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Powering through the storm. Danie Mouton Carbon Manager, Growth Exxaro Resources Ltd South African Coal Exports Conference 2009 Cape Town 5 February 2009. Sunday Times, 25 January 2009. Agenda. Introduction to Exxaro World economic crisis – Severity and impact

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powering through the storm

Powering through the storm

Danie Mouton

Carbon Manager, Growth

Exxaro Resources Ltd

South African Coal Exports Conference 2009

Cape Town

5 February 2009

slide3

Agenda

  • Introduction to Exxaro
  • World economic crisis – Severity and impact
  • World economic crisis – All doom and gloom?
  • Coal – Blown away or riding the storm?
  • Conclusion
introduction to exxaro
Introduction to Exxaro

Our commodities

At a glance…

COALthe fourth largest coal producer in South Africa

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 ORE

20% holding in Sishen Iron Ore Company

  • One of the largest South African baseddiversified resources company
  • An ALSI Top 40 company, listed on the JSE
  • Over 9 000employees
  • Revenue: R5.8bn* (±US$ 0.8bn)
  • Net operating profit: R806m* (±US$107m)
  • Operations in South Africa, Australia, Namibia and China
  • 53% BEE ownership

* H1 2008 (6 months) results

world crisis gdp growth
World crisis – GDP growth

Source: Global Insight

impact stock exchange indices
Impact: Stock exchange indices

JSE Industrial Index

Dow Jones Industrial Index

Source: DowJones

impact usa home and auto markets
Impact: USA home and auto markets

US Auto Sales

(million units at seasonally adjusted annual rate)

US NAHB/Wells Fargo Housing Market Index

Sources: NAHB & Wells Fargo, WSJ Online

the trees or the forest
The trees or the forest?

Oil price shocks

Great Depression

Sources: Barclays Capital, AME

china the awakened dragon
China – The awakened dragon

Source: Deutsche Bank

other emerging economies
Other emerging economies

Source: Global Insight

commodity prices recovery
Commodity prices – recovery?

Sources: Citigroup, Barclays Capital, Brook Hunt, Deutsche Bank, JB Were, Macquarie, Standard Bank

the glass is half full
The glass is half full!
  • Lower energy costs (oil price)
  • Rational filtering of asset quality
  • Slow-down of capex escalation
  • Greater willingness and incentive to form synergistic alliances
  • Diversification potential (some assets are cheap now…)
  • Skills retention
what is coal s role in the world
What is coal’s role in the world?

Source: World Coal Institute, 2008

does coal have a future role to play
Does coal have a future role to play?
  • Fossil fuels remain dominant source of energy – 83% of the overall increase in energy demand
  • Coal sees the biggest increase in demand in absolute terms (59% by 2030), while non-hydro renewables grow fastest, but from a small base

Source: IEA, 2006

sa export competitiveness
SA export competitiveness

SA in lower half of cost curve

logistics is the key

Products

Mineral

Resource

Market

Mineral

Reserve

Logistics is the key

Mineral

Deposit/

Rights

Conversion through Technology

Logistics

Mining

Beneficiation

ROM

Losses

Losses

Losses

Losses

Losses

Losses

Losses

Losses

20%margin

Loss due

To over/under

spec

Typical

OC Mine

6% to slimes

85% organic eff

3%losses

Due to Quality

variation

60 to 120%

Of Costs

3 to 5%

dilution

10%

losses

At least 45% of value destruction across value chain

Source: Exxaro company analysis

it s time to work together
It’s time to work together

In order to have reached its annual capacity target of 76Mtpa during 2008, producers would have had to produce, TFR would have had to rail, and RBCT would have had to ship an average of 6.3Mtpm during the year.

Source: Barlow Jonker, 2009

power through the storm together
Power through the storm – together
  • Cost discipline
  • Improve efficiencies
  • Spend cash wisely
  • Create alliances
  • Minimise value losses across value chain – exploit synergies
  • Collectively develop logistical solutions for the coal business

BUSINESS AS IT USUALLY SHOULD BE

final thought
Final thought

“As the credit crunch threatens to become a global downturn, corporate leaders have a choice: pull in their horns and ride out the storm or look for opportunities to pick up bargain-basement assets that will help them grow and create future value for shareholders. If past is prologue, more will follow the first course – which is a mistake.”

M&A strategies in a down market

The McKinsey Quarterly, September 2008