COMMENTARY For the six-month period ended 30 June 2024

As of 30 June 2024, the group achieved a total of 22 months without a work-related fatality and recorded four lost time injuries resulting in an LTIFR of 0.05, which is the same as our target of 0.05. The current performance indicates a 38% improvement when compared to the same period last year (1H23: 0.08). Exxaro has recorded zero high potential incidents across the group, compared to four for the full year ended 31 December 2023. To further improve and sustain the current performance, various safety initiatives have been deployed across all our business units.

Comparability of results

For a better understanding of the comparability of results between the two reporting periods, we have adjusted our earnings for non-recurring items (referred to as non-core adjustments) to derive our adjusted earnings. The non-core adjustments in both 1H24 and 1H23 are the same as the headline earnings adjustments (refer note 4).

Group revenue and EBITDA

	Revenue				EBITDA1
	1H24	1H23	2H23		1H24	1H23	2H23
	Rm	Rm	Rm		Rm	Rm	Rm
Coal	18 251	18 125	18 820		5 060	6 922	5 291
Energy	652	610	735		470	475	548
Ferrous	75	205	193		(12)	53	30
Other2	3	3	7		(400)	210	(130)
Total	18 981	18 943	19 755		5 118	7 660	5 739

1 EBITDA is calculated by adjusting net operating profit before interest and tax with depreciation, amortisation, impairment charges or impairment reversals and net losses or gains on disposal of assets and investments (including translation differences recycled to profit or loss). Refer note 5 for key numbers used in the calculation of EBITDA.

2 Relates mainly to the corporate office and smaller operations (refer note 5).

Group revenue remained in line with 1H23 at R18 981 million (1H23: R18 943 million).

Group EBITDA decreased by 33% to R5 118 million (1H23: R7 660 million), mainly attributable to the 27% decrease in Coal EBITDA discussed in more detail under the coal business performance.

Adjusted equity-accounted income

	Adjusted equity-accounted income/(loss)				Dividends received
	1H24	1H23	2H23		1H24	1H23	2H23
	Rm	Rm	Rm		Rm	Rm	Rm
Coal: Mafube	60	276	234			375	1 150
Coal: RBCT	3	2	(10)
Ferrous: SIOC	1 937	2 631	3 526		2 107	1 419	1 967
Other: Black Mountain	(83)	256	76
Total	1 917	3 165	3 826		2 107	1 794	3 117

Adjusted equity-accounted income decreased by 39%, mainly as a result of a 26% decrease in equity-accounted income from SIOC which was impacted by lower iron ore prices, partially offset by lower operating expenses and a weaker currency.

Group Earnings

Headline earnings decreased by 37% to R3 697 million (1H23: R5 912 million). The decrease in headline earnings is attributed to a 33% decrease in group EBITDA, as well as a 39% decrease in adjusted equity-accounted income.

The weighted average number of shares (242 million) remained unchanged translating into HEPS of 1 528 cents per share (1H23: 2 443 cents per share).

Cash flow and funding

Cash generated by our operations decreased by 23% to R4 803 million (1H23: R6 252 million) and, together with the dividend received from our equity-accounted investments of R2 107 million (1H23: R1 794 million), were sufficient to fund capital expenditure and ordinary dividends paid.

Total capex increased to R1 061 million (1H23: R801 million), comprising R1 056 million sustaining capex and R5 million expansion capex.

Debt exposure

Our stable cash generation resulted in a net cash position of R14 013 million (excluding Energy’s net debt of R4 243 million) at 30 June 2024, compared to a net cash position of R14 834 million (excluding Energy’s net debt of R4 349 million) at 31 December 2023.

Unreviewed coal production and sales volumes

	Production				Sales
	1H24	1H23	2H23		1H24	1H23	2H23
	‘000 tonnes	‘000 tonnes	‘000 tonnes		‘000 tonnes	‘000 tonnes	‘000 tonnes
Thermal	18 210	18 819	21 005		18 504	18 791	21 051
Commercial – Waterberg	11 272	12 706	13 393		10 978	12 162	12 762
Commercial – Mpumalanga	3 647	3 460	4 255		998	1 523	2 271
Exports					3 242	2 448	2 661
Tied1	3 291	2 653	3 357		3 286	2 658	3 357
Metallurgical	1 042	1 388	1 077		351	340	344
Commercial – Waterberg	1 042	1 388	1 077		351	340	344
Total coal (excluding buy-ins)	19 252	20 207	22 082		18 855	19 131	21 395
Thermal coal buy-ins		175
Total coal (including buy-ins)	19 252	20 382	22 082		18 855	19 131	21 395

1 Matla mine supplying its entire production to Eskom.

During 1H24 Europe and Japan continued to experience high coal inventory levels and alternative sources of energy in their energy mix dampening coal demand. Demand from price-elastic markets such as India and South Korea had minimal impact. Supply continued to be strong from Australia and Indonesia due to favourable weather conditions, enabling higher production. Geopolitics, and the implementation of coal phase-out policies, continued to be dominant in the USA, Russia and Europe, respectively.

In South Africa, continued lacklustre rail performance due to locomotive unavailability, cable theft, derailments and vandalism remained a challenge. The collaboration by the TFR-Industry Recovery Team realised some benefits and service levels did not deteriorate further. Exxaro railed 2.45 Mt of export coal to RBCT in 1H24, consistent with the same period last year.

Domestically, operational challenges and equipment failures at Matimba and Medupi power stations continued into 1H24, impacting on Eskom’s offtake of power station coal in the Waterberg region. Market participants in the domestic market are currently pursuing options to manage their export pricing exposure and securing stable revenue streams in a logistically constrained environment.

The average benchmark API4 RBCT export price of US$101 per tonne was 22% lower (1H23: US$130 per tonne) resulting in a 24% decrease in the average realised export price for Exxaro of US$96 per tonne (1H23: US$127 per tonne). Despite this price decline, Exxaro was able to realise 95% of the average API index price based on its sales mix across all products.

Production and sales volumes

Overall coal production volumes (excluding buy-ins) decreased by 955 kt (5%). The decrease in production at Grootegeluk and Leeuwpan was partly offset by higher production at Belfast, Matla and Mafube.

Overall sales volumes were 276 kt (1%) lower, mainly due to lower sales to Eskom, offset by an increase in export sales.

Thermal Coal

Commercial Waterberg

Production at Grootegeluk decreased by 1 434 kt (11%) to match the lower demand plan from Eskom and to manage full stockpiles.

Sales were 1 184 kt (10%) lower, due to the lower offtake from Eskom (909 kt) as a result of maintenance outages affecting production units at both the Matimba and Medupi power stations, as well as full stockpiles, however we have seen improved offtake levels from Eskom towards the end of the 1H24. AMSA offtake was lower mainly due to a blast furnace breakdown and product availability.

Commercial Mpumalanga

Thermal coal production increased by 187 kt (5%) compared to 1H23 due to:

• Belfast increasing production by 655 kt (61%), after fully transitioning to the new mining contractors.
• Mafube increasing production by 128 kt (20%), driven by increased equipment availability and better blasting fragmentation.

The increase in production was partly offset by:

• Lower production at Leeuwpan of 596 kt (35%), as we changed the mining sequence, resulting in less production of power station coal, and lower offtake of the middling’s product.

Domestic thermal coal sales decreased by 525 kt (34%) compared to 1H23:

• Leeuwpan sales decreased by 333 kt (31%), as we experienced lower demand for the sized product.
• Belfast sales decreased by 202 kt (54%), as more product was channelled to the export market.

Export commercial

Export sales increased by 794 kt (32%), as we were able to use alternative distribution channels.

Tied

Coal production and sales from Matla increased by 638 kt (24%) and 628 kt (24%), respectively. The higher production was enabled by improved production efficiencies, especially the Mine 2 shortwall (283 kt) and the 4 Seam at Mine 3 (324 kt).

Metallurgical Coal

Grootegeluk’s metallurgical coal production decreased 346 kt (25%) compared to 1H23 due to full stockpiles, lower demand, as well as challenges at the Mbokodo siding impacting our export sales.

Sales increased 11 kt (3%), as we witnessed an increase in market demand for semi-soft coking coal.

Coal revenue and EBITDA

	Revenue				EBITDA
	1H24	1H23	2H23		1H24	1H23	2H23
	Rm	Rm	Rm		Rm	Rm	Rm
Commercial – Waterberg	10 657	11 384	11 112		5 150	6 452	5 250
Commercial – Mpumalanga	4 636	4 000	4 666		(39)	508	489
Tied1	2 958	2 741	3 042		93	88	91
Other					(144)	(126)	(539)
Total coal	18 251	18 125	18 820		5 060	6 922	5 291

1 Matla mine supplying its entire production to Eskom.

Coal revenue increased 1% to R18 251 million (1H23: R18 125 million). Despite lower sales volumes and export prices, we realised higher revenue from our commercial mines through a better product sales mix and a favourable exchange rate on our export sales.

Coal EBITDA of R5 060 million decreased 27% (1H23: R6 922 million) at a healthy EBITDA margin of 28%.

The decrease in coal EBITDA can be attributed to:

• Lower sales prices (-R1 481 million);
• Higher operational costs (-R643 million);
• Higher selling and distribution costs (-R541 million);
• Higher inflation (-R448 million), driven mainly by electricity tariff increases significantly above the PPI inflation rate;
• Higher environmental rehabilitation provision movement (-R205 million); and
• Royalties (-R117 million).

The decrease was partly offset by:

• A better sales mix of product sold (+R1 221 million); and
• Net stock movements and buy-ins at lower prices (+R341 million).

Equity-accounted investments

Adjusted equity accounted income from Mafube JV decreased by 78% to R60 million (1H23: R276 million), driven mainly by lower export prices and sales volumes.

Coal capex and projects

	1H24 Rm	1H23 Rm	2H23 Rm	1H24 vs 1H23 % change
Sustaining	1 044	777	1 656	34
Commercial – Waterberg	968	706	1 511	37
Commercial – Mpumalanga	76	69	132	10
Other		2	13	(100)
Total coal capex	1 044	777	1 656	34

The coal business’ capital expenditure increased 34% in 1H24, comprising sustaining capital spent at Grootegeluk, Belfast and Leeuwpan. In line with Exxaro’s strategic intent, no capital will be spent on coal expansion projects.

Energy’s operating wind assets generated 339 GWh of electricity in 1H24 (1H23: 335 GWh), marginally higher than the same period last year and the June 2024 guidance of 325 GWh. The EBITDA margin remained consistent at 79% underpinned by the long-term offtake agreements with Eskom.

Construction of the 68 MW Lephalale Solar PV Project at Grootegeluk Mine continues. Commercial operation is anticipated in 1H25.

Energy’s project financing, including LSP, of R5 072 million (1H23: R4 460 million), will mature and be settled by the end of 2031 for the wind assets and 2042 for the solar assets, respectively. The project financing has no recourse to the Exxaro balance sheet and is hedged through interest rate swaps.

Equity-accounted investment

Lower iron ore prices, partially offset by lower operating expenses and a weaker currency, resulted in a 26% decrease in the adjusted equity-accounted income from our investment in SIOC to R1 937 million (1H23: R2 631 million).

Exxaro received a final dividend of R2 107 million from SIOC in February 2024 (1H23: R1 419 million).

SIOC declared an interim dividend to its shareholders in July 2024. Exxaro’s share of the dividend amounts to R1 634 million and will be accounted for in 2H24.

Sale of non-core assets and investments

The FerroAlloys disposal process is progressing well with the signing of a sale and purchase agreement expected to be concluded in 4Q24.

Climate change response strategy implementation

A peer review of the decarbonisation roadmap has commenced to ensure its credibility and subsequent implementation, as we set our trajectory for the Exxaro business and its operations to be carbon neutral by 2050. As part of the review process, the Climate Transition Action Plan, which is a key document demonstrating our climate commitments and actions to investors, customers, and other key stakeholders, will be reviewed. It is expected that the finalisation of the roadmap and the Climate Action Transition Plan will be completed by 4Q24.

On the decarbonisation policy front, Exxaro has formally been invited by the Department of Forestry, Fisheries and Environment to participate in the allocation of South Africa’s non-mandatory carbon budget development process. A carbon budget is a greenhouse gas emissions allowance or cap, against which direct emissions arising from a business’ operations during a defined period, will be quantified and assessed. The main benefit for Exxaro’s participation in this non-mandatory budget allocation phase is the opportunity to consider the potential impacts of this to our business sustainability and resilience.

Social investment and development

Social investments for the six-month period ended 30 June 2024 amounted to R1.1 billion, which is 18% higher than the R896 million spent in 1H23. The local procurement spend on black SMME’s constituted 77% of the social investment. Combined, these initiatives have supported 372 SMME’s through local procurement as well as enterprise and supplier development.

Matla is in the process of renewing two licenses. The Matla mining right expires in March 2025 and in terms of the conditions of the mining right, Exxaro must submit a renewal application within 60 days of expiry. Exxaro will submit this renewal application in 3Q24. Similarly, Exxaro is engaging the DWS for the renewal of the Matla water use license. The renewal application will be submitted in 3Q24.

On 22 May 2024, Exxaro received the amended water use license for the Mokolo Crocodile Water Augmentation Project at Grootegeluk Mine, ensuring Exxaro has adequate water allocation over the long term.

Further to the year-end reporting, Mafube has finalised the detailed design for the lining of the discard dump with the requisite high-density polyethylene liner required by the DWS. Upon approval of the designs, the DWS will grant Mafube the water use license which will allow construction to commence. As indicated previously, the expanded discard facility will only be required in the second half of 2025.

There were no material changes to Exxaro’s total or attributable Coal Resources and Coal Reserves as disclosed in the 2023 Consolidated Mineral Resources and Mineral Reserves report, as the change was below 10%.

Both Coal Resource and Coal Reserve lead Competent Persons are in the full-time employment of Exxaro: Henk Lingenfelder (Bachelor of Science: geology (Honours), Certified Professional Natural Scientist, Pr Sci Nat: 400038/11) as the Group Manager: Mineral Asset Management (MAM) and Chris Ballot (Bachelor of Engineering (mining), Engineering Council of South Africa (ECSA), 20060040) as the Group Manager: Mine Technical Services. Both persons have approved the information, in writing in advance of this publication.

The directors are not aware of any other significant matter or circumstance arising after the reporting period up to the date of this report.

Economic context

Various headwinds to the anticipated global growth rates include financial conditions that will be less accommodative than expected and geopolitical uncertainties. Global inflation is expected to continue its downward path, barring any significant supply shocks. As a result, policy interest rates are predicted to start declining, affecting both global investment sentiment and economic activity.

South Africa’s real GDP contracted by 0.1% in 1Q24, after rising by 0.1% in 4Q23. An improvement in economic activity is expected in response to easing infrastructure constraints, however, the growth trajectory will be informed by uncertainty associated with South Africa’s new government of national unity and foreign exchange rate developments feeding through to inflation rate expectations which will determine the scope for policy interest rate relief.

Commodity markets and price

Extreme weather patterns, together with the anticipated tightness in spot supply availability, are expected to support high CV seaborne thermal coal prices, offset by improving output in Australia and better gas and nuclear performances in key markets. Turning to low CV seaborne thermal coal, increasing renewables generation in China, along with healthy levels of inventory, will limit any significant price increases.

The seaborne iron ore price will be supported as overall global steel demand is sustained with continuous property sector stimulus measures implemented by the Chinese government.

Operational performance

Stability is expected to characterise the thermal coal market in the months to come, but as normal, may be influenced by stronger supply and lower demand due to various energy sources coming into play.

The current domestic macro context, along with stability of export pricing, will drive demand and supply dynamics domestically for both sized and unsized products. Eskom’s ability to address operational challenges and equipment failures will present an upside for power station coal in the Waterberg region.

We remain prudent in our capital allocation framework, balancing returns to shareholders, managing debt, and selectively reinvesting for the growth of our business.

Our dividend policy remains the same and is based on the following two components:

• A targeted cover ratio of 2.5 times to 3.5 times Adjusted Group Earnings; and
• Pass through of the SIOC dividend.

Exxaro continues to target a gearing ratio of below 1.5 times net debt (excluding ring-fenced project financing) to EBITDA.

The board of directors has declared a cash dividend, comprising:

• 2.5 times Adjusted Group Earnings; and
• Pass through of SIOC dividend of R1 634 million.

Notice is hereby given that a gross interim cash dividend, number 43 of 796 cents per share, for the six-month period ended 30 June 2024 was declared from income reserves, and is payable to shareholders of ordinary shares.

For details of the interim dividend, please refer note 6 of the reviewed condensed group interim financial statements for the six-month period ended 30 June 2024. The details will also be published on our website at www.exxaro.com.

Salient dates for payment of the interim dividend are:

Last day to trade cum dividend on the JSE	Tuesday, 1 October 2024
First trading day ex dividend on the JSE	Wednesday, 2  October 2024
Record date	Friday, 4  October 2024
Payment date	Monday, 7  October 2024

No share certificates may be dematerialised or re-materialised between Wednesday, 2 October 2024 and Friday, 4 October 2024, 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, 7 October 2024.

Additional information on financial and operational results for the six-month period ended 30 June 2024, and the accompanying presentation can be accessed on our website on www.exxaro.com.

On behalf of the board of directors

15 August 2024