Exxaro Resources' (EXXAF) CEO Sipho Nkosi On Q2 2014 Interim Results - Earnings Call Transcript

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Exxaro Resources Limited (EXXAF) Q2 2014 Interim Results Earnings Conference Call August 21, 2014 3:30 AM ET

Mzila Mthenjane

Ladies and gentlemen -- is my microphone on? Yes, it is. Ladies and gentlemen, good morning and welcome to the Exxaro 2014 Interim Results Presentation. And a special welcome to our Board members, and I'd like to acknowledge Dr. Len Konar, our Chairman; Dr. Con Fauconnier, who is Independent Non-Executive Director as well as Ms. Salu Dakile-Hlongwane, who are amongst our audience, as well as Mr. Norman Mbazima, also Independent Non-Executive Director from Kumba.

Welcome to you all, as well as our audience in the webcast. Before we start, perhaps if I could ask you to put your cell phones on silent or switch them off, if you don't expect any urgent calls. And then, from a safety and health perspective, in the event of any emergency, please note there are exits behind you. There is one to my left, which will be your right, and one directly behind you. And if you need to leave the room urgently as a result of any emergency, there is an assembly point just on the far end of the lawn and an official from this venue, Summer Place, will guide you in terms of where to go.

So, maybe just to say the context, it's usual for me when I'm standing up here. Today marks the first anniversary of my role as your host in MC for the Exxaro results presentation. And you'll recall in August 2013, when I introduced the results I used the expression that we were hesitantly positive to which I got a bit of flak from my colleagues for. And that was very just reflecting I think the state of the result at the time, the difficulty of comparing the one year to the other, but nevertheless they were positive in the right direction.

And in six months later, which was earlier this year in March, I said that we're making progress, and that was a reference to early in the year where we had signed the mining convention with the Mayoko project. Obviously, we're in a path to sustainability where there are sustainable earnings or consideration for sustainable development in terms of how we conduct our operations. But in any journey, there are ups and there are downs, you stumble and fall. But resilience we believe is inherent in us as Exxaro, so we get up, we dust ourselves off, we reassess and we continue, and we don't give up. And so, the journey continues.

And with the results today, I'd like to introduce Sipho, who will start off just giving you a high level strategic overview of the business, as well as how we've been able to fulfill some of those strategic objectives in this first half of the year. And he'll be followed by Willem, who will then discuss the finances. Thank you.

Sipho Nkosi

Thanks, Mzila. I can see that we're getting there. Good morning, ladies and gentlemen. It is indeed a pleasure to talk to you this morning. My voice is a bit hoarse this morning, it's not deliberate. But you know things happen in life. So, yes, but I'm very much pleased that we could talk to you and inform you of our performance in the last six months, which in my view is a very solid performance. Exxaro has been here for just over seven years. And I think this is one of the very great performances that we have in this organization.

But before I start, I probably will be failing in my duty, if I don't recognize the fact that we still have amongst us -- we used to call them Pensioners Club. Pension is unlimited. Yes, pension is unlimited. But we can't call them now, because they sit on our Board. And they're becoming more of a nuisance on the Board, so we got to be -- Chairman of the Pensioners Unlimited, Con, thank you very much for joining us. Oh, Dirk is here, the Chairman of the Pension Fund as well. So all of them are here, it's tough times, it's tough days.

So, generally what I'm going to talk about today is that this has been a very interesting six months that we've had. In the life of Exxaro, in the life of South Africa, we had the longest strike in the platinum sector. We faced quite a lot of delays, particularly at Medupi, and we had things like force majeure caused by rainfall at Medupi. So the construction couldn't continue. And all those things had an impact on our business.

And of course, if you look globally, the Chinese economy slowed down a little bit affecting and impacting on the commodities that we're delivering on to them. And so, we saw in places like the U.S., the impact of shale gas, what it has done to the coal business, which has had a material impact on the coal prices that we see today, particularly in Europe. And Europe continue to be a very flat economy, but we're hoping that in time it will change.

On the Exxaro front, really, it has been a stable ship that we've been steering; on the labor side, we didn't experience any unrest or challenges. So I just want to take this time to thank our people for participating and doing what they have to do, which is right and correct for Exxaro. So when you listen and look at the result today, take it in that context of all the things that have happened in South Africa and globally where we sell our products.

So, probably let me start with the subject that some of you don't like; and that is to say that we still strive to become a diversified organization. And I know lots of you would like us to be a focused coal player, but I think there is value in that, and in time we'll prove it to you that that makes sense. So diversification is still our strategy going forward.

On the coal side, as you saw, as you see in the slide, we'll continue to consolidate our business within Eskom. Over 90% of our business today is geared towards Eskom. I'm talking now on the coal side, but of course things change as we'll talk about what we're trying to do on the export side going forward.

On the iron ore side, we'll brief you on what is happening in Mayoko and the latest developments following the impairment that we have to make. And also, we'll talk about our growth aspirations on the electricity supply side because it has become an imperative in the way and the manner you run your business.

And finally, of course going forward, technology is going to be key for any organization whether you're a gold company, a platinum company, coal company, to look at technology very seriously. So we're not a technology business. And therefore we'll be JV-ing with quite a lot of partners in order to achieve that one. So our goals and aspirations would be to demonstrate responsibility and accountability, develop Exxaro leadership and people, achieve operational excellence and improve on Exxaro's portfolio. Those are the areas that we're going to be focusing on.

We'll change the slide, please turn to the next one. Now, this has been a very interesting six months for us insofar as our safety is concerned. For the last 12 months, we were very excited, and that is by the 30th of June, we're excited because we never had any fatality. And we're very excited as the organization. And I'd like to thank the team for that. But unfortunately on the 5th of July, one of our colleagues, Solomon Mashigo passed on. We had a fatality at Arnot, and he died. And although the incident is still under investigation, it appears that he was injured by a piece of rock that slid from a continuous miner, there was a rock fall on top of it, which eventually hit him and killed him.

So we extend our sincere condolences to his family, friends and relatives and to fellow workers at Arnot. This is a very difficult time.

On the LTIFR, Lost Time Frequency Rate, we're not yet there at the target that we set ourselves of 0.15. We record 0.22. There have been lots of measures that were put in place in order to deal with that.

We're delighted to tell you though that our views that had -- which were LTI-free like Reductants, Inyanda, NCC, NBC, Corporate Center, R&D, Ferroland, and we wish to congratulate people on that one. Of course when you mention Corporate Center, people will normally look at you and say, "Why do you call that one a real center?" Because the risk is so long there, but I can tell you now there is so much risk there as well.

On the health side, I think we're making good progress on managing HIV and Aids, and every time we go and engage with people, people now are more amenable to doing tests so that we manage that one, and we put them on various regimes, so that we can manage and monitor that one.

We continue to look at other developments, particularly occupational health diseases, like noise, dust, pneumoconiosis and all the others that affect us. So it is really a big issue.

Turning now to the portfolio side; the slide just shows you what our game plan is all about from this year all the way to 2017. It's all about sustaining the business, that's why we do all those projects. It's all about further growth, because we need to grow the business. It can't remain as small as it is; it has to be bigger than this one. And also, as you grow you exhaust the resource and therefore you got to close the resource. That is all about closure.

So if we turn the page to what it is that we do in terms of dealing with that, you'll note that a few weeks ago we announced the acquisition of the Total Coal South Africa assets. And I know some of you were quite excited about that, some of you were not, but the truth of the matter is we see a lot of value in that, because in our portfolio add 4.1 million tons of allocation at Richards Bay, which is very important, because you're now as a result of that, in control of your own allocation as opposed to going out and sourcing it. And if you look at the size, when the rail is at 91 million tons capacity, Exxaro will be probably the fourth largest exporter in South Africa on the coal side. And as a result, we'll really be closer to half billion tons.

So it's quite an exciting one, because it then balances the whole business between your exposure on Eskom as well as on the export side. So we have a very nice and a balanced portfolio when it goes to there. So we're still busy with finalizing the approvals like Section 11, and Mxolisi and the team are now looking seriously at integrating that business to our own business.

When it comes to growth or replacement, if you like, we did announce that the Board made an approval of ZAR3.8 billion for the commencement of the Belfast project. We have gotten all the approvals, and we're just waiting for the IWUL. Construction is planned for 2015, and this is exciting because we'll produce about 3 million tons of run-of-mine, out of which we'll get about 2.2 million tons of A grade export steam coal and 500,000 tons of power station coal, which is really remarkable.

On the GMEP side, which is at Grootegeluk, things are starting to roar. I know the South African public is a little bit more skeptical about what happens there. But as I always say, whether the delay is two years or three years this country still needs electricity, and we're there waiting to supply. Yes, these delays are causing quite a lot of challenges to us. And I'll defer this one to Willem to give us more color on this one when he does his financials. It's safe to say that this year it's been really great, because for the first time they started taking coal, so it means that things are happening at Medupi. They've taken coal now for the first time.

And secondly -- and that is going to continue, so that's the good news. And of course when it comes to optimization we continue looking at ways of ensuring that project remains more robust and profitable. The total capital spend that we're still looking at is still 10.2 billion, and we'll give you more color around that once this holding is concluded. We do run our backfill project as well there, which I find very exciting.

Turning to another project that we're developing, you'll recall that we've told you that we've teamed up with power producers so that we could develop Thabametsi North. A lot of work has got in there, and we'll produce some coal. Completion of Thabametsi North Phase 1 will happen by the second quarter of this year, we'll commence then supplying coal and that possibly should -- will start operating, we hope, if we get everything in place by 2019.

There is more work that is going on in the semi-soft coking coal, and on NCC, maybe I'd say that everything is in place. We're still pressing on, finalizing all the approvals with Universal Coal, and they will be in place -- once that is in place, we will inform you.

On Moranbah South in Australia, there is a project that is there, good hard coke and coal. Anglo and ourselves are pushing on that one. When the time is right, the two parties will decide on when to develop that project, so we'll keep you informed insofar as that one is concerned. That's a very exciting one because it's one of the last big hard cooking coal assets around the world.

Turning to the ferrous business, particularly Mayoko, you are aware that we impaired that project to the full amount of ZAR5.8 billion, and the latest information we gave it to you. So, our Board gave us a mandate to engage with the ROC government, which is what we're doing, because you can't just move out of the country or take any decision without engaging people. We're busy with that and looking at various rail and port solutions to make this project viable.

One thing I want to tell you is that for as long as this development around the world, iron ore will still be a requirement and very important. So, we look at that one, but we're spending more time with the government. With that in mind we set aside something like 300 million that we've earmarked for administrative things around that. There is more work that is going on the alloy stream. I can brief you on that one if and when you need more information.

On ferroalloys, we're pleased to say to you that we received 55 million from Kumba iron ore in terms of what we're trying to do jointly excision, and so I think it's an excited era that that relationship that we have with SIOC.

Now, going back to some of the assets that we do not control, SIOC is still a very important asset for us, what am I going to say is when are we starting to be more arrogant sometimes and saying that, you know what, no men, who is going to be bigger than you, fourfold. So, no men, I think has been served that notice now that coal is on marshy. I think there a very importance and that's part of the development.

Tronox, that investment which is largely considered there, there is lots of development around that. We're -- you know how to make a decision on what and what not to do with that one, but we've got up until next year and we will then take a decision along those lines. Mafube, we think is still is a great asset for us and we will continue with that one.

On the 1st of August, we went to a little town called Bedford in the Eastern Cape, and that's where Cennergi U.S. doing a Sod turning ceremony for the Amakhala Emoyeni project, which is a Wind Farm producing 134 megawatts. It is quite exciting what you see that project doing to the community. A time that was almost date has come alive as a result of that. When the project starts as the CEO announced, because this is public information. The communities will benefit to the tune of about 50,000 a month for 20 years. That is quite remarkable and I also have to become treasurer, so I could look after that amount of money, so it doesn't fall into the wrong hands.

On the environmental side, we continue being more responsible. Bedmutha, we're putting on the water treatment plants as well as at NPC because it is important that we do that. We also need to remind all of you that by 2016 November or 27th in March they are about. We will really govern the empowerment restructure will have to reviewed because of the 10-year period that we have. So we're spending more time monitoring that one.

On the mining charter review, you know that the Moloto Commission, they are doing a review on that one, and in due course we will be getting a report on that. So we're quite excited about that.

On achievements, I'm not even going to brag this time, because they only put two of the achievements. There is more than that. I think it's about nine or ten. So because it's not enough, I don't know what I tell you what is that. Next time, I'll inform you on that.

On leadership and people, I mentioned the mining charter the amounts of money that we're spending. But what is exciting, with I want to highlight is our level and what it is in terms of compliance we have done in terms of meeting the HDSI stakes. We still are short on the senior management as well as a little bit on people with disabilities, but while the process of fixing that one. By the time been a lot of collision in the charter comes to an end, we believe that we will be there.

What is also exciting is on the empower side that means all our people that we have in Exxaro that do not benefit on the share option schemes that we give them. Each and every employee out of the 7,263 employees will receive over 1000 of cash dividend as a result of what are we doing today, which is really great and remarkable.

Now, let me turn to the slide, which I like very much, because it's to mystify the myth that we don't spend money in this country. We spend so much money as we can see all the money that we've generated, we've used it so well and it goes into salaries and wages, and it goes into your taxes that we have. It goes to our shareholders, and whatever little is left, which is about 2.3 billion in terms of the first half, we use it to reinvest in the business recourse we need to keep this business afloat and alive.

Ladies and gentlemen, there is more economic value and great contribution that we're making to the South African economy and society.

Now, I move to the very last one before I sit down. This is just a snapshot of all the good things, if you want to see what we're doing and what we have done. As I said on the lost timings and frequency rates, we have some challenges there, but all the others are very positive and it is quite remarkable that the board sit down in favor of that, you know what, we needed to pass on a dividend of 0.260 per share, which is up 11% and Willem will give us more color into that.

At this time, ladies and gentlemen, I'd like to invite Willem to come and talk to us about this operational and finance results. Thanks.

Willem Abraham De Klerk

Thank you, Sipho. Good morning, ladies and gentlemen. I think this is about the 10th time that Sipho and I do this together. It's I guess that this life to be married to my wife. You will get fed up some stage, but, you know, you are just continuing. Hope it will get better the next time, and hopefully you believe us by this at this stage.

We have very important numbers on the slide. Instead of repeating it later on the presentation, this rather go to the next slide. Again, guys, this is our official inference numbers. It includes ones of impairment on the next slide of a net of 5.3 billion. I have nothing, so can we move to that? And that I'll discuss in detail over the next slides. That takes us to our cool headline earnings per share performance and results as you see it on the slide. Please take note that as of now I'll only refer in the references and compare the first half of this year to the second half last year.

This to me is a very important slide, and I'd like to spend some detail -- some attention to the detail. Firstly, let's look at the coal line, and there is only one difference between the JSE HEPS and the CORE HEPS and that relates to the 47 million in payment that we did on that date in Mayoko iron ore site on the ferrous line, but let's go to the first line being called out, there are a few trails that I would like to highlight to you guys.

Firstly, if we look at coal and we start from the first half of 2013 due to $0.05. That increased very nicely to 3 and 46 last half, and they did really go 4.15 during this half, so that the trend of the coal movement I think is very important. The second issue is coal relative to ferrous. Again, you will see the trend there of moving from 32% in the first half of 2013, 47% of the business are now very close to iron ore on 52%. Guys, you will remember that we spoke about this for many, many years that the dividend that we received from Kumba, at that period of time we would like to invest that into our coal activities. I think you can see the results of the five years of exactly that strategy.

Another important page, also the lower TiO2 business or the loss of the 0.86 for this period, and then under the 0.17 cents for this period, we have included Black Mountain, the loss of Cennergi, offshore structure Ferroland, and then another important number, we have only 33 million of unallocated costs to the rest of the business, NIFTY. You will see I'll talk to that number at a later stage. In this result, we have now decreased our corporate footprint from last half by 247 million of which we go 100 to 94 to coal or less to coal and we will talk about that at a later stage.

This takes us into the coal performance of 0.415 for the period. Now, over the next few slides, I'll as usual, talk about the main drivers behinds our 15% increase on the second half in net operating profit and 40% on the first half. That obviously relates to our volumes, our prices and then the costs associated with this business. To our first call is like on the volumes. The commentary contains a lot of detail regarding all the small gains and losses, and I'm not going to repeat that today, you can read through that.

There are two important issues I would like to highlight on this slide. Firstly, we have unfortunately lost about a million tons from timber as a result of lower burn at Matumba for various reasons that we're usually still experienced. We do hope that that will normalize in the next half. Then you would see a 44% increase in trains to Grootegeluk.

On the next slide, on the markets and sales volumes, this is really in line with production and again the detailed commentary talks to that. I want to highlight on the next slide the performance on coal exports. Some important aspects on the slide, I think, if you look at the top left, it's fair to say, if you look at the obvious, it is still compressed. If this was a physician looking at a patient, I think the prognosis will not be very good. That is a serious flat line for a long period of time. In fact the coal prices in dollar terms over the last two years came down by 31%.

Now, in the bottom left, if we talk rand terms and what we realized in rand term is quite a significant different story, and we only lost 7% over the last two years in rand terms on the coal price. If you look forward due to whatever you believe about the rand, obviously it looks again significantly different to what the coal prices in dollar terms will be.

On the export prices, and this go to the top right graph. I think there are a few important guidelines that I would like to give today, which is different to what we have used in the past as guidelines. Firstly, the performance of TFR, in the first half last year, it was at 76 million tons annualized. It went down to 68 million tons in the last half of last year, and only own 61 million tons for the six months. So a decrease that took place, but despite that a very nice increase in Exxaro terms on export, and the question is why.

Firstly, you would see that we have received in the first half of 2013, 52 trains, at Grootegeluk, that increased that increased by 15% in the second half last year where we received 60, and now with a very nice 44% to this half where we received 86 trains during this half. These are obviously very numbers to understand where we will be going in the next half and the next few years.

There were two important elements, and I think that 86 trains probably would have been more, was it not for those two dips that we see in the presentation of the obviously RBC power outage in February, and the TFR shut that took place in May.

We've also given you a bit of detail on where we get our exports because you know Inyanda, you can see the 0.7 for this half, because Inyanda is closing down over the next year. That will fall away, but because we believe that TFR has done exceptionally well with the trains that we get Grootegeluk. We do foresee that that gap will then be filled by Grootegeluk.

So, yes, to the guidance, you know that for many years we got stuck on the 4 million tons number. During February we spoke about 4.5 million tons as the number. I think with the current performance and continuing with the good performance on TFR sites to Grootegeluk, I think we're comfortable to scarcely increase a bit further and give you a guidance of around 5 million tons. It's a fantastic position to be in I think for many years, ladies and gents, we were in a position that we had the coal, and we didn't have the ability to export it.

I think the shoe is on the other feet now, which is nerving and the team is feeling it. I can see it's not even looking up when I'm talking to. They are feeling it and these -- they just pushed now to get the tongues out on the good performance of TFR.

On contribution of coal, I think that dealt with all these blocks. It's just got from the 1.6 billion to the 1.8 billion. We spoke about price, we spoke about volumes. The exchange is really the difference between what we have realized at 10.83 during this period vis-à-vis the 9.70 for the last half last year, so a 12% better performance on the rand.

Inflation for this period we worked at 4.7%. On the cost side, I spoke about precede exceeding 194 million less of cost allocation from the group as part of 247 million registered costs. That was offset by high distribution cost and also some maintenance, additional maintenance. The GMF is just a tiny difference, and then for your use with basically took the whole decision of closing down AICC in one block, and we have effectively got to 200 million less cost this year associated with AICC.

Right. I think, therefore we can move to the next slide. Now, I hope the camera has got the ability to maybe focus just on the slide. Guys, you will see that we have given you a table at the bottom right. It's not included in your numbers. The reason for that is that we're only going to a final settlement what leads to conditions that we had to meet yesterday afternoon late with Eskom. And therefore I'll take you through those. Perhaps I don't have eyes currently unfortunately on the Board; I'll take you through the detail. It will also be in our Web site. A very important settlement, something that we have argued for months, and I'd therefore like to give very explicit guidelines today on the settlement that took place.

Firstly, Sipho has talked about the CapEx still being at 10.2, that's great news. We're stuck with the capitalization of costs, or for that argument, income to the project. And therefore everything as of the 1st of July will fall to the bottom line, and then the new ramp up schedule as we have it.

I'll rather just -- in order to have the opportunity to write it down, I would rather just talk to the concept instead of going through the detail every year. But what you can see effectively, if you remember a paused guidance, we would have delivered 6 million tons, you could just use the first line to establish the principle. We would have delivered 6.2 million tons to Medupi or GMEP to Medupi. Under the old addendum 8, the latest settlement is now only for 3.1 million tons, and therefore you'll see the 3.2 million tons delta in the end.

I anticipate this question, Sipho, so we may as well give some detailed guidance in this regard. What does it mean for the bottom line at Exxaro this year and going forward. For the few years ahead of us, we will therefore take or pay from Eskom on 15.5 million tons, and you will see the years. How will that be calculated? It's similar to the guidance that I gave you guys in the past is calculated based on our fixed costs plus a profit margin. That's the number that we'll receive.

In essence, what it means, what Medupi, what Eskom will not pay us. They will not pay us the variable cost that we would have incurred in producing those tons because the reality is it don't produce those tons.

If we then speak about the impact on the bottom line for Exxaro for 2014, we will therefore receive shortfall payment to the value of 1.5 billion as we give you the guidance in the past. We will therefore take a margin on a take or pay, an amount equals to what I just said the fixed costs plus the profit margin they are off, not the variable side. AND thirdly, whatever you believe is the margin at Grootegeluk we will take the margin on the existing 3.1 million tons.

Needless to say, ladies and gents, if you only ramp up 3.1 million tons of the 12 million tons, 15 million tons in the future that margin will not be high for the first year, but once you go into those numbers of 9 million etcetera going forward. Then, obviously we will go to the appropriate levels.

I hope that brings the subject to an end. I'm sure I'm going to get detailed questions, and we're going to read about this. I'm happy to share with you. This is the closest that we could get to give you all the detail around that contract.

Must I say, I think a glad settlement for Exxaro, but also a good settlement for Eskom and for the country, something that make sense to all the parties as a result of the likeness of the Medupi power station.

If you go to the rest of our capital, again, in line to what Sipho has shared with you guys this morning. We have given very specific guidelines as you would see on the expansion. Needless to say it depends on the timeline, but this is our best estimate of how we see the capital being employed. Again, under sustaining, we see that two big numbers 2.2 billion in '15 and 1.8 in '16. This is again beside info that we told you in the past. It has to do with a big voice of replacement of truck and shovels. And we do see that after this period, it will normalize again our sustaining CapEx at around 1 billion.

Then, the last bullet, just before I come to Total; I think if you look at the slide this talks to the intend of Exxaro management and Board to build a significant dominant force in South Africa in the coal business with a serious local flavor and this is out in one slide that you see. When we go to Grootegeluk that is for any of the month, September, you will know about the route show. If you don't know about it, please talk to Mzila; make sure that today we will share a lot with you guys during the day.

We will try to sketch what we plan to do at Grootegeluk, what all the options are that we have and how we plan that that will change, I think, the face of the Waterberg forever, and we as a player as well. May I ask that you in anticipation, for a lot of questions that will come during those two days, please direct your questions to Mr. Willem for what you'd like to see during those two days, because then we can plan accordingly. We will have different breakup groups, and we will try and face it for all the different needs, so that we really make the best of those two days.

With income to Total on the next slide, you by now know that it's $472 million. We will finance it through a combination of a date in our cash resources. We have already secured a bank guarantee from Absa that we will provide to Total at very low rates. Neil, thank you very much for that, actually they wanted to do business with us, and they will do it for free. We tell this morning because I used the name from the public forum. So thank you very much, we thank that.

The team as Sipho said is working tirelessly to fulfill their conditions precedent and all hard volumes as well. We do hope that this will close the first, early in the first half of 2015, but let's see, time will tell. I've included for your use a few important numbers with regard to approval from to tell, to share with you obviously being a private company hasn't been in the public domain. But I did read a lot about comments about the 55 million negative profit assets here. They -- I hope, by 5 million rand for something to that extent.

Just cast your eye on some of the major elements about ZAR6.5 million tons of mine, 4.5 million tons of product of which 4.1 is exported to Total spot allocation. Last year, 3 billion revenue and included in the EBIT and EBITDA numbers are to my opinion some once-offs that would not be repeated to that extent to the value of close to 270 million. That relates to the provisions as they closed down a specific mine in that period, also some ForEx losses that were taken and loss on the sale of PPE.

So my view is that you can add that back and that you can actually talk about a EBITDA business last year if you take out these funnies off around 600 million plus. So this is to give a bit of a feeling of -- to tell we will sell and we have to get the approval to share with you more information, but it's going to be difficult over the next month or so as we close the transaction. But I'll promise you, as soon as we can. We're extremely excited about this opportunity. We do believe that it will add significant value and the sooner we can bring it in the fall, the better for us.

On Ferrous, I don't need to share with you what Norman [Dirk] (ph) already did over the last few weeks during their route show. Let's just say, 15% decrease in the contribution, the equity contribution. Unfortunately from a dividend perspective, but more that is 22% down, and that's predominantly as a result of the move to move from 1.2 pattern to a 1.3 pattern. Needless to say, despite the internal jokes with Norm, this will still be a significant portion of our business going forward and strategically as Sipho said something that we value in our portfolio.

On the capital, on the Mayoko side, again, Sipho shared with you the next steps. I think when you are right off 5.3 billion that we just highlighted, again, the deail, it's a historical cost growth of 5.8 billion, included in that was the acquisition price of 2.9. Assets, PPE to the value of 1.2, projects cost to the value of 1.7 when accumulated over a period of time as well as this 47 million that refund that we decided to write down.

We then reversed the tax, the deferred tax to the value of 552 million, which gave us a net debt of 5.3 billion. I would like to note some of our minors are not as straight as you guys, I think in the audience. So we will call each other, Wim so that we don't forget each others names. And I read that Wim impaired the Mayoko asset, I just want to ask Wim be the next to stand up for a second. This is the Wim that you played the project. If you look at his physique I'll not go the way off writing again about all this impairment, this is a big boost, so I'll let and use some new if I read about all this writing about the Mayoko transaction again/. Sipho also indicated that we're finalizing the next steps. I think you have to hold your horses and be patient and give us the opportunity to finalize as Sipho said you just don't walk away from a country overnight at all if that so engaging to walk away, and therefore we told you and we stick to that story.

We still had included in the headline in the numbers for the next six months. We still have included about 300 million rand that we plan to spend, to do whatever when we need to do in order to secure the next step before we're taking any new step. This will, however, go directly now to headline earnings, so you have to expect 300 million hit on our earnings for the remainder of the year.

TiO2, 30% less losses at 304 million for this period; again, we asked you to add back the 555 million PPA actually you see that which actually talks to a coal of 251 million profit of this business for this period. Abi has really gone a long way. There is two detailed slides included on, I think, slide 46, 47 if I remember correctly. Two detailed slides where they will give you the impact and the reconciliation of the numbers that turn out to made public to the numbers that we're reporting in order to give you some comfort of all those changes. So, please go through that in detail and you are welcomed to ask any of those difficult questions.

I think it is important to note from what Thomas said at market commence that we believe that this business is through the bottom of the cycle. You can see the trend of the graph in the top right. And we therefore look forward to the contributions going in the right direction in the future years. On the next slide, a very detailed slide, all I attempt to do here is basically to reconcile slide 16 which is right in the end to slide 17 and 18, which gives you all the funnies and then we talk about the 1.4 billion coal to our 1.7 billion.

There is only number in the slide that I haven't discussed yet that is the net 91 million under costs, under other, and that relates to the smaller corporate footprint that we have now that we have spend 247 million rand less during this period. And obviously as I said spending days in the coal site you will pick up the rest of 194 million.

This takes us to our 1.7 billion on attributable earnings. Ladies and gents, again, that's our first liner; the second line, net financing cost, really just in line with the lower digit that we have over this period. We spoke about our pulse tax equity accounted income to items that I haven't touched on synergy, again, in line with our guidance of about 100 million loss per year came with 47 million for this period, and then a good contribution again for black mountain on 46 million.

That all contributed to the number that I advocate when I analyze this business and that is the 8.68, core attributable earnings up 8% on the previous half and 15% on the first half of last year. My favorite slide, eight where all the cash, you will see we started the period of 3.3 billion debt. We now have ZAR724 million less debt. The way I analyze this on a very high level is to say that a great cash generation over the period of 1.5 billion was inherently used to spend on our capital expenditure program that will of course go down. Now, they can spend less on Medupi.

Then the reason why we've got 700 million more cash over the period is because the reason that we received the 2 billion between norm and on the Tronox site was actually more than sufficient to cover our early dividends paid the tax, M&A finance (technical difficulty);so quite a good position to be in at 8% debt.

This slide is a bit different to what we had in the past predominantly as a result of us entering the bond market. You'll first see that our undrawn term loan facilities is at 5.4 billion and then we have under the domestic medium-term note still 4 billion unissued.

On the bond, you may recall we raised 480 million rand on a three year bond at 170 basis points, and 520 million rand on a five-year, 195 basis points. That's above the three months charter bar. So we were very happy with the bond the way that is being received in the market five times over subscribed to what we believe is very good basis points.

Our net debt therefore as you can see is about 2.68% debt to equity ratio. We have no -- on the bottom right hand column we have no serious repayments in the medium term. So it's a good position to be in. I shared that with the bank guarantee for Total, and therefore it will not attract any fans away from our undrawn or unissued firms. And that we'll fund the Total deal through the mixture of debt and cash and we may consider a mixture between rand and dollars as well. If we have included Total's acquisitions price on 30, June, we would have increased our 8% debt to equity to 32%. That's still way within the 40% strategic guidance that we gave you guys as I mentioned in the past.

This really brings me to the last slide. I want to repeat again, but it's important, 260 there is for the spirit, up 11% in line with our earnings at a consistent three times cover. Needless to say, we're in the board to this decision, we looked at the significant capital commitments in coal going forward. Sipho spoke about our growth aspirations, that was considered very carefully. The recent core predictability on Total, and then as Sipho will now share with you the outlook for the next six months.

Before I had back to Sipho, and may I just again as always thanked my team Abi and competent people. It's always a pleasure working with him. I also want to say thank you to PwC. I see we've got Bjorn, Michael, and [Cisa] (ph) here today, the Ernst & Young guys. I haven't seen them around, where are they? There they are. Thanks, very much for your contribution.

Also to our audit committee of which I think we've got one full time, which is Con, but really also linked always there at all the audit committees, you know ladies and gentlemen, they are extremely diligent groups of people. Sipho always says he hires them for their diligence. I'll never say that, and Sipho is saying that. But it is through the efforts that in the end of the day we can come here and we came with confidence providing with financial statement that give you as the market the confidence to embracing to this business and know that it's well managed, and is well looked after, and the audit committee asking to place six more row to make sure that we can give you that comfort.

With that I would like to hand over to Sipho to handle the outlook. Thank you.

Sipho Nkosi

You can see that it was paid bonuses now. People can say what they like. They don't have to face us and say and then deal with those kinds of things. But it's okay. It's that is what is going to happen. We're going to deal with that. So ladies and gentlemen, I'm asked to do an impossible task, and that is of telling you what I think is going to happen in the next six months.

Of course I don't know that. Otherwise, I would have predicted that Moody's would have been so moody that would do what they did to the South African banks. I just want to read to you what Scott Adam said about predictions, and what you want to do. He says there are many methods of predicting the future. For example, crystal balls, that's what people use, horoscopes, tea leaves, I never really knew all that or tarot cards, and collectively all these are called naughty methods. Or you can put well researched facts into a sophisticated computer model, and this is commonly known as a complete waste of time.

So trust me on this one, because I'm not going to use naughty methods nor am I going to use what do you call it, complete waste of time, but what I tell you is what we feel did down in the life of this organization for the next six months. So insofar as the country is concerned, we think that the mining industry is going to be stable in the next six months. We don't envisage quite a lot of strides taking place in our business. But of course you can bank on that. When people pick that for a day, it's not a stride, it's not the safest thing. It when they takes a couple of weeks that it become something, so we're very happy with that. The second thing is that we want to see what the minister is going to be doing with the new minister. We've got a new minister in South Africa. So we're waiting to watch him and we're watching him very carefully.

But on performance, one thing we know and this is what we feel based on what we have seen happening at GG in Waterberg infrastructure spend by Transnet is happening. And as you saw in your results it is inhabiting and affecting our business positively. So that's a very important one. So we're very confident of TFR performance. If things don't go according to what I'm saying are going to happen in the next six months because that's what he said I should say that he is happy with TFR performance.

The other thing is on the impact of shale gas is out of the ocean to prove that one and say, it's not going to happen. In years to come shale gas will become a reality in South Africa and it will happen, and it will impact, and it's likely to affect and impact our business. So we look at that one carefully.

As far as Medupi is concerned, Medupi, I can tell you now that it is happening. So the numbers that we give you are very solid numbers and we have great hope that if not this year, next year, but we will get you unit number six and people are starting to talk about the unit number five firing as well. So that will happen, and with the new CEO having been appointed we're very much more comfortable with the stability of Eskom.

The export prices in dollar terms will remain depressed. We envisage that one to continue. And you will note that the process went even below $70 a ton, therefore be at Richards Bay, so it just shows you that we're in a very difficult space. That is why those that will survive, those that will manage their costs very well which I think we're doing pretty well as the organization.

TiO2, as I said, we're engaging with Tronox, we're looking at Tronox and listening to what they are doing. But we have no pressure today to do anything with them. But what excites us about Tronox today is that it seems from what Tom is saying that we have reached the bottom of the cycle. And we haven't seen the movement insofar as prices are concerned, but those things take time, but they will work themselves into the system.

With regards to our SIOC investment, Norman's job is cut out now. We're happy with the dividend that we get and I think you should continue like that. But it obviously has a challenge, we will see what happens going forward, but we're ahead with that business and we know that as Norman pointed out it will deliver very well.

Mayoko, the teams even tonight I go into meet with the guys in Congo. Where are we meeting them -- okay, either its holiday time, so we're going to meeting the guys, Congo guys in Brussels to continue with the conversation tonight. So there are no interviews, so you better ask questions now, because we're flying off now after this one. It's a very important project that we agree. So we also are planning to finalize a total acquisition. So this is what we're seeing in the organization. It is a stable organization; it will deliver on what we've said we were to as Willem has pointed out. I think the result that we have given you today is a very solid result and a stable result which demonstrates that the company is on solid ground, and I would like to take this time to thank our board for the contribution they are making in the life of the organization.

We thank all of you who write about us and all the issues that you raised, I think they are very important, because they keep us awake and alive, so that we could focus on that. I just want to thank our people, our have been very loyal to us, very diligent and I'm very, very excited and honored working with people like them. And of course our Eskom is very remarkable. It's a nice group of people even though they give me hell, but they are really, really good bunch of people and I think they are doing well for this organization.

So for you all, I think the company has arrived, it is on solid ground, fasten your seatbelts and enjoy the ride. Thank you very much.

So now, its question time before it I can hand over to Mzila. Willem and I have done our job. I just want to reemphasize that. Willem and I have done our jobs. We want all the executives here including Mzila, and all of them are prepared for questions, and they will be very disappointed if you don't ask questions. And thank you very much.

Question-and-Answer Session

Mzila Mthenjane

Thank you very much to Sipho and Willem for their delivery, so it's time for questions now. And we do have in audience on our webcast, but I'll start by picking a few questions from this audience and then maybe three or four questions and then go over to the webcast. So perhaps if we can start up with the first question.

Johann Pretorius - Renaissance Capital

Hi. I'm Johann Pretorius from Renaissance Capital. Willem, can you maybe just go one step further and actually give us guidance as to the Rand amount of GMEP shortfall that we can expect beyond 2014? You've basically given us everything except the Rand amount, and in time I'm sure it will become public.

And then, just on Transnet's performance, you've highlighted how Transnet's mixed performance has been waning. Has that been a result of Transnet issues or is it perhaps an issue on the mining side, other coal mining companies not being able to deliver the coal volumes?

Mzila Mthenjane

Could you answer a couple of questions and then answer or …

Willem Abraham De Klerk

Maybe we'll take it one-by-one.

Sipho Nkosi

Yes. (Indiscernible) unfortunately.

Willem Abraham De Klerk

Let's go back to that slide, which is slide 25. The shortfall income comes to an end in 2014. That's a 1.5 billion. You may recall we had a 1.5 billion shortfall last year as well. So that comes to an end.

The latest settlement to those numbers is -- you're absolutely correct, having given you the one number, and I'm not going to give you the one number, because the one number that you're looking for is the sales price that we have to Eskom. So let's assume to illustrate it, let's assume the sales price is a hundred, just to make it easy, you'll therefore for the shortfall of 3.2 million tons that we have do not deliver this year. We'll be invoiced eight percentage of that hundred, which equals the fixed cost associated with this business, compared to the margin that we'd have made at the hundred.

So that's the only guidance that I can give you. So in short and sweet, you need to in your models think about the appropriate margin, the variable cost that's associated with this business, because let's say, again to use a number, let's say the variable cost is 10, in theory we'll be, in my example, we'll be invoicing them at 90, but I cannot give you the number of that 100, because that quite frankly is the number associated with the sales price.

So I'm going to get this question probably a thousand times over the next few weeks. My answer will be consistently the same.

The second question had to do with the TFR issues; I don't think it's for us to comment on how other mines did, all I can share with you is the important one liner that they only performed on 61 million ton TFR during the six months. We had received a fair amount of trains, it increased, as I said, to 86%; 86 trains for that half to Grootegeluk. And I think it will be unfair for us to commenting on any other performances of any of the other mines.

The fact that we had received I think it's important to make that point; the fact that we had received more trains to Grootegeluk or to the Waterberg is not due to the fact that they've -- the rest of the coal industry performed better or worse in the past. That was a two-year plan as we have shared with you. That was TFR's explicit job to get more trains into the Waterberg and trains we've opened up to, circulative in February saying that we'll see more and more trains. And I think it's imperative to the capital that we spend in Exxaro that we continue to get those new trains. So it's not necessarily as a result of the performance of the rest of the coal industry.

Mzila Mthenjane

Yes. Carolina, you had a question? There was one other question; I'll come back to that.

Caroline Learmonth - Barclays

Sorry, there is a couple of questions; sorry, Caroline Learmonth, Barclays. The first one, just on your strategy, and you emphasized diversification and obviously you've got a number of projects that you've outlined, but would you continue to also look at more M&A and if so, in which areas commodity and/or geographic?

And then the second question is just on Tronox and the detail around the U.S. GAAP to interest adjustments, and this time the PPA adjustment looks a lot smaller, what's behind that, and what can we assume about that PPA going forward? Is it just going to be a volatile adjustment that we can't really predict?

And then thirdly, on Mayoko, and you talked about the ZAR300 million costs for the second half, have you given yourselves a limit on what costs will be spent on that project going forth beyond the end of the year? And is there any update yet on the audit process that you're undertaking on the Mayoko process?

And then just finally, on this new slide that you've given us on Medupi ramp up, so under the new agreement, do we now assume the full ramp up is the 9.4, which is what you talk about in 2017? Thank you.

Sipho Nkosi

In fact, I mean you can take all of that.

Willem Abraham De Klerk

All of -- I'll leave the diversification to you, sir.

Sipho Nkosi

No, no, no.

Willem Abraham De Klerk

Let's start on Tronox. Caroline, you may recall that during February we gave you guys guidance that the PPA adjustments will be around a billion per annum, (indiscernible). This time it's 555. So it's very much in line I think of that guidance that we had given you. I think it will be stabilized around a billion, a bit low, a bit higher. So it's difficult for me to speculate how much below or higher than the billion is going to be over an annualized period. So I think that's consistent.

On the 300 million Mayoko, remember that we indicated to you guys that we, the Board have approved an amount of 300 million for the actions for the rest of the year. And part of that action, one of the actions will be to get agreements in place. And we indicated that as soon as we have agreements in place that makes financial sense will take the next decision to the Board.

And we're not on that page yet. And therefore I cannot give you guidance on whether we'll put more money next year, and that decision will be taken by the Board later this year depending on our results, where our success of the outcome of the negotiations that the teams are busy with at this stage.

On the audit, we promised you to give you that feedback with just discussed this with the Audit Committee two days, we haven't finalized the audit and the outcomes thereof, and therefore, we're not in a position to share that with you yet.

On the Medupi, it had to do …

Mzila Mthenjane

9.4 million …

Willem Abraham De Klerk

Over 9.4 million tons. On this slide, which is slide 25, you will see the last bullet relates to 18 plus that we're now talking about 255 mega/giga joules in future years. So that talks to not the 9 million as I have it in that year, that talks to the normalized minimum amount that they'll have going forward. And that is therefore on the stable level for the years thereafter.

There are two elements to that. There is a minimum that they can take, and a maximum. We're just showing the minimum amount, but that is stable on 12 -- how much, Mzila 12 …

Mzila Mthenjane


Willem Abraham De Klerk

12.4. So that's 12.4 number as in minimum that they can take going forward.

Sipho Nkosi

On the diversification, I think it just depends on what you need as the organization, but if I look at our organization as it stands today, particularly on the coal side, we'll tell you that we're a South African organization, we have resources in excess of 10 billion tons in situ, and it's critical that we spend more money on those assets developing them rather than looking at other things, because in terms of law we may lose that. Those are good assets that we need to look at that.

So, the coal business as far as we're concerned and as far as Eskom is concerned, we have lots of coal on the ground; the challenge that we've always had is on the export side when it came to allocation. And this is one step that we've taken. Of course we'll continue evaluating the availability of tonnage within the organization, and if there is a need for that we may then look at other opportunities in terms of diversification on coal.

Of course on other commodities where we want to go, it all will depend on whether those assets are in South Africa or not. As you could see, we dabble into coal because we believe that asset is a very great asset. Anyhow, if you look at the ore body, it's a great ore body, and we'll continue looking at those things that are within the strategy that the Board and the mandate they have given us to develop. So we'll look at those things.

So our diversification strategy will look at organic growth, and if there is a need for doing M&As, we'll do M&As.

Mzila Mthenjane

I think, Heidi?

Heidi Sternberg - Standard Bank

Good morning, guys, Heidi Sternberg from Standard Bank. I was wondering if you could perhaps give us any more guidance on export sales for '15 and '16. You had this export guidance increasing every time we come to this meeting, and I was wondering about that.

Then, from a restructuring perspective, there was news on restructuring earlier in the year, is there any more comment that you can make on that? And possibly, could you expand on what a sustainable BEE structure is I see that you mentioned that earlier on in your presentation? Thanks very much.

Sipho Nkosi

On the BEE structure, I mean there is nothing much I'd say at this time, except that it's got a ten-year life, and the life is 2016 November and with refinancing probably around March 2017. And there is work that the Board has asked us to undertake and we're looking at various options insofar as that all is concerned.

I think when we're ready and we have continued to engage with parties and we've decided to look at what you want to do as the organization going forward, we'll give more color around that. The bigger issue is the law says we should be at 26%. And that is important. We have moved to 50 plus one, simply because of our -- because we empower SIOC, so that it remains complaint with the law. And that's very, very important.

So, it is a strategic decision going forward, whether we want to remain at 26 or remain at 51, and those are the things that are being looked at. You'll recall that if you're at 51, chances of you just rising money are not that easy and are not that great, but we have succeeded in the organization in doing that one. I think that was one, what was the other one?

Mzila Mthenjane


Sipho Nkosi

Oh, restructuring; yes, we did mention that we'll be starting with a project turnkey. We've started with the implementation beginning of this month, so the process has just kicked in. I can't give you the exact numbers of what is happening, because it consist and contains quite a lot of packages from VSPs to all sorts of things that come with it. And once all those things have been put in place, and we know how many people have participated or are participating in that one, we can give you color around that.

Willem Abraham De Klerk

Heidi, on the exports, I mean we have now increased the exports within one year with -- from 4 million to 5 million. I think it's appropriate that we stick on the 5 million number as guidance for '15 and '16. Needless to say that something else will be driven by management. And when we feel comfortable, we'll increase on the performance of TFR. And once we share with you when we -- Grootegeluk by the end of September, the different options that we have available, I think it will be appropriate to start sharing with you our longer term view on where we can go with the 5 million number.

Mzila Mthenjane

Maybe if I can ask if any questions on the way across. Okay, I'll come back to you, Martin. I'll come back. Okay, on the conference call, there is a question from Peter Cromberge from Mergermarket. You've mentioned that Exxaro could look at a mix of rand and dollar funding for the Total South Africa acquisition; could you please elaborate on that?

Willem Abraham De Klerk

Yes, I think it's still early at this stage. We have still a few months left. As I said, we have various combinations of funding that we can do, and as soon as [Ryan] (ph) and his team feel comfortable we'll see that with the market, I think it's just too early today to share more info.

Mzila Mthenjane

Okay, thanks. I'll come back to the question later in the conference call. We just have a question from Martin Creamer.

Martin Creamer - Mining Weekly

Mining Weekly online. Seeing we've been warned by Sipho that there are no interviews after this, and he is flying to Brussels, can you please tell us Sipho who you'll be seeing in Brussels, and then why is this going to be done in the Congo?

Sipho Nkosi

Oh, the answer is very simple.

Willem Abraham De Klerk

He is not flying to Brussels.

Sipho Nkosi

The answer is very simple; I'm not flying to Brussels. But the important thing is that we have to go to Brussels because one of the partners that -- we're looking at various options insofar as infrastructure in the Congo is concerned whether it's rail or port. So we're looking at various options around that as I indicated.

So once we've buttoned that one down, we'll more -- some idea in terms of what it's going to look like. We'll tell you, Martin, don't worry.

Martin Creamer - Mining Weekly

And what do you think the 300 million, why 300 million, why you're keeping that as a sort of an allocation for what?

Sipho Nkosi

No, but there is lots of things that are happening. We run quite a lot of infrastructure that is there. There are some people that go in and out there, and we have got to spend money on that. And there are certain smaller projects as I said, you can't just walk out of a country, because there were projects that we had already started particularly that affect and impact communities, and we've got to find out -- find a way of handing them over that is if we no longer continue with that is very important. Whether we will have to use the whole 300 million? I'm not sure, but it in our allocation that we've been granted by the board to make sure that we conclude the work over there.

Martin Creamer - Mining Weekly

And finally what are you hoping to achieve on this short-term meeting now? What is the favorite outcome? What do you expect?

Sipho Nkosi

I knew you will ask, you will keep on probing, but I'm not going to tell you everything. What we'll do, we'll walk the wharf. We'll walk and look at the equipment that's available, that's what we'll do.

Mzila Mthenjane

Okay. If I can then maybe -- I'll come back to you. Tim, the question waiting on the conference call.


We have a question from Andrew Snowdowne from Merrill Lynch. Please go ahead.

Andrew Snowdowne - Merrill Lynch

Hi, thank you very much. A couple of quick questions from me; I wonder whether you could reconcile for us the number in terms of RBCT port capacity, which indicates following the TCSA deal. It showed there is 11.5 million tons, but my understanding was that you currently have 6.3. This adds 4.1 which would imply 10.4, so I was hoping you could just help us reconcile that number? And I guess you kind of give us more information about the visit to Grootegeluk in September.

I was wondering whether you could give us a little bit more color on -- in the previous release you suggested that this deal helps unlock opportunities in the Waterberg, I'm wondering if you could give us any more indication at this point as to how your thinking is on this front.

And in line with that, maybe if you could just give us an update of exactly what your current export capacity is from Grootegeluk? You mentioned that you're asking more trains, and maybe just an update on where you see that actual numbers at this point in times to the full extend which you can offset any shortfall from Inyanda etcetera?

And then a final question, just in terms of the fact that you have the members on the Tronox Board, I was wondering if you could give us an indication of extent to which you guys have actually been looking at options to unlock any cash flow benefits or whether this is being very much hands off? And in line with that as well June of next year you have to make a decision on what you're doing with the stake, to sell it, increase it, is there a realistic possibility that you would simply keep your current position as is and what boxes do you need to pick in order to make that decision, what are the things that you're going to be considering in making that decision? Thank you very much.

Mzila Mthenjane

Quite a few questions there.

Willem Abraham De Klerk

Okay. Andrew, let's start with your RBCT question, don't confuse percentage as we said that on the slide, those are the tons. You're absolutely correct. It is 6.3 million tons for Exxaro today, sorry, when the port is at 91 million tons and Total's as it is 4.1; that gives you the 10.4 million tons, but we gave you a percentage in the slide.

On Total and Waterberg, I'd really ask you to hold the rest of questions and send Mzila all those questions, so that we have an informed session. If you do not understand the different parts of what Grootegeluk can do going forward, what are the options that the teams are looking at, it will be difficult to just give you an answer on how we envisage to have synergies on the Total side.

On the export capacity, your question, capacity at Grootegeluk; important to look at the historical numbers, we've always exported around 300,000 tons to 700,000 tons at Grootegeluk depending on the time of year, depending on what rail we got and you'd see historically for the last few years, it was only around 400,000 tons. The capacity question is of course a big question going forward. And it is the big question of how much of tons can we export. When we spoke last, we named the number of more or less 1.5 million tons as the immediate number that was tossed between ourselves and TFR. It is a significant increase from the 400,000 tons historically and 500,000 tons now. I think it's only going to be a question of time before we can, with ease, answer this question. And again, that will be specifically part of discussions during September.

On the tax loss, yes, both Sipho and I are conflicted on what happens in the board room, but I can share with you what Tronox is sharing and what is in the public domain, absolutely, the Tronox Board and the Tronox management team are running all over the world, looking for various options to capture the value of this 5.3 billion to 9 billion. That's more or less in the range that I talked about the tax losses, the [NOLs] (ph) that they have somewhere between $5 billion and $9 million is the value associated with the settlement of Anadarko. This is unbelievable big money; even in dollar terms, you can imagine what it does in Rand terms.

So the team has been tossed and the team is talking constantly to the public of looking for various options to utilize those tax losses. I spoke about various options. I spoke in the press about options of companies acquiring Tronox in order to utilize those. They spoke about them ring-fencing that and selling it off to other companies. I think the only reality that we know is very unlikely that from the existing businesses of Tronox they'll be able to utilize 5.3 billion losses in the medium-term. That's the only certainty that we have. The others are options, and they're looking at -- I think time will tell how Tom and the team goes about in realizing the value about this.

Your last question is regarding the 44% level of shareholding that Exxaro has today; I think we've been vocal about that in the past to say it's not the ideal position to be stuck on 40 up percent going forward. And therefore we've made the comments in the past that the Board of Exxaro gave us the appropriate step to move audit to a 50% plus position, or if that doesn't work I think we'll have to consider to go to 44 minus position. But we did say that we have a year still, less than a year now to consider that action. And by June next year, we'll take that effective step, and obviously as we live up to that date we'll inform the market of the strategy of Exxaro going forward.

Mzila Mthenjane

Okay. Sorry, let me just back to Tim, I'll come back to you.

Tim Clarke - Standard Bank

Thanks. It's Tim Clarke from Standard Bank. I wonder if you could talk a little bit about the balance sheet. You've got a certain level of date, you're taking on the date for Total potentially or likely. And then you've outlined on slide 26, I think it is quite a serious coal CapEx program, I just wonder if you could outline them at what point you start feeling a little bit like the balance sheet is optimal and not getting too high or where you see it being lazy and where you see it being optimal?

And the second one is just on head office costs, you've outlined your program to -- your voluntary program and the results are still to come, but your head office costs are lot lower, I wonder if you could go into what's happened there, because it sounds like the results have come before the programs, it's a bit strange.

And then lastly just -- I wonder if you could outline is there are any cash and cash being the operative word, effects from closure of Tshikondeni and Inyanda, which are clearly coming through the door.

Willem Abraham De Klerk

Okay. On the balance sheet term, I've shared with you that if we have to include Total; on 30 June we'd have moved to 32% debt-to-equity, which is significantly higher from where we've been for many, many year around 8%, 2%, 14%, 12%. So needless to say that brings a significant kick. But where that comes, income, cash flow; you've just seen the settlement that we've reached with Medupi or with Eskom on the GMEP side. I think you need to work it back into your numbers. That is a significant different cash flow from what you'd have envisaged from Exxaro in the past that is extremely accretive to what we had in the past.

With those two elements, with Total asset and the cash associated with what will come from Total the way we have done our due diligence. The settlement on Medupi is now fixed barring the signature tomorrow. The Board felt very comfortable with the amount of date that we'll encounter by doing the projects as we have put it on the timeline. I have to remind you, Tim, I'll have to unfortunately demand you that none of the projects that we endeavored on the last few years worked out on the timeline as we had, because in these, you're looking at rules, you're looking at approvals on various levels, and quite frankly it just doesn't work out the way it is. But with this profile, again the Board being very diligent, we've looked at this profile, with the Total, with the way that we see how far is your business plan, and I can give you comfort that we have a comfortable effective balance sheet with that.

On the HQ cost, having cost quicker than envisage, Tim, I think it's a very relevant comment. You'd remember we have said over the last year that we haven't filled significant vacancies over a period of time. So I think it's appropriate that I use that as the only one liner. We have -- to Sipho's earlier comments, we don't go on the grand scale and announce to the world how we effectively reconstruct our HQ business. We're trying to do it under the radar, and we try to do what we think we've effectively done for the last two years, every time we report to you guys that we've again decreased our corporate footprint.

So these action plays that Sipho spoke about, that will go its way, but needless to say the management team and the Board had a lot of actions in place to really do some of those cost savings.

On the coal side; no, we don't pick up any costs and/or cash on Tshikondeni that is covered by ArcelorMittal. On Inyanda, there will be cash going out as you closed down the mine. But what [Mombasa] (ph) and the team did effectively, we've given sufficient provisions on all that we need to do. So it won't hit the income statement more than what we'll anticipate, but, yes, there will be some cash balance as we close down that mine.

Mzila Mthenjane

Just go ahead, sir.

Steve Meintjies - Imara SP Reid

It's Steve Meintjies, Imara SP Reid just like to ask a Willem a couple of questions on the value-added slide on slide 12, and just to confirm where is DIY in that? Is that being stripped out and added to government? I wanted you to answer to that one, first.

Willem Abraham De Klerk

Okay, I'll wait for the rest of your questions.

Steve Meintjies - Imara SP Reid

Okay. Well, if you have done that, I was going to comment you …

Willem Abraham De Klerk

Then we have done it exactly …

Steve Meintjies - Imara SP Reid

Have you done it like that? Okay, so that's done. Nevertheless, guys, and next question probably doesn't applies much to you as it does to some less fortunate members of the mining community, but do you foresee that it could be of any use to your HR in possible negotiations with labor as to what they get compared to capital and government out of the wonderful value-add that you create?

Willem Abraham De Klerk

In the end of the day, the labor settlements on an annual basis is based on what happens in the industry, it's based on the percentage that you give the people compared to everyone else in the organization, but you pay the taxman, you pay the taxman and government, that's a different set of rules. All we can do is we can follow the appropriate rules for our people and the appropriate settlement, and you know that we've given you guidance in the past of we're talking about a double-digit type of settlement that takes place, and for the last few years, you've always seen somewhere between 9% and 12% depending on what sector you're in. So I don't think it's appropriate or fair to combine those twos, because it's totally different denominations.

Steve Meintjies - Imara SP Reid

Yes. Well, anyway I quite agree with you that, just to comment that there do seem to be some misconceptions in certain quarters regarding the share value add that goes to capital, and with clear cut statements like this I think it clarifies the context in the background, and I think that certainly for some companies it might be more useful than it has been or will be for you, but in any case commendations on what is a clear cut statement of who gets what? Thank you.

Sipho Nkosi

I think it's a very interesting point. I mean there are numbers that are bandied about if you look at projects, if you start a new project in a particularly country and the split, generally some people will call it, 70-30 or others call it 80-20, where 80% of the process really benefit the country and the shareholders are pumping in money, they look at the balance, which is either 30% or 20%. So it's really great, and it's important that this kind of information is shared with the public so that they can see it.

Mzila Mthenjane

I have a question. I'll come back to the floor. I have a question from the webcast from Rene Kleyweg from Deutsche Bank. Could you provide an update on Cennergi in terms of investment CapEx spend and timeframe versus the budget?

Sipho Nkosi

I think Willem, that will be directly with you.

Willem Abraham De Klerk

Rene, the guidance that we gave in the past is that the Exxaro Board approved 1.5 billion to be spent on Cennergi. Total partners also 1.5 billion. So therefore there will be over a period of time with 3 billion commitment between the two shareholders.

We've spent on the two project that we were successful about 800 million this fall, which means that we have another 700 million just spend on other projects. That is consistent to where we've been in March and that is the position today since March and today, they haven't encountered any new deals, and therefore we'll not put in any of the capital that we have allocated within the 700 that is left.

Mzila Mthenjane

Okay; just coming to end of our schedule. Can I take any remaining questions on the floor?

Sipho Nkosi

There is nothing.

Mzila Mthenjane

Okay. Any remaining questions on the conference call? I think there is nothing there as well, Sipho. Okay. So that brings to the end of our presentation. Thank you very much, ladies and gentlemen, for your participation and presence here. Certainly delivering on integrated report in terms of our performance as we've talked to do today is a teamwork, and I'd like to echo Willem's comments earlier in terms of gratitude to everyone who has participated to play together the event today. It's been a process, long nights, and maybe also to thank the organizers and the venue for all the work that they've put together for today.

I think Willem has mentioned the GG site visit on the 25th and 26th of September, and I think that's a great suggestion that please arrange us for ease of preparation if you could forward your questions to me, and then we can prepare accordingly. It will make the day certainly run a lot smoother.

I'd now like to invite you for lunch across the room where the doors have been opened. And thank you very much, and drive safely.

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