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Growth

Capital expenditure and project pipeline

As announced on 1 December 2009, Exxaro reviewed its commodity portfolio and growth pipeline against the background of the prevailing economic climate to align resources with a commodity strategy best positioned to release optimal value for all stakeholders.

Following this review, Exxaro plans to reconfigure its zinc assets to ultimately divest from them in an optimal manner.

The portfolio of zinc assets includes the Zincor refinery in Springs, Gauteng, a 50,04% interest in the Rosh Pinah zinc and lead mine in Namibia, a 26% interest in Black Mountain which owns the Black Mountain zinc and lead mine and the Gamsberg zinc project in the Northern Cape, and an effective 22% interest in the Chifeng zinc smelter in China.

Coal

Grootegeluk expansion for Medupi
Detail engineering on the expansion of the Grootegeluk mine to supply Eskom’s new Medupi power station with 14,6Mtpa of power station coal for 40 years is progressing to be able to supply first coal to Eskom in the second quarter of 2012. This coincides with the start-up of the power station. Full production from 2015 is anticipated.

Exxaro received notice from Eskom in the third quarter of 2009 that Eskom was seeking to review certain commercial terms contained in the Medupi coal supply and offtake agreement signed on 19 September 2008, including the coal price escalation mechanism and the coal delivery ramp-up. Pending the outcome of the review process, Exxaro’s funding programme was temporarily suspended in December 2009 as was the placement of additional contracts associated with the project. The review process is expected to be concluded in the first quarter of 2010. Due to the delays in project execution, the capital cost associated with the project is now expected to increase from R9 billion to R9,5 billion.

Thabametsi project
The Thabametsi project pre-feasibility study to develop a potential greenfields mine adjacent to Grootegeluk mine is scheduled for completion by end March 2010. If approved, Thabametsi would supply the market with power station and metallurgical coal. Implementation of this project is however linked to Eskom’s future developments in the Waterberg, together with the establishment by the Department of Energy of an appropriate enabling environment to allow for new-generation capacity in terms of Eskom’s multi-site base-load independent power producer (IPP) programme. The scope of the bankable feasibility study will only be finalised after the details of potential new-generation capacity have been determined, after which the required technical studies will begin. The environmental studies started at the end of 2009 and are due to be completed during 2011. First coal production could be expected by 2015.

Waterberg prospecting joint venture (project Mafutha)
Exxaro entered into a prospecting joint venture agreement with Sasol Mining for the development of a new coal mine in the Waterberg to supply Sasol’s potential new 80 000 barrels-per-day inland coal-to-liquids facility. The project is in pre-feasibility stage and a decision to proceed to bankable feasibility study is expected in 2010.

Waterberg infrastructure development
An integrated infrastructure plan is being implemented for the Waterberg coalfields with relevant stakeholders. Focus areas include the supply of raw water to the area as well as rail, road and housing infrastructure.

Sintel char project
After the successful commissioning of the Sintel char plant at Grootegeluk mine to produce reductants for the ferroalloy industry, Exxaro is currently evaluating the phase 2 expansion to produce a further 140ktpa of char.

Moranbah South resource
Exploration of the hard coking coal resource on the Moranbah South properties in the Bowen Basin of Queensland, Australia, is progressing well and results obtained are encouraging. Moranbah South, which is a 50% joint venture with Anglo American, has the potential to produce premium-quality hard coking coal.

Energy

The commodity portfolio review announced on 1 December 2009 stated the group’s intention to explore opportunities in energy markets. Clean energy initiatives encompassing co-generation, carbon credit trading, and renewable energy (wind and solar projects), are progressing well.

Development of the first five-spot test for the coal bed methane project in Botswana, with the aim of testing for economic gas flow, is progressing well. Completion of the test work is planned for April 2010, after which the site will be operated until economic gas flow has been attained.

Clean energy initiatives include:

  • Solar
    – Pre-feasibility study on a 200MW plant at Lephalale.
  • Wind
    – Pre-feasibility study on a 100MW wind farm on South Africa’s West Coast.

Mineral sands

As a result of the decision not to continue with the development of Fairbreeze mine, Exxaro will plan for the closure of the KZN Sands operations over the next five years while, in parallel, investigating other feedstock alternatives and the continuation of the business should the outlook for the mineral sands industry improve substantially.

Kwinana
The implementation of the Tiwest Kwinana pigment expansion project to increase production by 40ktpa is progressing according to plan, with commissioning targeted for the second half of 2010. Exxaro is funding 100% of the expansion project, with capital expenditure now projected at some AUD118 million.

Base metals

Base metals activities are focused on the process of optimisation for divestment. Exxaro anticipates that potential suitors will be approached in the second half of 2010.

Ferrous

The final evaluation of the iron ore project in Turkey concluded that it did not meet the group’s investment criteria and a decision was made to divest from the project.

Exxaro is considering ways to expand its footprint in the iron ore commodity.

 

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