Mining Indaba 2009 Exxaro … Harnessing or Weathering the Storm Presentation by Ernst Venter Executive General Manager, Business Growth 10 February 2009.
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Mining Indaba 2009 Exxaro … Harnessing or Weathering the StormPresentation by Ernst Venter
Executive General Manager, Business Growth
10 February 2009
2
Contents
• Introduction
• The storm
• The impact
• Is it happening again?
• What will help us survive?
• How will the future look?
• What do we need in Sub-Saharan Africa … notwithstanding the storm
• What are the positives about this event?
• What is Exxaro doing?
• Our track record … and committed growth
• Conclusion
3
Introduction
• Exxaro, powering possibility with a sound asset base and an exciting
growth portfolio
• Will we be able to deliver in the current global economic context?
• Are there even more possibilities for Exxaro in this storm?
• Or should we all adopt a “wait and see” approach?
4
Introduction to Exxaro
COALthe fourth largest coal producer in South Africa, one of the largest suppliers to Eskom MINERAL SANDSone of the world's top three producers of zircon and chlorinatable TiO2 slag
BASE METALS AND INDUSTRIAL MINERALSthe only zinc producer in South Africa
IRON ORE20% holding in Sishen Iron Ore Company
Our commodities … At a glance …
One of the largest South African based diversified resources company
An ALSI Top 40 company, listed on the JSE
Over 9 000 employees
Revenue: R5,8bn*
Net operating profit: R806m*
Operations in South Africa, Australia, Namibia and China
53% BEE ownership
* H1 2008 (6 months) results
5
The Storm …World GDP growth rates
Source: Global Insight
-4
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Gro
wth
Ra
te (
% C
ha
ng
e)
World USA Western Europe Japan
Oil crisis Oil crisisStock market
crashAsian crisis
Dotcom bubbleburst
September 11
6
The impact … Stock exchange indices
Source: I-Net
0
5000
10000
15000
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30000
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Ind
ex
JSE Industrial Index Dow Jones Industrial Index
7
The impact … Copper, zinc coal and oil prices
0
1000
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9000
10000
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& Z
n P
ric
es
(U
S$
/t)
0
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Co
al
& O
il P
ric
es
((U
S$
/t &
US
$/b
bl)
Copper Zinc Brent Crude RBCT Steam Coal
Source: I-Net
8
The impact … Copper and zinc LME stocks
0
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600
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1000
Jan-0
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May
-00
Sep-0
0
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LM
E S
toc
ks
(k
t)
Copper Zinc
Source: I-Net
9
The impact … Zinc smelter production cuts
Source: CRU
7% of world production
Similar and even worse cutbacks in steel, nickel and ferro alloy sectors …
10
Is it happening again?
• Ultra-long term real zinc and copper prices
• Showing the major cycles and the fact that even during super cycles,
prices are cyclical
• Is history repeating itself?
• Can we expect a slow or strong recovery?
• Should we invest now to have a 90% probability to get a return of 35%
plus?
11
Is it happening again?
Sources: Barclays Capital, AME
ULTRA LONG-TERM REAL 2008$ COPPER PRICE
0
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Prc
e (
US
$/t
)
Great Depression
Oil price shocks
?
12
How deep and how long …
“Uncertain” may seem like an understatement to describe the current
mood in many quarters of the mining industry. The precipitous fall in
prices for every metal but gold, the freezing of credit, and the big
question marks over the future of the world economy have been enough
to send most of us for the antacids, the Scotch, or the subscription
medication of choice. Younger people relatively new to the mining
business have painfully learned that, yes, there is always a downturn.
On the positive side, those of us who have been around longer remember
that there is always an upturn, sooner or later, and that its sharpness
and duration are largely a function of what happens during the downturn.
Source: Michael Chender, CEO Halifax
14
What will pull us through this storm …
Source: Deutsche Bank
15
What will pull us through this storm … Economic growth in China and other emerging economies
-2.0
0.0
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4.0
6.0
8.0
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12.0
14.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Gro
wth
(%
Ch
an
ge
)
China Emerging Markets World Advanced Economies
Source: Global Insight
16
Future outlook … Index of consensus commodity price forecasts
Sources: Citigroup, Barclays Capital, Brook Hunt, Deutsche Bank, JB Were, Macquarie, Standard Bank
0
20
40
60
80
100
120
140
160
2008 2009 2010 2011 2012
Ind
ex (
2008
= 1
00)
Zinc Rutile Zircon Steam Coal Iron Ore Fines Hard Coking Coal
Real LT Prices
$1680/t
$500/t
$712/t
$66/t
USc74/mtu
$115/t
17
Source: Promethium Carbon 2006
The carbon economy … Still with us …
18
What do we need in Sub-Saharan Africa … and what can we offer?
Needs:
• Energy
• Logistical integrity
• Rail transport
• Capital equipment
• Financing
• Skills
• Security of tenure
• Alliances and strong collaboration between State, private sector and utilities
19
Energy … Who will make up the gap? IPPs?
Eskom Reserve Margin 2008 to 2017
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Year
%
Reserve Margin Scenario 1 Reserve Margin Scenario 2 Eskom Published Reserve Margin Safe Reserve Margin
Medupi and Kusile late
Medupi and Kusile on time
20
Alternative forms of energy …
• Hydro electricity … long lead
• Nuclear … delayed, expensive
• Renewables …
- solar
- wind
• Coal bed methane/LNG
Inga?
21
Logistical infrastructure and rail capacity
Aus
MarientalKang
• Giving Botswana another rail route to the sea, especially for coal exports• Getting TFR capacity in line with RBCT expansion, i.e. 91 Mtpa• Expanding Sishen-Saldanha rail capacity
Morupule3+ bn tonnes of coal
Mmamabula4+ bn tonnes of coal
Waterberg74 bn tonnes of coal
RBCT
NWCIron ore resources
22What can we offer?
23
Southern Africa … Everything under the sun!
24“Chindia” - Staking out its claims in Africa
Copper, oil and gas, ferro alloys, platinum, iron ore
25
Africa’s newest species … Bears and Pumas!
The other two BRICs – Brazil and Russia – are active in Africa too
26
What are the positives about this event?
• A process of rational filtering ito asset quality
• Strong catalyst for synergistic alliances and collaboration
• Strong incentive to form an Africa Incorporated mindset to strengthen
resilience
• Diversification potential
• Skills retention
27
What is Exxaro doing?
• Protect integrity of current assets
• Cost discipline
• Minimise value losses across value chain
• Improve efficiencies
• Spend cash wisely on high quality initiatives
• Create alliances
• Develop logistical solutions for coal business
• Improve our skills base
28
Protecting and improving quality of current asset base …
The challenge for exploration and mining companies and their suppliers is
how to respond to the new circumstances of the downturn while
positioning themselves for an eventual rebound. Companies have been
forced to look hard at costs, cash positions, financing possibilities,
merger and acquisition possibilities, exploration strategy, personnel
issues, and legal, social, and ethical obligations. Exactly how they
conduct these examinations may make all the difference to their future
success.
Source: Michael Chender, CEO Halifax
29
So, how are we protecting our value chain?
MineralResource
Logistics Market
Products
MineralReserve
MineralDeposit/Rights
Losses
Losses
Losses
Losses
Conversion through Technology
Mining Beneficiation
Losses
ROM
Losses
Losses
Losses
Typical OC Mine
Typical UG Mine
14 3 6 2
6452
5
31
30
Focused execution of high quality initiatives…
Pre-feasibility Feasibility Construction Ramp-up/OperationCoal Mineral Sands Ferrous
Belfast
3.0Mtpa
Belfast
3.0MtpaMoranbah
South
3.5Mtpa
Moranbah
South
3.5Mtpa
Dongara*
200ktpa
Port Durnford*
550ktpa*
Medupi
14.6Mtpa
Medupi
14.6Mtpa
Market Coke
450ktpa
Market Coke
450ktpa
Toliara
Sands*
560ktpa
Toliara
Sands*
560ktpa
Alloy Stream20ktpa
Alloy Stream20ktpa
Diepspruit
1.3Mtpa
Diepspruit
1.3Mtpa
Char
160ktpa
Char
160ktpa
Mafube
5.0Mtpa
Mafube
5.0Mtpa
Inyanda
1.5Mtpa
Inyanda
1.5MtpaBlesbok expansion
2.4Mtpa
Blesbok expansion
2.4Mtpa
Eerstelingsfontein
1.0 Mtpa
Eerstelingsfontein
1.0 Mtpa
Turkey exploration
Turkey exploration
Fairbreeze*
300ktpa
Fairbreeze*
300ktpa
Kwinana
40ktpa
Kwinana
40ktpa
Waterberg mine
16Mtpa
Waterberg mine
16Mtpa
Energy
31
Where to from here?
If the past is any guide, several years from now we will be looking at
major new players whose names we haven't yet heard of, and marveling
at the unexpected growth of companies we hardly notice today. These
companies will have done things with costs that no one believed possible,
made deals that seemed counterintuitive at the time but that positioned
them perfectly for the upturn, and created new business models that
seemed to anticipate changes in the landscape.
Source: Michael Chender, CEO Halifax
32
Our track record …
• Improved production volumes in 2008
• Two new coal projects successfully commissioned in 2008
(Inyanda and Mafube)
• Massive Grootegeluk Medupi expansion on track
• High quality project pipeline … viable with current conditions
• Sintel Char plant being commissioned
• Increased presence in coal export market
33
Conclusion
• Harnessing is the right way
• All is not doom and gloom … create the capability to look through the storm
- there is a blue ocean out there
• Be diligent, rigid and disciplined ito new investments
• The opportunities are still out there …
34
THANK YOU
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