OPERATIONS
Coal

Total production of power station coal was 465kt higher than the corresponding period last year. Higher demand from Eskom resulted in increased production from the Grootegeluk and Leeuwpan operations while NBC started mining new reserves which yielded increased product volumes of 392kt.

The Eskom tied collieries recorded lower net production volumes mainly due to 802kt lower production volumes from Matla resulting from water ingress from surface cracks after seasonal rains as well as other production challenges. Higher production from Arnot of 544kt was achieved due to the benefits realised from the production optimisation project implemented during March 2008, which is now fully operational.

Lower coking coal production for the six months ended 30 June 2009 of 448kt was due mainly to a management decision to cut back on coking coal production at Grootegeluk due to lower demand. Lower coking coal production at Tshikondeni mine was caused by continued difficult geological conditions in the area being mined.

Production of steam coal was 26% higher with the Inyanda mine now fully operational. The joint venture agreement with Anglo Coal for the Mafube mine was signed with an effective date of 1 June 2009 and resulted in additional steam coal production of 106kt. Higher production results from NBC from the mining of additional reserves were offset by lower production from Leeuwpan and Grootegeluk due to lower market demand in current market conditions, as well as lower coal production from NCC with lower yields achieved on different sources of run-of-mine tonnages treated through the beneficiation plant.

Sales to Eskom increased based on higher demand. However, lower non-Eskom sales to domestic customers resulted from lower demand in the current market conditions albeit at higher negotiated prices.

Export sales volumes increased substantially from a fully ramped-up Inyanda mine and additional export coal from Mafube, however, was recorded at lower international steam coal prices and a weaker local currency.

As a result revenue increased by 33% to R4 797 million.

Net operating income for the six months ended 30 June 2009 increased by 10% at an operating margin of 22%. The operating margin decreased from the 26% in the previous period due to increased labour and contractor costs after the implementation of a seven-day work week at Grootegeluk mine, increased mining cost at Leeuwpan mine from the high stripping ratios due to the area mined during the period, higher coal buy-in prices for NCC and for Mafube export coal, and higher railage tariffs for coal destined for export.

Mineral Sands
KZN Sands

KZN Sands reported increased production for the six months to 30 June 2009. Both furnaces were fully operational for the entire period under review, as opposed to the same period in 2008, when furnace 2 was down after damage by a water ingress incident at the end of February 2008. In excess of 100kt of slag was tapped in the six months, the best production from the furnaces since inception. Low manganese pig iron (LMPI) production was also higher resulting from the increased slag throughput, while zircon and rutile production were both higher than the comparative period due to higher grade recoveries.

Stability in the furnaces is impacting positively on production from the KZN Sands business.

Revenue was, however, R187 million lower and a net operating loss of R110 million compared to a loss of R27 million in 2008 was reported attributable to lower demand as a result of the global economic slow down, lower LMPI prices and unrealised foreign currency revaluation losses in this reporting period.

Namakwa Sands

Slag and iron production was adversely affected by the furnace 1 water ingress incident towards the end of March 2009 and the subsequent decision to delay the reline to March 2010 as a result of market conditions.

The global economic crisis had a major impact on the markets for Namakwa half of 2009. Demand dropped sharply across all sectors as customers and end-users focused on reducing inventories and cutting back on new purchases.

Namakwa Sands’ revenue for the reporting period R24 million. The net operating profit was severely affected by the sudden decline in sales volumes towards the latter part of the first quarter. This downward trend was softened by significantly better sales tonnage of zircon, chloride slag and pig iron in the second quarter.

The positive impact of a weaker local currency to the US dollar on revenue recorded was reduced by foreign currency losses on repatriation of foreign currency proceeds due to the timing of the volatility on the relative exchange rate.

Subsequent to the acquisition of Namakwa Sands in October 2008, management has embarked on an exercise to re-define the mine plan by December 2009.

Australia Sands

Higher grades at the dredge mine led to higher concentrate and therefore higher mineral production. Successful improvement initiatives continue to favourably impact mineral production.

Production of synthetic rutile (SR) was slightly lower during the period under review as a result of maintenance-related problems occurring during the second quarter. These problems have been resolved and performance should improve in the second half of 2009.

Pigment production improved substantially following the successful implementation of various initiatives and a successful shut in May 2008.

Although increased maintenance cost was incurred at the SR plant, the significant increases in 2008 in the cost of process chemicals and energy consumables was not experienced during the period under review.

Net operating profit improved from a loss of R139 million in the corresponding period in 2008 to a profit of expansion project. R19 million for the current period, attributed to an improved production performance, a weaker average Australian dollar against the US dollar and higher sales prices on average, albeit partially offset by lower been disclosed from 1 January 2008, for comparablesales volumes as a result of the economic slowdown. Hedging of US dollar receivables had a positive impact on operating results. Currency hedging of US$22 million at an average rate of US 63 cents to the Australian dollar is in place for the remainder of 2009.

Base Metals

Production of in the post-tax profits of Sishen Iron Ore Companyzinc metal at the Zincor refinery of 44kt was 6% lower. The shortfall can be attributed to downtime on the acid plant and throughput limitations on the purification circuit. Downtime on the acid plant negatively affected the rest of the operation. The challenges with the acid plant have since been resolved.

Zinc metal sales were 17% lower than the equivalent period in 2008 mainly due to lower demand.

Production at Rosh Pinah was in line with 2008 but yielded higher metal content. The flotation cell replacement project is only marginally behind schedule and is expected to come into operation late in 2009.

A total of 60% of Rosh Pinah’s projected zinc and financial year for the period July 2008 to December 2011 at forward prices ranging from US$2 431 to US$1 887 for zinc and US$2 940 to US$ 900 for lead per tonne as part of the partial divestment to facilitate a Namibian empowerment transaction. In the first half of 2009, a portion of the hedging programme was ineffective and resulted in losses of R42 million being accounted for in profit or loss.

Revenue for the six months to 30 June 2009 decreased by 37% mainly as a result of lower zinc prices. The average zinc price for the six months of US$1 329 is 42% lower than the equivalent period in 2008 and was only partially offset by the weaker local currency.

Net operating profits declined substantially as lower revenues coupled with higher operating costs resulted from higher than inflation increases in electricity and maintenance expenses as well as higher distribution costs.

Production at the Chifeng refinery was 23% lower due to low prices and market demand. Prices and demand recovered at the end of the second quarter, with a positive outlook for annual performance. Exxaro’s proportionate share of the post-tax compared to the equivalent period in 2008 mainly due to the lower production and high raw material prices eroding margins.

Exxaro exercised its option to acquire 26% in Black Mountain during the last quarter of 2008. In the current period Exxaro equity accounted R15 million as its share of Black Mountain’s post-tax earnings.

Industrial Minerals

Production volumes of ferrosilicon at the FerroAlloys plant show a modest increase, however, sales volumes were lower as a result of lower market demand.

The group plans to finalise the proposed divestment of its interest in the Glen Douglas dolomite mine during the second half of 2009.