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 in order 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

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 in order to be able to supply the first coal to Eskom during the second quarter of 2012 which coincides with the start-up of the power station. Full production from 2015 is anticipated.

As previously reported, Exxaro received notice from Eskom, in the third quarter of 2009, that it was seeking to review certain commercial terms contained in the Medupi Coal Supply and Off-take Agreement (CSA) 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 well as the placement of additional contracts associated with the project. It is expected that the review process will be concluded in the first quarter of 2010. Due to the delays in the project execution, it is expected that the capital cost associated with the project will now increase from R9 billion to R9,5 billion.

The Thabametsi Project pre-feasibility study to develop a potential green fields mine adjacent to the Grootegeluk mine, with the capability of supplying the market with power station and metallurgical coal, is scheduled for completion by end March 2010. Implementation of this project is 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 has been determined, whereafter the required technical studies will commence. The environmental studies have commenced at the end of 2009 and are due to be completed during 2011. First coal production could be expected by 2015.

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 (Project Mafutha). The project is in the pre-feasibility stage and a decision to proceed to a bankable feasibility study is expected in 2010.

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

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

Exploration of the hard coking coal resource on the Moranbah South properties in the Bowen Basin of Queensland Australia is progressing well and the results obtained are very 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 the 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.

MINERAL SANDS

As a result of the decision to not continue with the development of the Fairbreeze mine, the group will plan for the closure of the KZN Sands operations during 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.

The implementation of the Tiwest Kwinana pigment expansion project which will 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 of which the capital expenditure is now projected at some AUD118 million.

BASE METALS

Base Metals activities are focused on the process of optimisation for divestment. It is expected 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.