Exxaro employees observing COVID-19 protocols

OUR BROADER OPERATING CONTEXT: TRENDS INFLUENCING OUR BUSINESS

Trend			Cause			Effect			Our response
Slowdown in global economic growth			The COVID-19 pandemic with associated national lockdown and restrictions Deep global economic recession – world's real GDP growth rate contracted by 3.6% (2019: 2.6%) Global power demand collapsed before it recovered Strong global steel production driven by China Iron ore market remained very tight and ended 2020 with strong prices Collapsed brent crude oil demand resulted in significant fall in prices Saudi Arabian and Russian price war in March 2020. Prices recovered second half of 2020			Demand for sized product in the domestic market recovered as 2020 progressed More domestic supply was available due to weaker exports The seaborne thermal coal market remained in an oversupply as API4 price declined by 11% after trading at US$72 per tonne on average in 2019 China's renewed ban on Australian coal imports disrupted the coal seaborne trade Recovery of demand from India, Japan and South Korea during the second half of 2020 Tightening LNG market with increased global LNG prices Chinese buying activity from South Africa For more information, refer to coal production and sales volumes.			We remained committed to monetising our remaining stake in Tronox Holdings plc over time and in the best possible manner considering prevailing market conditions. Subsequent to 31 December 2020, Exxaro divested from its investments in Tronox. Our interests in Black Mountain and the Chifeng Kumba Hongye Corporation's refinery remain non-core Formal process in advanced stages of divestment from ECC and Leeuwpan operations Reassessment of the Moranbah South coking coal project by Exxaro and Anglo American For more information, refer to coal production and sales volumes.
Evolving societal and regulatory environment			Globally, mining companies are facing increasing demands from diverse stakeholder groups, and maintaining a social licence to operate remains a top risk Furthermore, across all stakeholder groups, there is, rightly so, increasing intolerance of poor business and sustainability practices Shareholder activists are also placing increasing pressure on companies, particularly coal miners, to give voice to their long-term ambitions			A breakdown in trust can bring a mine to its knees faster than any other risk. Therefore, focusing on mutually beneficial relationships with communities is a top priority for all mines Furthermore, in the context of greater water stress and extreme weather events due to global warming, coal producers are facing more intense pressure to reassess their portfolios and demonstrate how they are contributing to the transition to a low-carbon economy For more information, refer to energy transition.			Our interests in Black Mountain and the Chifeng Kumba Hongye Corporation's refinery remain non-core while we work on divestment plans for Black Mountain The transfer of the Arnot operation was concluded. The outstanding condition was the cession of the current CSA between Eskom and Arnot OpCo, Proprietary Limited. Competition Commission and section 11 approvals were obtained Exxaro and Anglo Coal (Grosvenor) Proprietary Limited are reassessing the potential development plan for the Moranbah South coking coal project For more information, refer to coal production and sales volumes.
Energy transition			We have observed intensified global action on climate change and a move to restrict the use of fossil fuel for energy generation The findings of the Intergovernmental Panel on Climate Change (IPCC), in its special report on the impacts of global warming of 1.5°C, paint a grim picture of the consequences of the current trajectory in greenhouse gas emissions and changing climate patterns			Under the current trajectory, we expect the transitional and physical risks of climate change on our business will be medium to high over the next 20 to 30 years For more information, refer to risks and opportunities.			Our response has been to ensure a sustainable Exxaro in a carbon-constrained environment On 4 June 2019, the board passed a unanimous resolution to reassess the group's climate change risks and opportunities in line with the recommendations of the FSB's TCFD An internal multifunctional task team is developing a strategy using the TCFD recommendations. Progress and results will be presented to the market when the review process is complete For more information, refer to Our environment: stewardship and compliance.
Big data and mining			Digital and technological innovation opens avenues to improve productivity, safety and environmental management in the mining industry			Companies are exploring new data-informed methods of mining, assisted by technology, which requires an understanding of the potential future workforce and new skill sets For more information, refer to innovation and information management.			The Exxaro digitalisation and innovation journey is a strategic initiative driven by the CEO Our award-winning Digital@Exxaro programme is transforming our company culture to ensure we are more open and agile when we engage with stakeholders internally and externally

Wind turbines at Tsitsikamma

MARKET OVERVIEW

During 2020, the COVID-19 pandemic and associated measures inflicted the worst global economic downturn since the 1930s. Aggressive fiscal and monetary stimulus by governments and central banks, respectively, were injected into the global economy to soften the downturn and, in turn, support economic recovery.

GDP growth rates

• COVID-19 pandemic
• Global economic recession
• South Africa's Economic Reconstruction and Recovery Plan

The COVID-19 pandemic and imposed lockdowns resulted in collapsing currencies and stock prices, and disruptions to supply chains, global demand, international trade flows and travel, significantly affecting the global economy. Notwithstanding the unusually strong rebound in GDP activity during the third quarter of 2020, a much deeper global recession in 2020 compared to 2008/9 was recorded.

World real GDP growth in 2020 contracted by 3.6% compared to an expansion of 2.6% in 2019. Going into 2021, global economic growth recovery is anticipated to continue. However, the worldwide resurgence of COVID-19 infections, together with associated restrictions, the availability and timeous roll out of the vaccine will weigh on the extent of such economic recovery.

Real GDP growth rate (%)

	2021  forecast	2020	2019
World	5.2	(3.5)	2.6
US	5.7	(3.5)	2.2
Eurozone	3.9	(6.7)	1.3
China	7.8	2.3	6.0
India	9.8	(8.2)	4.1
South Africa	3.3	(7.0)	0.2

Source: IHS Markit, Apr 2021

The impact of COVID-19 on South Africa's fragile public finances has been devastating. As a result, the much anticipated Economic Reconstruction and Recovery Plan was released by the President of South Africa on 15 October 2020. If fully implemented, the plan is expected to lay a solid foundation for a higher economic growth path longer term.

Inflation

• Persistently low inflation
• Extremely accommodative monetary policy

During 2020, in response to the COVID-19 pandemic and a deep global recession, central banks turned to aggressive monetary easing to support economies. These interest rate cuts were facilitated by subdued inflation and inflation expectations. While initial shortages of some healthcare goods and panic buying by consumers increased some prices, the overall price pressures in the global economy were overpoweringly on the downside, mainly due to the significant fall in the brent crude oil price, characterised by collapsed demand together with the Saudi Arabian and Russian price war.

South Africa's CPI was 3.3%, within the Reserve Bank policy of between 3% and 6%. It is expected to edge up in 2021, barring any major shocks to the rand, fuel and administered prices.

Currency markets

• US dollar
• Negative real rates and stimulus packages (developed markets)
• COVID-19 vaccine development, approval and roll-out

The negative US/EU interest rate differential weighed on the US dollar during 2020 and favoured US dollar weakness with the latest Federal Reserve policy announcements indicating this trend is expected to continue into 2021.

In South Africa, the rand depreciated to an all-time low (1H20), before it significantly retracted (2H20). The reversion to a riskier financial market environment during the second half of 2020 due to easing global COVID-19 lockdown restrictions, vaccine development, approval and roll-out strategies, together with the uncertainty of the US elections, supported the rand. However, rand volatility is expected to continue into 2021.

Business sentiment

• Cautious optimism

The reality of South Africa's economic reconstruction and recovery challenges, together with much-needed economic reforms, was again highlighted in the latest announced economic plan, built on the common ground established by the social partners, namely government, business, labour and community organisations. Optimism prevailed that focus would now shift to urgently implement the critical economic reforms to enable a sustainable economic growth path for the country. However, the successful procurement and
roll-out of the COVID-19 vaccines during the first half of 2021 is imperative.

Commodity markets

• Mixed performance
• COVID-19 path and impact on demand, supply and price

Exxaro's specific commodity markets recorded mixed performances in 2020. Key drivers in commodity markets during the year were the COVID-19 path worldwide, global recessionary economic environment, collapsing commodity demand, supply disruptions, China's coal import restrictions and continued energy transition themes.

Commodity prices (US$/per tonne)

Commodity	2021  forecast	2020	2019
Thermal coal (AP14)	80	65.20	71.56
Thermal coal (RB3)	62	48.88	55.76
Hard coking coal (prime)	136	143.08	175.08
Iron ore fines	131	109.03	93.63
Lump premium	20	15.6	17.2
TiO2 pigment	2 787	2 459	2 480
Chloride slag	765	835	777
Zircon	1 450	1 370	1 510

Sources: Various market reports and Exxaro analysis (CRU, Wood Mackenzie, JP Morgan, TZMI), Apr 2021

Coal

• Recovery of domestic offtake
• Resurgence of global power demand
• Tightening of LNG market
• Chinese import restrictions on Australian coal
• Chinese buying activity from South Africa
• Decline in global seaborne thermal trade

The easing of associated COVID-19 restrictions, especially during the second half of 2020, resulted in an increase in offtake by most of our domestic customers. Although encouraging demand for sized products was evident overall, excess product accumulated due to lower demand during the first half of 2020 weighing on domestic demand.

Globally, the API4 price returned to some stability during the third quarter of 2020 before gaining significant increasing momentum during the fourth quarter of 2020 on the back of demand recovery from India, Japan and South Korea; a tightening LNG market with increased global LNG prices; and Chinese buying activity from South Africa. Further to the impact of COVID-19, China's renewed ban on Australian coal imports in September 2020 disrupted the thermal coal market. However, going into 2021, risks to the anticipated coal demand remain the impact and reintroduction of second and any further rounds of COVID-19 restrictions.

Coal demand and pricing for sized product in the domestic market remained stable throughout 2020 as weak export demand resulted in an oversupply in the domestic market. Uncertainty surrounding the implementation and duration of renewed import restrictions by China on Australian coal also supported South African seaborne market prices towards the end of 2020 and into 2021.

Global seaborne thermal coal trade levels for 2020 declined by about 80Mt compared to 2019. The average export sale API4 price dropped by 11% in 2020, having traded at US$72 per tonne on average in 2019.

Turning to hard coking coal, although demand from India and China remained supportive, China's ban on Australian coal imports weighed heavily on the overall market and price performance.

Supply-side disruptions (thermal coal)

• High-level engagements

TFR railed 70.1Mt to RBCT from January 2020 to the end of December 2020. The third quarter proved to be a challenge for TFR and Exxaro lost 0.7Mt of export coal not
being railed.

Though the export rail performance from Grootegeluk improved from 4.8 trains per week in 2019 to 6.32 trains per week in 2020, the tonnage of 1.96Mt railed for Grootegeluk was well below the target. High-level engagements are ongoing to increase the number of trains to 10 per week consistently as per the Waterberg ramp-up plan. The total export tonnage of 11.958Mt railed in 2020 is a new record for Exxaro.

Iron ore

• Supply disruptions
• Strong Chinese steel demand

Constrained supply due to COVID-19-related disruptions, especially during the first half of 2020, kept the global iron ore market balance constrained.

Overall, Chinese economic data remained highly supportive of strong steel demand – accelerating credit growth, ongoing improvements in fixed investment and purchasing managers' index, along with strength in property and machinery activity. As a result, Chinese steel production remained elevated throughout the period under review and, despite improved global iron ore supply, the market concluded 2020 constrained with strong prices.

As a direct result of disappointing iron ore global supply during 2020, inventory levels at both ports and mills did not adequately increase. Increasing concerns in China about iron ore availability, especially considering the high steel production levels recorded, supported the robust iron ore prices into 2021.

Mineral sands and TiO₂

• Subdued feedstocks and pigment markets

The TiO₂ pigment market fundamentals softened during the year under review with high supply, most notably from China, and weakened global demand. The willingness to spend by a weakened consumer base, and behavioural changes to end-markets for which TiO₂ is most exposed to, have negatively influenced overall demand levels during 2020.

Exxaro's green corporate office, the conneXXion