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Edited Transcript of EXX.J earnings conference call or presentation 22-Aug-19 9:00am GMT

Half Year 2019 Exxaro Resources Ltd Earnings Call

Pretoria West Aug 27, 2019 (Thomson StreetEvents) -- Edited Transcript of Exxaro Resources Ltd earnings conference call or presentation Thursday, August 22, 2019 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Johan G. Meyer

Exxaro Resources Limited - Executive Head of Projects & Technology

* Mellis Walker;Group Manager, Financial Performance Coal

* Mxolisi Donald Mbuyisa Mgojo

Exxaro Resources Limited - CEO & Director

* Mzila I. Mthenjane

Exxaro Resources Limited - Executive Head of Stakeholder Affairs

* Nombasa Tsengwa

Exxaro Resources Limited - Executive Head of Coal Operations

* P. A. Koppeschaar

Exxaro Resources Limited - Finance Director & Director

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Conference Call Participants

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* Brian Morgan

Morgan Stanley, Research Division - Equity Analyst

* J. Timothy Clark

SBG Securities (Proprietary) Limited, Research Division - Head of Metals and Mining

* Shilan Modi

UBS Investment Bank, Research Division - Director & Equity Research Analyst

* Thabang Thlaku

SBG Securities (Proprietary) Limited, Research Division - Research Analyst

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Presentation

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Mzila I. Mthenjane, Exxaro Resources Limited - Executive Head of Stakeholder Affairs [1]

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Good morning, ladies and gentlemen, and welcome to our results presentation for the 6 months ended 30th June, 2019. I know that at this time of the year, at least twice a year, I do stand up here, but I think it is also polite that I introduce myself. My name is Mzila Mthenjane, and I'm the executive Head for Stakeholder Affairs at Exxaro.

I'm feeling good this morning. And I do hope that that contagion certainly rubs off and that you feel the same this morning. I think it's important to express that. And I think the context within which we find ourselves, any little bit of good news should be shared.

So special welcome to our Board members, the Executive Committee and the team in front of me, who will be presenting today. And it's always a pleasure to have the senior management, especially from Mxolisi because with the difficult questions, I think he's got a supporting team to hand over to. And also, let me not forget those who have joined us online and looking forward to your contributions.

Just in terms of safety, in the event of an unforeseen incident, you will exit through the rear doors at the back to my left and to my right, and you will then turn right towards the parking, where you'll then await further instructions. The ablution facilities will be back towards the exit to your right, just past the reception and the security guards can help you there.

In terms of the program, as per normal, Mxolisi will start off and really just establish the strategic context and tone for the operational and financial results, and then, we'll come back again a little bit later. And I think he does have a crystal ball to just give us a sense of what to expect in the near future, but don't hold him up to it because things are rather volatile. And then Nombasa will then give us the performance of the coal business, followed by Riaan, who will then outline what I've described here are the price effects, given the operational and investment performance. And I know the focus for the past recent results we've been presenting has been on price, and that has done a recent turnabout. But I'd just like to leave a message that don't miss out on the positive stuff in the results. And then, we will finish off with a question-and-answer session.

So with that, let me ask Mxolisi to come and give us his overview.

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Mxolisi Donald Mbuyisa Mgojo, Exxaro Resources Limited - CEO & Director [2]

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Thank you very much, Mzila. Let me just teach it like this. Good morning, ladies and gentlemen. It's really always a real special to be standing here with all of you every 6 months. You always think about what's going to be the new dance that we're going to do here, but fortunately, this time, we are hoping that despite the most challenging period that we have been facing, most recently in terms of volatility, we're going to be able to present to you something that will give you a bit of confidence that we've got the ship under control.

A special welcome to our Board members that are in attendance. And really, it is a pleasure for me to be standing before you as we present Exxaro's 2019 interim financial results for the 6 months ended 30 June, 2019.

With regard to the macro environment, the trade tension between the U.S. and China remains a concern for global economic growth and together with geopolitical risks are weighing in on the global oil and commodity markets. And as a result, global real GDP for 2019 is expected to slow down to 2.8% compared to 3.2% in 2018.

And back here at home, the weak growth outcome was also very disappointing and has raised the risk of a possible sovereign rating downgrade in the second half of 2019. Chinese steel production has risen considerably during the first half of '19. The high iron ore prices and margins well below the 2018 levels has resulted in steel makers maintaining low iron ore inventories. In addition, supply disruptions mainly cause -- because of Vale's dam collapse and weather-related interruptions from both Northern Brazil and Western Australia have kept the global iron ore market balance very tight.

Coal prices reversed the gains of 2018 and the rest of our commodity basket recorded mixed results during the reporting period. The rand exchange rate against the U.S. dollar continued to be volatile.

The global thermal coal market was impacted by increasing domestic supply in China. This was coupled with import restrictions, low European gas prices and high renewables generation. It was further impacted by high stockpiles at ports and unseasonably warm winter in Europe and weak seasonal demand in key Asian markets dominated by India, which put seaborne prices under severe pressure.

But in spite of these macro conditions, our strategic priorities remain the same in terms of: firstly, continuing to derisk the business through effective management of ESG metals; secondly, continuing our portfolio optimization; thirdly, implementing productivity initiatives to improve our operational performance; and lastly, maintaining our discipline on capital allocation and alignment to future growth.

Amongst others, safety, climate change, community development and governance are key ESG priorities for Exxaro. We are pleased to have improved our aggregate ESG score as measured by the JSE FTSE/Russell ESG Index to 4.1 out of a total of 5 from the previous score of 3.7.

In relation to safety, our safety performance trend is unacceptable compared to our LTIFR of 0.11. This was coinciding with the start of the project development activity and increased number of contractors on site. Each business unit and the individual projects are implementing initiatives to arrest this worsening trend. We are expecting that we will be much closer to the target, if not on target, by year-end.

The continuing fatality-free performance is very pleasing. Completing 29 fatality-free months to date further supports our drive to pursuing Zero Harm.

Our ESG performance continues to gain momentum, driven mainly by the following performance areas. For the environmental score, biodiversity scored 5, climate change and water use each scored 4 out of 5. In relation to governance score, both our anti-corruption and corporate governance scored 5 and risk management scored 4. This has been a key area of focus for the Board in light of governance transgressions that we have observed in the market.

In addition, I'd like to mention the improvement of our delivery of community development and empowerment initiatives, which have contributed to the improvement in our transformation scorecard from a level 5 in 2017 to a level 2 for 2018.

During this first half, we have continued with further use development initiatives in support of the Presidential YES initiative. We have invested ZAR 40 million for 400 youth from our mining communities to be exposed through 4IR concepts and technologies as a way of taking our communities along with us on the digital journey.

Our portfolio optimization is on track. The disposal of Arnot is awaiting 1 out of 3 cities to be fulfilled. For the rest of the coal business, we have indicated before that we intend maximizing the value of our existing coal resources through an early value strategy. We are evaluating possible options in this regard and we'll report later on in the year.

The sale of Tronox interest has progressed well, crossing a total of ZAR 5 billion in cash so far in 2019, remain -- we remain with an interest of about 10% in the U.S.-listed entity and 26% in the South African operations.

Regarding the potential flip up of our interest in SIOC, the discussions have not yielded any results. Okay. They have not yielded any results. We continue to explore options for disposing our interest in Black Mountain Mining.

Our outlook on synergy remains favorable within our portfolio, and establishes the foundation of our ambitions of growing our energy sector interest.

Our biggest operational challenges during the reporting period was the sharp decline in coal prices. However, we have managed to remain responsive, especially in relation to the export markets, mainly attributable to the quality of our reserves, which provide a flexibility to produce different qualities of coal.

In addition, as we ramp-up Belfast, the increase in the proportion of the high-quality RB1 will provide further competitive advantage. Run of mine will be introduced to the plant on the 26th of August, 2019. Hot commissioning activities and production ramp-up will continue with salable product expected to be transported from the mine to the railway siding before the end of September 2019.

The first loaded train of RB1 coal will leave the railway siding to RBCT during the first half of October 2019. Nameplate production from the plant is expected to be achieved before the end of October 2019.

Our market resource strategy has provided us with the insights to respond to domestic and international market dynamics. You will notice later in Nombasa's section, the emergence of an RB2 coal quality product. The coal business has remained resilient in the face of inflationary cost pressures in order to protect our operating margins from falling coal prices. The response of the team through innovation and productivity initiatives contributed to a better production performance and below inflation cost increases that would have been the case without these initiatives.

Lastly, our discipline on capital allocation has prevailed during the period under review. In particular, the capital projects program has to date delivered not only the brownfields projects at Mafube and Leeuwpan, but in the second quarter, a major achievement was delivered for the delivery of the first Belfast ROM 6 months ahead of schedule and within budget. Both Mafube and Belfast are now ramping up.

We experienced challenges with contractor performance, such as Group 5 on the GG6 expansion project, which resulted in the termination of the contract. The scope of Group 5 was approximately ZAR 700 million of the total GG6 project valued at ZAR 4.8 billion. The onboarding of a new contractor to complete the outstanding work is estimated at ZAR 339 million. This has resulted in a possible 3- to 6-months delay. However, we remain focused on minimizing any negative impacts on the project deliverables. We have maintained the integrity of the balance sheet through prudent debt levels in terms of our debt covenants and improved our liquidity with the bond issuance.

We are evaluating all options available to us for growth. But with a bias of investing capital in our organic growth opportunities, such as our early value strategy, subject to market conditions, and the return of cash to shareholder remains a priority.

Therefore, it pleases me to finish off this section of my presentation with the following. We had previously mentioned our intention subject to our capital allocation framework to return a majority of the proceeds from the Tronox sale to shareholders. I know some of you are looking at 100% return of this cash. But we always said from 51% and above. Thus the Board has declared a special dividend of ZAR 8.90 -- ZAR 8.97 per share from the cash proceeds received in the latest Tronox sale process.

In addition, the Board has maintained the dividend policy, where we pass through the SIOC dividend and maintain a cover of 2.5 to 3.5x core coal earnings. This results in an interim dividend of ZAR 8.64 per share, which represents growth of 56% compared to the second half of 2018.

And now I invite Nombasa to give us an overview of the operational performance, and I will come back later on to wrap up with the outlook. Thanks, Nombasa, and over to you.

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Nombasa Tsengwa, Exxaro Resources Limited - Executive Head of Coal Operations [3]

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Thank you, Mx. Good morning, ladies and gentlemen. I am very happy once again to present to you our operational performance result, for what I call a very challenging first half of 2019. And every result I read to you this morning will be compared to the second half of last year, unless I indicate.

So moving on to the slide on SHEC performance, you will see that our LTIFR improved by 7% compared to the previous half. And we're pleased with this result because it happened despite the fact that we had an increase in our construction contractors at our business units by 3,415 from the first half of '17.

Also, very pleasing to report is 0 fatalities that were not incurred in the last 29 months, which to us is a demonstration that it is actually possible to achieve Zero Harm. We continue to energize our employees to continue to work safely every day. And we do expect to see this energization from our newly launched initiative called (foreign language) Safety always, all the way, which, as I said, we've just -- an initiative that we've just launched.

Now moving on to our key environmental risks, you will see that there has been a 4% and 18% improvement on our total disturbed land rehabilitated water intensity. However, when we look at our water -- our electricity intensity, it has increased by 11% due to various expansion projects at our Grootegeluk mine. We also report of our 8 mine residues, some call them mine waste dams, 3 at ECC have been recommended for compliance, for upgrades. And we expect that these dams will be compliant to (inaudible) standard 10286 over the next 12 months. And we do have action plans to make sure that these dams do comply to the standards, and we also have got plans to make sure that they are operated safely all the time.

Then moving on, onto that pie chart. In terms of our social investments, we had a mixture of loans and grants amounting to ZAR 75 million, which were disbursed to 17 enterprises and suppliers, of which ZAR 30.5 million was disbursed to majority female-owned businesses. Also quite pleasing to report is the fact that our support to these businesses has enabled recipients to create 178 permanent jobs, and they also improved their own revenues.

So looking at our results as far as products and sales are concerned, as you can see from the 2 bar graphs, that both production and sales were down 6%. And from the table, you see a net decrease of 1.5 million tonnes, and I will share with you the 3 main drivers to this decrease. Firstly, due to Medupi, lower off-take of about 1.2 million tonnes, resulting in stockpile -- full stockpiles at Grootegeluk and also impacting on our production plan, we were down 0.8 million tonnes. You may have read in the media, early in the half, that Medupi was going through some contractor challenges as far as ash-handling facility and also their trucking of coal to the stockpiles. And this really led them to ban 3 units instead of 5 units. So that is really where the challenges came from.

The second biggest driver of the dip in production is at Matla. And we've always mentioned this, to say that for as long as Mine 1 is not back on stream, we are always going to run through problems as far as pit room and also replacing the walls that we've been running that have since stopped. So we are at that stage where we cannot replace the wall -- the tonnes that come from the walls that have since stopped at Mine 2 and at Mine 3. And the new Mine 2 wall that we are mining was never supposed to be mined as far as the original plan due to adverse geological conditions. And now these challenges are beginning to impact our tempos as we had to mine this wall at Matla. And this will continue for as long as Mine 1 is not commissioned.

And the third biggest driver of the dip in production has been the fact that we sold NBC, as you know, and then we ended up with a 500,000 tonnes loss in production, so the above reductions, as you can see, were partly offset by Mafube and Belfast early ROM, which you will hear as a theme as we're going along. So if you look at the sales as well, they followed the same profile with a net decrease of 1.4 million tonnes. Although production at Leeuwpan and ECC was in line with the previous half, we had to add sales from stock, mainly to Eskom. And you'll also see that we were up on our own production, so we were able not to actually buy-in and be able to export from our own production.

So what do we see in the second half is a 13% and 18% increase in product and of the sales, respectively. And this is mainly due to the off-take from Medupi because we already see that there is a positive trend from Medupi taking up our coal. And we also have got the ramp-up of the Mine 2 wall that I talked about earlier. Despite the fact that we still have geological challenges and pit room challenges, we hope that we'll be able to get to our levels -- stable levels by the end of this half. We also expect our 4 Seam that we started at Dorstfontein West at ECC to ramp up. We're very happy with what we see already, and also the ramp-up of Belfast as mentioned earlier.

So now coming on to the exports and market performance. Exports increased by 5%, sitting at 4.3 million tonnes. And just talking a little bit about the market, and Mxolisi touched on it, but very much specifically with this half is that we saw an oversupply of thermal coal, obviously, impacting negatively on the price. And specifically in the Atlantic Basin, demand from Europe continues to weaken on the back of very low gas prices. And also a lack of demand from Japan and Korea during this period also added further pressure on the prices and adding even more oversupply in the Pacific, which is a space where we play quite well.

And please -- I know the questions are going to come because you see RB2 all of a sudden on our stats. And because it was a significant amount, we believe we must report on this separately. And really, with the oversupply and softened demand on RB1 during this period, we had the ability to compete very effectively in the RB2 market, where there was favorable demand and better value.

As a result of this shift, you will notice that our RB1 in our mix has been the lowest in our history. And we -- because obviously of the shift of the RB2 and we can talk a little bit about that if you're interested. And we expect RB1 volumes from next year onwards to increase as a result of the GG6 expansion and Belfast tonnes coming on stream.

So the question could be, whether we'll be able to see the same trend going forward on RB 2? The answer is we do not know. And this will really depend on demand and value opportunities out there in the market.

TFR also had their fair share of challenges in terms of their railing rate, which they achieved in this first half, an annualized rate to RBCT of 71 million tonnes per annum, which is less than what they have achieved in the second half of '18, which was at 75 million tonnes. And they've experienced numerous incidents as far as cable theft, you must have read about that, and a few derailments. So really challenging for them as well. However, we're very fortunate to be able to move coal from the Waterberg through an average of 4.6 trains per week. Very important to us to watch this trend because we're going to have to ramp-up together with TFR, and we're very happy to say to you that we've been working very well with them, and we're very convinced that we will be able to get there to the finish line together with TFR.

So looking in the second half, we forecast to export 5.3 million tonnes, lucky because of the Belfast ramp up, which is offset by a decrease in power station coal in our mix, as you can see, where we're going from 21% in the first half to 9% in the mix. And this is due to a string of tonnes from Leeuwpan and ECC, which will be going to Eskom. And we are in process of contracting with TFR for additional capacity on the rail to move our additional exports, as you see that we will sit -- we're sitting at about 9.6 million tonnes by the end of this year.

And then on the graph on the bottom right, you will see the gap between average API4 and the average realized price is wider than before. As we always say, this is a function of our product mix. And the effect of very wide discounts to the index on RB3 and the power station coal in the first quarter was compounded by the significant weakening in the API4 index during this first half. And just to give you an indication, having started the year at $90, and guess where we are today? Mellis, are we sitting at $57? $57, $58? Okay. That just shows you the gap that we've experienced is quite huge.

Moving on to productivity, and you will see, as we mentioned earlier, that our product tonnes were mainly impacted both by those 3 events that I've mentioned, which I'm not going to repeat. But what I want to concentrate on is the 2.8 million tonnes that we are going to see into the second half.

Your Slide 36 as a backup slide is having a beautiful waterfall graph, where we show you how this ramp-up is supposed to look like. 1 million tonnes from Belfast; we will see 0.7 million tonnes coming from the Matla Mine 2 short wall; 0.5 million tonnes from Grootegeluk; and from the ramp-up of Dorstfontein West Seam 4, we'll see 0.5 million tonnes; and then at Leeuwpan, as they ramp-up in the OR reserve, we'll see about 0.3 million tonnes. The question could be, are you confident? And I think 90% of these tonnes we're quite confident. We've already mentioned too the challenges we get at Mine 1 due to the tempo of the geology. That is the only area I can say to you I am concerned about at this point in time.

And also very pleasing to mention that we can really confirm that we've got a good and a very robust balanced portfolio between Eskom, domestic and the seaborne sales, which creates an effective buffer, protecting our margins, especially at the current prices. Furthermore, our diverse product mix enables us to respond flexibly and competitively to ever-changing market conditions.

Now looking at the labor costs, mainly impacted by lower tonnes, specifically from the fact that we have moved less of a burden at Grootegeluk, and then obviously, the development work around Matla walls, offset by labor cost savings achieved at Matla and Mafube. Labor cost per tonne increased due to lower tonnes at Leeuwpan and Matla.

And if you look at the productivity measured in these terms, we can see an increase of 0.7% and 1.5%, respectively, quite pleasing though because we're sitting below inflation -- labor inflation.

And then on costs, ladies and gentlemen, even though our costs have reduced in absolute terms from the previous half, the impact of the drop, as we have seen, in production had a negative impact on our rand per tonne, mainly due to fixed costs that have increased in corporate costs of ZAR 78 million; and then environmental, we had costs at ZAR 100 million to ZAR 95 million. And also increased contractor costs of ZAR 97 million due to overburdened removal at Belfast and at Leeuwpan. And like we say, we would -- we will always get value realized in later months. And then at ECC due to the third shift implemented at Dorstfontein East, which we have mentioned to you in the past, and also the Forzando North start-up.

Some of the higher costs were offset by lower contractor costs at Grootegeluk and also at NBC. Lower maintenance cost at Matla due to reduced development work, as I've mentioned earlier, as well as savings on Grootegeluk maintenance and higher cost capitalized and that amount is ZAR 323 million.

So as you have seen in the previous slides, we're going to get an advantage on the rand per tonne in the second half due to the increase in our tonnes. And we continue to drive cost down through our operational excellence and digital programs, and these remain our strategic focus. And all initiatives are included in budgets and they are tracked quarterly. And obviously the 2.5% and 2.3% increases remained below inflation as we have previously guided.

Now coming to our capital expenditure and really, you will see how the discipline is beginning to come through. If you first look at the total capital spend for 5 years, '19 to '23, our plan is expected to be in line with previous guidance. Now, on expansion capital, ZAR 100 million higher, this is really due to the shifting or moving in timing of GG6 expansion, which we've already talked about being affected by Group 5 contract being terminated in March; and also the capital of Thabametsi that we had to move forward -- moved into later year, sorry, due to the fact that they have not -- Thabametsi, the IPP side, has not achieved the financial close. And then the Belfast CapEx, we were very happy to accelerate so that we can deliver early value from Belfast as far as ROM is concerned.

Sustaining CapEx, also very pleasing to report that it is slightly below budget -- or below, sorry, the previous guidance by 1%. And this includes all our sustaining and replacement strategies. And the good news is still that the ZAR 1.6 billion savings we've mentioned to you in the past still remains unchanged. And you will find all the details in your backup slides.

Then my last slide, ladies and gentlemen, as Mxolisi has already mentioned, we've made a lot of inroads in making sure that we stabilize our GG6 project as far as the contractor changes are concerned. And now the teams are focusing on risk management across all our operations as far as contractors are concerned.

And then on the rapid load-out station. And even though that we have a delay from the third quarter of '19 to the fourth quarter, we do not foresee any changes of the costs. So we still remain within budget. And the delay does not seem to impact on the TFR ramp-up schedule.

Then the Thabametsi IPP, we've talked about that, that we're still awaiting the financial close. Hence, we had to move our capital from 2020 onwards.

And then Mxolisi also have mentioned about great successes that we've achieved in fast-tracking our Belfast project so that we can get that early value.

Therefore, ladies and gents, in closing, I really want to thank my coal team for support, also our colleagues from the functional support departments for their relentless support and contribution even in challenging times.

Now I hand over to Koppes.

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P. A. Koppeschaar, Exxaro Resources Limited - Finance Director & Director [4]

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Good morning, ladies and gentlemen. It's a pleasure to present the results for the 6-month period. I will also compare the first half of 2019 to the second half of 2018.

So in the first slide, we look at the high level at the core results. And as we already pointed out, there was quite a contrast between our own managed operations depicted at the top and income from our equity-accounted investments at the bottom. Just, again, to remind you, in the core result, we exclude certain once-off items to enable a more meaningful comparison. These adjustments are set out on Slide 42. So you can see at the top, our revenue was 10% lower at ZAR 12 billion and consequently, EBITDA 15% lower at ZAR 2.8 billion. The contribution from our non-managed operation showed a significant increase, with equity income increasing 31% to ZAR 2.9 billion, and SIOC was the main contributor. This translated into core headline earnings per share of ZAR 12.01, an improvement of 4%, as the increase in equity income more than offset the decrease in the EBITDA number.

On the next slide, we look at the revenue waterfall graph. As can be seen from the graph, we realized net higher prices in the domestic market. However, the average export price realized was down 29% to $54 a tonne as the benchmark API4 price declined by 25%.

If we look at volumes, domestic volumes decreased due to the reasons Nombasa has already alluded to, and our export volumes increased by 5% due to the higher coal availability. The negative variance at ferrous of ZAR 65 million is due to ferroalloys, where sales volumes were lower due to the contracted supply ferrosilicon to SIOC being terminated in 2018. Although the average rand-dollar spot rate was almost flat, we realized an exchange rate of ZAR 14.44 compared to ZAR 13.51 in the second half of 2018.

Again, for these slides, we're showing Matla separately. So revenue from Matla was ZAR 256 million lower due to the short-wall and other production challenges that Nombasa alluded to earlier. Remember that the recovery of the cost from Eskom is accounted for as revenue for Exxaro.

Next slide, we look at the EBITDA waterfall graph. So that first bar, the ZAR 1 billion, that was now already discussed on the previous slide. So if you look at the employee cost variance, you can see there's a small positive variance that is in line with lower bonuses that were paid in line with lower profitability, offset by higher cost incurred at Grootegeluk due to the implementation of the FULCO shift roster at Grootegeluk.

The increase in rehabilitation cost is mainly driven by revised cost estimates received from external environmental specialists to align to the latest interpretation of the new environmental legislation.

The mining cost variance, the positive there is mainly due to the disposal of NBC in the second half of 2018. That had a positive impact on that bar of ZAR 156 million and also higher costs that qualify to be capitalized at Grootegeluk of ZAR 122 million. And that was, to some extent, offset by the higher cost of overburden removal that Nombasa alluded to earlier on.

The small variance on distribution cost, so in line with the higher export volumes. Our distribution cost was higher by ZAR 116 million, but this was somewhat offset by lower rail cost to the Rustenburg and Western Cape depots of ZAR 98 million. You will see in the stock movement and buy-in side, there was a very small movement. It consists of several factors, but mainly sales volumes exceeding production at Leeuwpan and ECC that had a negative variance of ZAR 152 million as well as export sales volumes higher than stock.

The positive variance at ferrous is due to the production being higher than the sales, so there's stock building at the moment.

The net ForEx variance is as a result of realized and unrealized foreign exchange differences, and a big portion of that includes the proceeds that we received from Tronox.

So as expected, in line with the lower profitability, you can also see the royalty was lower, and that was also impacted by a combination of the rates applicable in calculating the royalty as well as CapEx that qualified to be redeemed.

In the general bucket, the -- in other, the big positive adjustment there was revaluation on our rehabilitation trust fund, in line with higher investment values.

And then on the coal side, that was somewhat offset by increase in safety bonuses that were paid.

So if you look at the following slide, where we split out revenue and EBITDA between our Waterberg and Mpumalanga operations, you can see the EBITDA reflects a 22% decrease, and the margin decreased to 24%. If we unpack it further. At the Mpumalanga operations, there were decreases from all our mines with ECC having the biggest impact. ECC had a negative EBITDA of ZAR 280 million for the year, and that was obviously caused by the lower export prices and a big component has also been the rehabilitation cost adjustments.

So the 22% decrease in the other coal segment, that relates to the impact of realized and unrealized foreign exchange differences on debtors, also donations and costs associated with us moving to our new corporate center.

On the next slide, we look at the attributable earnings. The first one that I want to discuss is net financing income. So you can see from the slide, we continue to have a very strong balance sheet. And for the year, we recorded net financing income of ZAR 30 million. So this is as a result of lower debt levels in the group, but also a higher capitalization of interest on our projects. These projects are Belfast and GG. So the higher capitalization, in total, we capitalized ZAR 221 million of interest on those projects.

If we look at equity, there you can see the big impact of SIOC. So the SIOC equity income, ZAR 2.7 billion, which was obviously supported by the very high iron ore prices and good premium that they received in the market for their good quality ore.

Included in the Tronox operations for 2018 is still the U.K. operations and the SA operations. So you'll recall that the U.K. operations we disposed of earlier in the year. So as from 30 November last year, those assets were held for sale. Therefore, the equity income in 2019 is only for the South African operations.

Mafube, our 50% joint venture with Anglo, recorded the equity profit of ZAR 105 million compared to the profit for the corresponding period of ZAR 144 million. This was also due to the lower coal pricing as well as ramping down Springboklaagte and ramping up Nooitgedacht.

Cennergi, our 50% joint venture with Tata Power, recorded an equity accounted loss of ZAR 13 million compared to a profit of ZAR 45 million in 2018. Now the EBITDA of the business was not impacted. That was a book entry that was put through to account for hedge ineffectiveness on one of the interest rate swaps.

The other category includes our Black Mountain investment, which recorded the equity income of ZAR 54 million.

So as can be seen, the decrease in net operating income was more than offset by the increase in equity income, resulting in core attributable earnings per share of ZAR 12.01, up 4%. And remember, these calculations are based on 332 million shares, the adjusted number of shares.

Next slide, we look at capital allocation. So we're very pleased for the 6-month period, we received cash flows -- inflows of ZAR 9 billion, comprising ZAR 2.6 billion from our own operations, ZAR 5 billion from the disposal of our interest in Tronox as well as dividends of ZAR 1.4 billion. The ZAR 1.4 billion is mainly from SIOC.

So in terms of our capital allocation framework, we used that to pay financing cost of ZAR 85 million. Sustaining our coal operations, it was nearly ZAR 1 billion and expand our coal operations with further CapEx of ZAR 1.6 billion. We also, during this period, we paid normal dividends of close to ZAR 2 billion.

In the growth bar there, the ZAR 322 million, there's an additional investment of ZAR 109 million into what we previously described as AgriProtein, you'll recall, we made the investment previously. The company has since changed its name to Insect Technologies Group. And then there was a further ZAR 157 million on noncoal-related CapEx.

So then the dividends that we paid to Eyesizwe RF enabled them to reduce their preference share liability by ZAR 400 million, resulting in an outstanding balance of ZAR 187 million as at 30 June. So that ZAR 187 million forms part of our net debt of ZAR 758 million.

Now the other bucket, the ZAR 1.4 billion, there's 3 items that I would like to highlight there. Included in that bucket is an amount of ZAR 660 million for the acquisition of shares to settle vested share-based schemes, ZAR 515 million due to the adoption of the new IFRS standard on leases. And then ZAR 344 million for deferred consideration that was paid as part of the ECC acquisition.

So that then resulted in a final net debt position of ZAR 758 million, a very low net debt/equity ratio of 1.7%. And on an annualized basis, the net debt/EBITDA cover ratio is 0.1%, well within our targets.

Already I -- next slide, I'm not going to go into too much detail. But in terms of the revised dividend policy, we've now paid an interim dividend of ZAR 8.64 per share. You can see there on the coal side, a dividend cover consistent with the previous periods of 3.3 was applied. And the dividend, therefore, comprises of a pass-through of the SIOC dividend of ZAR 7.47 per share, and then the dividend from our coal operation amounts to ZAR 1.17 per share, resulting in an overall cover for the group of 1.4x core attributable earnings. And also then, taking into account the proceeds from the sale of Tronox, the Board resolved to pay a special dividend of ZAR 8.97 per share.

So with that, I also like to thank everybody that was involved in the results. I think, firstly, the people at the BUs for all their hard work, also in the functional areas, and especially in the finance team, a lot of hard work. I'm not going to single out anybody, but all the people at the BUs and the corporate center, thanks very much.

And with that, back to Mxolisi.

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Mxolisi Donald Mbuyisa Mgojo, Exxaro Resources Limited - CEO & Director [5]

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Thank you very much, Koppes, and really, looking into the second half of this year. The global macro environment is remaining very challenging. And we see it that way for the balance of this year. And if you've got any further stargazing, crystal ball gazing for next year, I'm all ears. But the environment continues to be challenging.

And on the domestic front, the South African economy is facing serious headwinds. Weak growth, stagnant investment, weak business confidence, rising unemployment, burgeoning fiscal deficits and debt levels and various challenges in the performance of state-owned enterprises are creating a vicious cycle of economic underperformance.

The constant bailing out of underperforming SOEs is placing material pressure on the country's fiscal matrices, with fiscal deficits and debt levels rising to levels that threaten our current sovereign investment-grade rating.

But as business, we can no longer sit on the sidelines and wait for government action. It is now critical that we implore government to adopt a clear plan to implement vital structural reforms that consolidate government expenditure, reduce fiscal pressure and debt, and rapidly reform and restructure SOEs. The focus has to be on the economy.

As business, with all the CEOs and other business colleagues, we stand ready to work with government and labor to help restructure SOEs to reignite investor confidence and to get back towards levels where we can get to see the economies start growing again. And this is the conversations that we have in BLSA, in Busa, in many other platforms, where we say as business, we have been patient. We have made ourselves available. We have engaged with the President and his economic cluster on several occasions, but we are not seeing action.

And so as we had put pressure during the time of state capture as business, we're going to put pressure on the President to start doing what is right for the country. So you will see more and more of us. So you've heard Mike Brown when he was making his presentation, what his forecast was as business, and we're going to be calling on the government and we're going to be putting pressure on the government. But we'll also say that we are there, we are willing and we are ready to be part of the solution.

Despite this gloomy outlook, Exxaro will continue to perform and deliver value to its stakeholders. Firstly, our digitalization plan remains on track, and we will roll out our integrated operation centers at all our operations, hopefully, by the end of this year, and this will be in terms of our digitalization plan.

The increased visualization of the mining value chain has enabled us to highlight the inefficiencies that we intend to be addressing through improved decision-making relating to safety, productivity and cost performance.

Secondly, in relation to some of our investments, during the second half, the performance of SIOC investment will be well supported by the momentum of the first half, where we still see a tight iron ore market, strong fines prices with above-average lump premium and continued stable demand for higher grade products.

However, we are also beginning to see unexpected recovery in the seaborne supply with moderate -- moderation of Chinese demand, and this will definitely dampen market -- the current market enthusiasm. We were just talking this morning that, I think, since the beginning of just August, we've seen the iron ore price fall down by $4. And so the pressure is there. And, hopefully, like all of us, we will do everything that is possible, that is to keep focus on the controllables, on the productivity, on the cost-driving efficiencies. That which we have control over, we have to do our best on.

Our Tronox interest has been reduced to approximately 14.7 million shares. It's representing 10% of our total outstanding shares as at the end of June. We remain committed to monetize our stake in Tronox over time, in the best possible manner, taking into account prevailing market conditions. We have to be patient. We have to move at the right time. And I think, so far, in the past 2 transactions, we have been able to realize the value by being patient. So we will exercise patience. You know where Tronox share price is sitting right now. This is not the time to move. But when the time is right, as we see the market conditions, we will take action.

And in respect of Moranbah South, our coking coal project, Exxaro, together with Anglo American, is in the process of reassessing the potential development plan for the project. I've had the opportunity personally to have an engagement face-to-face in Australia with the Anglo Coal -- Market Coal CEO, where both of us have expressed the seriousness of really driving this project as quickly as we can to the extent whereby, hopefully, in the next coming year, we could possibly be coming, provided that the project makes sense, for some investment decisions. That's the commitment that we have with each other, and that is the plan that we hope that we can put to bear.

Another priority is implementing the employee and community empowering scheme as committed to previously. To conclude, our broad -- to conclude our broad-based empowerment structure, 10% of Exxaro's ownership of Eyesizwe will be used for these schemes.

As a closing note, I'd like to share our perspective on climate change, which will require much more definitive and structural changes, a proactive response and actions. We have witnessed an increase of inquiries from shareholders about our climate risk response.

Secondly, we are also experiencing higher insurance premiums in the renewal of our insurance policies and will be incurring increased costs resulting from the recently introduced carbon tax.

Lastly, the continuing delay in the granting of an operating license for the Thabametsi coal IPP, which has impacted on the development of the Thabametsi coal project, that highlights the increase and vocal response from NGOs at this investment related to climate change. This is our reality. Therefore, the impact of climate change on our business is systemic and requires a response that it will ensure a sustainable Exxaro in a carbon-constrained environment.

However, the migration to a low carbon environment has to be just and conscious of potentially negative impacts on our stakeholders, especially the poor and the needy in South Africa. We will be presenting to you in due course our climate change response strategy, including our progress which incorporates the recommendations from the FSB's test team on climate-related financial disclosures, which highlight climate change's transitional and physical risk confronting our business and related financial impacts of these risks. In all instances, we strive to continually ensure that Exxaro remains a sustainable organization that is responsive and proactively addresses the challenges of the future.

And so with those words, ladies and gentlemen, let me take this opportunity just to first thank the Board -- the Board members who are here, who continually support us and continue to guide us as we navigate these very choppy waters.

I also want to give thanks to my management team, who we have robust conversations and discussions about these critical issues and deciding on how we would need to respond to them.

And also to the broader Exxaro community, who continue to play such a vital role to ensure that every 6 months when we stand here, we can be proud of the numbers that we put on the table. To them, I salute.

And also I want to thank all of you who are here today, the investors, the analysts, who continue to push us, who continue asking us difficult questions. Keep on doing that because that keeps us razor sharp.

And so, ladies and gentlemen, let me now hand over to Mzila for our question-and-answer session. Thank you very much.

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Questions and Answers

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Mzila I. Mthenjane, Exxaro Resources Limited - Executive Head of Stakeholder Affairs [1]

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Thank you very much, Mxolisi, for that, and to the rest of the team for a great presentation. So we now move to the Q&A. And we'll start with questions on the floor and then alternate with those online.

I saw a hand from Shilan and then -- oh, there's Brian next to you and then Tim. Shilan? Is there a microphone? No, there is a microphone. Sorry, Tim's got the mic. Maybe -- Tim, carry on. That was pretty cool.

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J. Timothy Clark, SBG Securities (Proprietary) Limited, Research Division - Head of Metals and Mining [2]

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It's Tim Clark from Standard Bank. I've got a couple of questions, please. First of all, could you just go into a little bit more detail on the ECC-negative EBITDA number. How patient are you with that? What are you going to do about it? Because if coal prices aren't sustainable -- sustainably high or if you experience periods of loss from those older operations, I just wonder if you could give us an idea of your patience there?

My second question is on Thabametsi. We've been kicking that ball or that can down the road for some time now. We sort of every 6 months delay it. At what point are you going to strip it out of the guidance, right? Because you've got a big number there now in relation to your total CapEx. It didn't used to be, but you used to have a lot more CapEx, right? But now, it's a big number. And the big numbers are getting quite close. But it doesn't seem to be going anywhere, to me and from the outside.

And I suppose that feeds into my last question, which is on capital allocation. If you're not really going to spend the money at Thabametsi and you've got this balance sheet at 0.1x net debt-to-EBITDA, surely you're holding on to too much cash. I mean, you've got the [monetized] business coming out of Eskom. Most of your money is guaranteed to you. You've just got to cover your sustaining capital. I mean, your balance sheet looks very, very strong, if not laser-ly strong. And I was wondering if you could speak to that.

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Mzila I. Mthenjane, Exxaro Resources Limited - Executive Head of Stakeholder Affairs [3]

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Okay, so I think that was 3 questions. Maybe, let's take those and then I'll go back to the floor. So the first question was on the negative EBITDA on ECC. How patient are we with those operations?

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Nombasa Tsengwa, Exxaro Resources Limited - Executive Head of Coal Operations [4]

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I think -- on ECC, I think we'll need to make sure that every one of those operations are optimized. And that I can say to you, if you look at what we've done with Dorstfontein East, we had challenges which were resolved. We came here and talked about our contractor performance issues, obviously impacting on the volumes, eventually on the rand per tonne. We've since gotten into the 4 Seam at Dorstfontein West, and that's where we're going to get quite a lot of volumes from there.

And those volumes in -- and I'll come back to the issue of Eskom, but obviously, the volumes -- in terms of the amount of volumes that we'll get from there, it will be quite significant compared to the 2 Seam that we've mined.

Our problem child in that complex is Forzando South, from a cost sensitivity point of view. And we've talked about our challenges on geology there, and we have spent a lot of time doing development underground to get to better ground. And we're very happy to say that our development has really bore fruit. We want to have focus on the areas that we've opened, to make sure that we get more volumes. So on the efficiency side, we've got to make sure we do that.

Forzando South is on our short-term interval control, which we watch almost on a weekly basis to see what happens with the variability in geology. But the solution for that complex, given the volatility of price, is in the movement of tonnes to Eskom. We've said that.

And just recently, we've been talking to Eskom. Eskom is interested in that complex due to its quality for blending across most of their power stations. So I would say to you, Tim, we're not that patient for losses. For efficiencies, as I say, we're really doing a lot of work, and also inroads into the Eskom market looks very promising and into the future.

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Mzila I. Mthenjane, Exxaro Resources Limited - Executive Head of Stakeholder Affairs [5]

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Okay. Thanks. Do you want to add to that?

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Mxolisi Donald Mbuyisa Mgojo, Exxaro Resources Limited - CEO & Director [6]

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No, no.

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Mzila I. Mthenjane, Exxaro Resources Limited - Executive Head of Stakeholder Affairs [7]

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Oh, the second question on Thabametsi?

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Mxolisi Donald Mbuyisa Mgojo, Exxaro Resources Limited - CEO & Director [8]

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Yes, I'll talk to the Thabametsi. You're quite right, Tim, in the sense that if you just look at the pressures against that project on the power station side, it does not give one great comfort that those pressures are going to disappear any time soon and that whether that project has any chance of happening without a different technology than what is proposed, which means that in the long term, the road is still going to be long for that project to happen.

We do have a contractual obligation, which expires at the end of this year as to our commitment into that project. And, of course, with that happening, we will have to -- we have to revise our position as to what that means for us going into the future. So, yes, we had been tied into a contractual obligation, and I would just leave it at there. We are reviewing it now because we have to go into business plan phases, cycles, okay? So to us, it's going to be about value-add -- value -- early value; that in the absence of that particular project, as part of our overall early value strategy, we are considering Thabametsi within that context.

The last one was?

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Mzila I. Mthenjane, Exxaro Resources Limited - Executive Head of Stakeholder Affairs [9]

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Would that dovetail into a response to your question on the capital allocation and the laser-ly balance sheet?

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P. A. Koppeschaar, Exxaro Resources Limited - Finance Director & Director [10]

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Yes, so perhaps just to add on that, so just remember in those CapEx figures, there's no figures for CapEx associated with the early value strategy. So those are still -- we're still busy doing the studies. So if Thabametsi falls off, it could be that it's replaced by some of these early value strategy projects.

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Mzila I. Mthenjane, Exxaro Resources Limited - Executive Head of Stakeholder Affairs [11]

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Okay, thanks. Shilan, back to you. Do you have the mic?

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Shilan Modi, UBS Investment Bank, Research Division - Director & Equity Research Analyst [12]

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So with investment levels in mind, too strong?

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Mzila I. Mthenjane, Exxaro Resources Limited - Executive Head of Stakeholder Affairs [13]

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Do you think the balance sheet is too strong?

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P. A. Koppeschaar, Exxaro Resources Limited - Finance Director & Director [14]

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It's a good problem to have when you have a commodity company.

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Mzila I. Mthenjane, Exxaro Resources Limited - Executive Head of Stakeholder Affairs [15]

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Sorry, just one additional comment from Nombasa on early value.

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Nombasa Tsengwa, Exxaro Resources Limited - Executive Head of Coal Operations [16]

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Just another addition on these early value that we talk about. Remember, they are focused on 3 operations. There is Grootegeluk. Therefore, it can only be a greenfield, so we're not -- sorry, a brownfield. You're not looking at something completely new. Same as in Mafube as well as in Belfast. So when we come back, don't expect us to come with billions and billions worth of capital that we have to spend there because, as I said, it's just part of expansion. Some of them is moving into Phase II, likely earlier than you would have otherwise. So just to keep you settled on that one.

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Shilan Modi, UBS Investment Bank, Research Division - Director & Equity Research Analyst [17]

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Congrats on the results and thanks for the special dividend. On that, you paid out about half of the cash that you received from Tronox. So I'm just wondering what was the discussion with the Board in terms of determining that percentage?

And then with the Mpumalanga operations, if prices stay where they are, will profitability increase in 2H? What I'm asking is, is there a ramp-up cost, like a fixed cost, in that number, so yes?

And then just in terms of contract mining, a lot of contractors are actually under pressure at the moment, and we can see that in like the share prices of those companies. What's going on from your perspective with those -- with negotiations with those companies? And is there a risk that there's going to be a step-up in costs in the next few years, potentially if these get -- these costs get in-house?

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Nombasa Tsengwa, Exxaro Resources Limited - Executive Head of Coal Operations [18]

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Can I just quickly address the issue of contractors? True, it's -- they are very much under pressure. And as we speak, in fact, Bram, who is our General Manager for Mpumalanga, is in conversation with the contractors to determine exactly that. And it's always difficult for them to increase their cost of pricing when the price of the market is looking as it is. So it's going to be a very interesting conversation. We're in the middle of it, and we shall see what happens.

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P. A. Koppeschaar, Exxaro Resources Limited - Finance Director & Director [19]

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So on the Tronox special dividend, if you do the numbers, I think the -- it works out at about 65%, the payout ratio. So that was the conversation with the Board. The first tranche that we disposed of, the payout was about 60%. So also, I think very important is we also always do scenario planning if there is a collapse in coal prices. So also to be prudent. So part of your dividend declaration, special dividend, also includes scenario planning and downside scenarios. So all of that was taken into account when they deliberated on the final and the special dividend.

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Mzila I. Mthenjane, Exxaro Resources Limited - Executive Head of Stakeholder Affairs [20]

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Okay. Thank you. And then there was a question around Mpumalanga mines in terms of potential costs associated with ramping up.

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P. A. Koppeschaar, Exxaro Resources Limited - Finance Director & Director [21]

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So as Nombasa pointed out, when your volumes are down, your fixed cost absorption is a problem. So you should see more efficiencies as your tonnages increase.

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Mzila I. Mthenjane, Exxaro Resources Limited - Executive Head of Stakeholder Affairs [22]

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Okay. Brian?

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Brian Morgan, Morgan Stanley, Research Division - Equity Analyst [23]

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It's Brian Morgan, RMB Morgan Stanley. Can we just chat about costs? It was a feature in the last results, too. Costs stepped up quite sharply there and now we've got quite big year-on-year comps again. I'm just looking at some of the line items. Raw materials, up 41%. Contract miners, up 30%. Repairs and maintenance, 14%. Railage and transport's up 31%. Export volumes only went up 10%. So it looks like we've got some really big cost pressures coming through. In my numbers, I expected them to temper a little bit in this half, given how big they were in the last half, and that didn't happen. So could you just chat us a little bit about cost inflation?

And then there's also been -- Nombasa spoke about some of the media reports and the issues at Medupi. One of the other stories has been that, by design, Medupi is never going to be able to achieve the kind of energy availability factors that it was supposed to, which means that structurally, Medupi might not be able to take the full volume of coal that it is contracted. Now, obviously, it's a contract, but in the long term, they may not be able to take the coal. So what mitigating measures have you put in place to deal with that kind of eventuality should it materialize?

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P. A. Koppeschaar, Exxaro Resources Limited - Finance Director & Director [24]

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On which page is the stuff that you're referring to, Brian?

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Brian Morgan, Morgan Stanley, Research Division - Equity Analyst [25]

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Page 38 of the financials.

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P. A. Koppeschaar, Exxaro Resources Limited - Finance Director & Director [26]

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Financials. Okay, perhaps I'll answer that. So look, as we pointed out in Nombasa's presentation, especially on the overburden removal, there was additional costs that we incurred at Belfast, Leeuwpan and then also the development of ECC. So that obviously will have an impact. Mellis, I don't know, is there anything else that you may want to add?

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Mellis Walker;Group Manager, Financial Performance Coal, [27]

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The Belfast early ROM is also going through the income statement, so from a cost point of view, you would see that showing in the significant items. But if you look at our total costs, half-on-half, we're actually down by about ZAR 400 million. So these are significant items that have been highlighted. So it's not our total cost picture. So we need to see the overall cost picture to be able to make those comments.

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Brian Morgan, Morgan Stanley, Research Division - Equity Analyst [28]

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So then on a unit cost basis, how should we be thinking about cost inflation going forward?

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Mellis Walker;Group Manager, Financial Performance Coal, [29]

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Well, I think we gave you the guidance the last time, and we said that we'll stay within mining inflation. It's always tricky when you have a 6% drop in your volumes, half year-on-half year. But you've got to see that in conjunction with the step-up that we're seeing of the volumes, the 2.8 million tonnes that are going to pick up the 14% in the second half. So the overall U.S. picture will be a much more appropriate picture to have a look at, and we're still confident we'll remain within mining inflation.

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Mzila I. Mthenjane, Exxaro Resources Limited - Executive Head of Stakeholder Affairs [30]

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Thank you. Thanks, Mellis. Any other questions, Brian?

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Brian Morgan, Morgan Stanley, Research Division - Equity Analyst [31]

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Just that other one on Medupi.

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Mzila I. Mthenjane, Exxaro Resources Limited - Executive Head of Stakeholder Affairs [32]

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Okay. So the second was on Medupi. That from a design perspective, it doesn't look like it will achieve its full performance and how we're going to mitigate against that risk.

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Mxolisi Donald Mbuyisa Mgojo, Exxaro Resources Limited - CEO & Director [33]

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Brian, I wish I could, with great confidence, say, all 6 units are going to fire up. But what I can say is that remember, right now, you've got a spectrum between your minimum and your maximum. And right now, we are actually supplying on the minimum volume, of between 25 combined up to 29, okay? So we -- right now, we are able to ensure that on the current minimum numbers, that's how we try to plan our business. And we always say, well, if it gets to the top, that's a real upside to us. Not necessarily that we plan for the upside because we understand in the long term, that could take a long time.

But it also does create other opportunities with your GG10, which it produces your -- and GG6, which produces the higher quality. Because right now, we are taking advantage of that number and putting more -- instead of using that for power station coal, we are putting the ROM for your RB1 to be utilized for your higher quality. So there is the net benefit that you can also gain by not going all the way to the maximum on that contract because there's value created with your ROM for your higher quality coals.

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Mzila I. Mthenjane, Exxaro Resources Limited - Executive Head of Stakeholder Affairs [34]

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Okay. Mic here for Thabang?

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Thabang Thlaku, SBG Securities (Proprietary) Limited, Research Division - Research Analyst [35]

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It's Thabang from Standard Bank. Just 2 questions from my side. I know that your discussions with Anglo are in early phases in terms of Moranbah South. But we started to see significant increases in projects and coking coal globally simply because there isn't as much climate pressure on coking coal as there is on thermal coal. So I would imagine over the next 2 to 3 years, if you guys don't move quickly, somebody else is going to eat your lunch. So I don't know if you could give us an indication of -- even at early stages, at what point you guys would like to get this project kick-started?

And then my second question is on the SIOC flip-up. The annual price is trickling down. The Kumba share price is also coming down. There should be pressure from your side to try and get your stake sold as soon as possible. Has there been any further discussions with them?

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Mxolisi Donald Mbuyisa Mgojo, Exxaro Resources Limited - CEO & Director [36]

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Can I just say that the SIOC thing, let's take it off the table for now. Let's take it off the table. Okay?

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Nombasa Tsengwa, Exxaro Resources Limited - Executive Head of Coal Operations [37]

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Moranbah?

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Mxolisi Donald Mbuyisa Mgojo, Exxaro Resources Limited - CEO & Director [38]

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And then on -- J-M. Moranbah.

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Mzila I. Mthenjane, Exxaro Resources Limited - Executive Head of Stakeholder Affairs [39]

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Johan Meyer is our project executive.

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Johan G. Meyer, Exxaro Resources Limited - Executive Head of Projects & Technology [40]

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I think to respond on the journey of hard coking coal, and it has to do also with project that I play. So we're on the planning phase with Anglo to sort out the technical teams, to make sure that we do the project properly. So no use to rush any -- in a project and then there's no lunch on the table to be served. So I think it's important that we jointly work together and then get the project going as it should be. So I think it's early days. We've started the conversations with the Anglo technical team. Let's give us some time now. Maybe we can give more guidance in the next results on the timing thereof. Thanks.

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Mzila I. Mthenjane, Exxaro Resources Limited - Executive Head of Stakeholder Affairs [41]

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Okay. Did I see any other hands? Okay, the last question on the floor. And then are there any questions online? Questions on the floor?

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Unidentified Participant, [42]

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My name is [Humphrey. Humphrey Matte]. We've seen a lot of community activism around operations. My question is, have you seen any of that, and how do you deal with it?

And my second question is in terms of your employee numbers. Do you see them as optimal, or you are overstaffed or understaffed?

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Mzila I. Mthenjane, Exxaro Resources Limited - Executive Head of Stakeholder Affairs [43]

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So on the community side, I'm responsible for community development and engagement, so I will respond to that question. So we have seen community activity, to a limited extent, directed at Exxaro. But in the context of where we operate, we certainly have seen those activities where it has had an impact on us in terms of employees being able to get to work. And that's the extent to which it has affected production, but to a very limited extent.

We have managed to maintain positive relationships with community members but also in terms of local government as well. And that has played very well in terms of maintaining stability and predictability in terms of our ability to operate. And our engagement strategies with communities, I think, is something that we've been quite proud of in these first 6 months and something that will continue.

And as far as employees and whether we feel we're overstaffed or understaffed, I think I'm going to pass that one to the CEO.

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Mxolisi Donald Mbuyisa Mgojo, Exxaro Resources Limited - CEO & Director [44]

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Well, look, we have been really trying to be very prudent in terms of how we optimize for our business. I mean, if you look, for instance, our recently established Belfast project, which really is taking advantage of the new digital platforms that we are putting in place, if you look at the construct of the team that is there, it's slightly different than what you'd find in another mine, where we looked at life in the old way.

So what we are hoping, I mean, the idea is the fact that we are going to be increasing volumes, but we also have to be very prudent in the way we also manage the cost in doing that. We rigorously look at our planning in terms of our activities, and at this point in time, we believe that we are just at the right levels which do not require us to add a really serious increase. We did a little bit of increasing as part of the FULCO at Grootegeluk, just to ensure that we can get the real value in terms of increased volumes. But by and large, we do not see as any reason to say we have to reduce our numbers. We do not see a need for us to really be increasing the numbers either, so. But, hey, we continuously review this thing because the Board always continues to put pressure on us to make sure that we're maintaining and really manage our costs. But we also have to be -- not do foolish things either by just cutting cost at the expense of really almost making yourself feel very anorexic.

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Mzila I. Mthenjane, Exxaro Resources Limited - Executive Head of Stakeholder Affairs [45]

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And maybe, [Humphrey], to add to what I said earlier, I think there was sufficient information provided in the presentation in terms of progress that we're making in terms of our community development projects, which we have been acknowledged for by communities.

Any questions online? On the floor? Nothing? Okay. Then I come back to the floor. Doesn't look like we have any more questions. Good. I think that's just about -- okay, here we come.

So I think then if that is the extent of interest, then it is then safe for me to thank you for your interaction and the questions that you've asked and your continued interest in Exxaro.

We have prepared a light lunch and some drinks and an opportunity to network. Let me mention 2 things at this point: that we have scheduled a roundtable discussion with analysts, some of who will be calling in. And then also, secondly, let me also remind you, that we have sent out to the financial community, that on the -- in October, we'll be hosting a Capital Markets Day, and if I can just remind you to please reply to that. And it's going to be held at Belfast.

And as you enjoy your lunch, you'll see some pictures, which show how the project has actually developed over time and it's something to look forward to.

So with that, let me also take the opportunity to thank my team. And I think it's a multidisciplinary approach, preparing this event today. And thanks, everyone, for all the effort that they've put in and to the JSE for hosting us. They're always kind and willing to come to the part. We really appreciate that. So with that, drive safely wherever you may be going. And thank you very much for joining us.