EXXARO RESOURCES
LIMITED
2016
INTEGRATED
REPORT
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ABOUT THIS REPORT
BOARD RESPONSIBILITY
Exxaro produces an integrated report each year, covering our
financial and operational, governance, social and environmental
performance as well as the challenges and opportunities ahead.
Continuing the approach introduced last year (recognised in the
Ernst & Young Excellence in Integrated Reporting awards for
innovation), we segment our report into three perspectives:
› The board – as ultimate custodian of the company’s strategy
– comments on the strategic context for material issues and
key governance aspects, including the focus of board
committees during the year
› The executive review details salient features of the year and
how the group performed against its targets, our stakeholder
engagement and activities and associated strategic risks
(operational performance context)
› Outlook for the year ahead and beyond.
In line with our corporate value of honest responsibility, this
report reflects our commitment to sustainable development,
given the South African socio-economic and environmental
context, and determination to entrench effective governance
and global best practices in all operations. It also reflects
maturing reporting processes and confidence in our ability to
set and measure progress towards targets, as disclosed on the
performance dashboard. We disclose key performance
indicators across the six sustainability capitals, with targets and
actual performance, for an informed evaluation of our progress.
This report (only available online) covers the financial year to
31 December 2016, as well as key subsequent developments,
and follows the 2015 report. It should be read with the group
and company annual financial statements, comprehensive
supplementary report, and mineral resources and reserves
statement on our website.
Notice of the annual general meeting, form of proxy and
summarised financial statements were mailed to shareholders
as per statutory requirements.
Content is guided by our strategic objectives, legislative and
regulatory requirements, including the Companies Act of South
Africa, 71 of 2008, as amended (Companies Act), the mining
charter and the JSE Limited Listings Requirements. We are
also guided by global best practice standards, including the
International Integrated Reporting Council’s (IIRC) framework
for integrated reporting, United Nations Global Compact, Global
Reporting Initiative (GRI), King Report on Governance for
South Africa 2009 (King III) and AccountAbility 1000SES.
The board acknowledges its responsibility for the integrity of
Exxaro’s integrated and supplementary reports. Although the
process of integrated reporting is still evolving, we have
integrated all the elements of our business and aligned this
report with the IIRC framework. Continuous efforts are made
to incorporate best practice and improve our level of reporting,
including an independent assessment of key aspects
of sustainability reporting and disclosure by
PricewaterhouseCoopers Incorporated (PwC).
The board reviewed and approved the content of the integrated
report and accompanying statutory information (mailed to
shareholders) prior to publication.
Len Konar
Chairman
12 April 2017
Mxolisi Mgojo
Chief executive officer
CERTIFICATE BY GROUP
COMPANY SECRETARY
In terms of section 88(2)(e) of the Companies Act I, Carina
Wessels, in my capacity as group company secretary and legal,
confirm that, to the best of my knowledge, for the year ended
31 December 2016, Exxaro Resources Limited (Exxaro) has filed
with the Companies and Intellectual Property Commission all
such returns and notices as required of a public company in
terms of the Companies Act and that all such returns and
notices appear to be true, correct and up to date.
Carina Wessels
Group company secretary and legal
The audited group and company annual financial statements
are prepared according to International Financial Reporting
Standards (IFRS).
Pretoria
12 April 2017
DISCLAIMER
The operational and financial information on which any outlook or forecast statements are based has not been reviewed nor reported
on by the external auditors. These forward-looking statements are based on management’s current beliefs and expectations and are
subject to uncertainty and changes in circumstances. The forward-looking statements involve risks that may affect the group’s
operational and financial information. Exxaro undertakes no obligation to update or reverse any forward-looking statements, whether
as a result of new information or future developments.
Where relevant, comments exclude transactions which make the results not comparable. These exclusions are the responsibility of the
group’s board of directors and have been presented to illustrate the impact of these transactions on the core operations’ performance
and hence may not fairly present the group’s financial position, changes in equity, results of operations or cash flows. These exclusions
have not been reviewed nor reported on by the group’s external auditors.
CONTENTS
IFC
IFC
IFC
IFC
1
2
3
4
About this report
Board responsibility
Certificate by group company secretary
Disclaimer
Contents and feedback
Understanding our strategic dashboard
2016 performance at a glance
Material issues
5
GROUP PROFILE
6
16
20
22
24
28
Group profile
Business model
Performance against strategic objectives 2016
Stakeholder engagement
Risk management
Exxaro strategy
29
BOARD REVIEW
30
44
46
49
51
Board review
Audit committee report
Remuneration and nomination committee report
Social and ethics committee report
Sustainability, risk and compliance committee report
53
EXECUTIVE REVIEW
54
Executive review
77 MINERAL RESOURCES AND RESERVES
83
OUTLOOK
85
ANNEXURES
PwC Assurance Report
Indicators assured
86
88
89 Mining charter performance
90
92
Glossary
Administration
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FEEDBACK
Ongoing feedback from stakeholders helps us contextualise certain issues better for more informed understanding by readers.
We welcome your suggestions, which should be directed to:
Hanno Olinger
Manager: Sustainability
Tel: +27 12 307 3359
Fax: +27 12 307 5327
Mobile: +27 83 609 1094
Email: hanno.olinger@exxaro.com
Web: www.exxaro.com
EXXARO integrated report 2016
1
UNDERSTANDING OUR STRATEGIC DASHBOARD
The sustainability capitals
Definition: A capital is a stock of anything (physical, intangible or virtual) from which an organisation can extract
either a qualitative or quantitative benefit.
NATURAL
CAPITAL
HUMAN
CAPITAL
SOCIAL
CAPITAL
INTELLECTUAL
CAPITAL
MANUFACTURED
CAPITAL
FINANCIAL
CAPITAL
›› All renewable
›› Safety,
wellness,
occupational
health and
hygiene
›› Relationships
and rights
›› People’s
competencies,
capabilities and
experience
and non-
renewable
environmental
resources and
processes that
provide goods
or services that
support the
past, current
or future
prosperity of
an organisation
›› Natural
resources
(mineral
resources,
water, energy
and matter)
›› Processes (our
environment,
water, air and
biodiversity)
›› The institutions
and the
relationships
within the
organisation,
between
communities,
groups of
stakeholders
and other
networks
›› The ability
to share
information
to enhance
individual and
collective
well-being
›› Trust and
reciprocity
›› Organisational,
knowledge-
based
intangibles
›› Ability and
motivation
to innovate
›› Pool of
available funds
›› Reflects the
productive
power of the
other types
of capital
›› Currency, share
price,
ownership,
governance
›› Manufactured
physical objects
(as distinct
from natural
physical
objects) that
are available to
an organisation
for use in the
production of
goods or the
provision of
services
›› Assets,
infrastructure,
material goods,
technology,
networks,
business
processes and
systems
Exxaro strategic performance dashboard
The tool we use to determine whether we are on track to achieve our objectives is the Exxaro strategic performance dashboard. As
explained in the board review, this dashboard has built-in risk appetite thresholds to ensure the company’s decisions in pursuing its
strategic objectives are in line with the risk threshold which, as a whole, makes up the risk appetite of the group.
How to interpret the dashboard
›› The dashboard lists all key performance indicators (KPIs) linked to a strategic priority/sustainability capital/strategic objective and
material issue. Current performance and the status of the indicator (shown as a bulb) reflects whether the KPI is within our risk
appetite thresholds. We aim to be within the target threshold: anything outside worst tolerable and target means we act outside
our defined risk appetite in pursuing our strategic objectives. This will require additional controls or improving existing controls.
Example of KPI measure
›› Exxaro has a strategic objective of improving our portfolio; one of many KPIs linked to this objective is core operating margin.
Anything outside of worst tolerable and target will mean that we act outside our defined risk appetite in pursuing our
strategic objectives and this will require additional controls or improving existing controls.
KPI current performance
KPI
Core operating margin (%)
KPI threshold
Current
Performance
Legend
(indicator)
24%
Threshold
KPI
Out of appetite
Worst tolerable
Best realistic
Target
Core operating
margin
Less than
15%
15%
Between
15% and 20%
Legend
Out of
appetite
Worst
tolerable
Best
realistic
20%
Target
Possible waste/
opportunity
More than
20%
Possible waste/
opportunity
(exceeding
target)
2
EXXARO integrated report 2016
2016 PERFORMANCE AT A GLANCE
Sustainable
operations
›› Lost-time injury frequency
rate (LTIFR) improved 47%
to 0,09
›› Over 2 consecutive calendar
years without a fatality
Returning cash to
shareholders
›› Final dividend of
410 cents per share at
2016 core attributable
earnings cover of
3,2 times
Strong profit
margins and
resilient balance
sheet
›› Core net operating profit
margin of 24%, up 6%
›› R2,4 billion income from
equity-accounted
investments, up 309%
›› Headline earnings at
1 302 cents per share
›› Net debt to equity at 3,8%
›› Cash generated from
operations at R5,5 billion,
up 23%
Growth in coal
›› R5,2 billion coal net
operating profit, up 101%
›› Operating profit margin
of 25%
›› Export volumes — 7,9Mt
up 27%
Strategic dashboard – selected key financial performance indicators (KPIs)
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KPI
Core operating margin
Funds from operations to net debt
Return on capital employed (ROCE)
Return on equity based on core headline earnings
Core HEPS (short-term target)
Net debt to equity*
Net debt to annualised EBITDA (times)*
EBITDA interest cover (times)*
2016
2015
Actual
Indicator
Actual
Indicator
24%
476%
23%
15%
1 457c
12%
0,6
11
18%
2%
6%
4%
425c
23%
1
12
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* Calculated according to loan covenant agreements with loan providers
EXXARO integrated report 2016
3
MATERIAL ISSUES
Materiality
Materiality is determined by careful analysis of our risks, strategic goals and outcomes of ongoing consultation with stakeholders.
The top risks facing our group are summarised on page 26 and discussed under the appropriate material issue.
DETERMINING MATERIALITY
+
+
+
+
+
+
Scope and boundary
Under the reporting requirements of the Department of Mineral
Resources (DMR) for the mining charter scorecard, Exxaro
discloses its performance per mining right for the review period
on its website. Group performance against the scorecard is
disclosed in this report (annexure).
This report, produced in English, has been prepared in
accordance with the GRI’s ‘core’ application level, and the
GRI G4 index is on the website. The supplementary report
provides detailed disclosure on key aspects of our operations.
Methods for determining specific GRI indicators are summarised
in the text or detailed in our glossary.
Each year, key indicators are selected for external assurance.
Where possible, we present comparable information for trend
analysis. Corporate activity since Exxaro’s inception makes data
comparability challenging in some areas; this is explained where
it will aid understanding.
This report includes limited information on operations where we
do not have management control but have a significant equity
interest or joint control, namely Cennergi Proprietary Limited
(Cennergi), Sishen Iron Ore Company Proprietary Limited (SIOC)
and Tronox Limited (Tronox). As our acquisition of Total Coal
South Africa Proprietary Limited (TCSA), renamed Exxaro Coal
Central Proprietary Limited (ECC) was only effective August
2015, we include limited data on these operations while the
process of standardising systems and indicators is under way.
4
EXXARO integrated report 2016
MEDIA THEMESCOAL OPERATIONAL ISSUESTOP ENTERPRISE RISKSINVESTOR, COMMUNITY ISSUES RAISEDCUSTOMER AND SUPPLIER ISSUESBOARD AGENDA THEMESPRIORITISED MATERIAL ISSUESPERFORMANCE DASHBOARD GROUP PROFILE
GROUP PROFILE
Exxaro is a diversified black-owned resources group with
interests in specific markets: coal (controlled and
non-controlled), titanium dioxide and alkali chemicals (non-
controlled), ferrous (non-controlled) and energy
(non-controlled). The group has business interests in South
Africa, Europe, the United States of America and Australia.
Our asset portfolio includes coal operations and investments
in iron ore, pigment manufacturing, renewable energy (wind)
and residual base metals. Exxaro is listed on the JSE and
was a long-standing constituent of the Socially Responsible
Investment (SRI) index, reconstituted as the FTSE Russell ESG
Index in 2015. Exxaro is now included in the FTSE/JSE
Responsible Investment Index.
Exxaro ownership structure
In 2016, Exxaro produced 42,8 million tonnes of coal per annum
(Mtpa) (2015: 43,0Mtpa), reflecting contributions from our
expanded flagship Grootegeluk mine as well as the first full-year
contribution from ECC.
At 31 December 2016, Exxaro had assets of R59,9 billion and a
market capitalisation of R32 billion (US$2,3 billion). Although
just 10 years old, Exxaro’s pedigree and skills were built over
decades as a company rooted in South Africa and respected by
its peers for its research and development, ethics and integrity.
Dreamvision
Investments
Proprietary
Limited
Morningtide
Investments 168
Proprietary Limited
(KagisoTiso)
Capital Consortium
Proprietary
Limited
(Eyabantu)
Basadi Ba Kopane
Investments
Proprietary
Limited
Industrial
Development
Corporation
Limited
54,1%
9,7%
9,7%
11,2%
15,3%
OUR OWNERSHIP STRUCTURE*
37,70%
0,75%
61,38%
0,17%
INVESTMENT PORTFOLIO
I
N
O
T
C
U
D
O
R
P
Iron
ore
Titanium dioxide,
pigment and alkali
chemicals
Coal
Wind
energy
Zinc
* At 31 January, post share buyback on 17 January 2017.
6
EXXARO integrated report 2016
Main Street 333 Proprietary Limited (BEE Holdco)Exxaro MpowerMinorities (free-float)Other non-public shareholdersSIOC 21% TRONOX 44%MAFUBE 50:50 with AngloCENNERGI 50:50 with Tata PowerBLACK MOUNTAIN 26% Investment proposition
Competitive advantages
›› Large multiproduct and long-life coal reserve base
›› Established domestic (short and long-term contracts) and international customer base
›› Adequate export and rail allocation to support export growth
›› Building a resilient ownership structure
Key financial strengths
›› Strong balance sheet – net debt:equity below 10%
›› Cash-generative operations
›› Returning cash to shareholders: dividend policy of 2,5 to 3,5 times core attributable earnings
Growth prospects
›› Organic coal production growth to supply Eskom and independent power producers
›› Domestic and offshore coal revenue growth (new projects and cost management)
›› New, stable revenue model from renewable energy
Leadership and governance
›› Experienced, growth-orientated leadership team
›› Established governance structures – proven economic, social and governance model
›› Stakeholder-orientated
EXXARO integrated report 2016
7
Group profileExecutive reviewOutlookBoard reviewMineral resources and reservesAnnexures GROUP PROFILE (CONTINUED)
Our coal asset base
12
13
10 5
• Lephalale
LIMPOPO
• Polokwane
NORTH WEST
14
Pretoria •
GAUTENG
6
9
Johannesburg •
MPUMALANGA
15
• Emalahleni
2
7
3
4
8
11
1
SWAZILAND
FREE STATE
KWAZULU-NATAL
Only mineral assets with measured and indicated
resources are illustrated. Inferred resources are reported
in the supplementary consolidated mineral resources and
reserves report (CMRR).
1 ARNOT
2 DORSTFONTEIN
COMPLEX (74%)
3 FORZANDO
COMPLEX (74%)
Location South of Middelburg
West of Kriel
North of Bethal
Market Domestic (Eskom)
Export
Export
Product Thermal coal
Thermal coal
Thermal coal
Resources
(inclusive)
139Mt measured;
64,0Mt indicated
85,7Mt measured;
41,5Mt indicated
75,7Mt measured;
53,4Mt indicated
Reserves —
Mining method Open-cut and
underground
Run-of-mine —
Life-of-mine Coal-supply
34,5Mt proved;
9Mt probable
Open-cut and
underground
3,3Mt
15 years
11,4Mt proved;
37,1Mt probable
Underground
2,3Mt
12+ years*
agreement with
Eskom terminated on
31 December 2015
8
EXXARO integrated report 2016
4 NORTH BLOCK
COMPLEX
5 GROOTEGELUK
6 LEEUWPAN
Location West of Belfast
West of Lephalale
South-east of Delmas
Market Domestic
Domestic and export
Domestic and export
Product Thermal coal
Resources
(inclusive)
Reserves
19,7Mt measured
1,9Mt proved;
1,9Mt probable
Thermal,
metallurgical and
coking coal
3 025Mt measured;
837Mt indicated
2 534Mt proved;
421Mt probable
Mining method Open-cut
Open-cut
Run-of-mine 4,4Mt
Life-of-mine 0,5 years
43,7Mt
24+ years*
Thermal and
metallurgical coal
128Mt measured
13,7Mt proved;
52,9Mt probable
Open-cut and
underground
6,4Mt
13 years
7 MATLA
8 BELFAST
9 ELOFF (51%)
10 THABAMETSI
11 GLISA SOUTH
Location West of Kriel
South of Belfast
South-west of Delmas
West of Lephalale
West of Belfast
Project stage —
Feasibility concluded
Concept phase
Feasibility concluded
Pre-feasibility phase
Market Domestic (Eskom)
—
—
—
—
Product Thermal coal
Thermal coal
Thermal coal
Thermal coal
Thermal coal
Resources
(inclusive)
752Mt measured;
211Mt indicated
81Mt measured;
22,4Mt indicated
9Mt measured;
213Mt indicated
270Mt measured;
749Mt indicated
Reserves 221Mt proved;
34Mt probable
45,7Mt proved
Not yet declared
109Mt proved;
21Mt probable
20Mt measured;
47Mt indicated
Not yet declared
Mining method Underground
Open-cut
Run-of-mine 7,9Mt
Life-of-mine 8+ years*
—
17 years
Open-cut and
underground
—
—
Open-cut
Open-cut
—
29+ years*
—
—
12 TSHIKONDENI
MUTALE
13
ZONDERWATER
14 MAFUBE
(50%)
15 TUMELO
(49%)
Location East of Musina
West of Lephalale
East of Middelburg
North-west of
Hendrina
Project stage —
Concept phase
—
—
Market AMSA (discontinued)
—
Domestic and export
Export
Product Coking coal
Thermal coal
Thermal coal
Resources
(inclusive)
3,7Mt measured;
25,1Mt indicated
22,7Mt indicated
Reserves
In closure
Not yet declared
133,6Mt measured;
10,1Mt indicated
4,8Mt proved;
64Mt probable
Thermal coal
6Mt measured
Not yet declared
Mining method Open-cut and
underground
Underground
Open-cut
Underground
Run-of-mine Exhausted
—
Life-of-mine —
Prospecting right
lapses in 2017
4,1Mt
12 years
—
Under care and
maintenance
* Adequate reserves exist well beyond expiry of mining right
EXXARO integrated report 2016
9
1 ARNOT
2 DORSTFONTEIN
3 FORZANDO
COMPLEX (74%)
COMPLEX (74%)
Location South of Middelburg
West of Kriel
North of Bethal
Market Domestic (Eskom)
Export
Export
Product Thermal coal
Thermal coal
Thermal coal
Resources
(inclusive)
139Mt measured;
64,0Mt indicated
85,7Mt measured;
41,5Mt indicated
75,7Mt measured;
53,4Mt indicated
Reserves —
Mining method Open-cut and
underground
Run-of-mine —
Life-of-mine Coal-supply
34,5Mt proved;
9Mt probable
Open-cut and
underground
3,3Mt
15 years
11,4Mt proved;
37,1Mt probable
Underground
2,3Mt
12+ years*
agreement with
Eskom terminated on
31 December 2015
Group profileExecutive reviewOutlookBoard reviewMineral resources and reservesAnnexures GROUP PROFILE (CONTINUED)
Coal
Strong South African
presence and market:
›› Solid resource base – the biggest locally
›› Our Waterberg resources offer significant
growth opportunities and play a major
part in our strategy
Grootegeluk is acknowledged
as one of the most efficient
mining operations in the world, and runs
the world’s largest coal-beneficiation
complex. It is the only producing mine
in the coal-rich Waterberg, adjacent to
Eskom’s existing Matimba and new
Medupi power stations
›› Eight managed coal mines produced 42,8Mtpa power station,
steam and coking coal, similar to 2015. Most power station
coal is supplied to the national power utility, Eskom
›› Robust pipeline of greenfield and brownfield expansion
projects:
›• The R3,2 billion Belfast mine is scheduled to be
commissioned by 2019, depending on progress with a
rezoning objection. At full capacity, the mine will deliver
around 2,7Mtpa of thermal coal
›• After the Thabametsi power project was selected as a
preferred bidder in the first window of South Africa’s
coal-baseload independent power producer procurement
programme, phase 1 of the Thabametsi mine is under way.
At a projected cost of R2,8 billion, phase 1 will supply some
3,9Mt of thermal coal per year at full capacity, with first
production expected in 2020, in line with the development
ramp-up schedule of the associated power station.
Exxaro attributable coal resources and reserves 2016 (Mt)
4
2
1
7
3
8
2
2
9
0
9
4
9
6
9
6
5
9
4
2
7
9
9
4
0
5
0
6
6
8
1
4
9
3
6
4
2
0
5
6
3
3
7
4
4
8
6
3
2
3
5
6
0
9
7
4
4
2
6
3
4
8
5
6
3
8
0
5
8
0
3
3
2
8
5
6
4
2
8
4
6
5
6
3
8
7
4
7
9
1
8
2
5
2
6
3
6
7
8
3
6
5
6
7
4
9
0
5
2016
2015
2014
2013
2012
2011
2010
2009
2008
■ Measured ■ Indicated ■ Inferred
■ Proved ■ Probable
Attributable resources
Mt
2016
2015
2014
2013
2012
2011
2010
2009
2008
Measured
Proved
Probable
Indicated
Inferred
4 909
2 961
596
2 283
7 124
4 997
3 052
785
2 495
6 969
4 639
2 973
797
4 186
6 050
3 684
2 308
1 278
4 733
6 502
3 624
2 340
1 304
4 790
6 532
3 308
2 183
1 340
5 083
6 584
3 656
2 349
1 245
4 824
6 582
3 625
2 666
914
2 819
7 478
5 094
3 208
931
7 656
3 876
10
EXXARO integrated report 2016
Ferrous
›› FerroAlloys produces gas-atomised ferrosilicon for use
in dense medium separation plants
›› The Mayoko iron ore project in the Republic of the Congo
was sold in September 2016 to a Congolese consortium.
Investment portfolio
›› Iron ore: 21% of SIOC, a leading supplier of high-quality iron
ore to the global steel industry, and a subsidiary of the listed
Kumba Iron Ore Limited (KIO)
›› Titanium dioxide, pigments and alkali chemicals: 26%
direct interest in both KZN Sands and Namakwa Sands, as
well as 44% interest in US-listed Tronox, a global leader in
mining, production and marketing inorganic minerals and
chemicals. Tronox operates two vertically integrated
businesses: titanium dioxide (TiO2) and alkali chemicals
›› Renewable energy: Exxaro contributes to national energy
supply through Cennergi, its joint venture with Tata Power.
Two wind projects in the Eastern Cape achieved commercial
operation in the third quarter of 2016: Amakhala Emoyeni
near Bedford (134MW) and Tsitsikamma Community Wind
Farm on Mfengu community land (95MW)
›› Coal: Mafube – joint venture with Anglo American in
Mpumalanga
›› Zinc: 26% of Black Mountain, a subsidiary of Vedanta, in
the Northern Cape.
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EXXARO integrated report 2016
11
BUSINESS MODEL
PURPOSE
STRATEGY
MINING
VALUE
CHAIN
INPUTS
OUTCOMES
BY CAPITAL
Natural
POWERING POSSIBILITY
STAKEHOLDER VALUE CREATION
MAXIMISE OPERATIONAL OUTPUTS, OPTIMISE INVESTMENT PORTFOLIO, REDUCE COST
Mineral resource
acquisition
Mining and
resource
development
Metallurgical and
beneficiation
Market
supply
Mine
rehabilitation
and closure
› Resource
demands
› Viable mineral
deposits
› Funding mine plan
› Regulatory rights
› Mine plan
› Production plan
› Orebodies
› Mobile and fixed
infrastructure
› Run-of-mine
› Plant and civil
› Infrastructure
› Equipment
› Transport and
logistics
› Public and mine
infrastructure
› Market demands
› Exhausted
mineral reserves
› Uneconomic
life-of-mine
Increased
economic value
Depletion and
degradation
Depletion and
degradation
Emissions
Rehabilitation
Human
Skills used
Skills and
employment
Skills and
employment
Skills used
Staff reductions or
redeployments
Social
Intellectual
Planned
community
development
Innovation
applied
Community
benefits
Community
benefits
Community
benefits
Portable skills
created, alternative
employment
Knowledge used
Innovation and
knowledge applied
Market knowledge
Environmental
knowledge
Manufactured
Infrastructure
built
Increased
infrastructure
Infrastructure use
Increased product
value
Infrastructure
decommission
Financial
Balance sheet
asset
Product value
increase and capital
costs
Product value
increase and costs
Revenues, value
add, profits, taxes
Financial
provisions used
ENABLERS
PHILOSOPHY
AND FINANCIAL
VEHICLES
Leadership Management
Technology
Innovation
Project management
Mineral resource management
Sustainability Hire to retire
Procure to pay Record to report
INTERNAL: Organisational culture, ethics, governance, stakeholder engagement
FINANCIAL: Retained capital, investments, partnerships, ownership, market capitalisation
Exxaro Resources is a mining company. Each year, we extract
over 40Mt of graded coal from eight mines in the Limpopo and
Mpumalanga provinces of South Africa. Since the group’s
formation and listing on the JSE in 2006, we have lived up to
our promise of being a responsible corporate citizen through
our commitment to good corporate governance, compliance,
environmental stewardship and investing in our communities.
As shown above, we have a resource-to-market mining value
chain that is supported by various inputs, enablers and financial
vehicles. By considering the impact of our activities on all
stakeholders and all capitals in developing and implementing
our strategy, we have proved that mining can have a net positive
effect. We have considered the cumulative outcomes on the
various capitals over the lifecycle of our mines and plotted these
on a relative plus-minus scale.
12
EXXARO integrated report 2016
Quantitative
easing 3
EXXARO
2011
REVENUE
R21,0bn
42,0Mt
E-tolls
implemented
FATALITIES
03
MILESTONES
• Siyaya: implementation of new operating model
• Char 2 bankable feasibility study
• GMEP commissioning
• Clean energy – participate in independent power production
• Mayoko project consideration
• AlloyStreamTM demonstration campaign
• Territory offer made (iron ore)
• New Tronox listing
• Fairbreeze construction
• Rosh Pinah divestment
• Cessation of zinc production
• Tshikondeni closure plan implemented
• Glen Douglas sale
LTIFR
0,20
EMPLOYEES
10 513
EXXARO
2012
REVENUE
R16,1 bn
40,3Mt
MILESTONES
• Exit Makhado coal project
• First coal to Medupi
• Moranbah South prefeasibility study completion
• Thabametsi mining right applications and
phase 1 bankable feasibility study
• Char 2 phased development
• Belfast bankable feasibility study
• Market coke bankable feasibility study
• Mayoko execution on track
• Cennergi financial closure and bid for projects
• Tronox listing in June – 44,65% shareholding
• NCC cessation of production
• Tshikondeni on closure plan
• RBCT allocation more than doubled
Marikana: Mining industry will
never be the same again
EMPLOYEES
7 627
LTIFR
0,29
FATALITIES
02
Gautrain
construction
First economic recession in 17 years
Soccer world cup
FATALITIES
00
LTIFR
0,19
EMPLOYEES
7 920
Mr Nelson
Mandela
passes away
EFF
formed
Three weeks
of industrial
action
EXXARO
2013
MILESTONES
THE PAST, PRESENT AND FUTURE OF EXXARO
REVENUE
R13,5bn
40,2Mt
• Thabametsi bankable feasibility study complete
• GMEP ramp-up
• GG backfill
• Belfast bankable feasibility study
• CSA with Marubeni on Thabametsi
• Cennergi: construction of wind projects
• Mayoko phased approach announced
• AlloyStream under review
• Tshikondeni nearing end of life
• NCC care and maintenance
The
FATALITIES
01
EMPLOYEES
10 937
LTIFR
0,25
EXXARO
2010
MILESTONES
• Siyaya finalisation
• GMEP construction
• GMEP definitive agreement signed with Eskom
• Mafutha prefeasibility study continues
• Rosh Pinah sale to Glencore
• Fairbreeze bankable feasibility study board approval
• Kwinana pigment expansion commissioning
Quantitative
easing 3
EXXARO
2011
REVENUE
R21,0bn
42,0Mt
REVENUE
R17,0bn
MILESTONES
45,7Mt
FATALITIES
03
• Siyaya: implementation of new operating model
• Char 2 bankable feasibility study
• GMEP commissioning
• Clean energy – participate in independent power production
• Mayoko project consideration
• AlloyStreamTM demonstration campaign
• Territory offer made (iron ore)
• New Tronox listing
• Fairbreeze construction
• Rosh Pinah divestment
• Cessation of zinc production
• Tshikondeni closure plan implemented
• Glen Douglas sale
LTIFR
0,20
EMPLOYEES
10 513
E-tolls
implemented
EXXARO
2012
REVENUE
R16,1 bn
40,3Mt
MILESTONES
• Exit Makhado coal project
• First coal to Medupi
• Moranbah South prefeasibility study completion
• Thabametsi mining right applications and
phase 1 bankable feasibility study
• Char 2 phased development
• Belfast bankable feasibility study
• Market coke bankable feasibility study
• Mayoko execution on track
• Cennergi financial closure and bid for projects
• Tronox listing in June – 44,65% shareholding
• NCC cessation of production
• Tshikondeni on closure plan
• RBCT allocation more than doubled
Marikana: Mining industry will
never be the same again
EMPLOYEES
7 627
LTIFR
0,42
FATALITIES
06
EMPLOYEES
8 814
LTIFR
0,29
Listed
27 November
2006
Pangolin
transaction
FATALITIES
02
Gautrain
construction
First economic recession in 17 years
Soccer world cup
FATALITIES
00
LTIFR
0,19
EMPLOYEES
7 920
Mr Nelson
Mandela
passes away
EFF
formed
EXXARO
2006
REVENUE
R7,3bn
45,0Mt
MILESTONES
• Siyaya finalisation
• GMEP construction
• GMEP definitive agreement signed with Eskom
• Mafutha prefeasibility study continues
• Rosh Pinah sale to Glencore
• Fairbreeze bankable feasibility study board approval
• Kwinana pigment expansion commissioning
Three weeks
of industrial
action
EXXARO
2013
REVENUE
R13,5bn
40,2Mt
MILESTONES
• Thabametsi bankable feasibility study complete
• GMEP ramp-up
• GG backfill
• Belfast bankable feasibility study
• CSA with Marubeni on Thabametsi
• Cennergi: construction of wind projects
• Mayoko phased approach announced
• AlloyStream under review
• Tshikondeni nearing end of life
• NCC care and maintenance
FATALITIES
01
EMPLOYEES
10 937
LTIFR
0,25
EXXARO
2010
REVENUE
R17,0bn
45,7Mt
Global
RSA
Strategy
Growth/contract
Divestment/sale
Cease/delay
Commission/construction
Investment/acquisition
Review/study
13
EXXARO integrated report 2016
of
Strategy
Growth/contract
Divestment/sale
Cease/delay
Global
RSA
bubble
New
Companies
Act
Sub prime
housing
crisis and
housing
Commission/construction
Investment/acquisition
Review/study
MILESTONES
• Mpower share scheme launched
• Post-Pangolin integration
• Mining right conversions and new applications
submitted
• Mafube ramp-up
• Inyanda commissioning
• GMEP phase 2 bankable feasibility study
• Acquire Namakwa Sands and Black Mountain
• Fairbreeze construction planned
LTIFR
0,36
EXXARO
2007
FATALITIES
05
EMPLOYEES
8 688
REVENUE
R10,0bn
41,0Mt
National
elections
EXXARO
2009
LTIFR
0,33
REVENUE
R15,0bn
45,6Mt
MILESTONES
• Mafube fully ramped up
• Inyanda above capacity at 1,8Mt
• Medupi agreement signed for 14,6Mtpa
• Namakwa Sands integrated
• Kwinana 40kt expansion
• Good mining rights progress
FATALITIES
03
EMPLOYEES
11 180
EXXARO
2008
REVENUE
R13,8bn
45,0Mt
EMPLOYEES
10 458
Global
financial
crisis
LTIFR
0,39
FATALITIES
05
MILESTONES
• Siyaya project started
• Mafube JV 1 June
• First char produced
• GMEP construction delayed six months
• Siyaya R743m savings realised target R1 758m
• (In)Credible leadership launched
• Igoda Sasol partnership withdrawal
• Cease Fairbreeze mine development
• Reconfigure zinc business
• Mafutha prefeasibility study
• Moranbah South prefeasibility study
LEGENDLEGEND
The
of
Quantitative
easing 3
EXXARO
2011
REVENUE
R21,0bn
42,0Mt
Sub prime
housing
crisis and
housing
bubble
E-tolls
implemented
New
Companies
Act
LTIFR
0,42
FATALITIES
06
Listed
27 November
2006
Pangolin
transaction
EMPLOYEES
8 814
EXXARO
2006
REVENUE
R7,3bn
45,0Mt
LTIFR
0,36
EXXARO
2007
FATALITIES
05
EMPLOYEES
8 688
REVENUE
R10,0bn
41,0Mt
MILESTONES
• Mpower share scheme launched
• Post-Pangolin integration
• Mining right conversions and new applications
submitted
• Mafube ramp-up
• Inyanda commissioning
• GMEP phase 2 bankable feasibility study
• Acquire Namakwa Sands and Black Mountain
• Fairbreeze construction planned
National
elections
MILESTONES
• Mafube fully ramped up
• Inyanda above capacity at 1,8Mt
• Medupi agreement signed for 14,6Mtpa
• Namakwa Sands integrated
• Kwinana 40kt expansion
• Good mining rights progress
EXXARO
2009
LTIFR
0,33
REVENUE
R15,0bn
45,6Mt
FATALITIES
03
EMPLOYEES
11 180
EXXARO
2008
REVENUE
R13,8bn
45,0Mt
EMPLOYEES
10 458
Global
financial
crisis
LTIFR
0,39
FATALITIES
05
MILESTONES
• Siyaya project started
• Mafube JV 1 June
• First char produced
• GMEP construction delayed six months
• Siyaya R743m savings realised target R1 758m
• (In)Credible leadership launched
• Igoda Sasol partnership withdrawal
• Cease Fairbreeze mine development
• Reconfigure zinc business
• Mafutha prefeasibility study
• Moranbah South prefeasibility study
FATALITIES
03
MILESTONES
• Siyaya: implementation of new operating model
• Char 2 bankable feasibility study
• GMEP commissioning
• Clean energy – participate in independent power production
• Mayoko project consideration
• AlloyStreamTM demonstration campaign
• Territory offer made (iron ore)
• New Tronox listing
• Fairbreeze construction
• Rosh Pinah divestment
• Cessation of zinc production
• Tshikondeni closure plan implemented
• Glen Douglas sale
LTIFR
0,20
EMPLOYEES
10 513
EXXARO
2012
REVENUE
R16,1 bn
40,3Mt
MILESTONES
• Exit Makhado coal project
• First coal to Medupi
• Moranbah South prefeasibility study completion
• Thabametsi mining right applications and
phase 1 bankable feasibility study
• Char 2 phased development
• Belfast bankable feasibility study
• Market coke bankable feasibility study
• Mayoko execution on track
• Cennergi financial closure and bid for projects
• Tronox listing in June – 44,65% shareholding
• NCC cessation of production
• Tshikondeni on closure plan
• RBCT allocation more than doubled
Marikana: Mining industry will
never be the same again
EMPLOYEES
7 627
LTIFR
0,29
FATALITIES
02
Gautrain
construction
First economic recession in 17 years
Soccer world cup
LTIFR
0,19
FATALITIES
00
FATALITIES
01
EMPLOYEES
10 937
LTIFR
0,25
EMPLOYEES
7 920
Mr Nelson
Mandela
passes away
EFF
formed
MILESTONES
• Siyaya finalisation
• GMEP construction
• GMEP definitive agreement signed with Eskom
• Mafutha prefeasibility study continues
• Rosh Pinah sale to Glencore
• Fairbreeze bankable feasibility study board approval
• Kwinana pigment expansion commissioning
Three weeks
of industrial
action
EXXARO
2013
REVENUE
R13,5bn
40,2Mt
MILESTONES
• Thabametsi bankable feasibility study complete
• GMEP ramp-up
• GG backfill
• Belfast bankable feasibility study
• CSA with Marubeni on Thabametsi
• Cennergi: construction of wind projects
• Mayoko phased approach announced
• AlloyStream under review
• Tshikondeni nearing end of life
• NCC care and maintenance
EXXARO
2010
REVENUE
R17,0bn
45,7Mt
Global
RSA
Strategy
Growth/contract
Divestment/sale
Cease/delay
Commission/construction
Investment/acquisition
Review/study
EXXARO integrated report 2016
14
LEGEND
Quantitative
easing 3
EXXARO
2011
REVENUE
R21,0bn
42,0Mt
E-tolls
implemented
FATALITIES
03
MILESTONES
• Siyaya: implementation of new operating model
• Char 2 bankable feasibility study
• GMEP commissioning
• Clean energy – participate in independent power production
• Mayoko project consideration
• AlloyStreamTM demonstration campaign
• Territory offer made (iron ore)
• New Tronox listing
• Fairbreeze construction
• Rosh Pinah divestment
• Cessation of zinc production
• Tshikondeni closure plan implemented
• Glen Douglas sale
LTIFR
0,20
EMPLOYEES
10 513
EXXARO
2012
REVENUE
R16,1 bn
40,3Mt
MILESTONES
• Exit Makhado coal project
• First coal to Medupi
• Moranbah South prefeasibility study completion
• Thabametsi mining right applications and
phase 1 bankable feasibility study
• Char 2 phased development
• Belfast bankable feasibility study
• Market coke bankable feasibility study
• Mayoko execution on track
• Cennergi financial closure and bid for projects
• Tronox listing in June – 44,65% shareholding
• NCC cessation of production
• Tshikondeni on closure plan
• RBCT allocation more than doubled
Marikana: Mining industry will
never be the same again
EMPLOYEES
7 627
LTIFR
0,29
FATALITIES
02
Gautrain
construction
First economic recession in 17 years
Soccer world cup
FATALITIES
00
LTIFR
0,19
EMPLOYEES
7 920
Mr Nelson
Mandela
passes away
EFF
formed
MILESTONES
• Siyaya finalisation
• GMEP construction
• GMEP definitive agreement signed with Eskom
• Mafutha prefeasibility study continues
• Rosh Pinah sale to Glencore
• Fairbreeze bankable feasibility study board approval
• Kwinana pigment expansion commissioning
Three weeks
of industrial
action
EXXARO
2013
REVENUE
R13,5bn
40,2Mt
MILESTONES
• Thabametsi bankable feasibility study complete
• GMEP ramp-up
• GG backfill
• Belfast bankable feasibility study
• CSA with Marubeni on Thabametsi
• Cennergi: construction of wind projects
• Mayoko phased approach announced
• AlloyStream under review
• Tshikondeni nearing end of life
• NCC care and maintenance
FATALITIES
01
EMPLOYEES
10 937
LTIFR
0,25
EXXARO
2010
REVENUE
R17,0bn
45,7Mt
Global
RSA
Strategy
Growth/contract
Divestment/sale
Cease/delay
Commission/construction
Investment/acquisition
Review/study
15
EXXARO integrated report 2016
Service delivery
protests increase
Platinum
strike
National
elections
EXXARO
2014
REVENUE
R16,4bn
41,7Mt
LTIFR
0,19
MILESTONES
NCC sale in process
•
• TCSA acquisition in process
• GMEP ramp-up continues
• Tshikondeni closure
• Mayoko mining convention extension
• Mayoko project impairment
• FerroAlloys expansion
• Belfast implementation board approval R3,8bn
• Semi-coke bankable feasibility study
FATALITIES
01
EMPLOYEES
7 803
Low oil and
commodity
prices
Terrorist attacks
in Paris
MILESTONES
• Belfast construction
• Inyanda closure
• Thabametsi phase 2
• GG backfill phase 2
• TCSA conditions precedent fulfilled
• Semi coke - investment decision
• Tsitsikamma Wind Farm project complete
EXXARO
2015
REVENUE
R18,3bn
43,5Mt
LTIFR
0,17
FATALITIES
00
EMPLOYEES
7 794
2016 BEE Pangolin
transaction unwinds
Local
government
elections
MILESTONES
•
Amakhala and Tsitsikamma in commercial operation
• Thabametsi mine phase 1 construction
• Arnot closure
• Arbitration with Eskom
• New BEE deal announced in principle
• Disposed Mayoko iron ore
• Refinanced R8bn debt facilities
• GG rapid load out station construction
• Thabametsi IPP notice to proceed granted
• Sale of Inyanda mine
• Mafube Nooitgedacht expansion commenced
• Tronox shareholding decision
• Moranbah South decision
Mining charter
uncertainty
State capture
report
Attacks on
finance ministry
Political and
economic
uncertainty
EXXARO
2016
EMPLOYEES
6 648
FATALITIES
00
LTIFR
0,09
REVENUE
R20,9bn
42,8Mt
transaction unwinds
MILESTONES
•
GG backfill phase 2 commissioning
• Belfast commissioning
EXXARO
2017
LEGEND
Service delivery
protests increase
Platinum
strike
National
elections
MILESTONES
•
NCC sale in process
• TCSA acquisition in process
• GMEP ramp-up continues
• Tshikondeni closure
• Mayoko mining convention extension
• Mayoko project impairment
• FerroAlloys expansion
• Belfast implementation board approval R3,8bn
• Semi-coke bankable feasibility study
FATALITIES
01
EXXARO
2014
REVENUE
R16,4bn
41,7Mt
LTIFR
0,19
EMPLOYEES
7 803
Low oil and
commodity
prices
Terrorist attacks
in Paris
MILESTONES
• Belfast construction
• Inyanda closure
• Thabametsi phase 2
• GG backfill phase 2
• TCSA conditions precedent fulfilled
• Semi coke - investment decision
• Tsitsikamma Wind Farm project complete
EXXARO
2015
REVENUE
R18,3bn
43,5Mt
LTIFR
0,17
FATALITIES
00
EMPLOYEES
7 794
Exxaro 10-year timeline key indices
Unit of
measure 2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Coal price RBCT
(RB1)
Iron ore price CFR
China (62% Fe)
US$/t
51
63
121
64
92
116
93
80
72
57
64
US$/dmt
56
74
143
78
143
166
129
136
97
56
58
Pigment price (CIF) US$/t
1 847
1 883
2 265
2 123
2 284
3 222
3 429
2 812
2 689 2 205 2 092
Zircon price (bulk)
US$/t
744
789
885
864
930
1 900
2 340
1 200
1 080 1 035
897
Share price as at
31 December
ZAR
56
103
72
105
136
168
169
146
104
44
90
2016 BEE Pangolin
transaction unwinds
Local
government
elections
Mining charter
uncertainty
State capture
report
Attacks on
finance ministry
Political and
economic
uncertainty
MILESTONES
Amakhala and Tsitsikamma in commercial operation
•
• Thabametsi mine phase 1 construction
• Arnot closure
• Arbitration with Eskom
• New BEE deal announced in principle
• Disposed Mayoko iron ore
• Refinanced R8bn debt facilities
• GG rapid load out station construction
• Thabametsi IPP notice to proceed granted
• Sale of Inyanda mine
• Mafube Nooitgedacht expansion commenced
• Tronox shareholding decision
• Moranbah South decision
REVENUE
R20,9bn
42,8Mt
EXXARO
2016
EMPLOYEES
6 648
FATALITIES
00
LTIFR
0,09
transaction unwinds
MILESTONES
GG backfill phase 2 commissioning
•
• Belfast commissioning
EXXARO
2017
YEAR EVENTS AND AWARDS
2006
›› Lists on the JSE on 27 November 2006
2007
›› Sipho Nkosi takes helm as CEO and
named as President of the Chamber of
Mines
›› Deal of the Year Award
›› Best employers South Africa 2007
2008
›› Signatory to the UN Global Compact
›› Inclusion in the JSE SRI
2009
›› Evergreen Awards instituted in Exxaro
2010
›› Reduced HIV/Aids prevalence to 13%
2011
›› Progress with energy and carbon
management to measure across the
business
›› Top 10 of EY integrated reporting awards
2012
›› Zeeland Water treatment receives Blue
Drop certification
›› Top 10 in Financial Mail for financial
excellence
›› Carbon Disclosure Project Leadership
Index (CDLI) top score of 100 points – for
carbon and energy management
›› 7th best company worldwide for
delivering the highest returns to
shareholders over a 10-year period, at
39,2% (Value Creation in Mining 2012
report by the Boston Consulting Group)
›› Top 10 of EY integrated reporting awards
2013
›› Frost and Sullivan Africa Award for
Visionary Innovation
›› Deloitte Best Company To Work For
(BCTWF) – 2nd place for mining
›› Dow Jones Sustainability Index inclusion
›› CDLI score of 97 points
›› Best Risk Information System
implementation award by Institute of
Risk Management South Africa
›› Top 10 of EY integrated reporting awards
2014
›› Top employer in the mining industry in
South Africa (Top Employers Institute
2014)
›› Best Company to Work For (Top SA
Employer Certification 2014 in
Resources)
›› Top 10 of global leaders of CPLI
›› Overall winner in the Nkonki Integrated
reporting awards
›› Top 10 of EY integrated reporting awards
2015
›› Global Bronze medal in the RobecoSAM
2015 Sustainability Reference Guide (for
ESG performance)
›› Best corporate governance award for
the Africa region (Ethical Boardroom
magazine 2015)
›› Merit Award in the EY integrated
reporting awards (concise reporting on
complexity)
2016
›› Mxolisi Mgojo takes the helm as CEO
›› Merit Award in the EY integrated
reporting awards (innovative reporting)
›› Exxaro 10-year BEE ownership structure
unwinds
›› International Institute of Risk
Management Innovation Award
EXXARO integrated report 2016
16
Outcomes and impacts on sustainability capitals
Sustainability outcomes over life of mine
Resource acquisition
Cumulatively, we believe our mining activities have a net
positive impact: significantly greater for human, social and
intellectual capitals. To quantify this impact, in 2016 we have:
›› Spent an average 5% of total payroll costs on training and
development
›› Invested R49 million in our communities benefiting over
10 000 people directly
›› Invested R20,7 million in education alone, through which
1 237 learners participated in education improvement
programmes and 164 teachers were trained
›› Contributed to the body of knowledge in the global mining
industry through proprietary developments such as ultra-high
dense medium separation technology, and improved smelting
processes for the ferrosilicon industry.
Even where the net positive impact is smaller, we have made
a difference: relocating vulnerable species of flora and fauna,
protecting biodiversity, developing more efficient rehabilitation
methods to leave the land better than we found it and suitable
for economic use by the local communities.
In 2006, we made a promise to power possibility. We believe
we are living up to that promise.
Acquiring a resource generally means buying land that has
been proven mineral-rich through comprehensive prospecting.
Moderate positive impact on natural capital: economic value of
the mineral resource and its potential for development, slightly
offset by prospecting and drilling processes that disturb a
relatively pristine environment.
Moderate positive impact on human capital: skills of a number
of specialists deployed in prospecting, evaluation and
acquisition processes.
Positive impact on social capital via community development
and enhancing Exxaro’s reputation.
High positive impact of intellectual capital reflects innovation
via technical knowledge and executing corporate strategy.
Small positive gain for manufactured capital as
infrastructure is built.
Negative impact on financial capital: high exploration and
acquisition costs mitigated by adding an asset or secured
mining right to Exxaro’s balance sheet.
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EXXARO integrated report 2016
17
BUSINESS MODEL (CONTINUED)
Mining
Metallurgical and beneficiation
Establishing a mine has a large negative impact on natural
capital as resources are depleted and physical environment
is disturbed and degraded.
Negative impact on natural capital: water and energy use,
emissions and waste. Every effort made to minimise this
impact.
Positive impact on human capital: growing employment
opportunities slightly offset by safety, health and hygiene
issues.
Positive impact on human capital: wider set of skills required
for more specialised jobs. Safety, health and hygiene issues
mitigate positive impacts.
Social capital benefits, with communities receiving training
and skills development, equity and local procurement
opportunities.
Positive impact on social capital: ongoing operations benefit
corporate reputation, while procurement benefits local
communities.
Small but ongoing positive impact on intellectual capital:
technical, people, leadership, innovation and stakeholder
engagement skills in corporate and resource management
processes.
Increased infrastructure and run-of-mine operations have
a positive impact on manufactured capital, but negative for
financial capital, marginally offset by rising product value.
Moderate benefit on intellectual capital: using specialist skills
for normal operations.
Positive impact on manufactured capital: increased
infrastructure, multiple product development, sales and
associated benefits.
Financial capital: ongoing funding requirements and operating
costs, offset by product value increases.
18
EXXARO integrated report 2016
Market
Mine rehabilitation
The move from mining to transport and logistical activities has
a minimal negative impact on natural capital due to transport
emissions.
Smaller positive impact on human capital: fewer people
employed, and in specialised jobs.
Moderate positive impact on social capital: procurement,
transport and logistics contracts, using public and private
infrastructure, ongoing reputational benefits by meeting
market demand for product.
Moderate positive impact on intellectual capital: identifying
ways to improve logistical challenges and sales.
Elements of manufactured capital merely maintained at this
point, with a low but positive impact.
Very high positive impact on financial capital: revenues accrue,
offset by operational costs, royalties and taxes.
Moderate positive impact on natural capital: major
rehabilitation begins after closure, restoring the environment.
Neutral impact on human capital: number of jobs falls, risk of
unemployment can grow, although we do our best to minimise
this. Small teams wrap up closure and rehabilitation activities.
Major boost to social capital: sustainable initiatives over the
life of the mine for socio-economic development, including
enterprise and supplier development, benefit local
communities – creating infrastructure, building skills, and
reducing unemployment. In addition, rehabilitating the
environment improves both the natural surroundings and
quality of life. These activities generate reputational benefits
for Exxaro.
No impact on intellectual capital: applying best practice
closure and rehabilitation procedures.
Small negative impact on manufactured capital: ongoing
maintenance of community infrastructure, most mine
infrastructure removed.
Moderate negative impact on financial capital: costs of closure
as rehabilitation provisions are depleted.
EXXARO integrated report 2016
19
Group profileExecutive reviewOutlookBoard reviewMineral resources and reservesAnnexures
PERFORMANCE AGAINST STRATEGIC OBJECTIVES 2016
Our strategic objectives continued to guide our actions over this period despite a changing environment
that called for further tough decisions to weather the subdued outlook for our commodities. Our
performance is summarised on pages 3 and 57, and our strategy is outlined on page 28.
L
A
R
U
T
A
N
H
U
M
A
N
Achieve operational and
financial excellence
Improve
Exxaro’s
portfolio
POWERING POSSIBILITY
Demonstrate
responsibility
and
accountability
S
O
C
I
A
L
Develop Exxaro’s
leadership and people
A L
U
T
C
E
L
I N T E L
F
A
C
T
U
RED
L
A
I
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N
A
N
I
F
M
A
N
U
Strategic objective
Measures
Performance in 2016
Outlook or objective for 2017
Demonstrate
responsibility and
accountability to
protect our reputation
Protect and build Exxaro’s
reputation by being
responsible and
accountable to
stakeholders through
engagement, legislative
compliance, transparent
reporting, resource
management, and social
and environmental
stewardship
›› Stakeholder engagement
that results in constructive
relationships, and
resolving issues to mutual
benefit
›› Compliance risk
management plans in
place
›› We identified and engaged with
17 major stakeholders on key issues
during the year
›› Eskom: meetings, workshops as well
as legal recourse to resolve key mine
rehabilitation issues for the closed Arnot
mine
›› Continuously expanding our enterprise-
wide risk management system to more
functional areas
›› Most recently, we introduced risk
management for stakeholder
engagement
›› No reportable cases
›› Zero cases of reportable level 3
of environmental incidents
environmental incidents
›› Valid and enforceable
mining rights secured
›› Reputation
›› By our conservative estimates, 98%
of our mining rights are valid and
enforceable
›› Exxaro applies all aspects of the King III
code and complies with the JSE
Listings Requirements and Companies
Act
›› All key mutual issues to be
resolved via appropriate
engagements
›› Seeking mutually beneficial
outcomes for Exxaro and
each stakeholder
›› Continue improving our
ability to actively manage
all risk controls and better
plan for future treatments
›› Maintain a clean record on
reportable environmental
incidents
›› 100% record of validity
and enforceability
›› Plan for implementation to
apply King IV and maintain
compliance with the JSE
Listings Requirements
and Companies Act
20
EXXARO integrated report 2016
Strategic objective
Measures
Performance in 2016
Outlook or objective for 2017
Demonstrate
responsibility and
accountability to
protect our reputation
Protect and build Exxaro’s
reputation by being
responsible and
accountable to
stakeholders through
engagement, legislative
compliance, transparent
reporting, resource
management, and social
and environmental
stewardship (continued)
Optimise our
commodity portfolio
Top-quartile financial
returns
Diversified yet
complementary portfolio
of assets aligned with
commodity strategy
Develop our leaders
and people
Developing strong
leadership and
empowered employees
Ensuring a safe, healthy
and skilled workforce
›› Commitment to
›› Zero-harm approach in all domains
environmental stewardship
and community
development
of sustainability; rehabilitation
›› Over 95% of all required environmental
authorisations in place
›› Continuous compliance with regulatory
conditions
›› 10-year community investment
of R398 million
›› Brand perception as proxy
›› Not measured in 2016
for reputation
›› Stoppage directives
›› Five stoppage directives received – all
immediately resolved to the satisfaction
of the DMR
›› Fully complies with targets in
the current mining charter
›› Exxaro achieved a commendable
level 4 contribution status
Compliance to:
›› Mining charter and social
and labour plan, per site
and per element, but with
ownership for overall group
›› BBBEE level – group
performance against
targets in dti codes
›› Maintain excellent
performance in
environmental stewardship
›› To be measured and
tracked in 2017
›› Our aim is to operate in
a safe, compliant and
uninterrupted manner
›› Awaiting promulgation
of mining charter III
›› Focusing on black
ownership as well as
enterprise and supplier
development to improve
BBBEE level in 2017
›› Healthy financial metrics
›› Revenue and net profit after tax have
›› Further expand Exxaro’s
improved significantly
profitability
›› Diversified yet
complementary portfolio
of assets
›› Focused on coal as the cornerstone
of Exxaro’s revenue while exploring
business opportunities in non-mining
areas
›› Concentrate on business
opportunities identified
through our innovation
focus and our business-of-
tomorrow activities
Safety
›› Fatalities
›› LTIFR
Health
›› Accepted occupational
disease rate
›› People tested positive
and enrolled in HIV
management programme
Capability development
›› Talent pool
›› Skills provision
›› Skills retention
›› The best safety performance since
inception
›› 30 consecutive months fatality-free
›› Record low LTIFR of 0,09
›› Occupational health incident frequency
rate similar to target for 2016
›› Lifestyle and non-communicable
diseases identified as a greater risk
than occupational diseases
›› Due to cost constraints, and lower risk,
HIV/Aids awareness campaigns and
programmes were scaled back from 2014
›› In 2016 Exxaro’s improvement
programme changed the normal course
of talent management
›› Exxaro supplied some 65% of all
required skills internally during the
restructuring
›› Voluntary personnel turnover remained
lower than targeted
›› Voluntary severance packages were
accepted by 28 employees
›› Core operating margin above target
at 24%
›› Net debt:equity ratio and net
debt:EBITDA exceeded target
›› Return on equity based on headline
earnings of 15% was at a best realistic
level
›› 23% ROCE exceeded target
›› Target: zero fatalities
›› LTIFR target stretched to
0,11 (from 0,15) to drive
sustainable safety
performance
›› Revised strategy to
address the overall
wellness of our people,
specifically lifestyle
diseases
›› Improve talent
management
›› Ongoing skills
development
›› Improve leadership
pipeline
Improved performance in
coal operations expected
based on:
›› Stable trading conditions
in domestic markets
›› Higher international coal
prices than 2016
›› Our operational excellence
process delivering further
results
›› Technology and innovation
improvements
EXXARO integrated report 2016
21
Achieve operational
and financial
excellence
Low-cost and high-quality
product from efficient
operations
›› Operating margin
›› Solvency and liquidity
metrics
›› Return on equity
›› Return on capital
employed
Group profileExecutive reviewOutlookBoard reviewMineral resources and reservesAnnexures STAKEHOLDER ENGAGEMENT
Our approach to stakeholder engagement is detailed in our supplementary report. In this report, we
summarise key issues raised in 2016, and how these tie into our material issues.
Material
issue
Key
customer
dependency
Stakeholder
Issue
Response
Next milestone
Eskom
Arnot mine:
termination of
coal-supply
agreement (CSA)
Exxaro and Eskom negotiating
mine-closure provisions
(rehabilitation trust, mine
closure and post-closure costs)
›› Estimating full cost of closure and post
closure
›› Eskom’s acceptance of these costs
›› Awaiting Eskom’s statement of defence
Matla mine: Eskom
delay in providing
capital for
development of
mine 1 (and other
capex requirements)
Medupi CSA: Eskom
stockpile space
expected to be full
in Q1 2017,
meaning it may not
meet offtake levels in
CSA addendum 9
Financial viability of
AMSA and potential
impact on coal sales
volumes
Belfast water licence
(IWUL) appeal
Rezoning appeal:
Highlands
approached High
Court contesting
township board
authority to hear
appeal
Coal baseload
independent power
producer (IPP)
procurement
programme
(CBIPPPP) designed
to procure new
coal-fired power
stations operated by
IPPs
Parties in arbitration (mine-
closure provisions are Eskom’s
responsibility under coal-supply
agreement or CSA)
Exxaro's decision to invoke
mediation clause in CSA
created sense of urgency.
Capital for mine 1 approved by
Eskom board, submission
made to Department of Public
Enterprises (DPE) and National
Treasury. Site visit by DPE
Eskom creating additional
stockpile space. Grootegeluk
finalising contingency planning
Monitoring progress of AMSA
business restructuring and
engaging management to
anticipate potential severe
impacts
IWUL appeal: Minister of
Department of Water and
Sanitation uplifted suspension
of IWUL, and licence is now
active
›› Receive investment decision from DPE
›› Detailed offtake plan discussion with
Eskom. We expect Eskom to have
additional capacity in 2H 2017
›› Ongoing monitoring. We have
observed how AMSA has engaged
with its key stakeholders to address
this concern, eg 10% import tariff
protection. We have also observed the
global turnaround in steel prices
›› Exxaro is free to implement IWUL as
per project plan
High Court ruled in March 2017
that Nkangala municipality has
jurisdiction to hear appeal
›› Nkangala municipality to decide on
appeal against rezoning our Belfast
project
Exxaro’s Thabametsi’s mine
development* aligned to meet
CBIPPPP process
›› Power station obtained preferred
bidder status in October 2016
›› IPP developer working towards
achieving financial close
›› High Court judgment issued in March
2017 in favour of Earth Life Africa’s
appeal** against the Thabametsi IPP
power station environmental
authorisation (EA). Minister
Environmental Affairs to now consider
EA taking cognisance of climate impact
assessment (CIA) report
Licence to
operate
ArcelorMittal
South Africa
(AMSA)
Federation
for a
Sustainable
Environment
(FSE)
Highlands
Organic
(Pty) Ltd
Capital
projects
Department
of Energy
Notes:
* The notice to proceed is a contractual obligation and doesn’t determine when mining activities must commence. Mining activities commence once
the mine works programme is approved, and the mining right is awarded and executed, and the mining right has been registered.
** The High Court judgment in favour of Earth Life Africa’s appeal against the Thabametsi IPP environmental authorisation (EA). Minister of
Environmental Affairs to reconsider including the climate impact assessment (CIA).
22
EXXARO integrated report 2016
Stakeholder
Issue
Response
Next milestone
Material
issue
Business
resilience
Transnet
Freight Rail
(TFR)
Department
of Mineral
Resources
(DMR)
Increase rail capacity
to handle potential
increase in volumes
from Waterberg
Optimising our coal
portfolio may mean
disposing of some
commercial and tied
operations
Shareholders
Our people
Employees
Unions
Communities
Regulatory
compliance (mining
charter)
Shareholder dilution
Protect share price
Replacement BEE
transaction
Exxaro improvement
project (section 189
consultation process
on retrenchments
and staffing new
structure):
›› Implementation
and
communication
of our strategy
›› Governance
model
›› Operating model
(including role
clarification)
Transitioning
employees into the
new way of working
(leadership, team
and culture
interventions)
Ensuring positive
relationships
Integrate our efforts
between employees
and their families,
and communities
Enhanced enterprise
development
through operating
and capex budget
Ongoing engagement with TFR
on rail development progress,
and negotiating a Waterberg
rail agreement to secure future
capacity
Our strategy is to maintain
large-scale, long-life coal
assets. We believe non-core
assets will be better managed
in a different structure and
contribute to industry
transformation
Comprehensive presentations
to minority shareholders to
present options and develop
optimal solution
Implementation completed as
per project plan: 94 forced
retrenchments at end-
November (40 transitional
roles). Three retrenched
employees filed disputes
with the CCMA, which are
unresolved after conciliation
›› Approval of Waterberg rail agreement
to secure capacity
›› Packages for disposal to be structured
and considered by Exco and board
›› Obtain DMR support for section 11
approvals (transfer of mining right, and
considering impact of draft mining
charter)
›› Eskom approval for disposal of tied
operations
›› Continued engagement to ensure
support for a sustainable structure
›› General meeting to approve structure
›› Employees with unresolved disputes
need to apply to the labour court for
further legal remedy. Exxaro awaits
court referral documentation on all
three matters. We believe our approach
to the improvement project in terms of
consultation and implementation will
assist in managing these disputes
›› Implementing and embedding the new
operating model
›› Culture initiatives focusing on leaders,
workforce of the future and employee
engagement
›› Continued positive interaction and
issue resolution through formal
engagement structures
›› Conduct socio-economic development
assessment to identify and evaluate
potential risks and opportunities, which
should be adapted and integrated into
company policies and standards, and
managed against Exxaro’s governance
standards
Ongoing employer/union
forums, engaging with union
leadership
Ensure risk management
strategies/policies are
understood throughout Exxaro
and by our communities.
Allocate capital more efficiently
by strategically focusing on
projects that can close the gap,
eg Exxaro people development
initiative, focused on education
and skills development
Collaboratively achieve cost
savings through better
management of community
resources
EXXARO integrated report 2016
23
Group profileExecutive reviewOutlookBoard reviewMineral resources and reservesAnnexures RISK MANAGEMENT
Risk and compliance management to ensure Exxaro’s
sustainability
Exxaro’s philosophy on risk management has always been not to
entrench a compliance-driven approach but rather to view risk
management as a strategic enabler to ensure we think and act
proactively at every layer (strategic, tactical and operational) in
pursuing our objectives.
The group has made great strides in the past five years in
managing risks, within its risk tolerance (risk-appetite thresholds),
consistently, comprehensively and economically through effective
enterprise risk management. Risks and risk thresholds, which
indicate the appropriate level of risk for Exxaro to achieve its
strategic objectives, as approved by the board, are monitored
quarterly. Our risk management governance, philosophy and
process is set out in the Exxaro enterprise risk management
(ERM) framework, which was approved by the board in 2011. This
framework was reviewed in 2014 and significant changes made to
the impact scale to ensure that consequence levels are aligned to
our risk tolerance levels. The process of reporting risk at various
levels is set out below:
Risk reporting process
STRATEGIC
Exco1 and board risk
assessment, annually
TACTICAL
› Commodity risk
assessment, periodically
› Project risk assessment, monthly
OPERATIONAL AT BUSINESS UNITS
› Baseline risk assessment, monthly
› Continuous risk assessment
› Mini hazard identification and risk assessment (HIRA)
› Exco notes operational and tactical risk registers
and compiles strategic risk profile
› Board approves strategic risk register based on
recommendations from SRC2 committee
› Risk profile reported to stakeholders
› Reported monthly to project steering committee/
region/commodity to action
› Reported quarterly to Exco
› Reported monthly to business unit management
to action
› Reported quarterly to coal Exco for noting
1 Executive committee.
2 Sustainability, risk and compliance committee.
Risk process
Enterprise risk management is a systematic application of
management policies and procedures to the activities of
communicating, consulting, establishing context, and identifying,
analysing, evaluating, treating, monitoring and reviewing risk. At
Exxaro we understand that effective risk management can only
occur when a proactive risk culture has been created, where
everybody understands they have a role in managing risks in their
environment.
The ERM methodology is therefore followed across all functional
areas and considers all hazards/root causes as well as all potential
impacts (financial, operational, stakeholder, legal/compliance,
safety, health and environment) that the risk event may trigger.
Exxaro does not have a separate risk methodology for every type
of impact or functional area, as this would undermine true
integration and building a risk culture.
Risk owners are established across all layers for every risk and
are accountable for ensuring the appropriate risk strategy is
implemented. Control owners are appointed for every control
and report to risk owners on the maintenance of controls and
implementation of action plans.
Exxaro has reviewed its strategic risks and changes made to risk
rankings reflect changes in the internal and external environment.
24
EXXARO integrated report 2016
The integrated Exxaro risk process is illustrated below:
Integrated process
ENVIRONMENT
– internal and external
MONITOR AND REVIEW
REPORTING RISKS
Set Exxaro
strategy and
objectives on
the back of
robust
scenario
planning
SET
OPERATIONAL
OBJECTIVES
– linked to
Exxaro strategy
ESTABLISH
CONTEXT
– understand
event, hazard
and environment
RISK
IDENTIFICATION
– risk name
and description
RISK
EVALUATION
– inherent risk
before treatments,
residual risk
after treatments
RISK
TREATMENT
COMMUNICATE AND
CONSULT
RISK ASSESSMENT
Top 15 heat map
Using Exxaro’s heat map, management constantly monitors risks (red or orange) that would have an extreme impact on the group. Controls
for these risks are considered critical and need to be monitored and reviewed constantly in line with the combined assurance approach.
The heat map illustrates Exxaro’s top 15 strategic risks inherently (before any controls) as well as residually (after controls), identified
through our enterprise risk management (ERM) process and approved by the board. The figures represent the number (not ranking)
of risks in each block. A list of the top 15 risks can be found on page 26.
Inherent risks – number per rating
Reducing risks through controls – number per
rating
Inherent risk rating
Residual risk rating
T
S
O
M
L
A
I
N
A
T
R
E
C
Y
L
E
K
L
I
I
E
L
B
S
S
O
P
d
o
o
h
i
l
e
k
i
L
%
0
0
1
–
%
1
8
%
0
8
–
%
1
6
%
0
6
–
%
6
3
Y
L
E
K
L
N
U
I
%
5
3
–
%
1
1
E
R
A
R
%
0
1
–
%
1
1
1
1
7
5
T
S
O
M
L
A
I
N
A
T
R
E
C
Y
L
E
K
L
I
I
E
L
B
S
S
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d
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h
i
l
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k
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L
%
0
0
1
–
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1
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%
0
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1
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%
0
6
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%
6
3
Y
L
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K
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%
5
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–
%
1
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R
A
R
%
0
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%
1
1
1
1
2
7
3
INSIGNIFICANT
1 – 10
MINOR
11 – 35
MODERATE
36 – 60
Impact
MAJOR
61 – 80
CATASTROPHIC
81 – 100
INSIGNIFICANT
1 – 10
MINOR
11 – 35
MODERATE
36 – 60
Impact
MAJOR
61 – 80
CATASTROPHIC
81 – 100
EXXARO integrated report 2016
25
Group profileExecutive reviewOutlookBoard reviewMineral resources and reservesAnnexures
RISK MANAGEMENT (CONTINUED)
Residual risk trends over the last three years
Risks identified
2014
2015
2016
Key dependency on Eskom
Dependency on Eskom as a key customer
Key dependency on customers
Unable to meet production demands
Unavailability of electricity
Safety concerns
Safety concerns
Safety concerns
Commodity price volatility
Government bureaucracy
Commodity price volatility
Inability to be innovative
Commodity price volatility
Inability to meet production demands
Uncompetitive products (cost/
tonne)
Unavailability of water
Unavailability of water
Health concerns
Infrastructure capacity, access,
development and funding
Infrastructure capacity, access,
development and funding
Ineffective capital project
execution
Competitiveness of assets (cost/tonne)
Competitiveness of assets (cost/tonne)
Maintain a social licence to operate
State intervention in the mining sector
State intervention in the mining sector
Legal and regulatory non-
compliance
1
2
3
4
5
6
7
8
9
10 Capital project execution
Capital project execution
Labour unrest
11 Compliance to environmental legislation
Mine rehabilitation
Product substitution
12 Maintain a social licence to operate
Government bureaucracy
Unable to meet production
demands
13 Mine rehabilitation
Compliance to environmental legislation
Stranded assets
14 Inability to adequately calculate financial
provision for environmental closure
15 Labour unrest
Maintain a social licence to operate
Fraud and corruption
Inability to accurately calculate financial
provision for environmental closure
Compliance to environmental
legislation
Examining top risks over the past three years, not only for
Exxaro but also those facing the mining sector as a whole, there
have been no major changes to the top 15 risks. Priorities or
rankings may have changed due to certain external and internal
changes that trigger these unwanted events.
Controlling the risks
On the following pages, we illustrate how we are controlling our
key risks. In each chart, the first bar indicates the severity and
likelihood of occurrence of the risk, the second how we are
mitigating the impact and the third the acceptable level of risk in
future. Our top 10 risks do not completely dovetail with our
material issues, given the interrelated nature and overlap of risks.
Collectively, however, they illustrate key controls in place to
address our material issues.
Dependency on Eskom and AMSA as key customers
89
77
68
■ Inherent risk score
■ Residual risk score
■ Desired risk score
▲››Current controls
(selective)
Established a rehabilitation trust fund
Engagement with Eskom and AMSA
Broadening local and international
customer base
• Future treatment
plans (selective)
Engagement with Eskom
and AMSA
26
EXXARO integrated report 2016
Cost competitiveness of products
Maintain a social licence to operate
81
86
51
42
46
37
■ Inherent risk score
■ Residual risk score
■ Desired risk score
■ Inherent risk score
■ Residual risk score
■ Desired risk score
• Future treatment
plans (selective)
Optimise operating
model and avoid
duplicated activities
Improve effectiveness
of some or all controls
▲››Current controls
(selective)
Focus on sustainable cost-reduction
programmes/business improvement
initiatives and awareness
Create strategic joint-ventures to
optimise economies of scale
Focus on business-unit controllable
efficiencies
Investigate and divest non-core
assets
Continuously optimise capital in
projects
Capital project execution
▲››Current controls
(selective)
Proactive involvement in sustainable
socio-economic development
initiatives
Compliance to requirements
of mining charter
Pursue identified initiatives to
progressively improve Exxaro’s
BEE rating
Regular engagement with
government
Legal and regulatory compliance
• Future treatment
plans (selective)
Improve effectiveness
of some or all controls
72
64
49
42
46
35
■ Inherent risk score
■ Residual risk score
■ Desired risk score
■ Inherent risk score
■ Residual risk score
■ Desired risk score
• Future treatment
plans (selective)
Improve effectiveness
of some or all controls
Implement lessons learnt
from previous project
failures and successes
▲››Current controls
(selective)
Disciplined execution of value
engineering study review
Establish robust governance
structure, including role and
responsibility clarification
Implement an effective risk
management and assurance
process
Monitor and track the progress
of capital projects
▲››Current controls
(selective)
Compliance and awareness training
with weekly inspections through VFL
(Visible Felt Leadership)
Conduct internal inspections and
external audits by authorities
Implement a Combined Assurance
Model and conduct risk-based audits
Training on policies and procedures
for all employees/visitors and
contractors
Implement a compliance programme
(compliance and risk function with
plans and audits)
• Future treatment
plans (selective)
Improve effectiveness
of some or all controls
EXXARO integrated report 2016
27
Group profileExecutive reviewOutlookBoard reviewMineral resources and reservesAnnexures
EXXARO STRATEGY
Throughout 2016, our aim was to provide sustainable returns
to shareholders and the countries in which we operate by
managing a world-class portfolio of assets, primarily in Africa,
that are underpinned by growing global infrastructure and
energy demand. This aspiration was guided by our strategic
objectives detailed on page 20.
Our operational excellence process has been embedded as part
of our coal execution DNA, leading to a steady decrease in the
cash unit cost across the coal business since its inception in
2014. Our drive for innovation and digitalisation is key to our
strategic execution and will further fuel the efficacy of the
operational excellence process.
Exxaro acknowledges the six-capitals model (natural, human,
social, manufactured, intellectual and financial capital) as a
balanced approach to increase our potential to invest and
develop for sustainable growth.
We add value to the capitals during the lifetime of every mining
operation – with the aim of leaving each area richer after mine
closure. At each stage of the mining value chain, which we refer
to as the resource-to-market business model, the cumulative net
effect is to leave a positive impact. Each sustainability capital
that we affect will be responsibly managed to maximise the
benefit to all stakeholders, internally and externally. This is
detailed in the business model.
Our coal portfolio is the current core of our business. The coal
strategy that was developed in 2016 has been executed effectively,
supporting solid results for the review period. The strategy is
driving our coal business to becoming a modernised, South
Africa-based coal producer, providing the free cash flow that will
fuel the business of tomorrow. The coal strategy is aligned to
Exxaro’s values and built on people and sustainability excellence.
Our drive towards innovation and a digital future lies at the core
of this strategy, and assists as an enabler in executing our
portfolio, marketing and operational excellence initiatives.
Our strategic focus areas for 2016
Throughout 2016, our strategic objectives continued to guide
our actions. An ongoing constrained environment called for
further tough decisions and a firm commitment to continue
our focus on business resilience: our ability to withstand the
economic and commodity market downturn.
Our 2016 focus areas are the culmination of distilling multiple
issues in our operating context with important implications for
our business model to guide our strategic responses.
Focus areas for 2016
›› Structure for resilience
›› Portfolio improvement
›› Capital allocation.
At the beginning of 2016, the materiality of some issues increased
in response to the worsening operating environment. While the
executive review details our performance on material issues in
2016, in this section we discuss these and the strategy process from
the perspective of board governance.
The figure summarises our strategic priorities and responses to
ensure that we have a resilient business in which the costs are
minimised, the operational output is maximised, and the
portfolio is optimised.
STRUCTURE FOR
RESILIENCE
+
PORTFOLIO
OPTIMISATION
+
CAPITAL
ALLOCATION
=
Maximised operational output
Optimised portfolio
Minimised costs
Exxaro 2026 group strategy: powering better lives in
Africa and beyond
Over the past year, we have been fundamentally reshaping our
strategy to address the changing world in which we operate.
While coal remains at the core of Exxaro for the immediate
future, we are considering investment opportunities that will
ensure Exxaro remains relevant in future.
Our executive committee went through a detailed process to
identify the direction we want to grow into beyond coal. In 2017,
we will continue to define and finalise this direction.
The 2026 Exxaro group strategy has analysed long-term global
needs and drawn into the traditional mining strategy the nexus
of energy, water and food. The rationale behind our thinking
included a range of global forecasts that demand in these areas
would grow to outstrip supply.
Thus, in response to opportunities presented by the energy-
water-food nexus, the 2026 strategy comprises two key business
focus areas:
›› The traditional core competency of mining
›› A deepening role in new business opportunities in energy,
water and the agricultural sector.
In 2017 we will develop the detail elements of our strategy
and translate these into action items as part of our strategic
dashboard going forward.
28
EXXARO integrated report 2016
BOARD REVIEW
BOARD REVIEW
As the board, we are ultimately accountable for Exxaro’s strategy. Based on our oversight of the
business, we collectively report to our stakeholders. In this review, we discuss the material issues we
dealt with in 2016 at board level, and how we are addressing these to reduce the risk to the business.
The executive review deals more with performance over the period.
Dr D Konar
Independent non-
executive chairman
S Dakile-Hlongwane
Independent non-
executive
Dr CJ Fauconnier
Independent non-
executive
MW Hlahla
Non-executive
S Mayet
Independent non-
executive
VZ Mntambo
Non-executive
EJ Myburgh
Independent
non-executive
V Nkonyeni
Independent
non-executive
30
EXXARO Integrated Report 2016
Meetings attended
9/10
8/10
10/10
9/10
8/10
8/10
10/10
6/10
8/10
10/10
5/5
4/4
6/6
8/8
D Konar
S Dakile-
Hlongwane
CJ
Fauconnier
MF
Randera
J van
Rooyen
VZ
Mntambo
D
Zihlangu
V
Nkonyeni
EJ
Myburgh
PCCH
Snyders
S
Mayet
MW Hlahla
PA
Koppeschaar
MDM Mgojo
■ Present ■ Absent
Attendance is based on quarterly meetings, two governance sessions, two strategy days and two special board meetings and calculated against the
number of meetings the individual was required to attend. The attendance of Messrs WA de Klerk, RP Mohring and SA Nkosi is not shown.
Dr MF Randera
Non-executive
Executive
PCCH Snyders
Independent non-
executive
J van Rooyen
Independent non-
executive
D Zihlangu
Non-executive
MDM Mgojo
Chief executive officer
PA Koppeschaar
Finance director
EXXARO Integrated Report 2016
31
Group profileExecutive reviewOutlookBoard reviewMineral resources and reservesAnnexures BOARD REVIEW (CONTINUED)
Non-executive
D Konar (63)
Independent non-executive chairman
S Dakile-Hlongwane (66)
Independent non-executive
Tenure: November 2006
BCom, CA(SA), MAS, DCom, CRMA
Expertise: After completing his articles at Ernst & Young,
Len began a 15-year career as an academic at the University
of Durban-Westville. He then spent six years with the
Independent Development Trust as head of investments
and internal audit, prior to becoming a professional director
of companies and consultant. He chairs Exxaro, Steinhoff
International, Guardrisk Insurance, Old Mutual Investment
Group, Outsourced Risk and Compliance and Barringtons
Corporate Advisors. He is a director of Lonmin plc, Sappi,
Credit Suisse Securities and Alexander Forbes. He is a past
member of the ad hoc ethics panel of the United Nations,
safeguards panel of the International Monetary Fund (IMF)
in Washington, co-chairman of the risk implementation
oversight panel of the World Bank, and past chairman and
member of the external audit committee of the IMF.
Remuneration and nomination (chairs nomination
matters)
Tenure: February 2012
BA (economics and statistics), MA (development
economics)
Expertise: Salukazi is chairman of Nozala Investments,
which she co-founded in 1996. Her career experience
includes: five years as senior investment officer, Lesotho
National Development Corporation; 12 years with African
Development Bank (Abidjan/Côte d’Ivoire) as country
programme officer and later principal corporation officer;
senior manager, structured finance division of FirstCorp
Merchant Bank and assistant general manager, BOE
Specialised Finance. She is a non-executive director of
Nozala’s investee companies including Basadi Ba Kopane,
Woodlands Dairy, Tsebo Holdings Group, PPC, Lanseria
International Airport and Constantia Afripack. She is also a
non-executive director of MultiChoice South Africa Holdings,
and a trustee of Nozala Trust, Chancellor House Trust and
the National Movement of Rural Women.
Social and ethics; sustainability, risk and compliance
CJ Fauconnier (69)
Independent non-executive
Tenure: November 2013
BSc (eng) (mining), BSc (hons) (eng), MSc (eng), DEng
(Pretoria), MBA (Oregon), DSc (honoris causa) (Free State),
strategic leadership programme (Oxford), senior executive
finance programme (Oxford), registered international
professional engineer
Expertise: Between 1969 and 1974, Con worked for mining
companies in the Anglo American group. For the next
two years, he was a student and research assistant at the
College of Business Administration, University of Oregon.
From 1976 to 1995 he held senior positions in Gencor and
JCI. In 1995, he joined Iscor and later became managing
director of Iscor Mining. In 2001, he was appointed CEO of
Kumba Resources and, in 2006, CEO of Exxaro Resources.
He was an executive council member of the Chamber of
Mines of South Africa and president from 2003 to 2005.
He is a fellow of the South African Institute of Mining &
Metallurgy, Institute of Directors of Southern Africa and
South African Academy of Engineering. He has been an
honorary professor in the department of mining engineering
at the University of Pretoria and a fellow at the Gordon
Institute of Business Science (GIBS) since 2007. He was an
independent mining industry and management consultant
from 2007 to 2010, and an independent non-executive
director at Xstrata plc from 2010 until 2013.
Remuneration and nomination (chair); social and ethics;
sustainability, risk and compliance (chair); audit
MW Hlahla (53)
Non-executive
Tenure: June 2015
MA (urban planning) (UCLA School of Architecture and
Planning), advanced management programme (Insead),
certificate in accounting and finance (Wits Business
School)
Expertise: Monhla spent the larger part of her career in the
infrastructure sector, starting in 1994 at the Development
Bank of Southern Africa, which later seconded her to the
municipal infrastructure investment unit. She was then
appointed as non-executive chair of Johannesburg Water
utility and later as managing director of Airports Company
South Africa. In 2012, Monhla was appointed chair of the
Industrial Development Corporation and, later that year, as
chair of Royal Bafokeng Holdings and non-executive director
of Liberty Holdings. She founded RutaThari Group, which
invests in smart and innovative skills development and
training solutions across Africa.
Audit committee
Remuneration and nomination committee
Social and ethics committee
Sustainability, risk and compliance committee
32
EXXARO Integrated Report 2016
S Mayet (60)
Independent non-executive
VZ Mntambo (59)
Non-executive
Tenure: August 2015
BCom, BCompt (hons), CA(SA), advanced management
programme (GIBS)
Expertise: Saleh is a financial professional with over
30 years’ experience. After completing his articles in 1982,
he joined the finance division of Anglo American South
Africa (AASA), gaining experience in all aspects of financial
reporting with ultimate responsibility for a number of
listed and unlisted subsidiaries in that group. In 1993, he
transferred to the international planning department which
managed AASA’s offshore structures. After Anglo American
plc’s London listing in 1999, he fulfilled various finance roles
in Johannesburg and London and, in 2008, was promoted
to his current position as head of finance for AASA. He has
extensive experience on a wide range of corporate activities
and currently serves on the boards of AASA and its strategic
subsidiaries and trusts. He is also a member of senior
management committees tasked with strategy, driving value
initiatives and engaging with key stakeholders.
V Nkonyeni (47)
Independent non-executive
Tenure: June 2014
BSc (inf proc), BSc (hons), postgraduate diploma in
accounting, CA(SA)
Expertise: Vuyisa has over 20 years’ experience
in investment banking and private equity. He
completed his training as a chartered accountant with
PricewaterhouseCoopers and then joined Deutsche Bank in
1997, where he gained experience in corporate and project
finance advisory work over four years. He serves on the
boards of Emira Property Fund and MMI Holdings Limited.
He has served as financial director of Worldwide African
Investment Holdings and director at Actis llp in its black
economic empowerment funding unit. He was appointed
CEO of Kagiso Tiso Holdings in 2012.
Audit
Tenure: November 2006
BJuris, LLB (North West), LLM (Yale)
Expertise: Zwelibanzi is executive chairman of Xalam
Performance. He was formerly a senior lecturer at
the University of Natal; executive director of IMSSA;
director-general of Gauteng Province and chairman of the
Commission for Conciliation, Mediation and Arbitration.
He is a director of SA Tourism, and trustee of the Paleo-
Anthropological Scientific Trust.
Remuneration and nomination
EJ Myburgh (58)
Independent non-executive
Tenure: September 2016
Election in 2017
BSc (elec) (Pretoria), BSc (hons) (energy studies)
(Johannesburg), MBL (Stellenbosch), executive
programme (Virginia)
Expertise: Between 1982 and 1996, Ras held operational and
executive positions in operating, maintenance, engineering
and power-station management at Eskom. In 1997, he
joined Iscor Mining to lead its cost-improvement, business
re-engineering, and transformation and empowerment
projects. He was appointed managing director of Kumba
Resources’ coal business in 2000 and, from 2003,
headed the unit managing Kumba’s empowerment and
mineral rights conversion, as well as project managing its
empowerment transaction and unbundling into Exxaro and
Kumba Iron Ore. He became the first CEO of Kumba Iron Ore
in 2006. After the 2008 electricity crisis, he was seconded
to Eskom to develop and implement a long-term coal supply
strategy. In 2011, he co-founded Hindsight Financial and
Commercial Solutions, a boutique corporate professional
advisory firm providing investment banking, business
development, specialist commercial solutions, and strategy
and business improvement services to the resources, energy
and industrial sectors. He is a member of the Institute of
Directors of Southern Africa, an independent non-executive
director of The Heartlines Centre NPC and serves on the
international advisory board of Unashamedly Ethical NPO.
Remuneration and nomination; social and ethics
EXXARO Integrated Report 2016
33
Group profileExecutive reviewOutlookBoard reviewMineral resources and reservesAnnexures BOARD REVIEW (CONTINUED)
BOARD REVIEW (CONTINUED)
Non-executive
MF Randera (68)
Non-executive
Tenure: June 2013
MRCS, LRCP, DRCOG
Expertise: Globally, Fazel has served as board and council
member of the World Medical Association (1997 to 2000),
and chaired the global initiative on HIV/Aids reporting
(2004). In South Africa, he sat on the Truth and
Reconciliation Commission (1995 to 1998), founded the
Ethics Institute and served as chairman (1997 to 2000), and
served on the Human Rights Commission (1997 to 1999).
Working in hospitals and facilities in the UK and South Africa,
he specialised in a range of medical disciplines, including
occupational health and HIV/Aids. He chaired the Private
Healthcare Forum (2004 to 2007) and was health adviser
at the Chamber of Mines.
External directorships include chairman of Nehawu
Investment Holdings and MediTech South Africa.
Social and ethics (chair)
J van Rooyen (67)
Independent non-executive
Tenure: August 2008
BCom, BCompt (hons), CA(SA)
Expertise: Jeff is a director of companies in the Uranus
Group, non-executive director of MTN Group and Pick
n Pay Stores. He is a former chairman of the Financial
Reporting Standards Council (FRSC), trustee of the
International Accounting Standards Foundation and
member of the University of Pretoria’s faculty of economic
and management sciences’ oversight board. He was a
partner at Deloitte, chairman of the Public Accountants and
Auditors Board, CEO of the Financial Services Board and
adviser to the Minister of Public Enterprises in the Mandela
administration. Jeff is a founder member and former
president of the Association for the Advancement of Black
Accountants of South Africa.
Audit (chair); remuneration and nomination
In line with our standard practice, the chairpersons of the board and
committees were re-elected in 2017 based on an assessment of their
performance and continued suitability.
34
EXXARO Integrated Report 2016
PCCH Snyders (56)
Independent non-executive
Tenure: July 2016
BEng (mining), dip marketing management, MCom (bus
management), mine manager’s certificate of competence,
registered with ECSA
Expertise: Peet has over 35 years’ experience in the mining
industry, including Sasol Coal, Amcoal, Iscor Mining, Kumba
Coal, Anglo Platinum, Riversdale Holdings, Continental
Coal, Keaton Energy, Sable Mining Africa, Mmakau Mining
and, most recently, Submex Investment. He also has over
10 years’ board experience in the industry.
Sustainability, risk and compliance
D Zihlangu (50)
Non-executive
Tenure: November 2006
BSc (eng)(mining) (Wits), MDP (SBL, Unisa), MBA (WBS,
Wits)
Expertise: Rain is CEO of Eyabantu Capital Consortium.
Between 1989 and 1994, he was a stoper/developer and shift
boss at Vaal Reefs Gold Mining Company. From 1995 to 2002
he was a shift boss, mine overseer, operations manager and
mine manager at Impala Platinum, and CEO of Alexkor from
2002 until 2005. From 2006 to 2012, he was an independent
non-executive director of the South African National Oil
and Gas Company (PetroSA) and served on its business
performance monitoring committee. He also serves on the
board of Sentula Mining.
Sustainability, risk and compliance
Audit committee
Remuneration and nomination committee
Social and ethics committee
Sustainability, risk and compliance committee
Executive directors
MDM Mgojo (56)
Chief executive officer
Tenure: April 2016
BSc (hons) (energy studies), MBA, advanced management
programme (Wharton)
Expertise: Previously at Eyesizwe Coal, Mxolisi was
responsible for marketing and logistics. After Exxaro’s
formation, he managed the base metals and industrial
minerals commodity business before being appointed to
head our coal operations from 2008. He was appointed
CEO from 1 April 2016.
Mxolisi is a director of a number of Exxaro subsidiaries,
Tronox Limited, Main Street 333, Talent 10 Holdings and
Dynamo Investment Holdings.
PA Koppeschaar (46)
Finance director
Tenure: July 2016
CA(SA), advanced and associate programmes in treasury
management, advanced diploma in taxation, advanced
management programme (Insead), certificate in theory
of accounting. Member of the Association of Corporate
Treasurers
Expertise: Riaan started his career in 1993 at Coopers
& Lybrand. After completing his articles, he branched
into the fields of treasury, investment management and
corporate finance. He has held senior managerial positions
at Iscor, Kumba Resources and Exxaro Resources until his
appointment as finance director of Exxaro Resources on
1 July 2016. He is a director of several Exxaro subsidiary
companies, joint ventures and a trustee and investment
committee member of the Exxaro Pension and Provident
Funds.
As reported last year, Mr Sipho Nkosi (director since November 2006)
retired as chief executive officer and a director of the company on
31 March 2016 and Mr Wim de Klerk (director since 1 March 2009)
resigned as finance director with effect from 30 June 2016
Director classification is in line with a review conducted annually
(against King III) initially through questionnaires completed by
each individual, as well as independent factual confirmation and,
lastly, discussion of results and confirmation of classification by
Remco. Year-on-year changes confirm that this is not an
automatic process, but a rigorous one that ensures accurate
classification. As in 2016, a detailed review confirmed the
continued independence of the chairman, who has served for
over nine years. The other two directors with over nine years’
tenure are not classified as independent.
Director classification
2
4
8
■ Independent non-executive directors ■ Non-executive directors
■ Executive directors
Directors’ equity and gender status
4
2
10
12
■ HDSA
■ Non-HDSA
■ Female
■ Male
As reported in 2016, the Board Charter and Remco terms of
reference include the policy on gender diversity for nomination
purposes: the company has not set specific targets. Improved
gender diversity will receive focus when the board composition
undergoes material changes in 2017.
Director tenure
6
3
1
4
■ <3 ■ >3 <6 ■ >6 <9 ■ <9
As per standard process, directors appointed during the year
completed a detailed induction process that included:
›› Overview of duties, role, governance, key policies,
memorandum of incorporation (MoI), board operation,
strategy and material issues by the group company secretary
›› Meeting with the chairman, key executives and visits to
business units.
EXXARO Integrated Report 2016
35
Group profileExecutive reviewOutlookBoard reviewMineral resources and reservesAnnexures
BOARD REVIEW (CONTINUED)
Macro-economic overview
Macro conditions again had an impact on corporate
performance across the board. Subdued real global economic
growth of 2,5% was recorded in 2016. New economic and
political shocks, such as Brexit (or more formally the outcome
of the UK’s referendum on leaving the European Union),
rebalancing China’s slowing economy, commodity exporters
adjusting to a protracted decline in trade, evolution of
demographics and productivity growth as well as geopolitical
and political uncertainty limited higher economic activity for
the past year. Despite the levels of political and economic
uncertainty, economic fundamentals point to a modest
acceleration in world economic growth in 2017.
South Africa’s economic growth outlook for 2017 remains
subject to a number of headwinds – including the impact of
dry weather conditions, policy uncertainty, the low-growth
trajectory and falling business confidence levels. Key risks for
2017 remain the projected slow economic growth of around
1%, albeit edging up from 0,4% in 2016, weakening government
finances and deteriorating domestic politics and policies
perceived to harm confidence. The rand exchange rate remained
volatile against major currencies throughout 2016, with 2017
expected to be no different.
Commodity review
The review period was characterised by the significant impact
of SA government policy, or lack of clear policies, together with
producer discipline, on commodity markets. Chinese
government stimulus and strict implementation of supply
reforms contributed to a more positive view from the dismal
outlook for commodities prevailing in late 2015 and early 2016,
especially coal.
Commodity prices – relief since 1 January 2016 (% increase)
81,0
69,8
60,2
Iron ore (US$/t)
Coal (API4)
Zinc (US$/t)
Copper (US$/t)
17,0
Gold (US$/oz)
8,1
Platinum (US$/oz)
3,5
A summary of key economic, commodity price and JSE index
changes since 1 January 2016 includes:
›› 11% appreciation in the ZAR per US$ exchange rate
›› 0,3% real GDP growth rate in South Africa
›› 69,8% increase in coal API4 price, averaging US$64/t,
compared to US$57/t in 2015
›› 81% increase in iron ore price, averaging US$58/dmt,
compared to US$56/dmt in 2015
›› 60,2% increase in zinc price, averaging US$2 108/t, compared
to US$1 932/t in 2015
›› Index percentage points performance since 1 January 2016
– JSE all share: –1%; JSE mining: 54% and JSE coal mining:
103%.
36
EXXARO Integrated Report 2016
Key board issues in 2016
In addition to developing Exxaro’s new strategy, the most material issues at board level in the review period were key customer
dependency, our new black economic empowerment shareholding structure, ensuring sustainable returns to shareholders, portfolio
optimisation and the safety of our employees.
Key customer
dependency
Licence to
operate
Capital allocation
and execution
Business
resilience
Our people
Eskom
AMSA
Community
investment
Return to
shareholders
Improvement
project
Employees
Compliance
› Operations
› Projects
Project 2016
BEE
Sustaining
capital
Expansion
capital
Communities
Operational
efficiencies
Portfolio
optimisation
Innovation
2016 material issues
Exxaro’s material issues are summarised above, with those most
pertinent at board level highlighted in green and discussed
here, while the others are discussed in the executive review.
A disciplined risk management process identifies associated
risks within each material issue, cascading these up into a
comprehensive view (Exxaro’s strategic performance
dashboard) that enables the board to assess the threat to the
group, the required controls and actions to mitigate the risk,
and the desired outcome.
Material issue: Key customer dependency
Key customer
dependency
Eskom
AMSA
Exxaro relies on Eskom and AMSA for 56% and 6% of its
revenue respectively (2015: 64% and 7%). In 2016, sales
volumes to Eskom were 68% of the total, down from 77%
in 2015.
2016 revenue (%)
28
6
8
2
56
■ AMSA
■ Reductants + metals (other)
■ Domestic steam
■ Eskom
■ Exports
The impact of our dependency on Eskom remained a key
focus area in 2016. On the positive side, our coal business is
considered defensive, given long-term offtake agreements with
Eskom for over 68% of coal produced to literally power South
Africa. On the negative side, Eskom is also our single largest
customer, making this relationship vital to our long-term growth.
In 2015, we took a strategic decision on this dependency,
balancing the desire to continue working with the utility to
ensure electricity supply to the country while maximising export
revenue to mitigate risk. Acquiring the extra export entitlement
through ECC enabled us to access more offshore customers,
supporting our risk-mitigation strategy. As a result, exports
grew from 6,2Mt in 2015 to 7,9Mt in 2016 and we continue to
focus on market and product diversification to actively reduce
our dependency on Eskom and ensure the viability of our
growth projects.
EXXARO Integrated Report 2016
37
Group profileExecutive reviewOutlookBoard reviewMineral resources and reservesAnnexures
BOARD REVIEW (CONTINUED)
In the past two years, the relationship between Eskom and
Exxaro has been tested, particularly in the tied segment (Matla
and Arnot mines) and, unfortunately, arbitration is under way to
resolve some issues. Key developments are summarised below:
›› In early 2016, we had to begin closure proceedings at Arnot
after its coal-supply agreement with Eskom was terminated.
Exxaro remains committed to any solution that will enable
Arnot’s sustainable continuation
›› Matla requires capital from Eskom for its capital projects.
The mine continues to operate well under the circumstances
and is engaging with Eskom at various levels to obtain the
necessary capital to reduce operational and safety risks
›› At Grootegeluk, intense liaison is under way to manage the
relationship during the Medupi ramp-up period and to act
in good faith towards Eskom at all times.
An additional risk to the stability of this relationship is Exxaro’s
shareholding structure. The reduction in our BEE ownership
from 50,19% to a proposed 30% has been negatively received
by Eskom in terms of its procurement policy and targets,
although our current contracts with the utility will not be
affected by our decision to preserve and enhance black net
asset value. As reinforced in numerous meetings with Eskom
representatives, Exxaro is a South African company and we
remain committed to meaningful transformation as opposed
to meeting superficial equity targets.
Material issue: Licence to operate
Licence to
operate
Community
investment
Compliance
› Operations
› Projects
Project 2016
BEE
When Exxaro was formed in November 2006, our empowerment
shareholders were restricted from selling their shares to
non-HDSAs for 10 years, commonly referred to as a lock-in
period. This period expired in November 2016. As a strategic
imperative and to ensure Exxaro’s continued compliance with
legislation and codes, we are implementing a replacement BEE
shareholding structure. Given the number of board members
with vested interests as shareholders, as communicated
previously, finalising a replacement structure is being carefully
managed through an independent board subcommittee.
Exxaro supports transformation through economic
empowerment ownership, among others, and strongly believes
the proposed replacement BEE transaction (as announced on
the Stock Exchange News Service, 22 November 2016) has a
greater ability to create wealth through its reduced risk profile,
which contributes to sustainable empowerment. The new
proposed structure is less risky and more flexible – important
in a cyclical industry. Exxaro learned valuable lessons from
our previous empowerment transaction and aims to create
sustainable value for our BEE shareholders. A sustainable
ownership structure is in the best interest of BEE shareholders,
minority shareholders, the company, employees and our
communities.
After thorough analysis, we believe a transaction at the listed
level is appropriate to ensure flexibility, and a well-capitalised
funding package for the new empowerment vehicle, while
allowing our strategic BEE shareholders to meaningfully
participate in Exxaro’s value-creation strategies. Our
benchmarking indicated the proposed cost of the replacement
transaction is below market norms. We expect to seek
shareholder approval in the second quarter of 2017 for the
replacement BEE transaction.
Importantly, as noted, Exxaro’s current contracts with Eskom
are not affected by the decision to reduce our BEE shareholding.
One of the key considerations in opting for a 30% BEE
replacement transaction rather than 50% is that a new BEE
consortium would have had to raise R16,7 billion to fund a new
50% shareholding transaction. This is not possible in the
current environment. On the regulatory side, there has also
been no clarity on the ‘once empowered, always empowered’
principle. The industry awaits a High Court ruling on whether
the ownership element of the mining charter should be a
continuous compliance requirement for the duration of the
mining right (as argued by the DMR), or a once-off requirement
(as argued by the Chamber of Mines representing mining
companies).
We believe these challenges highlight that it is time for
government to adopt a different approach to BEE – one with
a more flexible measure of assessing the value of transactions.
Equally, we believe national policy must be enabling, rather than
prescriptive, by acknowledging milestone achievements in
transforming our economy and addressing remaining obstacles
to further progress. The lessons of the past have shown that
while we must remain ambitious in these transformation efforts,
we must also be pragmatic and focus on achievable solutions.
38
EXXARO Integrated Report 2016
Understanding that continued empowerment is critical in preserving and creating shareholder value, we have structured our
replacement BEE ownership at 30%. Our rationale is summarised graphically below.
RATIONALE FOR PROPOSED REPLACEMENT STRUCTURE
Compliant with mining
regulations in respect
of BBBEE
Structure is compliant
with current proposed
amendments to BEE
equity requirements
in mining sector
Fully compliant with
contractual obligations
to Eskom in respect
of its BBBEE
Essential that Exxaro
maintains value of
investments:
– SIOC
– SA Tronox Mineral Sands
– Cennergi
COMPLIANCE
IN A
REGULATED
SECTOR
MAINTAINING
COMMERCIAL
SUSTAINABILITY
OF THE
BUSINESS
POWERING POSSIBILITY
PROTECTING
AND DELIVERING
VALUE ON
INVESTMENTS
EQUIPPING
EXXARO FOR
GROWTH
Being black-controlled is a
competitive advantage
and strategic lever
in South Africa
Clear, neat and non-
burdensome black
equity control
creates strategic
options beyond
metals and mining
Utilise strategic
partnership with BEE
investors to drive
growth in:
– Coal opportunities
– Cennergi
– Other energy opportunities
ONGOING EMPOWERMENT CRITICAL TO PRESERVING AND CREATING SHAREHOLDER VALUE
We believe the replacement BEE transaction presents a more
attractive and affordable investment opportunity for potential
shareholders although, as noted under the previous material
issue, Eskom is not supportive of this reduction. We remind
shareholders that while the finer details are being negotiated,
Exxaro is trading under a cautionary. We hope to finalise and
communicate full details soon.
Material issue: Capital allocation
Capital allocation
and execution
Return to
shareholders
Sustaining
capital
Expansion
capital
In 2016, we focused on critically reviewing the overall capital
profile and the need to postpone and reduce capital expenditure
in response to market conditions. Our revised capital allocation
profile reflects our short to medium-term strategic focus on coal
as we consider options to diversify our mining operations as part
of our business-of-tomorrow strategy. The executive review
provides more operational detail on current and planned projects.
EXXARO Integrated Report 2016
39
Group profileExecutive reviewOutlookBoard reviewMineral resources and reservesAnnexures
BOARD REVIEW (CONTINUED)
Material issue: Business resilience
Equally, we believe the timing could be opportune to begin
disposing of our stakes in Black Mountain and Moranbah South.
Business
resilience
Improvement
project
Operational
efficiencies
Portfolio
optimisation
Innovation
Due to the cyclical nature of commodities, management
continuously evaluates the portfolio of projects and capital
allocation, ensuring a robust portfolio that can withstand
changes in the global economy.
In evaluating our projects, we consider macro-economic
fundamentals, long-term commodity outlooks, remaining life
of each asset and the ability of each asset to deliver healthy
returns under these changing conditions.
In 2016, we focused on further strengthening the coal portfolio
by divesting from assets close to their end of life, such as
Inyanda, while allowing for greenfield growth via Belfast and
organic growth at long-term strategic assets. Optimising assets
to be retained in our portfolio remains a primary focus and
aimed at improving their cost-curve position.
Aligned with our longer-term strategy, we continually evaluate
the role in our portfolio of reductants, iron ore (SIOC), zinc
(Black Mountain and Chifeng), heavy minerals (Tronox) and
energy (Cennergi).
Based on a careful strategic review, Exxaro has decided to
begin monetising its Tronox shares (44% stake valued at
US$911 million on 7 March 2017). This will probably not happen
until later in the year, with proceeds chiefly applied to fund
capital commitments. We believe this is in the best interests of
our shareholders and in line with our long-term strategic focus
of creating value in our core operations.
40
EXXARO Integrated Report 2016
Management will continue optimising the asset portfolio
through a robust process, ensuring sustainability, growth
and shareholder return.
Specific projects are detailed in the executive review on
page 68.
Material issue: Our people
Our people
Employees
Communities
The board is delighted to note the significant improvement in
Exxaro’s safety performance, both in 2016 and across its first
decade. Zero fatalities for a second year and a record low
lost-time injury frequency rate reflect the unwavering focus
and commitment of all our people.
There was also no labour unrest in the reporting period, with
continued positive relations with organised labour.
Strategic performance dashboard
Over the past five years, we have refined the process of
measuring our strategic progress in an integrated way by:
›› Implementing a combined risk management framework, that
ensures everyone understands what is material to Exxaro and
why
›› Establishing a sustainability framework
›› Identifying key performance indicators or KPIs aligned with
material issues, risks and our sustainability framework, with
the board setting a tolerance level or appetite for each metric
›› Linking the combined assurance plan with risks, material
issues and KPIs.
The result is a strategic performance dashboard (explained on
page 2) that gives the board and executive the most critical
information required to measure and manage Exxaro’s
strategy and performance. It also provides a transparent and
consolidated view to stakeholders on our drivers of value
and sustainability.
We believe this dashboard is one of the best industry examples
of true integration between strategy, material issues, the
six-capitals framework, risk and risk appetite, assurance and
measurable performance metrics. Each board committee
reviews those sections of the dashboard within its scope.
Performance on dashboard metrics is extensively discussed in
the executive review and supplementary report, but we include
a summary below.
Exxaro measured 70 KPIs in 2016, and 19% exceeded our risk
threshold, requiring immediate action or improved controls
(out of appetite):
›› Financial capital: The number of KPIs exceeding threshold
increased, as we continued to weather the commodity down
cycle
›› Manufactured capital: These KPIs performed well with
22% (2/11) classified as out of appetite. Exxaro’s people
productivity needs to improve, but the project execution
KPIs reveal that Exxaro has a world-class project lifecycle
planning process
›› Natural capital: 33% of the KPIs were out of appetite, mainly
due to the higher number of stoppage directives received and
the lower contribution to rehabilitation funds of Exxaro’s
Eskom mines
›› Social capital: We continued to perform very well against
mining charter targets and several elements of the BEE
codes, resulting in only 14% of KPIs being out of appetite
›› Human capital: Mixed performance – our safety record was
exceptional, but internal talent management and skills
retention metrics placed 23% of the KPIs in the out of
appetite band. The talent and skills retention challenges will
be addressed as the new governance and operating model is
embedded. The focus will be on ensuring our talent risks and
mitigating strategies are well monitored
›› Intellectual capital will be monitored from January 2017.
Consolidated strategic performance dashboard
KPIs out of appetite and possible waste/opportunity
Total KPIs per capital
21
17
22/70
Opportunity
9
11
12
13/70
Out of appetite
EXXARO Integrated Report 2016
41
Group profileExecutive reviewOutlookBoard reviewMineral resources and reservesAnnexures BOARD REVIEW (CONTINUED)
Governance
As a board, governance permeates all we do and underpins our
decision-making process and oversight role. It is not an event,
an initiative or policy, it is a culture that drives us as an ethical,
values-based and proudly South African resources company.
We are driven by the firm belief that our licence to operate and
sustainability depend on Exxaro being a responsible and
accountable corporate citizen.
Over recent years, we have explained our governance processes
to stakeholders in detail. This information remains available
in our supplementary report (refer application of King III on
page 9).
We execute our oversight role through quarterly board and
committee meetings, which are managed against detailed terms
of reference and annual plans. In addition, we have two full-day
governance sessions, and a detailed two-day strategic review
each year.
As special projects or strategic issues require, additional
meetings are held. Some require attendance by the entire board
while, for others, special committees are constituted. As
communicated previously, an independent board subcommittee
was established to deal with the BEE unwind and replacement
transaction; this committee held numerous meetings during the
year to give sufficient attention to this critical strategic issue.
In our prior report, we noted that we would continue with
economic, social and governance (ESG) roadshows. Given the
need for a number of special engagements with shareholders
on our proposed new BEE structure, we postponed ESG-specific
roadshows to later in 2017 or early 2018. As detailed in the
remuneration report, however, we have increased our focus
on the importance of ESG measures by incorporating these into
the vesting conditions of our long-term incentive plan.
42
EXXARO Integrated Report 2016
King III and IV
We maintained our application of King III (see supplementary
report on page 9). Considering the impact King IV will have on
processes and policies, the board decided not to complete the
standard annual review of its charter, committee terms of
reference, annual plans and related policies (it merely confirmed
the continued applicability of key policies, such as the division
of responsibilities between the chairman and CEO).
In line with our integrated view of King IV, our plans for 2017
include:
›› A detailed gap analysis
›› Training for the board, executive management and key staff
›› Detailed planning to address identified gaps, which will
include amending all board and relevant company
documentation
Group company secretary
The board is guided and supported by Mrs Carina Wessels, group
company secretary and legal, and recognises her pivotal role in
entrenching good corporate governance. All directors have
access to her advice and services, as well as to independent
professional advice at the group’s cost through her office.
In line with the board’s established annual evaluation to
consider and satisfy itself of Carina’s competence, qualifications
and experience, we again completed a detailed and formal
process that:
›› Evaluated her competence: score of 4,5 out of 5
›› Confirmed the suitability of her qualifications (page 56),
supplemented in 2016 with an LLM in extractive industry law
in Africa (cum laude). She again exceeded her continued
professional development requirements
›› Given the timelines of the activities above, determining
›› Confirmed her experience: over 15 years in the mining
when reporting against King IV will begin.
industry and 12 specifically in corporate secretariat positions.
Key performance indicators
As explained in our prior report, the board and committees
set annual key performance indicators (KPIs) to ensure that, in
addition to general requirements placed on these bodies, their
attention is directed to key activities that support and enable
management in achieving the group strategy. We recognise that
these KPIs are still more quantitative in nature, but we aim to
mature them into more meaningful qualitative measures to give
stakeholders an in-depth understanding of the performance of
the board and its committees.
The board and committee evaluation for 2016 therefore only
focused on whether these KPIs had been achieved.
Carina provides daily industry updates for directors as well as
quarterly detailed governance and legislative updates. She also
organised the two standard full-day governance sessions that
form part of continued professional development for directors.
In 2016, these dealt with:
›› Cyber security risks and global trends
›› Legal developments in environmental regulations for mining
›› Innovation in the mining industry
›› Risk management: appetite and tolerance levels, impact
on strategic performance dashboard
›› Global mining industry research, trends and risks
›› Disruption and the general impact on business
›› Shareholder engagement: research, best practices and
next steps
Evaluation
score*
›› Global business risk reviews
›› Overview of key JSE Listings Requirements for new directors.
2016 KPI
Improved use of the strategic dashboard to
manage and monitor the strategy
Stakeholder engagement: bespoke session
Attendance of governance and strategic
sessions: 100% attendance and active
participation
Sharing best practice: individual directors
actively sharing appropriate and applicable
best practice from other committees with the
committee/company
3,7
3,5
3,8
3,6
* Scored out of 5. Scores above 3,5 rated as green, 3 to 3,5 as amber
and below 3 as red.
Committee KPIs are discussed in each committee report.
The board set the following KPIs for 2017:
›› Shareholder approval for a sustainable and acceptable new
BBBEE structure, implemented in 2017: independent board
committee guidance and shareholder engagement
›› Active support of the company’s innovation imperative and
excellence-in-action process: attending and participating in
bespoke sessions as required, strategic guidance and support
›› Sharing best practice: individual directors actively sharing
appropriate and applicable best practice from other boards
with the board/company.
Board committees
There were no changes to the number of committees or their
responsibilities during the year: all committees comprised a
majority of independent non-executive directors.
Committees maintained their group focus, and no subsidiaries
have their own board committees.
Committee reports follow, with the remuneration committee’s
report summarised here and detailed in our supplementary
report on page 21. These reports include information to give
stakeholders a better understanding of how committees have
assisted the board in executing (without abdicating) its duties,
powers and authorities.
EXXARO Integrated Report 2016
43
Group profileExecutive reviewOutlookBoard reviewMineral resources and reservesAnnexures AUDIT COMMITTEE REPORT
The audit committee is pleased to present its report
for the financial year ended 31 December 2016
Purpose
Apart from the statutory duties of an audit committee as set out
in the Companies Act, JSE Listings Requirements and King III,
the ambit of this committee has been expanded to include
financial risk management, financial compliance, combined
assurance and aspects of integrated reporting. In terms of this
mandate, its key objectives are to:
›› Examine and review the group and company annual financial
statements, reports and results
›› Oversee the internal and external audit functions and their
cooperation, and serve as a link between the board and these
functions
›› Evaluate the qualification, appropriateness, eligibility and
independence of the external auditor
›› Ensure effective internal financial controls are in place
›› Review the integrity of financial risk control systems and
policies
›› Evaluate the competency of the finance director and finance
function
›› Oversee the effectiveness of the combined assurance plan
and outcome.
Effectiveness against 2016 KPIs and committee evaluation
2016 KPI
Greater oversight over IT governance and
its maturity:
›› Higher level of understanding of the
framework and debate/discussion of
key issues
›› Increased time allocation to IT governance
until an acceptable level of assurance is
achieved
Greater oversight over implementation of
combined assurance model: one committee
member attending combined assurance forum
as observer on a rotational basis to further
enhance understanding and enable better
oversight
Improved use of strategic dashboard to
manage and monitor strategy: debate/
questions asked and remedial actions
requested to address below-appetite
performance on KPIs
Sharing best practice: individual directors
actively sharing appropriate and applicable
best practice from other committees with the
committee/company
Evaluation
score*
3,7
3,6
4,1
3,6
* Scored out of 5. Scores above 3,5 rated as green, 3 to 3,5 as amber
and below 3 as red.
In addition to these specific KPIs, the committee carried out the
duties and responsibilities stipulated in its terms of reference
and detailed annual plan.
44
EXXARO Integrated Report 2016
The committee set the following KPIs for 2017:
›› Support to new finance director: active support and guidance
to ensure optimal functioning. Ensuring sustained depth and
capacity in finance function post-Exxaro improvement project
›› Greater oversight on implementing combined assurance
model: one committee member attending combined
assurance forum as observer rotationally to further enhance
understanding and enable better oversight
›› Sharing best practice: individual directors actively sharing
appropriate and applicable best practice from other
committees with the committee/company.
Composition
The committee consisted of three independent non-executive
directors for the review period:
4/4
4/4
3/4
J van Rooyen
Dr CJ Fauconnier
V Nkonyeni
■ Present
■ Absent
The chairman of the board is not a member of the audit
committee, although he attends all meetings as a permanent
invitee. The chief executive officer, finance director, chief audit
executive, as well as the internal and external auditors are also
permanent invitees to meetings. The committee, however,
debates matters without permanent invitees present, as
required.
Two sessions (aligned with approval of the interim and annual
financial results) are held with both the independent external
auditors and internal auditors, respectively, where management
is not present.
External auditors
The group’s independent external auditors are PwC. Fees paid
to the auditors are disclosed in note 7.1.3 and 7.1.4 to the annual
financial statements for the year ended 31 December 2016.
Exxaro has an approved policy to regulate the use of non-audit
services by the independent external auditors. This
differentiates between permitted and prohibited non-audit
services and specifies a monetary threshold against which
approvals are considered. In the review period, PwC was paid
R33 million (2015: R32 million), which included R25 million
(2015: R23 million) for statutory audit and related activities
as well as R8 million (2015: R9 million) for non-audit services,
mainly for additional tax advisory and compliance services. The
committee is satisfied with the level and extent of non-audit
services rendered during the year by PwC and that these did
not affect its independence.
The audit committee annually assesses the independence
of PwC and again completed this assessment at its meeting
on 6 March 2017. PwC was required to confirm that:
›› It is not precluded from reappointment due to any
impediment in section 90(b) of the Companies Act
›› In compliance with section 91(5) of the Companies Act,
compared to membership of the firm on reappointment in
2016, more than one half of the members remain in 2017
›› It remains independent, as required by section 94(7)(a) of
the Companies Act and JSE Listings Requirements.
Based on this assessment, the committee again nominated
PwC as independent external auditors for 2017. Shareholders
will therefore be requested to re-elect PwC in this capacity for
the 2017 financial year at the AGM on 25 May 2017.
Internal auditors
The internal audit function is outsourced to EY and its
responsibilities are detailed in a charter approved by the audit
committee and reviewed annually. Its main function remains to
express an opinion on the effectiveness of risk management and
the internal control environment.
Annual financial statements
The committee reviewed the company and group annual
financial statements and accounting practices in detail and is
satisfied that the information contained in these statements as
well as the application of accounting policies and practices are
reasonable.
Statement on effectiveness of internal financial controls
The audit committee, with input and reports from the
independent internal and external auditors, reviewed the
company’s system of internal financial controls, as underpinned
by the risk management philosophy, during the year. Informed
by these reviews, the committee confirmed that there were
no material areas of concern that would render the internal
financial controls ineffective.
Key issues that received attention in 2016
›› The committee was naturally closely involved in selecting the
new finance director, given the importance of ensuring the
chosen incumbent was able to generally support the chief
executive officer and deliver on key strategic projects. As part
of this process and in terms of the JSE Listings Requirements
3.84(h), the committee satisfied itself of the finance
function’s resources, experience and expertise as well as
the appropriateness of the expertise and experience of the
finance director
›› The committee dealt with a number of tax-related matters
during the year and, as in 2015, impairment testing was
critical while economic conditions initially remained
depressed
›› The committee noted the discourse on mandatory audit firm
rotation and will continue to monitor developments to align
with any new requirements.
EXXARO Integrated Report 2016
45
Group profileExecutive reviewOutlookBoard reviewMineral resources and reservesAnnexures REMUNERATION AND NOMINATION COMMITTEE REPORT
The supplementary information contains our detailed remuneration policy and implementation thereof during the period,
whilst the detailed directors and prescribed officers remuneration tables are contained in the audited group and company
annual financial statements 2016.
Purpose
The committee is a combined committee overseeing
remuneration matters for all controlled subsidiaries and
nomination matters for Exxaro Resources Limited only. Its key
objectives are to:
›› Make recommendations on remuneration policies and
practices, including Exxaro’s employee share schemes, for
all controlled companies
›› Ensure effective executive and board succession planning
›› Review medical aid and retirement fund contributions and
performance
›› Review compliance with all statutory and best practice
requirements on labour and industrial relations management
in collaboration with the SRC committee.
Composition
The committee consisted of four independent non-executive
directors for the review period:
4/4
1/4
4/4
1/2
1/1
Dr CJ Fauconnier
VZ Mntambo
D Konar
EJ Myburgh
J van Rooyen
Effectiveness against 2016 KPIs and committee evaluation
■ Present
■ Absent
Evaluation
score*
Attendees include the CEO, FD, executive head: HR and other
individuals with specific skills and expertise to assist members
in their deliberations.
Key issues that received attention in 2016
›› As communicated in the prior report, board succession
required material focus in 2016. We made progress,
appointing Messrs Snyders and Myburgh to specifically
address identified deficiencies (detailed in our prior report)
in technical skills and experience in mining engineering.
However, as reflected in the KPI scoring, the committee
has not yet achieved the desired state for board succession
planning. We are, however, confident that we have
effectively addressed immediate needs. The changes in our
BEE structure will also affect the board composition in 2017.
Considering these changes, coupled with the different skill
sets we might need to meet our new strategic aspirations,
will necessitate significant focus on board succession in 2017
›› The committee continued to support the new chief executive
officer and assisted the audit committee in the process of
replacing the finance director
›› The committee gave attention to concepts such as:
›• Wage gap trends in both the local and global context,
and will continue to monitor this over the next few years
›• Minimum wage – impact on the business
›• Impact of labour legislation (labour-broker employees/
fixed-term employees) on the business
›› Considered the impact of the Exxaro improvement project
and associated voluntary severance packages and
retrenchments (discussed in detail elsewhere).
Dr CJ Fauconnier
Chairman of the remuneration and nomination committee
Pretoria
12 April 2017
2016 KPI
Enhanced board succession planning: detailed
board succession plan for next four years
Support to new executive head of human
resources: active support and guidance to
ensure optimal functioning
Improved use of strategic performance
dashboard to manage and monitor strategy
execution
Sharing best practice: individual directors
actively sharing deemed appropriate and
applicable best practice from other committees
with the committee/company
3,00
3,38
3,88
3,25
* Scored out of five. Scores above 3,5 rated as green, 3 to 3,5 as amber
and below 3 as red.
In addition to the specific KPIs, the committee carried out
its duties and responsibilities as stipulated in the terms of
reference and detailed annual plan.
The committee set the following KPIs for 2017
›› Enhanced board succession planning: detailed plan for next
four years, especially to ensure new skills and experience
required to achieve a revised Exxaro strategy are
incorporated
›› Support to new executive head of HR: active support and
guidance to ensure optimal functioning
›› Oversight of strategic resourcing: commission a detailed
skills audit of areas impacted by the Exxaro improvement
project and consider the need to address and rectify any
potential identified areas of concern
›› Compliance oversight: detailed consideration of the adequacy
of plans to address deficiencies in compliance with the
requirements of employing people with disabilities in
accordance with the new mining charter
›› Sharing best practice: individual directors actively sharing
appropriate and applicable best practice from other
committees with the committee/company.
46
EXXARO Integrated Report 2016
As per our prior report, detailed disclosure of the CEO and FD performance scorecards follow.
Chief executive officer (CEO): performance scorecard guaranteed pay
(MDM Mgojo) 1 April to 31 December 2016
Key performance
areas
Weight
Target
Performance
Actual
Performance rating
Operational
excellence
Target setting
R/tonne
Cash flow
Sustainability
Safety
Socially Responsible
Investment index and
risk management
Portfolio
improvement
HEPS improvement
against peers
Alignment with strategy
Corporate
governance
Exxaro brand and
reputation
Strategy development
and implementation
Group services add
value
Leadership and
people
Employment equity and
procurement
25
5
15
5
10
5
5
10
6
4
10
5
15
5
20
5
Annual top-down and bottom-up
target-setting process
Demonstrated stretching on
controllable business drivers
Above full performance
Rand per tonne budgeted
6% improvement
Full performance
Budgeted cash flow
Major improvement against budget
Above full performance
LTIFR 0,15
Exxaro between median and upper
quartile (70%) of mining sector of global
standard environmental, safety and
governance rating
0,09
71%
Above full performance
Above full performance
Over 3 years 2014 – 2016
Delta HEPS 4% better than peers
for comparative period
Full performance
Manage portfolio in line with strategy
Aligned
Above full performance
Comply with all regulations, King III, JSE
and Companies Act, etc
Complied as per strategic
dashboard
Full performance
3 performance
(Exxaro brand remains well regarded
among various stakeholders)
Strategy development, execution,
alignment as approved by board
4 performance
(Interaction with stakeholders in this
period was factual, on time and
addressed their concerns)
Complied as well as developed and
introduced future-world themes
and perspective
Above full performance
Above full performance
Solution enablement for staffing, facilities,
enabling technology, change management
All functional services achieved >3
ratings on service delivery targets
Full performance
Comply with all targets in mining charter
and employment equity plans
Improvement on all targets,
except disability
Full performance
Culture and leadership
15
People strategy developed and targets set
for implementation
Strategy signed off for
implementation 1 January 2017
Full performance
Overall performance
100
Full performance
EXXARO Integrated Report 2016
47
Group profileExecutive reviewOutlookBoard reviewMineral resources and reservesAnnexures REMUNERATION AND NOMINATION COMMITTEE REPORT (CONTINUED)
Financial director (FD): performance scorecard guaranteed pay
(PA Koppeschaar) 1 July to 31 December 2016
Performance
Key performance areas
Weight
Target
Actual
Performance rating
Vision and strategy
Develop, communicate and
execute a compelling Exxaro
vision and long-term strategy
Ensure a funding strategy is
implemented that is in line with
Exxaro strategy, while always
ensuring robust balance sheet
structure
Capital process
management
Capital process roll out in
Exxaro
Sustainability
Adequate risk management
controls and procedures
35
20
15
15
10
Actively lead and outperform peers
(mining industry) on the formulation,
implementation and execution of strategy
Vision and strategy
formulated and
communicated
Full performer
Net debt covered 120% by term loans,
EBITDA interest cover >4 times
EBITDA interest cover
>4 times
Above full performance
Independent technical, financial and legal
review of projects
Assessment by CEO
Full performance
Accurate setting out and reporting of risks
and returns
Methodology established,
communicated; compliance
and risk managed, strategic
dashboard rolled out
Above full performance
Reputation
Positive contribution to image
of company at investor
conferences, with investor
community and banks
Leadership and people
Talent management,
fast-tracking and performance
management of own staff
Operational excellence
Effective financial management
budgeting and reporting process
in place
Value release
Savings from strategic sourcing,
business unit initiatives and
capital buying
Supply chain management
sustainability
10
Rating using perception survey
3 rating
Full performance
5
10
15
5
10
Succession planning in place and
executed with results
1 x 3B rated candidate in
place for all GM and general
management positions
Developing and in
progress
Timely, accurate and relevant reporting in
place
On time, despite
uncontrollable events and
improved disclosure to
investors
Above full performance
Achieve R210 million savings by using
commodity and business unit teams and
R110 million on capital projects
Achieve mining charter targets and
Exxaro preferential procurement targets
Achieved 100% of target
Full performance
Achieved 110% of targets
Above full performance
Overall performance
100
Full performance
48
EXXARO Integrated Report 2016
SOCIAL AND ETHICS COMMITTEE REPORT
Purpose
To monitor the group’s activities, considering relevant
legislation, other legal requirements or prevailing codes
of best practice on:
›› Social and economic development
›› Good corporate citizenship
›› The environment, health and public safety, including
the impact of our activities, products or services
›› Consumer relationships, including our advertising, public
relations and compliance with consumer protection laws
›› Labour and employment
›› Anti-bribery and corruption.
The committee scrutinises and provides independent oversight
over the remuneration and SRC committees’ ambit, for example
by discussing the associated moral imperative of operational
issues dealt with by these committees.
Effectiveness against 2016 KPIs and committee evaluation
2016 KPI
Evaluating the impact of Exxaro’s activities
specifically on public safety, in addition to the
standard mine health and safety discussions at
the SRC committee
Evaluating the impact of Exxaro’s activities on
contractors, treatment of contractors and the
contractor philosophy
Increased understanding of the impact of the
company’s social and labour plans and
projects, specifically by visiting projects
Sharing best practice: individual directors
actively sharing deemed appropriate and
applicable best practice from other
committees with the committee/company
Evaluate and approve 2016 and medium-term
anti-bribery and fraud risk maturity initiatives
Evaluation
score*
3,4
3,2
3,6
3,4
3,6
* Scored out of five. Scores above 3,5 rated as green, 3 to 3,5 as amber
and below 3 as red.
In addition to specific KPIs, the committee carried out the duties
and responsibilities in its terms of reference and detailed annual
plan.
The following were retained for 2017 and no new KPIs added:
›› Evaluating the impact of Exxaro’s activities specifically on
public safety, in addition to the standard mine health and
safety discussions at the SRC committee
›› Evaluating the impact of Exxaro’s activities on contractors,
treatment of contractors and the contractor philosophy
›› Sharing best practice: individual directors actively sharing
deemed appropriate and applicable best practice from other
committees with the committee/company.
Composition
The committee consisted of a majority of independent directors
throughout the period.
2/2
2/2
2/2
1/1
Dr MF Randera
S Dakile-Hlongwane
Dr CJ Fauconnier
EJ Myburgh
■ Present
The chairman of the board is invited to all committee meetings.
Other attendees include the CEO and FD, as well as individuals
with specific skills and expertise to assist members in their
deliberations.
Key issues receiving attention in 2016
›› As in prior years, the efficacy of proactive processes and
systems to safeguard employees and their health and safety
received significant focus. As discussions have not yet
focused sufficiently on the impact of activities on public
health, we are retaining this KPI for 2017
›› Similarly, progress with anti-theft, bribery and corruption
(ABC) risk management initiatives received regular attention:
significant progress has been made since the programme’s
inception three years ago. Future initiatives include
entrenching the ABC e-learning programme as part of
employee induction, as well as refresher training to all
employees and rolling out bargaining-unit training, which
was postponed in 2016
›› Risks relating to inappropriate sexual conduct underground,
as noted in our last report, continued to receive attention.
We were encouraged by increased reporting of sexual
harassment incidents: although the aim is to reduce the rate
of incidents, we believe increased reporting indicates greater
trust in and protection awarded through the process. We will
continue to focus on this issue in 2017
›› In the context of social giving and donations, we debated at
length the importance of support to initiatives and groupings
in the South African political landscape, while ensuring that
any support cannot be negatively perceived as a desire to
unduly influence: discussions on this sensitive topic will
continue in 2017. The success of social and labour plan
projects in enabling true economic transformation was again
debated and we agreed that a complete revision of the
company’s philosophy and strategy on social investment
would occur in 2017
›› Lengthy discussions also focused on Exxaro’s stakeholder
initiatives, especially interaction with government and the
format of such engagements to foster mutual trust and effect
meaningful change in South Africa. The company remains
committed to supporting and contributing to initiatives that
enable a sustainable and prosperous South Africa.
EXXARO Integrated Report 2016
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Group profileExecutive reviewOutlookBoard reviewMineral resources and reservesAnnexures SOCIAL AND ETHICS COMMITTEE REPORT (CONTINUED)
The committee is supported by a management ethics committee that considers and addresses matters of ethics (including all hotline
reports and forensic investigations) in detail. We consider their detailed reporting at both meetings in the year.
Statistics: forensic investigations
Total investigations
Disciplinary inquiries
Arrests
Copper thefts*
Value of copper theft
Copper recovered
Value of investigations
Value recovered
* In addition to numbers above.
2012
2013
2014
2015
2016
Total
Number
Number
Number
Number
R
R
R
R
272
759
81
64
2 047 822
1 022 091
8 632 206
4 151 626
400
393
132
68
2 433 516
1 930 997
11 497 926
8 861 563
448
156
164
61
3 211 738
1 166 779
16 619 805
10 491 166
457
201
175
72
9 171 997
2 721 239
18 479 396
11 044 407
623
204
73
62
6 840 272
1 471 948
30 575 455
3 666 214
2 200
1 713
625
327
23 705 345
8 313 054
85 804 788
38 214 976
The sharp increase in 2016 investigations mirrors the greater number of reports received which, in turn, reflects confidence in the
anonymity of the hotline, despite many cases proving unfounded. Lower values recovered are due to a sizeable single case of
collusion: while we obtained judgment against the perpetrators, we were unable to recover our losses.
Dr MF Randera
Social and ethics committee chairman
Pretoria
12 April 2017
50
EXXARO Integrated Report 2016
SUSTAINABILITY, RISK AND COMPLIANCE COMMITTEE REPORT
Purpose
›› To provide oversight on all material non-financial issues
influencing strategy and the long-term viability of the company,
namely sustainability (including safety, health and environmental
matters) as well as risk management and compliance
methodologies, processes and performance. The audit committee
remains accountable for financial risk and compliance
›› Provide oversight over the process, ensuring Exxaro reports
annually through an integrated report, although final approval
of the report is done by the board as a whole.
Effectiveness against 2016 KPIs and committee evaluation
Composition
The committee consisted of a majority of independent directors
throughout the period.
4/4
4/4
3/4
2/2
Evaluation
score*
Dr CJ Fauconnier
S Dakile-Hlongwane
D Zihlangu
PCCH Snyders
■ Present
■ Absent
2016 KPI
Entrenching oversight of risk governance:
comprehensive risk management assessment in
2016 to refresh process, principles and for board
to review risk tolerances and key actions
Improved use of strategic dashboard to manage
and monitor the strategy: debate/questions
asked and remedial actions requested to
address below-appetite performance on KPIs
Sharing best practice: individual directors actively
sharing appropriate and applicable best practice
from other committees with the committee/
company.
3,7
3,9
3,4
* Scored out of five. Scores above 3,5 rated as green, 3 to 3,5 as amber
and below 3 as red.
In addition to specific KPIs, the committee carried out the duties
and responsibilities in its terms of reference and detailed annual
plan.
The committee set the following KPIs for 2017:
›› Improved use of strategic dashboard to manage and monitor
strategy: debate/questions asked and remedial actions
requested to address below-appetite performance on KPIs
(although this was rated as green in 2016, the executive
committee believed there were still opportunities)
›› Committee visible felt leadership initiatives: formal and
informal visits to business units
›› Oversight of safety culture: commission detailed audit on
hazard identification and risk assessments (HIRAs) throughout
the group and consider adequacy of remedial plans to address
identified areas for improvement to enhance the efficacy of
HIRAs at all business units
›› Greater oversight on implementing combined assurance
model (especially risk and compliance): one committee
member attending combined assurance forum as observer
rotationally to further enhance understanding and enable
better oversight
›› Sharing best practice: individual directors actively sharing
appropriate and applicable best practice from other
committees with the committee/company.
The chairman of the board is invited to attend committee
meetings. Other attendees include the CEO and FD, as well as
individuals with the necessary technical experience to assist
members in technical deliberations are invited as required.
Key issues receiving attention in 2016
›› On 31 December 2016, Exxaro marked an unprecedented
milestone: two consecutive calendar years without a fatality.
The board thanks management and all employees who made
this possible and we look forward to maintaining our
aspiration of zero harm
›› A second unprecedented milestone: achieving a lost-time
injury frequency rate (LTIFR) for the group of 0,09 against
the target of 0,15 (a 47% improvement) – the lowest in
Exxaro’s history. We have therefore reduced the 2017 target
to 0,11
›› Sustainability, risk and compliance or SRC KPIs continue
to be discussed at every meeting: these KPIs deal with
material items extracted from the strategic performance
dashboard applicable to the committee’s oversight role (refer
earlier detailed discussion of the dashboard)
›› As in prior years, specialist and business unit reports were
presented to the committee by rotation. In 2016, the most
material discussions included:
›• Regular updates on the Arnot mine closure and related
activities, although this was also extensively discussed
by the board due to its material impact on employees
(refer page 21, supplementary report).
›• Exxaro Coal Central presented its SRC status and
compliance to the committee for the first time in early
2016. Although some performance aspects were affected
by the lack of capital expended by the previous owner over
time, this received operational focus throughout 2016 and
contributed to ECC’s stellar performance
›• Despite not being a wholly owned subsidiary, for the first
time the committee received a Mafube presentation on its
SRC status and compliance. Although Mafube is influenced
by Anglo American’s philosophies and policies, the
committee was able to express comfort over the
SRC performance of this joint venture
EXXARO Integrated Report 2016
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Group profileExecutive reviewOutlookBoard reviewMineral resources and reservesAnnexures SUSTAINABILITY, RISK AND COMPLIANCE COMMITTEE REPORT (CONTINUED)
›• Detailed feedback from COP-21 and related investor
sentiments, which fed into further discussions on the
company’s coal strategy and future direction during the
board strategy session in June 2016
›• Resulting from the unfortunate 2015 Bento Rodrigues dam
disaster in Brazil, the committee discussed in detail the
status of Exxaro’s tailings and dam facilities where
maintenance actions are ongoing, with no material high
risks
›› The committee continues to visit business units for first-hand
reviews of SRC practices and policies and, in 2016, visited
Grootegeluk.
The committee embraces its role to guide the company
on SRC issues and to ensure Exxaro remains a responsible
corporate citizen. Equally, the committee views its role as an
imperative delegated by the board, and an opportunity to make
a meaningful contribution to South Africa by helping to secure
the sustainability of our business for each of our stakeholders.
Dr CJ Fauconnier
Chairman of the SRC committee
Pretoria
12 April 2017
52
EXXARO Integrated Report 2016
EXECUTIVE REVIEW
EXECUTIVE REVIEW
We have been entrusted and mandated by the board to execute Exxaro’s approved strategy. To
elaborate on how we achieved this in 2016, we have structured this discussion around our material
issues and the indicators used to track our performance.
Executive committee
Mxolisi Mgojo
Chief executive officer
Riaan Koppeschaar
Finance director
Vanisha Balgobind
Executive head:
human resources
Wim Diedericks
Executive head: business
development
Johan Meyer
Executive head:
projects and technology
54
EXXARO Integrated Report 2016
We include the relevant board-approved risks to describe how we have responded to threats and
opportunities that may affect the performance of our business in creating (or destroying) stakeholder
value.
Mzila Mthenjane
Executive head: stakeholder affairs
Dr Nombasa Tsengwa
Executive head: coal
operations
Mongezi Veti
Executive head: sustainability
Carina Wessels
Group company secretary and legal
EXXARO Integrated Report 2016
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Group profileExecutive reviewOutlookBoard reviewMineral resources and reservesAnnexures EXECUTIVE REVIEW (CONTINUED)
Executive
Mxolisi Mgojo (56)
Chief executive officer from 1 April 2016
Refer board review on page 35
Riaan Koppeschaar (46)
Finance director from 1 July 2016
Refer board review on page 35
Wim Diedericks (49)
Executive head: business development
BEng (mining) (Pretoria), executive development programme
(Darden)
Experience: Wim started his career as an Iscor bursar (1986
to 1990) and was appointed an engineer-in-training at
Thabazimbi mine in 1992. He was also employed at Durnacol,
Tshikondeni, SIOC, Rosh Pinah and Kumba Resources head
office. Since Exxaro’s formation, he has held senior
leadership positions at KZN Sands, Grootegeluk,
Mpumalanga Coal commercial region and corporate office.
He assumed his current role on 1 April 2015.
Vanisha Balgobind (44)
Executive head: human resources
BA (hons) (industrial psychology), MA (ind psych),
management development programme (GIBS)
Experience: Vanisha is a registered industrial psychologist
with 18 years’ experience in the mining industry. She was
appointed as an HR assistant at Mondi Kraft in Richards Bay
in 1996 and joined Iscor Mining in 1997 as an HR trainee. She
served at Kumba Resources as an HR consultant and talent
management consultant between 2001 and 2006. At Exxaro,
she headed talent management and staffing for five years,
was manager for corporate projects and HR optimisation for
two years, and then group manager for talent and learning
before assuming her current position.
Johan Meyer (48)
Executive head: projects and technology
BEng (metallurgy) (Pretoria), MBA (Stellenbosch) and
advanced management programme (Insead)
Experience: Johan started his career at Iscor Pretoria Steel
Works in 1987. From 1997 to 2005, he was part of the heavy
minerals management team in designing, commissioning and
implementing the KZN Sands business. He spent two years
as research and development manager for Kumba Resources
before his appointment as Zincor manager in 2009.
Following the successful closure of Zincor, he was general
manager: technology prior to assuming his current role on
1 April 2015.
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EXXARO Integrated Report 2016
Mzila Mthenjane (47)
Executive head: stakeholder affairs
BSc (eng) (mining), senior management development
programme (GIMT)
Experience: Mzila is a mining engineer with over 20 years’
experience in mining and investment banking. This includes
seven years in deep-level gold mining at AngloGold Ashanti
and Gold Fields in senior mine management and corporate
development roles, respectively; and six years in investment
banking at RMB and Deutsche Bank. His knowledge of business
sustainability was honed over six years as executive: business
sustainability at Royal Bafokeng Holdings and Royal Bafokeng
Platinum. He assumed his current role in 2013.
Dr Nombasa Tsengwa (52)
Executive head: coal operations
PhD (agronomy) (Maryland, US), executive development
programme (Insead)
Experience: Nombasa has over 15 years of executive
management and board experience in the public and private
sector. In 2003 she joined Kumba Resources as general
manager: safety, health, and environment. In 2007 she was
appointed executive general manager: safety and
sustainable development. In 2010, she became directly
involved in the coal operations, as general manager of tied
mines, and general manager of Mpumalanga operations.
After acting in her current role for one year, she was
appointed in a permanent capacity from May 2016.
Mongezi Veti (53)
Executive head: sustainability
National higher diplomas in metalliferous mining and coal mining
(Technikon Witwatersrand), MBL (Unisa), advanced management
programme (Wharton), mine overseer’s certificate and mine
manager’s certificate of competency for fiery mines
Experience: In the early 1980s, Mongezi worked for
AngloGold at Western Deep Levels and joined Sasol Mining in
1994. In 2002, he became mine manager at Arnot, and was
appointed an area general manager in Exxaro soon after the
merger, before assuming his current role in 2015.
Carina Wessels (39)
Group company secretary and legal
LLB advanced labour law (cum laude) (Pretoria), LLM (labour
law) (Unisa), management development programme (cum
laude) (GIBS), FCIS (CSSA), LLM (extractive industry law in
Africa) (cum laude) (Pretoria)
Experience: Carina is an admitted advocate of the High
Court of South Africa and a fellow and past president of
Chartered Secretaries Southern Africa. She is also a past
president of the Corporate Secretaries International
Association and remains on that executive committee. She
spent nine years with De Beers in various operational and
head office positions, including human resources, business
improvement and corporate secretariat, as well as a period
with Investec as corporate secretariat legal adviser. She
assumed her current role in 2011, with executive
accountability for legal from January 2017.
Snapshot of 2016 – market recovery but uncertainty remains
Macro environment
Recovery in seaborne coal and iron ore price supporting restructuring initiatives
Share price recovered to a high of R89,50 at year end from a low of R44,04 in December 2015
Significant changes in global political and economic landscape – Brexit referendum, US interest rates and European
elections
RSA real GDP growth for 2016 at 0,4% from 1,26% in 2015
Ongoing policy uncertainty on black economic empowerment in the domestic mining sector
Highlights
Second year of zero fatalities
Strategy delivering improved
operational performance
– production and cost
2016
›› Fatalities = zero
›› LTIFR = 0,09
2015
›› Fatalities = zero
›› LTIFR = 0,17
›› Export volumes at 7,9Mt
›› Core NOP at R4,9 billion
›› Export volumes at 6,2Mt
›› Core NOP at R3,4 billion
Improved market conditions
evidenced in equity portfolio
›› Income contribution from equity-
accounted investments of R2,4 billion
›› Loss from equity-accounted
investments of R1,1 billion
% change
47%
27%
46%
>100%
Returning cash to
shareholders
›› HEPS of 1 302 cents per share
›› Final dividend of 410 cents per share
›› HEPS of 456 cents per share
›› Final dividend of 85 cents per share
185%
382%
Lowlights
Losing people through voluntary separation and other termination initiatives in 2015 and 2016, after closing
Tshikondeni, Inyanda, AlloyStream, Arnot, Exxaro improvement project and our remaining offshore offices
Broad-based value created for stakeholders
The cash value-added statement shows the wealth the group
has created through mining operations and investing activities:
›› Employees receive salaries/wages, share-based payments and
bonuses (where certain performance conditions are met) and
distributions from Mpower 2012
›› Governments of countries where Exxaro has operations and
investments receive various taxes and royalty payments
›› Suppliers and contractors are supported through the
procurement of consumables, services and capital goods
›› Shareholders receive a return on their investment through
dividends and capital growth in the share price
›› Providers of finance receive a return through interest and
other loan costs paid
›› Exxaro’s corporate social investments and development
collaboration with government benefit communities
surrounding our operations
›› Continuous reinvestment into the group to ensure
sustainability and expansion.
Despite another challenging environment in 2016, we were
still able to create significant value for our stakeholders and
contribute meaningfully to the South African economy.
Value distribution in 2016 (Rm)
Value distribution in 2015 (Rm)
29 49
596
595
1 171
837
3 283
24 63
960
500
824
861
3 617
■ Salaries, wages and benefits
■ Employees’ tax
■ Payments to government: taxation contribution
■ Cost of finance
■ Cash dividend paid excluding Mpower 2012 dividend to employees
■ Cash dividend paid to Mpower 2012 beneficiaries
■ Community investments
■ Salaries, wages and benefits
■ Employees’ tax
■ Payments to government: taxation contribution
■ Cost of finance
■ Cash dividend paid excluding Mpower 2012 dividend to employees
■ Cash dividend paid to Mpower 2012 beneficiaries
■ Community investments
EXXARO Integrated Report 2016
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Group profileExecutive reviewOutlookBoard reviewMineral resources and reservesAnnexures EXECUTIVE REVIEW (CONTINUED)
Executing our strategy
As an executive committee, our mandate to execute Exxaro’s strategy is guided by priority areas that have been in place for the past
four years.
STRUCTURE FOR
RESILIENCE
PORTFOLIO
IMPROVEMENT
CAPITAL
ALLOCATION
› Efficiency improvements
› Disposed Mayoko iron ore
through operational excellence
project
› Cost saving from Exxaro
improvement project
› Drive innovation through
digitised platform
› Coal product placement
through market excellence
› BEE unwind and replacement
in process
› Explore alternatives to dispose
of Tronox shares and evaluate
SIOC shareholding
› Robust coal portfolio –
evaluating possible non-core
assets
› Black Mountain, Moranbah and
Chifeng – initiated disposal
process
› Internal rate of return and net
present value differentiated
› Prioritise capex for growth
• Secure coal volume growth
• Cleaner energy
opportunities
› Prudent debt management
› Refinanced R8bn debt facilities
› Maintained dividend
distribution policy
Minimise costs, maximise operational output and optimise portfolio
Material issues
Material issues in this financial year (from an executive management perspective) are summarised below. Our strategic performance
dashboard is explained on page 2. Detailed commentary on our progress against KPIs for each material issue begins on page 59.
Key customer
dependency
Licence to
operate
Capital allocation
and execution
Business
resilience
Our people
Eskom
AMSA
Community
investment
Return to
shareholders
Improvement
project
Employees
Compliance
› Operations
› Projects
Project 2016
BEE
Sustaining
capital
Expansion
capital
Communities
Operational
efficiencies
Portfolio
optimisation
Innovation
Performance against material issues
Understanding the discussion
For each material issue, we include:
›› A consolidated table summarising performance
›› Performance and our response during the year
The board introduced our material issues in its review, while we detail our performance against significant KPIs for each material
issue. We also expand on our stakeholder engagement during the year per issue as well as the main risks we encountered with
associated controls in responding to these issues.
Although the discussion of each material issue refers to performance against KPIs, it is broader than that. Equally, drawing a direct
correlation between a material issue and KPI may not be possible in all cases and some KPIs also refer to more than one material
issue. The associated KPIs do, however, give our stakeholders a holistic view of the metrics that inform strategic performance
management in each area.
58
EXXARO Integrated Report 2016
Material issue: Key customer dependency
Key customer
dependency
Eskom
AMSA
Key performance indicators
2016
2015
KPI (as disclosed in dashboard)
Capital
Actual
Indicator
Actual
Indicator
Trend
Core operating margin (%)
Financial
24%
BBBEE level (against BEE Act 53
of 2003)
% environmental liability
provisions in place (issue: Eskom
contribution to rehabilitation fund)
Social
Level 4
Natural
23%
Commodity diversification
Manufactured
Coal,
ferrous,
mineral sands,
energy
Legend
Out of
appetite
Worst
tolerable
Best
realistic
18%
Level 2
67%
Coal,
ferrous,
mineral
sands
Target
Possible waste/
opportunity
(exceeding
target)
To mitigate our dependency on Eskom, we are focused on
enabling our operations to deliver coal cost-effectively to
customers, while maximising export revenue.
The continued shortfall in funding to the Matla and Arnot
rehabilitation trust funds for ultimate closure costs remains
a concern.
As part of our continued engagement with Eskom on later dates
to commission Medupi power station’s next five units, we had
initial discussions on a possible addendum 10 to the Medupi
CSA, to review options available to both parties to reduce future
take-or-pay obligations. Deliveries to Eskom were, however, in
line with addendum 9.
AMSA buys the bulk of Exxaro’s metallurgical coal. Outside of
AMSA, the domestic market for metallurgical coal is relatively
small, meaning diversification options are limited. As Exxaro
expands its ability to export, creating alternative international
markets will become a reality.
EXXARO Integrated Report 2016
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Group profileExecutive reviewOutlookBoard reviewMineral resources and reservesAnnexures
EXECUTIVE REVIEW (CONTINUED)
Controlling the risk
Despite fragile economic activity in the first half of 2016 and high levels of political and economic uncertainty, global economic
fundamentals in the second half remained positive. Rising commodity prices helped commodity-producing economies such as
Brazil, Russia and South Africa to return to positive gross domestic product (GDP) growth territory.
Following years of weakness, coal markets improved somewhat in the second half of the review period. Globally, weather
disruptions, production cuts, above average seasonal demand and supply reforms (most notably the 276 operating days/annum
policy implemented by the Chinese government) caused thermal and hard coking coal prices to surge significantly. The API4 coal
export index price averaged US$75 per tonne for 2H16 (1H16: US$53).
Customer relationships in the export market
Three events have drastically changed Exxaro’s export product mix from that of previous years:
›› Acquiring the assets of Total Coal South Africa (now Exxaro Coal Central or ECC) in 2015 has nearly doubled Exxaro’s export
volumes and most of the additional tonnages were of RB3 quality or lower
›› Our decision to stop supply of power station coal from Leeuwpan to Majuba power station has added a material volume of
Eskom-type coal to exports
›› Finally, more power station coal was added to the portfolio by Eskom’s decision to terminate the Mafube supply agreement
at the end of 2015.
The new product portfolio has required Exxaro to develop the Indian market aggressively and we are currently selling over
60% of our export product in this market.
We are trying to balance the strategic objective of being as close as possible to the end consumer with the various performance
and credit risk profiles of our new markets and customers. As such, our choice of strategic partners in different sales channels
is proving very important. Exxaro is therefore maintaining very healthy relationships with both end consumers and trading
companies to ensure effective channels to market.
2016 export sales destinations (%)
2016 export product mix (%)
11
11
13
■ India
■ Africa
65
■ Europe
■ Asia
2
18
49
■ Power station
■ RB3
31
■ RB1
■ Other
60
EXXARO Integrated Report 2016
Controlling the risk (continued)
Customer relationships in the domestic market
›› The Exxaro/AMSA relationship has weathered many
challenges over the years, making both parties
fundamentally aware of each other’s business drivers.
In addition, a negative event for either party has far-
reaching consequences for the other as AMSA consumes
around 1,2Mtpa of semi-soft coking coal to produce
metallurgical and market coke
›› While relationships in the cement industry are valuable,
these will be tested in coming months given the
oversupply of cement domestically that results in fierce
competition among cement producers. The boiler
subsegment is a more opportunistic market, requiring
much more interaction and maintenance in terms of
customer relationship management. Exxaro has done
considerable market development work in the Western
Cape in 2016 to position it proactively in the market for
future production from the expanded Grootegeluk (GG10)
plant.
2016 volumes (%)
18
4
9
1
›› Medupi – ongoing offtake according to addendum 9
›› Leeuwpan – Eskom’s inability to decide on coal supply forced
Exxaro to cancel the Majuba coal-supply agreement and find
alternative markets for this coal
›› Completion of ECC transaction – to optimise ECC, we have
implemented our operating philosophy and the Exxaro
operational excellence methodology by:
›• Adding a fifth 4-seam section at Forzando South which
contributed 200kt to 2016 production
›• Optimising the resource-to-market value chain through
plant and product-mix adjustments, taking the acquired
export entitlement into account
›• Rolling out cost-saving initiatives across all operations
›• Exploring available adjacent reserves to extend the current
life of mine
›• Exploring the Eskom market as a potential customer
›• Continually reviewing the capital expenditure plan and only
approving critical capital expenditure until the actions
above have been finalised.
As part of the DMR’s conditions for approving the transfer
of ECC mineral rights to Exxaro, we are required to include
additional BEE participation in the shareholding of ECC assets.
This has been combined with the broader empowerment
ownership project currently under way at group level.
We remain confident about the long-term strategic value of
acquiring the ECC assets, especially the export entitlement.
Material issue: Licence to operate
68
■ AMSA
■ Reductants + metals (other)
■ Domestic steam
■ Eskom
■ Exports
2016 updates
›› Exxaro continues to operate Matla, while engaging with Eskom
operationally and through mediation to obtain the funds that
the mine needs for its capital projects
›› Closure activities for Arnot mine continue. Exxaro has also
engaged Eskom in arbitration to ensure the utility meets its
closure obligations
Licence to
operate
Community
investment
Compliance
› Operations
› Projects
Project 2016
BEE
EXXARO Integrated Report 2016
61
Group profileExecutive reviewOutlookBoard reviewMineral resources and reservesAnnexures EXECUTIVE REVIEW (CONTINUED)
Key performance indicators
2016
2015
KPI (as disclosed in dashboard)
Capital
Actual
Indicator
Actual
Indicator
Trend
Ownership at group level – mining
charter
Project delivery measure for local
economic development projects per
social and labour plan (cost variance
from plan) – mining charter
Social
Social
52%
45,2%#
(17%)
(above
budget)
Reportable cases of environmental
incidents
Natural
5 x level 2
0 x level 3
Valid mining rights – in place –
mine works plan (MWP),
environmental management plan
(EMP) and SLP
Enforceable mining rights – based
on conditions (in place)
Environmental authorisations in
place (validity) (integrated water
use licence (IWUL), environmental
impact assessment (EIA) and waste)
Environmental authorisations
(compliance to conditions)
Carbon footprint (scope 1 and 2)
(reduction per annum)
Water intensity (improvement from
target)
Water intensity (kℓ/TTM)
Natural
98%
Natural
Natural
75%
95%
Natural
90%
Natural
4,2%
Natural
Natural
13%
0,2
52%
not reported
to board
18 x level 2
0 x level 3
97%
98%
>90%
<90%
4,3%
not reported
to board
0,33
Legend
# As at 31 December 2016.
Out of
appetite
Worst
tolerable
Best
realistic
Target
Possible waste/
opportunity
(exceeding
target)
The regulatory universe for mining is extremely stringent and
spans the environmental, social and governance domains. For
Exxaro, our licence to operate is vital for a sustainable business
– without the required licences, permits or authorisations in the
social and environmental domains, we are not able to operate at
all. These domains are governed by the mining regulator – the
Department of Mineral Resources as well as the Department of
Environmental Affairs and thirdly, the Department of Water and
Sanitation. In addition, the amended BEE codes introduce
another layer of compliance from a second regulator – the
Department of Trade and Industry. At the same time, as a
black-owned entity, Exxaro strives to remain a flagship BEE
company in South Africa and we are actively involved in the
Chamber of Mines, where we contribute to shaping the
regulatory universe in which mining operates.
An important component of our sustainability as a company
is our ability to comply with every stipulation, provision or
directive in our various environmental licences. As an industry,
mining has a negative impact on the environment, and is
regulated by strict rehabilitation and closure laws. We follow
a principle of zero harm and continually seek ways to minimise
our impact on the environment. For example, we relocated
the Belfast beneficiation plant from its optimal site to minimise
any impact on a sensitive wetland area. We also focus more
on continuous rehabilitation so that the environment can be
restored as soon as possible after mining has been completed
in a specific area.
Operational compliance
Exxaro’s current active operations have all the authorisations
required to operate under a valid mining right. All mining rights
in turn need a valid and approved MWP and approved SLP.
Under the new National Environmental Management Act
(NEMA), environmental authorisations are also required
for a valid mining right. The only exceptions are:
›› Tshikondeni – no longer operational, but has an old-order
mining right that has been converted and granted, but not
executed
›› Strathrae – no longer operational; also has an old-order
mining right that has been converted and granted, but
not executed.
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EXXARO Integrated Report 2016
All documentation and requests for execution for Strathrae and
Tshikondeni were timeously submitted, but a decision taken not
to execute as these mines are in closure. There is ongoing
engagement with the DMR on the status of these rights.
Compliance and licensing for projects
As part of the project lifecycle planning process, Exxaro
continually ensures that all requisite rights, licences and
authorisations are in place prior to construction and
commissioning.
Environmental compliance
Exxaro complies fully with all authorisations and licensing
requirements for its current operations. These authorisations
typically include:
›› IWUL
›› Waste management licences
›› Air emission limits
›› Environmental impact assessments
›› Records of decisions
›› Environmental authorisations (EAs).
The only exceptions occur when a stakeholder appeals a specific
right, licence or authorisation granted by the regulatory
authorities to Exxaro. The Belfast project has been subject to
numerous appeals by external stakeholders on awarding the
integrated water use licence (IWUL) and rezoning of the mining
area (from farming use) by local authorities. Exxaro has had to
seek legal judgments in responding to these appeals so that our
projects can continue as legitimate operations that comply with
all statutory requirements and obligations.
Mineral tenure compliance
Exxaro aims to have every mining right valid and to comply with
all conditions for each licence and right granted. We define the
validity of a mining right by having its three pillars in place: the
MWP, environmental management programme (EMP), and SLPs.
Our analysis shows our mining rights are 98% valid, with the
variance largely due to the rights of Strathrae and Tshikondeni
not being executed. As such, they do not have valid MWPs and
SLPs in place.
Every right, licence and permit granted has detailed compliance
stipulations and we are focused on improving our compliance to
all stipulations.
Each of these has specific conditions to which mining operations
have to adhere at all times.
We measure environmental authorisations on two levels: IWULs
granted, and environmental impact assessments approved. Our
analysis shows that our environmental authorisations are within
tolerable levels (95%), with the 5% shortfall being due to delays
in finalising appeals lodged against the Thabametsi and Belfast
projects.
A compliance score of 90% to environmental authorisation
conditions was provided by an internal audit. The
implementation of a new integrated monitoring and compliance
system will help us improve the score in 2017. As part of this
process, detailed checklists per site are being drafted to drive
improved compliance to conditions.
Environmental issues
Delays and appeals against IWULs granted by the Department of
Water and Sanitation have become a risk for new projects and
part of their critical paths. To mitigate these long lead times in
securing the necessary permits and licences, we are engaging
early with the respective regulators, and proactively with every
interested and affected stakeholder group.
We define the enforceability of our mining rights by section 93
and 47 directives issued, as well as any section 102 to amend a
MWP, environment authorisation or SLP. In addition, compliance
includes submitting reports to the DMR describing future mining
activities.
Our greenhouse gas (GHG) emissions are currently not an
immediate risk to our licence to operate. However, related
legislative developments such as GHG reporting regulations,
carbon tax, carbon budgets and carbon offset systems will
introduce additional compliance requirements.
We gave ourselves a conservative enforceability score of
75%, as we are currently integrating ECC’s monitoring and
compliance systems with Exxaro’s compliance matrix. Given
our conservative approach, we expect the enforceability score
to improve to above 95%.
Greenhouse gas emissions
(kt CO2e)
Scope 1
Scope 2*
Total scope 1 and 2
Year-on-year change (%)
Scope 3**
Year-on-year change (%)
Given our participation in the global benchmark CDP since
2009, Exxaro’s carbon-emission reporting systems are mature.
We are now focused on developing mitigation and adaptation
plans for all operations.
Exxaro has not met its internal carbon reduction target for 2016.
Based on the prior year’s use, the target is a 5% reduction from
those emissions. This target will be reviewed in 2017. The table
and graph that follow compare greenhouse gas emissions
since 2013.
2016
271,7
500,9
772,6
2,04
71 651
(2,17)
2015
235,2
521,9
757,1
(3,8)
73 847
(1,2)
2014
229,8
557,6
787,4
3,5
74 768
7,2
2013
236,0
525,0
761,0
(48,0)
69 737
(1,3)
* Scope 2: Electricity-based emissions are derived from the grid emission factor for South Africa (0,94t CO2e/MWh).
** Scope 3: Reported emissions are based on emissions from the use of product sold by Exxaro plus transmission and distribution losses from the
South African grid derived from Eskom’s emissions factor for electricity sold (1,03t CO2e/MWh) and the grid emission factor for South Africa
(0,94t CO2e/MWh). Reported emissions represent over 96% of Exxaro’s scope 3 emissions.
EXXARO Integrated Report 2016
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Group profileExecutive reviewOutlookBoard reviewMineral resources and reservesAnnexures EXECUTIVE REVIEW (CONTINUED)
Greenhouse gas emissions – scope 1 and 2 (kt CO2e)
71 651
73 847
74 768
69 737
developing innovative passive water-treatment systems for
operations. We are updating our water strategy to align more
closely with our sustainability strategy, the country’s water
situation and our growth strategy. Approval of the updated
group water strategy by the executive team is expected in the
second quarter of 2017.
5
2
5
8
5
5
2
2
5
1
0
5
In terms of water performance for the group, water withdrawals
decreased slightly (4%) in 2016.
6
3
2
0
3
2
5
3
2
1
7
2
2013
2014
2015
2016
■ Scope 1
■ Scope 2
■ Scope 3
We base our accounting and reporting for GHG emissions on the
Greenhouse Gas Protocol and have elected to use the operating
control accounting approach for emissions.
Given rising stakeholder activism against coal as a source of
energy, Exxaro has responded to shareholder enquiries on our
strategy to reduce emissions, transition to renewable energy
and adapt to the so-called 2ºC climate environment (limiting the
increase in global temperature to below pre-industrial levels).
With the current and expected outlook for South Africa’s
electricity requirements, we believe coal remains a relevant
source of affordable electricity generation for the economy and
Exxaro is well positioned to supply this energy source to Eskom.
We do, however, regard this as a medium to longer-term risk and
it is part of our diversification imperative.
South Africa is a water-scarce country and Exxaro recognises
that water-reduction initiatives are crucial to sustainable
operations, particularly under prevailing drought conditions.
Our prime focus is optimising the use of recycled water and
Water withdrawal at coal operations 2016 versus 2015 (megalitres)
Water withdrawal performance – 2016 versus 2015 (megalitres)
6
6
4
8
7
4
3
)
%
4
(
4
4
1
8
5
)
%
5
(
2015
Coal
Corporate centre
2016
Coal – Arnot, Grootegeluk, reductants, Matla, Leeuwpan,
NBC, Inyanda, Tshikondeni, Durnacol and Hlobane
Corporate centre – head office, R&D, AlloyStream and FerroAlloys
The reduction in water withdrawals primarily reflects halted
operations at some mines, particularly Arnot (shown below).
Although Tshikondeni and Inyanda are also closed mines, the
slight increase in water withdrawals reflects rehabilitation
activities at those operations. Grootegeluk has been
implementing measures to optimise water reuse and recycling in
its operations. A pit-water management study was undertaken
last year and a strategy developed for maximising recycled
water and reducing water intake from Mokolo Dam. Although
Grootegeluk is still implementing its strategy, a 5% reduction
in water withdrawals was realised in the reporting period.
8 372
280
(5%)
177
13%
29
18%
191
(36%)
15
7%
69
(37%)
3
9%
31
(51%)
8 025
2015
Grootegeluk
Matla
Tshikondeni
Arnot
Inyanda
Leeuwpan
North Block
Complex
Others
2016
64
EXXARO Integrated Report 2016
In addition, Grootegeluk has been at the forefront of using
advanced technology in mining aimed at recovering water from
slimes dams while putting safety first (see case study below).
Group water intensity has, however, increased slightly in 2016
from 2015 (see graph). Although improvements are evident in
many operations, further efficiency improvements are still
possible. For example, water use in our beneficiation plants has
been high for the past two years. Through our internal water
efficiency audits, several issues have been highlighted that need
to be addressed and these will be included in our business unit
water and infrastructure management strategies in 2017. These
inefficiencies resulted in our water-intensity reduction targets
for 2016 not being met. The current target is based on prior-
year use and industry benchmarks and aims for a 5% reduction
in water intensity from the previous year.
Water intensities – 2013 to 2016
215
184
37,3
37,6
204
41,0
217
37,0
2013
■ Production (Mt)
2014
2015
2016
■ Intensity (ℓ/t)
Case study: Grootegeluk cyclic operated coal slurry pond facility
Given the end of life for existing slurry deposition dams, Grootegeluk commissioned a R385 million cyclic operated coal slimes
ponds facility.
This is an innovative solution and the first of its kind globally. It comprises four ponds, each with a capacity of 365 000m3
(total 1 460 000m3), two return water dams of 68 000m3 each, a pump station, substation and slurry-delivery line. The biggest
differentiator is the large-scale installation of a sophisticated barrier and drainage system, along with the reclamation of coal
fines as a continuous operation (ongoing), making this an industry first.
The cyclic operated manner of the ponds ensures that sufficient deposition space is always available. The operational cycle starts
with filling, then drying the product, and finally product recovery. This cycle allows a balance between filling time, total drying and
product recovery time for continuous operation of the facility, thus providing unlimited capacity.
The design of the evaporative drying of coal fines is based on modern and ongoing research on the subject and science of
evaporative drying, driven by stringent compliance standards imposed by the authorities. These ponds are also energy-efficient,
reducing our carbon footprint in line with the group’s commitment.
To minimise environmental impacts, the cyclic ponds have drainage below the liner, to relieve pressure and act as a leakage
detection layer, and on top of the liner to assist with drainage.
Since the facility became operational, it has allowed water recovery of about 100 000m3 per month, reducing withdrawal from
water resources. This frees up much-needed water in the catchment, particularly under current country-wide drought conditions.
EXXARO Integrated Report 2016
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Group profileExecutive reviewOutlookBoard reviewMineral resources and reservesAnnexures
EXECUTIVE REVIEW (CONTINUED)
Investing in communities
Exxaro sees itself as the tenant of its host communities, not
the landlord, and a successful relationship with communities
is therefore key to our business success and growth. We go
beyond compliance and invest in areas such as environmental
conservation and health and welfare through our corporate
social investment (CSI) programmes.
Our aim is to create economic diversification to limit
dependency on the mine while building resilient and self-
sufficient communities in the long term by implementing local
development initiatives to improve social infrastructure and
education as well as promoting employment and local
procurement.
Between 2006 and 2016, our focus on education and skills
development accounted for 51% of our socio-economic
expenditure.
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EXXARO Integrated Report 2016
Total community development spend – 2006 - 2016 (%)
37
3 2
4
4
5
6
12
13
14
■ Education
■ Infrastructure
■ Other
■ Health and welfare
■ Sports and recreation
■ Skills development
■ Enterprise and supplier development
■ Environment
■ Agriculture
■ Governance
Socio-economic development investment per focus area – 2016 -
R49 million (%)
4 2 1
4
7
43
9
12
18
■ Education
■ Sports and recreation
■ Skills development
■ Governance
■ Enterprise and supplier development
■ Infrastructure
■ Agriculture
■ Health and welfare
■ Environment
BEE amended codes of good practice
The amended codes of good practice with more stringent
targets have been promulgated. Exxaro has analysed its
anticipated performance against the new codes and is putting
measures in place to improve on elements where we are not
performing well at present. Under current economic conditions,
we expect that the target of the ownership element under net
value will not be met. We are also focused on meeting new
compliance requirements for enterprise and supplier
development.
We missed the skills development target as the amended codes
have removed all mandatory skills training. We will work towards
reaching the targets as soon as possible.
A challenge in the amended codes is the target set for people
with disabilities at 2% of the workforce. We are currently
40% below this target and actively driving disability awareness
campaigns to identify employees with verifiable disabilities who
have not declared these. In advertising careers, we emphasise
the fact that a disability is not a barrier (limited to no external
recruitment, in response to the business resilience material
issue, has affected our progress against this target).
Material issue: Capital projects
Capital allocation
and execution
Return to
shareholders
Sustaining
capital
Expansion
capital
Key performance indicators
2016
2015
KPI (as disclosed in dashboard)
Capital
Actual
Indicator
Actual
Indicator
Trend
Capital project delivery measure
(time variance)
Manufactured
1,2%
Achieved
Capital project delivery measure
(cost variance)
Manufactured
(0,3%)
(below budget)
Annual core HEPS (short-term
target)
Growth from coal commodities
(deviation from budget)
Financial
1 457c
Manufactured
(12%)
Achieved
425c
(4%)
Legend
Out of
appetite
Worst
tolerable
Best
realistic
Target
Possible waste/
opportunity
(exceeding target)
In terms of capital management, we remained prudent by
striking a balance between returning cash to shareholders,
managing debt, and selectively reinvesting in Exxaro for growth.
Through cutbacks and deferrals, we have reduced our expansion
capital expenditure (capex) by 15% over the next five years
while critically evaluating sustaining capex to preserve cash flow
in this period.
Salient features of our capex in 2016 include:
›› At R2 780 million, capital expenditure increased by 16% from
2015
›› R2 413 million (2015: R1 663 million) was applied to sustaining
and environmental capital (stay-in-business capital)
›› R367 million (2015: R727 million) was invested in new capacity
(expansion capital).
Coal expansion capital profile (Rm)
Coal sustaining capital profile (Rm)
3 986
2 862
1 124
2 675
2 162
1 400
513
8
7
4
526
18
0
1 286
797
489
3 583
2 380
2 652
1 940
440
931
2 573
2 030
2 131
1 620
1 922
1 460
2 624
2 145
543
511
462
479
FY17*
FY18*
FY19*
FY20*
FY21*
FY16
FY17*
FY18*
FY19*
FY20*
FY21*
367
312
55
FY16
Total
Other
Waterberg
Total
Other
Waterberg
* Capital budgeted in Rm per financial year.
EXXARO Integrated Report 2016
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Group profileExecutive reviewOutlookBoard reviewMineral resources and reservesAnnexures
EXECUTIVE REVIEW (CONTINUED)
Capital allocation
Expansion capital
In 2016, we applied a rigorous optimisation process to reduce
capital expenditure on certain large projects in their final study
phases:
›› Thabametsi phase 1
›› Belfast
›› Leeuwpan life extension project.
We realised a start-up capital saving of R1,4 billion (11%) from
a combined base estimate of R13 billion, with further potential
savings of 15% still under investigation for possible inclusion.
In 2016, we reviewed and reduced start-up capital for the
Grootegeluk multi-product rail load-out station in line with our
strategy of optimising large projects in their final study phases.
The optimisation process on sustaining capital will continue
in 2017.
Executing capital projects
As part of the Exxaro improvement project, we revised our
operating model for developing and implementing capital
projects. We adopted a hybrid model with internal teams and
external resources for project management functions to
improve the efficiency of execution.
Sustaining capital
By prudently allocating sustaining capital, we ensure the future
profitability of our assets. At the same time, we understand the
importance of allocating sufficient capital now to ensure
business as usual. We have therefore concentrated on
optimising our sustaining capital spend.
Capital projects follow due governance as per Exxaro’s
delegation of authority on capital expenditure. Project steering
committees monitor delivery against time, budget and desired
performance parameters. Projects undergo a rigorous
assurance process, including technical and financial reviews, as
well as external audits to ensure governance standards are met.
Project summary
Project and
life-of-mine (LOM)
Product
Mpumalanga
Belfast
LOM: 16 years
2,7Mtpa of thermal coal
Mafube Nooitgedacht
(JV with Anglo
American)
LOM: 12 years
Leeuwpan life
extension
LOM: 7 years
3,1Mtpa of thermal coal
2,7Mtpa of thermal coal
Capex
R3,2
billion
R1,9
billion
R0,5
billion
Matla expansion
LOM: 26 years*
Infrastructure to support
LOM production
R3,4
billion
Limpopo
Grootegeluk 6 phase 2
LOM: 30 years*
2,7Mtpa semi-soft coking
coal
Grootegeluk discard
inpit backfill phase 2
LOM: 30 years*
Infrastructure to support
upper discard handling
system
Grootegeluk rapid
load-out station
LOM: 30 years*
Infrastructure to replace old
D8 load-out station and
enable GG10/GG6 phase 2
product to be railed
Thabametsi
independent power
producer (IPP) phase 1
LOM: 30 years*
3,9Mtpa thermal coal
ramping up to supply
600MW Thabametsi IPP
power station (notice to
proceed granted)
R4,8
billion
R0,6
billion
R1,3
billion
R2,8
billion
* Life-of-mine exceeds expiry of mining right.
68
EXXARO Integrated Report 2016
Status: 31 December 2016
Outlook: 2017 to 2021
›› Rezoning appeal delaying construction
›› Construction expected to start 3Q 2017
›› First production expected 4Q 2019
›› Implementation phase
›› Investment decision approved 4Q 2016
›› Construction under way with expected
completion 2Q 2018
›› Implementation phase – construction
expected to start 3Q 2017
›› Completion and handover expected
2Q 2018
›› Matla mine 1 relocation – implementation
subject to Eskom notice to proceed,
completion expected 4Q 2019
›› Matla shortwall replacement – bankable
feasibility study under way, completion
expected 1Q 2020
›› Matla interseam – bankable feasibility
study phase with completion expected
1Q 2019
›› Matla ventilation shaft – prefeasibility study
under way, completion expected 1Q 2020
All projects await Eskom funding approval
›› Investment decision 1Q 2017
›› Construction expected to start 3Q 2017,
first production 4Q FY20
›› Construction under way, with project
completion and handover expected
4Q 2017
›› Construction under way
›› First production 1Q 2019
›› Implementation of phase 1 (selected as
preferred bidder 4Q 2016)
›› Construction expected to start 2Q 2017
with first production FY20
›› Notice to proceed for full construction
expected 4Q 2017 from Department of
Energy
Growth projects
Leeuwpan life-of-mine optimisation project
With implementation approved in September 2016, detail design
is being reviewed and finalised. Construction will begin once the
environmental management plan report and required approvals
for the R50 road relocation have been obtained. These
approvals are expected in the first quarter of 2017.
Belfast project
The project’s rezoning application was approved in July 2016,
but appealed in August 2016. The High Court has ruled that the
district municipality has jurisdiction to decide on rezoning. The
target date for all licences to be authorised remains June 2017,
after which construction activities are scheduled to start.
Mafube life extension project
The shareholders’ investment decision to implement this
R1,9bn project was made, with final approval given by Exxaro
in November 2016. The project has all the required licences
and procurement agreements on surface rights for the
17 Nooitgedacht farms have been finalised. Construction
has started, with completion expected in mid-2018.
Thabametsi mine
In October 2016, the project received preferred-bidder status
and the team working towards financial closure. The financial
close on the related Thabametsi IPP power station is expected
in the second half of 2017. The environmental authorisation for
this power station has been appealed, and Exxaro is monitoring
the progress of this legal procedure.
Grootegeluk phase 2
Detail design is progressing on schedule and should be complete
by end-March 2017. An updated bankable feasibility study was
presented to the Exxaro investment review committee and the
board in 2017, along with updated information on Transnet
Freight Rail negotiations. This was approved.
Sustaining projects
Grootegeluk discard in-pit project
The upper-system backfill phase 2 is proceeding against plan
and on budget. All construction will be completed in 2017, after
which commissioning will begin.
Key performance indicators
KPI (as disclosed in dashboard)
Core operating margin
Annualised return on capital
employed (ROCE)
Annualised return on equity based
on core headline earnings (HEPS)
Capital
Financial
Financial
Financial
Grootegeluk new rail load-out station
Detail design for the rail siding (rail loop area) is complete. After
the early-works construction contract was awarded in November
2016, site clearance has started.
Eskom-funded Matla life-of-mine projects
Four interrelated projects are in different study phases:
›› Mine 1 relocation awaits final Eskom funding approval and
government approval, which are expected in the second
quarter of 2017
›› Bankable feasibility study for the shortwall replacement
project will be presented to Eskom in March 2017
›› The north-west access project is under review at Eskom’s
request and will be re-presented to the utility in June 2017
›› The ventilation shaft project is in concept level and will be
presented to Eskom in March 2017.
Material issue: Business resilience
Business
resilience
Improvement
project
Operational
efficiencies
Portfolio
optimisation
Innovation
The primary KPIs for business resilience relate to financial
capital, although our responses also impacted operational
efficiencies and employees and therefore broader capitals,
as discussed later.
2016
2015
Actual
Indicator
Actual
Indicator
Trend
24%
23%
15%
18%
6%
4%
425c
18%
16%
Coal, ferrous,
mineral sands
Annual core HEPS (short-term target)
Financial
1 457c
People productivity (total tonnages
handled/full-time employee (FTE)
average) (improvement from base)
Manufactured
People productivity (production tonnes/
FTE) (improvement from base)
Manufactured
Commodity diversification
Manufactured
(10%)
(12%)
Coal, ferrous,
mineral sands,
energy
Legend
Out of
appetite
Worst
tolerable
Best
realistic
Target
Possible waste/
opportunity
(exceeding target)
EXXARO Integrated Report 2016
69
Group profileExecutive reviewOutlookBoard reviewMineral resources and reservesAnnexures
EXECUTIVE REVIEW (CONTINUED)
Operating performance
Exxaro reached an unprecedented milestone on 31 December
2016 after two consecutive calendar years without a fatality. By
31 December 2016, we had operated for a record 30 consecutive
months without a fatality, and improved our LTIFR by 47% to
0,09 (2015: 0,17).
The group delivered a very strong performance for 2016.
Consolidated group revenue increased by 14% to R20 897 million,
while group net operating profit rose 64% to R5 200 million
(2015: R3 173 million) mainly due to higher coal sales prices and
the 15% depreciation of the rand against the US dollar. Other
factors contributing to increased net operating profit included:
›› Higher contributions from our coal operations (page 10)
›› Non-recurring 2015 impairments of R1 749 million for goodwill
and property, plant and equipment
›› R670 million gain on disposal of the Mayoko iron ore project
and related subsidiaries, with subsequent cost savings in our
ferrous segment.
Income from equity-accounted investments increased
substantially to end 2016 at R2 373 million (2015: loss of
R1 137 million). This was mainly due to an improved performance
from SIOC (up R2 312 million) on a recovery in iron ore export
selling prices, and lower losses from our investment in Tronox
(decrease in losses of R1 119 million). Our energy joint venture,
Cennergi, recorded equity-accounted income of R3 million for
2016 (2015: loss of R53 million) after its two wind-farm projects,
Amakhala Emoyeni and Tsitsikamma Community wind farm,
were brought into commercial operation in the third quarter
and started earning revenue from electricity supplied to the
national grid.
›› Cash flow from operations rose to R5 549 million (2015:
R4 526 million), sufficient to cover capital expenditure of
R2 780 million (page 10), dividends of R625 million, net
financing charges of R459 million and tax of R547 million.
Summarised group statement of cash flows (Rm)
Cash flows from operating
activities
Cash generated by operations
Interest paid
Interest received
Tax paid
Dividends paid
Cash flows from investing
activities
Property, plant and equipment to
maintain operations
Property, plant and equipment to
expand operations
Increase in investment in intangible
assets
Proceeds from disposal of property,
plant and equipment
Increase in investments in other
non-current assets
Increase in loans to related parties
Proceeds from disposal of operation
Proceeds from disposal of joint venture
Increase in investment in associate
Increase in investment in joint venture
Income from investments in associates
and joint ventures
Acquisition of subsidiaries
Dividend income from financial assets
Cash flows from financing
activities
Interest-bearing borrowings raised
Interest-bearing borrowings repaid
Shares acquired in market to settle
share-based payments
2016
Rm
3 918
5 549
(595)
136
(547)
(625)
2015
Rm
3 011
4 526
(500)
54
(85)
(984)
(2 198)
(5 130)
(2 413)
(1 663)
(367)
(727)
(34)
35
198
(106)
(400)
70
(374)
1 341
(3 436)
1
2 000
4 320
(2 320)
(160)
47
200
(233)
(55)
748
1 483
7 565
(6 066)
(16)
Net increase/(decrease) in cash
and cash equivalents
3 203
(119)
Revenue
Net operating
profit/(loss)
2016
2015
2016
20 673
3 483
17 190
170
170
54
18 093
3 835
14 258
173
173
64
5 166
226
4 940
566
613
(75)
28
(532)
2015
2 574
195
2 379
(306)
(292)
10
(24)
905
20 897
18 330
5 200
3 173
Coal
– Tied1
– Commercial2
Ferrous
– Iron ore3
– Alloys4
– Other
Other5
Total
1 Mines managed on behalf of and supplying their entire production to
Eskom in terms of contractual agreements.
2 Net operating profit for 2015 includes pre-tax impairment of the goodwill
recognised on the acquisition of ECC of R1 524 million and the
reductants operation property, plant and equipment of R225 million.
3 Net operating profit for 2016 includes R670 million pre-tax gain on the
disposal of the Mayoko iron ore project and related subsidiaries.
4 Net operating loss for 2016 include the FerroAlloys property, plant and
equipment pre-tax impairment of R100 million.
5 Net operating loss for 2016 includes R445 million fair value adjustment
of contingent consideration which relates to the ECC acquisition.
Following the Exxaro improvement project, we achieved
sustainable cost savings of R235 million in the review period.
Earnings, including our equity-accounted investments in
associates and joint ventures, totalled R5 679 million
(2015: R296 million) or 1 600 cents per share (2015: 83 cents
per share).
Equity-accounted
income/(loss)
2016
2 416
(384)
238
2015
104
(1 503)
253
Dividends
received
2016
298
450
2015
673
668
100
3
64
(53)
(4)
2
2 373
(1 137)
748
1 341
SIOC1
Tronox
Mafube
Black
Mountain
Cennergi
RBCT2
SDCT
Total
70
EXXARO Integrated Report 2016
Prudent net debt position (R million)
31 December 2015 versus 31 December 2016 unit cash cost
movement (%)
3 012 (5 549)
2 780
166
(748)
30
1 322
Inflation PPI at 6,7 %
8,0
0,6
(0,9)
625
547
459
(5,9)
(13,6)
Dec
2015
Cash
generated
Net
financing
costs
Tax Divdends
paid
Capex Investing
activities
Dividends
received
Other Dec 2016
Net debt at 31 December 2016 was R1 322 million, compared
to R3 012 million at 31 December 2015. This equates to a net
debt:equity ratio of 3,8% (2015: 8,8%). Our capital structure
remains robust and we successfully refinanced our R8 billion
term loan facility at attractive terms, despite Standard & Poor’s
downgrading our domestic credit rating to zaBB+/zaB.
Headline earnings were 185% higher at R4 621 million (2015:
R1 623 million) or 1 302 cents per share (2015: 457 cents per
share).
Exxaro improvement project
The 2016 improvement project focused on optimising support
services across the business and reviewing our business model.
From initial estimates of almost 600 retrenchments, we were
able to contain that to under 100 and maintain relationships
with affected and relevant stakeholders.
Operational efficiencies
In 2016, we continued our drive for operational excellence
throughout the coal business. This process is focused on
continually improving the business in a structured programme
that focuses on:
›› Increasing mine throughput
›› Decreasing total cost
›› Improving overall efficiencies.
As a result, our coal business has decreased the average unit
cash cost annually and kept unavoidable increases below the
targeted inflation line.
(22,9)
ECC
NBC
Matla
GG
Mafube 50%
LPN
* The Grootegeluk increase for 2016 reflects the focus on in-pit coal
liberation to facilitate the ramp-up of the business unit for 2017.
In the latter part of 2016, we initiated our drive towards
digitisation and innovation by developing roadmaps for each
business unit. These roadmaps will be completed in the current
year, aimed at harnessing disruptive technologies and their
subsequent improvement opportunities.
Portfolio optimisation
In 2016, our portfolio optimisation philosophy considered
long-term commodity forecasts, as well as strategic and
financial rationales and mega trends that affect the current
portfolio. To achieve our objectives:
›› We divested from the Inyanda coal mine
›› In focusing more attention on our planned mega projects,
we divested from the Kranspan, Vaalbult and Arnot South
prospecting rights
›› We closed the AlloyStream technology project
›› We sold the Mayoko iron ore project in the Republic of Congo.
We made further progress in our portfolio optimisation by:
›› Advancing the feasibility studies of our Belfast project
›› The Thabametsi phase I project was approved for
implementation after we negotiated offtake agreements, as
well as the successful bid by the Thabametsi IPP (independent
power producer)
›› We have optimised Leeuwpan through a life-of-mine
extension project which is now being implemented
›› In our energy portfolio, Cennergi has begun commercial
operations for its two wind projects which are now supplying
to the national grid
›› Aligning our mine plans to maintain a healthy balance
between the export product market and local supply to
mitigate against commodity cycles and dependency on
the power station coal market.
In our pursuit of creating more value and product
diversification, we have considered downstream processing on
reductants and market coke products. With feasibility studies
on our market coke project completed, implementation depends
on changes in current market conditions. Looking forward, we
will continue to evaluate and optimise our current portfolio,
while focusing on robust new opportunities within our approved
commodity strategy.
EXXARO Integrated Report 2016
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Group profileExecutive reviewOutlookBoard reviewMineral resources and reservesAnnexures EXECUTIVE REVIEW (CONTINUED)
SIOC shareholding: We will keep monitoring the global outlook,
particularly iron ore commodity prices, and will be considering
the future of this investment in the context of Anglo American
plc’s intention to dispose of its controlling interest in KIO.
Tronox continued its dividend declaration in 2016, but at a rate
of US$0,25 per share for the first quarter, and US$0,045 per
share for the rest of the year. Exxaro’s board has determined
that it will explore available alternatives to sell its Tronox shares
in a thoughtful, efficient and staged process to focus on its core
activities.
Innovation
Innovation is imperative in a competitive, global industry facing
multiple challenges. The successful mining companies of the
future will be characterised by their flexibility in anticipating and
meeting demand cost effectively, safely and profitably. Exxaro
is pursuing innovation both in mining and beyond to drive
diversification and growth.
As part of our drive for innovation and renewal, in 2016, we
began a process to assist the organisation to review and
possibly change the way it sees the future. Through an intensive
process of understanding how fast and in which direction the
world is changing, it became apparent that the future could lead
to Exxaro creating fundamentally new businesses, beyond the
space of mining.
In this context, the fields of energy, agriculture and water were
identified as new areas for Exxaro to investigate and potentially
monetise opportunities by creating new initiatives and
businesses. The company is also exploring opportunities that
support rapid growth in this future world, specifically business
mechanisms aligned to exponential and innovative business
models in the three broad potential sector themes.
The objective of the business-of-tomorrow programme in Exxaro
is twofold: meet growth targets, and make a meaningful impact
on both South African and African societies and economies. At
a global level, the recurring nexus of energy-agriculture-water is
continuously recognised as a key global societal, economic and
environmental challenge of the future that needs to be urgently
addressed.
All three sectors and their nexus support Exxaro’s commercial
and social impact objectives. All have an affinity to our current
business and capabilities, particularly energy and water which
are both key components of mining operations:
›› The energy and mining sectors are interdependent – the
mining sector supplies coal, oil, uranium and biomass to
power producers for electricity generation; and the mining
sector requires energy to operate mines
›› Water is a challenge for mining operations and after mine life;
particularly acid mine drainage which contaminates soil and
water supplies. The flow of acid mine drainage into South
Africa’s surface and groundwater systems is degrading the
quality of these systems, poisoning crops, endangering
human health, and damaging wildlife, eco-systems and
infrastructure
›› Mining and agriculture can overlap in several ways, including
the use of mining land for agricultural purposes, mining
communities’ involvement in agricultural activities and using
mining output in agricultural products such as fertiliser.
72
EXXARO Integrated Report 2016
Existing Exxaro capabilities, assets and business needs can be
leveraged as starting points. By entering into opportunities in
the energy, water and agricultural sectors, Exxaro will not only
address core business challenges and optimise the use of its
existing assets, it will also provide an opportunity for the group
to fulfil certain elements of its social mandate and provide
sustainable development for communities in which it operates.
Controlling the risks
To ensure we remain resilient for the foreseeable future, we
need to address the cost competitiveness of our products and
consider how best (for aspects we control) to respond to
commodity price volatility.
Coal (also refer dependency on Eskom page 59)
In the fourth quarter of 2016, the international coal price surged
as China reduced production after the 276-day cap on
production, with prices more than doubling from January 2016
index levels. We also recorded good international demand.
Export volumes rose from 6,18Mt to 7,86Mt, mainly due to
additional volumes from ECC but offset by the sale of Inyanda.
Exxaro realised an average export price of US$50 per tonne in
both 2016 and 2015.
Trading conditions in the domestic market improved in the
second half as some producers found the export market more
attractive given strong international thermal coal prices towards
year-end. We recorded strong demand for our products in the
domestic power-generation, steam coal, metals and reductants
segments.
Total coal production (excluding buy-ins) was 160kt lower than
2015, mainly due to the sale of Inyanda and closure of Arnot.
This was offset by 12 months of ECC production compared to
four months in 2015. Sales increased by 300kt (1%).
All coal business units (except Grootegeluk) achieved significant
cost savings, below inflation year on year. Higher costs at
Grootegeluk reflect lower offtake from Eskom and lower
addendum 9 tonnages.
Coal cash cost (Rm indexed)
,
0
0
0
1
8
5
,
4
6
,
)
3
,
1
(
)
8
,
1
(
,
6
8
9
,
)
5
0
1
(
2015
Inflation
Variable
volume
Variable
cost
Fixed cost Arnot/
Inyanda
2016
Grootegeluk cash cost (Rm indexed)
,
0
0
0
1
,
2
6
,
9
3
0
1
)
8
,
1
(
,
)
4
0
(
)
1
,
0
(
reflect the inclusion of ECC sales of 402kt for the full year and
increased demand at North Block Complex and Grootegeluk,
partly offset by lower Inyanda sales of 111kt. Steam coal export
sales were 642kt (12%) higher, mainly from ECC and offset by
the Inyanda closure.
Coal core revenue, net operating profit and operating margin (Rm)
2015
Inflation
Variable
volume
Variable
cost
Fixed cost
2016
Metallurgical coal
Grootegeluk production rose 129kt (7%) but off a lower base
as semi-soft coking coal production was cut back in 2015 to
produce power station coal, given low stocks in the second half
of that year. Sales decreased by 43kt (3%) on lower offtake
from local customers.
Thermal coal
Power station coal production from our tied mines was 1 360kt
(15%) lower than 2015, after Eskom terminated the contract
with Arnot at the end of 2015.
Power station coal production from our commercial mines was
down 396kt (2%). Volumes from Grootegeluk declined 894kt
(4%) on production cut-backs due to Eskom’s full stockpiles in
the first half and lower offtake from the utility. North Block
Complex production was down 186kt (7%) due to industrial
action and relocation of a plant for safety reasons. This was
offset by higher production at Mafube of 625kt (100%).
Domestic power station coal sales from our commercial mines
was 2 078kt (9%) lower as Leeuwpan’s coal is no longer being
delivered to Eskom and lower demand under addendum 9 to the
Medupi coal-supply agreement.
Export power station coal sales rose 1 034kt (142%) after Eskom
contracts ceased at Leeuwpan and Mafube, and coal was
redirected to the export market.
Steam coal production was 1 467kt (23%) higher after including
ECC (2 539kt) for the full year and higher production at North
Block Complex of 173kt (100%) as the Eerstelingsfontein reserve
was mined for the full year. This was partly offset by no
production at Inyanda (2015: 1 035kt). Grootegeluk production
was down 127kt (8%), mainly due to full stockpiles.
Domestic steam sales increased by 2 122kt (82%) mainly from
Leeuwpan after the Eskom agreement ceased and product was
redirected to the domestic market (1 335kt). Higher sales also
18 093
20 673
24% margin
24% margin
4 296
4 918
2015
2016
■ Revenue
■ NOP
Total coal production (Mt)
0,3
12,0
0,9
12,0
13,3
-2%
1,2
9,3
0,6
7,9
8,5
8,1
41,2
33,7
34,9
39,2
27,8
27,9
28,5
2012
2013
2014
2015
2016
2017*
2018*
■ Commercial
■ Tied
■ Buy-ins
* Based on latest internal forecast.
Ferrous
Net operating profit swung to R566 million in 2016 from a
R306 million loss in 2015. This mainly reflects a R670 million
gain on disposing of the Mayoko iron ore project and related
subsidiaries, offset by a R100 million pre-tax impairment of the
ferrosilicon plant at FerroAlloys. The decision to impair the
ferrosilicon plant was based on lower demand from major
customers as well as our current view on securing new
contracts in future.
The increase in equity-accounted income from SIOC reflects the
increase in export iron ore prices in 2016. No dividends were
received from SIOC in 2016 (2015: R673 million).
EXXARO Integrated Report 2016
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Group profileExecutive reviewOutlookBoard reviewMineral resources and reservesAnnexures
EXECUTIVE REVIEW (CONTINUED)
Titanium dioxide (TiO2) and alkali chemicals
Equity-accounted losses from the Tronox investment decreased
from R1 503 million in 2015 to R384 million for 2016.
Our board has determined that it will explore available
alternatives to sell Tronox shares in a thoughtful, efficient and
staged process over time to focus on Exxaro’s core activities.
This was mainly due to the tax benefits of organisational
restructuring in the latter part of the year, lower restructuring
costs as well as net realisable value adjustments on inventory
which were released through profit or loss. Exxaro received
total dividends of R298 million from Tronox in 2016 (2015:
R668 million).
In February 2017, Tronox entered into a definitive agreement to
acquire the TiO2 business of Cristal (also known as The National
Titanium Dioxide Company Limited) for US$1 673 million cash
and shares, representing a 24% shareholding in the enlarged
company. As Tronox’s largest shareholder, Exxaro intends to
vote its shares in favour of the proposed transaction.
Material issue: Our people
Our people
Employees
Communities
Exxaro’s 10-year safety record
0,42
6
0,36
5
0,39
5
0,33
3
0,20
3
0,29
2
0,25
1
2006
2007
2008
2009
2010
2011
2012
0,19
0
2013
0,19
1
2014
0,17
0
2015
0,09
0
2016
■ Fatalities
LTIFR
Employees
Key performance indicators
KPI (as disclosed in dashboard)
Number of fatalities
Lost-time injury frequency rate
(LTIFR) per 200 000 hours
Occupational health incident
frequency rate (OHIFR)
Project delivery measure for LED
projects per SLP (time variance from
plan) – mining charter
Employment equity (%) in top, senior
and middle management at every
business unit – mining charter
Human resources development
(% payroll excl levies, incl internal and
external training) – mining charter
Skills provision (% of internal
appointment of critical skills)
Skills retention (% turnover)
2016
2015
Actual
Indicator
Actual
Indicator
Trend
Capital
Human
Human
Human
0
0,09
0,35
0
0,17
0,36
Social
(13%)
not reported
to the board
Social
58%
Social
4,5%
Human
Human
65%
5%
60%
6,8%
82%
5%
Legend
Out of
appetite
Worst
tolerable
Best
realistic
Target
Possible waste/
opportunity
(exceeding target)
74
EXXARO Integrated Report 2016
Safety
The safety of our people is fundamental to our business, and
we will not rest until we consistently achieve our safety goals
through collective responsibility, commitment and ongoing
focus. As part of this focus, all operational business units have
international health and safety accreditation (OHSAS 18001).
We have made steady progress over the past 10 years (see graph
on page 74), proving that our target of zero harm is attainable.
By December 2016, Exxaro had recorded another outstanding
performance by operating for over 30 months without a
mining-related fatality. This is proof that our target of zero
fatalities is attainable and no death is acceptable.
As noted by the SRC committee, a material achievement in 2016
was our lowest LTIFR of 0,09. This is a 47% improvement on the
LTIFR reported for 2015 and significantly below the peak of
0,42 in 2006 (79% improvement). In the same 10-year period,
fatalities have decreased from six in 2006 to zero in 2015 and 2016.
We recorded 16 LTIs against an aspiration of zero harm. The
most common incidents were leg and ankle injuries followed
by hand injuries. The highest number of LTIs were recorded at
Matla, Grootegeluk and Arnot.
We have focused programmes to empower safety, health and
environmental representatives with the knowledge to identify
risks better and contribute more effectively to reducing safety
risks in the workplace.
In 2016, five section 54 directives were issued by the DMR at
Arnot, Grootegeluk and Matla for identified non-compliance.
One section 54 directive was issued by the DMR for
Grootegeluk. We have maintained a positive trend since 2010 in
reducing directives, reflecting the benefit of an internal section
55 inspectorate programme at all business units, authorising
appointed employees to stop unsafe activities and, in time,
prevent accidents.
In engaging with employees on safety, we focused on visible felt
leadership (VFL), hazard identification, and response training
and leadership empowerment in the workplace. The early
benefits of more stringent safety practices are evident in fewer
section 54 directives (safety stoppages) issued by the DMR.
Health
Fourteen occupational diseases cases were accepted and
52 cases reported in 2016 (excluding ECC), bringing
occupational health incident frequency rate (OHIFR) to
0,35 against target of 0,34.
Given the importance of the health and wellness of our
employees and contractors, we introduced the occupational
health incident frequency rate (OHIFR) two years ago and we
are driving awareness to improve the health of all our people.
A key focus in future will be lifestyle diseases, which are proving
a significant health risk for Exxaro.
Labour stability
Labour stability is one of the mining industry’s key challenges.
Despite the often-volatile nature of our industry, we are
maintaining a stable labour climate across Exxaro, always
aiming for crucial interactions with organised labour that are
constructive and indicative of improving relationships. These
positive union relationships are sustained through functioning
engagement structures and constructive processes to resolve
issues. Apart from engaging with our labour stakeholders, we
also continuously engage with our entire workforce.
Key indicators for labour stability reflect that we were not
exposed to any unprotected work stoppages in 2016 and our
external dispute-resolution referral rate improved by 33%.
The advent of multiple unions as opposed to traditional mining
unions has changed the collective-bargaining environment
significantly over recent years. Managing inter-union rivalry
within these forums is a key success factor in maintaining labour
stability. As a company, we have successfully adopted a pluralist
approach to union recognition, and through appropriate
governance, we have enjoyed labour stability.
Employment equity
Our efforts to transform our organisation remain vigorous.
Since Exxaro’s inception 10 years ago, developing skills levels
across the business has been the cornerstone of successfully
implementing our employment equity plans.
EXXARO Integrated Report 2016
75
Group profileExecutive reviewOutlookBoard reviewMineral resources and reservesAnnexures EXECUTIVE REVIEW (CONTINUED)
We submitted our statutory annual reports for the last reporting
cycle. Although we have achieved our targets at the senior and
middle management levels, our challenge remains with junior
management and people with disabilities.
Exxaro’s women-in-mining focus is a key enabler for women
to enter careers in our industry. Women currently comprise
20% of the workforce, and we focus on attracting women
through our talent pipelines. While this is a challenge, women
now constitute 28% of young professionals-in-training, 34% of
our full-time bursars in engineering and mining at universities,
as well as 27% in learnership programmes across the group.
Communities
We have seen a growing trend of community-based protests
affecting our employees directly through a physical inability to
get to work but also often manifesting through interactions with
labour as an expectation that mining companies must fill the
void caused by a lack of service delivery. As a mining company,
balancing the strategic imperative for higher employee
productivity with increasing demands from unions and
communities for fair wages and benefits can place strain
on labour stability.
We began implementing a revised approach to enterprise
and supplier development in 2016, focused on establishing
entrepreneurs who will be able to create employment and
opportunities for themselves and their wider network in the
communities.
Organisational restructuring
In consultation with our labour stakeholders, we concluded a
number of section 189 closure processes (retrenchments) across
the group in 2016, including Exxaro Coal Central, Arnot and,
more recently, the Exxaro improvement project (EIP) that
focused on support services across the business.
Although these processes are challenging, our relationships
with all stakeholders was a key factor in their successful
outcome. Understanding the emotional impact of organisational
restructuring, we provided dedicated employee assistance
services throughout all section 189 processes. We have in all
instances redeployed as many affected employees as possible.
Skills development
Given the importance of skills in our industry, we endeavour to
invest an appropriate amount of total salaries and wages each
year in developing our people.
Training
184
178
6
5,4
2015
2016
■ Training spend (Rm)
■ Percentage of payroll (%)
76
EXXARO Integrated Report 2016
In 2016, we spent R178 million on training, or 5,4% of payroll
(2015: R184 million or 6,0%):
›› R90 million was for job-related operational and technical
training at business units, including operator training and
mobile equipment licences. This amounts to 148 500 training
sessions using our e-learning platform, classroom and
practical on-the-job training to satisfy mainly core training
needs directly linked to operations, as well as the
requirements of the Mine Health and Safety Act (MHSA).
This includes training contractors as required by the MHSA,
as well as section 101 of the Mineral and Petroleum Resources
Development Act (MPRDA)
›› R84 million was spent on talent pipelines comprising
bursaries, internships, learnerships and skills programmes
based on our need for core and key skills. Viewed from the
perspective of outcomes, we look at key areas across the
skills value chain to determine which actions will ensure
the right skills are available at the right time. R46 million
of this amount is spent on artisans/miners per year
›› R3,7 million was on developing targeted employees in
management development programmes, leadership
development, postgraduate studies and support-function
development.
Talent management
To meet our current and future skills requirements, we invest
in our existing employees, future employees, and in the
communities that provide our labour. At present, 99% of
Exxaro’s labour is sourced in South Africa and, at any operation,
over 70% is sourced from host communities. Our education,
bursar and skills development initiatives are geared to empower
local communities to compete for positions in the company.
Graduate programme
Our three-year professionals-in-training programme blends
academic theory with the work environment. Each graduate
has a mentor who supervises exposure to various operational,
leadership and management training on the job. Mentors also
assist with fulfilling registration requirements for relevant
governing bodies and professional associations. In 2016, there
were 51 professionals-in-training (2015: 64) throughout Exxaro
in a R18,3 million programme. Of these interns, 40% are women
and 64% are black, and over 90% were placed throughout the
group.
Bursary programme
There are currently 61 bursars studying at South African
institutions at a cost of R6,6 million per annum. Over two-thirds
are black South Africans and 36% are women.
As part of the Exxaro people development initiative, we granted
eight bursaries in 2016 to school leavers interested in technical
disciplines such as engineering (metallurgical, chemical,
mechanical, electrical, industrial, mining or civil), mine surveying
and geology. Candidates must be grade 12 students from Exxaro
communities who want to study for a technical degree or
diploma.
MINERAL RESOURCES AND RESERVES STATEMENT
MINERAL RESOURCES AND RESERVES STATEMENT
Exxaro’s coal resources and reserves
Arnot
1
Dorstfontein (74%)
2
Forzando (74%)
3
North Block Complex
4
Grootegeluk
5
Leeuwpan
6
Matla
7
Belfast
8
Eloff (51%)
9
Thabametsi
10
11 Waterberg North
12 Waterberg South
Zonderwater
13
Mafube (50%)
14
Tumelo (49%)
15
Tshikondeni
16
Exxaro is committed to the principles of transparency, materiality
and competence and continuously strives to enhance the level of
estimating and reporting mineral resources and ore reserves.
The reported mineral resources and reserves information
presented here is a summarised introduction of governance,
assurance and methodologies applied as well as an overview of
significant mineral tenure items for the reporting period. This
summary is supported by the Consolidated Mineral Resource and
Reserve (CMRR) report on our website. The content of the CMRR
report is compiled from detailed independent reports received
from appointed competent persons at the various operations
and projects and available on request from the group company
secretary. In addition, each operation or project maintains an
individual competent person’s report that encapsulates the
systematic and detailed estimation process conducted by or
supervised by that person. These reports are aligned with the
checklist and guideline of the reporting and assessment criteria
table of the SAMREC Code and are scrutinised and updated when
required. Competent persons have sufficient relevant experience
and consented to the inclusion of the information in the form and
context in which it appears in the CMRR report, which also
includes their particulars.
The CMRR report is aligned with JSE Listings Requirements
(section 12) and provides comprehensive information on reporting
governance, competence, tenure, risk, assurance, auxiliary
descriptions of applicable properties and the mineral resources
and ore reserves estimates underpinning Exxaro’s current
operations and growth projects.
The mineral resources and ore reserves are summarised in the
CMRR report. Mineral resources and ore reserves are reported as
those remaining on 31 December 2016 and compared with the
corresponding estimates as reported on 31 December 2015.
Significant changes in resource or reserve figures are explained.
78
EXXARO Integrated Report 2016
Mineral resources are reported including resources that have been
converted to ore reserves and at a 100% Exxaro ownership,
irrespective of the individual operation or project’s attributable
shareholding. An exception is our reporting for Gamsberg and
Black Mountain, as figures from Vedanta Resources plc represent
resources excluding those mineral resources converted to
reserves. The reported estimates are not an inventory of all
mineral occurrences identified, but a reasonable estimate of those,
which under assumed and justifiable technical, environmental,
legal and economic conditions, may be economically extractable
at present (ore reserves) and eventually in future (mineral
resources).
Mineral resources and ore reserves were estimated on an
operational or project basis and in accordance with the South
African Code for the Reporting of Exploration Results, Mineral
Resources and Mineral Reserves (SAMREC Code – 2007 edition;
July 2009 amended version) for African properties, except for
Vedanta’s property, and the Australasian Code for Reporting of
Exploration Results, Mineral Resources and Ore Reserves (JORC
Code – 2012) for Australian and Vedanta properties. For coal
resources and reserves under Exxaro Resources’ management
control, estimation is in line with the South African National
Standard: South African guide to the systematic evaluation
of coal resources and coal reserves (SANS 10320:2004).
Exxaro reports mineral estimates that are directly under its
management control and includes estimates for entities in which
we hold a 25% interest or more. Supplementary descriptions are
provided for projects and operations directly under Exxaro’s
management control. For projects and operations included in the
Exxaro mineral resource and ore reserve statement but in which
Exxaro does not have management control, the reader is referred
to that company’s website for supplemental information as
outlined in the CMRR report.
The annual estimation and reporting process is managed through
the Exxaro geosciences policy and associated mineral resource
and reserve reporting procedure. The documents dictate technical
requirements for estimation and reporting, and include guidelines
on methodologies, templates and assurance. Both the policy and
procedures are aligned with the guidelines of the SAMREC Code
and, for South African coal reporting, SANS 10320:2004. The
processes and calculations associated with the estimation process
have been audited by internal competent persons and are audited
by external consultants when deemed essential. For mines or
projects in which Exxaro does not hold the controlling interest,
figures have been compiled by competent persons from the
applicable companies and have not been audited by Exxaro.
Resource estimations are based on the latest available geological
models, which incorporate all new validated geological information
and, if applicable, revised seam, resource definitions and resource
classifications. The geological models are compiled as a rule
between May and September of the reporting year to align with
the subsequent reserve estimation process. For the Exxaro
operations and projects, Exxaro uses a systematic review process
that measures the level of maturity of the exploration work done,
the extent of the geological potential, the mineability, security of
tenure and associated geological risks/opportunities to establish
an eventual extraction outline (EEO). The outline reflects the
boundary within which occurrences are considered to have
reasonable and realistic prospects for eventual economic
extraction (RRPEEE). Exxaro continuously examines various
aspects of the mineral resource estimation process; in 2016, we
have conferred specifically on concepts put forward by the
SAMREC (2016) and SANS (2015) rewrites and will apply these
concepts in the 2017 estimation period and end-2017 mineral
resource reporting.
The location, quantity, quality and continuity of grade/quality
and geology within the EEO are known to varying degrees of
confidence and continuously tested through exploration activities
such as geophysical surveys, drilling and bulk sampling. Mineral
resources are classified into inferred, indicated or measured
categories based on the degree of geological confidence.
Distribution of points of observation (drilling positions, trenches,
etc), quality assurance and quality control in sample collection,
evaluation of structural complexities and, in the case of
operations, reconciliation results, are considered in classifying
resources. A formal, annually compiled and signed-off exploration
strategy outlines activities planned to investigate areas of low
confidence and/or geological or structural complexities to ensure
resources of a high level of geological confidence are considered
for mine planning.
Exxaro attributable coal resources and reserves 2016 (Mt)
Ore reserves have the same meaning as mineral reserves, as
defined in the applicable reporting codes. Ore reserves are
estimated using relevant modifying factors at the time of
reporting (mining, metallurgical, economic, marketing, legal
environmental, social and regulatory requirements). Modifying
factors are reviewed before and after reserve estimation by the
persons responsible for ensuring all factors are timeously and
appropriately considered. Signed-off reserve fact packs that
record losses, recoveries/yields, cost, commodity prices, exchange
rates and other required factors applied are documented in each
life of mine and independent competent person’s reports.
Reported ore reserves are derived from indicated and measured
mineral resources only, ie those modified or converted into proved
or probable ore reserves, that is run-of-mine, which in turn have
been scheduled for processing. Changes in the market, increased
awareness of protecting the natural environment and changing
legislation requirements demand a change in the utilisation
strategy and execution of mining operations. Exxaro continuously
assesses the various life-of-mine strategic plans to consider the
best way of addressing these challenges.
Mineral resources and ore reserves quoted fall within existing
Exxaro mine or prospecting rights. Rights are of sufficient
duration (or convey a legal right to convert or renew for sufficient
duration) to enable all reserves to be mined in accordance with
current production schedules. The only exceptions are the
Grootegeluk (executed March 2011 for 30 years), Matla (executed
March 2015 for 10 years) and Forzando (executed June 2013 for
16 years) operations where adequate ore reserves exist for
life-of-mines extending well beyond the period for which they
were granted.
Exxaro has a world-class coal resource portfolio comprising fully
owned operations and projects and a number of jointly owned
operations and projects in South Africa and Australia. The fully
owned coal operations and projects in South Africa are located
in both the large and highly prospective Waterberg coalfield in
Limpopo and the more mature Highveld and Witbank coalfields
in Mpumalanga.
The Exxaro total attributable coal resource has slightly decreased
(~2,8%) mainly as a result of mining depletion and updating
geological models with new information. Changes in total
resources and movements in individual categories are more
prominent at operations than projects, reflecting the current
Exxaro strategy to focus primarily on optimising core operations.
A significant amount of brownfields exploration has been
conducted over recent years. Exploration drilling focused on the
medium term, targeting areas of current or emerging geological
complexity (eg Matla and Grootegeluk coal mines) but also long
term to extend our life-of-mine plans (eg Dorstfontein, Forzando
and Matla).
4
2
1
7
3
8
2
2
9
0
9
4
9
6
9
6
5
9
4
2
7
9
9
4
0
5
0
6
6
8
1
4
9
3
6
4
2
0
5
6
3
3
7
4
4
8
6
3
2
3
5
6
0
9
7
4
4
2
6
3
4
8
5
6
3
8
0
5
8
0
3
3
2
8
5
6
4
2
8
4
6
5
6
3
8
7
4
7
9
1
8
2
5
2
6
3
2016
2015
2014
2013
2012
2011
2010
2009
2008
■ Measured ■ Indicated ■ Inferred
■ Proved ■ Probable
6
7
8
3
6
5
6
7
4
9
0
5
EXXARO Integrated Report 2016
79
Group profileExecutive reviewOutlookBoard reviewMineral resources and reservesAnnexures
MINERAL RESOURCES AND RESERVES STATEMENT (CONTINUED)
The Waterberg is regarded as the future of South African coal
mining. Exxaro holds significant coal resources in the Waterberg,
primarily within the Grootegeluk mine and a number of nearby
prospecting rights. Grootegeluk secures thermal coal reserves
to Eskom’s Matimba and newly commissioned Medupi power
stations, and produces semi-soft coking and metallurgical coal
through eight beneficiation plants. The Grootegeluk complex is
continuously evolving, illustrated by commissioning an in-pit
mobile crusher system, ramp-up of the GG7 and GG8
beneficiation plants and commissioning a first-of-its-kind
cyclic-operated coal slimes ponds facility.
The Grootegeluk geological model was updated in the reporting
year with a significant amount of new information. The
development of this large open-pit operation poses a number
of challenges, including an increase in total sulphur content,
thinning of the upper benches used to produce semi-soft coking
coal as well as the increase in the magnitude of fault
displacement. In response to these challenges, we created a
short-term grade-control model, and introduced a close-spaced
infill drilling programme and new geometallurgy simulation
approach. The Grootegeluk life of mine is currently under review
and a number of projects to enhance existing performance are
at an advanced stage, notably the construction of the GG6
expansion beneficiation plant (upgrading the GG2 plant). The
expansion will add a second stage of beneficiation to the
Exxaro mining and prospecting rights in the Waterberg
existing GG2 plant and upgrade the two tip-bins to a higher
capacity. The project aims to triple the capacity of the current
GG6 plant, producing a high-ash semi-soft coking coal suitable
for the export market and as power station coal.
Four projects are located near Grootegeluk mine. The
Thabametsi project, to the west of Grootegeluk, was granted
a new mining right in July 2016. The project will supply coal to
the Thabametsi power plant that was selected as a successful
bidder under the Department of Energy’s coal baseload IPP
procurement programme. The first phase of development is
an open-pit operation that would use coal from the Volksrust
formation, and provide power station coal (~3Mt per year) to
the adjacent Thabametsi power plant. This project signifies an
exciting new phase for Exxaro in the Waterberg.
The Zonderwater underground coal gasification project has
been suspended after a due-diligence study. A subsequent
review of current potential for conventional underground
coal mining proved unsatisfactory and Exxaro will therefore
relinquish the prospecting right when it lapses in early 2017. The
approval of a section 11 (ministerial consent) for the Waterberg
South project is pending and there is a reasonable expectation
that application will be granted in 2017, transferring ownership
to a new owner.
80
EXXARO Integrated Report 2016
Exxaro attributable Waterberg coal resources (Mt)
Non-committed:
Waterberg South
(section 11 transfer),
Zonderwater (PR
lapse), Waterberg
North project (low
priority)
Committed:
Grootegeluk mine
and Thabametsi
project (mining
rights registered)
23
3 067
3 295
1 586
3 589
■ Measured
■ Indicated
■ Inferred
A number of Exxaro-owned open-pit and underground
operations and projects are in Mpumalanga. The Matla
operation is a tied coal supplier to Eskom and North Block
Complex (NBC) produces power station coal for Eskom but also
serves the export market and a number of local consumers
with a range of coal products. Arnot, an Eskom tied mine, is in
closure after termination of the coal-supply agreement with
Eskom.
The valued outcomes of an extensive revision of Matla mine in
the reporting year position the operation ideally to overcome
operational challenges should the necessary capital be
timeously approved. Mine 1, one of three Matla shafts, was
stopped in 2015 due to pillar instability but the potential impact
Locality map for ECC mining and prospecting rights
was mitigated by moving mining sections and increasing
production. A significant amount of new drilling information,
update of the geological model and revision of the life-of-mine
plan (LoMP) established a solid platform for future operational
expansion and excellence. Two feasibility studies were concluded
to enhance future reserves (seams 2 and 4) by establishing an
incline and decline above and below current workings and
introducing additional continuous mining (CM) sections for
when the shortwall ground is depleted. Both projects form part
of the LoMP and are awaiting final capital approval by Eskom.
At Leeuwpan mine, the OI feasibility study was concluded and
approved by Exxaro management. The OI reserve contributes
to around 50% of the operation’s ore reserves and is a material
part of its LoMP. The two mining rights of Leeuwpan mine are
both executed and the approval of a ministerial consent
(section 102) submitted to amalgamate the two rights is
pending.
North Block Complex (NBC) includes the mining areas of Glisa
(converted mining right), Strathrae (converted mining right) and
Eerstelingsfontein, an executed new mining right. Environmental
approvals for Eerstelingsfontein have been granted and
approval for renewal of the mining right, timeously submitted
in March 2013, is pending. In addition, the renewal for a
prospecting right and application for a new mining right for the
Glisa South project area, adjacent to Glisa mine, were submitted
in November 2013. An appeal, currently being addressed
through the regional mining development and environment
committee, is in progress.
EXXARO Integrated Report 2016
81
Group profileExecutive reviewOutlookBoard reviewMineral resources and reservesAnnexures MINERAL RESOURCES AND RESERVES STATEMENT (CONTINUED)
Exxaro holds a 74% interest in a number of mining rights under
Exxaro Coal Central (ECC) for the operations of Forzando (FZO)
and Dorstfontein (DCM) and adjacent prospecting rights, as well
as a 49% interest in the mining right of Tumelo (see map on
page 81). A full review of the Dorstfontein and Forzando
operations has been concluded. The market strategy and LoMP
were meticulously revised, extending life of mine at Dorstfontein
from five to 15 years and at Forzando from five to 20 years.
Focused exploration drilling supported the advancement of the
Dorstfontein East open-pit (pit 1, extension) and underground
(pit 3) reserve areas as well as life-of-mine development of
the underground Dorstfontein West and Forzando operations.
A number of exploration projects are located next to the
Dorstfontein and Forzando operations. The strategy to conclude
investigations of these assets and move them into the
operational arena is progressing well. This is illustrated by the
approval of a section 102 application incorporating the Forzando
West prospecting right into the Forzando South mining right and
a pending section 102 application to include the Rietkuil Vhakoni
resources into the Dorstfontein East mining right.
ECC also holds a 49% interest in the prospecting right of
Schurvekop (1063PR), adjacent to the Forzando operation,
of which Mmakau Coal Mining is the majority owner. A mining
right was submitted by Mmakau Coal in the third quarter of the
reporting year. The legislative process following the mining
right submission is on schedule.
ECC holds a 51% interest in the Eloff prospecting right, near
the town of Delmas and close to Exxaro’s Leeuwpan operation.
A mining right application, compiled in the reporting year, will
be submitted in the first quarter of 2017, underlining the
growth potential of the larger ECC complex.
The Moranbah South project area in Australia includes two
mineral development licences (MDLs 277 and 377) and two
exploration permits for coal (EPCs 548 and 602). The current
terms of both mineral development licences will expire in 2018;
MDL277 on 31 July 2018 and MDL377 on 30 September 2018.
The current term of EPC548 expires on 22 February 2017
(renewal application lodged 11 November 2016). The current
term of EPC602 expires on 31 December 2018. Exxaro has a
reasonable expectation that approval of the renewal of EPC548
will not be withheld. Exploration activities comply with all
licence requirements.
The disinvestment from the Mayoko iron ore project and
Inyanda coal mine were concluded in the reporting year and
are therefore excluded from 2016 reporting.
The objective to manage and optimise Exxaro’s core mineral
assets and review mineral asset projects was strongly pursued
in the reporting year and will continue in the coming year. The
approach will be to enhance understanding of the mineral
resources through the innovative integration and interpretation
of available information and tracking value creation. The
primary objective will be to support Exxaro’s quest to
continuously improve on safe working conditions and to
maintain and enhance the mineral resources needed to sustain
its competitiveness.
The person at Exxaro designated to take corporate responsibility
for mineral resources, Henk Lingenfelder, the undersigned, has
reviewed and endorsed the reported estimates. Mr Lingenfelder
is a member of the Geological Society of South Africa and
registered (400038/11) with the South African Council for
Natural Scientific Professions. He has a BSc (hons) in geology
and 21 years of experience as an exploration and mining
geologist in coal, iron ore and industrial minerals, of which
six are specific to coal and iron ore estimation.
JH Lingenfelder
BSc geology (hons)
Pr Sci Nat (400038/11)
Group manager geoscience
Roger Dyason Road
Pretoria West
0183
The person at Exxaro designated to take corporate responsibility
for ore reserves, Chris Ballot, the undersigned, has reviewed and
endorsed the reported estimates. Mr Ballot is a mining engineer
registered (20060040) with the Engineering Council of South
Africa. He has 20 years of experience as a mining engineer in
iron ore, mineral sands and coal in various technical and
management roles.
CC Ballot
BEng mining ECSA 20060040
Group manager mining
Roger Dyason Road
Pretoria West
0183
82
EXXARO Integrated Report 2016
OUTLOOK
OUTLOOK
The five-year downturn in coal markets (since 2011) has been
challenging, but not without benefits. It has forced companies
to make do with less, to drive costs down while improving
productivity and efficiencies.
This has been a painful process at times, particularly when it
affected our people, but Exxaro is now better positioned to
capitalise on opportunities in our core sector and related fields.
Importantly, the lessons learned in our pursuit of operational
excellence are now being applied to organisational excellence –
creating a resilient company able to turn 21st century challenges
into new economies through innovation to create a better life
for all stakeholders.
We expect more supportive conditions in 2017 for most of our
chosen coal market segments, domestically and internationally.
We are confident that the strength of our diversified product
portfolio will create new opportunities in this environment.
Equally, we expect improved operational results from our coal
business in the year ahead, based on:
›› Stable trading conditions in domestic markets
›› Higher international coal prices compared to 2016
›› Our operational excellence process delivering further results
›› Technology and innovation improvements.
Exxaro has a long-standing relationship with Eskom and we
continue to work on strengthening this, importantly by
honouring our supply and quality commitments in contracts
that extend 30 to 40 years into the future. For those of our
mines where production is tied to Eskom supply, ensuring the
necessary capital expenditure has been approved by Eskom and
the regulatory approval process is under way. We appreciate the
utility’s desire to accelerate transformation in the sector and will
continue to engage with its representatives. From a business
perspective, we are making good progress in balancing our
exposure to Eskom, with most of our projects geared to export
markets.
We are realising incremental benefits from another long-
standing relationship with a state-owned entity. Exxaro and
Transnet Freight Rail are making significant progress in
unlocking the Waterberg – with our partnership translating
into projects on coal supply and rail capacity deployment.
In the energy field, we have made solid progress in our
renewable energy joint venture with Tata. Cennergi now has
two operating wind farms feeding into the national grid while
benefiting community stakeholders. We have also partnered
with other leaders in the field of energy efficiency to run pilot
projects at our operations, focused on developing new energy
solutions.
At present, we expect the performance of our investment
portfolio (SIOC and Tronox) to be supported by a favourable
commodity price outlook for 2017.
At all times in the current market, we are concentrating on
managing those elements within our control to ensure our
group is more immune to factors outside our control. Chief
among these is currency volatility. The rand exchange rate
against the US dollar is expected to remain volatile for most
of 2017 due to the combination of significant event risks and
volatility in the US dollar.
Overall, we are more optimistic about the outlook for our group
over the short, medium and longer term than in recent years.
We have proven our resilience over a challenging period and
look forward to capitalising on the opportunities ahead.
84
EXXARO Integrated Report 2016
ANNEXURES
PWC ASSURANCE REPORT
Independent Assurance Report to the Directors of
Exxaro Resources Limited
We have been engaged by the directors of Exxaro Resources
Limited (“Exxaro” or the “Company”) to perform an assurance
engagement in respect of Selected Sustainability Information
reported in Exxaro’s Integrated Report for the year ended
31 December 2016 (the “Report”). This report is produced in
accordance with the terms of our contract with the Company
dated 3 November 2016.
Independence, Quality Control and Expertise
We have complied with the independence and other ethical
requirements of the Code of Professional Conduct for
Registered Auditors issued by the Independent Regulatory
Board for Auditors (IRBA Code), which is founded on
fundamental principles of integrity, objectivity, professional
competence and due care, confidentiality and professional
behaviour. The IRBA Code is consistent with the International
Ethics Standards Board for Accountants Code of Ethics for
Professional Accountants (Part A and B).
The firm applies International Standard on Quality Control 1 and,
accordingly, maintains a comprehensive system of quality
control including documented policies and procedures regarding
compliance with ethical requirements, professional standards
and applicable legal and regulatory requirements.
Our engagement was conducted by a multi-disciplinary team of
health, safety, environmental and assurance specialists with
extensive experience in sustainability reporting.
Scope and Subject Matter
The subject matter of our engagement and the related levels of
assurance that we are required to provide are as follows:
Reasonable assurance
The following information in the Report (page 88) was selected
for an expression of reasonable assurance:
a) Fatality Frequency Rate (FFR) – Employees and Contractors
b) Lost Time Injury Frequency Rate (LTIFR) – Employees and
Contractors
c) Total electricity efficiency (MWh/production tonnes)
d) Indirect CO2 emissions from electricity (scope 2) – CO2 tonnes
Limited assurance
The following information in the Report (page 88) was selected
for an expression of limited assurance:
a) Occupational Health Incident Frequency Rate (OHIFR)
– Employees and Contractors
b) Direct CO2 emissions from own operations (scope 1) – CO2
tonnes
c) Other indirect emissions (scope 3) – CO2 tonnes
d) Number of Level 2 and 3 Environmental Incidents
We refer to this information as the Selected Sustainability
Information.
We have carried out work on the data reported for the current
year only and have not performed any procedures with respect
to earlier periods, except where specifically indicated, or any
other elements included in Exxaro’s Integrated Report and,
therefore, do not express any conclusion thereon. We have not
performed work in respect of future projections and targets.
Respective responsibilities of the Directors and
PricewaterhouseCoopers Inc.
The directors are responsible for the selection, preparation and
presentation of the Selected Sustainability Information in
accordance with the criteria set out on page 90 of the Report,
referred to as the “Reporting Criteria”. The directors are also
responsible for designing, implementing and maintaining
internal controls as the directors determine is necessary to
enable the preparation of the Selected Sustainability
Information that is free from material misstatements, whether
due to fraud or error.
Our responsibility is to form an independent conclusion, based
on our reasonable assurance procedures, on whether the
Selected Sustainability Information for reasonable assurance
has been prepared, in all material respects, in accordance with
the Reporting Criteria.
We further have a responsibility to form an independent
conclusion, based on our limited assurance procedures, on
whether anything has come to our attention to indicate that the
Selected Sustainability Information for limited assurance has
not been prepared, in all material respects, in accordance with
the Reporting Criteria.
This report, including the conclusions, has been prepared solely
for the directors of the Company as a body, to assist the
directors in reporting on the Company’s sustainable
development performance and activities. We permit the
disclosure of this report within the Report for the year ended
31 December 2016, to enable the directors to demonstrate they
have discharged their governance responsibilities by
commissioning an independent assurance report in connection
with the Report. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the
directors as a body and the Company for our work or this report
save where terms are expressly agreed and with our prior
consent in writing.
Assurance work performed
We conducted our assurance engagement in accordance with
International Standard on Assurance Engagements (ISAE) 3000
(Revised): Assurance Engagements other than Audits and
Reviews of Historical Financial Information, and, in respect of
greenhouse gas emissions, International Standard on Assurance
Engagements (ISAE) 3410: Assurance Engagements on
Greenhouse Gas Statements, issued by the International
Auditing and Assurance Standards Board. These standards
require that we comply with ethical requirements and that we
plan and perform the assurance engagement to obtain
assurance on the Selected Sustainability Information as per the
terms of our engagement.
86
EXXARO Integrated Report 2016
Our work included examination, on a test basis, of evidence
relevant to the Selected Sustainability Information. It also
included an assessment of the significant estimates and
judgements made by the directors in the preparation of the
Selected Sustainability Information. We planned and performed
our work so as to obtain all the information and explanations
that we considered necessary in order to provide us with
sufficient evidence on which to base our conclusion in respect
of the Selected Sustainability Information.
Our work consisted of:
›› reviewing processes that Exxaro have in place for determining
the Selected Sustainability Information included in the
Report;
›› obtaining an understanding of the systems used to generate,
aggregate and report the Selected Sustainability Information;
›› conducting interviews with management at the sampled
operations and at head office;
›› applying the assurance criteria in evaluating the data
generation and reporting processes;
›› performing control walkthroughs;
›› testing the accuracy of data reported on a sample basis for
limited and reasonable assurance;
›› reviewing the consolidation of the data at head office to
obtain an understanding of the consistency of the reporting
processes compared with prior years and to obtain
explanations for deviations in performance trends; and
›› reviewing the consistency between the Selected Sustainability
Information and related statements in Exxaro’s Report.
A limited assurance engagement is substantially less in scope
than a reasonable assurance engagement under ISAE 3000
(Revised). Consequently, the nature, timing and extent of
procedures for gathering sufficient appropriate evidence are
deliberately limited relative to a reasonable assurance
engagement, and therefore less assurance is obtained with a
limited assurance engagement than for a reasonable assurance
engagement.
The procedures selected depend on our judgement, including
the assessment of the risk of material misstatement of the
Selected Sustainability Information, whether due to fraud or
error. In making those risk assessments, we consider internal
control relevant to the Company’s preparation of the Selected
Sustainability Information in order to design procedures that are
appropriate in the circumstances.
comparability. Qualitative interpretations of relevance,
materiality and the accuracy of data are subject to individual
assumptions and judgements. The precision of different
measurement techniques may also vary. Furthermore, the
nature and methods used to determine such information, as well
as the measurement criteria and the precision thereof, may
change over time. It is important to read the Report in the
context of the Reporting Criteria.
In particular, where the information relies on factors derived by
independent third parties, our assurance work has not included
examination of the derivation of those factors and other third
party information.
Conclusions
Reasonable assurance
Based on the results of our reasonable assurance procedures, in
our opinion, the Selected Sustainability Information for the year
ended 31 December 2016, has been prepared, in all material
respects, in accordance with the Reporting Criteria.
Limited assurance
Based on the results of our limited assurance procedures
nothing has come to our attention that causes us to believe that
the Selected Sustainability Information for the year ended
31 December 2016, has not been prepared, in all material
respects, in accordance with the Reporting Criteria.
Other Matters
The maintenance and integrity of Exxaro’s website is the
responsibility of Exxaro’s directors. Our procedures did not
involve consideration of these matters and, accordingly we
accept no responsibility for any changes to either the
information in the Report or our independent assurance report
that may have occurred since the initial date of presentation on
the Exxaro website.
PricewaterhouseCoopers Inc.
Director: Jayne Mammatt
Registered Auditor
We believe that the evidence we have obtained is sufficient and
appropriate to provide a basis for our conclusions.
2 Eglin Road
7 April 2017
Inherent limitations
Non-financial performance information is subject to more
inherent limitations than financial information, given the
characteristics of the subject matter and the methods used for
determining, calculating, sampling and estimating such
information. The absence of a significant body of established
practice on which to draw allows for the selection of different
but acceptable measurement techniques which can result in
materially different measurements and can impact
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EXXARO Integrated Report 2016
87
INDICATORS ASSURED
Key performance indicator
Fatalities
Fatality frequency rate (FFR) – employees and
contractors
Level of
assurance
Reasonable
Reasonable
Lost-time injuries (LTIs) – employees and contractors
Reasonable
Lost-time injury frequency rate (LTIFR) – employees and
contractors
Reasonable
Occupational health incident frequency rate (OHIFR) –
Reported cases – employees and contractors
Limited
2013
0
41
0,19
2014
1
36
0,19
Total people participating in HIV/Aids voluntary
counselling and testing (VCT)
Number of reported (and accepted) cases of
pneumoconiosis
Number of reported (and accepted) cases of
occupational tuberculosis
Limited
5 853
1 642
Limited Reported = 37
Accepted = 3
Reported = 12
Accepted = 2
Limited Reported = 40
Accepted = 9
Reported = 20
Accepted = 5
Number of reported (and accepted) cases of noise-
induced hearing loss
Limited
Reported = 8
0
Reported = 16
Accepted = 2
Total diesel used (GJ)
Total electricity used (GJ)
Reasonable
2 128 665
2 103 148
Reasonable
2 011 719
2 135 581
2015
2016
#
0
#
0,17
0,36
#
#
#
#
#
#
#
0
#
0,09
0,35‡
0,42‡
#
#
#
#
#
#
Electricity efficiency (kWh/production tonnes)
Direct CO2 emissions from own operations (scope 1)
Indirect CO2 emissions from electricity (scope 2)
Other indirect emissions (scope 3)
Total year-on-year change in emissions:
Scope 1
Scope 2
Number of level 2 and 3 environmental incidents
Reasonable
Limited
Reasonable
4,4
235 506
525 282
4,2
3,72
229 762
235 179
557 624
521 905
12,86
271 657
500 990
Limited
69 736 911
74 768 143
73 846 816
71 651 102
Limited
Limited
26 597
(3,40%)
#
#
Level 2 = 7
Level 3 = 0
Level 2 = 3
Level 3 = 0
Level 2 = 18
Level 3 = 0
Level 2 = 5
Level 3 = 0
Procurement from BEE entities (R value and % of total
procurement)
Reasonable
›› Capital
›› Services
›› Consumable goods
Employment equity
›› Top management
›› Senior management
›› Middle management
›› Junior management
›› Core and critical skills
Reasonable
1 937 107 893 1 545 247 148
49%
57%
2 620 387 614 2 641 029 589
58%
71%
2 654 651 605 3 091 454 498
62%
60%
53%
55%
65%
75%
67%
42%
57%
73%
98%
#
#
Total potable water (municipal and Eskom) and metered
potable water (Grootegeluk only) (m3)
Limited
2 504 390
2 304 686
2 194 398
Hazardous waste to landfill (tonnes)
Number of bursars
Number of professionals-in-training
Limited
Limited
Limited
1 349
1 542
1 814
#
#
88
86
#
#
#
#
#
#
#
#
#
#
#
#
#
#
#
#
# These indicators have not been assured by PwC for the respective years. For 2016, this reflected the shift in material issues, required cost savings, and
indicators required by GRI G4.
‡ Includes ECC at 0,42 and excludes ECC at 0,35.
These indicators have been prepared in line with Exxaro’s internally defined criteria. Refer to the glossary on page 90 for criteria.
88
EXXARO Integrated Report 2016
MINING CHARTER PERFORMANCE
Element
Metric
Ownership
Black ownership
Beneficiation
Domestic use
Procurement and
enterprise
development
Capital goods
Services
Consumables
Employment equity
Top management
Senior
management
Middle
management
Junior
management
Core and critical
skills
Percentage of
payroll
(excl levies)
Percentage of net
profit after tax or
LED project
completion
Hostel conversion
Occupancy rate
Home ownership
Human resources
development
Community
development
Housing and living
Sustainable
development
Environment
Health and safety
Actual
2012
52,14%
Yes
59%
37%
47%
None
44%
54%
69%
98%
Actual
2013
Actual
2014*
Actual
2015**
Actual
2016#
52,09%
52,09%
52,09%
45,3%##
Yes
49%
58%
62%
60%
53%
Yes
34%
69%
71%
67%
42%
Yes
53%
82%
79%
79%
34%
Yes
70,5%
48,2%
62,6%
71,4%
51,6%
55%
57%
56%
40,3%
65%
73%
75%
80,9%
96%
98%
96%
78,4%
6,6%
5,3%
6,8%
5,0%
6,1%
4,7%
0,9%
1,8%
62%
80%
100%
100%
100%
91%
93% Not reported
98%
90%
80,7%
Number of
people
sharing
– 0
Implementation
of approved
EMPs
Leadership
strategies
(programmes
implemented)
No employees
sharing rooms
Rehabilitation
and closure
plans drafted
for all mines
MOSH leading
practices and
MHSC research
findings
investigated
and
implemented
Research and
development
Annual reporting to
DMR
100%
100%
100%
100% Not reported
Yes
Yes
Yes
Yes
Yes
Reporting
Missed target
Missed target by <5%
Met/exceeded target
* The 2014 scorecard reflects the average across eight operational mining right sites only.
** The 2015 scorecard reflects the average across seven operational mining right sites only and excludes the ECC mines.
# The 2016 scorecard includes ECC.
## As at 31 December 2016.
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EXXARO Integrated Report 2016
89
GLOSSARY
Indicator
Definition
Number of fatalities
A fatality includes all work-related incidents that resulted in a fatality
Fatality frequency rate (FFR) –
employees and contractors
Rate per 200 000 hours of fatalities due to all causes for both
employees and contractors
Number of lost-time injuries (LTI)
– employees and contractors
LTI is a work-related injury resulting in the employee/contractor being
unable to attend work or perform the full duties of regular work on the
next calendar day. Restricted work cases are counted as LTIs
Lost-time injury frequency rate
(LTIFR) – employees and
contractors
Total number of people
participating in HIV/Aids voluntary
counselling and testing (VCT)
Number of reported and accepted
cases of pneumoconiosis
Rate per 200 000 hours of LTIs due to all causes for both employees
and contractors
Total number of employees who have received counselling and tested
for HIV
Number of reported and accepted cases of pneumoconiosis in the
reporting period. An occurrence of pneumoconiosis which is reported
to Medical Bureau for Occupational Disease and DMR
Safety and
health
Number of reported and
confirmed cases of occupational
tuberculosis
Number of reported and accepted cases of occupational tuberculosis
in the reporting period. An occurrence of occupational tuberculosis
which is reported to Medical Bureau for Occupational Disease and
DMR
Number of reported and accepted
cases of noise-induced hearing
loss (NIHL)
Number of reported and accepted cases of NIHL in the reporting
period. An occurrence of NIHL which is reported to Rand Mutual
Assurance and DMR
Occupational health incident
frequency rate (OHIFR) –
Reported cases (employees and
contractors)
Number of reported cases of occupational diseases in the reporting
period. An occurrence of an occupational disease which is reported
to Medical Bureau for Occupational Disease and DMR, and for NIHL
reported to Rand Mutual Assurance
These occupational diseases are:
›› Reported occupational tuberculosis
›› Reported cases of chronic obstructive airway disease
›› Reported cases of pneumoconiosis
›› Reported cases of noise-induced hearing loss
›› Reported cases of silicosis
Occupational diseases are monitored and reported for employees
and contractors. The rate is calculated per 200 000 hours for both
employees and contractors
90
EXXARO Integrated Report 2016
Indicator
Definition
Total diesel used (GJ)
Direct energy consumption by diesel used
Total electricity used (GJ)
Direct energy consumption by electricity used
Total electricity (MWh/
production tonnages)
Total electricity used, measured in megawatt-hours (MWh), divided
by production measured in kilo tonnes
Direct CO2 emissions from own
operations (scope 1)
Indirect CO2 emissions from
electricity (scope 2)
Total scope 1 emissions include total litres of diesel oil used for
primary production activities, fugitive emissions from mining
activities and limestone emissions created through mining
activities converted to tonnes CO2e
Total electricity purchased converted to tonnes CO2e
Electricity-based emissions are derived from the grid emissions
factor for South Africa (0,94t CO2e/MWh)
Other indirect emissions
(scope 3)
Total scope 3 emissions from use of sold products and upstream
transportation and distribution
Environment
Number of integrated water use
licence (IWUL) applications
approved
An approved IWUL is a licence signed by the Department of Water
and Sanitation director-general acting under authority delegated
by the minister. An approved/signed licence authorises water uses
applied for under section 21 of the National Water Act, 1998
Number of integrated water use
licences (IWUL) pending
An integrated water use licence application lodged with the
Department of Water and Sanitation for processing and awaiting
decision by the department
Number of level 2 and 3
environmental incidents
›› Level 2 – reportable environmental incidents with reversible
on-site and immediate surrounding impacts, will involve over
48hrs clean-up activities and a negative impact on shareholder
value of R50 000 to R500 000 worth of damage has definitely
occurred
›› Level 3 – reportable environmental incidents with irreversible
on-site, immediate and remote areas impacts, will involve
long-term clean-up activities and a negative impact
on shareholder value of >R500 001 worth of damage has
definitely occurred
Total potable water use
Total invoiced potable water (municipal and Eskom) and metered
potable water (Grootegeluk only) (m3)
Hazardous waste to landfill
Hazardous waste disposed of to legal landfill during the reporting
period
Procurement spend from BEE
entities (R value per capital
goods, consumables and
services)
Employment equity
Number of bursaries awarded
The support of BEE (black economic empowerment) suppliers in
line with the Exxaro preferential procurement policy and mining
charter requirements for the review period
Demographic breakdown of workforce as per mining charter
requirements for the review period
Total number of bursaries awarded in the reporting period. A
student who receives a bursary that covers university fees and
expenses from Exxaro (bursar). This student is offered work
experience in university holidays (working bursar) and, on the
successful completion of a degree, is offered employment from
Exxaro
Number of professionals in
training
Total number of professionals in training (PIT) in the reporting
period. A PIT is an employee holding a three-year contract to gain
practical experience on the mines
Mining charter
Training
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91
United States ADR Depositary
The Bank of New York Mellon
101 Barclay Street
New York NY 10286
United States of America
Registrars
Computershare Investor Services Proprietary Limited
Rosebank Tower
15 Biermann Avenue
Rosebank, 2196
(PO Box 61051, Marshalltown, 2107)
ADMINISTRATION
Group company secretary and registered office
CH Wessels
Exxaro Resources Limited
Roger Dyason Road
Pretoria West, 0183
(PO Box 9229, Pretoria, 0001)
South Africa
Telephone +27 12 307 5000
Sponsor
Absa Bank Limited (acting through its corporate and
investment bank division)
Barclays Sandton North
15 Alice Lane
Sandton, 2196
Company registration number: 2000/011076/06
JSE share code: EXX
ISIN code: ZAE000084992
Auditors
PricewaterhouseCoopers Incorporated
2 Eglin Road
Sunninghill, 2157
Commercial bankers
Absa Bank Limited
Corporate law advisers
EOH Legal Services Proprietary Limited
Roger Dyason Road
Pretoria West
0183
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BASTION GRAPHICS
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www.exxaro.com