Exxaro Resources Limited

to Exaro Resources Annual Financial Results. My name is Lingling Motapo. I'm the Chief Investor Relations and Liaison. It's my great pleasure to guide you through today's discussion. First and foremost, I'd like to express our continued appreciation and gratitude for your continued interest and support in Exaros. I'd like to welcome all of you here, both online and present in the room, our shareholders, the board, our executive leadership and frontline here present in the room, led by our chief executive officer, Dr. Nombasa Tengwa. Let me also acknowledge my fellow colleagues in the room. A warm welcome to you and the investor community. And those, of course, joining us online, I'd like to specifically mention those joining on LinkedIn and via our webcast and chorus call. You are all welcome in the room today. I think it's appropriate at this point, before we go into our safety briefing, to please just ask you to keep your phone on silent. And into our safety briefing, as is the norm here in the Connections, in Centurion. Please note that we have not planned an emergency today so if the alarm is activated please do remain calm and evacuate to the assembly point which you will find in the front of the building by the parking area where we will do a roll call. We will remain at that assembly point until instructions are issued by a safety official to re-enter the building. And of course, for those who are online, we've not forgotten you. We will endeavor to keep you abreast of the happenings and developments on site. For those in the room, ablution facilities can be found just outside the room. As you step out of the auditorium, if you turn right, you will find them along the passage to your left. We've also not envisaged any load shedding for today, so if we do experience a power outage, please do not despair. We do have backup generators to help us with our proceedings of the day, which will then kick in in three minutes, starting with the emergency lights, the plugs, and then, of course, the Wi-Fi. Now on to the business of the day. As we review our annual financial performance of today, our Chief Executive Officer, Dr. Nombasa Trenqua, will take us through the group's performance. Chief Coal Operations Officer, apologies, Javi Macia, he will take us through the performance of the coal business, followed by the group's financial performance from Rian Copescar, our AFP. We will then wrap up the presentation with a view of what you can expect from this business from Dr. Mombasa. To set the scene, this has indeed been a very dynamic environment that we've had to operate in, and we're really pleased to report a robust performance. And with that, Doc, please take us away. By the all-powerful dispensation of the Providence, I have protected beyond all human probability and expectation. For I had four bullets through my coat, and two horses shot under me, yet escaped unhurt. These were the words of George Washington, posting to his brother, George, in July of 1755, about his luck and military prowess during the French and the Indian War. Yes, indeed, you are in the right venue for Zaro's presentation. Thank you, Linz. And good morning, ladies and gentlemen. Thank you for your presence here today and welcoming those who are joining us online as well. A very warm welcome also to our a lead independent director who just walked in, Ms. Geraldine Frazier-Moletetti, and other fellow board members who have joined us in attendance today. I'm also pleased to see the members of the Pensioners Club, but it seems as if there's only one member who keeps coming every year in and out. And I must say, the 21 years I've been in this company, there's one of the pensioners who has attended this 21 times. And before he attended as a CEO, but I want him to stand up so that we can give him a resounding round of applause. Dr. Kohn, please. So you need to really look for the other pensioners. I don't know what's happening. They're so disorganized. Okay. So thank you for your continued support. Really, we appreciate it. My team and I are pleased to present our 2022 annual results this morning compared to 2022 results. As always, we welcome your honest feedback. So now let me get straight into the business of the day. So 2023 proved to be yet another dynamic global operating environment post-COVID. It started with optimism. mainly due to the much-anticipated post-pandemic recovery sentiment. As the year progressed, global investor sentiment shifted and weighed negatively on global economic activity and commodity markets. The global economy averted a recession despite the continued challenges of elevated inflation, higher interest rates turbulence in the banking sector, the Chinese big property market, intensified geopolitical conflicts and gas supply risks. Throughout 2023, just looking at global inflation, it continued on its downward path, driven by monetary tightening, declining demand, supply chain resilience, declining commodity prices, and the reversal of many of the inflationary forces from COVID-19 pandemic. South Africa's headline inflation averaged at 6.15, while our mining inflation averaged at 8.1%. That is going to be very important to note as we present the cost slide later on by Hadi. Despite the property sector weakness in China, The sea-borne iron ore market was supported by resilience of China's steel output. As a much-anticipated steel capacity, parts remained modest in China, that is. In addition, the property market policy that eased off in August also supported our overall sentiment within the sector. Changes in demand and trade flows in thermal coal were observed during the year. Now, local coal prices also resulted in a resurgence in Indian demand, which is a good story for us, with both China and India taking more coal due to their economic growth activity and buoyant power demand. We also saw the resumption of Australian supply into China from the trade ban of 2020, also a drastic reduction in Russian supply that we've seen to Europe, Japan, South Korea, and lastly, Taiwan's gradual shift away from reliance on the Russian coal dependency. For most of 2023, three-bond thermal coal prices remain under pressure due to the weak demand for high-caloric-value coal, from Europe and Northeast Asia. High stock levels of both thermal and gas in Europe, Japan, and South Korea resulted in a significant price reduction. Furthermore, stronger renewable availability reduced the role of gas and thermal coal in the European energy mix. So, towards the end of 2023, natural gas supply risks and the Israel-Hamas war and the uncertainty of the Northern Hemisphere winter added to the energy market dynamics and pricing. On the back of all of this, we come back home. TFR continued to report the same challenges already mentioned previously to you, such as limited availability of locomotives, unending security incident and vandalism of the infrastructure, resulting in the lowest RBCP coal exports of 47.2 million tons, below 48.6 million tons achieved in 1992. So operational challenges, and the equipment failure at Ascom Power Stations impacted on the offtake of Power Station Co. in the Waterberg region, and being specific, at Kota Halak. And Haru will share more about how much those volumes were and the impact just now. So moving on, looking at our performance in this uncertain environment, you will recall that we had a loss of life. at Belfast in financial year 2022. And we had to recommit as a team to focus on basics so that we can achieve the much-wanted zero-hung. As a result, I'm very encouraged to report today that in the last year, that is 2023, we produced all the towns without a fatality. However, our last time injury frequency rates for the group, which we use as an indication of how well we're doing in safety, was 0.07 against a much reduced target of 0.05, which is telling us that we must continue to intensify our day-to-day efforts to achieve this much-needed zero harm in our operations. So looking at operational performance, and I must say that under Hadi's leadership, the cold team responded with resilience to an evolving operating landscape. It was tough. However, lower demand from ESCOM and continuing logistics challenges that we've talked about resulted in a 1.4% decline in cold production. from 43 million tons in the previous year to 42.5 million tons per annum. So with the continued logistics constraint, it is very important that I remind you what the design constructs of this business. And I've mentioned this before, that our operations are optimized to perform at 50 million tons per annum. with 8 to 12 million tons per annum of exports by rail to RBCT. Very critical information because there is, however, a threshold to these volumes, below which even the most stringent of cost containment measures will be rendered ineffective. So let's look at how we are producing today. We operate at 42.5 million tons per annum. not 50, oftentimes with full stock price, which really impacts the rhythm of operations back at the mines. And we are railing at 5 million tons per annum of exports, railing some of which are on trucks to Maputo and also to our RBCT ports. So I can say to you that the ops team and Meles are now feeling the pressure against inflation. And we're going to hear more about that when Javi and the copies are talking about it. So, consequently, if you look at our unit cost, it has increased by 16.7% on a year-on-year basis, from 413 rands to 482 a tonne, driven by all these constraints that I've mentioned to you, the off-take from ASTOM, full stop powers, and as a result of the acceleration of certain mining activities that Khabib will share with us. And surely, if we're tracking more than we have before, we still have to optimize that cost as well. So, we are really in a position, though, to really quickly respond to the demand from the market, despite the challenges I've just mentioned to you. And also giving you context on this increased cost per town. This does not mean that we have abandoned our operational excellence initiatives that we shared with you and the very intent of remaining below mining inflation. That has not changed. Our early value strategy, together with our market to resource optimization, enabled by our record average price realization of 97%, against the API4 index is cleansing. And this is an increase of 4% compared to financial year of 2022. So let's look at synergy for a little bit in terms of the operations. And we'll see that in terms of wind generation, it increased by 8% compared to the financial year of 2022 as wind conditions improved in the previous year. Now, coming to the financial performance, and you will hear more from copies, that we've achieved an EBITDA decrease by 29%, from all the reasons that I've already talked about, to 13.4 billion rands. And this is our second highest following our record thermal prices in the financial year of 2022. This decrease is driven primarily by lower export prices and lower sales volumes for both our domestic and our export markets. Looking at the core business EBITDA margin, it went down by 9%, from 42% to 33%, whilst the EBITDA margin of the synergy business remained stable at 80%. Headline earnings per share achieved for this period, 46 rands and 81 cents, which is 32% lower compared to the financial year 22, including a contribution from Sayoc and Left Mountain Equity Interest. We achieved a return on our capital employed of 35%. So this achievement is attributable not only to a high basket price performance, but also to our efforts on efficient capital deployment and cost management. Given this performance and considering the ongoing and prolonged logistics uncertainties ahead, including our growth aspirations, It is my pleasure to announce the final dividend as declared by a board of 10 rands and 10 cents per share. But that's so weak. Wow. Okay. Let's hear if you're going to do something now. And a special dividend of 572 cents. Maybe that's going to be louder. I'll see. It is tough. It is tough times. This is really heartwarming. But POPIS will elaborate a little bit more on that later. So it's not just a DV. There's also a specie on top of that. So as a purpose-driven organization, the sustainable impact of our business remains at the core of our strategy. We continue to integrate ESG into our day-to-day running of this business. with our steering committee, together with our board committees, playing a crucial role in ensuring that there is momentum and quantifiable outcomes coming out of the programs. As a result, we continue to benchmark above our peers on global ESG best practice. So I'll give you just a few examples on this. The Lillipala solar project, which is valued at $1.6 billion, which you have announced before, is under construction. and will provide us with a 27% reduction in scope to emissions upon completion in 2025. Moving on with water intensity improved by 30%, while our carbon intensity was reduced by 20%. You may have also seen the good news in the media in quarter four of last year, that we have signed an MOU with the Council of Geosciences to explore carbon capture usage and storage capacities and opportunities thereof to mitigate difficult to abate carbon emissions. All of these examples are an indication of demonstrable progress. In line with our commitment to diversity, equity and inclusion, the representation of black women in senior and middle management has improved by a whopping 75% in the past six years. That must be great. And in 2023, over 6% of our payroll allocation went into skills development and training of our employees, which included masterclasses that kept us abreast with industry development and best practice. We also provided over 200 CETA accredited courses for community SMMEs. And compared to financial year 2022, we awarded more than double the number of bursaries for previously disadvantaged youth. I think that's great news as well. And ladies and gents, If you look at the period between 19 and 2023 financial years, your contribution towards social investment was 7.4 billion rands, of which almost 2 billion rands of that was spent in the financial year of 2023. So really one area we spend a lot of time talking about. As we go through challenges, of course, everywhere, but this is one space we don't want to skimp on. So, Hadi will unpack a little bit on this when he speaks to his numbers. So, last but not least, as a result of our deep-disciplined capital allocation framework, we have consistently delivered shareholder distribution exceeding 45 billion rands over just the five years that have passed. of which 38.9 billion was allocated as ordinary dividend and 7.1 billion in a special dividend, while retaining a strong balance sheet and positioning this business for growth. Governance excellence is important to us and it is core to the function of this board, which is why we have decided to have a dedicated board governance session targeting business key critical business risks that have an adverse impact on stakeholder value drivers of the business, while at the same time exploring what could be in the emerging business trends that could add more value in the business. So our strategy scorecard is reviewed annually. Coming from that are key performance indicators that are assessed quarterly, and these have enabled the board to to monitor progress on the execution of the strategy. And for our business continuity, I'm proud to announce that we have maintained our triple BE score rating of 2. Now, achieving such VDs against a complex and ever-changing environment does not happen by accident. It is the commitment of the great men and women of Xerox. and the leadership of our board. So, on that note, I will now hand over to Hadi to take you through the performance of the coal business. Over to you, Hadi. Thank you.

Good morning, ladies and gentlemen. Thank you, Nombasa. We've been on an exciting journey despite facing challenges in the macro environment. It is an honor to work with the coal team, the circus of this world, Melis, Chris, Lars, Lerato, Lundi. So the team has already supported us this year. Despite a challenge in 2023 on the safety side for the industry, we did not have any fatalities as mentioned by Dr. Mombasa in any of our operations. With ongoing logistical constraints, we managed to still maintain production as well as export sales of more than 5 million tons. and achieved a record price realization against depressed cold prices. We also effectively controlled our total costs and continued our focus on value-adding projects in capital execution. I'll now dive deeper into our performance. Starting with safety, which remains our number one priority and underpins how we do business. Positively, the group achieved zero fatalities since hours of painting However, the industry did experience the tragic loss of 53 lives in 2023. I would therefore like to take this moment to convey our deepest condolences to the families and friends who have lost their loved ones. Improved safety outcomes across business remains a continued and collective responsibility. Regressively, we did record 11 lost time injuries. And that has resulted in us not achieving our target. Our target was 0.05, where we end up achieving 0.08. And to address this, the team initiated enhanced safety campaigns across all our operations as we firmly believe that our commitment to zero harm is paramount and achievable. We'd like to highlight some no-duty achievements in our environmental performance. demonstrating our dedication to sustainability. A 20% improvement in carbon intensity with a continued commitment to achieve our 2026 targets of reducing our Scope 1 and Scope 2 emissions from our baseline of 2022. A 30% reduction in water intensity, staying well below our target of 180 liters per annum of mine time and surpassing the coal mining benchmark of 380 liters can of mine can. Our rehabilitation efforts resulted in 20% more deceptive land restored compared to 2022. Mongesi and team are leading that. We maintained a zero level three major environmental incident. However, there was an unfortunate level two incident recorded at one of our close operations. We are pleased to report a 14% increase in community investment, totaling 1.9 billion rand, as this was mentioned by Nombasa. Of this, 79%, which is 1.48 billion rand, was used to support our Black SMEs through local procurement and enterprise and supply development. This inclusive approach reflects our dedication to positively impacting lives and fostering a sustainable world. Next, I will focus on our operational performance. It is evident that our operational agility shielded us from major impacts on our business. The ESCOM operational challenges resulted in sales being impacted negatively by 1.2 million tons at an increased quality export remark. This impact was mitigated by increased production at Luban based on placement of products in the market, as well as Belfast ramping up to normalized production levels after the impact of the unfortunate fatality in 2022, resulting in overall products decreasing by only 1.4 million tons. Our sales decreased by 38%, mainly due to the ESCOM impact as highlighted above. Despite these challenges, our domestic sales increased by 7.1%, benefiting from our market-to-resource strategies, as well as maintaining export sales above 5 million tons. We forecasted product for 2024 to decrease by 1.4 million tons and sales to remain the same, mainly due to a 9% decrease in Mgumalanga production mainly driven by MATLAB, decreasing by 17% in line with the Life of Mine project. Global optimization will focus on driving value, not on volume, hence the reduction in terms of the numbers, and improvement at Belfast through alternative logistical export channels. A slightly improved S-COM of TIG is expected at Rotterdam, although it is still less than the full contractual volumes. Although the decline in the API for index poses a challenge in selling our product through alternative ports, we continue to pursue this option to enable our operations as long as it remains financially viable.

Moving to our market slide.