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7 June 2011 Moving into iron ore, targeting Africa Africa Iron Ore Conference Presentation by Ernst Venter Executive General Manager, Business Growth Exxaro Resources Ltd Disclaimer Opinions expressed herein are by nature subjective to known and unknown risks and uncertainties. Changing information or circumstances may cause the actual results, plans and objectives of Exxaro Resources Limited (the “Company”) to differ materially from those expressed or implied in the forward looking statements. Financial forecasts and data given herein are estimates based on the reports prepared by experts who in turn relied on management estimates. Undue reliance should not be placed on such opinions, forecasts or data. No representation is made as to the completeness or correctness of the opinions, forecasts or data contained herein. Neither the Company, nor any of its affiliates, advisors or representatives accepts any responsibility for any loss arising from the use of any opinion expressed or forecast or data herein. Forward-looking statements apply only as of the date on which they are made and the Company does not undertake any obligation to publicly update or revise any of its opinions or forward looking statements whether to reflect new data or future events or circumstances. The iron ore landscape Historical Current • Only a few large players • Dozens of players • Long life mines • Also small, short life mines • High quality products • Lower quality products • Long-term contracts with steel mills • Spot market and trader sales Future • More large players and dozens of small players • Cost effective mines • Importance of magnetite will increase • More consolidation by majors • Increasing use of beneficiation on lower grade ore • Increasing demand for value add products Source: Gindalbie Metals Ltd, Global Iron and Steel Forecast Conference - March 2009, Exxaro Resources 2011 Iron ore fundamentals Price Cost REVENUE Quality Iron ore fundamentals Methodology - Demand driven - Various approaches on steel demand Intensity of use World steel demand World iron ore demand Regression analyses World Steel Demand World seaborne iron ore demand Historic lead or lag to GDP Scenario analyses Iron ore fundamentals Mix of seaborne iron ore Fines represents the majority of seaborne trade and is also the fastest growing product Growth in fines exports has primarily been due to the demand from China where blast furnaces are traditionally oriented towards sintered fines Source: AME Iron ore fundamentals Sector themes – Price outlook UBS forecasts a deficit in global iron ore supply over the next 3 to 4 years, translating into strong iron ore prices. These prices are expected to reduce in 2014/15 as key infrastructure developments debottleneck new supply in Australia and globally Iron ore fundamentals 8 However, an emerging view from analysts in the sector is that the risk is to the upside with a large percentage of the new forecast supply expected to experience delays and significant capex increases Source: UBS, May 2011 Projected iron ore curve AFRICA IRON ORE As the volumes of the high quality ore depletes, this curve will compact to the left Source: Macquarie (2010) Africa, underlying potential Major issues for investors: • Security of tenure • Perception of country risk • Exploration requirements • Lack of infrastructure • Capital intensity • Quality of iron ore deposits … however … • Significant number of acquisitions in the past few years • Despite substantial premiums to market, buy-in is relatively “cheap” Did you know: China has invested over US$25bn in Africa since 2001 Essential selection criteria Political risk Partnering with locals Understanding regulatory environment Access to infrastructure • Governments play a key role in protecting the assets of their countries • Governments are becoming increasingly impatient with companies not developing projects • Perceived increase in political risk in Africa • Lack of credible local partners • Lack of available funding to locals - free carried approach • Lack of technical expertise required to develop projects • • • • Mining legislation and participation/role of governments in projects Lack of independent or impartial regulators in some countries Enforceability of contracts Ability to repatriate funds as required • Lack of infrastructure development and maintenance • Highly capital intensity and impact on project timelines (power and transport) Access to capital • Non existent or shallow capital markets • Low or unrated African countries impose sovereign ceiling and adversely impact access to debt markets Risk mitigation TOOLS USED TO MITIGATE POLITICAL RISK IN EMERGING MARKETS Countries most likely to be developed Major companies involved in African projects will assist in bringing stability to the region Potential Year Capacity ~2025 >200mtpa Mauritania Guinea Sierra Leone Liberia Cameroon Republic of Congo Countries like Senegal, Angola, Gabon, Ivory Coast and Madagascar will follow 13 What is happening? … but, Africa is not for the faint hearted!