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Exxaro Resources

Mergers and name changes are nothing new in the mining industry; but Jeff Daniel looks at one new South African identity that is hoping to change the way the whole business operates

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xxaro Resources is the equivalent of a 1970s supergroup rock band. It is the result of an empowerment transaction that involved the unbundling of Kumba Resources’ iron ore assets and then relisting the remainder of Kumba as Exxaro in November 2006 with the intention of focusing on coal, mineral sands, base metals and industrial minerals. The other side of the equation—Kumba Iron Ore— was left to focus exclusively on iron ore.

Exxaro Resources

Just like our musical analogy, the primary rationale behind the unbundling was to create a new-generation South African company, capable of doing things differently. At the same time, there was a wider socially equalising motive of creating a broader spread of shareholders from previously disadvantaged backgrounds, including employees and communities in proximity to the company’s operations.

Kumba Resources itself was the progeny of its parent, Iscor—for 70 years, South Africa’s government owned steel producer—divesting its mining division before morphing into a privatised Mittal Steel in 2005, now known as ArcelorMittal.

At the time of the Iscor unbundling, the mines it had developed for coal, zinc, mineral sands and certain industrial minerals used in steel production, together with its two iron ore mines and mineral sands interests, became part of Kumba Resources.

Freed from parental restriction, in just five years Kumba Resources built a portfolio of world-class assets in Africa, Asia and Australia to become a prominent force in its selected commodities and a respected global participant for its governance standards and business approach based on sustainable development. By merging with Eyesizwe Coal—then South Africa’s fourth-largest coal producer with a production capacity of about 25 million tons per annum—Kumba became predominant in coal, the primary use of which is electricity generation.

A decade and more ago, Eskom (South Africa’s

state owned electricity generator) was thwarted in its expansion plans and this then backfired on the economy. A new wave of expansion is in process but the sheer scale of work at the time of a global shortage of liquidity has led to problems.

Exxaro has a contract to supply Eskom’s Medupi power station with 14.6 million tons per annum of power station coal for 40 years, starting in the second quarter of 2012, coinciding with the startup of the power station. Detailed engineering on the expansion of Exxaro’s adjoining Grootegeluk mine is progressing well but complications have arisen because Exxaro received notice from Eskom in the third quarter of 2009 that Eskom wanted to review certain commercial terms, including the coal price escalation mechanism and the coal delivery ramp-up. Notice of the review caused Exxaro to put additional contracts associated with the project on hold until such time as agreement with Eskom has been reached.

Nevertheless, sales from coal in 2009 amounted to R9.7 billion and accounted for 65 per cent of the company’s R15 billion sales. Eight managed coal mines produced 45.2 million tons per annum of power station, steam and coking coal, with Grootegeluk already one of the most efficient mining operations in the world. Exxaro has a number of green field and other expansion projects in the pipeline that will eventually see it becoming one of the largest coal producers in South Africa with a target of 75 million tons per annum by 2015.

Exxaro has already made the decision to move out of zinc, which leaves a variety of mineral sands

Exxaro Resources

UMT Consulting SA We are honoured and proud to be appointed as Exxaro’s

partner

management

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controls

portfolio

space.

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Our

project

extensive

experience and pioneering attitude has seen the development of matchless project delivery systems.

Through the methodologies we have architected, combined with our remarkably effective brand, we are able to link Exxaro’s projects strategy formulation to real-world project execution.

From the complex to commonplace, our set of values guides and motivates all our business activities. This enables us to share our success with our partners, to allow them to move their portfolio and project controls environment from good to great.

operations as the second most important stream of income. The company has a 50 per cent share in an Australian deposit but the majority is home grown including KZN Sands and the Western Cape operations of Namakwa Sands. From these resources come a collection of exotic minerals.

For example, Exxaro is one of the world’s largest suppliers of titanium dioxide feedstock and zircon. Last year, the group’s mineral sands operations collectively produced 245,000 tons of slag, 185,000 tons of zircon, 109,000 tons of synthetic rutile and 53,000 tons of pigment. The primary objective of the mineral sands business is to maintain its position among leading global suppliers of titanium dioxide feedstock and zircon while increasing its share in the world chloride pigment market.

Somewhat unusually for a mining company, Exxaro presents its business efforts as a way of building a brand to serve the whole of the South African community. The vision is to create a current atmosphere that will enable the following generations to realise their own vision in years to come.

The rhetoric is that the company must look beyond current commodity related activities to the impact they have on both people and the planet.

It argues that having been formed by the merger of some of the biggest achievers in its industry, Exxaro’s leaders are ideally placed to build on the

Exxaro Resources

“Exxaro has a contract to supply Eskom’s Medupi power station with 14.6 million tons per annum of power station coal for 40 years” successes of their predecessors.

Although it has the status of one of the largest black-empowered companies in South Africa, managers prefer to look beyond colour and rather create a progressive, new generation South African organisation which aims to provide possibilities for all involved. While acknowledging that not everyone can hold a significant title, by providing a dynamic working environment there will be at least the opportunity for all to grow and to develop greater skills. It already has one of the most highly qualified workforces in the country that it hopes will become industry leaders in the

widest sense.

Exxaro makes use of a motivated army of ‘brand champions’ comprising employees who bring the company’s values to life through their actions.

They aim to demonstrate how people can power possibility and deliver results on a daily basis, building trust and loyalty among both internal and external stakeholders in the process.

Creating a successful brand is always a challenge and never more so in the competitive world of mining; but if it can pull it off, that could make Exxaro a truly great South African company. www.exxaro.com

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