Exxaro Resource limited Report Selector 2018

Report Selector

Exxaro Resources Limited Integrated report 2018

ECC turnaround


In August 2015, Exxaro acquired Total Coal South Africa (TCSA, renamed Exxaro Coal Central or ECC) for key strategic reasons:

  • TCSA was a large-scale coal business close to other Exxaro assets in the Witbank (eMalahleni) area, thus increasing our footprint in Mpumalanga
  • Additional value could be unlocked from TCSA operations given our extensive coal-mining experience and knowledge
  • It gave us access to a 4Mt export entitlement at Richards Bay Coal Terminal (RBCT) and that complemented our expansion plans in the Waterberg (Grootegeluk) and Mpumalanga (Belfast) regions.

Reality check

Taking cognisance of market conditions, commodity pricing and TCSA's strategy, 2015 was a year of major losses on all operations. The risk of adjustments to environmental provisions and asset impairments linked to financial status and forecast profits was also very real.

Exxaro made some pivotal decisions:

  • Close pit 2 at the Dorstfontein East operation and only continue with mining pit 1 until economic conditions and strategy supported its reopening
  • Continue with mining operations at Dorstfontein West and Forzando South
  • Leave Tumelo and Forzando North on care and maintenance as per TCSA's strategy until a further decision could be made
  • Not to focus on additional projects until economic conditions were more favourable
  • Initiate a recovery plan using internal resources at Exxaro head office and the ECC management team.

ECC recovery plan

From November 2015, ECC began a formal operational excellence process to support the business in making a positive contribution to Exxaro's financial performance. This multifaceted process was based on a new business plan and budget developed jointly by Exxaro and the ECC management team. It included value engineering, specific improvement initiatives and a fresh look at sustainable mining processes.

Over two strategy sessions between Exxaro and ECC management, these initiatives were combined into a list of focus areas (below) and, from January 2016, driven by an operational steering committee meeting monthly.

Focus area   Results by FY18
Increase production at Dorstfontein West   Output improved from 675 000t in 2015 to 1 000 000t. Favourable market conditions and pricing contributed to record production and profit in FY18. Life of mine extended three to four years, and by a further 15 years from mining 4 seam reserves. The life extension project is currently under construction, with estimates that the 4 seam project will be in full production for the export market from early 2020 at a rate of 1.9Mtpa. This can be increased to 2.4Mtpa depending on additional initiatives being investigated.
Increase production at Forzando South   Performances over the past three years exceeded expectations, reaching an average production output of 2.2Mtpa, while maintaining yields. In this period, Forzando has supplied the export market with both 5 300kcal/kg and 4 800kcal/kg products as well as product to the domestic market.
Reduce contractor costs at Dorstfontein East   New mining contracts and optimised mining pits have generated cost savings and good profits. Initiatives to improve performance of the open-cast operation are already producing results.
Optimise product mix to maximise profitability   Achieved. In addition, an Eskom contract to supply coal from Dorstfontein East began in January 2019. This is expected to give ECC a market mix that will ensure profitability during unfavourable export market conditions.
Optimise organisational structure   Achieved, with annual savings of around R5 million.
Reduce fixed costs, and increase life of mine of operations  
  • Forzando North reopened mid-October 2018 with life of mine of seven years
  • Tumelo reopened with life of mine of 3.5 years from April 2019
  • Awaiting regulatory approvals to extend Dorstfontein East pit 1 and extend reserves towards Dorstfontein West
  • We are also investigating the possibility of underground mining at Dorstfontein East, and purchasing adjacent reserves

In summary, ECC is a singular success story. We increased Exxaro's export entitlement and turned a loss of R300 million in 2015 to net profit of R700 million by December 2017.