• Community unrest
• social licence to operate

Exxaro operates in eight local municipalities of South Africa and two provinces (Mpumalanga and Limpopo) with closed mines in another three municipalities, (two in
KwaZulu-Natal). Stakeholder-related risks and issues among this group of stakeholders relate primarily to Exxaro’s material issues of social unrest and maintaining our social licence to operate. Through our ongoing engagements, we strive to ensure that community unrest does not lead to production delays and stoppages, injury to employees and community members, that issues are resolved proactively before they escalate to community unrest, that Exxaro’s success stories on community development are shared widely, that we create local job opportunities and that we deliver community development initiatives, shared value and benefit from mining activities.

Cennergi operates in two local municipalities in the Eastern Cape province (Raymond Mhlaba and Koukamma). Community engagements are primarily around activities aimed at improving the wellbeing and living conditions of host communities.

Engagement platforms addressing community issues internally and externally. Internally, the future forum monitors implementation of SLPs. Externally, forums with municipalities and traditional authorities address socio-economic conditions at local, district and provincial level for greater impact.

Quality of the relationship: 2/3
Basis of rating: 2018 reputation survey, self-assessment and business perception assessment conducted by social facilitators at Belfast and Matla

• 90% of surveyed businesses in Emakhazeni believe that Exxaro is having a positive impact on businesses operating in the municipality; though there were also perceptions that available procurement opportunities were monopolised by a limited number of “connected” local companies
• Just over half of surveyed businesses reported that economic activity had increased in the municipality since Exxaro started its operations; 46% reported that the level of economic activity remained the same
• 78% of businesses reported that their revenues had “stayed roughly the same” since Exxaro started operating in the municipality; only 20% reported an increase in revenues

• Employment and procurement opportunities at Exxaro as well as skills development that enables access to employment or procurement opportunities continue to be key concerns of our community stakeholders, given that the COVID-19 pandemic has only compounded unemployment and poverty: In Limpopo, the GG6 project and in Mpumalanga the Matla mine projects are opportunities for employments and procurement for local community members that are being harnessed
• Community representation
• Taxi association expectations for employee transport business opportunities

• When lockdown regulations eased, community groups demanded that the BUs prioritise skills development, employment and business opportunities. We continue to pursue local consideration in skills development, employment and subcontracting however effective responses are complicated by low literacy and skills levels and often individual health issues, resulting in failure of entrance tests
• Our investment in providing free community wifi to the Siyathuthuka township in Belfast, Mpumalanga, ensured the seamless flow of information about the pandemic. The community wifi project will be extended to our other locations
• Engagement on these and other issues is also challenged by inconsistent community representation, unproductive engagement and participation in community forums, violent community engagement events, community demands led by individual agendas and community representatives unwilling to adhere to sound governance processes. Misalignment and tension between factions within local government and between local government structures and community members exacerbating service delivery challenges, introduces further complexity to the local stakeholder landscape and additional challenges for the implementation of socio-economic development initiatives
• Local taxi associations are key stakeholders in Exxaro’s BUs as employees and contractors rely on them for transport. However, exorbitant rates are a challenge and an issue that is being addressed at several BUs
• Working with stakeholders such as government, the Minerals Council, World Vision and other social partners, Exxaro developed a post-lockdown response plan to address the needs of communities. Our past efforts at community engagement and development provided a platform for an effective response to the COVID-19 challenge within our host communities
• Engagements led by the NBI and its technical assistance, mentorship and development programme as well as the COFTA on the Lephalale municipal capacity-building programme were not successful, however we were able to align support for the district development model with the Waterberg municipality as custodian.
• We are exploring a pilot project with the MISA for assistance with the delivery of our SLP projects in a more targeted manner
• Exxaro’s ESD programme is achieving its objectives of legislative compliance, supplier diversity and social impact. During South Africa’s first COVID-19 lockdown, our ESD team engaged early and frequently with beneficiaries to ensure they survived the crisis. We surveyed our ESD programme beneficiaries at the beginning of lockdown and found that 55% would incur operational reductions, 35% would stop operations and 10% would remain unchanged. Consequently, Exxaro prioritised existing ESD beneficiaries for support through interest-free loan repayment holidays and information webinars. We are also developing non-financial support programmes for our ESD beneficiaries, including a technical mentorship programme for first-time contractors in core mining services and a financial excellence programme.
• In a new initiative aimed at supporting government’s district development model, Exxaro has completed registration of a non-profit company (NPC) known as the Matla Setshabeng community benefit scheme. It will enable regional development and partnerships with industry peers and government. The NPC has received a total of about R60 million in dividends from Exxaro. We have shared details of the scheme with key stakeholders, including the Mpumalanga and Limpopo provincial governments, the Minerals Council, the Limpopo Impact Catalyst, and the DMRE with positive outcomes
• We regret the loss of life of a community member, during a community unrest incident in Limpopo
• In 2016, Cennergi established the Amakhala Emoyeni Community Fund Trust (AECFT) and Tsitsikamma Wind Farm Trust (TWFT) to manage socio-economic and ESD donations and investments. Focus areas are education and skills development, enterprise development, infrastructure development and housing and health. Engagements and project activities across all these focus areas in both municipalities continued throughout 2020.

Refer to the communities section for more information.

• Access to capital

Our investors are the owners of our business and capital, and have expectations regarding the value creation for their investments. Through clear communication of our strategy and benefit distribution policies, we can align with their expectations and grow their trust in our organisation, which strengthens our access to capital.

• SENS announcements
• Interim and annual results announcements
• Post-results roadshows
• Non-deal roadshows
• One-on-one meetings
• Enquiries
• Investor conferences
• Online meetings

Through our investor relations function, we create an annual engagement strategy that guides our work and enables regular updates and engagements to keep current and potential investors informed. Further, regular enquiries from investors and sell-side analysts are received in relation to financial modelling and thematic research which we respond to.

Quality of the relationship: 2/3
Basis of rating: Internal assessment informed by various external surveys

• The results of the annual investor/analyst perception survey conducted in May 2020 showed minor changes compared with 2019 and remained positive. There was a higher level of qualitative feedback in the third report, revealing insights and making constructive suggestions
• Overall, Exxaro management is still perceived as delivering well in its operational commitments. However, there was a decline in the score around questions on the clarity of the overall acquisition/ disposal strategy and the diversification strategy which we began to address at the delivery of the FYE2020 results in March 2021. Additional and detailed communication will be provided at a capital markets day in the early part of Q4 2021. Disclosure perceptions increased slightly with the perception that Exxaro has the technical and leadership skills required to achieve its objectives, with capital allocation and our approach to it perceived positively

• The coal business’s performance, the shift to energy rationale, portfolio optimisation, capital allocation and impact on dividend policy as well as enquiries into the energy strategy were topics of interest among investor stakeholders this year. An emerging area of interest is shareholder climate change activism
• However, the impact of COVID-19 on the business was top of mind for investors with a particular interest in management actions taken during the crisis to cope with and contain the virus, balance sheet implications, operational impacts and employee and community safety and livelihoods
• Investors are also concerned about Exxaro’s exposure to Eskom and the risks posed for Exxaro around electricity supply, integrity of contracts, and the utility’s structure
  break-up

Throughout the year, we ensured clear engagement and communication about our efforts to limit the impact of COVID-19 on our business and stakeholders while sharing information about Eskom local markets, portfolio optimisation and our strategic journey whenever possible.

• Shareholder returns — higher payout ratio
• Sunday Times award — Top 100 company (13th)
• Leading ESG performance — safe production: record LTIFR at 0.05 and four years fatality-free

• Key customer dependency
• Eskom systemic risk

We aim to foster customer understanding and strategic partnerships through continuous engagement and information sharing, and actively listening to our customers to foster mutually beneficial relationships. Engagements are aimed at understanding the environment, trends and market sentiment; exploring future relationships; and improving operational and financial performance.

• We engage regularly via telephone, email and virtual meetings, whenever possible, and at different levels in respective customer organisations
• In January 2020, we launched a transactional marketing and logistics portal aimed primarily at managing coal orders and transporters and facilitating coal auctions

Quality of the relationship: 2/3
Basis of rating: Internal assessment informed by various key data measured

• Effective and ongoing engagement with customers
• Effectively dealing with and resolving complaints

• Reduced production volumes impacting supply to the market
• Inability to consistently provide product at the correct specification
• Disruptions in demand
• Credit risk/poor payment — some customers were adversely affected by the COVID-19 pandemic and requested more lenient payment terms in the short term
• Force majeure from Eskom in relation to coal supply and renewable energy supply from Cennergi

• With the onset of the COVID-19 pandemic, our markets were materially impacted. We experienced low demand as many consumers were unable to operate
• In addition, our key customer, Eskom, declared force majeure, in relation to the supply of coal to Matimba and Medupi power stations, indicating that demand would be lower. In addition, a force majeure was also declared for the offtake of renewable energy from Cennergi. Exxaro contested these declarations and we continue to engage with Eskom on the issue
• We also continue to engage regularly with ArcelorMittal South Africa around its purchases of metallurgical coal and liquidity issues
• We engaged individually with various customers requesting extended payment terms as a result of losses incurred from the COVID-19 pandemic. As producers returned to full production, we saw a marked increase in demand
• We kept in close contact with our key customers and we were able to respond promptly as their coal demands increased

• Reliable and continuous supply of coal in terms of quantity/volumes, quality and affordability
• Safe production

• COVID-19 concerns
• Eskom systemic risk
• Community unrest
• Safety and health concerns
• Cost competitiveness of products
• Climate change concerns
• Country risk (political)
• Inability to achieve financial targets
• Low commodity price

Our suppliers are a critical part of our value chain. Managing these relationships to create mutual benefit supports our operational, strategic and impact goals, and forms part of our risk management approach. The supplier relationship management programme supports Exxaro’s strategies by leveraging value chain partner capabilities. Supply chain management achieves this through supplier collaboration initiatives intended to deliver cost savings, achieve sustainability mandates, ensure security of supply and mitigate business risk exposure. The supplier relationship management approach positions Exxaro at an advantage to extract discretionary value and emerge as a “customer of choice” for selected strategic suppliers.

• Direct, proactive engagement with strategic suppliers as part of our supplier relationship management programme supports Exxaro’s strategies by leveraging value chain partner capabilities through collaboration intended to deliver cost savings, achieve the sustainability mandate, ensure security of supply and mitigate business risk exposure so that Exxaro is at an advantage to extract discretionary value and emerge as a “customer of choice”
• Engagement methods include ad hoc contract reviews to assess performance and negotiate price, our quarterly contractor forum platform to share information on developments in Exxaro as well as safety, health and environmental issues and finally a biannual Supplier Day to recognise top performers

Quality of the relationship: 2/3
Basis of rating: 2018 reputation survey, various external survey and self-assessment.

• Last reputation assessment was conducted in 2018

• COVID-19 was the main concern for suppliers in 2020
• In 2020, the supply of magnetite, fuel and PPE constituted our top supply risks
• Fraud and corruption and maintaining our social licence to operate remain key procurement issues for Exxaro

• Exxaro conducted an assessment of its suppliers impacted by COVID-19 lockdown regulations, and compensated contractors who were not able to render a service during the initial lockdown, in part or in full, for proven incurred costs
• The strategy for sourcing COVID-19 PPE sought to minimise supply risks for the business and increase participation of local SMMEs
• We leveraged our supplier development and placed all qualifying SMMEs on early payment terms and provided loans and grant funding
• The procurement of magnetite was coordinated through group strategic sourcing with international suppliers identified and sufficient shipments imported to build up stock levels. New agreements with local suppliers were established with increased offtake commitments. The domestic and internal agreements are enough to cover medium-term COVID-19 scenarios
• Procurement fraud and the proliferation of procurement scams present a risk to Exxaro and its suppliers. Adoption of best-in-class business process and technology enabled us to respond to financial and fraud risks. Initiatives included new source-to-pay and accounts payable policies, establishing new guidelines and working practices to address inherent and emerging risks in the supply chain; a supplier code of conduct to articulate our commitment to the prevention of corrupt practice, anti-bribery and anti-corruption laws and the prevention of human rights abuse. All suppliers are required to commit to this code of conduct as a condition of tender
• Exxaro is committed to maximising positive social, economic and environmental outcomes. In the supply chain space, this is demonstrated in our commitment to increasing the participation of black-owned suppliers in host communities, to reducing the environmental impact of our business and to enhancing our reputation while upholding sound corporate governance. Exxaro is fully compliant with the preferential procurement requirements of the dtic's B-BBEE codes and the Mining Charter III. Exxaro is fully compliant with the B-BBEE codes with regard to preferential procurement and is on track to achieve full compliance with respect to the Mining Charter III by 2021

• Exxaro continues to set aside designated procurement opportunities for exclusive participation in black-owned community SMMEs (in 2020, Exxaro awarded over R500 million in direct contracts to black-owned SMMEs and over R490 million in indirect procurement has been subcontracted to SMMEs in host communities over the next two years)