Integrated report 2019
Exxaro Resources Limited
Integrated report 2019
Our strategy is influenced by the macro-economic forces on our business (
details in Macro-economic factors and commodity markets).
A major focus area of strategic consideration has been action against climate change, which is driving the transition from fossil fuels to renewable energy sources that support a lower-carbon economy ( see our strategic trade-offs for more information on the critical decisions considered in determining our strategic direction, as well as our material matters).
During 2019, Exxaro continued to deliver on our stated strategic objectives. This included maintaining and strengthening our performance in the following:
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Ensuring the sustainability of our business |
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Portfolio optimisation |
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Operational excellence |
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Capital allocation priorities |
In the face of uncertainty, we continue to respond adaptively, optimising our robust assets and moving lower in the cost curve such that we land coal competitively across all markets.
In response to the critical need to mitigate climate change and ensure resilience in the face of the real impacts on our business, we have developed climate scenarios to assess the potential implications for our coal operations as well as the required response by each operation, considering domestic and global energy and climate response policies, global sentiment towards coal and the potential impact on our coal markets.
A critical starting point was an assessment of coal quality and yield to determine sustainable production volumes and life of mine (LoM) under different climate scenarios - this was the basis of the early value strategy we shared with our stakeholders in 2019, which aims to maximise the value of our coal business by reducing the potential for stranded high-quality coal Reserves.
Our Limpopo operation, Grootegeluk, remains resilient and can continue to supply Eskom's Matimba and Medupi power stations over its remaining life in line with the national Integrated Resource Plan. We will complete the current capex programme, focusing on GG6 and the load-out station to grow our exports. Our plans for our Thabametsi mine to supply the Thabametsi Coal IPP remain suspended until further notice.
Our Mpumalanga mining operations will be most impacted by climate risk in terms of LoM:
Our plan is aligned with our outlook of maintaining a diversified product portfolio consisting of exports and maintaining our contractual commitments to Eskom and domestic customers. We have reviewed the configuration of our Mineral Resources and Mineral Reserves, and remaining life of operations. For the early value strategy, as discussed above, some of our operations will result in modestly shorter lives but at the same or higher production rate and other operations will be better managed by different operators, and hence sold as going concerns.
As a whole, the coal business remains robust, focusing on cost and operational efficiency (including climate adaptation considerations), high-quality coal supply, generating returns for shareholders and responsiveness to market needs over the next 10 to 15 years in Mpumalanga and Limpopo.
Mindful of the alternative national energy strategy, we reviewed our original Business of Tomorrow strategic response to climate risk in 2019. We continue to uphold our stated purpose, but we are reviewing our approach to ensure we are able to leverage our key competencies while securing new, low carbon-aligned streams of revenue.
We have long recognised that sustainability on the African continent has three necessary pillars: food security, water security and energy security.
In 2017, Exxaro began exploring potential roles in that space through the Business of Tomorrow (BoT). The BoT strategy provided Exxaro with an opportunity to understand sustainable ecosystems and the energy space.
As a direct result of BoT, we are now confident that Exxaro's greatest opportunity to support a sustainable South Africa, and, in so doing, a sustainable, profitable Exxaro, is through an undiluted focus on energy security. We are in the process of positioning Exxaro for that role.
We have, therefore, ceased all new investments in BoT and will dispose of the majority of the current portfolio over the next two to three years as we maintain our obligations.
As a company with deep roots and expertise in energy, and because energy security is critical for food and water security going forward, 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.
The purchase of the remaining 50% interest in Cennergi ( see Core equity-accounted income (Rm)), highlights our intention to power better lives in Africa and beyond, and we are pleased to consolidate our interest in this renewable energy asset at a time in South Africa when we need energy security as we respond to increasingly negative sentiment towards coal-based electricity generation.
Within this context, we are also developing a strategy-aligned social impact plan, which consolidates our social investment efforts to date. We will thus be able to seek appropriate socio-economic development projects in collaboration with our peers, social partners, experts in the field and government. It will also enable us to empower communities on a regional scale with climate mitigation and adaptation at the core of this social development strategy.
Exxaro has long recognised the fact that the shift to a lower carbon environment must and will arrive — for South Africa, for the continent and for the world.
The Integrated Resource Plan foresees a reduction in coal-based electricity generation from its current level of 95% to almost 50% by 2030, citing one of many projections. Some may view the Integrated Resource Plan statements as a radical change in the national energy strategy whereas Exxaro has spent the past decade establishing the foundation of a profitable, sustainable and ethical business that can thrive in a low-carbon environment while remaining true to its purpose. Our plans in the foreseeable future build on that foundation with Matimba, Medupi and Kusile continuing to operate for at least another 15 to 20 years. Going forward, we will continue to balance our mining and energy portfolios with commitments to renewable energy or its components.
Our short to medium-term plan is to provide a solid platform, in terms of operational performance and financial results, while optimising our portfolio of investments and operations to maximise the value of the coal business in the short term.
