OPERATIONS

COAL

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

Power station coal production at the Eskom tied mines was 9% lower at 16,486Mtpa mainly as a result of an inrush of water at Matla’s number 2 mine which impacted negatively on production for several months, but which 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 the increased demand from Eskom.

Coking coal production showed a marked decrease year on year, down 21% to 2,020Mtpa, due to difficult geological conditions at Tshikondeni mine while semi-soft coking coal production decreased significantly at Grootegeluk mine as a result of 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 following the acquisition of a 50% interest in the joint venture in June 2009. Higher production at the 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 New Clydesdale’s (NCC) new Diepspruit shaft also ramped up slower than anticipated.

38kt of char was produced at the four new retorts that were 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 the Matla mine.

Domestic sales were 16% lower at 4,587Mtpa 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 as Exxaro was able to secure additional export allocation at Richards Bay Coal Terminal (RBCT) from other RBCT users.

Revenue increased by 8% to R9 731 million as higher export volumes combined with increased domestic power station coal sales at higher prices were partially offset by lower domestic metallurgical and steam coal sales and lower export prices realised.

Despite the higher revenue, net operating profit decreased by 28% to R1 905 million, at an operating margin of 20%, as above inflationary increases in electricity, rail tariffs and labour increased the cost of sales. Costs were further impacted by realised and unrealised exchange rate losses and an increase in exploration expenditure for the Moranbah South project in Australia.

The operating profit from the tied operations was slightly down year on year as the environmental rehabilitation provision was reduced after extension of the life of mine at Matla mine.

MINERAL SANDS

KZN Sands

KZN Sands had significantly higher production volumes with both furnaces operational compared to one furnace being down for 10 months in 2008 after the water ingress incident in February 2008. Titanium slag tapped was 93kt higher at 205kt as both furnaces tapped more than 100kt of titanium slag. Low manganese pig iron and ilmenite production were respectively 58kt and 139kt higher than in 2008, in line with the increased slag production. Zircon and rutile production remained in line with 2008 despite the decrease in run of mine tonnes as a result of higher grades mined.

Despite the increased production, revenue reduced by R269 million to R705 million as lower sales volumes of zircon, pig iron and chloride slag were recorded at softer prices.

Net operating profit before impairments, was R43 million lower than for the corresponding period as the lower revenue combined with realised and unrealised foreign currency losses were only partially offset by improvements in production efficiencies and cost savings.

The impairment of R1 435 million of the carrying value of the assets is mainly as a result of the decision taken in the latter part of 2009 not to proceed with the development of the Fairbreeze mine as a replacement feedstock producer for Hillendale mine. Hillendale is planned to close during the last quarter of 2012.

Australia Sands

Improvement initiatives led to pigment production returning to 2007 levels with 2009 production a 23% improvement on the 2008 year. Zircon and rutile production increased as a result of higher grades and various improvement projects. Synthetic rutile production was slightly lower as a result of maintenance-related problems predominantly experienced in the second quarter of 2009.

Revenue increased 12% to R1 469 million while net operating results improved from a loss of R82 million in 2008 to a loss of R2 million in 2009. This was achieved on the back of a much stronger production performance, higher pigment sales and higher average prices for both mineral and pigment products at a realised rate of USD0,79 to the AUD when compared with USD0,84 in 2008.

Namakwa Sands

The impact of the global recession on operations resulted in the postponement of the Furnace 1 start-up which was shut down for a reline at the end of March 2009. Furthermore, production activities at the mine and separation plants were temporarily halted during August to preserve cash flow and avoid the build up of stocks.

Total annual sales of 299kt were down 28% on the previous year’s record of 416kt.

Net operating profit for only three months in 2008 of R155 million was followed by a loss in the 2009 financial year of R110 million. Softer prices albeit at a marginally weaker local currency, realised and unrealised exchange rate losses, and the R55 million derecognition of the preheaters due to their deteriorated condition, all added to the weaker financial results.

BASE METALS

Lead and zinc production at the Rosh Pinah mine was in line with 2008 with lead concentrate exports 14% lower than the corresponding period in 2008.

Production of zinc metal at the Zincor refinery of 87kt was 338 tonnes more than in 2008, but was adversely affected by downtime on the acid plant as well as the disruption caused by the explosion in September 2009. Domestic zinc metal sales were in line with 2008.

A total of 60% of Rosh Pinah’s projected zinc and lead concentrate sales are hedged to December 2011 at average forward prices ranging from USD2 216 to USD2 061 for zinc and USD1 967 to USD1 713 for lead. Hedging gains realised were Namibian dollars 25 million more than in 2008.

Revenue for the 12 months to 31 December 2009 decreased by 14% mainly as a result of the lower average realised US dollar zinc price. The average zinc price for 2009 of USD1 658 is 12% lower than in 2008 and was only partially offset by the slightly weaker local currency.

A turnaround from a net operating loss in 2008 of R172 million to a loss of R8 million was reported due to cost savings initiatives implemented as well as the upwards revaluation of inventories at the Zincor refinery at year end. The impact of above inflationary increases in electricity and maintenance expenses are however still being experienced.

Production at the Chifeng refinery was in line with 2008. Equity accounted income from this operation increased by R17 million to R13 million mainly due to reduced production costs as well as a reduction in the rates of the environmental duties paid.

Exxaro’s 26% share in Black Mountain, acquired in the last quarter of 2008, contributed R123 million to equity income due mainly to increased sales volumes.

OTHER

Production volumes at the FerroAlloys plant were slightly higher while Glen Douglas production volumes were lower due to unplanned plant stoppages.

Revenue for 2009 decreased marginally when compared to the previous year due to the lower demand and selling prices. Sales volumes were lower at both Glen Douglas and FerroAlloys.