Exxaro report selector 2019

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Exxaro Resources Limited
Integrated report 2019

Currently viewing: Positioning the business for growth within the context of climate change / CEO's report

CEO's report

Mxolisi Mgojo
Chief executive officer


  • New Belfast digital mine on line six months early and on budget
  • Eskom approves Matla Mine 1 funding
  • Digitalisation drives efficiency
  • Acquired remaining 50% in Cennergi


  • Contractor issues delay GG6 expansion by six months
  • Volatile coal price
  • Low economic growth rate in South Africa
  • Eskom's sustainability



  • Uncertain global economic growth
  • API4 price to remain under pressure
  • Expected recovery in iron ore seaborne supply and anticipated narrowing of steel mill margins to be a drag on prices
  • COVID-19 impact on global economy and commodity demand
  • Credit downgrades negatively impacting economic outlook

South Africa

  • Cautious optimism about domestic economic reforms but execution risk remains
  • Volatile rand exchange rate
  • Domestic coal demand and pricing uncertainty
  • Encouraged by Integrated Resource Plan, efforts to secure Eskom's financial viability and liberalisation of sector for self-generation


  • Coal business remains core
    • early value strategy
    • assess potential for development of Moranbah South
  • Maintain strategy in relation to Tronox disposal (subject to acceptable market conditions)
  • Focus on mining and energy
    • no new investments in food and water as part of Business of Tomorrow programme
    • maintain contractual commitments
  • Acknowledge risks and opportunities due to climate change: responding accordingly


“There are challenges our Professionals-in-Training (PIT) have dared to accept this past year: how to find solutions to some of our most pressing problems in a sustainable way, in a way Mother Nature intended, with no harsh chemicals or waste” — CEO Mxolisi Mgojo addresses the Professionals-in-Training at the PIT Symposium held in October at the conneXXion.

The participants were asked to research and present on areas relevant to Exxaro’s business and close to Exxaro’s heart, including the future of clean-energy technologies, sustainable mining and mine closure.

Why work for us?

Business resilience within a challenging macro-environment

Our business context during the year was volatile to say the least.

In fact, after year end, just prior to the publication of this report, President Cyril Ramaphosa announced a nationwide lockdown for 21 days to halt the spread of the
COVID-19 virus and save the lives of hundreds of thousands of our people. This is truly the epitome of volatility and has brought with it its own unprecedented trials.

On other fronts, many challenges needed to be confronted. Our price outlook for the year was set at an average coal price of US$90 oblivious to a storm that was brewing in our markets. The slide to less than US$60 by April 2019 and a completely unexpected upswing to US$80 in the fourth quarter of 2019 were not driven by fundamentals of supply and demand but unpredictable market forces and politics.

Coal suppliers had to find alternative markets as the United States (US) and China fought their trade war. Australia was forced to seek buyers in our Asia-Pacific markets when Indonesia became the primary supplier to China. The oversupplied United Kingdom (UK) and European markets, where low gas prices drastically reduced coal offtake by power producers, also pushed the Americans, including Colombia, and Russia into Eastern markets.

At the same time, adverse weather conditions in the Richards Bay port, as well as delays due to derailments, presented significant challenges. In addition, Eskom was unable to honour the offtake agreement for the Medupi power station where stockpiles had reached maximum capacity.

Continued weak economic growth in South Africa compounded the situation. The economy slipped back into a technical recession in the last quarter of 2019, the second time in as many years, illustrating once more the urgent need for structural economic reforms.

Our Grootegeluk plant 6 (GG6) expansion project was affected by the problems of the local construction sector. The project was delayed by six months when Group 5 embarked on business rescue proceedings and we had to replace the contractor.

At the same time though, our Belfast digital mine came on line six months early ( details on Iron ore). We expect the R3.3 billion operation, to reach steady state production of high-grade, clean-burning thermal coal during 2020. Belfast mine presents hope for the loss-making Mpumalanga coalfields with a LoM of 12 years, and potential to directly and indirectly benefit thousands of people.

Another highlight in the past year was Eskom's approval of partial funding for Matla Mine 1 to increase production from 6Mt to 10Mt by 2023. In 2023, GG6 will have been commissioned, while Belfast and Mafube are fully ramped up, improving our production output and the quality of our products.

We remain concerned about the risk of operating in an environment that continues to suffer load shedding. However, we are committed to supporting government, collectively with the Minerals Council South Africa (MCSA), Business Leadership South Africa (BLSA) and Business Unity South Africa (BUSA), to resolve this power crisis. In addition, we are responsive to the global call for climate action, guided firstly by South Africa's energy requirements, today and in the long term, and then the need to consider minimising potentially negative impacts on vulnerable communities. The transition to a lower-carbon environment must be informed by social justice.

Despite the overwhelming impact of geopolitical challenges on our markets in the past year, Exxaro maintained a respectable profitability level.

Facing the COVID-19 crisis

Subsequent to year end, the COVID-19 (the virus) pandemic required us to support government protocols and directives to contain the spread of the virus.

We have received the necessary approval to continue with our production activities, albeit at varying reduced levels in terms of volumes and people, as these activities are considered to be essential services and the necessary measures have been taken to prevent possible infections.

Exxaro's head office, the conneXXion, was closed from 26 March 2020 and most employees have been enabled to work from home. Arrangements are in place for business continuity and the necessary protocols have been activated across all operations and business units, ensuring efficient and safe ways of working. Additional preventative disease transmission protocols have been implemented in all our coal mining operations.

We are closely monitoring all updates and advice from relevant organisations, including the National Department of Health, the Department of Minerals Resources and Energy and Minerals Council South Africa.

While coal mining was declared exempt from the nationwide lockdown due to the fact that the production of electricity is considered an essential service according to the law (and those critical elements in the value chain are considered critical services), we will not, in anyway, be exempt from the challenges this crisis will create for our country and the people who live in it.

Rest assured that we will take great care in the coming days and weeks to protect our people as they seek to provide this critical service to the nation in our ongoing efforts to support energy security.

Indeed, our determined pursuit of digitalisation at our head office, and, where possible, at our operations, has supported business continuity and we will continue to pursue heightened health and safety measures for our employees on the ground at our operations.

As we navigate this unfolding situation, we will ensure that engagement channels remain open to enable us to make well-informed decisions that take all stakeholder needs into account during this critical time.

Please view future updates on our website https://www.exxaro.com/investors/#overview

Transitioning to a low-carbon future

We are ever mindful that the transition to a low-carbon future should improve lives as we aspire to promote a cleaner way of living. Our purpose remains a critical responsibility: to power better lives in Africa and beyond. Following an extensive strategy review, we have developed a vision statement that aligns with our purpose: resources powering a clean world. We used this as a filter when we were considering the acquisition of Tata Power's 50% shareholding in Cennergi.

As a wholly owned subsidiary of Exxaro, Cennergi will establish and strengthen our position in the renewable energy sector at a time when coal-based electricity generation is considered inappropriate in assuring the nation's energy security. We are committed to our climate change strategy, which aligns with the Paris Agreement and incorporates recommendations of the Task Force on Climate-related Disclosures (TCFD).

A sustainable low-carbon future requires us to limit coal mining and redefine our worth not merely in terms of LoM but rather in terms of carbon efficiency. However, to ensure sustainable value creation in the interests of all our stakeholders, we are determined to extract maximum value from our existing coal assets while pursuing new opportunities. We have decided to accelerate the production of high-quality coal for export markets while ensuring supply to Eskom's Matimba and Medupi power stations, and to schedule later in the life of mine the areas with lower quality coal so that early value will be created over the next 20 years and will deliver shareholder value
and socio-economic benefit beyond our existence.

Accompanying this economic-transition strategy is a social-impact strategy to effect a Just Energy Transition ( Understanding our key strategic trade-off considerations) for our communities. Key tenets of this strategy are climate adaptation and collaboration for impactful investment in sustainable regional projects.

Land as a legacy

In support of the country's land redistribution policy, we have embarked on a minerals succession programme which will allow us to map out all of our land to establish, among other initiatives, agri-economies that will transcend dependency on mining. This will be undertaken in partnership with emerging farmers in communities where we operate.

We are involved in the Impact Catalyst in Limpopo ( Government engagements), which will give rise to the first regional socio-economic development platform addressing health and wellbeing within the mining-dependent province. We are thus re-imagining the potential of the land we have long shared with farmers as well as the transformational impact of mining.

At the same time, we are re-examining our corporate social investment (CSI) structures to ensure that our investments go beyond the constrained traditional CSI model with a view to more meaningful investment in the sustainable development of our stakeholders, including black suppliers, particularly women, and youth. For example, our YDx programme ( see Contractor support in ESG report ) is helping 400 previously disadvantaged young men and women to adapt digital technologies and create employment opportunities.

With gratitude

I am grateful for all of the people of this organisation who share their time and energy in pursuing our purpose. Throughout the past year, we have seen our teams go the extra mile. I am uplifted by the same people who support the board and challenge us, the executive, to reach even further than we believe possible.

We are resilient because our people have the tools and skills they need to work efficiently in an environment that is moving quickly towards the fourth industrial revolution. Our award-winning Digital@Exxaro programme ( details in Culture transformation), combined with other employee engagement initiatives, are transforming our company culture to ensure that we are more open and agile when we engage with stakeholders internally and externally.

Our move to a new corporate centre in July, named the conneXXion by employees, is enabling better interaction and communication through open-plan workspaces. Employee teams were involved in the design and set-up of their own workspaces. At our mining operations, teams meet in integrated operations centres with an end-to-end view of mining activities, which are visible and accessible in real time at headquarters. This Middle Eye platform (  Culture transformation) also connects us to remote original equipment manufacturers when we need to solve technical problems on surface and underground.

We want to immerse the entire organisation in the way of the future by encouraging people to unlearn the old and embrace new skill sets. We are investing in a mindset change so that employees at all levels of Exxaro will not need to be pushed but will pull the organisation forward.

At the same time, we tirelessly pursue zero harm. We are disappointed that our lost-time injury frequency rate (LTIFR) did not improve in 2019, due to an increase in contractor employment during our expansion projects, but we are proud that Leeuwpan has remained injury-free for 30 years. The safety campaigns launched last year, our Khetha Ukuphepha and the Minerals Council's Khumbul'ekhaya, remind us to ensure that safety is a priority every day.


Mxolisi Mgojo
Chief executive officer

20 April 2020