Reviewed condensed consolidated annual financial statements and unreviewed production and sales volumes information for the year ended 31 December 2017

Exxaro recorded an LTIFR of 0,12 (FY16: 0,09) against a target of 0,11. The group regrettably incurred one High Potential Incident at Grootegeluk Mine and one fatality at Matla Mine in 2017. Exxaro remains committed to the Zero Harm Vision and to continuously improve all aspects of safety.

Shareholders approved the Replacement BEE Transaction on 20 November 2017 and on 11 December 2017 Exxaro implemented the transaction which comprised various indivisible transaction components, including the MS333 Unwind, the Second Repurchase of 22 686 572 ordinary shares from MS333 and the Specific Issue of 67 221 565 ordinary shares to the new empowerment partner, NewBEECo.

The accounting impact of the Replacement BEE Transaction on the Exxaro group results is as follows:

• NewBEECo is consolidated in Exxaro's group results as Exxaro has control over NewBEECo in terms of IFRS 10 Consolidated Financial Statements
• The shares held by NewBEECo in Exxaro are treated as treasury shares and eliminated for group reporting purposes
• The preference share liability of NewBEECo of R2 478 million, that was raised as part of NewBEECo's funding structure, is recognised as a financial liability for the Exxaro group
• A share-based payment expense, amounting to R4 245 million, is recognised in profit or loss which relates to the potential benefit to be obtained by the BEE Parties. The share-based payment expense was valued on 11 December 2017 using an option pricing model of which one of the assumptions was the spot Exxaro share price of R152,35 per share.

The group's net operating profit for FY17 increased by 17% (R860 million) to R6 060 million compared to FY16. The coal business benefited from higher selling prices and volumes while the group's results were impacted by various once-off transactions; namely, the costs associated with the implementation of the Replacement BEE Transaction (R4 339 million), and a net gain realised on the partial disposal of our shareholding in Tronox Limited (R5 191 million). Refer to table 1 for a list of all key transactions impacting Exxaro's financial results. Exxaro is of the view that these impacts should be excluded in order to enable a more meaningful year-on-year comparison.

The income from equity-accounted investments of R2 123 million for FY17 (FY16: R2 373 million) decreased by 11%. Although there was a positive impact of a recovery in iron ore export prices coupled with Exxaro's share of an impairment reversal of property, plant and equipment (R716 million net of tax) from SIOC, this was partly offset by R1 271 million, constituting Exxaro's share of the loss incurred by Tronox Limited, on the disposal of its Alkali chemicals business in September 2017.

The corporate transactions implemented during 2017 and 2016 have necessitated a change in the segmental reporting structures and the manner in which the operating results are reported to the chief operating decision-maker. Refer to notes 4 and 5 to the reviewed condensed consolidated annual financial statements for additional information.

The key transactions shown in table 1 below should be taken into account to gain a better understanding of the comparability of the results for the two years.

	Table 1: Key transactions impacting on comparability
	Reporting segment	Description	FY17 Rm		Description		(Re- presented) FY16 Rm
	Coal	Loss on disposal of property, plant and equipment1	(62)		Loss on disposal of property, plant and equipment1		(45)
		Insurance claim received by Leeuwpan from external parties1	3		Termination and voluntary severance packages		(10)
					Gain on disposal of operation (Inyanda)1		100
					Gain on restructuring of SDCT shareholding1		203
	Ferrous				Impairment of property, plant and equipment (FerroAlloys)1		(100)
					Termination and voluntary severance packages		(1)
	TiO2 and Alkali chemicals	Loss on dilution of shareholding in Tronox Limited1	(106)		Loss on dilution of shareholding in Tronox Limited1		(36)
		Gain on partial disposal of investment in Tronox Limited including the recycling of the foreign currency translation reserve, offset by a loss on the recycling of the financial instruments revaluation reserve to profit or loss1,2	5 191
	Other	Receivable relating to the Mayoko iron ore project written off	(27)		Gain on disposal of Mayoko iron ore project1		670
		Loss on disposal of property, plant and equipment1	(2)		Gain on disposal of property, plant and equipment1		10
		Fair value adjustment on contingent consideration relating to the acquisition of ECC	(354)		Fair value adjustment on contingent consideration relating to the acquisition of ECC		(445)
		Recycling of foreign currency translation reserve on liquidation of foreign entities to profit or loss1	(58)		Termination and voluntary severance packages		(87)
		BEE credentials expense and transaction costs	(4 339)
	Group	Total net operating profit impact	246		Total net operating profit impact		259
	Coal	Tax on disposal of property, plant and equipment1	18		Tax on disposal of property, plant and equipment1		13
		Tax on insurance claim received by Leeuwpan1	(1)		Excess of fair value over cost of investment in RBCT1		35
					Post-tax share of Mafube impairment of property, plant and equipment1		(16)
					Post-tax share of Mafube gain on disposal of property, plant and equipment1		1
	Ferrous	Post-tax share of SIOC loss on disposal of property, plant and equipment1	(11)		Post-tax share of SIOC loss on disposal of property, plant and equipment1		(28)
		Post-tax share of SIOC reversal of impairment of property, plant and equipment1	716		Tax on impairment of property, plant and equipment1		27
					Excess of fair value over cost of investment in SIOC1		221
					Post-tax share of SIOC impairment of property, plant and equipment1		(1)
	TiO2 and Alkali chemicals	Post-tax share of Tronox Limited loss on disposal of Alkali chemical business1	(1 271)		Post-tax share of Tronox restructuring costs		(9)
		Post-tax share of Tronox gain on disposal of property, plant and equipment1	1		Post-tax share of Tronox gain on disposal of property, plant and equipment1		4
	Net financing cost	NewBEECo preference dividend accrued (consolidation impact)	(11)
	Group	Total attributable earnings impact	(313)		Total attributable earnings impact		506

1	Excluded from headline earnings.
2	The loss on recycling of the financial instruments revaluation reserve to profit or loss of R1 million is not a headline earnings adjustment.

The movements in main commodity prices impacting on Exxaro’s performance are summarised in table 2 below.

Table 2: Change in commodity prices

Table 3: Group segment results (Rm)

6.1. Group financial results

6.1.1. Revenue and net operating profit

Consolidated group revenue increased by 9% to R22 813 million (FY16: R20 897 million) mainly due to higher coal selling prices as well as higher Eskom commercial volumes at Grootegeluk based on demand from the Medupi Power Station. The average price per tonne achieved on export sales was US$69 (FY16: US$50). A stronger average spot exchange rate of R13,30 to the US dollar for FY17 (FY16: R14,69) was realised, an appreciation of approximately 9%.

Consolidated group net operating profit increased by 17% to R6 060 million (FY16: R5 200 million), net of costs associated with the Replacement BEE Transaction of R4 339 million and a net gain of R5 191 million realised on the partial disposal of 22,4 million Class A ordinary shares in Tronox Limited (including the gains on translation differences recycled to profit or loss of R1 332 million).

6.1.2. Earnings

Earnings, which include Exxaro’s equity-accounted investments in associates and joint ventures, were R5 982 million (FY16: R5 679 million) or 1 923 cents per share (FY16: 1 600 cents per share), impacted by the various once-off transactions.

Headline earnings were 66% lower at R1 560 million (FY16: R4 621 million) or 502 cents per share (FY16: 1 302 cents per share), primarily driven by the Replacement BEE Transaction costs of R4 339 million (1 395 cents per share), which are not adjusted for in headline earnings.

Table 4: Equity-accounted income/(loss) (Rm)

6.1.3. Cash flow and funding

Cash flow generated by operations increased by R1 277 million to R6 826 million (FY16: R5 549 million), mainly due to higher revenue.

Cash flows from investing activities increased by R6 575 million to a net inflow of R4 377 million (FY16: R2 198 million net outflow), mainly due to Exxaro’s partial disposal of the investment in Tronox Limited, realising net proceeds of US$474 million (R6 525 million) and dividends received of R1 499 million (FY16: R748 million) comprising R1 390 million from SIOC (FY16: nil) and R109 million (FY16: R298 million) from our investment in Tronox Limited.

Cash flows from financing activities decreased by R7 844 million to a net outflow of R6 361 million (FY16: R1 483 million net inflow), mainly due to the following:

• The repurchase of Exxaro ordinary shares to the value of R3 524 million from MS333 in January 2017, using cash generated from Exxaro’s own operations
• The second repurchase to the value of R2 695 million from MS333 as part of the implementation of the Replacement BEE Transaction.

6.1.4. Debt exposure

The group was in a net cash position of R84 million (including R14 million classified as a non-current asset held-for-sale) at 31 December 2017 compared to a net debt position of R1 322 million at 31 December 2016.

The net cash position of R84 million is net of a R2 478 million net preference share liability recognised as a result of consolidating NewBEECo.

Exxaro's balance sheet structure remains strong. During FY17, Standard & Poor’s upgraded Exxaro’s domestic credit rating to zaBBB.

6.2. Coal business performance

Table 5: Unreviewed coal production and sales volumes (‘000 tonnes)

International seaborne trade remained strong during FY17, largely owing to sustained demand in Asia Pacific. The slow increase in coal demand out of China was met with production challenges in both Indonesia and Australia due to adverse weather conditions (heavy rainfalls in Indonesia and cyclone Derby in Australia). South Africa filled the gap left by Australia in South Korea and the sustained freight arbitrage favoured South African supply.

India, on the other hand, remained the flagship market for South African coal as demand remained relatively stable for lower grade material after a sluggish start to the year. European coal demand saw a slight increase after France placed some of its nuclear power plants under care and maintenance. Overall, there were strong fundamentals supporting the bullish sentiment that saw international API4 coal prices across indices trading around the US$100 per tonne mark at year end.

Trading conditions in the domestic market were strong in FY17, as consumers scrambled for all grades of coal, as demand from the export market remained upbeat due to strong international thermal coal prices offset by a stronger rand/US$ exchange rate. Exxaro experienced strong demand for all its products in the domestic segments.

The benchmark API4 RBCT export price averaged US$84 per tonne versus the US$64 per tonne in FY16, ending the year at US$95 per tonne.

Export volumes decreased from 7,9Mt in FY16 to 7,6Mt in FY17, mainly as a result of lower volumes from ECC, lower buy-ins and congestion experienced at RBCT, driven by adverse weather conditions. The group realised an average export price of US$69 per tonne in FY17 against US$50 per tonne in FY16.

6.2.1. Production and sales volumes

Overall coal production volumes (excluding buy-ins) were 5% (2 179kt) higher than in FY16. The increase can mainly be attributed to higher production at Grootegeluk in line with Addendum 9 to the Medupi Coal Supply Agreement. Although production was 5% higher, sales volumes were only 2% higher (661kt) due to strategic stockpiling at Grootegeluk.

6.2.1.1. Metallurgical coal

Grootegeluk’s metallurgical coal production was 147kt (7%) higher mainly due to additional production from Grootegeluk plant 10 (GG10) and reduced unplanned operational interruptions as a result of increased maintenance as well as improvement efforts to the plant waste system (backfill and plant conveyors).

6.2.1.2.Thermal coal

Tied mines

Power station coal production from Matla was 500kt (6%) lower mainly due to the shortwall stop from December 2016 to May 2017 and unfavourable geological conditions.

Commercial mines

The commercial mines’ thermal coal production was higher by 2 532kt (8%) primarily as a result of the following factors:

• Increased production, mainly at Grootegeluk, of 2 789kt (14%) due to the ramp up volumes according to Addendum 9 to the Medupi Coal Supply Agreement
• Higher production at ECC 156kt (4%) mainly as a result of higher production at DCM West and FZO South.

The increase was partly offset by:

• Lower production at Leeuwpan 419kt (11%) due to lower production in the crush and screen plant, dismantling of the JIG plant, lower ROM availability, industrial action and lower overburden removal
• Lower production at Mafube of 112kt (18%).

Domestic thermal coal sales from commercial mines was 1 505kt (6%) higher mainly as a result of:

• Increased sales at Grootegeluk of 1 988kt (10%) which is in line with the ramp up volumes according to Addendum 9 to the Medupi Coal Supply Agreement
• Higher sales at ECC 171kt (34%) mainly due to more sized product available and more discard re-wash product available for sale at FZO South.

The increase was partly offset by:

• No power station coal sold by Leeuwpan in FY17 (FY16: 416kt) as a result of the termination of the Eskom Supply Agreement, and redirecting this coal into the export market as well as slightly lower other domestic sales of 64kt
• Lower NBC sales 162kt (5%) due to the expiry of the Coal Supply Agreement with Eskom. This contract has subsequently been extended to June 2018.

The semi-coke production was 32kt (59%) higher mainly due to the increased demand in the Ferrochrome industry.

6.2.2. Revenue and net operating profit

Coal revenue of R22 553 million was 9% higher than FY16 (R20 673 million). The increased revenue from commercial mines was due to higher selling prices as well as an increase in Eskom volumes. This was partly offset by lower semi-coke domestic sales volumes.

Net operating profit of R6 009 million (FY16: R5 166 million) represents an increase of 16%, at an operating margin of 27%, mainly due to:

• Higher prices (+R2 242 million)
• Higher volumes (+R445 million)
• Net scope changes on environmental rehabilitation provisions (+R168 million).

The increase was partly offset by:

• Exchange rate variance due to stronger local currency against the US dollar (-R272 million)
• Inflation (-R505 million)
• Product mix variance at EITAG (-R307 million)
• Closure of Inyanda operation and subsequent disposal (-R235 million)
• Additional outside services for mining contractors (-R255 million)
• Proceeds on sale of SDCT in FY16 (-R203 million).

6.3. Ferrous business

6.3.1. Net operating profit

Net operating profit increased by R100 million to R53 million in FY17 from the net operating loss of R47 million reported for FY16. The increase is mainly as result of a R100 million pre-tax impairment charge of the ferrosilicon plant at FerroAlloys which was accounted for in FY16.

6.3.2. Equity-accounted investments

The increase in equity-accounted income from SIOC of R887 million to R3 303 million in FY17, is largely attributable to the increase in export iron ore prices, as well as Exxaro’s share of a post-tax impairment reversal of R716 million relating to property, plant and equipment. An interim dividend of R1 390 million was received from SIOC in FY17 (FY16: nil). A final dividend, of which Exxaro’s share will be R1 306 million, was declared on 8 February 2018.

6.4. Titanium dioxide and Alkali chemicals

6.4.1. Equity-accounted investment

Equity-accounted losses from the Tronox investment increased from R384 million in FY16 to R1 643 million in FY17, mainly due to Exxaro’s share of the loss realised on the disposal of the Alkali chemicals business in September 2017 of R1 271 million.

The Tronox Limited investment was classified as a non-current asset held-for-sale on 30 September 2017 and the application of the equity method ceased on that date. As the Tronox Limited investment represents a major geographical area of operation and represents the majority of the TiO2 and Alkali chemicals reportable operating segment, the nine months results of Tronox Limited were presented as a discontinued operation.

Subsequent to the classification as a non-current asset held-for-sale, Exxaro completed an initial offering of 22,4 million Class A Tronox Limited ordinary shares. This partial disposal in Tronox Limited reduced Exxaro’s shareholding from 51,2 million to 28,7 million shares, representing 23,66% of the total outstanding voting shares of Tronox Limited as at 31 December 2017.

Exxaro will continue to assess market conditions going forward for further possible sell downs of its remaining investment in Tronox Limited.

6.5. Energy business

6.5.1. Equity-accounted investment

Equity-accounted income from Cennergi, a 50% joint venture with Tata Power, remained flat at R2 million for FY17 (FY16: R3 million). The two windfarm projects which were brought into commercial operation during 3Q16 are running at planned capacity. FY17 represents a full year of revenue generation which was offset by a full year of depreciation and finance costs expensed to profit or loss.

As part of Exxaro’s optimisation programme of the coal portfolio, Exxaro concluded a sale of shares agreement with Universal for ECC’s 100% shareholding in Manyeka, which includes a 51% interest in Eloff. The sale is conditional on Competition Commission approval as well as section 11 approval in terms of the MPRDA for the transfer of the mining right. The investment in Manyeka has been classified as a non-current asset held-for-sale on 30 September 2017. On 31 December 2017 conditions precedent to the sale agreement had not yet been met.

In addition to the above Exxaro took the decision to divest from the NBC operation and the divestment process commenced during August 2017. On 31 December 2017, the NBC operation has been classified as a non-current asset held-for-sale. On 2 March 2018, Exxaro concluded a sale of asset agreement for the disposal of the NBC operation. The sale will only be effective once all conditions precedent to the sales agreement have been met.

Exxaro currently has a level 6 contribution status. The gaps to improve the status have been analysed to improve the contribution status year-on-year. Enterprise and Supplier Development has been identified as an area to receive greater focus in the future.

The revised mining charter (Mining Charter III) has not yet been gazetted, and the mining industry should have clarity by the end of 2018 on the new legislation.

Exxaro has set out in the Circular to shareholders dated 23 October 2017, that a portion of its shareholding in NewBEECo is earmarked for the empowerment of communities and employees. Exxaro has undertaken to:

• Finalise an appropriate structure to transfer no less than 10% of its equity holding in NewBEECo for the empowerment of relevant employees and communities by 30 June 2018
• In consultation with the IDC and PIC pursue, in good faith, the possibility of listing the shares of NewBEECo on a stock exchange which restricts trading to HDSA parties, by no later than 30 November 2018, to further broaden Exxaro’s BEE shareholding base.

Other than the normal LOM depletion, there were no material changes to the mineral resources and mineral reserves estimates as disclosed in the 2016 integrated report.

Exxaro has updated its internal competent persons reports for applicable operations to align this with the third edition of the SAMREC Code which came into effect in January 2017.

The Leeuwpan mining right (including the expansion area mining right) has been registered. Ministerial consent (section 102) to amalgamate the two rights has been received and execution is expected to occur in the first quarter of 2018.

Exxaro also submitted amendments to existing rights to either protect or ensure greater LOM potential. These include the addition of associated minerals to the Thabametsi Mining right, additional mining methods at Matla for greater extraction and the inclusion of environmental and infrastructure liabilities in the Grootegeluk mining right area.

The Arnot South Prospecting right renewal was successfully concluded during the year.

All outstanding environmental and rezoning appeals for the Exxaro Belfast Project have been successfully resolved, and the mine construction commenced in October 2017. The Leeuwpan expansion environmental licences and wayleave permit were also granted with construction commencing in October 2017.

The Financial Provisioning Regulations in terms of NEMA were re-published on 10 November 2017 for comment, reflecting favourable changes from the original December 2015 version.

The latest version of the NEMA Financial Provisioning Regulations (GNR 1228) will have less of an impact on Exxaro than the previous version. In principle Exxaro is already compliant with most of the requirements of the Financial Provisioning Regulations.

In 2017, the best global economic growth rate in seven years was supported by sound macroeconomic policies, which enabled key world economies to grow at or above trend. Barring any shock, this global expansion momentum is expected to continue into FY18. The current favourable global environment, strong global growth outlook and rising global trade volumes, as well as positive foreign international sentiment are expected to support South Africa’s growth prospects. The implications of a potential local currency denominated debt downgrade by Moody’s, coupled with continuous fiscal budget deficit challenges, will prolong the extreme volatility of the rand/US$ exchange rate experienced to date.

Exxaro expects an improvement in the operational results of the coal business for 1H18 primarily driven by:

• Good export prices leading to a shortage of coal in domestic markets, underpinning stronger domestic prices
• The Medupi offtake is expected to follow minimum agreed Coal Supply Agreement volumes. This will be the first commercial year for the minimum contract volumes as agreed in the Coal Supply Agreement after the previous addendums
• Stable seaborne demand internationally
• Exxaro’s operational excellence process delivering sustainable improved results as well as technology and innovation improvements starting to contribute positively with the establishment of the innovation project office.

A relatively stable international thermal coal market is anticipated for 1H18. The iron ore market remains well supplied and expected to soften somewhat as further volumes enter the market. The current strong titanium dioxide pigment fundamentals momentum is anticipated to continue into 1H18.

In October 2017 Exxaro disposed of a portion of its shareholding in Tronox Limited. In assessing the application of the proceeds realised on the disposal, the board of directors of Exxaro considered Exxaro’s growth prospects, future capital commitments, the repayment of debt and the return of capital to its shareholders. On 13 February 2018, Exxaro declared a special dividend of R4 502 million out of income reserves, which equates to 1 255 cents per share. The dividend was paid on 5 March 2018 to shareholders on the register on 2 March 2018.

Exxaro’s dividend policy is based on a cover ratio of between 2,5 and 3,5 times core attributable earnings.

Notice is therefore given that a gross final cash dividend, number 30 of 400 cents (final FY16: 410 cents) per share, for the financial year ended 31 December 2017 was declared, payable to shareholders of ordinary shares. For details of the dividend, please refer note 12 of the reviewed condensed consolidated annual financial statements.

Salient dates for payment of the final dividend are:
Last day to trade cum dividend on the JSE	Tuesday, 17 April 2018
First trading day ex dividend on the JSE	Wednesday, 18 April 2018
Record date	Friday, 20 April 2018
Payment date	Monday, 23 April 2018

No share certificates may be dematerialised or re-materialised between Wednesday, 18 April 2018 and Friday, 20 April 2018, both days inclusive. Dividends for certificated shareholders will be transferred electronically to their bank accounts on payment date. Shareholders who hold dematerialised shares will have their accounts at their central securities depository participant or broker credited on Monday, 23 April 2018.

Shareholders are hereby advised, in compliance with paragraph 3.59 of the Listings Requirements of the JSE Limited, of the following changes to the Board of directors (Board).

As a result of the Replacement BEE Transaction whereby the previous shareholder structure was unwound, the following directors nominated by their respective shareholder constituencies, resigned with immediate effect:

• Dr MF (Fazel) Randera
• Mr D (Rain) Zihlangu
• Mrs S (Salu) Dakile-Hlongwane
• Mr VZ (Zwelli) Mntambo
• Ms MW (Monhla) Hlahla

The Board expresses its sincere appreciation to the above individuals for their dedication, service, invaluable contribution to the business and commitment during their tenure.

In terms of the Replacement BEE Transaction, NewBEECo is entitled to nominate four individuals for consideration as directors to the Board. After carefully having considered the nominations, the Board is pleased to announce the appointment of the following non-executive directors, as a result of the Replacement BEE Transaction, with immediate effect:

• Ms Monhla Wilma Hlahla – Masters of Arts (MA) Urban Planning, UCLA School of Architecture and Planning, USA; Advanced Management Program (AMP), INSEAD, France; Certificate in Accounting and Finance, Wits Business School
• Mr Vincent Zwelibanzi Mntambo – BJuris, LLB (Univ North West), LLM (Yale)
• Ms Likhapha Mbatha – LLB (University of Lesotho); LLM (University of Witwatersrand)
• Ms Daphne Mashile-Nkosi – Small business management diploma (University of Witwatersrand)

The Board is of the view that their diverse skills and experience will contribute positively to the development and execution of the Exxaro strategy.

Dr Deenadayalen (Len) Konar, who has been an independent non-executive director since November 2006 and who also served as chairman of the Board, will be retiring by rotation at the upcoming AGM on 24 May 2018 and will regrettably not be available for re-election. The Board wishes to thank Dr Konar and expresses its sincere appreciation for his outstanding leadership and valuable contribution throughout his tenure as independent non-executive director and chairman. His resilience, acumen and deep business knowledge have stood the organisation in good stead.

Furthermore, Dr CJ (Con) Fauconnier, a seasoned independent non-executive director and mining professional, who has served on the Board since November 2013, recently turned 70 and will retire in terms of the requirements of the Memorandum of Incorporation of the Company, by virtue of his age and will not offer himself for re-election. The Board wishes to thank Dr Fauconnier for his immense contribution over the years which has lent credence to the maturity and expertise of the Board.

As a result of Anglo American’s disposal of its entire interest in Exxaro, Mr S (Saleh) Mayet, who has served as a non-executive director since August 2015, will retire at the AGM and will not offer himself for re-election. His technical and commercial insights with regard to mining were invaluable to the team.

The Board also welcomes Ms Anuradha Singh – BSc Eng (Mechanical) – University of Natal (Durban), 1994; MBA – Wits Business School, 2000 Being a Director Parts I & II – Institute of Directors South Africa, as an independent non-executive director. Ms Singh will bring a richness of skills to augment the Board.

Additional information on financial and operational results for the financial year ended 31 December 2017, and the accompanying presentation can be accessed on our website on www.exxaro.com.

On behalf of the board

Len Konar Mxolisi Mgojo Riaan Koppeschaar Chairman Chief executive officer Finance director

6 March 2018