Transcript Presentation

1
Merrill Lynch Global Metals and Mining Conference
Miami, USA
11 - 13 May 2010
Sipho Nkosi
Chief Executive Officer
Exxaro Resources Limited
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Content
• Who is Exxaro?
• Exxaro’s strategy
• RSA environment
- What is happening in RSA since recession?
- What challenges does RSA economy face?
- What challenges does RSA mining industry face?
• Exxaro response
• Country response
• Conclusion
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Introduction to Exxaro
Our commodities
At a glance…
COAL
the fourth largest coal producer in
South Africa. Largest supplier to
Eskom
 One of South Africa’s diversified
resources company
MINERAL SANDS
one of the world's top three producers
of zircon and chlorinatable TiO2 slag
 Approximately 11 000 employees
BASE METALS AND INDUSTRIAL
MINERALS
the only zinc producer in South Africa
 Revenue: R15,0bn*
IRON ORE
20% holding in Sishen Iron Ore
Company
 One of the top 40 companies on the
JSE
 Head office in Pretoria, South Africa
 Market capitalisation ~R45bn
 Net operating profit: R1,74bn*
 Dividend: 200cps*

* for year-ended 31 December 2009
Powering possibility through our strategy 4
Exxaro wants to:
• Be a South African diversified resources company with global assets
• Be a long-term sustainable business
• Produce 75Mtpa coal and 750kt reductants by 2015
• Diversify into sought-after commodities (iron ore and energy)
• Operate successfully in any environment
• Create strategic alliances with key local and international partners
• Bring to fruition its exciting pipeline of growth projects
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Project pipeline and opportunities
Ownership
Sands
Coal
Kwinana expansion (Australia 100%)
(Approval Feb 2008)
Medupi
(Approval May 2006)
Scope
Estimated
capex
Status
Estimated
start-up
40ktpa
AUD117m Construction
2Q10
14,6Mtpa
R9bn
Detail
engineering
2Q12
Sands
Dry mine replacement (Australia 100%)
100200ktpa
TBD
Pre-feasibility
2011
Coal
Belfast
3-5Mtpa
TBD
Pre-feasibility
2011
Energy
Co-generation
20MW
TBD
Feasibility
2012
Coal
Char phase 2
140ktpa
TBD
Feasibility
2013
Energy
Wind energy
100MW
TBD
Pre-feasibility
2013
Coal
Moranbah South (Australia 50%)
4,5Mtpa
TBD
Concept
2014
Energy
Solar plant
20MW
TBD
Pre-feasibility
2014
Coal
Market coke
750ktpa
TBD
Pre-feasibility
2014
Coal
Thabametsi
17Mtpa
TBD
Pre-feasibility
2015
What happened in RSA since recession?
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• SA economy exited recession during 3Q09 with 3,2% real GDP growth
recorded in 4Q09
• CPI inflation under control and mostly within target range
• Reserve Bank cut rates to 6,5% from 7,0%
• Strong currency weighed heavily on corporate earnings
however
• Foreigners continue to be strong buyers of SA equity (US$8,9bn)
• Resources led the rally on JSE on continuing signs of a global recovery
and strong demand for some commodities
• RSA Government continues to invest aggressively into infrastructure
(electricity, rail, roads, SWC stadiums etc)
What challenges face SA economy?
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• Despite significant progress made in getting the economy back on to a higher
growth path (3,3% 1994 to 2009), the country faces major unemployment and
poverty challenges
• SA’s labour participation rate at 42% is low vs peers, its unemployment rate is
high (>20%), its levels of income inequality are very high (Gini coefficient 0,59)
and too many people are caught in the poverty trap
• Government has now placed the creation of meaningful employment as a
central pillar of economic policy
• All parties recognise that higher levels of sustainable, balanced and labour
absorbing economic growth is key to reducing unemployment and poverty.
Too much of the economy’s recent growth has been
driven by credit fuelled non-tradable demand side,
and tradable export sectors have languished…..
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To ensure more balanced and higher levels of
growth the country needs its tradable export
sectors to grow at a faster pace
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• This is where mining fits in
• Mining has a very large foreign exchange earning, GDP multiplier and
employment creation foot print
• But questions need to be asked and answered as to what role mining can play in
the future:
- Does South Africa have the environment to support a growing mining industry?
- What role can mining play in the economy?
- What are the factors affecting the competitiveness (and growth) of the mining
sector and can we fix them?
Does RSA have the mineral resource potential? 10
South Africa, is not mature mining real estate! The country still has
significant geological potential
South African reserves for key minerals, 2008
Global rank
1
1
1
1
1
2
2
2
2
2
4
4
5
5
6
8
8
8
9
0
PGM's
Manganese
Chromium
Gold
Alumino-Silicates
Vermiculite
Vanadium
Zirconium Minerals
Titanium minerals
Fluorspar
Antimony
Phosphate rock
Nickel
Uranium
Lead
Coal
Zinc
Silicon
Iron ore
10
20
30
40
50
60
% of global
70
80
90
100
.
What role can mining play in the economy?
Mining industry the essential core of SA economy
• Creates 1 million jobs (500 000 direct and 500 000 indirect)
• Accounts for about 18% of GDP (8% direct, 10% indirect and induced)
• Critical earner of foreign exchange >50%
• Accounts for 18% of investment (9% direct)
• Attracts significant foreign savings (>30% of value of JSE)
• 18,5% of corporate tax receipts (2007 - R22 billion, 2008 - R33 billion)
• 50% of volume of Transnet’s rail and ports
• 93% of electricity generation via coal power plants
• 15% of electricity demand
• About 37% of country’s liquid fuels via coal (R30 billion worth)
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What challenges does SA mining industry face? 12
Mining production declined in period 2006 to 2008, despite significant increase in
investment in that period. Challenges included:
• Mine closures for safety related issues (some valid, some not)
• Binding infrastructure constraints (electricity, rail)
• Red tape constraints (e.g. water licenses)
• Policy uncertainty
• Human capital constraints
• Stagnant productivity and rapidly escalating costs
• Volatility in rand-dollar exchange rate, and then
• The global crisis hit!
but …
The lack of growth in the mining sector is also due to a combination of drivers
eroding the sector’s competitiveness
Can we fix the problems?
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Exxaro’s response to challenges and opportunities includes:
1. Safety ~ CEO safety summit and continuous awareness campaigns
2. Infrastructure
•
Electricity ~ Co-generation and facilitating various renewable energy
discussions
•
Rail ~ Close co-operation with rail and port authorities
3. Red tape and policy uncertainties ~ Chamber of Mines and various
stakeholder forums where industry issues are discussed
4. Human capital constraints ~ Extensive bursary and learning programmes
5. Escalating costs ~ CI and BI culture
6. Rand/dollar exchange rate ~ Uncontrollable, hence position on cost curve NB
Can the country fix these problems?
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•
SA ranked reasonably well in ease of doing business
•
Infrastructure – at a general level SA’s infrastructure is ranked as reasonable, but
specific constraints have emerged (rail and electricity)
•
Social license to operate (safety, health, environment, etc) important component
of the industry’s long-term license to operate
•
Sustainable mining into the 21st century a case for change, whereby the industry
stakeholders need to work together in helping to improve on the social license to
operate, including the continued improvement in technology to ensure a
sustainable sector into the future
•
Macro-economic stability – the issue of the volatility in the rand exchange rate
has been raised (especially its impact on L/T planning)
•
Political stability – SA is a stable constitutional democracy. Parties agree that
transformation is a key component of promoting stability and long-term license to
operate
Specific initiatives taken to address the above include…
Stakeholder response to challenges
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•
Formation of MIGDETT competitiveness task team to jointly look at macroeconomic issues that could have a material impact on the competitiveness of the
mining industry
•
General agreement by all role players that objectives of MPRDA of promoting a
sustainable, safe, environmentally responsible, growing and transformed
industry are NB and globally aligned
•
Role of Chamber of Mines to ensure:
–
Issue of lack of clarity in the laws, and view that certain administrative
discretionary powers create uncertainty is raised
–
The issue of time periods for processing and granting rights raised
–
The issue of understanding the high refusal and rejection rates raised
•
The promotion of exploration and small scale mining
•
Developing trust amongst players
Conclusion
•
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The country and Exxaro face numerous challenges and opportunities to
unlock significant underlying potential. Do we believe we can do it?
• Exxaro can ~ It has the strategy and ability
• The country can ~ Willingness by all stakeholders to improve
competitiveness and unlock potential
• Exxaro has a strong and rosy future
THANK YOU
www.exxaro.com