Good day, ladies and gentlemen, and welcome to Exxaro Resources Limited's FD Pre-Close presentation. All attendees will be in listen-only mode. There will be an opportunity to ask questions when prompted. If you do need assistance during the call, please signal an operator by pressing star and then zero. Please note that this event is being recorded. I would now like to hand the conference over to Mr. Mzila Mthenjane. Please go ahead, sir. Thank you very much, Judith, and a good afternoon, and possibly good morning, and it may be a good evening to some. Thank you very much for joining us for Exxaro's Pre-Closed, where we will be discussing the preliminary results for the first half of 2023. I'm joined by our CEO, Dr. Nombasa Tsengwa, as well as our Financial Director, Mr. Riaan Koppeschaar, and they're accompanied by the two MDs for Minerals and Energy Business, Kgabi Masia and Leon Groenewald, respectively. We did release the pre-closed message earlier today, and we assume that you would have had time to go through it. I'll hand over to Riaan to just provide some highlights, and then we'll give an opportunity for questions and answers. Riaan? Thanks, Mzila. Good afternoon, ladies and gentlemen. It's a pleasure to invite you a few again. I will quickly take you through the highlights of the expected results, whereafter the Minerals team will go into further detail on the production and sales outlook, CapEx, as well as the market outlook. Firstly, on the safety front, our lost-time injury frequency rate is currently trending at 0.1 against our target of 0.05, which is a 40% decline. We are taking various initiatives across the group to arrest the current decline in the safety performance. If we then turn to the commodity markets, various factors wait on the negativity on the commodity prices. As you would see in our announcements, we expect the API 4 price to average about $127 per tonne for the first half of the year, which is a decline of almost 52% compared to the second half of 2022. You will also see a slight decline in coal production and sales volumes as a result of Eskom taking lower volumes at Grootegeluk, as well as the impact on logistics on our export performance, where the volumes are also lower. You will also see, you'll note that the Matla supply agreement with Eskom is coming to an end, and we are currently in negotiations with Eskom to negotiate a new agreement. If we look on the energy front, you'll recall that 2022 was a very low wind year, but we are seeing an improvement in the current year with Cennergi expecting to generate 380 gigawatt-hour of electricity despite a distribution line outage we experienced for a 30-day period during the first quarter of this year. Also, remember, due to the seasonality of wind, we expect the wind conditions to improve in the second half of the year, and therefore we expect a better generation performance in the second half of the year. Concerning the Lephalale Solar Project, we are also making good progress on the project, and we expect that financial close will happen very soon. On the CapEx front, when it comes to coal, you will see that we expect the coal CapEx to be 8% lower due to key projects like Grootegeluk 6 reaching completion, as well as the benefits of our Capital Excellence Program paying off. Lastly, on portfolio optimization, we have taken a strategic decision to divest from our ferroalloys business and hence embarked on a sales process for the asset. That is just a quick overview of the results. I will now ask Kgabi to go into further details. Thank you. Thank you, Mr. Riaan. Maybe before we get into the production, Kgabi can take us through the market, then I'll take it from there. Thank you, Kgabi. I hope everyone can hear me clearly. We have really come from a half that is so totally different to the last half of 2022 that we experienced, and quite a few factors driving the market in this half. We have seen on the demand side, luckily, very strong continued demand from India generally, but better demand from India for South African coal due to the lower coal prices. We saw very robust demand from Chinese markets, which really is assisting with China opening up the flows from Australia again, and we have seen quite a bit of Australian coal together with Russian coal going into the Chinese market. On the supply side, we have seen quite a bit of shocks end of last year from Australian supply side. That has recovered quite a bit in this first half, and we've seen much better supply from Australian coal and also much improved supply from Indonesia. We have seen in the Pacific that the API 6, which have over the past 18 months formed a massive premium to the API 4, we've seen that gap narrowing quite materially in the last few months with much weakening demand from specifically Japan in the Pacific and then much stronger supply from both Australia and Indonesia. If we move over to the Atlantic, I think quite a different picture with European demand being extremely weak in this six-month period on the back of quite a few drivers. I think firstly, the Europeans have built up huge stocks towards the end of last year before the winter, and we have seen that they have actually come through the winter very well with their coal stocks. I think the big news of the six-month period there was very, very low prices on gas with quite a bit of LNG entering the European market to the extent where LNG supply into the European market is actually now more than piped gas. Gas prices really fall dramatically in Europe. We saw much stronger production from power on the renewable side, and we saw really poor demand generally. We have seen even in the European market that some of the customers that sat with high stocks re-entered the market to try and sell some of that stock. From a demand side, Europe really very, very weak. On the other side of the ocean, we see Colombia really struggling to get its product sold, firstly because the European price is so low and demand is so weak, but also the traditional Turkish market has been flooded quite a bit by the Russian suppliers. Therefore, we've seen Colombia entering markets in the Pacific very aggressively on pricing, pushing prices even lower. Internationally, I think we really sit not in a very nice position as far as prices are concerned, comparing that to historic pricing. Again, I must say the prices, the absolute prices that we see in the market are not bad prices if you can move all your product on rail to RBCT. In a market where South African producers are not able to move their product via rail and through RBCT, a dollar-type price around $100 is really hurting. I think we see serious curtailments in terms of exports on the back of that. Just generally in the world, we also are starting to see quite a few other producers around the world in the context of high inflation starting to talk about rethinking their production levels at these prices. Unfortunately, at the same time, we still see forecasts from someone like McKinsey that says they foresee in the coming months that prices may go even lower before we see an uptick in the fourth quarter. Yeah, the market on the export side is quite challenging at present. Kgabi, I think let me stop there and then first hand back to you. Thank you, Kgabi. I'll just touch on the operational performance starting our thermal coal production. We are expecting a decrease of about 7%, mainly due to demands from Eskom and Grootegeluk. The two main factors are the unplanned and planned units, both at Matimba and Medupi Power Stations. There is also a second claim outage at Matimba, which is going to be back online estimating August. Those are the ones which have really impacted the performance in terms of supply into Eskom, also impacting the production. If one then moves into the metallurgical coal production, it's expected to increase by 57%. This is due to the ramp-up of GG6, which is now in full ramp-up mode, and hence we're seeing a positive production from Grootegeluk. The coal buy-ins are expected to be higher. That is driven by the logistical challenges and timing of their sales obligations. If I move to the sales side, as what I've touched on the Eskom impact at Grootegeluk, that is in line, the 6% is in line with the demand coming from Eskom. The domestic thermal coal sales are expected to decrease by 10% due to the slower diversion of export coal into the local market. There is a lot of export coal due to the challenges of getting coal to the export market, which is making it difficult and/or making it slower to divert into the local market, especially at our Mpumalanga mines. That is where we've seen the most impact. The metallurgical coal sales are expected to increase by 24% as alternative transport arrangements are enabling supply to our local customers. As transport is challenging to go to RBCT, we've seen that opportunity coming into that market. If I then move into the export sales, Kgabi, a deep touch on that, but there has been an improvement regarding Transnet. Hence, we're expecting a decrease of 6%. The same issues which we've spoken about by Transnet, the issues of locomotives, the issues of thefts and vandalisms are still the ones which are impacting that performance. Also, last year, we did talk about taking coal into the alternative ports, but because of the low coal prices, those routes are no longer available, and Kgabi did touch on that. That is impacting our performance in terms of sales in export sales. If I look into our type mine, which is Matla, due to the delay in funding from Eskom, we've experienced geological challenges. That impacted our mine two and mine three. We had pit room constraints, and hence we are focusing that will be 12% below what we focused at. However, what I'd like to highlight is that we've received ZAR 1.4 billion approval from Eskom, and that brings to a total of about ZAR 5.2 billion, and that we see as improving in terms of the geological conditions at Matla. Although that has been delayed, that has been a positive outcome also which we need to acknowledge. The logistics and infrastructure, Sakkie has touched on it also. The performance from Transnet, if we look at what has happened year to date ending May, that we've analyzed about 46.5 million tons, and that has been a poor performance also, which remains a concern for the industry. However, if I look at our performance relative to the industry, we are about 2.5% better in that regard, but that remains a challenge. Kgabi, I'll pause there for now. Okay. Thanks. Thanks to Riaan and Kgabi for that update as well as Sakkie. Judith, are we ready to take on questions? Thank you very much, sir. Ladies and gentlemen, at this time, if you'd like to ask a question, please press star then one on a touch-tone phone or the keypad on your screen. If you decide to withdraw the question, you may press star then two to exit the question queue. Just a reminder, if you'd like to ask a question, you're welcome to press star and then one. The first question comes from Brian Morgan of RMB Morgan Stanley. Hi guys, thanks very much for the call. Could you just give us a breakdown of volumes in terms of the splits between your direct rail sales and FCA sales to merchants, etc., and then also a split between rail and road transport sales in the period? Yeah, I think Brian, we will give all of that detail during the results presentation. We have not prepared to supply that level of detail during the FDP recurrence, but as per normal, we will supply. We can give you that information during the results presentation. Let me just say, I think the bulk of our exports this first half is actually on rail because we have had to curtail our exports by road and through other ports quite materially given the price that has come down. That has dropped quite materially. Okay, cool. Could you just touch on the GG contract? I think the minimum offtake is 25 million tons. They ran at less than that in the first half. Do you expect them to catch it up in the second half? Yeah, I think, and the Riaan, please stop me on that side if someone is answering there. Okay. Go ahead, Sakkie. Thank you, Mzila. Yeah, we have been in quite close contact with Eskom, Brian. There are a few risk factors at present. The stack reclaimer at Matimba remains a concern to us as to how quick that will come back online. Eskom is still quite positive that they will be able to catch up towards the end of the year. Medupi is actually running very well with high EAF, very good burn. We are quite happy with how Medupi is performing. Matimba, as I said, there is a bit of a materials handling challenge that they do experience. We had a bit of a week of a wobble at Medupi with the torn conveyor. Apart from that, I think the view from Eskom is that they feel quite positive that towards the end of the year, they may see strong burn and strong offtake. Cautiously optimistic, I would think, from our side at this stage. Okay, very good. Thank you. Thanks, Brian. Thank you. The next question comes from Lisa Steyn of News24. Hi, Lisa. Go ahead, please. Hi. Good afternoon. I just wanted to find out what your sense is of the locomotives deal with CRRC. Did the minister fail to strike a deal? Is there something in the works, or do you anticipate that the step-in OEM tender is now the only solution? If you could give us anything you know. Thanks. Who's going to handle that? For me, maybe Sakkie can, but Lisa, what we just highlighted is all what we know publicly that what has transpired when the minister went to China, but we do not have a view at this point in time. Thank you. In terms of your long-term railing agreements with Transnet, are those still in negotiation? If so, how are they going? Thank you. Okay, Sakkie, can we hand that one to you? Thank you, Mzila. Lisa, yeah, thank you for the question. The process is about to kick off. There has been communication from Transnet recently about how they see the process, who the negotiation teams from their side will be. I think we hope to see some movement here from middle of July, hopefully a bit earlier, but the process is about to kick off. No formal negotiation process as yet. Yes, we're under quite a bit of pressure to conclude this before 31 March next year. Thank you. The next question comes from Nkateko Mathonsi of Investec Bank. Good afternoon. Hi, hi. Good afternoon. My question, if you can talk a little bit more about the lower diversion of thermal coal into the domestic market, is this a function of very low demand as well? I think you talked about how there is quite a bit of diversion of the export coal in general into the domestic market, but are we also seeing lower demand? If you can comment on the stock levels at Eskom, and should the stock levels remain higher, demand out of Eskom continue to be lower? How does Exxaro actually manage their operations in an environment where the local market may be constrained? I joined a bit late, so I am also very much interested to hear. I may be asking a question that has already been addressed, but I just want to know, in terms of coal prices, I think previously we talked about below $130 per tonne. Road trucking is not so feasible, but for Exxaro, it was slightly lower than that. At what prices does road trucking actually go to zero at Exxaro? Okay, thanks, Kgabi. Sakkie, will you take those? Will do, Mzila. Thank you. Thank you for the question. Maybe first on our domestic sales number, going back to our historic reporting periods, what we reported is that you will see in the domestic sales number is part of that number is a quantum that is actually product that under normal circumstances we have exported through TFR and RBCT. To the extent that we are not able to send it down the rail to RBCT or not able to put it on a truck and export it through another port, we are selling some of that export product, what we call on an FCA basis, in the domestic market to other buyers that have export capacity somewhere. Those sales, those FCA sales, are then recorded in our domestic sales number. The reduction of the domestic number that we referred to earlier is exactly as a function of that. We ideally would like, with the reduction of or the lowering of the price where we're not able to truck, to go, we would ideally like to sell more of that product on an FCA basis. Now, with the lowering of price, there's actually quite a lot of product that previously went out to other ports via trucks that is now curtailed because of the low price, because people can just not afford the expensive trucking cost to the port at this low price anymore. Firstly, you see quite a bit more product available in the domestic market, which makes the competition for us more to sell into that very market. Secondly, the prices that you are offered on an FCA basis have also come down materially, which puts pressure on the economic feasibility of that sales. What you see in the domestic number is just a reduction of sales into that market for, as I just explained. Your other question that you asked was actually about the trucking. For us, we are definitely in a space as Exxaro where trucking to other ports currently is not economically feasible. We are doing a lot of work to further improve on the cost of the logistics chain to hopefully make it possible in future again. That is difficult to tell when that will be. At this stage, I can say that it is just not at $100 per tonne. It is just not economically feasible to do that. Maybe the last part of that question that I recall was on the Eskom stock situation. I think you will appreciate that on a call like this, we will not want to talk about the stock levels of customers and other companies. If you will just indulge us there. For us, as always, we are in discussion with Eskom, and we do believe at this stage, as I said earlier, we're cautiously optimistic that from a coal burn perspective, Eskom can catch up quite a bit of the backlog of the first half, and that coal will in fact go into the boilers to be burned and not necessarily go on to stockpiles. To an extent, they have used some of the coal on stockpiles with some of the stoppages, but we don't think that's making a material difference in the situation currently. Thanks, Mzila. All right, super. Thank you so much. Just to add is that for us, our stockpiles currently are healthy. We're not having any challenges on production, yes. Okay, thanks. All right, thanks. Thanks, Sakkie, for that detailed response. We can take the next question. Thank you. Ladies and gentlemen, just a reminder, if you'd like to ask a question, you're welcome to press star and then one. The next question comes from Tim Clark of SBG Securities. Thanks, good afternoon. A couple of questions. First of all, just on coal qualities, I wondered with the sort of diversion of material from Europe to India, I wonder if you could speak about whether you have increased your or adjusted the qualities that you're selling. The second one's just on Transnet. My sense was reading your release that you're not holding out a lot of hope for a meaningful recovery from Transnet. I guess you can't predict what they're going to do, but at what point in time do you start looking at your portfolio quite carefully? You've got a lot of latent capacity of exports, particularly, and with sort of the high fixed cost and the low price. At what point do you start looking at operating area closures or closures? Even if you can't comment on those particular issues directly or specifically, what should we as investors expect in terms of timing for you to let us know that sort of thought process to match your sort of operating capacity to Transnet and to TFR? I'll leave it at those two, please. Sakkie can go and start with the quality, and then you can catch on Transnet. Yeah. Thanks, Nombasa. Tim, yeah, on the quality front, there's definitely pressure, as I said, in the European market for higher demand for higher quality coal, and some actually on the Japanese side, as I referred to earlier. A fair question. As I've said before, I think the one thing that is, nearly want to say nice about Exxaro is that at times, difficult times, that we are not such a big player in the international market. We find definitely enough cracks in the market, even in a constrained market, that we can sell our product. Yeah, I can confidently say that our constraint as Exxaro in the international market is not a market issue. We are still able to push our high percentage of RB1 sales, which you know at this stage that is part of our strategy. We think that that is not a threat. I'm quite confident that we will continue with our high-quality sales strategy as communicated before. Thanks. Thanks, Sakkie. Nombasa, do you want to take a second part of that in terms of. No, I was going to ask Sakkie to talk to the Transnet issue and whether we believe that there will be a point where we have an indication that we must do something to our production capacity. Yeah, that's the thing. I wanted Sakkie to start the outclose and deal with Transnet just once for once. Okay. Okay. Thanks, Nombasa. Yeah, Tim, maybe I must just confirm the way you read our communication is correct. We are not extremely optimistic that it's going to go much better anytime soon. We, as Kgabi indicated earlier, by end of May, we want to analyze number of slightly north of 46 million tonnes. June has gone better so far. June definitely is looking better. We sit with the shock that's upcoming, and we're really holding our thumbs that Transnet will complete the bulk of the work so that we can see an improved performance thereafter. What has really hit us hard also in Exxaro specifically, as it has hit us on both the Leeuwpan and Grootegeluk site, was the two derailments that we've again seen in this quarter. Yeah, we are concerned that we do not see signs of an imminent improvement in Transnet performance. We are not at a space currently where we have to take decisions to materially curb production from that perspective. We are still able to sell our coal, whether it is through RBCT or FCA sales. The domestic demand is an area that I have not touched on to the earlier investor question. Domestic demand is fairly stable. It is just the demand for what we call FCA's coal to the export market that we see a bit of a difference. At this stage, we still believe we can sell our coal. If things continue to sell from here in terms of pricing and TFR performance, we may have to relook our plans towards the latter part of the year. Thanks, Nombasa. Okay, Mzila, I'll come in later. Let's just listen in, and maybe there are other questions. Unless, Kgabi, you have anything else to add on Transnet? No, I mean, what we have with the industry, what we call it a recovery at TFR, it's focusing on improving the efficiency. For me, what I think with the National Logistics Crisis Committee, which is also coming in play, where now visibility will be there, where I think within six weeks, then things will elevate even to the president level. I think for me, looking at what has happened, maybe Nombasa, you can add on this one with what we've been happening with NECOM, because things started slowly on the energy side and there was traction. I think for me, with what is happening now with the implementation or putting in place of the National Logistics Crisis Management, things will start happening, but I don't expect any change in the immediate term. It is there are structures in place which can improve what we need to do as a country. Okay, thank you very much, Mzila. Let's take more questions. We'll close. I think maybe we have not heard from Leon. I'm not sure if Leon has anything to add from the highlights of the energy market, what's going on in the country, what has changed, and maybe a little bit on those operations. High level, Leon. Good morning or good afternoon all. There is certainly a lot of activity in this market. There is a lot of active engagement between the Energy Council, which is gaining traction via NECOM with the Office of the Presidency. If you look at what we are seeing in terms of the Eskom availabilities, that is certainly improving. Some of that is due to the winter season where the cooler temperature obviously helps. What we are also seeing is that the renewables industry is also contributing a lot more. We are getting into the windy season. A lot of that is certainly helping there. There is a lot of, I think, constructive debate as to how to enable that. From a private sector perspective and our engagements with the lenders, they are certainly extremely busy with transactions, including ours, which spells that means that the distributed environment is certainly gaining traction where it's not just talk anymore. There are a lot of transactions in the pipeline. Regarding our operational performance, it's certainly from a wind perspective better than last year. Last year was an all-time low. We are seeing certainly a better improvement compared to last year. Still a bit volatile from time to time, but certainly trending in the right direction. We will get, I think, closer to normalized levels. On the LSP, I can say, watch this space in terms of a press release. We are very far advanced with that to get to financial close and then issue the notice to proceed to the EPC to start with the construction activities. I think as a last point, from time to time, give you an update on Enertrag, the joint venture between the two of us on the wind project in Mpumalanga. I can report that we've not seen any fatal flaws yet. The permitting materially completed, and we are now busy with commercial conversations and also with lenders. We will be engaging the market to test the EPCs on preliminary pricing. We are moving full steam ahead with that venture as well. Thank you, Nombasa. That's all from me. Thanks, Leon. Nombasa, back to you. Thank you so much. I don't know. I think we need to conclude. I don't know if there are any questions out there. Any further questions from the audience? We've got a follow-up question from Tim Clark of SBG Securities. Thanks. I don't actually have a question, but what I wanted to do is just thank Mzila on behalf of investors and analysts looking at starting at the Minerals Council, I think at the end of June. I hope we get to see him again soon. I just wanted to thank him for all of the help and work that he's done for us at Exxaro. He's certainly been a great pleasure to work with and has been a great representative of Exxaro over that time. Thank you from us. Thank you very much, Tim. It's going to be 21st of August, so you'll see me at the interim result. Yeah. No, thank you very much, Tim. We're also very proud to have Mzila join the MCSA. Thank God he's not leaving the industry. We are happy to work with him from the other side. We will talk in August. Thank you very much, ladies and gentlemen, for joining us. I must say that this has been a very interesting half, very challenging, different from the previous half that we were at least dealing with better prices and similar problems such as Transnet. Now prices, as you see, have also taken a dip, and that really is challenging us even further. I am very happy to say that from the Cennergi business point of view, we have added the skills that were required to be added there. I think our complement of skills required there, including our CFO that we have been looking for and the M&A individual who have been acting in that position now has been made permanent, and we are looking at really running in that business. In terms of our skill set, we're quite happy. If we just look at the operations themselves in general, I must say that I'm very happy with our optimization programs at Cennergi and also in the coal business. Our main concern in the coal operations has been to operate when we do not know when the next train is going to come. We had to make sure that the team respond from a market-to-resource perspective and making sure that they optimize production as and when these trains come so that we do not overproduce so we can also manage our production cost in time. Also, the challenges that Cennergi finds itself responding to are intermittent winds that have also challenged us. Having said all of that, I have no doubt that the team has shown some records in terms of responding to controllable factors such as this one. The biggest challenge I think everybody is aware of has been the Transnet challenge. It has become a very concerning challenge for us and our board. I think the industry at large is that the underperformance of Transnet is prolonged and beyond our expectations. This could be really for many reasons. We know that some of the reasons are efficiency reasons, which we believe, and call upon Transnet to attend to. There has been enough interaction between ourselves and the industry and Transnet within the MCSA where we have outlined very clearly where we believe the inefficiencies are. We believe that it's time for Transnet to meet us halfway and make sure that those inefficiencies are dealt with. We've shared these inefficiencies with yourselves before, and we'll continue to share with you what we believe those inefficiencies are. We have mentioned that there is capacity of about 30% availabilities of the trains if Transnet were to respond to these inefficiencies. We're also worried about the fact that there is a policy on the table that we believe is very transformative and calling upon government more and more now under the BUSA newly formed National Logistics and Rail Crisis Committee for the government to implement urgently. Making sure that this legislation is not given to Transnet to implement, that we find independent players such as NERSA that could really regulate and manage this policy. We believe that will be the time that we'll see meaningful participation from ourselves as the industry, making sure that our resources that we'll have to invest in Transnet are well managed and they're managed in the hands of trusted parties. This is something that we're really pushing very hard. We are using the example of NECOM that has also mobilized resources for the Energy Council partnership with government, also led under BUSA. We've seen a lot of improvement now on the availability of, or let me say, the reduction of load shedding. Most of those efficiencies and discussions thereof have happened within the working groups of NECOM. We are hoping that we can learn from this lesson as well on the side of Transnet. We're really urgently calling upon government to take that policy seriously. It is the policy of government, and we believe that Transnet shouldn't be implementing this policy but given to independent hands that can be trusted, that can partner meaningfully with ourselves to facilitate all actions that are set out for our meaningful participation. The rest of the update in terms of M&As and the likes, we will share in August. Suffice to say that personally, where I'm sitting, I'm quite happy with the progress, and we continue to manage Eskom offtake to the extent that we can. I'm quite happy with the fact that we've got operations teams that are quite flexible, such as Leeuwpan, that can supply Sasol, and Sasol is always looking for coal. We are quite happy to see some of the coal of GG that could also be offered to AMSA by the fact that we also struggle from a rail transport point of view. Yeah, we believe that our stock is quite well buffered by the Eskom contracts that we have with them whilst we're still dealing with all of these other issues that are logistically related or market-related. Quite happy. Thank you so much. Well done to the team, and we continue to work hard on the Transnet issue, including looking at our own solutions that could be de-risked away from Transnet. Thank you very, very much. Thank you, Mzila. Thank you to the team. I'm done. Thank you, Kgabi. I appreciate the insights and the contribution, Nombasa. Thank you very much for that. If there are no other questions, what remains then to say, thank you very much for your continued interest and participation when we have these sessions. We look forward to hosting you again for our interim results, which will be on the 17th of August, 2023. Looking forward to seeing you then. Thank you very much, and thanks, Judy, for all your efforts. Thank you very much, sir. Ladies and gentlemen, that concludes today's event. Thank you for joining us, and you may now disconnect your line.