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Financial review | Business operations review | Overview of coal |

Coal review



The positive turnaround at North Block Complex (NBC) in 2007 underpinned further growth at this mine in the review period with additional capacity now available due to mining new reserves.

The decision to discontinue underground activities at New Clydesdale mine for safety reasons in the prior year
created the opportunity to accelerate the development of the Inyanda export coal mine through New Clydesdale
beneficiating Inyanda’s run-of-mine production, enabling it to capture valuable export income for the group.

After a catastrophic failure in 2007 as previously reported, Leeuwpan mine’s stacker reclaimer was repaired and recommissioned in early 2009. Front-end loaders were deployed from September 2007 to minimise the impact on the business and performed above expectations under difficult circumstances.

Exxaro’s joint venture participation in the Mafube expansion project with Anglo Coal has been delayed as certain conditions precedent are still outstanding. Despite this, the Mafube mine ramped up during the year and Exxaro’s 50% share of export product added 733kt to overall export volumes, allowing the group to benefit from prevailing higher export prices.

South African coal exports have declined 13% from 72Mt in 2005 to approximately 63Mt in 2008, primarily due to rail logistics. Discussions with Transnet Freight Rail continue with the objective of developing solutions for sustainable improvements on the coal line.

Despite rail logistical challenges and in line with the strategic intent to increase Exxaro Coal’s presence in the steam coal export market, production from the new mines Mafube and Inyanda together with Exxaro’s increased export entitlement at the Richards Bay Coal Terminal (RBCT), boosted export volumes by 80% from 1,8mt to 3,3mt in 2008. Phase V of RBCT will be commissioned in 2009, although future allocations of rail and port capacity have not yet been finalised. With the introduction of additional rolling stock by Transnet Freight Rail in the first quarter of 2009, rail performance is expected to improve.

With international coal prices being linked to global oil and energy price increases, they rose to record levels in
the first half of 2008 with domestic prices following this trend. International prices, however, softened considerably in the second half of the reporting period following the global economic crisis. Exxaro Coal was able to optimally capture value from both international and domestic price movements.

Exxaro Coal supplied the first 3,3Mt of the total 10Mt undertaking to Eskom as part of Eskom’s request for
40Mt additional power station coal from the coal industry. Additional tonnage was supplied from NBC and Grootegeluk mines with the balance of 5,8Mt in 2009 and 0,9Mt in 2010 coming from the Grootegeluk, NBC and Leeuwpan mines.

Power station coal production at the Eskom-tied mines was significantly higher due to a good turnaround at Arnot after successfully implementing improvement initiatives. Exxaro’s commercial mines, most notably North Block Complex, increased production to supply higher demand from Eskom. North Block Complex started mining new reserves and increased overall capacity.

Coking coal production, however, decreased by 402kt in 2008 due to challenging geological and mining conditions at Tshikondeni mine. In addition, Grootegeluk mine used its no 6 plant-tipping capacity to channel run-of-mine tonnages to produce additional power station coal from the no 2 washing plant, contributing to the reduction in coking coal production. Steam coal production was significantly higher than the previous year mainly due to Inyanda ramping up in 2008, good production levels at Leeuwpan resulting from additional overburden removal in 2007 and increased production at North Block Complex.

Sales of power station coal to Eskom increased by 2Mt to 36,3Mt as a result of improved production performance at tied operations and demand from the electricity utility to increase stock levels at various power stations.

Other domestic sales were affected by lower production at Tshikondeni and a 13% decrease in sales to ArcelorMittal SA Limited in line with reduced demand in the steel and ferroalloy industry in the last quarter of 2008. The coal business was able to offset some of these lower sales volumes through additional sales from Leeuwpan and North Block Complex to the domestic market.

Prospects
In 2009, the focus will remain on optimising current assets as well as ensuring the successful commissioning and rampup of the Sintel char plant at Grootegeluk and development of the Diepspruit reserve at New Clydesdale. The coal business is expected to continue experiencing strong demand for local power station coal. However, coking coal sales are anticipated to be lower at reduced prices in line with lower demand from the steel and ferroalloy industry. Steam coal sales volumes, in turn, should increase but at lower international prices.

All applications for new-order mining rights for the coal business have been granted, except for the Weltevreden deposit adjacent to Leeuwpan mine which is under consideration by the Department of Minerals and Energy. Exxaro Coal aims to improve on the solid performance in 2008 by successfully commissioning projects scheduled for the new financial year. Effective cost-management and improvement initiatives will be pursued to ensure profitability even during a prolonged recessionary environment

STRATEGIC OBJECTIVES
We will create exceptional value by being an innovative coal and reductants company, with a global footprint,
and by utilising and developing excellence in people and superior processes. We aim to achieve our 2015 target of 75Mt of coal and 750kt of reductants by focusing on:

  • Operational excellence
  • Responsible custodianship of safety, health, environment and quality issues
  • Continued optimisation of market position
  • Value growth of the business
  • Organisational excellence including high-performance culture, sustainability and transformation.

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