Exxaro Resources Limited (EXX) Earnings Call Transcript & Summary

Thank you. Thank you very much. Good morning, ladies and gentlemen, from wherever you may be seated. And perhaps to some, it could be good afternoon and good evening, given our -- the international footprint of our shareholders. My name is Mzila Mthenjane, and I'm the Executive Head for Stakeholder Affairs and this afternoon, I'll be looking after Investor Relations. We are coming to you live from our building in Centurion, The ConneXXion. And I'm accompanied this morning by our CEO, Mr. Mxolisi Mgojo; our Managing Director for Minerals as well as CEO-designate for Exxaro, Dr. Nombasa Tsengwa. Congratulations. Our financial director, Mr. Riaan Koppeschaar. It's a pleasure to be here this morning. In fact, as you'll see, I'm wearing a suit. And it's been a while since one has been adorned with such fine wool. I could hardly recognize myself in the mirror. But we're really pleased to be here this morning, presenting to you these results. And as you would have seen from our announcement, a record safety performance as well as a record cash distribution. And I'm deliberately juxtaposing the two. And I want to elaborate on it, but I think I'll just leave it to you to really think about it, especially in this context in South Africa and the world for the need to be moving forward to a low-carbon future in a way that help impacts positively on all stakeholders. I'd just like to give some housekeeping rules for those who have joined at ConneXXion. I've had to take my mask off for better audibility. But for those who are present in the room with us, I'd ask you to please, as you see will from your seating, we have maintained social distancing. And if you can please keep your face mask on. You will also see that we have provided some goody bags. And in there, you will find additional masks and sanitizers, so please use them. In the event of an unforeseen incident, the fire escape is through the double doors behind you, and you will be guided by somebody waiting outside, who will show you where to gather, and ablutions are also outside this room. The presentation today will be done in 2 parts. The first part will be the performance and results of the organization for the financial year to 2020. And we have distributed that presentation. The second update -- the second part will be a strategy update, and it's really a brief and as the word says, update, as we had committed during 2020 that at these results, we'll provide you with an update on progress regarding our energy business. I'm not going to talk for much longer. I will hand over to Mxolisi, who will lead us with a presentation in terms of an overview. And he will then be followed by Dr. Nombasa, who will provide an operational performance and then the financial results from Riaan and then Mxolisi will come and then close off the results discussion at the end of that, and then I will introduce the strategy update. Mxolisi, handing over to you.

Thank you very much, Mzila, and welcome to everybody who is here this morning. Ladies and gentlemen, for those who also are coming on live from various corners, you are all welcome, and also really a special welcome to our Board members, who are also in attendance and virtually. It is indeed, for me, a great pleasure to be sitting here before you today and we represent this year's 2020 financial results for the year ended December 31, 2020. The impact of the COVID-19 pandemic has been disruptive to lives and livelihoods and generally, the general economy. Ensuring the safety and well-being of our employees and communities in partnership with our peers and government had some positive impact to alleviate the disruption. We were able to spend ZAR 195.5 million in various initiatives, which included food relief programs, contributing ZAR 20 million to the solidarity fund, 2 COVID-19 testing sites and assisting SMEs retain their business activities and maintain employment. Our business operations through our employees and after being declared an essential service showed amazing resilience, which is reflected in the record performance we are reporting today. Commodity markets recorded mixed results over the period under review. The API4 coal export price index declined by 9%, whereas the iron ore fines price increased by 16% compared to 2019. Further to the impact of COVID-19, the Chinese ban on Australian coal imports in September 2020 disrupted the thermal coal market. For the most part of 2020, despite the resurgence in power demand, thermal coal prices failed to extend their recovery and the global seaborne market remained under pressure. Increased demand from key markets, especially India, Japan and South Korea, including tightening LNG market which was supported by increased global LNG prices and also Chinese buying activity from South Africa, all supported prices towards the end of 2020. The recovery from the pandemic as we roll out the vaccination program provides for an urgent response to climate change to reduce carbon emissions and transition to a lower-carbon future. We anticipate increased momentum in climate action with the reentry of the U.S. in the Paris Agreement. And therefore, we are positioning Exxaro for a low-carbon future. We have already communicated that we will not be investing for further growth in our thermal coal business. We are nearing completion of our ZAR 17 billion CapEx program, which has been delivering additional volumes from Belfast in 2020. GG6 will be completed in the second half of 2021 and ramp up to full production in the first half of 2022. We also completed the 12-million-tonne high-speed, high-volume load out station to support our exports from Grootegeluk. The completion of our TCFD assessment has confirmed that we are on the right path to ensuring a resilient Exxaro in a low-carbon economy. This is being achieved through, firstly, the reprioritized exploitation of our coal reserves to minimize high-value coal being stranded thus maximizing the value of the coal business through a better product mix, which enables us to increase flexibility in how we respond to our export markets. Secondly, given our South African energy contracts and prospects in our export markets, our just transition and decarbonization plans include and start with carbon and cost-efficient coal operations through cheaper renewable energy alternatives and application of relevant technology and innovations whilst building a competitive position in the renewable energy sector, together with leveraging our mining capabilities in mineral sector. Further information will be provided at the end of our results in this regard. Turning to our results. Our business performance seeks to maintain a balance between responsible and accountable business conduct and financial results. Our efforts in this regard continue relentlessly to maintain our leading ESG rating and create value for stakeholders. Our investment in Cennergi, a renewable energy business, is evidence of the value creation during this imperative for an energy transition. The record safety performance of 4 years fatality-free and the lost time injury frequency rate of 0.05 are hallmarks that a safe operation leads to good operational performance. The record 34% increase in export volumes, combined with the energy delivered from Cennergi, were key contributors to the 12% increase in revenue and a 25% increase in core EBITDA. And the increase in core HEPS by 26% is attributable to the performance of both coal operations and SIOC. Given the operational and financial performance of the business and proceeds received from the Tronox disposal, the Board has declared the following dividend and cash return to shareholders: An ordinary dividend of ZAR 12.43 per share based on group adjusted earnings, of which further details will be provided Koppes in the later slides; a special dividend of ZAR 5.43 per share arising from the sale of the Tronox investment and allocation of ZAR 1.5 billion from the Tronox proceeds to a share buyback program to take advantage of favorable share price movements in this regard. And with this summary, I will now hand over to Nombasa to present the coal operational performance, our new CEO-designate.

Thank you, Mx. Good morning, ladies and gentlemen. I am happy to present our operational performance for FY '20, a year that will be remembered as one of confusion, deep anxiety and unprecedented loss of life due to the COVID-19 pandemic. Now on the safety front, I am proud to report a 58% year-on-year improvement in our LTFR, as Mxolisi has mentioned, which is a record improvement of 55%, which is 0.05 against the set target of 0.11. Notwithstanding the industry regression on fatalities last year, we have also achieved a record 4-year period without a fatality on the 2nd of March of this year. So we do congratulate all our teams for continuing to work very hard towards zero harm and demonstrating that Khetha Ukuphepha is indeed the best choice. On COVID-19, we can report that all our operations are currently running at full capacity. Matla increased capacity to 80% in the second half of last year from changed shift patterns that we had to implement to improve social distancing and also operating now at full capacity. All our BUs followed a structured return-to-work program early this year in order to minimize the impact of the second wave of COVID-19. The testing laboratories that we had established for our Grootegeluk and our Mpumalanga operations have now been commissioned and fully operational. The facilities have served us very well in the post-return-to-work mass testing period we had to experience in the early part when we were returning from holidays. I am pleased to announce that the Grootegeluk laboratory has secured approval for public testing, and now we are waiting for the Matla approval for that laboratory. To date, the 2 labs have respectively conducted 8,131 and 8,264 tests. As of the 2nd of March this year, a total of 2,796 positive tests were recorded with a recovery rate of 99%, with only 16 active cases. Regrettable though, the group recorded 11 lives lost with 1 at Mafube. So we apply the same protocols to all employees and nonemployees at all our business units. And we continuously evaluate the measures we have implemented across our operations to ensure that we minimize the impact of this pandemic to our employees. If now we look at the volumes, as you can see from the bar graphs, production and sales for last year were higher by 4% and 5%, respectively, compared to the previous year. The table on the screen shows a net increase of 1.8% of the product. And this is as a result of the improvement in Medupi offtake, resulting in higher production of 1 million tonnes at Grootegeluk. Also, the Belfast ramp-up contributed an additional 1.8 million tonnes. Matla also recovered from the negative impact we have experienced in the first half of 2020, and ending the year slightly higher by 0.1 million tonnes, partly offset by lower production at Leeuwpan and ECC due to COVID-19 impacts we experienced in the first half and also the Eskom contracts which we're expecting, not realizing as yet for both mines. As well as at ECC, Forzando North was placed on care and maintenance in the second quarter. Now if you look at the sales, you can see a net increase of 2.3 million tonnes if you look at the table. And this is due to a 3.1 million tonnes increase in exports due to availability of our own production and also an increased sales from Grootegeluk to Medupi, as I've already mentioned, offset by the new Eskom contracts that we have not yet realized at ECC and also Leeuwpan. If we look ahead now in 2021, production is expected to be in line with what we've seen last year, while sales are expected to be 5% higher. And again, this is due to the Eskom offtake from Medupi, which is in line with the contractual requirement from Grootegeluk. Belfast will be producing at full capacity for the year, and where -- we expect increased sales in ECC and Leeuwpan and Grootegeluk for this year due to our product availability once again. However, we would like you to note that we have 2 million tonnes of production and sales this year that is at risk due to the current TFR challenges that we are experiencing to date. We, however, engage TFR on a daily basis on this matter, and we continue to monitor this performance, and we will indeed update you in June of this year. Moving on to the markets. Very pleasing to report that exports increased 34% on the back of a very good marketing performance despite market disruptions due to COVID-19. This was also supported by good product availability from all our operations as well as very good logistics performance in Mpumalanga, specifically, and really good leadership from Sakkie and his team, and we really thank you for that accomplishment. From the pie graphs, you can see a reduction in Indian exports and the material increase to other Asian countries. We have also witnessed good demand from Pakistan and a significant increase in opportunistic sales to Vietnam during this period. You will have read in the media about the Chinese government having banned Australian imports, resulting in Australian coal competing directly with us in our natural markets, particularly in India and Pakistan. Some coal has also started to flow from South Africa to China in response to obviously this gap that is left by the Australians. However, our current view is that the Chinese market is likely to remain as an opportunistic market for South African exporters. As far as the sales mix is concerned, as you can see, we were able to produce and sell a higher-value product mix. The RB1 profile going forward, as you can see, is testament to the contribution of the CapEx Mxolisi was talking about, which is invested in the Belfast and GG6 projects now beginning to realize. During the challenging times in global markets last year, we experienced low pricing in some of the markets. However, we believe that we'll continue to narrow the gap between the average realized price and the average API4 index over time as the average product quality keeps on improving. Even during these COVID times, we experienced good demand for coal and we remain optimistic that our balanced portfolio and our market-to-resource optimization strategy enables us to respond competitively to ever-changing market conditions. And moving on to cost excellence, ladies and gents, we are very pleased to report that we were able to keep our costs below mining inflation, which was 5.3%, despite the pressure on our business due to inflation, ongoing high stripping ratios and additional COVID-19-related costs, which were unexpected. The major contributor to this increase is the selling and distribution costs associated with the 3.1 million tonnes higher export that we had to move, which amounted to ZAR 675 million, an equivalent of ZAR 15 per tonne, while the other cost increases were offset by the savings achieved. And you will see in the backup slides, we do unpack these movements. And the two I really want to highlight to really demonstrate the great work that this team has done together with our head office is in the reduction of IM costs of about ZAR 253 million, you'll see that. And also a demonstration of the great work that the teams are doing on ongoing rehabilitation, you will see a downward adjustment on our rehab provisions by about ZAR 151 million, really commendable work. So this is our testament to the operational efficiency and cost savings processes and the discipline we have instilled in this business. In addition to the cost performance described above, we indicated to you previously that we are targeting additional internal production costs and also on CapEx, looking at both sustaining and expansion CapEx for the previous year, and we continue to do this. And this work is focused on specific initiatives to combat the COVID-19 impact on our business. As I sit in front of you today, I am happy to mention that we exceeded our production cost savings by ZAR 145 million and achieved a cash savings of ZAR 681 million by optimizing and postponing our sustaining CapEx. Really thank you to great leadership of Mellis and all the financial managers of the business units with all of this good work. And this performance, you will see it reflected as trends in the bottom left of the slide. Having implemented integrated operation centers across our business units, which enabled our value chain visualization capabilities, we have enhanced our in-time decision-making. And now, we are beginning to check and quantify the benefits of what digital transformation program we introduced a few years ago. Now on my last slide, ladies and gents, looking at our total capital spend for 5 years. It is expected to be 1% higher than the previous guidance. On expansion CapEx, it is expected to be 6% lower due to the lower cost realized against the previous guidance on the closeout of the Belfast project, resulting in the final cost of ZAR 3.5 billion. On the GG6 expansion project, as mentioned in the FD close, the 10% of about ZAR 500 million increase due to the 12-month delay still remain valid with a project close-out, as Mxolisi said, in the second quarter of 2022. The mine is continuously working very hard with the project team to ensure that we mitigate the final impact of the delays on this business. The rapid load out station, very happy to announce that it was completed in the second half of last year. And you would have noticed that our CapEx expansion that is phasing out, which will enable us to leverage off the investments we've already made in the business. And due to the strategic nature of these investments, we will be realizing the value for longer, complementing our early value strategy. On sustaining CapEx for the period, expect that to be 3% higher than previous guidance, mainly due to the delays in the project as part of our cash preservation initiatives as well as the impact of COVID-19 on project execution. And this includes in this CapEx, the latest sustaining and replacement strategies as we normally do. And on a sustainable savings we've mentioned to you before of ZAR 1.3 billion, that still remains unchanged. In closing, ladies and gents, you will agree that my coal team and our support functions have delivered the best results any resilient team could have under very tough operating and unpredictable market conditions. And this performance demonstrates that Exxaro has a robust portfolio of assets that has enabled us to respond competitively during a difficult period. I'll now hand over to Koppes.

Good morning, ladies and gentlemen. It's a pleasure to present the results for the 12-month period ending December 31, 2020. So we will be looking at the core results. So the IFRS results are adjusted with noncore items, which consists of headline earnings adjustments and other items deemed to be noncore. Further details are included in Slide 36 of the backup slides. The 2 main adjustments that I want to point out are the deemed disposal of Exxaro's 50% shareholding in the Cennergi JV as well as the impairment of our ECC operations and our investment in the Insect Technology Group, or ITG. The main reasons for these impairments. ECC. In terms of an impairment assessment performed, the value of ECC had to be adjusted to the fair value less the cost of the disposal. ITG. In the current COVID environment, ITG is struggling to raise fresh equity, causing financial difficulties for the company. In view of that, we've taken the prudent decision to write-down our investment. The high-level overview of the core results highlights the difference between our own managed operations depicted at the top and income from our equity-accounted investments at the bottom. Taking into account the difficult trading environment, we are pleased that the revenue increased 12% to ZAR 28,9 billion and EBITDA 25% to ZAR 7.3 billion. I will unpack the details in the following slides. The contribution from our nonmanaged operations also showed a significant increase with equity income increasing 36% to ZAR 6.5 billion, mainly due to the performance of our investment in Sishen Iron Ore Company. This translated into headline earnings per share of ZAR 29.73, an improvement of 26%. If we look at the group revenue, domestic prices realized were higher on Eskom sales, but was slightly offset by lower metallurgical and market coke prices in the local market in line with the lower international prices. On the export front, the lower benchmark API4 price resulted in an average price per tonne achieved of $48, which is 10% lower compared to 2019. If we look at the volumes, the decrease in domestic volumes were already unpacked by Nombasa. Despite the impact of the COVID pandemic, we managed to increase the export volumes by 34%, mainly due to higher coal availability and with Belfast ramping up to full production. The average rand-dollar spot rate was also 14% weaker, and we achieved a realized rate of ZAR 16.43 compared to ZAR 14.73 in 2019. The other revenue bucket is mainly lower due to the transfer of the Arnot mine in February 2020. Revenue from our Matla operation was ZAR 317 million higher in line with higher production volumes. Revenue for Cennergi is also now included for a 9-month period. If we look at the EBITDA waterfall graph. Before we look at the detail, I first need to explain the change in treatment of indirect corporate cost. In the past, this cost used to be reflected in the different segments, but we've adjusted the segments now to exclude this cost. Therefore, the corporate cost is only included in the other segment for both the years under review. Looking at the waterfall graph, the revenue variance was unpacked on the previous slide. If we look at inflation, our labor inflation was 4,2%. Our diesel cost, in line with the lower oil price, decreased by 11,7%. Electricity cost was higher at 10,1%, and the rest of our cost base increased at PPI of 2.5%. Employee cost was higher as we seized with the capitalization of the cost at Belfast in February of 2020. And we also incurred additional COVID cost to pay COVID allowances during the lockdown and also incurred additional cost for sanitization protocols. These costs were partially offset by us not granting salary increases to the management and specialist category of employees. Adjustments to the environmental rehab reliability resulted in a positive variance. Last year or in 2019, there was an additional provision at Durnacol and Hlobane mines that did not occur again in 2020. And we also increased the life of mine of Dorstfontein East. We also -- a big impact was we used a higher discount rate to calculate the liability. This positive impact was partially offset by Belfast, which was previously capitalized. Operational costs were higher, due to the cessation of the capitalization of cost at Belfast, offset by lower production cost in line with the lower production numbers mainly at the ECC operations. If we look at distribution costs, distribution costs were higher, in line with the higher export sales. The stock movement in buy-ins were negative due to higher buy-ins, especially the first quarter of this year, to fulfill contracts and also as a result of stock movements at the coal operations. The negative ForEx variance is a result of realized and unrealized foreign exchange gains on export sales in line with the volatile exchange rate. The higher royalties is a function of the higher revenue at Belfast and Grootegeluk. The Cennergi bucket represents the cost for the 2 wind farms for the 9-month period. If we look at the general bucket, we incurred lower project costs during the lockdown. And we also had a favorable adjustment to expected credit losses from outstanding debtors that we were able to recover during 2020. If we then look at the split between EBITDA and revenue at the Waterberg and Mpumalanga operations, we're very pleased that Waterberg reported an increase in revenue and EBITDA, mainly due to a very good operation performance. You will see that the revenue increased ZAR 1.4 billion which also resulted in higher distribution cost of ZAR 175 million and stock movement adjustments of ZAR 223 million. Some of the material items included in the Waterberg EBITDA, we had higher employee cost of about ZAR 44 million due to COVID allowances as well as a positive impact on the rehab liability of ZAR 106 million mainly due to the higher discount rate. The positive impact of the expected credit losses that we were able to recover was about ZAR 162 million. If we look at the EBITDA in Mpumalanga, this is mainly driven by the lower export prices as well as lower sales at ECC and Leeuwpan in line with the impact of COVID and the Eskom contracts not materializing that Nombasa alluded to earlier on. If we look at the other coal segment, the decrease there is mainly due to the impact of the rehab costs that I explained earlier on. It should also be noted that the revenue expenses at Belfast have been capitalized until the end of February 2020. So all of this translated into a very healthy 28% EBITDA margin for the coal business. On the next slide, we look at Cennergi. As you know, Cennergi is now consolidated in our accounts for the 9-month period. And they operate 2 wind farms, the Tsitsikamma Community Farm with an installed capacity of 95 megawatt and the Amakhala farm with a capacity of 134 megawatt. On the left-hand side is the performance since we started consolidating them. So you can see for the 9-month period, Cennergi generated 553 gigawatt-hours of electricity, slightly below our expectation due to lower wind speeds but offset by higher equipment availability. I'd also like to point out that the Cennergi project finance debt of ZAR 4.6 billion will mature over time and will be fully settled in 2031. The debt has no recourse to the Exxaro balance sheet and is hedged through interest rate swaps at an average rate of 11,7%. Hedge accounting is applied, so it has no volatility on our income statement. On the right-hand side, we show the figures on an annualized basis. So you can see, for 2020 on a 12-month basis, 727 gigawatt-hours we generated. Pointed out slightly below 2019, but in line with 2018. If you look at 2019, 2019 was an exceptionally good year for generation, especially at the Amakhala operation. Since the start of the operations in 2016, both facilities have maintained an availability of around 98% and achieved capacity factors of 36% at Amakhala and 40% at Tsitsikamma. When we then look at the core attributable earnings, firstly, the big-ticket item there is the financing cost. So financing cost now also includes Cennergi, the financing cost of Cennergi amounting to ZAR 389 million. We also capitalized interest of ZAR 374 million for our Belfast and GG6 projects. When we look at equity income, Mafube, our 50% JV with Anglo, recorded an equity accounted profit of ZAR 67 million and were negatively impacted as a result of the lockdowns as well as certain rebates -- diesel rebates not being allowed by SARS. This was, to some extent, offset by the favorable impact of the exchange rate. The increase in equity income from SIOC to ZAR 6.1 billion was mainly driven by the higher iron ore prices. Tronox consists of our 26% interest in the South African operations, which we disposed from in the first quarter of 2021. A slide setting out the acquisition cost and proceeds from the disposal is included in Slide 39. And you can see there that it actually is quite a good story. Cennergi includes the equity for the first 3 months of the year up until the end of March 2020. The other category includes an ZAR 85 million loss from Insect Technology Group and also a ZAR 122 million equity income from Black Mountain. Due to the fact that the sale of Black Mountain did not realize, equity income has been recognized retrospectively, as the investment was previously classified as held for sale. Eyesizwe (RF) also repaid their acquisition debt in 2019 and from the 1st of November 2019, noncontrolling interest is being recognized for their external shareholders. This resulted in the headline earnings per share of ZAR 29.73. When we look at capital allocation, in applying our capital allocation framework, we still aim for our net debt-to-EBITDA ratio to be below 1.5x. This excludes Cennergi. Cash inflows for the period was ZAR 10.1 billion, comprising of ZAR 6.1 billion from our own operations and dividends received of ZAR 3.3 million , mainly from SIOC. In terms of our capital allocation framework, we paid financing cost of ZAR 1.1 billion, sustaining an expansion capital at our coal operations of ZAR 3 billion, dividends of ZAR 4.3 million, and we invested in growth of ZAR 2.2 billion. Included in this figure is ZAR 1.7 billion to acquire Tata's 50% shareholding in Cennergi, inclusive of working capital adjustments. Included in the other bucket is the last payment for the ECC deferred consideration and the acquisition of shares to settle vested share-based schemes. This resulted in a closing net debt position of ZAR 11 billion and a net debt equity ratio of 28%. If we look at our net debt-to-EBITDA target, this was 0,95x, excluding Cennergi, well within our target of 1.5x. So with the acquisition of Cennergi, our Board has now also revised our dividend policy, so we are now applying our 2.5 to 3.5x cover ratio, not to only coal earnings, but now to the total group earnings, excluding SIOC equity-accounted income. I'm very pleased to announce that the Board has resolved to pay a final dividend of ZAR 12.43, which is a pass-through of the SIOC dividend as well as a cover of 2.5x on Exxaro's adjusted group earnings. From the proceeds of disposing our remaining interest in Tronox, the Board has resolved to pay a special dividend of ZAR 1.95 billion at ZAR 5.43% (sic) [ ZAR 5.43 ] and also implement a ZAR 1.5 billion share buyback program, which will be subject to market conditions and the level of the share price at the time. So with that, also, I'd like to thank everybody at the operations for the sterling set of results under difficult circumstances. Also all our people in the support functions and also my finance team, I think all the hard work that they put in late evenings, I'm not going to single out anybody, but thanks very much. With that back to Mxolisi.

Thank you very much, Koppes, and really looking at our business outlook for the first half of this year. The global economic growth recovery is anticipated during the period of 2021. Whilst favorable for South Africa, however, one has to caution to the fact that any further COVID-19 infection waves with associated restrictions and, by and large, the extent to which we are successful in the rollout of the vaccination program during this year could weigh in heavily on the economic recovery that is currently underway. We do, however, require, as a country, further clarity on the economic reconstruction and recovery plan in terms of the infrastructure plan that has been communicated by the government, which, by and large, requires rather deep reforms, especially if one looks at how that could impact our business regarding to the rail and port increases that are required to support the country's exports activities. And we believe that if this is done correctly and with speed, it could lend further impetus to the growth of South African economy. And in the Atlantic thermal coal market, supplier cutbacks have the potential to swing the global market back into balance. In Asia, thermal coal prices are supportive as the Indian market recovers together with Indonesian supply cutbacks. And the strong Chinese demand for iron ore, together with the seasonal drop in the global supply from Brazil, Australia and domestic China, we believe, will support the iron ore markets into 2021. However, as the year progresses, we are also cognizant of the fact that there could be a softening in the iron ore market as anticipated as the global seaborne supply recovers with Chinese steel production improvements for 2021 stabilizing at lower levels compared to 2020. We will continue and we are continuing with our process of disposing our ECC and Leeuwpan operations. And we will give further feedback on this to the market as we progress during this first half of the year. And again, with the Black Mountain transaction not having gone ahead, we will continue reviewing our options with this investment in due course. We also believe that the liberalization of the South African electricity sector, which, by and large, we have seen great activity already starting taking place in the latter part of last year, will pick up momentum this year. It is one of those critical structural reforms that the country is embarking upon to really ease up firstly, the challenges that Eskom is currently experiencing, and with that, enabling a whole new area of self-generation to emerge as part of response to the electricity crisis. Now we believe that this opens up a whole new opportunities within the renewable energy sector. So just giving some bit of feedback in terms of some of our strategic priorities that we are embarking upon. The past year underlined that we are deeply in the transition towards a new and a low-carbon economy. Even during this COVID crisis, the scale and the structural shifts towards a low-carbon-powered economy have gained pace, thus confirming the active steps we have taken to ensure that our business is agile and positioned to continue creating value for all stakeholders. Last year, we announced a number of strategic priorities. To ensure that we achieve this goal...

May I just suggest that perhaps before we move to the strategy update, we take a few questions related to the results, and then we have a structural break in terms of moving to the strategy update.

Okay.

We still have time on our side. So I think it will be best that we perhaps do it that way.

All right. That is fine.

Okay. Thank you.

With that, then let us then take the opportunity to ask any questions that may be there in the audience regarding to the operational performance before we actually embark on the strategic update.

So if we can then move, I have a question already from Sandile Magagula and I'll come back. I don't think there will be any questions from the floor here. Sandile is from Umthombo Wealth. He has quite a few questions, which I will try and segment. I think the first one, domestically focused and particularly on Eskom, starting with the statement that the issues at Eskom remain prominent while maintenance to aging plants is overdue. How big is the chance that Eskom could introduce second-round force majeure on existing coal contracts? And let me at least let you answer that because that's specific to Eskom, whereas the following questions are slightly different. Nombasa?

Now, thank you very much, Sandile, for the question. All of us do listen to the Eskom CEO, they talk a lot to the media of late. For us, at least to determine the challenges that they experience. And I will let you read that from where you sit. But the challenges that Eskom is really looking at, at the moment is that of making sure that their fleet is really performing very well. And there hasn't been any mention from what we pick up of challenges of demand that we could read, that would lead to an FM, in the same way that we've expressed ourselves in the previous period when they called for an FM that we did not believe that, that was an act of FM what was going on during the COVID period. And we still obviously believe that they will have to be out of the ordinary circumstances for us to really foresee an FM at Eskom at this time.

Okay. Thanks. And perhaps while we're on the subject of Eskom, another question's just come up from [ Shwayeeb Vayed from Afina Capital ] asking if the current low Eskom fleet availability is a risk for our coal volumes and what guidance can we give.

Well, from the -- I mean, from -- let me put it this way. The 3 power stations which we supply, the 2 big ones being in Lephalale, Matimba and Medupi, there have been no challenges there as we know that they're operating at the capacity which they have on the ground. And at Matla, as we always say, they are all baseload power stations. And we have not seen any curtailment in terms of our supply in those operations.

Okay. I'm going back to Sandile's questions. The next one from Sandile is around Belfast. What will be the estimated impact on unit cash costs when Belfast reaches full capacity?

Okay. Well, we'll have to look at you, Mellis. I know that we are looking at optimization already of certain activities. Mellis Walker.

Mellis Walker, our Finance Manager for Coal, will take that question. Mellis?

Yes. Just on the Belfast story, as we talked about at the Capital Markets Day, the first year of production, that goes through the income statement of 9 months. Last year, we had 9 months of the business running through the income statement. Prior to that, as Koppes mentioned, there was capitalization of revenue as well as costs. We're comfortable that we're going to get to the investment proposal numbers that were put in for that investment to take place and be approved when we're in full production, which is obviously going to be this year, we're going to ramp up to full production at that business. So that's the guidance we can give. And obviously, overall, we talk about staying within mining inflation, which Nombasa mentioned for 2020 was 5.3%. So we're comfortable we're going to stay within those numbers.

Thank you very much, Mellis.

And maybe to add to that. If you look at the backup slide, talking to volumes at Belfast. And just by sheer amount of volume that we'll be adding will ever be advantageous to our ramp-up time.

Okay. Great, great story. And then the next question related to markets and product. What underpinned the lower product quality in the export markets? And how we're looking to enhance product quality going forward. Sakkie Swanepoel, who is our GM for Marketing and Logistics, will respond to that question. Sakkie?

Thanks, Mzila. Yes, I think you could see from the graphics that we've shown that we, on a proportionate basis, are actually busy selling a higher average quality year-on-year. And that, of course, is very much announced through our investments not only in Belfast but also at Grootegeluk and Mafube. So going forward, I think we see a -- still a really good market for the RB2 space. And of course, in our home-grown or home market like Pakistan, that's a big demand product. So we do foresee that will continue very well. And then I think we are very well positioned with a higher quality mix into the future to really adapt to where the demand is from a product perspective and to deal with the market, where the market is at that time. Thanks, Mzila.

Thanks, Sakkie. And then his last question should come as no surprise. Another growth CapEx is coming to an end. If I had to say dot, dot, dot, I'm sure you could conclude that yourself. It's coming to an end in the coal operations. What type and scale of acquisitions are you looking to acquire in the energy business? That's the first part of the question. And what impact will this have on our capital allocation strategy going forward?

You can take part of it, Koppes.

Okay. So I think the -- our dividend policy and our capital allocation framework, as we had outlined previously, we do not foresee that it will change. So I think the first part of the question, to some extent, we'll probably discuss later on in the strategy session. Perhaps we can give more guidance there.

Okay. So Sandile, if you can be patient with us on that energy acquisition. So those are all the questions I've received so far from Corpcam. I don't know if there are any questions from Chorus Call.

Yes, sir, there are 2 questions.

Great.

The first question we have from Shilan Modi from UBS.

Congrats on the good set of results. And congrats to Nombasa on being the CEO-designate. A couple of questions from my side. Distribution costs in the coal business stepped up quite materially year-on-year. That was -- went in hand-in-hand with your export volumes. Given export volumes are, let's call it, flat for the next couple of years, should we expect no further large increases in distribution costs? Like is that a fair assumption? The second is with the disposal of your Tronox stake or the majority of your Tronox stake, part of the cash was allocated to a special dividend, part was allocated to a buyback. What's the remainder being allocated to? I estimate it's about ZAR 2.2 billion. And then just in the backup slides, in Slide 29 and 30, with ECC and Leeuwpan, you're guiding to some Eskom sales. Can you just talk to that? Those contracts didn't really materialize in the last year. What's changed? And how does this impact the sale or potential sale of these assets?

Sakkie, can we start with the distribution costs and expectations going forward? And the last question.

Yes, Shilan, thanks for the questions. I think on distribution cost, if you calculate it, you will see it's very, very close to a variable cost for us. So directly related to the export volumes jumping from 2019 from about 9 million tonnes to the 12 million tonnes of exports in 2020. So you should see that direct relationship. And if we are going to increase exports in future, it will, of course, go up with that. If you look at our exports plan currently over the next few years, it's very much in line with the type of levels we've seen in 2020. So you should see some stability in that number. And then in regards to the Eskom agreements on Leeuwpan and ECC, yes, we have been in quite a prolonged process with Eskom trying to negotiate those 2 contracts. And there are actually very few things outstanding in those 2 contracts since December of 2020. I'm quite optimistic that we are making progress, not as fast as we would like to. But we are still positive and hopeful that we will go and conclude that successfully, hopefully in the short term.

Thanks, Sakkie. And then the other question was on the Tronox proceeds, expected use of those remaining proceeds. Is the ZAR 2.2 billion accurate?

Yes. So remember, in the past, we said that the Black Mountain proceeds will be allocated for the Cennergi acquisition. So with the Cennergi acquisition -- or the Black Mountain disposal not going ahead anymore, we're allocating it to the Cennergi acquisition.

All right. Thanks for that. The second question or second person wanted to ask a question on Chorus Call?

Of course. The next question we have is from Thabang Thlaku from SBG Securities.

I hope you can...

Yes, we can hear you.

Well done, guys, on the results and congratulations to Nombasa. Just a couple of questions from my side. Can we please get more color on the Transnet issue? And what do you guys expect the impact on export volumes to be? And when do you guys expect Transnet to sort out the sort of challenges that they are experiencing at the moment? And then I wanted to find out if Exxaro was one of the SA coal miners that was able to place material in China. And whether the answer yes or no, what happened to the trace element issue that has impeded us from placing material on that? Are they just taking coal that has high-trace filaments in it? And then I don't know if this is possible, Sakkie, would you be able to give us a proportion of the RB3, RB2 and RB1 in the total 12 million tonnes that Exxaro exported in 2020? That's all from my side.

Thabang, thank you for the questions. And maybe if I must now think that I recall all of them, if I can start...

I'll remind you.

Start off with the Transnet one I think was the first one.

So the first one is just...

The impact.

The impact on our exports from Transnet, TFR, and when we can expect a resolution on the challenges that they're experiencing.

Yes. So I think, unfortunately, the TFR challenges are not something that's going to be resolved in a very short term. According to Transnet's own recovery and ramp-up plan, they actually believe we should get to a normalized, let's say, 81 equivalent, 81 million tonne equivalent type number only after the half year. So it's likely that we'll only see that by June, July. Currently, I'm under correction, but I think they probably rail at about 1.3 million tonnes per week, where it actually should be close to 1.6 million, 1.7 million tonnes per week. So you can calculate what the loss to the industry is on a weekly basis to reach its weight currently. As Nombasa has indicated earlier, in our own calculation, we foresee that there can be a risk of up to 2 million tonnes in our export numbers for this year, an impact on Exxaro. We obviously employ a lot of effort to try and mitigate this to sell coal to other exporters who potentially have still additional capacity. But with our industry currently being impacted by the TFR unavailability of locomotives, we also see that other exporters do not necessarily have the capacity to always help us. But we are trying avenues through other ports, through other mechanisms to get the coal out and through other exporters to try and still chase our number that we are targeting for. But as Nombasa indicated, there definitely is a risk to our plans for this year and for the whole industry.

Thanks. And then the next question was on China exports, whether we specifically delivered any volumes in China. And the second part of that, any knowledge on the issue of trace elements of South African coal.

Yes. I think China, just to step back, the last time China actually imported from South Africa was 2016. So China now returning back to South Africa as a supplier is actually quite, quite an event. And if you look at the RBCT industry information on exports, then we can see that in December, they started to flow some material towards China. If we look at 2021, for the year-to-date until end of February, China is actually the third-highest destination market from South Africa after India and Pakistan, of course, which we always know is like the top 2. So China really has taken quite a bit of material from South Africa on a relative basis compared to other destinations. And if you just look at the month of February, China was actually the highest destination market from South Africa. So there's definitely coal flowing from South Africa to China. In regards to the trace elements, it is an issue. There are some mines from South Africa and some products from some mines that falls within the constraints or the limitations of the trace elements, specifically on fluorine. And even in our own portfolio, there are different products and different mines that conform. What we do see in the market is that the most volumes of material that actually goes to China from South Africa are vessels that consist of parcels from different suppliers and different products. And therefore, you'll also see that a lot of the vessel scope size vessels that go to China from South Africa is actually collated by some of your big traders who's sourcing from different suppliers to make sure that we fall within the fluorine levels. So yes, I think the South African coal, in a blended way, can definitely fit within the limitations of the trace elements. And as I said, we've seen it in February, where it's actually our highest destination market.

And then the last question is around, I guess, crystal-gazing in terms of proportion of RB1, RB2 and RB3, I think, for 2021 exports.

Yes. Okay. Yes, it's a number we're not normally showing. And in that graphic that we showed earlier in the slides that Nombasa had, you do have the split there for 2020, where we show the RB2 separately. And actually, if you look at that slide, Thabang, we do show there an RB1, RB3 and 4 rate number. And the only thing we do not split out is the RB2. And the reason is simply because it's a very difficult number to forecast. As a guidance, I would think the type of number that we saw in 2020 is potentially going to be repeated as an RB2, but we will have to see. We obviously employ a lot of effort currently to try and increase also the amount of RB1 that we sell as an RB1 because it becomes a bigger portion of our portfolio.

Thank you very much, Sakkie. Any other questions from Chorus Call?

Yes, sir. There's a question from Tim Clark from SBG Securities.

Can you hear me?

Yes, we can.

Great. And congratulations, Nombasa. Great job. I've got 3 quick questions, please. The first one is on Grootegeluk. I see the reserves went down quite a bit as you sort of pushed your high-value strategy forward. And I wonder if you could just give us a little bit more operational color on what you're planning there. The second one is just on Mpumalanga. It's quite a big kind of negative number for the year at an EBITDA level, so cash level. And I just wonder if you could give us some kind of indication or color of split on that. Is it partly affected by Belfast ramping up or -- we were sort of expecting Belfast to start producing some profit early. But I suppose I'm just trying to understand a little bit of the split to the extent that you can give us some color. And then the last question, please, is just on that Other line. The changes weren't that huge year-on-year, ZAR 1 billion or ZAR 1.1 billion is a lot of money in Other. And I wonder if you could give us an indication of how much of that is cash. And because there's obviously -- it's a bit of a dumping ground for noncash adjustments, I suppose. And then secondly, if you could give us some indication of what you think the future expectation of that central or Other cost is.

Okay. Sure. Let me start.

So the first question was around GG6 in terms of resources and reserves.

GG?

Sorry, GGC, the Grootegeluk Complex. In terms of its resources and reserves, that number is down, just an explanation for that.

So I think once you -- when you finish doing that, Ronaldt, if you can also just touch on your early value strategy in terms of when you believe will first realize because your drop is also linked a bit to your early value strategy.

Okay. So Ronaldt Mafoko, who is the General Manager for GG, who will take that question.

Yes. Thank you very much for the question, Tim. I think in the -- in terms of the reserves and resource statement for GG, it's a direct result of our early value strategy, where we have deliberately excluded some of the poorer-quality material from our long-term life of mine and also put a lot of focus into the higher-value material with -- the yield, in general, will come down with an overall increase in value. There has been a change also in the pit layout. And the biggest impact will be around 2026, where we turn the pit, leaving some of the material that are sitting on the southern portion that are deeper in terms of stripping ratio and also poorer in terms of yield and overall quality. And when that happens, that's when we will realize most of the value that is intended in our high-value strategy from 2026 going into the future.

Thank you very much, Ronaldt. And then coming to Mpumalanga, the extent of the drop in EBITDA, if we could see split it just for better understanding.

Yes, a look the causes. What we'll do is I can also ask Mellis to fill in. So obviously, what we need to take into account, I think the big -- some of the big contributors were Leeuwpan and ECC, as we pointed out in a local environment that had an impact. Remember, they didn't have the Eskom contracts in place. So they were exporting their product. And then that also resulted in logistical cost to move this stuff. So to the extent that your -- that Leeuwpan and ECC is out of the mix, obviously your unit cost is going to come down. And then your -- hopefully, depending on coal price, we shouldn't have these losses. I don't know if, Mellis, anything else to -- but the big impact is ECC and Leeuwpan. And remember, they exported in a low-price environment.

Yes, okay. Thank you very much. And then the Other line?

So the Other line, as you rightly point out, Tim, that's the dumping ground for all the funnies, but now to give you a bit of -- if you look at the ZAR 1 billion, of that, about ZAR 600 million is more or less salary cost. As I can recall, ZAR 200 million-or-so is share-based payment cost that we -- so ultimately, the share-based payment cost will convert into cash. If you someday need to buy the share to settle. And then also included in that bucket is stuff like your there may be foreign exchange gains. I think for this year, there was a foreign exchange loss of about ZAR 100 million. And then also, the cost of your ESD programs, the YES program, plus our enterprise and supplier development programs, that is about, I think, another ZAR 100 million. So that's more or less how the ZAR 1 billion is made up of.

But -- so it sounds like about ZAR 600 million plus ZAR 200 million plus ZAR 100 million, the 3 that will stick around, so the ones we know are probably ZAR 900 million recurring?

Yes, probably.

Thank you very much. On the Corpcam, there is a question from [ Asif Mohamad ] related to energy but I think, [ Asif ], I'll come back to that question when we deal with it and deal with it in the strategy update. Let me see if there are any questions on the Chorus Call, any other questions?

At this stage, sir, there are no questions.

All right. Maybe I can make that a natural break then for us to move over to the strategy update and policy.

Okay. Thank you very much, Mzila. And just coming back now in terms of how we are looking at Exxaro regarding our journey towards a low-carbon future, which we see as an organization, something that is very critical for us to do. And really if one looks at the scale and the structural shifts that are taking place towards a low-carbon-powered economy, not only just in South Africa but globally, how they are gaining pace, this to us confirms the active steps that we are currently taking and continually take to show that our business is agile and is positioned to continue creating value for all of our stakeholders. Last year, we did announce a number of strategic priorities to ensure that we achieved this goal, and we have made some progress in this regard. A major priority was, firstly, obviously around the optimization of our portfolio and -- which talked to also the disposal of the remaining interest in Tronox at an opportune time. And I can want to believe that the shareholders are happy that we did not make any action, as was suggested by some last year in the early part of the year. And we really implored you to exercise patience in order for us to realize value at the right time. And I think we timed it right in this instance given where the global market was beginning to show a recovery. And this is realized by the value that we believe is very much accretive to the shareholders as a consequence of the dividend that has been declared on Tronox. And as I already indicated, we will continue with the disposal of Leeuwpan and ECC, again, which will have a more positive outcome and impact besides the robustness of the asset given very challenging market conditions, but also in reducing our carbon footprint overall. But as we face pressures and obligations really of our climate stewardship, we are equally stewards of our coal assets, which we have been bequeathed by the government, the communities and primarily funded by the shareholders. And we remain committed to responsibly extracting as much value as we can from these assets, even as we rebalance the business for the long term. But our value opportunity is rapidly transforming in line with the accelerated demand for cleaner and low-carbon resources. So in line with our announced commitment to manage risk while capturing opportunities from the transition to a low-carbon future. We are making progress in this front across a number of matrices. The Board has approved a growth and diversification strategy that allows us to shift our stated intention of providing resources that power a clean world, underpinned by the TCFD recommendation assessment, which we concluded during the year. We are committed to a rigorous, disciplined and accountable process of risk management and opportunity creation to support our disclosure, hence, the TCFD recommendations assessment. A key component of the strategy is progress on the establishment of our renewable energy business that will add to the maximization of value of the coal business through decarbonization, while building market position in the emerging opportunities for distributed energy. And through leveraging our mining capabilities, we are exploring how these capabilities can support an expansion into low carbon minerals. We are also developing a comprehensive impact investment approach to ensure that the socioeconomic resilience of our homes, communities during and post-mining activities is achieved. And this is really going to be done by great partnerships, collaborations with the multiple stakeholders, whereby we are looking at how we can repurpose our mining resources, especially areas where we are not mining, areas where we are -- in the parts we have to rehabilitate and how we leverage our land in terms of how we create new economies. And we are doing this in partnerships. We are doing it with Anglo American as part of the Impact strategy, Impact Catalyst strategy with other players like the CSIR, they are part of these projects. And there's a whole host of other projects, which we believe that unless we deal with the future socioeconomic challenges of this country going to the future, we will not be able to be a winning country given the vast disparity of inequality that exists in this country. So it is our responsibility to play a positive role towards this for the sustainability of our country. Our capital allocation framework remains relevant today and a reference for discipline for future investments. We expect no further investments, as we've said, in thermal coal but rather harvesting value from past CapEx programs. And as such, we have increased distribution to shareholders to balance short-term and long-term value creation. More focusing on the energy side. We believe that from a timing perspective, we're in a unique juncture of energy liberalization that is taking place in this country driven not only by legislation but just pure economics. We believe that there will be a significant demand, as it has already been communicated by the mining sector with regard to own generation. And we see this as being an area of growth, an area of opportunity, not only insofar as how we respond to our own mines around decarbonization but also how we see this has been an opportunity to render an energy service for other mining companies who don't necessarily are focusing at growing an energy business to support themselves. For example, if you look at our electricity demand at Grootegeluk, this can be materially supplied by solar. This will produce electricity cost savings of at least 12% and provide price stability in an inflationary tariff environment. Now this is augmenting the original or the current OpEx that they are actually buying electricity from Eskom. We're saying that part of that, we can do it in such a way where we can achieve the best carbon and energy-efficient optimization for Grootegeluk. This project alone will offset Exxaro's scope 1 and 2 carbon emissions by at least 15%. We're just talking 1 project. We started this journey in the renewable energy space back in 2012, as you all know, when we co-invested in Cennergi. And we believe that this has proven to be successful, producing one of South Africa's leading manager -- one of South Africa's leading owner-managers of wind assets. And therefore, we will not invest in renewable opportunities for the sake of investing in them. We will adhere to a disciplined and transparent investment strategy only using proven technologies. Investment in renewable energy opportunities, we believe, is adjacent to our current business and talks to diversification and predictable long-term cash flows. Furthermore, this accelerates the target of reducing our carbon footprint. We believe there is a pathway to executing this robust renewable energy strategy. However, firstly, it's going to require that we have the right people at the key part of this business. And by and large, there have been questions by our investor community as to what is our capabilities of actually playing in this market. And to this end, we have strengthened the Energy Board and investment committee with skills and experience from the energy sector. As we speak, we are adding to our skill sets and developing partnerships with others in this space. Secondly, the strategy needs to be robust, it must be defensible and executable. And I believe that the way we are approaching this, which will become much even more clearer later on in this year when we further now expand upon how we're going to be transitioning in terms of growing this business, will become clearer. We are at the early stages of establishing and creating this strategy. We are putting the building blocks of it and finally, discipline would be the key to everything we do, not just within the energy strategy, but also with regards to the product group and our capital allocation decisions. And so in order for us to be able to achieve this, it was critical for us to go and find the best of the best that will equal and match in terms of skills and capabilities that we have on the mining side to ensure that we have the right capabilities, not only at the Board level at Exxaro, not only at the Board level within the energy business, but within the management and all associated parts that are going to require to make this a reality. And with that, ladies and gentlemen, it is my pleasure to introduce to you today our newly appointed MD of Energy business, Mr. Roland Tatnall. Roland is a multifaceted professional with over 20 years of experience in the broader energy industry with a particular focus on Africa and South Africa. He has spent the last 15 years focused on infrastructure and energy investment in private equity, business development and project development roles. He has had the privilege of working with multicultural teams across the continent and has been exposed in working in the markets as diverse as Europe, the U.S., the Middle East, Asia and Australia. His infrastructure and energy experience exposed him to fundraising as well as strategy development and implementation. He says, I quote, "Energy is the largest single opportunity on the African continent and one of the most important given the impact it could have on the future of Africa." And so we welcome Roland, which we have all the confidence, as the Board, that he will assemble the right team. He will put together a strategy that is going to be compelling, that we believe will meet the test in terms of how we expect to see this business grow in pursuit of value to our shareholders and other stakeholders. And so with that, we welcome you, Roland. And with that, ladies and gentlemen, let me just take this opportunity to, first and foremost, thank Team Exxaro. My team, my colleagues, 2020 was a challenging year. 2020, unless you had been at the operations and you had seen what we had to do to become agile, to be responsive, to be meeting with the challenges of our communities, to be meeting with the challenges of making sure that we deal with health issues, livelihoods. I believe that our team, Team Exxaro, has done an exceptional job. And therefore, I just want to thank you all, all the people of Exxaro, including the Board, for the great support that we have been able to make such a great success under the most challenging conditions. 12 million tonnes of exports in a market that disappeared overnight and been able to be agile to be resilient, to be able to find new markets, to enable the whole machinery to respond to that and be able to provide this performance is commendable, and I thank you all. And I also thank all of you out there for continually supporting us, for continuously pushing us, and we will continue to ensure that as we move forward, we can bring the best of ourselves to ensure that Exxaro becomes a great and successful company that can create meaningful impact. And so ladies and gentlemen, let me now hand over to Mzila for any further questions and answers that you may provided to you. Over to you, Mzila.

Thanks, Mxolisi, for that presentation. So maybe let me just say that we have uploaded the presentation on our website. And we have -- we did earlier on send a SENS that it is available on the website. So maybe I can kick off then with [ Asif's ] question, which is quite directed at the energy strategy, where he asked if we could please remind him of the Cennergi returns or IRR to date and what we expect and have any of our returns or expectations changed in that regard.

So firstly, what we always said for energy, we're targeting equity returns of 15%. But we always said in the past, Cennergi is definitely exceeding that. And to date, taking into account the performance of the operations, it has not changed.

Okay. Thank you. And then just received a question from Nkateko Mathonsi from Investec Bank. And she asked, the hydrogen economy is making headlines globally. Do we see it as a possible opportunity for Exxaro during the transition into clean energy in line with our renewable energy strategy?

Maybe I can answer this by saying that there is a decarbonization strategy that we are looking at as Exxaro and part of that is talking to various elements. One is how do we decarbonize our existing operations of which hydrogen could play a very critical part into that in terms of the alternative fuels that play to that. And of course, that could also create and lend itself to other opportunities on the energy side in terms of potential opportunities. But we are very far from that at this point in time with regard to looking at hydrogen from an energy-producing part of our strategy. But there is a team that is looking at -- in the same way that we've seen other companies looking at hydrogen as an alternative source of fuel to replace diesel. So that work is being done.

Okay. Any questions from Chorus Call?

Yes, sir. The first question we have is from Brian Morgan from RMB Morgan Stanley.

The question -- did I hear correctly that you are looking -- first question is did I hear correctly that you're looking to invest in low-carbon minerals. Is that right? Could you just expand on that a little bit? That's number one. And then number two is on the renewable energy investment. It's a very competitive market. And you've done the right thing by getting the right skills in place and obviously building that out, all of that sort of stuff. But the other part of being competitive in that space is having a low cost of capital. Do you think you have a sufficiently low cost of capital?

Thanks, Brian. Great questions.

I'm going to allow Roland to answer that question, given his experience with the renewable energy side. Roland, if you may, please.

Thank you, Mxolisi. I think I should answer the second question.

Yes, that's right.

First of all, thank goodness that massive picture of me has been taken down. But in terms of cost of capital, you're absolutely right. So it's a very competitive environment. We're looking to hire the best people that we can to make sure we can produce the best product we can. As Mxolisi said, we're in the market for people at the moment. But we're also looking to use our competitive advantages. And so what do I mean by that? We're engaging at the moment on our own projects. So we think we're able to deliver savings on our own projects and generate a good return for ourselves in the energy business as well. But we're looking to enter the mining market. And I think it's been alluded to in the presentation, we really feel -- I mean, if we can maybe go back to the slide before that massive picture of me, not that one, that one, I think the timing aspect is particularly pertinent. We're really at a crossroads in South Africa in that there's not just talk, there's action in liberalizing the market here. There's increases, much greater increases than I think we ever imagined in terms of tariffs. And the economics of renewables is coming down. So the mining market itself is one of the largest captive markets in South Africa, and we're in the middle of that. So we're looking to develop our own solutions for ourselves, and we're looking to provide those solutions to our peers in the mining industry. And I think in that regard, we really have a competitive advantage. We know the mining space. We know the energy space, and there aren't that many entities that are playing in this space in South Africa at the moment that can balance those 2 sides of the equation.

Okay. Thank you. And then the first question was around low carbon -- the reference to low-carbon minerals, if we are able to expand on that.

Yes, we are. That is very early, very early stage, where we are saying to ourselves, how do we leverage our strengths as an organization. And therefore, with the view that a clean future is also going to demand minerals that talk to that future. We've said to ourselves, with the experience that we have, with new ways of how we really, really want to understand risk within this sector, with a different laser-sharp lens on how we look at risk and the experiences of the past in terms of learning from them, we're saying that it is worth the opportunity for us to explore. And that's really where we are at this particular stage. We are really exploring what those opportunities could be. There is nothing more that I can say, if you say, is there any investment that we are talking about. No, we are still, at this point in time, just exploring. And of course, as whatever findings we find along the way, whatever we learn along the way, whereby we then decide that it is a pathway that we're going to really start talking to and acting on, we will be able to come back to you on that. And of course, that will be supported by our Board when we do come.

And maybe Nombasa's just whispering that perhaps let me also say that you would have heard as well in terms of the energy strategy that it's also still work in progress. And we are planning a Capital Markets Day or strategy day later in the year, and we'll inform you of the date and time for that. So I think it's certainly an exciting future strategy that we've been talking about. But we shouldn't forget where we come from, and this is going to the question -- next question that is in line, which takes us back to the coal business. So we gave a guidance on the disposal of ECC being first half of 2021. Do we have any guidance on Leeuwpan?

We -- hopefully, it will also be the first half of 2020 (sic) [ 2021 ].

Okay.

So the transaction executed, not effective because you still require all the regulatory requirements.

Regulatory requirements, yes. Okay. Thanks for that. And then, are there any questions from Chorus Call?

Yes, sir. The next question we have is from Tim Clark. Okay, there seems to be a problem with Tim's line. There's no questions on the conference call.

Okay. Tim, you're welcome to e-mail me the question, and we'll get back to you with a response on that. If there are no other questions, I don't have any other questions from Corpcam. Ladies and gentlemen, what remains is for me to thank you very much for your attendance and your continued interest in Exxaro. And let me also add and say that thank you very much to the team that assisted me in getting us to this day-to-day. Not only the stakeholder affairs team, but it is a huge herd that I've had to master and marshal to get here with the team sitting right here on my right-hand side. But I think the support of all the other Exxaro functions in putting together the presentation, the logistics and everything else that has made, in my thinking, a very successful day and presentation. We will be having, at 1:00, a closed session with sell-side analysts. So we're looking forward to further discussion there. And thank you very much, and please remain safe, and remember the protocols of social distancing, masking up and sanitizing. Thank you very much.