Exxaro Resources Ltd Annual Report 2020

Plain-text annual report

Exxaro Resources Limited Integrated report 2020 POWERING A CLEAN WORLD CONTENTS ABOUT EXXARO 1 About Exxaro 2 About our integrated report 6 Our material matters UNDERSTANDING OUR BUSINESS 10 Chairperson’s statement 12 Year in review 18 Business structure and ownership 20 Coal asset base 22 Renewable energy asset base 24 Our investment proposition 26 Governance for sustainable value creation 36 Our business model 38 Our material matters in action POSITIONING THE BUSINESS FOR GROWTH 52 CEO’s report 54 Our strategy: Positioning Exxaro for sustainable growth and impact 56 Performance against our 2020 strategy 60 Understanding our key strategic trade-off considerations 62 Stakeholder management 66 Business risks and opportunities for growth 80 Combined assurance for effective governance OUR PERFORMANCE IN 2020 84 Finance director’s overview 96 Operational performance 98 Macro-environment 104 Business resilience 108 Our people 114 Human rights 116 Social licence to operate: enabling our legitimacy 118 Our environment: stewardship and compliance 122 OUR MINERAL RESOURCES AND MINERAL RESERVES 131 Glossary IBC Administration Navigating this report We use the following icons throughout our report: Read more online www.exxaro.com Read more in this report COVID-19’s impact on our organisation Material themes CONNECT WITH EXXARO We encourage and welcome feedback on our reporting suite from our stakeholders. Please send any comments or suggestions to: Malusi Buthelezi Manager: Integrated reporting and ESG Tel: +27 12 307 3174 Mobile: +27 83 460 3723 Email: Malusi.Buthelezi@exxaro.com www.exxaro.com Follow Exxaro on Facebook, Twitter, Instagram, LinkedIn and YouTube Disclaimer: Photographs of people without masks were either taken pre-COVID-19 or full health and safety protocols were followed as appropriate. With thanks to Stefanie De Beer, Line of Sight Photography for Cennergi’s windfarm photographs used in our integrated and ESG reports. Macro- environment Business resilience Our people Social licence to operate Climate change About Exxaro Understanding our business Positioning for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration ABOUT EXXARO Exxaro is more than a mining company. Guided by our purpose — powering better lives in Africa and beyond — we are a critical part of the South African economy and strive to be an active participant on the just transition to a low-carbon economy. Exxaro Resources Limited (Exxaro, the company or the group) is among the top ﬁve coal producers in South Africa. Since 2006, Exxaro has become one of South Africa’s largest and foremost black-empowered and diversiﬁed mining companies. The group is a constituent of the JSE Limited (JSE) Top 40 Index and among the top 30 in the FTSE/JSE Socially Responsible Investment Index. Exxaro is also proud to embrace the principles of the Task Force on Climate-related Financial Disclosures (TCFD). Based on our position as a major coal supplier in South Africa, we understand the importance of being carbon-neutral and ﬁnally net zero carbon. Therefore, we have started incorporating renewable energy solutions into our existing portfolio to reach this milestone by 2050. To this end, Exxaro is pleased to announce the acquisition from Khopoli Investments Limited (Khopoli), wholly owned by Tata Power Company Limited (Tata), of Khopoli’s 50% interest in Cennergi Proprietary Limited (Cennergi) for a cash consideration of R1 739 million (including price adjustments). As of 1 April 2020, Exxaro assumed 100% ownership of Cennergi. Read more about what this acquisition means for Exxaro on page 118. Our diversiﬁed asset portfolio comprises interests in renewable energy (wind) and thermal and metallurgical coal, and equity-accounted investments in iron ore, zinc and residual pigment manufacturing. Exxaro also has business interests globally in Europe (comprising a marketing and logistics ofﬁce in Switzerland), the United States of America (USA) (through Tronox Holdings plc) which we disposed of in February 2021 and Australia (comprising a joint venture with Anglo Coal (Grosvenor Proprietary Limited) in the Moranbah coal mine). Locations of our windfarm operations and coal operations and projects SOUTH AFRICA 4 Grootegeluk LIMPOPO NORTH WEST Leeuwpan 7 2 8 Tumelo GAUTENG 5 MPUMALANGA Mafube 6 1 Belfast Dorstfontein Matla 3 Forzando FREE STATE KWAZULU- NATAL EASTERN CAPE Amakhala Emoyeni Tsitsikamma Community Mine Windfarm Mining operations: South Africa Belfast Location South of Belfast Dorstfontein complex (74%) North-east of Kriel Forzando complex (87%) North of Bethal Grootegeluk complex West of Lephalale 1 2 3 4 5 Leeuwpan 6 Mafube (50%) 7 8 Matla Tumelo (49%) South-east of Delmas East of Middelburg West of Kriel North-west of Hendrina Asset type Mine Mine Mine Mine Mine Mine Mine Mine Australia Moranbah Project (50%) Location Queensland Renewable Energy: South Africa (Cennergi) Location Eastern Cape Amakhala Emoyeni windfarm Tsitsikamma Community windfarm Cookhouse Tsitsikamma AUSTRALIA Moranbah Refer to page 20 for more information about our coal asset base and page 22 for our renewable energy operations. Exxaro Resources Integrated report 2020 1 About Exxaro ABOUT OUR INTEGRATED REPORT Exxaro’s 2020 integrated report explains the year’s progress in our journey to create and preserve value for our stakeholders. As our primary communication to our stakeholders, we strive to ensure that the content in this integrated report contains the most material information relating to our value creation journey and shares our story transparently and understandably. SCOPE AND BOUNDARY This report contains important information about our strategic decisions and operational performance for the period 1 January 2020 to 31 December 2020 (the 2020 ﬁnancial year). Our 2020 integrated report covers the ﬁnancial and non-ﬁnancial information of the group’s operations in South Africa, Europe, the USA and Australia. We include limited information of operations where we do not have management control but hold a signiﬁcant equity interest, namely Sishen Iron Ore Company Proprietary Limited (SIOC), a subsidiary of Kumba Iron Ore Limited, or joint control, namely the Mafube mine and Moranbah project joint ventures. ﬁnancial statements. For more information, refer to our annual The 2020 integrated report also includes a summary of the most material information in our 2020 climate change response strategy (CCRS) report, environmental, social and governance (ESG) report and Consolidated Mineral Resources and Mineral Reserves (CMRR) report, which can be accessed on our website under the investors tab. Visit our website for historical information. OUR REPORTING BOUNDARY (risks, opportunities and outcomes) Sustainable Growth and Impact strategy (refer to page 54 ) Business model (refer to page 36 ) Operational performance (refer to page 96 ) Material matters (refer to page 6, 38 ) Business risks and opportunities for growth (refer to page 66 ) Governance (refer to page 26 ) FINANCIAL REPORTING ENTITY (control and signiﬁcant inﬂuence) EXXARO Joint arrangements Subsidiaries Investments Government and regulators Employees and labour Communities Investors Customers Suppliers Other stakeholders Reporting frameworks The content of this report is guided by: • Our materiality determination process (page 6) • Companies Act, 2008 (Act 71 of 2008), as amended (Companies Act) • International Financial Reporting Standards (IFRS) • JSE Listings Requirements • Department of Trade, Industry and Competition (dtic) broad-based black economic empowerment (B-BBEE) codes of good practice • Broad-based Socio-economic Empowerment Charter for the Mining and Minerals Industry 2018 (Mining Charter III) • International Integrated Reporting Council’s Integrated Reporting Framework ( Framework) • United Nations Global Compact (UNGC) • Global Reporting Initiative standards (elements of the ESG report are cross-referenced for a broader perspective) • King IV Report on Corporate Governance for South Africa, 2016 (King IVTM)* • The South African Code for the Reporting of Exploration Results, Mineral Resources and Mineral Reserves (SAMREC Code), 2016 (SAMREC) * Copyright and trademarks are owned by the Institute of Directors in South Africa NPC and all of its rights are reserved. 2 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration Reporting suite Exxaro is committed to transparent reporting, and as such, annually publishes a suite of reports (available on our website under the investors tab) that should be read in conjunction with this integrated report. These reports include: Exxaro Resources Limited Environmental, social and governance report 2020 Exxaro Resources Limited Climate Change Response strategy report 202 Report on alignment with the recommendations of the Task Force on Climate-related Financial Disclosures E X X A R O R E S O U R C E S L I M I T E D E N V R O N M E N T A L I , S O C I A L A N D G O V E R N A N C E R E P O R T 2 0 2 0 I E X X A R O R E S O U R C E S L I M I T E D C O N S O L I D A T E D M N E R A L R E S O U R C E S A N D M N E R A L R E S E R V E S R E P O R T 2 0 2 0 I Exxaro Resources Limited Consolidated Mineral Resources and Mineral Reserves report 2020 Exxaro Resources Limited Tax report 2020 Exxaro Resources Limited Group and company annual ﬁnancial statements for the year ended 31 December 2020 Exxaro Resources Limited Summarised group annual ﬁnancial statements for the year ended 31 December 2020 and notice of the annual general meeting E X X A R O R E S O U R C E S L I M I T E D G R O U P A N D C O M P A N Y A N N U A L F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 2 0 POWERING A CLEAN WORLD POWERING A CLEAN WORLD POWERING A CLEAN WORLD POWERING A CLEAN WORLD POWERING A CLEAN WORLD POWERING A CLEAN WORLD ESG report CCRS report CMRR report Tax report Group and company annual ﬁnancial statements Summarised AFS and notice of annual general meeting Our sustainability framework: integrated thinking and the six capitals Exxaro believes in sustainable value creation, enabled through carefully considering the relationship among the capitals we use and affect. We have integrated the six capitals into our business model and strategy, and continuously strive to positively contribute to and negate any adverse impacts on these capitals. We do this to ensure our sustained success and foster a more sustainable operating environment for Africa and beyond. We also aim to create and preserve value for our stakeholders and society at large, and prevent the erosion thereof. In this report, we share our progress in this regard and demonstrate our prospects. The six capitals we use and affect are: Natural Social and relationship Manufactured Human Intellectual Financial Refer to page 38 for more information on the linkage between the six capitals, matters of signiﬁcance to the business, related risks, the United Nations (UN) Sustainable Development Goals (SDGs), our strategy and business model, and our engagement with stakeholders. Board responsibility Exxaro’s board of directors acknowledges its responsibility for ensuring the integrity of Exxaro’s reporting suite, including this integrated report. Our board believes this report addresses all Exxaro’s material matters and presents a balanced view of the group’s strategy and business model in relation to Exxaro’s ability to create and preserve value over the short, medium and long term, as deﬁned by the capitals. As such, the board believes that this integrated report was prepared in accordance with the International Framework. The integrated report, which remains the ultimate responsibility of the board, is prepared under the supervision of senior management, and subject to rigorous internal and external assurance reviews. Jeffrey van Rooyen Independent chairperson Mxolisi Mgojo Chief executive ofﬁcer (CEO) Riaan Koppeschaar Finance director Geraldine Fraser-Moleketi Zwelibanzi Mntambo Lead independent non-executive director Non-executive director Vuyisa Nkonyeni Independent non-executive director Ras Myburgh Independent non-executive director 19 April 2021 Peet Snyders Independent non-executive director Likhapha Mbatha Non-executive director Mark Moffett Independent non-executive director Isaac Mophatlane Independent non-executive director Exxaro Resources Integrated report 2020 3 About Exxaro ABOUT OUR INTEGRATED REPORT continued Exxaro’s commitment to the UN SDGs Exxaro voluntarily endorses the UN SDGs, and aims to positively contribute to achieving these. We also continuously benchmark our performance against global best practice. We participate in the National Business Initiative (NBI) in South Africa to align the 17 SDGs with the country’s National Development Plan (NDP). We also employ leading practices in upholding the most material SDGs so that our business leaves a lasting positive impact. In line with our strategy, we support the following SDGs: Ensure healthy lives Provide quality education and lifelong learning Empower girls and women to achieve gender equality Generate and secure sustainable clean energy Create jobs, sustainable livelihoods and equitable growth Make our local communities inclusive, safe, resilient and sustainable Manage natural resource assets sustainably Combat climate change and mitigate its impacts Protect our environment and minimise biodiversity loss Ensure good governance, effective institutions, and stable and peaceful societies Create constructive partnerships between ourselves, governments, the private sector and civil society CERTIFICATE BY GROUP COMPANY SECRETARY In terms of section 88(2)(e) of the Companies Act, I, Karen Maré, in my capacity as acting group company secretary conﬁrm that, to the best of my knowledge, for the year ended 31 December 2020, 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. Karen Maré, Inlexso (Pty) Ltd Acting group company secretary Centurion 19 April 2021 4 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration Load-out station at Grootegeluk Exxaro Resources Integrated report 2020 5 About Exxaro OUR MATERIAL MATTERS Our material matters guide our integrated reporting process, which is driven in turn by strategic and integrated thinking that enables sustainable value creation and preservation. These matters help us manage our risks and opportunities, and guide our commitment to our stakeholders. We determine these material matters through a detailed materiality determination process. DETERMINING MATERIALITY The purpose of our materiality determination process is to give our stakeholders insight into the matters that may affect our ability to create and preserve value over time. Materiality determination process Material issues for reporting purposes Critical assessment of stakeholder reports Prioritising of identiﬁed matters by executives and those charged with governance 6 7 5 Assess against global reporting context 1 3 2 Analysis of external sources such as media reports and articles Internal interviews and interviews with board members 4 Review of material matters included in the integrated and annual reports issued by peers Review of internal documentation including risk register MATERIALITY MATRIX Our materiality determination process identiﬁed 18 material matters. These are shown in the matrix that follows, reﬂecting their importance for Exxaro and our stakeholders. The identiﬁed material matters are mapped into ﬁve broad themes: Theme Macro-environment The context in which we operate considering these material matters. Material matters • Price and currency volatility • Country risk • Infrastructure access and capacity • Climate change resilience • Social unrest Theme Our people We refer to the organisation’s internal stakeholders and our external stakeholders in our supply and value chains. Material matters • Legal, regulatory and compliance excellence • Transparency, ethics and integrity • Workforce: culture, capability, diversity, inclusion and innovation • Health, safety and wellness • Social unrest • Supporting job and business creation • Supporting a just transition to a low-carbon economy Social licence to operate We operate in an environment of stakeholder capitalism# and where our business activities impact our stakeholders who respond to these impacts. This interaction provides for a social licence to operate supporting regulatory licences and permits. Climate change Climate change is no longer a refutable occurrence. We are committed to the Paris Agreement and have established business objectives to respond to the risks and opportunities presented by climate change. • Responsible environmental stewardship • Climate change resilience • Supporting a just transition to a low-carbon economy Business resilience The business’s ability to respond to key macro-issues and success in achieving its objectives. • Key customer dependency • Financial performance and resilience • Prudently maximising the value of our coal portfolio • Supporting a just transition to a low-carbon economy • Cost competitiveness of our products • Capital allocation • Legal, regulatory and compliance excellence • Cybersecurity, technology and digitalisation # Where organisations are oriented to serve the interests of all their stakeholders. 6 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration I H G H Y R E V s r e d l o h e k a t s r o f e c n a t r o p m I H G H I Supporting job and business creation Climate change resilience Responsible environmental stewardship Social unrest Health, safety and wellness Transparency, ethics and integrity Financial performance and resilience Prudently maximising the value of our coal portfolio Workforce: culture, capability, diversity, inclusion and innovation Supporting a just transition to a low-carbon economy Legal, regulatory and compliance excellence Country risk Cybersecurity, technology and digitalisation Cost competitive- ness of our products Capital allocation Price and currency volatility Key customer dependency Infrastructure access and capacity HIGH Importance for Exxaro VERY HIGH Macro-environment Business resilience Our people Social licence to operate Climate change For more information on our material matters, refer to page 38. Exxaro Resources Integrated report 2020 7 Tsitsikamma Community windfarm 8 Exxaro Resources Integrated report 2020 8 Exxaro Resources Integrated Report 2020 8 Exxaro Resources Integratedtedtedd RReReReeReeeR popporoororrrrpppppooorrrp rppoorpp rt 2t 2t 2t 2t 22tt 222222222t 020202020202002002020202022002002000220022022202000200020000 0 8 Exxaro Resources Integratedtedtedd RReReReeReeeR ppopporoorororrrrpppoppooorrrp rppoorpp rt 2t 2t 2t 2t 22tt 222222222t 020202020202002002020202022002002000220022022202000200020000 0 UNDERSTANDING OUR BUSINESS 10 Chairperson’s statement 12 Year in review 18 Business structure and ownership 20 Coal asset base 22 Renewable energy asset base 24 Our investment proposition 26 Governance for sustainable value creation 36 Our business model 38 Our material matters in action POWERING POSSIBILITIES We are dedicated to powering possibilities through renewable energy ventures as we deliver on our Sustainable Growth and Impact strategy. The Transition Pathway Initiative (TPI) is a global, asset owner-led initiative that assesses companies’ preparedness for the transition to a low-carbon economy. In 2020, Exxaro received a TPI ranking of 4/4, reﬂecting our commitment to managing GHG emissions. The high score highlights our commitment to supporting a just transition to a low-carbon economy and shows that we are well positioned to beneﬁt from opportunities the transition presents. “The whole company has come together behind Exxaro’s sustainability and climate change efforts. This ranking is a testament to everyone’s hard work and dedication to building a country and a world that we will be proud to leave to our children and their children. It is a signal to responsible investors that our company is participating in the transition to a low-carbon economy and that we will continue to thrive long after we stop needing coal,” said CEO, Mxolisi Mgojo. EExExxxxxExEEx araro Resources Integrated report 2020 9 Exxaro Resources Integrated report 2020 9 Understanding our business CHAIRPERSON’S STATEMENT Jeffrey van Rooyen Chairperson I begin my 2020 integrated report statement with a commitment to sharpen our strategic resolve in the middle of uncertainty presented by the COVID-19 pandemic. While 2020 presented us with numerous challenges, I am pleased to report that we made signiﬁcant progress in reﬁning our strategy. Exxaro was founded with a singular purpose — to power better lives in Africa and beyond. Our strategy is designed to deliver on that promise now and into the future. 10 Exxaro Resources Integrated report 2020 SUSTAINABLE GROWTH AND IMPACT STRATEGY As an organisation, we take pride in our ability to not only grapple with the challenges we face, but to also ﬁnd solutions that meet our stakeholders’ current and future needs and expectations. This year, as we undertook an extensive strategic review, we remained cognisant of the critical role Exxaro plays in South Africa — powering the country’s economic growth. At the same time, we must balance the obligation and opportunity that we have to play an active role in the just energy transition to a low-carbon economy. In the near term, coal is likely to remain dominant in South Africa. Our strategy allows for the current state of play, proactively creating the future we want. As a whole, our coal business remains robust, delivering high-quality coal safely and efﬁciently to generate returns for shareholders and meet market requirements. We have to look at business beyond coal, as envisaged in our approach to a just transition (refer to our strategy: positioning Exxaro for sustainable growth and impact section on We see Exxaro as a diversiﬁed organisation with energy and mineral resources capabilities critical and relevant in a world of low-carbon emissions. In 2020 were introduced a different approach to community development to drive impact at scale. We aim to lead better and bigger development initiatives that will arrest and reverse the scourge of poverty in our communities. page 54). Over the past year, we set up the building blocks to establish an energy business of the required size to support our growth ambitions. We assembled a dedicated board of directors and leadership team, as well as allocated capital to drive the energy business forward. Our energy company board is chaired by independent non-executive director, Mark Moffett. He has been on our board since 2018, has extensive experience in building new businesses, and has a deep understanding of the energy sector. To help build the required capabilities to grow our energy business successfully, we conducted an extensive global and local search for a suitable managing director. I am pleased to announce that Roland Tatnall was appointed managing director: energy and a member of the executive committee. Roland’s multifaceted experience in Africa and South Africa’s energy sectors will help sustainably drive our growth. Together, Mark and Roland, supported by our audit committee chairperson, CEO and ﬁnance director, have a strong team to deliver against our strategic priorities. The third pillar of our diversiﬁcation strategy is the minerals business, which will be built on commodities with strong fundamentals that are relevant and sustainable in a low-carbon world. A minerals diversiﬁcation strategy was approved by the Exxaro board of directors during June 2020, to create an Exxaro of the future that is built on three core pillars, coal, minerals and energy. The minerals division’s ambition is to utilise Exxaro’s core competencies to supply minerals that power a cleaner world in a responsible and sustainable manner impacting positively on our stakeholders while providing superior shareholders returns and driving our decarbonisation objectives. OUR STRATEGIC REALIGNMENT: CAPITAL ALLOCATION, DIVESTMENTS AND DIVIDENDS In terms of our capital allocation framework, Exxaro remains disciplined in returning cash to shareholders, managing debt, and selectively reinvesting for the growth and resilience of the business in a low-carbon future. As a result, we are implementing exit strategies for operations that no longer align with our strategic vision. Our intention is not to operate as an investment holding company. As mentioned previously, we undertook a strategic decision to dispose of our total equity interest in Exxaro Coal Central Proprietary Limited (ECC) and Leeuwpan, having identiﬁed these assets as non-core to the future objectives of Exxaro. Subsequent to 31 December 2020, Exxaro signed a sale and purchase agreement with Overlooked Colliery Proprietary Limited, who will acquire ECC. The sale will only be effective once all About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration conditions precedent to the sales agreement have been met. The disposal of Leeuwpan continues. We also announced our intention to exit our shareholding in Tronox, which was ﬁnalised after year end, following approval by the Financial Surveillance Department of the South African Reserve Bank. As a result of the transaction, the board of directors resolved to use the proceeds to pay a special dividend of 543 cents per share, approximately R1.9 billion, to external shareholders and to implement a share buyback programme to the value of R1.5 billion. Our revised strategy, and focus on building our renewable energy business necessitated a review of our dividend policy. Exxaro’s declared dividend policy was previously based on two components: a pass through of the SIOC dividend received and a dividend based on a cover ratio of 2.5 times to 3.0 times Exxaro adjusted group earnings, to include earnings contribution from Cennergi. Following the dividend policy review, the board of directors approved for the targeted cover ratios to be applied on Exxaro group earnings and not only coal earnings. In line with this revised dividend policy, the board has declared a ﬁnal dividend of 1 243 cents per share. GROWING OUR BUSINESS SUSTAINABLY We need to execute our clearly deﬁned strategy in a way that enables us to build proﬁtable businesses, secure the capital we need and deliver appropriate returns for our investors. To achieve these goals, proper risk management and governance are essential. We understand that successful growth requires the ability to take appropriate risks and world-class risk management. I believe that we have the knowledge, skills and experience to harness opportunities, while ensuring we remain within our approved risk appetite. Ethical and effective governance is key in this regard — from how we, as a board, operate and cooperate to how Exxaro works with our stakeholders to deliver on mutual strategies. We continue nurturing collegiality so that we cooperate with each other, sharing our responsibilities with mutual respect and trust. BUILDING A DIVERSE BOARD TO SUPPORT VALUE CREATION The world we operate in is more complex than ever. As a leadership team, we recognise this and believe that we must draw on the diverse competencies and knowledge of our board members to successfully address the complex issues we face and identify opportunities inherent in our context. The board is diverse across a multitude of metrics and as chairperson, I consider it important to ensure we play to the strengths of each board member, all of whom continue to go the extra mile under difﬁcult circumstances. To strengthen our board, we appointed Chanda Nxumalo in 2020. Chanda has 15 years’ experience in the renewable energy and power sector. Subsequent to year end, we appointed Mandlesilo (Mandla) Msimang who has extensive experience in national and international governance and information and communications technology sectors. Mandla and Chanda will both support Exxaro’s growth strategy in energy. The board continuously focuses on ensuring that there is adequate succession planning to maintain ongoing knowledge. In line with this, Mxolisi Mgojo, our CEO, will retire when he reaches the retirement age of 63, on 31 May 2023. To ensure a seamless transition, Dr Nombasa Tsengwa has been appointed as CEO- designate and member of the board effective from 16 March 2021. Her appointment as CEO will become effective once the CEO retires on 31 May 2023. Dr Tsengwa’s appointment forms part of a carefully considered succession plan that has taken place over the past two years. The transition period will ensure a smooth and phased handover of duties and responsibilities. Dr Tsengwa has more than 18 years’ executive management and board experience in the public and private sectors and we look forward to her contributions in her new role. Refer to page 106 of our ESG report for the board’s biographies. Furthermore, my tenure as chairperson and independent non-executive director of the board of Exxaro will come to an end at the annual general meeting to be held on 27 May 2021. It has been a great honour to serve on the Exxaro board for 12 years, and I wish the organisation all the best as it takes its next strategic evolution. A rigorous search process was conducted and a new chairperson designate has been appointed with effect from 19 April 2021. Mr Mvuleni Geoffrey Qhena is the former CEO of the Industrial Development Corporation (IDC), a signiﬁcant shareholder of Exxaro. As such, Geoffrey brings with him a clear understanding of the organisation and the mining sector. Looking ahead, we will continue evaluating the board and leadership to ensure we have the right skills and experience to support Exxaro’s growth. We will focus on innovation and technology, climate change and sustainability in the year ahead. ACKNOWLEDGEMENTS AND CLOSING We are currently facing dual crises: COVID-19 and climate change. Both have had a profound impact on society, our business and the communities where we operate. We see ourselves as active participants and responsible stewards of our stakeholders’ trust, the natural resources we depend upon and of a sustainable and thriving business. Throughout the COVID-19 crisis, we remained committed to supporting our stakeholders. Among others, we made monetary donations to several organisations, implemented social distancing and other COVID-19 prevention measures, established testing stations and provided personal protective equipment (PPE). At the date of this report, 12 colleagues had regrettably succumbed to COVID-19. We extend our sincere condolences to their families and friends. We remain committed to doing everything in our power to keep our stakeholders safe. Looking ahead, we plan to work with our stakeholders and partners in government, business and civil society to halt the spread of the virus. While we have achieved much over the past year, from a strategic, operational and ﬁnancial perspective, there is still much work to be done. Our revised strategy recognises the impact of climate change and balances our commitment to being an active participant in a just transition. The true tests will come in the years ahead, as we implement our strategic plans and deliver on our purpose. I believe that the foundations laid over the past years will ensure that we remain a resilient and responsive business, providing tangible returns to all our stakeholders. Thank you to the board and executive team for your continued and unwavering support during the year. Jeffrey van Rooyen Chairperson 19 April 2021 Exxaro Resources Integrated report 2020 11 Understanding our business YEAR IN REVIEW POWERING BETTER LIVES THROUGH VALUE CREATION While the operating context remained challenging in 2020, Exxaro strived to leverage the opportunities presented by the new normal and ensure our focus remained steadfast — delivering on our purpose to create and preserve value for our stakeholders, through the responsible use of our capitals. Please refer to our business model on page 36 for more information about how we differentiate ourselves through delivering on our purpose. Our response to COVID-19 is on page 14. Our value distribution (as shown below) reﬂects our contribution to our stakeholders, with the impacts on the capitals we rely on reﬂected in the pages that follow. VALUE DISTRIBUTED TO STAKEHOLDERS IN 2020 GreenShare employee scheme (previously phantom employee scheme) R51 million (2019: R80 million) (2019: R95 million) (2019: R1 391 million) (2019: R1 315 million) (2019: R558 million) (2019: R1 690 million) (2019: R4 209 million) Community investments and volunteerism R143 million Dividend paid to external shareholders of Eyesizwe R978 million Employees’ tax R1 223 million Cost of ﬁnance R1 305 million Payments to government: taxation contribution R1 947 million Salaries, wages and beneﬁts R3 795 million Cash dividend paid R3 034 million (2019: R5 812 million) 12 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration STRATEGIC PERFORMANCE AND KEY OUTCOMES IN 2020 Natural capital Trend Target 2020 2019 R3.8 billion Our employees enjoy the largest share of value created from earnings as well as investments in development 1 209 cps Shareholders receive a return on their investment through dividends R19.5 billion Suppliers and contractors are supported by our procurement of consumables, services and capital goods R1.9 billion Governments of countries in which we operate and invest receive taxes and royalty payments 25% ROCE Providers of ﬁnance receive a return on their investment R79.8 million 24 enterprises were granted loans and grant funding R3.2 billion We reinvest in the growth of our coal business: R2.2 billion sustaining capital and R1 billion expansion capital 1 HEPS is headline earnings per share. 2 Earnings before interest, tax, depreciation and amortisation (EBITDA) is net operating proﬁt before interest, tax, depreciation, amortisation, impairment charges/reversals and net loss or gain on the disposal of assets and investments (including translation differences recycled to proﬁt or loss). Reportable environmental incidents (levels 2 and 3) Carbon intensity (scope 1) (ktCO2e) Carbon intensity (scope 2) (ktCO2e) Water intensity (kL/run of mine) Rehabilitation funding adequacy of commercial mines, including guarantees (%) Human and intellectual capital Fatalities (as of 2 March 2021) Lost-time injury frequency rate (LTIFR) Occupational health incident frequency rate (OHIFR) Skills provision (% of appointment from within)* Social and relationship capital B-BBEE contribution level Black ownership (%) Social and labour plans (SLPs) project delivery (time variance) (%) SLPs project delivery (cost variance) (%) Manufactured capital Capital project delivery measure (time variance) (%) Capital project delivery measure (cost variance) (%) Financial capital Core operating margin (%) Annualised return on capital employed (ROCE) (%) Net debt to core EBITDA2 (times) 0 level 3s 6 level 2s Actual for previous year less 5% Actual for previous year less 5% 0 0 5.5% improvement 7% improvement 13.7 2% improvement 0.20 0.182 80% to 100% 69 0 0.11 0.31 0 0.05 0.19 0.11 68 0 0.12 0.24 60 88.44 47.90 1 30.1 2 38.22 0 0 0 0 20 >20 <1.5 (11) (59) 11.1 6.3 17 27 1.0 2 30 (11) (58) 5 3.1 15.24 27.51 0.6 Improvement in performance/ value created Unchanged performance/ value preserved Deterioration in performance/ value preserved * 2019 ﬁgures cannot be compared to 2020 due to a change in the deﬁnition. Refer to strategic dashboard in the ESG report for more information. Exxaro Resources Integrated report 2020 13 Understanding our business YEAR IN REVIEW continued OUR RESPONSE TO COVID-19 OVERVIEW Exxaro monitored and responded to the unfolding pandemic from the ﬁrst report of the disease by the World Health Organization in 2019. Guided by leading global and local authorities, we continued protecting our people’s health and safety throughout the pandemic. Exxaro’s COVID-19 statistics as at 1 March 2021 Total employees screened Total tests 11 621 Total conﬁrmed cases 2 780 Active cases 14 Recoveries 2 754 Lives lost 12 35 293 d e m r ﬁ n o C s e s a c 99 265 842 1 095 2 205 55 22 5 0 15 175 s e s a c e v i t c A 0 0 5 4 0 0 1 0 0 0 0 4 s e i r e v o c e R 99 265 834 1 088 2 201 53 22 5 0 15 170 t s o l s e v L i 0 0 3 3 0 4 1 0 0 0 0 1 2 780 14 2 754 12 BUs Belfast Leeuwpan Matla Grootegeluk Tshikondeni ECC The conneXXion FerroAlloys Durnacol Hlobane Cennergi MaFube Total Keep On campaign As the festive season approached, the second wave gained momentum. Considering the increase in safety incidents during this season, compounded by panic about the negative impact of COVID-19, Exxaro launched the Keep On communication campaign to convey messages of compliance, encouragement and caution. Hygiene kits (face masks, sanitiser, multivitamins and awareness material) were given to employees to share with family and friends. The campaign encourages employees and our host communities to keep wearing masks, maintain social distance, wash hands and look out for COVID-19-related symptoms. If anyone shows symptoms, they are informed of easy, safe and free COVID-19 testing at one of our stations. Daily reminders are sent to employees via the LetsConnect app. 14 Exxaro Resources Integrated report 2020 When the South African government declared a state of national disaster, we implemented crisis management and business continuity plans including health and safety controls. The rise in local cases activated the next phase of risk management — focusing on three objectives: AVOID AND REDUCE THE INFECTION RATE DELAY INFECTION WHERE POSSIBLE MANAGE RISKS ASSOCIATED WITH INFECTED CASES AS THEY ARISE Regrettably, we have lost 12 colleagues to COVID-19 complications as of 1 March 2021. Our sincerest condolences go to their families, friends and teams. In September 2020 when cases declined, and anticipating the second wave seen in parts of the northern hemisphere, Exxaro introduced new interventions to bolster preventive efforts. These included closer management of employees with comorbidities, driving COVID-19 compliance and our employee assistance programme (EAP), and providing oximeters and a COVID-19 call centre to people in self-isolation. We also decided to continue amended business processes so that restrictions were only eased to allow international travel. Measures that remain in place include: • Working from home for employees who do not have to be in the ofﬁce • Rigorous screening and testing of employees as they return to work • Continuation of EAP counselling services • Isolation facilities for employees who test positive for COVID-19 • Limited travel between BUs As a member of the Minerals Council South Africa, Exxaro collaborates with other mining houses in preparing for the COVID-19 vaccine roll out. We will use our existing healthcare facilities to vaccinate employees and host community members. About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration IMPACT ON STRATEGY Despite COVID-19, Exxaro reported resilient results for the year ended 31 December 2020. We returned a total dividend of 2 429 cents per share to shareholders in 2020. Our capital allocation framework, given the impact of COVID-19 on the economy, remains prudent in returning cash to shareholders, managing debt and selectively reinvesting for the growth of our business. To manage COVID-19 uncertainty, Exxaro acquired a short-term overdraft facility of R1.75 billion. In total, R1 billion was repaid in July 2020 and R750 million in October 2020. We also activated R2 billion, which is available under our R10 billion facility with a consortium of banks. COVID-19 accelerated responsible investing momentum and exerted pressure on capital markets to commit to carbon reduction targets. We are conﬁdent that attaining our carbon-neutrality target for scope 1 and scope 2 emissions by then, while making our portfolio resilient in a low-carbon world through our energy and minerals strategies ( exposure risk. page 54), will mitigate the ﬁnancial impact of our carbon With the just transition as our pathway, our considered social interventions include sustainable impact strategies that involve, among others, regenerative rehabilitation and repurposing relevant assets, such as our land, to develop new industries beyond coal mining for local communities. COVID-19 impacted the initiation of some planned Impact Catalyst projects ( We experienced a two-month delay in progress due to lockdown but we used this time to reﬁne our approach. page 80 in the ESG report). In addition to measures implemented to combat the spread of COVID-19, Exxaro has sufﬁcient liquidity to withstand interruptions and will remain a going concern for the foreseeable future. OPERATIONAL RESPONSE IMMEDIATE CRISIS MANAGEMENT STRATEGIC AND LONG TERM CARE AND SAFETY • Employee safety, resilience and productivity • Partner with government for resilient communities • Support small, medium and micro-enterprises (SMMEs) BUSINESS CONTINUITY • Capital optimisation and cost management • Collaborate with Minerals Council for industry safety and prevention measures • Cooperate with Department of Mineral Resources and Energy (DMRE) LONG-TERM RESILIENCE • Greater policy certainty • Agree on key national projects and policy interventions • Public-private partnerships • Unlock SMMEs — improve ease of doing business IMPACT ON OPERATIONS • BUs at varying capacities during level 5 lockdown. There were no impacts on Cennergi • 10-day shutdown at Belfast, ECC and Leeuwpan over Easter 2020 • Surprise DMRE visit to Matla conﬁrmed compliance with regulations • Matla at 80% (others at full capacity) during level 3 lockdown • 2 780 conﬁrmed COVID-19 cases as at 1 March 2021 COVID-19 sanitising procedures Exxaro Resources Integrated report 2020 15 Understanding our business YEAR IN REVIEW continued IMPACT ON STAKEHOLDERS Stakeholders Short term Long term • Employees and contractors • Labour unions • Roster changes • Pre-site screenings • Relocation to temporary accommodation closer to operations • One-on-one professional and anonymous counselling services • Monitoring and screening to mitigate • Re-establish working conditions • Staggered return to work • Some employees continue working remotely (depending on job description) • Workforce capacity may increase • Social distancing remains important • Accelerated digital migration to redesign and transmission • Mental health awareness • Destigmatisation campaign enhance the future of work (new and innovative technologies for remote working and business value) • Communities • NGOs • Immense ﬁnancial strain • Healthcare facilities under strain • Insufﬁcient PPE • Schools need to comply with COVID-19 regulations • Vaccine roll out • Uncertain future • Climate change impacts likely to be aggravating • Develop strategic response intervention for community development • Resurgence of infections will impact economic recovery with constrained household and corporate expenditure • Economic reconstruction and recovery plan expected to increase economic growth • Maintain dividend policy • Government and private-sector relief funding • Navigating pandemic and lockdown challenges • Payment holidays • Dealing with employee-related matters • Focus on SMME development through enterprise and supplier development (ESD) programme • Continue using social media platforms that are community and career driven yield the most impact in terms of reach and engagement • Customers • Government • Investors and analyst • Suppliers • Media • Lower demand during lockdown • GG6 expansion project delayed • Reversion to riskier ﬁnancial markets • Limited access to emergency funding • Cannot run businesses from home • Unable to support families • Reduced turnover • Decrease in employees • Temporary closure or pause in trading • Exxaro’s media engagements strategy is aimed at informing stakeholders with relevant information about Exxaro’s total performance and creating awareness of the organisation, through social and traditional media communication • Our social media strategy shifted in 2020 towards developing differentiated content for each platform that resonates with each target audience — that is, it is more stakeholder-led • We also had a series of media engagement sessions in collaboration with the Minerals Council South Africa addressing pertinent social issues related to COVID-19 and how the industry was addressing these for their employees and host communities Refer to stakeholder management on page 62 for detailed information on our stakeholder engagement during this time. 16 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration COVID-19 food parcel donation at Leeuwpan mine Exxaro Resources Integrated report 2020 17 Understanding our business BUSINESS STRUCTURE AND OWNERSHIP Exxaro is one of the largest and foremost black-empowered, South Africa-based diversiﬁed resources companies. The company was formed in 2006 but has decades of experience as a company rooted in South Africa and respected by its peers for its innovation, ethics and integrity. Over 80% 100% 20.62% 26% 10.83% OWNERSHIP STRUCTURE 30% Eyesizwe RF 52.2% BEE special purpose vehicle 14.9% EXXARO 22.9% Industrial Development Corporation (IDC) 5.0% Exxaro ESOP SPV 5.0% Exxaro Community NPC Our asset portfolio includes interests in coal, renewable energy (wind) and titanium dioxide (TiO2). Exxaro is a 30% black-empowered and listed company on the JSE’s Top 40 Index and a top 30 member of the FTSE/JSE Responsible Investment index. In 2020, Exxaro produced 47.4 million tonnes (Mt) (including buy-ins of 0.3Mt) of coal (2019: 45.6Mt), reﬂecting contributions from our expanded ﬂagship Grootegeluk mine. At 31 December 2020, the group had assets of R78.6 billion and a market capitalisation of R50 billion (US$3.4 billion). 18 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration INVESTMENT PORTFOLIO OUR ASSETS Coal Coal mining is Exxaro’s core operation, structured under four legal entities all managed and operated by Exxaro. We also have a 50% joint venture with Anglo South Africa Capital Proprietary Limited (Anglo) in the Mafube operation, and a 49% equity interest in Tumelo Coal Mines Proprietary Limited (Tumelo). We also have a 11.97% effective equity interest in Richards Bay Coal Terminal Proprietary Limited (RBCT). CENNERGI** Renewable energy (wind) Exxaro contributes to the national energy supply through Cennergi. Two wind projects in the Eastern Cape reached commercial operation in 2016: Amakhala Emoyeni near Bedford (134MW) and the Tsitsikamma Community Windfarm on Mfengu community land (95MW). SIOC Ferrous A leading supplier of high-quality iron ore to the global steel industry and a Kumba Iron Ore Limited subsidiary. We hold a 20.62% interest in the Sishen Iron Ore Company. BLACK MOUNTAIN Exxaro holds a 26% interest in Black Mountain Mining (BMM), a zinc-led business, and continues to evaluate it’s options. TRONOX HOLDINGS PLC*** TiO2 26% direct interest in KZN Sands Proprietary Limited (KZN Sands) and Tronox Minerals Sands Proprietary Limited (Namakwa Sands) and 10.83% interest in Tronox Holdings plc, a global leader in mining, production and marketing inorganic minerals and chemicals. In 2017, Exxaro began implementing the strategic disposal of this shareholding. Subsequent to 31 December 2020, Exxaro divested from its investments in Tronox. * ** Eyesizwe (RF) Proprietary Limited (Eyesizwe), a special purpose vehicle private company, incorporated under South Africa’s laws, holds the black economic empowerment (BEE) shares. Acquisition of Tata Power’s 50% interest in Cennergi was effective on 1 April 2020. *** Subsequent to 31 December 2020, Exxaro divested from its investments in Tronox. Coal Core operations • Largest coal reserves in the country providing a platform for sustainable early value • Largest supplier of energy coal to Eskom and ArcelorMittal SA Limited (AMSA) while domestically growing projects for export thermal coal • Grootegeluk is acknowledged as one of the largest integrated mining and beneﬁciation operations globally, running the world’s largest coal beneﬁciation complex, and the only producing mine in the coal-rich Waterberg, adjacent to Eskom’s Matimba and Medupi power stations — Grootegeluk’s capacity is expanding by 7% (1.7Mtpa) with the double-stage beneﬁciation plant (GG6) and new rapid load-out station to enhance the growth of our exports • Six managed coal operations (including 50% share of Mafube) produced 47.4Mt of thermal and metallurgical coal (up 4% in 2020) — the majority of power station coal is supplied to Eskom • To date, 74% of the R17.5 billion capex has been spent on greenﬁeld and brownﬁeld expansion and sustaining projects Renewable energy Wind Cennergi is a southern African-based diversiﬁed independent power producer (IPP) that focuses on the ownership, operation and maintenance of renewable energy projects and complete asset management services of its own projects, as well as those of others. Exxaro Resources Integrated report 2020 19 Understanding our business COAL ASSET BASE 8 Grootegeluk LIMPOPO MPUMALANGA Mafube 7 1 Belfast Dorstfontein 2 4 Tumelo 3 Forzando GAUTENG 5 Leeuwpan 6 Matla Project Mine Our extensive coal asset base is a key differentiator and critical part of how we create value for our stakeholders. 20 Exxaro Resources Integrated report 2020 SOUTH AFRICA AUSTRALIA Moranbah OPERATIONS 1 BELFAST Location: South of Belfast Market: Export Product: Thermal coal Mineral Resources (inclusive) Measured: 71.3Mt Indicated: 19.9Mt Mineral Reserves (inclusive) Proved: 40.2Mt Probable: 2.1Mt Mining method: Open-cut Run of mine (RoM): 3.24Mt Life of mine (LoM): 11 years About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration 2 DORSTFONTEIN COMPLEX 3 FORZANDO COMPLEX 4 TUMELO Location: North-east of Kriel Market: Domestic and export Product: Thermal coal Mineral Resources (inclusive) Measured: 175.6Mt Indicated: 121.4Mt Mineral Reserves (inclusive) Proved: 50.9Mt Probable: 30.1Mt Mining method Open-cut and underground RoM: 3.4Mt LoM: 16+ years* Location: North of Bethal Market: Domestic and export Product: Thermal coal Mineral Resources (inclusive) Measured: 86.9Mt Indicated: 32.3Mt Mineral Reserves (inclusive) Proved: 9.6Mt Probable: 4.1Mt Mining method: Open-cut and underground RoM: 2.2Mt LoM: 5 years* Only mineral assets with Measured and Indicated Resources are illustrated. Inferred Resources are reported in the supplementary CMRR report. Location: North-west of Hendrina Market: Domestic and export Product: Thermal coal Mineral Resources (inclusive) Measured: 7.7Mt Indicated: 0.2Mt Mineral Reserves (inclusive) Proved: Not yet declared Probable: Not yet declared Mining method: Underground RoM: — LoM: — 5 LEEUWPAN Location: South-east of Delmas Market: Domestic and export Product: Thermal coal Mineral Resources (inclusive) Measured: 79.9Mt Indicated: 2.6Mt Mineral Reserves (inclusive) Proved: 42.0Mt Probable: 5.7Mt Mining method: Open-cut RoM: 6Mt LoM: 8 years 6 MATLA 7 MAFUBE 8 GROOTEGELUK COMPLEX Location: West of Kriel Market: Domestic (Eskom) Product: Thermal coal Mineral Resources (inclusive) Measured: 694Mt Indicated: 123Mt Mineral Reserves (inclusive) Proved: 147.5Mt Probable: 21.7Mt Mining method: Underground RoM: 6.2Mt Life of mine (LoM): 3+ years* Location: East of Middelburg Market: Domestic and export Product: Thermal coal Mineral Resources (inclusive) Measured: 111.2Mt Indicated: 9.9Mt Mineral Reserves (inclusive) Proved: 32.1Mt Probable: 23.0Mt Mining method: Open-cut RoM: 5.4Mt LoM: 11 years Location: West of Lephalale Market: Domestic and export Product: Thermal and metallurgical coal Mineral Resources (inclusive) Measured: 2 532Mt Indicated: 1 422Mt Mineral Reserves (inclusive) Proved: 1 730Mt Probable: 898Mt Mining method: Open-cut RoM: 54.6Mt LoM: 21+ years* * Adequate reserves well beyond expiry of mining right. Exxaro Resources Integrated report 2020 21 Understanding our business RENEWABLE ENERGY ASSET BASE FREE STATE SOUTH AFRICA NORTHERN CAPE EASTERN CAPE Amakhala Emoyeni 2 Tsitsikamma Community 1 OPERATIONS 1 TSITSIKAMMA COMMUNITY WINDFARM (TCWF) AMAKHALA EMOYENI WINDFARM (AE01) 2 Location: Near Tsitsikamma in the Eastern Cape Capacity: 95MW Number of turbines: 31 x 3MW Performance: Achieved 101.5% of target over 5 years Customer: Eskom PPA#: 20 years Commercial operation: 2016 Shareholding: Cennergi (Pty) Ltd (75%), Watt RE Times (16%) and the Tsitsikamma Development Trust (9%) # Power purchase agreement (PPA) Location: Near Bedford and Cookhouse in the Eastern Cape Capacity: 134MW Number of turbines: 54 x 2.4MW Performance: Achieved 99.4% of target over 5 years Customer: Eskom PPA#: 20 years Commercial operation: 2016 Shareholding: Cennergi (Pty) Ltd (95%), Cookhouse Community Trust (2.5%) and the Bedford Community Trust (2.5%) 22 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration Turbine at Amakhala Emoyeni windfarm Exxaro Resources Integrated report 2020 23 Understanding our business OUR INVESTMENT PROPOSITION Based on disciplined governance and capital allocation, quality resources, access to funds and competitive returns, Exxaro is a unique listed investment opportunity for shareholders. WE DIFFERENTIATE OURSELVES IN THE MARKET THROUGH: OUR UNIQUE COMPETITIVE ADVANTAGES Our continued focus on operational excellence is designed to set our offering apart. • Large multi-product and long-life coal reserve base, with a quality coal reserve • Defensive and established domestic (short and long-term contracts) and international customer base • Adequate port and rail allocation to support export growth • Resilient and debt-free 30% black ownership structure • Ongoing cost-efﬁciency programmes • Focused approach to carbon reduction and management throughout our value chain • Portfolio optimisation for carbon and cost efﬁciency of our portfolio OUR FINANCIAL STRENGTH Our focus on preserving and building our ﬁnancial resilience has stood us in good stead. • Strong balance sheet — 28% net debt:equity • Earnings and cash-generative operations • Returning cash to shareholders: dividend policy of 2.5 to 3.5 times adjusted group earnings, pass-through of SIOC dividend received and special dividends from surplus cash — competitive dividend yield OUR GROWTH PROSPECTS OUR UNERRING COMMITMENT TO SAFETY We continue looking beyond today, to ensure we are able to deliver value into the future. • Long-term strategic plan in place to support the just transition to a low-carbon economy in a commercially appropriate manner • Organic coal production growth to supply domestic markets, Eskom and export markets • Domestic and offshore coal revenue growth, completing the R17 billion capex programme • Stable revenue model from renewable energy investment Our commitment to health and safety: zero harm remains Exxaro’s key safety objective. • Recorded a record-low lost-time injury frequency rate (LTIFR) of 0.05 as at 31 December 2020 (55% better than the set target of 0.11) • Achieved a record four fatality-free years on 2 March 2021 OUR WORLD-CLASS LEADERSHIP AND GOVERNANCE STAKEHOLDER PERSPECTIVE AND RETURNS We recognise that creating value for our stakeholders depends on effective and efﬁcient governance processes and practices informed by the pillars of good corporate citizenship, that is, transparency, accountability and integrity. • Experienced, growth-oriented leadership team • Established governance structures — proven and leading ESG performance • Ethical leadership • Stakeholder-oriented approach • Leadership is proactive in the just transition and response to climate change 24 Exxaro Resources Integrated report 2020 • Compliance and governance that ensures a sustainable organisation • Return on invested capital that is above our cost of capital • Catalyst for economic development which creates opportunities for job creation and ESD • Responding to the systemic challenge of climate change providing an opportunity for employees and communities to transition to a new world Exxaro’s monthly closing share price (%) 225 200 175 150 125 100 75 50 25 0 ) R A Z ( e c i r P 2006 2008 2010 2012 2014 2016 2018 2020 (cid:81) Exxaro share price About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration Grootegeluk main ofﬁce Exxaro Resources Integrated report 2020 25 Understanding our business GOVERNANCE FOR SUSTAINABLE VALUE CREATION Within a constantly changing business environment, board members and executive management have a key role, and indeed a responsibility, to create value for the business and society. This requires the board and executive management to examine the company’s impact on society and how it could make a positive difference in the communities where Exxaro operates by embedding societal values deep into our core purpose, strategy and everyday decision-making. This was further strengthened through the group’s corporate governance framework, structure and processes the board created to oversee sustainability matters including reporting and accountability. Performance and sustainability are fully integrated in the achievement of value over time. OUR LEADERSHIP TEAM Our board Our board of directors is accountable for Exxaro’s governance and performance, balancing the company’s interests as a responsible corporate citizen with the legitimate needs and expectations of stakeholders. Jeffrey van Rooyen (70) Board chairperson and independent director (cid:132) Mxolisi Mgojo (60) CEO (cid:132)(cid:132) Riaan Koppeschaar (50) Finance director (cid:132)(cid:132) Geraldine Fraser-Moleketi (60) Lead independent non- executive director (cid:132) Likhapha Mbatha (66) Non-executive director Zwelibanzi Mntambo (63) Non-executive director Mark Moffett (61) Independent non-executive director (cid:132) Isaac Mophatlane (48) Independent non-executive director Ras Myburgh (62) Independent non-executive director (cid:132) Vuyisa Nkonyeni (51) Independent non-executive director (cid:132) Anuradha Sing (49) Independent non-executive director Peet Snyders (60) (cid:132) Independent non-executive director (cid:132) Nomination committee chairperson (cid:132) Remuneration committee chairperson (cid:132) Social and ethics committee chairperson (cid:132) Audit committee chairperson (cid:132) Investment committee chairperson (cid:132) Sustainability, risk and compliance committee chairperson (cid:132) Executive directors 26 Exxaro Resources Integrated reporororort 2t 202000 26 Exxaro Resources Integrated report 2020 Audit committee member Investment committee member Remuneration and nomination committee member Social and ethics committee member Sustainability, risk and compliance committee member About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration Board composition Board composition* (%) Director tenure* (%) 1818 18 (cid:93) Executive directors (2/11) (cid:93) Non-executive directors (2/11) (cid:93) Independent non-executive directors (7/11) 64 18 10 36 36 (cid:93) 0 to 2 years (0/11) (cid:93) 2 to 4 years (4/11) (cid:93) 4 to 6 years (4/11) (cid:93) 6 to 9 years (1/11) (cid:93) >9 years (2/11) Age diversity (%) 9 9 64 18 (cid:93) 40 to 49 years (1/11) (cid:93) 50 to 59 years (2/11) (cid:93) 60 to 69 years (7/11) (cid:93) 70 and older (1/11) Gender diversity year-on-year Racial diversity year-on-year 2018 30 % 2019 36 2020 25 70 64 75 2018 % 2019 2020 80 20 71 67 29 33 20 0 (cid:93) Female (cid:93) Male 40 60 80 100 0 (cid:93) Black 20 40 (cid:93) Non-black 60 80 100 * Excluding Anuradha who retired by rotation on 28 May 2020. Exxaro Resources Integrated report 2020 27 Understanding our business GOVERNANCE FOR SUSTAINABLE VALUE CREATION continued Diversity of skills and experience Leadership Finance Human resources Legal Governance and compliance Economics Transformation and ethics Risk and opportunity management Innovative technology and information governance Environmental sustainability Sales and marketing Health and safety Tax Stakeholder relations Project management International Local Mining industry Mining engineering Renewable energy Water technology Agriculture/food security 0 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% General management experience Technical experience Refer to the ESG report for full details about the board and its roles and responsibilities. 28 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration Exxaro Resources Integrated report 2020 29 Understanding our business Understanding our business GOVERNANCE FOR SUSTAINABLE VALUE CREATION continued GOVERNANCE FOR SUSTAINABLE VALUE CREATION continued Our executive committee Mxolisi Mgojo (60) CEO Riaan Koppeschaar (50) Finance director Nombasa Tsengwa (56) CEO designate Vanisha Balgobind (47) Executive head: human resources Alex De Angelis (40) Executive head: strategy and business transformation Johan Meyer (52) Executive head: projects and technology Mzila Mthenjane (50) Executive head: stakeholder affairs Wim Diedericks (53) Executive head: strategy and business development Mongezi Veti (57) Executive head: sustainability Saret van Loggerenberg (45) Group company secretary and legal (ex ofﬁcio) Executive racial diversity (%) Executive gender diversity (%) 50 50 (cid:93) Black (5/10) (cid:93) White (5/10) 70 30 (cid:93) Women (3/10) (cid:93) Men (7/10) Executive age diversity (%) 10 60 30 (cid:93) 40 to 49 years (3/10) (cid:93) 50 to 59 years (6/10) (cid:93) 60 to 69 years (1/10) 30 Exxaro Resources Integrated report 2020 Refer to the ESG report for full details about the board and its roles and responsibilities. About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration SUMMARISED CORPORATE GOVERNANCE REPORT The board of directors (the board) drives the strategy, sets performance and culture expectations as well as the governance framework for Exxaro, including its subsidiary companies, trusts and joint ventures. In 2020, the board approved that the core businesses, energy and minerals, are empowered to exercise decision making and use their resources to thrive in an increasingly dynamic market and industry sector. The group is being designed to support this, with governance structures tailored to the level of maturity of core businesses, and to allow more decentralised decision making where empowered accountability can be exercised. The board remains the focal point and custodian of corporate governance for the group and is fully committed to good corporate governance. The board regards good corporate governance as fundamentally important to create value, applying the following principles and governance outcomes in its own ethical and effective leadership: Ethical culture Performance and value creation Adequate and effective control Trust, good reputation and legitimacy See page 94 of the ESG report for detailed disclosure. Exxaro Resources Integrated report 2020 31 Understanding our business GOVERNANCE FOR SUSTAINABLE VALUE CREATION continued Ethical culture At Exxaro, integrity is central to how board conducts itself and sets the tone for building a truly ethical culture that is the basis of how we conduct business. Building organisational ethics is a journey. The board assumes responsibility for the governance of ethics and sets the direction for the approach to ethics and how it should be addressed by the organisation. Through the code of ethics, the company conﬁrms the ethical principles of the organisation that, when followed, promote values such as trust, acceptable good behaviour and fairness. Our values provide general guidelines for our interactions with each other and our stakeholders, and reﬂect what is important to us and how we conduct ourselves. Recognising that our public reputation is one of our most important assets, the organisation is committed to achieving the highest ethical standards in all our business operations. We recognise our obligations to all our stakeholders, particularly shareholders, clients, employees, business partners, competitors, the authorities, the environment and the wider community. (cid:3)(cid:3)BOARD CHARTER AND CODE OF CONDUCT Our board charter and code of conduct (board charter) regulates the parameters in which the board operates, and ensures application of good corporate governance principles in all dealings by, in respect and on behalf of the company and the group. It sets out the roles and responsibilities of the board and individual directors, including the composition and relevant procedures. For more information, refer to our ESG report. For more information on our supplier code of conduct, please refer to https:// www.exxaro.com/assets/Files/8172_Exx_ SUPPLIER_SD_code_FA.pdf STRATEGY The board ultimately considers and approves the short, medium and long-term strategy, as formulated and developed by management. During assessment and formulation of the strategy, the board engaged with executive and senior management in several strategy sessions throughout 2020. The board appreciates that the company’s core purpose, its risks and opportunities, strategy, business model, performance and sustainable development are inseparable elements of the value creation process. The insight that conditions are changing and there is a need to become future ﬁt continues to drive decisions and measure transition going forward. Our strategy is on page 54. 32 Exxaro Resources Integrated report 2020 MONITORING ETHICAL CULTURE The board monitors the ethical culture of the group through its reporting structures, which include two board committees (the social and ethics committee, and the audit committee), and the ethics committee (a management committee). Our internal auditors conducted an integrity survey in the group during 2020. Select employees participated in the survey and gave valuable feedback about the integrity culture, employees living the Exxaro values, employees’ adherence to these values and the code of ethics. Based on the survey results, the board made the following observations: Code of ethics • 84% read, understood and received training • 96% consistently live the values • 95% understand the importance of a strong internal control environment and support initiatives to strengthen controls Reporting ethical breaches or fraud and corruption • 97% were aware of the fraud and ethics hotline and 3% were not aware The survey results were positive overall and key areas identiﬁed that require focus and/or intervention are being addressed. RESPONSIBLE CORPORATE CITIZENSHIP IN ACTION The board ensures the organisation’s strategy and conduct reﬂect in its drive to be a responsible corporate citizen and purpose to power better lives in Africa and beyond. The board adopted an emergency response plan in 2019, focusing on capability interfaces for crisis management and business continuity, to ensure integrated disaster or incident response and recovery. The plan documents procedures that guide Exxaro’s response, recovery and restoration of operations to a predeﬁned level after disruption. When the South African government announced a national state of disaster and lockdown from 26 March 2020, the company immediately implemented its crisis management and business continuity plans across the group. The plans included health and safety controls and preventive measures implemented immediately and considered necessary to sustain our business. These plans also ensure we continue serving stakeholders, and protecting and supporting employees and their families. For more information on our response, see page 14. About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration Adequate and effective control Exxaro’s corporate governance structure supports its ability to create value in the short, medium and long term. It is assessed to ensure agile decision making and to support business requirements. Through this structure, the board exercises effective control, and builds and protects the organisation’s reputation and legitimacy. We consider good corporate governance as the responsibility of our board, executive management and all our employees. In accordance with our changing context, the remuneration and nomination committee, contributing to the governance enhancement programme, aims to align strategic changes in the group with board and board committee composition. This requires revision of committee terms of reference and review of its mandate. Our corporate governance structure S R E D L O H E K A T S D N A S R E D L O H E R A H S , D R A O B E H T O T G N I T R O P E R D N A Y T I L I B A T N U O C C A STAKEHOLDERS SHAREHOLDERS Board of directors Chairperson: Jeffrey van Rooyen Appointed by shareholders Board subcommittees Assist board to discharge duties Ad hoc investment committee Chairperson: Isaac Mophatlane Remuneration and nomination committee Chairperson: Erasmus Myburgh Sustainability, risk and compliance committee Chairperson: Peet Snyders Social and ethics committee Chairperson: Geraldine Fraser- Moleketi External auditors Appointed by shareholders Audit committee Chairperson: Vuyisa Nkonyeni R I S K M A N A G E M E N T A N D A S S U R A N C E Appointed by shareholders Appointed by the board Appointed by the board Appointed by the board Appointed by shareholders To fulﬁl the statutory functions set out in section 94 of the Companies Act and provide independent oversight of the quality and integrity of the group’s ﬁnancial statements To monitor and report to the board on material acquisition, merger and investment or disposal opportunities and ongoing material transactions To assist the board in ensuring that the group remunerates fairly, responsibly and in a transparent manner To oversee the group’s consideration and performance in terms of all material non-ﬁnancial issues including social, risk, compliance, safety, health and environmental issues To fulﬁl the statutory duties set out in Regulation 43 to the Companies Act, oversee and report on organisational ethics, responsible corporate citizenship, sustainable development and stakeholder relationships CEO Executive leadership team Management committees to assist the group executive Investment review committee, combined assurance and ethics committee Functional departments Managing directors, executive heads and heads Finance, minerals, energy, strategy and business transformation, human resources, sustainability, stakeholder affairs, corporate secretariat and legal, audit and assurance, risk and compliance, and information management Other Subsidiary companies, trusts, special purpose vehicles (SPVs) and non-proﬁt companies Subsidiary board of directors or trustees Energy Subsidiary companies Minerals Subsidiary companies Subsidiary board of directors Subsidiary board of directors Managing director Managing director Functional department, subsidiaries, SPVs and trusts Functional department, subsidiaries, SPVs and trusts INTEGRATED REPORTING AND REGULATORY COMPLIANCE G O V E R N A N C E F R A M E W O R K I N C L U D E S C O D E O F E T H I C S , D E L E G A T I O N S , P O L I C I E S , Exxaro Resources Integrated report 2020 33 Understanding our business GOVERNANCE FOR SUSTAINABLE VALUE CREATION continued BOARD COMMITTEE REPORTS In the past year, Exxaro’s board committee structure embarked on a signiﬁcant transformation journey, focusing on reimagining the operating model, acquisitions and evolving the broader business strategy. This is driven by a changing business environment and regulatory developments. To this end, Exxaro revisited and enhanced the respective terms of reference of its corporate governance structures. In line with King IV, considerations included: • Exxaro’s current operating environment and the impact of its activities on public interest • Effective collaboration through cross-membership between committees • Balanced distribution of power The terms of reference of the respective committees were updated with key focus areas and objectives revisited. In addition, a reporting framework was developed addressing the board’s expectations about reports received from management. Detailed reports from each of the board committee are on pages 117 to 133 of the ESG report. INNOVATION Within our overarching values, we have ﬁve cultural themes: responsibility, adaptability, openness and connectivity, diversity and ownership. We aim to foster a culture of adaptability to the ever-changing world around us, encouraging employees to learn and improve in everything they do. As change is inevitable, based on current social, economic and technological realities, the company aims to be agile and create new opportunities to move the group forward as a collective. This culture enabled the company to seamlessly continue business activities during the COVID-19 lockdown and deliver on its objectives. We held our ﬁrst virtual annual general meeting (AGM) in 2020, with shareholders or their proxies participating via electronic communication. Participants could vote during the AGM through an electronic participation platform. If participants wanted their vote(s) counted, they could submit information captured in the AGM notice to the platform service provider. Each shareholder who provided requested information was given a unique link to participate in the virtual meeting. Trust, good reputation and legitimacy TECHNOLOGY AND INFORMATION MANAGEMENT The board governs technology and information management in a way that supports the organisation setting and achieving its strategic objectives. As information management and governance form an integral part of overall enterprise governance, the board adopted the following policies: • Acceptable use of information and communications technology (ICT) equipment policy to protect our employees, partners and the company from illegal or damaging actions when using information, electronic and computing devices, and network resources to conduct business with internal networks and business systems • A formal management framework for ICT governance providing structure to ensure information management investments support business objectives by aligning the information management strategy with the business strategy The information management programme, including document information management and implementation of the data privacy programme in compliance with the Protection of Personal Information Act, 2013 (Act 4 of 2013) is in full force and effect. ERM Our ERM approach provides a framework and process for all types of risk management, regardless of risk or impact type at all levels of the organisation. The same terminology and assessment mechanisms are used for ﬁnance, projects, safety and operational risk management. We have a set of risk names, one impact and one likelihood scale used across different disciplines to ensure management concentrates efforts and resources on material activities. The board is satisﬁed that the company and group have a mature risk process that ensures risks potentially impacting its strategic objectives are pursued by management to create shareholder value. Our top ﬁve risks in 2020 were: • COVID-19 concerns • Eskom systemic risk • Unavailability of rail capacity • Community unrest • Safety and health concerns Please refer to page 71 for details on our risks. STAKEHOLDER ENGAGEMENT In support of its purpose to power better lives in Africa and beyond, 2020 saw the creation of the social impact strategy. The strategy ensures that the company continues to work towards improving the quality of our relationships with stakeholders. We strive to build long-term, stable and trusting relationships that create shared value. With a relatively procedural engagement approach, we mature through integrated and relational levels to the intentional, proactive management of stakeholder-related risks and opportunities. More information on our stakeholder engagements can be found on page 63. 34 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration Performance of our board Board meeting attendance The board held four quarterly meetings, two governance sessions and seven special board meetings during the year. Attendance is calculated against the number of meetings the director was required to attend. Members Jeffrey van Rooyen Designation Independent non-executive director and board chairperson Attendance 100% Geraldine Fraser-Moleketi Lead independent non-executive director Riaan Koppeschaar Executive director: ﬁnance director Likhapha Mbatha Mxolisi Mgojo Non-executive director Executive director: CEO Zwelibanzi Mntambo Non-executive director Mark Moffett Isaac Mophatlane Ras Myburgh Vuyisa Nkonyeni Anuradha Sing# Peet Snyders Independent non-executive director Independent non-executive director Independent non-executive director Independent non-executive director Independent non-executive director (during her tenure) Independent non-executive director # Anuradha retired by rotation on 28 May 2020. 100% 100% 85% 100% 92% 92% 100% 100% 100% 100% 100% Key board activities in 2020 • Amendment of the corporate governance framework: The board approved amendments to the governance framework on 28 May 2020 to be more adaptive and agile, enable committed decision making as well as a more decentralised decision-making process through an effective and relevant corporate governance framework. Guidance was taken from King IV in these amendments and is reﬂected on page 100 of the ESG report • Climate change: As the physical and transitional impacts of climate change pose a serious threat to our business and society, it requires immediate action to reduce the local and global physical effects. The board is aware of the role fossil fuel-generated power plays in releasing GHGs and contributing to climate change. A climate change response strategy was presented to the board, highlighting the need to respond to growing global and local pressure to move towards a low-carbon economy. The board requested a strategy for its approval to develop a climate change policy and to incorporate recommendations from the TCFD, highlighting climate change transitional and physical risks confronting the organisation and the related ﬁnancial impacts of these risks. A strategic decision was made to begin the transition to a low-carbon future. On 12 March 2020, Exxaro published its climate change position statement, which contains our aspirational target to be carbon-neutral by 2050 • GHG and water consumption reduction: From an environmental point of view, there has been signiﬁcant focus on reducing GHGs and water consumption. At the 2019 Sustainability Summit, Exxaro reafﬁrmed its commitment to reducing its GHG emissions by 30%, its water consumption by 30% and a 20% energy intensity reduction by 2026. Reduction in water use and carbon emissions is 5% year-on-year. The TCFD framework was adopted on 10 March 2020 to engage with shareholders and other stakeholders about climate issues • Cennergi acquisition: The board considered and approved the acquisition of Khopoli Investments’ 50% shareholding in renewable energy company, Cennergi. After concluding the agreement, Exxaro held 100% of Cennergi in 2020 Phase 2 of implementation of the replacement BEE transaction: As part of the replacement BEE transaction of 2017, Exxaro committed to introducing appropriate schemes to beneﬁt employees and communities. Exxaro is guided by the Mining Charter III when implementing these schemes. Performance evaluation An independent third party conducted a high-level evaluation of the board, committees and individual directors, including the chairperson and committee chairpersons, the ﬁnance director and the group company secretary. Board members participated in an independent evaluation process and received comprehensive feedback on the performance and effectiveness of the board and its committees. The purpose of the board evaluation was to ascertain: • If the board addressed and improved items identiﬁed as part of the 2019 board evaluation process • How effectively the board dealt with the COVID-19 crisis • Whether the board made progress in key focus areas highlighted in the 2019 board evaluation The evaluation showed that, in the board’s opinion, its overall performance is satisfactory although deﬁnite areas warrant consideration and attention to further strengthen its performance and effectiveness. Speciﬁc observations and recommendations, based on ratings and comments, were made to the board and will form the basis of an action plan for 2021. Conclusion The board is satisﬁed that it complied with the provisions of the Companies Act and relevant laws of establishment relating to its incorporation, and that the company is operating in conformity with its MoI and other relevant constitutional documents. The board is also satisﬁed that it fulﬁlled its responsibilities in accordance with its charter during the reporting period. Refer to our ESG report for the full corporate governance report. Our commitment in action Exxaro ranked 3rd in the Transparency and Corporate Reporting: South Africa 2020 (TRAC SA 2020) 100 SA Companies under scrutiny for the transparency and implementation of anti-corruption programme Exxaro Resources Integrated report 2020 35 Understanding our business OUR BUSINESS MODEL Our business model, as reﬂected below, is a high-level summary of what we need, do and create as a business. OUR INPUTS The resources and relationships we rely on OUR ACTIVITIES What we do NATURAL CAPITAL • Run of mine: 81.0Mtpa (2019: 79.2Mtpa) • Land managed for six mining operations • Water withdrawal: 10.92Mm3 (2019: 7.68Mm3) • Diesel: 96 131kL (2019: 98 702kL) • Electricity: 605 770MWh (2019: 625 211MWh) HUMAN CAPITAL • Employees: 6 739 (2019: 6 812) • Contractors: 15 726 (2019: 13 330) • • • Culture: connect2NEXT Investment in skills development and talent management: R227 million (2019: R298 million) Investment in employee remuneration: R3.8 billion (2019: R4.2 billion) SOCIAL AND RELATIONSHIP CAPITAL • Social licence to operate required to conduct business • • • Investments in SLP projects: R27.53 million (2019: R38.6 million) Investments in ESD: R79.8 million (2019: R170.7 million) Investments in community and volunteerism: R143 million (2019: R95 million) MANUFACTURED CAPITAL • Eight mines, two coal projects and two windfarms • Sustaining capital: R2.1 billion (2019: R2.2 billion) • Expansion capital: R1.0 billion (2019: R3.6 billion) • Investment in property, plant and equipment: R3.2 million (2019: R6.1 million) INTELLECTUAL CAPITAL • Continued investment in world-class digitalisation • Business Excellence integrated into the business • Leadership and management training: 184 people attended (2019: 372) • Signiﬁcant investment in updating and aligning our strategy to our purpose and long-term goals • Continued investment in leading governance structures: changes in board, engagement with investors FINANCIAL CAPITAL • Core equity-accounted income: R6.5 billion (2019: R4.8 billion) • Core EBITDA: R7.3 billion (2019: R5.8 billion) • Cash dividend paid (including special dividend): R3 billion (2019: R5.8 billion) • Revenue: R28.9 billion (2019: R25.7 billion) At the core of Exxaro is our goal of powering better lives for Africa and beyond. We achieve this by: • RESPONSIBLE MINING – Responsible environmental stewardship – Diversity and inclusion – Values-based leadership – Effective governance • DIVERSIFIED EQUITY INVESTMENTS – SIOC — iron ore – BM — zinc – Tronox — titanium • RENEWABLE ENERGY OPERATIONS • INVESTMENTS IN COMMUNITY DEVELOPMENT INITIATIVES • STAKEHOLDER ENGAGEMENT AND COMMUNICATION We know that it’s not just about WHAT you do, but also HOW you do it. That’s why we continuously strive to differentiate ourselves in the industry by how we do business. We pride ourselves on being more than just a mining business. Creating and sustaining value for our stakeholders, while ensuring we are a force for good, supporting the economic and social growth of the country. • • Growing negative sentiment towards companies in the fossil fuel sector Increasing expectations on companies to solve societal issues Increased reputational risks stemming from employees, contractors and suppliers’ conduct • • Manufactured capital remains costly, with delays in project completions hampering growth • As the world evolves at an unprecedented pace, both technologically and in terms of the operating context, rapid innovation and ideation is more important than ever and remains challenging • In a low-growth environment, ﬁnancial capital remains costly and scarce The capital constraints we face • Attracting and retaining the right employees with the necessary skills for now and into the future remains challenging in a competitive market • Natural resources, including the mineral resources we rely on, are ﬁnite and must be managed carefully • Balancing the need for energy that supports economic growth (currently primarily fuelled by coal) with the need to transition to a low-carbon economy VALUE CREATION OVER TIME 36 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration It is enabled through our strategy and designed to deliver on our purpose: to power better lives for Africa and beyond. OUR OUTPUTS What we produce OUR OUTCOMES The broader outcomes of our activities on the capitals Risks and opportunities Page 66 Strategy and resource allocation Page 56 COAL 47.4Mt product volumes (2019: 45.6Mt) RENEWABLE ENERGY 727GWH in wind energy (2019: 762GWh) IRON ORE (SIOC) R6.1 billion core equity-accounted income (2019: R4.4 billion) TITANIUM DIOXIDE R226 million core equity accounted income (2019: R236 million) WASTE 1 511 tonnes hazardous waste (2019: 4 090 tonnes) 1 031ktCO2e emissions (2019: 1 082ktCO2e) Performance Page 83 Stakeholders Page 62 How we are improving our outcomes We strive to mine responsibly, minimise our environmental impacts and be an active participant in the just energy transition to a low-carbon economy. We are committed to achieving zero harm and continue working with our employees and contractors to eradicate any safety incident. Further reading • Chairperson’s statement Further reading • Chairperson’s statement (page 10) (page 10) • Our strategy (page 54) • Our environment • Our strategy (page 54) • CEO’s report (page 52) (page 118) • CEO’s report (page 52) We continuously seek ways to engage and maintain relationships of mutual respect and beneﬁt with our stakeholders. Further reading • Chairperson’s statement (page 10) • Stakeholder management (page 62) • Our strategy (page 54) • CEO’s report (page 52) • Social licence to operate (page 116) + Carbon intensity down 9% (2019: down 5%)* Water intensity increased by 38% from 2019 (2019: reduced by 10%)* – Environmental incidents: zero level 3s (2019: zero level 3) + Valid mining rights: 100% (2019: 100%) – Stoppage directives: three (2019: seven) = Employee and contractor fatalities: none (2019: none) – LTIFR: 0.05 (2019: 0.12) – OHIFR: 0.19 (2019: 0.24) + Scarce skills retention on target – Community incidents: 3 (2019: 4) + Top-quartile mining performer in ESG + Governance structure ESG analyst rating: 4.6 out of 5 (2019: 4.6 out of 5) + ESD: 2.6% of NPAT (2019: 1.8%), supporting 24 suppliers in 2020 + BEE level 2 (2019: level 2) = Marginal cost overruns on mega-projects = Implementation timelines for mega-projects on target + Core system availability: 98.86% (2019: 99.8%) + Cyberintrusions: none (2019: none) + Core EBITDA margin: 25% (2019: 23%) + ROCE: 25% (2019: 28% + Core HEPS: 2 973 cents per share (2019: 2 354 cents per share) + Market capitalisation: R50 billion (2019: R47 billion) (2019: 13%) + Positive impact > value created – Negative impact > value eroded = Neutral impact > value preserved * Although we have achieved greater levels of efﬁciency in our use of natural capital, these outcomes have been marked as negative as they reﬂect a reduction in the balance of natural capital available. Optimising our manufactured assets remains a key strategic priority. Further reading • Chairperson’s statement (page 10) • Our strategy (page 54) • CEO’s report (page 52) Ensuring our competitive advantage through innovation and digitalisation remains key to Exxaro’s strategy going forward. We continue focusing on initiatives designed to lower costs, increase quality and manage our risk proﬁle to deliver ﬁnancial value. Further reading • Chairperson’s statement Further reading • Chairperson’s statement (page 10) • Our strategy (page 54) • CEO’s report (page 52) • Business resilience (page 104) (page 10) • Our strategy (page 54) • CEO’s report (page 52) • Finance director’s review (page 84) • Business resilience (page 104) Exxaro Resources Integrated report 2020 37 Understanding our business OUR MATERIAL MATTERS IN ACTION Since 2019, our material matters have broadened in scope and signiﬁcance, not surprising given the broader macro-trends such as COVID-19, global instability and climate change. Each material matter is explained below and aligns with our strategy (during 2020), business model and selected SDGs. PRICE AND CURRENCY VOLATILITY Why this matters Price volatility refers to ﬂuctuations in the price of our export and some domestic coal products. Currency volatility refers to ﬂuctuations in the exchange rate for exports. As a price taker with product prices denominated in United States (US) dollar, we are exposed to changes in the US dollar to South African rand exchange rate and shifts in coal and iron ore prices (two major contributors to earnings). Larger macro-economic factors impact price and currency volatility. We have no control over these, which could signiﬁcantly impact our business. We implement several plans to manage these challenges in our approved risk appetite (limited price hedging) and remain cognisant of the potential impact. Additionally, our revenue is diversiﬁed by Eskom’s ﬁxed contracts with annual price escalation, providing a degree of stability. Material theme Macro-environment Related capitals 2020 strategic objectives* Related risks • Ensuring the sustainability of our Related SDGs business • Optimising our portfolio • Prudently optimising capital • COVID-19 concerns • Eskom systemic risk • Cost competitiveness of products • Country risk (political) • Low commodity price Affected stakeholders Customers, investors (returns on investment), employees (employment security) communities and government (taxes and employment) Key stakeholder engagements Exxaro engages continuously with customers and the market on coal pricing. • Export volume pricing is based on All Publications Index 4 • Eskom coal pricing for long-term supply contracts at Grootgeluk are ﬁxed and adjusted annually based on inﬂation • Short-term coal supply contracts to Eskom for ECC and Leeuwpan were not concluded by year end Refer to macro-environment on page 98 for more information. COUNTRY RISK Why this matters Country risk refers to the inherent risk of conducting business in a country. We are exposed primarily to risks relating to South Africa — our home base. These risks include high levels of unemployment, downgrades by credit rating agencies, dampened economic growth and lagging policy reform. Country risk remains a critical risk area for us to monitor as deterioration may affect the ease of doing business, operational returns and the attractiveness of South Africa as an investment destination. We continue monitoring these risks and implement appropriate strategies, where possible, to ensure we can create value for our stakeholders and deliver on our purpose. Material theme Macro-environment Related capitals 2020 strategic objectives Related risks • Ensuring the sustainability of our Related SDGs business • Optimising our portfolio • Prudently optimising capital • COVID-19 concerns • Eskom systemic risk • Cost competitiveness of products • Country risk (political) • Low commodity price • Unavailability of rail capacity Affected stakeholders Customers, suppliers, government, communities, employees, contractors, and investors and analysts Key stakeholder engagements All stakeholders could be affected to varying degrees by a deteriorating operating environment. Ongoing engagements with stakeholders on Exxaro’s response to this risk. Refer to macro-environment on page 98 for more information. * All material matters correlate to our 2020 strategy, but have also informed our new Strategic Growth and Impact strategy. See page 54 of the integrated report for more information on our strategic evolution. 38 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration KEY CUSTOMER DEPENDENCY Why this matters Our operational sustainability is tied to the success of Eskom, the national power utility and ArcelorMittal SA Limited (Arcelor Mittal). We continue collaborating with our customers to ensure mutual success while looking to broaden our customer base. Material theme Business resilience 2020 strategic objectives Related risks • Ensuring the sustainability of our • Eskom systemic risk • Cost competitiveness of products business • Optimising our portfolio • Delivering operational excellence • Prudently optimising capital Related capitals Affected stakeholders Customers, and investors and analysts Related SDGs Key stakeholder engagements • During South Africa’s ﬁrst COVID-19 lockdown, Eskom declared force majeure at both Matimba and Medupi power stations indicating that the demand would be lower. Our view was and continues to be, that the event did not constitute a force majeure, as stipulated in the coal supply agreements (CSAs). We continue to engage with Eskom on this and other issues • Production volumes reduced during the ﬁrst part of the year as a result of the COVID-19 lockdown. As producers returned to full production, we saw a marked increase in demand. We kept in close contact with our key customers and were able to respond promptly as their coal demands increased • Some customers were adversely affected by the COVID-19 pandemic and requested more lenient payment terms in the short term • As these requests were for extended payment terms over a short period, Exxaro responded favourably to these requests; at the same time, managing this closely to ensure that the customers did not default on the agreed terms Refer to business resilience on page 104 for more information. INFRASTRUCTURE ACCESS AND CAPACITY Why this matters Infrastructure access and capacity relate to ports, railways, mines and power stations. Outdated, inefﬁcient or poorly functioning infrastructure, as well as a lack of access to infrastructure, can adversely impact our operations’ effectiveness and our ability to service our customers and other stakeholders. Material theme Macro-environment 2020 strategic objectives Related risks • Ensuring the sustainability of our Related SDGs • Unavailability of rail capacity • Cost competitiveness of products • Country risk business • Optimising our portfolio • Prudently optimising capital Related capitals Affected stakeholders Customers, suppliers, government, investors and analysts Key stakeholder engagements Engagements with Transnet Freight Rail take place regularly and at various levels in order to discuss matters of both operational and strategic consequence. Exxaro experienced challenges with the availability of trains. Refer to macro-environment on page 98 for more information. Exxaro Resources Integrated report 2020 39 Understanding our business OUR MATERIAL MATTERS IN ACTION continued PRUDENTLY MAXIMISING THE VALUE OF OUR COAL PORTFOLIO Why this matters Our coal portfolio is a valuable natural resource entrusted to us, and must be selectively and responsibly extracted to ensure we optimise its value, support economic growth and social development while safeguarding the natural environment, managing reputational risks and preparing for the low-carbon future. Our just transition to a low-carbon future has a foothold on the early value coal strategy, a key pillar of our Sustainable Growth and Impact strategy. See page 54 for more information. Material theme Business resilience Related capitals 2020 strategic objectives Related risks • Ensuring the sustainability of our Related SDGs business • Optimising our portfolio • Delivering operational excellence • Prudently optimising capital • COVID-19 concerns • Community unrest • Safety and health concerns • Cost competitiveness of products • Climate change concerns • Country risk (political) • Inability to achieve ﬁnancial targets • Low commodity price Affected stakeholders Customers, suppliers, government, communities, employees, contractors, unions, non-governmental organisations (NGOs), and investors and analysts Key stakeholder engagements • We have made good progress in our efforts to divest from the less robust local assets • We have intensiﬁed our engagement with Anglo in order to facilitate processes to get to an investment decision on Moranbah South in as minimal time as possible • At Leeuwpan and ECC, we continued to update employees on the progress of the divestment process and to address their concerns about the change of ownership • Our early value coal strategy aims to reduce the potential for stranded assets and maximise the value of the coal business in the short to medium term establishing a foundation for transitioning to a low-carbon future Refer to business resilience on page 104 for more information. SUPPORTING A JUST TRANSITION TO A LOW-CARBON ECONOMY Why this matters Exxaro is committed to alleviating potential social and relationship and human capital disruption that could lead to further unemployment and poverty. We consider the social impact on employees and communities who depend on the coal economy and respond by preparing affected people through appropriate skills and social support structures, for example alternative economic activities. Material theme Business resilience 2020 strategic objectives Related risks • Ensuring the sustainability of our • Climate change concerns Related SDGs business • Optimising our portfolio • Delivering operational excellence • Prudently optimising capital Related capitals Affected stakeholders Customers, suppliers, government, communities, employees, contractors, unions, NGOs, and investors and analysts Key stakeholder engagements • As we move towards carbon neutrality by 2050, we continue to ensure that our transition contributes to the socio-economic wellbeing of the communities in which we operate. We continue to empower local suppliers and emerging small businesses to grow their businesses beyond the life of our operations • We have begun establishing strategic relationships to support us in our mineral succession planning, whereby we are evaluating the alternative use of rehabilitated land for economic activities beyond mining Refer to business resilience on page 104 for more information. 40 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration FINANCIAL PERFORMANCE AND RESILIENCE Why this matters Over time, our ﬁnancial performance and resilience directly inﬂuence our business’s sustainability, success and viability. Without delivering solid returns to shareholders over time and ensuring we have the ﬁnancial resources to implement our growth plans and social development objectives, we cannot deliver value to our broader stakeholders. Material theme Business resilience Related capital 2020 strategic objectives Related risks • Ensuring the sustainability of our Related SDGs business • Optimising our portfolio • Delivering operational excellence • Prudently optimising capital • COVID-19 concerns • Eskom systemic risk • Cost competitiveness of products • Country risk (political) • Inability to achieve ﬁnancial targets • Low commodity price Affected stakeholders Investors and analysts, customers, suppliers, government, communities, employees and contractors Key stakeholder engagements We have adopted agility in our day-to-day business operations, by implementing new ways of work, that allowed us to capture opportunities that presented themselves during the pandemic. Our newly implemented short-cycle value chain control, which is part of our new ways of work and response to the challenges brought by the pandemic, helped in ensuring product placement across various markets, even during global lockdown. • The deteriorating macro-environment and the economic shock from COVID-19 resulted in the reduced ﬁnancial viability of many contractors • We engaged extensively with strategic suppliers with the view of tapping into the innovation potential and to delivering further value. Commodities that have been positively impacted by this review include the sourcing of magnetite and fuel Refer to business resilience on page 104 for more information. COST COMPETITIVENESS OF OUR PRODUCTS Why this matters Cost competitiveness is our ability to sustainably produce quality coal products at the lowest marginal and average total cost, both in the short and long term. We strive to ensure our coal operations are best-in-class and cost competitive through our operational excellence drive, including adopting relevant technology and innovation, as we continue meeting customer expectations in terms of volumes, quality and price. Being cost competitive in an environment of price volatility is a key tenant of our operational excellence strategy. Material theme Business resilience 2020 strategic objectives Related risks • Ensuring the sustainability of our Related SDGs business • Optimising our portfolio • Delivering operational excellence • Prudently optimising capital • COVID-19 concerns • Eskom systemic risk • Unavailability of rail capacity • Cost competitiveness of products • Country risk (political) • Inability to achieve ﬁnancial targets • Low commodity price Related capitals Affected stakeholders Customers, suppliers, employees, contractors, and investors and analysts Key stakeholder engagements • Exxaro is only competitive if we can sell our products proﬁtably at market-related pricing. To this end Exxaro engages continuously with customers on what product works best in the required application. We also take a value chain approach by following a market to resource optimisation strategy • Given the impact of COVID-19, we have implemented a cost-saving drive called “closing the gap” across our operations, which has enabled us to preserve cash, thereby ensuring healthy cash ﬂow to mitigate the impact of the pandemic on our business operations Refer to business resilience on page 104 for more information. Exxaro Resources Integrated report 2020 41 Understanding our business OUR MATERIAL MATTERS IN ACTION continued CAPITAL ALLOCATION Why this matters Capital allocation refers to how we invest and distribute our ﬁnancial resources to support our strategy, increase efﬁciency, expand operations and maximise value. We carefully consider how we allocate capital to achieve our strategic goals and invest in our current operations and future growth plans. Material themes Business resilience 2020 strategic objectives Related risks • Ensuring the sustainability of our Related SDGs • Eskom systemic risk • Cost competitiveness of products • Inability to achieve ﬁnancial targets • Low commodity price business • Optimising our portfolio • Delivering operational excellence • Prudently optimising capital Related capitals Affected stakeholders Investors and analysts, and debt funders Key stakeholder engagements • Our capital allocation framework provides a guideline for the use of cash generated, including the dividend policy and reinvestment strategy to enhance the return on capital employed (ROCE). Business of tomorrow investments have ceased and are held for possible future divestment • A key consideration for proceeds received from the disposal of our Tronox investment was the special dividend and share buy back during Q2 2021 Refer to business resilience on page 104 for more information. LEGAL, REGULATORY AND COMPLIANCE EXCELLENCE Why this matters Legal, regulatory and compliance excellence is our awareness and understanding of, and compliance with relevant industry and company laws, policies and regulations. For Exxaro, this means actively monitoring the regulatory environment to identify any changes in compliance requirements and adapting to compliance efforts accordingly, maintaining our licence to operate and going beyond compliance. This includes, among others, codes of good practice, industry charters and other regulations, and best practice such as the UN SDGs and NDP. 2020 strategic objectives Related risks • Ensuring the sustainability of our Related SDGs business • Optimising our portfolio • Delivering operational excellence • Prudently optimising capital • Community unrest • Safety and health concerns • Climate change concerns • Country risk (political) Material themes Business resilience Our people Related capitals Affected stakeholders Government, employees, contractors, and investors and analysts Key stakeholder engagements • We regularly engage with the relevant authorities to ensure that our permits and rights are up to date and protected Refer to business resilience on page 104 and our people on page 108 for more information. 42 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration TRANSPARENCY, ETHICS AND INTEGRITY Why this matters Creating and preserving value for our stakeholders is guided by our values and requires effective and efﬁcient governance processes and practices informed by good corporate citizenship pillars, namely transparency, accountability and integrity. We continuously aim to be a responsible and ethical corporate citizen. Our approach to transparency, ethics and integrity encompasses among others, fraud prevention, anti-bribery and anti-corruption. In addition, we face intense scrutiny by consumers and activists demanding greater visibility and transparency regarding our carbon footprint and emissions reduction strategies, environmental stewardship and achieving social objectives. Material themes Our people 2020 strategic objectives Related risks • Ensuring the sustainability of our Related SDGs • Community unrest • Safety and health concerns • Climate change concerns business Related capitals Affected stakeholders Customers, suppliers, employees and contractors Key stakeholder engagements • The procurement fraud and the proliferation of procurement scams present a risk to Exxaro and its suppliers. Above inﬂation increase in input costs present a risk to Exxaro’s ﬁnancial sustainability. The adoption of best-in-class business processes and technology has enabled us to respond to both ﬁnancial and fraud risks. During 2020 the board approved a new source to pay and accounts payable policy, we reviewed our supplier code of conduct, which articulates a commitment to the prevention of corrupt practice, anti-bribery and corruption laws and we improved our supplier due diligence processes. All suppliers are required to commit to this code of conduct as a condition of tender. In 2020, online training on Exxaro’s anti-bribery and anti-corruption policies was carried out with employees and contractors. In 2020 we also completed the roll-out of Coupa, a Software as a Service (SaaS)-based e-procurement platform that will further reduce fraud, increase transactional speed and enable greater value release through savings • Board governance sessions are held twice a year to update the board and executive leadership on key and leading trends on governance Refer to our people on page 108 for more information. RESPONSIBLE ENVIRONMENTAL STEWARDSHIP Why this matters Environmental stewardship refers to responsibly using the natural resources we rely on. It highlights the custodial role we play in terms of how we use, manage and protect the natural environment while delivering on our strategic objectives and ensuring we create value for our stakeholders and the country at large. Key stewardship efforts relate to water, air quality and carbon emission reduction. Material theme Climate change Social licence to operate Strategic objectives • Ensuring the sustainability of our business Related risks • Climate change concerns • Water security • Air pollution • Biodiversity and land use Related SDGs Related capitals Affected stakeholders Communities, customers, suppliers, government, employees, contractors, NGOs, and investors and analysts Key stakeholder engagements • Several initiatives are underway aimed at reducing the environmental impact of Exxaro. A pilot study is being conducted with the collaboration of original equipment manufacturers to pilot the use of compressed natural gas on haulage trucks. Similarly, Exxaro has concluded an agreement with a service provider to recycle old off-road tyres Refer to our environment on page 118 and social licence to operate on page 116 for more information. Exxaro Resources Integrated report 2020 43 Understanding our business OUR MATERIAL MATTERS IN ACTION continued CLIMATE CHANGE RESILIENCE Why this matters Climate change resilience refers to our ability to adapt and succeed in the face of direct and indirect climate change impacts. In addition to addressing and managing these risks, it encompasses our ability to capitalise on the strategic opportunities presented by the shift to a lower-carbon and resource-constrained economy. Guided by our purpose, our Sustainable Growth and Impact strategy is designed to ensure we are able to manage the direct and indirect climate change impacts on our current portfolio while ensuring we are able to contribute to the low-carbon environment of the future. Material themes Macro-environment Climate change 2020 strategic objectives Related risks • Achieve carbon neutrality by • Climate change concerns Related SDGs 2050 Related capitals Affected stakeholders Customers, suppliers, government, communities, employees, contractors, and investors and analysts Key stakeholder engagements • We recognise the numerous beneﬁts associated with adopting a value chain approach to climate adaptation and resilience, especially given that the negative impacts of climate change are not only limited to our business’s operating space. Therefore, during 2020, engagements with our host communities and other value chain partners were undertaken to enable us to adopt critical elements for the design of a comprehensive climate adaptation and resilience approach which is largely based on sustainably investing in our operations, communities and value chain partners. • We have completed our TCFD recommendations assessment, with a favourable score of 90%. The outcome of the assessment will provide a framework for the future engagement of shareholders and other capital providers. Refer to macro-environment on page 98 and our environment on page 118 for more information. Detailed disclosure is available in our CCRS report Cennergi’s Amakhala Emoyeni windfarm 44 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration WORKFORCE: CULTURE, CAPABILITY, DIVERSITY, INCLUSION AND INNOVATION Why this matters Our corporate culture is critical in determining our success today and in years to come. We aim to foster a culture that supports adaptability and innovation, leveraging the strength of diversity to enable our success. We are committed to ensuring we have the right capabilities and values to deliver on our strategy and lead the business into the future to achieve our vision and fulﬁl our purpose. Material themes Our people 2020 strategic objectives Related risks • Ensuring the sustainability of our Related SDGs • COVID-19 concerns • Community unrest • Safety and health concerns business • Delivering operational excellence • Creating a culture of inclusivity, agility and adaptability • Strengthen our capabilities • Drive performance to support our strategy Related capitals Affected stakeholders Customers, suppliers, employees and contractors Key stakeholder engagements • Exxaro is in the second year of a culture shift that is seeking to promote new ways of working across the organisation. After extensive face- to-face launch events with employees in 2019, the focus turned to internal communications in 2020 via email, portal and the SMS/mobile platform, LetsConnect. The culture changes are supported by the launch of a new online learning platform and a new leadership philosophy built around mindsets. • Exxaro is exploring partnerships with several stakeholders to support the implementation of our diversity and inclusion strategy and to benchmark policies and practices. In 2020, we signed up to the United Nations Women’s Empowerment Principles, which offer guidance on how we can further empower women in our workplace and in our communities. We met with the Department of Women, Youth and Persons with Disabilities and the Gender Equality Commission to understand national initiatives to which we could direct our support, and we engaged with the NBI to better understand its transformation and equity programme. We continue to work closely with Women in Mining in South Africa where a key focus in 2020 was gender-based violence (GBV). Internal communication campaigns on GBV received high levels of support from employees. Finally, we participated in the Bloomberg Gender Equality Index (GEI) for the ﬁrst time. Refer to our people on page 108. Exxaro Resources Integrated report 2020 45 Understanding our business OUR MATERIAL MATTERS IN ACTION continued HEALTH, SAFETY AND WELLNESS Why this matters Our employees are the organisation’s lifeblood. Exxaro is committed to protecting their health, safety and wellness. We strive to achieve zero harm through collective responsibility, commitment and risk awareness. Our targeted health, safety and wellness strategies and programmes are in place to help us achieve this. Throughout the COVID-19 pandemic, we continuously leveraged and enhanced our existing health and wellness programmes to protect our employees, contractors and communities. Material theme Our people Strategic objectives • Ensuring the sustainability of our business • Delivering operational excellence • Human Rights practice Related risks • COVID-19 concerns • Community unrest • Safety and health concerns Related SDGs Related capitals Affected stakeholders Employees, contractors, communities and unions Key stakeholder engagements • The people implications of COVID-19 stirred up a new reality for the human resources discipline, necessitating real-time co-creation of relevant guidelines across multidisciplinary working teams, with employee wellbeing at the forefront of our solutions thinking Communication during this period focused largely on COVID-19, addressing employee concerns about a potential loss of income, as well as initiatives such as return-to-work protocols, remote work support, a return-to-work survey, an anti-stigmatisation campaign, mental health and wellness, were leveraged to hinge culture messages. The process of aligning diversity and inclusion initiatives to culture also commenced • COVID-19 placed new health and operational risks to Exxaro and its contractors. Exxaro conducted an impact assessment on suppliers impacted by COVID-19 lockdown regulations. Exxaro took a stance to compensate contractors who were not able to render a service during the lockdown in part or in full for actual proven costs • The strategy for the sourcing of COVID-19-related personal protective equipment (PPE) sought to minimize supply risks for the business but also increase the participation of local small, medium and micro-enterprises (SMMES): — In order to minimise social contact we utilised Exxaro’s new digital sourcing platform — To mitigate the supply risk among SMMEs, we placed qualifying SMMEs on early payment terms — Exxaro further provided nearly R80 million in loan and grant funding to SMMEs through 2020 • The COVID-19 pandemic has had grave implications for our communities, compounding unemployment and poverty. With lockdown regulations being eased, community groups demanded that business units (BUs) prioritise skills development, employment and business opportunities. Exxaro has developed a post-lockdown response plan to address the needs of the communities. The plan will be carried out in collaboration with social partners such as World Vision and local non-proﬁt organisations (NPOs). Our stakeholder relationships provided a platform for an effective response to the COVID-19 challenge within our communities, it included extensive collaboration with local and provincial governments on numerous initiatives • COVID-19 and its impact on employee safety, job security and continued employment conditions took centre stage with labour stakeholders during 2020. We continue to engage with unions at all levels to ensure they understand and have input into Exxaro’s approach to COVID-19. We have also developed people management guidelines to address the concerns raised • Exxaro continues to engage with the DMRE through the Mining Charter III, as well as provincial departments of health in a coordinated and collaborative response to the COVID-19 crisis Refer to our people on page 108 for more information. 46 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration CYBERSECURITY, TECHNOLOGY AND DIGITALISATION Why this matters Technology is rapidly changing and evolving, impacting organisations around the world though its unprecedented risks and opportunities. To navigate this, Exxaro’s resilience and agility will be enabled by leveraging digital tools, as well as progressive methodologies and capabilities that enable us to enhance performance across the value chain. We continue investing in technology and digitalisation, taking an enterprise-wide approach rather than a point solution. While the business advances its transformation, and relies increasingly on technology, we remain cognisant of managing the risks associated with technology and digitalisation as we strive to secure Exxaro’s assets across all information security domains. 2020 strategic objectives Related risks • Ensuring the sustainability of our • COVID-19 concerns • Cybersecurity risk business • Optimising our portfolio • Delivering operational excellence • Prudently optimising capital Related SDGs Material themes Business resilience Related capitals Affected stakeholders Customers, suppliers, communities, employees, contractors, and investors and analysts Key stakeholder engagements An industry leading cybersecurity assessment tool has been implemented that automatically measures and monitors all aspects of cybersecurity and provides an overall rating percentage (called a cybersecurity “posture”). This rating is benchmarked against peer companies and Exxaro has already achieved a higher rating than the industry norm which will be improved even further going forward. Refer to business resilience on page 104 for more information. Exxaro Resources Integrated report 2020 47 Understanding our business OUR MATERIAL MATTERS IN ACTION continued SOCIAL UNREST Why this matters In our mining communities, our operations are the primary economic activity (other than Eskom) where there is limited economic diversiﬁcation independent of mining. With few job opportunities elsewhere, due to low economic growth and high levels of unemployment, the local communities require employment and procurement opportunities (please see material matter below as well). Furthermore, there is increasing pressure on private organisations to provide services traditionally supplied by the state. These pressures can result in social unrest affecting our communities, employees and operations. We believe that Exxaro is a tenant in our host communities. A successful relationship with communities is key to our business success and growth. In addition to our SLPs, we invest in areas such as environmental conservation and health and welfare through our corporate social investment (CSI) programmes. Exxaro will continue addressing these issues of concern through current and future “impact at scale” initiatives to reach a long-term resolution on future opportunities to beneﬁt communities. Material themes Macro-environment Social licence to operate 2020 strategic objectives Related risks • Ensuring the sustainability of our Related SDGs business • Optimising our portfolio • Delivering operational excellence • Prudently optimising capital • Human Rights practices • COVID-19 concerns • Eskom systemic risk • Community unrest • Climate change concerns • Country risk (political) Related capitals Affected stakeholders Government, communities, employees, contractors and unions Key stakeholder engagements • We are striving to increase the participation of black-owned suppliers and those from host communities. Exxaro has adopted source to pay and supply chain sustainability policies that support the increased participation of black-owned, black women-owned, youth and people with disabilities. Exxaro is fully compliant with the B-BBEE codes with regards to preferential procurement and is on track to achieve full compliance with respect to the Mining Charter III by 2021. In 2020, Exxaro awarded over R500 million in direct contracts to black-owned SMMEs • Prevailing health conditions, low literacy and low skills levels within the community, are a barrier to community members accessing employment and procurement opportunities, which continues to drive community protests. The emergence of “splinter groups” within recognised community representative structures is a threat to constructive engagement and the effective implementation of social initiatives as it create inconsistencies in representation, unproductive engagement, occasionally violent community engagement events, individual agendas and non-compliance with engagement processes • Local taxi associations are key stakeholders in Exxaro’s BUs as they are relied upon for the transportation of staff members and contractors. However, there are challenges associated with local taxi associations as they expect and demand opportunities to transport employees and contractors while imposing exorbitant transportation rates which affect workers ability to travel to and from work • Prevailing misalignment and tension between local government structures, community members and community representation exacerbated by service delivery challenges has introduced complexity in the local stakeholder landscape and challenges Exxaro’s ability to implement SLP initiatives • Exxaro’s community beneﬁt scheme was ofﬁcially registered as “Exxaro Matla Setshabeng Development NPC” during 2020. The community investment vehicle also received circa R60 million in dividends from Exxaro. The community beneﬁt scheme is pitched at the district level, aligning with the DMRE deﬁnition of community, to enable regional development and partnership with industry peers and the government through the district development model • We are exploring a pilot project with the NBI and Municipal Infrastructure Support Agent (MISA), a project management unit of the Department of Cooperative Governance and Traditional Affairs (COGTA) to implement a municipal capacity-building programme • Cooperation from Exxaro contractors is being pursued to address the concerns and expectations of communities and ensure local consideration in skills development, employment and subcontracting • We have embarked on a process to enhance our Human Rights practice to ensure safe conduct of security personnel to avoid conﬂict during social unrest events/activities Refer to macro-environment on page 98 and social licence to operate on page 116 for more information. 48 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration SUPPORTING JOB AND BUSINESS CREATION Why this matters Given the high levels of unemployment and poverty in South Africa, particularly among the youth and women, Exxaro is committed to supporting job and business creation by investing in community upliftment and youth development. We focus on investments beyond mere CSI to create solutions that leave a legacy for our communities. We aim to empower, upskill and develop South Africans from a young age to ensure a sustainable future for generations to come. Material themes Social licence to operate 2020 strategic objectives Related risks • Ensuring the sustainability of our Related SDGs business • Delivering operational excellence • Become catalyst for economic development • COVID-19 concerns • Eskom systemic risk • Community unrest • Cost competitiveness of products Related capitals Affected stakeholders Suppliers, government, communities, employees, contractors and unions Key stakeholder engagements • The focus of other government engagements in the second half of the year has been in support of Exxaro’s minerals succession plan — focusing on building relationships with departments and agencies that might help Exxaro to improve its understanding of best practices on communal land usage and the organisation’s role as an investor and supporter of South Africa’s growth aspirations • Engagement with community stakeholders typically revolves around demands for access to employment and procurement opportunities at Exxaro’s operations, as well as skills development that enables access to employment or procurement opportunities. Since the launch of Exxaro’s ESD programme in 2019, engagements have also taken place to promote access to ESD opportunities that in particular, lead to participation in the Exxaro value chain • The gradual easing of COVID-19 lockdown regulations has seen most ESD beneﬁciaries return to normal operations. The ESD programme is achieving its objectives of both legislative compliance and social impact. Efforts with non-ﬁnancial support programmes are gaining momentum and a progress report will be provided in the next reporting cycle • A survey conducted at the beginning of the COVID-19 lockdown amongst the Exxaro ESD programme beneﬁciaries, revealed that, of the 20 beneﬁciaries responding to the survey, 55% indicated that their operations would be reduced, 35% would stop operations and 10% would remain unchanged. Eleven ESD programme beneﬁciaries were issued with force majeure letters by the various BUs and this had an impact on their cash ﬂows. Consequently, the ESD programme gave priority to existing ESD beneﬁciaries for support through loan repayment holidays and information webinars. A total of 13 ESD beneﬁciaries successfully applied for loan repayment holidays of between three to six months, totalling R10.9 million • The maintenance of healthy relationships with organised labour remains crucial for Exxaro and was particularly important within the context of COVID-19 in 2020. Our union engagements structures at BUs and employer level continue to function constructively in support of a stable employee relations climate. In addition to these normal engagements, a special session with the executive and national union leadership was held to provide an update on business context and seek their insights. We plan to hold similar sessions in future Refer to social licence to operate for more information. Refer to stakeholder management on page 62 for detailed information about how we engaged with our stakeholders during the year. Exxaro Resources Integrated report 2020 49 Truck and shovel at Grootegeluk 50 Exxaro Resources Integrated Report 2020 50 Exxaro Resources Integrated Report 2020 POSITIONING THE BUSINESS FOR GROWTH 52 CEO’s report 54 Our strategy: Positioning Exxaro for sustainable growth and impact 56 Performance against our 2020 strategy 60 Understanding our key strategic trade-off considerations 62 Stakeholder management 66 Business risks and opportunities for growth 80 Combined assurance for effective governance At Exxaro, we’re committed to creating real impact through innovative solutions. This year, we partnered with a blended learning platform provider to offer training and development to our communities, in addition to our workforce. On 30 November 2020, we launched the Powering Knowledge platform for 50 small, medium and micro enterprises (SMMEs) in Belfast and Lephalale. The community-focused learning solution is designed to offer online reskilling and upskilling training as well as ESD programmes for SMMEs who are instrumental in creating jobs and growing the economy. The digital platform allows Exxaro to support more businesses than it would be able to in traditional face-to- face training environments. It also allows participants to work through the material at their own pace. This is another example of how we continue embracing and enabling our people and communities through technology and innovation, powering tomorrow today. ExExExxxExxEx aro Resources Integrated report 2020 51 Exxaro Resources Integrated report 2020 51 Positioning the business for growth CEO’S REPORT Mxolisi Mgojo Chief executive ofﬁcer While the ﬁrst three months of 2020 passed smoothly with strong operational results, the emergence of COVID-19 disrupted life as we knew it. As a team, we quickly reset our compass and shifted our engagement platforms for positive outcomes. 52 Exxaro Resources Integrated report 2020 WORKING TOGETHER TO FACE COVID-19 The pandemic underscored fundamental underlying societal issues, including unemployment, inequality and constrained healthcare. Across the spectrum, business, government, social partners and other stakeholders rallied together to respond to COVID-19 to halt its spread, and support those in need. The challenges we all faced during the year were extensive, these moments of triumph and ubuntu are what resonate with me. Exxaro saw this time of crisis as an opportunity to ensure our stakeholders, including government, our employees, suppliers and contractors and host communities, received the necessary support and commitment to help them overcome the pandemic’s negative impacts. As the country continues to face numerous challenges, exacerbated by COVID-19, I believe we have no choice but to come together to create a better future for the next generation. Our operations heeded the call with a sense of urgency. From a community perspective, approximately R1.95 million was spent on various COVID-19-related initiatives including an R20 million donation to the Solidarity Fund, R13.9 million towards small, medium and micro-enterprises (SMMEs) and R7 million for two testing facilities at Grootegeluk and Matla. We conducted skills development and ESD programmes via online platforms for host communities. Our investment in free community WiFi for Siyathuthuka in Belfast ensured social distancing without loss of communication. Our Belfast and Grootegeluk operations assisted the Emakhazeni and Lephalale municipalities respectively with short-term water supply to prevent the spread of COVID-19. We collaborated with mining contractors and non-governmental organisations to provide food parcels and PPE to vulnerable people and essential service providers at the cost of R1.8 million and R209 million on COVID-19 preventative measures. Exxaro also contributed R460 000 to the Minerals Council South Africa initiative to provide PPE to the Department of Health in Mpumalanga. To keep our employees safe, and in line with our health and wellness strategy that focuses on the diagnosis, management and prevention of diseases, our response to the pandemic continues to focus on avoiding, reducing and managing COVID-19 cases. As at 1 March 2021, a total of 2 780 employees have been infected since the onset of the pandemic, with a recovery rate of 99%. Our deepest condolences to those who have lost their loved ones due to the virus. We remain committed to our ﬁght to prevent further loss of life and continue to implement COVID-19 preventative measures in line with government regulations and recommendations. Refer to our response to COVID-19 on page 14 for more information on the initiatives we implemented to assist host communities. OUTPERFORMING EXPECTATIONS Despite a depressed global coal market for most of 2020, we reported a 25% increase in core group EBITDA to R7 291 million (FY19: R5 832 million), and a 26% increase in core headline earnings per share (HEPs) at R29.73 (FY19: R23.54) for the ﬁnancial year ended 31 December 2020. This is a notable achievement in the face of the COVID-19 pandemic, a distressed local economy and relatively low thermal coal pricing environment. We navigated signiﬁcant headwinds and new risks brought about by COVID-19 during the year, however, pleasingly all Exxaro operations returned to full capacity from the second half of the year, with Matla at 80% until the end of the third quarter. Overall coal production volumes (excluding buy-ins) increased by 4% to 47.4Mt, mainly attributable to higher production at Grootegeluk as well as the Belfast mine, which was fully ramped-up from March 2020. The increase was partly offset by lower production at Leeuwpan and ECC due to the COVID-19 lockdown. Sales improved by 5% to 46.8Mt as a result of a 34% increase in exports as well as higher domestic sales from Grootegeluk, offset somewhat, by lower domestic sales at Leeuwpan and ECC. About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration Our ability to create value for stakeholders is anchored around our safety performance. Amidst the backdrop of the pandemic, it is pleasing to be able to report on our record safety performance. A signiﬁcant highlight for the year was the achievement of a record 48 months without a fatality as at 2 March 2021, and we continued to operate uninterruptedly with no section 54s. Our LTIFR for the year of 0.05 was 55% better than the set target, and represents a 58% year-on-year improvement in our LTIFR, which is a company record. I would like to commend all our teams for continuing to drive zero harm so effectively. STRATEGIC DIRECTION Exxaro grapples with two key concerns when facing strategic decision making: Exxaro’s future, and how do we balance the competing needs of our stakeholders while ensuring we deliver on our purpose? We have always been a predominantly fossil fuel business. However, we understand the crisis facing the planet due to climate change and are committed to being carbon-neutral by 2050 in terms of scope 1 and scope 2 greenhouse gas (GHG) emissions (as detailed in our ESG report in the environment section). At the same time, we must meet the needs of our stakeholders as we safely and responsibly extract maximum value from our assets. In 2020, we reviewed our strategic intent and developed a new Sustainable Growth and Impact strategy (refer to our strategy: positioning Exxaro for sustainable growth and impact on page 54). This strategy considers the complexities and opportunities we face, ensuring we are responsible today as well as into the future. Further, the outcomes of our TCFD recommendations assessment will provide a structured framework for engagement with the ﬁnancial community as we embark on our just transition journey in response to climate change. Our strategy also recognises that, to ensure sustainability, our positive impacts must reach far and wide. Exxaro must be a catalyst for meaningful change, with our legacy measurable long after mining ceases. This should be embodied in creating opportunities and economies that sustain communities and broader society for generations to come. UNLOCKING VALUE THROUGH OUR PEOPLE As we embark on the next leg of our strategic journey, how we execute our plan will be a critical determinant of its success. That’s why we are focused on ensuring we have the right human capital to drive us forward and that we, in turn, offer our employees a value proposition that both motivates and inspires them. This past year highlighted the importance of ensuring our people are resilient in a changing working environment to protect both their lives and livelihoods. I was inspired by my colleagues as they adapted time and again to an ever-changing context. We continue developing and entrenching a company culture of agility, accountability and adaptiveness. Our continuous investment in our employees across the organisation helps keep our goals aligned and focus in mind. Since 2014, Exxaro has been recognised as one of South Africa’s top employers by the globally focused Top Employers Institute. The merit in these awards lies in our commitment to our employees. We embrace diversity and inclusivity as an enabler of our business strategy, rather than a compliance exercise. The diversity of perspectives, skills and experience in our teams will support our growth and help us identify the unique risks and opportunities we will face. I believe that people must truly be empowered to unlock their unique talents to drive our business forward and ensure we can maximise our positive impact on society. We strive to actively break down barriers for women in the mining sector. We are also committed to ending GBV, which we foster through collaboration with our peers and the Minerals Council South Africa. Exxaro ﬁrmly believes that no person should face discrimination, abuse or hardship for any reason, including race, gender, age or sexual identity, among others. PROSPECTS As a business, Exxaro has long recognised the risks associated with climate change, as well as the opportunities it brings for future development. The work we have done to ensure our strategy is aligned to these risks and opportunities will position us well for the future, as we ensure we capitalise on the momentum to liberalise South Africa’s energy sector. The combination of energy production and asset management will create an annuity income stream in the long term for the group. In the short term, the aim is to establish credentials as distributed energy solutions. WITH GRATITUDE While the year has not been easy, I believe the results speak for themselves. I am deeply appreciative of Exxaro’s people for their absolute dedication to their work. Thank you for your tireless efforts this year. To my fellow board members, thank you for your guidance and counsel as we faced complexities extending beyond our business. Finally, to our stakeholders across the globe, thank you for your continued support. I truly believe in Exxaro’s purpose and, along with my executive committee colleagues, I am committed to ensuring we power better lives every day. Mxolisi Mgojo Chief executive ofﬁcer 19 April 2021 Exxaro Resources Integrated report 2020 53 Positioning the business for growth OUR STRATEGY: POSITIONING EXXARO FOR SUSTAINABLE GROWTH AND IMPACT We concluded the decade to 2020 with a new strategy and started the next decade with a ﬁrm foundation for our journey towards a just transition. 2020 marked a milestone in the (near) conclusion and achievement of our prior strategic objectives, namely portfolio optimisation, ensuring a sustainable business, delivering operational excellence and product capital optimisation. We describe our performance against these objectives in the next section in the context of the following ﬁve material themes: Macro- environment Business resilience Our people Social licence to operate Climate change Renewable energy is a rapidly growing aspect of the energy mix across all major economies, including South Africa. In South Africa, the Integrated Resource Plan forecasts renewables’ contribution to the energy mix to increase from about 10% today to between 45% to 50% in 2030. Our investment in Cennergi is our commitment to this future energy scenario. TAKING AN INTEGRATED APPROACH Our new Sustainable Growth and Impact strategy has been developed through broad consultation, informed by the latest industry research. Key stakeholders have been engaged throughout the process to ensure we consider their legitimate needs. The strategy has been submitted to the board of directors for input, supported by a clear implementation plan. In developing our Sustainable Growth and Impact strategy, we have further integrated sustainability, growth and impact because we understand that these elements of our business and operating environment are deeply connected. Going forward, our business portfolio will shift to more sustainable businesses, with a focus on renewable energy and a continued review of minerals contributing to a low-carbon world. This scope will establish the base for our new multi-core business. This multi- core business will be built on the platform of skills and technology that is driving our coal business. Our coal business remains critical and strategic in supporting South Africa’s economic development in the foreseeable future. Consequently, we have prioritised responsible mining through our early value coal strategy, which is a key pillar of the Sustainable Growth and Impact strategy. Our early value coal strategy optimises our coal reserves, minimises stranded high-value reserves and moves our operations lower on the cost curve. We are also able to meet our long-term CSAs to ensure the energy supply that supports the country’s socio-economic development. We have shifted and migrated from our original thinking of growing Exxaro through our Business of Tomorrow initiatives and responding to climate change threats. Instead, our Sustainable Growth and Impact strategy will transform Exxaro in a systematic and integrated manner into a diversiﬁed company that will transition from a coal-base to a renewable energy and minerals business that will thrive in a low-carbon future. THE CONTEXT FOR CHANGE Our purpose, to power better lives in Africa and beyond, is fundamental to our business. As our context continues evolving, our purpose informs our strategic plans and where we should focus our efforts. We have long understood the need to balance the country’s socio-economic development, which relies on coal generated power, with the need to support the transition towards a low-carbon economy to reduce carbon emissions and the harmful impacts of climate change. This transition is changing life as we know it today and will impact energy and capital markets, value chains and the overall context for conducting business. These are major changes that will raise future challenges and increase external risks for those who do not adapt, but will present signiﬁcant opportunities for those who are able to evolve. We are committed to responsibly balancing these competing needs and delivering on our purpose, both now and into the future, through a thriving diversiﬁed business. Hence, our integrated strategic approach addresses the current state of play and positions our business for the future. 54 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration Our Sustainable Growth and Impact strategy Our purpose Powering better lives in Africa and beyond Our vision Resources powering a clean world What does this mean? We see ourselves as a company who will be providing resources (beyond just commodities) critical to a low-carbon world. We see Exxaro as a diversiﬁed organisation with energy and mineral resources capabilities critical and relevant in a world of low carbon emissions. Our strategy Creating sustainable growth and impact Our strategic objectives Our roadmap to sustainable growth and impact How will we achieve this vision? To deliver on our vision, Exxaro will focus on efforts to transition at speed to further diversify our business with a focus on low-carbon minerals and energy businesses by making considered capital allocation decisions and divesting of assets that do not support our strategic aspirations. To successfully operate in these growth areas, we understand that we need our people to thrive — this means creating an enabling work environment through effective operating models, enabling policies and ways of work. These will be built from the strong base that is the Exxaro culture and embodied values. Exxaro’s strategic focus on diversity and inclusion is designed to address the country’s legacy of exclusion by leveraging the power of diversity to create the requisite vibrancy and cultural representation needed to support our focus on innovation. We aspire to grow our ability to catalyse economic growth by providing access to clean energy in our acquisitions and by building and enabling SMMEs. To create Sustainable Growth and Impact, we will focus on the following ﬁve objectives: 1. Transition at speed and scale We will further evolve into a recognisable diversiﬁed minerals and energy business at a pace that will enable us to capture signiﬁcant growth opportunities while ensuring a just transition. 2. Make our minerals and energy businesses thrive We will enhance focus on our core delivery areas: minerals and energy by using a prudent portfolio management and capital allocation approach as well as operational excellence using innovation and technology. 3. Empower people to create impact Our people are equipped with the capabilities, mindset and passion to achieve our purpose. 4. Be a catalyst for economic development Impact is intrinsic to our business investments and activities. We achieve diversity and inclusion, socio-economic impact as well as environmental stewardship in the delivery of our strategy. 5. Be carbon-neutral by 2050 Actively manage our scope 1 and scope 2 carbon emissions and reduce the volume of potable water consumed in our operations to achieve carbon-neutrality by 2050. Exxaro Resources Integrated report 2020 55 Positioning the business for growth PERFORMANCE AGAINST OUR 2020 STRATEGY Our 2020 strategic objectives guided our actions in a resource- constrained environment which was exacerbated by the impacts of COVID-19. Our trade-offs are outlined on page 60 and our material matters are on page 6 and from page 38 to 49. The following tables outline our strategic objectives that guided our actions and achieved performance. OPTIMISING OUR PORTFOLIO What this means We remain focused on ensuring we have an optimal portfolio to deliver on our purpose — powering better lives in Africa and beyond. This requires tough calls on our assets to ensure we are responsibly extracting the maximum value from these investments. These must be robust and proﬁtable against volatile market conditions and resilient to climate change pressure. Related material themes KPIs and performance Performance in 2020 Portfolio optimisation remains a strategic objective to ensure a simpliﬁed business structure that will reduce the holding discount in our valuation. In relation to the coal business, we also want to keep a portfolio of assets that will withstand market price volatility with high- quality reserves providing ﬂexibility under changing market conditions for coal products. Business of Tomorrow: No further investments in Business of Tomorrow. Current Business of Tomorrow investments are held for possible future divestment at an appropriate time. Black Mountain Proprietary Limited (Black Mountain): Exxaro continues to evaluate its options to dispose of its shareholding in Black Mountain following the suspension of the sales process in December 2020. Coal operations As part of our sustainable growth approach, we conducted an internal review to evaluate and optimise our current portfolio of coal operations and investments. We took a strategic decision to dispose of our ECC and Leeuwpan operations, having identiﬁed these assets as non-core to Exxaro’s future objectives. Subsequent to 31 December 2020, Exxaro signed a sale and purchase agreement with Overlooked Colliery Proprietary Limited who will acquire ECC. The sale will only be effective once all conditions precedent to the sales agreement have been met. The disposal process for Leeuwpan continues. Refer to our operational performance on page 96 for more information. Looking forward Related SDGs A key component of our new strategy revolves around optimising our strategy to ensure the viability of our business into the future. We will continue aligning our portfolio to these plans. Exxaro’s deepest roots and expertise lie in energy. As energy security is critical to food and water security, we determined that we can most powerfully move the needle by sharpening our focus on energy and gaining nearer-term traction in that area and ensuring water security for our current and future mineral operations. See page 54 for more information on our Sustainable Growth and Impact strategy. 56 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration South Africa struggled with national lockdowns to halt the spread of the COVID-19 virus, but our focus remained on delivering against our strategic objectives in a safe and sustainable manner. ENSURING THE SUSTAINABILITY OF OUR BUSINESS What this means Related material themes We continue reﬁning our sustainability strategy and sustainable development approach in the context of the just transition. Our embedded safety and health strategies and stakeholder relations enabled us to respond timeously and effectively to COVID-19. KPIs and performance Performance in 2020 Target: top quartile FTSE Russell ESG Index FTSE Russell ESG Index – Exxaro’s historical performance . 6 4 6 3 . . 6 0 4 4 . . 0 6 4 3 . . 6 4 . 3 3 . 3 3 5 f o t u o e r o c S 5 4 3 2 1 0 FY18 FY19 FY20 (cid:93) Environmental (cid:93) Social (cid:93) Governance (cid:81) Final ESG score Health: managing lives and livelihoods Exxaro’s coal operations and Cennergi were declared essential services to ensure continued coal and wind supply for electricity generation during the national lockdown in 2020. Consequently, we were able to maintain 100% operating capacity for most of our operations since the start of the lockdowns. However, our Matla operation operated at 80% until the beginning of October 2020. As such, employee and community safety and health were paramount to, ﬁrstly, minimise the spread of COVID-19 while maintaining production performance and secondly, respond promptly to ensure effective recovery. See page 14 for more COVID-19-related information. Just transition journey — a holistic response to climate change Our TCFD analysis highlighted the increasing risk of carbon price exposure as Global Climate Action is focused on meeting the Paris Agreement target of 2°C (and below) by the end of the century. We are conﬁdent that attaining our carbon-neutrality target for scope 1 and scope 2 emissions by 2050, combined with making our business portfolio climate resilient in a low-carbon world through our Sustainable Growth and impact strategy, will mitigate the ﬁnancial impact of carbon exposure risk. Our considered social interventions include sustainable impact strategies that will involve, among others, regenerative rehabilitation and repurposing relevant assets such as our land, to develop new industries beyond coal mining for the livelihoods of local communities. We are committed to implementing the TCFD recommendations, which will support our communicated strategic direction. We started with an assessment process prior to the national lockdown and due to the setback from the pandemic, the publication of the recommendation report was delayed. Refer to page 118 for more information. Looking forward Related SDGs We remain focused on improving our overall ESG performance with responsible stewardship and managing our sustainability. Our focus remains on health and safety, our social licence to operate and including human rights best practice, environmental stewardship and managing and responding to climate change. See page 54 for more information on our Sustainable Growth and Impact strategy. Exxaro Resources Integrated report 2020 57 Positioning the business for growth PERFORMANCE AGAINST OUR 2020 STRATEGY continued DELIVERING OPERATIONAL EXCELLENCE What this means Related material themes Operational excellence refers to the drive to improve how we do business. While our primary measure remains on our cost per tonne mined, this strategic objective stretches across all operations and reﬂects the constraints of the environment we operate in and our drive to maximise efﬁciency in this context. KPIs and performance Performance in 2020 Target: limit increase to mining inﬂation (R/tonne) Cost per tonne — excluding Matla vs strip ratio* We continue rolling out our integrated operations centres across our BUs, enabling operational insights and in-time decision making. These centres assist us on our journey to improving our safety, productivity and cost performance. Our investments in digitalisation, innovation and technology support these goals, and we continued to seek opportunities to ensure cost- competitive production and improved efﬁciency for higher volumes. % 9 + % 4 + 9 5 3 4 7 3 8 2 3 Responsible and safe operations are a key component of delivering operational excellence and we continue investing in programmes that support a safe and healthy working environment, responsible environmental stewardship and protecting our social licence to operate. More information can be found in our business resilience and people sections on page 104 and 108 respectively. 400 300 t / R 200 100 0 FY18** FY19** FY20 * Tonne of overburden moved for each tonne of ROM ** Re-presented to exclude indicrect corporate costs and coal buy-in cost Looking forward Related SDGs Our goal is to ensure our coal operations will be best-in-class and cost-competitive. Supported by our companywide drive to achieve operational excellence, we continue meeting our customers’ expectations of volumes, quality and price. See page 54 for more information on our Sustainable Growth and Impact strategy. We are planning for a below consumer price index (CPI) +2% (mining inﬂation) increase in production unit costs per tonne, acknowledging inﬂation costs, with improving volume efﬁciencies. Cash cost performance and free cash ﬂow generation (as our expansion capex comes to an end) will be material measures of operational success. 58 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration PRUDENTLY OPTIMISING CAPITAL What this means Related material themes Cautiously allocating our capitals, particularly our ﬁnancial capital, is a critical part of our value creation process and, as such, forms part of our strategic objectives. Our leadership teams are charged with prudently allocating capital to ensure we deliver on our current strategic priorities, as well as position the business for future growth. KPIs and performance Performance in 2020 Target: return on capital employed (ROCE) of >20%. Dividend policy: 2.5 times to 3.5 times group core net proﬁt after tax (excluding SIOC core equity-accounted income) less non-controlling interests (NCI) of Exxaro subsidiaries (excluding NCI of Eyesizwe) “adjusted group earnings” and a pass through of the Sishen Iron Ore Company Proprietary Limited (SIOC) dividend. Exxaro’s improved capital allocation programme continued delivering on commitments related to capital expenditure for its production growth through project delivery and return of cash to shareholders with the near conclusion of our expansion programme. Our focus remains on optimising and implementing our portfolio of growth and sustaining capital. In relation to capital expenditure and project delivery, other than GG6, all projects were on schedule and on budget. On the GG6 expansion project, the overall schedule was impacted by the COVID-19 national lockdown period and contractor performance, resulting in an overall 12-month delay from the originally approved timeline, and an estimated 10% capital overrun. The project and operations teams continue seeking opportunities to optimise capital expenditure and mitigate negative impacts on the business. ROCE % 35 25 20 15 10 0 Grootegeluk’s rapid load-out station project is aligned with the TFR north-west corridor expansion project. On 30 September 2020, it was successfully handed over to the Grootegeluk complex for operation. 8 2 5 2 3 2 We are in the process of ﬁnalising our options regarding the future of the Thabametsi mine, given the latest announcements that the Independent power producer (IPP) is unlikely to continue due to the withdrawal of key stakeholders. Debt management (balance sheet): In order to manage its capital expenditure programme, Exxaro sources funds in both the Debt Capital and traditional banking markets. Alternative sources of funding allow Exxaro to fund its obligations in terms of the capital expenditure programme with a blend of interest rates which results in a lower interest cost. FY18 FY19 FY20 (cid:93) Actual (cid:81) Target Looking forward Related SDGs We continue ensuring we align with shareholder expectations — protecting returns, prudently allocating capital to our existing business and ensuring transparency regarding our future capital allocation plans. Refer to page 54 for more information on our Sustainable Growth and Impact strategy. Exxaro Resources Integrated report 2020 59 Positioning the business for growth UNDERSTANDING OUR KEY STRATEGIC TRADE-OFF CONSIDERATIONS We understand that, to create sustained value for our stakeholders, our strategy must recognise and balance the inherent trade-offs we face. In developing our strategy, we consider the potential trade-offs our strategic decisions create to ensure we fully comprehend these decisions, as well as work to maximise positive outcomes and curb negative impacts. We outline two of the many strategic trade-offs we grappled with during the year below. BALANCING THE ADVERSE ENVIRONMENTAL IMPACT OF COAL WITH THE NEED TO SUPPORT SOUTH AFRICA’S SOCIO-ECONOMIC DEVELOPMENT As a developing country, South Africa depends on reliable energy to fuel its growth. However, coal has a noticeable impact on environmental systems. As the frequency and scale of climate change-related events continue to grow, so has the imperative to transition to a low-carbon economy. We support this imperative, but we are also mindful that structural economic transitions take time. Without adequate planning, transitions like these have historically had negative impacts on the most vulnerable in society. Our purpose is to power better lives in Africa and beyond. To achieve this, we continue carefully considering the critical trade-offs of the economy’s immediate and affordable energy needs along with the growing and urgent need to reduce carbon emissions to sustain our environmental systems. Our Sustainable Growth and Impact strategy is designed to balance these seemingly competitive needs, ensuring we participate in the just transition to a low-carbon economy while delivering on our early value coal strategy in a prudent and responsible manner. For more information, see page 118. Related material themes Related SDGs BALANCING SHORT-TERM SHAREHOLDER EXPECTATIONS WITH LONG-TERM STRATEGIC INVESTMENT Balancing short-term shareholder performance expectations while continuing to invest in future growth can be challenging. Many of our strategic investments are long-term initiatives that require signiﬁcant time and ﬁnancial investment. These include our digitalisation and innovation journey, investments in renewable energy and capital expansion projects. Conversely, shareholders have a reasonable expectation to receive returns through dividends and capital appreciation. We are committed to navigating this challenge through transparency and communication, and ensuring our strategy aligns with shareholder expectations. Our board-approved dividend policy offers shareholders clarity about dividend expectations and our growth plans. Our revised strategy, and focus on building our renewable energy and minerals businesses, necessitated a review of our dividend policy during the year. The board of directors has approved cover ratios (2.5 times to 3.5 times) to be applied to the Exxaro adjusted group earnings and not only coal earnings. Our current dividend policy, which has been clearly communicated to shareholders, now entails: • A pass through of the SIOC dividend received • A dividend based on a cover ratio of 2.5 to 3.5 times Exxaro adjusted group earnings, to include earnings contributions from Cennergi Furthermore, we continue engaging with stakeholders to help them understand our strategic growth strategy and, in turn, ensure we align with and understand their expectations. For more information, see page 62. Related material themes Related SDGs 60 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration Shirley Mnisi of our ESD beneﬁciary, Jehovha Jaira Exxaro Resources Integrated report 2020 61 Positioning the business for growth STAKEHOLDER MANAGEMENT In support of Exxaro’s purpose of powering better lives for all in Africa and beyond, we continue to work towards improving the quality of our relationships with stakeholders. We strive to do so by building long- term, stable and trusting relationships that facilitate business activities and create shared value for all our stakeholders. EXXARO’S STAKEHOLDER UNIVERSE We take a holistic approach to stakeholder engagement, believing that we are a participant in an interconnected network. As such, we view stakeholders in terms of our stakeholder universe framework, which includes stakeholders who have a material inﬂuence or have a high potential of forming part of a network of inﬂuence on the execution of the stakeholder excellence agenda. These stakeholders can be grouped into four main clusters including government (regulators), communities, value chain participants and the business community. For more information about engagements with key stakeholders please see page 30 of our ESG Report. Unions Governmental departments Local government Political parties Investors Strategic suppliers Partner in delivery S T N A GOVERNMEN T AIN PARTICIP H C E U L A V S S E N I S U B C O M MUNITIES Sponsors Customers Employees Service providers Local media Faith-based organisations Taxi association Farmers and landowners NGOs Media Professional industry bodies Other mining organisations Universities Regulators Financial community NPOs Other mining companies Local SMMEs Local schools Local leadership Communities Exxaro’s approach to stakeholder management Exxaro utilises a key account management (KAM) approach to stakeholder management. Our management process has foundations in the global best practice AccountAbility 1000 Stakeholder Engagement Standard (AA1000 SES). Our objective is to enable a responsive and proactive method of managing stakeholder relationships and stakeholder-driven risks in an increasingly dynamic and uncertain operating environment. Given our decentralised operating structure, interactions between head ofﬁce and operations has been focused on developing and implementing BU stakeholder management plans in accordance with the KAM approach and use of technology systems to support engagement activities. Developments in this regard are encouraging. The board approved a new stakeholder management policy in 2020. The new policy aims to promote and embed the implementation of our stakeholder management practice, and application of the guidelines in Exxaro, supporting the achievement of the company’s strategic objectives. Looking ahead, the primary focus will be on ensuring an enterprise-wide application of the KAM approach and monitoring the culturalisation of stakeholder management. This is to ensure we mature from ad hoc and procedural engagement to the intentional, proactive management of stakeholder-related risks and opportunities. 62 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration Stakeholder rating scale 0 No existing relationship, or the relationship that does exist has deep challenges and problems 1 An established relationship exists, but can be improved 2 A good, quality relationship exists with the opportunity to improve further 3 A very strong relationship exists, based on mutual trust and respect SUMMARY OF KEY STAKEHOLDER RELATIONSHIPS GOVERNMENT (REGULATORS) Why we engage Government and regulatory authorities are a critical stakeholder group. We operate in a highly regulated industry and strive to go beyond compliance, building partnerships with our regulators to ensure mutual success. Through transparent engagement, we look to identify areas of collaboration, share insights on policies and other plans and ensure Exxaro is working with government to be a catalyst for economic growth and development. Quality of the relationship: 2/3 Basis of rating: External assessment • We conduct a reputation survey every two to three years (the last survey was conducted in 2018) • A pilot relationship quality assessment is underway, aiming to quantify the quality of key relationships in the DMRE as well as provincial governments of Limpopo and Mpumalanga. The results will be available in the ﬁrst half of 2021 Exxaro’s response to COVID-19 and economic recovery Hot topics • • Just (energy) transition and Exxaro’s strategic outlook • Social impact issues, including the economic and ﬁnancial inclusion of women in South Africa’s economy, Exxaro’s contribution to the end of gender discrimination and GBV, Exxaro’s community beneﬁt scheme, local community concerns, Exxaro’s land and agriculture projects in Limpopo, Mpumalanga and the Eastern Cape, and the best practice use of communal land EMPLOYEES Why we engage Employees are the strategy execution engine for Exxaro. Therefore, it is essential that the focus, proﬁle and development efforts of Exxaro’s employee base are aligned with its strategy. That’s why we engage proactively with our employees through various channels, both formal and informal, as well as in person and electronically. Quality of the relationship: 2/3 Basis of rating: External assessment • We conduct a reputation survey every two to three years. The last survey was in 2018 • Baseline employee engagement survey conducted in 2020 COVID-19 and preventing the spread of the virus Hot topics • • Fullco agreements (continuous operation with limited to no interruptions (public holidays bought out in a collective agreement)) • Divestment from the ECC and Leeuwpan operations • Diversity and Inclusion For more information about how we are responding, please refer to the people section on page 108. LABOUR UNIONS Why we engage Labour unions represent our employees and, as such, form an important part of our stakeholder universe. Proactive engagement is an essential part of our risk management and maintaining workplace harmony. Quality of the relationship: 2/3 Basis of rating: Internal assessment Hot topics • Wage negotiations • • Recognition thresholds COVID-19 and employee wellbeing For more information about how we are responding, please refer to the people section on page 108. Exxaro Resources Integrated report 2020 63 Positioning the business for growth STAKEHOLDER MANAGEMENT continued COMMUNITIES Why we engage Exxaro operates in eight local municipalities of South Africa and two provinces (Mpumalanga and Limpopo) with closed mines in another three municipalities, including two in KwaZulu-Natal. Stakeholder-related risks and issues among this group of stakeholders relate primarily to Exxaro’s material issues of social unrest and maintaining our social licence to operate. Through our ongoing engagements, we strive to ensure there is no community unrest that can lead to production delays and stoppages, a proactive resolution of issues and challenges before they escalate to community unrest, improved visibility of Exxaro’s success stories, local job opportunities and community development initiatives, and shared value and beneﬁt from local mining activity. Quality of the relationship: 2/3 Basis of rating: Internal assessment informed by various external surveys • We conduct a reputation survey every two to three years (the last survey was conducted in 2018) • Perception assessment conducted by social facilitators at Belfast and Matla Hot topics • Employment and procurement opportunities at Exxaro as well as skills development that enables access to employment or procurement opportunities at Exxaro • Challenges facing communities including prevailing health conditions, low literacy and low skills levels in the community are a barrier to community members accessing employment and procurement opportunities, which continues to drive community protests • Challenges regarding engaging communities including inconsistent community representation, unproductive engagement and participation in community forums, violent community engagement events, community demands led by individual agendas and community representatives unwilling to adhere to sound governance processes • The COVID-19 pandemic has grave implications for our communities, compounding unemployment and poverty. When lockdown regulations eased, community groups demanded to engage with BUs on prioritisation of skills development, employment and business opportunities. Cooperation with Exxaro contractors is being pursued to ensure local consideration in skills development, employment and subcontracting government engagements are also addressing challenges to the prevention of the spread of the virus. Exxaro’s areas of intervention included water-related infrastructure through our SLPs as well as provision of accessories to schoolchildren and food parcels to needy communities. Community development and engagement are guided by the implementation of the SLPs, focusing on expediting water and health-related infrastructure • Local taxi associations are key stakeholders in Exxaro’s BUs as we rely on them to transport employees and contractors. However, there are challenges associated with local taxi associations; they expect and demand opportunities at exorbitant rates, which affects employees’ ability to travel to and from work • Local governments frequently shy away from accountability for mandated responsibilities, leading to instances where activities and/or outcomes are expected and/or demanded from Exxaro. This misalignment of expectations is exacerbated by service delivery gaps and internal factional conﬂicts in local governments • Prevailing misalignment and tension between local government structures, community members and representation, exacerbated by service delivery challenges, introduced complexity in the local stakeholder landscape and challenged Exxaro’s ability to implement SLP initiatives • Climate change and sustainability: there are signiﬁcant environmental impacts of mining activity on communities For more information about how we are responding, please refer to the social licence to operate and environment sections of this report on page 116 and 118. INVESTORS Why we engage Our investors are the owners of our business and have expectations regarding the value creation of their investment. Through clear communication of our strategy and distribution policies, we can align with their expectations and grow trust in our organisation, which strengthens our access to capital. Quality of the relationship: 2/3 Basis of rating: Internal assessment informed by various external surveys • The results of the annual investor/analyst perception survey conducted in May 2020 showed minor changes compared with the results of the 2019 survey and remained positive. There was a higher level of qualitative feedback in the third report, revealing insights and making constructive suggestions • Overall, Exxaro management is still perceived as delivering well in its operational commitments. However, there was a decline in clarity of the overall acquisition/disposal strategy and the diversiﬁcation strategy • Disclosure perceptions increased slightly with the perception that Exxaro has the technical and leadership skills required to achieve its objectives, with capital allocation and our approach to it perceived positively 64 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration Hot topics • The coal business’s performance, the shift to energy rationale, capital allocation and impact on the dividend policy as well as inquiries into the energy strategy. An emerging area of interest is shareholder climate change activism • The impact of COVID-19 on the business is still top of mind for investors who focused on management actions taken during the crisis to cope with and contain the virus — balance sheet, operations and employee and community safety and livelihoods were the main issues • Exposure to Eskom and key relationship management versus the stated legal challenge in light of the force majeure. Additionally, the risk Eskom’s structural breakup comprises for the future as well as its recent/current unreliable electricity supply • A persistent investor issue is the value unlock of “rump” (assets) and the company’s stated strategic asset focus versus selective diversiﬁcation. The early value coal strategy and avoidance of sterilised or non-contributory assets in the Waterberg and Mpumalanga have played a key role in the perception of the investment case • Exxaro’s renewable energy strategy and cornerstone investment of 100% ownership of Cennergi will remain top of mind for the foreseeable future For more information about how we are responding, please refer to the Chairman’s statement, CEO’s report and Financial director’s overview on pages 10, 52 and 84 respectively. CUSTOMERS Why we engage We aim to foster customer understanding and strategic partnerships through continuous engagement and information sharing, and actively listening to our partners to foster mutually beneﬁcial relationships. Engagements are aimed at understanding the environment, trends and market sentiment; exploring future relationships; and improving operational and ﬁnancial performance. Quality of the relationship: 2/3 Basis of rating: Internal assessment informed by various key data measured • Effective and ongoing engagement with customers • Effectively dealing with and resolving complaints from customers Hot topics • Reduced production volumes impacting supply to the market • Inability to consistently provide product at the correct speciﬁcation • • Disruptions in demand as South Africa and the world are faced with the second/third waves Credit risk/poor payment — some customers were adversely affected by the COVID-19 pandemic and requested more lenient payment terms in the short term For more information about how we are responding, please refer to the operational review section on page 96. SUPPLIERS Why we engage Our suppliers are a critical part of our value chain. Managing these relationships to create mutual beneﬁt supports our operational, strategic and impact goals, and forms part of our risk management approach. The supplier relationship management programme supports Exxaro’s strategies by leveraging value chain partner capabilities. Supply chain management achieves this through supplier collaboration initiatives intended to deliver cost savings, achieve sustainability mandates, ensure the security of supply and mitigate business risk exposure. The supplier relationship management approach positions Exxaro at an advantage to extract discretionary value and emerge as a “customer of choice” for selected strategic suppliers. Quality of the relationship: 3/3 Basis of rating: Internal assessment informed by various external surveys • We conduct a reputation assessment every two to three years (the last assessment was conducted in 2018) Hot topics Exxaro’s sourcing strategies set out to concurrently optimise for: • Performance and supply risk • Financial and fraud risk • Supply chain sustainability For more information on our ESD programme, please refer to page 78 of our ESG report. Exxaro Resources Integrated report 2020 65 Positioning the business for growth BUSINESS RISKS AND OPPORTUNITIES FOR GROWTH Exxaro drives accountability, transparency and business efﬁciency on all levels of the organisation through our integrated risk management approach that forms part of our strategy, governance and day-to-day operations. OUR ENTERPRISE RISK MANAGEMENT (ERM) PROCESS The Exxaro risk management process is a strategic enabler embedded in all our processes, functions and systems. Risk management, together with crisis management, is a board objective, which is ingrained in Exxaro’s corporate culture. The risk management framework is based on principles embodied in the ERM framework published by the Committee of Sponsoring Organisations of the Treadway Commission, the International Guideline on Risk Management (ISO 31000) and King IV. It also considered applicable codes of best practice such as: • ISO 9001 • ISO 14001 • ISO 18001 The group’s risk management is mature. It is performed at management level with a different scope and context in mind. The organisational risk layers are vertically integrated and provide input into the speciﬁc risk proﬁles. Strategically promote partnership and set strategic direction Tactically embed strategy, manage service performance, issues and expectations Operationally render and manage day-to- day service delivery and queries • Use risk management to test • Use risk management to ensure robustness and sustainability of strategy • Commission risk-based audits company and commodity strategy is achieved • Monitor tactical and operational risks • Monitor general controls • Day-to-day management of risks and monitoring key controls (operations and projects) GOVERNANCE AND OVERSIGHT OF RISK MANAGEMENT Exxaro is committed to complying with and maintaining the principles of the code of corporate practices and conduct set out in King IV. In terms of this code, the board is responsible for the overall governance of risk management, as well as forming its own opinion on the effectiveness of the process. Management is accountable to the board for designing, implementing and monitoring the process of risk management and integrating it into the day-to-day activities of the organisation. Exxaro’s ERM framework aims to integrate risk management across the organisation to support our vision, strategy and values, and drive the achievement of business objectives. Exxaro has accomplished this by: • Embedding risk management within its culture • Proactively identifying future uncertainties and planning for them • Exploiting opportunities presented by risk events • Training employees to think about risks as part of their decision- making process 66 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration RISK APPETITE AND THRESHOLDS Exxaro deﬁnes risk appetite as the type and level of risk the group is willing to accept to meet strategic objectives. The risk appetite is a key input in the strategy planning process. We understand that, if we want to create value for all our stakeholders and remain sustainable, we need to measure and monitor our progress by using appropriate key performance indicators (KPIs). The board and executive committee monitor KPIs quarterly to ensure all risks and key metrics are within Exxaro’s risk appetite. The risk appetite is updated, when deemed necessary, as part of the strategic planning process. Risk appetite methodology Strategy and strategic objectives linked to sustainability capitals Natural Sustainability capitals (cid:170) Human Financial Intellectual Social and relationship Manufactured Set risk thresholds (cid:170) Modify risk thresholds For details, please refer to performance against strategy on page 56. The Exxaro ERM framework is also an appropriate tool for the identiﬁcation and realisation of opportunities — for example, early value coal extraction to maximise value in the short to medium term in view of the climate change risk. We believe that for Exxaro to remain sustainable in the near future it is important to adapt the coal business to change and to identify and pursue possible opportunities that ultimately create value, such as reducing stranded high-value coal reserve risk. The opportunities we identiﬁed in 2020 are outlined in the table below and informed our Sustainable Growth and Impact strategy. Opportunity Strategic objective The early value coal strategy and our ability to maximise resource to market opportunities leveraging the low cost and ﬂexibility of our coal assets and reserves Make our minerals and energy businesses thrive Accelerated expansion into renewable energy to support our low-carbon transition The relationships and partnerships we have built and continue to build as part of our ESG commitments and ultimately Sustainable Growth and Impact strategy to create future growth for Exxaro Enhance Exxaro’s social impact from its growth and transition to a low-carbon future Carbon-neutral by 2050 Make our minerals and energy business thrive Empower people to create impact Become a catalyst for economic development Transition at speed and scale Exxaro Resources Integrated report 2020 67 Positioning the business for growth BUSINESS RISKS AND OPPORTUNITY FOR GROWTH continued 2020 VERSUS 2019 RISK COMPARISON Our risk scores are derived from the product of the likelihood and the impact of the unwanted event. We rank our risks according to residual risk score from highest to lowest. Risk = f ( x ) Likelihood of risk occurring Impact of the risk % of risks linked to sustainability capitals Natural 10% Human 20% Social and relationship 20% Manufactured 20% Financial 30% Intellectual 0% % risks from internal versus external sources 50% 50% Matla mineral resource management team at work 68 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration TOP 10 HEAT MAP Exxaro’s top 10 risks are plotted inherently (before controls) and residually (after controls) on the heat maps below, followed by an outline of our key identiﬁed risks, the main drivers, their potential impacts and mitigating treatments. We have considered internal and external risks. Our mitigation strategies depend on the severity of impact and likelihood of occurrence. Inherent risk rating Residual risk rating 1 5 2 4 6 3 7 8 9 10 3 9 1 2 4 6 5 7 10 8 Almost certain 81% – 100% Likely 61% – 80% Possible 36% – 60% Catastrophic 81 – 100 Major 61 – 80 Moderate 36 – 60 Unlikely 11% – 35% Minor 11 – 35 Rare 1% – 10% Insignificant 1 – 10 Likelihood t c a I m p Almost certain 81% – 100% Likely 61% – 80% Possible 36% – 60% Catastrophic 81 – 100 Major 61 – 80 Moderate 36 – 60 Unlikely 11% – 35% Minor 11 – 35 Rare 1% – 10% Insignificant 1 – 10 Likelihood t c a I m p Rank Risk Likelihood Impact Residual risk Residual risk 1 2 3 4 5 6 7 8 9 COVID-19 concerns Eskom systemic risk Unavailability of rail capacity Community unrest Employee safety and health concerns Cost competitiveness of products Climate change concerns Country risk (political) Inability to achieve ﬁnancial targets 10 Low commodity price Rank Risk 1 2 3 4 5 6 7 8 9 COVID-19 concerns Community unrest Eskom systemic risk Cost competitiveness of products Employee safety and health concerns Climate change concerns Low commodity price Country risk (political) Unavailability of rail capacity 10 Inability to achieve ﬁnancial targets 70 71 85 79 58 49 52 58 75 55 Inherent risk Likelihood 98 97 95 95 92 95 95 95 85 85 96 91 75 72 95 95 90 80 60 81 Impact 100 95 95 95 95 90 85 80 75 60 67 65 60 57 56 47 46 46 45 44 Inherent risk 98 92 90 90 87 86 81 76 64 51 Exxaro Resources Integrated report 2020 69 Positioning the business for growth BUSINESS RISKS AND OPPORTUNITY FOR GROWTH continued RESPONSE TO RISKS AND TRENDS Managing risk is a trade off between the expense of treatment plans and the impact of the risk. To manage the risks associated with COVID-19 and to ensure business continuity, a decision was taken to activate Exxaro’s crisis management plan as an integrated response that prioritised actions to ensure the stability of operations and safety of our employees, contractors, service providers and host communities. The crisis management team was mandated to oversee the COVID-19 response strategy to ensure that action plans/treatments to address risks were implemented effectively. Amid these extraordinary circumstances, the impact of the pandemic on the business and its ﬁnancial performance was not material. This bears testament to the resilience of our business and the effectiveness of our response actions (page 14). As we venture along the transition journey to transform our business, we anticipate our risk proﬁle will morph to reﬂect exposures characterising the nature of our business. At the same time, we will continue to harness opportunities along our journey. Ranking Risk name Outlook 01 02 03 04 05 06 07 08 09 10 COVID-19 concerns The COVID-19 pandemic has dealt a heavy blow to the global economy. The effects of the second wave of COVID-19 will continue to be felt throughout 2021. The current COVID-19 preventative measures and anticipated roll-out of the vaccine programme in South Africa with the aim of achieving herd immunity will assist in arresting the spread of the disease. Eskom systemic risk Financial viability of Eskom remains a concern in the short to medium term. Eskom’s operational challenges and the slowdown in the economy will affect Eskom’s ability to generate revenue and address its ﬁnancial challenges. Unavailability of rail capacity Exxaro currently does not have full access to our contracted export capacity due to various operational challenges experienced by TFR. A study is currently underway to identify alternative solutions to transport our product. Community unrest Civil unrest has been identiﬁed as one of the country’s key risks. This will impact our communities and has the potential to spill over into operations. The socio- economic impacts of COVID-19 will continue to be felt as the South African economy struggles to recover and create job opportunities. Employee safety and health concerns With continued implementation of safety improvement plans, our safety performance is expected to continue improving. Cost competitiveness of products Rand per tonne (impacted by production and efﬁciency) will remain a focus area. Volatile conditions and cost pressure remain. Key actions to reduce cost include: install renewable electricity given the expected price increases from Eskom Climate change concerns COVID-19 has increased global action against climate change. Country risk Socio-political risks, policy uncertainty and the weak economy have heightened focus on this risk. Inability to achieve ﬁnancial targets Record highs were recorded for export coal volumes at the end of December 2020. Good ﬁnancial results are expected for 2021 due to cost-saving initiatives and favourable commodity prices. Low commodity prices The positive outlook for coal prices in 2021 will have a positive impact on revenue and proﬁts. 70 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration Lines of defence 1 Management of risk (risk owner) 2 Management support and oversight 3 Independent assurance Risk trend (cid:207) Increased (cid:208) Reduced (cid:206) Unchanged (cid:173) New 1. COVID-19 concerns Capitals impacted Drivers • Low commodity prices • Disengaged and anxious workforce (permanent employees and contractors) • Rapid spread of the virus • Increased risk of cyberattacks due to remote working • Deterioration of employee health (mental and physical) • Uncontrollable cost of goods and services • Unavailability of critical goods and services • Community unrest due to loss of livelihoods impacting on Exxaro’s operations • Counterparty risk (contractors/suppliers/customers) • Productivity decline (operations not operating at full capacity and not complying with disaster management guidelines among others) Impacts • Safety impacts (fatalities and incidents) • Health impacts • Financial losses • Unable to meet ﬁnancial targets • Legal and regulatory non-compliance with the Disaster Management Act, 2002 (Act 57 of 2002) • Production stoppages • Delay in implementation of strategy • Inability to obtain lines of credit Strategic performance KPIs • Core operating margin • Annualised ROCE • Annual core HEPS and net debt to annualised EBITDA • LTIFR • Fatalities • Project delivery KPIs including SLPs • Mining Charter III and B-BBEE targets Treatments • “Hardened” security processes and tools and increased monitoring • Commissioning of testing facilities in Limpopo and Mpumalanga to conduct mass testing • Mental wellness programmes in place • Monitor compliance with contractual agreements (cost of goods and services) • Monitor critical goods stock levels and services required • Ongoing engagement with Minerals Council South Africa and provincial and local governments • Ongoing monitoring of messaging and continuous updates of critical information • Roll out and continuous updating of COVID-19 business continuity management plan at operations • Human resources guidelines in line with government’s lockdown regulations • Activation of crisis management plan Lines of defence: 1 and 2 Materiality theme: Risk trend (cid:207) Exxaro Resources Integrated report 2020 71 Positioning the business for growth BUSINESS RISKS AND OPPORTUNITY FOR GROWTH continued Lines of defence 1 Management of risk (risk owner) 2 Management support and oversight 3 Independent assurance Risk trend (cid:207) Increased (cid:208) Reduced (cid:206) Unchanged (cid:173) New 2. Eskom systemic risk Capitals impacted Drivers • Inadequate environmental ﬁnancial provision at tied operations • Environmental rehabilitation fund shortfall at Matla • Realisation of approved funding for capital requirements (Matla capital project programme) • Further delays in Eskom’s Medupi power station operating at full capacity • Eskom liquidity risk: Eskom not honouring commercial rights and obligations as per CSAs Strategic performance KPIs • B-BBEE contribution level • Black ownership • SLP project delivery • Capital project delivery • Core operating margin • Annualised ROCE • Annual core HEPS and net debt to core EBITDA page 13 of this report and page 20 of ESG report Impacts • Cost of coal production becomes uncompetitive at Matla (lack of Treatments • Cost of coal production becomes uncompetitive at Matla capital) • Loss of revenue • Reputational damage • Cash ﬂow constraints at Eskom resulting in late or no payment to Exxaro • Operational constraints at Grootegeluk due to pit liberation impacts as a result of further Medupi power station delays or inability of Eskom to take contracted offtake (lack of capital) • Enforcement of CSA and arbitration award in terms of environmental funding • Capex funding to build siding to evacuate coal at Matla • Active participation by Exxaro to move coal from the Waterberg to Mpumalanga and deployment of temporary solution to load test train from Waterberg to Mpumalanga • Top management and political interaction with ministers when required • Ongoing discussions on the future of Matla Lines of defence: 1 and 2 Materiality theme: Risk trend (cid:206) 3. Unavailability of rail capacity Capitals impacted Drivers • Cable theft and derailments. • Transnet’s locomotive availability. • Inadequate maintenance of ﬂeet due to lack of spares at TFR Strategic performance KPI • Core operating margin • Annualised ROCE • Annual core HEPS and net debt to annualised EBITDA Impacts • Operational stoppages • Financial loss • Unable to meet contractual agreements • Unable to meet 2021 budget • Unable to grow and execute the value extraction strategy • Shareholder dissatisfaction Treatments • Marketing and Logistics team exploring options to evacuate export bound coal • Continuous engagement with TFR to understand issues and provide assistance Line of defence: 1 Materiality themes: Risk trend (cid:173) 72 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration Lines of defence 1 Management of risk (risk owner) 2 Management support and oversight 3 Independent assurance Risk trend (cid:207) Increased (cid:208) Reduced (cid:206) Unchanged (cid:173) New 4. Community unrest Drivers • Dissatisfaction with local economic development initiatives • Political agitation • High unemployment rate • Poor/lack of service delivery by local government • High demand for skills development, employment and local procurement • 2021 municipal electioneering • Perceived slow transformation at operations • Conduct of contractors (employment practices) Exxaro is seen as endorsing • Fractured communities and competing interests • Manipulation of information/community against Exxaro • Lack of employment opportunities (worse since COVID-19 outbreak) • Economic recession resulting in job losses during the COVID-19 pandemic • Lack of procurement opportunities Impacts • Production interruptions • Negative media reports (reputation) • Jobs/opportunities for sale (misrepresents Exxaro) • Potential harm to mine employees and contractors • Potential damage to mine equipment and property Capital impacted Strategic performance KPI • B-BBEE contribution level • Black ownership • SLP project delivery • Community beneﬁt initiatives • ESD performance page 13 of this report and page 20 of ESG report Treatments • Emergency response and crisis management plans • Carve out opportunities • Municipal capacity building • Impact Catalyst projects ( • ESD (including contractors) • Build local, provincial and national government relationships • Invest in non-mining skills development programmes • Roll out bursaries/skills development programmes • Roll out community engagement plans for proactive refer to ESG page 80) engagement ( refer to ESG page 78) • Transparent and ongoing communication with communities • Effective local procurement strategy • Certiﬁed COVID-19 testing facilities in Mpumalanga and Limpopo for community members in place Lines of defence: 1 and 2 Materiality themes: Risk trend (cid:207) Exxaro Resources Integrated report 2020 73 Positioning the business for growth BUSINESS RISKS AND OPPORTUNITY FOR GROWTH continued Lines of defence 1 Management of risk (risk owner) 2 Management support and oversight 3 Independent assurance Risk trend (cid:207) Increased (cid:208) Reduced (cid:206) Unchanged (cid:173) New 5. Safety and health concerns Capital impacted Drivers • Rapid spread of COVID-19 infections among employees and contractors • Anxious and disengaged workforce (additional COVID-19 regulation and some companies impacted by COVID-19 laying off contractors) • High/excessive fatigue levels • Poor procedures for maintenance of equipment and machinery • Inadequate on-the-job training due to illiteracy • Lack of awareness of health risks • Lack of hazard awareness (in line of ﬁre) • Non-adherence to procedures • Lack of communication between teams working on equipment • Lack of change management • Design or modiﬁcation of equipment without sign-off • Inadequate supervision Impacts • Unwanted health and safety incidents • Operational stoppages • High insurance premiums • Loss of licence to operate • Decrease in quality of life • Section 54 and 55 ﬁnes and penalties imposed by the DMRE • Loss of productivity (deaths, medical incapacity or sick leave) Strategic performance KPIs • Fatalities • LTIFR • OHIFR • Number of safety and health stoppage directives in terms of section 54 of Mine Health and Safety Act, 1996 (Act 29 of 1996) page 13 of this report and page 20 of ESG report Treatments • Analyse historical incident data to identify trends and root causes • Mental wellness programmes in place • Ongoing safety, health, environment and community risk management • Improve safety management with innovation (including wearables) • Ensure proximity detection systems implemented and maintained • Ensure safety improvement plan is communicated and implemented • COVID-19 response plan developed and rolled out Lines of defence: 1, 2 and 3 Materiality theme: Risk trend (cid:208) 74 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration Lines of defence 1 Management of risk (risk owner) 2 Management support and oversight 3 Independent assurance Risk trend (cid:207) Increased (cid:208) Reduced (cid:206) Unchanged (cid:173) New 6. Cost competitiveness of products Capital impacted Drivers • LoM • Poor capital project execution • Not achieving productivity indices (benchmark standards) • Cost containment discipline not uniform • Inﬂationary pressures • Deteriorating mining conditions (decreasing yield and increasing stripping ratio) • Not meeting production volumes • Volatility of exchange rate • Commodity price decline • Inaccurate ﬁnancial modelling • Higher ﬁxed costs (corporate ofﬁce costs charged to BUs) • South African geographical constraints • Frequent changes in legislation (cost of licence to operate) Impacts • Reputational damage • Social impact • Financial loss • Margin squeeze • Premature mine closure and allocation of costs to other operations • Reduced earnings will impact approval of capital projects Strategic performance KPIs • Core operating margin • Annualised ROCE • Annual core HEPS and net debt to annualised EBITDA Treatments • Embrace technology and innovation initiatives to improve productivity performance • Ensure achievement of P75 (refers to an improved year-on- year performance level in terms of production volumes across our BUs, against a base set for each operation in 2018, to be achieved in 2020) • Ensure BUs comply with concurrent rehabilitation • Optimise operating model and avoid duplicated activities • Create strategic partnership to leverage economies of scale • Ensure balance between capital optimisation and prioritisation • Investigate and divest non-core and non-robust assets • Provide for post-production stoppage (rehabilitation cost) • Review and monitor performance of suppliers and service providers • Increased awareness of cost management • Focus on sustainable cost reduction programmes and business improvement initiatives • Planned reviews by coal operating company • Rebalancing product chains for better use of infrastructure Lines of defence: 1, 2 and 3 Materiality theme: Risk trend (cid:206) Exxaro Resources Integrated report 2020 75 Positioning the business for growth BUSINESS RISKS AND OPPORTUNITY FOR GROWTH continued Lines of defence 1 Management of risk (risk owner) 2 Management support and oversight 3 Independent assurance Risk trend (cid:207) Increased (cid:208) Reduced (cid:206) Unchanged (cid:173) New 7. Climate change concerns Drivers • Poor plant or operations design unable to withstand extreme weather conditions • Poor monitoring and reporting of climate change impacts • Infrastructure vulnerabilities • Lack of awareness of climate change impacts • Increased non-governmental organisation activism • International and local investor negative sentiment towards fossil fuels Impacts • Reputational damage • Loss of licence to operate • Financial loss (increased carbon tax among others) • Environmental impacts (extreme heat; drought) • Legal claims against heavy polluters • Health and safety impacts on employees (increased occupational incident rate due to heatstroke and increase in skin cancer among others) • Energy security and supply • Loss of throughput • Natural disasters (ﬂooding) Capitals impacted Strategic performance KPI • Water intensity • Carbon intensity page 13 of this report and page 20 of ESG report Treatments • Invest in renewable energy initiatives • Raise awareness about climate change impacts • Continuously investigate measures to reduce climate change impacts • Engagement with regulators to anticipate policy changes • Investigate suitable PPE for extreme weather conditions • Link performance reward system to climate change mitigation • Review conditions of work under extreme weather conditions • Engage with government and other role players in the industry to align in transition to a low-carbon future • Invest in appropriate technology to reduce own emissions • Embed climate change mitigations in design criteria for existing and new projects • Plan and embark on early value coal strategy to reduce stranded assets • Develop renewable energy strategy to transition to lower carbon economy • Adopt TCFD framework to engage with stakeholders • Align with Paris Agreement • Develop market intelligence on carbon pricing • Effective water management processes for water security Lines of defence: 1, 2 and 3 Materiality themes: Risk trend (cid:206) 76 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration Lines of defence 1 Management of risk (risk owner) 2 Management support and oversight 3 Independent assurance Risk trend (cid:207) Increased (cid:208) Reduced (cid:206) Unchanged (cid:173) New 8. Country risk (political) Capitals impacted Drivers • Lack of investment and low employment creation • Uncertainty about land ownership and security of tenure • Limited local government capacity to deliver services • Potential for nationalisation sentiment • Continued poor economic performance will inﬂuence policy and Strategic performance KPIs • Enhancing social investment through ”impact at scale” initiatives for local and regional community development • Government engagements (national, provincial and local) through industry lobby groups and own initiatives • Strategic capital investment that contributes to economic political outcomes development • Slow implementation of required reforms • Corrupt practices (private and public sector) • Rating agencies downgrade South Africa to junk status • South Africa’s real gross domestic product (GDP) growth forecasted to be (3.1%) for 2021 • Limited ﬁscal capacity Impacts • Political instability • Possibility of community unrest for political support • Stakeholder dissatisfaction • Potential regulatory penalties/oversight • Increased compliance burden • Potential increase in royalties/taxes • Reduced investment opportunities (increase in cost of capital) • Increased cost of doing business (such as increased compliance burden) Treatments • Aligning purpose with governance and ethics • Continuous monitoring of independent country risk assessment report • Engage shareholders on coal business and capital allocation for new strategy • Establish and participate in collaborative regional development platforms for community impact • Exxaro developing renewables strategy that could result in new investment and electricity security • Fewer opportunities for co-investment with government in • Long-term investment perspective for growth, development community development and impact • Breakdown in government relationships with Exxaro • Higher expectation from society and government for more social • Municipal capacity building • Ongoing engagement with Minerals Council and provincial investment and local governments • Potential for junk status rating and downgrade of Exxaro’s credit • Strive for full compliance with relevant legislation for status due to link to Eskom • Pressure on revenue • Policy uncertainty business continuity • Continued support of relevant business lobby groups to engage business and government • Increased and improved analysis of dynamic political landscape and impacts of stakeholders • Increased focus on provincial and local players and intensiﬁed engagement across local stakeholder networks to mitigate shocks ”from above” Line of defence: 1 Materiality theme: Risk trend (cid:207) Exxaro Resources Integrated report 2020 77 Positioning the business for growth BUSINESS RISKS AND OPPORTUNITY FOR GROWTH continued Lines of defence 1 Management of risk (risk owner) 2 Management support and oversight 3 Independent assurance Risk trend (cid:207) Increased (cid:208) Reduced (cid:206) Unchanged (cid:173) New 9. Inability to achieve ﬁnancial targets Capitals impacted Drivers • Macro-economic factors • Disaster Management Act directives issued • Critical input supplies not available • Counterparties not meeting contractual obligations (Eskom and AMSA) • Claims from contractors due to the impact of the COVID-19 pandemic on timelines • Reduced rail capacity for exports in 2021 Impacts • Cash ﬂow constraints • Increased cost of production Strategic performance KPIs • Core operating margin • Annualised ROCE • Annual core HEPS and net debt to annualised EBITDA Treatments • Disposal of ECC and the Leeuwpan operations (high on the cost curve) • Ability to reﬁnance loan facilities • Focus on current operating excellence and digitalisation initiatives to reduce rand per tonne impacts • Proactively draw down available borrowing facilities • Evaluate claims from contractors in terms of process (Supply Chain and projects) • Detailed daily cash ﬂow management • Monitor supplier ﬁnancial status (critical and strategic suppliers) Lines of defence: 1, 2 and 3 Materiality theme: Risk trend (cid:208) 10. Low commodity price Capital impacted Drivers • Global and domestic economic slowdown worse after the COVID-19 outbreak • Structural economic challenges in the USA and trade wars • Global resistance to fossil fuels • Cost of renewable energy technology decreases Strategic performance KPIs • Core operating margin • Annualised return on capital employed • Annual core HEPS and net debt to annualised EBITDA page 13 of this report and page 20 of ESG report Impacts • Financial losses • Difﬁcult to forecast planning and budgets • Feasibility of new projects (capital projects not achieving expected returns) • Existing assets not achieving expected returns Treatments • Impact of volatility frequently assessed in corporate model • Improve speed of mine planning to match price volatility • Negotiate long-term ﬁxed price agreements • Diversify away from thermal coal • Adoption of resource to market model • Focus on market intelligence in the coal sector • Adjust and optimise business plan for circumstances (alternative markets) • Ensure operations are low on the cost curve Line of defence: 1 Materiality themes: Risk trend (cid:208) 78 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration Digital operation centre at Matla Exxaro Resources Integrated report 2020 79 Positioning the business for growth COMBINED ASSURANCE FOR EFFECTIVE GOVERNANCE The board, supported by the audit committee, is ultimately responsible for Exxaro’s system of internal controls, which has been designed to evaluate, manage and provide reasonable assurance against material misstatement and loss. We apply a combined assurance model to optimise assurance by management, as well as internal and external providers, while fostering a strong ethical climate and mechanisms to ensure compliance. Using our board-approved ERM approach, management identiﬁes key risks facing Exxaro and implements the necessary internal controls ( page 102 of our ESG report) with comparable information for trend analysis where possible. The board and audit committee assessed the effectiveness of controls for the year ended 31 December 2020 as satisfactory, principally through a process of management self-assessment (including formal conﬁrmation by executive management), reports from internal audit, independent external audit and other assurance providers. APPROACH, GOVERNANCE AND REPORTING Exxaro deﬁnes assurance broadly to cover all sources, including external assurance, internal audit, management oversight and regulatory inspections. Our combined assurance model includes and optimises all assurance services and functions to collectively provide an effective control environment and support the integrity of information used for internal decision making by management, the board and its committees, and in our external reports including: • Corporate governance disclosures in terms of King IV • Financial statements and other external reports, including our integrated report and ESG report The forum’s activities and outcomes of assurance reports are presented quarterly to the audit committee. ASSURANCE REVIEW For the year under review, the sources, level and focus area of assurance, commissioned and performed, are summarised below. Focus area External/statutory audit Selective non-audit services Sustainable development/KPIs Environmental liability provisioning Mining rights and environmental legal compliance B-BBEE dtic code compliance Mining charter compliance Insurance risk surveys Major and mega capital projects Mineral Resource and Mineral Reserve statement Governance, risk and internal controls Employee benefits SLP projects ISO and OHSAS certifications * Tier/level of assurance refers to independent external assurance. Function assured Assurance provider Tier/level of assurance* Corporate PwC PwC PwC PwC Inlexso Empowerdex Ngubane IMIU EY EY EY Ngubane Ngubane Various Yes Yes Yes Yes Yes Yes Yes 3 3 3 3 3 3 3 3 3 3 3 3 3 3 BU Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes 80 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration Outcome of assurance reports 2018 to 2020 The total number of ﬁndings raised since 2018 is 309. The split by status of the ﬁndings is depicted in the chart below. As at 31 December 2020, there was a total of 150 ﬁndings that had been successfully resolved from the total of 309, leaving a total of 159 open ﬁndings that require the attention of management and assurance providers. Status of findings Follow-up in progress Ready for audit Within timelines Open/outstanding (overdue) Total Internal audit Other assurance providers 33 40 5 2 80 0 74 2 3 79 Total 33 114 7 5 159 Overdue ﬁndings have been classiﬁed by ratings assigned in the ﬁnal audit report and split into audit source below. Audit source Internal audit Other assurance providers Total Level 1 (high) Level 2 (medium) Level 3 (low) Not rated Total 0 0 0 1 0 1 1 0 1 0 3 3 2 3 5 Exxaro Resources Integrated report 2020 81 Safety pledge at Exxaro’s 2020 Sustainability Summit which was certified as a green event by the Heritage Eco-Events Programme 82 Exxaro Resources Integrated report 2020 OUR PERFORMANCE IN 2020 84 Finance director’s overview 96 Operational performance 98 Macro-environment 104 Business resilience 108 Our people 114 Human rights 116 Social licence to operate: enabling our legitimacy 118 Our environment: stewardship and compliance POWERING KHETHA UKUPHEPHA This year, Exxaro celebrated four years without a fatality across our mining operations; a remarkable milestone and one that highlights the importance of our continued and collective safety efforts. Safety is an ongoing focus for us as a business and our commitment to achieve zero harm is embodied in our Khetha Ukuphepha campaign, meaning “Choose Safety”. The campaign was designed to ensure every employee keeps safety and individual responsibility front and centre. It promotes adherence to our strict safety standards and ensuring we all return home each day unharmed. “We believe that zero harm is possible. We cannot sell coal associated with injuries and loss of life. That’s not our business. Four years without any fatalities marks a great milestone for our company and for the future of the South African mining industry. The leadership and strategic initiatives to improve safety regulations have ensured that all of our employees can work in an environment they can trust, and that they can return home to their loved ones unharmed,” said Dr Joseph Matjila, group manager: safety and health. Exxaro Resources Integrated report 2020 83 Our performance in 2020 FINANCE DIRECTOR’S OVERVIEW Riaan Koppeschaar Finance director While Exxaro’s operations were declared an essential service during the lockdown period, and able to operate, the environment remained challenging. However, our managed operations were able to show strength and resilience resulting in a 25% increase in core EBITDA* to R7.3 billion. The contribution from our non-controlled operations showed a signiﬁcant increase with core equity-accounted income increasing 36% to R6.5 billion, mainly due to the performance of SIOC^. 84 Exxaro Resources Integrated report 2020 This translated into core headline earnings per share rising to R29.73 compared to R23.54 in 2019. We are pleased to have declared record ordinary dividends of R18.86 per share to our shareholders, compared to R14.30 for 2019. GLOBAL ECONOMY AND COMMODITY PRICES Notwithstanding the COVID-19 lockdown restrictions imposed in 2020, steam coal demand remained fairly steady in the domestic market. There was good offtake from Eskom at the Matimba Power Station, with the Medupi Power Station falling slightly short for the year. Eskom did not take coal from Leeuwpan and ECC as the parties are still in the process of concluding new CSAs. Demand from AMSA was impacted due to the initial lockdown restrictions and lower steel demand. AMSA’s offtake recovered somewhat with the easing of the lockdown restrictions. Internationally, the onset of the COVID-19 pandemic impacted global demand as industries ceased production under lockdown conditions. This was evident in the sponge iron markets on the East Coast of India. As restrictions eased, demand in India returned to pre- pandemic levels in the last quarter of 2020. The import ban on Australian thermal coal in China resulted in China importing coal from South Africa. In turn, Australian coal found its way into the Indian and Pakistani power generation and cement markets. The average benchmark API4 RBCT export price of US$65 per tonne was 10% lower (2019: US$72 per tonne) resulting in an 11% lower average price per tonne achieved of US$48 (2019: US$54 per tonne). The average spot exchange rate was weaker at R16.45 to the US dollar (2019: R14.44). SNAPSHOT Revenue of R28.9 billion, up 12% Core EBITDA* of R7.3 billion, up 25% Core headline earnings of R29.73 per share, up 26% Cash generated by operations at R7.8 billion, up 47% * Net operating proﬁt before interest, tax, depreciation, amortisation, impairment charges or impairment reversals and net loss or gain on disposal of assets and investments (including translation differences recycled to proﬁt or loss). ^ Sishen Iron Ore Company Proprietary Limited. About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration CAPITAL MANAGEMENT AND SHAREHOLDER RETURNS In terms of our capital allocation framework, free cash ﬂow generated will be prioritised per the diagram below: 1 3 5 Free cash ﬂow Debt service Sustaining capex Expansion capex Dividends Growth Excess cash 2 4 6 During 2020, we received cash of R10.1 billion, comprising R6.8 billion from our operations (net of tax paid) and dividend income received from our equity-accounted investments of R3.3 billion. We then utilised this cash in terms of our capital allocation framework, to mainly: • Service our debt (R1.1 billion) • Sustain our coal operations with capital expenditure (R2.1 billion) • Expand our coal operations with further capital expenditure (R1 billion) • Pay ordinary dividends of R4 billion • Acquire Exxaro shares in the market to the value of R270 million to settle vested share-based payment schemes • Pay the ﬁnal payment for the ECC contingent consideration of R195 million Our net debt increased to R11 billion at 31 December 2020 with the consolidation of the Cennergi project ﬁnancing of R4.7 billion. The closing net debt position at 31 December 2020 therefore culminated in a: • Net debt: equity ratio of 28% • Net debt: core EBITDA cover ratio of 0.96 times, excluding the Cennergi project ﬁnancing, which was well below our target of 1.5 times Given our strong balance sheet, underpinned by strong cash ﬂow generation, the board of directors approved a ﬁnal dividend of 1 243 cents per share in March 2021, in line with our revised dividend policy, comprising: • A pass through of the SIOC dividend receivable • 2.5 times adjusted group earnings Core equity-accounted income of R6.5 billion, up 36% Total ordinary dividend declared of R18.86 per share for 2020 Tronox proceeds to be returned to shareholders: Special dividend of R5.43 per share R1.5 billion share buy-back programme Exxaro paid the following dividends during 2020: • A ﬁnal dividend relating to the 2019 ﬁnancial year of 566 cents per share (R1 420 million to external shareholders) paid in April 2020 • An interim dividend of 643 cents per share (R1 614 million to external shareholders) paid in September 2020 VALUE DISTRIBUTION The value generated by Exxaro is distributed to its various stakeholders as follows: • Employees receive salaries or wages, share-based payments as well as bonuses (where certain performance conditions are met) • The governments of the 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 • Communities surrounding the operations of Exxaro beneﬁt through CSI • All stakeholders beneﬁt from continuous reinvestment into the group to ensure sustainability and expansion Value distribution (Rm) 78 51 978 3 795 3 034 2020 1 223 Salaries, wages and benefits Employees’ tax Payments to government: taxation contribution Cost of finance Cash dividend paid Dividend paid to BEE parties Community investments and volunteerism 4 209 GreenShare employee scheme (2019: Phantom employee scheme) 1 305 1 947 95 80 1 391 2019 5 812 1 315 1 690 558 Exxaro Resources Integrated report 2020 85 Our performance in 2020 FINANCE DIRECTOR’S OVERVIEW continued CORE PERFORMANCE HIGHLIGHTS For a better understanding of the comparability of results between the two reporting periods, we have adjusted the ﬁnancial results with non-core items to derive our core ﬁnancial results. Further details on non-core items are shown under the respective ﬁnancial performance measures. Group core performance — diverse portfolio delivers higher earnings 1 9 4 5 2 6 2 7 5 2 +12% 4 2 9 8 2 Revenue 30 000 20 000 10 000 m R 0 2018 2019 2020 Equity-accounted income m R 7 000 6 000 5 000 4 000 3 000 2 000 1 000 0 1 7 2 3 +36% 5 5 4 6 0 5 7 4 EBITDA 8 000 6 000 m R 4 000 2 000 0 HEPS s t n e C 3 000 2 500 2 000 1 500 1 000 500 0 1 8 2 7 +25% 1 9 2 7 2 3 8 5 2018 2019 2020 +26% 3 7 9 2 9 5 1 2 4 5 3 2 2018 2019 2020 2018 2019 2020 Group revenue Consolidated group revenue increased 12% to R28 924 million (2019: R25 726 million), mainly due to higher commercial coal revenue driven by higher domestic prices on Eskom sales, slightly offset by lower metallurgical and market coke prices in line with international prices, as well as record coal export volumes. Despite the impact of the COVID-19 pandemic, we managed to increase export volumes by 34%, mainly due to higher coal availability, with Belfast ramping up to full production, albeit at lower export prices realised in line with the lower benchmark API4 price. The 14% weaker average rand/US dollar spot rate realised also contributed to an overall increase in export revenue. With the acquisition of the remaining 50% interest in Cennergi, renewable energy revenue was included in our consolidated ﬁnancial results from 1 April 2020. Group EBITDA and core EBITDA The higher revenue was the main driver of the 22% increase in consolidated group EBITDA of R7 246 million (2019: R5 953 million). For a better understanding of the comparability of results between the two reporting periods, the table below sets out the non-core adjustments to derive our core EBITDA. Key items impacting on comparability (non-core items) EBITDA Insurance claim recovery from external parties Losses on share of cash flow hedge reserve recycled on deemed disposal of Cennergi JV Indemnification asset relating to the tax implications of the partial disposal of Tronox Holdings plc Targeted voluntary packages Loss on financial instruments revaluation recycled to profit or loss Fair value adjustment on debt Fair value adjustment on the ECC contingent consideration 2020 Rm 7 246 (14) 59 2019 Rm 5 953 (99) (65) 396 1 (58) (296) Core EBITDA 7 291 5 832 86 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration Group core EBITDA increased 25% to R7 291 million (2019: R5 832 million) for reasons shown in the graph below. Group core EBITDA — cost supporting higher turnover 9 000 8 000 m R 7 000 6 000 5 000 ) 3 5 3 ( ) 0 5 1 ( 1 3 4 ) 2 6 1 ( ) 4 7 6 ( ) 8 7 3 ( ) 7 5 1 ( ) 6 4 ( 1 4 2 ( 8 0 3 1 9 2 7 1 8 8 2 2 3 8 5 2019 Commercial Inflation Employee revenue cost Rehab- ilitation Operational cost Selling and distribution Stock movement and buy-ins Forex Royalties and carbon tax Cennergi cost General* 2020 * Total EBITDA variance for Matla included in General = R15 million. The positive revenue impact has already been discussed under group revenue. In respect of inﬂationary increases, labour inﬂation was 4.2%, electricity at mine speciﬁc rates averaging 10.1% and inﬂation on the rest of the costs at producer price index (PPI) of 2.5%. Employee cost was higher with the capitalisation of costs at Belfast ceasing in February 2020. COVID-19 allowances were also paid to employees at the mines during the hard lockdown period coupled with additional costs incurred to comply with sanitisation protocols. Adjustments to the environmental rehabilitation liability resulted in a positive variance due to the increase in the closure cost estimate at Durnacol and Hlobane in 2019 (not recurring in 2020), an increase in the LoM of Dorstfontein East as well as higher discount rates used in the calculation of the liability for the group. This was partially offset by the liability adjustment of Belfast, which was previously capitalised. Operational cost was higher mainly due to the ceasing of capitalisation of costs at the Belfast mine, partially offset by lower production volumes and associated production costs at our ECC operations as well as lower contractor costs at Grootegeluk. The negative variance in selling and distribution costs is in line with higher export sales volumes. Higher volumes of third-party buy-ins were incurred in the ﬁrst quarter of 2020 to fulﬁl contracts, due to some production challenges. The net negative forex variance is a combination of realised and unrealised forex differences on export sales as a result of the ﬂuctuation of the rand/US dollar exchange rate. Higher royalties expense was in line with the higher revenue. Cennergi costs represent operational costs for the two windfarms for the nine-month period from 1 April 2020 to 31 December 2020. The positive variance under general expenses can be ascribed mainly to lower costs incurred on various projects during the lockdown period as well as a favourable adjustment to our expected credit losses due to outstanding payments received from debtors. Exxaro Resources Integrated report 2020 87 Our performance in 2020 FINANCE DIRECTOR’S OVERVIEW continued Group core equity-accounted income Core equity-accounted income from associates and joint ventures (after adjusting for non-core items1) increased 36% to R6 455 million (2019: R4 750 million), mainly as a result of SIOC. Refer to the table below for a full breakdown of core equity-accounted income. Core equity-accounted income Coal: Mafube Coal: RBCT Ferrous: SIOC TiO2: Tronox SA Energy: Cennergi2 Energy: LightApp Other: Black Mountain Other: Insect Technology Other: Curapipe Total Core equity-accounted income/(loss) 2020 Rm 67 8 6 123 226 13 (18) 122 (85) (1) 6 455 2019 Rm 127 3 4 423 236 45 (28) 51 (103) (4) 4 750 Dividend income 2020 Rm 2019 Rm 3 119 4 051 144 95 3 263 4 146 1 Non-core items relate to headline earnings adjustments. 2 Application of the equity method ceased on 31 March 2020 after which Cennergi was consolidated. Group earnings and core earnings Headline earnings were 2% lower at R7 417 million (2019: R7 599 million). The decrease in the headline earnings is mainly due to the BEE Parties sharing in the consolidated Eyesizwe results for 12 months in 2020 compared to the two months in 2019, partially offset by better proﬁtability from controlled operations and higher equity-accounted income from non-controlled operations. This equates to basic headline earnings per share (HEPS) of 2 955 cents per share (2019: 3 027 cents per share). The weighted average number of shares (WANOS) for both ﬁnancial years was 251 million. Key items impacting on comparability (non-core items) Description Headline earnings – EBITDA adjustments – Eyesizwe preference dividend accrued (consolidated impact) – Additional tax on non-core adjustments Core headline earnings 2020 Rm 7 417 45 7 462 2019 Rm 7 599 (121) 25 (101) 7 402 After adjusting for non-core items, core headline earnings increased by 1% to R7 462 million (2019: R7 402 million). To ensure a consistent comparison on core headline earnings per share (core HEPS), the core WANOS before 1 November 2019 was 332 million, reducing to 251 million from 1 November 2019 due to the recognition of non-controlling interests. Core HEPS increased 26% to 2 973 cents per share (2019: 2 354 cents per share), mainly driven by a 36% increase in core equity-accounted income, of which SIOC is the main contributor, as well as better performance from our own managed operations. 88 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration SUMMARISED STATEMENT OF FINANCIAL POSITION ASSETS Non-current assets Property, plant and equipment Intangible assets Right-of-use assets Inventories Equity-accounted investments Financial assets Deferred tax Other assets Current assets Inventories Financial assets Trade and other receivables Cash and cash equivalents Other assets Non-current assets held-for-sale Total assets EQUITY AND LIABILITIES Capital and other components of equity Share capital Other components of equity Retained earnings Equity attributable to owners of the parent Non-controlling interests Total equity Non-current liabilities Interest-bearing borrowings Lease liabilities Other payables Provisions Retirement employee obligations Financial liabilities Deferred tax Other liabilities Current liabilities Interest-bearing borrowings Lease liabilities Trade and other payables Provisions Financial liabilities Overdraft Other liabilities Non-current liabilities held-for-sale Total liabilities Total equity and liabilities 2020 Rm 2019 Rm 65 824 38 395 3 095 453 128 20 006 2 141 1 076 530 9 033 1 821 169 2 827 3 196 1 020 3 749 78 606 1 021 2 495 35 265 38 781 9 340 48 121 19 103 7 448 493 24 1 946 147 782 8 236 27 10 244 6 163 29 2 940 185 49 17 861 1 138 30 485 78 606 57 978 33 562 16 462 101 17 502 2 674 467 3 194 9 121 1 809 272 3 241 2 695 1 104 1 741 68 840 1 021 2 723 31 032 34 776 8 111 42 887 19 364 6 991 461 121 4 305 181 7 138 167 5 179 50 27 2 603 99 498 976 926 1 410 25 953 68 840 Exxaro Resources Integrated report 2020 89 Our performance in 2020 FINANCE DIRECTOR’S OVERVIEW continued Property, plant and equipment increased by R4 833 million when compared to the previous year, which includes R2 225 million spent on sustaining and environmental capital (stay-in-business capital) and R950 million on new capacity (expansion capital) as well as the consolidation of Cennergi from 1 April 2020. As part of the accounting for the acquisition of Cennergi on 1 April 2020, intangible assets in respect of key customer contracts of R2 685 million and goodwill of R521 million were recognised. Cash and cash equivalents increased 19% to R3 196 million when compared to the previous year. Cash ﬂow generated by operations of R7 770 million (2019: R5 273 million) and dividends received from investments of R3 336 million (2019: R4 653 million) were sufﬁcient to cover our capital expenditure and ordinary dividends paid. Total dividends received from our investment in SIOC was R3 119 million (2019: R4 051 million). SIOC declared a ﬁnal dividend to its shareholders in February 2021, amounting to R3 663 million for Exxaro’s 20.62% shareholding. The dividend will be accounted for in 2021. Net debt for the year ended 31 December 2020 increased by R5 157 million to R10 967 million (2019: R5 810 million), mainly driven by the inclusion of the Cennergi project ﬁnancing of R4 632 million. The graph below summarises key movements in the net debt balance for the year ended 31 December 2020. Group results — net debt FY20 15 000 12 500 10 000 m R 7 500 5 000 0 (2 500) 1 0 8 5 ) 0 7 7 7 ( 5 7 1 3 ) 6 3 3 3 ( 9 3 7 1 5 3 3 4 3 1 1 1 6 6 9 2 3 7 4 6 2 5 ) 3 2 3 ( 7 6 9 0 1 Cennergi 4 632 Exxaro 6 335 31 Dec 2019 Cash generated Net finance cost Tax Dividends paid Capex Dividends received Cennergi purchase price Cennergi net debt acquired Other Eyesizwe 31 Dec 2020 SALE OF NON-CORE ASSETS AND INVESTMENTS Exxaro continues to evaluate its options to dispose of its 26% shareholding in Black Mountain following the suspension of the sale process in December 2020. At 31 December 2020, the investment no longer met the criteria to be classiﬁed as a non-current asset held-for-sale with the retrospective reinstatement of the equity method from 1 November 2019. As mentioned previously, we undertook a strategic decision to dispose of our total equity interest in ECC and Leeuwpan, having identiﬁed these assets as non-core to the future objectives of Exxaro. The resultant sales process is well underway and good progress has been made notwithstanding the COVID-19 environment. Subsequent to 31 December 2020, Exxaro signed a sale and purchase agreement with Overlooked Colliery Proprietary Limited, who will acquire ECC. The sale will only be effective once all conditions precedent have been met. The disposal process for Leeuwpan continues. Subsequent to 31 December 2020, Exxaro concluded its stated strategy to monetise its stake in Tronox over time in the best possible manner taking into account prevailing market conditions. 90 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration KEY FINANCIAL PERFORMANCE INDICATORS The achievement of our key ﬁnancial performance indicators is presented in the table below. All internal KPIs are well within target, indicating a healthy balance sheet and strong cashﬂow generation. The impact of various coal sensitivity measures as well as the key ﬁnancial risk factors can be further used to stress test our current headroom. We have also comfortably met all our bank covenants for the year ended 31 December 2020 as well as the previous ﬁnancial year. Target 2019 2020 Performance — key indicators Internal KPIs EBITDA interest cover* (times) Net debt: equity* (%) Net debt: EBITDA* (times) Return on capital employed (%) Bank covenants** Net debt: equity (%) EBITDA interest cover (times) Net debt: EBITDA (times) >4 <40 <1.5 >20 <80 >4 <3 160 17 1.0 28 17 19 0.7 * Excluding Cennergi since consolidation of 100% of results since the step-up acquisition from 1 April 2020. ** Including dividends received from associates and contingent liabilities, except DMRE guarantees and excluding Cennergi consolidated results. COAL SENSITIVITY ANALYSIS Measure Sensitivity Impact on NOP* Royalty cost Environmental rehabilitation discount rate Export price per tonne Domestic sales volumes 1% 1% US$1 1% (279) (236) (200) (103) 103 279 234 200 Exchange rate 10 cents (51) 51 Labour Railage Export sales volumes Fuel Electricity * Net operating profit. 1% 1% 1% 1% 1% (32) (31) (23) 32 31 23 (11) (6) 11 6 15 17 1.0 25 14 11 0.7 R m Exxaro Resources Integrated report 2020 91 Our performance in 2020 FINANCE DIRECTOR’S OVERVIEW continued KEY FINANCIAL RISK FACTORS AFFECTING OUR PERFORMANCE The group’s corporate treasury function predominantly provides ﬁnancial risk management services to the business, coordinates access to domestic and international ﬁnancial markets, and monitors and manages the ﬁnancial risks relating to the operations of the group through internal risk reports which analyses exposure by degree and magnitude of risks. These risks include market risk (including foreign currency risk, commodity price risk, interest rate risk and price risk), credit risk and liquidity. In managing its capital, the group focuses on a sound net debt position, return on shareholders’ equity (or return on capital employed) and the level of dividends to shareholders. The group’s policy covers its annual net funding requirements through long-term loan facilities with maturities spread over time. Neither the company nor any of its subsidiaries are subject to externally imposed capital requirements. Market risk management Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates, commodity prices and equity prices, will affect the group’s income or the value of its holdings of ﬁnancial instruments. The objective of market risk management is to manage and control market risk exposure within acceptable parameters, while optimising the return on risk. The group’s activities expose it primarily to the ﬁnancial risks of foreign currency exchange rates, commodity prices, interest rates and changes in the environmental rehabilitation funds’ portfolio of assets’ quoted prices. Price risk management The group’s exposure to price risk in relation to quoted prices of the environmental rehabilitation funds is not considered a signiﬁcant risk as the funds are invested with reputable ﬁnancial institutions in accordance with a strict mandate to ensure capital preservation and growth. The funds are held for strategic purposes rather than trading purposes. Foreign currency risk Certain transactions are denominated in foreign currencies, hence exposures to exchange rate ﬂuctuations arise. The currency in which transactions are entered into is mainly denominated in US dollar, euro and Australian dollar. Exchange rate exposures are managed within approved policy parameters utilising forward exchange contracts (FECs), currency options and currency swap agreements. The group maintains a fully covered exchange rate position in respect of foreign loans (if any) and imported capital equipment resulting in these exposures being fully converted to rand. Trade-related import exposures are managed through the use of economic hedges arising from export revenue as well as through FECs. Trade-related export exposures are hedged using FECs and currency options with speciﬁc focus on short-term receivables. Uncovered cash and cash equivalents amount to US$116.35 million (2019: US$89.81 million). Monetary items have been translated at the closing rate on the last day of the reporting period. The FECs which are used to hedge foreign currency exposure mostly have a maturity of less than one year from the reporting date. When necessary, FECs are rolled over at maturity. The following signiﬁcant exchange rates applied during the year: US$ Euro (€) AU$ 2020 Average achieved rate 16.43 Average spot rate 16.45 18.76 11.35 Closing spot rate Average spot rate 14.62 17.97 11.27 14.44 16.16 10.05 2019 Average achieved rate 14.73 Closing spot rate 14.13 15.83 9.90 Commodity price risk management The group entered into commodity FECs to hedge certain of its export product exposure, in terms of coal prices for the period ended 31 December 2020. The current commodity FECs on coal will mature within the next four months. Details of the contracts at 31 December 2020 are as follows: 2020 Coal Commodity price sensitivity Group Market related value Rm 577 Contract value Rm Recognised fair value losses Rm 528 (49) Tonnes 450 000 An adverse change in the commodity price of 10% is demonstrated below. This analysis assumes that all other variables remains constant. 2020 Coal Impact on proﬁt/(loss) Rm (53) A 10% positive move against the above commodity prices at 31 December 2020 would have had the equal but opposite effect on the amount shown above, on the basis that all other variables remain constant. 92 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration Interest rate risk The group is exposed to interest rate risk as it borrows and deposits funds at ﬂoating interest rates on the money market and extended bank borrowings. The group’s main interest rate risk arises from long-term borrowings with ﬂoating rates, which expose the group to cash ﬂow interest rate risk. The risk is managed by undertaking controlled management of the interest structures of the investments and borrowings, maintaining an appropriate mix between ﬁxed and ﬂoating interest rate facilities in line with the interest rate expectations. The group also uses interest rate swaps and interest rate forwards to manage the interest rate risk exposure. As part of the Cennergi business combination the group assumed Cennergi’s borrowings and interest rate swaps as ﬁnancial liabilities. The contractual terms of these borrowings required interest rate swaps (hedging instruments) to be entered into to swap out the ﬂoating interest rate of the underlying project ﬁnancing for a ﬁxed interest rate. This was required to ﬁx the future expected returns given the long-term nature of the project ﬁnancing. The group amended its interest rate risk management strategy as follows: • When the contractual terms of the borrowings and covenants thereof require the use of hedging instruments to mitigate the risk of ﬂuctuations of the underlying interest rate risk cash ﬂow exposure and the impact on proﬁt or loss of speciﬁc projects being ﬁnanced, the group looks to apply hedge accounting where an effective hedge relationship is expected and to the extent that such exposure poses a real risk to the achievement of the loan covenants. The ﬁnancial institutions chosen are subject to compliance with the relevant regulatory bodies. Liquidity risk management Liquidity risk is the risk that the group will not be able to meet its ﬁnancial obligations as they fall due. The group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufﬁcient liquidity to meet its liabilities when due, under normal and stressed conditions, without incurring unacceptable losses or risking damage to the group’s reputation. The ultimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriate liquidity risk management framework for the management of the group’s short, medium and long-term funding and liquidity management requirements. The group manages liquidity risk by monitoring forecast cash ﬂow in compliance with loan covenants and ensuring that adequate unutilised borrowing facilities are maintained. Borrowing capacity is determined by the board of directors, from time to time. Amount approved Total borrowings Unutilised borrowing capacity Group 2020 Rm 48 476 (13 611) 34 865 2019 Rm 43 470 (7 041) 36 429 The group’s capital base, the borrowing powers of the company and the group were set at 125% of shareholders’ funds for both the 2020 and 2019 ﬁnancial years. To avoid incurring interest on late payments, ﬁnancial risk management policies and procedures are entrenched to ensure the timeous matching of orders placed with goods received notes or services acceptances and invoices. Exxaro Resources Integrated report 2020 93 Our performance in 2020 FINANCE DIRECTOR’S OVERVIEW continued Credit risk management Credit risk relates to potential default by counterparties on cash and cash equivalents, loans, investments, trade receivables and other receivables. The group limits its counterparty exposure arising from money market and derivative instruments by only dealing with well-established ﬁnancial institutions of high credit standing. The group exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread among approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the board of directors annually. Exxaro has concentration risk as a result of its exposure to one major customer, being Eskom. To date the customer adheres to the stipulated payment terms. Exxaro establishes an allowance for non-recoverability or impairment that represent its estimate of expected credit losses in respect of trade receivables, other receivables, loans, cash and cash equivalents and investments. The main components of these allowances are a 12-month expected credit loss component that results from possible default events within the 12 months after the reporting date and a lifetime expected credit loss component that results from all possible default events over the expected life of a ﬁnancial instrument. The carrying amount of ﬁnancial assets represents the maximum credit exposure. None of the ﬁnancial assets were held as collateral for any security provided. Detail of the trade receivables credit risk exposure: At 31 December By geographical area RSA Europe Asia USA Total By industry Public utilities Mining Manufacturing Merchants Food and beverage Steel Structural metal Cement Other Total Group 2020 % 72 16 12 100 57 6 1 30 1 4 1 100 2019 % 65 17 16 2 100 53 38 1 1 1 3 2 1 100 OUTLOOK Economic context World real GDP growth in 2020 contracted by 3.9% compared to an expansion of 2.6% in 2019. In 2021, global economic growth recovery is anticipated to continue, however, the worldwide resurgence of COVID-19 infections together with associated restrictions and the availability and timeous roll out of vaccines will weigh on the extent of such economic recovery. The impact of COVID-19 on South Africa’s fragile public ﬁnances has been devastating. As a result, the much-anticipated Economic Reconstruction and Recovery Plan was released by the President of South Africa on 15 October 2020. If fully implemented, the plan is expected to lay a solid foundation for a higher economic growth path for the longer term. In South Africa, the rand depreciated to an all-time low (ﬁrst half of 2020), before it signiﬁcantly retracted (second half of 2020). The reversion to a riskier ﬁnancial market environment during the second half of 2020 due to easing of global COVID-19 lockdown restrictions, vaccine development, approval and roll-out strategies, together with the uncertainty of the US elections, supported the rand. However, rand volatility is expected to continue into 2021. Commodity markets and price The API4 price remained stable during the third quarter of 2020 before gaining momentum during the fourth quarter of 2020 on the back of demand recovery from India, Japan and South Korea, a tightening in the LNG market with increased global LNG prices, and Chinese buying activity from South Africa. Further to the impact of COVID-19, China’s renewed ban on Australian coal imports in September 2020 disrupted the thermal coal market. However, going into 2021, risks to the anticipated coal demand remain as well as the reintroduction of second and further rounds of COVID-19 restrictions. 94 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration As a direct result of disappointing iron ore global supply during 2020, inventory levels at both ports and mills did not adequately increase. Increasing concerns in China about iron ore availability, especially considering the high steel production levels recorded, supported the robust iron ore prices into 2021. Operational performance South African domestic coal stock levels are fairly high and Eskom stock levels are above average. It is however expected that the demand for thermal coal in the domestic market will remain fairly stable in 2021. We do not currently foresee a major impact of the second wave of COVID-19 in our international markets. We expect global economic growth to stabilise during 1H21, and thermal coal demand in our markets to remain strong. The political dynamics between Australia and China are expected to impact South Africa exports as Australian producers encroach on South Africa’s natural markets to evacuate coal. South African free on board export coal prices are expected to remain fairly strong in the ﬁrst quarter of 2021, but to soften in the second quarter of 2021 as the northern hemisphere moves out of winter. We continue to drive productivity improvements through our operational excellence and digitalisation processes across the full value chain. This is all in relation to our drive to remain low on the cost curve. The pre-feasibility study on determining the way forward for the Moranbah South hard coking coal project is expected to commence by the end of the ﬁrst half of 2021. Riaan Koppeschaar Finance director 19 April 2021 Matla workshop Exxaro Resources Integrated report 2020 95 Our performance in 2020 OPERATIONAL PERFORMANCE COAL Achievements in 2020 • Product volumes of 47.4Mt • Sales volumes of 46.8Mt • Export volumes of 12.2Mt Despite changes in the coal portfolio, with some operations mining diminishing reserves, as well as delayed expansion projects, our optimisation initiatives are delivering value, particularly operational excellence and digitalisation. Our operational excellence process continues to focus on safety, productivity improvement and cost management, as well as driving the maturity of our LEAN5 initiative. Through our digital programme, we have made remarkable progress in implementing our integrated operating centres and value chain visualisations across our operations, aiming to improve in-time decision making across the entire value chain. Our digital programme will continue to drive value as we focus on mineral resource management integration, data science and selective automation. Our ability to implement expansion projects and deliver early value positions us well to launch into the next phase of value growth. The average Argus/McCloskey Coal Price Index (API4) price for coal exported from Richards Bay was weaker in 2020 at US$65/t vs US$72/t in 2019. The international seaborne market was largely oversupplied in 2020, due to a drop in demand arising from COVID-19 impacts, from an oversupply of cheap liquid natural gas (LNG) into Europe, China’s adherence to import quotas and China’s clampdown on Australian imports. Cost per tonne Cost per tonne was mainly affected by increased distribution cost resulting from higher export volumes, as well as electricity, general and labour inﬂation increases and higher cost linked to higher production volumes. This was partially offset by lower support costs and the downward adjustment of rehabilitation provisions. Having implemented the integrated operations centres across all our BUs, and enabled by our value chain visualisation capabilities, we have enhanced our in-time decision making and we are now beginning to gain and quantify the beneﬁts of our digital transformation journey, which we embarked upon a few years back. Total coal product Total coal sales . 8 7 4 ) 2 2 ( . . 6 5 4 8 . 1 . 4 7 4 t M 50 40 30 20 10 0 . 2 5 4 . ) 7 0 ( . 5 4 4 . 3 2 . 8 6 4 t M 50 40 30 20 10 0 2018 2019 2020 2018 2019 2020 Coal exports sales Cost per tonne 1 . 3 . 2 2 1 1 . 1 1 . 9 0 8 . t M 14 12 10 8 6 4 2 0 t / R 500 400 300 200 100 0 8 2 3 1 3 9 5 3 5 1 4 7 3 2018 2019 2020 2018 2019 2020 96 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration ENERGY Cennergi The effective date of consolidation of Cennergi into the Exxaro group is 1 April 2020, reporting core EBITDA of R648 million for the nine-month period ended 31 December 2020. Free cash ﬂow generated by Cennergi for the nine-month period was R152 million. Total generation output at 553GWh for the nine-month period is marginally below planned numbers due to lower wind conditions. Equipment performance and Eskom grid availability remain according to plan. Electricity generated for the 12 months amounted to 727GWh, is 4% lower than 2019, which was an exceptionally good year for generation, especially in July 2019 where the Amakhala windfarm generated more than 150% of its intended target. FERROUS SIOC • Core equity-accounted income of R6.123 billion (2019: R4.423 billion) primarily driven by higher iron ore prices combined with cost-saving initiatives implemented • Dividend of R5.369 billion to Exxaro in 2020 (2019: R4.051 billion) TITANIUM DIOXIDE (TiO2) • Core equity-accounted income of R226 million from Tronox SA was in line with the previous year (2019: R236 million) • Subsequent to year end, Exxaro divested from its investments in Tronox DIVESTMENT OF NON-CORE ASSETS AND INVESTMENTS Black Mountain Exxaro continues to evaluate its options to dispose of its 26% shareholding in Black Mountain following the suspension of the sale process in December 2020. At 31 December 2020, the investment no longer met the criteria to be classiﬁed as a non-current asset held-for-sale with the retrospective reinstatement of the equity method from 1 November 2019. ECC and Leeuwpan As mentioned previously, we undertook a strategic decision to dispose of our total equity interest in ECC and Leeuwpan, having identiﬁed these assets as non-core to the future objectives of Exxaro. The resultant sales process is well underway and good progress has been made notwithstanding the COVID-19 environment. Subsequent to 31 December 2020, Exxaro signed a sale and purchase agreement with Overlooked Colliery Proprietary Limited, who will acquire ECC. The sale will only be effective once all conditions precedent have been met. The disposal process for Leeuwpan continues. Rail siding at Delmas near the Leeuwpan mine Exxaro Resources Integrated report 2020 97 Our performance in 2020 MACRO-ENVIRONMENT Exxaro’s macro-economic operating context and commodity markets include global and local inﬂuences that affect our ability to create value over time for all of our stakeholders. Material theme Material matters Capitals impacted and inﬂuenced • Key customer dependency • Financial performance and resilience • Prudently maximising the value of our coal portfolio • Supporting a just transition to a low-carbon economy • Cost competitiveness of our products • Capital allocation • Legal, regulatory and compliance excellence • Cybersecurity, technology and digitalisation Financial Manufactured Social and relationship Natural Human Macro- environment Exxaro employees observing COVID-19 protocols 98 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration OUR BROADER OPERATING CONTEXT: TRENDS INFLUENCING OUR BUSINESS Trend Cause Effect Our response Slowdown in global economic growth Evolving societal and regulatory environment • The COVID-19 pandemic with associated national lockdown and restrictions • Deep global economic recession — world’s real GDP growth rate contracted by 3.6% (2019: 2.6%) • Global power demand collapsed before it recovered • Strong global steel production driven by China • Iron ore market remained very tight and ended 2020 with strong prices • Collapsed brent crude oil demand resulted in signiﬁcant fall in prices • Saudi Arabian and Russian price war in March 2020. Prices recovered second half of 2020 • Demand for sized product in the domestic market recovered as 2020 progressed • More domestic supply was available due to weaker exports • The seaborne thermal coal market remained in an oversupply as API4 price declined by 11% after trading at US$72 per tonne on average in 2019 • China’s renewed ban on Australian coal imports disrupted the coal seaborne trade • Recovery of demand from India, Japan and South Korea during the second half of 2020 • Tightening LNG market with increased global LNG prices • Chinese buying activity from South Africa For more information, refer to coal production and sales volumes on page 96. • We remained committed to monetising our remaining stake in Tronox Holdings plc over time and in the best possible manner considering prevailing market conditions. Subsequent to 31 December 2020, Exxaro divested from its investments in Tronox. • Our interests in Black Mountain and the Chifeng Kumba Hongye Corporation’s reﬁnery remain non-core • Formal process in advanced stages of divestment from ECC and Leeuwpan operations • Reassessment of the Moranbah South coking coal project by Exxaro and Anglo American For more information, refer to coal production and sales volumes on page 96. • Globally, mining companies are facing increasing demands from diverse stakeholder groups, and maintaining a social licence to operate remains a top risk • Furthermore, across all stakeholder groups, there is, rightly so, increasing intolerance of poor business and sustainability practices • Shareholder activists are also placing increasing pressure on companies, particularly coal miners, to give voice to their long- term ambitions • A breakdown in trust can bring a mine to its knees faster than any other risk. Therefore, focusing on mutually beneﬁcial relationships with communities is a top priority for all mines • Our interests in Black Mountain and the Chifeng Kumba Hongye Corporation’s reﬁnery remain non-core while we work on divestment plans for Black Mountain • Furthermore, in the context of • The transfer of the Arnot greater water stress and extreme weather events due to global warming, coal producers are facing more intense pressure to reassess their portfolios and demonstrate how they are contributing to the transition to a low-carbon economy For more information, refer to energy transition on page 100. operation was concluded. The outstanding condition was the cession of the current CSA between Eskom and Arnot OpCo, Proprietary Limited. Competition Commission and section 11 approvals were obtained • Exxaro and Anglo Coal (Grosvenor) Proprietary Limited are reassessing the potential development plan for the Moranbah South coking coal project For more information, refer to coal production and sales volumes on page 96. Exxaro Resources Integrated report 2020 99 Our performance in 2020 MACRO-ENVIRONMENT continued Trend Energy transition Cause Effect Our response • We have observed • Under the current trajectory, we expect the transitional and physical risks of climate change on our business will be medium to high over the next 20 to 30 years For more information, refer to risks and opportunities on page 66. intensiﬁed global action on climate change and a move to restrict the use of fossil fuel for energy generation • The ﬁndings of the Intergovernmental Panel on Climate Change (IPCC), in its special report on the impacts of global warming of 1.5ºC, paint a grim picture of the consequences of the current trajectory in greenhouse gas emissions and changing climate patterns • Our response has been to ensure a sustainable Exxaro in a carbon- constrained environment • On 4 June 2019, the board passed a unanimous resolution to reassess the group’s climate change risks and opportunities in line with the recommendations of the FSB’s TCFD • An internal multifunctional task team is developing a strategy using the TCFD recommendations. Progress and results will be presented to the market when the review process is complete For more information, refer to page 118. Big data and mining • Digital and technological • Companies are exploring new data- • The Exxaro digitalisation and innovation opens avenues to improve productivity, safety and environmental management in the mining industry informed methods of mining, assisted by technology, which requires an understanding of the potential future workforce and new skill sets For more information, refer to innovation and information management on page 106. innovation journey is a strategic initiative driven by the CEO • Our award-winning Digital@Exxaro programme is transforming our company culture to ensure we are more open and agile when we engage with stakeholders internally and externally Wind turbines at Tsitsikamma 100 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration MARKET OVERVIEW During 2020, the COVID-19 pandemic and associated measures inﬂicted the worst global economic downturn since the 1930s. Aggressive ﬁscal and monetary stimulus by governments and central banks, respectively, were injected into the global economy to soften the downturn and, in turn, support economic recovery. Global GDP -3.6% (2019: 2.6%) GDP growth rates • COVID-19 pandemic • Global economic recession • South Africa’s Economic Reconstruction and Recovery Plan The COVID-19 pandemic and imposed lockdowns resulted in collapsing currencies and stock prices, and disruptions to supply chains, global demand, international trade ﬂows and travel, signiﬁcantly affecting the global economy. Notwithstanding the unusually strong rebound in GDP activity during the third quarter of 2020, a much deeper global recession in 2020 compared to 2008/9 was recorded. World real GDP growth in 2020 contracted by 3.6% compared to an expansion of 2.6% in 2019. Going into 2021, global economic growth recovery is anticipated to continue. However, the worldwide resurgence of COVID-19 infections, together with associated restrictions, the availability and timeous roll out of the vaccine will weigh on the extent of such economic recovery. Real GDP growth rate (%) World US Eurozone China India South Africa Source: IHS Markit, Apr 2021 2021 forecast 2020 2019 5.2 5.7 3.9 7.8 9.8 3.3 (3.5) (3.5) (6.7) 2.3 (8.2) (7.0) 2.6 2.2 1.3 6.0 4.1 0.2 API4 coal export price averaged US$65/t (2019: US$72/t) IMPLICATIONS FOR EXXARO South Africa’s energy mix and demand STRATEGIC RESPONSE Eskom as a strategic customer Inﬂation • Persistently low inﬂation • Extremely accommodative monetary policy During 2020, in response to the COVID-19 pandemic and a deep global recession, central banks turned to aggressive monetary easing to support economies. These interest rate cuts were facilitated by subdued inﬂation and inﬂation expectations. While initial shortages of some healthcare goods and panic buying by consumers increased some prices, the overall price pressures in the global economy were overpoweringly on the downside, mainly due to the signiﬁcant fall in the brent crude oil price, characterised by collapsed demand together with the Saudi Arabian and Russian price war. South Africa’s CPI was 3.3%, within the Reserve Bank policy of between 3% and 6%. It is expected to edge up in 2021, barring any major shocks to the rand, fuel and administered prices. IMPLICATIONS FOR EXXARO Cost and revenue escalations IMPLICATIONS FOR EXXARO Global energy demand and transition STRATEGIC RESPONSE Ensure a sustainable Exxaro in a carbon-constrained environment STRATEGIC RESPONSE Inﬂation-linked escalations Currency markets • US dollar • Negative real rates and stimulus packages (developed markets) • COVID-19 vaccine development, approval and roll-out The impact of COVID-19 on South Africa’s fragile public ﬁnances has been devastating. As a result, the much anticipated Economic Reconstruction and Recovery Plan was released by the President of South Africa on 15 October 2020. If fully implemented, the plan is expected to lay a solid foundation for a higher economic growth path longer term. The negative US/EU interest rate differential weighed on the US dollar during 2020 and favoured US dollar weakness with the latest Federal Reserve policy announcements indicating this trend is expected to continue into 2021. In South Africa, the rand depreciated to an all-time low (1H20), before it signiﬁcantly retracted (2H20). The reversion to a riskier Exxaro Resources Integrated report 2020 101 Our performance in 2020 MACRO-ENVIRONMENT continued ﬁnancial market environment during the second half of 2020 due to easing global COVID-19 lockdown restrictions, vaccine development, approval and roll-out strategies, together with the uncertainty of the US elections, supported the rand. However, rand volatility is expected to continue into 2021. IMPLICATIONS FOR EXXARO Forex volatility STRATEGIC RESPONSE Rand-based pricing for certain products Business sentiment • Cautious optimism The reality of South Africa’s economic reconstruction and recovery challenges, together with much-needed economic reforms, was again highlighted in the latest announced economic plan, built on the common ground established by the social partners, namely government, business, labour and community organisations. Optimism prevailed that focus would now shift to urgently implement the critical economic reforms to enable a sustainable economic growth path for the country. However, the successful procurement and roll-out of the COVID-19 vaccines during the ﬁrst half of 2021 is imperative. IMPLICATIONS FOR EXXARO Investor sentiment STRATEGIC RESPONSE Stakeholder engagement Commodity markets • Mixed performance • COVID-19 path and impact on demand, supply and price Exxaro’s speciﬁc commodity markets recorded mixed performances in 2020. Key drivers in commodity markets during the year were the COVID-19 path worldwide, global recessionary economic environment, collapsing commodity demand, supply disruptions, China’s coal import restrictions and continued energy transition themes. Commodity prices (US$/per tonne) Commodity Thermal coal (AP14) Thermal coal (RB3) Hard coking coal (prime) Iron ore fines Lump premium TiO2 pigment Chloride slag Zircon 2021 forecast 80 62 136 131 20 2 787 765 1 450 2020 65.20 48.88 143.08 109.03 15.6 2 459 835 1 370 2019 71.56 55.76 175.08 93.63 17.2 2 480 777 1 510 Sources: Various market reports and Exxaro analysis (CRU, Wood Mackenzie, JP Morgan, TZMI), Apr 2021 102 Exxaro Resources Integrated report 2020 IMPLICATIONS FOR EXXARO Performance of commodity markets STRATEGIC RESPONSE Portfolio management Coal • Recovery of domestic offtake • Resurgence of global power demand • Tightening of LNG market • Chinese import restrictions on Australian coal • Chinese buying activity from South Africa • Decline in global seaborne thermal trade The easing of associated COVID-19 restrictions, especially during the second half of 2020, resulted in an increase in offtake by most of our domestic customers. Although encouraging demand for sized products was evident overall, excess product accumulated due to lower demand during the ﬁrst half of 2020 weighing on domestic demand. Globally, the API4 price returned to some stability during the third quarter of 2020 before gaining signiﬁcant increasing momentum during the fourth quarter of 2020 on the back of demand recovery from India, Japan and South Korea; a tightening LNG market with increased global LNG prices; and Chinese buying activity from South Africa. Further to the impact of COVID-19, China’s renewed ban on Australian coal imports in September 2020 disrupted the thermal coal market. However, going into 2021, risks to the anticipated coal demand remain the impact and reintroduction of second and any further rounds of COVID-19 restrictions. Coal demand and pricing for sized product in the domestic market remained stable throughout 2020 as weak export demand resulted in an oversupply in the domestic market. Uncertainty surrounding the implementation and duration of renewed import restrictions by China on Australian coal also supported South African seaborne market prices towards the end of 2020 and into 2021. Global seaborne thermal coal trade levels for 2020 declined by about 80Mt compared to 2019. The average export sale API4 price dropped by 11% in 2020, having traded at US$72 per tonne on average in 2019. Turning to hard coking coal, although demand from India and China remained supportive, China’s ban on Australian coal imports weighed heavily on the overall market and price performance. IMPLICATIONS FOR EXXARO Fluctuating market demand and lower commodity pricing Market demand evolving and dynamic STRATEGIC RESPONSE Market-to-resource optimisation Supply-side disruptions (thermal coal) • High-level engagements TFR railed 70.1Mt to RBCT from January 2020 to the end of December 2020. The third quarter proved to be a challenge for TFR and Exxaro lost 0.7Mt of export coal not being railed. About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration Though the export rail performance from Grootegeluk improved from 4.8 trains per week in 2019 to 6.32 trains per week in 2020, the tonnage of 1.96Mt railed for Grootegeluk was well below the target. High-level engagements are ongoing to increase the number of trains to 10 per week consistently as per the Waterberg ramp-up plan. The total export tonnage of 11.958Mt railed in 2020 is a new record for Exxaro. As a direct result of disappointing iron ore global supply during 2020, inventory levels at both ports and mills did not adequately increase. Increasing concerns in China about iron ore availability, especially considering the high steel production levels recorded, supported the robust iron ore prices into 2021. IMPLICATIONS FOR EXXARO Performance of export potential IMPLICATIONS FOR EXXARO Performance of the SIOC investment STRATEGIC RESPONSE Transnet engagement STRATEGIC RESPONSE Exposure to higher-value iron ore lump product Iron ore • Supply disruptions • Strong Chinese steel demand Constrained supply due to COVID-19-related disruptions, especially during the ﬁrst half of 2020, kept the global iron ore market balance constrained. Overall, Chinese economic data remained highly supportive of strong steel demand — accelerating credit growth, ongoing improvements in ﬁxed investment and purchasing managers’ index, along with strength in property and machinery activity. As a result, Chinese steel production remained elevated throughout the period under review and, despite improved global iron ore supply, the market concluded 2020 constrained with strong prices. Mineral sands and TiO2 • Subdued feedstocks and pigment markets The TiO2 pigment market fundamentals softened during the year under review with high supply, most notably from China, and weakened global demand. The willingness to spend by a weakened consumer base, and behavioural changes to end-markets for which TiO2 is most exposed to, have negatively inﬂuenced overall demand levels during 2020. Our commitment in action Sunday Times Top 100 Exxaro ranked 13th in the Sunday Times Top 100 Companies in South Africa – 23 places higher than in 2019. To qualify for the 2020 list, all JSE-listed companies had to hold at least R5bn market capitalisation between 1 ept 2015 and 31 Aug 2020. Winners then ranked according to the highest returns to shareholders over 5 years, based on a theoretical investment of R10 000. Exxaro’s green corporate ofﬁce, the conneXXion Exxaro Resources Integrated report 2020 103 Our performance in 2020 BUSINESS RESILIENCE Efﬁcient management of our project portfolio and capital allocation enables us to withstand changes in the global economy and our markets. Material theme Material matters Capitals impacted and inﬂuenced • Key customer dependency • Financial performance and resilience • Prudently maximising the value of our coal portfolio • Supporting a just transition to a low-carbon economy • Cost competitiveness of our products • Capital allocation • Legal, regulatory and compliance excellence • Cybersecurity, technology and digitalisation Business resilience Financial Manufactured Social and relationship Natural Human Intellectual CAPITAL PROJECT EXECUTION Exxaro continues to focus on the portfolio of growth and sustaining capital projects. The portfolio is impacted by current ﬁnancial challenges faced by contractors as well as COVID-19-related restrictions affecting construction timelines. Waterberg (Limpopo) The COVID-19 lockdown delayed the GG6 expansion project schedule by six months and affected contractor performance. This resulted in the initially approved timeline shifting by 12 months. In addition, when Group Five was placed under business rescue, we had to appoint a replacement contractor. The current estimated capital overrun of approximately 10% for the GG6 project is still as per guidance to stakeholders. On 30 September 2020, Grootegeluk’s rapid load-out station project, aligned with the TFR north-west corridor expansion project, was handed over to the Grootegeluk complex. Project close was completed within budget by the end of 2020. The delay in the project completion did not affect the TFR ramp-up schedule. Mpumalanga Our Belfast Implementation Project achieved ﬁrst coal during the third quarter of 2019. Plant acceptance testing was complete during ﬁrst quarter of 2020. The project was closed at the end of the second half of 2020, within budget. A programme of infrastructure projects to support Matla to achieve a 10Mtpa production objective, once fully ramped up, is in implementation. Exxaro continues to engage Eskom to obtain release of the required funding to execute the full scope of the programme. 104 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration Project Classiﬁcation (growth/ sustaining) Location: Waterberg (Limpopo) GG6 expansion Growth Product Focus and performance Capex Outlook 1.7Mtpa of semi-soft coking coal Expansion of the existing Grootegeluk 2 plant to enable the production of semi-soft coking coal Grootegeluk rapid load-out station Sustaining Load capacity of 12Mtpa Grootegeluk’s rapid load-out station and rail yard upgrade project is aligned with TFR’s north-west corridor expansion project Location: Mpumalanga Belfast implementation project Growth 2.7Mtpa of thermal coal Leeuwpan life expansion Growth 2.7Mtpa of thermal coal Development of a new greenﬁeld open-pit coal mine, including a coal handling and preparation plant, with infrastructure and services to support, a 12-year LoM Development of the OI reserve to extend the LoM of the Leeuwpan mining complex by seven years. Households and graves to be relocated to the local township Dorstfontein West 4 seam Growth 0.8Mtpa of thermal coal The project enables operations to produce coal from mid-seam reserves. It included a plant upgrade and development of conveyor systems Matla LoM Programme Sustaining 10Mtpa of thermal coal Infrastructure development to support LoM production R3.4bn R5.2bn R1.3bn R3.3bn R0.6bn R0.3bn First production through small coal plant is expected during 1Q2021. Construction concludes during 4Q2021 with project close by 1H2022 The station was handed over to operations at the end of 3Q2020. The project closed in December 2020 First coal was achieved in 3Q2019 and plant acceptance testing was completed in 1Q2020. The project closed in December 2020 First production was achieved in 3Q2018. Relocation of Rietkuil families is underway. Project close is expected at the end of 1Q2021 First production was achieved in 3Q2019. Acceptance testing and ramp-up was completed in 3Q2020. The project closed in October 2020 Construction work and fabrication of equipment on the programme commenced during 3Q2020. Completion of the program deliverables is expected to conclude 2H2024 Our commitment in action Vigeo Eiris best 100 emerging markets ESG ranking Exxaro has featured in the latest Vigeo Eiris ranking of the best emerging market performers. The ranking comprises the 100 best performing companies listed in emerging markets, in terms of their approach and ongoing dedication to social responsibility Exxaro Resources Integrated report 2020 105 Our performance in 2020 BUSINESS RESILIENCE continued Coal sales by product tonnes (%) 2 6 26 (cid:93) Domestic metallurgical (cid:93) Other domestic (cid:93) Exports (cid:93) Sales to Eskom FY20 actual 2 110 1 683 411 16 950 643 306 FY20 previous guidance 1 980 1 485 473 22 1 111 716 395 3 060 3 091 FY19 actual 2 245 1 753 475 17 3 572 1 198 2 301 73 5 817 % change previous guidance 7 13 (13) (27) (14) (10) (22) (1) 66 Coal capex Rm Sustaining Waterberg Mpumalanga Other Expansion Waterberg Mpumalanga Other Total Salient features of our coal capex in 2020 include: • Capital expenditure decreased by 47% from 2019 to R3 060 million • R2 110 million (2019: R2 245 million) applied to sustaining and environmental capital (stay-in-business capital) • R950 million (2019: R3 572 million) invested in new capacity (expansion capital) Eskom In terms of three long-term CSAs with the Matimba, Medupi and Matla power stations, Eskom is a key customer. We are also negotiating potential CSAs with Eskom for coal supply from our Leeuwpan and ECC operations. When Eskom declared force majeure on the Matimba and Medupi CSAs in 2020, we defended our position. Eskom continued to offtake its contracted volume at both power stations. In some months, this was above the required volume. On 6 August 2020, Eskom lifted the force majeure on the CSAs. We continue to renegotiate the Matla cost-plus agreement due to expire in mid-2023. 106 Exxaro Resources Integrated report 2020 AMSA stopped production when the COVID-19 lockdown began and shut down its blast furnaces. When lockdown eased, operations resumed and production accelerated to resolve the backlog of almost three months. The second blast furnace at Vanderbijlpark restarted between December 2020 and January 2021. Exxaro continues to explore additional domestic and international markets for semi-soft coking coal. CENNERGI Due to the inherent variability of wind, it is important that the wind farm owner takes all reasonable measures to understand the past, current and future wind trends, and thus to build a long-term business case that is pragmatic and realistic. Cennergi has and continues to perform wind energy assessments and operational energy yield assessments to understand any changes in the performance of our assets, or potentially in the wind regime itself. By doing this, Cennergi can proactively manage its assets and make business decisions tailored to maximise beneﬁt in the short, medium and/or long-term. INNOVATION AND INFORMATION MANAGEMENT To meet greater demand for digital solutions, our Innovation and Information Management (I&IM) team adapted processes to enable quicker deployment of solutions. We adopted agile delivery methodologies that shorten the systems development lifecycle while ensuring delivery of high-quality software products. We have also developed a beneﬁt realisation framework with deﬁned KPIs that assess technology projects and investments. Our digital transformation strategy includes the deployment of artiﬁcial intelligence in the following areas: • Core capabilities — successful implementation of value-adding initiatives for mineral resource management and planning, plant, engineering, environmental management, marketing and production management • Supporting enterprise capabilities supported health and safety, supply chain, human resources and business enablement through an unprecedented pandemic • Supporting IM capabilities — ensuring data governance in application development and maintenance, solution architecture as well as deployment and release management environment Exxaro responded quickly, and largely without disruption, when the COVID-19 lockdown was declared in March 2020 as a result of the migration of core infrastructure and applications to the cloud in 2019. Our investment in cloud infrastructure and tools enabled employees to collaborate seamlessly with internal and external stakeholders to ensure business continuity. Our internet of things programmes and platform-based solutions enable delivery of improvements in predictive modelling, front- end loader integrations with weighbridges, high-precision loading, collision avoidance and advanced process controllers. Comprehensive data collection and analytics-enabled visualisation of mining value chains at BUs. In 2021, our analytics team, in partnership with Digital@Exxaro, will focus on maturing data sciences capabilities to enable self-service analytics including: • Democratising big data with self-service analytics for data science tasks • Empowering business users with access to insights • Core model development to streamline data exploration, veriﬁcation, visualisation and reporting so the core data science team can concentrate on critical and complex tasks • Working together to improve productivity and create value for Exxaro as a whole About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration CYBERSECURITY In support of the business digital strategy, we are introducing new innovative technologies which potentially introduce new risks and threats into the environment as it becomes more automated. At the core of our cybersecurity strategy is the protection of Exxaro’s information and other digital assets, through the implementation of the cybersecurity programme which focuses on improving these three major capabilities: information security, cloud security and business resilience. Through this programme, we have reduced the risk of identity theft by implementing a number of initiatives such as multi- factor authentication. To improve our data loss prevention and data protection capabilities, we started the process of classifying company data in 2020, this will continue into 2021. Cybersecurity awareness campaigns remain paramount to the continuous education of our people on cybersecurity threats. These campaigns will continue into 2021 to further reduce the probability of attacks. We are also re-evaluating the criticality of existing systems to understand the impact on business better in order to enable periodic service simulations and to verify the adequacy of existing service continuity capabilities. Data discovery, storage and integration Real-time and point-in-time analytics Data cleaning and ﬁltering Self-service analytics capabilities Collaboration and communication Easy and intuitive user interface Data visualisation and reporting Exxaro Resources Integrated report 2020 107 Our performance in 2020 OUR PEOPLE Material theme Material matters Capitals impacted and inﬂuenced • Health, safety and wellness • Workforce: culture, capacity, diversity, inclusion and innovation • Legal, regulatory and compliance excellence • Transparency, ethics and integrity Our people Human Intellectual Financial Manufactured Social and relationship Our people strategy, based on four strategic priorities, is the foundation of our approach to employee engagement: 1 2 3 4 Establish workforce of the future Create sound people partnerships Consistent employee engagement Drive organisational transformation The pillars are underpinned by a commitment to sustain our culture, values and behaviours to enable our core purpose: to power better lives in Africa and beyond. As our Sustainable Growth and Impact strategy evolves, it is supported by embedding our organisational culture – the behaviour we expect from all employees. We drive adequate communication and change management relating to strategic issues through our connect2NEXT platform, supporting positive employee engagement. Exxaro believes that people are at the centre of our success. We harness value from our workforce’s diversity of thinking. 108 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration Our diversity and inclusion strategy supports our employee value proposition (EVP) through the co-creation of an innovative and agile work environment. Value-adding people solutions afford a fulﬁlling work experience with growth and development. The evolution of our EVP and our culture is further enhanced by a baseline culture survey. We maintain sustainable human resource governance with a comprehensive suite of policies that cover employment, labour relations, occupational health and safety, training and education, among others. We are mindful of the safety and wellbeing of our employees and host communities. We strive to achieve zero harm through collective responsibility, commitment and risk awareness. Our phased approach to meeting employee needs uses lessons learnt in each phase to accelerate the next. For more information on how we maintain legal, regulatory and compliance excellence as well as instil transparency, ethics and integrity, refer to our governance summary on page 31 and our full ESG report. Snapshot of our workforce 22 466 people (2019: 23 365) 30% full-time employees 70% contractors Health, safety and wellness Safety Safety performance 48 months fatality-free as at 2 March 2021 Three HPIs (2019: 0) LTIFR: 0.05 (2019: 0.11) Nine LTIs (2019: 26) Three section 54 (mining activity stopped) and two section 55 (mining in affected areas stopped) notices resolved amicably with the DMRE High-risk task audit of all operations We review our safety target every year, based on prior performance, and apply stringent management protocols, programmes and systems. Our BU management team investigates every occurrence of a safety incident and in terms of LTI and a skilled committee, headed by an independent chairperson, investigates fatalities and high-potential incidents (HPIs). Exxaro reports investigation ﬁndings to the executive committee and the sustainability, risk and compliance committee, and escalates these to our board. The leading causes of incidents and sources of safety risk remain trackless mobile machinery, fall of ground, energy and machine isolation, lifting and material handling, as well as poor risk awareness and discipline. We provide on-the-job training to ensure well-trained people are in suitable positions. Each BU tracks adherence to standards and legislation through a safety improvement plan of self-assessments and corporate audits. We revised our group safety strategy in 2017 and leadership identiﬁed ﬁve speciﬁc focus areas namely, leadership, communication, consequence management, training, and risk management. Additional interventions to address safety risks in 2020 included: • Global Minerals Industry Risk Management course for top and senior management informed our safety improvement plans • Visible felt leadership improved management’s presence and communication in the workplace • Safety communication (safety indabas at BUs, the group Safety Leadership Day and the Sustainability Summit) • Managing high-risk and non-routine tasks as well as working over weekends and holidays • Innovation and technology application for safety in work conduct Our new safety campaign, Khetha Ukuphepha (“choose to be safe”) was also launched to communicate that zero harm is possible, to achieve safety targets, and to reach the three-year and beyond fatality-free milestone. The campaign was introduced in the BU safety indabas and the executive committee’s group-wide Safety Leadership Day. There were no fatalities or LTIs at either of Cennergi’s two windfarms. Health and wellness Our health and wellness strategy is supported by three pillars that ensure an integrated approach to occupational and lifestyle diseases throughout our BUs. DIAGNOSE MANAGE PREVENT Improve medical surveillance by extending clinical tests (heart disease and risk-based cancer screening) and ensuring our employees receive once-off DNA analysis assessments. Diagnosis was recently extended to include COVID-19 screenings Improve healthcare management by ensuring all employees with health risks (occupational, and non-occupational) are included in a disease management programme Improve preventive programmes with mandatory comprehensive wellness awareness campaigns and healthy lifestyle coaching (integrated with a certiﬁcate of ﬁtness) Our executive committee and board approved the strategy in November 2019 and it aims to: • Shift our healthcare approach from curative and employer-driven to preventive and employee-driven efforts • Align our health and wellness portfolios for a holistic and integrated management programme Exxaro Resources Integrated report 2020 109 Developing our human resources Human resource development initiatives reduce core skills shortages in the South African mining industry. Our learning programmes accelerate technical and functional skills development as well as leadership competence, especially for black people, women and people living with disabilities. At the same time, we comply with skills targets and goals set by regulators. In some instances, we exceed the requirements of the Mining Charter and the dtic B-BBEE codes. We invest a portion of annual salaries and wages in developing our people. In 2020, we spent R227 million or 5.04% (2019: R298 million or 6.52%) of our payroll on training and development including: • R114 million on job-related operational and technical training (operator training and mobile equipment licences) • R93 million on bursaries, training professionals, internships, learnerships and skills programmes to secure our talent pipeline • R7.4 million on developing targeted employees in management programmes, leadership roles, postgraduate studies and support functions To mitigate the impact of COVID-19 on our internship, learnership and skills development programmes, some training offerings were made available using digital platforms. More than 17 000 compliance training interventions were completed in our online cloud-based learning management system. The creative content improved learner retention and saved time. Strategic workforce planning Our strategic workforce planning initiatives support our business in identifying and developing capabilities required to deliver our Sustainable Growth and Impact strategy. We translate capabilities into learning journeys to reskill and upskill our workforce. The process supports digital transformation as our operations adopt new technology and equipment. Our minerals growth strategy informs the transition of roles for effective delivery of our business strategy. Updated competency proﬁles, assessment tools and learning interventions will support future roles. We train young people in our talent pipeline to expose them to our working environment with our new business strategy in mind. Our smart workforce training programmes ensure digital skills are ﬁt for the advancing digital economy. Our strategy aims to build a multi-core and supportive organisation. Our talent management team partnered with service providers to develop capability framework proof-of- concept training programmes (including strategic development, market orientation and business acumen). Our plans include additional internal capability development programmes to be rolled out in 2021. For more information, refer to our ESG report. Our performance in 2020 OUR PEOPLE continued Our strategy identiﬁes occupational and non-occupational health risks and their causes, solutions to mitigate these risks, impacts of the risks on the business, and the best approach to ensure an environment that empowers employees to manage and protect their health. We need seamless integration of health and wellness management with clearly deﬁned employer and employee responsibilities for our strategy to deliver a comprehensive health solution. Diagnostic programmes are advanced with integrated health and wellness solutions. Wellness management is moving beyond services currently offered (general and psychosocial counselling) to healthy lifestyle coaching with physical and mental health management in a single certiﬁcate of ﬁtness awarded after routine tests. For more information on our approach, as well as how we performed with regard to occupational and non-occupational disease management, refer to people in the ESG report. COVID-19 response In line with our health and wellness strategy, Exxaro’s strategic response to COVID-19 is based on three pillars: • Avoid infection • Reduce infection • Manage risks as they arise Our health and wellness strategy seeks to provide a solution that diagnoses, manages and prevents COVID-19 cases. Exxaro’s response to COVID-19 during 2020 included ampliﬁed awareness campaigns, business process amendments, establishing COVID-19 technical teams, individual and workplace hygiene measures, driving compliance and behaviour change, two testing stations, mass screening and a 24-hour call centre, among others. For more information, refer to page 14. Managing our talent Exxaro’s talent management strategy guides our sourcing and development of leaders, specialists and professionals. Our strategic workforce pipeline, talent planning and learning and development processes maintain our status as “employer of choice”. These processes also contribute to our EVP, and diversity and inclusion strategy. Our talent management initiatives build leadership, management and technical competencies, and broaden knowledge. We facilitate leadership training, formal studies, mentoring, coaching, internships, learnerships, skills development, adult education and training and short courses. The strategy has evolved over the past three years to focus on several initiatives that enhance learner experiences as well as reskill and upskill employees. Initiatives include smart workforce programmes, capability development, a new learning platform, diversity and inclusion programmes, new digital platforms and fourth industrial revolution training. To meet our skills requirements, we invest in current and potential employees as well as members of communities in our labour sending areas (99% in South Africa). Our bursary, graduate, learnership and skills development initiatives empower local communities to compete for positions. Learning programmes optimise individual potential for growth and meaningful contribution. We examine key areas across the value chain to ensure the right skills are available at the right time. More than half of our talent pipeline spend is dedicated to artisan and miner learnership development. 110 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration Employee engagement and culture Our adaptable culture reﬂects willingness to learn and improve as we strive to achieve our Sustainable Growth and Impact strategy. We continue intensifying our employee engagement efforts to share critical information and changes. This includes feedback from our employees through our culture and engagement survey. Our connect2NEXT process continued to empower the organisation (including BUs) on the management and communication of the changes, through communities of practice, and alignment with the strategy and culture evolution. This also involved the review of the major shifts required. RESPONSIBLE OWNERSHIP DIVERSE Make Exxaro a positive place to be Success lies with each of us Our potential is in our differences Acting ethically, with accountability and against misconduct, while treating others with dignity, fosters a safe and healthy work environment. Contributing to performance and innovation every day, building together, we can drive Exxaro to new heights. Harnessing our unique individual skills and opinions enables us to achieve exceptional outcomes. N AN OPEN AND EN AND EN AND PEN AND PEN AND CONNECTED Working together will bring out the best in us all Achieving organisational excellence in an open and evolving ecosystem requires collaboration and teamwork. ADAPTABLE We cannot move forward by standing still Succeeding in the ever-changing world around us requires agility as well as willingness to learn and improve. Diversity and inclusion Our diversity and inclusion strategy is a key strategic enabler and aims to create value from our people’s diverse talent and mindsets. Diversity and inclusion is key component in ensuring that Exxaro achieves its Sustainable Growth and Impact strategic objectives by enabling an inclusive culture that empowers its people, irrespective of gender, race and background, to successfully contribute to delivering on our vision to “power better lives in Africa and beyond”. The implementation of the diversity and inclusion strategy is managed through the diversity and inclusion framework which adopts a phased approach aimed at increasing alignment and promoting a diverse and inclusive culture that delivers business and stakeholder value. The key objectives of the diversity and inclusion framework are: • Promoting an aspirational vision for the Exxaro brand on both national and international platforms through strategic partnerships in terms of the promotion of diversity and inclusion to stakeholders • Promoting a diverse and inclusive workforce through our actions, practices, leadership and culture by enhancing our employees’ experience by creating a compelling EVP to become the “employer of choice” • Achieving our regulatory compliance targets by 2022 and 50% of women on management levels by 2025 • Being a catalyst in accelerating our focus to enhance Exxaro’s business purpose and stakeholder value creation Diversity and inclusion implementation framework In 2020, we deﬁned diversity and inclusion for Exxaro with the following focus areas: • Women empowerment and gender equality • Strategic partnerships • Leadership and culture • Persons with disabilities • Governance and policies • Compliance Work streams were identiﬁed for each of the above areas, where we considered deﬁned principles, and current and future outcomes. Leadership commitment and drive for diversity and inclusion in Exxaro supported early successes in 2020, which included: • Formulating a diversity and inclusion policy • Adopting a gender equality charter • Forging strategic partnerships of particular signiﬁcance that align with UN Women and its women empowerment principles • Conducting anti-GBV campaigns across the organisation Employment equity Employment equity policies and skills development enable us to meet our transformation objectives to support and drive the national imperative towards a non-racial and transformed society. Appropriate afﬁrmative action measures and human resource development programmes support our transformation processes as well as cultural engagements. Exxaro achieved its employment equity targets over the past ﬁve years. Our targets for 2019 to 2022 align with the Mining Charter III promulgated in September 2018. Though we have shown positive progress in achieving our annual targets, key challenges exist with the representation of women at senior management level and persons with disabilities across the organisation. Our aspiration is to measure our organisational transformation proﬁle against the national economically active population statistics. Exxaro Resources Integrated report 2020 111 Our performance in 2020 OUR PEOPLE continued Women in mining We empower female employees, who make up 24% (2019: 22%) of our workforce. We grow this talent pipeline through our professionals in training (PIT) programme, which enrolled 38% (2019: 43%) female candidates in 2020. In 2020, 39% (2019: 33%) of bursaries were awarded to full-time female students in engineering and mining disciplines at universities in South Africa. Our learnership and internship feeder schemes in 2020 comprised 40% (2019: 35%) women. Exxaro is recognised as a leader in gender empowerment as we understand the barriers women face in the mining industry. Our initiatives include: • Fast tracking and executive mentorship programmes • Gender mainstreaming and sexual harassment awareness at all levels • Encouraging and mentoring young women and girls in our communities to plan their careers and acquire skills to become independent and empowered • Our gender equality policy The mining industry has signiﬁcantly increased efforts to create a conducive environment for women since 2004. We celebrate their growing inﬂuence and respect their aspirations. Exxaro prides itself in active women in mining structures across all our operations. These structures collaborate with transformation structures to highlight and resolve issues affecting women in the workplace. Exxaro also signed up to the UN Women Empowerment Principles, which offer guidance on how we can further empower women in our workplace and communities. Furthermore, Exxaro was recognised in the Bloomberg GEI. This announcement is testament to the gender- related practices, policies and purpose-led programmes to advance the role of women in Exxaro. Our commitment in action Top Employer South African winner GradStar Students’ Choice Awards of 2020 Second most sought-after mining company to work for in the Mining and Metals category by thousands of tertiary students Bloomberg 2021 Gender Equity Index (GEI) participation The Bloomberg GEI tracks the performance of public companies committed to disclosing their efforts to supporting gender equality through policy development, representation, and transparency 112 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration Water sampling at Belfast mine Exxaro Resources Integrated report 2020 113 Our performance in 2020 HUMAN RIGHTS Since its formation in 2006, Exxaro has aimed to power better lives for all. Through our values and culture, we recognise that our success lies in the strength of our relationships, embracing our unique differences and treating each other with respect. Exxaro has long upheld the rights of its employees with regard to, among other things, workplace safety. • We comply with labour legislation in South Africa and International Labour Organization guidelines. As a UNGC signatory, we encourage freedom of association and collective bargaining, and we do not tolerate or condone child labour and forced or compulsory labour. Our compliance with legislation and international conventions was audited by our internal auditors and conﬁrmed in the prior period. • Exxaro’s induction programmes educate employees about human rights. Our policies and structures that prevent discrimination, harassment and racism protect employees’ human rights. We train our security personnel in human rights aspects relevant to each operation. Exxaro also conducts refresher courses that include human rights issues. • Our diversity and inclusion strategy aligns Exxaro with the South African Constitution and other legislation, the National Gender Policy Framework and the UN Convention on the Elimination of All Forms of Discrimination against Women. • We also observe our employees’ right to freedom of association. Six unions are recognised as a collective bargaining agent for our employees. Of our 6 739 employees, 5 119 are unionised (75.96% of the workforce). • We encourage open and honest communication between employees and supervisors. Exxaro’s employment contracts advise employees of their rights to lodge a grievance if they are dissatisﬁed. • Our induction training informs newly appointed employees of our position against discrimination. We are all equal at Exxaro and we must respect everyone, regardless of differences. Exxaro respects the rights of its community (see resettlement project case studies below). To date however, Exxaro has not formally and publicly articulated a commitment to human rights. We understand that we must go beyond unspoken intent, to intentionally communicate our commitment to human rights to support our efforts to build trusting relationships with stakeholders, manage risks, enhance our citizenship and reputation. Exxaro has initiated a process to develop a framework for the organisation that will give guidance on human rights issues. We are guided by the industry framework proposed by the Minerals Council of South Africa (MCSA), itself drawn mainly from the United Nation’s Guiding Principles on Human Rights. However, in consideration of potential impacts during mining operations, the MCSA has identiﬁed eight human rights priority areas for the South African industry. These are: • Environmental management and conservation, including climate change • Health and safety • Governance and ethics • Security and human rights • Transformation • Human rights at the workplace • Land-use and resettlements (see case studies for this principle in action) • Development of grievance mechanisms The next steps for Exxaro will be to conduct a human rights due diligence exercise to identify potential issues, develop and issue a leadership commitment statement, resolve policy gaps identiﬁed in the due diligence phase and implement a grievance mechanism for all stakeholders to supplement our existing Ethics hotline. All relevant information will be publicly disclosed. The Ethics Hotline aims to enhance an honest work ethic and simultaneously provide employees and other third parties with a mechanism to bring any unethical business practices to the attention of management. It’s an essential line of defence, providing a ﬂow of information that promotes business sustainability by helping to identify and rectify problems before they become larger, more costly or damage hard-earned reputation. The hotline operates 24 hours a day 365 days a year. Our independent forensic department receives a regular analysis of the calls and objective investigations are launched. All investigations are then tabled at the Management Ethics Committee on a regular basis. CASE STUDIES The following case studies demonstrate Exxaro’s ongoing commitment to the human rights of community members needing to be relocated due to the development of mining projects. CASE STUDY: HUMAN RIGHTS IN PRACTICE RIETKUIL COMMUNITY RESETTLEMENT (LEEUWPAN MINE) Following the resettlement action plan (RAP) methodology tested at Belfast, Exxaro engaged promptly with the Rietkuil community when the expansion of the Leeuwpan mine near Delmas in Mpumalanga was approved by the DMRE in 2017. Resettlement terms were agreed to by community members in 2018 and on 4 December 2020, 29 new homes were handed over for occupation with a further 20 to be completed in 2021. The residents had a choice with regards to their relocation, with most choosing to move into the nearby Botleng township in Delmas. The initial number of houses to be constructed by Exxaro was 20 but in order to accommodate different family structures, households were sub-divided into smaller family units and an additional 29 houses were constructed. In line with Exxaro’s commitment to local procurement, we outsourced the building of the 49 homes to 5 local contractors and 49 subcontractors. A total of 495 job opportunities were created for the duration of the RAP project. A total of 42 households had resettled in Botleng by the end of Q1 2021. Seven households are seeking additional assistance outside of the project scope and have sought advice from external counsel. Negotiations continue. A livelihood restoration programme is still in planning it includes the provision of pre-paid electricity and municipal services vouchers over ﬁve years and once-off training and skills development for each member of the household. The total cost of the project to date is R57 million. 114 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration CASE STUDY: HUMAN RIGHTS IN PRACTICE PHUMULANI AGRI-VILLAGE COMMUNITY RESETTLEMENT (BELFAST MINE) THE IMPLEMENTATION OF EXXARO’S BELFAST PROJECT BETWEEN 2017 AND 2019 IN THE EMAKHAZENI MUNICIPALITY IN MPUMALANGA PROVINCE NECESSITATED THE RELOCATION OF 32 NON-LANDOWNING HOUSEHOLDS, WHICH COMPRISED MAINLY OF FARMWORKERS EMPLOYED OR PREVIOUSLY EMPLOYED ON SURROUNDING COMMERCIAL FARMING OPERATIONS. The process kicked off in 2014 when Exxaro appointed consultants to develop a resettlement action plan to guide the organisation on the steps to be undertaken during the relocation of the affected households and restoration of livelihoods. Methodology Activities undertaken during development of the RAP included: • Establishment of a resettlement working group (RWG), which constituted the primary forum for involving the resettlement community in decisions that would affect them; • Consultation with other relevant stakeholders; • A census, socio-economic and asset survey of the effected community; • Additional data collection (including a survey of communal assets belonging to the resettlement community); • Identiﬁcation of a suitable resettlement site; • Development and sign-off of resettlement agreements; and • Identiﬁcation of viable livelihood restoration options. Resettlement-related project impacts • Number of households affected: 32 • Number of individuals needing to be relocated: 185 • Number of residential structures: 95 • Number of other structures (livestock pens, storage sheds etc): 36 • Crops: 13 households had vegetables gardens, two cultivated maize and three others grew fruit trees. • Livestock: Animals needing to be accommodated included 358 poultry, 102 head of cattle, 32 pigs, and six sheep. the establishment of new households in the resettlement community; and the sign-off of individual resettlement agreements by each of the affected households. Agreement framework The agreement framework deﬁned who would be eligible for compensation, what type of compensation would be provided for which affected or displaced assets, and how this compensation would be effected (eg whether it would be in cash or through replacement of the assets). The agreement framework was based on the Relocation Policy of Exxaro which is based on the IFC’s PS5 guidelines on Land Acquisition and Involuntary Resettlement, as well as relevant South African legislation. The agreement framework was formally accepted by the RWG, and formed the basis of individual agreements with each household. Resettlement site Seven potential resettlement sites were identiﬁed, of which two were selected by the community — the ﬁrst for homes and the second for potential agricultural projects. A total of 34 plots of land, each 2 500m2 in extent, were established with 500m2 reserved for a residence and other buildings and the remainder for various agricultural activities including poultry and small livestock, fruit trees and vegetable gardens. Services supplied to the site included roads, stormwater drainage, potable water, sanitation, fencing and electricity. Livelihood restoration Through its Relocation Policy, Exxaro has committed itself to the principle that no households should be worse off after resettlement than what they were before. The inclusion of a livelihood restoration programme in all Exxaro resettlement processes is a means of giving effect to this commitment. A number of potential livelihood restoration projects were identiﬁed for the Belfast resettlement project. Grievance redress and dispute resolution The RAP included a resettlement-related grievance procedure aimed at resolving issues around resettlement, compensation and livelihood restoration Consultation and participation The process kickstarted with extensive consultations with the affected parties and engagements continued until completion of the project. The most signiﬁcant milestones in the process were the development and adoption of a formal terms of reference to guide the proceedings of the RWG; the announcement of a moratorium on Outcome Of the 32 households identiﬁed for relocation, 31 were moved successfully in 2019 at the cost of R35 million. Following the death of the head of one of the households in 2019, his heirs have declined to move. The situation has required legal intervention and negotiations continue. Exxaro Resources Integrated report 2020 115 Our performance in 2020 SOCIAL LICENCE TO OPERATE — ENABLING OUR LEGITIMACY We have moved beyond compliance towards outcomes that maximise the social value we create. We support the just transition to a low- carbon future by delivering interventions with meaningful impact. Our 2020 materiality determination process (page 6) identiﬁed certain material matters relevant to our social licence to operate. Material theme Material matters Capitals impacted and inﬂuenced • Social unrest • Supporting job and business creation Social licence to operate Financial Manufactured Social and relationship Natural Human “Impact at scale” drives our approach to community development. We introduced this approach in 2020 and will reinforce it into the future. Our community development initiatives are successful but not far-reaching as they are constrained by localised impact and lack of local government capacity. The socio-economic and environmental challenges are exacerbated by rising unemployment (aggravated by COVID-19) and poverty. Exxaro and government cannot resolve these challenges on their own. Our impact at scale approach recognises the opportunity to reference legislative requirements such as the Broad-based Mining Charter III and the Department of Trade, Industry and Competition codes of good practice as the foundation for our work with government. We also see opportunity to lead better and bigger development initiatives that will arrest and reverse the scourge on our communities. These initiatives are implemented through various vehicles: • Government’s district development model • The collaborative Impact Catalyst platform • Our municipal capacity building programme in partnership with the National Business Initiative’s technical assistance, mentorship and development (TAMDEV) programme • Exxaro’s Matla Setshabeng community beneﬁt scheme • SLPs Our impact at scale approach includes: 116 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration Collaboration with diverse partners who complement Exxaro’s capabilities A common goal for all partners Focused resources to ensure dedication to the vision, skills development and quality results Diversity and inclusion to maintain the momentum of transformation (focusing on women, youth and physically impaired people) Market-driven migration of enterprises from subsistence to commercial operations Please refer to our ESG report for more information. COMMUNITY DEVELOPMENT The year 2020 gave Exxaro an opportunity to move aggressively towards an outcomes-based approach with the objective of maximising the social value created by our interventions. The outcomes approach places community beneﬁciaries’ interests ﬁrst and at the core of the interventions we implement. Our outcomes are shared between Exxaro and communities, leveraging the capabilities of different partners and stakeholder perspectives. Our future outlook is determined by Exxaro’s ability to deliver impact at scale in communities. This strengthens the company on its transition to a lower-carbon world, and reinforces our purpose to power better lives in Africa and beyond. Collaborative response to the COVID-19 pandemic The COVID-19 pandemic demanded collaborative approaches to ensure the safety and livelihoods of employees and communities in the face of the devastating economic impact. The course of the pandemic could aggravate the conditions of vulnerable communities that are already impacted by climate change effects. Although the delivery of our SLPs was disrupted by the national lockdown during the ﬁrst wave of COVID-19 infections, signiﬁcant expenditure in response to the COVID-19 amounted to R51.7 million, including R20 million donated to the Solidarity Fund, to support the country’s healthcare system, humanitarian efforts and campaign for behaviour change. Through our partnerships, we identiﬁed urgent areas of collaboration such as improving water and sanitation infrastructure, and procuring PPE for local and provincial healthcare facilities, police stations and schools while supporting indigent families with food parcels. The challenges presented by the COVID-19 required consolidation of our efforts in previous years. Impact at scale was an underlying driver of our approach to community development in 2020. This gave rise to collaboration with diverse partners such as the Minerals Council South Africa, government departments, non-governmental organisations, contractors, the National Business Initiative and the municipal infrastructure agency (MISA). We leveraged each one’s strengths and capabilities for impact beyond the scale of individual participants and locations. Further, to ensure that the enterprises supported by our ESD programme survive the operational challenges brought about by COVID-19, 15 beneﬁciaries were granted loan repayment holidays (ranging from two to six months), totalling R18.1 million to continue employing 690 people. In addition, three companies with 272 employees received funding of R4.3 million. In total, 962 jobs were saved and the enterprises continue to operate successfully. Exxaro also invested R7 million in establishing two COVID-19 testing laboratories in Lephalale (Limpopo), and Kriel (Mpumalanga). The facilities support local public health departments. With the outbreak of the COVID-19 pandemic, COVID-19 was highly stigmatised in our communities, which affected our employees, creating barriers to integration after recovery. This inspired our educational awareness and anti-stigma campaigns within the company and host communities in the Limpopo and Mpumalanga priorities. Our investment in free community WiFi for Siyathuthuka township in Belfast, Mpumalanga, ensured a seamless information ﬂow. This project will extend to other host communities. For more information on our performance against our SLP as well as our ESD initiatives, please refer to our ESG report. Cennergi donation of PPE to Adelaide hospital Exxaro Resources Integrated report 2020 117 Our performance in 2020 OUR ENVIRONMENT: STEWARDSHIP AND COMPLIANCE We recognise that climate change is one of the biggest threats facing humanity today. As a responsible corporate citizen, we are determined to transition our business and make our portfolio resilient in the 1.5˚C world. We aim to be carbon-neutral by 2050 and partner with our suppliers and customers to reduce emissions associated with the use of our products. Our transition to a low-carbon and resilient portfolio is intentional and anchored on the just transition principle which seeks to balance our business ﬁnancial performance, South Africa’s economic development needs, ecosystem protection and societal adaptive capacity in the face of the changing climate. Our business has been in transition as early as 2010 with the establishment of Cennergi, a 50/50 joint venture with Tata Power. Today, Cennergi is wholly owned by Exxaro and operates two windfarms in the Eastern Cape that feeds 239 megawatts of renewable energy into the national grid. In 2019 the board of directors approved the adoption of the TCFD recommendations as a strategic framework for guiding our Climate Change Response strategy. We have published our Climate Change Response Strategy and assessment on how aligned we are with the TCFD recommendation (for more information see our CCRS report available online ). TRANSITIONING OUR PORTFOLIO TO A LOW-CARBON WORLD Material theme Material matters Capitals impacted and inﬂuenced Climate change • Responsible environmental stewardship • Climate change resilience • Supporting a just transition to the low-carbon economy Financial Manufactured Social and relationship Natural Human To us climate change is not just a business risk issue, it also provides opportunities to sustainably diversify and transform our portfolio to low-carbon technologies. We understand that the use of coal in the South African economy will continue in the foreseeable future. As a major supplier of coal to Eskom has long understood the need to balance the country’s socio-economic development, which relies on coal-generated power to support the transition towards a low- carbon economy in response to the negative impacts of climate change. This transition, which will change life as we know it today, is impacting energy and capital markets, business models, value chains and the overall context for conducting business. The transition to a low-carbon world is growing external risk for those who do not adapt at speed and presents considerable opportunities for those who are agile in their response. We are committed to responsibly balancing these competing needs and delivering on our purpose both now and into the future. The transition to a low-carbon economy aligned to the Paris Agreement objectives of 1.5°C to 2°C world will be challenging, but not impossible. As we shift our business from an extractive to a regenerative portfolio there are inherent risks to the livelihoods of many, particularly in communities that are adjacent to our coal operations. The just transition framework will mitigate these risks by providing a range of social interventions and the opportunities presented by the expanded renewable energy programme will secure jobs and the livelihoods of broader society when economies are shifting to sustainable production. 118 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration OUR STRATEGIC RESPONSE TO CLIMATE CHANGE Coal will remain a valuable source of energy in the foreseeable future. Our early value coal strategy has adapted and responded to support our overarching Sustainable Growth and Impact strategy by optimising our coal reserves, minimising stranded high-value reserves and moving operations lower in the cost curve, such that we land coal competitively across all markets. The performance of our coal business this past ﬁnancial year has demonstrated the beneﬁts of this early value strategy, while continuing to meet the requirements of our long-term supply contracts and delivering value for our stakeholders. Our new Sustainable Growth and Impact strategy integrates business sustainability, growth and impact because we understand that these elements of our business and operating environment are deeply connected. We cannot grow sustainably without deliberately creating a positive impact on the environment and communities we serve. Going forward, our business portfolio will shift to more climate resilient businesses, with a focus on renewable energy and a continued review of minerals contributing to a low-carbon world. This shift will establish the base for our new multi-core business. This multi-core business will be built on the platform of skills and technology that is driving our coal business. Our Climate Change Response strategy supports our overarching Sustainable Growth and Impact strategy speciﬁcally through two of the ﬁve objectives: • Transition at speed and scale • Be carbon-neutral by 2050 Total carbon dioxide, equivalent CO2e emissions in 2020 were 70 255 kilotonnes (kt) compared to 72 029kt in 2019. The decrease of 2.5% reﬂects the impact of our energy intensity reduction projects. Our short-term carbon intensity target is -5% on the prior-year level across the group, which is ambitious as some projects take time before their impact is evident, particularly from a carbon intensity perspective. We performed below the target with a carbon intensity of 4.9t CO2 emission per total tonnes mined compared to 5.4kt in 2019. The decline is due to energy efﬁciency projects and a decrease in rehabilitation activities in our operations. Diesel and electricity remain the biggest components of our GHG footprint. We are currently addressing energy security, economic productivity and environmental impacts in our drive to become carbon-neutral and thrive in a low-carbon economy. Exxaro performed well on both the CDP climate change and water disclosures in 2020, indicating leadership and the group’s commitment to climate change mitigation and adaptation, as well as addressing and managing water risks. South Africa is a water-scarce country and we recognise that water-reduction initiatives are crucial to sustainable operations, particularly under prevailing drought conditions. Our group water strategy was approved in 2017. It is informed by our risk assessments and identiﬁes ﬁve strategic focus areas of excellence: • Compliance • Operational water efﬁciency • Policies, standards and processes • Water technologies • Stakeholder partnerships. We aim to support these objectives by creating partnerships driving climate action and raising employee awareness on climate change mitigation and adaptation Group water intensity deteriorated by 39% due to the ramp up of our Belfast operation and changes to in-pit conditions at Grootegeluk that inﬂuence our recycling efforts. The diversiﬁcation of our portfolio into renewable energy by acquiring 100% of Cennergi, will support our carbon-neutrality strategy. We will continue to invest in the development of low- carbon energy sources to enable access to clean, affordable and reliable sources of energy. ENVIRONMENTAL AUTHORISATION COMPLIANCE We measure compliance to environmental authorisations on two levels: approved, and compliance to conditions. Our analysis shows that our approved environmental authorisations are within acceptable levels (100%). We implemented a new integrated monitoring and compliance system to help us improve the score achieved in 2018. A compliance score of 96% in environmental authorisation conditions was achieved throughout our operations. As part of this process, detailed checklists per site are being drafted to drive improved compliance to conditions. LICENCE TO OPERATE Delays and appeals against integrated water use licences granted by the Department of Water and Sanitation have become a risk for new projects and part of their critical paths. To mitigate the long lead times in securing the necessary permits and licences, we engage early with the respective regulators, and proactively with every interested and affected stakeholder group. We reﬁned our water intensity targets in 2020 and developed a new ﬁve-year target in line with industry norms and site-speciﬁc conditions. We lowered our previous aggregated target of 200L/t to 180L/t. This target is well below the coal industry average of 380L/t. It supports our strategy to reduce water intake in line with the Department of Water and Sanitation’s drive to increase water conservation and reclamation. Our two wind facilities have Operational Environmental Management programmes (OEMPs) in place and maintain the ESMS in accordance with the requirements of the ISO 14001:2015, ISO 45001:2018, the Equator Principles, the IFC Performance Standards, the World Bank EHS Guidelines and the IFC ESMS Implementation Handbook. In addition, the two facilities have water use licences and other operational licences. Based on the Social Action prepared by Lenders, and the OEMPr, the following environmental monitoring programmes have been identiﬁed to be relevant for the operational phase of the two wind farms and are being implemented at both sites: • Bird and Bat fatality monitoring • Alien Plant control Management • Hazardous Waste Management • Water quality Management Our commitment in action Transition Pathway Initiative (TPI) score 4/4 — an excellent indicator of Exxaro’s management of our GHG emissions and risks and opportunities related to a low-carbon transition Exxaro Resources Integrated report 2020 119 Matla Mine 1 life-of-mine project 120 Exxaro Resources Integrated report 2020 120 Exxaro Resources Integrated report 2020 120 Exxaro Resources Integrateddd rereepopopororororrporp t 2t 2t 2t 22t 20202020002002022 120 Exxaro Resources Integrated Report 2020 120 Exxaro Resources Integrated Report 2020 OUR MINERAL RESOURCES AND MINERAL RESERVES REPORT POWERING SOCIETIES MATLA RELOCATION PROJECT: MAXIMISING OUR LOCAL COMMUNITY PROCUREMENT At Exxaro, we are committed to ensuring we leverage every opportunity to work with our local communities to create mutual beneﬁt. The Matla mine 1 relocation project is one such example, with the project creating direct and indirect procurement opportunities worth R300 million for local black entrepreneurs who were invited to participate in tender and quotation processes. The relocation project involves the construction of a new decline shaft and various ventilation shafts and the introduction of ﬁve suites of underground continuous mining equipment. Mine owner, Eskom, is funding the R3.3 billion project while Exxaro is responsible for project management and mining. The operation will supply coal to Eskom’s Matla power station near Kriel in Mpumalanga. First production of 4Mtpa of coal is expected in the second half of 2023. Total production from Matla will be 10Mtpa during its mine life to 2042. “Exxaro continuously investigates ways to maximise local procurement as well as skills and general socio- economic development,” says Johan Meyer, Exxaro’s executive head: projects and technology. “Many of our specialised contractors also procure goods and services from local communities.” Adapted from an article written by Marleny Arnoldi for Mining Weekly on 21 August 2020 Exxxxxxxxararo Resources Integrated report 2020 121 Exxaro Resources Integrated report 2020 121 Our Mineral Resources and Mineral Reserves report OUR MINERAL RESOURCES AND RESERVES We focused on sustaining, developing and growing the mineral asset base through the employment of responsible and innovative technical management. The value extracted from the mineral assets is continuously challenged through mine planning, considering the evolving knowledge of the mineral asset geological complexities and its opportunities. DORSTFONTEIN EAST, A TRADITIONAL OPENCAST COAL MINE, IS DEVELOPING AN UNDERGROUND OPERATION TO EXPLOIT THE SIGNIFICANT UNDERGROUND COAL RESOURCES. DORSTFONTEIN EAST MINE HAS BEEN OPERATING, AS AN OPENCAST MINE, SINCE 2011, EXPLOITING MAINLY COAL SEAMS S4 (S4U AND S4L) AND S2 (S2U AND S2L) OF THE WITBANK COALFIELD. In the ensuing period, evaluation work identiﬁed underground Coal Reserves of both S4L and S2L. Seam 4L, with an average seam thickness of 3.8 metres (m), will produce an estimated Coal Reserve of 19.6 million tonnes (Mt) ROM delivering approximately 12 years of LoM. Seam 2L, affected by dolerite activity, will only produce 7.2Mt of ROM, unlocking an additional eight years of mine life. Both S4L and S2L can be exploited proﬁtably using the board and pillar extraction method. To expedite the underground exploitation, we investigated access via an adit from an existing highwall of one of the existing open pits. The study started in early 2019 with preparatory work and was initiated in early 2020, establishing two benches and removing material immediately in front of the highwall. Highwall design is such that only the portal face is supported to ensure highwall stability, and safety of personnel and machinery. First coal of S4L was accessed on 19 November 2020 and mining of S2L is scheduled to start around 2029. This initiative reﬂects both the innovative and exceptional technical abilities of our people. EXXARO EXECUTED A PROCESS OVER ALL ITS OPERATIONS IN 2019 TO EXTRACT HIGHER VALUE EARLIER DURING THE LIFE OF OPERATIONS. To contribute our efforts towards our greater Sustainable Growth and Impact strategy, we have prioritised responsible mining through our early coal value strategy. The focus was to ensure that the exploitation strategies maximised value without compromising on the longer-term viability of the assets. At the beginning of 2020, the strategies were ﬁnalised and approved for the various BUs in Exxaro. To ensure accurate execution and control, the plans were embedded in Exxaro’s business processes through incorporation in the LoM plans, the business plans and budgets. The strategies have been included in the LoM plans for Grootegeluk and Belfast during the reporting year. The strategy for Grootegeluk entailed a pit-shell redesign to exclude high stripping and low-quality areas, and to target high-value areas in the LoM plan. For Belfast, the strategy entailed a revision of the pit sequence, targeting the high- value areas earlier in the LoM plan. The information presented here is a summarised extract from the CMRR report that encapsulates reporting governance, competence, tenure, risk, liabilities, exploration and assurance as well as comprehensive descriptions of applicable projects, operations and exploration activities in compliance with the JSE Listings Requirements (section 12). The reported Coal Resources and Coal Reserves in this report are therefore summarised versions. The CMRR report is available on Exxaro’s website. 122 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration OUR STRATEGY The Coal Resource and Coal Reserve strategy focuses on sustaining, developing and growing the mineral asset base by employing responsible and innovative technical management. Value extracted from the mineral assets is continuously reviewed with mine planning, considering evolving knowledge of the mineral asset’s geological complexities and its opportunities. Our competent persons are the custodians of the mineral assets and therefore accountable for ensuring its integrity and applying pioneering technology in combination with trusted knowledge to optimise its exploitation thereof. Our projects, operations and expansion initiatives are built on trusted and assured Coal Resources and Coal Reserves, creating a platform for the LoM from which annual business plans are derived. The Mineral Resource managers of each operation are the custodians of the LoM and ensure professional execution of the business plans, stimulating proﬁtability and return on investment while guarding against irresponsible exploitation. Exxaro reviews macro-economic and other factors that may affect the Reserves on an annual basis. In 2019, we initiated an early value process, aligned with the Exxaro strategy, to contribute our effort towards our greater sustainable growth. The strategy entailed reviewing current practice and then compiling optimised exploitation plans, focusing on extracting higher value earlier in the life of operations. The optimised plans seek to unlock earlier value, importantly, without compromising the worth of the underlying Coal Resource. The optimum product mix for the operations was subsequently reviewed, calculating the margin based on the yield curve, mining cost and revenue per block to produce an optimum pit shell followed by consideration of the mining sequence. The maximum value sequence was approximated from high to low margin, allowing for mining practicalities and costs. The process ensured that all proﬁtable blocks would be mined while the current value of future cash ﬂows is maximised. It also ensured maximum value for our stakeholders by yielding early value without compromising future sustainability. In early 2020, the new strategy was approved. Our 2020 and ﬁve-year exploration plans at the various operations were subsequently aligned with the new strategy. This was done to support the changes in mine layouts, ensuring that the Coal Resources and geotechnical parameters, which underpin the mining areas brought forward in the mine schedules, are of an acceptable level of conﬁdence. A good example of this is at Grootegeluk where large-diameter resource drilling in the latter part of the LoM was changed to core and open-hole drilling in the much earlier introduced open-pit turnaround box-cut position. The newly introduced operational mine plans were subsequently embedded in Exxaro’s business processes through incorporation into the LoM, business and budget plans. This process was completed during the reporting year for the Grootegeluk and Belfast operations. In 2020, we continued with our strategic drive towards the use of innovation and technology in the execution of our exploration activities as well as Resource and Reserve estimation processes. In 2019, we indicated that a number of initiatives were implemented, including the centrally managed acQuire database and the EQuIS groundwater database system. We reaped the beneﬁts during 2020, increasing the ease and speed of core logging and sampling, and improving our data validation and accessibility of our geological and hydrogeological information to the rest of the business. Implementation of the EQuIS groundwater database and installation of telemetry systems for real-time data acquisition at Grootegeluk and Belfast ensure fast and effective decision making regarding water management as well as empowering us to take proactive steps in compliance with our water use licence requirements. For the development of LoM plans, the mining department is transitioning from Runge’s Xpac to the new Runge Xpac software solutions, namely opencast coal solution (OCCS) and underground coal solution (UGCS), for development of mine layouts and mine schedules. These tools shorten development time and reduce the need to convert information from one software package to another. This enables the department to develop more scenarios than possible in the past, improving the selection process when ﬁnalising the LoM plans. In 2019, OCCS software was implemented at Belfast and implementation was subsequently rolled out in 2020 at Grootegeluk. The change will empower us with more integrated and time-effective work ﬂow, creating value-adding mine plans for faster and accurate decision making. The execution of our exploration plans were signiﬁcantly impacted by the outbreak of the COVID-19 pandemic. The outbreak coincided with the dry season, typically the period when we conduct drilling, surface geophysics and other ﬁeld exploration activities at our operations. Drilling programmes were, as would be expected, postponed at the ﬁrst lockdown and we only started with limited exploration activities later in the year when access to the sites was allowed under very strict health regulations. The operational exploration teams have however reacted very well to the challenge, completing around 60% of our planned drill holes after revising the plans in May/June and prioritising activities to support the most pertinent objectives of the original 2020 exploration plans. At Grootegeluk we updated the resource model with available drilling results. Our improved structural interpretation of the position and orientation of the interpreted fault positions in the northern pit will require additional drilling to ensure we outline the position of the faults more accurately. Most of the faulting could be Leeuwpan operation Exxaro Resources Integrated report 2020 123 Our Mineral Resources and Mineral Reserves report OUR MINERAL RESOURCES AND RESERVES continued managed through selective mining in the past. However, we have observed, in the past number of years, that the position and orientation of geological faulting increasingly impacts on the management of our geological bench horizons, disrupting our strict ROM quality control to the various coal processing plants. We plan to drill 54 holes in 2021, targeting resource, overburden, geological faulting, geotechnical and hydrogeological aspects of the coal deposit primarily within the northern pit. programmes for 2021 to 2023 will focus primarily on the new Mine 1, Mine 2 (decline) and Mine 3 (incline) project areas. The ramp-up of production at Belfast mine is progressing well. The box-cut strategy was re-examined to ensure that the maximum value is unlocked for stakeholders. The opencast plan was reafﬁrmed as the best solution and actual operational performance data was captured as to update future LoM fact packs. Detail box-cut inﬁll drilling at Belfast in 2019, at pits 1 and 7, underpinned the importance of adequate investigations during box-cut positioning and design. Exploration in 2020 mainly focused on inﬁll drilling in and in front of these two pits as well as the newly introduced pits 4 and 4B on the western side of the Coal Reserve, which forms part of the updated mine plan. The objective, as in 2019, was to derisk the box-cut areas regarding seam thinning, weathering and overburden characteristics. A number of holes were also drilled in the northern Belfast expansion area where environmental approvals and access have been secured. Additional drilling in the expansion area will continue in 2021. Grootegeluk Mine Outline Belfast Mine Outline A number of exploration activities were conducted at our Moranbah South joint venture project in Australia’s Bowen Basin. A large three-dimensional (3D) seismic geophysical survey was completed during the reporting year, improving our understanding of the geological faulting within the project area. We also conducted a review of the 2012 3D seismic survey results, applying improved technology and innovative techniques to optimise the data sets. The integrated, optimised 2012 and new 2020 survey results will be used in updating the geological structural and resource models in 2021. In addition a number of large as well as thin-size cored holes were drilled, investigating a suite of coal qualities, metallurgical and coking characteristics. We will continue with exploration activities during 2021. We continuously strive to enhance the level of estimation and reporting of Mineral Resources and Mineral Reserves, committed to our governance structures and associated assurance processes. In 2020, we conducted strict internal reviews during the update of the geological and structural models at our Grootegeluk, Matla, Dorstfontein and Forzando operations. Peer review ﬁndings on data validation were addressed before the compilation of geological models was initiated. Our geological models were scrutinised by a review team consisting of geoscience, geotechnical, structural and mining specialists before sign-off and handover to mining were concluded. Reserve fact packs of all our operations were reviewed during the reporting period, and updated mine plans for Grootegeluk and Belfast were peer reviewed. We also conducted a number of technical reviews of development projects with speciﬁc focus on the estimation that underpins the fundamentals of these projects. Reviews of the alternative mining solution and backﬁll phase 3 projects at Grootegeluk, the Belfast expansion project, Leeuwpan’s heavy mobile equipment strategy as well as the Mine 1 Matla Mine Outline The approvals at Matla, an Eskom-tied underground mine, have been received to execute three expansion projects, namely Matla Mine 1 access shaft, Mine 2 incline and Mine 3 decline to access the large remaining S4 and S2 underground Coal Reserves. The decline at Matla 3 is in progress and Matla Mine 1 relocation was initiated with ﬁrst coal expected in the fourth quarter of 2022. The strategic intent of the exploitation strategy at Matla is to supply Eskom in accordance with the CSA regarding volumes and quality at the lowest possible cost. Our exploration activities were interrupted by the lockdown and only approximately 30% of the planned holes could be completed. Drilling was primarily focused at Mine 3 low seam where derisking of geological challenges like faulting, presence of sills and dykes as well as basement highs disrupting seam thickness continuity, and occasionally impacts coal qualities were targeted. A major achievement in 2020 was the successful execution of surface-to-seam directional drilling at the Mine 2 north-west access project. The targeted S4 Resource in this area presents challenging geological structural conditions and a number of long directional traces drilled from surface assisted tremendously in outlining geological structures, reﬁning mine access design and optimising mine panel layouts. This drilling methodology proved to be vital for future Matla mine development areas. The drilling 124 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration and north-west development projects at Matla were concluded. A number of technical ﬁndings as well signiﬁcant value-unlocking opportunities were documented and subsequently included in the various project development processes. EY conducted an external estimation process audit at the Belfast operation. No critical ﬁndings were reported but a number of minor ﬁndings regarding housekeeping were highlighted. Correction measures were subsequently developed and implemented. Recommendations were also received to enhance the efﬁciency of our estimation and we welcome these valuable inputs to improve our current methodologies. Exxaro is currently transitioning towards the methodologies proposed in the updated SANS 10320:2020 edition 2. We will seek partnership with industry experts to ensure concepts are correctly understood within the context of our operations and implemented. WORLD-CLASS ASSETS 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 operations and projects in South Africa are located in the large and highly prospective Waterberg coalﬁeld in Limpopo, and the more mature Highveld and Witbank coalﬁelds in Mpumalanga. Exxaro’s total attributable Coal Resource and Coal Reserve ﬁgures have been stable over the past number of years, only showing a signiﬁcant decrease in Coal Resources in 2019 as a result of the relinquishment of the large Waterberg North and South exploration projects. This stable trend can primarily be ascribed to the relatively large Grootegeluk complex. Estimated to contain 40% to 50% of South Africa’s remaining Coal Resources, the Waterberg is viewed as the future of South African coal mining. Exxaro holds an estimated three billion tonnes of Measured and around approximately 2.1 billion tonnes of Indicated Coal Resources in the Waterberg, primarily at Grootegeluk and the adjacent Thabametsi mining right. The Grootegeluk complex provides thermal Coal Reserves to Eskom’s Matimba and the new Medupi power stations, and produces semi-soft coking and metallurgical coal through eight beneﬁciation plants. The Grootegeluk complex is continuously evolving, illustrated by several large value-unlocking projects. While these projects underline the resourcefulness of our people, they also demonstrate the successful implementation of innovative breakthrough technology. To an extent, the size of the Grootegeluk complex obscures changes in Coal Resource and Coal Reserve ﬁgures from events in the smaller Witbank and Highveld coalﬁelds. Locations of our coal operations and projects SOUTH AFRICA 9 Thabametsi 4 Grootegeluk LIMPOPO MPUMALANGA Mafube 6 1 Belfast AUSTRALIA Dorstfontein 2 8 Tumelo 3 Forzando Moranbah GAUTENG 5 Leeuwpan 7 Matla Mining right Mine Refer to page 20 for more information about our coal asset base and page 22 for our renewable energy operations. Refer to page 20 for more information about our coal asset base and page 22 for our renewable energy operations. Exxaro Resources Integrated report 2020 125 Our Mineral Resources and Mineral Reserves report OUR MINERAL RESOURCES AND RESERVES continued The signiﬁcant change in Coal Reserves from 2019 to 2020 is primarily the result of the implementation of the new early value exploitation strategy at particularly our Grootegeluk operation, the largest operation. The Grootegeluk pit was adjusted to higher value areas with lower value coal towards the latter part of the LoM excluded. As Grootegeluk has a signiﬁcant remaining life, reinclusion could be considered at a later stage. Exxaro’s attributable Coal Resources and Coal Reserves 3 876 2 819 7 656 7 478 2 669 6 841 6 582 6 584 6 532 6 502 6 210 7 078 7 124 6 991 6 970 4 000 2 703 4 065 5 094 4 824 5 083 4 790 4 733 4 546 3 937 3 467 2 582 2 300 2 351 2 227 2 211 2 555 3 625 3 625 3 308 3 624 3 684 5 264 5 009 4 843 4 805 4 720 4 573 4 172 2 131 1 555 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 (cid:93) Measured (cid:93) Indicated (cid:93) Inferred (cid:81) Proved (cid:81) Probable Mpumalanga attributable: Witbank and Highveld coalfields (excluding Matla) 36 12 46 60 34 27 46 82 62 79 65 82 55 91 388 381 365 342 346 207 223 36 78 374 437 197 984 439 371 396 343 543 491 120 205 613 111 189 101 106 100 164 150 435 514 432 50 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 (cid:93) Measured (cid:93) Indicated (cid:93) Inferred (cid:81) Proved (cid:81) Probable • Resource estimations are based on the latest available geological models, which incorporate new validated geological information and, if applicable, revised seam, Resource deﬁnitions and Resource classiﬁcations. For the 2020 reporting cycle, estimates reported are derived from actual mining up to the end of October, incorporating the planned estimates for November and December. • Resource and Reserve estimates in our statements are quoted in full, irrespective of Exxaro shareholding. Exxaro attributable tonnage is clearly presented in Table 4 and, when used in our report, always clearly deﬁned as such. • Rounding off of ﬁgures quoted may result in minor computational discrepancies although it is not deemed signiﬁcant. 126 Exxaro Resources Integrated report 2020 s e n n o t n o i l l i m e c r u o s e R 18 000 16 000 14 000 12 000 10 000 8 000 6 000 2 000 0 s e n n o t n o i l l i m e c r u o s e R 1 800 1 600 1 200 1 00 800 600 400 200 0 Notes: 3 500 3 000 2 500 2 000 1 500 1 000 500 0 250 200 150 s e n n o t n o i l l i m e v r e s e R s e n n o t n o i l l i m e v r e s e R About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration For all operations other than normal mining, no material changes to total Coal Resources are reported. New exploration information used to update geological and structural models at the Grootegeluk, Matla, Dorstfontein and Forzando operations increased geological conﬁdence within the Coal Resource classiﬁcation categories. At Grootegeluk, improved understanding of the geology and geological structure within the future mining areas resulted in Inferred Resources being upgraded to Indicated Resources. In addition an amount of Measured Coal Resources within the northern pit area was reclassiﬁed as Indicated. Our improved structural interpretation of the position and orientation of the interpreted fault positions in the northern pit changed meaningfully enough to warrant this reclassiﬁcation. When reviewing the supporting borehole information in this area, it was evident that the boreholes within each of the newly interpreted faulted blocks occur in single lines. This is not optimal to access the orientation and extent of seam development as well as the boundaries of the faulted Resource blocks. We do not consider this change material and focused drilling in 2021 and 2022 will be conducted to reconﬁrm the fault orientations. Within the middle pit, where mining is conducted, closely spaced open-hole drilling is implemented in front of the pit’s progression to better delineate geological structures. These additional points of observation assist greatly in understanding the orientation of smaller scale faults and the impacts they have on coal exploitation. This drilling methodology will also be implemented in the northern pit to further increase the level of geological conﬁdence. Material movements within the Reserve categories at the Dorstfontein complex are primarily due to implementing a new underground mine layout at the Dorstfontein East mine. The underground Coal Reserves were accessed through an adit in the existing highwall of one of the open pits. Studies commenced in 2019 with structural groundwork starting in early 2020 and ﬁrst coal from the new S4L underground workings extracted on 19 November 2020. The S4L underground Coal Reserves will provide an estimated 12 years to LoM. Mining of S2L underground is scheduled to start in 2029, adding eight years to LoM. The Proved Coal Reserves at the Thabametsi mining right, an area adjacent to Grootegeluk, are reclassiﬁed as Probable as a result of the lapse of the IPP project development agreement. Material changes in total Coal Reserves are reported at two of our operations. At ECC’s Forzando mine, a decrease of approximately 60% (34.6Mt to 13.7Mt) ROM Coal Reserves is due to economic factors rendering Reserve blocks currently unproﬁtable. Implementing a high-value exploitation strategy at Grootegeluk resulted in an optimised mine layout prioritising high-value Reserve blocks for earlier mining and scheduling lower value Coal Reserves blocks to the latter part of the mine life. This change resulted in an approximately 17% (3 165Mt to 2 628Mt) decrease in the total Grootegeluk ROM Coal Reserve without compromising the total Coal Resource. New shaft under construction at Matla Mine 1 Exxaro Resources Integrated report 2020 127 Our Mineral Resources and Mineral Reserves report OUR MINERAL RESOURCES AND RESERVES continued UNLOCKING VALUE In 2020, we continued to focus on unlocking value at our operations. We reviewed our operations’ exploitation strategies through a lens of unlocking early value without compromising the Resource. We are however acutely aware that our success as a mining company is built on the integrity of our Coal Resources and the effectiveness with which we convert these Resources to Coal Reserves, and then the exploitation and extraction of the Reserves. Below is a snapshot our reporting year. Considering mining, metallurgical, processing, infrastructural, economic, marketing, legal, ESG modifying factors COAL RESOURCES UNLOCKING VALUE COAL RESERVES Continuously improving our level of geoscientiﬁc understanding, minimising risk and unlocking opportunities Modifying factors and our ability to extract our Mineral Resources Increasing extraction through innovation and knowledge Implementation of updated exploitation plans at Grootegeluk and Belfast Optimising our plans to create the best for market use Updated LoM plans for Matla, Belfast, Leeuwpan, Dorstfontein, Forzando and Grootegeluk mines Initiation of Dorstfontein East underground expansion C I F I T N E I C S O E G F O L E V E L G N I S A E R C N I E C N E D I F N O C D N A E G D E L W O N K Executing integrated exploration plans at the Dorstfontein, Forzando, Matla, Belfast, Grootegeluk and Leeuwpan mines Update of geological and structural models at the Matla, Grootegeluk, Dorstfontein and Forzando mines Consideration of geological risk and opportunity domain analysis (RODA) in conditional-based mine planning at Matla and implementation of risk domains at Leeuwpan mine Implementation of digital communication for functional meetings, training and workshops during lockdown Optimising our centrally managed geological and hydrogeological databases Initiating ﬁrst-time surface-to-seam directional drilling to outline geological challenges for improving mine planning INNOVATION Continuous radar scanning for slope stability monitoring Terrestrial lidar scanning of pit faces to enhance reconciliation and Resource use Implementation of OCCS and UGCS for the development of mine layouts and mine schedules at the Belfast and Grootegeluk mines GOVERNANCE We align our reporting with the SAMREC Code and JSE Listings Requirements (section 12:13) amendments for minimum contents of annual reports and annually review our LoM mineral assets policies and estimation procedures to incorporate learnings and/or improvements. We update our internal competent persons reports annually to accommodate the SAMREC Code “if not, why not” principle. We are currently transitioning to align with the guidelines of the newly introduced SANS 10320:2020 edition 2. The planning and execution of our exploration and estimation activities have been impacted by COVID-19. We have however successfully adapted through prioritisation of activities, implementation of innovative technology and slight changes in role accountabilities. ASSURANCE We have conducted tier 1 concurrent Resource reviews at Grootegeluk, Matla, Dorstfontein and Forzando, resulting in updated geological models and LoM plans for these operations. On tier 2, technical reviews were conducted on Grootegeluk’s alternative mining solution and backﬁll phase 3, the Belfast expansion, Leeuwpan mine heavy mining equipment and Matla’s Mine 1 and north-west access projects. We have conducted a tier 3 (third-party) review at Belfast mine. The external Matla 2019 audit ﬁndings were resolved and corrective measurements of ﬁndings received at Belfast in 2020 are in progress ( see assurance section on page 80). The CMRR 2020 report was externally peer reviewed for reporting compliance. 128 Exxaro Resources Integrated report 2020 About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration CASE STUDY IMPLEMENTATION OF THE GROOTEGELUK SHORT-TERM GEO MODEL THE GROOTEGELUK MINE CONTAINS THE THICK INTERBEDDED COAL SEAM DEPOSIT, NAMELY THE OVERLYING VOLKSRUST FORMATION, AS WELL AS A MULTIPLE-SEAM COAL DEPOSIT WITHIN THE UNDERLYING VRYHEID FORMATION. The Volksrust formation comprising of intercalated mudstone or carbonaceous shale and bright coal layers requires detail coal sample and mining horizon management to ensure correct ROM coal quality feed to the various coal processing plants. Grootegeluk implemented a short-term geological model to assist in optimising its day-to-day resource exploitation and short- term mine planning activities. Unlike the long-term geological model used for resource estimation and reporting, the short-term model is coal sample- based and updated weekly with new information obtained from geophysically logged blast holes as well as surveyed ﬂoor surfaces in the pit. Blast holes are closely spaced (approximately 7.5m), which allows for densely spaced geological points of observation resulting in greater estimation accuracy than the long-term model, which typically uses exploration cored boreholes approximately 350m apart. The integrated model is applied to account for day-to-day material losses and/or gains as a result of under or over mining of the benches. By ensuring that these mining deviations are accounted for in the tonnage and quality compositing of the mining blocks, block estimates are greatly improved in the short term. The short-term model has proved to be a valuable tool, assisting the operation in ensuring timely and accurate as-mined block estimates as well as identiﬁcation of geological risks within the mining blocks. Comparison of interpretation before (above) and after (below) of the short-term model CASE STUDY SURFACE-TO-SEAM DIRECTIONAL DRILLING AT MATLA MATLA HAS THREE MAJOR LOM DEVELOPMENT PROJECTS UNDERWAY. THE PROJECTS WILL ENSURE EXTENDED MINE LIFE BY CREATING ACCESS TO COAL RESOURCES CURRENTLY NOT AVAILABLE THROUGH EXISTING WORKINGS AND INFRASTRUCTURE. One of the projects is the north-west access project, which entails the development of an incline from the existing S2 workings up to the S4 Resource area. The S4 area is structurally challenging with multiple sets of igneous intrusives, including cross-cutting sills and dykes identiﬁed through aeromagnetic surveys and mining intersections. It is vital that the mine is designed to mitigate risks, to ensure maximum coal extraction and to ensure a safe working environment. A surface-to-seam directional drilling programme was initiated during the reporting year, completing 13 500m of drilling, probing and derisking the mine layout for future mining development. Drilling results successfully outlined dyke intersections, thicknesses and displacements as well as outlining areas of poor ground conditions (burnt or fractured coal). The results were considered during the review of the mine plan, impacting on the access design as well as mine layouts. The crucial information captured that will not only be used for mine design but will cater for mine scheduling and future production planning. In addition, inclusion of dyke thickness and displacement will allow for more informed decisions during mine scheduling and planning for stonework section deployment. The drilling has proved to be a vital quantitative tool that allows for the identiﬁcation of various unknown factors well ahead of mining. Project area showing directional drill traces, target and conﬁrmed structures Exxaro Resources Integrated report 2020 129 OUR MINERAL RESOURCES AND RESERVES continued ENDORSEMENT Exxaro’s lead competent persons are appointed by the executive management team. The Exxaro lead Coal Resource competent person is Henk Lingenfelder, 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 25 years of experience as a geologist in coal, iron ore and industrial minerals. The person in Exxaro designated to take corporate responsibility for Coal Resources, Henk Lingenfelder, the undersigned, has reviewed and endorsed the reported estimates. The Exxaro lead Coal Reserve competent person is Chris Ballot, a mining engineer registered (20060040) with the Engineering Council of South Africa. He has 24 years of experience in iron ore, mineral sands and coal in various technical and management roles. His qualiﬁcations include BEng (mining), GDE and MBA. The person in Exxaro designated to take corporate responsibility for Coal Reserves, Chris Ballot, the undersigned, has reviewed and endorsed the reported estimates. Henk Lingenfelder BSc geology (Hons) Pr Sci Nat (400038/11) Group manager: geoscience 263 West Avenue, Die Hoewes Centurion 0163 South African Council for Natural Scientiﬁc Professions Private Bag X540 Silverton 0127 Gauteng South Africa Chris Ballot BEng (mining) ECSA 20060040 Group manager: mining processes 263 West Avenue, Die Hoewes Centurion 0163 Engineering Council of South Africa Private Bag X691 Bruma 2026 Gauteng South Africa Both parties are in the full-time employment of Exxaro, Henk Lingenfelder as the group manager: geosciences and Chris Ballot as the group manager: mining processes. Both parties have consented to the inclusion of Resources and Reserves estimates in the integrated report 2020. Exxaro has written conﬁrmation from the competent persons that the reporting is compliant with the SAMREC Code, the relevant portions of Table 1 and the JSE Listings Requirements (section 12), in the form and context in which it was intended per JSE LR 12.13(i)(6) and they consent to the publication of the report. 130 Exxaro Resources Integrated report 2020 GLOSSARY About Exxaro Understanding our business Positioning the business for growth Our performance in 2020 Our Mineral Resources and Mineral Reserves report Administration AET AGM AMCU Adult education and training Annual general meeting Association of Mineworkers and Construction Union B-BBEE Broad-based black economic empowerment BEE Black economic empowerment Bloomberg GEI Bloomberg Gender-Equality Index BU CAF Business unit Combined assurance forum CAGR Compound annual growth rate ECF EERF EF EME EMPR EPDI ESD ESG ESOP EVP Exxaro Chairman’s Fund Exxaro’s Environmental Rehabilitation Fund Exxaro Foundation Exempt micro-enterprises Environmental Management Programme Exxaro People Development Initiative Enterprise and supplier development Environmental, social and governance Employee share option plan Employee value proposition Cennergi Cennergi Proprietary Limited or Cennergi group of companies Exxaro Exxaro Resources Limited CEO Chief executive ofﬁcer Eyesizwe Companies Act Companies Act, 2008 (Act 71 of 2008), as amended Eyesizwe (RF) Proprietary Limited, special purpose private company which has a 30% shareholding in Exxaro COAD COGTA CoP cps CSA CSI CSIR DBP DHS DMRE dtic DoL Chronic obstructive airway disease Department of Cooperative Governance and Traditional Affairs FD Finance director Ferroland Ferroland Grondtrust Proprietary Limited FUWA Food and Allied Workers’ Union Conference of the Parties Cents per share Control self-assessment Corporate social investment Council for Scientiﬁc and Industrial Research Deferred bonus plan Department of Human Settlements Department of Mineral Resources and Energy Department of Trade, Industry and Competition Department of Labour GBV GHG GG HDPE HEPS HPI ICT IFRIC IFRS IIRC Gender-based violence Greenhouse gas Grootegeluk high density polyethylene Headline earnings per share High-potential incidents Information and communications technology IFRS Interpretations Committee International Financial Reporting Standards International Integrated Reporting Council Framework International Integrated Reporting Framework Dorstfontein Dorstfontein Coal Mines Proprietary Limited DWS EAP EBITDA Department of Water and Sanitation Employee assistance programme Net operating proﬁt before interest, tax, depreciation, amortisation, impairment charges or impairment reversals and net loss or gain on disposal of assets and investments (including translation differences recycled to proﬁt or loss) ECC ECD Exxaro Coal Central Proprietary Limited Early childhood development IT IWUL JSE KAM King IV KPI LoM Information technology Integrated water use licence JSE Limited Key account management King IV Report on Corporate Governance for South Africa, 2016 Key performance indicator Life of mine Exxaro Resources Integrated report 2020 131 Our Mineral Resources and Mineral Reserves report GLOSSARY continued LTI* LTI* LTIFR LTIP Long-term incentive Lost-time injury Lost-time injury frequency rate Long-term incentive plan Mafube Mafube Coal Proprietary Limited Mining Charter III Broad-based Socio-economic Empowerment Charter for the Mining and Minerals Industry 2018 Minerals Council of South Africa Municipal Infrastructure Support Agent Memorandum of incorporation Mineral and Petroleum Resources Development Act, 2002 (Act 28 of 2002) Minimum shareholding requirements RoM RWG SDGs SIOC SLP SME Run of mine Resettlement working group Sustainable Development Goals Sishen Iron Ore Company Proprietary Limited Social and labour plan Small to medium-sized enterprise SMME Small, medium and micro-enterprise SPR SPV STI Tata TCFD Special performance award Special purpose vehicle Short-term incentive Tata Power Company Limited Task Force on Climate-related Financial Disclosures National Business Initiative TPI Transition Pathway Initiative Notional cost of employment Non-governmental organisation National Development Plan National Environmental Management Act,1998 (Act 107 of 1998) Noise-induced hearing loss Non-proﬁt company Non-proﬁt organisation National Union of Mineworkers TRAC SA 2020 Transparency and Corporate Reporting: South Africa 2020 Tronox Exxaro’s investment in Tronox entities Tronox SA Tronox UK Tronox KZN Sands Proprietary Limited and Tronox Mineral Sands Proprietary Limited Tronox Sands Limited Liability Partnership in the United Kingdom Tsitsikamma SPV Tsitsikamma Community Wind Farm Proprietary Limited TSR Total shareholder return Tumelo Tumelo Coal Mines Proprietary Limited Minerals Council MISA MoI MPRDA MSR NBI NCOE NGO NDP NEMA NIHL NPC NPO NUM NUMSA National Union of Metalworkers of South Africa UK United Kingdom OHIFR Occupational health incident frequency rate UNGC United Nations Global Compact PIT PM PPE PwC QSE RAP Professionals in training Particulate matter USA WUL United States of America Water use licence Personal protective equipment * The abbreviation is context-speciﬁc. PricewaterhouseCoopers Incorporated Qualifying small enterprise Resettlement action plan ROCE Return on capital employed 132 Exxaro Resources Integrated report 2020 ADMINISTRATION ACTING GROUP COMPANY SECRETARY AND REGISTERED OFFICE Karen Maré (Inlexso Proprietary Limited) Exxaro Resources Limited the conneXXion 263 West Avenue Die Hoewes Centurion 0163 (PO Box 9229, Pretoria 0001) South Africa Telephone: +27 12 307 5000 SPONSOR Absa Bank Limited (corporate and investment bank division) 15 Alice Lane Sandton 2196 Telephone: +27 11 895 6000 JOINT EQUITY SPONSOR Tamela Holdings Proprietary Limited Ground Floor Golden Oak House Ballyoaks Ofﬁce Park, 35 Ballyclare Drive Bryanston 2021 Telephone: +27 11 783 5027/4907 COMPANY REGISTRATION NUMBER 2000/011076/06 JSE share code: EXX ISIN code: ZAE000084992 ADR code: EXXAY INDEPENDENT EXTERNAL AUDITOR PricewaterhouseCoopers Inc 4 Lisbon Lane Waterfall City Jukskei View Midrand 2090 COMMERCIAL BANKER Absa Bank Limited CORPORATE LAW ADVISER Inlexso Proprietary Limited Building 3 Summit Place 221 Garsfontein Road Menlyn Pretoria 0181 Telephone: +27 12 942 5555 REGISTRAR Computershare Investor Services Proprietary Limited Rosebank Towers 15 Biermann Avenue Rosebank 2196 (Private Bag X9000, Saxonwold, 2132) Telephone: +27 11 370 5000 Disclaimer Opinions expressed herein are, by nature, subjective to known and unknown risks and uncertainties. Changing information or circumstances may cause the actual results, plans and objectives of Exxaro Resources Limited (the company) to differ materially from those expressed or implied in the forward-looking statements. Financial forecasts and data given herein are estimates based on the reports prepared by experts who, in turn, relied on management estimates. Undue reliance should not be placed on such opinions, forecasts or data. No representation is made as to the completeness or correctness of the opinions, forecasts or data contained herein. Neither the company, nor any of its afﬁliates, advisers or representatives accepts any responsibility for any loss arising from the use of any opinion expressed or forecast or data herein. Forward-looking statements apply only as of the date on which they are made, and the company does not undertake any obligation to publicly update or revise any of its opinions or forward-looking statements, whether to reﬂect new data or future events or circumstances. Any forward-looking information has not been audited, reviewed or otherwise reported on by the external auditors. www.exxaro.com

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