Coal review

The review period was a challenging one in many respects compared to 2008. International coal prices decreased significantly while domestic demand for metallurgical and steam coal also declined. Exxaro was fortunate enough to partially offset softer demand and prices by increasing exports after securing additional export access at Richards Bay Coal Terminal (RBCT) from other RBCT users.

Inyanda mine is producing at name-plate capacity and the joint venture with Anglo American on the Mafube operation was concluded in June 2009, resulting in additional production.

Additional emphasis was placed on value growth by downstream integration, of which the Sintel char plant at Grootegeluk is an example. The char plant was commissioned in the second half of 2009. Although not currently running at capacity, quality and demand for the product has exceeded our expectations.

The Diepspruit shaft at New Clydesdale (NCC) was commissioned in the second half of 2009, unfortunately later than planned. We aim to achieve full production by the end of the second quarter in 2010.

Total coal production volumes were marginally higher than the previous year.

Power station coal production at Eskom tied mines was 9% lower at 16,5Mtpa mainly as a result of an inrush of water at Matla’s number 2 mine which affected production for several months, but has subsequently been rectified. This was partially offset by increased production at Arnot mine after ramping up the opencast mining operations to full production.

The commercial mines increased production by 8% to over 20Mtpa to meet increased demand from Eskom.

Coking coal production showed a marked decrease year on year, down 21% to 2,0Mtpa, due to difficult geological conditions at Tshikondeni mine. Semi-soft coking coal production decreased significantly at Grootegeluk mine on lower demand from the steel and related industries.

Steam coal production was 19% higher at 6,638Mtpa mainly due to the inclusion of production from Mafube of some 816kt after Exxaro acquired a 50% interest in the joint venture in June 2009. Higher production at Inyanda and North Block Complex (NBC) mines was offset by lower production at Grootegeluk and Leeuwpan mines due to lower domestic steam coal demand. Production at number 2 mine Diepspruit shaft also ramped up slower than anticipated.

Some 38kt of char was produced by the four new retorts successfully commissioned at Grootegeluk mine. Ramp-up to full production is expected in the second half of 2010.

Sales to Eskom were in line with the previous year as increased sales volumes from the commercial operations were offset by lower sales volumes from the tied operations mainly due to production challenges at Matla mine.

Domestic sales were 16% lower at 4,6Mtpa due to lower demand during the recessionary climate.

In line with Exxaro Coal’s strategy, export volumes increased 44% year-on-year to 4 715Mtpa after Exxaro secured an additional export allocation at RBCT from other RBCT users.

Even though RBCT will have installed capacity of 91Mt per annum, forecasts indicate that Transnet Freight Rail (TFR) will only have the capability to transport 65Mt of coal in 2010. This will have a negative impact on new entrants into RBCT via the Phase V development scheduled for commissioning during April 2010 as these participants had already in 2009 positioned themselves to export through RBCT. Although RBCT had capacity of 72Mt per annum in 2009, only 61,7Mt was exported compared with approximately 63Mt in 2008 mainly due to lower rail performance.

Prospects for the coal commodity business are summarised in the chief executive officer’s review and detailed in the commodity review. The growth aspirations are included here.

Exxaro Coal aims to create exceptional value by being an innovative, integrated and synergistic coal and reductants company, with a global footprint, utilising and developing excellence in people and value-adding, superior processes and structures to achieve the annual target of 75Mt of coal and 750kt of reductants by 2015 by focusing on:

• Operational excellence
• Responsible custodianship of safety, health and sustainable development
• Continued optimisation of market position
• Value growth of the business
• Organisational excellence including a high-performance culture.