COMMENTARY

The health and safety of our employees and communities remained our priority, as South Africa experienced a second wave of COVID-19 infections at the end of 2020. In line with our Health and Wellness Strategy, which focuses on diagnosis, management and prevention of diseases, our response to the COVID-19 pandemic continues to focus on avoiding, reducing and managing COVID-19 cases. As at 1 March 2021, a total number of 2 780 employees have been infected since the onset of the pandemic, with a recovery rate of 99%. Our deepest condolences to those who have lost their loved ones due to the virus. We remain committed in our fight to prevent further loss of life and continue to implement COVID-19 preventative measures in line with government regulations and recommendations.

Amidst the backdrop of the pandemic, it is pleasing to be able to report on our record safety performance this past year. We have achieved a total of 48 months without a
mine-related fatality and a lost-time injury frequency rate (LTIFR) of 0.05, which is 54% better than the 0.11 target and 58% better than the 0.12 reported for FY19. Zero Harm remains Exxaro's key business objective.

Comparability of results

For a better understanding of the comparability of results between the two reporting periods, the table below sets out the non-core adjustments to derive our core earnings:

Group segment results

During 2H20, in line with reporting trends and improved disclosure, we have revised the reporting of corporate costs to our chief operating decision maker. Indirect corporate costs are no longer allocated between the different segments but now reported on a gross level in the other reportable segment. FY19 numbers have been re-presented to reflect these changes.

Revenue and core EBITDA

Consolidated group revenue increased 12% to R28 924 million (FY19: R25 726 million), mainly due to higher commercial coal revenue and record coal export volumes (discussed in more detail under the coal business performance), as well as the inclusion of renewable energy sales from 1 April 2020.

The higher revenue was the main driver for the 25% increase in consolidated group core EBITDA of R7 291 million (FY19: R5 832 million), which was partially offset by inflationary pressure on costs, additional distribution costs relating to higher exports volumes, higher buy-ins and higher costs due to the ramp-up of the Belfast mine.

Earnings

Headline earnings were 2% lower at R7 417 million (FY19: R7 599 million). The decrease in the headline earnings is mainly due to the BEE Parties sharing in the consolidated Eyesizwe results for 12 months in 2020 compared to the two months in 2019, partially offset by better profitability from controlled operations and higher equity-accounted income from non-controlled operations. This equates to basic headline earnings per share (HEPS) of 2 955 cents per share (FY19: 3 027 cents per share). The WANOS for both financial years was 251 million.

After adjusting for non-core items, core headline earnings increased by 1% to R7 462 million (FY19: R7 402 million).

To ensure a consistent comparison on core headline earnings per share (CHEPS), the core WANOS before 1 November 2019 was 332 million, reducing to 251 million from 1 November 2019 due to the recognition of non-controlling interest. CHEPS increased 26% to 2 973 cents per share (FY19: 2 354 cents), mainly driven by a 36% increase in core equity-accounted income, of which SIOC is the main contributor, as well as better performance from our own managed operations.

Core equity-accounted income

Cash flow and funding

Cash generated by operations of R7 770 million (FY19: R5 273 million) was up 47% and, together with dividends received from our equity-accounted investments of R3 263 million (FY19: R4 146 million), were sufficient to fund ordinary dividends paid, taxes and net finance costs.

Total capital expenditure of R3 175 million (FY19: R6 076 million) decreased by R2 901 million, comprising R277 million decrease in sustaining and environmental capital
(stay-in-business capital) and R2 624 million decrease in new capacity (expansion capital).

Debt exposure

Our balance sheet remains strong with net debt managed at R6 335 million (excluding Cennergi's net debt of R4 632 million) compared to R5 810 million at 31 December 2019.
The increase is mainly due to a cash outflow of R1 739 million for the acquisition of the remaining 50% interest in Cennergi, including the contingent consideration paid. Our net debt (excluding Cennergi) to core EBITDA was 0.96 times (FY19: 1.00 times), which is comfortably below our target of 1.5 times.

Coal business performance

Unreviewed coal production and sales volumes

Notwithstanding the COVID-19 lockdown restrictions imposed in 2020, steam coal demand remained fairly steady in the domestic market. There was good offtake from Eskom at Matimba Power Station, with Medupi Power Station falling slightly short for the year. Eskom did not take coal from Leeuwpan and ECC as the parties are still in the process of concluding new coal supply agreements.

Demand from AMSA was impacted due to the initial lockdown restrictions and lower steel demand. AMSA's offtake recovered somewhat with the easing of the lockdown restrictions.

Internationally, the onset of the COVID-19 pandemic impacted global demand as industries ceased production under lockdown conditions. This was evident in the sponge iron markets on the East Coast of India. As restrictions eased, demand in India returned to pre-pandemic levels in 4Q20. The import ban on Australian thermal coal into China caused a stir as China imported coal from South Africa. In turn, Australian coal found its way into the Indian and Pakistani power generation and cement markets.

The average benchmark API4 RBCT export price of US$65 per tonne was 10% lower (FY19: US$72 per tonne) resulting in an 11% lower average price per tonne achieved of
US$48 (FY19: US$54 per tonne). The average spot exchange rate was weaker at R16.45 to the US dollar (FY19: R14.44).

Production and sales volumes

Overall coal production volumes (excluding buy-ins) increased by 1 602kt (+4%), mainly attributable to higher production at Grootegeluk as well as Belfast mine, which was fully ramped-up from March 2020. The increase was partly offset by lower production at Leeuwpan and ECC due to the COVID-19 lockdown. Sales improved by 2 226kt (+5%), as a result of increased exports as well as higher domestic sales from Grootegeluk, offset somewhat, by lower domestic sales at Leeuwpan and ECC.

Thermal coal

Commercial: Waterberg

Production at Grootegeluk increased by 871kt (+3%) and sales by 1 186kt (+5%), mainly due to higher demand from Eskom at the Medupi Power Station.

Eskom and Exxaro are still engaging on the Force Majeure notification received from Eskom in April 2020. This resulted in Eskom not paying R95 million for the months of
April 2020 and May 2020.

Commercial: Mpumalanga

The commercial Mpumalanga mines' thermal coal production increased by 421kt (+4%), driven by higher production at Belfast (+1 821kt).

The increase was largely offset by:

• Lower production at ECC of 677kt (-15%), mainly due to Forzondo North being placed on care and maintenance in 1Q20, Dorstfontein East ramp-up issues at Pit 1 and a 10-day shut during the COVID-19 lockdowns in 1H20
• Lower production at Leeuwpan of 676kt (-15%), due to a 10-day shut during the COVID-19 lockdown in 1H20 coupled with logistics and market constraints.

The commercial Mpumalanga mines' domestic thermal coal sales decreased by 2 208kt (-56%), mainly as a result of no sales from Leeuwpan (-1 343kt) and ECC (-898kt) to Eskom in FY20. These tonnages were however re-directed to the export market.

Exports

Export sales increased by 3 083kt (+34%) as a result of improved coal availability from Belfast, Grootegeluk and ECC.

Tied

Coal production and sales at Matla mine increased by 162kt (+3%) and 159kt (+3%), respectively. Higher production at the Mine 2 shortwall was partly offset by lower production at Mine 3 due to unfavourable geological conditions and COVID-19 protocols impacting shift patterns.

Metallurgical coal

Grootegeluk's metallurgical coal production increased by 148kt (+7%), due to improved plant availability and yields, despite geological challenges. Sales increased slightly despite the national lockdown restrictions.

Revenue and core EBITDA

Coal revenue and core EBITDA

The higher coal revenue from our commercial mines was driven by higher export sales volumes at a slightly higher ZAR price and higher Eskom prices. This was partly offset by lower Eskom sales volumes as well as lower prices and volumes for other domestic sales.

Coal core EBITDA of R7 707 million (FY19: R6 849 million) increased by 13%, mainly driven by:

• Higher export volume (+R2 784 million)
• A weaker ZAR/USD realisation on export sales (+R1 231 million)
• Lower provision for rehabilitation costs (+R428 million), mainly due to higher closure costs provided for at Durnacol and Hlobane mines that did not recur in FY20, and higher discount rates used for the longer dated liabilities
• Lower expected credit losses (+R281 million)

The increase was partly offset by:

• Lower price realisation (-R1 055 million)
• Lower domestic sales volumes (-R 648 million)
• Lower other revenue (-R336 million), mainly due to the transfer of Arnot mine to Arnot Opco Proprietary Limited on 1 February 2020
• Inflationary pressures (-R317 million)
• Higher employee costs (-R166 million), driven mainly by capitalisation of Belfast costs in FY19 and higher costs relating to COVID-19 allowances and cleaning teams
• Higher selling and distribution costs due to increased export volumes (-R675 million)
• Higher operational costs (-R234 million), attributable to Belfast mining costs capitalised for only two months in FY20; offset by savings in contract mining costs at Grootegeluk and ECC
• Higher costs of coal buy-ins (-R317 million).

Coal business performance

Equity-accounted investment

Mafube, a 50% JV with Anglo, recorded a lower core equity-accounted income of R67 million (FY19: R127 million) due to the impact of the national lockdown in 1H20.

Capex and projects

Coal Capex

Exxaro's coal capital expenditure of R3 060 million decreased by 47%, driven by lower expansion capital spend. At Grootegeluk, the GG6 project was delayed by seven months due to the impact of the COVID-19 pandemic, resulting in an overall delay of 13 months. The current estimated capital overrun of approximately 10% for the GG6 project is still as per previous guidance provided. The forecast final cost to completion is expected to be R5.3 billion with project close out expected in 2Q22. The rapid load out station at Grootegeluk and the Belfast mine have been completed within budget.

Energy business performance

The effective date of consolidation of Cennergi into the Exxaro group is 1 April 2020, reporting core EBITDA of R648 million for the nine-month period ended 31 December 2020. Free cash flow generated by Cennergi for the nine-month period was R152 million.

Total generation output at 553GWh for the nine-month period is marginally below planned numbers due to lower wind conditions. Equipment performance and Eskom grid availability remain according to plan. Electricity generated for the twelve months amounted to 727GWh, which is slightly lower (-4%) than 2019, which was an exceptionally good year for generation, especially in July 2019 where the Amakhala windfarm generated more than 150% of its intended target.

Ferrous business performance

Equity-accounted investment

The 38% increase of R1 700 million in core equity-accounted income from SIOC to R6 123 million (FY19: R4 423 million), was primarily driven by the higher iron ore prices in combination with cost-saving initiatives implemented.

An interim dividend of R1 706 million was received from our investment in SIOC in August 2020 (2H19: R2 682 million). SIOC has declared a final dividend to its shareholders in February 2021. Exxaro's 20.62% share of the dividend amounts to R3 663 million. The dividend will be accounted for in 2021.

Titanium dioxide business performance

Equity-accounted investment

Core equity-accounted income of R226 million from Tronox SA was in line with the previous year (FY19: R236 million).

Subsequent to 31 December 2020, Exxaro divested from its investments in Tronox.

Exxaro continues to evaluate its options to dispose of its 26% shareholding in Black Mountain following the suspension of the sale process in December 2020. At 31 December 2020, the investment no longer met the criteria to be classified as a non-current asset held-for-sale with the retrospective reinstatement of the equity method from
1 November 2019.

As mentioned previously, we undertook a strategic decision to dispose of our total equity interest in ECC and Leeuwpan, having identified these assets as non-core to the future objectives of Exxaro. The resultant sales process is well underway and good progress has been made notwithstanding the COVID-19 environment. We are close to finalising the disposal of ECC with an announcement expected in 1H21. On 31 December 2020, the ECC operation met all the criteria to be classified as a non-current asset held-for-sale. The disposal process for Leeuwpan continues.

While the FY20 audit is still in progress, we are expected to maintain our level 2 B-BBEE status. The certificate will be published as soon as the audit is concluded.

The COVID-19 pandemic has highlighted the deeply connected nature of our society and emphasised the importance of an integrated sustainable development approach, focused on agile responses to short term challenges, while continuing to support a Just Transition towards a low carbon economy and sustainable communities. Our embedded safety and health strategies and stakeholder relations have enabled us to respond timeously and effectively to the pandemic. Further details will be available in our 2020 Integrated Report.

Taking a proactive approach to stewardship

We continue to integrate responsible management practices into our operations, taking a holistic approach to climate change and environmental stewardship.

Outcome of the Taskforce on Climate-Related Financial Disclosures (TCFD) Assessment

We have concluded the TCFD Assessment of the risks and opportunities to our business and the ability to remain resilient against climate change. The assessment has been invaluable in re-affirming our strategic considerations for sustainable growth and impact in preparation for a lower carbon economy.

The assessment results considered a future scenario where temperature increases do not exceed 2°C, in line with the Paris Agreement commitment. In this context we established and communicated a target of being carbon neutral by 2050, which we will achieve through, inter alia, a reduction in emissions to be determined. We are pleased to report that Exxaro achieved an alignment of between 90% and 100% to the TCFD recommendations. The gaps identified are addressed through our Sustainable Growth and Impact strategy in terms of describing how we will manage climate-related opportunities and the resilience of the business.

Environmental Incidents

In 2020 our Environmental Incidents Management Standard was reviewed and changes introduced in order to ensure that all environmental incidents are tracked, including incidents which had no visible environmental impacts (level zero incidents). We now have level 0 and level 1 to level 3 environmental incidents classifications. The classifications based on the materiality of the risk or impact. This change standard will be implemented from 2021. In 2020 we had zero level 2 and level 3 incidents and 94 level 1 incidents.

Mining and prospecting rights

Our interactions with the DMRE, DHSWS and other state departments have been impacted by the pandemic. The following applications are still in process at the DMRE and DHSWS:

• section 102 application amending Matla mining right to swap Coal Reserves as part of a commercial deal
• the execution of the consolidation of two Leeuwpan mining rights into a single mining right
• environmental authorisation and integrated water use licence for the Dorstfontein West discard dump expansion project
• The execution of a section 102 application at Grootegeluk to incorporate the two farms on which we have mining infrastructure.

The group compliance to valid licences or authorisations for current operations for 2020 is at 96%. Where rights and other licences are nearing expiry dates, renewal applications are submitted timeously with the DMRE.

Coal Resources and Coal Reserves

New exploration information used to update geological and structural models at the Grootegeluk, Matla, Dorstfontein and Forzando operations increased geological confidence within the Coal Resource classification categories.

At Grootegeluk, the improved understanding of the geology and the geological structure within the mining area resulted in an estimated 258Mt of Inferred Resources being upgraded to Indicated Resources. In addition, approximately 151Mt of Measured Coal Resources within the northern pit area were reclassified as Indicated, resulting in an overall increase of approximately 409Mt within the Indicated Resource category. Our improved structural interpretation of the position and orientation of the interpreted fault positions in the northern pit changed meaningfully to warrant this reclassification.

Our exploration plans were significantly impacted by the COVID-19 pandemic. The COVID-19 lockdown measures coincided with the dry season, typically the period in which we conduct drilling, surface geophysics and other field exploration activities at our operations. Drilling programmes were postponed at the first lockdown and we only started with limited exploration activities later in the year when access to the sites was allowed under very strict health regulations. The operational exploration teams have however reacted very well to the challenge, revising the plans and prioritising activities to support the most pertinent objectives of the original 2020 exploration plans.

In 2019, we initiated a process aligned with the Exxaro sustainable growth strategy in reviewing and compiling optimised exploitation plans, focusing on extracting higher value earlier in the life of operations. The optimised plans seek to unlock earlier value, but importantly without compromising the value of the underlying Coal Resource. This process was completed during the reporting year for the Grootegeluk and Belfast operations, and the initiative will continue to be rolled out to the other operations in 2021. Implementing the high-value exploitation strategy at the Grootegeluk mine resulted in an optimised mine layout prioritising high-value Coal Reserve blocks for earlier mining and scheduling lower value Coal Reserves blocks to the latter part of the mine life. This change resulted in an approximately 17% (3 165Mt to 2 628Mt) decrease in the total Grootegeluk RoM Coal Reserve. The Proved Coal Reserves at the Thabametsi mine, an area adjacent to Grootegeluk mine, are reclassified as Probable as a result of the lapse of the independent power producer (IPP) project development agreement and were not affected by this strategy.

At ECC's Forzando mine, a decrease of approximately 60% (34.6Mt to 13.7Mt) RoM Coal Reserves is due to economic factors rendering Coal Reserve blocks non-profitable. Material movements within the Coal Reserve categories at ECC's Dorstfontein complex are primarily due to implementing a new underground mine layout at the Dorstfontein East mine. The underground Coal Reserves were accessed through an adit in the existing highwall of one of the open pits. The seam 4 lower underground Coal Reserves will provide an estimated 12 years LoM. Mining of seam 2 lower (S2L) underground Coal Reserves at Dorstfontein is scheduled to start in 2029, adding an additional eight years.

First-time reporting of Proved Coal Reserves at Mafube mine is due to the bankable feasibility study's approval at the Nooitgedacht operation.

Economic context

World real GDP growth in 2020 contracted by 3.9% compared to an expansion of 2.6% in 2019. In 2021, global economic growth recovery is anticipated to continue, however, the worldwide resurgence of COVID-19 infections together with associated restrictions and the availability and timeous roll out of vaccines will weigh on the extent of such
economic recovery.

The impact of COVID-19 on South Africa's fragile public finances has been devastating. As a result, the much-anticipated Economic Reconstruction and Recovery Plan was released by the President of South Africa on 15 October 2020. If fully implemented, the plan is expected to lay a solid foundation for a higher economic growth path for the longer term.

In South Africa, the rand depreciated to an all-time low (1H20), before it significantly retracted (2H20). The reversion to a riskier financial market environment during 2H20 due to easing global COVID-19 lockdown restrictions, vaccine development, approval and roll-out strategies, together with the uncertainty of the US elections, supported the rand. However, rand volatility is expected to continue into 2021.

Commodity markets and price

The API4 index price remained stable during the third quarter of 2020 before gaining momentum during the fourth quarter of 2020 on the back of demand recovery from India, Japan and South Korea; a tightening in the LNG market with increased global LNG prices; and Chinese buying activity from South Africa. Further to the impact of COVID-19, China's renewed ban on Australian coal imports in September 2020 disrupted the thermal coal market. However, going into 2021, risks to the anticipated coal demand remain as well as the reintroduction of second and further rounds of COVID-19 restrictions.

As a direct result of disappointing iron ore global supply during 2020, inventory levels at both ports and mills did not adequately increase. Increasing concerns in China about iron ore availability, especially considering the high steel production levels recorded, supported the robust iron ore prices into 2021.

Operational performance

South African domestic coal stock levels are fairly high and Eskom stock levels are above average. It is however expected that the demand for thermal coal in the domestic market will remain fairly stable in 2021.

We do not currently foresee a major impact of the second wave of COVID-19 in our international markets. We expect global economic growth stabilising during 1H21, and thermal coal demand in our markets to remain strong.

The political dynamics between Australia and China are expected to impact South Africa exports as Australian producers encroach on SA natural markets to evacuate coal.

South African FOB export coal prices are expected to remain fairly strong in 1Q21, but softening in 2Q21 as the northern hemisphere moves out of winter.

We continue to drive productivity improvements through our operational excellence and digitalisation processes across the full value chain. This is all in relation to our drive to remain low on the cost curve.

The pre-feasibility study on determining the way forward for the Moranbah South hard coking coal project is expected to commence by the end of 1H21.

In terms of our capital allocation framework, we will remain prudent in returning cash to shareholders, managing debt, and selectively reinvesting for the growth of our business. Exxaro's declared dividend policy was previously based on two components: a pass through of the SIOC dividend received and a targeted cover ratio of 2.5 times to 3.5 times core attributable coal earnings.

Our strategic approach to build our renewable energy business necessitated a review of our dividend policy. The board of directors therefore approved for the targeted cover ratios to be applied on Exxaro group earnings and not only coal earnings. The revised dividend policy is therefore as follows:

• 2.5 times to 3.5 times group core net profit after tax (excluding SIOC core equity-accounted income) less NCI of Exxaro subsidiaries (excluding NCI of Eyesizwe), "adjusted group earnings"
• Pass through of the SIOC dividend.

The targeted gearing ratio of below 1.5 times net debt to EBITDA remains unchanged.

The board of directors has declared a cash dividend, in line with the revised policy, comprising:

• 2.5 times adjusted group earnings and
• Pass through of SIOC dividend receivable of R3 663 million.

Notice is hereby given that a gross final cash dividend, number 36 of 1 243 cents per share, for the year ended 31 December 2020 was declared, and is payable to shareholders of ordinary shares.

Taking into account the proceeds of R5 763 million received from the disposal of Exxaro’s shareholding in Tronox Holdings plc (as approved by the Financial Surveillance Department of the South African Reserve Bank),the board of directors has resolved to pay a special dividend of 543 cents per share (approximately R1 363 million (to external shareholders) and to implement a share buyback program of R1.5 billion.

For details of the final and special dividend, please refer note 12 of the reviewed condensed group annual financial statements for the year ended 31 December 2020. The details will also be published on our website at www.exxaro.com.

Salient dates for payment of the final dividend and special dividend are:

No share certificates may be dematerialised or re-materialised between Wednesday, 28 April 2021 and Friday, 30 April 2021, 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, 3 May 2021.

In line with the King IV™, as amended or replaced from time to time, and the JSE Listings Requirements with respect to good corporate governance practices, Exxaro aims to ensure that there is a clear balance of power and authority at board level and to ensure that there is adequate succession planning to maintain ongoing knowledge and experience at
board level.

The Exxaro board of directors accordingly announced the following changes to the board of directors:

• Mr MDM (Mxolisi) Mgojo, CEO, will retire as CEO and member of the board of directors when he reaches the retirement age of 63, on 31 May 2023.

• Dr N (Nombasa) Tsengwa, has been appointed as CEO-designate and member of the board of directors effective from 16 March 2021. Her appointment as CEO will become effective once the CEO retires on 31 May 2023.

  Dr Tsengwa's appointment forms part of a carefully considered succession plan which has taken place over the past two years. The transition period will ensure a smooth and phased handover of duties and responsibilities.

  Dr Tsengwa has more than 18 years' executive management and board experience in the public and private sectors. In 2003, she joined the former Kumba Resources Limited as general manager: safety, health and environment. In 2007, she was appointed as executive general manager: safety and sustainable development of Exxaro Resources Limited. In 2010, she became directly involved with the management of the coal operations as general manager of the tied operations and general manager of the Mpumalanga operations. In 2015, she was appointed as acting executive head of the coal operations and executive head of the coal operations in 2016. She was subsequently appointed as Exxaro's managing director minerals business in July 2020. She is the 2017 winner of the Standard Bank Business Woman of the Year Award and the 2018 winner of the Pan African Awards Africa's most influential woman in business and government mining industry category. An avid long-distance runner, Dr Tsengwa has completed
  nine Comrades marathons.

• Mr J (Jeff) Van Rooyen's tenure as chairman and independent non-executive director of the board of directors will come to an end at the annual general meeting to be held on
  27 May 2021. The board of directors would like to thank the outgoing chairman for his contribution and stewardship during his term of office. The board of directors has initiated a search process for his replacement and a further announcement in this regard will be made in due course.

Additional information on financial and operational results for the year ended 31 December 2020, and the accompanying presentation can be accessed on our website on www.exxaro.com.

On behalf of the board

18 March 2021