Diversified South African-based resources group Exxaro Resources Limited (Exxaro) today reported consolidated revenue of R13,8 billion for the 12 months ended 31 December 2008, an increase of 36% when compared with the same period in 2007.
The group`s audited financial results and actual physical information for the 12- month periods ended 31 December 2008 and 2007 are not comparable as a result of the acquisition of Namakwa Sands and a 26% interest in Black Mountain Mining (Pty) Limited (Black Mountain) effective from 1 October and 1 November 2008 respectively.
“The coal business reported record revenue and net operating profit as strong demand resulted in increased sales at higher prices despite a significant softening in international prices in the last quarter of 2008 following the global economic meltdown,” said Exxaro chief executive director, Sipho Nkosi.
“The sands business reported a higher consolidated net operating profit compared to 2007 as a profit contribution from KZN Sands and a substantially higher profit from Namakwa Sands more than offset a loss in the Australian operation. Significantly lower average zinc prices and an increased environmental provision resulted in the base metals business recording a net operating loss,” he said.
An average exchange rate of R8,10 to the US dollar was realised compared to R7,26 for the corresponding period in 2007. The consistent strength of the Australian dollar at 0,84 US cents to AU$1 realised in 2008, continued to impact negatively on the financial results of the mineral sands operations in Australia, despite the weakening of the Australian dollar in the last quarter of 2008.
Group consolidated revenue increased by 33% to R15,2 billion with net operating profit R1,2 billion higher at R2,8 billion.
COMPARABLE EARNINGS
Attributable earnings for the period are R3,4 billion or 1 002 cents per share representing a 154% increase on the comparable 2007 attributable earnings of R1,4 billion or 396 cents per share. This includes Exxaro`s 20% share of the after-tax profits of Sishen Iron Ore Company (Pty) Limited (SIOC) amounting to R1,9 billion, a negative contribution of R4 million from the effective 22% interest in the Chifeng zinc refinery and an equity accounted loss of R1251 million from the 26% interest in Black Mountain.
Headline earnings which exclude the impact of the impairment of the carrying value of assets in the earnings of Black Mountain, are R3,7 billion or 1 068 cents per share, this is 167% higher than R1,4 billion or 403 cents per share reported for the previous corresponding period.
CASH FLOW
Cash retained from operations was R3,6 billion. This was primarily used to fund taxation payments of R487 million, dividend payments of R984 million and capital expenditure of R1,6 billion of which R470 million was invested in new capacity and R1,2 billion applied to sustaining and environmental capital.
After the payments of R2,7 billion and R221 million respectively for the acquisition of Namakwa Sands and a 26% interest in Black Mountain, the group had a net cash outflow of R1,85 billion for the financial year. The final dividend for payment in March 2009 will amount to a further cash outflow of R710 million offset by the dividend inflow from SIOC of R1,1 billion.
Net debt of R483 million at 31 December 2007 accordingly increased to R2,4 billion at a net debt to equity ratio of 18% at 31 December 2008.
SAFETY, HEALTH AND ENVIRONMENT
The group remains committed to achieving a work environment that is fatality-and injury-free. Despite excellent safety achievements at several business units, regrettably five employees lost their lives in 2008 compared to a similar number reported in 2007. The lost time frequency rate (LTIFR) per 200 000 man-hours worked in 2008 was 0,39 against a target of 0,21 and compared to 0,36 in 7 hours.
In a further measure to strengthen its safety awareness and preventative programmes, various safety improvement interventions focusing on pre-work Hazard Identification Risk Analysis and intensive training on Exxaro`s I Care Risk Controls, Vehicle Safety and Visible Felt Leadership, have been implemented.
Exxaro has reviewed its HIV/Aids strategy with the objective on improving employee understanding of preventive behaviour to the contracting and spread of HIV/Aids and increasing the number of employees who test and enrol for treatment. At the end of 2008, the cumulative voluntary counselling and testing enrolment improved to 50% from 30% at the end of 2007.
The environmental programme for 2008 focused on ensuring that all its mining operations have fully compliant Environmental Management Programmes required under the Mineral and Petroleum Resources Development Act as well as the National Environmental Management Act. Exxaro is reviewing its processes to determine the impact of its activities on natural resources.
Nine business units are certified under both the international health and safety (OHSAS 18001) and environmental (ISO 14001) standards. The remaining six business units have implemented certification programmes with the target to have all operations fully compliant in 2009.
POWER CONSTRAINTS
Exxaro is in ongoing discussions with Eskom to agree on baseline consumption and continuous power supply while at the same time progressing group-wide initiatives to conserve electricity consumption at existing operations and feasibility studies to develop co- and on-site power generation projects.
CONVERSION OF MINING RIGHTS
The group is in regular engagement with the Department of Minerals and Energy (DME) to process the registration of new order mining rights granted as well as the converted old order mining rights of the former Kumba Resources. The applications for approval of the conversion of the old order mining rights of the former Eyesizwe Coal submitted during 2008 is in process.
All applications for new order mining rights have been granted in the mineral sands and coal businesses except the Weltevreden deposit adjacent to the Leeuwpan coal mine which is under consideration by the DME.
CHANGES TO THE BOARD
Mr DJ van Staden will retire as financial director on 28 February 2009. The Board expresses its appreciation for his significant contribution to the group.
As announced, Mr WA de Klerk will succeed Mr van Staden as financial director on 1 March 2009.
OUTLOOK
The group is expected to continue experiencing strong demand for local power station coal. However, coking coal sales are anticipated to be lower at reduced prices. Steam coal sales volumes should increase but at lower international prices.
Increased production volumes at all mineral sands operations and a full 12-months` contribution from Namakwa Sands together with the local and Australian currencies remaining at their present weaker levels, should benefit this business in 2009 if market demand and prices remain at current stable levels.
The base metals business is expected to remain under pressure in 2009 as a result of continued depressed market conditions and zinc prices.
The equity accounted contribution from SIOC will be impacted by market demand and the level of iron ore price adjustments effective from 1 April 2009. The group will have a strong focus on capital prioritisation and working capital management together with continuous business improvement initiatives and cost control to offset lower demand and price challenges.
Overall, the group`s consolidated results for 2009, will largely be driven by the extent to which global recessionary conditions impact on demand and prices for its commodities, as well as the trading levels of the local and Australian currencies.
The uncertain market outlook remains a key factor to the group`s results for 2009.
FINAL DIVIDEND
The directors have declared a final dividend, dividend number 12 of 200 cents per share in respect of the 2008 financial year. The dividend has been declared in South African currency and is payable to shareholders recorded in the register of the company at close of business on Friday, 27 March 2009.