Integrated report 2019
Exxaro Resources Limited
Integrated report 2019
Product volumes of 45.6Mt
Sales volumes of 44.5Mt
Export volumes of 9.1Mt
Despite changes in the coal portfolio, with some operations mining diminishing Reserves, as well as delayed expansion projects, our optimisation initiatives are delivering value, particularly operational excellence and digitalisation. Our operational excellence process continues to focus on throughput optimisation and cost management, as well as driving the maturity of our LEAN5 initiative. Through our digital programme, we have made good progress in implementing our integrated operating centres and mine visualisations aiming to improve decision making across the entire value chain. Our digital programme will continue to drive value as we focus on MRM integration, data science and selective automation. Our ability to implement our expansion projects and deliver early value positions us well to launch into the next phase of volume and value growth.
The average Argus/McCloskey Coal Price Index (API4) price for coal exported from Richards Bay was weaker in 2019 at US$72. Exxaro's average export price in 2019 was lower than it was in the past two years and also lower than the average API4 price for the review period due to a lower API4 price and widening discounts. The international seaborne market was oversupplied in 2019, largely due to an oversupply of LNG into Europe and Indonesia increasing coal supply, China's clampdown on Australian imports, and adherence to import quotas.
Cost per tonne was affected by higher contractor mining and rehabilitation provision cost incurred, linked to new reserves (mainly Belfast) and closed operations, increased distribution cost on export volumes, general and labour inflation increases, as well as lower volumes, mainly due to lower power station coal offtake.
We continue to drive operational excellence, using the benefits of digitalisation to visualise, in real-time, the mass flow of coal from pit to port. Integrated visual operations centres augment our operational excellence initiatives for a step-change that will protect margins from inflationary pressures and improve productivity.
During the second half of 2019, the Exxaro board approved a decision to divest from its 26% interest in Black Mountain Mining. On 30 November 2019, the investment was classified as a non-current asset held-for-sale and the application of the equity method ceased.
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On 22 February 2019, Exxaro signed a transfer agreement with the Arnot OpCo consortium, subject to conditions precedent, for the transfer of the Arnot operation. The shareholders of the consortium are former employees of Arnot and Wescoal. The ground-breaking deal will enable the consortium to restart the mine and supply coal to the national electricity provider for its Arnot power station.
On 10 December 2019, all conditions precedent for the transfer agreement were met. On the same day, the parties to the transfer agreement signed an addendum requiring Exxaro Coal Mpumalanga Proprietary Limited (ECM) to continue operating the mine, liable for the expenses incurred, and with a right to the income generated until the end of January 2020. On 31 January 2020, the Arnot operation was transferred to Arnot OpCo consortium. The transfer will be recognised in 2020.
In September 2017, the directors of Exxaro formally decided to dispose of the investment in Tronox Limited. As part of this decision, Tronox was required to publish an automatic shelf registration statement of securities of well-known seasoned issuers, which allowed for the conversion of Exxaro's class B to class A Tronox ordinary shares. Subsequently, Exxaro sold 22 425 000 class A Tronox ordinary shares in October 2017. In May 2019, Tronox Holdings plc repurchased 14 000 000 Tronox Holdings plc ordinary shares from Exxaro after Tronox had redomiciled to the UK.
On 1 May 2019, former employees of Arnot were handed the mining rights to restart the mine.
In a historic deal, Exxaro announced that the Minister of Mineral Resources and Energy had agreed to cede the mining right for its Arnot coal mine to a consortium that will benefit former Exxaro employees who had been retrenched following the expiry of the coal supply agreement with Eskom in 2015, which ultimately led to the closure of the mine.
The ground-breaking deal will enable the consortium to restart the mine and, upon conclusion of a new coal supply agreement with Eskom, supply coal to the national electricity provider for its Arnot power station.
At the handover on Workers' Day, Mxolisi Mgojo, Exxaro's chief executive officer, said: "Today is a historic day for Exxaro, and indeed South Africa, as we complete a first and important step towards this transfer, which effectively will make bosses and owners of our former workers. Exxaro has always tried its very best to avoid retrenchments as retrenchment hurts our employees and their dependants the most. We therefore did not hesitate when our former employees approached us about enabling them to reopen the operation so that they could mine it.
