South African Energy Landscape

Sipho Nkosi CEO Exxaro Resources Limited

Merrill Lynch | Global Metals & Mining Conference | May 2009

Introduction to Exxaro

Our commodities COAL

the fourth largest coal producer in South Africa

MINERAL SANDS

one of the world's top three producers of zircon and chlorinatable TiO 2 slag

BASE METALS AND INDUSTRIAL MINERALS

the only zinc producer in South Africa

IRON ORE

20% holding in Sishen Iron Ore Company

At a glance…

• South Africa’s largest diversified resources company • One of the top 40 companies on the JSE • 10 135 employees • Head office in Pretoria, South Africa • Revenue: R13,8bn* • Net operating profit: R2,5bn*

* Annual results for 12 months ended 31 December 2008

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Opportunity in Africa

• • •

$563bn required to meet Africa’s 20 year power needs Annual electricity demand growth of 4.4% over next 25 years 270GW expansion by 2030 (7xcurrent size of SA’s utility - Eskom)

•

Crucial need private sector investment which points to significant power sector reforms

•

South Africa would have to deal with tariff structures that remain below the cost of production (set to grow further…)

•

Need to diversify energy mix and adoption of renewable technologies

•

IPP’s still achieve 20% returns in Africa versus 15% in South America and 2.5% in Eastern Europe 3

Cost of unserved electricity in RSA

Cost of unserved electricity in South Africa R18 000/MWhr SA Megaflex tariff R270/MWhr 4

Cost of load shedding during 2008 in RSA

Cost of Electricity in South Africa R7,500/MWhr SA Megaflex Tariff R270/MWhr 5

Cost of electricity in Nigeria and RSA

Nigeria 140 million people 3000MW grid electricity Balance on own generation At a cost of R4,500/MWhr RSA 60 million people 36000MW grid electricity Megaflex Tariff R270/MWhr 6

100,000

Matching supply and moderate demand

Generation Capacity vs Electricity Demand

90,000 80,000 Can we match moderate demand growth?

Yes..., in future..., but how?

Short term IPP Opportunities Long term IPP Opportunities

70,000 60,000 50,000

MW

40,000 Short term: How? Peakers, EOS, Renewables?

Available Capacity Minus 19% Reserve Margin High Demand Growth

30,000 20,000 10,000

Moderate Demand Growth

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Year

Demand is already suppressed

Linear (Low Demand Growth)

7

7

MW

90000 80000 70000 60000 50000 40000 30000 20000 10000

Market matching supply and moderate demand

De-mothballing Co-gen

SA Generation Capacity

GAP = New LT IPP opportunities > 10,000-25,000MW

Base Load IPP tender

Short term: Peakers, EOS, Renewables?

Medupi + Kusile New Nuclear 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Year

Short Term IPP Opportunities New Base Load (Eskom/IPP) to balance demand Eskom Base Load IPP Tender: 2008 MTPPP's Cahora Bassa (Extended contract in 2008) Cahora Bassa (Old contract) New Renewable Energy: Eskom as Single Buyer New Eskom Wind New Eskom Nuclear & PBMR Medupi, Kusile - New Eskom Base Load IPP Co-gen New IPP (Other): Eskom as Single Buyer IPP Wind IPP Hydro IPP Bagasse IPP Coal fired New Eskom pumped storage (2) New "DME" IPP Peaking Stations (2) New Eskom Peaking (2) Eskom Coal-fired "De Mothballed” (3) Eskom Nuclear (1) Eskom pumped storage (2) Eskom hydroelectric (6) Eskom gas turbines (2) Existing Eskom coal-fired (10) Capacity Summary

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@19% (15%+4%) Supply reserve margin 8

Prognosis for the reserve margin

Eskom Base case 10% demand savings 5% demand savings

Key assumptions

–

Electricity Growth:

4% p.a



Supply side assumptions:

Eskom supply base case plans including some IPPs  Excludes some renewable options, co-generation and possibly innovative options –

Demand savings calculation

– Annual energy is reduced by 5% or 10%, and then the peak demand is calculated to derive the projected reserve margin

% net capacity reserve margin

20 18 16 14 12 10 8 6 4 2 0 -2 -4 ‘03 ‘05 ‘07 ‘09 ‘11 2010 Soccer World Cup ‘13 ‘15

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Source: Eskom ECS Presentation; October 2008

A problem a decade in the making…

• • • • • •

SA reserve margin in South Africa, has been steadily declining over the last ten years due to increasing demand and limited generation capacity.

In 2006, there were incidents of regional load shedding due to network inadequacies and insufficient regional generation resources. In 2007, the first incident of national load shedding was experienced due to the inability to supply demand with the operational generation capacity. After successfully navigating the winter peak demand period (~37 GW), during the generation maintenance season in October, November and December 2007 there were several more incidents of load shedding.

In January 2008, there was almost daily load shedding for 2 weeks leading to a Government declaration of a national power emergency and a plan of action on the 25th of January 2008.

This had a severe impact on production levels in all sectors of the economy and dented the image of Eskom and South Africa.

Solutions present us with opportunity to leverage macro-economic benefits from the build programme and creating a more energy productive economy - the right thing from a climate change and global competitiveness point of view

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Eskom generation resources and imports

Supply side overview

• • • • •

25 Operational Power Stations.

38 979 MW of operational capacity.

Just over 80% coal fired. Mix of nuclear, open cycle gas turbines, hydro and pumped storage plant in remaining 20%. Imports of about 1520MW.

Returning 3 mothballed coal-fired stations, building 2 coal-fired and a pump storage station and expanding OCGT station.

+ 28 000km of Transmission lines (over 132kV to 765 kV AC) covering an area similar to the part of Western Europe from Berlin to Madrid.

Demand side overview

• • • • •

29% of South Africa’s energy demand provided by electricity.

Forecast of about 38GW peak demand in 2008 and over 250TWhrs of energy demand.

Largest 138 customers consume nearly 40% of the energy. Largest 40 000 customers consume nearly 75% of the energy.

Approximately 8 million customers consume about 20 to 25% of the energy.

Consistent tight supply-demand balance with a very extended electricity transport system

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SA’s electricity supply industry historical overview

White Paper on Energy policy drives country electricity strategy Eskom & Govt engage on new plant Decision on ES1 reversed. Medupi decision taken Construction of Medupi begins 27,1 24,6 23,2 19,2 15,9 10,8 8,2 6,4 5,1 Reserve Margin

Capacity added (MW)

27.1

900

24.6

300

23.2

300

19.2

0

15.9

0

8.2

0

10.8

195

6.4

377

5.1

1 684

Load Factor (%) 61 60.5

60 62.5

66.5

69.0

70.0

72.5

74.0

Direct correlation between the declining reserve margin and the increase in load factor and plant unavailability. This also put pressure on coal stockpiles. At the same time there was relatively small levels of new generation capacity added to the system.

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Critical electricity situation since January ’08

Notes

Security of Supply : Government launched a National Response Plan on the 25 th of January 2008:

Demand-Side Options Power Conservation Programme (PCP) Demand-side behavioural change Fast-tracking of existing DSM initiatives Security of Supply Sectoral Interventions Government Buildings Freight Rail Supply-Side Options (long-term adequacy to 2015) Eskom Build Programme (New build & RTS) Co-generation (3500 MW) OCGT IPP (1000 MW) Cost of Supply

: A social dialogue between all key players was convened in May 2008 using a multi-stakeholder organisation (NEDLAC) to facilitate the discussion around the cost of supply.

The regulator has publicly stated its view on a 5 year price path and Government has committed to financial support and possible guarantees for Eskom debt.

• The size of the deficit for the next few years was determined to be an average of 3000MW and 26TWhrs and this is the amount that needs to be reduced in the power system demand to ensure balance • To set an example, a focus was to drive down demand in the over 100,000 Government buildings throughout the country • The supply side options required a co-ordination of Government efforts to support the traditional new build programme • An enabling framework for co-generation and other IPPs to be concluded

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A three-phased roadmap to recovery

4000 MW Current status 3000 MW System Security Recovery 4 weeks Power Rationing 4 months Power conservation Program and supply side options 4 years 1 February 1 March 1 July 2012 Phase 1: Stabilisation Program

The focus of this period was to immediately restore the ability to supply securely. This meant: • Reducing Generation output reductions due to coal supply problems. • Containing the unplanned generation outages.

• Sustaining the 10% demand reduction by key industrial customers • Implementing a 10% demand reduction by embedded large power users, metros and municipalities

Phase 2: Power Rationing

The focus of this period was to implement power rationing and prepare for the peak winter demand period. • A continuation of the 10% voluntary curtailment and/or pre emptive load shedding to meet the targeted reductions.

• Additional essential maintenance and improvement of Generation performance • Stakeholder endorsement of the approach to long-term recovery.

Phase 3: Power Conservation Phase

The current period requires a sustained focus on demand reduction and ensuring new capacity comes on line as planned.

• Demand reduction requires an Energy Conservation Program for large consumers, an intensive rollout of demand side initiatives for the mass market and a pricing signal that drives energy efficiency. • Focus on on-time delivery of cogeneration and new generation capacity.

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Conclusions

•

Underlying savings or reduction to-date once weather is taken into account is about 2 to 3%. If not sustained and increased vulnerability to single incidents is increased. We therefore need to focus on ways to achieve the required 10% saving.

•

Focus on energy efficiency while minimising economic impact which requires rapid resolution with all stakeholders.

•

Medium term outlook requires an energy balance where efficiency improvements provides opportunity for economic growth while ensuring sustainable generation plant performance.

•

5 to 10 year prognosis is dependant on on-time commissioning of the build programme and other supply side initiatives.

With the increased infrastructure costs, the current credit crisis and uncertainty on the tariff price path, the prognosis could worsen. However an opportunity also exists to leverage benefits from the build programme and to create an energy efficient/productive economy.

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Exxaro’s immediate approach… Medupi Grootegeluk Expansion Project

Medupi means: The soft rain that brings prosperity

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Exxaro’s current properties

Six farms from which both power stations will be supplied from. been applied for.

Inferred

I NFERRED I ND I CATED

Daarby Fault Current Pit Measured

MEASURESD

Inferred

I NFERRED

Five additional farms where we have exploration rights Eenzaamheid Fault 17

• • • •

Medupi’s production capacity to meet fuel demand of Eskom’s new power station

18 The feasibility study forms the basis for project execution.

Eskom requires an additional dedicated source of coal from the Grootegeluk Mine for use by Eskom in the Medupi Power Station, or any other of Eskom’s power stations.

The objective of the Exxaro Medupi Project is to provide 14.6 million tons per annum of coal to Eskom’s Medupi power station.

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This will be achieved through expansion of the current Grootegeluk open cast mine and beneficiation of the resultant run-of-mine material through two new processing circuits, Grootegeluk 7 and 8. The Exxaro Medupi project will commence with coal delivery at the end 2011 and full commissioning complete by the end of 2013.

A feasibility study was undertaken to define the most efficient solution and to investigate opportunities for enhancing Exxaro’s return on investment on this project.

The base case feasibility study has been completed and a decision was required from the board on the correct course of action to follow to progress the project and to commit funds for implementation.

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Medupi power station

Medupi Power Station 4800MW

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What is the impact on Grootegeluk and Lephalale

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The mine will grow from 58 Mtpa in total and 19 Mtpa of product to about 110 Mtpa in total and 35 Mtpa, which will significantly increase the operating income, cash flow and return of investment.

•

During construction up to 7 000 jobs will be created on the construction site at the Medupi Power Station. Construction at the mine will create up to 2 000 jobs. The local community will benefit from these.

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At least 60% infrastructure growth is expected, which will have a positive impact.

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This project will set the scene for future growth from the Exxaro Coal project pipeline.

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www.exxaro.com

THANK YOU

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