Exxaro Resources Limited · JSE:EXX
Exxaro Resources — Investor Day (November 2017)
77 slides from Exxaro Resources's investor day presentation, Nov 10, 2017
Slide 1: Capital Markets Presentation Exxaro Coal
Capital Markets PRESENTATION EXXARO COAL 9-10 Nov 2017
Slide 2: Disclaimer
Disclaimer 2 The operational and financial information on which any outlook or forecast statements are based has not been reviewed nor reported on by the external auditors. These forward-looking statements are based on management’s current beliefs and expectations and are subject to uncertainty and
Slide 3: Presentation outline
Presentation outline 1 Coal strategy overview Nombasa Tsengwa, Executive Head - Coal Operations 2 Mpumalanga Bram van Stelten, GM Mpumalanga v 3 Waterberg Johan Wepener, GM Waterberg 4 Marketing Jayshree Brijball, Manager– Domestic markets 5 Capital Mellis Walker, Group Manager – Financial performan
Slide 4: Exxaro Coal is continuing a long-term strategic journey
Exxaro Coal is continuing a long-term strategic journey Prior to 2016 2016 Present Executing on strategic initiatives for long-term Developed holistic coal value realisation strategy house based Identified and created on pillars of excellence plan to execute on key 1 Portfolio Excellence We further
Slide 5: We further refined our strategy to make it even more actionable
We further refined our strategy to make it even more actionable We will be a modernised, South African based coal producer energising better lives in Africa and beyond 1 Portfolio 2 Marketing 3 Innovation 4 Operational 5 Capital Mgmt. Excellence Excellence Excellence Innovation Excellence Excellence
Slide 6: Portfolio Excellence requires key strategic decisions
Portfolio Excellence requires key strategic decisions We will be a modernised, South African based coal producer energising better lives in Africa and beyond 1 Portfolio 2 Marketing 3 Innovation 4 Operational 5 Capital Mgmt. Excellence Excellence Excellence Excellence Excellence Priorities Strategic
Slide 7: Exxaro Coal's core beliefs serve as guiding principles in portfolio review
Exxaro Coal's core beliefs serve as guiding principles in portfolio review Our core beliefs ... ... and their implications We believe that coal as a commodity has a Exxaro Coal can still find opportunities to robust medium-term future, however there capitalise on this market with a are uncertainties
Slide 8: We continue to evaluate our portfolio to maximise value
We continue to evaluate our portfolio to maximise value and capitalise on growth opportunities A robust portfolio ..done continuously to ... to make informed decisions evaluation methodology evaluate opportunities maximising portfolio benefit Thermal coal, global – BCG perspective Seaborne thermal c
Slide 9: Marketing Excellence was further refined to maximise value
Marketing Excellence was further refined to maximise value extraction from our assets We will be a modernised, South African based coal producer energising better lives in Africa and beyond 1 Portfolio 2 Marketing 3 Innovation 4 Operational 5 Capital Mgmt. Excellence Excellence Excellence Excellence
Slide 10: Marketing value generation through three key strategic levers
Marketing value generation through three key strategic levers ..maximising value extraction through market-to- ... supported by step change A robust market strategy resource optimisation in marketing practices Thermal coal, global – BCG perspective Seaborne thermal coal price scenarios: Indication f
Slide 11: Innovation Excellence will create value through digitalisation
Innovation Excellence will create value through digitalisation We will be a modernised, South African based coal producer energising better lives in Africa and beyond 1 Portfolio 2 Marketing 3 Innovation 4 Operational 5 Capital Mgmt. Excellence Excellence Excellence Excellence Excellence Priorities
Slide 12: Exxaro coal is on a digitalisation journey
Exxaro coal is on a digitalisation journey to deliver on step change value We have assessed our We will now rapidly ... to get to our future capabilities and aspiration deliver value... aspirations Construction Site establishment Earth & civil works Infrastructure installation Commissioning Cognitiv
Slide 13: Operational Excellence will capitalise on digitalisation
Operational Excellence will capitalise on digitalisation We will be a modernised, South African based coal producer energising better lives in Africa and beyond 1 Portfolio 2 Marketing 3 Innovation 4 Operational 5 Capital Mgmt. Excellence Excellence Excellence Excellence Excellence Priorities Strate
Slide 14: Our OE process has delivered substantial value
Our OE process has delivered substantial value – and will continue to do so, leveraging digital technology Our O.E Process is The process is well integrated ... and will continue to add delivering real results into our business Value into the future Effort Results Comment Value # Description KPI (R’
Slide 15: Capital management is world class in capital allocation
Capital management is world class in capital allocation, project development and execution We will be a modernised, South African based coal producer energising better lives in Africa and beyond 1 Portfolio 2 Marketing 3 Innovation 4 Operational 5 Capital Mgmt. Excellence Excellence Excellence Excel
Slide 16: Our Capital management process is evolving to enhance value delivery
Our Capital management process is evolving to enhance value delivery ... through Building a robust, assurance and ... and continued optimised project portfolio value engineering... project execution 2017 H1 2017 H2 2018 H1 2018 H2 Improvement Strategic Digital Asessments Assessments Digital Business
Slide 17: People and organizational excellence are the foundation
People and organizational excellence are the foundation of our business We will be a modernised, South African based coal producer energising better lives in Africa and beyond 1 Portfolio 2 Marketing 3 Innovation 4 Operational 5 Capital Mgmt. Excellence Excellence Excellence Excellence Excellence Pr
Slide 18: Our people are core to our success
Our people are core to our success, and we are committed to a productive and engaged workforce, transforming the industry Right people, right time, Engaged & productive Accountability & performance right place employees management • We are transforming our • We invest in our people • World class per
Slide 19: Underpinned by our efforts to keep our people safe
Underpinned by our efforts to keep our people, and the people around us safe We will be a modernised, South African based coal producer energising better lives in Africa and beyond 1 Portfolio 2 Marketing 3 Innovation 4 Operational 5 Capital Mgmt. Excellence Excellence Excellence Excellence Excellen
Slide 20: Keeping our people and the environment safe whilst uplifting communities
Keeping our people and the environment safe whilst uplifting communities underpins our business strategy Protecting and developing Keeping our people safe our communities The economy we operate in Target 0,11 0,17 0,17 Target 0,16 0,15 0,08 0,09 1H15 2H15 1H16 2H16 1H17 • We are serious about • We c
Slide 21: Mpumalanga
Mpumalanga 1 With our ideally positioned assets… 2 v …and our focussed strategies… 3 …we will deliver value into the future.
Slide 22: With our ideally positioned assets…
With our ideally positioned assets… MPUMALANGA COALFIELD
Slide 23: Resource footprint of 1.6Bt and LOM beyond 2026
With a resource footprint of 1.6Bt and LOM beyond 2026, our current business is well established for value delivery Leeuwpan ECC - Forzando ECC - Dorstfontein • Open pit operation • Open pit & underground • Underground operation • LOM 2021 • LOM 2032 • LOM 2037 • 6.7 Mtpa ROM • 3.2 Mtpa ROM • 2.2 Mt
Slide 24: Expanding our value delivery footprint with greenfield and brownfield projects
We continue to expand our value delivery footprint with both greenfield and brownfield projects Leeuwpan OI Mafube - Nooitgedacht • Life extension project, extending the life of mine • Life extension project, past 2027 extending life to 2032 • Product increase of 1.2 Mtpa • Production increase of 1.
Slide 25: Close proximity to railway infrastructure
…whilst our close proximity to railway infrastructure gives access to both local and international markets.. RBCT Coal line to Richards Bay harbour (81Mtpa) General freight line connecting Belfast and Mafube to RBCT Coal line General freight line connecting LPN to RBCT Coal line 25
Slide 26: …and our focussed strategies…
…and our focussed strategies… Operational excellence & innovation
Slide 27: Operational strategies focused on excellence and innovation
Our operational strategies are focused around operational excellence and innovation to further enhance value delivery FOCUS EXAMPLES KEY ENABLERS • ECC seam 4 project moves Capital Management operation down the cost • Streamlined capital allocation curve and management Cost • Contractor optimisation
Slide 28: Physical & financial overview
……we will deliver value into the future. PHYSICAL & FINANCIAL OVERVIEW
Slide 29: Our capital projects contribute towards future growth and life of mine
Our capital projects contribute towards our future growth and life of mine Sustaining Capital - Mpumalanga Expansionary Capital - Mpumalanga 1 400 1 800 1 200 1 600 Belfast 1 000 1 400 1 200 R Million R Million 800 1 000 600 800 400 600 400 200 200 - - 2017 2018 2019 2020 2021 2022 2017 2018 2019 20
Slide 30: Waterberg
Waterberg 1 The Waterberg is a very important component of South Africa’s coal reserves 2 v …and is being unlocked by Exxaro.. 3 …to deliver value to all stakeholders.
Slide 31: The Waterberg is a very important component of SA's coal reserves
The Waterberg is a very important component of South Africa’s coal reserves
Slide 32: The Waterberg is important to many role players
The Waterberg is important to many role players… • NDP and SIP 1 references the Waterberg • Social – Development of the 1st major post-apartheid new urban centre • Economic impact stretches beyond the immediate area: • Largest remaining coal resource in Southern Africa • Power generations – IPP’s •
Slide 33: More than 50% of South Africa's remaining coal reserves
Making up more than 50% of South Africa’s remaining coal reserves Key characteristics Dimensions: • Stretches 40kms from N to S and 88kms E to W • Extends Westwards into Botswana Geology: • Ecca group of coal deposits • 75,7 billion tons of in-situ inferred resources (Upper & Middle Ecca) • Estimate
Slide 34: Represents 87% of the resource base of Exxaro
…and represents 87% of the resource base of Exxaro Exxaro is well positioned in the South African coal market and has the largest resource base with 87% of its resources situated in the Waterberg 16 000 14 000 Mpumalanga Reserve Resource (2,2) 12% 12 000 Waterberg other Mafube mine 22% 1% Mt 10 000
Slide 35: Exxaro is well situated in the Waterberg
Exxaro is well situated in the Waterberg Botswana Zoetfontein Fault Grootegeluk Daarby Fault Mine Deep Coal (250m below surface) 87m Eenzaamheid Fault Shallow Coal Open Pit Waterberg Coalfield is fault bounded: • Zoetfontein Fault along the Northern boundary • Eenzaamheid Fault along the Southern bo
Slide 36: …and is being unlocked by Exxaro
…and is being unlocked by Exxaro.
Slide 37: The Geology makes for a challenging mining environment
The Geology makes for a challenging mining environment which Exxaro understands and can unlock B1 (22m) – Pit liberation Overburden Lower bench availability dependent on upper bench movement B2 (15,4m) – SS/PSC B3 (16) – SS/ PSC GG1 & GG6 Bottom bench 11% SSCC yield exposure dependent 35% PSC yield
Slide 38: New rapid rail load-out station
With enabling projects like the new rapid rail load-out station The new RLOS is currently under construction and has been detail designed for inclusion of future expansions including a future link for Thabametsi Staging of 200 Wagon trains R 1.3 Billion Capex • The new approach line and siding has t
Slide 39: Additional rail capacity: Waterberg coal rail volumes
Enabled by additional rail capacity made available Exxaro Waterberg total coal rail volumes • Timelines from TFR July 2017 project plans 24,4M exp 27,4 3,0M dom 14,2M exp 17,2 3,0M dom 9,9M exp 12,9 3,0M dom 2,4M exp 3,0M dom 5,4 0,4M exp 3,4 3,0M dom * 2018 Business Planning tonnages for 2018-22 **
Slide 40: Adequate water available for growth
…and adequate water available for growth Mokolo & Crocodile River (West) Augmentation Project (MCWAP) 20 ✓ Phase 1: completed but insufficient to Phase 1 enable the envisaged developments, but… ✓ Exxaro requirements for immediate Phase 2 growth is catered for in MCWAP 1 ✓ Phase 2: • Expedite to enab
Slide 41: …to deliver value to all stakeholders
…to deliver value to all stakeholders.
Slide 42: Developing and expanding operations for future demand
We are developing and expanding our operations to cater for future demand Key interdependency: 42 Pit liberation Overburden 2014 2015 2020 Use top benches GG6 Ph2 to produce SSCC Open up B5 GG1 & GG6 (Bottleneck bench, & PSC through 10% SSCC yield GG6 – No more thick bench that can GG2 plant 30% PSC
Slide 43: We have invested for sustainability, growth, cost reduction
We have invested for – sustainability, growth, cost reduction and product flexibility… resulting in… Replacement and Expansion of Primary Mining Capacity Improvement in maintenance facilities to accommodate the increasing mining fleet Implementation of Semi-Mobile in-pit crushing technology to reduc
Slide 44: Investment supported by low cost operational excellence
… investment is supported by a solid drive for low cost operational excellence and continuous improvement … Focus Area Examples Enablers • Increased use of Panto Utilization • Continuous driving of top 5 • Implementation of Semi Mobile IPCC focus areas. • Instantaneous backfill operations • Reducing
Slide 45: Project and volume ramp up explained: Base Year 2012
Project and volume ramp up explained Base Year 2012 MET COAL GG10 GG10 GG10 GG4/5 Metallurgical Coal GG4/5 viaGG4/5 GG 4/5 GG4/5 GG4/5 GG4/5 GG4/5 GG4/5 GG4/5 SSCC / EXP GG6 E GG6 E GG6 E GG6 E GG6 GG6 GG6 and Export SSCC GG6Coal GG6 GG1 via GG1 and GG6 Phase1 GG1 GG1 GG1 GG1 GG1 GG1 GG1 GG1 POWERST
Slide 46: Project and volume ramp up explained: Current Profile 2017
Project and volume ramp up explained Current Profile 2017 MET COAL GG10 Metallurgical Coal Ramp-up due to GG4/5 GG4/5 GG4/5 GG4/5 Commissioning of GG10 in 2015 (5 year opportunity) whilst GG7/8 < OL1 SSCC / EXP GG6 GG6 GG6 GG6 SSCC and Export Coal via GG1 and GG6 Phase1 GG1 GG1 GG1 GG1 Volumes large
Slide 47: Project and volume ramp up explained: Future Profile
Project and volume ramp up explained Future Profile MET COAL GG10 2023 GG10 GG10 De- GG4/5 GG4/5 GG4/5 GG4/5 GG4/5 GG4/5 GG4/5 commissioning of GG10 when GG7/8 at O/L 2 SSCC / EXP Increase in GG6 E GG6 E SSCC/Export GG6 E production with GG6 GG6 GG6 GG6 GG6 being GG1 GG1 GG1 GG1 GG1 GG1 GG1 commissi
Slide 48: GG6 Project – Quality and Volume sensitivity explained
GG6 Project – Quality and Volume sensitivity explained GG6 Expansion – opportunities available depending on Eskom offtake of variable tonnages: • Contractual minimum tonnages – 25,2 Mtpa • Variable tonnages on Eskom call – 4,0 Mtpa • GG6 Expansion adds value in both cases PowerStation Coal SSCC/Expo
Slide 49: Our capital investment is reflected in continued growth
Our capital investment is reflected in continued growth… • Continuation of truck replacement strategy • Continued Ramp-up of GG7/8 to O/L 2 • Implementation of GG6 Expansion Project • GG6 Expansion for increased Export Volumes • Completion of Rapid Load-out-Station • Development of Turfvlakte in 202
Slide 50: Marketing – Strategic overview
Marketing – Strategic overview 1 Coal markets going forward are challenging, but exciting 2 A robust market strategy built on a robust supply base 3 Exxaro will be positioned to compete throughout cycles and into the future 50
Slide 51: Coal markets going forward are challenging, but exciting
Coal markets going forward are challenging, but exciting
Slide 52: International coal demand will be robust for the medium term
Exxaro believes that international coal demand will be robust for the medium term … Coal as an energy source, will have In non-electricity energy supply, competition from nuclear, gas and urbanisation is expected to have a renewables. multiplier effect, leading to increased Whilst the percentage con
Slide 53: Thermal Coal Market Drivers
… however, as always, there are uncertainties Chinese regulations - China aims to regulate production of coal, impacting on the Pacific coal flows and will have a key role in setting thermal coal prices, increasing forecast risk. Thermal Coal Market Drivers Indian production - India has ambitious gr
Slide 54: Domestic market will depend on coal as key energy source
The domestic market will depend on coal as the key energy source in the medium term Domestic coal use forecast by segment until 2026 Key Takeaways Coal vol. (Mt) 250 1.2% Ferro-alloy • Overall low growth in 204 - 2.5% 192 196 200 and others the domestic coal 200 188 6 1 6 1 183 6 1 6 1 Steel 1.0% ma
Slide 55: A robust market strategy built on a robust supply base
A robust market strategy built on a robust supply base
Slide 56: Our marketing philosophy will maximize returns whilst managing risk
Our marketing philosophy will allow us to maximize returns whilst managing risk What we How to Win • Innovation Have • Market • Digitalisation • Portfolio Strategy • Marketing Optimisation Strategy What we Where to Need Play We understand and extract full value from our resources whilst ensuring rob
Slide 57: Market Strategy – Where to play
Market Strategy – Where to play • Exxaro was historically a domestic market player with little export entitlement. • Exxaro wants to maintain presence in both the domestic and international markets as this combination provides the most revenue consistency. • Exxaro now has more freedom with addition
Slide 58: Market Strategy – Where to play (International Markets)
Market Strategy – Where to play (International Markets) Key Considerations • We understand where • Growth in RB1/RB2 markets expected at 4% pa demand is now and growing up to 2026, and 3% for RB3 and lower qualities. into the future. • We understand how • We have identified the markets in which we c
Slide 59: Market Strategy – Where to play (International Markets)
Market Strategy – Where to play (International Markets) • Exxaro were early in our recognition of coal demand migrating from West to East. 2009 • Smaller percentage of coal going to Europe. • Africa coming off a small base but growing. • Africa, Middle East, Pakistan and India 2012 in the sweet spot
Slide 60: Market Strategy – Where to play (Domestic Markets)
Market Strategy – Where to play (Domestic Markets) Key Considerations • We play in markets that • With its diversified product portfolio, Exxaro can compliment our resources and should play in all domestic segments. • Single customer dependency • Eskom & AMSA – manage exposure strategically. • We ar
Slide 61: Market Strategy – Where to play - Domestic Markets
Market Strategy – Where to play - Domestic Markets • Continuous repositioning in markets 2009 to ensure we extract full value of the products. • Estimated 30% market share in boiler market. • Estimated 40% share of kiln (cement) market. 2012 • Biggest player in metals market with unique product port
Slide 62: Exxaro is positioned to compete throughout cycles
Exxaro is positioned to compete throughout cycles and into the future
Slide 63: Market to Resource Optimisation
We understand and extract full value from our resources: Market to Resource Optimisation Product Attributes Resource Attributes - Understand VIU of our products - Characterisation into in the market place downstream processing BU Optimisation Commodity Optimisation - Iterative cycles of planning, -
Slide 64: Market to Resource Optimisation case study: RBCT Product
Market to Resource Optimisation case study: RBCT Product • Current base case for selling every ton received • Exxaro has a unique product portfolio which allows us to be competitive in international markets 64
Slide 65: Market to Resource Optimisation case study: RBCT Product
Market to Resource Optimisation case study: RBCT Product • This revised scenario is an optimisation of the sales mix. • This is expected to further unlock up to 5% additional value in export revenue in 2018. 65
Slide 66: Outlook: Diversified and Unique Product Portfolio
Outlook Diversified and Unique Product Portfolio • Coking coal (semi-soft) and PCI. • Full range of products (sized) for domestic markets. • Low Sulphur and Phosphorus coal. • Export Thermal coal (4200kcal/kg – 6000kcal/kg) Adaptability • Our ability to match our resources and beneficiation capabili
Slide 67: Capital projects – Strategic overview
Capital projects – Strategic overview 1 The Coal strategy is enabled by a healthy capex project pipeline… 2 …managed through a robust selection and development process… 3 … protecting and growing business 67
Slide 68: Coal strategy enabled by a healthy capex project pipeline
Coal strategy enabled by a healthy capex project pipeline…
Slide 69: The Exxaro coal capital pipeline contains projects from all business areas
The Exxaro coal capital pipeline contains projects from all business areas Improvement Strategic Improving our Position our business EBIT/Value for the future • Reduce cost • Protect market • Improved product mix • Diversifying customer / • New revenue streams product • Growth projects • Establish f
Slide 70: …managed through a robust selection and development process
…managed through a robust selection and development process…
Slide 71: A robust capital delivery strategy ensures an optimised portfolio
A robust capital delivery strategy ensures an optimised portfolio Objectives Mechanisms 1 Optimal capital allocation Portfolio Management Translating strategic objectives into capital • Ranking, prioritization and further allocation for project portfolio enhancements to capital portfolio • Affordabi
Slide 72: Project execution on R24 billion pipeline remains impressive
Project execution on R24 billion pipeline remains impressive Capital spend profile 8 000 7 000 6 000 5 000 R’Million 4 000 3 000 2 000 1 000 - 3 Project execution excellence 2017 2018 2019 2020 2021 2022 Executing the project pipeline Sustaining Expansion Rm • Continued progress on capital execution
Slide 73: Internal processes geared for rigorous approval and post project learning
Internal processes not only geared for rigorous approval, but also post project learning 1 Capital projects are developed around strategic objectives and developed by specialist teams Project 6 inception & 2 development Done for all capital projects and specific KPI’s are tracked Post Capital alloca
Slide 74: …protecting and growing business
… protecting and growing business
Slide 75: Our track record of delivering value is impeccable
Our track record of delivering value is impeccable Our track record Exxaro ROCE Performance 30 Translating strategic objectives into 25 Target ROCE delivered results • Exxaro more than doubled it’s ROCE in 3 20 ROCE % years 15 • Capital projects delivered on time and within budget 10 • Proven method
Slide 76: Closing comments and Q&A
Closing comments and Q&A Q&A Nombasa Tsengwa
Slide 77: A modernized coal producer, powering a better future
A modernized coal producer, powering a better future 4 Our future A world class capital project delivery team • Exxaro has a great coal growth pipeline, managed and delivered by world leading practices, positioning us for growth into the future 3 Our flexibility A well developed and capable marketin