Mzila Mthenjane Sustainability in the resource industry post 2015 – an

Exxaro perspective Exxaro Resources Limited

@mimthenjane  @ExxaroResources  

Sustainability in the resource industry post 2015 – an Exxaro perspective Mzila Mthenjane Executive Head, Strategy and Corporate Affairs

27 October 2014

3

Our  business  philosophy   3  

4

Sustainability  =  strategic  objec7ves   4  

Invest Invest in energy, metal & mineral resource commodities that generate sustainable economic returns of 1.5xWACC

Develop

Develop market insights for our products & appropriate innovations, throughout the value chain for added value & competitive advantage

Grow

Extract industrial application energy, metal & mineral resource commodities from diverse geographies by using our own capabilities & relevant partnerships

5

Exxaro  group  structure   5  

OWNER-CONTROLLED OPERATIONS

NON-CONTROLLED OPERATIONS

Enabled by human resources, sustainable development and innovation processes

Coal

•  Third largest coal producer in RSA

•  Three tied operations •  Six commercial operations •  Acquisition of TCSA* •  GMEP** commissioned

Ferrous

•  Mayoko Project •  AlloyStream™ project •  FerroAlloys

Energy

•  Underground coal gasification

•  19,98% in SIOC## •  44,18% in Tronox •  26% in Black Mountain •  50:50 JV^ :Mafube JV

with Anglo •  Cennergi JV with Tata

Power

•  Secure supply to Eskom •  Increase domestic supply •  Manage mines in closure

responsibly •  Increase exports •  Increase productivity •  Optimise the operating

model

•  Review Mayoko Project •  Review alloy business •  Apply UHDMS# in lower

grade iron ore beneficiation

•  Explore and integrate opportunities in Africa’s energy markets

•  Manage emerging carbon related risks

•  Maintain SIOC investment

•  Analyse and review the long-term fundamentals of the titanium dioxide industry

•  Divest from Black Mountain and Chifeng

* Total Coal South Africa Pty Ltd ** Grootegeluk Medupi Expansion Project #Ultra high dense medium separation ## Sishen Iron Ore Company Pty Ltd ^ Joint venture

6

Outlook  for  mining  

SA MINING OUTLOOK

MACRO ENVIRONMENT

• Subdued economic growth

• Slow improvement in poverty,

unemployment and inequality

REG

ULA

TOR

Y R

EFO

RM

• MPR

DA: strategic resources,

beneficiation pressures

• Licensing and approval delays

EMP

OW

ERM

ENT

• M

ay 2

014

MPR

DA a

nniv

ersa

ry

• Off

ers

pote

ntia

l opp

ortu

nitie

s fo

r

som

e

LABOUR

• Tense Labour

environment, union rivalry

• Productivity issues

COST PRESSURES

• Across the board: labour,

electricity, stores

• Structural: maturing

orebodies

INF

RA

ST

RU

CT

UR

E•

Rai

l inf

rast

ruct

ure

dela

ys•

Wat

er a

nd e

lect

rici

ty c

halle

nges

co

ntai

ning

gro

wth

LICENSE T

O OPERATE

• Pre

ssure

to pro

vide housing,

community

infra

structu

re - l

ack

of gove

rn, c

apacity to

implement

Source: Exxaro Strategy Analysis and Analysts Reports

GLOBAL MINING

OUTLOOK

DEMAND OUTLOOK

Subdued cyclical and structural

demand confronting industrial and

bulk commodity markets

EX

CES

S C

APA

CITY

Selected comm

odities starting to

experience impact of bull m

arket

excess capacity

STR

UC

TUR

AL

Mat

urin

g or

ebod

ies

- new

oppo

rtun

ities

in h

ighe

r ri

sk re

gion

s

LICENSE TO

OPERATE

• Resource nationalism

• Social, environmental,

fiscal pressures increasing

worldwide

DEVELOPED WORLD

• US - QE tapering impact

• Mixed/weak Europe recovery

• Japan - Abenomics impact

EM

GR

OW

TH

• E

M g

row

th c

once

rns:

pos

t C

hina

gr

owth

dow

n, in

crea

sing

Indi

a/B

razi

l con

cern

s

CURRENCY

VOLATILIT

Y

• Global c

urrency

realig

nment

• EM m

arkets

curre

ntly benefitin

g

5  

7

Emerging  trends   7  

Sustainability  

Mega  Regions  

Massive  infrastructure  budgets  by  government  Mega  consump;on  

of  steel,  copper,  iron  ore  &  coal  

Compe;;on  for  skills  

Intelligent  machinery  and  

equipment  

Fully  automated  and  integrated  

mines  

Coal  to  Liquids  &  Power  Plants  

Niche  markets  &  stable  income  streams  

Market  char  &  coke  

Geography  Commodity  

Reduce  geopoli;cal  risk    

Mega-­‐energy  projects  

Diversified  energy  mix-­‐  renewable  &  nuclear  

Increased  coal  consump;on  

Massive  produc;on  of  automobiles,  appliances  

Integrated  economies  

Modern  transporta;on  solu;ons  

Intelligent  logis;cs  and  transporta;on  systems  

Social  license  to  operate  

Energy    and  water  efficient  technologies    

Demand  for  electricity,  housing,  

roads  &  water  

Environment,  health  &  safety  issues  

Human  Capital  Impacts  

Remote  Controlled  Opera;ons  

Urbanisation

lndustrialisation Energy

Diversification

Beneficiation

Mega Corridors

Mega Cities

Technology

New Business Models

Infrastructure

8

400

380

360

340

320

300

280

260

CO2

DATE

1000 1200 1400 1600 1800 2000

Source: Promethium Carbon 2006

8  Climate  change  

9

Going, going...

gone?

9  More  from  less  

10

Urbanisa7on   10  

11

Emerging  shiI  in  economic  power   11  

“Chindia” - Almost half the global economy by 2050

2004 2025 2050 China + India = 6% 20% 45%

US = 28% 27% 26%

EU = 34% 25% 15%

Japan = 12% 7% 4%

Other U.S. Japan E.U.China India

2004 2004 EST. 2050 EST.

20% 28%21%

27%

34%

12%

4%

2%

25%7%

15%

5%

10%

26%

15%

4%

28%

17%

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Smart  and  nano  technology   12  

13

Innova7ng  to  Zero   13  

14

Increased  life  expectancy   14  

15

2010 2025-2030 2040-2050 2100 2200

Source: Exxaro Analysis

Ø Steel (iron ore, coking coal, manganese)

Ø Base metals (Al, Cu, Zn, Ni, Pb, Sn)

Ø Steam coal Ø  Industrial minerals Ø  (TiO2, zircon)

v Light metals (Al, Ti, Mg) v Base metals (Cu) v Uranium, Thorium v Rare Earths and Metals (incl

PGMs) v Nano-materials v  Industrial minerals v Carbon v Composite materials

ü Organically produced materials

ü Memory materials ü Molecular engineering ü  Sci-fi materials and energy*

Gradual and overlapping evolution

* An acknowledged source for foresight thinking

An7cipated  impact  on  commodity  life  cycles   15  

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Exxaro’s  NXXT  (New  Exxaro  Tomorrow)  journey  IN

DU

STRY

RES

EAR

CH

Benchm

arking  visits  and

 con

ferences  sc

ou7n

g  

STREAM 1 World in 2030

Global “DRIVERS”

STREAM 2 Resource Industry 2030

Industry “DRIVERS”

STREAM 3 Exxaro NXXT Programme 2030

Exxaro “ STRATEGIC THRUSTS”

Upd

ate  techno

logy  th

rusts  a

nd  ro

admap

s  

Develop  value  prop

osi7on

s,  prio

ro7se    

Execute  R&

D  projects  

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ü  Exxaro’s sustainability plan into the future

ü  Innovation is embedded in the strategy

ü  Fully resourced with people and budget

ü  Multi-dimensional: triple bottom line perspectives

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Traits  of  a  future  resources  extrac7on  industry  

1.  Sustainable License to Operate (LTO): • Creating inclusive wealth for all

Stakeholders •  Balanced and sustainable partnership

between government, community and resources industry

•  Small footprint / limited environmental impact

•  Self-sustaining economically viable community > Beyond a Life of Mine (LOM)

2.  Smart Exploration: Accurate, predictable, instant, information and models

3.  100% resource extraction 4.  Zero Waste 5.  Zero Harm - safety/health 6.  Energy, carbon and water neutral 7.  Workforce equipped to support the 2030

business 8.  Hybrid/renewable/alternative energy

solutions 9.  Capitalise on trend of advanced / light

Materials /Metals 10. Integrated, optimised and redefined value

chain

2030 2013 1.  Increasing Shareholder expectations

(Profits) 2.  Extreme escalation in operating costs 3.  Rapid Technological Innovation i.e. IT/

Com’s.. 4.  Increased pressure on Social and

Regulatory Compliance. 5.  Un-balanced relationship between

government, community and mining. 6.  Current core processes are sub-optimized

(exploration, geology, mining processing and logistics)

7.  High levels of waste and discard materials from production.

8.  High Impact on Environment and in-sufficient Rehabilitation

9.  Fossil Fuel based Economy / Carbon Emissions

10.  Energy Supply / Cost constraints 11.  Limited focus on downstream beneficiation 12.  Current workforce ill-equipped for the

future (High levels of semi-skilled employees and shortage of highly skilled employees)

13.  Communities dependant on Mining Activities

Smart Exploration

New Mining Technologies

New Processing Technologies

Asset Management/Logistics

Clean Coal Technologies

Innovation to Zero Harm

Social Responsibility

Sustainable Energy

Automation

Integrate/Redefine Value Chain

10 Strategic Thrusts 2030

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Thrust  1:  Smart  explora7on   18  

Next generation geo-physics technologies Will make geology more effective and accurate, reducing costs, increasing yields and enabling full extraction of the reserve’s potential.

Next generation drilling technologies •  Sonic Drilling •  Intense vibration/liquefaction •  Automated resonance

(waterless and energy efficient)

•  Oil & Gas industry technologies applied in exploration drilling

•  Automated, multidirectional drilling

•  Real-time ore characterisation influencing drill plan in real-time

•  Integrated geological, mining, environmental and survey data for improved interpretation of geological conditions

Drone exploration •  Solar powered drones

can fly for long durations without major maintenance

•  UAVs can be fitted with magnetometers or multispectral equipment.

Titan Aerospace Drone Geometallurgy Integration of geology and metallurgy data for optimum plant design.

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Thrust  2:  New  mining  technologies     19  

Autonomous hauling Trucks are controlled entirely using a supervisory computer at an operations centre, contributing to surface collision avoidance, fuel savings, increased safety, less maintenance and uninterrupted production.

In-pit crushing and beneficiation Eliminates truck haulage. Less sensitive to commodity prices. Less dependant on human factor. Reduce operating costs. Increase productivity. Improve safety. Reduce environmental impact.

Fully autonomous mining •  Geology to market data used to

integrate planning and control for effective resource and asset management.

•  Selective mining will allow optimal extraction of the reserve and in turn realise less waste.

•  New blasting technologies. •  Wireless equipment.

Minestar Automation by CAT

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Thrust  3:  New  processing  technologies   20  

AlloyStreamTM

•  In-house developed

technology to process certain alloys at lower costs and with lower feed grades than conventional furnaces.

•  Patented and tested for commercial viability in 2012/2013.

Fines processing Utilisation of fines in power stations and reductants markets through briquetting/agglomeration of fines material.

Ultra High Dense Medium Separation (UHDMS) In-house developed technology enabling iron ore separation at RD >4. Project is in demonstration phase Dry processing •  Waterless processing offers

significant environmental and cost benefits in a water scarce future scenario.

•  For slimes handling, drying technology, paste technology, electro-kinetic drying, absorbent polymers and hgh density slurry pumping.

Continuous surface miner •  Extract, crush and load material in

one continuous process. •  Selective mining of coal and

interburden results in: •  Increased calorific value and

lower ash contents. •  Improved ROM quality •  Reduced processing effort •  Reduced volume of overburden

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Thrust  7:  Societal  responsibility  &  accountability   21  

Social License to operate Community involvement

Environment: stewardship

through effective rehab & mine

closure

Water & energy consumption

Energy efficient equipment

Health & Safety Protect &

promote health, safety &

wellbeing of living organisms

Source:  Frost  &  Sullivan  

“Tweaking  exis;ng  processes  cannot  deliver  the  massive  shiRs  mining  companies  need  in  today’s  capital-­‐constrained  environment.  To  build  true  compe;;ve  advantage,  companies  must  look  beyond  incremental  performance  improvement  to  determine  how  they  can  revise  their  systems  to  embrace  the    broad  theme  of  innova;on.”        

~  Jürgen  Beier,  Mining  Leader,  Canada  

“We,  as  an  industry,  are  woefully  under-­‐spending  on  innova;on  and  business-­‐improvement  programmes  given  the  state  of  extrac;on  challenges.  On  a  revenue  to  revenue  basis,  the  mining  industry  spends  80  per  cent  less  on  technology  and  innova;on  compared  to  the  petroleum  sector.”      

 ~  Mark  Cu=fani,  Anglo  American  (WRC)  

‘Exxaro  will  be  required  to  enhance  its  internal  

innova7on  and  project  execu7on  capabili7es  in  the  

coming  years  in  order  to  meet  stakeholder  

expecta7ons’    

~  Sipho  Nkosi,    CEO  Exxaro  Resources  Limited  

The  challenge  -­‐  innovate  to  remain  relevant   22  

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Exxaro’s  vision  of  the  future   23  

24

24

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Exxaro’s  vision  of  the  future   25  

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Thrust 4: Asset management/logistics

Inland blending facilities

•  Cost effective distribution inter-modal transportation model and allocation decisions.

•  Minimise total logistics costs, procurement cost, shipping cost, and inland delivery cost

•  Blending of products according to customer needs (VIU).

Logistics business (multi-modal) An in-house logistics business will provide competitive advantage, reduce costs and open up new revenue streams. A multi-modal solution provides the greatest opportunities in conjunction with an inland blending facility, ensuring supply to all take-off opportunities.

Bulk Transport by air...

Carbon nano tube structures...mega planes

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Thrust 5: Clean coal technologies

Fluidised bed combustion

•  Suspend solid fuels in upward-blowing jets of air during the combustion process.

•  Provides more effective chemical reactions and heat transfer

•  Suited to burning fuels that are difficult to ignite such as high ash coals and coal mine wastes, and fuels with highly variable heat content, including biomass

– Waste stream and Dried tailings are suitable sources for this power generation methodology.

Outotec – FBC Facility

Gasification plant A refinery process to convert gas into longer-chain hydrocarbons such as gasoline or diesel fuel. Methane from UCG could be converted by gas synthesis, Fisher-Tropsch process and cracking.

•  Underground coal gasification •  Carbon sequestration •  Energy from Coal Waste (CFB) •  Coal Bed Methane •  Energy generation from low grade coal •  Biofuels

Other technologies

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Sustainability is the single biggest business opportunity of 21st century…it will be the next source of competitive advantage.

~ Lee Scott Wal-Mart CEO

Sustainability 29

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Continuous rehabilitation-restoration •  Restoration planning from core

logging to design to ensure optimal material usage.

•  Continuous restoration during operation activities.

•  Minimal Impact and Liability •  More efficient mine closure

Thrust 6: Innovation to zero harm 30

Floating/constructed wetlands •  Man-made ecosystem •  Provides an efficient, natural way

to improve water quality and buffer habitats against surges in nutrients and pollution.

Fatigue sensors •  Installed in equipment - can

detect fatigue levels of the operator then sound an alarm or immobilise equipment if it is safe to do so.

•  Collision avoidance and proximity detection systems.

•  New technology will make the

re-processing of waste economically viable

•  Unlock value inside what is currently regarded as waste.

•  Open up new revenue streams, •  Lower environmental liability •  Increase life of mine.

Waste re processing

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Thrust 8: Sustainable energy 31

Modular Thorium Nuclear •  Could support electricity needs of remote locations as they

are usually small and highly variable, can operate for 4 years without refuelling and can be combined into a power station of any size.

•  Technology in demonstration phase. •  Construction times estimated to be around 3 years.

Biomass •  Fuel production for remote

operations. •  Plantations combat soil

degradation and deforestation

•  Employment opportunities •  Downstream processes

(flooring, furniture ) beyond LOM.

•  Carbon sequestration.

Co-generation Generate electricity using off-gases, excess heat and other waste energy streams in the value chain to reduce energy costs and ensure security of supply.

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Thrust 8 cont: Sustainable energy 32

Skyfuel’s CSP Technology

Concentrated solar power

•  For thermal energy and base load using molten salt storage

•  It is the highest performance, lowest-cost utility-scale solar power system in the world

•  Smooth and Predicable Output •  Solar Carports pay back 5 years

Hybrid energy - Smartgrids

•  Modernised electrical grid automated to improve the efficiency, reliability, flexibility, economics, production and distribution of electricity through load adjustment

•  Next-generation transmission and distribution infrastructure will be better able to handle bi-direction energy flows

•  Suitable for remote areas

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Thrust 9: Automation 33

Integrated and automated management control centre Effective integration of management information offers benefits such as integrated mine planning and execution, warehouse and workshop automation, real-time online monitoring of assets And wifi availability throughout the business.

Robotic sampling plants Automated sample preparation. All processes including sample dividing and splitting, crushing and pulverising, density measurement, sieve analysis, moisture analysis, building of composites for subsequent fusion and XRF analysis. Virtual training, modelling and simulation

•  Visual modelling of new operations facilitates buy-in from local communities and governments and License to Operate, assists with mine and environmental planning, supports safety and operational activities.

•  Simulating new concepts and plans

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Thrust 10: Integrate/redefine the value chain

UCG

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Nano-materials •  Carbon nanotubes and Graphene are lighter,

stronger than stainless steel and titanium and have a reported intrinsic superconductivity greater than copper cable.

•  Mitshibushi Royan Resin – BMA .

UCG •  New mining method redefining the value chain. •  nvolves horizontal drilling into a coal seam, oxygen

injection and ignition of the seam which acts as a gasifier.

•  Syngas used in power generation or to produce gas to liquid fuels.

•  Exxaro is in a JV with Linc Energy to evaluate development of UCG applications in Southern Africa. 3-D printing

•  The process of making a three-dimensional

solid object of virtually any shape from a digital model using an additive process.

•  Metal alloys, stainless steel, aluminium, photopolymers and thermoplastics can be used.

•  Graphene (Carbon nanotubes) already printed. •  Downstream industries such as electronics will

be a major market in the future.

Thrust 10: Integrate/redefine the value chain

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In summary – future resources industry characteristics

1.  Sustainabale License to Operate (LTO): •  Creating inclusive wealth-all Stakeholders •  Balanced and sustainable partnership between

government, community and resources industry

•  Small footprint / limited environmental impact •  Self-sustaining economically viable community

> Beyond a Life of Mine (LOM) 2.  Smart Exploration: Accurate, predictable, instant,

information and models 3.  100% resource extraction 4.  Zero Waste 5.  Zero Harm - safety/health 6.  Energy, carbon and water neutral 7.  Workforce equipped to support the 2030

business 8.  Hybrid/renewable/alternative energy solutions 9.  Capitalise on trend of advanced / light Materials /

Metals 10.  Integrated, optimised and redefined value chain

36