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Powering through the storm

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

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Powering through the storm

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  1. Powering through the storm Danie Mouton Carbon Manager, Growth Exxaro Resources Ltd South African Coal Exports Conference 2009 Cape Town 5 February 2009

  2. Sunday Times, 25 January 2009

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

  4. Introduction to Exxaro Our commodities At a glance… COALthe fourth largest coal producer in South Africa MINERAL SANDSone of the world's top three producers of zircon and chlorinatable TiO2 slag BASE METALS AND INDUSTRIAL MINERALSthe only zinc producer in South Africa IRON ORE 20% holding in Sishen Iron Ore Company • One of the largest South African baseddiversified resources company • An ALSI Top 40 company, listed on the JSE • Over 9 000employees • Revenue: R5.8bn* (±US$ 0.8bn) • Net operating profit: R806m* (±US$107m) • Operations in South Africa, Australia, Namibia and China • 53% BEE ownership * H1 2008 (6 months) results

  5. The world economic crisis – severity and impact

  6. World crisis – GDP growth Source: Global Insight

  7. Impact: Stock exchange indices JSE Industrial Index Dow Jones Industrial Index Source: DowJones

  8. Impact: USA home and auto markets US Auto Sales (million units at seasonally adjusted annual rate) US NAHB/Wells Fargo Housing Market Index Sources: NAHB & Wells Fargo, WSJ Online

  9. Impact: Commodity prices Source: I-Net

  10. The world economic crisis – all doom and gloom?

  11. The trees or the forest? Oil price shocks Great Depression Sources: Barclays Capital, AME

  12. China – The awakened dragon Source: Deutsche Bank

  13. Other emerging economies Source: Global Insight

  14. Commodity prices – recovery? Sources: Citigroup, Barclays Capital, Brook Hunt, Deutsche Bank, JB Were, Macquarie, Standard Bank

  15. Exchange rate – protection? Source: I-Net

  16. The glass is half full! • Lower energy costs (oil price) • Rational filtering of asset quality • Slow-down of capex escalation • Greater willingness and incentive to form synergistic alliances • Diversification potential (some assets are cheap now…) • Skills retention

  17. Coal – Blown away or riding the storm?

  18. What is coal’s role in the world? Source: World Coal Institute, 2008

  19. Does coal have a future role to play? • Fossil fuels remain dominant source of energy – 83% of the overall increase in energy demand • Coal sees the biggest increase in demand in absolute terms (59% by 2030), while non-hydro renewables grow fastest, but from a small base Source: IEA, 2006

  20. Is there enough coal?

  21. SA export competitiveness SA in lower half of cost curve

  22. Products Mineral Resource Market Mineral Reserve Logistics is the key Mineral Deposit/ Rights Conversion through Technology Logistics Mining Beneficiation ROM Losses Losses Losses Losses Losses Losses Losses Losses 20%margin Loss due To over/under spec Typical OC Mine 6% to slimes 85% organic eff 3%losses Due to Quality variation 60 to 120% Of Costs 3 to 5% dilution 10% losses At least 45% of value destruction across value chain Source: Exxaro company analysis

  23. It’s time to work together In order to have reached its annual capacity target of 76Mtpa during 2008, producers would have had to produce, TFR would have had to rail, and RBCT would have had to ship an average of 6.3Mtpm during the year. Source: Barlow Jonker, 2009

  24. Conclusion

  25. Power through the storm – together • Cost discipline • Improve efficiencies • Spend cash wisely • Create alliances • Minimise value losses across value chain – exploit synergies • Collectively develop logistical solutions for the coal business BUSINESS AS IT USUALLY SHOULD BE

  26. Final thought “As the credit crunch threatens to become a global downturn, corporate leaders have a choice: pull in their horns and ride out the storm or look for opportunities to pick up bargain-basement assets that will help them grow and create future value for shareholders. If past is prologue, more will follow the first course – which is a mistake.” M&A strategies in a down market The McKinsey Quarterly, September 2008

  27. THANK YOU

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