Cash retained from operations was R3 574 million. This was mainly applied to taxation payments of R487 million, dividend payments of R984 million in March and September 2008 respectively, finance charges of R193 million and capital expenditure of R1 617 million of which R470 million was invested in expansion capacity and R1 147 million in sustaining and environmental capex.

Expansion capacity consisted mainly of the Sintel char plant, Inyanda coal mine and the pigment plant expansion in Western Australia.

After the payments before year-end of R2 662 million and R221 million respectively for the acquisition of Namakwa Sands and a 26% interest in Black Mountain, the group had a net cash outflow of R 1 846 million.

Net debt of R483 million at 31 December 2007 accordingly increased to R2 381 million at a net debt to equity ratio of 18% on 31 December 2008.

During the year the group complied with all its contractually agreed loan covenants, except for the stand-alone funding package arranged for Rosh Pinah Zinc Corporation (Rosh Pinah) of R200 million to facilitate the disposal of a 43% interest to Namibian stakeholder groupings. Loan covenants were breached mainly as a result of the collapse in zinc prices in the second half of 2008 as well as above-inflation cost increases at the mine. Funding banks have, however, agreed to waive the breaches based on a contracted undertaking to settle the loans by 31 March 2009. At year-end Exxaro has provided shareholder loan funding of R67 million to Rosh Pinah.

The final dividend for payment in March 2009 will amount to a further cash outflow of R710 million, offset by a dividend inflow from SIOC of R1 123 million.

At 31 December 2008 a total of 18kt representing 60% of Rosh Pinah’s projected lead sales were hedged forward until 2011 at an average price per tonne of R16 089 and 78kt representing 60% of Rosh Pinah’s projected zinc sales at an average price of R19 619.

Investment on the expansion of Grootegeluk mine at a capital cost of R9 billion over the next few years to supply Eskom’s adjacent Medupi power station, and the AU$100 million Tiwest Kwinana pigment expansion project for an additional 40ktpa production, will dominate cash outflows on capital expenditure in 2009. Sustaining and environmental capital in 2009 includes replacement of primary mining equipment at the coal operations and the replacement programme for the flotation circuit at Rosh Pinah.

Following the credit crisis and global economic meltdown in the second half of 2008, Exxaro is reviewing its capital expenditure programme, including sustaining capital, as well as its project pipeline. The group will focus on the successful implementation of committed expansions while reprioritising other identified growth opportunities.

Exxaro did, however, early-adopt the following standards in 2008:

• IAS 1 Presentation of financial statements: including a statement of comprehensive income to separately disclose ‘other comprehensive income’ being items of income and expenses that are non-owner related and not recognised in profit or loss, and which were previously recognised directly in equity.
• IFRS 8 Operating segments: Disclosure of the components or segments that management uses to make decisions on operational issues. The implementation led to differences in the basis of segmentation compared to previous periods. As a result, new operating segments have been indentified.

IAS 1 and IFRS 8 are disclosure standards and have no other impact on the recognition or measurement of items and accordingly their adoption has no effect on profit or equity for the year.

The merger with Eyesizwe and creation of Exxaro in November 2006 resulted in the need to raise a provision for post-employment healthcare benefits that had been provided to a group of continuation and in-service members on the Witbank Coal Medical Aid Scheme and BHP Billiton SA Medical Scheme. This benefit, which is no longer offered, applied to selective employees previously employed by Eyesizwe or Ingwe Coal and comprises a subsidy of contributions.

An actuarial valuation of the employer liability was performed in 2007 and a provision was raised in the amount of R36,3 million, of which R33,7 million was simultaneously raised as a receivable, being recoverable from Eskom as part of tied coal supply arrangements. The latest actuarial valuation of this liability at 31 December 2008 is R42 million with R42 million as a receivable from Eskom.

A further post-retirement benefit liability was acquired at an actuarial valuation of R25 million on the acquisition of the assets and liabilities of Namakwa Sands.

Exxaro is a participating employer in a number of defined contribution funds that provide retirement, death and disability benefits to employees. Exxaro no longer participates in any defined benefit funds.

For the period Exxaro performed in line with the FTSE/JSE Resources Index but underperformed the FTSE/JSE All Share Index by 5%.

I also express my sincere appreciation to the very competent Exxaro finance teams for their commitment, dedication and valuable contributions

Relative performance for the period 1 January 2008 to 31 December 2008