HIGHLIGHTS: Comparing (1H20 vs 1H19)

• Consolidated group revenue up 18% to 14 078m (1H19: R11 961m)
• Core EBITDA up 40% y-o-y to R3 929 million (1H19: R2 813m)
• Cash flow generated by operations of R4 732m (1H19: R3 228m)
• Core headline earnings per share (CHEPS) + 11% to 1 339 cps (1H19: 1 201 cps)
• Ongoing disciplined capital management
• Dynamic supply management responding to changing demand requirements
• Coal production volumes (excl. buy-ins) up 1 495kt (+7%)
• Record coal export volumes and continued pursuit of early value realisation
• Entrenched industry leader in ESG now included on the FTSE4Good index
• 3 years fatality-free (41 consecutive months of fatality-free shifts, as at 1 August 2020)
• B-BBEE maintained at Level 2
• Interim cash dividend of 643 cents per share [100% pass through of SIOC and 3 times core coal earnings]

Exxaro CEO Mxolisi Mgojo: “Despite sustained global and domestic economic headwinds, compounded by market challenges and COVID-19, Exxaro maintained a resilient financial and operational performance, continuing our positive trajectory year-on-year.”

13 August 2020: Exxaro Resources Limited (Exxaro) – the black empowered diversified resources group - reported positively resilient results for the six-month period ended 30 June 2020, a notable achievement in the face of global trade tensions, a challenging local economy and a decline in thermal coal pricing. Headwinds were compounded by the impact of COVID-19 during the period. Consolidated group revenue was up 18%, mainly due to 15% increase in coal revenue and the addition of clean energy revenue relating to Cennergi, contributing 100% from 1 April 2020. The coal revenue increase is attributable to higher volumes to Eskom as well as record export volumes. Core HEPS increased by 11% to 1 339 cents per share.

Exxaro achieved its key strategic objective of zero fatalities reporting a Group LTIFR of 0.07, surpassing their target of 0.11, and a 42% improvement compared to the corresponding period. The company will return to shareholders an interim dividend of [643] cents per share [HY19: 864 cps], also benefitting the ESOP and Community Benefit Scheme.

Revenue grew 18% year-on-year, while core EBITDA of R3.9 billion, was 40% higher than the same reporting period last year (1H19: R2.8 billion). This was mainly due to higher commercial coal revenue supported by record coal export volumes, and a weaker exchange rate during the period. Exxaro reported core HEPS of R13.39, up 11% on the prior comparative period. Cash flow generated by operations of R4 732 million (1H19: R3 228 million) and dividends received from investments of R1 557 million (1H19: R1 442 million were sufficient to cover the capital expenditure and ordinary dividends paid.

Mgojo says: “The improved revenue was mainly due to higher commercial coal revenue supported by record coal export volumes, albeit at lower USD prices but offset by a weaker exchange rate. This result is against a backdrop of severe market disruption, fluid operating conditions and general uncertainty.”

Cost containment was actively managed during the period to effectively mitigate inflationary pressure on costs, however we incurred higher distribution costs relating to higher export volumes, higher buy-ins and higher costs due to the ramp up at Belfast.

Total capital expenditure for 1H20 decreased by R1 434 million when compared to the corresponding period last year, mainly due to delays on the GG6 expansion project, delayed sustaining capex spend due to the COVID-19 lockdown and cash flow preservation and optimisation measures implemented as part of the capital excellence strategy.

“The group has experienced no fatalities in 41 months to 1 August 2020. In line with our Zero Harm vision, and measures and appropriate have been implemented across our operations to manage the COVID-19 risks.” Mgojo says.

The group’s positive LTIFR trend has continued since 2015, and Mgojo explains that the improved LTIFR in the period underscores Exxaro’s commitment and prioritisation of health and safety for all.

Coal production volumes (excluding buy-ins) were up 7% to 1 495kt, attributed to Belfast and Grootegeluk, subsequently resulting in 10% higher sales of 2 182kt. Export sales volumes increased from 4.3Mt in 1H19 to 5.9Mt in 1H20 with the group realising an average export price of US$52 per tonne in 1H20 against US$54 per tonne in 1H19 and 17% weaker exchange rate. Export sales increased by 39% to 5 921kt attributable to more coal being available from Belfast, ECC, Grootegeluk as well as higher buy-ins, being partly offset by lower sales by Leeuwpan and Mafube.

In the Waterberg region, thermal coal production at Grootegeluk was up 6% to 816kt due to the increased offtake from Eskom for the Medupi Power Station as well as increased production at GG4/5. This resulted in sales volumes increasing 11% to 1 268kt mainly due to Eskom and exports, partly offset by lower domestic sales due to the impact of the COVID-19 lockdown. Grootegeluk’s metallurgical coal production was in line with the comparative period while sales volumes were slightly lower mainly due to the impact of the lockdown restrictions.

The commercial Mpumalanga mines’ thermal coal production was up 4% to 230kt compared to 1H19, driven by higher production at Belfast of 1 122kt mainly due to ramping up of production. The lower production at ECC and Mafube due to the COVID-19 lockdown partly offsets this increase, while at Leeuwpan lower production was due to the management of high stock levels due to no Eskom sales and no alternative market being available.

Optimisation of the portfolio progressed well in the period with the effective date of consolidation of Cennergi into the Exxaro group being 1 April 2020. The company retains around 10% interest in the US-listed entity and 26% in the South African operations of Tronox. The disposal of its interest in Black Mountain Mining, which is currently held-for-sale, is imminent. The sale of Leeuwpan and ECC is progressing according to schedule.

“For the remaining coal business, portfolio optimization will involve maximizing the value of our coal resource through an ‘early value’ strategy, and we are continuously evaluating options in this regard,” says Mgojo.

Exxaro’s capital expenditure remains focused on optimising and implementing its portfolio for growth and sustaining capital which decreased by 53% compared to 1H19. This was mainly due to lower GG6 expansion spend and project delays linked to the pandemic including delays at Grootegeluk due to the lockdown.

Mgojo concluded: “Our strategic environment and the conditions for our value creation were being disrupted before the pandemic disrupted the world. Exxaro continues to adapt and manage through this disruption as it is going to be with us all for a long time”.

The outlook for the second half remains challenging. However, the re-starting of the global economy is anticipated to bring muted economic growth recovery. Uncertainty around the path of the COVID-19 virus makes any assessment of the global economic outlook inaccurate. The reversion to a risk-on environment, as a result of the easing of global COVID-19 lockdown restrictions, supported the ZAR in the first half, however the rand/dollar exchange rate is expected to remain volatile during 2H20.