Diversified resources group Exxaro Resources Limited (Exxaro) today held a Safety Summit convened by chief executive officer Sipho Nkosi and involving its stakeholders to examine and prioritise safety improvement interventions and management systems to position the group to improve its safety performance.

“The summit sets a new momentum for safety initiatives within the group, with action plans formulated and a public commitment from role players to support the group’s safety ambitions,” said Nkosi.

“It raises the profile and seriousness of safety within the group and provides an opportunity to react to the outcome of the Presidential safety audits conducted last year, allowing us to refine and improve our practices.”

The summit further supports the Chamber of Mines’ Mining Occupational Safety and Health best practice system which seeks to promote consistency in the application of safety standards across the mining industry and encourages zero tolerance for safety violations.

Notwithstanding Exxaro’s comprehensive safety programmes, in 2008 the group recorded a disappointing safety performance. The lost time injury 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 2007. The group also recorded five fatalities in 2008.

“This performance is unacceptable. While Exxaro does have some business units that achieved outstanding safety results, overall the group is finding it challenging to make significant improvements on safety performance. We acknowledge that a breakthrough is needed to meet our goal of achieving a 30% per annum overall safety improvement and we expect today’s summit and follow-on activities to support this,” said Nkosi.

Feeding into today’s initiative are several internal interventions including a diagnosis of safety challenges, stakeholder engagement to identify problem areas and an analysis of safety issues through the spectrum of group businesses.

To date Exxaro has adopted an aggressive, multi-pronged approach spanning, among others, enhanced safety awareness and preventive programmes, a strong focus on hazard identification and visible felt leadership. The ultimate goal is an injury-free workplace.

Exxaro achieved an average score of 73.4% in the Presidential safety audits, exceeding the average DME scores of 69.8% for coal mines and 66% for all mines. “While it is worth noting that our performance surpassed many peers, it highlights the considerable gaps that need to be closed to achieve full marks in this area,” said Nkosi.

Nkosi was among the Chamber of Mines-sanctioned meeting of mining company chief executives who, in August 2008, deliberated on sustainable ways in which a culture of safety could be strengthened and how working environments could be made safer. Endorsing the target of zero harm and the milestones agreed with tripartite partners to achieve this objective, the participants also acknowledged that safety is a core value that must always take precedence over production.

Today’s Exxaro safety summit was attended by Exxaro management with inputs and support from the Chamber of Mines, Department of Minerals and Energy and labour unions, namely the National Union of Mineworkers, Solidarity and United Association of South Africa.

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.

Anglo American shocked the mining sector as it announced another 9000 jobs to be cut and declined to pay a dividend for the first time since the Second World War. Shares in the heavily debt-laden company fell by over 15% on the JSE on Friday after the company announced financial results for the year ended 31 December 2008. Ferronews.com sees what CEO Cynthia Carroll had to say and provides some commentary.

From a strategic perspective, the company said that the following divisions remained “core” to the group as the resource giant attempts to consolidate as the economic slowdown takes a grip: Base Metals, Platinum, Ferrous Metals` core businesses (Kumba Iron Ore, Scaw Metals, Samancor Manganese and Anglo Ferrous Brazil), Coal and Diamonds.

Cynthia Carroll, chief executive, said:                                      
“Overall, Anglo American delivered a solid performance in 2008 – a year that saw the end of a lengthy period of highly supportive commodity prices as the trajectory of the global economy turned sharply downwards during the second half. We achieved operating profit of $10.1 billion and underlying earnings of $5.2 billion, with strong performances from our coal, iron ore and manganese businesses.                                                        

The breadth and severity of the global economic downturn and its impact on growth rates in key sectors and economies are difficult to overstate. From global automotive production to construction activity in emerging markets, there was a marked contrast between the first and second halves of 2008, when
commodity prices fell sharply. As we begin 2009, the economic outlook remains weak, with limited visibility and we are continuing to experience volatility and downward pressure on commodity prices. Against this backdrop, we have acted decisively to position the Group through the downturn, including pulling back planned production growth, reducing the size of our workforce by 19,000 by the end of 2009 in line with our revised production and growth plans and further cost cutting throughout the Group. These actions are necessary to ensure that Anglo American is well positioned through the cycle, both operationally and financially, to continue to deliver long term value to our shareholders.
       
In December, we announced that capital expenditure plans for 2009 would be scaled back by some 50% in response to the changed economic outlook. We nevertheless remain committed to our long term strategy and will continue to allocate capital to our existing businesses and the advancement of our portfolio of high quality development projects. Despite the current economic environment, we have confidence in the fundamentals and long term outlook for our core commodities. We therefore believe that our projects remain a key driver of future value creation for shareholders, with several projects well timed to enter production from 2011 onwards. 

The three key cost-saving and efficiency initiatives that we have put in place over the last 18 months are well advanced and are already beginning to make an important contribution to our financial and operating performance.

Such disciplines are particularly valuable during these times. The asset optimisation programme has been rolled out across the Group and is expected to contribute a significant uplift to operating profit of some $1 billion over the next three years. This is in addition to the expected $1 billion in savings by 2011 we have announced from our procurement and shared services initiatives,which have already delivered value of over $200 million in savings in 2008.
    
While the global economy continues to face unprecedented challenges and, with severely constrained financing markets, it is critical for us to safeguard balance sheet flexibility as far as possible.

Notwithstanding the other measures we have taken, the Board has decided to suspend dividend payments in order to preserve the Group`s strategic growth options. 

We made further strategic progress during 2008, including the significant achievement of securing `new order` mineral rights across our mining businesses in South Africa. We made further disposals of non-core assets, including the sale of the Group`s investment in China Shenhua Energy for $704 million, the sale of Tarmac Iberia for $186 million and the sale of Namakwa Sands and 26% of both Black Mountain and Gamsberg to Exxaro Resources for a total of $353 million. During the year, we also advanced our long term iron ore growth strategy by securing control of the Minas-Rio project and the

Amapa iron ore  system in Brazil. Minas-Rio has multi-phase expansion potential, the first phase of which is due to begin production in 2012. In recent weeks, we have also reduced our shareholding in AngloGold Ashanti to 11.8%, realising total proceeds of $434 million. 

I am encouraged by the much improved safety record of the Group over the last year. Of particular note was the significant reduction in the number of fatal incidents, though there is much work still to do. The changes we have made across Anglo American and in collaboration with the South African government, unions and the mining industry, are saving lives and reducing injury rates and we must continue to do all we can to progress towards our ultimate goal of Zero Harm. 

Anglo American has a world class asset base with long life, low cost mines and a strong and geographically diverse project pipeline across the most attractive commodity segments. In light of the many challenges faced by the global economy and by the mining sector during the second half of 2008 and expected to continue during 2009, we have taken decisive action to position Anglo American through the downturn and to emerge in robust shape, ready to capitalise on the next phase of economic growth.”

Ferronews.com commentary:
These results will send a shudder through those businesses who supply into the mining sector. The consequences of the additional 9000 job cuts will of course be felt but scaling back on capex projects is going to bite. The reason being the long lead time it takes for these projects to be reinitiated. It is easier to go with the ebb and flow of job cuts and re-recruiting, but tendering out for projects and going through the whole project management process can easily take a year – especially if key people have been lost during the process.

The cutting of the dividend sends a clear message – the company isn’t expecting the economic climate to turnaround quickly in the next few months either. A big company like Anglo American takes a lot of time to turn around and reposition itself.

We also wouldn’t be surprised if the company announced further job cuts, mothballing of operations and even asset sales over the next six months as the slowdown bites deeper into their operations and they try to shuck some of the debt off their balance sheet.

Not a pretty picture, but there may be some positive spinoffs as a result of the recent surge in precious metals.

Ferronews.com will be writing a bit on the precious metals surge and some positive spinoffs around layoffs and gearing down shortly.