Investment committee report

Isaac MophatlaneInvestment committee chairperson

Dear shareholders,
I am pleased to present the investment committee report for the year ended 31 December 2021.

NEW MANDATE

In terms of King IV, the recommended practices regarding group governance require that the board of the holding company should assume responsibility for governance across the group. The board exercised this responsibility by adopting a framework that provides direction on how the relationship between the holding company and subsidiaries should be structured and managed. Flowing from a move to a more principle-based group governance framework, the board appreciates the different maturity levels of businesses in the group, which require variation of governance to give effect to Exxaro's Sustainable Growth and Impact strategy.

As part of the 2021 group governance review, the mandate of this committee was also reconsidered and amended to consider and recommend as well as monitor material acquisition, merger/ investment or disposal opportunities and ongoing material transactions and related matters in respect of energy and/or mineral transactions, investments and projects.

The frequency of meetings by this committee is not limited to once every quarter as it is required to support agile decision making anticipated within the growth strategy. The committee therefore has two fixed meetings planned per annum to allow for post-investment monitoring and ongoing portfolio review, and it is anticipated that additional meetings will be scheduled as and when required by management through the chairperson.

ROLE AND PURPOSE

The committee has an independent role in terms of which it operates, and makes recommendations and monitors, on behalf of the board, material acquisition, merger/investment or disposal opportunities as well as ongoing material transactions and related matters in the scope of the approved minerals and energy growth and impact strategies, including ongoing portfolio management of these businesses, existing and post-investment reviews and management.

Its role includes reviewing the strategic fit, the risk appetite as well as the financial, technical and legal due diligences for major investments. It will further ensure that governance processes are adhered to at all times and that the approved hurdle rates, set from time to time, are met before any funds are committed. An investment opportunity will therefore first serve at the investment committee where a detailed review will be conducted in line with the investment criteria approved by the board. After such review, the investment opportunity may be recommended by the committee to the board for final approval.

COMPOSITION

The board appoints members on recommendation of the remuneration and nomination committee. The board ensures there is a balanced blend of skills and experience to enable the committee to discharge its functions.

The committee composition was revisited and now consists of six non-executive directors, the majority independent. Mark Moffett resigned on 11 May 2021 and Ras Myburgh retired from this committee on 4 October 2021. The board appointed three new members to this committee: Chanda Nxumalo, Mandlesilo Msimang and Isaac Malevu with effect from 4 October 2021.

In addition, the CEO, CEO designate, FD, managing director: energy and managing director: minerals (once appointed) are permanent invitees to meetings.

The board will consider the need for ad hoc invitees with necessary technical experience to assist members in their technical deliberations. The committee may therefore, in the execution of its roles and responsibilities, co-opt third-party advisers to assist members in their deliberations and decisions. To this end, an independent energy investment advisory panel has been created to support management and the committee in deliberations, and provide advice when material investments and/or disposals in the energy business are contemplated as well as ongoing portfolio management and post-investment review.

MEETINGS

Only one meeting was held by this committee in 2021 following its revised constitution.

2021 IN REVIEW

The committee considered the following at its first meeting held in 2021 under its revised mandate:

• Energy business structure: the energy business structuring options and possible project financing requirements study was presented on how to optimally structure the energy business as it includes multiple businesses and assets, potentially spread over several countries
• WACC review: in terms of the Exxaro discount rate policy, the WACC needs to be reviewed annually, reflecting the method adopted in valuation of investment opportunities
• Investment in business ventures: the benefits and initiation plan for investments into business ventures while achieving strategic and financial returns was presented to the committee
• Divestment: an update of the Leeuwpan divestment process was considered by the committee
• Acquisition: as the energy growth strategy is underpinned by a combination of mergers and acquisitions as well as organic growth, the committee received an update on proposed acquisition opportunities
• Governance: considered its terms of reference, annual work plan and key focus areas for 2022 and recommended the same for board approval

KEY FOCUS AREAS FOR 2022

PERFORMANCE EVALUATION

No legal or regulatory requirement compels the committee to complete annual performance evaluations. While King IV recommends regular performance evaluations for all board committees, it is governance practice at Exxaro to biannually evaluate the committee's performance and effectiveness. As this committee did not hold any ad hoc meetings prior to the change in its role and responsibility towards the end of 2021, a performance review will be conducted towards the end of 2022.

CONCLUSION

The committee, in carrying out its duties, duly regarded the principles and recommended practices of King IV, and discharged its responsibilities in accordance with its terms of reference amid the pandemic's challenges.

Isaac Mophatlane
Investment committee chairperson
4 April 2022