Overview of resources and reserves estimates

Figure 1: The locations of our coal operations and projects at a glance

Exxaro has a world-class coal resource portfolio, comprising fully owned operations and projects and a number of jointly owned operations and projects in South Africa and Australia. The fully owned operations and projects in South Africa lie in both the large and highly prospective Waterberg coalfield in Limpopo and the more mature Highveld and Witbank coalfields in Mpumalanga.

Since inception in 2006, Exxaro’s total attributable coal resource and reserve figures have been relatively stable. This trend can primarily be ascribed to the relatively large Waterberg coal deposits, particularly the remarkable Grootegeluk complex. Estimated to contain 40 – 50% of South Africa’s remaining coal resources, the Waterberg is viewed as the future of South African coal mining. Exxaro holds an estimated 3 billion tonnes of measured and around 1.8 billion tonnes of indicated coal resources in the Waterberg, primarily in Grootegeluk mine and the adjacent mining right of Thabametsi. The complex provides thermal coal reserves to Eskom’s Matimba and newly commissioned Medupi power stations, and produces semi-soft coking and metallurgical coal through eight beneficiation plants (annual production of 25Mt).

The Grootegeluk complex is continuously evolving, illustrated by a number of large value-unlocking projects. While these Figure 1: The locations of our coal operations and projects at a glance projects underline the resourcefulness of our people, they also demonstrate the successful implementation of innovative and breakthrough technology.

To an extent, the size of the Grootegeluk complex obscures changes in mineral resource and reserve figures from events within the smaller Witbank and Highveld coalfields. Divestment from the NCC (New Clydesdale Colliery) coal mine, closure of Inyanda mine (both 2014), incorporation of Total Coal South Africa (renamed Exxaro Coal Central or ECC) in 2014 and divestment from the Eloff project (2017) affected Exxaro’s reported figures in recent years. The decrease in total coal resources but steady increase in the level of confidence (resource categories) of coal resources (2014 to 2017) in Mpumalanga are predominantly due to the continuous optimisation of the ECC asset portfolio.

The 2017 Exxaro total attributable coal resource decreased slightly (some 1,5%) mainly due to mining depletion as well as our divestment from the Eloff coal project, near the town of Delmas in Mpumalanga. In contrast, total attributable coal reserves increased by around 7%, primarily due to the new Grootegeluk mine plan and mine planning optimisation at the Dorstfontein and Forzando coal operations.

Figure 2: Exxaro estimates over time

Exxaro attributable coal resources and reserves (Mt)

Mpumalanga: Coal resources and reserves (excluding Matla and Arnot) (Mt)

Total Exxaro attributable coal reserves increased by around 7% due to Grootegeluk’s new life-of-mine plan
and optimisation of the Exxaro Coal Central (ECC) operations of Dorstfontein and Forzando


Unlocking value in the estimation process

In 2017, we continued to focus on unlocking value at our operations. We are acutely aware that our success as a mining company is built on the integrity of our mineral resources and the effectiveness with which we exploit and extract these resources.

      Consideration of mining, metallurgical, processing, infrastructural, economic, marketing, legal, social and governmental modifying factors  
   

COAL RESOURCES

     

Unlocking value

     

COAL RESERVES

 
    Continuously improving our level of geoscientific understanding, minimising risk and unlocking opportunities       Modifying factors
Our ability to extract our
resources
      Optimising our plans to create the best fit to market use  
   

Executing exploration plans

Dorstfontein, Forzando, Matla, NBC and Grootegeluk.

Update of geological and structural models

Leeuwpan, Dorstfontein, Forzando, Tumelo, Eerstelingsfontein and Matla.

Innovation

  • Implementation of centralised geological and hydro-geological databases
  • Development of short-term geological model at Grootegeluk
  • Development of online operational business intelligence maps.
     

Increasing extraction through innovation and knowledge

  • Dorstfontein-West seam 4 project and Dorstfontein East pit extension
  • Leeuwpan OI life extension
  • Matla north-west access and mine 1 relocation projects
  • Grootegeluk GG6, IPCC OVB (in-pit crushing and conveying overburden) and coal projects, load-out station.
     

Optimised life-of-mine plans

  • Dorstfontein, Forzando, Matla and Grootegeluk mines
  • Optimised Leeuwpan business model
  • Autonomous drilling strategy at Grootegeluk.
 
             

Enhancing governance

         
     
  • Aligned our reporting with SAMREC 2016 and JSE 2016 amendments to minimum contents of annual reports
  • Updated our internal competent persons reports to accommodate the SAMREC 2016 “if not, why not” principle
  • Update the life-of-mine mineral assets policies and estimation procedures
  • Consider reasonable prospects for eventual economic extraction for our mines and projects.
 
             

Continuous improvement

         
     
  • Conducted tier 1 reviews on Grootegeluk, Forzando, Leeuwpan and Matla, resulting in optimised life-of-mine plans
  • Conducted tier 2 reviews on Forzando, Matla and Grootegeluk mines. Corrective plans to address findings to enhance our assets.
 
     

Mineral resource and reserve reports and statement

 
     
  • Consolidated mineral resource and reserve statement with explanatory footnotes.
  • Improving resource and reserve confidence through exploration, reconciliation and optimisation.
 

Continuous drive to unlock value for our Exxaro operations and projects

Case study: Coal price and yield maximisation

Case study: Coal price and yield maximisation

At ECC, the mines traditionally supplied a higher-quality export product. The total profit margin per tonne of mined material is continuously monitored, as higher washed quality comes at lower yield. A narrowing price between higher and lower-quality indexes prompted a recalculation, resulting in the yield increase compensating for the marginally lower price for a lower-energy export product. ECC increased its profitability substantially by moving to this market.

Case study: GG6 project at Grootegeluk

Case study: GG6 project at Grootegeluk

The Grootegeluk life-of-mine plan was reviewed and optimised in the reporting year. Substantial value was unlocked by introducing the GG6 beneficiation plant, an expansion that adds a second stage of beneficiation to the existing GG2 plant. This development will provide the option to produce a high-ash semi-soft coking coal (SSCC) suitable for the export market, in addition to power station coal. The profitability of the two options (SSCC vs power station coal) can be continuously compared, giving Exxaro the flexibility to react to changes in market conditions.

The purpose of the life-of-mine planning underlying our resource and reserve estimation is to unlock maximum value from the coal in the ground for Exxaro, taking margin and net value into consideration. Each orebody has a unique mining methodology, processing parameters and targeted market segment that delivers maximum value to shareholders. This is impacted by updated resource information, developments in mining and processing technology and changes in market dynamics.

Consequently, the optimum exploitation strategy needs to be continually reviewed to ensure applicable resources end up in the most lucrative markets. This ongoing iterative process is conceptually illustrated below. A relentless drive to reduce the environmental footprint of operations is embedded in the process, and the continuous impact of the evolving legislative landscape is reflected in designs.

Our reporting principles

Exxaro is committed to the principles of materiality, transparency and competence, and continuously strives to enhance the level of estimating and reporting mineral resources and ore reserves.

Figure 3: Resource-to-market model

We provide all the relevant information that investors and their professional advisers would reasonably require, and expect to find, to make a reasoned and balanced judgement


 

We provide sufficient, clear and unambiguous information

 

 


 

We have qualified and experienced competent persons who are subject to an enforceable professional code of ethics

 



OUR CONSOLIDATED EXXARO RESOURCES LIMITED MINERAL RESOURCE AND RESERVE REPORT

The content of this report is compiled from detailed independent reports received from appointed competent persons at our various operations and projects, and available on request from the group company secretary. The reported mineral resources and reserves presented here are therefore summarised versions of these reports.

In addition, each operation and project maintains an individual competent person’s report (CPR) that encapsulates the systematic and detailed estimation process conducted or supervised by that person. These reports are aligned with the checklist and guideline of the reporting and assessment criteria of the South African Code for the Reporting of Exploration Results, Mineral Resources and Mineral Reserves (SAMREC 2016) and scrutinised and updated when required. Exxaro continuously examines various aspects of the mineral resource estimation process and, in 2017, we have aligned ourselves with the guidelines of SAMREC 2016. Exxaro has subsequently updated the internal CPRs for our operations and, in 2018, will update the project CPRs. No material changes as defined in the code have triggered the update but we considered the introduction of the ‘if not, why not’ principle (SAMREC 2016) as significant enough to warrant the updates.

Our mineral resources and reserves statement

The mineral resources and ore reserves summarised on here are reported as those remaining on 31 December 2017 and compared with the corresponding estimates reported on 31 December 2016. Mineral resources are reported including resources that have been converted to ore reserves and at a 100% Exxaro ownership, irrespective of the individual operation or project’s attributable shareholding. An exception is our reporting for Gamsberg and Black Mountain, as figures from Vedanta Resources plc represent resources excluding those mineral resources converted to reserves.

The reported estimates are not an inventory of all mineral occurrences identified, but a reasonable estimate of those, which under assumed and justifiable technical, environmental, legal and economic conditions, may be economically extractable at present (ore reserves) and eventually in future (mineral resources).

Resource and reserve estimates are quoted in full, irrespective of Exxaro’s shareholding. Mineral resources and ore reserves are estimated on an operational or project basis and in accordance with the SAMREC Code for African properties, except for Vedanta’s property, and the JORC Code 2012 for Australian and Vedanta properties. For coal resources and reserves under Exxaro’s management control, estimation is in line with the South African National Standard: South African guide to the systematic evaluation of coal resources and coal reserves (SANS 10320:2004).

There were no material changes in our total reported coal resources and reserves between 2016 and 2017.

Limpopo province

Based on a geological review, we have reclassified specific geological structural areas at our Grootegeluk mine to a lower resource category. This change, which resulted in a minor movement between resource categories, will be addressed in 2018 through surface geophysical surveys and subsequent infill open-hole vertical drilling. The Grootegeluk life-of-mine plan (LoMP) was reviewed and updated in the reporting period, with the construction of the GG6 (upgrading GG2 plant) beneficiation plant being the most visible value-adding initiative.

The existing Grootegeluk 2 (GG2) plant historically produced power station coal and the project aims to convert the single-stage beneficiation plant to a new double-stage beneficiation plant, namely Grootegeluk 6 (GG6). The project will introduce a new small-coal beneficiation plant (SCP), enabling fragments smaller than 10mm to be processed and improving plant fines beneficiation using reflux classifier technology. Associated benefits are the addition of a dewatering plant, an upgrade of the two tip-bins to higher capacity and expansion of the current stockyard. The project aims to triple the capacity of the current GG6 plant, producing a high-ash SSCC suitable for the export market, as well as power station coal.

The introduction of the new and larger LoMP resulted in an increase of around 11% in the reported coal reserves. The update will enhance LoMP pit geometry, creating an optimal energy-stripping ratio for the mine and ensuring effective quality contaminant management (i.e. sulphur).

Overburden mining at Grootegeluk is evolving in volume and complexity. A study to address this challenge is the in-pit crushing and conveying overburden (IPCC OVB) project. The project aims to replace the existing load-and-haul mining method with a more cost-effective alternative by considering mining and transporting overburden material via a bulk-materials handling system. The concept study indicated significant savings by implementing a fully mobile sizing station (FMSS), bucket wheel excavator (BWE) or semi-mobile sizing station (SMSS), along with an overland conveying system and new spreader for the rehabilitation layer on top of the upper discard layer. A pre-feasibility study (PFS) is under way to identify the preferred alternative to further investigate the viability of a bulk-materials handling system for overburden material.

The Grootegeluk short-term stockpile environmental impact assessment (EIA) and integrated water use licence (IWUL) were approved in May and June 2017 respectively, while the appeal against the Grootegeluk atmospheric emissions licence (AEL) was dismissed. An approval for ministerial consent (section 102) was submitted in September 2017 to include two mine-dump areas that currently fall outside the mining right.

Approvals are pending and the legislative process following the submission is under way.

Exxaro is considering options on four prospecting rights some 30km north-west of Grootegeluk mine. These prospecting rights are grouped in two projects, Waterberg North and Waterberg South, and include around 3 billion tonnes of inferred resources. Two of the Waterberg North prospecting rights (Pentoville: 10719PR and Dartmore: 10720PR) renewals have been granted and executed for a period of three years. The remaining two Waterberg prospecting rights (Carolina: 10718PR and Swelpan: 10721PR) are pending renewal. A section 11 of the Mineral and Petroleum Resources Development Act 2002 (MPRDA) to cede the rights to a prospective party for the Waterberg South project was halted after cancellation of the commercial agreement. A decision on these assets will be taken in the first half of 2018.

Figure 4: Our mining and prospecting rights in the Waterberg
Mpumalanga province

Arnot, an Eskom tied mine, is in closure after Eskom terminated its coal-supply agreement.

Matla mine, an Eskom tied underground operation, is some 20km west of Kriel in Mpumalanga. A meaningful amount of new borehole information resulted in updating the geological model and an optimised LoMP.

The updates did not generate any significant resource or reserve changes. The necessary capital for a number of projects for Matla to overcome its operational challenges has not yet been approved. As such, Matla must access coal reserves under challenging geological and mining conditions. Thinning coal seams and inferior coal quality and roof conditions, due to the impact of intrusive dykes and sills, as well as geological faulting, present challenges for coal extraction in a number of mining sections. These conditions necessitate focused exploration activities, including surface and downhole geophysical surveys as well as vertical and horizontal drilling. The operation has tested the application of horizontal geophysical radar surveys which yielded only limited success. Operational agility and resourcefulness of this highly experienced workforce is one of Matla’s most valuable assets.

The approval of funding for a number of projects, at different stages of development, are pending.

The relocation project for mine 1 aims to provide safe access to the remaining coal reserves, and to improve efficiency after the original mine 1 entrance was closed on safety concerns.

The project entails developing a new box-cut and tunnels to access current coal reserves. It will require the construction of new surface infrastructure, including pollution control dams, offices, overland conveyors, and crushing and screening equipment.

The second initiative is the short-wall replacement project. Mines 2 and 3 currently have both short-wall (SW) and continuous-mining (CM) operations, but geological conditions to support SW mining methods are decreasing and will end. Remaining coal reserves will need to be mined using CM methods (five CM and one stonework section), and the aim of this project is to replace soon-to-be redundant SW equipment with its CM equivalent, to ensure continued supply to Matla power station. The sections that will be acquired to replace the short-wall will be placed in the new mine 1 ground.

The implementation of two additional projects (the northwest access and mine 3 vent shaft) is pending. Mines 2 and 3 produce coal from seams 2 and 4, which is blended to provide the quality of product necessary for Matla power station. Both coal seams’ minable reserves are rapidly diminishing, and both mines will have to access additional reserves. This access will be established through a decline and incline (respectively) below and above current workings. However, the current ventilation system is insufficient for increased activity in these sections, and will need to be improved. Additional ventilation will ensure worker health and safety as these new pockets of coal are exposed and mine

We are positive that the approval of the projects will be concluded.

Approval for a ministerial consent (section 102) to update the mining works programme and environmental authorisation (EA) to address changes and include stooping was submitted in the reporting period. Exxaro reasonably expects that the approvals will not be withheld.

In line with Exxaro’s commitment to unlock value, an expansion project to extend the life-of-mine of Leeuwpan, an open-pit operation in Delmas, Mpumalanga, by 10 years was implemented in the review period. The updated plan incorporates changes in the price structure of the export market, with higher prices for lower-energy products leading to higher yields. The R500-million optimisation project will enhance Leeuwpan’s performance by better aligning access roads to the site, as well as upgrading the existing plant and producing high-quality thermal and metallurgical coal for domestic and export markets.

The consolidated environmental management plan (EMP) for Leeuwpan was approved in April 2017 and the EA amendment for the expansion project was approved in the last quarter of the reporting year. Construction of the box-cut is progressing well. Changes in the Leeuwpan mine total coal resource (around -9%) and coal reserves (some -3%) are primarily the result of mining and disposal of a number of remnant resource blocks on geotechnical considerations. Significant dyke activity and a prominent dolerite sill that overlies both the resource blocks of UB and OI (Leeuwpan expansion), negatively affecting both slope stability and coal quality, presents operational challenges for the mine. Surface geophysical surveys, infill drilling and grade-control practices will be used to address these challenges and minimise possible losses.

Mafube Coal is an existing 50/50 joint venture between Exxaro and Anglo American. This open-cast mine, east of Middelburg in Mpumalanga, is constructing new infrastructure to connect its Nooitgedacht reserves to the existing Springboklaagte operations. The extension project under way will extend the life of mine to 2030, with commissioning expected in the second quarter of 2018.

The ECC complex comprises the Dorstfontein, Forzando and Tumelo operations (figure 6). The most pertinent change to ECC was, first, the submission of a mining right for the Eloff project in the first quarter and the subsequent sale of the project in the third quarter of the year. Commercial agreements were completed and the section 11 to transfer rights is under way.

Dorstfontein complex lies just north-east of the town of Kriel, in Mpumalanga. The complex comprises DCMW (West), an underground mine, and DCME (East), an open-cast operation, as well as Rietkuil (Vhakoni), a project for which the approval of a section 102 of the MPRDA to incorporate this right into the DCME mining right is pending. Considerable available new information (130 holes) triggered an update of the geological model, resulting in an increase in both the total coal resource (some 17%) and level of geological confidence (increase in resource category).

The introduction of the DCMW seam 4 project promises to unlock excellent value for the complex, in which seam 4’s lower reserves will be accessed through an incline in existing mine infrastructure. Developments to extend DCME pit 1 and pit 3 are under way, illustrating the continuous and successful drive to unlock value for ECC. We view the approvals of amendments to the IWUL for both DCMW and DCME as notable achievements in the reporting period.

The Forzando complex (FZO) is 10km north of Bethal, and just south of the Dorstfontein complex. FZO complex comprises two underground mines, Forzando North (FZON) and Forzando South (FZOS), and both mining rights were executed in 2013 for a period of 16 years. Currently only FZOS is in operation, with FZON placed under care and maintenance in February 2014. Both FZON and FZOS amendments to their IWULs were approved in April and June 2017 respectively. An update of the geological model with new information was offset by mining depletion and enhanced geological loss domains resulted in a decrease in total coal resources (roughly 10%). FZO mining is affected by geological faulting and dolerite (sill and dyke) activity, resulting in poor roof conditions restricting access to potential resource areas. The team is addressing the impact of these challenges through focused infill drilling (characterisation) and effective grade-control practices (managing mining losses). A focus on fall-of-ground and pillar-safety criteria aims to unlock further potential for FZO.

The review of the geological structure model and subsequent update of the Tumelo geological model resulted in an increase in total coal resources (some 4Mt). The Tumelo mining right was registered in January 2013 but lapsed in 2015. A renewal was timeously submitted and approval is pending. The operation is currently under care and maintenance.

HOW DO WE REPORT?

The annual estimation and reporting process is managed through the Exxaro geosciences policy and associated mineral resource and reserve reporting procedure. The documents dictate technical requirements for estimation and reporting, and include guidelines on methodologies, templates and assurance.

Figure 5: Our mining and prospecting rights in Mpumalanga

Both the policy and procedures are aligned with the guidelines of the SAMREC Code 2016 and, for South African coal reporting, SANS 10320:2004. Processes and calculations associated with the estimation process have been audited by internal competent persons and are audited by external consultants when deemed essential. For mines or projects in which Exxaro does not hold the controlling interest, figures have been compiled by competent persons from the applicable companies and not audited by Exxaro.

Resource estimations are based on the latest available geological models, which incorporate all new validated geological information and, if applicable, revised seam, resource definitions and resource classifications. For Exxaro operations and projects, we use a systematic review process that measures the level of maturity of exploration work done, extent of geological potential, mineability, licence-to-operate considerations and associated geological risks/opportunities to establish eventual extraction (EE). We have enhanced our methodology this year to ensure that all factors as outlined in table 1 (4.3) of SAMREC 2016 have been reasonably considered.

For our resources, the location, quantity, quality and continuity of grade/quality and geology are known to varying degrees of confidence and continuously tested through exploration activities such as geophysical surveys, drilling and bulk sampling. Mineral resources are classified into inferred, indicated or measured categories, based on the degree of geological confidence. Distribution of points of observation (drilling positions, trenches, etc.), quality assurance and quality control in sample collection, evaluation of structural complexities and, in the case of operations, reconciliation results, are considered in classifying resources. An annually compiled exploration strategy outlines activity planned to investigate areas of low confidence and/or geological or structural complexities to ensure resources of a high level of geological confidence are considered for mine planning.

Ore reserves have the same meaning as mineral reserves, as defined in the applicable reporting codes. Ore reserves are estimated using relevant modifying factors at the time of reporting (mining, metallurgical, processing, infrastructure, economic, marketing, legal, environmental, social and regulatory requirements). Modifying factors are reviewed before and after reserve estimation by the persons responsible for ensuring all factors are timeously and appropriately considered. Signed-off reserve fact packs that record losses, recoveries/yields, cost, commodity prices, exchange rates and other required factors applied are documented in each life-of-mine plan and independent competent person’s reports.

Reported ore reserves are primarily derived from indicated and measured mineral resources, although limited inferred resources may be included in the LoMP at the discretion of the competent person. These inclusions are scrutinised and their impacts are known.

Mineral resources and ore reserves quoted fall within existing Exxaro mine or prospecting rights. Rights are of sufficient duration (or convey a legal right to convert or renew for sufficient duration) to enable all reserves to be mined in line with current production schedules. The processes and calculations associated with estimates have been audited by internal competent persons and are audited by external consultants when deemed essential for transparency. In the case of mines or projects in which Exxaro does not hold the controlling interest, figures have been compiled by competent persons from those companies and have not been audited by Exxaro.