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EXXARO RESOURCES LIMITED - EXX: Finance Directors Pre-Close Message Financial Year Ending 31 December 2021

Release Date: 02/12/2021 07:05
Code(s): EXX EXX04 EXX05     PDF:  
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EXX: Finance Directors Pre-Close Message Financial Year Ending 31 December 2021

Incorporated in the Republic of South Africa
(Registration Number: 2000/011076/06)
JSE share code: EXX
ISIN code: ZAE000084992
Bond Code: EXX04
ISIN No: ZAG000160326
Bond Code: EXX05
ISIN No: ZAG000160334

                            FINANCE DIRECTOR’S PRE-CLOSE MESSAGE
                           Financial year ending 31 December 2021 (FYE21)

This is an overview of the group’s expected business performance for FYE21, encompassing strategic,
operational and financial information. Unless otherwise indicated, all comparisons are against the financial
year ended 31 December 2020 (FY20).

Dear stakeholder,

The health and safety of our employees and communities has remained our priority. In line with our Health
and Wellness Strategy, which focuses on diagnosis, management and prevention of diseases, our
response to the COVID-19 pandemic (the pandemic) has prioritised avoiding, reducing and managing
COVID-19 infections. As at 17 November 2021, the group has had 5 140 confirmed cases and a recovery
rate of 99%. We remain committed in our f ight to prevent further loss of life and continue to implement
COVID-19 preventive measures in line with government regulations and recommendations.
Our target is to vaccinate 80% of employees and contractors and, to date, a total of 9 579 (62%) employees
and contractors have been vaccinated.

The group is now at a record performance of 4 years and 8 months without a work-related fatality and a
lost-time injury frequency rate (LTIFR) of 0.08, in line with our set target of 0.08. Zero Harm remains
Exxaro’s key business and sustainability objective.

During 2021, continued COVID-19 flare-ups coupled with increased vaccination rates, high commodity
prices, supply chain disruptions, economic recovery with inflationary pressures, and a shift in energy
transition policy, characterised the world’s economy. Overall, commodity market f fundamentals remained
tight over the period under review. In respect of Exxaro’s key commodities for FYE21, the API4 coal export
price index is expected to average US$115 (FY20: US$65) per tonne, free on board (FOB), and the iron
ore fines price US$156 (FY20: US$109) per dry metric tonne, cost and freight (CFR) China.
Total coal production (excluding buy-ins) and sales volumes are both expected to decrease by 8%, mainly
due to logistical constraints and the disposal of Exxaro Coal Central (ECC) operations on 3 September
2021, being earlier than anticipated.

In terms of our capital allocation programme, we expect the capital expenditure f or FYE21 in our coal
business to be about 22% lower when compared to FY20, mainly due to key projects reaching completion
as well as the disposal of ECC. We have concluded our share repurchase programme of R1.5 billion with
the last trade executed on 2 November 2021. The total number of shares repurchased was 9 401 662
shares, representing 2,62% of Exxaro’s issued share capital (as before the buyback) at an average gross
price of R159.55 per share (an average of a 6,4% discount to the volume weighted average price over the
buyback period). The shares bought back between July and November will be cancelled and de-listed by
the JSE Limited, resulting in issued share capital of 349.3 million shares projected for the year ending 31
December 2021. As at 31 October 2021, the group had net cash of R0.5 billion (excluding Cennergi’s net
debt of R4.5 billion). The group therefore has sufficient liquidity and will remain a going concern f or the
foreseeable future.

We will provide a detailed account of FYE21 business performance and an outlook on the subsequent six
months (1H22) when we announce our annual financial results on or about 3 March 2022.

Yours sincerely
Riaan Koppeschaar
Finance Director


During the second quarter of 2021, global economic activity reached an important milestone, surpassing
the pre-pandemic real gross domestic product (GDP) peak attained in the fourth quarter of 2019. The global
economic expansion lost momentum in the third quarter of 2021, as new waves of the pandemic dampened
consumer sentiment and idled production. However, after a 3.4% contraction in 2020, global real GDP is
projected to increase by 5.5% in 2021, its strongest advance since 1973.
The implementation of domestic Chinese policy impacted both global thermal coal and iron ore markets.
Iron ore prices traded at record levels on the back of very strong Chinese steel production, supported by
the rest of the world’s robust demand conditions. This was before concerns around China’s economy
slowing, pollution related steel output cuts and relatively low steel mill profitability triggered a change in
sentiment as well as significant price declines towards the end of 2021.
The Brent crude oil market recovered to pre-pandemic levels after demand collapsed in 2020 and the Saudi-
Russia price war. The Organisation of the Petroleum Exporting Countries (OPEC) remained cautious to
increase production above scheduled levels, even with the surge in energy demand and accelerated
drawdowns of oil inventories globally supporting prices.


International coal prices reached an all-time high amidst constrained supply. Gas prices saw a substantial
increase that supported the switch to coal, further driving the increase in demand for coal. In South Africa,
the continuing poor rail performance severely impacted our ability to move product according to our plans.
The on-going political tension between China and Australia has resulted in China exploring different supply
options, including South Africa. Whilst China has reacted negatively to the current high pricing, it does
appear that prices will remain strong as the northern hemisphere braces itself for a cold winter. In contrast,
we have experienced poor demand from India as affordability has become a crucial factor.

The domestic market demand for power station coal remains depressed as Eskom remains well supplied
with average stock of around 48 days, which is significantly higher than their minimum of 20 days. The poor
rail performance continues to also impact all domestic coal markets, further exacerbating high stock levels
at the mines.
The table below shows a year-on-year comparison of production and sales performance between FY20
and FYE21 as well as FYE21 compared to previous guidance.

                    Production                                              Sales
                     FY20    FYE21             FYE21          %             FY20       FYE21          FYE21        %
                    Actual Previous            Current        Change        Actual     Previous       Current      Change
                             Guidance1         Forecast 2     Previous                 Guidance1      Forecast 2   Previous
                                                              Guidance                                             Guidance
    Thermal         44 933     41 668          41 310         (1)           45 723     42 961         42 053       (2)
    Waterberg       26 554     24 545          25 906         6
     - Eskom                                                                24 704     24 569         24 744       1
     - domestic                                                             925        1 206          1 246        3
    Mpumalanga      12 226     11 439          9 377          (18)
     - domestic                                                             1 767      2 909          2 532        (13)
    commercial                                                              12 170     8 610          7 512        (13)
    Tied 3          6 153      5 684           6 027          6             6 157      5 667          6 019        6
    Metallurgical   2 222      2 396           2 011          (16)          1 036      1 145          1 007        (12)
    domestic        2 222      2 396           2 011          (16)          1 036      1 145          1 007        (12)
    buy-ins)        47 155     44 064          43 321         (2)           46 759     44 106         43 060       (2)
    Thermal coal
    buy-ins         291        138             141            2
    buy-ins)        47 446     44 202          43 462         (2)           46 759     44 106         43 060       (2)
 Provided at 30 June results presentation in August 2021.
 Based on latest internal management forecast assumptions and estimates. Final numbers may differ by ±5%.
 Matla Mine supplying its entire production to Eskom.

Commercial mines
Thermal Coal production from the Waterberg is expected to increase by 6% from previous guidance, in line
with of f-take volumes.

Production at the Mpumalanga commercial mines is expected to be 18% lower than previous guidance,
mainly due to Mafube and Leeuwpan being impacted by lower rail performance, with Leeuwpan further
impacted by market constraints and the ECC disposal on 3 September 2021 (forecasted to realise in
December 2021), offset by higher production at Belfast where export sales product was diverted to the local
Metallurgical coal production is anticipated to decrease by 16% due to poor rail performance.
Coal buy-ins are expected to be in line with previous guidance.
The expected 13% decrease in export sales volumes from previous guidance is mainly driven by logistical
constraints linked to lower rail performance.
Our Mpumalanga domestic thermal coal sales are expected to be 13% lower than previous guidance,
mainly due to the earlier than anticipated divestment of ECC in September 2021, exacerbated by the impact
of the lower rail performance on the local market at Leeuwpan. This impact is mitigated by the Belfast export
product being diverted to the domestic market, as well as a nominal increase expected in Waterberg
domestic sales.

Metallurgical coal sales are expected to decrease by 12% f rom previous guidance, due to lower rail
performance negatively impacting the off-take from ArcelorMittal SA Limited.
The poor rail performance on domestic and export flows is most alarming and it is continuing to negatively
impact our ability to move coal to customers and ports, resulting in lower than previously guided sales
volumes in the export and domestic markets. The guidance no w includes 4Mt at risk, up from the 3Mt
indicated in August, bringing the original 11.6Mt export guidance f or 2021 down to the current 7.5Mt

Tied mines (Matla)

Thermal coal production and sales are both expected to increase by 6% f rom previous guidance, mainly
due to improved geological conditions at the Mine 2 short-wall.


TFR railed 48.4Mt to Richards Bay Coal Terminal (RBCT) f rom January to the end of October 2021, which
is equivalent to an annualised tempo of 58.81Mtpa. As a result, the performance f rom Grootegeluk has
dropped from 7 trains per week in 2020 to 4 trains per week year-to-date in 2021. The Mpumalanga export
rail performance dropped from 25 trains per week in 2020 to 15 trains per week f or the period January to
October 2021.

The alarmingly low levels of rail performance are due to poor locomotive availability, increased incidences
of cable theft as well as increased vandalism of rail infrastructure. The coal industry intervened by
appointing a security service provider to reduce cable theft and continue to engage on initiatives that can
improve overall operational performance.


The two windfarms are running below planned capacity due to lower than expected wind speeds earlier in
the year. This along with increased maintenance, and end of 5-year warranty inspections, impacted energy
generation mainly in 1H21. Combined electricity generation f or the year ending 31 December 2021 is
expected to be in line with previous guidance of approximately 719 GWh (Gigawatt hours).

Exxaro’s f ocus remains on leveraging the growth investments already made, supporting our early value
coal strategy, and sustaining our businesses by implementing our portfolio of stay -in-business capital

TABLE 2: COAL CAPEX (R’million)

                                                             FYE21           FYE21           % Change
                                             FY20            Previous        Current         Previous
                                             Actual          Guidance1       Forecast2       Guidance
 Sustaining                                  2 110           1 874           1 524           (19)
 Waterberg                                   1 683           1 514           1 201           (21)
 Mpumalanga                                  411             337             302             (10)
 Other                                       16              23              21              (9)

    Expansion                                        950                964                858               (11)
    Waterberg                                        643                824                738               (10)
    Mpumalanga                                       307                140                120               (15)
    Total                                            3 060              2 838              2 382             (16)
 Provided on 30 June results presentation in August 2021
 Based on latest internal management forecast assumptions and estimates, excluding tied operations. Final numbers may differ by

Capital expenditure f or FYE21 is expected to be 22% lower compared to FY20. A 28% decrease in
sustaining capital is driven by lower spend at Grootegeluk, Leeuwpan, Belfast and the earlier than
anticipated sale of ECC in September 2021. The decrease of 10% in expansion capital is driven by the
timing of the GG6 expansion project concluding final items on the project, lower spend due to project close
out at Belfast and timing in the sale of ECC.
FYE21 total capex is expected to be 16% lower than the guidance provided in August 2021 f or the same
reasons provided above.

GG6 expansion

The GG6 expansion project construction is expected to be completed during 4Q21 with project close out in
2H22. The current estimated capital overrun is approximately 10% f or the GG6 project and is still as per
previous guidance provided. The forecasted final cost of completion remains R5.3 billion.

Matla Mine 1

The Matla Mine 1 Relocation project commenced with construction in August 2020. Exxaro continues to
engage Eskom on additional funding to complete the full scope of the project. Approval is estimated in the

Moranbah South

The pre-f easibility study on determining the way f orward for the Moranbah South hard coking coal project
started during 3Q21 and is expected to be completed by 1Q23.



The ECC disposal was effective 3 September 2021 and will be accounted for in 2H21.
The disposal process f or Leeuwpan continues with definitive legal agreements envisaged to be signed in
1H22 and regulatory approvals obtained thereafter.
Exxaro continues to evaluate its options to dispose of it 26% shareholding in Black Mountain.


Our decarbonisation project office is currently conducting an assessment to baseline our value chain
emission profile and determine quick wins that can be implemented in 2022. As part of linking climate
change outcomes to organizational risks and performance, water and energy intensity will be included as
part of the revised group wide Short Term Incentive Scheme (STI) in 2022. This will ensure that we are
able to implement strategic projects to mitigate the risk of water security and transition our energy use to
more cleaner fuels.


Our social investment and engagement activities continued, following the disruption of lockdowns during
FY20, with a primary focus on engagement to re-establish relationships, Enterprise and Supplier
Development (ESD) and implementation of community infrastructure projects.

        - We provided total ESD funding of R90.2 million to eight Small, Micro and Medium Enterprises
          (SMMEs) during the year under review. We have onboarded and provided support to 90
          benef iciaries on the contractor development programme with the Gordon Institute o f Business
          Science (GIBS) and 28 beneficiaries on a f inancial excellence programme with SAICA Enterprise

      - A total of R54 million has been spent to date on completion of schools, an Enterprise and Supplier
        Development Hub and water infrastructure projects through our Social and Labour Plans (SLP), in
        both Mpumalanga and Waterberg. A total of 178 jobs were created during the construction periods.
        To date 2 534 benef iciaries have been positively impacted.
       -Three stakeholder days took place virtually during September 2021, providing Exxaro board
        members an opportunity to listen to beneficiaries directly - a balanced ref lection of our performance
        on the ground was received from various participating stakeholders.?
       -We are pleased that we were able to maintain harmonious engagements with our communities
        leading up to the local government elections.


Exxaro successfully divested from ECC on 3 September 2021. The future of the Thabametsi mining right
is currently under internal review and the Department of Mineral Resources and Energy (DMRE) will be
contacted upon conclusion of this review. The environmental license for the Belfast expansion project has
been applied for.
Our interactions with the DMRE, Department of Water and Sanitation (DWS) and other state departments
continue to be impacted by the pandemic. The following applications are in process at the DMRE:
    -   A section 102 application to amend the Matla mining right to swap coal reserves as part of a
        commercial transaction, and we continue to work with Seriti Resources to finalise this matter.
    -   The execution of the consolidation of two Leeuwpan mining rights into a single mining right.
    -   The execution of a section 102 application at Grootegeluk to incorporate the two f arms on which
        we have operating mining infrastructure.

During the previous quarter, inspections have been conducted according to schedule and no concerns have
been raised by the authorities.
Lastly, the group compliance to valid licences or authorisations for our current operations is at 96%. Where
rights and other licences are nearing expiry dates, renewal applications are submitted timeously.


Global economic growth recovery and expansion are anticipated to continue into 1H22. However,
inflationary pressures together with the tightening of fiscal and monetary policies will moderate economic
activity compared to 2021. COVID-19 vaccination rates are expected to increase further and barring any
renewed infection flare-ups, enabling affected economies to reopen.
The pandemic has strained South Africa’s fiscus, with public-sector debt sustainability remaining under
threat. As part of the Economic Reconstruction and Recovery Plan of October 2020, a landmark
government announcement that lifts the licensing threshold for small-scale power-generation projects from
1 megawatt (MW) to 100MW, was made. This should unlock private investment in the renewable energy
segment and the country’s economy.
The USD/ZAR exchange rate is expected to remain volatile during 2022, driven mainly whether the surge
in inflation largely reflects transitory factors.
Going into 1H22, the international thermal coal market remains dependent on key weather patterns and
whether China will achieve increased production targets during the northern hemisphere winter months.
Natural gas markets have experienced strong demand and supply shortages across the globe. Any relief
f rom high gas prices relies on the availability of increased gas pipeline supply into Europe.
In China, lower steel production is anticipated for 2022 due to power shortages, the property sector slump,
emission controls in the lead up to the Winter Olympics, and a broad-based economic slowdown. Global
iron ore supply growth remains a further downside risk to the expected softer market.


The domesticunsized market will continue to experience pressure due to the availability of increased
volumes in the domestic market on the back of lower rail performance, as domestic mining operations

continue to struggle with the evacuation of coal destined f or the export market. On the international front,
we expect the demand for coal to remain strong as supply is constrained. The influence of high gas prices
and expected cold weather in the northern hemisphere will continue to drive stable demand for coal.
As previously communicated, rail performance has put strain on the mining value chain and impacted our
ability to produce coal at desired levels. The situation has highlighted the importance of being able to
respond quickly to value chain interruptions; and through our integrated operations centres (IOC’s) and
Market to Resource (M2R) optimization strategy, we have continued to enable timeous decision making,
allowing our business to focus on the controllable elements, thus limiting the impact of these disruptions.
We are continuing to invest energy in enhancing this process further through our Data Sciences and
Advanced Analytics, which is a large focus of our Digital program.
To further remain competitive across various markets, our Operational Excellence and Digital programs
continue to focus on specific projects across the value chain which are aimed at managing stock levels,
productivity, and production costs.


The information in this update is the responsibility of the directors of Exxaro and has not been reviewed or
reported on by Exxaro’s external auditors.

A dial-in teleconference call on the details of this announcement will be held on Thursday,
2 December 2021 starting at 12:00 SAST.

Participants can register for the conference by navigating to:
Please note that registered participants will receive their dial in number upon registration.

A playback will be available one hour after the end of the conference until 13 December 2021. To access
the playback, dial one of the following numbers using the playback code 41234#:
•       South Africa                                      010 500 4108
•       UK                                                0 203 608 8021
•       Australia                                         073 911 1378
•       USA                                               1 412 317 0088
•       International                                     +27 10 500 4108

Absa Bank Limited (acting through its Corporate and Investment Banking division).

Tamela Holdings Proprietary Limited

Exxaro is one of the largest South Africa-based diversified resources companies, with main interests in
the coal, iron ore and energy commodities.
Annual financial results f or the year ended 31 December 2021 will be announced on or about
3 March 2022.

Mzila Mthenjane, Executive Head: Stakeholder Affairs
Tel: + 27 12 307 7393
Mobile: +27 83 417 6375
FY20 – Financial year ended 31 December 2020
1H21 – Six-month period ended 30 June 2021
3Q21 – Third quarter ended 30 September 2021
4Q21 – Fourth quarter ending 31 December 2021
2H21 – Six-month period ending 31 December 2021
FYE21 – Financial year ending 31 December 2021
2Q22 – Second quarter ending 30 June 2022
1H22 – Six-month period ending 30 June 2022
2H22 – Six-month period ending 31 December 2022
1Q23 – First quarter ending 31 March 2023

Coal – IHS Energy
Iron ore – MB Online

The financial information on which any outlook statements are based have not been reviewed nor reported
on by Exxaro’s external auditor. These forward-looking statements are based on management’s current
belief s and expectations and are subject to uncertainty and changes in circumstances. The forward-looking
statements involve risks that may affect the group’s operations, markets, products, services and prices.
Exxaro undertakes no obligation to update or reverse the forward-looking statements, whether because of
new information or future developments.

2 December 2021

Sponsor to Exxaro Resources Limited
Absa Corporate and Investment Bank, a division of Absa Bank Limited

Joint Equity Sponsor to Exxaro Resources Limited
Tamela Holdings Proprietary Limited


Date: 02-12-2021 07:05:00
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