Integrated report 2019
Exxaro Resources Limited
Integrated report 2019
In 2019, our strategic objectives continued to guide our actions within a constrained environment, which called for tough decisions and firm commitment to our focus on business resilience: our ability to withstand any economic and commodity market downturn
| Strategic objectives | Related material matters | Performance in 2019 | Key KPI and performance | Looking ahead | |||||
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Exxaro has been responsive to opportunities within its ESG landscape: We have implemented a safety campaign, Khetha Ukuphepha, to arrest the declining trend in our safety performance. In 2019, we maintained our LTIFR of 0.12, which remains above our target of 0.11. We are beginning to see improvements where the performance of the first two months of this year is significantly better than the same period in the previous year. We have maintained best-in-class performance in terms of our CDP and ESG ratings. This is a pleasing objective recognition on which we are building in terms of our climate response strategy. The opportunity for self-generation is being evaluated, which will present additional opportunities for improvement in our emission-reduction efforts. |
Target: Top quartile ESG FTSE Russell ESG Index – Exxaro’s |
Exxaro is focusing on improving its ESG performance as a consequence of improved stewardship and management of our sustainability capitals. We anticipate that our safety performance will improve as a result of our safety awareness campaign, Khetha Ukuphepha Exxaro has committed to becoming Scope 1 and Scope 2 carbon-neutral by 2050. We are working to prepare for and mitigate climate change effects in the coal business |
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We completed the transfer of Arnot mine to Arnot OpCo, an operation owned and operated by former employees with a broad-based benefit scheme for the surrounding communities. All conditions precedent have been fulfilled – we continue to evaluate the remaining coal assets for resilience in the evolving operating environment. We are pleased with our progress in the corporate portfolio optimisation – we are nearing the conclusion of an agreement for the sale of our interest in Black Mountain Mining; and the remaining interest in Tronox will be sold at a suitable market opportunity. |
Portfolio optimisation remains a strategic objective to, firstly, ensure a simplified business structure that will reduce the holding discount in our valuation; and secondly, in relation to the coal business, remain with a portfolio of coal assets that will withstand the market price volatility and remain with high quality reserves which provide flexibility with changing market requirements for coal products. |
We have taken a more aggressive path in our optimisation of the investment portfolio in order to focus more effectively on building a sustainable business. Therefore we are reviewing all further investments in our Business of Tomorrow (BoT) venture. Exxaro's deepest roots and expertise lie in energy and because energy security is critical to food and water security, we have determined that we can most powerfully move the needle by sharpening our focus on energy and on gaining nearer-term traction in that area. Consequently, we are strengthening our commitment to energy. In keeping with that aim, we have purchased the remaining 50% interest in Cennergi from Tata Power. This JV vehicle has been in Exxaro's portfolio since 2012 and represented our first foray into renewable wind energy as well as our early recognition of the need to reduce the carbon intensity of Exxaro's total portfolio. |
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Our operational excellence drive culminates in the margin above our operating costs at the hands of the customer. We therefore continued to seek opportunities to ensure cost competitive production and improved efficiency for higher volumes. Our digitalisation strategy continues to evolve. Improvements are still incremental. However, we anticipate significant improvements over the next three years in unit cost and volume metrics. |
Target: To limit increase to be no higher than mining inflation (R/tonne) Volumes: TTH Cost per tonne# |
Our coal operations will be best-in-class and cost-competitive through our operational excellence drive to continue to meet customer expectations in terms of volumes, quality and price. We are planning for a CPI +2% (mining inflation) increase in unit costs, acknowledging inflation costs, but with improving volume efficiencies. Cash cost performance and free cash flow generation will be material measures of operational success. |
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Capital allocation priorities |
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Exxaro's improved capital allocation programme continued to deliver on commitments related to capital expenditure for its production growth through project delivery and return of cash to shareholders. In relation to capex and project delivery, other than GG6, all projects are on schedule and on budget. During March 2019, Tronox Limited redomiciled from Australia to the UK. Each Tronox Limited shareholder received one share in the newly incorporated English company, Tronox Holdings plc, in exchange for each share held in the Australian-incorporated Tronox Limited. On 9 May 2019, Tronox Holdings plc repurchased 14 000 000 shares from Exxaro. Exxaro returned 65% of the cash received to shareholders as a special dividend. We are committed to concluding the disposal of the remaining interest at an opportune moment and once again the majority of those proceeds will be distributed to shareholders. |
Target: ROCE >20% Dividend policy (1) Pass through of SIOC dividend (2) 2.5 - 3.5 coal earnings ROCE
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Return and growth are the primary expectations by shareholders from the performance of the business. The combination of our free cash flow generation and cash obtained from disposals has imposed a greater focus on our capital allocation and strategic outlook. Our approach to building another core business in energy will be well considered in terms of an understanding of our capabilities and those required for success in this new area. We have learned valuable lessons from our past capital-allocation endeavours. As we embark on a transition strategy, a key consideration will be balancing medium- term growth. |
Progress in achieving specific objectives that impacted our results include:
| Pillar | Objective | Business risks addressed | ||||
Portfolio excellence |
Develop portfolio investment and divestment scenarios Execute streamlined investment and divestment processes |
Dependency on Eskom as key customer Price and currency volatility Executing Business of Tomorrow strategy |
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Marketing excellence |
Market-to-resource optimisation Extend positioning in value chain |
Dependency on Eskom as key customer Price and currency volatility Cost-competitiveness of products Infrastructure access and capacity (Transnet Freight Rail and Richards Bay Coal Terminal) |
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Innovation excellence |
Set base: Ensure ICT infrastructure Digitalise and link all steps of value chain Enable digitalisation: approach, team and structure/processes |
Price and currency volatility Cost competitiveness of products Competition and product substitution |
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Operational excellence |
Drive top five priorities Startup Way Implement LEAN51 findings across business units |
Price and currency volatility Cost competitiveness of products |
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Capital management excellence |
Align project portfolio with strategy Reduce capital cycle lead time Implement projects with LEAN5 construction Measure and forecast in real-time Communicate effectively to markets |
Capital project execution |
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People and organisation excellence |
Align workforce planning with strategy Recruit talent and train new capabilities Address social impact of technology Change management for Startup Way culture Streamline and automate people-centred processes (cross-functional initiative driven by human resources and sustainability) |
Retention strategy: people Talent retention: people Compliance and adherence to B-BBEE and Mining Charter III targets Employee value proposition Reskilling and upskilling employees for new world of work |
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Safety and sustainability excellence |
Maintain licence to operate Leverage latest technology in safety, health, environment and community management Effective community engagement |
Maintain social licence to operate Community unrest |
1 A range of initiatives to extract more from what we have and maximise opportunities.
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| Bias for action |
Performance management | Ownership for operational excellence by line | Incentive system |
Spans of control |
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| Bias for action to translate procedures and standard operating procedure into action, adhere to plans and implement agreed actions | System requires close frontline performance tracking and visualisation to engage people on the shop floor | Operating units are accountable for driving operational excellence | Incentive system should award individual performance | Large number of low and high spans of control | |
Coal is an important source of electricity, with more than a third of the world's power generated by coal. "That doesn't mean we, as a coal business, should sit back and relax," said Mxolisi Mgojo, Exxaro's CEO, during a panel discussion at the 2019 Mining Indaba. "The world is changing, and it is changing fast, and this requires us to adapt constantly. We must gear ourselves to be disruptors if we don't want to be disrupted. Dealing with some of these changes, which range from coal divestment to the surge in technology, requires us to diversify from an operational and even a client perspective to stay resilient. The time of being able to comfortably rely on one resource, one core business activity, and one key offtaker is long gone."
Exxaro is therefore looking ahead, confirmed Mxolisi. "We have been doing so for quite some time and we will continue to do so."
Ensuring the sustainability of our business
