OVERVIEW OF RESOURCE AND RESERVE ESTIMATES

Figure 1: Locations of our coal operations and projects

Exxaro has a world-class Coal Resource portfolio, comprising fully owned operations and projects and a number of jointly owned operations and projects in South Africa and Australia. The fully owned operations and projects in South Africa lie in both the large and highly prospective Waterberg coalfield in Limpopo and the more mature Highveld and Witbank coalfields in Mpumalanga.

Since inception in 2006, Exxaro’s total attributable Coal Resource and Reserve fi gures have been relatively stable. This trend can primarily be ascribed to the relatively large Waterberg coal deposits, particularly the remarkable Grootegeluk complex. Estimated to contain 40% to 50% of South Africa’s remaining Coal Resources, the Waterberg is viewed as the future of South African coal mining. Exxaro holds an estimated 3 billion tonnes of Measured and around 1.8 billion tonnes of Indicated Coal Resources in the Waterberg, primarily in Grootegeluk mine and the adjacent mining right of Thabametsi. The complex provides thermal Coal Reserves to Eskom’s Matimba and new Medupi power stations and produces semi-soft coking and metallurgical coal through eight benefi ciation plants (annual production of 30 million tonnes (Mt)).

The Grootegeluk complex is continuously evolving, illustrated by several large value-unlocking projects. While these projects underline the resourcefulness of our people, they also demonstrate the successful implementation of innovative and breakthrough technology. To an extent, the size of the Grootegeluk complex obscures changes in Coal Resource and Reserve fi gures from events in the smaller Witbank and Highveld coalfi elds. Divestment from the NCC (New Clydesdale Colliery) coal mine, closure of Inyanda mine (both 2014),incorporation of Total Coal South Africa (renamed Exxaro Coal Central or ECC) in 2014 and divestment from the Eloff project (2017) affected Exxaro’s reported figures in recent years.

In 2018, the Exxaro total attributable Coal Resource decreased slightly, mainly due to mining and the decision to divest from North Block Complex (NBC) near the town of Belfast in Mpumalanga. For Coal Reserves, an increase at ECC was offset by mining depletion at various operations, disinvestment from NBC and changes to pillar-extraction recovery at Matla, resulting in a slight decrease in the total Exxaro attributable Coal Reserve.

For most operations, other than normal life-of-mine (LoM) depletion, no material changes to Coal Resources and Coal Reserves estimates are reported. However, there was an increase of 56% in the run-of-mine (RoM) Coal Reserves at ECC by incorporating the 2017 geological model to update the life-of-mine (LoM) and Coal Reserve classification for the Dorstfontein West and Dorstfontein East operations. This resulted in a material amount of seam 2 and 4 lower being included in underground Coal Reserves for Dorstfontein. At Matla mine, the update of the geological model and resource classification and subsequent review of LoM resulted in a 5.7% decrease in Coal Reserves. In addition, a reduction of the pillar-extraction recovery based on reviewing the extraction process to enhance ventilation and safety, as well as considering actual extraction figures in the reporting period, resulted in a further 13% decrease of the Coal Reserve at this operation.

Figure 2: Exxaro estimates over time

Exxaro attributable Coal Resources and Coal Reserves

Mpumalanga attributable: eMalahleni and Highveld coalfields (excluding Matla and Arnot)

There was a slight decrease in the total Exxaro attributable Coal Resources and Coal Reserves from 2017 to 2018.

Unlocking value

In 2018, we continued to focus on unlocking value at our operations. We are acutely aware that our success as a mining company is built on the integrity of our Coal Resources and the effectiveness with which we exploit and extract these Resources.

Increasing level of geoscientific knowledge and confidence

Continuous drive to unlock value for our Exxaro operations and projects

Case study: Belfast The extraction strategy of the Belfast Coal Reserve was reconsidered in 2018. With a value lens of early extraction, a study was done to consider whether coal sales could begin before commissioning the coal-washing plant. Areas were identified where a crush-and-screen product could be mined and produced, while seamlessly integrating with the medium- and long-term exploitation strategy. Not only will this produce early revenue in 2019, it will lower the commissioning risk of the plant, with more knowledge available of the coal ore body.		Case study: Forzando North The LoMP was reconsidered, and areas under care and maintenance in Forzando North were identified that could be brought into production immediately to supplement current mining areas. The first section began production in the fourth quarter of 2018. Total production was increased, and the quality of the overall coal mix improved.
Case study: Matla Coal integrated resource review and exploration strategy At Matla Coal, future mining will occur between 40 years of historical mined-out areas and periphery of the available Coal Resource, resulting in increasingly challenging mining conditions. The push for more information in new areas has underpinned an innovative approach to understanding the remaining resource; the mine’s risk and opportunity domain analysis (RODA). The RODA spatially integrates all known and inferred geological risks to create weighted geological risk domains. The domains are applied during exploration and mine planning, as well as establishing geotechnical accessibility and mine-ability of Coal Reserves. Exploration drilling at the mine is focused on targeting areas of potential risk (risk domains) in and around future mining areas to ensure that geological structures and expected underground conditions are better understood and effectively communicated to the mine planning team. The continuous correlation between exploration interpretation and underground conditions in those areas improves the understanding of how to better predict and prepare for the impacts of conditions in future.
Left: Geotechnical risk domains used to focus exploration drilling. Right: Burnt coal domains and variable seam elevation parameters associated with aeromagnetic structures (dolerite dykes) used to focus exploration drilling and mine planning.

The purpose of the life-of-mine planning underlying our resource and reserve estimation is to unlock maximum value from the coal in the ground, for Exxaro, taking margin and net value into consideration. Each orebody has a unique mining methodology, processing parameters and targeted market segment that delivers maximum value to shareholders. This is impacted by updated resource information, developments in mining and processing technology and changes in market dynamics.

Consequently, the optimum exploitation strategy needs to be continually reviewed to ensure applicable resources end up in the most lucrative markets. This ongoing iterative process is conceptually illustrated alongside. A relentless drive to reduce the environmental footprint of operations is embedded in the process, and the continuous impact of the evolving legislative landscape is reflected in designs.

Figure 3: Resource-to-market model