KZN Sands
KZN Sands reported lower production volumes as a result of the Furnace 2 water ingress incident at the end of February 2008 with only Furnace 1 being operational for the remainder of the year. Titanium slag produced was 63kt lower at 113kt than for the comparable period in 2007. Furnace 1 performed well by producing more than 95kt of slag equivalent to 87% of cold feed capacity. Low manganese pig iron production was in line with the decreased slag throughput while ilmenite production was aligned with the lower smelter feed requirements at 138kt lower than the corresponding period in 2007.

Revenue was R10 million lower but net operating profit increased by R188 million compared to the corresponding period in 2007 due to improved prices, a weaker local currency and cost savings.

Continued improvement initiatives are impacting positively on production with the Furnace 2 start-up in early December 2008, ramping up according to plan.

Australia Sands
Record synthetic rutile production was achieved during 2008 resulting from more stable operating conditions following the kiln shut in 2007. Although mineral production was lower as a result of the dredging operations moving through lower ore grade areas, successful business improvement initiatives to increase yield and recoveries partly offset the negative variance. The 2009 mine plan indicates a higher grade than 2008 which should positively impact on mineral production in 2009.

Australia Sands Record synthetic rutile production was achieved during 2008 resulting from more stable operating conditions following the kiln shut in 2007. Although mineral production was lower as a result of the dredging operations moving through lower ore grade areas, successful business improvement initiatives to increase yield and recoveries partly offset the negative variance. The 2009 mine plan indicates a higher grade than 2008 which should positively impact on mineral production in 2009.

Pigment production was substantially lower than the comparative period in 2007 as a result of maintenance-related issues, an emergency shut at one of the critical raw material suppliers, the rebuild of all four chlorinators and interruptions in gas supply during the first quarter of 2008 as previously reported. Several initiatives have been implemented to improve the performance of the pigment plant and in December 2008 pigment production improved to pre-2008 levels. A stronger pigment production performance is expected in 2009.

The lower production, increased maintenance cost at the pigment plant and a rapid escalation in process chemical costs and energy consumables, combined with the strong Australian dollar in the first half of 2008, led to a R142 million decrease in net operating profit compared to the previous year. The decline in operating profit was partially offset by stronger pigment prices and the weakening of the Australian dollar during the last quarter of 2008.

The Australian dollar weakened from an average of 0,87 US cents to the Australian dollar for the six months ended 31 December 2007 to an average rate for the six months ended 31 December 2008 of 0,77 US cents. The improved mineral production and weaker Australian dollar in the second half of 2008 led to a net operating profit of R57 million, compared to a loss of R139 million in the first half of 2008.

At 31 December 2008, currency hedging of AU$51 million was in place at an average rate of 0,76 US cents to the Australian dollar.

Namakwa Sands
Exxaro acquired effective ownership of Namakwa Sands on 1 October 2008 for an adjusted consideration of
R2 783 million, consisting of the cash price of R2 015 million, a working capital adjustment of R199 million, capital expenditure on the mineral separation project (MSP Projectt 1000) of R448 million and R121 million to compensate Anglo Operations Limited for its taxation recoupment. The capitalised price adjustments result in either a subsequent cash infl ow or additional future deduction from taxable income for Exxaro KZN Sands.

Annual records were achieved for zircon, titanium slag and pig iron production. The record zircon production was attributable to higher grades and improved plant efficiencies. The record smelter production resulted from Furnace 2 operating on full power of 35MW following the de-bottlenecking of process difficulties which increased slag and iron tapped despite the power cutbacks in the first quarter of 2008.

Efficiency improvements at the smelter operations include annual records reported for the chlorinatable (CP) slag ratio at 84,5% compared to a previous best 82,5%, and iron recovery at 91,3% compared to the previous record of 90,3%.

The 44% increase in revenue is due to record product sales of 416kt at stronger zircon and average pig iron prices and a weaker local currency. A record net operating profit of R499 million was recorded for the year at an operating margin of 27%.

Base Metals
Production of zinc metal at the Zincor refinery of 87kt was 14% lower than the corresponding period in 2007. This was due to limited power supply and a total plant black-out following a transformer failure causing major delays and instability throughout the plant during the second half of 2008, as well as the extended shut and rebuild of two roasters and the acid plant.

Zinc metal sales, however, remained in line with the corresponding period in 2007 despite a drastic reduction in the second half as a result of the global economic crisis causing a sharp decline in the local market.

Production of zinc concentrate at the Rosh Pinah mine of 94kt is in line with 2007 although lower metal content grades were experienced. This was caused by plant stoppages and instability from equipment failures at the crushing and fl otation circuits of the plant and failures due to unstable electricity supply. A capital replacement programme of the fl otation circuit is planned for the second half of 2009 while the crushing circuit was fully refurbished during the second half of 2008.

Zinc concentrate railed from Rosh Pinah was 11% lower as problems experienced with the availability of railway wagons led to lower imports of cement into Namibia and subsequent backhaul of concentrate. Lead sales were higher than in 2007 due to rescheduled shipments.

Revenue for the year decreased by 33% to R1 829 million mainly as a result of lower zinc prices and marginally lower sales. The average zinc price for the year of US$1 874 per tonne was 42% lower than the equivalent average of US$3 231 in 2007.

Net operating profit declined substantially from a profit of R688 million in 2007 to a loss of R172 million due to lower revenue coupled with increased operating costs resulting from higher than infl ation increases in electricity, diesel and labour, high maintenance expenses and an increase in the provision for environmental rehabilitation at Zincor of R87 million.

The divestment of a 43% interest in Rosh Pinah Zinc Corporation (Pty) Limited to Namibian shareholder groupings, effectively reducing Exxaro shareholding to 50,04%, became effective on 1 July 2008. Exxaro retains operational control of the mine.

At 31 December 2008 a total of 18kt representing 60% of Rosh Pinah’s at an average price per tonne of R16 089 and 78kt representing 60% of Rosh of R19 619.

Production at the Chifeng refinery was 101ktpa for the year compared to a design capacity of 110ktpa. An equity-accounted loss of R4 million was incurred compared to a loss of R18 million for the corresponding period in 2007.

Industrial minerals
The group is currently evaluating the proposed divestment of its interest in the Glen Douglas dolomite mine.