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Growth


Introduction
In 2010, there was a strong recovery in commodity markets and faster-than-anticipated recovery in the global economy. This renewed the focus on carbon, reductants, ferrous and energy growth projects in line with the group’s approved strategy to maintain a diversified, sustainable and profitable business portfolio.

One of the key risks to achieving this goal is effective capital allocation. Globally, capital allocation has become one of the most pressing strategic issues for mining and metals companies. We believe correct capital allocation follows a process of comprehensive risk management. By analysing scenarios and impacts, and setting strict minimum investment criteria against which competing projects bid for scarce capital, we identify opportunities to preserve and grow shareholder value, refine processes and controls and remain agile in a competitive market.

The table provides a summary of a number of growth initiatives, followed by a brief description of some projects:
  Ownership   Scope   Estimated  
capex  		 Status   Estimated  
start up  
Coal   GMEP   14,6Mtpa   R9,5 billion   Construction   2012  
Coal   Char phase 2   140-280ktpa   TBD   Feasibility   2013  
Coal   Belfast   3-5Mtpa   TBD   Pre-feasibility   2014  
Coal   Market coke   1Mtpa   TBD   Pre-feasibility   2014  
Coal   Moranbah South
(Australia) (50%) 		 6Mtpa   TBD   Pre-feasibility   2015  
Coal   Thabametsi   6-17Mtpa   TBD   Pre-feasibility   2016  
Sands   Fairbreeze mine   300ktpa   R2,4 billion   Approved  
February 2011  		 2013  
Sands   Dry mine replacement
(Australia) (100%) 		 100-200ktpa   TBD   Pre-feasibility   2013  
Energy   Co-generation
Namakwa Sands  		 14MW   TBD   Feasibility   2012  
Energy   Wind energy   40-100MW   TBD   Pre-feasibility   2014  

Coal
Grootegeluk mine expansion for Medupi (GMEP)
The Medupi coal supply and offtake agreement became unconditional and binding on Exxaro and Eskom on 24 June 2010. In terms of the agreement, Exxaro will supply 14,6Mtpa to Medupi power station for a 40-year period post ramp-up. The total capital cost of GMEP is forecast at R9,5 billion. First coal delivery will begin in May 2012 and full commissioning is expected during 2014/15. Project detailed design was largely completed by the end of February 2011. Around 90% of the major construction packages and plant equipment packages have already been placed, and the balance will be placed during the first quarter of 2011. On-site construction has started with most bulk earthworks nearing completion. Civil work is well under way after major structural work was started in February 2011. Current indications are that the project will be completed within schedule and budget.

The R4,5 billion bridge loan facility for GMEP was secured in the first half of 2010 with a consortium of local and international financial institutions. First drawdown of the loan is only expected in the second quarter of 2011.

Thabametsi
Thabametsi is a prospective greenfields mine adjacent to Grootegeluk mine in the Waterberg, Limpopo province. Development of this project was originally planned to coincide with Eskom’s future developments in the Waterberg as well as the Department of Energy’s formalisation and establishment of an appropriate enabling environment, governed by the National Integrated Resource Plan 2010 (NIRP 2010) to allow for new-generation capacity in terms of Eskom’s multi-site base load independent power producer (IPP) programme.

The draft NIRP 2010, released in October 2010, does not cater for any new coal-fired power generation development until 2027. The draft was subjected to a public-review process in December 2010 and is expected to be finalised early in 2011 after receiving comments from all stakeholders. Due to delays in these initiatives, Exxaro’s focus is now on first developing a smaller mine for coal supply to the Limpopo IPP envisaged in the draft NIRP 2010. A bankable feasibility study as well as the public consultation required for environmental approvals will begin once the scope for the Limpopo IPP has been determined and the final NIRP 2010 promulgated. First coal production could be expected by 2015/16, but depends on the Limpopo IPP and water-supply development schedules.

Mafutha
Exxaro has a prospecting joint-venture agreement with Sasol Mining to investigate the commercial viability of developing a new coal mine in the Waterberg to supply Sasol’s potential 80 000 barrels per day inland coal-to-liquids facility. The study is still in an extended pre-feasibility stage. Mining the 170kt bulk sample for large-scale gasification testing at the Sasol Synfuels Secunda plant began in August 2009 and was completed in the second quarter of 2010. Gasification tests are expected to be complete in the first quarter of 2011.

Waterberg infrastructure development
An integrated infrastructure plan continues to be developed for the Waterberg coalfields with relevant stakeholders. Focus areas include the supply of raw water to the area, rail, road, housing and job creation. Exxaro has completed phase I of its eco-friendly housing project in Lephalale, which received an award at the 2010 Nedbank Capital Green Mining Awards in the sustainability category.

Sintel char and market coke
The Sintel char plant at Grootegeluk mine to produce reductants for the ferroalloy industry has been fully commissioned with all four retorts in operation. The plant reached overall design capacity in the last quarter of 2010. Exxaro is currently evaluating phase II expansion to produce a further 280ktpa of char as well as a study to produce market coke from semi-soft coking coal at Grootegeluk mine as part of its strategy of downstream integration and beneficiation. These studies should be completed during 2011.

Belfast
Exxaro’s application for a mining right for the Belfast project has been accepted by the Department of Mineral Resources (DMR) and is being processed. Updated specialist environmental studies as required by the national environmental management and water acts will be submitted to the relevant authorities in the first half of 2011. The pre-feasibility study was completed in December 2010 and the decision to proceed with a full feasibility study will be evaluated in the first quarter of 2011. Depending on the outcome, start-up and first production is anticipated in 2014.

Moranbah South
Exploration of the hard coking coal resource on the Moranbah South property in the Bowen Basin of Queensland, Australia, is progressing well and results obtained during the pre-feasibility study remain encouraging. We anticipate that a feasibility study will be concluded in the second half of 2012, with first production expected in 2015. Moranbah South, which is a 50% joint venture with Anglo American, has the potential to produce some 6Mtpa of premium-quality hard coking coal.

Energy
The development of Exxaro’s energy portfolio to explore opportunities in energy markets is progressing according to plan. The focus is on cleaner-energy initiatives encompassing a combination of co-generation, carbon credit trading, renewable energy, coal-bed methane development, and coal base-load project developments. Securing equity funding partners for these projects continues in parallel with investigations.

Coal-bed methane development
Development of the first five-spot test for the coal-bed methane project in Botswana, to test for economic gas flow, is in the final stages. Five wells have been drilled and four of these have been fractured. Dewatering of the well field is under way and gas flow is steadily increasing. The wells will be operated in 2011 until economical gas-flow levels have been obtained.

Clean energy initiatives:

  • The pre-feasibility study for a 100MW wind farm on South Africa’s west coast has been completed. An 80m mast was installed at Brand se Baai in March 2010. The study indicates an initial project of between 40MW and 66MW is viable. The bankable feasibility study is now under way with completion planned for the third quarter of 2011.
  • A pre-feasibility study for a 76MW wind farm in the Tsitsikamma region is continuing. Exxaro has a 75% share in this project. This study should be completed by the end of 2011.
  • A bankable feasibility study for a 14MW co-generation plant at Namakwa Sands is in the final stages. Construction of the power plant is planned for the second half of 2011 with the commercial operation date scheduled for the third quarter of 2012. Clean Development Mechanism-registration of this project is well advanced.
  • Exxaro continues to facilitate the development of a 600–1 200MW coal-fired power station in the Waterberg (Limpopo IPP). Non-binding term sheets for the offtake of 1 150MW of electricity have been signed between Exxaro and industrial offtakers. The project is one of the options being investigated to enable the Thabametsi coal mine referred to earlier.
Ferrous
Iron ore
Exxaro continues to evaluate opportunities aligned with its strategy to establish a direct footprint in the iron ore commodity.

AlloyStream™
Exxaro successfully concluded an agreement to partner with Assmang Limited to commercialise its AlloyStream™ technology to beneficiate manganese ore into high-carbon ferromanganese alloy. A large demonstration facility is planned to be completed in 2011. Major benefits of this technology include lower electrical consumption and the use of unagglomerated fine feed materials.

Mineral sands
Fairbreeze
On 22 February 2011, the board approved the development of Fairbreeze mine as a replacement feedstock producer to Hillendale mine at KZN Sands, subject to obtaining the required regulatory and environmental approvals. A possible reversal or partial reversal of previous impairments of the carrying value of the assets will be considered simultaneously by the board.

 

 

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