The directors have pleasure in presenting the annualfinancial statements of Exxaro Resources Limited (Exxaro) and the group for the year ended 31 December 2008.

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, mineral sands, 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 andfinancial results

Detailed reports on the activities and performance of the group and the various divisions of the group are contained in the financial review and business operations reviews.

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 to monitor 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 disclosed, as well as interest-bearing borrowings. As a new generation empowerment company with a 56% 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 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.

During the year under review the group complied with all its contractually agreed loan covenants with the exception of the stand-alone funding package that was put in place for Rosh Pinah Zinc Corporation (Pty) Limited (RPZC) to facilitate the disposal of a 43% interest to Namibian shareholders. Loan covenants were breached mainly as a result of the collapse in zinc prices which occurred during the second half of 2008. The funding banks have, however, agreed to waive breaches on the basis that Exxaro Resources Limited continues to support RPZC to ensure that it can meet its commitments and conditional upon RPZC settling the funding obtained by no later than 31 March 2009.

As a result of the global economic downturn Exxaro is reviewing its capital expenditure programmes, including sustaining capital to ensure that the group’s capital structure remains robust.

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 617 million (2007: R1 296 million).

Shareholders’ resolutions

• 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’ substantive nature.

Share capital

The total number of shares in issue increased during the year to 355 036 600. The increase can be summarised as follows:

Shareholders

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

Dividend payments

Dividend number 11
Interim dividend number 11 of 175 cents per share was declared in South African currency in respect of the period ended 30 June 2008. The dividend was paid on Monday, 22 September 2008 to shareholders recorded in the books of the company at the close of business on Friday, 19 September 2008. To comply with the requirements of STRATE the last day to trade cum dividend was Friday, 12 September 2008. The shares commenced trading ex dividend on Monday, 15 September 2008 and the record date was Friday, 19 September 2008.

Dividend number 12
Final dividend number 12 of 200 cents per share was declared in South African currency in respect of the period ended 31 December 2008. The dividend payment date is Monday, 30 March 2009 to shareholders recorded in the books of the company at the close of business on Friday, 27 March 2009. To comply with the requirements of STRATE the last day to trade cum dividend is Friday, 20 March 2009. The shares will commence trading ex dividend on Monday, 23 March 2009 and the record date is Friday, 27 March 2009.

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.

During June 2008 the group announced an empowerment transaction involving Rosh Pinah Zinc Corporation (Pty) Limited. The effective date of the divestment was 1 July 2008 and the group’s effective interest in the company reduced from 93,9% to 50,04%. Exxaro manages the mine in terms of a management agreement.

Namakwa Sands and Black Mountain Mining (Pty) Limited (Black Mountain) acquisition

Subsequent to the conversion, cession to Exxaro, and registration of the converted mining rights, Exxaro acquired Namakwa Sands on 1 October 2008 for R2 783 million consisting of a cash consideration of R2 015 million, a working capital adjustment of R199 million, capital expenditure on the mineral separation plant of R448 million, and R121 million to compensate Anglo Operations Limited for its taxation recoupment.

On 1 November 2008 the group acquired 26% of the Black Mountain lead-zinc mine for R221 million. The investment is classified as an associate and is equity accounted.

The group is currently evaluating the proposed divestment of its interests in Glen Douglas Dolomite (Pty) Limited and has decided not to participate in the planned expansion of Chifeng Kumba Hongye Zinc Corporation Limited.

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.

Directorate and shareholdings

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

• 30 April 2008 – Ms PKV Ncetezo
• 29 February 2008 – Ms N Nyembezi-Heita

On 13 August 2008, Ms SEA Mngomezulu and Mr J van Rooyen were appointed as non-executive directors on the board.

On 31 August 2008, Mr MJ Kilbride retired as executive director and on 28 February 2009, Mr DJ van Staden will retire as financial director. Mr WA de Klerk will assume the duties of financial director on 1 March 2009.

In terms of article 15.2 of the articles of association, the following directors appointed to the board with effect from 13 August 2008 will retire and, being eligible, offer themselves for re-election at the forthcoming annual general meeting:

• SEA Mngomezulu
• J van Rooyen

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:

• VZ Mntambo
• NL Sowazi
• D Zihlangu

Company secretary

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 2007, except for the early adoption of IFRS 8 Operating Segments and the amendments to IAS 1 Presentation of Financial Statements, issued in September 2007, during the year. The implementation of IFRS 8 has led to differences in the basis of segmentation compared to previous periods. As a result, new operating segments have been identified.

IAS 1 and IFRS 8 are disclosure standards which have no other impact on the measurement or recognition of items included in the financial statements and accordingly the adoption thereof has had no effect on the profit or equity for this year or previously reported years.