Enterprise development > Health and welfare > Environment > Infrastructure (related to socio- economic projects) > Agriculture > Tourism > Sport and recreation. In implementing our strategy, we aim to integrate social sustainability into our business activities, creating public-private partnerships (PPPs) where possible to extend the impact. We accept that the areas, to ensure they beneﬁt from the operational by November 2011. mine’s presence in multiple ways. Exxaro’s policy is to actively recruit labour from local communities wherever possible, and training initiatives focus on developing the skills of community members to fulﬁl the group’s requirements. In 2010, Exxaro allocated some R38,6 million to socio-economic development projects currently under way, corporate projects and other some initiatives. includes This discretionary donations made by the corporate centre and individual business units. Most of these initiatives stem from Project implementation Exxaro’s ﬁve-year socio-economic development projects focus on enterprise development, infrastructure development and poverty alleviation as requested by the Department of Mineral Resources. In terms of the group’s social and labour plans, Exxaro has 55 sustainable projects unfolding over a ﬁve-year period. These are being implemented in conjunction with all relevant stakeholders to ensure a collaborative approach. The number of jobs being created through these projects exceeds 670, indirectly beneﬁting over sustainability of host communities extends identiﬁed community needs and are 11 400 people. beyond the ﬁnite time frames associated considered against the local municipality’s with our operations, and this is an integral integrated development plan. part of the closure plan for each mine. Exxaro Chairman’s Fund and Exxaro Foundation Funds allocated 1 January – 31 December 2010: R38,6 million 12% 8% 6% 26% Skills development Environment Education Enterprise development Sport and recreation Infrastructure Donations 12% 1% 35% Exxaro also contributed more than R16 million in 2010 via corporate projects and commitments, including university chairs, skills development and membership fees to national and international bodies such as the National Business Initiative, WWF and the Peace Parks Foundation. Some of Exxaro’s local economic development projects are detailed as case studies overleaf. 132 EXXARO INTEGRATED ANNUAL REPORT 2010 Case study — Zikulise skills training and SME development centre The Zikulise centre was ofﬁcially opened in November 2007 as a partnership project between Exxaro KZN Sands, uMhlathuze Municipality, NGO Zikulise Community Upliftment and the European Union. This project will be worth R6 million on completion and will offer skills training in various areas including sewing, beading, baking, pottery, and handcrafted jewellery. It also caters for blind people who are trained by the Blind Society of KZN in weaving baskets and cane furniture production. Off-site training in bricklaying, plumbing, plastering and carpentry will be offered. Five SME companies have been established to date, with three currently moving through the incubation phase. Established SMEs are mentored by the centre for three months after completing skills and business training to ensure their sustainability. To date, 1 800 people from the community have been trained by the centre. The centre also promises to become an important tourist attraction with visitors able to view training sessions and buy products from trainees. An attractive cafeteria, where bakery trainees also learn more about hospitality training, gives visitors to chance to enjoy unique African baking and delicacies like home-made ginger beer. Once a month, a morning market enables all SMEs to market their products at the centre. Zikulise is rapidly becoming a prime training centre, concentrated on two of government’s main focus areas in alleviating poverty, skills training and enterprise development. the that aims comprehensive Case study: Agri-business takes root at Grootegeluk At Grootegeluk, the success of a rural community is as integral to the mine as its operations. Grootegeluk has partnered with Lephalale Agricultural Corridor (LAC) project — agri-business a initiative to alleviate poverty by linking the burgeoning mining economy in Lephalale with the poorer marginalised economy of the broader region. Our goal is to establish the local rural villages of Seleka, Shongoane and Langa as sustainable food sources that can supply both local and international markets. Good progress is being made: > A new pump and water reservoir have been installed to draw and store water from the nearby river > Main-line irrigation has been set up both at the reservoir and on selected areas of farming ground. This system is designed to best suit the water needs of the area and type of crops that will be grown — instead of irrigating upwards, the water goes directly into the ground > Storage areas are being built in the communities to hold agricultural produce. industries Besides this infrastructure, the LAC will also help these communities sell their products to for catering purposes, as well as to local supermarkets and the community at large. The traditional leader for the area, Queen Langa, is exceptionally pleased with the progress on this project since Grootegeluk came on board. EXXARO INTEGRATED ANNUAL REPORT 2010 133 SOCIO-ECONOMIC DEVELOPMENT CONTINUED Case study — Innovative Case study: Inyanda supports infrastructure development beneﬁciation at Namakwa Over the last three years, Inyanda has spent R3,3 million to maintain the 11km stretch Sands of Zaaihoek Road that leads to the mine from Oosbank siding. The most recent Namakwa Sands’ mine at Brand-se- upgrades were completed in October, and maintenance will continue in 2011. Zaaihoek Road is an important link for farming and Klarinet’s developing communities, being one of the access roads on the north-eastern side leading to the town of eMalahleni (formerly Witbank). The road is also shared by school buses and other mining houses. Employees of Inyanda Coal use the road to get to work and the mine transports coal products to local and overseas markets. Prior to Inyanda assuming this maintenance responsibility, the road was in serious disrepair. Baai is like a huge sandpit next to the Atlantic Ocean. But this sandpit provides a livelihood for over 1 000 employees and their families now and 20 years into the future. The sustainability of this deposit is therefore a key focus area for the Namakwa Sands geology and planning departments. Traditionally, mining and beneﬁciation at Namakwa Sands included high- grade zones and low-grade zones, also known as waste. But the mining method resulted in erratic feed to the primary concentration plants, which affected recovery of the revenue- generating minerals. The geology department recently instituted a grade-control programme to stabilise feed to the plants by cutting out waste material and blending sand from different pits. Using technology, an innovative method was developed to communicate this to the mining department and to brief them on their daily targets, thus ensuring the sustainability of the deposit for many years to come. 134 EXXARO INTEGRATED ANNUAL REPORT 2010 Case study: Arnot hydroponics project This 10-hectare project is in the Steve Tshwete municipal area, in Mpumalanga. It involves 21 local community members, who have been trained in open-ﬁeld vegetable production. Arnot Coal is assisting beneﬁciaries in all phases to achieve the following objectives: > Build a sustainable BEE farming business > Create jobs for 21 community members > Alleviate poverty > Contribute to reforming agribusiness in the municipal area > Develop skills for a number of prospective farmers from previously disadvantaged communities The best site was identiﬁed by Arnot’s stakeholders forum, including representatives from the local municipality, an agricultural specialist from the Department of Agriculture, Forestry and Fisheries, and the National Union of Mineworkers. The mine provides funding and ongoing quality control, with appropriate employees using their time and skills to assist in building capacity. The mine’s sustainable development manager is overseeing the project daily and is responsible for ensuring that the monitoring and evaluation system is in place. Beneﬁciaries growing their ﬁrst vegetables And selling their produce EXXARO INTEGRATED ANNUAL REPORT 2010 135 SOCIO-ECONOMIC DEVELOPMENT CONTINUED Case study – Ofﬁcial opening of Lepharo incubation project Lepharo, an incubation project registered as a section 21 company (in the name of Seda Ekurhuleni Base Metals Incubator) was ofﬁcially opened by the executive mayor of Ekurhuleni, Clr Mondli Gungubele, on 23 February 2011. In his address, the mayor applauded the alignment with government’s drive to create jobs, skills development and reduce reliance on hand-outs. The idea of establishing a base metals incubator to develop SMMEs in Ekurhuleni was conceived as an Exxaro and Impala Reﬁneries initiative in 2003. The reasoning was simple: there was no downstream beneﬁciation business in base metals, particularly in zinc and copper, for small entrepreneurs. Traditionally, this segment was the domain of large companies. A feasibility study on this initiative was conducted by IZASA and results showed that sustainable SMMEs in sheet-metal work and spin-casting using base metals could be established. An expression of interest was submitted to GODISA (now Seda Technology Programme) for funding to start a base metals incubator in Ekurhuleni. GODISA was the main funder of incubators in South Africa at the time. GODISA accepted our expression of interest and funds were raised among the partners (Seda Technology Programme, Exxaro, Impala Reﬁneries, Ekurhuleni Municipality) to establish and manage the centre. The facilities were completed in 2009 and all machinery installed in 2010. There are two main businesses being incubated in this centre. These are spin-casting manufacturing keyholders, tin/bottle openers, medals, name tags, plate tags, trophies, etc, and sheet-metal work manufacturing gutters, down pipes, roof sheets, fascia boards, welding, etc. Two enterprises, Finecast and Medu Gutters and Installations, have graduated and are in business. View www.lepharo.co.za Case study: Makuya farmers’ cooperative Exxaro’s Tshikondeni mine is partnering with national, provincial and local authorities as well as development agencies to help local farmers implement better farming methods and grow lucerne for animal feed which will in turn produce better livestock. This R1,5 million project (Exxaro’s contribution) is expected to create 40 direct jobs, with 150 indirect project beneﬁciaries. During the year, work was started on the loading zones for the crush pens, which are now being constructed, and two boreholes sunk to produce 2 000 litres per day. The administration block and engine room were completed and Eskom will install electricity. The University of Venda is conducting research on the most suitable types of livestock to be farmed. 136 EXXARO INTEGRATED ANNUAL REPORT 2010 Case study: Namakwa Sands making a difference The Pholla Park project will bring electricity to around 400 households in Vredendal on South Africa’s west coast, beneﬁting some 1 600 people. This was part of a resettlement process in which informal housing was moved to designated areas and then connected to the electricity infrastructure, greatly improving the residents’ quality of life. In 2010, all 400 households were moved and the project completed two years ahead of schedule. Of the total project cost of R3,42 million, Namakwa Sands contributed R1,95 million. The costs saved by completing the project ahead of schedule will be allocated to other approved projects, with agreement from the Department of Mineral Resources. Pholla Park informal settlement — before Newly constructed power lines Serviced stands to which dwellings were removed New serviced plots with informal houses established EXXARO INTEGRATED ANNUAL REPORT 2010 137 138 EXXARO INTEGRATED ANNUAL REPORT 2010 DIVIDER PAGE 4 – FRONT (GOVERNANCE REVIEW) Governance review i w e v e r e c n a n r e v o G EXXARO INTEGRATED ANNUAL REPORT 2010 139 DIVIDER PAGE 4 – BACK (GOVERNANCE REVIEW) EXECUTIVE COMMITTEE 1. Sipho Nkosi 2. Wim de Klerk 3. Trevor Arran 4. Mxolisi Mgojo during this period. From 2001, he managed Exxaro’s mineral sands commodity business and then the base metals businesses in 2008. He was appointed ﬁnance director in 2009. 4. Mr MDM Mgojo — Mxolisi (50) Executive general manager: coal BSc (hons) energy studies, MBA, Advanced management programme (Wharton) Previously at Eyesizwe Coal, Mxolisi was responsible for marketing. Before assuming his current position, he was responsible for the base metals and industrial minerals commodity business. 3. Mr PT Arran — Trevor (43) 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 ﬁnancial experience gained in equity markets, investment banking and new business. He assumed responsibility for his current portfolio early in 2009. 1. Mr SA Nkosi — Sipho (56) Chief executive ofﬁcer (executive director) BCom (hons)(econ), MBA (Univ Mass, USA), Diploma in marketing management, Advanced management leadership programme After 20 years in the industrial and mining sectors, Sipho was a founder of Eyesizwe Holdings and served as chief executive ofﬁcer before its merger into Exxaro in 2006. He was appointed CEO of Exxaro in September 2007. 2. Mr WA de Klerk — Wim (47) Finance director (executive director) BCom (hons), Acc, CTA CA(SA), Executive management programme (Darden), Strategic marketing diploma (Harvard) Wim served on the executive management team of Iscor, responsible for strategy and continuous improvement. He also managed Iscor quarries and the Grootegeluk coal mine 140 EXXARO INTEGRATED ANNUAL REPORT 2010 5. Retha Piater 6. Ernst Venter 7. Marie Viljoen 8. Willem van Niekerk 5. Mrs M Piater — Retha (56) Executive general manager: human resources BCom (hons), MBA, Advanced management programme (Insead) Retha has 26 years of human resources experience across the various business units and commodities, speciﬁcally in the area of remuneration. 6. Mr PE Venter — Ernst (54) 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 beneﬁciation, process development and plant metallurgy. Prior to assuming his current position, he was responsible for the coal commodity business. 7. Mrs MS Viljoen — Marie (64) Company secretary Marie has 24 years’ experience in the ﬁeld. She is responsible for the group’s corporate governance and business administration to comply with statutory and legal requirements. 8. Dr WH van Niekerk — Willem (51) Executive general manager: corporate services BSc (hons), MSc, PhD (met eng)(Univ of Pretoria), BCom (Unisa), MBA (Henley Management College, London), 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. EXXARO INTEGRATED ANNUAL REPORT 2010 141 DIRECTORATE Mr SA Nkosi — Sipho (56) Chief executive ofﬁcer (executive director) Page 140 Mr WA de Klerk — Wim (47) Finance director (executive director) Page 140 Sipho Nkosi Wim de Klerk Mr CI Grifﬁth — Chris (46) Non-executive director, member of Tremco BEng (mining)(hons), PrEng Current directorships: CEO Kumba Iron Ore, chairman Sishen Iron Ore Company, director Kumba International Trading SA, member of Anglo American plc executive committee Other memberships: registered professional engineer with the Engineering Council of South Africa, member of South African Institute for Mining and Metallurgy and Association of Mine Managers. Mr JJ Geldenhuys — Jurie (68) Independent director, chairman of S&SD committee, member of Tremco BSc (eng)(elec), BSc (eng)(min), MBA (Stanford), professional engineer Current directorships: non-executive chairman Astral Food Limited and chair human resources and remuneration committee. Prior directorships: Avgold Limited, Anglovaal Ltd, Avmin Ltd, Freegold Consolidated Mines Ltd, Hartebeestfontein Gold Mining Company Ltd, Lorraine Gold Mines Ltd, Eastern Transvaal Gold Mines Ltd, Iscor Ltd, Sallies Ltd. President Chamber of Mines (1993-1994), served on Atomic Energy Council and National Water Advisory Council. Chris Grifﬁth Jurie Geldenhuys Uﬁkile Khumalo Len Konar Mr U Khumalo — Uﬁkile (45) Non-executive director BSc (eng), MSc (eng)(UCT), MAP (Wits), Senior executive development programme (Harvard), Advanced management programme (Insead) Current responsibilities: IDC divisional executive responsible for investments in resources and beneﬁciation sectors, food beverage and agro industries, energy and infrastructure sectors as well as high-technology venture capital. Prior directorships: non-executive director of many companies including JSE-listed DigiCore Holdings. Dr D Konar — Len (57) Independent director, chairman of the board and nomination committee BCom, CA(SA), MAS, DCom Current directorships: chairman — Steinhoff International, Mustek Limited; director — Illovo Sugar, South African Reserve Bank, Sappi, JD Group; member ad hoc United Nations ethics panel. Prior directorships: member of safeguards panel of International Monetary Fund, Washington; co-chairman of implementation oversight panel of World Bank, past chairman and member of external audit committee of International Monetary Fund. Tremco = transformation, remuneration, human resources and nomination committee 142 EXXARO INTEGRATED ANNUAL REPORT 2010 Mr VZ Mntambo — Zwelibanzi (53) Non-executive director, member of Tremco BJuris, LLB (Univ of North West), LLM (Yale) Current directorships: executive chairman Xalam Performance, chairman Metrobus (Pty) Ltd, Mainstreet 333 (Pty) Ltd, director SA Tourism (Pty) Ltd and trustee of Paleo-Anthropological Scientiﬁc Trust. Prior directorships: executive director IMSSA, director-general of Gauteng Province and chairman of Commission for Conciliation, Mediation and Arbitration of South Africa. Mrs N Langeni — Noluthando (67) Non-executive director, member of the S&SD committee BA(Cur) (Unisa), Diploma in nursing education (University of Natal) Current directorships: CEO South African Women in Mining Investment Holdings (Pty) Ltd, group CEO Bambizandla Holdings, director National African Women’s Alliance (Pty) Ltd (NAWA), chairman Basadi ba Kopane Investments (Pty) Ltd. Prior directorships: Protea Hotels Group, group CEO NAWA. Zwelibanzi Mntambo Noluthando Langeni Mr RP Mohring — Rick (64) Independent director, chairman of Tremco, member of audit, risk and compliance committee, member of S&SD committee BSc (eng)(mining), MDP, professional engineer Prior directorships: CEO NewCoal, an empowerment initiative and forerunner to Eyesizwe Coal. Mr NL Sowazi — Nkunku (47) Non-executive director, member of audit, risk and compliance committee BA, MA (UCLA) Current directorships: founding executive chairman of Tiso Group, chairman of Idwala Industrial Holdings, Home Loan Guarantee Company, Financial Markets Trust; director Aveng Ltd, Alstom South Africa, Trident Steel, Emira Property Fund and African Explosives Ltd. Prior directorships: executive deputy chairman of African Bank Investments Limited, MD Mortgage Indemnity Fund (Pty) Limited. Rick Mohring Nkunku Sowazi Mr J van Rooyen — Jeff (61) Independent director, chairman of audit, risk and compliance committee BCom, BCompt (hons), CA(SA) Current directorships: Uranus Group, non-executive director of MTN Group and Pick n Pay Stores. Trustee of International Financial Reporting Standards (IFRS) Foundation, member of University of Pretoria’s faculty of economic and management sciences oversight board. Founder member and former president of Association for the Advancement of Black Accountants of South Africa. Prior directorships: partner Deloitte and Touché, chairman Public Accountants and Auditors Board, CEO Financial Services Board, advisor to the Minister of Public Enterprises. Mr D Zihlangu — Rain (44) Non-executive director, member of S&SD committee BSc (min eng) (Wits), MDP (SBL, Unisa), MBA (WBS, Wits) Current directorships: CEO Eyabantu Capital Consortium; non-executive director PetroSA, chairman of its human capital committee, member of its business strategy committee; director of Sentula Mining. Prior directorships: CEO Alexkor Limited Jeff van Rooyen Rain Zihlangu EXXARO INTEGRATED ANNUAL REPORT 2010 143 REGULATORY COMPLIANCE AND CORPORATE GOVERNANCE . . . MOVING TOWARDS AN INTEGRATED REGULATORY AND COMPLIANCE PROCESS, SUPPORTED BY ENABLING TECHNOLOGY Disclosure on management approach Exxaro is systematically developing a dedicated, transformed board, equipped with the necessary skills and knowledge to make timely and effective decisions to ensure the group’s sustainability. The board provides strategic direction through in-depth knowledge of Exxaro’s markets and operations, and viable board processes. To ensure the base of knowledge, Exxaro pays market-related directors’ fees, and annually allocates sufﬁcient funds for director induction and training. Continuing development is both direct through leading service providers and via the national skills levy. In 2010, this amounted to R168 000. Regular meetings with the Exxaro management team are supplemented with communiqués to board members on topical matters to facilitate strategic thinking, planning and compliance. Quarterly information packs on broad business developments and legal issues are distributed. The chairman of the board meets weekly with executive management. Site visits are arranged as required and board members regularly attend group functions, including the CEO Safety Summits. Leadership Understanding the importance of diligent succession planning to the sustainability of the group, Exxaro has launched a unique leadership programme for all line managers. The programme is aimed at creating a signature-style single leadership philosophy. Exxaro is one of the ﬁrst organisations to move away from a commercial leadership approach to a customised programme linked to our brand and values. To date 619 line managers have attended this programme at a cost to the group of R345 000. In terms of its charter, it is the responsibility A compliance policy was adopted by the of the board to govern the legal board in 2008 and sets out the integrated compliance management processes of the compliance processes in Exxaro. The group. The board is assisted by the audit, policy is based on the standards of the risk and compliance committee which, Compliance Institute of South Africa. In inter alia, assesses legal and compliance this policy, compliance risk is deﬁned as risks that may have an impact on the the risk to earnings, capital and reputation annual consolidated ﬁnancial statements. arising from violations or non-compliance Safety, health and environmental risks are with laws, regulations, supervisory monitored by the safety and sustainable requirements, prescribed practices or development committee. ethical standards. We manage our compliance risks through: > Awareness training for employees and other affected stakeholders on high compliance risks identiﬁed from time to time > Monitoring and reporting on the level of compliance with regulatory requirements > Providing advice and formal legal opinions on current and envisaged actions and business processes. 144 EXXARO INTEGRATED ANNUAL REPORT 2010 Calendar 2010 proved an important year for Exxaro from a compliance perspective, with the adoption and proposed adoption of a number of key regulatory changes in the corporate and mining spheres, including: > The adoption of the new mining charter in September 2010 > The King Report on Corporate Governance for South Africa and the King Code of Governance Principles (King III), which became effective on 1 March 2010 Key objectives for 2010 Progress Implementation of the new A corporate forum has been established to monitor mining charter and evaluate progress on social and labour plans as well as the mining charter each quarter. A similar forum will be established at each business unit. The ﬁrst progress reports were submitted to the Department of Mineral Resources at the end of March 2011. Conducting an independent A favourable report was received by our King III readiness assessment independent external corporate governance to ascertain compliance gaps advisers. A summary of the ﬁndings is discussed on page 150. > Approval of the new Companies Act 71 Implementing e-learning The Competition Act was identiﬁed as a high of 2008 by parliament, but still not training and awareness on compliance risk due to the potential impact and effected business implications of the probability of non-compliance. > Proposed Competition Act amendments Competition Act > Consumer Protection Act 68 of 2008, with commencement deferred to April 2011 > Amendments to the National Credit Act 34 of 2005 > Stricter enforcement of the body of legislation relating to weighbridges, A Competition Act awareness programme was launched to address risks associated with non-compliance. At 31 December 2010, 558 of the targeted 667 employees in the group had completed the relevant e-learning training. A process is in place to ensure all participants complete the training. particularly the Trade Metrology Act 77 Continual monitoring of the The board and management receive a quarterly of 1973. status of converting mining report on the status of all mining and prospecting rights and considering rights, which sets out the risk attached to the rights These changes formed the foundation of associated risks in terms of conﬂicting and competing applications Exxaro’s key compliance objectives, with progress set out below. and mitigating actions discussed. Monitoring compliance to The investment in socio-economic development for social and labour plans 2010 was 2,5% of net proﬁt after tax. Of 13 social and labour plans, 11 have been granted. Conducting compliance audits To date 10 integrated water use licence applications on the status of integrated have been approved with seven still outstanding. water-use licences in terms of the National Water Act EXXARO INTEGRATED ANNUAL REPORT 2010 145 REGULATORY COMPLIANCE AND CORPORATE GOVERNANCE CONTINUED Key objectives for 2010 Progress Raising awareness of the Presentations on the status and major business business implications of the implications were made to the board, management new Companies Act and business units as well as major subsidiary companies. Training related to contract law Training was provided to the following business and basic contractual units: management > Medupi project team > Matla > Arnot > Namakwa Sands > North Block Complex > New Clydesdale > Leeuwpan > Inyanda. Training will be extended to the remaining business units in 2011. (MPRDA), Exxaro must comply with the relevant approved mine works programme, social and labour plan and environmental management programme as approved by the DMR for each mining right held. Compliance audits on the implementation and management of these programmes will be conducted in 2011 for all Exxaro mining rights and, where applicable, the required amendments applied for. The MPRDA requires in section 28(2) that all holders should annually submit ﬁnancial reports reﬂecting proﬁts and losses as well as a report on its compliance with the mining charter and MPRDA. Compliance audits on this annual reporting (as well as the monthly return) will be conducted in 2011 for all Exxaro Environmental laws awareness Awareness training was provided at: mining rights. training > Grootegeluk > Arnot > North Block Complex > Corporate centre. Health, safety and labour Training was conducted at: Awareness training will be ongoing in 2011. awareness training > KZN Sands > Zincor > Grootegeluk > Inyanda > Matla. The year was marked by an increase in conﬂicting prospecting/mining right applications being accepted and granted by the DMR. Exxaro has established an internal monitoring and reporting process, through Mineral Asset Management and its legal advisers, to deal with such applications by third parties. The DMR itself recognised this as an area of concern and implemented an administrative action plan together with a moratorium on new prospecting right applications until end Legal liability training on health and safety will be February 2011. rolled out in 2011. This will focus on line managers, mining/plant discipline at shopﬂoor or coal-face level, legal appointees, appointment letters and statutory lines of reporting. In addition to conﬂicting applications, third parties have approached the DMR to apply for prospecting rights on old dumps/ slurry ponds, etc owned by Exxaro. The necessary legal opinions on the status of Status of converting mining rights It is imperative that mining rights be secured by Exxaro for its existing mines Strathrae. Execution and registration of these dumps have been obtained and all granted conversions, and obtaining Exxaro has successfully prevented such conversion for the old-order rights for rights being considered by the DMR. The Arnot and North Block Complex, have business units affected (Hlobane, Durnacol and new mining opportunities. In 2010 been prioritised for 2011. and Zincor) have been briefed on the legal status of the dumps to ensure consistency conversion was granted by the Department of Mineral Resources (DMR) for the old- order mining rights held for Matla and In terms of the Mineral and Petroleum in Exxaro’s approach to the DMR and third Resources Development Act 2002 parties. 146 EXXARO INTEGRATED ANNUAL REPORT 2010 Exxaro mineral asset status as at 31 December 2010. Locations of Exxaro’s mines are shown on pages 8, 65 and 77. In place In process Not in place Mining operation conversions Commodity Region Mines Mineral sands KZN Hillendale Fairbreeze A, B, C, D and Block P Reserve 10 (Hillendale) Mining* right granted Mining(cid:204) right executed Action Documents submitted for registration at Mining Titles Ofﬁce Documents submitted for registration at Mining Titles Ofﬁce Documents submitted for registration at Mining Titles Ofﬁce Western Cape Namakwa Sands Complete Coal Limpopo Gravelotte Grootegeluk Tshikondeni Mpumalanga Leeuwpan Mafube Arnot Glisa (North Block Complex) Matla Strathrae (North Block Complex) New mining rights Commodity Region Mines Mineral sands KZN Fairbreeze C Ext Braeburn (Hillendale) UVS and Braeburn Ext (Hillendale) Limpopo Goni (Tshikondeni) Coal Mpumalanga Inyanda Leeuwpan Ext Eerstelingsfontein New Clydesdale Colliery Belfast Awaiting execution date from DMR Formal application for historical gas Execution date postponed on 27 October 2010 till further notice Documents submitted for registration at Mining Titles Ofﬁce Cession conﬁrmed Conversion application lodged Conversion application lodged Due for follow up Due for follow up Mining right granted Mining right executed Action Mining commencement extension granted Complete Complete Complete Power of attorney, captive three portions Documents submitted for registration at Mining Titles Ofﬁce Renewal due DMR to approve amended layout plan for registration DMR meeting scheduled * Granted = an administrative right granted prior to acceptance of terms and conditions. (cid:204) Executed = approval of the EMPR and commencement date EXXARO INTEGRATED ANNUAL REPORT 2010 147 REGULATORY COMPLIANCE AND CORPORATE GOVERNANCE CONTINUED Corporate governance The provisions of King III became effective on 1 March 2010. The group is committed Key objectives for 2010 Progress Identify and appoint a Dr D Konar was appointed chairman of the board on chairman in line with our 23 February 2010, and re-elected for one year on to applying these principles to all its BEE status 22 February 2011. subsidiaries as appropriate. However, Exxaro understands that effective governance practices should be embedded in all its business processes rather than following a simple tick-box approach. As proposed in King III, the ofﬁce of the company secretary is responsible for implementing and monitoring compliance to corporate governance best practices across the group. Our company secretary, Mrs MS Viljoen, serves as a member of the executive committee (Exco); she reports directly to the CEO and has direct access to the chairman. She works closely with internal audit, the acting group risk manager, the chief audit executive and our outsourced legal advisers to promote a culture of good governance and compliance in the group. The independent corporate governance compliance review conducted in 2008 was followed by an independent King III Awareness programmes to the Presentations were made to the board, Exco and board and key business units major business units and subsidiaries on the key requirements of King III. The Exxaro sustainability and assurance steering committee was established to drive integrated reporting in the group. Conduct an independent Review concluded in June 2010 with ﬁndings King III readiness assessment presented to the board and management. The to ascertain compliance gaps status of compliance and action steps for continuous improvement are discussed on page 150. Initiate an integrated risk and A project was initiated in conjunction with our risk compliance process adhering management advisers to address current to best-practice standards, supported by enabling shortcomings of our risk management methodology and to align with industry best practices such as technology ISO 31000. The ﬁrst phase of the project — identifying relevant gaps and making recommendations — is complete. The second phase – reﬁning the current methodology and implementing enabling technology — is under way. readiness assessment in 2009, undertaken by our independent sustainability and Review current board committee structures, The review was completed in December 2010 and comparative benchmarks obtained for governance advisers. Through composition and terms of implementation in 2011. independent advice, we ensure we reference against best-practice continue to improve our well-established requirements corporate governance processes and Review organisational As part of the Siyaya programme it was proposed remain abreast of the latest industry structures and processes to that governance, risk and compliance be merged developments. address governance, risk and into a single business unit to ensure all related compliance in an effective, processes are integrated and that monitoring risk integrated and consistent and compliance is done independently. manner The review and adoption of a A new fraud-prevention policy was adopted in new fraud-prevention policy November 2010, supported by a dedicated and process governance forum, the ethics committee, to ensure effective management of the process. Conduct independent board To assess the skills and experience of each board assessments member and the board as a whole, an independent board assessment was conducted by the Institute of Directors. 148 EXXARO INTEGRATED ANNUAL REPORT 2010 Ethics Exxaro is committed to the highest reported at corporate level for forensic totally anonymous for their protection. In 2010, 31 cases of alleged fraud were people report incidents while remaining standards of honesty, integrity and fairness, and has zero tolerance for the commissioning or concealment of fraudulent acts by employees, contractors or suppliers. To support this approach, a revised fraud-prevention policy was adopted during the review period. The group has an ethics committee comprising executives and representatives of internal audit and the chief audit executive. The committee, chaired by the ﬁnance director, meets monthly to consider issues of non-compliance to the group code of ethics and/or conﬂict of investigation, 11 of these via the ethics line. Eight of these led to disciplinary action and the dismissal of employees concerned. Four cases were also reported to the Key ﬁndings of the King III readiness assessment The release of King III is a milestone in the South African Police Service (SAPS) for evolution of corporate governance in South criminal prosecution. The estimated Africa and offers signiﬁcant opportunities impact or saving to the group of prompt for Exxaro to enhance current corporate action against suspected fraud was governance practices. King III has opted R4,5 million. At business unit level, over for an “apply or explain” governance 160 cases of alleged fraud were reported, framework. This means that where the resulting in disciplinary action in 36 cases board believes it to be in the best interests and 17 cases reported to SAPS. of the company, it can adopt a different The types of fraud investigated included: > Fraudulently changing bank accounts practice from that recommended in King III, but must explain this. interest policy as well as matters reported > Credit card fraud The table summarises key observations on the ethics line or to management. Required investigations are conducted by a dedicated forensics team. This approach > Tender fraud > A fraudulent payment scheme (crime is reinforced by articles highlighting the syndicate) independent review of the principles of King III and its adoption in Exxaro. The ﬁndings are the result of an independent > Submitting false qualiﬁcations and areas for consideration from an importance of ethical behaviour in the > Fraudulent orders (crime syndicate with review completed by a leading corporate quarterly internal newsletter. possible employee collusion). governance adviser in the second half of A dedicated ethics line is in place to report all ethical matters including possible fraud and corruption. This is independently operated by Tip-Offs at a cost of R100 000 per annum. Employees and all stakeholders can with King III, the reasons are given. report suspected incidents of fraud or Actions initiated to apply or enhance the corruption to Tip-offs at 0800 203 579 principles are shown in the last column. last year. Where Exxaro does not comply or exxaro@tip-offs.com. This is an independent service designed to help For a copy of King III contact the Institute of Directors at www.iodsa.co.za. EXXARO INTEGRATED ANNUAL REPORT 2010 149 REGULATORY COMPLIANCE AND CORPORATE GOVERNANCE CONTINUED Key: No or minor adjustments required to conform with King III principles. Speciﬁc gaps identiﬁed that would require focused management action to conform with King III principles. Non-conformance with King III principles. Signiﬁcant management effort required. Chapter Governance element Status Summary of ﬁndings 1 Ethical leadership and corporate citizenship No major ﬁndings. 2 Board of directors No major ﬁndings. Exxaro is currently not able to adopt all the principles on the composition of boards as our board structure is regulated by our articles of association based on the Pangolin shareholders’ agreement entered into between various parties in November 2006. For more information, please contact the company secretary. The role of the audit committee must be re-assessed in light of its changed role, more speciﬁcally the: > review of integrated reporting > implementation of a combined assurance model > approving disclosure of sustainability issues. The current risk management framework should be more integrated and aligned to industry best practice. 3 Audit committee 4 The governance of risk Action steps for continuous improvement > Governance forum known as the ethics committee has been established. > Fraud-prevention policy adopted by the board in November 2010. See page 149 for statistics. Exxaro will continue with its board induction and extensive knowledge-enhancement programmes. The structure, composition and terms of reference for all board committees, including the audit committee, were reviewed in December 2010 and January 2011, for ﬁnalisation in 2011. At the request of the audit, risk and compliance committee, Exxaro has initiated a project to ensure that a new integrated risk management framework is designed and implemented across the group. The new framework will be supported by best-practice enabling technology that includes the ability to monitor all risks, including risks related to compliance and information technology. The ﬁrst phase of the project, which identiﬁed gaps with ISO 31000, from an organisational structure and process perspective, was concluded in October 2010. The next phase, which examines the implementation of enabling technology, will be ﬁnalised in 2011. 150 EXXARO INTEGRATED ANNUAL REPORT 2010 Chapter Governance element Status Summary of ﬁndings 5 6 7 8 The governance of information technology (IT) Compliance with laws, rules, codes and standards Internal audit Governing stakeholder relations This is the only new chapter in King III. The ﬁndings relate to: > The board not being sufﬁciently involved in IT strategy and governance > IT risk being managed in a fragmented manner > The board not being sufﬁciently involved in the acquisition and disposal of IT goods and services. Although Exxaro has adopted a compliance policy, the associated processes have not been implemented. Exxaro should integrate risk management and control in its business processes to create value. Current stakeholder relations policies need to be reviewed by the board. The integrated report should also disclose the nature and outcome of Exxaro’s dealings with stakeholders. 9 Integrated reporting and disclosure No major ﬁndings. Action steps for continuous improvement The new integrated risk management framework will include management of all IT risks (page 21). Integrated compliance risk management was addressed from an organisational structure and process point of view. The proposed new process adheres to the standards of the Compliance Institute of South Africa and was ﬁnalised in November 2010. We expect the integrated compliance risk management process to be implemented in 2011. See 4. Exxaro has implemented a stakeholder relations strategy that is two pronged: a stakeholder management process at each business unit to ensure all material issues for internal and external stakeholders have been identiﬁed and a management response instituted; secondly, forming a stakeholder panel comprising independent experts and NGOs in the social and environment ﬁelds to verify that all relevant material issues have been identiﬁed. The report of the stakeholder panel is included on page 172. A sustainability and assurance steering committee has been established that meets at least quarterly to discuss: > Material issues and their communication to the board > Regulatory changes that may impact the nature of reporting to stakeholders > The scope of external reporting and assurance. EXXARO INTEGRATED ANNUAL REPORT 2010 151 REGULATORY COMPLIANCE AND CORPORATE GOVERNANCE CONTINUED leadership Board Role and composition A highlight of 2010 was the appointment of Dr Len Konar as chairman of the board on 23 February 2010. Dr Konar has extensive experience as chairman and provides overall to the board without limiting the principle of collective responsibility of board decisions. Dr Konar is also chairman for purposes of in-committee discussions at the transformation, remuneration, human resources and nomination committee and is not a member of any other committee of the board. He brings a wealth of ﬁnancial, governance, industry international knowledge (detailed and on page the In recommendations of King III, Exxaro has a unitary board structure, comprising: > Four non-executive independent line with 142). directors > Six non-executive directors > Two executive directors. In assessing the status of directors, the principles contained in King III and the Listings Requirements of the JSE Limited were used. is also visible At Exxaro we understand that by promoting transformation actively in all our structures, a sustainable future will be ensured in the communities in which we operate. This in the composition of our board: we are proud that the majority of our board members are historically disadvantaged South Africans. The diverse backgrounds of directors ensure a wide range of experience in commerce, industry and engineering. The directors have access to management as required, and Dr Konar regularly meets individually with senior management to share knowledge. The board deﬁnes the levels of authority in Exxaro and reserves speciﬁc powers to itself while to delegating management. The collective responsibility of management vests the chief executive ofﬁcer, Mr Sipho Nkosi. Mr Nkosi provides regular reports to the board on progress towards the group’s objectives others in The board is ultimately accountable and responsible to its shareholders for the performance and affairs of Exxaro. The board therefore retains full and effective control over Exxaro and gives strategic direction to its management. The board is also responsible for ensuring compliance with all relevant laws, regulations and codes. In addition, the board has a responsibility the broader stakeholder base – to which includes present and potential beneﬁciaries of Exxaro products and services, clients, lenders and employees – to achieve continuing prosperity and ensure its sustainability. its powers, The board has a written charter that governs functions and responsibilities; and ensures that no one board member has unfettered powers of decision making. The charter is reviewed annually. The board also formalises policies on board membership, composition, procedures, compliance and risk management, board evaluation, induction and remuneration. A broadened policy on board appointments has been approved by the board. charter The board selects and appoints the company secretary and recognises the pivotal role to be played by this person in entrenching good corporate governance. All directors have access to the advice and services of the company secretary. The board has an established procedure for directors independent to obtain professional advice at the group’s cost. New directors are informed of their duties and responsibilities by way of extensive induction material, and also have access to key management members where information on Exxaro’s operations may be obtained. Visits to operational businesses are included in the annual board programme. A formal ongoing directors’ development programme was instituted in 2008, giving members the opportunity to attend brieﬁng sessions to ensure they are kept up to date with industry developments, risk management, ﬁnancial reporting and corporate governance best practice. local and An independent appraisal of the board was undertaken at the end of 2009 by the Institute of Directors. Feedback sessions were held with individual directors by the chairman. The chief executive ofﬁcer’s performance is also evaluated against his performance contract. This is approved annually by the transformation, remuneration, human resources and nomination committee, in conjunction with the chairman of the board. Attendance Board meetings 2010 D Konar (chairman) WA de Klerk JJ Geldenhuys CI Grifﬁth U Khumalo N Langeni VZ Mtambo RP Mohring SA Nkosi NL Sowazi J van Rooyen D Zihlangu b e F 3 2 P P P A A NM P P P P P P y a M 7 2 l a i c e p S n u J 7 l a i c e p S n u J 4 1 l a i c e p S l u J 4 1 g u A 0 1 l a i c e p S g u A 1 3 l a i c e p S p e S 4 1 l a i c e p S t c O 6 2 P P P P P P A P P P P P P P N N P N A A P P P P P P N N A N N P P A P N P P T T A P P P P A P P P P P P P P P P P P P T T P A P P T P P P P P A P P P N A A A P P A P P P P P A P P A P A P P P v o N 0 3 P P P P A P P P P P P A and strategy. P = present, A = apology, T = teleconference, N = not required, NM = not member 152 EXXARO INTEGRATED ANNUAL REPORT 2010 its duties, powers Committees of the board The board committees assist the board in executing and authorities. The board delegates to each of the committees the authority required to enable the committees to fulﬁl their respective formal functions board-approved terms of reference. through Delegating authority to board committees or management does not mitigate or discharge the board and its directors of their duties and responsibilities. This is reﬂected in the Exxaro delegation-of- authority framework which is managed by the ofﬁce of the company secretary. This framework has been adopted by all wholly owned subsidiaries and is reviewed annually. The board has three committees through which it operates: > Audit, risk and compliance committee > Safety and sustainable development committee > Transformation, remuneration, human resources and nomination committee. 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 its duties and responsibilities, including recommendations on envisaged action steps. Board committees and members are authorised to obtain independent outside professional advice when considered necessary. The company secretary assists board committees and members in obtaining any such professional advice. Audit, risk and compliance (audit) committee Apart from the statutory duties of the audit committee as set out in the Corporate Laws Amendment Act, and the JSE Listings the provisions of Requirements and King III, the role of this committee has been expanded to include issues of risk management and compliance. The committee met its responsibilities under the current terms of reference for the review period. The terms of reference will be expanded to include new areas of responsibility, eg integrated reporting and information technology. The committee assists the board in: > Examining and reviewing the group’s ﬁnancial statements and reporting of interim the ﬁnal accompanying message to stakeholders and any other announcements on the company’s results or other ﬁnancial information to be made public results, and > Overseeing cooperation between the internal and external auditors, and serving as a link between the board and these functions > Overseeing the external audit function > Approval of the internal audit plan, fees internal the and qualiﬁcations of auditors > Evaluating the qualiﬁcation and independence of the external auditor > Approval of the external audit fees > Ensuring effective controls are in place internal ﬁnancial > Reviewing the integrity of risk control systems and risk policies > Evaluating the scope and effectiveness of the internal audit function > Evaluating the competency level of the ﬁnancial director > Appointing the chief audit executive > Complying with legal and regulatory requirements. The committee meets at least four times a year. The three members of the committee are non-executive members, and two of these are independent. The ﬁnance director, Wim de Klerk, and chief audit executive, Rian Strydom, attend meetings by invitation. During the review period, the committee considered, and was satisﬁed with the adequacy and resources of the group’s ﬁnance function, including the appropriateness, expertise and experience of the ﬁnance director. Although Exxaro is only required to rotate the senior partner responsible for the group’s audit, we recognise that a periodic change in external auditors supports good governance and have appointed PricewaterhouseCoopers external auditors from 1 January 2011. as in the To ensure consistency in sustainability reporting, the services of the current assurance provider on sustainability integrated report were issues retained. The audit committee has considered the disclosure of sustainability issues in the integrated report and is satisﬁed with the contents. The committee has satisﬁed itself on the independence of the external auditor in accordance with section 270A of the Principal matters Companies Act. considered in determining independence included those arising from the ownership of shares, the quantum of the audit fee and the types and quantum of the non- audit services provided by the ﬁrm. Requisite assurance was sought and provided by the external auditor that internal governance processes in the ﬁrm support and demonstrate its claim to independence. The committee also determines and carefully monitors the use of the external auditor for non-audit-related services and is guided by a formal policy that precludes from providing the external auditor services audit that would independence. The non-audit services rendered by the external auditors during tax advisory the period comprised services, services, tax accounting opinions and other advisory services. The fees applicable to these services totalled R747 288. compliance impair committee nominated The the appointment of PricewaterhouseCoopers (PwC) as registered auditors for the 2011 ﬁnancial year and Mr D Shango, the audit partner, as the independent registered auditor of the company. The committee also considered and satisﬁed itself that PwC, including its advisors, is accredited in terms of the JSE list of accredited auditors as contemplated in paragraph 3.86 of the JSE Listings Requirements. following The documents were submitted committees and board for noting: > Directors’ liability in terms of safety and compliance-related the to environmental statutes > Directors’ liability in terms of the Competition Act 1 of 2009 (which seeks to amend the Competition Act 89 of 1998) EXXARO INTEGRATED ANNUAL REPORT 2010 153 REGULATORY COMPLIANCE AND CORPORATE GOVERNANCE CONTINUED > Gap analysis on the King III report and actions required by the board and management > The impact of the proposed Companies Act 71 of 2008 > Quarterly information manuals updating the board on industry, regulatory, legal and statutory matters. Audit meetings 2010 23 Feb 26 May 10 Aug 30 Nov J van Rooyen (chairman) RP Mohring NL Sowazi T P P P = present, A = apology, T = teleconference P P P P P P P P P Safety and sustainable development (S&SD) committee The name of this committee was changed from safety, health and environment committee in 2010 to encompass its obligations to the environment, employees and communities impacted by operations in support of sustainable development. The committee’s purpose is to provide advice to the board and, as necessary, to the audit, risk and compliance committee Transformation, remuneration, human resources and nomination committee The purpose of this committee (known as Tremco) is to: > Guide, monitor, review and evaluate Exxaro’s progress with transformation, with speciﬁc reference to the three primary pillars: employment equity, > Reviewing and recommending to the on S&SD risk matters. board its annual training programme > Maintaining procedures to review board In executing the governance function, the members’ interests. committee will: > Assess the effectiveness of Although the board chairman is not a management’s approach to and member of this committee, a separate activities in managing sustainability agenda is set for nominations committee risks matters and the board chairman takes > Review signiﬁcant S&SD incidents, community involvement and the chair. preferential procurement > Make recommendations on Attendance remuneration policies and practices for the company’s executive directors, senior management and personnel > Review compliance with all statutory and best-practice requirements on labour and industrial relations management. Tremco meetings 2010 RP Mohring (chairman) JJ Geldenhuys CI Grifﬁth Although this is a combined committee, a VZ Mntambo 3 Feb 21 May 4 Nov P A NM P P P P P P P A P process has been put in place to ensure the following responsibilities for the nomination element are carried out: > Providing recommendations on the composition of the board and board committees and ensuring that the board comprises individuals equipped to fulﬁl the role as directors of the company D Konar Invitee Invitee Invitee P = present, A = apology, NM = not member Nomination committee Nomination 3 Feb 21 May 4 Nov committee meetings 2010 > Annual revision of corporate governance D Konar guidelines and related documents, and (chairman) providing recommendations to the board as deemed advisable > Providing comments and suggestions on committee structures of the board, committee operations, member RP Mohring JJ Geldenhuys CI Grifﬁth VZ Mntambo P P A NM P P P P P P P P P A P qualiﬁcations and member appointment P = present, A = apology, NM = not member > Establishing and maintaining procedures for interested parties to communicate with board members 154 EXXARO INTEGRATED ANNUAL REPORT 2010 performance indicators and compliance > Report to the board on developments, trends or signiﬁcant legislation on S&SD matters relevant to Exxaro’s operations, assets and employees > Identify issues and elements arising from national and international protocols applicable to Exxaro’s S&SD > Ensure the company reports annually through an integrated report on S&SD issues affecting it. The committee meets at least three times a year. Attendance S&SD meetings 2010 JJ Geldenhuys (chairman) N Langeni RP Mohring D Zihlangu 10 Mar 21 Jul 4 Nov P P A P P P P P P A P P P = present, A = apology Management committees Executive committee The executive committee (Exco) is constituted in terms of the articles of association to assist the chief executive ofﬁcer (CEO) in managing the group. Exco assists the CEO to guide and control Recommendations to terminate initiatives > Ensuring the company’s offshore ofﬁces the overall direction of the company and already in the current strategy or to are effectively staffed, managed and acts as a medium of communication and proceed with initiatives or projects not utilised. coordination between the business units, included in the current strategy are corporate service departments and the subject to agreed governance procedures. The committee meets quarterly, or more subsidiary companies and the board. frequently if required. The duties of Exco include: > Overseeing the ﬁnancial, operational Investment review committee The investment review committee is constituted as a management committee External communications Brieﬁng analysts, investors and fund and safety performance of Exxaro to assist the CEO with the management managers is integral to maintaining > Guiding Exxaro in its relations with process of the group. shareholders and key stakeholders, investor relations. However, we only provide price-sensitive information after including personnel, regulators, The committee oversees approval disclosing that information to the market. environmental interests and the media processes for investments. These are > Developing group strategy for board designed to ensure they are aligned to the Broader stakeholder communication plans approval group’s agreed strategies and values, risks are in place. The group believes in clear, > Receiving and considering regular are identiﬁed and evaluated, investments transparent, concise and timely reports from businesses in Exxaro to are fully optimised to produce the dissemination of relevant information to monitor and manage ﬁnancial maximum shareholder value within an all stakeholders. This is achieved through performance > Ensuring coordination between business units and corporate service acceptable risk framework and appropriate risk management strategies are pursued. a multitude of channels and media, including written, electronic and verbal presentations. Speciﬁcally, there are a departments The main purpose of the committee is to number of mechanisms for stakeholders > Regularly reviewing the adequacy of review investments in a structured, formal to interact with the board and its sub- reporting arrangements and and transparent manner to ensure: committees. These include annual general effectiveness of internal control and > Each project meets the strategic, meetings, representative forums and risk management technical and investment requirements internal communications across a range > Approving or recommending to the of the company, which includes of platforms. board expenditure and other ﬁnancial identifying and managing all project- commitments as speciﬁed in the related risks framework for the delegation of > Critical decisions, project parameters, Marketing communication In line with its corporate values, Exxaro authority safety, health and environmental communicates regularly and openly with > Acting as a responsible corporate impacts and governance processes are all stakeholders. At all times, our citizen with an ethical culture. followed and addressed prior to communications adhere to the laws, committing funds standards and voluntary codes of accepted > Each project enhances the portfolio marketing communication in the areas Portfolio review committee The portfolio review committee is value of the company. constituted as a strategy management committee to assist the CEO with portfolio management. Offshore review committee This committee assists the CEO and ﬁnance director with the management The committee ensures that new process of Exxaro’s portfolio of offshore opportunities ﬁt Exxaro’s portfolio and investments and interests. The primary where we operate. During the year, no incidents of non-compliance were recorded. Implementation of the mining charter In 2009, the Department of Mineral determines strategic priorities. It oversees responsibilities of the committee include: Resources promulgated codes of good strategic initiatives and investigations into > Financial control and governance of practice for the mining industry. In 2010, the viability of potential investment Exxaro’s offshore investments and the review of the mining charter was projects throughout the group. The multi-disciplinary interests ﬁnalised and the accompanying scorecard committee discusses and challenges > Efﬁcient ﬁnancial structuring adjusted. Exxaro already complies with Exxaro’s portfolio performance as well as > Providing for funding offshore several aspects of the revised scorecard intended strategic initiatives and projects. investments and expenditure and steady progress is being made in Initiatives aligned with the current > Ensuring ﬁnancial reporting, auditing those areas where the group does not strategy are included in proceedings of and tax-related issues are properly fully comply. The table overleaf sets out the investment review committee. managed the status on compliance: EXXARO INTEGRATED ANNUAL REPORT 2010 155 REGULATORY COMPLIANCE AND CORPORATE GOVERNANCE CONTINUED MINING CHARTER SCORECARD In 2009, the Department of Mineral Resources promulgated codes of good practice for the mining industry. In 2010, the review of the mining charter was ﬁnalised and the accompanying scorecard adjusted. Exxaro already complies with several aspects of the revised scorecard and steady progress is being made in those areas where the group does not fully comply. Exxaro Resources: 2010 scorecard for the broad-based socio-economic mining empowerment charter Element Reporting Ownership Description Measure Compliance target by 2014 Has the company reported the level of compliance with the charter for the calendar year Minimum target for effective HDSA ownership Documentary proof of receipt from the department Annually Meaningful economic participation 26% Housing and living conditions Conversion and upgrading of hostels to attain the occupancy rate of one person per room. Full shareholder rights Percentage reduction of occupancy rate towards 2014 target 26% Occupancy rate of one person per room Conversion and upgrading of hostels into family units Percentage conversion of hostels into family units Family units established Procurement and enterprise development Procurement spent on BEE entity Capital goods Services Consumable goods Annual spend on procurement from multi-national suppliers Top management (board) Senior management Middle management Junior management Core skills HRD expenditure as percentage of total annual payroll (excluding mandatory skills development levy) Employment equity Multinational suppliers contribution to the social fund Diversiﬁcation of the workplace to reﬂect the country’s demographics to attain competitiveness Human resources development Developing requisite skills, including support for South Africa-based research and development initiatives intended to develop solutions in exploration, mining, processing, technology efﬁciency (energy and water use in mining), beneﬁciation as well as environmental conservation 40% 70% 50% 0,5% 40% 40% 40% 40% 40% 5% 156 EXXARO INTEGRATED ANNUAL REPORT 2010 Compliance target 2010 Mining charter report will be submitted to DMR during March 2011 Progress achieved by 15% 15% Accommodation > Number of people sharing hostel rooms = 40. > Number of employees accommodated in single quarters (one person per room) = 1 505 > Number of employees staying in family quarters = 417 > Number of company houses sold to employees = 948 Bargaining unit employees receive either a housing allowance or a living-out allowance for accommodation. These allowances differ by job grading and are annually revised through collective bargaining. Non-bargaining unit employees receive an all-inclusive remuneration package. 5% 30% 10% 0,5% 20% 20% 30% 40% 15% 3% Actual 2010 52,10% 52,10% 1,15% of employees in company – provided accommodation 417 family units established 43% 24% 25% 0,5% 50% 30% 51% 63% 25% 5,1% EXXARO INTEGRATED ANNUAL REPORT 2010 157 REGULATORY COMPLIANCE AND CORPORATE GOVERNANCE CONTINUED MINING CHARTER SCORECARD CONTINUED Exxaro Resources: 2010 scorecard for the broad-based socio-economic mining empowerment charter (continued) Element Description Measure Compliance target by 2014 Mine community development Conduct ethnographic community consultative and collaborative processes to delineate community needs analysis Sustainable development and growth Improvement of the industry’s environmental management Improvement of the industry’s mine health and safety performance Utilisation of South Africa-based research facilities for analysis of samples across the mining value Implement approved community projects Up-to-date project implementation Implement approved environmental management programmes (EMPs) Implementation of tripartite action plan on health and safety Percentage of samples in South African facilities 100% 100% 100% Beneﬁciation Contribution towards beneﬁciation (effective from 2012) Added production volume contributory to local value addition beyond the baseline Section 26 of MRPDA (% above baseline) 158 EXXARO INTEGRATED ANNUAL REPORT 2010 Progress achieved by Compliance target 2010 Actual 2010 > Continual engagement with all stakeholders (ie authorities, interested and affected parties) ensures a collaborative approach in implementing community projects > The establishment of a formal ethnographic consultative and collaborative socio-economic development forum at each business unit to be ﬁnalised during June 2011 > Total spend on socio-economic development in 2010 was 2,5% of net proﬁt after tax Programmes are in place to achieve the compliance target by 2014 In terms of implementing the tripartite action plan, Exxaro has developmental plans for 70% of the actions. These span continuous improvement in safety and health, transforming our culture, training, adopting leading practices, and supporting related research. Exxaro has a research and development department and commissioned research was 100% South Africa-based in 2010. > In addition, Exxaro approved three tertiary chairs as part of its research support initiatives: > Exxaro chair in global change and sustainability at Wits > Exxaro chair in business and climate change at Unisa > Exxaro chair in biodiversity and business at University of Pretoria Exxaro is in the business of mining and beneﬁciating minerals. Products like coal and zinc are sold as ﬁnal products and used in other processes; they therefore cannot be further beneﬁciated. Other products like mineral sands are beneﬁciated to a semi state (slag). While these products are being investigated to increase beneﬁciation rates, they are technically complex processes and thus long-term projects. Exxaro does not beneﬁt from incentives in the mining charter for beneﬁciation as the group cannot offset ownership with beneﬁciation initiatives. Exxaro is already BEE owned. Exxaro is a founder member of SAMMRI (an industry/government (dti)/academic institution) initiative on long-term research in beneﬁciation to develop value-adding technologies and internal skills (HDSA) in South Africa. A downstream project is our market coke initiative, where we are investigating the production of market coke as a reductant for the chrome industry. Certain technology evaluation accompanies this initiative. Our coal beneﬁciation target for 2014 is 0,5%. Calendar 2009 was the ﬁrst full production year for Exxaro’s char plant. Coal from Grootegeluk is beneﬁciated in the char plant, and the product sold locally to ferrochrome smelters as a reductant. Tar is processed as a by-product and sold to a tar-reﬁning company for further processing into products such as wood preservatives. The full production capacity of the plant is 140ktpa char and 8ktpa of tar. The mineral sands business unit is investigating downstream beneﬁciation opportunities for titania slag and zircon. A number of new titanium metal production technologies were investigated with the aim of establishing a local production facility. Investigations and studies are long term and ongoing. EXXARO INTEGRATED ANNUAL REPORT 2010 159 REGULATORY COMPLIANCE AND CORPORATE GOVERNANCE CONTINUED Remuneration report Introduction As indicated in the legal, regulatory and compliance review, PwC was engaged to assess compliance with the King III report, including a remuneration perspective. A number of actions were undertaken in 2010 to align with these remuneration requirements; however, achieving full compliance will be an ongoing exercise in coming years. Remuneration philosophy The Exxaro brand is built on a strong vision – everything we do and deliver today will allow others to realise their vision tomorrow. Exxaro believes in the power of people and their ability to explore and shift boundaries that lead to success. Exxaro’s people strategies have been developed to reinforce the brand values of: > People powered > Inspired leaders > Leading performance > Sustainable effort. A total remuneration approach is followed. This includes guaranteed and variable components which play a critical role in attracting, motivating and retaining the high-performing and talented individuals required to achieve Exxaro’s objectives. We recognise that one of our competitive sources of value is our people, and we believe that to meet our corporate goals and business objectives, our reward policies and objectives must: > Be an integral part of an overall human resource strategy, geared to support business strategies > Be designed to motivate and reinforce At the annual general meeting to be held superior performance on 19 May 2011, shareholders will be > Be designed to motivate and reinforce requested to approve the remuneration living the values in an outstanding and policy as outlined in this report and that demonstrable manner the board of directors be authorised to > Encourage the development of undertake the necessary acts to organisational and individual implement the remuneration policy as performance summarised here. Resolutions for > Encourage the development of consideration are included in the notice of competencies required to meet future meeting on page 304. business needs > Be based on the premise that employees should share in the success of the company Remuneration benchmarking External remuneration benchmarking for executives and general staff positions is > Be designed to attract and retain high- done continually and external comparisons quality individuals with the optimum are reported to Tremco every six months. mix of competencies > Be aimed at securing our people’s The benchmarking used for median commitment to goals via the optimum performance of the management and mix of ﬁnancial and non-ﬁnancial rewards. specialist category is the 50th percentile (median) of the market’s guaranteed Remuneration governance The transformation, remuneration, human remuneration values. Exxaro allows for a 30% differentiation from median market values depending on the performance resources and nomination committee rating of the individual. (Tremco) sets and monitors non-executive and executive remuneration policies for the company. This committee is Remuneration policy The total remuneration approach includes responsible for making recommendations guaranteed and variable components, as on remuneration policies and practices for noted earlier, to attract, motivate and the company’s executive directors, senior retain the caliber of individuals required to management and personnel in general. achieve Exxaro’s objectives. The committee comprises four non- executive directors. The CEO, ﬁnance director (FD), executive general manager: human resources, and compensation and beneﬁts advisers may be invited to attend any meeting but they have no voting rights. For full details on the committee, refer to the review on page 154. 160 EXXARO INTEGRATED ANNUAL REPORT 2010 Exxaro remuneration: overview Remuneration elements F band E band DU band DL band CU band A-DL band Management and specialist category employees employees Bargaining category Guaranteed Notional cost of Annual adjustments based on: remuneration employment or > Performance basic salary > External market benchmark > Internal parity > Affordability Annual adjustments based on: > Wage negotiations > Mandate on affordability Beneﬁts > Retirement fund: employer and employee contributions > Medical aid: employer and employee contributions > Housing: Company housing or allowances/subsidies applicable to a speciﬁc business unit Circumstantial > Job-speciﬁc remuneration > Skills scarcity Variable Short-term remuneration incentives Long-term Incentives Not applicable Special performance: > Individual performance base > On-target incentive: > Business unit stretch budget achievement Second and third tier above target improvement incentives: > Capped at 30% of Exxaro above-budget improvement > Annually set stretched targets Deferred Not applicable bonus plan > Share match Long-term incentive Not applicable scheme > Performance conditions Share appreciation right scheme Not applicable > Performance conditions Not applicable Mpower scheme > 3% and ﬁve-year employee share option scheme EXXARO INTEGRATED ANNUAL REPORT 2010 161 REGULATORY COMPLIANCE AND CORPORATE GOVERNANCE CONTINUED Guaranteed remuneration Management and specialist category Employees in the management and > Affordability: all salary account-related mandates ﬁrst to be included in Exxaro ﬁnancial forecasting model to determine affordability. specialist category, including executives, are remunerated on a total-package approach. Guaranteed remuneration adjustments to employees’ are based on Non-management category in Employees the non-management category are remunerated on a traditional Retirement funds Retirement fund contributions are made according to the speciﬁc conditions of employment and fund rules for the different levels and categories of employees. Employer and employee contributions to these funds are reﬂected in note 30 of the annual ﬁnancial the following fundamental principles: menu package consisting of basic salary, statements. > Remuneration based on performance: housing allowance, employer contributions individual performance contracting and to retirement and medical funds. Annual assessment adjustments are determined through > External competitiveness: use the wage negotiations as applicable. market median for median performance per job family, per level as reference point to determine competitiveness > Internal equity: same job – same Beneﬁts Contributions to retirement funds and medical aids are made by both employees performance – same pay (except and employers. circumstantial) Employees belong to any one of the following retirement funds: Fund description Chamber of Mines Sentinel Funds Mine Employees Pension Funds Namakwa Sands Sentinel Funds Alexander Forbes Pension Fund Coris Capital Pension Funds (non-package and notional cost of employment) Rosh Pinah Retirement Fund BillProv Iscor Employees Umbrella Provident Fund Mine Workers Provident Funds Namakwa Sands Provident Funds (C up & D+) Zincor: Iscor Provident Fund – old Employee % contribution or range Employer % contribution or range Total % contribution or range 13,20 7,50-10,70 7,50-10,70 6,50-7,50 7,50 7,00 9,75 7,00 7,00 11,45 12,50-20,52 12,50-15,00 13,90-26,60 12,50 10,00 16,25 10,50 10,00 24,65 20,00-28,02 20,00-24,65 20,40-34,10 20,00 17,00 26,00 17,50 17,00 7,50-10,70 7,50 8,00 12,50-15,00 9,00-15,00 14,74 20,00-24,65 16,50-22,50 22,74 Zincor: Selector Umbrella – (new and old) 7,00-8,00 10,00-14,74 17,00-22,74 Exxaro-accredited retirement funds are deﬁned contribution funds. Any actuarially valued deﬁned beneﬁt fund obligation disclosed in the annual ﬁnancial statements (refer to note 30) merely recognises past practice with no new entrants allowed. 162 EXXARO INTEGRATED ANNUAL REPORT 2010 Medical beneﬁt funds Employees may annually elect to belong to any of the following medical schemes: Business unit Fund names Exxaro Coal Mpumalanga Namakwa Sands Exxaro Sands Zincor Exxaro Other Bonitas Bonitas Bonitas Bonitas Discovery Discovery Discovery Discovery Discovery Sizwe WCMAS (ring- fenced) Employee contributions Employer contributions 50% 50% * Employer contribution included in package. Umvuzo Sizwe Sizwe 50% 50% *100% 0% 50% 50% Umvuzo 40% 60% to a max of R1 765 Exxaro does not provide any post- retirement medical beneﬁts. The post- Individual performance reward A short-term incentive scheme focused on The second and third tier are proﬁt based and 30% of gains above budget are retirement beneﬁt obligation disclosed in the individual is used to augment the shared with employees. the annual ﬁnancial statements (note 30) people performance management process merely recognises past practice which and retention strategy. was discontinued with the creation of Exxaro in November 2006. Three-tier performance incentive This three-tier performance is a Incentives are proﬁt-based and gains above set targets are shared (up to a maximum of 30%) with employees. Contributions to medical funds, charged incentive created to reinforce a The three-level short-term incentive against income, are also reﬂected in performance culture. Accordingly, all full- scheme structure is set out below: note 30. Variable remuneration Exxaro strives to create a culture of powering possibilities, based on the belief that people can make the difference and are a major resource in delivering sterling business results. Incentive schemes are focused on the strategic objectives of the organisation. Short-term incentives The following schemes based on individual business unit, commodity and group level performance are in place: > Individual performance reward > A three-tier performance incentive — On-target business unit incentive — Commodity improvement incentive — Group improvement incentive. time employees participate in this incentive scheme. Three-tier performance incentive t e g d u b n o t n e m e v o r p m i % Tier 3 Tier 2 Stretch budget Tier 1 Potential pay-out EXXARO INTEGRATED ANNUAL REPORT 2010 163 REGULATORY COMPLIANCE AND CORPORATE GOVERNANCE CONTINUED First tier The ﬁrst tier is a line-of-sight incentive Second tier The second tier is based on exceeding the Long-term incentives Exxaro makes general share offers to based on achieving 100% of the business budgeted consolidated net operating participants once a year in terms of the unit’s set net operating proﬁt target and is proﬁt target by an improvement following approved schemes: currently equal to 8,33% of annual gross percentage at commodity level. > Exxaro share appreciation right scheme remuneration for all full-time employees of every business unit, commodity and corporate staff department. Third tier The third tier is based on exceeding the budgeted consolidated group net operating proﬁt target above the second- tier level. (SAR) > Exxaro long-term incentive plan (LTIP) > Deferred bonus plan (DBP). The table below summarises Exxaro’s long-term incentives: Rights shares on 31 Dec 2009 Maximum award per individual Date implemented Performance condition Vesting period Total grants since inception to 31 Dec 2010 Grants during 2010 01-03-2007 6 937 922 193 364 HEPS* 3 years 1 797 040 6 847 500 01-03-2007 523 789 156 632 performance condition 50% TSR** 50% ROCE*** performance condition 3 years 427 542 1 670 112 31-08-2007 96 374 18 285 None 3 years 31 318 104 700 Plan Share appreciation rights Long-term incentive plan Deferred bonus plan Eligibility D3-F5 employee Paterson band E2-F5 employee Paterson band E4-F5 employee Paterson band * Headline earnings per share ** Total shareholder return *** Return on capital employed Exxaro share appreciation right scheme Share appreciation rights are rights to receive Exxaro shares equal to the value of the difference between the exercise price and the grant price. Vesting of the share appreciation rights is subject to a HEPS performance condition, over a three-year performance period, set by Tremco. If the performance condition is met, the share appreciation rights vest and participants have a further period of seven years from date of original offer in which to exercise these. Total rights granted and cancelled: 31 December 2009 to 31 December 2010 Share incentive scheme Number of rights/shares not yet exercised on 31 Dec 2009 Offered 2010 Cancelled 2010 Number of rights/shares not yet exercised on 31 Dec 2010 Share appreciation right scheme 5 851 231 1 797 040 322 769 6 937 921 Details of transactions by participants have been excluded. 164 EXXARO INTEGRATED ANNUAL REPORT 2010 Long-term incentive plan (LTIP) Exxaro employees in top and senior management levels participate in the LTIP with total shareholder return and return on capital employed performance conditions The LTIP allows for the conditional grant of Exxaro shares to qualifying employees, subject to performance conditions being met over a performance period of three years. The number of shares vesting of the conditional share award, after the performance period, depends on the extent to which the performance conditions, total shareholder return and return on capital employed as determined by Tremco have been satisﬁed. Under the rules of the LTIP, Exxaro will procure the delivery of Exxaro shares to settle the value of the vested portion of the conditional share award. The conditional share awards which do not vest at the end of the performance period will lapse. Total awards granted and cancelled: 31 December 2009 to 31 December 2010 Share incentive scheme Number of shares not yet exercised on 31 Dec 2009 Offered 2010 Cancelled 2010 Number of shares not yet exercised on 31 Dec 2010 Long-term incentive plan 1 549 575 427 542 39 361 1 523 789 Details of transactions by participants have been excluded. Deferred bonus plan (DBP) The purpose of the DBP is to encourage directors and senior employees to use part of their after-tax values of short-term incentive and special performance reward payment to acquire shares (pledged shares) in Exxaro. Participants who own pledged shares are entitled to all rights in respect of these shares, including dividend and voting rights. If the pledged shares are held for the pledge period of three years and the participants remain in the employ of the company for the pledge period, then the company will provide a matching award of free shares (matching shares). Total awards granted and cancelled: 31 December 2009 to 31 December 2010 Share incentive scheme Deferred bonus plan Number of rights/shares not yet exercised on 31 Dec 2009 Offered 2010 Cancelled 2010 Number of rights/shares not yet exercised on 31 Dec 2010 67 114 31 318 0 96 374 Details of transactions by participants have been excluded. Kumba share option scheme Details on the discontinued Kumba share option scheme are comprehensively addressed under equity compensation beneﬁts in note 30 to the annual ﬁnancial statements. Date implemented Options on 31 Dec 2009 Maximum award per individual Performance condition Vesting period Total issued since inception to 31 Dec 2010 Options granted during 2010 03-12-2001 1 459 520 77 880 none 7 years 0 0 Plan Eligibility Exxaro options Unbundling of Kumba Resources on 26-11-2001 The option scheme was discontinued after the introduction of the share appreciation right scheme. EXXARO INTEGRATED ANNUAL REPORT 2010 165 REGULATORY COMPLIANCE AND CORPORATE GOVERNANCE CONTINUED Mpower (Exxaro employee share option scheme) This scheme provides incentives to participants, attracts new employees and retains current staff. Another key purpose is to promote BEE in the company. The trust obtained some 3% of Exxaro’s shares: > All shares are unitised and granted to qualifying employees > The initial award – all employees in service on 26 November 2006 received 1 068 units with pro rata awards to new employees after this date. Dividends are paid to participants: they qualify for 50% of each dividend (tax free) and the remaining 50% of dividend services the loan. The capital appreciation period for the scheme is ﬁve years and ends in November 2011, when proceeds calculated in accordance with the trust deed and applicable taxation legislation will be paid to participants. Current unit status of Mpower Trust: 2009 Closing unit balance 31 Dec 2009 Units cancelled Units cancelled death Units awarded Closing unit balance 31 Dec 2010 2010 8 806 243 (365 071) (83 331) 177 732 8 535 573 Remuneration of: Executive directors, non-executive directors and senior managers Directors Information of the remuneration of executive directors and non-executive directors is reﬂected in the directors’ report on page 190. Senior managers Recommended practice, in line with King III (2.26.2), is to disclose the salaries of the three most highly paid employees who are not directors. Exxaro decided to disclose the top four. Earnings of four top earners excluding executive directors: Annual (2010) Guaranteed Short-term incentives Company contributions retirement and medical Totals STI SPI Total 244 334 206 986 230 634 255 450 3 271 203 2 982 106 3 051 468 3 030 570 436 871 268 386 430 298 365 881 773 729 566 592 627 625 551 444 1 210 600 834 978 1 057 923 917 325 Total package 3 026 869 2 775 120 2 820 834 2 775 120 Long-term incentives Grant face value exercised 31 Dec 2009 – 31 Dec 2010 1 171 640 617 635 1 111 767 483 709 Name and initials Venter PE Arran PT Mgojo MDM Van Niekerk WH RP Mohring Chairman Transformation, human resources and remuneration committee 166 EXXARO INTEGRATED ANNUAL REPORT 2010 Shareholder information and analysis 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. Closing JSE share prices are published in most national and regional South African newspapers and are available during the day on the Exxaro and other websites. Share prices are also available on I-Net Bridge, Reuters and Bloomberg. Exxaro has an over-the-counter sponsored American depositary receipt (ADR) facility with the Bank of New York (BoNY) under a deposit agreement. For additional information, please refer to the BoNY website: www.adrbny.com. ADR holders ADR holders may instruct BoNY on how shares represented by their ADRs should be voted. Registered holders of ADRs will have annual and interim reports mailed to them at their recorded address. Brokers or All enquiries about shares held in ADR ﬁnancial institutions holding ADRs for form should be directed to BoNY, with shareholder clients are responsible for contact details set out on the inside back forwarding shareholder information to cover. their clients. Dividend determination Dividends are determined in South African Shareholders can obtain details about their own shareholding on the internet. Full details, including how to gain secure rand (ZAR) and declared payable in access to this personalised enquiry facility, the same currency by the group. ADR are provided on the Computershare shareholders are paid in US dollars by the website: www.computershare.com. group’s ADR bank, BoNY. BoNY effects the conversion of ZAR-determined dividends in US dollars on behalf of its US ADR shareholders. Contact Computershare or BoNY for further details. Shareholder communication General shareholder enquiries Computershare is the registrar for Exxaro. All general enquiries and correspondence Publication of ﬁnancial statements Shareholders wishing to view the annual report or interim report in electronic rather than paper form can access it on the Exxaro website: www.exxaro.com. Major shareholders As of 31 December 2010, the one entity concerning shareholders (other than known to Exxaro as owning more than shares held in ADR form) should be 10% of its shares is Main Street 333 directed to the registrar. Computershare’s (Pty) Limited with 186 550 873 shares, contact details are on the inside back representing 52,10% of the number of cover. Shareholders must notify shares in issue. This entity is commonly Computershare promptly in writing of any referred to as BEE Holdco (page 5). change of address. EXXARO INTEGRATED ANNUAL REPORT 2010 167 REGULATORY COMPLIANCE AND CORPORATE GOVERNANCE CONTINUED Registered shareholder spread as at 31 December 2010 Issued share capital: 358 089 230 Registered shareholder spread 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 above Total Public and non-public shareholdings Shareholder spread NON-PUBLIC SHAREHOLDERS Main Street 333 (Pty) Limited Anglo American Corp of SA Limited Exxaro Employee Empowerment Kumba Management Share Trust Kumba Bestuursaandele Trust D Konar WA De Klerk SA Nkosi* VZ Mntambo* D Zihlangu* NL Sowazi* Number of holders % of total shareholders Number of shares % of issued capital 19 748 3 327 603 152 23 82,79 13,95 2,53 0,64 0,10 5 836 578 9 685 427 19 244 323 42 245 466 281 077 436 23 853 100,00 358 089 230 1,63 2,70 5,37 11,80 78,50 100,00 Number of holders % of total shareholders Number of shares % of issued capital 65,24 52,10 9,70 2,97 0,41 0,04 0,00 0,02 7 1 1 1 1 1 1 1 0,05 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 233 573 805 186 550 873 34 730 282 10 618 974 1 459 520 159 038 168 54 950 9 698 806 5 529 881 2 818 552 3 038 387 PUBLIC SHAREHOLDERS Total * Indirectly held through Main Street 333 (Pty) Limited. 23 846 23 853 99,95 124 515 425 100,00 358 089 230 34,76 100,00 168 EXXARO INTEGRATED ANNUAL REPORT 2010 Beneﬁcial shareholdings above 3% Beneficial shareholdings Main Street 333 (Pty) Limited Anglo American Corp of SA Limited Public Investment Corporation Total Beneﬁcial shareholder categories Category Black economic empowerment Pension funds Corporate holding Unit trusts Other Retail investor Employees Insurance companies Foreign government American depositary receipts Investment trust University Charity Local authority Other Total 1 Includes categories above 2% only. Total shareholding % of issued capital 186 550 873 34 730 282 19 001 010 240 282 165 52,10 9,70 5,31 67,10 Total shareholding % of issued capital 186 550 873 37 917 173 35 276 164 31 874 508 16 557 128 16 080 438 10 618 974 8 443 831 6 110 896 572 441 393 903 154 540 60 709 34 000 7 443 652 52,10 10,59 9,85 8,90 4,62 4,49 2,97 2,36 1,71 0,16 0,11 0,04 0,02 0,01 2,08 358 089 230 100,00 EXXARO INTEGRATED ANNUAL REPORT 2010 169 INDEPENDENT ASSURANCE REPORT TO THE DIRECTORS AND MANAGEMENT OF EXXARO RESOURCES LIMITED for the year ended 31 December 2010 Scope of our engagement We have completed our independent assurance engagement to enable us to express our limited assurance conclusions on Exxaro Resources Limited’s (‘Exxaro’s’) reporting of material sustainable development risks and opportunities and used to manage identiﬁed material Assurance Engagements Other Than sustainability risks and opportunities as Audits or Reviews of Historical Financial related to the following key performance Information. This standard requires us to indicators: > Fatalities (page 82); comply with ethical requirements and to plan and perform our engagements to > Lost Time Injuries (LTI) (page 82); obtain limited assurance regarding the > LTI frequency rate (LTIFR) (page 82); Report and the speciﬁed Key Performance views and expectations of its stakeholders; and Indicators contained in the Report, as that Exxaro’s Sustainability Performance > Electricity (page 117). expressed in this report. Review 2010 (‘the Report’) for the period ending 31 December 2010, has been prepared, in all material respects, in accordance with the self-declared Global Reporting Initiative (GRI) G3 Guidelines B+ application level using the principles of materiality, completeness and sustainability context; and Exxaro’s performance for identiﬁed risks and opportunities by way of the following selected key performance indicators: > Occupational Tuberculosis (TB) (page 88) > Pneumoconiosis (page 87) > Noise Induced Hearing Loss (NIHL) (page 87) Our responsibility in performing our independent limited and reasonable Basis of work and limitations The procedures selected depend on our assurance engagements is to Exxaro judgement, including the assessment of Resources Limited only and in accordance the risks of material misstatement of the with the terms of reference for this subject matter and the purpose of our engagement as agreed with them. To the engagement. In making these fullest extent permitted by law, we do not assessments, we have considered internal accept or assume responsibility to anyone control relevant to the entity’s preparation other than Exxaro Resources Limited, for and presentation of the Report and the our work, for this report, or for the conclusions we have reached. information contained therein, in order to for design appropriate procedures Directors’ responsibility Exxaro’s Directors are responsible for the gathering sufﬁcient appropriate assurance evidence to determine that the information in the Report is not materially preparation and presentation of the misstated or misleading as set out in the > HIV/AIDS voluntary counselling and Report and the information and summary of work performed below. Our testing (VCT) (page 89) > Diesel (page 117) > Gas (page 117) > Hazardous waste disposed of (page 99) > Indirect CO2 emissions (from electricity and diesel only) (page 119) > Level 2 and 3 environmental incidents (page 115/6) > Water consumption (page 117) assessments contained in the Report in assessment of relevant internal control is accordance with the relevant criteria. This not for the purpose of expressing a responsibility includes: designing, conclusion on the effectiveness of the implementing and maintaining appropriate entity’s internal controls. performance management and systems to record, monitor and improve the accuracy, We have planned and performed our work completeness and reliability of the to obtain all the information and sustainability data and to ensure that the explanations that we considered information and data reported to meet the necessary to provide a basis for our > Status of Integrated Water User licence requirements of the relevant criteria, and limited and reasonable assurance (IWUL) applications (page 97) contains all relevant disclosures that could conclusions pertaining to the Report and > Land disturbed vs rehabilitated materially affect any of the conclusions the speciﬁed KPIs, expressed below. We (page 113) drawn. > Employment Equity (EE) (page 123) > ABET training numbers (page 123) > Preferential procurement (page 129) > Socio-economic development (SED) project spend as per Social and Labour plans (page 132) We have completed our independent assurance engagement to enable us to express our reasonable limited assurance conclusions on whether the description of the systems and approaches Exxaro Assurance provider’s responsibility Our responsibility is to express our limited have no responsibility to update this report for events and circumstances occurring after the date of the report, nor will we perform any work in this regard. and reasonable assurance conclusions on Where a limited assurance conclusion is the areas as highlighted under the scope expressed, our evidence gathering above. Our independent limited and procedures are more limited than for a reasonable assurance engagement was reasonable assurance engagement, and performed in accordance with the therefore less assurance is obtained than International Federation of Accountants’ in a reasonable assurance engagement. (IFACs) International Standard on Assurance Engagements (ISAE) 3000 Our report does not extend to providing assurance on historical data. 170 EXXARO INTEGRATED ANNUAL REPORT 2010 We provide no assurance over the web We believe that the evidence obtained as content relating to the Report and the part of our assurance engagement, is speciﬁed KPIs. Assurance is provided only sufﬁcient and appropriate to provide a on the Report and speciﬁed KPIs as basis for our ﬁndings and our limited and included in pdf format on Exxaro reasonable assurance conclusions Resources Limited’s website. expressed below. Summary of work performed Set out below is a summary of the Conclusions Based on the work performed and subject procedures performed pertaining to the to the limitations described above, Report and the speciﬁed KPIs which were managements disclosures pertaining to included in the scope of our assurance Fatalities, LTIs, LTIFR and Electricity engagement. consumption are fairly stated. > We obtained an understanding of: Based on the work performed and subject — The entity and its environment; to the limitations described above, nothing — Entity-level controls; has come to our attention that causes us — The stakeholder dialogue process; to believe that Managements disclosures — The selection and application of pertaining to Occupational TB; NIHL; sustainability reporting policies; — The signiﬁcant reporting processes including how information is initiated, Pneumoconiosis; HIV/AIDS VCT; Diesel; Sasol gas; Hazardous waste; CO2 emissions (from electricity and diesel only); Level 2 recorded, processed, reported and and 3 environmental incidents; Water incorrect information is corrected, as consumption; Status of IWUL applications; well as the policies and procedures Land disturbed versus rehabilitated; EE; within the reporting processes. ABET training numbers; Preferential > We made such enquiries of procurement; SED project spend as per management, employees and those Social and Labour plans; and the self- responsible for the preparation of the declared B+ GRI G3 application level are Report and the speciﬁed KPIs, as we not fairly stated. considered necessary. > We inspected relevant supporting documentation and obtained such external conﬁrmations and management representations as we Ernst & Young Inc considered necessary for the purposes Director — Alasdair Stewart of our engagement. Registered Auditor > We performed analytical procedures Chartered Accountant (SA) and limited tests of detail responsive to our risk assessment and the level of Ernst & Young assurance required, including 52 Corlett Drive comparison of judgementally selected Johannesburg information to the underlying source 15 March 2011 documentation from which the information has been derived. > We considered whether Exxaro Resources Limited has applied the GRI G3 Guidelines to a level described on page 30. EXXARO INTEGRATED ANNUAL REPORT 2010 171 INDEPENDENT ASSURANCE Stakeholder panel feedback – executive summary stakeholder The panel comprises academics from related faculties at leading universities, sustainability practices within leading professional services ﬁrms and independent experts. Key material issues: no consensus by panelists; key material issues ranged from climate change/greenhouse gas emissions (2) to economic value added and fatalities. One panelist grouped his most pressing issues as water withdrawal, mine closure, green procurement, working conditions, LTI, health and safety systems, occupational diseases, medical surveillance, decent wages, risk management and clean production. However, from their general comments, understanding that the amount of against the political backdrop, the most hazardous material disposed of could pressing issues in 2010 appear to be: impact mine closure costing) 1) economic value added (spanning > stakeholders: who are they (how ownership, employment equity, decent identiﬁed, how engaged, how wages and living conditions, and labour addressed). relationships); 2) climate change/ greenhouse gas emissions, and 3) safety All highlighted the importance of context: and health (including pollution impacts on for example an aggregate ﬁgure for water health of communities in general). withdrawal is meaningless if one operation is in a desert and another next to a river. All panelists noted that to be effective, Equally, celebrating the creation of 100 jobs stakeholder reporting needs to begin from (enterprise development) becomes hollow a base of proper planning: understanding in the context of shedding 1 000 members and mapping the inter-relationships of the workforce (retrenchment). between the various issues, and developing a strategic, holistic approach This feedback was an important part of to them. Speciﬁc pointers included: > process of determining material issues: the progress Exxaro has made in enhancing its stakeholder reporting in context, cross-cutting issues (such as 2010. The role of the panel will be expanded in 2011. 172 EXXARO INTEGRATED ANNUAL REPORT 2010 GRI INDICATOR INDEX Index to Global Reporting Initiative G3 indicators This index includes the 2007 GRI guidelines (G3) and 2009 mining and minerals sector supplement. Reasonable assurance by E&Y Limited assurance by E&Y Exxaro material issue GRI Topic Strategy and analysis Statement from senior management Key impacts, risks and opportunities Organisational proﬁle Name Primary products Operational structure Location of head ofﬁce Countries of operation Nature of ownership Markets served Scale of organisation Signiﬁcant changes to organisation Awards Report parameters Reporting period Date of previous report Reporting cycle Contact points Process for deﬁning report content Boundary of report Limitations Basis for reporting on joint ventures, etc Data measurement techniques and assumptions Explanation of restatements Signiﬁcant changes to scope, boundary or methods GRI index Policy and practice on external assurance 1.1 1.2 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 3.11 3.12 3.13 Page 41 Foldout, 16 Cover 6 5 IBC 8 6-7 6-7 6-7 na 31 30 30 30 30 30 30 30 30 nr 9 zero 176 30 EXXARO INTEGRATED ANNUAL REPORT 2010 173 GRI INDICATOR INDEX CONTINUED GRI Topic Governance, commitments and engagement Governance structure Status of chairperson Independent non-executive directors Mechanisms for stakeholders to interact with board Link between compensation and performance Process for avoiding conﬂict of interest Expertise of board Policies on economic, environmental and social performance Procedures for board oversight of economic, environmental and social performance Board performance Precautionary approach External principles endorsed Membership of industry associations and advocacy groups Stakeholder groups Basis for identiﬁcation Approach to stakeholder engagement Topics and concerns raised, response Economic Economic value generated and distributed – including payments to local communities as part of land-use agreements, excluding land purchases. Report countries of operation that are either candidate to or compliant with the Extractive Industries Transparency Initiative (EITI). Financial implications, risks and opportunities due to climate change Coverage of deﬁned beneﬁt plan obligations Signiﬁcant ﬁnancial 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 and workforce from local community Development and impact of infrastructure investments and services for public beneﬁt Signiﬁcant indirect economic impacts 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13 4.14 4.15 4.16 4.17 EC1 EC2 EC3 EC4 EC5 EC6 EC7 EC8 EC9 Page 148 152 152 155 160 149 152 154 154 152 92 30, 28 28 25 25 25 25 181 100 160 zero 160 129 120 132 132 174 EXXARO INTEGRATED ANNUAL REPORT 2010 GRI Topic Environmental Materials Materials used by weight or volume Percentage recycled input materials (includes post-consumer recycled material and waste from industrial sources, but excludes internal recycling within facility (home scrap). Energy Direct consumption by primary energy source Indirect consumption by primary source Energy saved from conservation and efﬁciency improvements Reductions from energy-efﬁcient or renewable energy-based products and services Initiatives to reduce indirect energy consumption, reductions achieved Water Total water withdrawal by source. Water use, including water quality Sources signiﬁcantly affected by withdrawal EN1 EN2 EN3 EN4 EN5 EN6 EN7 EN8 EN9 EN10 Percentage and volume recycled and reused Biodiversity EN11 Location and size of land owned, leased, managed or adjacent to protected areas, areas of high biodiversity value EN12 Description of signiﬁcant impacts of activities. Where possible, describe impact (gain/loss) on sustainable land use. Include impacts of resettlement and closure activities reported under MM9 and MM10 respectively. MMI Amount of land (owned/leased, managed for production or extractive use) disturbed or rehabilitated EN13 Habitats protected or restored. Report on biodiversity offsets EN14 Strategies, actions and plans for managing impacts on biodiversity. Disclose consideration of ecosystems services and associated values. MM2 EN15 Number and percentage of total sites requiring biodiversity management plans according to stated criteria, and number (percentage) of sites with plans in place IUCN Red List species and national conservation list species in areas affected by operations Emissions, efﬂuents, 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 Management of radioactive material EN20 NOx, SOx, and other signiﬁcant air emissions by type and weight. Include emissions from major mobile sources and on-site stationary sources EN21 Total water discharge by quality and destination EN22 Total weight of waste by type and disposal method. Site waste and construction waste. Large-volume mining and mineral processing waste to be reported under MM3 MM3 Total amounts of overburden, rock, tailings and sludges and their associated risks Page nr nm 117 117 101, 117 101 101-105 99 99 nr 107-111 108-111 108-111 113 108-111 108-111 108-111 108-111 102, 117 117 100-105 105 99 117 nr nr nr EN23 Total number and volume of signiﬁcant spills. Include spills of tailings, slimes or other signiﬁcant process 115-116 materials. Report follow-up actions to reduce number and severity of spills, even at a level before emergency procedures are required. EN24 Waste transported under terms of Basel Convention (Annex I, II, III, VIII) EN25 EN26 Identity, size, protected status, and biodiversity value of water bodies and related habitats signiﬁcantly affected by discharges of water and runoff Products and services Initiatives to mitigate environmental impacts of products, extent of mitigation EN27 Percentage of products sold and packaging materials reclaimed by category Compliance EN28 Signiﬁcant ﬁnes, sanctions for non-compliance with environmental laws and regulations Transport EN29 Signiﬁcant impacts of transporting products, and members of workforce EN30 Total environmental protection expenditures and investments by type na nr 105 na Zero nr nr EXXARO INTEGRATED ANNUAL REPORT 2010 175 GRI INDICATOR INDEX CONTINUED GRI Topic Social performance: labour practices and decent work Employment Workforce by employment type, employment contract and region Number and rate of employee turnover by age group, gender, and region Beneﬁts for full-time employees not provided to temporary/part-time employees Labour/management relations Percentage employees covered by collective bargaining agreements LA1 LA2 LA3 LA4 LA5 Minimum notice period on signiﬁcant changes, including speciﬁed in collective agreements MM4 Number of strikes and lock-outs exceeding one week’s duration, by country LA6 LA7 LA8 LA9 Occupational health and safety Percentage workforce represented in formal joint health and safety committees to monitor and advise on programmes Rates of injury, occupational diseases, lost days, absenteeism, work-related fatalities. Describe each fatality, and subsequent actions Education, training, counselling, prevention, and risk-control programmes to assist workforce members, their families or community members with serious diseases 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 Page 121 122 127, 160 127 127 127 80 82, 87 83 83 125 125 LA12 Percentage of employees receiving regular performance and career development reviews. 124, 160 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 Percentage and number of signiﬁcant investment agreements with human rights clauses or human rights screening Percentage signiﬁcant 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 Total number of incidents of discrimination and actions taken Freedom of association and collective bargaining HR1 HR2 HR3 HR4 HR5 Operations where right to freedom of association and collective bargaining may be at signiﬁcant risk, actions taken to support rights. HR6 Operations with signiﬁcant risk for incidents of child labour, measures to eliminate HR7 Operations with signiﬁcant risk of forced or compulsory labour, measures to eliminate Security practices Percentage security personnel trained in policies/procedures on human rights relevant to operations HR8 Total number of operations in/adjacent to indigenous peoples’ territories, and number and percentage of operations/sites with formal agreements with indigenous peoples’ communities Indigenous rights MM5 HR9 Number of violations involving rights of indigenous people and actions taken 123 121 nr nr 128 Zero, 121 127 Zero Zero 128 nr nr 176 EXXARO INTEGRATED ANNUAL REPORT 2010 GRI Topic SO1 Social performance: society Community Programmes and practices to manage impacts of operations on communities, including entering, operating, and exiting. Exxaro donations Disclose how Exxaro acts to mitigate negative impacts and contribute to local development, and how consultation processes ensure that assessing impacts and evaluating beneﬁts properly reﬂect local views. Report on extent to which community participation processes are socially inclusive and ensure engagement with disadvantaged groups (social responsibility aspect) or means to oppose operations if they do not feel they are treated equitably (risk mitigation aspect). Issues for particular consideration include: (cid:33)(cid:3) (cid:3)Community economic development planning processes, including sources of community income, access to services and social infrastructure, access to capital and natural resources, and access to further education and skills training. (cid:33)(cid:3) (cid:3)Co-ordination with other agencies, eg on poverty alleviation and natural resource management. (cid:33)(cid:3) (cid:3)Procedures for identifying and protecting subsistence-related resources of local communities, including water, plants and wildlife. (cid:33)(cid:3) (cid:3)Measures of community health and wellbeing, incl prevalence of cultural practices and associations. MM6 Number and description of signiﬁcant disputes on land use, customary rights of local communities and indigenous peoples MM7 Extent to which grievance mechanisms were used to resolve disputes above, and outcomes MM8 Number (and percentage of operating sites where artisanal and small-scale mining (ASM) takes place on/ adjacent to the site; associated risks and actions taken to manage and mitigate these risks MM9 Sites where resettlements took place, number of households resettled, and how livelihoods affected MM10 Number and percentage of operations with closure plans SO2 SO3 SO4 SO5 SO6 SO7 SO8 Corruption 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 Public policy Public policy positions and participation in policy development and lobbying Total value of ﬁnancial and in-kind contributions to political parties, politicians, and related institutions Anti-competitive behaviour Legal actions for anti-competitive behaviour, anti-trust and monopoly practices, outcomes Compliance Signiﬁcant ﬁnes, sanctions for non-compliance with laws and regulations. Summary of judgments against Exxaro on health and safety and labour laws. Page 131-136 nr nr nr nr 113 nr 145 149 28 zero Zero Zero, 144 EXXARO INTEGRATED ANNUAL REPORT 2010 177 GRI INDICATOR INDEX CONTINUED GRI Topic Social performance: product responsibility Customer health and safety Programmes and progress relating to materials stewardship Life cycle stages in which impacts of products and services are assessed for improvement, percentage of signiﬁcant 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 signiﬁcant 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 Substantiated complaints on breaches of customer privacy and losses of customer data Compliance Signiﬁcant ﬁnes for non-compliance with laws and regulations concerning provision and use of products and services. MM11 PR1 PR2 PR3 PR4 PR5 PR6 PR7 PR8 PR9 nm – not measured nr – not reported na – not applicable Page nr nr na na na na 155 Zero na na 178 EXXARO INTEGRATED ANNUAL REPORT 2010 GROUP CASH VALUE ADDED STATEMENTS for the year ended 31 December 2010 (Unaudited) The value added statement shows the wealth the group has created through mining, beneficiation, trading and investing operations. Exxaro generates and creates value for many of its stakeholders as follows: – Exxaro’s biggest assets: employees receive salaries/wages, as well as bonuses. – The governments of the countries where Exxaro has operations receive taxes and royalty payments. – Suppliers and contractors are supported through the procurement of consumables, services and capital goods. – To ensure sustainability and expansion continual and substantial re-investment into the group is necessary. – Shareholders receive a fair return on their investment through dividends and growth on the share price. 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. 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 Total cash value disbursed or retained Notes to the group cash 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 31 December 2010 Rm 31 December 2009 Rm 16 524 1 817 (10 044) 8 297 14 812 1 754 (10 802) 5 764 4 056 430 391 1 056 5 933 2 364 8 297 430 2 010 2 440 2 091 1 016 30 4 3 141 28 115 10 30 30 213 3 502 892 526 1 050 5 970 (206) 5 764 892 1 915 2 807 1 976 652 32 2 660 35 80 6 32 30 183 Cash disbursed among stakeholders 2010 Cash disbursed among stakeholders 2009 18% 18% 7% 7% Remunerate employees for services Pay direct taxes to the state Provide lenders with a return on borrowings Provide shareholders with cash dividends 15% 68% 9% 58% EXXARO INTEGRATED ANNUAL REPORT 2010 179 SELECTED GROUP FINANCIAL DATA TRANSLATED INTO US DOLLARS for the year ended 31 December 2010 (Unaudited) The group statutory 2010 financial statements have been expressed in US dollars for information purposes. The average US dollar/rand of USD1:R7,30 (2009: USD1:R8,35) has been used to translate the income and statement of cash flows,whilst the statement of financial position has been translated at the closing rate on the last day of the reporting period of USD1:R6,63 (2009: USD1:R7,40). INCOME STATEMENTS Revenue Operating expenses NET OPERATING PROFIT Net financing costs Income from equity-accounted investments PROFIT BEFORE TAX Income tax expense PROFIT FOR THE YEAR Profit 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 2010 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 classified 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, non-current provisions and financial liabilities Current liabilities Interest-bearing borrowings Other Non-current liabilities classified as held-for-sale TOTAL EQUITY AND LIABILITIES NET DEBT (refer definitions on page 181) STATEMENTS OF CASH FLOWS for the year ended 31 December 2010 Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 180 EXXARO INTEGRATED ANNUAL REPORT 2010 2010 USD million 2 350 (1 989) 361 (62) 509 808 (91) 717 714 4 717 206 710 205 2 007 7 11 585 110 208 323 1 052 13 4 316 2 630 (3) 550 535 108 488 8 4 316 335 324 (134) (37) 153 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) DEFINITIONS Attributable cash ﬂow per ordinary share Cash ﬂow 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 ﬁnancial asset. Cash and cash equivalents Comprise cash on hand and current — EBITDA: net operating proﬁt (before interest, tax, depreciation, amortisation, impairment charges and net deﬁcit/ surplus on sale of investments and assets) divided by net ﬁnancing costs. Headline earnings yield Headline earnings per ordinary share divided by the closing share price on the JSE Limited. Invested capital Total equity, interest-bearing debt, non- current provisions and net deferred tax accounts in bank, net of bank overdrafts, less cash and cash equivalents. together with any highly liquid investments readily convertible to known amounts of cash and not subject to signiﬁcant risk of Net assets Total assets less current and non-current Return on ordinary shareholders’ equity — Attributable earnings 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 proﬁt plus income from non-equity accounted investments plus income from investments in associates as a percentage of the average invested changes in value. liabilities less non-controlling interests capital. which equates to equity of owners of the parent. Net debt to equity ratio Interest-bearing debt less cash and cash Return on net assets Net operating proﬁt plus income from non-equity accounted investments plus income from investments in associates as equivalents as percentage of total equity. a percentage of the average net assets. Net equity per ordinary share Equity attributable to owners of the Revenue per employee Revenue divided by the average number parent divided by the number of ordinary of employees during the year. shares in issue at the year end. 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 Number of years to repay interest-bearing debt Interest-bearing debt divided by cash Earnings attributable to owners of the ﬂow from operating activities before parent divided by the weighted average dividends paid. number of ordinary shares in issue during the year. — Headline earnings basis Operating margin Net operating proﬁt as a percentage Earnings attributable to owners of the of revenue. parent adjusted for proﬁts and losses on items of a capital nature recognising the tax and non-controlling interests impacts on these adjustments, divided Operating proﬁt per employee Net operating proﬁt divided by the average number of employees during the by the weighted average number of year. ordinary shares in issue during the year. NET FInancing cost cover — EBIT: net operating proﬁt Return on capital employed Net operating proﬁt plus income from (before non-equity-accounted investments plus interest and tax) divided by net income from investments in associates as ﬁnancing costs a percentage of average capital employed. Total asset turnover Revenue divided by average total assets. 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 INTEGRATED ANNUAL REPORT 2010 181 182 EXXARO INTEGRATED ANNUAL REPORT 2010 DIVIDER PAGE 5 – FRONT (FINANCIAL STATEMENTS) GROUP ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 for the year ended 31 December 2010 Financials CONTENTS Financial statements 184 Directors’ responsibility for ﬁnancial reporting 184 Certiﬁcate by company secretary 185 Independent auditors’ report 186 Report of the directors 189 Directors’ remuneration 206 Income statements and statements of comprehensive income 207 Statements of ﬁnancial position 208 Statements of cash ﬂows 209 Group statement of changes in equity 210 Company statement of changes in equity 211 Notes to the annual ﬁnancial statements Annexures 297 1. Non-current interest-bearing borrowings 299 2. Investments in associates, joint ventures and other investments 301 3. Investments in subsidiaries Administration 304 Notice of annual general meeting 308 Biographies of directors up for re-election 309 Form of proxy IBC Administration and shareholders’ diary s l a i c n a n F i EXXARO INTEGRATED ANNUAL REPORT 2010 183 DIVIDER PAGE 5 – BACK (FINANCIAL STATEMENTS) DIRECTORS’ RESPONSIBILITY FOR FINANCIAL REPORTING TO THE MEMBERS OF EXXARO RESOURCES LIMITED The directors of the company are responsible for maintaining adequate accounting records, the preparation of the annual financial statements of the company and the group and to develop and maintain a sound system of internal control to safeguard shareholders’ investments and the group’s assets. In presenting the accompanying financial statements, International Financial Reporting Standards have been followed, applicable accounting policies have been used and prudent judgements and estimates have been made. In order for the directors to discharge their responsibilities, management has developed and continues to maintain a system of internal control aimed at reducing the risk of error or loss in a cost-effective manner. Such systems can provide reasonable but not absolute assurance against material misstatement or loss. The directors, primarily through the audit, risk and compliance committee which consists only of non-executive directors, meet periodically with the external and internal auditors, as well as executive management to evaluate matters concerning accounting policies, internal control, auditing, financial reporting and risk management. The group’s internal auditors independently evaluate the internal controls and coordinate their audit coverage with the external auditors. The external auditors are responsible for reporting on the financial statements. The external and internal auditors have unrestricted access to all records, property and personnel as well as to the audit, risk and compliance committee. The directors are not aware of any material breakdown in the functioning of these controls and systems during the year under review. The directors are of the opinion, based on the information and explanations given by management and the internal auditors, and on comments made by the external auditors on the results of their audit conducted for the purpose of expressing their opinion on the annual financial statements, that the internal accounting controls are adequate, such that the financial records may be relied on for preparing the financial statements and maintaining accountability for assets and liabilities. The directors have reviewed the group’s financial budgets with its underlying business plans for the period to 31 December 2011. In light of the current financial position and existing borrowing facilities, they consider it appropriate that the annual financial statements be prepared on the going-concern basis. Against this background, the directors of the company accept responsibility for the annual financial statements, which were approved by the board of directors on 22 February 2011 and are signed on its behalf by: SA Nkosi Chief executive officer WA de Klerk Finance director The external auditor has audited the annual financial statements of the company and group and their unmodified report appears on page 185. CERTIFICATE BY COMPANY SECRETARY In terms of the Companies Act No 61 of 1973 of South Africa, as amended, I, MS Viljoen, in my capacity as company secretary, confirm that for the year ended 31 December 2010, 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 22 February 2011 184 EXXARO INTEGRATED ANNUAL REPORT 2010 REPORT OF THE INDEPENDENT AUDITOR ON THE ANNUAL FINANCIAL STATEMENTS TO THE MEMBERS OF EXXARO RESOURCES LIMITED We have audited the annual financial statements of Exxaro Resources Limited, which comprise the statement of financial position as at 31 December 2010, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information, and the directors’ report, as set out on the attached pages. DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL STATEMENTS The directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and in the manner required by the Companies Act of South Africa, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. OPINION In our opinion, the financial statements present fairly, in all material respects, the financial position of Exxaro Resources Limited as at 31 December 2010, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards and in the manner required by the Companies Act of South Africa. AUDITOR’S RESPONSIBILITY Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether from material misstatement. the financial statements are free Deloitte & Touche Registered auditor Per BW Smith Partner 22 February 2011 Buildings 1 and 2, Deloitte Place The Woodlands Office Park Woodlands Drive, Sandton An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. National Executive: GG Gelink (Chief Executive), AE Swiegers (Chief Operating Officer) GM Pinnock (Audit), DL Kennedy (Risk Advisory), NB Kader (Tax & Legal Services), L Geeringh (Consulting), L Bam (Corporate Finance), JK Mazzocco (Human Resources), CR Beukman (Finance), TJ Brown (Clients), NT Mtoba (Chairman of the Board), MJ Comber (Deputy Chairman of the Board) A full list of partners and directors is available on request. BBBEE rating: Level 2 contributor/AAA (certified Empowerdex) Member of Deloitte Touche Tohmatsu Limited EXXARO INTEGRATED ANNUAL REPORT 2010 185 REPORT OF THE DIRECTORS The directors have pleasure in presenting the annual financial statements of Exxaro Resources Limited (Exxaro) and the group for the year ended 31 December 2010. The group aims to cover its annual net funding requirements through longer-term loan facilities with maturities spread evenly over time. 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 of Exxaro endorses the principles contained in the King III report. Full details on how these principles were applied in Exxaro and the actions undertaken to achieve full compliance are set out in the corporate governance report on page 140. REGISTRATION DETAILS Exxaro is a company listed on the JSE Limited. The company registration number is 2000/011076/06. The registered office is Roger Dyason Road, Pretoria West, 0183, Republic of South Africa. ACTIVITIES AND FINANCIAL RESULTS Summarised information on the activities and performance of the group and the various divisions of the group are contained in the reports on pages 6 to 11 as well as in the financial and operational review on pages 48 to 59. These reports are unaudited. CAPITAL MANAGEMENT As a diversified mining company Exxaro is exposed to the cyclical price movements associated with its suite of commodities. The group’s policy is therefore to ensure it maintains a robust capital structure with strong financial metrics underpinned by adequate borrowing in commodity cycles. Growth opportunities, debt levels and dividend distributions to shareholders are considered against this backdrop. facilities to withstand a significant downturn The board of directors is ultimately responsible to monitor debt levels, return on capital as well as compliance with contractually agreed loan covenants. For the year under review the following key metrics were achieved: Net debt/equity ratio (%) Net financing cost cover – EBITDA (times) Return on capital employed (%) (Refer definitions on page 181) 2010 2009 13 9 38 29 7 15 The capital base consists of total shareholders’ equity as disclosed, as well as interest-bearing borrowings. As a new-generation empowerment company with a 56% BEE shareholding, Exxaro is constrained from issuing equity, and its memorandum and articles of association accordingly incorporate various provisions limiting the issue of new shares or alterations to its share capital that could result in a loss of its empowerment status. 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 final dividends to shareholders. The group may from time to time repurchase its own shares in the open market, depending on prevailing market prices. These share repurchases are primarily intended to settle the group’s various employee share incentive schemes and decisions are made on a specific transaction basis by the executive committee. The group does not, however, have a defined share buyback plan. During the year, 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. The group continuously reviews its capital expenditure programmes, including sustaining capital to ensure that its capital structure remains robust to withstand any downturns. Neither the company nor any of its subsidiaries are subject to externally imposed regulatory capital requirements. PROPERTY, PLANT AND EQUIPMENT Capital expenditure for the period was R2 677 million (2009: R1 982 million). SHAREHOLDERS’ RESOLUTIONS At the ninth annual general meeting of shareholders, held on 21 May 2010, the following resolutions were passed: • renewal of the authority that unissued shares be placed under the control of the directors • general authority to issue shares for cash • resolution to approve amendments to the 2006 incentive plans • resolution to authorise directors to issue and allot shares in terms of the 2006 incentive plans • special resolution to authorise directors to repurchase company shares. Exxaro and its subsidiaries have passed no other special or ordinary shareholders’ resolutions of material interest or of a substantive nature. SHARE CAPITAL The total number of shares in issue increased during the year to 358 089 230. The increase can be summarised as follows: Opening balance Issued in terms of the Kumba management share option scheme due to options exercised at market prices ranging from R106,03 to R140,09 Closing balance Date of issue Number of shares 356 940 200 4 January 2010 to 17 December 2010 1 149 030 358 089 230 186 EXXARO INTEGRATED ANNUAL REPORT 2010 SHAREHOLDERS An analysis of shareholders and shareholdings appears on page 168 of the annual report. DIRECTORATE AND SHAREHOLDINGS The names of the directors in office at the date of this report are set out on page 142. DIVIDEND PAYMENTS Dividend number 15 Interim dividend number 15 of 200 cents per share was declared in South African currency for the period ended 30 June 2010. The dividend was paid on Monday, 4 October 2010 to shareholders recorded in the register of the company at close of business on Friday, 1 October 2010. To comply with the requirements of Strate, the last day to trade cum dividend was Thursday, 23 September 2010. The shares commenced trading ex dividend on Monday, 27 September 2010 and the record date was Friday, 1 October 2010. Dividend number 16 Final dividend number 16 of 300 cents per share was declared in South African currency for the period ended 31 December 2010. No Secondary Tax on Companies (STC) was payable on these dividends after taking into account STC credits on the dividends received from SIOC. The dividend payment date is Monday, 11 April 2011 to shareholders recorded in the books of the company at close of business on Friday, 8 April 2011. To comply with the requirements of Strate, the last day to trade cum dividend is Friday, 1 April 2011. The shares will commence trading ex dividend on Monday, 4 April 2011 and the record date is Friday, 8 April 2011. INVESTMENTS AND SUBSIDIARIES The financial in subsidiaries of the company is disclosed in annexures 2 and 3 to the financial statements. investments and information on interests EVENTS AFTER THE REPORTING PERIOD The directors are not aware of any matter or circumstance arising after the statement of financial position date up to the date of this report not dealt with in this report or in the group financial statements that would significantly affect the operations or the results of the group. On 1 January 2011 the Glen Douglas investment was sold to JSE- listed materials supplier Afrimat Limited. On 31 December 2010, this investment still constituted a non-current asset classified as held for sale. The Fairbreeze project was approved by the board and construction is expected to start in the second quarter of 2011 subject to normal regulatory and environmental approvals. A possible reversal or partial reversal of the previous impairments of the carrying value of the assets will be considered during 2011. The following changes occurred to the board in 2010: • Ms N Langeni was appointed as a non-executive director of the board on 23 February 2010 as the Basadi Ba Kopane Investments (Pty) Limited nominated representative. • The acting chairman, Dr D Konar, was elected as chairman of the board with effect from 23 February 2010. J van Rooyen was appointed as Chairman of the Audit, Risk and Compliance Committee (audit committee) on the same date. The directors below are required to retire by rotation in terms of clause 16.1 of the articles of association of the company, and being eligible for re-election, offer themselves for re-election at the forthcoming annual general meeting: • VZ Mntambo • NL Sowazi • J van Rooyen • D Zihlangu 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 AUDIT COMMITTEE The audit committee (referred to as the audit, risk and compliance committee) of Exxaro operates within prescribed terms of reference incorporating all duties and responsibilities as required by the: • Corporate Laws Amendment Act • The JSE Listings Requirements • King III. The committee has reviewed the scope as well as the independence and objectivity of the external auditor and satisfied itself that the external auditor is independent as defined by the Companies Act, and the committee has approved the audit fees for the period ended 31 December 2010. The committee has nominated PricewaterhouseCoopers (PwC) as external auditor for the 2011 financial year for approval at the annual general meeting on 19 May 2011. Refer to the section on corporate governance on page 153 for further details on the composition, role, purpose and principal functions of the audit committee. At the board meeting on 22 February 2011, Mr J van Rooyen was re-elected as chairman of the audit, risk and compliance committee for the following year. EXXARO INTEGRATED ANNUAL REPORT 2010 187 REPORT OF THE DIRECTORS CONTINUED The group’s capital base, the borrowing powers of the company and the group were set at 125% of shareholders’ funds for both the 2010 and 2009 financial years. GOING CONCERN The directors believe the group has adequate financial resources to continue in operation for the foreseeable future and accordingly the financial statements have been prepared on a going-concern basis. The board is not aware of any new material changes that may adversely impact the group. The board is not aware of any material non-compliance with statutory or regulatory requirements. EMPLOYEE INCENTIVE SCHEMES Details of the group’s employee incentive schemes are set out on page 164 of this report. ANNUAL GENERAL MEETING The tenth annual general meeting of members of Exxaro will be held at the corporate office, Roger Dyason Road, Pretoria West, South Africa, at 09:00 on Thursday, 19 May 2011. Refer to pages 304 to 308 of these annual financial statements for further details of the ordinary and special business for consideration at this meeting. INDEPENDENT AUDITOR In line with the group’s practice of reviewing its service providers every five years, Exxaro appointed PricewaterhouseCoopers (PwC) as its statutory auditor from the 2011 fiscal year to replace Deloitte & Touche subsequent to its audit of Exxaro’s financial results for the year ended 31 December 2010. NON-AUDIT SERVICES Exxaro has an approved board policy to regulate the use of non- audit services by our independent auditors. The policy differentiates between permitted and prohibited non-audit services, and specifies a monetary threshold by which approvals are considered. During the year under review, Deloitte & Touche were engaged for tax advisory and compliance services, accounting opinions and other advisory services. The fees applicable to these services totalled R0,8 million. CHANGE IN ACCOUNTING POLICIES The accounting policies are consistent with those applied in the annual financial statements for the year ended 31 December 2009. BORROWING POWERS 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 2010 Rm 21 850 4 360 17 490 2009 Rm 16 136 4 754 11 382 188 EXXARO INTEGRATED ANNUAL REPORT 2010 DIRECTORS’ REMUNERATION This report on remuneration and related matters covers issues which are the concern of the board as a whole, in addition to those which were dealt with by the transformation, remuneration, human resources and nomination committee (Tremco). DIRECTORS’ SERVICE CONTRACTS All executive directors’ normal contracts are subject to six calendar months’ notice. Non-executive directors are not bound by service contracts. REMUNERATION POLICY Tremco has a clearly defined mandate from the board aimed at: • ensuring the company’s chairman, directors and senior executives are fairly rewarded for their individual contributions to the company’s overall performance • ensuring the company’s remuneration strategies and packages, including incentive schemes, are related to performance, suitably competitive and give due regard to the interests of the shareholders and the financial and commercial health of the company (page 160). There are no restraints of trade associated with the contracts of executive directors. EXXARO INTEGRATED ANNUAL REPORT 2010 189 DIRECTORS’ REMUNERATION CONTINUED SUMMARY OF REMUNERATION for the year ended 31 December 2010 Executive directors SA Nkosi WA de Klerk Less: Gains on share scheme Add: Share-based payment expense Total remuneration paid by Exxaro Non-executive directors JJ Geldenhuys CI Griffith4 U Khumalo4 Dr D Konar (chairman) N Langeni3 VZ Mntambo RP Mohring NL Sowazi4 J van Rooyen D Zihlangu Total remuneration paid by Exxaro Basic salary R Fees for services R 5 233 180 2 879 349 8 112 529 8 112 529 411 680 236 487 200 120 603 200 191 622 268 460 509 330 297 770 371 031 268 460 3 358 160 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 Include travel allowances. 3 Appointed on 23 February 2010. 4 Fees paid to the respective employer and not the individual. Retirement amounts paid or received by executive directors are paid or received under defined contribution retirement funds. 190 EXXARO INTEGRATED ANNUAL REPORT 2010 Performance bonuses1 R Benefits and allowances2 R Retirement fund contributions R 3 150 335 1 633 632 4 783 967 97 403 225 137 322 540 458 341 274 397 732 738 Gains on management share option scheme R 4 457 001 2 231 251 6 688 252 Other R 6 005 3 488 9 493 4 783 767 322 540 732 738 6 688 252 9 493 34 003 6 569 26 520 3 179 70 271 Total R 13 402 265 7 247 254 20 649 519 (6 688 252) 9 890 618 23 851 885 445 683 236 487 200 120 603 200 198 191 268 460 535 850 297 770 371 031 271 639 3 428 431 EXXARO INTEGRATED ANNUAL REPORT 2010 191 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 Griffith5, 7 U Khumalo5 Dr D Konar (chairman) VZ Mntambo RP Mohring SEA Mngomezulu8 NL Sowazi5 J van Rooyen D Zihlangu Total remuneration paid by Exxaro Basic salary R Fees for services R 4 051 228 2 232 764 489 511 6 773 503 6 773 503 123 720 379 440 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 Include 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 defined contribution retirement funds. 192 EXXARO INTEGRATED ANNUAL REPORT 2010 Performance bonuses1 R Benefits and allowances2 R Retirement fund contributions R 2 373 637 1 708 603 308 427 4 390 667 135 713 215 838 426 980 778 531 368 187 217 551 51 117 636 855 Gains on management share option scheme R 1 644 031 1 644 031 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 4 390 667 778 531 636 855 1 644 031 8 100 15 875 935 35 241 19 693 11 696 66 630 123 720 414 681 76 850 184 440 570 000 247 440 489 133 184 440 240 737 274 440 259 136 3 065 017 EXXARO INTEGRATED ANNUAL REPORT 2010 193 DIRECTORS’ REMUNERATION CONTINUED Directors’ beneficial interest in Exxaro shares at 31 December 2010 Direct Indirect 1 462 168 9 698 806 5 529 881 3 038 387 2 818 552 54 950 Director SA Nkosi WA de Klerk JJ Geldenhuys CI Griffith U Khumalo Dr D Konar (chairman) N Langeni VZ Mntambo RP Mohring NL Sowazi J van Rooyen D Zihlangu Directors’ non-beneficial interest in Exxaro shares at 31 December 2010 Director SA Nkosi WA de Klerk JJ Geldenhuys CI Griffith U Khumalo Dr D Konar (chairman) N Langeni VZ Mntambo RP Mohring NL Sowazi J van Rooyen D Zihlangu 194 EXXARO INTEGRATED ANNUAL REPORT 2010 Directors’ beneficial interest in Exxaro shares at 31 December 2009 Direct Indirect Director SA Nkosi WA de Klerk JJ Geldenhuys CI Griffith U Khumalo Dr D Konar (chairman) VZ Mntambo RP Mohring NL Sowazi J van Rooyen D Zihlangu Directors’ non-beneficial interest in Exxaro shares at 31 December 2009 Director SA Nkosi WA de Klerk JJ Geldenhuys CI Griffith U Khumalo Dr D Konar (chairman) VZ Mntambo RP Mohring NL Sowazi J van Rooyen D Zihlangu 1 462 168 8 016 068 5 529 881 2 181 590 2 818 552 54 950 There has been no change to the interest of directors in share capital since the year-end. On 31 December 2010 Mr SA Nkosi held 2,7% (2009: 2,3%), Mr VZ Mntambo held 1,5% (2009: 1,6%) and Mr NL Sowazi held 0,8% (2009: 0,6%) directly or indirectly in the share capital of the company. EXXARO INTEGRATED ANNUAL REPORT 2010 195 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 31 December 2010 Executive director WA de Klerk Options held at 31 December 2010 Exercise price R Exercisable period Proceeds if exercisable at 31 December 2010 R 3 230 29 130 8 750 41 110 13,62 12,90 19,62 16/03/2011 16/03/2011 22/04/2012 440 055 3 968 671 1 192 100 5 600 826 1 Based on a share price of R136,24 which prevailed on 31 December 2010. Management share option scheme for the year ended 31 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. 196 EXXARO INTEGRATED ANNUAL REPORT 2010 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 Pre-tax gain if exercisable at 31 December 20101 R 396 063 3 592 894 1 020 425 5 009 382 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 EXXARO INTEGRATED ANNUAL REPORT 2010 197 DIRECTORS’ REMUNERATION CONTINUED Management share appreciation right scheme for the year ended 31 December 2010 Executive director SA Nkosi WA de Klerk Rights held at 31 December 2010 Exercise price R Exercisable period Proceeds if exercisable at 31 December 2010 R 38 680 41 780 67 430 45 474 193 364 19 330 16 410 37 760 21 478 94 978 60,60 112,35 67,07 126,77 60,60 112,35 67,07 126,77 01/03/2014 01/04/2015 01/04/2016 01/04/2017 01/03/2014 01/04/2015 01/04/2016 01/04/2017 5 269 763 5 692 107 9 186 663 6 195 378 26 343 911 2 633 519 2 235 698 5 144 422 2 926 163 12 939 802 1 Based on a share price of R136,24 which prevailed on 31 December 2010 Management share appreciation right scheme for the year ended 31 December 2009 Executive director SA Nkosi WA de Klerk Rights held at 31 December 2009 Exercise price R Exercisable period Proceeds if exercisable at 31 December 20091 R 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 4 042 060 7 046 435 11 088 495 2 019 985 3 945 920 5 965 905 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. 198 EXXARO INTEGRATED ANNUAL REPORT 2010 Pre-tax gain if exercisable at 31 December 20101 R Options exercised during the year Exercise price R Sale price/ market price R Pre-tax gain R Date exercised 2 925 755 998 124 4 664 133 430 639 9 018 651 1 462 121 392 035 2 611 859 203 397 4 669 412 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 EXXARO INTEGRATED ANNUAL REPORT 2010 199 DIRECTORS’ REMUNERATION CONTINUED Management share scheme – long-term incentive plan for the year ended 31 December 2010 Rights held at 31 December 2010 Exercise price R Exercisable period Proceeds if exercisable at 31 December 2010 R Executive director SA Nkosi WA de Klerk 41 782 67 438 47 412 156 632 16 418 37 764 21 478 75 660 01/04/2011 01/04/2012 01/04/2013 5 692 380 9 187 753 6 459 411 21 339 544 01/04/2011 01/04/2012 01/04/2013 2 236 788 5 144 967 2 926 163 10 307 918 1 Based on a share price of R136,24 which prevailed on 31 December 2010. Management share scheme – long-term incentive plan for the year ended 31 December 2009 Executive director SA Nkosi WA de Klerk Rights held at 31 December 2009 Exercise price R Exercisable period Proceeds if exercisable at 31 December 2009 R 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 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. 200 EXXARO INTEGRATED ANNUAL REPORT 2010 Pre-tax gain if exercisable at 31 December 20101 R Options exercised during the year Exercise price R Sale price/ market price R Pre-tax gain R Date exercised 15 434 1 821 649 20 778 38 682 13 452 3 421 1 900 561 5 692 380 9 187 753 6 459 411 21 339 544 2 236 788 5 144 967 2 926 163 116,00 116,01 116,05 116,25 1 790 344 211 254 75 316 2 415 443 05/03/2010 05/03/2010 05/03/2010 05/03/2010 116,25 116,26 116,28 116,31 4 492 357 1 563 795 397 725 220 932 65 250 05/03/2010 05/03/2010 05/03/2010 05/03/2010 10 307 918 19 334 2 247 702 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 4 042 269 4 366 219 7 047 271 15 455 759 2 020 403 1 715 681 3 946 338 7 682 422 EXXARO INTEGRATED ANNUAL REPORT 2010 201 DIRECTORS’ REMUNERATION CONTINUED Management share scheme – deferred bonus plan for the year ended 31 December 2010 Rights held at 31 December 2010 Exercise price R Exercisable period Proceeds if exercisable at 31 December 2010 R Executive director SA Nkosi WA de Klerk 718 2 573 213 2 315 6 620 466 1 433 3 527 420 18 285 542 1 398 182 1 644 3 000 326 1 003 2 083 262 10 440 28/02/2011 28/02/2011 01/09/2011 02/03/2012 31/03/2012 31/08/2012 01/03/2013 31/03/2013 31/08/2013 28/02/2011 28/02/2011 01/09/2011 02/03/2012 31/03/2012 31/08/2012 01/03/2013 31/03/2013 31/08/2013 97 820 350 546 29 019 315 396 901 909 63 488 195 232 480 518 57 221 2 491 149 73 842 190 464 24 796 223 979 408 720 44 414 136 649 283 788 35 695 1 422 347 1 Based on a share price of R136,24 which prevailed on 31 December 2010. 202 EXXARO INTEGRATED ANNUAL REPORT 2010 Pre-tax gain if exercisable at 31 December 20101 R Options exercised during the year Exercise price R Sale price/ market price R Pre-tax gain R Date exercised 361 112,68 40 677 08/09/2010 97 820 350 546 29 019 315 396 901 909 63 488 195 232 480 518 57 221 2 491 149 73 842 190 464 24 796 223 979 408 720 44 414 136 649 283 788 35 695 361 212 112,68 40 677 23 888 08/09/2010 1 422 347 212 23 888 EXXARO INTEGRATED ANNUAL REPORT 2010 203 DIRECTORS’ REMUNERATION CONTINUED Management share scheme – deferred bonus plan for the year ended 31 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 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 37 725 75 031 268 879 22 259 241 918 691 790 48 697 1 386 299 22 154 56 639 146 091 19 019 171 798 313 500 34 067 763 268 1 Based on a share price of R104,50 which prevailed on 31 December 2009. 204 EXXARO INTEGRATED ANNUAL REPORT 2010 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 37 725 75 031 268 879 22 259 241 918 691 790 48 697 1 386 299 22 154 56 639 146 091 19 019 171 798 313 500 34 067 763 268 EXXARO INTEGRATED ANNUAL REPORT 2010 205 INCOME STATEMENTS AND STATEMENTS OF COMPREHENSIVE INCOME for the year ended 31 December 2010 Revenue Operating expenses 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 Profit attributable to: Owners of the parent Non-controlling interests Notes 2 3 5 5 6 14 7 STATEMENTS OF COMPREHENSIVE INCOME Profit for the year Other comprehensive income: Exchange differences on translating foreign operations Cash flow hedges Share of comprehensive income of associates Income tax relating to components of other comprehensive income Net gain/(loss) recognised in other comprehensive income 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 GROUP COMPANY 2010 Rm 17 155 (14 519) 2 636 135 (590) 2 3 717 5 900 (665) 5 235 5 208 27 5 235 2009 Rm 15 009 (14 705) 304 145 (560) 2 1 898 1 789 (766) 1 023 2010 Rm 1 048 (1 295) (247) 64 (295) 3 205 2 727 (36) 2 691 2009 Rm 1 009 (4 320) (3 311) 51 (390) 6 731 3 081 (2) 3 079 1 023 2 691 3 079 1 023 2 691 3 079 5 235 1 023 2 691 3 079 2 3 2 2 693 3 3 082 2 693 3 082 2 693 3 082 (9) 227 40 (115) 143 5 378 5 408 (30) 5 378 1 501 1 443 (35) (474) (34) 142 (401) 622 759 (137) 622 297 286 206 EXXARO INTEGRATED ANNUAL REPORT 2010 STATEMENTS OF FINANCIAL POSITION at 31 December 2010 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 classified 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 classified as held for sale TOTAL EQUITY AND LIABILITIES NET DEBT GROUP 2010 Rm COMPANY 2009 Rm 2010 Rm 2009 Rm Notes 11 12 13 14 15 23 16 17 18 19 20 21 22 23 24 21 22 19 13 305 11 869 266 240 46 75 41 87 3 880 1 966 1 10 6 017 6 668 726 1 375 629 1 217 85 12 87 11 19 407 15 809 6 381 7 016 3 120 3 752 105 2 140 9 117 85 3 133 3 121 57 1 023 7 334 86 8 054 7 090 1 229 9 283 10 14 343 7 447 18 28 609 23 229 15 674 14 481 2 170 2 321 12 946 17 437 (23) 2 141 2 046 8 721 12 908 1 2 347 1 143 8 656 12 146 2 318 1 041 7 038 10 397 17 414 12 909 12 146 10 397 3 644 2 193 1 353 7 190 3 057 716 147 33 3 953 52 28 609 2 220 2 718 27 3 335 28 4 347 1 853 75 995 7 270 2 745 3 363 2 510 407 57 27 3 001 49 23 229 3 731 366 417 359 362 783 721 15 674 1 906 14 481 3 354 EXXARO INTEGRATED ANNUAL REPORT 2010 207 STATEMENTS OF CASH FLOWS for the year ended 31 December 2010 CASH FLOWS FROM OPERATING ACTIVITIES Cash generated by/(utilised in) operations Net financing 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 (Increase)/decrease in investments in other non-current assets Income from equity accounted investments Income from investments Foreign currency translations Notes 25.1 25.2 25.3 25.4 25.5 25.6 25.7 25.8 25.9 25.10 NET CASH INFLOW/(OUTFLOW) CASH FLOWS FROM FINANCING ACTIVITIES Non-current interest-bearing borrowings raised Non-current interest-bearing borrowings repaid Current interest-bearing borrowings raised/(repaid) Proceeds from issuance of share capital Increase in loans from non-controlling interests NET INCREASE/(DECREASE) 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: GROUP 2010 Rm 4 106 (256) (430) (1 056) 2 364 (1 155) (1 522) 60 (149) 1 815 2 (29) (978) 1 386 345 (960) 311 29 6 (269) 1 117 1 023 2 140 2009 Rm 2 117 (381) (892) (1 050) (206) (992) (990) (19) 11 (1 090) 1 752 2 (88) (1 414) (1 620) 1 572 (658) (93) 43 10 874 (746) 1 769 1 023 COMPANY 2010 Rm (24) (231) 2009 Rm (788) (337) (1 073) (1 328) (1 066) (2 191) (68) 1 606 (88) (19) (795) 2 205 2 131 2 2 746 1 418 (526) (35) 29 1 1 230 (961) 1 301 (674) 157 42 (532) 826 886 343 1 229 (135) 478 343 Net cash inflow/(outflow) as above 1 386 (1 620) Add: – proceeds from issuance of share capital – loans from non-controlling interests – non-cash flow movements in net debt applicable to currency translation differences of transactions denominated in foreign currency – non-cash flow movements in net debt applicable to currency translation differences of net debt items of foreign entities DECREASE/(INCREASE) IN NET DEBT 29 6 43 10 187 340 (97) 1 511 (123) (1 350) 208 EXXARO INTEGRATED ANNUAL REPORT 2010 GROUP STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2010 Other components of equity Foreign currency trans- lations Rm Financial instru- ments revalu- ation Rm Share capital Rm Share premium Rm Attribut- able to owners of the parent Rm Non- control- ling interests Rm Total equity Rm Equity- settled Rm Retained income Rm 4 2 094 964 (162) 43 145 1 081 8 708 12 996 128 13 124 (142) 1 063 160 (137) 759 43 160 622 43 160 (1 050) (1 050) (1 050) 10 10 4 2 137 802 (86) 29 3 1 241 8 721 12 908 1 12 909 213 5 281 5 408 (30) 5 378 148 29 148 29 148 (1 056) (1 056) (1 056) 6 6 4 2 166 716 216 1 389 12 946 17 437 (23) 17 414 OPENING BALANCE AT 1 JANUARY 2009 Total comprehensive income Issue of share capital1 Share-based payment movements (restated) Non-controlling interests additional contributions Dividends paid2 BALANCE AT 31 DECEMBER 2009 Total comprehensive income Issue of share capital1 Share-based payment movement Non-controlling interests additional contributions Dividends paid2 BALANCE AT 31 DECEMBER 2010 Dividend paid per share (cents) in respect of the 2009 financial year Dividend paid per share (cents) in respect of the 2010 interim period Final dividend payable per share (cents) in respect of 2010 financial year 200 200 300 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. Foreign currency translation reserve The foreign currency translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign entities that are not integral to the operations of the group. Financial instruments revaluation reserve The financial instruments revaluation reserve comprises the effective portion of the cumulative net change in the fair value of cash flow 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 INTEGRATED ANNUAL REPORT 2010 209 COMPANY STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2010 Other components of equity Foreign currency trans- lations Rm Financial instru- ments revalu- ation Rm Share capital Rm Share premium Rm OPENING BALANCE AT 1 JANUARY 2009 4 2 272 Total comprehensive income Share-based payment movements (restated) Cash dividends paid1 Issue of share capital2 BALANCE AT 31 DECEMBER 2009 Total comprehensive income Share-based payment movements Cash dividends paid1 Issue of share capital2 42 4 2 314 29 (3) 3 2 Equity- settled Rm Retained income Rm Total equity Rm 949 5 025 8 247 3 079 3 082 92 92 (1 066) (1 066) 42 1 041 7 038 10 397 2 691 2 693 100 100 (1 073) (1 073) 29 BALANCE AT 31 DECEMBER 2010 4 2 343 2 1 141 8 656 12 146 Dividend paid per share (cents) in respect of the 2009 financial year Dividend paid per share (cents) in respect of the 2010 interim period Final dividend payable per share (cents) in respect of 2010 financial year 200 200 300 1 The STC on these dividends amount to Rnil after taking into account STC credits. 2 Issued to the Kumba Resources Management Share Trust due to options exercised. 210 EXXARO INTEGRATED ANNUAL REPORT 2010 NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 31 December 2010 1. ACCOUNTING POLICIES Principal accounting policies The principal accounting policies of the group and the disclosures made in the annual financial statements comply with (IFRS) International Financial Reporting Standards effective for the group’s financial year, as well as the AC 500 statements as issued by the Accounting Practices Board or its successor, schedule 4 Part IV of the South African Companies Act, No 61 of 1973, as amended, and the Listings Requirements of the JSE Limited. The financial statements are prepared on the historical cost basis, except for the revaluation to fair value of financial instruments and biological assets. Where comparative financial information is reported, the accounting policies have been applied consistently for all periods. Adoption of new and revised standards and interpretations In May 2010, the International Accounting Standards Board (IASB) issued amendments to the standards as part of the annual improvements process. The amendments result from proposals that were contained in the exposure draft of proposed amendments to IFRS published in August 2009 and in the exposure draft Rate-regulated Activities published in July 2009. The annual improvements process provides a vehicle for making non-urgent but necessary amendments to IFRS. Some amendments involve consequential amendments to other IFRS. The topics addressed by these amendments are as follows: • IFRS 1 First-time Adoption of International Financial Reporting Standards • IFRS 3 Business Combinations • IFRS 7 Financial Instruments: Disclosures • IAS 1 Presentation of Financial Statements • IAS 27 Consolidated and Separate Financial Statements • IAS 34 Interim Financial Reporting • IFRIC 13 Customer Loyalty Programmes The effective date of each amendment is included in the list of the new and revised standards and interpretation list below. The following Standards and Interpretations have been applied, where relevant, to the financial statements for the period ended 31 December 2010: • 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 Payment resulting from April 2009 Annual Improvements to IFRS, effective for annual periods beginning on or after 1 July 2009. • Amended IFRS 2 Share-based Payment, effective for annual periods on or after 1 January 2010. • Amended IAS 17 Leases, effective for annual periods beginning on or after 1 January 2010. • 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. • Amended IAS 36 Impairment of Assets, effective for annual 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 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 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. The adoption of the amended and revised standards did not have a significant impact on the measurement or disclosure and presentation of items included in the financial statements. No standards were early adopted during 2010 or 2009. At the date of authorisation of these financial statements, the following Standards and Interpretations were in issue but not yet effective: • Amended IFRS 7 Financial Instruments: Disclosures, for annual periods beginning on or after effective 1 January 2011. • IFRS 9 Financial Instruments – Classification and Measurement, effective for annual periods beginning on or after 1 January 2013. • Amended IAS 24 Related Party Disclosure, effective date for annual periods 1 January 2011. • Amended IAS 34 Interim Financial Reporting, effective for annual periods beginning on or after 1 January 2011. • IFRIC 13 Customer Loyalty Programmes, effective for • Revised IFRS 3 Business Combinations, effective for annual annual periods beginning on or after 1 January 2011. 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. • Amended IAS 1 Presentation of Financial Statements, effective for annual periods beginning on or after 1 January 2010. • Amended IAS 7 Statement of Cash Flows, effective for annual periods beginning on or after 1 January 2010. • IFRIC 14 IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their interaction, effective for annual periods beginning on or after 1 January 2011. • IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments, effective for annual periods on or after 1 January 2011. The directors believe that none of the other new or revised standards and interpretations will have an effect other than enhanced disclosure. EXXARO INTEGRATED ANNUAL REPORT 2010 211 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 1. ACCOUNTING POLICIES (continued) Basis of consolidation The group annual financial statements present the consolidated financial position and changes therein, operating results and cash flow 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. 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 profits and losses between group companies are eliminated on consolidation. 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 reflected 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 identifiable net assets and contingent liabilities of that entity at the date of acquisition. Goodwill is assessed for impairment on an annual basis. The gains or losses 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 identifiable assets and contingent liabilities of the entity acquired over the cost of acquisition, and is recognised immediately in profit 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 significant influence, 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 financial and operating decisions. It may involve a corporation, partnership or another entity in which the group has an interest. Investments in associates are accounted for in the group financial statements using the equity method for the duration of the period in which the group has the ability to exercise significant influence. Equity accounted income represents the group’s proportionate share of profits of these entities and the share of tax thereon. The retained earnings of an associate, net of any dividends, are classified as distributable reserves. The group’s interest in associates is carried in the statement of financial position at an amount that reflects its share of the net assets and the unimpaired portion of goodwill on acquisition. 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 financial statements using the proportionate consolidation method. Where necessary, the results of associates and joint ventures are restated to ensure consistency with group policies. Unrealised profits and losses are eliminated. 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 reflected 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 reassessed periodically with any changes in such accounting estimates being adjusted in the financial year of reassessment and applied prospectively. 212 EXXARO INTEGRATED ANNUAL REPORT 2010 1. ACCOUNTING POLICIES (continued) Property, plant and equipment (continued) The estimated useful lives of items of property, plant and equipment are: 2010 Buildings and infrastructure (including residential buildings) Mineral properties Fixed plant and equipment Mobile equipment, built-in process computers, underground mining equipment and reconditionable spares 13 000 – 50 000 hours or 1 – 17 years Coal Mineral sands 1 – 25 years 1 – 25 years 1 – 25 years 1 – 10 years 1 – 20 years 10 years 1 – 25 years 3 – 40 years 3 – 29 years 1 – 30 years 3 – 25 years 3 – 10 years 10 – 20 years 4 – 6 years 3 – 29 years Loose tools and computer equipment Development costs Refractory relines Site preparation, mining development and exploration 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 2009 Buildings and infrastructure (including residential buildings) Mineral properties Fixed plant and equipment Loose tools and computer equipment Development costs Refractory relines Site preparation, mining development and exploration 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 Base metals Industrial minerals Other 2 years – indefinite 10 – 25 years 20 – 25 years n/a n/a 2 years – 50 years 5 – 25 years n/a 5 years 2 – 15 years 2 – 8 years 5 – 15 years 5 years 2 – 5 years 3 – 5 years n/a n/a n/a n/a Coal Mineral sands n/a n/a n/a 3 – 40 years 3 – 29 years 1 – 30 years 3 – 25 years 3 – 15 years 10 – 20 years 4 – 6 years 3 – 29 years 2 – 25 years 2 – 25 years 2 – 25 years 1 – 5 years 8 – 20 years n/a 0 – 25 years Base metals Industrial minerals Other 2 years – indefinite 10 – 25 years 20 – 25 years n/a n/a n/a 2 years – 50 years 5 – 25 years 5 – 10 years 2 – 15 years 2 – 8 years n/a n/a 5 – 15 years 5 years n/a n/a 2 – 5 years 3 – 5 years n/a n/a 6 years Mobile equipment, built-in process computers, underground mining equipment and reconditionable spares 13 000 – 40 000 hours or 1 – 14 years Site preparation, mining development and exploration 7 – 25 years 20 years Site preparation, mining development and exploration 7 – 25 years 20 years EXXARO INTEGRATED ANNUAL REPORT 2010 213 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 1. ACCOUNTING POLICIES (continued) Property, plant and equipment (continued) Maintenance and repairs which neither materially add to the value of assets nor appreciably prolong their useful lives are taken to profit or loss. Direct attributable expenses relating to mining and other major capital projects, site preparations and exploration are capitalised until the asset is brought to a working condition for its intended use. These costs include dismantling and site restoration costs to the extent that these are recognised as a provision. Financing costs directly associated with the construction or acquisition of qualifying assets are capitalised at interest rates relating to loans specifically raised for that purpose, or at the average borrowing rate where the general pool of group borrowings was utilised. Capitalisation of borrowing costs ceases when the asset is substantially complete. Directly attributable costs associated with the acquisition, installation of certain software are development and capitalised. Such assets are depreciated using the amortisation methods and periods applicable to computer equipment. Gains and losses on the disposal of property, plant and equipment are taken to profit or loss. Leased assets Leases involving plant and equipment whereby the lessor provides finance to the group with the asset as security and where the group assumes substantially all the benefits and risks of ownership, are classified as finance leases. Assets acquired in terms of finance leases are capitalised at the lower of fair value and the present value of the minimum lease payments at inception of the lease and depreciated over the useful life of the asset. The capital element of future obligations under the leases is included as a liability in the statement of financial position. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The interest element of the finance charge is charged against income over the lease period using the effective interest rate method. For a sale and leaseback transaction that results in a finance lease, any excess of sales proceeds over the carrying amount is deferred and recognised on the straight-line basis over the period of the lease. Leases of assets to the group under which all the risks and benefits of ownership are effectively retained by the lessor, are classified as operating leases. Payments made under operating leases are charged against income on the straight- line basis over the period of the lease. Arrangements that contain the right to use an asset are evaluated for recognition, classification as a finance or operating lease, measured, and accounted for accordingly. Biological assets Biological assets are measured on initial recognition and at each financial year-end at their fair value less estimated point- of-sale costs and any change in value is included in the net profit or loss for the period in which it arises. Plantations are measured at their fair value less estimated point-of-sale costs. The fair value of the plantations is 214 EXXARO INTEGRATED ANNUAL REPORT 2010 determined by an independent appraiser, based on the Faustman Formula as applied within the forestry industry. Livestock are measured at fair value less estimated point-of- sale costs, fair value being determined by the age and size of the animals and the market price. Market price is determined on the basis that the animal is sold to be slaughtered. Livestock held for sale is classified as consumable biological assets (inventories). Game is measured at fair value less estimated point-of-sale costs, fair value being determined as the market price. Market price is determined with reference to the most recent live auction selling prices. Game held for sale is classified as consumable biological assets (inventories). Intangible assets An intangible asset is recognised at cost if it is probable that future economic benefits will flow to the enterprise and the cost can be reliably measured. Amortisation is charged on a systematic basis over the estimated useful lives of the intangible assets. Subsequent expenditure on capitalised intangible assets is capitalised only if it increases the future benefits embodied in the specific asset to which it relates. Intangible assets with finite useful lives are amortised on the straight-line basis over their estimated useful lives. The amortisation methods and estimated remaining useful lives are reviewed at least annually. The estimated maximum useful lives of intangible assets in respect of patents, licences and franchises are 25 years. The carrying amounts are reviewed at each financial year-end to determine whether there is any indication of impairment. Research, development and exploration costs Research, development and exploration costs are charged against income until they result in projects that are evaluated as being technically or commercially feasible, the group has sufficient resources to complete development and can demonstrate how the asset will generate future economic benefits, in which event these costs are capitalised and amortised on the straight-line basis over the estimated useful life of the project or asset. The carrying amounts are reviewed at each financial year-end to determine whether there is any indication of impairment. Impairment of assets The carrying amounts of assets are reviewed at each financial year-end to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount is estimated as the higher of the net selling price and the value in use. In assessing value in use, the expected future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is recognised whenever the carrying amount exceeds the recoverable amount. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs. An impairment loss is recognised whenever the carrying amount of the cash-generating unit exceeds its recoverable amount. 1. ACCOUNTING POLICIES (continued) Impairment of assets (continued) A previously recognised impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount, however not to an amount higher than the carrying amount that would have been determined (net of depreciation) had no impairment loss been recognised in prior years. For goodwill a recognised impairment loss is not reversed. Financial instruments Recognition A financial instrument is recognised when the group becomes a party to a contract which entitles it to receive contractually agreed cash flows on the instrument. All acquisitions of financial assets that require delivery within the timeframe established by regulation or market convention (regular-way purchases) are recognised at trade date, which is the date on which the group commits to acquire the asset. Derecognition The group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial assets are transferred. Any interest in financial assets transferred that is created or retained by the group is recognised as a separate asset or liability. The group may enter into transactions whereby it transfers assets recognised on its statement of financial position, but retains either all risks and rewards of the transferred assets or a portion of them. If all, or substantially all, risks and rewards are retained, then the transferred assets are not derecognised from the statement of financial position. The rights and obligations retained in the transfer of financial instruments are recognised separately as assets and liabilities as appropriate. In transfers where control over the asset is retained, the group continues to recognise the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred asset. Non-derivative financial instruments Non-derivative financial instruments comprise investments in equity and debt instruments, trade and other payables, cash and cash equivalents, loans and borrowings and trade and other receivables. Non-derivative financial instruments are recognised initially at fair value plus, in the case where financial instruments are not at fair value through profit or loss, any directly initial attributable transaction costs. Subsequent recognition, non-derivative are measured as described below. instruments financial to Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand form an integral part of the group’s cash management system and are included as a component of cash and cash equivalents for purposes of the cash flow statements. Cash and cash equivalents are measured at amortised cost. Financial instruments at fair value through profit or loss The group designates financial assets and liabilities at fair value through profit or loss when either: • the assets or liabilities are managed, evaluated and reported internally on a fair value basis; • the designation eliminates or significantly reduces an accounting mismatch which would otherwise arise; or • the assets or liabilities contain an embedded derivative that significantly modifies the cash flows that would otherwise be required under the contract and has to be separately disclosed and fair-valued through profit or loss. All of the group’s financial instruments designated as at fair value through profit or loss were designated as such as it is the designation significantly reduces an believed accounting mismatch which would otherwise arise. that to initial Subsequent instruments designated or classified as at fair value through profit or loss are measured at fair value with changes in fair value recognised in profit or loss. recognition, financial Available-for-sale financial assets The group has designated certain assets as available-for-sale financial assets. In other circumstances available-for-sale financial assets are classified as such because they do not fall within the classification of loans and receivables, held to maturity investments or financial assets at fair value through profit or loss. Gains or losses on available-for-sale financial assets are recognised directly in equity, except for impairment losses and foreign exchange gains and losses on monetary items. When the financial asset is derecognised, the cumulative gain or loss previously recognised in equity is recognised in profit or loss. Financial instruments not at fair value through profit or loss, and not available-for-sale • Receivables Long-term receivables and trade and other receivables are measured at amortised cost using the effective interest rate method. Effective interest rate method is a method of calculating the amortised cost of a financial asset or liability (or group of financial assets or financial liabilities) and allocating the interest income or interest expense over the relevant period. Amortised cost is the amount at which the long-term receivables and trade and other receivables is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest rate method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment or uncollectability. • Loans and borrowings Loans and borrowings are measured at amortised cost using the effective interest rate method. • Payables Trade and other payables are reported at amortised cost, namely original debt less principal repayments and any amortisation using the effective interest rate method. EXXARO INTEGRATED ANNUAL REPORT 2010 215 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 1. ACCOUNTING POLICIES (continued) Financial instruments (continued) Financial instruments not at fair value through profit or loss, and not available-for-sale (continued) • Investment in equity instruments The fair value of investments is based on quoted bid prices for listed securities or valuations derived from discounted cash flow models for unlisted securities. Equity instruments fair values cannot be measured reliably for which are recognised at cost less impairment. When equity instruments classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in profit or loss as gains and losses from investment securities. • Held to maturity investments Investments with a fixed maturity that management has the intent and ability to hold to maturity are classified as held to maturity. These investments are included in non-current assets, except for maturities within 12 months from the financial year-end date, which are classified as current assets. Held to maturity investments are carried at amortised cost using the effective interest rate method. Derivative financial instruments The group holds derivative financial instruments to hedge its foreign currency, interest rate and price risk exposures. Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the combined instrument is not measured at fair value through profit or loss. Derivative instruments are recognised initially at fair value, attributable transaction costs are recognised in profit or loss when incurred. Subsequent to initial recognition, derivative instruments are measured at fair value, and changes in fair value are accounted for as described below. Fair value hedges When a derivative is designated as a hedge of the change in fair value of a recognised asset or liability or a firm commitment, changes in the fair value of the derivative are recognised immediately in profit or loss together with changes in the fair value of the hedged item that are attributable to the hedged risk. If the derivative expires or is sold, terminated, or exercised, or no longer meets the criteria for fair value hedge accounting, or the designation is revoked, hedge accounting is discontinued. Any adjustment up to that point, to a hedged item for which the effective interest rate method is used, is amortised to profit or loss as part of the recalculated effective interest rate of the item over its remaining life. Cash flow hedges When a derivative is designated as a hedge of the variability in cash flows attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognised directly in equity. The amount recognised in equity is removed and included in profit or loss in the same period as the hedged item’s cash flows affect profit or loss under the same income 216 EXXARO INTEGRATED ANNUAL REPORT 2010 statement line item as the hedged item. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss. If the derivative expires or is sold, terminated, or exercised, or no longer meets the criteria for cash flow hedge accounting, or the designation is revoked, then hedge accounting is discontinued and the amount recognised in equity remains in equity until the forecast transaction affects profit or loss. If the forecast transaction is no longer expected to occur, then hedge accounting is discontinued and the balance in equity is recognised immediately in profit or loss. Economic hedges Hedge accounting is not applied to derivative instruments that economically hedge monetary assets and liabilities denominated in foreign currencies. Changes in the fair value of such derivatives are recognised in profit or loss as part of foreign currency gains and losses. Net investments in foreign operation hedges When a derivative, or a non-derivative financial liability, is designated as a hedge of a net investment in a foreign operation instrument, the effective portion of changes in the fair value of the hedging instrument is recognised directly in equity, in the foreign currency translation reserve. Any ineffective portion of changes in the fair value of the derivative instrument is recognised immediately in profit or loss. The amount recognised in equity is removed and included in profit or loss on disposal of the foreign operation. Separable embedded derivatives Changes in the fair value of separable embedded derivatives are recognised immediately in profit or loss. Impairment of financial assets A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impairment allowance is raised when there is an indication of impairment and a write-off is only effected when the debtor is deemed to be fully impaired and not recoverable. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. An impairment loss in respect of an available-for-sale financial asset is calculated by reference to its fair value. Individually significant financial assets are for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. tested All impairment losses are recognised in profit or loss. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost and available-for-sale financial assets that are debt securities, the reversal is recognised in profit or loss. For available-for-sale financial assets that are equity securities, the reversal is recognised directly in equity. 1. ACCOUNTING POLICIES (continued) Financial instruments (continued) Offset Financial assets and liabilities are set off and the net amount presented in the statement of financial position when, and 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 asset and settle the liability simultaneously. Determining fair values The determination of fair values of financial assets and financial liabilities is based on quoted market prices or dealer price quotations for financial instruments traded in active markets. For all other financial instruments, fair value is determined by using generally accepted valuation techniques. Valuation techniques the discounted cash flow method, comparison to similar instruments for which market observable prices exist, and valuation models. The group uses widely recognised valuation models for determining the fair value of common and more simple financial instruments like interest rate and currency swaps. For these financial instruments, inputs into models are available on the market. include net present value techniques, The fair value of long and medium-term borrowings is calculated using quoted market prices, or where such prices are not available, discounted cash flow analysis using the applicable yield curve for the duration of the borrowing are used. The fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets, is determined with reference to quoted market prices. The fair value of other financial assets and financial liabilities (excluding derivative instruments) is determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from widely available current market transactions. The fair value of derivative instruments is calculated using quoted prices. Where such prices are not available, use is made of discounted cash flow analyses for the duration of the instruments for non- optional derivatives, and option pricing models for optional derivatives. Financial guarantee contracts 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. 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. Net finance costs Finance income comprises interest income on funds invested including available-for-sale financial assets and hedging instruments that are recognised in profit or loss. Interest income is recognised as it accrues in profit or loss, using the effective interest rate method. Finance expenses comprise interest expense on borrowings and agreements for the use of assets classified as finance leases IFRIC 4 Determining whether an Arrangement contains a Lease, unwinding of the discount on provisions, and dividends on preference shares classified as terms of in liabilities. All borrowing costs are recognised in profit or loss using the effective interest rate method. Foreign currency gains and losses are reported on a net basis. Fees and commission Fees and commission income and expenses that are integral to the effective interest rate on a financial asset or financial liability are included in the measurement of the effective interest rate. Other fees and commission expenses relate mainly to transaction and service fees and are expensed as the services are received. Inventories Inventories are valued at the lower of cost, determined on the moving average basis, and net realisable value. The cost of finished goods and work-in-progress comprises raw materials, direct labour, other direct costs and fixed production overheads, but excludes interest charges. Fixed production overheads are allocated on the basis of normal capacity. Write-downs to net realisable value and inventory losses are expensed in the period in which the write-downs or losses occur. Foreign currencies Transactions and balances Transactions denominated foreign currencies are translated at the rate of exchange ruling at the transaction date. Monetary items denominated in foreign currencies are translated at the rate of exchange ruling at the reporting date. Gains or losses arising on translation are credited to or charged against income. in Foreign entities The financial statements of foreign entities are translated into South African rand as follows: • assets and liabilities at rates of exchange ruling at the reporting date; • income, expenditure and cash flow items at weighted average rates; • goodwill and fair value adjustments arising on acquisition at rates of exchange ruling at the reporting date. All resulting exchange differences are reflected as part of shareholders’ equity. On disposal, such translation differences are recognised in the income statement as part of the cumulative gain or loss on disposal. Foreign currency hedges Foreign currency hedges are dealt with in the financial instruments accounting policy. Exchange rates used The average US dollar to South African rand conversion rate, where applicable, of US$1:R7,30 (2009: US$1:R8,35) has been used to translate the income and statements of cash flows while the statement of financial position has been translated at the closing rate at the last day of the reporting period US$1:R6,63 (2009: US$1:R7,40). Revenue recognition Revenue, which excludes value added tax, represents the gross value of goods invoiced. Export revenues are recorded according to the relevant sales terms, when the risks and rewards of ownership are transferred. EXXARO INTEGRATED ANNUAL REPORT 2010 217 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 1. ACCOUNTING POLICIES (continued) Revenue recognition (continued) Exchange rates used (continued) Revenue from the sale of goods is recognised when significant risks and rewards of ownership of the goods are transferred to the buyer. Revenue arising from services and royalties is recognised on the accrual basis in accordance with the substance of the relevant agreements. Interest and dividend income Interest is recognised on the time proportion basis, taking account of the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the group. Dividends are recognised when the right to receive payment is established. Income tax expense Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years in determination of taxable profit (temporary differences), and it further excludes items that are never taxable or deductible (non-temporary differences). The group’s liability for tax is calculated using tax rates that have been enacted or substantively enacted at the reporting date. Deferred tax Deferred tax is provided using the balance sheet liability method on all temporary differences between the carrying amounts for financial reporting purposes and the amounts used for tax purposes. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the associated unused tax losses and deductible temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated using tax rates that have been enacted at the reporting date. The effect on deferred tax of any changes in taxation rates is charged or credited to the income statement, except to the extent that it relates to items previously charged or credited directly to equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the group intends and has the ability to settle its current tax assets and liabilities on a net basis. Provisions Provisions are recognised when the group has a present legal or constructive obligation as a result of past events, for which it is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Where the effect of 218 EXXARO INTEGRATED ANNUAL REPORT 2010 discounting to present value is material, provisions are adjusted to reflect the time value of money, and where appropriate, the risk specific to the liability. is made Decommissioning and environmental rehabilitation Provision for environmental rehabilitation and decommissioning 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. 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. Annual contributions are made to the group’s Environmental Rehabilitation Fund, created in accordance with statutory requirements, to provide for the funding of the estimated cost of pollution control and rehabilitation during, and at the end of the life of mines. The Exxaro Environmental Rehabilitation Fund is consolidated. Expenditure on plant and equipment for pollution control is 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 against profit or loss as incurred. Employee benefits Post-employment benefits Retirement The group provides defined contribution retirement funds for the benefit of employees, the assets of which are held in separate funds. These funds are funded by contributions from the employees and recommendations of independent actuaries. The group’s contribution to the defined contribution fund is charged to the income statement in the year to which it relates. taking account of the group, The group does not provide guarantees in respect of returns in the defined contribution funds. Provision for severance benefits is made in accordance with 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. Unrecognised actuarial gains or losses are recognised in profit or loss based on the corridor method. In other words, an excess of the balance of unrecognised gains or losses over 10% of the greater of the present value of the obligation or fair value of the plan assets is recognised in profit or loss over the expected remaining working lives of participating employees. Past service cost is recognised immediately to the extent that the benefits are vested and recognised over the remaining period until vesting for benefits that are unvested. 1. ACCOUNTING POLICIES (continued) Employee benefits (continued) Post-employment benefits (continued) Medical A post-retirement medical contribution obligation exists for certain in-service and retired employees who are members of accredited medical aid funds. This benefit is no longer offered to employees. The actuarially determined liability is raised as a non-current provision. Short- and long-term benefits The cost of all short-term employee benefits, such as salaries, bonuses, housing and other contributions, are recognised during the period in which the employee renders the related service. allowances, medical The vesting portion of long-term benefits is recognised and provided for at financial year-end, based on current total cost to company. Termination benefits Termination benefits are payable whenever an employee’s employment is terminated before the normal retirement date or whenever an employee accepts voluntary redundancy in exchange for these benefits. to either its commitment The group recognises termination benefits when it has demonstrated the employment of current employees according to a detailed formal plan without possibility of withdrawal or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. If the benefits fall due more than 12 months after the reporting date, they are discounted to present value. terminate Equity compensation benefits Senior management, including executive directors, and eligible employees participated in the share appreciation right scheme (SARs), long-term incentive plan (LTIP), deferred bonus plan (DBP), share option scheme and the employee empowerment participation scheme (MPower). SARs, LTIP, DBP, share options and MPower are treated as equity-settled share-based payment schemes with the fair value being expensed over the vesting period of the instrument with a corresponding increase in equity. The fair value of these schemes are determined at grant date and subsequently reviewed at each reporting period only for changes in non- market performance conditions and employee attrition rates applicable to each scheme. Only share options issued to certain executives and senior managers (phantom options) are treated as cash-settled share-based payments. A liability equal to the portion of goods and services received is recognised at the current fair value determined at each financial year-end. Dividend Dividends paid are recognised by the company when the shareholder’s right to receive payment is established. These dividends are recorded and disclosed as dividends paid in the statement of changes in equity. Dividends proposed or declared subsequent to the year-end are not recognised at the financial year-end, but are disclosed in the notes to the financial statements. Secondary tax on companies Tax costs incurred on dividends are included in the taxation line in the income statement in the year in which the related dividends are declared. Discontinued operations and non-current assets held for sale Discontinued operations are significant, distinguishable components of an enterprise that have been sold, abandoned or are the subject of formal plans for disposal or discontinuance. The profit or loss on the sale or abandonment of a discontinued operation is determined from the formalised discontinuance date. If the carrying amount of a non-current asset and liability or disposal group will be recovered principally through a sale transaction rather than through continuing use, such an asset and liability is classified as non-current assets and liabilities held for sale and measured at the lower of carrying amount and fair value less cost to sell. This condition is regarded as met only when the sale is highly probable and the asset and liability (or disposal group) are available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Segment reporting Exxaro 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. Segments are based on the group’s different products and operations as well as the physical location of these operations and associated products. The group’s reportable segments are tied coal operations, commercial coal operations, KZN Sands, Namakwa Sands, Australia Sands, Rosh Pinah, Zincor, other base metals and other. The basis of segment reporting is representative of the internal structure used for management reporting. Cash and cash equivalents For the purpose of the statement of cash flows, cash and cash equivalents comprise cash on hand, deposits held on call, and investments in money market instruments, net of bank overdrafts, all of which are available for use by the group unless otherwise stated. The carrying amount of these assets approximates their fair value. following Judgements made by management The involving judgements, apart estimates (as mentioned below) have been made by management the group’s accounting policies that have the most significant effect on the amounts recognised in the financial statements: • The identification of special purpose entities controlled by the process of applying those from in the group which must be consolidated (refer note 28). • In applying IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, management has made to which non-current assets and judgements as discontinued operations fall within the scope of the standard and had to be reclassified and measured in terms of IFRS 5; EXXARO INTEGRATED ANNUAL REPORT 2010 219 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 1. ACCOUNTING POLICIES (continued) Judgements made by management (continued) • In applying IFRS 2 Share-based Payment, management has made certain judgements in respect of the fair value option pricing models to be used in determining the various share-based arrangements in respect of employees, as well as the variable elements used in these models (refer note 30). • In applying IFRIC 4 Determining whether an Arrangement contains a Lease, and IAS 17 Leases, contractual agreements were assessed to determine whether they convey the right to use an asset and their classification as either an operating or finance lease. • In applying IFRS 8 Operating Segments, the identification of reportable operating segments of the group. • In applying IAS 19 Employee Benefits, the identification as to the nature of benefits provided by each scheme and thereby determine the classification of each scheme. Key assumptions made by management in applying accounting policies The following key assumptions concerning the future, and other key sources of estimation uncertainty at the financial year-end, may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year if the assumption or estimation changes significantly: Going concern Management considers key financial metrics and loan covenant compliance in its approved medium-term budgets, together with its existing term facilities, to conclude that the going-concern assumption used in compiling its annual financial statements, is relevant. Share-based payments For share-based payments, estimates are made in determining the fair value of equity instruments granted. The assumptions are used in the Black-Scholes methodology and the Monte Carlo valuation methodology and include assumptions regarding future dividend yield, risk-free rate, expected employee attrition rate, expected share volatility and expected option life. Refer note 30. Environmental and decommissioning provision Provision is made for environmental and decommissioning costs where either a legal or constructive obligation is recognised as a result of past events. Estimates are made in determining the present obligation of environmental and decommissioning provisions, which the actual estimate, the discount rate used and the expected date of closure of mining activities in determining the present value of environmental and decommissioning provisions. Estimates are based upon costs that are regularly reviewed, by internal and external experts, and adjusted as appropriate for new circumstances. Refer note 22. include Post-retirement obligations For defined benefit schemes, management is required to make annual estimates and assumptions about future returns on classes of schemes’ assets, future remuneration changes, employee attrition rates, administration costs, changes in benefits, inflation rates, exchange rates, life expectancy and expected remaining periods of service of employees. In making these estimates and assumptions, management considers advice provided by external advisers, such as actuaries. Refer note 22. 220 EXXARO INTEGRATED ANNUAL REPORT 2010 Other provisions For other provisions, estimates of legal or constructive obligations are made resulting in the raising of provisions, and the expected date of probable outflow of economic benefits to assess whether the provision should be discounted. Refer note 22. Impairments and impairment reversals Impairment tests are performed when there is an indication of impairment of assets or a reversal of previous impairments of assets. Management therefore has implemented certain impairment indicators and these include movements in exchange rates, commodity prices and the economic environment its businesses operate in. Estimates are made in determining the recoverable amount of assets which include the estimation of cash flows and discount rates used. In estimating the cash flows, management base cash flow projections on reasonable and supportable assumptions that represent managements’ best estimate of the range of economic conditions that will exist over the remaining useful life of the assets, based on publicly available information. The discount rates used are pre-tax rates that reflect the current market assessment of the time value of money and the risks specific to the assets for which the future cash flow estimates have not been adjusted. Contingent liabilities Management considers the existence of possible obligations which may arise from legal action as well as the possible non- compliance of the requirements of completion guarantees and other guarantees provided. The estimation of the amount disclosed is based on the expected possible outflow of economic benefits should there be a present obligation. Refer note 31. Deferred tax assets Deferred tax assets are recognised based on the probability that sufficient 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 life 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. Mineral resources Management makes estimates of mineral resources and ore reserves in accordance with the SAMREC Code (2000) for South African properties and the JORC Code (2004) for Australian properties. Such estimates relate to the category for the resource (measured, indicated or inferred), the quantum and the grade. 2. REVENUE Sale of goods Services 3. OPERATING EXPENSES Cost by type GROUP COMPANY Notes 2010 Rm 2009 Rm 2010 Rm 2009 Rm 17 127 15 009 28 17 155 15 009 1 048 1 048 1 009 1 009 Raw materials and consumables 3 470 3 538 30 Staff costs – salaries and wages – share-based payments – termination benefits – pension and medical costs General charges Royalties Railage and transport Repairs and maintenance Impairment charges of non-current assets Impairment charges and write-offs of trade and other receivables Energy Depreciation of property, plant and equipment Amortisation of intangible assets 4 11 13 Movement in inventories Own work capitalised Sublease rentals received Cost by function 3 702 3 253 145 6 282 2 277 114 1 109 1 808 4 45 946 1 367 13 (631) (125) (13) 91 4 245 2 751 86 1 008 1 585 1 435 217 761 1 123 13 (1 295) (97) (13) 566 67 36 479 2 4 48 10 7 41 9 (4) 35 508 37 34 389 1 5 3 273 6 25 9 (1) (1) 14 519 14 705 1 295 4 320 Costs of goods sold/services rendered 13 539 12 199 1 237 1 048 Selling and distribution costs Sublease rentals received Impairment charges of non-current assets 4 Impairment charges, write-offs of trade and other receivables 944 (13) 4 867 (13) 1 435 45 217 48 10 14 519 14 705 1 295 (1) 3 273 4 320 EXXARO INTEGRATED ANNUAL REPORT 2010 221 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 GROUP COMPANY Notes 2010 Rm 2009 Rm 2010 Rm 2009 Rm 3. OPERATING EXPENSES (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 on currency exchange differences – net unrealised losses on currency exchange differences Depreciation and amortisation – buildings – mineral properties – residential buildings – buildings and infrastructure – machinery, plant and equipment – leased assets under finance lease – site preparation, mining development, exploration and rehabilitation – amortisation of intangible assets Directors’ emoluments (refer to the Directors’ remuneration report, page 192) – executive directors – remuneration received by directors of the company – bonuses and cash incentives – non-executive directors – remuneration received by directors of the company 16 1 224 13 (58) 125 30 16 185 6 151 916 44 49 13 16 1 166 12 (37) 576 45 1 180 6 125 767 9 35 13 11 11 11 11 11 11 11 13 Exploration expenditure 60 115 Fair value (gains)/losses on financial assets at fair value through profit or loss: – designated upon initial recognition – held for trading – ineffectiveness arising from cash flow hedges (gains)/ losses (13) (483) (19) (465) (5) 60 5 148 4 2 5 1 78 8 8 41 25 9 9 19 5 3 11 4 3 (1) 222 EXXARO INTEGRATED ANNUAL REPORT 2010 GROUP COMPANY Notes 2010 Rm 2009 Rm 2010 Rm 2009 Rm 3. OPERATING EXPENSES (continued) Fair value losses/(gains) on financial liabilities at fair value through profit or loss: – designated upon initial recognition – held for trading Net fee costs on financial liabilities not at fair value through profit or loss Impairment charges of non-current assets Inventories write down to net realisable value Provisions expenses Net (profit)/loss on disposal or scrapping of property, plant and equipment 4 22 Reconditionable spares usage Operating lease rentals expenses – property – equipment Operating sublease rentals received – property Research and development costs Impairment charges, write-offs of trade and other receivables1 36 5 4 50 47 (32) 6 14 118 (13) 3 45 (7) 26 5 1 435 2 23 84 4 15 71 (13) 7 217 5 48 (1) 6 10 3 5 4 7 14 (1) 3 10 3 273 1 Consequent to the impairment of the KZN Sands businesses in 2009, 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 by executive directors are paid or received under defined 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 fixed escalations as specified in the contracts and producer price index (PPI) escalations. EXXARO INTEGRATED ANNUAL REPORT 2010 223 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 GROUP COMPANY 2010 Rm 2009 Rm 2010 Rm 2009 Rm 4. IMPAIRMENT CHARGES NON-CURRENT ASSETS Included in operating expenses are the following impairment losses: Impairment of property, plant and equipment1 Impairment of investments2 Impairment of property, plant and equipment held for sale3 Total impairment charges Tax effect Net effect on attributable earnings 1 435 1 435 1 435 4 4 (1) 3 48 48 48 1 The impairment of the investment in the KZN Sands operation resulted in the R1 435 million impairment on property, plant and equipment in 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 have been determined by the calculation of its value in use for which a discount of 8,4% was used compared to 8,3% used for the similar calculation performed on 30 June 2009. As at 31 December 2010, a similar evaluation of the value in use has been performed. The results thereof indicated that neither a further impairment nor a reversal of the previous impairment is required. 2 Relates to the impairment of the Botswana investment held by the company. Due to the risk profile and early stage of the exploration phase of the project, the entire investment has been impaired until such time as the economically exploitable profile of the gas reserves is better understood. 3 The anticipated sale of the Glen Douglas mine as a disposal group, requires an impairment to the fair value less costs to sell in terms of IFRS 5 Non-current Assets Held for Sale. 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 R46 million (2009: R6 million). Included in interest expense is the following: Interest expense on financial liabilities measured at amortised cost Interest expense on bank overdrafts Interest expense on financial liabilities designated at fair value through profit or loss Interest expense or non-financial liabilities Included in interest income is the following: Interest income on unimpaired loans and receivables Interest income on unimpaired available-for-sale financial assets Interest income on cash and cash equivalents Interest income on financial liabilities designated at fair value through profit or loss Interest income on financial assets designated at fair value through profit or loss 2010 Rm 321 70 (135) 256 199 455 313 2 6 (26) (89) (2) (18) 2009 Rm 460 66 (145) 381 34 415 450 9 1 (38) (13) (75) 2010 Rm 2009 Rm 294 388 (64) 230 1 231 293 1 (51) 337 2 339 386 2 (63) (50) (19) (1) (1) 224 EXXARO INTEGRATED ANNUAL REPORT 2010 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 Foreign normal tax – Current – current year – prior year – Deferred – current year – prior year Total Reconciliation of tax rates Tax as a percentage of profit before tax Tax effect of: – assessed losses not provided for – capital losses – disallowable expenditure – exempt income – special tax allowances – share of associates and joint ventures – tax rate differences – imputed income – prior year tax – derecognition of deferred tax asset – write down of subsidiaries’ loans Standard tax rate Effective tax rate for operations, excluding income from equity accounted investments, impairment charge and share of tax thereon GROUP COMPANY 2010 Rm 2009 Rm 2010 Rm 2009 Rm 1 016 378 1 394 4 616 371 4 987 1 811 1 744 2 2 2 2 3 205 6 731 405 29 434 139 91 230 56 (12) 44 (46) 3 (43) 665 % 11,3 (0,2) (0,3) (0,2) 0,7 1,3 17,6 0,1 (0,2) (1,9) (0,2) 462 (51) 411 343 1 344 36 14 50 (46) 7 (39) 766 % 42,8 (1,5) (1,3) (1,3) 2,2 2,1 29,6 0,5 (0,8) 1,7 (46,0) 28,0 28,0 30,5 57,8 13 13 23 23 36 % 1,3 (24) (24) 4 22 26 2 % 0,1 (1,3) 29,0 (0,2) 57,8 (0,5) (0,5) 28,0 (29,7) 28,0 EXXARO INTEGRATED ANNUAL REPORT 2010 225 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 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 employees’ share schemes, net of shares held by the schemes 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 employees’ share schemes (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 profit attributable to shareholders by the weighted average number of ordinary shares in issue during the year. Profit for the year attributable to equity holders 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. Diluted earnings per share (cents) For the 2010 and 2009 financial years, 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. GROUP 2010 Rm 2009 Rm 5 186 347 1 495 2 514 345 729 347 14 361 1 437 5 208 347 1 501 361 1 443 345 13 358 702 1 023 345 297 358 286 226 EXXARO INTEGRATED ANNUAL REPORT 2010 9. DIVIDEND Dividends paid during the year: Cash dividends GROUP COMPANY 2010 Rm 2009 Rm 2010 Rm 2009 Rm 1 056 1 050 1 073 1 066 STC on these dividends amounts to nil (2009: nil) after taking into account STC credits. 10. RECONCILIATION OF GROUP HEADLINE EARNINGS Profit for the year attributable to owners of the parent Adjusted for: – impairment of property, plant and equipment – losses on disposal of property, plant and equipment – share of associates’ gains or losses on disposal of property, plant and equipment Headline earnings Profit for the year attributable to owners of the parent Adjusted for: – impairment of property, plant and equipment – gains or losses on disposal of property, plant and equipment – share of associates’ gains or losses on disposal of property, plant and equipment Headline earnings For the year ended 31 December 2010 Gross Rm Tax Rm Non- controlling interest Rm 4 (26) 1 (21) (1) (1) For the year ended 31 December 2009 Gross Rm Tax Rm Non- controlling interest Rm 1 435 88 (8) 1 515 (24) 2 (22) (2) (2) 2010 cents Net Rm 5 208 3 (26) 1 5 186 Net Rm 1 023 1 435 62 (6) 2 514 2009 cents Group headline earnings per share for the year ended 31 December 2010 Headline earnings per share (refer note 8) – basic – diluted 1 495 1 437 729 702 EXXARO INTEGRATED ANNUAL REPORT 2010 227 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 11. PROPERTY, PLANT AND EQUIPMENT Land and buildings Rm Mineral properties Rm Residential land and buildings Rm Buildings and infra- structure Rm Machinery, plant and equipment Rm Site pre- paration, mining develop- ment, exploration and rehabili- tation Rm Extensions under con- struction Rm Total Rm 972 17 1 591 1 749 20 723 2 677 562 20 146 728 20 16 (8) 28 2 640 180 2 969 11 809 1 1 67 11 823 42 66 (1) (29) (311) 5 (25) 35 1 105 7 10 10 (1 136) 2 998 13 503 1 072 2 214 23 248 (7) 174 48 6 856 151 4 542 960 395 49 (1) (13) (215) 3 20 (2) 3 2 53 997 5 305 449 120 (341) 63 6 6 626 1 367 (229) 29 7 793 672 1 406 142 2 2 228 (17) 655 (61) 1 345 142 2 2 150 (78) 6 (87) 2 559 765 185 3 8 961 6 6 700 1 592 121 1 346 6 853 481 2 212 13 305 GROUP 2010 Gross carrying amount At beginning of year Additions Changes in decommissioning assets Disposals of items of property, plant and equipment 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 Exchange differences on translation Other movements At end of year Impairment of assets At beginning of year Disposals of items of property, plant and equipment At end of year Net carrying amount at end of year 228 EXXARO INTEGRATED ANNUAL REPORT 2010 11. PROPERTY, PLANT AND EQUIPMENT (continued) Land and buildings Rm Mineral properties Rm Residential land and buildings Rm Buildings and infra- structure Rm Machinery, plant and equipment Rm Site pre- paration, mining develop- ment, exploration and rehabili- tation Rm Extensions under con- struction Rm Total Rm 2 262 184 106 147 27 2 309 10 060 403 1 020 776 87 1 887 17 625 339 1 982 Increase in joint venture 349 87 2 7 7 81 15 704 17 (2) 39 1 228 (4) (4) (186) (36) (230) 1 (78) 562 1 1 18 9 282 2 640 575 180 5 5 1 180 42 6 (1) 7 167 2 969 727 125 5 (3) 5 (3) (5) 51 150 11 809 3 787 776 44 (94) 30 (1) 11 81 972 355 35 5 20 765 48 856 4 542 395 2 7 (606) 1 591 (3) 86 (4) 20 723 5 487 1 123 72 (97) 45 (4) 6 626 6 6 227 495 445 911 63 79 38 829 1 435 672 1 406 142 (36) 2 (36) 2 228 542 1 869 132 1 441 5 861 435 1 589 11 869 EXXARO INTEGRATED ANNUAL REPORT 2010 229 GROUP 2009 Gross carrying amount At beginning of year Additions Changes in decommissioning assets 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 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 11. PROPERTY, PLANT AND EQUIPMENT (continued) The net carrying amount of machinery, plant and equipment includes: Assets held under finance leases (refer note 21) – cost – accumulated depreciation For detail 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. 2010 Rm 2009 Rm 196 112 84 197 69 128 Land and buildings Rm Mineral properties Rm Residential land and buildings Rm Buildings and infra- structure Rm Machinery, plant and equipment Rm Site pre- paration, mining develop- ment, exploration and rehabili- tation Rm Extensions under con- struction Rm Total Rm COMPANY 2010 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 230 EXXARO INTEGRATED ANNUAL REPORT 2010 12 (2) 10 5 (2) 3 7 215 15 (3) 21 248 69 41 (2) 108 140 87 53 (21) 119 314 68 (5) 377 74 41 (4) 111 119 266 11. PROPERTY, PLANT AND EQUIPMENT (continued) Land and buildings Rm Mineral properties Rm Residential land and buildings Rm Buildings and infra- structure Rm Machinery, plant and equipment Rm Site pre- paration, mining develop- ment, exploration and rehabili- tation Rm Extensions under con- struction Rm Total 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) 69 146 104 66 (83) 87 229 88 (4) 1 314 53 25 (4) 74 87 240 EXXARO INTEGRATED ANNUAL REPORT 2010 231 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 12. BIOLOGICAL ASSETS GROUP 2010 Carrying amount At beginning of year 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 J M Potgieter, an independent appraiser, on 17 November 2010. 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 Plantations consist of wattle and blue gum trees. Livestock consists of cattle and horses. Plantation Rm Livestock Rm Game Rm Total Rm 7 1 8 4 4 8 8 (1) 7 4 3 7 7 4 (4) 7 7 7 6 3 (2) 7 7 7 27 5 (1) 31 31 31 20 9 (2) 27 27 27 41 10 (5) 46 42 4 46 34 11 (4) 41 38 3 41 Game consists of rhino, buffalo, warthog, giraffe, ostrich and a large variety of antelope. 232 EXXARO INTEGRATED ANNUAL REPORT 2010 13. INTANGIBLE ASSETS Patents, licences and franchises Gross carrying amount At beginning of year Additions Exchange differences At end of year Accumulated amortisation At beginning of year Amortisation charge Exchange differences At end of year Net carrying amount at end of year All intangible assets have finite useful lives and are amortised on the straight-line basis over the respective useful lives. 14. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES GROUP COMPANY 2010 Rm 2009 Rm 2010 Rm 2009 Rm 143 2 145 56 13 1 70 75 121 19 3 143 42 13 1 56 87 19 19 9 9 18 1 19 19 9 9 10 ASSOCIATED COMPANIES (Unlisted) 3 880 1 965 JOINT VENTURES (Unlisted) – incorporated Total 3 880 1 1 966 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 2010 GROUP At beginning of year 1 810 155 1 965 Transfer (to)/from other assets Net share of results Per income statement Elimination of intergroup profits Dividends paid Exchange difference adjustments Share of reserve movements 3 655 3 654 1 (1 815) (12) 24 63 63 3 718 3 717 1 (1 815) (12) 24 1 (1) 1 (1) At end of year (refer annexure 2) 3 662 218 3 880 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 exceeds its liabilities. The net share of results arises from the recoupment of previous impairments by way of current trading income. EXXARO INTEGRATED ANNUAL REPORT 2010 233 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 Associate companies Joint ventures Investments Rm Loans1 Rm Total Rm Investments Rm Loans Rm Total Rm 14. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES (continued) 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 1 816 1 776 1 776 (1 752) (38) 8 32 123 122 1 1 848 1 899 1 898 1 (1 752) (38) 8 1 1 At end of year (refer annexure 2) 1 810 155 1 965 1 1 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 exceeds its liabilities. The net share of results arises from the recoupment of previous impairments by way of current trading income. Aggregate post-acquisition reserves: – associate companies – joint ventures Total 2010 Rm 3 380 3 014 6 394 2009 Rm 1 466 2 982 4 448 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 exceeds its liabilities. GROUP COMPANY 2010 Rm 2009 Rm 2010 Rm 2009 Rm 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 Aggregate attributable after tax profits and losses of subsidiaries: – profits – losses 2 563 (658) 1 743 (3 617) 3 290 3 322 10 745 10 358 (97) 10 648 (8 018) 97 2 727 6 017 (105) 10 253 (7 012) 105 3 346 6 668 234 EXXARO INTEGRATED ANNUAL REPORT 2010 16. FINANCIAL ASSETS Environmental Rehabilitation Trust asset Long-term receivables 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 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. There was no inventory sold in which delivery was delayed at the buyer’s request. No inventories were pledged as security for liabilities in both 2010 and 2009. The amount of inventory carried at net realisable value (NRV) is R750 million (2009: R528 million). 18. TRADE AND OTHER RECEIVABLES Trade receivables Other receivables Indebtedness by subsidiaries (refer note 15) Indebtedness by subsidiaries Specific allowances for impairment Derivative financial instruments (refer note 27.1) Non-financial instrument receivables Specific allowances for impairment Collective allowances for impairment Included in non-current assets classified as held for sale (refer note 19) GROUP COMPANY 2010 Rm 522 477 376 2009 Rm 422 420 375 2010 Rm 2009 Rm 12 11 1 375 1 217 12 11 1 312 1 404 671 586 544 7 659 527 537 6 3 120 3 133 2 554 209 2 620 240 192 848 (50) (1) 51 433 (221) (2) 38 8 018 11 298 (3 280) 2 (4) 40 7 012 10 285 (3 273) 34 5 (1) 3 752 3 121 8 054 7 090 22 3 774 18 3 139 10 8 064 18 7 108 EXXARO INTEGRATED ANNUAL REPORT 2010 235 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 18. TRADE AND OTHER RECEIVABLES (continued) Trade receivables are stated after the following allowances for impairment: Specific allowances for impairment At beginning of year Impairment loss recognised Indebtedness by subsidiaries impairments Indebtedness by subsidiaries reversals 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 Other reconciling items At end of year Of which relates to: Trade receivables For a detailed analysis of the trade and other receivables refer to note 27 on financial instruments. 19. NON-CURRENT ASSETS CLASSIFIED AS HELD FOR SALE Assets Property, plant and equipment Financial assets Inventories Trade and other receivables (refer note 18) Tax receivable Liabilities Other long-term payables Non-current provisions Deferred tax liabilities Trade and other payables (refer note 24) Tax payable Total at end of year GROUP COMPANY 2010 Rm 2009 Rm 2010 Rm 2009 Rm (221) (45) (9) (220) (3 274) (1) (3) (23) 16 (3 273) 216 (50) (3) (47) (50) (2) 1 (1) (1) (1) 34 21 8 22 85 (29) (8) (14) (1) (52) 33 3 5 (221) (3 284) (3 274) (217) (4) (221) (2) (2) (2) (2) 38 17 8 18 5 86 (28) (9) (12) (49) 37 (4) (3 280) (3 284) (1) (3 273) (3 274) 10 10 18 18 10 18 Included above are the assets and liabilities of a subsidiary, Glen Douglas Dolomite (Pty) Limited, classified as held liabilities for sale (disposal group) and other assets and liabilities classified as held for sale. The Glen Douglas subsidiary was sold with an effective date of 1 January 2011. 236 EXXARO INTEGRATED ANNUAL REPORT 2010 GROUP COMPANY 2010 Rm 2009 Rm 2010 Rm 2009 Rm 20. SHARE CAPITAL Share capital at par value Authorised 500 000 000 ordinary shares of R0,01 each Issued 358 089 230 (2009: 356 940 200) ordinary shares of R0,01 each 5 4 5 4 5 4 5 4 Share premium 2 343 2 314 2 343 2 314 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 Exxaro Employee Empowerment Participation Scheme Trust (MPower) have been consolidated. Refer to statements of changes in equity (pages 209 to 210) for details of movements. Reconciliation of authorised shares not issued (million) Number of authorised unissued ordinary shares at beginning of year Number of shares issued during the year Number of unissued authorised shares at end of year (177) 2 170 (177) 2 141 2 347 2 318 143 (1) 142 145 (2) 143 143 (1) 142 145 (2) 143 The following resolutions pertain to the unissued ordinary shares under the control of the directors until the forthcoming annual general meeting: 1. Control of authorised but unissued shares The authorised but unissued shares in the capital of the company be and are hereby placed under the control and authority of the directors and that they be and are hereby authorised to allot, issue and otherwise dispose of such shares to such person or persons on such terms and conditions and at such times as they may from time to time and at their discretion deem fit, subject to the provisions of the Companies Act, No 61 of 1973, as amended, article 3.2 of the articles of association of the company and the JSE Listings Requirements. The issuing of shares granted under this authority will be 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. EXXARO INTEGRATED ANNUAL REPORT 2010 237 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 20. SHARE CAPITAL (continued) 2. General authority to issue shares for cash The directors of the company be and they are hereby authorised, by way of a general authority, to issue the authorised but unissued shares in the capital of the company for cash, as and when they in their discretion deem fit, subject to article 3.2 of the articles of association of the company, the Companies Act, No 61 of 1973, as amended and the JSE Listings Requirements, when applicable and the following limitation, namely that: • the equity securities which are the subject of the issue for cash must be of a class already in issue, or where this is not the case, must be limited to such securities or rights that are convertible into a class already in issue; • any such issue will only be made to “public shareholders” as defined in the JSE Listings Requirements and not to related parties; • the number of shares issued for cash shall not in the aggregate in the current financial year exceed 10% of the company’s issued share capital of ordinary shares. For purposes of determining the securities comprising the 10% number in any one year, account must be take of the dilution effect, in the year of options/convertible securities, by including the number of any equity securities which may be issued in future arising out of the issue of such options/convertible securities. The number of ordinary shares which may be issued shall be based on the number of ordinary shares in issue at the date of such application less any ordinary shares issued during the current financial year (or to be issued arising from options or convertible securities issued), provided that any ordinary shares to be issued pursuant to a rights issue (announced and irrevocable and underwritten) or acquisition (which has had final terms announced) may be included as though they were shares in issue at the date of application; • this authority is valid until the company’s next annual general meeting, provided that it shall not extend beyond 15 months from the date that this authority is given; • a paid press announcement giving full details, including the impact on the net asset value and earnings per share, will be published at the time of any issue representing, on a cumulative basis within one financial year, 5% or more of the number of shares in issue prior to the issue; and • the maximum discount permitted at which equity securities may be issued is 10% of the weighted average traded price on the JSE of those shares over the 30-business days prior to the date that the price of the issue is agreed between the company and the party subscribing for the securities. This ordinary resolution is required, under the JSE Listings Requirements, to be passed by achieving a 75% majority of the votes cast in favour of such resolution by all members present or represented by proxy and entitled to vote, at the annual general meeting. 3. General authority to repurchase shares Subject to compliance with the JSE Listings Requirements, the Companies Act, No 61 of 1973, as amended, and article 36 of the articles of association of the company, be and are hereby authorised at their discretion to procure that the company or subsidiaries of the company acquire by repurchase on the JSE ordinary shares issued by the company provided that: • the number of ordinary shares acquired in any one financial year shall not exceed 20% of the ordinary shares in issue at the date on which this resolution is passed; • this must be effected through the order book operated by the JSE trading system and done without any prior understanding or arrangement between the company and the counterparty; • this authority shall lapse on the earlier of the date of the next annual general meeting of the company or 15 months after the date on which this resolutions is passed; and • the price paid per ordinary share may not be greater than 10% above the weighted average of the market value of the ordinary shares for the five business days immediately preceding the date on which a purchase is made. 238 EXXARO INTEGRATED ANNUAL REPORT 2010 20. SHARE CAPITAL (continued) 3. General authority to repurchase shares (continued) The reason for and effect of this special resolution is to authorise the directors, if they deem it appropriate in the interests of the company, to procure that the company or subsidiaries of the company acquire or repurchase ordinary shares issued by the company subject to the restrictions contained in the above resolution. At the present time the directors have no specific intention with regard to the utilisation of this authority which will only be used if the circumstances are appropriate. The directors, after considering the effect of a repurchase of up to 20% of the company’s issued ordinary shares, are of the opinion that if such repurchase is implemented: • the group and company and its subsidiaries (“the group”) will be able to pay its debts in the ordinary course of business for a period of 12 months after the date of this notice; • recognised and measured in accordance with the accounting policies used in the latest audited annual group financial statements, the assets of the company and the group will exceed the liabilities of the company and the group for a period of 12 months after the date of this notice; • the ordinary capital and reserves of the company and the group will be adequate for the purposes of the business of the company and the group for a period of 12 months after the date of this notice; • the working capital of the company and the group will be adequate for the purposes of the business of the company and the group for a period of 12 months after the date of this notice; • the company or its subsidiaries will not repurchase securities during a prohibited period as defined in paragraph 3.67 of the JSE Listings Requirements unless the company has a repurchase programme in place where the dates and quantities of securities to be traded during the relevant prohibited period are fixed (not subject to any variation) and full details of the programme have been disclosed in an announcement released on SENS prior to the commencement of the prohibited period; • when the company or its subsidiaries has cumulatively repurchased 3% of the initial number of the relevant class of securities, and for each 3% in aggregate of the initial number of that class acquired thereafter, an announcement will be made; • the company at any point in time, only appoints one agent to effect any repurchase(s) on its behalf; and the company undertaking that it will not enter the market to repurchase the company’s securities until the company’s sponsor has provided written confirmation to the JSE regarding the adequacy of the company’s working capital in accordance with Schedule 25 of the JSE Listings Requirements. The above authorities are valid until the next annual general meeting. EXXARO INTEGRATED ANNUAL REPORT 2010 239 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 21. INTEREST-BEARING BORROWINGS Non-current borrowings Summary of loans by financial year of redemption 2010 2011 2012 2013 2014 2015 2016 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 GROUP COMPANY 2010 Rm 2009 Rm 2010 Rm 2009 Rm 362 617 617 1 701 200 200 3 697 (362) 3 335 716 856 407 827 723 417 617 1 865 1 886 1 701 200 200 3 135 (417) 2 718 296 285 342 4 360 (716) 3 644 66 262 3 230 3 558 3 290 268 5 10 253 268 304 264 343 4 754 (407) 4 347 63 256 3 302 3 621 3 361 260 5 13 242 260 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. 240 EXXARO INTEGRATED ANNUAL REPORT 2010 Environ- mental rehabili- tation Rm Decom- mission- ing Rm Restruc- turing Rm Post- retirement medical obligation Rm Post- retirement defined benefit obligation Rm Cash- settled share- based payment Rm Total Rm 22. PROVISIONS GROUP 2010 At beginning of year 1 323 442 30 Charge to operating expenses Additional provision Unused amounts reversed 28 31 (3) 8 8 77 9 9 Interest adjustment (refer note 5) 134 56 6 3 Provisions capitalised to property, plant and equipment Utilised during year Exchange differences Reclassification to non-current assets held for sale 120 1 (14) 1 (1) At end of year 1 471 627 Current portion included in current liabilities (27) Total non-current provisions 1 444 627 (6) 30 (6) 24 2009 At beginning of year 1 274 395 27 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 (3) 2 (5) 8 39 3 12 12 16 30 (12) 4 (1) At end of year 1 323 442 Current portion included in current liabilities (21) Total non-current provisions 1 302 442 8 (5) 30 (6) 24 89 89 68 7 7 2 77 77 3 2 2 5 5 3 3 3 3 5 1 880 47 50 (3) 199 120 (21) 2 (1) (1) 4 2 226 (33) 4 2 193 3 4 4 (2) 1 767 23 28 (5) 34 39 30 (19) 7 (1) 5 1 880 (27) 5 1 853 EXXARO INTEGRATED ANNUAL REPORT 2010 241 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 Environ- mental rehabili- tation Rm Decom- mission- ing Rm Restruc- turing Rm Post- retirement medical obligation Rm Post- retirement defined benefit obligation Rm Cash- settled share- based payment Rm Total Rm 22. PROVISIONS (continued) COMPANY 2010 At beginning of year Charge to operating expenses Additional provisions Interest adjustment (refer note 5) Utilised during the year Total non-current provisions 2009 At beginning of year Charge to operating expenses Additional provisions Interest adjustment (refer note 5) Utilised during year Total non-current provisions 23 (1) (1) 1 23 21 2 23 5 28 (1) (1) 1 (1) 27 24 4 4 2 (2) 28 (1) 4 3 4 4 (2) 5 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 R539 million (2009: R429 million) at year-end. Of this amount, R521 million (2009: R422 million) is included in financial assets and R18 million (2009: R7 million) in trade and other receivables of the group. Cash flows will take place when the mines are rehabilitated. 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 six years and for Hlobane mine in the next 16 years. 242 EXXARO INTEGRATED ANNUAL REPORT 2010 22. PROVISIONS (continued) Post-retirement medical obligation 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 certain employees previously employed by Eyesizwe or Ingwe Coal and comprises a subsidy of contributions. At Namakwa Sands a post-retirement medical obligation remains. 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 obligations 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 remaining participants of the scheme. Post-retirement defined benefit obligation Provision for severance benefits is made in accordance with 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 scheme. Cash-settled share-based payment Exxaro offered a cash-settled share-based 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. 23. DEFERRED TAX The movement on the deferred tax account is as follows: At beginning of year Foreign currency adjustment Increase in joint venture Share-based payments movements Items charged directly to other components of equity Transferred to non-current assets held for sale Income statement charge (refer note 7) – current – prior At end of year GROUP COMPANY 2010 Rm 2009 Rm 2010 Rm 2009 Rm 366 (42) 115 1 93 94 627 174 5 26 (16) (126) (2) 297 8 366 (87) (104) (21) (9) 23 (85) 4 22 (87) EXXARO INTEGRATED ANNUAL REPORT 2010 243 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 GROUP COMPANY 2010 Rm 2009 Rm 2010 Rm 2009 Rm 23. DEFERRED TAX (continued) Comprising: Deferred tax liabilities – property, plant and equipment – bad debt reassessment – income received in advance – 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 – 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 244 EXXARO INTEGRATED ANNUAL REPORT 2010 1 438 (8) (7) 13 (30) 20 36 104 (11) (19) 1 (187) 14 (5) (6) 1 353 (96) 292 33 (11) (157) (42) (1) 145 (113) (3) (1) (75) (13) 20 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 (2) 6 4 (35) (7) (2) 4 (13) (1) (6) (6) (5) (1 241) (1 017) (45) (64) 833 (296) (726) 627 822 (266) (629) 366 (85) (85) (87) (87) 23. DEFERRED TAX (continued) Calculated tax losses – Tax losses available for set off against future South African taxable income – Tax losses available for set off against future foreign taxable GROUP COMPANY 2010 Rm 2009 Rm 2010 Rm 2009 Rm 4 454 3 646 161 229 income 1 082 950 The total deferred tax assets raised with regard to assessed losses amount to R706 million (2009: R465 million), and is mainly attributable to the Exxaro sands businesses. The total deferred tax assets not raised amount to R907 million (2009: R877 million). 24. TRADE AND OTHER PAYABLES Trade payables Other payables Non-financial instrument payables Leave pay accrual Indebtedness to subsidiaries (refer note 15) Derivative financial instruments (refer note 27.1) Included in non-current assets classified as held for sale (refer note 19) 25. NOTES TO THE CASH FLOW STATEMENT 25.1 Cash generated by/(utilised in) operations Net operating profit/(loss) Adjusted for non-cash movements – depreciation and amortisation – impairment charges of non-current assets – impairment charges and write-offs of trade and other receivables – provisions – foreign exchange revaluations and fair value adjustments – reconditionable spares usage – net (profit)/loss on disposal or scrapping of property, plant and equipment – share-based payment expenses Cash inflows from operations Working capital movements – increase in inventories – (increase)/decrease in trade and other receivables – increase/(decrease) in trade and other payables – utilisation of provisions (refer note 22) 1 085 898 835 229 10 3 057 14 3 071 932 775 532 226 45 2 510 12 2 522 39 54 155 21 97 366 24 61 115 20 105 34 359 366 359 2 636 304 (247) (3 311) 1 380 4 1 136 1 435 45 47 (93) 6 (32) 80 217 23 2 4 84 83 4 073 3 288 (11) (478) 543 (21) (643) (612) 103 (19) 50 48 10 (1) 3 26 (111) 84 4 (1) (24) 34 3 273 3 7 30 36 (365) (457) (2) (788) Cash generated by/(utilised in) operations 4 106 2 117 EXXARO INTEGRATED ANNUAL REPORT 2010 245 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 25. NOTES TO THE CASH FLOW STATEMENT (continued) 25.2 Net financing costs Net financing costs Financing costs not involving cash flow (refer note 22) 25.3 Normal tax paid Amounts (unpaid)/receivable at beginning of year Amounts charged to the income statements Arising on translation of foreign entities Non-current assets classified as held for sale Amounts unpaid/(receivable) at end of year 25.4 Dividends paid GROUP COMPANY 2010 Rm 2009 Rm 2010 Rm 2009 Rm (455) 199 (256) (478) 1 5 42 (430) (415) 34 (381) (433) (461) 2 (892) (232) 1 (231) 13 (13) (339) 2 (337) (10) 24 (14) Dividends declared and paid (1 056) (1 050) (1 073) (1 066) (68) (68) (88) (88) 606 (795) 606 (795) 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 Decrease/(Increase) in investments in subsidiaries Increase 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 receivables Deferred tax Provisions Trade and other payables 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 (1 109) (46) (1 155) (1 522) (1 522) (149) (149) 3 717 1 815 (3 717) 1 815 (960) (32) (992) (990) (990) (1 082) (8) (1 090) 1 156 3 36 49 (26) (30) (106) 1 082 1 898 1 752 (1 898) 1 752 246 EXXARO INTEGRATED ANNUAL REPORT 2010 25. NOTES TO THE CASH FLOW STATEMENT (continued) 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 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 – current loans – non-controlling interests loans – share capital GROUP 2010 Rm 2009 Rm COMPANY 2010 Rm 2009 Rm 2 2 (802) 716 (86) (8) (43) 108 10 17 1 3 3 (1) (32) (1) 12 99 (2) (1) (29) 2 2 (964) 802 (162) (48) (172) 294 20 30 8 5 1 (43) (2) 30 123 (1) 123 (88) 3 205 (1 000) 2 205 6 731 (4 600) 2 131 2 2 2 (2) 3 3 (3) 4 (3) (2) (3) 2 1 25.11 Translation of foreign cash and cash equivalents Translation differences on cash and cash equivalents 14 67 26. OTHER COMPREHENSIVE INCOME (RESTATED) GROUP Exchange differences on translating foreign operations Share of other comprehensive income of associates Financial instruments fair value gains/(losses) recognised in equity on cash flow hedges: COMPANY Exchange differences on translating foreign operations 2010 2009 Before- tax amount Rm (9) 40 227 258 2 2 Tax Rm (38) (77) (115) Net-of- tax amount Rm Before- tax amount Rm (47) 40 150 143 2 2 (35) (34) (474) (543) 3 3 Tax Rm (62) 15 189 142 Net-of- tax amount Rm (97) (19) (285) (401) 3 3 EXXARO INTEGRATED ANNUAL REPORT 2010 247 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 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 GROUP 2010 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 Current 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 Equity attributable to equity holders of the parent Non-controlling interest Total equity Non-current liabilities Interest-bearing borrowings Non-current provisions Deferred tax Total financial non-current liabilities Current liabilities Trade and other payables Derivative financial instruments Interest-bearing borrowings Current tax payable Current provisions Total current liabilities Non-current liabilities classified as held for sale Total liabilities 248 EXXARO INTEGRATED ANNUAL REPORT 2010 529 522 7 529 21 550 136 136 28 28 164 192 192 192 10 10 10 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 carrying amount to credit risk Rm 477 477 477 2 712 2 140 4 852 22 5 351 369 369 369 369 13 305 46 75 3 880 726 18 032 3 120 848 105 4 073 43 22 148 2 170 2 321 12 946 17 437 (23) 17 414 201 2 193 1 353 3 747 3 307 3 307 1 983 1 064 622 2 605 14 5 926 66 147 33 1 310 38 22 509 13 305 46 75 3 880 726 1 375 522 369 7 477 19 407 3 120 3 560 105 192 2 140 9 117 85 28 609 2 170 2 321 12 946 17 437 (23) 17 414 3 644 2 193 1 353 7 190 3 047 10 716 147 33 3 953 52 28 609 1 375 522 369 7 477 2 712 192 2 140 1 375 522 369 7 477 192 2 140 42 42 3 443 1 983 10 650 14 EXXARO INTEGRATED ANNUAL REPORT 2010 249 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 27. FINANCIAL INSTRUMENTS (continued) 27.1 Carrying amounts and fair value amounts of financial instruments (continued) 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 Current tax receivables 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 Equity attributable to equity holders of the parent Non-controlling interest Total equity Non-current liabilities Interest-bearing borrowings Non-current provisions Derivative financial instruments Deferred tax Total non-current liabilities Current liabilities Trade and other payables Derivative financial instruments Interest-bearing borrowings Current tax payable 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 429 422 7 429 17 446 153 153 28 28 181 51 51 51 75 75 45 45 120 As disclosed in the table above, financial liabilities with a carrying amount and fair value of R163 million (2009: R181 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 2010 was the same as the contractual amount at maturity date for the year ended 31 December 2009. 250 EXXARO INTEGRATED ANNUAL REPORT 2010 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 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 18 250 2 141 2 046 8 721 12 908 1 12 909 211 1 853 995 3 059 92 49 57 27 225 37 16 230 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 1 217 422 368 7 420 2 649 2 649 51 1 023 51 1 023 40 40 4 136 75 2 373 45 358 12 3 983 3 983 2 373 330 2 703 12 6 698 EXXARO INTEGRATED ANNUAL REPORT 2010 251 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 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 12 12 12 COMPANY 2010 ASSETS Non-current assets Property, plant and equipment Intangible assets Investments in subsidiaries Deferred tax Financial assets, consisting of: – Exxaro Environmental Rehabilitation Trust asset Total non-current assets Current assets Trade and other receivables 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 Equity attributable to equity holders of the parent Total equity Non-current liabilities Interest-bearing borrowings Non-current provisions Total financial non-current liabilities Current liabilities Trade and other payables Interest-bearing borrowings Total current liabilities Total equity and liabilities 252 EXXARO INTEGRATED ANNUAL REPORT 2010 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 carrying amount to credit risk Rm 2 726 2 726 8 052 1 229 9 281 12 007 266 1 3 291 85 3 643 2 2 10 266 1 6 017 85 12 6 381 8 054 1 229 9 283 10 3 655 15 674 2 347 1 143 8 656 12 146 12 146 27 27 176 176 2 347 1 143 8 656 12 146 12 146 2 718 27 2 745 366 417 783 2 726 2 726 12 12 8 052 1 229 8 052 1 229 2 718 190 417 2 718 2 718 190 417 607 3 325 12 349 15 674 EXXARO INTEGRATED ANNUAL REPORT 2010 253 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 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 34 34 34 34 34 34 COMPANY 2009 ASSETS Non-current assets Property, plant and equipment Intangible assets Investments in subsidiaries Deferred tax Financial assets, consisting of: – Exxaro Environmental Rehabilitation Trust asset Total non-current assets Current assets Trade and other receivables Current 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 Non-current provisions Total financial non-current liabilities Current liabilities Trade and other payables Derivative financial instruments Interest-bearing borrowings Total current liabilities Total liabilities 254 EXXARO INTEGRATED ANNUAL REPORT 2010 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 carrying amount to credit risk Rm 3 346 3 346 7 056 343 7 399 10 745 240 10 3 322 87 3 659 14 14 18 240 10 6 668 87 11 7 016 3 346 3 346 11 11 7 056 7 056 7 056 14 34 343 7 447 18 34 343 34 343 3 691 14 481 2 318 1 041 7 038 2 318 1 041 7 038 10 397 10 397 3 335 3 335 28 28 190 135 362 552 135 3 335 28 3 363 325 34 362 721 3 887 10 560 14 481 3 335 190 34 362 EXXARO INTEGRATED ANNUAL REPORT 2010 255 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 27. FINANCIAL INSTRUMENTS (continued) 27.1 Carrying amounts and fair value amounts of financial instruments (continued) As disclosed in the table above, there were no financial liabilities designated at fair value through profit or loss as at 31 December 2010 for the company. 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 cannot be closed down without the permission of the Commissioner of the South African Revenue Services. R106 million (2009: R67 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 R449 million (2009: R420 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 R0,7 million (2009: Rnil) after tax; an equal change in the opposite direction would have decreased equity by R0,7 million (2009: Rnil). The impact on profit or loss would have been an increase or decrease of R0,7 million (2009: Rnil) after tax. The analysis has been performed on the same basis for 2009. There were no allowances for impairments on long-term receivables or investments in equity instruments at cost during the period under review. 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). 256 EXXARO INTEGRATED ANNUAL REPORT 2010 27. FINANCIAL INSTRUMENTS (continued) 27.1 Carrying amounts and fair value amounts of financial instruments (continued) Fair value Rm Level 1 Rm Level 2 Rm Level 3 Rm GROUP 2010 Financial assets held for trading at fair value through profit or loss – Current derivative financial instruments 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 – Current derivative financial instruments Financial liabilities designated as at fair value through profit or loss – Non-current interest-bearing borrowings – Current interest-bearing borrowings 192 192 549 542 7 369 369 10 10 164 136 28 542 542 Total 1 284 542 192 192 10 10 164 136 28 366 7 7 369 369 376 Reconciliation of level 3 hierarchy Opening balance Movement during the year Purchases Settlements Closing balance Ndzalama Game Reserve Rm Richards Bay Coal Terminal Rm 7 7 368 36 (35) 369 EXXARO INTEGRATED ANNUAL REPORT 2010 257 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 27. FINANCIAL INSTRUMENTS (continued) 27.1 Carrying amounts and fair value amounts of financial instruments (continued) Fair value Rm Level 1 Rm Level 2 Rm Level 3 Rm COMPANY 2010 Financial assets designated as at fair value through profit or loss – Exxaro Environmental Rehabilitation Trust 11 11 GROUP 2009 Financial assets held for trading at fair value through profit or loss – Current derivative financial instruments 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 Total 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 422 422 51 51 429 422 7 368 368 120 75 45 181 153 28 1 149 422 Ndzalama Game Reserve Rm Richards Bay Coal Terminal Rm 6 1 7 351 50 (33) 368 51 51 120 75 45 181 153 28 352 Igoda Rm 25 7 7 368 368 375 Mafube Rm 5 (25) (5) 258 EXXARO INTEGRATED ANNUAL REPORT 2010 27. FINANCIAL INSTRUMENTS (continued) 27.1 Carrying amounts and fair value amounts of financial instruments (continued) Fair value Rm Level 1 Rm Level 2 Rm Level 3 Rm COMPANY 2009 Financial assets held for trading at fair value through profit or loss – Current derivative financial instruments 34 Financial assets designated as at fair value through profit or loss – Exxaro Environmental Rehabilitation Trust 11 11 At 31 December 2010 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 2010 and 2009, 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 2010 or 2009. For the financial year ended 31 December 2010, 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 operation shipment/export. 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 2010 (2009: R186 million). All this coupled with minor wharfage expenses, results in the overall investment in RBCT with a carrying value of R400 million (2009: R401 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 cannot 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 e.g. 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 R400 million (2009: R401 million). It is not anticipated that the RBCT investments will be disposed of in the near future as the group has no intention to dispose of it. 27.2 Reclassification of financial assets No reclassification of financial assets occurred during the period. EXXARO INTEGRATED ANNUAL REPORT 2010 259 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 GROUP COMPANY 2010 Rm 2009 Rm 2010 Rm 2009 Rm 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 310 (256) The above amounts are all included in the hedging reserve. 27.4 Risk management 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 and manages the financial risks relating to the operations of the group through internal risk reports which analyses exposures by degree and magnitude of 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, whilst 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 27.5.2.2 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. 260 EXXARO INTEGRATED ANNUAL REPORT 2010 27. FINANCIAL INSTRUMENTS (continued) 27.4 Risk management (continued) 27.4.2 Market risk management (continued) 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), euro, 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. Uncovered foreign debtors at 31 December 2010 amount to US$114 million (2009: US$142 million), whereas uncovered cash and cash equivalents amount to US$44 million (2009: US$40 million). All capital imports were fully hedged. There were no imports which were not fully hedged during both 2009 and 2009. Monetary items have been translated at the closing rate at the last day of the reporting period US$1:R6,60 (2009: US$1:R7,40). 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 losses amounting to Rnil (2009: Rnil) 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, are recognised in equity as hedge accounting has been applied. The following significant exchange rates applied for both group and company during the year: 2010 USD Euro Australian dollar 2009 USD Euro Australian dollar Average spot rate Average achieved rate Closing spot rate 7,30 9,68 6,71 8,38 11,81 6,75 7,72 9,94 6,80 8,39 12,25 6,58 6,63 8,83 6,75 7,40 10,64 6,64 EXXARO INTEGRATED ANNUAL REPORT 2010 261 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 27. FINANCIAL INSTRUMENTS (continued) 27.4 Risk management (continued) 27.4.2 Market risk management (continued) 27.4.2.1 Foreign currency risk management 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 2010 and 31 December 2009, are summarised as follows: Market- related value Rm Foreign amount million Contract value Rm Recognised fair value profits/ (losses) Rm 676 101 726 50 164 22 175 11 GROUP 2010 Exports United States dollar – FECs 2009 Exports United States dollar – FECs 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 2010 and 31 December 2009 were as follows: Market- related value Rm Foreign currency million Contract value Rm Recognised fair value in equity Rm GROUP 2010 Imports United States Dollar – FECs Euro – FECs Less than three months Three months Total Less than three months Six months One year Total Exports United States dollar – FECs Less than three months Three months Six months United States dollar – Note holders’ loan One year > three years Total 10 1 11 10 6 23 39 179 106 60 30 407 782 1 1 2 1 1 2 4 27 16 9 5 61 118 10 1 11 10 7 28 45 214 126 64 30 518 952 (5) (5) (35) (20) (4) (111) (170) Note: In respect of an US$83 million (2009: 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. 262 EXXARO INTEGRATED ANNUAL REPORT 2010 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 – 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 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 – Note holders’ loan Less than three months One year > three years Total 2011 Rm 404 (59) (6) (111) 2012 Rm >2012 Rm Total Rm 30 407 404 437 (59) (6) (111) (222) Market- related value Rm Foreign currency million Contract value Rm Recognised 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 an 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 INTEGRATED ANNUAL REPORT 2010 263 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 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 2010 Rm 135 12 (2) 1 2011 Rm >2011 Rm 12 432 Total Rm 135 12 444 (2) 1 Market- related value Rm Foreign currency million Contract value Rm Recognised fair value in equity Rm COMPANY 2010 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: 2011 Rm >2011 Rm 2012 Rm 1 Market- related value Rm Foreign currency million Contract value Rm Total Rm 1 Recognised fair value in equity Rm Expected future cash flows Euro – FECs COMPANY 2009 Imports – United States dollar – FECs Less than three months Total 1 1 1 1 264 EXXARO INTEGRATED ANNUAL REPORT 2010 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 Foreign currency sensitivity 2010 Rm >2011 Rm 2011 Rm 1 Total Rm 1 The following table includes outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% increase in foreign currency rates and details the group and company sensitivity thereto. Foreign currency denominated monetary items such as cash balances, trade receivables, trade payables and loans have been included in the analysis. A positive number represents a gain whilst a negative number represents a loss. For exports (US$), an increase in the exchange rate of the rand (ZAR) against the dollar (US$) (e.g. FEC taken out on exports at R7,94:US$1, with actual rate coming out at R8,73:US$1) represents a weakening of the rand against the US dollar, which results in a loss incurred of R0,79. The opposite applies for a decrease in the exchange rate. Profit or loss Equity GROUP United States dollar Euro COMPANY 2010 Rm 179 45 2009 Rm 2010 Rm 2009 Rm 167 (29) (28) United States dollar 3 17 For imports (euro), an increase in the exchange rate of the rand (ZAR) against the Euro (e.g. FEC taken out on exports at R10,00:€1, with actual rate coming out at R11,00:€1) represents a weakening of the rand against the euro, which results in a gain incurred of R1,00. The opposite applies for a decrease in the exchange rate. 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. EXXARO INTEGRATED ANNUAL REPORT 2010 265 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 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. During 2010 , the ineffective portion of the cash flow hedges reported in profit/(loss), amounted to R5 million (2009: Rnil). The current price hedges on lead and zinc will mature in December 2011. As of 31 December 2010 the net fair value of commodity derivatives reflected a R55 million loss (2009: R87 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 (2009: R13 million). Prices for future purchases and sales of goods and services are generally established on normal commercial terms through agents or direct with suppliers and customers. Price hedging is undertaken on a limited scale for future zinc sales at Rosh Pinah Zinc Corporation (Pty) Limited and Exxaro Base Metals (Pty) Limited to secure operating margins and reduce cash 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 2009. Profit or loss Equity Lead Zinc 2010 Rm 2009 Rm 2010 Rm (2) (11) 2009 Rm (2) (11) 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: 2010 Recognised transactions Lead Price Currency Zinc Price Currency Attributable to: – tax – non-controlling interests Market- related value Rm Tons Foreign currency million Contract value Rm Recog- nised fair value in equity Rm 5 500 26 700 92 74 438 281 11 11 55 41 72 105 365 399 885 118 941 (21) 31 (73) 118 21 10 86 The above-mentioned hedges mature in 2011, which year the future expected cash flows are expected. 266 EXXARO INTEGRATED ANNUAL REPORT 2010 27. FINANCIAL INSTRUMENTS (continued) 27.4 Risk management (continued) 27.4.2 Market risk management (continued) 27.4.2.2 Commodity risk management (continued) Cash flow hedges – commodity risk (continued) 2009 Recognised transactions Lead Currency Zinc Price Currency Attributable to: – tax – non-controlling interests 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) With respect to the above-mentioned hedges, the future expected cash flows are represented below: 2010 2011 2012 2013 Total Expected future cash inflows Lead Zinc 27.4.2.3 Interest rate risk management 162 917 210 931 372 1 848 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 financial institutions chosen are subject to compliance with the relevant regulatory bodies. The interest rate repricing profile is summarised below: AT 31 DECEMBER 2010 Term borrowings (under the IFRS 7 scope) % of total borrowings AT 31 DECEMBER 2009 Term borrowings (under the IFRS 7 scope) % of total borrowings 1 – 6 months Rm 7 – 12 months Rm Beyond 1 year Rm Total borrowings Rm 3 706 85 3 790 85 654 15 704 15 4 360 100 4 494 100 EXXARO INTEGRATED ANNUAL REPORT 2010 267 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 27. FINANCIAL INSTRUMENTS (continued) 27.4 Risk management (continued) 27.4.2 Market risk management (continued) 27.4.2.3 Interest rate risk management (continued) 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: Borrowings hedged Rm Floating interest payable % Floating interest receivable % Fixed interest payable % Fixed interest receivable % Recog- nised fair value gain/(loss) % At 31 December 20091 Local Interest rate derivatives beyond one year: – Interest rate swaps 675 3 month Jibar 11,1 (13) 1 The interest rate swap ceased at the end of November 2010. The following table reflects the potential impact on earnings, given a movement in interest rates of 50 basis points: Profit/(loss) 27.4.3 Liquidity risk management Increase of 50 basis points in interest rate Decrease of 50 basis points in interest rate 2010 Rm (18) 2009 Rm (18) 2010 Rm 18 2009 Rm 18 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. 268 EXXARO INTEGRATED ANNUAL REPORT 2010 27. FINANCIAL INSTRUMENTS (continued) 27.4 Risk management (continued) 27.4.3 Liquidity risk management (continued) 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 2010 Rm 21 850 4 360 17 490 2009 Rm 16 136 4 754 11 382 The group’s capital base, the borrowing powers of the company and the group were set at 125% of shareholders’ funds for both the 2010 and 2009 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. Maturity profile of financial instruments The following table details the group’s contractual maturities of financial liabilities: Maturity Carrying amount Rm Contrac- tual cash flows Rm 0 – 12 months Rm 1 – 2 years Rm 2 – 5 years Rm More than 5 years Rm 367 277 7 113 31 62 61 19 10 448 163 3 133 2 1 099 17 594 2 564 285 594 10 2 564 42 285 5 GROUP 2010 Financial assets Exxaro Environmental Rehabilitation Trust asset Richards Bay Coal Terminal (RBCT) Ndzalama Game Reserve Derivative financial instruments Long-term receivables Trade and other receivables Cash and cash equivalents Percentage profile (%) Financial liabilities Interest-bearing borrowings Trade and other payables Derivative financial instruments Percentage profile (%) Derivative financial liabilities (Included in the above) Foreign exchange forward contracts used for hedging – Sell (rands inflow) Other forward exchange contracts – Buy (rands outflow) 542 369 7 192 477 2 734 2 140 6 461 100 4 093 1 997 10 6 100 100 726 56 542 369 7 192 477 2 734 2 140 6 461 100 4 093 1 997 10 6 100 100 192 2 734 2 140 5 066 78 650 1 997 10 2 657 44 EXXARO INTEGRATED ANNUAL REPORT 2010 269 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 27. FINANCIAL INSTRUMENTS (continued) 27.4 Risk management (continued) 27.4.3 Liquidity risk management (continued) Maturity profile of financial instruments (continued) Maturity Carrying amount Rm Contrac- tual cash flows Rm 0 – 12 months Rm 1 – 2 years Rm 2 – 5 years Rm GROUP 2009 Financial assets – Exxaro Environmental Rehabilitation Trust asset – Richards Bay Coal Terminal (RBCT) – Ndzalama Game Reserve – Long-term receivables 439 368 7 420 439 368 7 420 – Trade and other receivables 2 673 2 673 2 673 11 33 108 99 7 More than 5 years Rm 320 235 420 – Derivative financial instruments – Cash and cash equivalents Percentage profile (%) Financial liabilities Interest-bearing borrowings Trade and other payables Derivative financial instruments 51 1 023 4 981 100 4 494 2 385 120 51 1 023 4 981 100 4 494 2 385 120 51 1 023 3 747 75 407 2 385 45 6 999 6 999 2 837 Percentage profile (%) 100 100 40 44 1 214 4 975 20 742 3 345 75 817 12 3 345 48 Derivative financial liabilities (Included in the above) Foreign exchange forward contracts used for hedging – Sell Other forward exchange contracts – Buy 175 24 270 EXXARO INTEGRATED ANNUAL REPORT 2010 27. FINANCIAL INSTRUMENTS (continued) 27.4 Risk management (continued) 27.4.3 Liquidity risk management (continued) Maturity profile of financial instruments (continued) Maturity Carrying amount Rm Contrac- tual cash flows Rm 0 – 12 months Rm 1 – 2 years Rm 2 – 5 years Rm 12 12 10 778 10 778 10 778 1 229 1 229 1 229 12 019 12 019 12 007 100 100 99 12 12 3 135 3 135 190 190 3 325 3 325 100 100 417 190 607 18 617 2 101 617 2 101 19 63 COMPANY 2010 Financial assets Exxaro Environmental Rehabilitation Trust asset Trade and other receivables Cash and cash equivalents Percentage profile (%) Financial liabilities Interest-bearing borrowings Trade and other payables Percentage profile (%) Derivative financial liabilities (Included in the above) Foreign exchange forward contracts used for hedging – Buy 1 EXXARO INTEGRATED ANNUAL REPORT 2010 271 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 27. FINANCIAL INSTRUMENTS (continued) 27.4 Risk management (continued) 27.4.3 Liquidity risk management (continued) Maturity profile of financial instruments (continued) COMPANY 2009 Financial assets Exxaro Environmental Rehabilitation Trust asset Trade and other receivables Derivative financial instruments Intercompany loan debits Cash and cash equivalents Maturity Carrying amount Rm Contrac- tual cash flows Rm 0 – 12 months Rm 1 – 2 years Rm 2 – 5 years Rm 11 11 11 10 402 10 402 10 402 34 34 34 343 343 343 10 790 10 790 10 779 11 Percentage profile (%) 100 100 100 Financial liabilities Interest-bearing borrowings Trade and other payables Derivative financial instruments Percentage profile (%) Derivative financial liabilities (Included in the above) Foreign exchange forward contracts used for hedging 3 697 3 697 301 32 301 32 4 030 4 030 100 100 362 301 32 695 17 619 2 716 619 16 2 716 67 – Buy 1 272 EXXARO INTEGRATED ANNUAL REPORT 2010 27. FINANCIAL INSTRUMENTS (continued) 27.4 Risk management (continued) 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 amongst approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the board annually. Trade receivables consist of a number of customers with whom Exxaro has long-standing relationships. A high portion of term supply arrangements exists with such clients resulting in limited credit exposure which exposure, where dictated by customer credit worthiness 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. 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 Exposure to credit risk GROUP COMPANY 2010 Rm (2) 2009 Rm (2) (8) 2010 Rm 2009 Rm 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: By industry Manufacturing (including structural metal and steel) Public utilities Other By geographical area South Africa Asia Europe USA Other GROUP 2010 % 24 31 45 100 50 9 20 20 1 2009 % 25 32 43 100 41 9 21 15 14 100 100 EXXARO INTEGRATED ANNUAL REPORT 2010 273 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 27. FINANCIAL INSTRUMENTS (continued) 27.4 Risk management (continued) 27.4.4 Credit risk management (continued) Exposure to credit risk (continued) The group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. Financial guarantees are contracts that require the group to make 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 – derivative financial instruments – non-current assets held for sale – cash and cash equivalents Past due or impaired – trade and other receivables GROUP COMPANY 2010 Rm 2009 Rm 2010 Rm 2009 Rm 6 457 2 729 1 375 192 21 4 978 2 670 1 217 51 17 12 019 10 779 11 – 10 791 10 402 12 34 2 140 1 023 1 229 343 45 234 3 293 3 289 Total financial assets 6 502 5 212 15 312 14 080 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 norm. There were no financial assets with renegotiated terms during the 2010 or 2009 reporting periods. 274 EXXARO INTEGRATED ANNUAL REPORT 2010 27. FINANCIAL INSTRUMENTS (continued) 27.4 Risk management (continued) 27.4.4 Credit risk management (continued) Exposure to credit risk (continued) Trade and other receivables age analysis Past due but not impaired One – 30 days overdue 61 – 90 days overdue Total carrying amount of financial instruments past due but not impaired Past due and impaired Total carrying amount of financial instruments past due and impaired Total carrying amount of financial instruments past due or impaired GROUP COMPANY 2010 Rm 2009 Rm 2010 Rm 2009 Rm 5 5 40 40 45 1 1 2 233 3 293 3 289 233 3 293 3 289 235 3 293 3 289 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 2010 or 2009. 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. EXXARO INTEGRATED ANNUAL REPORT 2010 275 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 27. FINANCIAL INSTRUMENTS (continued) 27.4 Risk management (continued) 27.4.4 Credit risk management (continued) The carrying value of financial assets that may be repledged or resold by counterparties are as follows: Collateral (continued) GROUP COMPANY Trade and other receivables Cash and cash equivalents 2010 Rm 2009 Rm 2010 Rm 44 61 105 2009 Rm 41 45 86 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 2010 or 2009. 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. 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 whilst 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 2010 or 2009. 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 – included in financial assets 2010 2009 Joint ventures Rm Associates Rm Joint ventures Rm Associates Rm 53 344 3 10 24 582 7 89 224 156 10 311 38 79 223 162 48 164 1 28 During both years under review, there was no provision raised for doubtful debts related to the outstanding balances above. 276 EXXARO INTEGRATED ANNUAL REPORT 2010 28. RELATED PARTY TRANSACTIONS (continued) 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 significant service level commitment fees and 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 Special purpose entities 2010 Rm 764 143 152 2009 Rm 708 139 152 The group has an interest in the following special purpose entities which are consolidated unless otherwise indicated: Entity Exxaro Environmental Rehabilitation Fund Nature of business Trust fund for mine closure Exxaro Employee Empowerment Participation Scheme Trust Employee share incentive trust Exxaro Foundation Exxaro Chairman’s Fund Local social economic development1 Local social economic development1 Exxaro People Development Initiative Local social economic development – bridging classes1 Kumba Resources Management Share Trust Management share incentive trust Mafube Coal Mining (Pty) Limited 1 Non-profit organisations. Directors Trust fund for mine closure Details relating to directors’ emoluments and shareholdings (including options) in the company are disclosed in the Directors’ remuneration report. 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 192 for details on directors’ remuneration. For the group, for 2010 and 2009, the executive committee has been identified as being key management personnel. Short-term employee benefits Share-based payments – related expense Total compensation paid to key management personnel Shareholders 2010 Rm 35 21 56 2009 Rm 34 7 41 The principal shareholders of the company at 31 December 2010 are detailed in the “Analysis of Shareholders” schedule on page 168 of the annual report. Contingent liabilities Details are disclosed in note 31. EXXARO INTEGRATED ANNUAL REPORT 2010 277 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 29. OPERATING SEGMENTS Information regarding the group’s reportable segments is presented below. Amounts reported for the prior year have been restated to conform to the requirements of IFRS 8. Analysis of the group’s profit or losses and assets and liabilities by reportable segment: Segment profit or loss Segment revenue Total revenue Inter-segmental 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) 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 Investments in associates (equity accounted) External assets (excluding deferred tax and investments in equity accounted associates and joint ventures) Total assets Liabilities (external) Deferred tax liabilities Current tax payable Total liabilities Additions in non-current assets1 Coal Tied operations Commercial operations KZN Sands 2010 Rm 2009 Rm 2010 Rm 2009 Rm 2010 Rm 2009 Rm 2 952 2 681 7 563 7 050 1 288 705 2 952 2 681 7 563 7 050 1 288 705 75 2 504 1 830 (66) (1 447) 186 2 32 39 135 18 243 206 44 22 121 569 556 21 2 (60) 42 (42) 22 139 177 67 31 61 4 70 8 3 50 (7) 467 249 171 478 185 3 094 2 482 2 999 1 943 1 435 358 29 188 (311) 3 (44) 150 251 1 740 924 52 87 48 22 100 179 1 333 1 333 629 121 16 766 623 623 816 9 792 8 566 2 741 1 943 9 840 8 588 2 841 2 122 2 487 1 606 533 426 60 1 135 5 132 899 20 881 3 754 2 525 1 741 2 006 533 52 426 87 1 Excluding financial instruments, deferred tax, post-employment benefit assets and rights under insurance contracts. The group relies on two of its major customers for its revenue from the tied coal operations, commercial coal operations, base metals Zincor and “Other” reportable segments. The group has revenues from two external customers which account for at least 10% or more individually to the group’s revenues (15% and 28% (2009:15% and 31%)). The total amount of revenue from these two customers was R2 538 million and R4 754 million respectively (2009: R2 249 million and R4 643 million respectively). 278 EXXARO INTEGRATED ANNUAL REPORT 2010 Mineral sands Base metals Other Total Namakwa Sands Australia Sands Rosh Pinah Zincor Other base metals 2010 Rm 2009 Rm 2010 Rm 2009 Rm 2010 Rm 2009 Rm 2010 Rm 2009 Rm 2010 Rm 2009 Rm 2010 Rm 2009 Rm 2010 Rm 2009 Rm 1 801 1 334 1 551 1 469 1 801 1 334 1 551 1 469 107 (110) 138 2 3 3 (3) 3 43 9 (2) 4 48 10 674 (485) 189 143 4 1 (1) 166 147 186 161 52 (30) (13) 307 667 (71) 66 103 (87) (24) 31 298 109 23 182 260 43 19 216 167 (397) 169 105 5 7 12 55 22 43 203 188 566 1 113 1 016 213 188 17 155 15 009 485 397 1 598 1 413 (171) (47) (85) (66) 5 25 58 (62) (2) (115) (191) 1 1 18 53 (9) 5 11 (35) 5 26 3 (58) (58) 93 213 (120) 71 255 2 56 (22) 41 23 (62) (44) 188 17 155 15 009 (34) 60 389 4 2 636 135 391 199 304 145 526 34 39 1 380 1 136 4 1 435 665 53 766 413 4 073 3 288 4 106 2 117 37 40 45 52 (1) 1 (7) (65) (70) 136 3 624 1 762 3 717 1 898 217 182 424 557 76 69 96 69 1 72 93 2 677 1 982 55 58 (15) (82) 136 83 3 273 3 415 3 021 3 453 3 328 3 473 3 006 3 371 369 299 1 355 1 229 369 217 299 182 1 355 1 229 424 557 620 620 161 87 1 249 76 473 473 183 64 247 69 1 208 1 110 1 344 1 193 574 563 16 579 69 574 96 60 369 40 469 6 1 7 38 342 331 726 629 292 3 511 1 674 3 880 1 966 65 1 975 986 24 003 20 634 395 5 828 2 991 28 609 23 229 41 (39) 4 6 1 3 581 4 105 9 695 9 268 10 (3) 11 12 1 353 147 995 57 3 588 4 128 11 195 10 320 129 119 2 735 3 090 EXXARO INTEGRATED ANNUAL REPORT 2010 279 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 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 2010 Rm 2009 Rm 2010 Rm 2009 Rm 9 908 9 279 14 454 12 532 2 4 046 1 151 1 000 1 048 17 155 4 3 445 886 31 1 364 15 009 308 335 78 2 499 55 1 079 17 339 14 001 1 Excluding financial instruments, deferred tax, post-employment benefit assets and rights under insurance contracts. 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. These sales are made on a commercial basis. Segment net operating profit equals segment revenue less segment expenses and includes impairment charges and goodwill amortisation. Segment expenses represent direct or reasonably allocable operating expenses on a segment basis. Segment assets and liabilities include directly and reasonably allocable operating assets and liabilities. This information is not regularly provided to the chief decision maker. 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. 280 EXXARO INTEGRATED ANNUAL REPORT 2010 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’ Provident Fund; • Mine Workers Provident Fund; • Namakwa Sands Employees Provident Fund; and • Sentinel Mining Industry Retirement Fund. In compliance with the Pension Funds Act after the unbundling of Kumba Iron Ore Limited, Sishen Iron Ore Company employees were transferred to the newly created Kumba Iron Ore Selector Pension and Provident Fund after all regulatory approvals had been obtained. Members generally pay a contribution of 7%, with the employer’s contribution of 10% in general 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). Defined contribution funds Membership of each fund at 31 December 2010 and 31 December 2009 and employer contributions to each fund were as follows: GROUP Exxaro Selector Funds Iscor Employees’ Provident Fund Mine Workers Provident Fund Namakwa Sands Employees Provident Fund Sentinel Mining Industry Retirement Fund Other funds COMPANY Exxaro Selector Funds Iscor Employees’ Provident Fund Sentinel Mining Industry Retirement Fund Working members1 2010 Number Working members1 2009 Number Employer contri- butions 2010 Rm Employer contri- butions 2009 Rm 2 473 3 038 986 1 840 1 111 992 2 516 3 625 893 1 906 1 177 421 75 33 14 13 32 18 66 37 12 15 31 8 10 440 10 538 185 169 643 85 42 770 702 131 38 871 27 1 3 31 25 1 2 28 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. EXXARO INTEGRATED ANNUAL REPORT 2010 281 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 30. EMPLOYEE BENEFITS (continued) 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 Rosh Pinah operation 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 obligation. 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 Interest on obligation The expense for the year is included in the employee benefits expense in the income statement. Reconciliation of the opening and closing balances of the present value of the defined obligation: Defined benefit obligation at beginning of year Plus: Current service cost Plus: Interest cost Defined benefit obligation at end of year Refer note 22 for detail on liability. Determination of estimated post-retirement expense for the next financial year: Current service cost Interest cost Expense 2010 % 7,50 4,00 5,50 2010 Rm 1 1 2 3 1 1 5 2011 Rm 1 1 2 2009 % 7,50 4,00 5,50 2009 Rm 3 3 3 3 2010 Rm 1 1 2 282 EXXARO INTEGRATED ANNUAL REPORT 2010 30. EMPLOYEE BENEFITS (continued) 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 R92 million (2009: R75 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. Exxaro Coal Mpumalanga’s contribution to the post-retirement medical aid obligation for the year ended 31 December 2010 amounted to R2 million (2009: R1 million). The post-retirement liability of Namakwa Sands 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. 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 scheme. 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. 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. 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. 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; and • additional 25% after fifth anniversary of offer date. The options not exercised lapse by the seventh anniversary of the offer date. EXXARO INTEGRATED ANNUAL REPORT 2010 283 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 30. EMPLOYEE BENEFITS (continued) Equity compensation benefits (continued) Participants of the Exxaro and Kumba Iron Ore Management Share Option schemes exchanged each of their Kumba Resources options for an Exxaro option and a Kumba Iron Ore option. The strike price of each Kumba Resources option was apportioned between the Exxaro option and the Kumba Iron Ore 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 were released on the earlier of: • the date that the original options would have vested; or • 24 months from the date of unbundling (20 November 2006). The Kumba Iron Ore options held by Exxaro employees were all exercised during 2010 before the official lapse date of 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 certain 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 of 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 relevant adjustments. Targets are set by the committee based on existing ROCE performance in the base year of an LTIP award and planned ROCE performance in the final year of the LTIP performance period. According to the Deferred Bonus Plan (DBP) rules, executive directors and certain senior employees of Kumba Resources and its subsidiaries have the opportunity to acquire shares (pledged shares) on the open market with 50% of the after-tax component of their annual short term incentives. 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. 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 LTIP and DBP initiatives that existed in Kumba Resources Limited prior to the creation of Exxaro in November 2006 were collapsed and subsequently replaced by similar initiatives in Exxaro. 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. 284 EXXARO INTEGRATED ANNUAL REPORT 2010 30. EMPLOYEE BENEFITS (continued) Equity compensation benefits (continued) After the collapse of Kumba Resources’ LTIP and DBP schemes, Exxaro Resources awarded and will in future award rights in accordance to the rules of the new schemes. As a result of restrictions related to the empowerment transaction of Kumba Resources, certain executives and senior managers who participated in the Kumba Resources Management Share Option Scheme were not able to receive certain grants of options which would normally have been made in the ordinary course of operations. The human resources and remuneration committee of Kumba Resources consequently awarded “phantom options” to the affected participants within the following framework: • awards of “phantom options” were made, with the grant price, vesting dates, and lapse periods set to be the same as those of the options awardable; • on exercise, the participants are paid (in cash) the difference between the market price (volume weighted average price on the day preceding exercise) and the grant price; • 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; and • 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 33 250 shares are outstanding as 31 December 2010 (2009: 43 150). Exxaro made the first annual grant in the share appreciation right scheme (SARS) to participants in 2007,as well as new appointments. Under the rules of the scheme, participants obtain the right to receive a number of Exxaro shares to the value of the difference between the exercise price and the grant (or offer) price. The performance period’s first review was on 1 March 2010. Rights vest if Exxaro’s headline earnings per share (HEPS) increased by a minimum of consumer price index (CPI) plus 6% in the three years. In 2011 and 2012 the minimum increase in HEPS to achieve is CPI plus 8% and CPI plus 10% respectively. The committee has the discretion to determine the settlement method, being shares or cash. Exxaro also created an employee empowerment participation scheme (MPower) whereby certain employees are given the opportunity to share in the growth of the company. Employees are awarded share units which entitles them to dividends of Exxaro in the 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 they are sold and the outstanding loan (used to buy the shares) to Exxaro is settled. No further awards will be made in terms of the old (Kumba) share incentive plans. The awards already granted and still outstanding are being phased out. Only SARS, LTIPs, 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 2010 the maximum number of shares approved and allocated by shareholders for the purposes of the schemes, 30 million (2009: 30 million) represent 8,4% (2009: 8,4%) of the issued shares. Of the total of 30 million shares, 20,0 million (2009: 19,9 million) shares are available in the share scheme for future offers to participants, whilst 10,0 million (2009: 10,1 million) shares (2,8% of the issued shares) are allocated as options, LTIP, DBP, deferred purchase shares, or SARS to participants. EXXARO INTEGRATED ANNUAL REPORT 2010 285 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 30. EMPLOYEE BENEFITS (continued) Equity compensation benefits (continued) 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 2010 Million 30,0 (10,0) 20,0 2009 Million 30,0 (9,8) (0,3) 19,9 At 31 December 2010 the company’s loan from the Kumba Resources Management Share Trust amounted to R30 066 270 (2009: R39 539 138). The loan is interest free and has no fixed repayment terms. This amount is reflected as an inter company 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 722 401 631 (2009: R2 078 809 095). 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 2010 ’000 December 2009 ’000 December 2010 ’000 December 2009 ’000 2 295 (796) (39) 1 460 3 554 (1 067) (192) 2 295 344 (344) 1 272 (928) 344 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: R40,68 – R47,73 (2009: R12,16 – R47,73). Outstanding at beginning of year Exercised Outstanding at end of year Deferred purchase1 Exxaro employees Kumba Iron Ore employees December 2010 December 2009 December 2010 December 2009 200 (200) 4 200 (4 000) 200 400 (400) 400 400 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. 286 EXXARO INTEGRATED ANNUAL REPORT 2010 30. EMPLOYEE BENEFITS (continued) Equity compensation benefits (continued) Outstanding at beginning of year Issued Exercised Lapsed/cancelled Outstanding at end of year Outstanding at beginning of year Issued Exercised Lapsed/cancelled Outstanding at end of year Deferred Bonus Plan Long-term Incentive Plan1 December 2010 ’000 December 2009 ’000 December 2010 ’000 December 2009 ’000 67 31 (2) 96 18 55 (1) (5) 67 1 550 427 (414) (39) 1 524 906 772 (21) (107) 1 550 Phantom scheme SARS December 2010 ’000 December 2009 ’000 December 2010 ’000 December 2009 ’000 43 (10) 33 74 (31) 43 5 851 1 804 (394) (323) 6 938 3 097 3 194 (8) (432) 5 851 1 There is no amount payable by participants on vesting. They will be awarded rights to ordinary shares in the company. Details of issues during the period are as follows: Deferred Bonus Plan Long-term Incentive Plan December 2010 December 2009 December 2010 December 2009 Expiry date 2013 2012/2013 2013 2012/2013 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 (R million) 120,50 – 128,14 65,58 – 91,08 120,39 – 126,77 69,06 – 85,00 0,3 SARS December 2010 2016/2017 4,0 54,1 53,4 December 2009 2016 88,72 – 129,77 62,83 – 112,35 228,0 221,8 EXXARO INTEGRATED ANNUAL REPORT 2010 287 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 30. EMPLOYEE BENEFITS (continued) Equity compensation benefits (continued) Details of options/deferred purchase shares exercised during the year are as follows: Options Long-term Incentive Plan December 2010 December 2009 December 2010 December 2009 106,03 – 140,09 61,40 – 104,50 113,50 – 131,90 76,50 – 77,30 305,00 – 379,00 140,00 – 306,17 Exercise price per share (share price range) (R) – Exxaro employees in Exxaro (post-unbundling) – Exxaro employees in Kumba Iron Ore (post-unbundling) – Kumba Iron Ore employees in Exxaro (post-unbundling) 103,00 – 133,30 63,16 – 78,00 Total proceeds if shares are issued (R million) Exercise price per share (share price range) (R) Total proceeds if shares are issued (R million) Exercise price per share (share price range) (R) Total proceeds if shares are issued (R million) 436,9 541,6 37,1 1,6 Deferred Bonus Plan Deferred Purchase December 2010 December 2009 December 2010 December 2009 117,48 – 117,80 77,32 109,5 65,75 – 66,50 Phantom scheme1 SARS December 2010 December 2009 December 2010 December 2009 0,3 76,00 76,00 – 91,28 105,90 – 138,80 67,83 – 92,00 20,7 0,2 1 The phantom option awards are classified as cash-settled since no shares will be issued when exercised. 288 EXXARO INTEGRATED ANNUAL REPORT 2010 30. EMPLOYEE BENEFITS (continued) Equity compensation benefits (continued) Terms of the options and deferred purchase shares outstanding at 31 December 2010 are as follows: Share options held by Exxaro employees in Exxaro: Expiry date 2011 2012 2013 Total Total proceeds if shares are issued (R million) Expiry date 2011 2012 2013 Total Total proceeds if shares are issued (R million) Expiry date1 2011 2012 2014 2015 2016 2017 Total Total proceeds if shares are issued (R million) Options Long-term Incentive Plan Exercise price R 12,90 – 13,62 18,38 – 32,84 33,47 – 47,73 Outstanding ’000 Exercise price R Outstanding ’000 85,00 – 112,45 63,45 – 69,06 120,39 – 126,77 203 483 774 1 460 44,0 408 696 420 1 524 145,3 Deferred Bonus Plan Exercise price R 89,60 – 111,88 65,58 – 91,08 120,50 – 128,14 Outstanding ’000 14 51 31 96 2,5 SARS Phantom scheme Exercise price R 60,60 – 112,35 112,35 59,42 – 104,99 62,83 – 155,69 63,45 – 92,51 110,91 – 131,47 Outstanding ’000 Exercise price R Outstanding ’000 6 2 765 1 565 2 860 1 740 6 938 633,5 19,62 – 32,84 33 33 1 Exxaro made the first annual grant in the share appreciation rights scheme (SARS) to participants in 2007. The lapse date is regarded as the seventh anniversary of the grant. No issues were made during the unbundling year of 2006. EXXARO INTEGRATED ANNUAL REPORT 2010 289 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 30. EMPLOYEE BENEFITS (continued) Equity compensation benefits (continued) 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 Expiry date 2010 2011 2012 2013 Total Total proceeds if shares are issued (R million) Expiry date 2010 2011 2012 Total Total proceeds if shares are issued (R million) Expiry date 2010 2012 2014 2015 2016 Total Total proceeds if shares are issued (R million) Exercise price R 7,32 – 11,59 19,90 – 19,62 13,72 – 32,84 33,47 – 47,73 Exercise price R 60,60 – 102,14 69,06 – 112,35 63,45 – 67,07 Outstanding ’000 71 437 717 1 070 2 295 64,8 Deferred Bonus Plan Deferred purchase Exercise price R 18,36 Exercise price R 86,45 89,60 – 111,88 65,58 – 91,08 Outstanding ’000 2 14 51 67 5,2 Outstanding 424 415 711 1 550 94,8 Outstanding 200 200 SARS Phantom scheme Exercise price R Outstanding ’000 Exercise price R Outstanding ’000 59,42 – 104,99 62,83 – 155,69 63,45 – 92,51 1 179 1 723 2 949 5 851 457,6 19,62 19,62 10 33 43 290 EXXARO INTEGRATED ANNUAL REPORT 2010 30. EMPLOYEE BENEFITS (continued) Equity compensation benefits (continued) Share options held by Exxaro employees in Kumba Iron Ore: Expiry date 2010 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 15,38 – 97,74 Outstanding ’000 1 018 1 018 49,9 Options Deferred purchase Exercise price R 6,91 – 47,73 Outstanding ’000 Exercise price R Outstanding 344 344 9,0 21,06 400 400 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 was 20 May 2010. Details of options vested but not sold during the year are as follows: Options December 2010 December 2009 Exxaro employees in Exxaro (post-unbundling) Number of shares 1 129 010 1 346 500 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) 12,90 – 47,73 7,34 – 47,73 1 018 210 15,38 – 97,74 343 890 6,91 – 47,73 EXXARO INTEGRATED ANNUAL REPORT 2010 291 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 30. EMPLOYEE BENEFITS (continued) Equity compensation benefits (continued) 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 Directors’ interests in shares Options ’000 2 639 2 295 344 (1 179) 1 460 1 460 Long-term Incentive Plan ’000 Deferred Bonus Plan ’000 Deferred purchase ’000 1 550 1 550 (26) 1 524 1 524 67 67 29 96 96 SARS ’000 Total ’000 5 851 5 851 10 107 9 763 1 087 6 938 6 938 344 (89) 10 018 10 018 For details refer to the report of the directors’ remuneration. 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 whilst the incremental fair value for a repriced option amounted to R14,93. 292 EXXARO INTEGRATED ANNUAL REPORT 2010 30. EMPLOYEE BENEFITS (continued) Fair value of equity-settled share-based payment transactions with employees (continued) 2010 2009 Exxaro Kumba Iron Ore Exxaro Kumba Iron Ore 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 (%) 49,00 34,76 13,12 37,90 3,11 4 8,26 4,0 110,00 71,18 26,86 37,90 3,08 4 8,26 4,0 49,00 34,76 13,12 37,90 3,11 4 8,26 10,0 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 2010 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 2009 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 three years SARs vesting in four years 126,84 126,77 45,13 5,00 4,52 8,01 4,0 74,20 67,70 44,20 5,00 8,52 8,58 10,0 126,84 126,77 44,14 5,50 4,66 7,85 4,0 74,20 67,70 43,19 5,50 8,68 8,65 10,0 110,00 71,18 26,86 37,90 3,08 4 8,26 10,0 SARs vesting in five years 126,84 126,77 43,15 6,00 4,72 7,77 4,0 74,20 67,70 42,19 6,00 8,96 8,72 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. EXXARO INTEGRATED ANNUAL REPORT 2010 293 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 30. EMPLOYEE BENEFITS (continued) Fair value of equity-settled share-based payment transactions with employees (continued) The inputs to the LTIP model are as follows: Date of grant Share price at grant date (R) Risk-free rate (%) Dividend yield (%) Expected volatility (%) Time to vesting 1/4/2010 1/4/2009 1/4/2008 28/2/2007 126,84 74,20 110,35 61,24 7,53 3,89 N/A 7,85 6,39 N/A 8,88 2,81 N/A 7,70 4,08 36,80 Three years from date of grant Three years from date of grant Three years from date of grant Three years from date of grant Expected employee attrition (%) 2,90 2,90 2,90 2,90 The inputs to the DBP model are as follows: Year of grant Average share price at grant date(s) (R) Risk-free rate (%) Dividend yield (%) Expected volatility (%) Time to vesting 2010 92,38 7,44 3,96 N/A 2009 77,06 7,49 6,66 N/A 2008 111,88 8,88 2,77 N/A 2007 61,24 7,70 4,08 36,80 Three years from date of grant Three years from date of grant Three years from date of grant Three years from date of grant Expected employee attrition (%) 5,00 5,00 5,00 5,00 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(s) at grant date(s) (R) Risk-free rate (%) Dividend yield (%) Expected volatility (%) Time to vesting 294 EXXARO INTEGRATED ANNUAL REPORT 2010 1/31/2007 71,00 8,20 3,00 37,00 28/11/2011 100 1/12/05 – 22/4/05 19,62 – 32,84 6,5 4,7 38,00 Mainly over five years in tranches GROUP COMPANY 2010 Rm 2009 Rm 2010 Rm 2009 Rm 59 99 31. CONTINGENT ASSETS AND LIABILITIES Contingent assets Surrender fee on prospect rights, exploration rights and mining rights. 63 An outstanding insurance claim for the Furnace 2 incident at Exxaro TSA Sands (Pty) Limited for which settlement was received in the first half of 2010. 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 1Includes the group’s share of contingent liabilities of associates and joint ventures of R117 million (2009: R61 million). The increase in 2010 and 2009 is mainly attributable to guarantees to the Department of Mineral and Resources (DMR) in respect of environmental liabilities on immediate closure of mining operations. The timing and occurrence of any possible outflows are uncertain. 32. COMMITMENTS Capital commitments at 31 December 2010 707 300 562 155 1 151 48 Capital expenditure contracted for plant and equipment 6 475 3 550 67 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. 2 490 1 420 173 556 565 1 18 97 78 EXXARO INTEGRATED ANNUAL REPORT 2010 295 NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED for the year ended 31 December 2010 GROUP COMPANY 2010 Rm 2009 Rm 2010 Rm 2009 Rm 32. COMMITMENTS (continued) 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. Since then, 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. 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 8 7 15 57 67 8 132 2 4 6 44 42 6 92 1 3 4 7 5 12 1 1 296 EXXARO INTEGRATED ANNUAL REPORT 2010 ANNEXURE 1 NON-CURRENT INTEREST-BEARING BORROWINGS LOCAL Unsecured loans Secured loans Rate of interest per year (payable half-yearly) Rate of interest per year (payable half-yearly) GROUP COMPANY 2010 2009 2010 2009 2010 2009 Fixed % Floating % Fixed % Floating % Rm Rm Rm Rm 6,810 6,810 6,810 6,810 6,910 6,810 6,910 6,810 6,910 6,810 6,910 6,810 7,610 8,110 9,350 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 10,540 6 150 415 540 675 100 125 180 224 48 60 180 1 000 181 150 342 405 675 75 125 135 224 36 60 108 800 167 6 150 342 405 675 75 125 135 224 36 60 108 800 150 415 540 675 100 125 180 224 48 60 180 1 000 3 308 3 884 3 135 3 697 Final repay- ment date 2011 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2015 2016 2016 2011 12,130 2011 17,490 2012 11,420 2013 13,540 2025 8,330 2026 10,710 2031 22,200 2032 32,930 12,130 17,490 11,420 13,540 8,330 10,710 22,200 32,930 1 2 3 4 5 6 7 8 1 1 1 6 23 12 87 137 268 2 1 1 8 24 12 86 126 260 EXXARO INTEGRATED ANNUAL REPORT 2010 297 ANNEXURE 1 CONTINUED NON-CURRENT INTEREST-BEARING BORROWINGS Rate of interest per year (payable half-yearly) Rate of interest per year (payable half-yearly) GROUP COMPANY Final repay- ment date 2010 2009 2010 2009 2010 2009 Fixed % Floating % Fixed % Floating % Rm Rm Rm Rm FOREIGN Unsecured loans (US$) 2011 8,050 5,6209 2016 6,640 6,640 FOREIGN SECURED LOANS (US$) Total non-current interest-bearing borrowings (refer note 21) 2012 3,790 10 11 166 444 610 236 387 623 161 4 360 4 754 3 135 3 697 Finance leases recognised due to IFRIC 4 (Determining whether an Agreement contains a Lease) 1 Finance lease agreement between Exxaro Sands (Pty) Limited and Mhlathuze Water in respect of a plant with a book value of Rnil (2009: R1 million). 2 Finance lease agreement between FerroAlloys (Pty) Limited and African Oxygen Limited (Afrox) in respect of machinery and equipment with a book value of Rnil (2009: Rnil). 3 Finance lease agreement between Exxaro Sands (Pty) Limited and Eskom in respect of buildings with a book value of Rnil (2009: R1 million). 4 Finance lease agreement between Exxaro TSA Sands (Pty) Limited and Air Products in respect of a plant with a book value of R3 million (2009: R4 million). 5 Finance lease agreement between Exxaro TSA Sands (Pty) Limited and Mhlathuze Water in respect of a plant with a book value of R13 million (2009: R20 million). 6 Finance lease agreement between Exxaro TSA Sands (Pty) Limited and Eskom in respect of buildings with a book value of R9 million (2009: R13 million). 7 Finance lease agreement between Exxaro Sands (Pty) Limited and Kusasa Bulk Terminals (Phase 1) in respect of a plant with a book value of R28 million (2009: R43 million). 8 Finance lease agreement between Exxaro Sands (Pty) Limited and Kusasa Bulk Terminals (Phase 2) in respect of a plant with a book value of R31 million (2009: R47 million). 9 A syndicated loan facility of US$45 million (variable interest rate), of which US$34 million was drawn on 31 December 2010 (US$21 million 31 December 2009). 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. 11 A trade receivable facility from Investec Limited that is secured for the outstanding amount of US$24,250,000, against pigment receivables for that amount. 298 EXXARO INTEGRATED ANNUAL REPORT 2010 Year-end other than 31 Dec 30 June ANNEXURE 2 INVESTMENTS IN ASSOCIATES, JOINT VENTURES AND OTHER INVESTMENTS Nature of business1 Country of incor- poration2 Number of shares held Percentage holding Group carrying amount Company carrying amount 2010 % 2009 % 2010 Rm 2009 Rm 2010 Rm 2009 Rm ASSOCIATED COMPANIES Unlisted Black Mountain Mining (Pty) Limited A RSA 260 26,00 26,00 242 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 Total joint ventures investments (refer note 14) 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 & M CH 58 520 000 38,00 38,00 A & M A CH 42 500 000 RSA 240 000 000 25,00 20,00 25,00 20,00 92 35 3 511 3 880 A C A E C A A RSA NAM RSA RSA NAM 50 50 1 333 1 31 50,00 50,00 33,33 50,00 31,00 50,00 50,00 33,33 50,00 31,00 50,00 50,00 50,00 50,00 155 102 35 1 673 1 965 1 1 369 7 376 368 7 375 4 256 2 341 20 782 14 165 407 408 Where the above entities’ financial year-ends are not co-terminous 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 3 Included in the directors’ valuation of 2010 is an amount of R31 million (2009: R33 million) in respect of RBCT, which is classified as part of other debtors. EXXARO INTEGRATED ANNUAL REPORT 2010 299 ANNEXURE 2 CONTINUED INVESTMENTS IN ASSOCIATES, JOINT VENTURES AND OTHER INVESTMENTS 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/(LOSS) Net financing costs PROFIT/(LOSS) BEFORE TAX Income tax expense PROFIT/(LOSS) FOR THE YEAR Profit/(loss) for the year attributable to owners of the parent STATEMENT OF FINANCIAL POSITION Non-current assets Current assets TOTAL ASSETS Equity and liabilities Associated companies Joint ventures 2010 Rm 2009 Rm 2010 Rm 2009 Rm 8 614 (3 473) 5 141 (34) 5 107 (1 390) 3 717 3 717 3 718 2 462 6 180 5 419 (2 687) 2 732 (49) 2 683 (785) 1 898 1 898 2 714 1 302 4 016 2 147 (1 835) 1 484 (1 500) 312 (101) 211 (33) 178 178 3 873 1 801 5 674 (16) (5) (21) (21) (21) 3 591 1 506 5 097 EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT 3 670 1 759 2 942 2 913 Non-current liabilities Interest-bearing borrowings Non-current provisions Deferred tax and other Current liabilities Interest-bearing borrowings Other 856 201 557 94 802 990 126 521 112 508 TOTAL EQUITY AND LIABILITIES 6 180 4 016 STATEMENT OF CASH FLOWS 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 1 829 (974) (121) 37 771 159 (835) (2) 29 (649) 320 261 496 63 1 592 5 674 110 (456) 322 165 249 64 28 1 678 5 097 216 (567) 275 (24) (76) 300 EXXARO INTEGRATED ANNUAL REPORT 2010 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 Esmore Cooperatief U.A5 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) Limited6 Kumba Resources Management Share Trust Rocsi Holdings (Pty) Limited Skyprops 112 (Pty) Limited RSA RSA RSA RSA RSA RSA RSA RSA RSA Bot RSA RSA NE RSA RSA RSA RSA RSA RSA RSA RSA RSA RSA RSA RSA RSA RSA RSA M H H B A H M T A H T T J M T H H I C E B M A D A T H H Issued capital- unlisted ordinary shares R 1 1 1 200 1 000 Interest of company Investment in shares 2010 R 2009 R Indebtedness 2010 Rm 2009 Rm 1 746 163 1 2 518 966 1 000 1 746 163 1 2 518 966 1 000 17 2 16 2 1 5 500 000 1 247 712 500 1 247 712 500 768 375 1 200 1 000 1 000 4 936 4 787 32 742 723 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 1 510 200 2 10 000 1 510 6 003 355 2 1 510 6 003 355 2 647 044 943 100 653 722 945 44 389 208 653 722 945 44 389 208 (32) 52 1 3 531 150 22 (30) 488 20 (22) 28 3 651 250 10 (40) 308 20 EXXARO INTEGRATED ANNUAL REPORT 2010 301 ANNEXURE 3 CONTINUED INVESTMENTS IN SUBSIDIARIES1 Country of incor- poration2 Nature of business3 RSA AUS AUS NAM HK NE Bot RSA RSA NE 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 A A & P C H H P P A M J F H H C C H P P P M H B A A G F C H A C C A F F H H H A Issued capital- unlisted ordinary shares R 5 000 11 2 038 299 354 100 1 354 119 209 200 100 000 1 893 656 391 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 8 111 062 10 85 101 240 48 216 010 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 Exxaro Esmore Cooperatief U.A 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 Limited. 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 Energy Pty Limited6 Ticor Finance (A.C.T.) Pty Limited Ticor Resources Pty Limited Tific Pty Limited TiO2 Corporation NL Yalgoo Minerals Pty Limited TOTAL INVESTMENTS IN SUBSIDIARIES (refer note 15) Interest of company Investment in shares 2010 R 2009 R Indebtedness 2010 Rm (35) 1 241 2009 Rm (42) (1) 3 262 494 616 1 1 3 4 18 25 3 289 564 811 3 322 307 534 10 648 10 253 1 At 100% holding except where otherwise indicated 2 RSA – Republic of South Africa, AUS – Australia, NAM – Namibia, HK – Hong Kong, IRL – Ireland, MAU – Mauritius, NE – Netherlands, 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, J – Cooperative, 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 Cooperative in Rotterdam, Netherlands with the following members: Exxaro Resources Limited and Exxaro Holdings (Pty) Limited. 6 Reclassified during 2008 as non-current asset classified as held for sale. This investment was sold with effective date 1 January 2011. 302 EXXARO INTEGRATED ANNUAL REPORT 2010 INVESTMENTS IN SUBSIDIARIES TERMS AND CONDITIONS OF INDEBTEDNESS TO AND FROM SUBSIDIARIES Rate of interest per year (payable half-yearly)1 2010 Floating % 2009 Floating % Final repayment date 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2015 6,810 6,810 6,810 6,910 6,810 6,910 6,810 6,910 6,810 6,910 6,810 7,610 8,510 8,510 8,510 8,610 8,510 8,610 8,510 8,610 8,510 8,610 8,610 7,610 Total unsecured non-current loans Interest-bearing current loans payable/(receivable)2 Current portion of non-current loans Non-interest-bearing current loans Current loans Total 1 There were no indebtedness to and from subsidiaries with fixed rate of interest per year. 2 Interest charged at average overnight money market rates. 2010 Rm 150 178 270 675 75 100 90 224 24 60 80 800 2 726 1 369 421 6 132 7 922 10 648 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 EXXARO INTEGRATED ANNUAL REPORT 2010 303 NOTICE OF ANNUAL GENERAL MEETING Exxaro Resources Limited (Incorporated in the Republic of South Africa) Registration Number: 2000/011076/06 JSE share code: EXX ISIN: ZAE000084992 ADR code: EXXAY (“Exxaro” or “the company”) Notice is hereby given that the tenth annual general meeting of members of Exxaro will be held at the corporate office, Roger Dyason Road, Pretoria West, South Africa, at 09:00 on Thursday, 19 May 2011 to consider, and if deemed fit, pass with or without modification, the following resolutions: 1. ORDINARY RESOLUTION NUMBER 1: APPROVAL OF FINANCIAL STATEMENTS To receive and adopt the annual financial statements of the group for the period ended 31 December 2010, including the directors’ and independent auditors’ reports thereon. 2. ORDINARY RESOLUTION NUMBER 2: RE-ELECTION OF DIRECTOR To re-elect by separate resolution VZ Mntambo who offers himself for re-election; 3. ORDINARY RESOLUTION NUMBER 3: RE-ELECTION OF DIRECTOR To re-elect by separate resolution NL Sowazi who offers himself for re-election; 4. ORDINARY RESOLUTION NUMBER 4: RE-ELECTION OF DIRECTOR To re-elect by separate resolution J van Rooyen who offers himself for re-election; and 5. ORDINARY RESOLUTION NUMBER 5: RE-ELECTION OF DIRECTOR To re-elect by separate resolution D Zihlangu who offers himself for re-election as directors of the company, who retire by rotation in terms of article 16.1 of the company’s articles of association. A brief résumé for each director standing for re-election appears on page 308 of this annual report. 6. ORDINARY RESOLUTION NUMBER 6: NON-EXECUTIVE DIRECTORS’ FEES 6.1 To ratify the remuneration of non-executive directors for the period 1 January 2010 to 31 December 2010 (refer to page 190 of the annual report). 6.2 To approve the remuneration of non-executive directors for the period 1 January 2011 to 31 December 2011. Chairman Director Audit committee chairman Audit committee member Board committee chairman Board committee member Current Proposed R433 600 R650 000 R200 120 R216 130 R184 880 R199 670 R97 650 R105 460 R143 220 R154 680 R68 340 R73 810 7. ORDINARY RESOLUTION NUMBER 7: APPOINTMENT OF AUDIT, RISK AND COMPLIANCE COMMITTEE MEMBERS “Resolved that the members of the audit, risk and compliance committee, be and are hereby appointed in accordance with the recommendations of King III. The membership as proposed by the board of directors is J van Rooyen (chairman), RP Mohring and NL Sowazi.” 304 EXXARO INTEGRATED ANNUAL REPORT 2010 8. ORDINARY RESOLUTION NUMBER 8: APPROVAL OF REMUNERATION POLICY “Resolved to approve, through a non-binding advisory note, the company’s remuneration policy and its implementation, as set out in the Remuneration Report, which appears on page 160 of the annual report.” 9. ORDINARY RESOLUTION NUMBER 9: APPOINTMENT OF INDEPENDENT AUDITORS To appoint PricewaterhouseCoopers (PwC), with the designated audit partner being Mr D Shango, as independent auditors of the company for the ensuing year. 10. ORDINARY RESOLUTION NUMBER 10: AUDITORS’ FEES To authorise the directors to determine the auditors’ remuneration for the period ended 31 December 2010. 11. ORDINARY RESOLUTION NUMBER 11: CONTROL OF AUTHORISED BUT UNISSUED SHARES “Resolved that the authorised but unissued shares in the capital of the company be and are hereby placed under the control and authority of the directors and that they be and are hereby authorised to allot, issue and otherwise dispose of such shares to such person or persons on such terms and conditions and at such times as they may from time to time and at their discretion deem fit, subject to the provisions of the Companies Act, No 61 of 1973, (as amended), or the Companies Act, No 71 of 2008, should it become effective prior to the annual general meeting, article 3.2 of the articles of association of the company and the JSE Listings Requirements. The issuing of shares granted under this authority will be at their discretion until the next annual general meeting of the company, after setting aside so many shares as may be required, to be allotted and issued by the company pursuant to the company’s approved employee share incentive schemes.” 12. ORDINARY RESOLUTION NUMBER 12: GENERAL AUTHORITY TO ISSUE SHARES FOR CASH “Resolved that the directors of the company be and are hereby authorised, by way of a general authority, to issue the authorised but unissued shares in the capital of the company (and/or any options/convertible securities that are convertible into ordinary shares) for cash, as and when they in their discretion deem fit, subject to article 3.2 of the articles of association of the company, the Companies Act, No 61 of 1973, (as amended), or the Companies Act No 71 of 2008, should it become effective prior to the annual general meeting, and the JSE Listings Requirements, when applicable and with the following limitation, namely that: • the equity securities which are the subject of the issue for cash must be of a class already in issue, or where this is not the case, must be limited to such securities or rights that are convertible into a class already in issue; • any such issue will only be made to “public shareholders” as defined in the JSE Listings Requirements and not to related parties, unless the JSE otherwise agrees; • the number of shares issued for cash shall not in the aggregate in the current financial year exceed 10% (ten per cent) of the company’s issued share capital of ordinary shares (for purposes of determining the securities comprising the 10% number in any one year, account must be taken of the dilution effect, in the year of options/convertible securities, by including the number of any equity securities which may be issued in future arising out of the issue of such options/convertible securities). The number of ordinary shares which may be issued shall be based on the number of ordinary shares in issue at the date of such application less any ordinary shares issued during the current financial year (or to be issued arising from options or convertible securities issued), provided that any ordinary shares to be issued pursuant to a rights issue (announced and irrevocable and underwritten) or acquisition (which has had final terms announced) may be included as though they were shares in issue at the date of application; • this authority is valid until the company’s next annual general meeting, provided that it shall not extend beyond 15 (fifteen) months from the date that this authority is given; • a paid press announcement giving full details, including the impact on net asset value and earnings per share, will be published at the time of any issue representing, on a cumulative basis within 1 (one) financial year, 5% (five per cent) or more of the number of shares in issue prior to the issue; and • the maximum discount permitted at which equity securities may be issued is 10% (ten per cent) of the weighted average traded price on the JSE of those shares over the 30 (thirty) business days prior to the date that the price of the issue is agreed between the company and the party subscribing for the securities. This ordinary resolution is required, under the JSE Listings Requirements, to be passed by achieving a 75% (seventy five per cent) majority of the votes cast in favour of such resolution by all members present or represented by proxy and entitled to vote, at the annual general meeting.” 13. ORDINARY RESOLUTION NUMBER 13: AUTHORISE DIRECTORS AND/OR THE COMPANY SECRETARY To authorise any one director and/or the Company Secretary or equivalent, to do all such things and sign all such documents as are deemed necessary to implement the resolutions set out in the notice convening the annual general meeting at which these resolutions will be considered. EXXARO INTEGRATED ANNUAL REPORT 2010 305 NOTICE OF ANNUAL GENERAL MEETING CONTINUED 14. SPECIAL RESOLUTION NUMBER 1: GENERAL AUTHORITY TO REPURCHASE SHARES “Resolved that, subject to compliance with the JSE Listings Requirements, the Companies Act (Act 61 of 1973), as amended, or the Companies Act, No 71 of 2008 (“the New Companies Act”) should it become effective prior to the annual general meeting, and article 36 of the articles of association of the company, the directors be and are hereby authorised at their discretion to procure that the company or subsidiaries of the company acquire or repurchase ordinary shares issued by the company, provided that: • the number of ordinary shares acquired in any one financial year shall not exceed 20% (twenty per cent) of the ordinary shares in issue at the date on which this resolution is passed; • this must be effected through the order book operated by the JSE trading system and done without any prior understanding or arrangement between the company and the counterparty; • this authority shall lapse on the earlier of the date of the next annual general meeting of the company or 15 (fifteen) months after the date on which this resolution is passed; • in respect of share repurchases to be undertaken after the introduction of the New Companies Act, (i) the board of directors pass a resolution that they have authorised the repurchase, (ii) that the company pass the solvency and liquidity test and (iii) that since the solvency and liquidity test was done there have been no material changes to the financial position of the group; • in the event that the New Companies Act has become effective and the company’s articles does not require this resolution to be proposed and adopted as a special resolution, it be adopted as an ordinary resolution, provided that it is supported by at least 75% (seventy five per cent) majority of the votes cast in favour of such resolution by all members present or represented by proxy and entitled to vote, at the annual general meeting; and • the price paid per ordinary share may not be greater than 10% (ten per cent) above the weighted average of the market value of the ordinary shares for the five business days immediately preceding the date on which a purchase is made. The reason for and effect of this special resolution is to authorise the directors, if they deem it appropriate in the interests of the company, to procure that the company or subsidiaries of the company acquire or repurchase ordinary shares issued by the company subject to the restrictions contained in the above resolution. At present, the directors have no specific intention on the utilisation of this authority which will only be used if circumstances are appropriate. The directors undertake that, to the extent it is still required by the JSE Listings Requirements and the New Companies Act, they will not implement the repurchase as contemplated in this special resolution while this general authority is valid, subject to the following limitations, namely that: • the company and the group will be able to pay its debts in the ordinary course of business for a period of 12 (twelve) months after such repurchase; • recognised and measured in accordance with the accounting policies used in the latest audited annual group financial statements, the assets of the company and the group will exceed the liabilities of the company and the group for a period of 12 (twelve) months after such repurchase; • the ordinary capital and reserves of the company and the group will be adequate for the purposes of the business of the company and the group for a period of 12 (twelve) months after such repurchase; • the working capital of the company and the group will be adequate for the purposes of the business of the company and the group for a period of 12 (twelve) months after such repurchase; • the company or its subsidiaries will not repurchase securities during a prohibited period as defined in paragraph 3.67 of the JSE Listings Requirements unless the company has a repurchase programme in place where the dates and quantities of securities to be traded during the relevant prohibited period are fixed (not subject to any variation) and full details of the programme have been disclosed in an announcement released on SENS prior to the commencement of the prohibited period; • when the company or its subsidiaries have cumulatively repurchased 3% (three per cent) of the initial number of the relevant class of securities, and for each 3% (three per cent) in aggregate of the initial number of that class acquired thereafter, an announcement will be made; • the company at any time only appoints one agent to effect any repurchase(s) on its behalf; and • the company undertaking that it will not enter the market to repurchase its own securities until the company’s sponsor has provided written confirmation to the JSE regarding the adequacy of the company’s working capital in accordance with schedule 25 of the JSE Listings Requirements.” 15. To transact such other business as may be transacted at an annual general meeting. 306 EXXARO INTEGRATED ANNUAL REPORT 2010 DISCLOSURES REQUIRED IN TERMS OF THE JSE LISTINGS REQUIREMENTS The following information is provided in accordance with paragraph 11.26 of the JSE Listings Requirements and relates to special resolution number 1. LITIGATION STATEMENT Other than disclosed or accounted for in these annual financial statements, the directors of the company, whose names are given on page 142 of these annual financial statements, are not aware of any legal or arbitration proceedings, pending or threatened against the group, which may have or have had a material effect on the group’s financial position in the 12 months preceding the date of this notice of annual general meeting. DIRECTORS’ RESPONSIBILITY STATEMENT The directors, whose names are given on page 142 of these financial 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 and that this resolution and additional disclosure in terms of paragraph 11.26 of the JSE Listings Requirements pertaining thereto contain all information required by law and the JSE Listings Requirements. MATERIAL CHANGES Other than the facts and developments reported on in these annual financial statements, there have been no material changes in the affairs, financial or trading position of the group since the signature date of this annual report and the posting date thereof. The following further disclosures required in terms of the JSE Listings Requirements are set out in accordance with the reference pages in these annual financial statements of which this notice forms part: • Directors and management – refer to pages 140 to 143 of this report; • Major shareholders of the company – refer to page 168 of this report; • Directors’ interest in the company’s shares – refer page 194 of this report; • Share capital of the company – refer page 168 of this report. In terms of schedule 14 of the JSE Listings Requirements, 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 JSE Listings Requirements. By order of the board MS Viljoen Company Secretary Pretoria 15 March 2011 EXXARO INTEGRATED ANNUAL REPORT 2010 307 NOTICE OF ANNUAL GENERAL MEETING CONTINUED SHORT BIOGRAPHIES OF EXXARO DIRECTORS SEEKING RE-ELECTION Name: VZ Mntambo – Zwelibanzi (53) Designation: Non-executive director Academic qualifications: BJuris, LLB (UNW), LLM (Yale) Experience: Zwelibanzi is executive chairman of ASG Business Solutions. He was previously senior lecturer at the University of Natal; executive director of IMSSA; director-general of Gauteng Province and chairman of the Commission for Conciliation, Mediation and Arbitration. He is chairman of Metrobus (Pty) Limited, Mainstreet 333 (Pty) Limited, director of SA Tourism (Pty) Limited and Aveng Limited. Name: NL Sowazi – Nkululeko (47) Designation: Non-executive director Academic qualifications: BA; MA (UCLA) Experience: Nkululeko is founding executive chairman of the Tiso Group, a black-controlled investment holding company with interests in natural resources, infrastructure and industrial services. Nkululeko was previously executive deputy chairman of JSE-listed banking group, African Bank Investments Limited (ABIL) and managing director of the Mortgage Indemnity Fund (Pty) Limited. He is chairman of Idwala Industrial Holdings, the Home Loan Guarantee Company, the Financial Markets Trust, and serves on the boards of Aveng Limited, Alstom South Africa, Trident Steel, Emira Property Fund and African Explosives Limited. Name: J van Rooyen – Jeff (61) Designation: Non-executive director Academic qualifications: BCom (SA); BCompt (hons) (SA); CA(SA) Experience: Director of various companies in the Uranus Group. Non-executive director of MTN Group Limited and Pick n Pay Stores Limited. Trustee of the International Accounting Standards Committee Foundation and member of the University of Pretoria’s faculty of economic and management sciences oversight board. Former partner in Deloitte and Touche, former chairman of Public Accountants and Auditors Board, former CEO of Financial Services Board and former adviser to the late Ms Stella Sigcau, Minister of Public Enterprises. Jeff is a founder member and former president of the Association for the Advancement of Black Accountants of South Africa. Name: D Zihlangu – Rain (44) Designation: Non-executive director Academic qualifications: BSc (min eng) (Wits); MDP (SBL, Unisa); MBA (WBS, Wits) Experience: Dalikhaya is chief executive officer 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 was a shift boss, mine overseer, operations manager and mine manager at Impala Platinum Limited. Dalikhaya was chief executive officer of Alexkor Limited from 2002 until 2005. From 2006, Dalikhaya has been a non-executive director of the South African National Oil and Gas Company (PetroSA). He is chairman of PetroSA’s human capital committee and serves on its business strategy committee. 308 EXXARO INTEGRATED ANNUAL REPORT 2010 FORM OF PROXY EXXARO RESOURCES LIMITED (Incorporated in the Republic of South Africa) (Registration No 2000/011076/06) JSE share code: EXX ISIN: ZAE 000084992 ADR code: EXXAY (“Exxaro” or “the company”) POWERING POSSIBILITY TO BE COMPLETED BY CERTIFICATED SHAREHOLDERS AND DEMATERIALISED SHAREHOLDERS WITH “OWN NAME” REGISTRATION ONLY For completion by registered members of Exxaro unable to attend the annual general meeting of the company to be held at 09:00 on Thursday, 19 May 2011, at the Exxaro Corporate Centre, Roger Dyason Road, Pretoria West, South Africa or at any adjournment of that meeting. A shareholder is entitled to appoint one or more proxies (none of whom needs to be a shareholder of Exxaro) to attend, speak and vote or abstain from voting in the place of that shareholder at the annual general meeting. I/We of (address) being the holder/s of 1. 2. shares in the company, do hereby appoint: or, failing him/her or, failing him/her the chairman of the annual general meeting, as my/our proxy to attend, speak and, on a poll, vote on my/our behalf at the annual general meeting of members to be held at 09:00 on Thursday, 19 May 2011 at the Exxaro Corporate Centre, Roger Dyason Road, Pretoria West, Gauteng or at any adjournment of that meeting, 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 2010 audited group financial statements 2. Resolution to re-elect VZ Mntambo as director required to retire by rotation in terms of article 16.1 of the articles of association 3. Resolution to re-elect NL Sowazi as director required to retire by rotation in terms of article 16.1 of the articles of association 4. Resolution to re-elect J van Rooyen as director required to retire by rotation in terms of article 16.1 of the articles of association 5. Resolution to re-elect D Zihlangu as director required to retire by rotation in terms of article 16.1 of the articles of association 6. Resolution to ratify/approve non-executive directors’ fees 6.1 Ratification of the remuneration of non-executive directors for the period 1 January 2010 to 31 December 2010 6.2 Approval the remuneration of non-executive directors for the period 1 January 2011 to 31 December 2011 7. Resolution to appoint audit, risk and compliance committee members 8. Resolution to approve, through a non-binding advisory note, the company’s remuneration policy and its implementation, as set out in the Remuneration Report 9. Resolution to appoint PricewaterhouseCoopers (PwC) as independent auditors of the company and to note D Shango as the designated audit partner 10. Resolution to authorise the auditors’ fees for the period ended 31 December 2010 11. Resolution to authorise directors to allot and issue unissued ordinary shares 12. Resolution to authorise directors to issue shares for cash 13. Resolution to authorise directors and/or the Company Secretary to implement the resolutions set out in the notice convening the annual general meeting Special business 1. Special resolution to authorise directors to repurchase company shares Please indicate with an “X” in the appropriate spaces provided above how you wish your vote to be cast. If no indication is given, the proxy may vote or abstain as he/she sees fit. Signed at Signature Assisted by me, where applicable (name and signature) Please read the notes on the reverse side hereof. this day of 2011 EXXARO INTEGRATED ANNUAL REPORT 2010 309 NOTES TO THE FORM OF PROXY 1. A form of proxy is only to be completed by those ordinary shareholders who are: 1.1 holding ordinary shares in certificated form; or 1.2 recorded on sub-register electronic form in ‘own name’. 2. 3. 4. 5. 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 first 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 will have one 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 vote. On a poll, a member who is present in person or represented by proxy will be entitled to that proportion of the total votes in the company which the aggregate amount of the nominal value of shares held by him/her bears to the aggregate amount of the nominal value of all shares issued by the company. A member’s instructions to the proxy must be indicated by inserting the relevant numbers of votes exercisable by the member in the box provided. Failure to comply with this will be deemed to authorise the proxy to vote or to abstain from voting at the annual general meeting as he/she deems fit in respect of all the member’s exercisable votes. 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. 6. 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 fixed for the meeting (excluding Saturdays, Sundays and public holidays). For shareholders on the South African register: Computershare Investor Services (Pty) Limited Ground Floor 70 Marshall Street Johannesburg 2001 PO Box 61051 Marshalltown 2107 www.computershare.com Tel: +27 11 370 5000 Over-the-counter American depository receipt (ADR) holders: Exxaro has an ADR facility with The Bank of New York (BoNY) under a deposit agreement. ADR holders may instruct BoNY how the shares represented by their ADRs should be voted. American Depository 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 7. 8. Completing and lodging this form of proxy will not preclude the relevant member from attending the annual general meeting and speaking and voting in person to the exclusion of any appointed proxy. 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. 9. Any alteration or correction made to this form of proxy must be initialled by the signatory/ies. 10. Notwithstanding the aforegoing, the chairman of the annual general meeting may waive any formalities that would otherwise be a prerequisite for a valid proxy. 11. 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 meet, either in person or by proxy, the person whose name first appears in the register will be entitled to vote. 310 EXXARO INTEGRATED ANNUAL REPORT 2010 ADMINISTRATION Secretary and registered office MS Viljoen Exxaro Resources Limited Roger Dyason Road Pretoria West 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 Corporate law advisers CLS Consulting Services (Pty) Limited United States ADR Depository 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 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 31 December May Published February March August February March/April August September/October The cover of this document is printed on Trucard Recycled 440gsm. It contains 50% postconsumer de-inked pulp, is FSC certified and carries the NAPM recycled mark. The body of this document is printed on Cartridge 105gsm. A minimum of 30% fibre used in making this paper comes from well-managed forests independently certified according to the rules of the Forest Stewardship Council. Carbon offset The carbon footprint arising from the paper production, printing and distribution of this annual report will be determined and offset. BASTION GRAPHICS Exxaro Resources Limited Roger Dyason Road Pretoria West Pretoria 0183 Telephone +27 12 307 5000 www.exxaro.com (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)

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