report of the directors

The directors have pleasure in presenting the annual financial statements of Exxaro Resources Limited (Exxaro) and the group for the year ended 31 December 2007.

Nature of business

Exxaro, incorporated in South Africa, is a mining group of companies focusing on extracting and processing a range of minerals and metals including coal, heavy minerals, base metals, and selected industrial minerals. Exxaro also holds a 20% interest in Sishen Iron Ore Company (Pty) Limited which extracts and processes iron ore.

Corporate governance

The board endorses the Code of Corporate Practice and Conduct as set out in the King II Report on Corporate Governance and has satisfied itself that Exxaro has complied throughout the period in all material aspects with the King II code. A detailed report appears here.

Registration details

Exxaro is a listed company on the JSE Limited. The company registration number is 2000/011076/06. The registered office is Roger Dyason Road, Pretoria West, Republic of South Africa, 0183.

Activities and financial results

Detailed reports on the activities and performance of the group and the various divisions of the group are contained in the reports here and here and here and in the business operations review here to here. These reports are unaudited.

Capital management

As a diversified mining company Exxaro is exposed to the cyclical price movements associated with its suite of commodities. The group's policy is therefore to ensure that the group maintains a robust capital structure with strong financial metrics which can withstand a significant downturn in commodity cycles. Growth opportunities, debt levels and dividend distributions to shareholders are considered against this backdrop.

The board of directors is ultimately responsible for monitoring debt levels, return on capital as well as compliance with contractually agreed loan covenants. For the year under review the following key metrics were achieved:

The capital base consists of total shareholders' equity as disclosed, as well as interest bearing borrowings. As a new generation empowerment company with a 55,861% BEE shareholding, Exxaro is constrained from issuing equity, and its memorandum and articles accordingly incorporate various provisions limiting the issue of new shares or alterations of its share capital that could result in a loss of its empowerment status.

The group aims to cover its annual net funding requirements through longer-term loan facilities with maturities spread evenly over time.

Although the intention is to progress to distributing 50% of attributable earnings to shareholders, adequate provision is made for future commitments and working capital requirements in determining the level of interim and final dividends to shareholders.

The group may from time to time repurchase its own shares in the market depending on prevailing market prices. These share repurchases are primarily intended to settle the group's various employee share incentive schemes and decisions are made on a specific transaction basis by the executive committee. The group does not, however, have a defined share buy-back plan.

¹ For comparable purposes 2006 metrics were calculated on the assumption that the empowerment transaction had been implemented with effect from 1 January 2005. The investment in Sishen Iron Ore Company (Pty) Limited has therefore been equity accounted from 1 January 2005 and Eyesizwe Coal (Pty) Limited consolidated from the same date.

During the year under review the group complied with all its contractually agreed loan covenants.

There were no changes in the group's approach to capital management during the year.

Neither the company nor any of its subsidiaries are subject to externally imposed regulatory capital requirements.

Property, plant and equipment

Capital expenditure for the period amounted to R1 296 million (2006: R2 010 million).

Shareholders' resolutions

In terms of the resolution passed at the general meeting on 2 November 2006, Exxaro, on 13 April 2007, exercised its option to acquire 10 million shares from Anglo South Africa Capital (Pty) Limited at R45,99 per share and subsequently issued 10 million new Exxaro shares at R64 per share.

At the sixth annual general meeting of shareholders, held on 25 April 2007, the following resolutions were passed:

- renewal of the authority that the unissued shares be placed under the control of the directors;

- general authority to issue shares for cash;

- special resolution to authorise directors to repurchase company shares.

Exxaro and its subsidiaries have passed no other special or ordinary shareholders' resolutions of material interest or of substantive nature.

Share capital

The total number of shares in issue increased during the year to 352 907 400.

The increase can be summarised as follows:

Shareholders

In addition to selling 10 million shares back to Exxaro in terms of a special resolution taken at the general meeting of shareholders held on 2 November 2006, Anglo South Africa Capital (Pty) Limited placed an additional nine million shares in the market to dilute the Anglo group's shareholding in Exxaro to 9,9%, simultaneously resulting in Exxaro's free float increasing to 34,2%.

An analysis of shareholders and shareholdings appears here of the annual report.

Dividend payments

Interim dividend number nine of 60 cents per share was declared in South African currency in respect of the period ended 30 June 2007. The dividend was paid on Monday, 10 September 2007 to shareholders recorded in the books of the company at the close of business on Friday, 7 September 2007. To comply with the requirements of STRATE the last day to trade cum dividend was Friday, 31 August 2007. The shares commenced trading ex dividend on Monday, 3 September 2007 and the record date was Friday, 7 September 2007.

Final dividend number 10 of 100 cents per share was declared in South African currency in respect of the period ended 31 December 2007. The dividend payment date is Monday, 17 March 2008 to shareholders recorded in the books of the company at the close of business on Friday, 14 March 2008. To comply with the requirements of STRATE the last day to trade cum dividend was Friday, 7 March 2008. The shares commenced trading ex dividend on Monday, 10 March 2008 and the record date was Friday, 14 March 2008

Investments and subsidiaries

The financial information in respect of investments and interests in subsidiaries of the company is disclosed in annexures 2 and 3 to the financial statements.

Subsequent events

The directors are not aware of any matter or circumstance that has arisen since the end of the financial period not dealt with in this report or in the group financial statements that would significantly affect the operations or the results of the group.

Namakwa Sands and Black Mountain/Gamsberg acquisition

Although Exxaro announced on 19 January 2007 that it had exercised the option to acquire the Namakwa Sands mineral sands operation and a 26% interest in a company to be formed to hold the Black Mountain lead-zinc mine and the Gamsberg zinc project, it has not yet acquired operational control as conversion and subsequent cession of mining rights is still outstanding.

Directorate and shareholdings

The names of the directors in office at the date of this report are set out here.

During the period under review Mr M Msimang was appointed as non-executive director on 28 February 2007 and resigned on 28 May 2007 to pursue his career as Director-General at the Department of Home Affairs. Dr CJ Fauconnier retired as chief executive officer and director on 31 August 2007. Mr SA Nkosi was appointed as chief executive officer on 1 September 2007.

On 29 February 2008, Ms N Nyembezi-Heita resigned as non-executive director.

The directors below are required to retire by rotation in terms of article 16.1 of the articles of association and, being eligible, offer themselves for re-election at the forthcoming annual general meeting:

U Khumalo
Dr D Konar
RP Mohring
PKV Ncetezo

Company secretary

The company secretary is MS Viljoen. The company secretary's registered address is:

Independent auditors

The auditors of the company, Deloitte & Touche, will continue in office in accordance with section 270(2) of the Companies Act, 1973, of South Africa.

Change in accounting policies

The accounting policies are consistent with those applied in the annual financial statements for the year ended 31 December 2006, except for the adoption of IFRS 7 Disclosure of Financial Instruments during the year. This is a disclosure standard which has no impact on the measurement or recognition of financial instruments and accordingly the adoption thereof has had no effect on the profit or equity for this period or previously reported periods.