Research Update:

South African Coal Miner Exxaro Resources Assigned 'zaA-/zaA-2' South Africa National Scale Ratings
Primary Credit Analyst: Elad Jelasko, CPA, London (44) 20-7176-7013; elad.jelasko@standardandpoors.com Secondary Contact: Karl Nietvelt, Paris (33) 1-4420-6751; karl.nietvelt@standardandpoors.com

Table Of Contents
Overview Rating Action Rationale Ratings Score Snapshot Related Criteria And Research Ratings List

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Research Update:

South African Coal Miner Exxaro Resources Assigned 'zaA-/zaA-2' South Africa National Scale Ratings
Overview
South African coal miner Exxaro Resources Ltd. (Exxaro) is the second-largest producer of thermal coal in South Africa, with stakes in global titanium producer Tronox and Sishen Iron Ore Company. We assess Exxaro's business risk profile as "fair" and its financial risk profile as "intermediate." We are assigning our 'zaA-/zaA-2' long- and short-term South Africa national scale ratings to Exxaro.

Rating Action
On March 12, 2014, Standard & Poor's Ratings Services assigned its 'zaA-' long-term and 'zaA-2' short-term South Africa national scale ratings to South African coal miner Exxaro Resources Ltd. (Exxaro).

Rationale
The ratings on Exxaro reflect our assessment of the company's business risk profile as "fair" and financial risk profile as "intermediate," as our criteria define these terms. Our assessment of Exxaro's business risk profile as "fair" reflects the company's strong market position in the coal industry, where the company sells most of its output to South African electricity company ESKOM Holdings SOC Ltd. under long-term agreements. We view Exxaro's minority stake in Sishen Iron Ore Company (SIOC) as providing some product diversification. In previous years, SIOC's annual dividend contributed about 50% of Exxaro's Standard & Poor's-adjusted EBITDA. Although we have good visibility on the current dividend policy of SIOC's parent Kumba Iron Ore (Kumba), we believe that dividends from SIOC will become more volatile in the coming years. This is because we expect iron ore prices to slide to $110-$100 per ton in the coming 18-24 months, and we believe that Kumba will need to increase its capital expenditure (capex) to support the current production level. We view Exxaro's exposure to country risk in South Africa as constraining the current South Africa national scale ratings. The country risks include a steep hike in wages; social unrest; and strikes in the mining industry. We

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Research Update: South African Coal Miner Exxaro Resources Assigned 'zaA-/zaA-2' South Africa National Scale Ratings

understand that the South African government is currently discussing a potential change in the country's mining charter, with implications for the iron ore and coal sectors. At this stage, we do not factor in material adverse implications for Exxaro as a result of these changes. Our assessment of Exxaro's "intermediate" financial risk profile reflects the company's healthy credit metrics, with adjusted funds from operations (FFO) to debt of about 65% as of Dec. 31, 2013. We forecast that Exxaro's metrics will remain above the levels we view as commensurate with the ratings in the coming years--including FFO to debt of 30%-40%. Our assessment of Exxaro's financial risk profile also reflects our forecast of substantially negative discretionary cash flow in 2014 and in 2015. We understand that the company will invest about South African rand (ZAR) 3.0 billion-ZAR4.0 billion in each of 2014 and 2015, notably in the Mayoko iron ore project in Republic of Congo and in other coal greenfield projects. Moreover, Exxaro has a very generous dividend policy, paying out about 33% of net income annually. As part of our analysis, we include debt of ZAR3.5 billion at Exxaro's parent Main Street 333 (RF) Proprietary Ltd. (52%). In our base-case scenario for Exxaro, we project EBITDA of ZAR5.5 billion-ZAR6.0 billion in 2014, compared with ZAR6.5 billion in 2013. This projection includes the following assumptions: Production of about 47 million tons (Mt) of coal, translating into EBITDA of about ZAR3.2 billion in 2014. Dividends of ZAR2.2 billion from SIOC, based on iron ore production of 45Mt and prices of $110 per ton for the rest of 2014. Dividends of $1.25 per share from global titanium producer Tronox, in which Exxaro has a 44.4% stake, in line with Tronox' current dividend policy. In 2013, Exxaro received about ZAR0.4 billion from Tronox. Some devaluation in the exchange rate of the ZAR against the U.S. dollar. We assume an average exchange rate of 10.9:1. These assumptions translate into adjusted FFO to debt of 50%-55% in 2014 and 35%-40% in 2015, and negative free operating cash flow of ZAR2.5 billion-ZAR3.0 billion by the end of 2015. Our business and financial risk profile assessments place limited weight on Exxaro's 44.4% equity stake in Tronox. This stake has a market value of about ZAR12.6 billion ($1.2 billion), compared with Exxaro's adjusted debt ZAR9.0 billion as of Dec. 31, 2013. Our approach reflects our uncertainty over whether Exxaro will sell or increase its stake in Tronox in future, and the lock-up of its stake until June 2015. If Exxaro decides to view Tronox as core to its operations, and gains increasing control of Tronox over time, it could have positive implications for Exxaro's business risk profile, while the financial impact would likely be negative. We understand that a decision by Exxaro to gain more control of Tronox or inject equity into Tronox to fund its growth plans may result in higher adjusted debt and less comfortable credit metrics at the current ratings. We would view a possible divestment of Exxaro's stake in Tronox in the context of its plans for the proceeds.

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Research Update: South African Coal Miner Exxaro Resources Assigned 'zaA-/zaA-2' South Africa National Scale Ratings

Liquidity
We assess Exxaro's liquidity as "adequate" under our criteria. We estimate that the company's ratio of sources to uses of liquidity will be more than 1.2x in 2014 and in 2015. Liquidity is underpinned by the company's availability under its current facilities and flexibility under its capex budget. Moreover, Exxaro is allowed to divest up to 7% of its stake in Tronox (market value of ZAR1.2 billion) before mid-2015, and its entire stake in Tronox from the second half of 2015. We do not take the value of the Tronox stake into consideration in our liquidity calculations. As of Dec. 31, 2013, Exxaro had ample headroom under its financial covenants. As of Dec. 31, 2013, Exxaro has the following liquidity sources: Minimal surplus cash, after we exclude ZAR1.0 billion that we do not consider as immediately available for debt reduction. ZAR4.4 billion available under committed credit lines due 2017 and 2020. FFO of about ZAR5.4 billion in 2014 and ZAR4.4 billion in 2015 under our base case. We project the following uses of liquidity as of Dec. 31, 2013: ZAR0.8 billion of short-term debt and ZAR0.8 billion of long-term debt maturing in 2015, under the assumption of full utilization of the credit facilities. Capex of about ZAR3.0 billion-ZAR4.0 billion in each of 2014 and 2015, excluding Exxaro's potential investment in the Mayoko project, which is subject to the company's discussions with the authorities in the Republic of Congo. Dividend distributions of about 33% of net income annually, in line with Exxaro's current policy. In 2013, Exxaro distributed ZAR1.4 billion to its shareholders. No material changes in working capital needs.

Ratings Score Snapshot

Corporate credit rating: zaA-/zaA-2 Business risk: Fair Country risk: Moderately high Industry risk: Moderately high Competitive position: Fair Financial risk: Intermediate Cash flow/Leverage: Intermediate Modifiers Comparative rating analysis: Unfavorable

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Research Update: South African Coal Miner Exxaro Resources Assigned 'zaA-/zaA-2' South Africa National Scale Ratings

Related Criteria And Research

Related Criteria
Methodology And Assumptions: Liquidity Descriptors for Global Corporate Issuers, Jan. 2, 2014 Key Credit Factors For The Metals And Mining Upstream Industry, Dec. 20, 2013 Corporate Methodology, Nov. 19, 2013 Corporate Methodology: Ratios And Adjustments, Nov. 19, 2013 Methodology For Standard & Poor's Metals And Mining Price Assumptions, Nov. 19, 2013 Methodology: Management And Governance Credit Factors For Corporate Entities And Insurers, Nov. 13, 2012

Ratings List
New Ratings Exxaro Resources Ltd. South Africa National Scale

zaA-/zaA-2

Additional Contact: Industrial Ratings Europe; Corporate_Admin_London@standardandpoors.com

Complete ratings information is available to subscribers of RatingsDirect at www.globalcreditportal.com and at spcapitaliq.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column. Alternatively, call one of the following Standard & Poor's numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow 7 (495) 783-4009.

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