Business resilience

Business resilience refers to our ability to withstand changes in the global economy and markets by managing our portfolio of projects, as well as capital allocation.

In determining our material matters over the past year, we grouped matters of significance raised during engagements with our stakeholders in this regard under the theme business resilience.

Capital project execution

Exxaro continued to focus on implementing our growth and sustaining capital programme within time and on budget despite financial challenges facing many of our contractors.

Waterberg (Limpopo)

At our GG6 expansion project in the Waterberg, replacement of contractors to complete Group 5's scope of work was conducted in May 2019. We expect a six-month delay in completing the project. The project team continues to work with operations to minimise any further impact on volume, value and cost.

At Grootegeluk, the rapid load-out station project has been aligned with the TFR north-west corridor expansion project, which was due to begin commissioning by December 2019. Force majeure events, caused by strikes and poor contractor performance, delayed hot commissioning and train sequencing until the first quarter of 2020. The delay did not affect the TFR ramp-up schedule and forecast final costs were within the allocated project budget.

Implementation of the Thabametsi IPP project was also delayed by the granting of the licence to generate electricity. Although Exxaro met all requirements, and engagements with the project developer continue, capital expenditure has been moved from the 2019 figures into future years.

Mpumalanga

The first coal from our greenfield Belfast mine was produced through the beneficiation plant in September 2019. The project remains ahead of schedule and within budget.

Production at Mafube's Nooitgedacht is also on track with the mine expected to produce at nameplate capacity in 2020.

Project		Project classification (Growth/sustaining)		Product		Description of project focus and performance		Capex		Outlook
Location: Waterberg (Limpopo)
GG6 expansion		Growth		1.7Mtpa of semi-soft coking coal		Expansion of the existing Grootegeluk 2 plant to enable production of semi-soft coking coal		R4.8bn		Construction is underway and first production is expected in the second half of 2020
Grootegeluk rapid load-out station		Sustaining		Load capacity: 12Mtpa		Grootegeluk's rapid load-out station and railyard upgrade project is aligned with TFR's north-west corridor expansion project		R1.3bn		Hot commissioning and sequencing of trains is underway
Location: Mpumalanga
Belfast implementation project		Growth		2.7Mtpa of thermal coal		Development of a new greenfield open-pit coal mine, including a coal handling and preparation plant, supporting infrastructure and services, with a 12-year LoM		R3.3bn		Production ramp-up is underway and first production through the plant was achieved in the third quarter of 2019 – on track for delivery within budget and ahead of schedule
Leeuwpan life expansion		Growth		2.7Mtpa of thermal coal		Development of an open pit from the OI reserve to extend the LoM of the Leeuwpan mining complex by seven years with relocation of households and graves to the local township		R0.6bn		First production was achieved in the second half of 2018, relocation is underway and project close is expected in the second half of 2020
Dorstfontein West 4 seam		Growth		0.8Mtpa of thermal coal		To enable operations to produce coal from mid-seam reserves, including a plant upgrade and development of conveyor systems		R0.3bn		First production was achieved in the second half of 2019 and project close is expected in the first half of 2020 following construction of the bunker
Matla Mine 1 relocation		Sustaining		Infrastructure to support LoM production		To provide access to Mine 1 reserves by a new box-cut, bulk materials handling system and associated infrastructure.		R1.8bn		Finalising detail design, tender adjudication for early works in process and construction is expected to begin in the second half of 2020

Business excellence

Our business excellence function was established with two main objectives: internalising excellence capabilities and instilling a culture of continuous improvement at head office. While 2018 was the year of initiation and establishment, 2019 was a year of entrenching excellence. Capability development is pivotal to ensuring that excellence is a permanent skill set within our organisation so that we achieve our priorities.

The champion resourcing model continued into 2019 with a number of secondee rotations, which encourage training champions who are released into their functions as agents of continuous improvement. Some of the key focus areas for champion development include the use of LEAN tools, relationship building and soft skills, understanding digital tools and enablers, and adopting new ways of working.

In order to focus our efforts, an opportunity forum was launched in the third quarter of 2019 as a mechanism to solve problems using the best combination of existing process and digital capabilities. Problems or opportunities are directed to the opportunity forum, including multi-functional teams representing all business units, to assess and recommend the best combination of solutions.

Coal sales (by product tonnes) (%)

The opportunity forum has delivered the following results to date.

• Prioritisation: The ability to determine projects to be resourced, based on their ability to deliver benefits and the most important objectives for Exxaro at any point in time
• Improved value delivery: Ensuring that business challenges are matched with the right solution almost always requires a combination of process improvement and the use of digital enablers
• Visibility: Transparency about ongoing projects is enabled within and across functions

Coal capex

Rm		FY19  actual		FY19  previous  guidance		FY18  actual		% change  previous  guidance
Sustaining		2 245		2 240		2 779		0
Waterberg		1 753		1 625		1 904		8
Mpumalanga		475		575		875		(17)
Other		17		40		0		(58)
Expansion		3 572		3 375		2 943		6
Waterberg		1 198		1 231		1 987		(3)
Mpumalanga		2 301		2 070		956		11
Other		73		74		0		(1)
Total		5 817		5 615		5 722		4

Salient features of our capex in 2019 include:

• Capital expenditure increased by 2% from 2018 to R5 817 million
• R2 245 million (2018: R2 779 million) applied to sustaining and environmental capital (stay-in-business capital)
• R3 572 million (2018: R2 943 million) invested in new capacity (expansion capital).

Key customer dependency

Exxaro relies on Eskom, the national power utility, and ArcelorMittal for 57.2% and 5.7% of its revenue respectively (2018: 50.8% and 6.8%). In 2019, sales volumes to Eskom were 70.5% of the total (2018: 69.6%).

Eskom

Our dependency on Eskom remained a key focus in 2019, specifically in light of ongoing concerns about the utility's financial and operational stability. On the positive side, the coal business is defensive, given our long-term commercial offtake agreements with Eskom at Medupi and Matimba.

At Matla, we have engaged with Eskom on the potential renegotiation of the cost plus agreement for continued supply to Eskom post-2023. The discussions are progressing well. In 2019, we supplied coal to Eskom from our Leeuwpan and Dorstfontein West mines.  We continue to engage with Eskom on the conclusion of medium-term agreements to continue supply from these collieries. We remain committed to managing a positive and fruitful relationship with Eskom as we remain the largest suppler to the power utility.

ArcelorMittal

ArcelorMittal has ceased operations at its Saldanha plant as it is struggling to remain competitive amid poor commodity prices. The situation has impacted the supply of metallurgical coal to Saldanha Steel. 

ArcelorMittal has declared a section 189 to retrench employees and is re-evaluating its other operations in Vanderbijlpark and Newcastle.

In our engagements, ArcelorMittal has reiterated its intention to purchase in excess of 1.2Mtpa of semi-soft coking coal from Exxaro. We will continue to supply ArcelorMittal in terms of contractual agreements with continuous and amicable communication at all levels.

Exxaro will continue to explore both domestic and international market options for semi-soft coking coal.

Innovation and information management

As the fourth industrial revolution progresses and impacts all industries, the agility of the business is critical to seize opportunities by leveraging digital tools, as well as progressive methodologies and capabilities that enable Exxaro to enhance performance across the value chain.

Exxaro is taking an enterprise-wide approach to digitalisation rather than a point solution. This includes technology platforms enabling us to view the value chain from exploration to logistics. For example, our integrated operating centres are breaking down boundaries in the value chain to promote a single view of the business and enable improved decision making. At our new Belfast mine, the creation of a digital twin enabled us to begin production six months ahead of schedule. It will also enable the operation of the mine at the highest level with real-time information on breakdowns and stoppages. A cultural drive is aimed at enabling employees to operate on these new digital and innovation platforms. We are adopting technologies that will enhance the way people work rather than displace them.

Cybersecurity

As Exxaro advances in digital transformation, and relies increasingly on digital services, the I&IM function will have to become increasingly diligent in managing the risks associated with the digital business strategy. The company's cybersecurity posture will have to be strengthened accordingly.

In 2019, I&IM collaborated with the business units to accelerate the execution of our cybersecurity strategy, focusing efforts on three major capabilities: information security, cloud security management and business resilience.

The information security framework was updated to reflect our cloud and digital operations landscape, and to ensure that the vital foundational structures are adequate to secure and bolster our operations.

We enabled mobile data protection by rolling out a security application for all users accessing company data via mobile devices. Exxaro's business-critical assets, business and personal information are secured by new data loss prevention and data protection capabilities.

We also invest in the education of our people through focused cybersecurity awareness campaigns that reduce the probability of attacks. We routinely conduct service continuity simulations to verify the adequacy and efficiency of our service continuity strategies. We thus improve our ability to recover critical systems in the event of a disaster.

We strive to secure Exxaro's assets across all information security domains.