Exxaro Resources : DETAILED TERMS OF THE REPLACEMENT BEE TRANSACTION AND RENEWAL OF CAUTIONARY ANNOUNCEMENT

Exxaro Resources Limited

(Incorporated in the Republic of South Africa) Registration number: 2000/011076/06

JSE share code: EXX ISIN: ZAE000084992

ADR code: EXXAY

("Exxaro" or the "Company")

DETAILED TERMS OF THE REPLACEMENT BEE TRANSACTION AND RENEWAL OF CAUTIONARY ANNOUNCEMENT

1. INTRODUCTION AND BACKGROUND

2. Exxaro shareholders ("Exxaro Shareholders") are referred to the cautionary announcement released on the Stock Exchange News Service ("SENS") by the Company on 22 November 2016, as well as the renewal of the cautionary announcement, released on SENS on 26 June 2017 (together, the "Previous Announcements"), relating to the unwind of Exxaro's existing Black Economic Empowerment ("BEE") transaction (the "Existing BEE Transaction") and the proposed implementation of a replacement BEE transaction (the "Replacement BEE Transaction") with the direct and indirect shareholders of Main Street 333 Proprietary Limited ("MS333").

3. On Friday, 15 September 2017, Exxaro, MS333 (and its direct shareholders), the Industrial Development Corporation (the "IDC") and two special purpose vehicles, the first vehicle being incorporated for the purpose of being the empowerment vehicle which will hold ordinary shares in Exxaro ("Exxaro Shares") ("NewBEECo") and the second vehicle being incorporated for the purpose of holding the interests of certain MS333 shareholders separately ("BEE SPV"), entered into a suite of detailed agreements to give effect to the Replacement BEE Transaction (the "Transaction Agreements").

4. Exxaro implemented a specific repurchase of 43 943 744 Exxaro Shares from MS333 on 20 January 2017, preceding the implementation of the Replacement BEE Transaction, which should be considered as part of the unwinding of the Existing BEE Transaction (the "First Repurchase"). As part of the Replacement BEE Transaction, Exxaro will implement a further specific repurchase of 22 686 572 Exxaro Shares from MS333 (the "Second Repurchase").

5. The implementation of the Replacement BEE Transaction (which includes the Second Repurchase) remains subject to various conditions precedent, including those set out in paragraph6.2.

6. The purpose of this announcement is to provide Exxaro Shareholders with an overview of the key terms of the Replacement BEE Transaction.

7. OVERVIEW OF THE REPLACEMENT BEE TRANSACTION

8. Components of the Replacement BEE Transaction

9. Exxaro has executed the Transaction Agreements to implement the various components of the Replacement BEE Transaction. The key components of the Replacement BEE Transaction include:

   • COMPONENT 1: the unwinding of the Existing BEE Transaction (the "MS333 Unwind");

   • COMPONENT 2: the Second Repurchase; and

   • COMPONENT 3: the specific issue by Exxaro of Exxaro Shares to NewBEECo to implement the Replacement BEE Transaction (the "Specific Issue").

10. Rationale for the Replacement BEE Transaction

11. Since its creation in 2006, Exxaro has maintained its status as one of the largest Historically Disadvantaged South African ("HDSA") controlled companies in the South African mining sector. Exxaro is aware of the current uncertainty around the legislative requirements for empowerment in the South African mining sector. However, both Exxaro's management and the independent sub- committee, established by the Exxaro board of directors (the "Independent Board Sub-Committee"), firmly believe that it is critical to Exxaro's business strategy that it maintains an appropriate empowerment status driven by ownership. Remaining empowered is essential for Exxaro to maintain stability in its operational environment, reinforce sustainable relationships with critical stakeholders in the industry and to ensure ongoing compliance with customer and other industry requirements. In addition, Exxaro supports the imperative for economic transformation in South Africa.

12. Implementation of the Replacement BEE Transaction will:

    • protect the stability of Exxaro's operations by reinforcing the sustainability of its relationships with key stakeholders (including customers, employees, communities in which Exxaro operates and relevant development funding institutions);

    • equip Exxaro for growth by positioning Exxaro with market leading empowerment credentials in the South African mining sector;

    • reduce the market impact of the MS333 Unwind by allowing MS333 shareholders to reinvest a large portion of their Exxaro Shares into the Replacement BEE Transaction; and

    • unlock long term value for Exxaro Shareholders.

13. Mechanism and steps to give effect to the Replacement BEE Transaction

14. As agreed in the Transaction Agreements, the Replacement BEE Transaction will be effected by way of several indivisible steps, to give effect to Exxaro's new empowerment shareholding structure (the "New Empowerment Structure"). This process is summarised below:

15. The Replacement BEE Transaction will be implemented using a reference price of R125.01, being the 5-day weighted average trading price as at market close on Thursday, 14 September 2017, being the last day before the signing of the Transaction Agreements (the "Reference Price"). This Reference Price (prior to any discount) applies to both the Second Repurchase and the Specific Issue;

16. MS333 conducting a formal election process (the "MS333 Election Process") in terms of which its indirect shareholders elect whether to:

17. reinvest Exxaro Shares into the New Empowerment Structure (the "MS333 Reinvestment"); and/or

18. divest Exxaro Shares in the form of:

    • cash; and/or

    • Exxaro Shares that are not subject to any disposal or related restrictions applicable to the New Empowerment Structure ("Unrestricted Exxaro Shares");

19. Implementation of the MS333 Unwind to enable the reinvestment and divestment as described above;

20. Implementation of the Second Repurchase, resulting in Exxaro repurchasing 22 686 572 Exxaro Shares from MS333 at a 5% discount to the Reference Price;

21. The capitalisation of NewBEECo as follows:

22. the IDC subscribing for ordinary shares in NewBEECo by contributing 12 337 616 Exxaro Shares (the "IDC Reinvestment");

23. the MS333 Reinvestment, resulting in MS333 indirect shareholders (excluding the IDC) who have elected to reinvest Exxaro Shares into the New Empowerment Structure pursuant to the MS333 Election Process (the "Reinvesting MS333 Shareholders"), subscribing for ordinary shares, on a pro-rata basis, in BEE SPV, by contributing a minimum of 26 623 276 Exxaro Shares to BEE SPV, which will in turn be utilised by BEE SPV to subscribe for ordinary shares in NewBEECo; and

24. Exxaro subscribing for ordinary shares in NewBEECo for a cash consideration (the "Exxaro Equity Investment");

25. NewBEECo raising external funding from commercial funders through the issuance of preference shares (the "Third Party Funding"). The amount of the Third Party Funding will be reduced to the extent that the MS333 Reinvestment is greater than the minimum number of 26 623 276 Exxaro Shares required to be reinvested; and

26. Implementation of the Specific Issue, where NewBEECo will utilise the proceeds from the Exxaro Equity Investment and the Third Party Funding to subscribe for the number of Exxaro Shares which, together with the Exxaro Shares received through the MS333 Reinvestment and the IDC Reinvestment, will result in NewBEECo holding 30.0% of the Exxaro Shares following the implementation of the Replacement BEE Transaction:

27. the Specific Issue will occur at a discount equal to 6.8% of the Exxaro market capitalisation, based on the Reference Price but diluted for the implementation of the Replacement BEE Transaction (including the Second Repurchase and the Specific Issue) (the "BEE Facilitation Value"); and

28. this discount equates to 22.6% of the total value of all the Exxaro Shares to be held by NewBEECo following implementation of the New Empowerment Structure (the "New Empowerment Structure Value"). The total BEE Facilitation Value will be transferred to New BEECo through the Specific Issue (which represents 64.0% of the New Empowerment Structure Value) and as such the discount of the Specific Issue to the Reference Price equates to 40.1% (the "BEE Discount") This is further explained in paragraph 5.4.2.

29. Before implementation of the Replacement BEE Transaction, Exxaro's empowerment shareholding structure consists of MS333 holding 32.0% of the Exxaro Shares (as at 14 September 2017).

30. Following the implementation of the Replacement BEE Transaction, and assuming the Reinvesting MS333 Shareholders reinvest the minimum number of Exxaro Shares pursuant to the MS333 Reinvestment of 26 623 276 Exxaro Shares, the New Empowerment Structure will be such that BEE SPV (representing the Reinvesting MS333 Shareholders) holds 51.0%, Exxaro holds 25.4% and the IDC holds 23.6% of the ordinary shares in NewBEECo respectively. Exxaro will share the specific details of the Reinvesting MS333 Shareholders with the market following the conclusion of the MS333 Election Process, which is currently expected to be concluded by Friday, 29 September 2017, after which Exxaro will release a further announcement on SENS, detailing the outcome of the MS333 Election Process and the final New Empowerment Structure.

31. Following the implementation of the Replacement BEE Transaction as set out in paragraph 2.3.3, the New Empowerment Structure Value will be comprised as follows:

    Source	Percentage of New Empowerment Structure Value	BEE Shares	Value (R'm) (1)
    Reinvestments	36.0%	38 960 892	4 510
    Minimum MS333 Reinvestment (2)	24.6%	26 623 276	3 082
    IDC Reinvestment (3)	11.4%	12 337 616	1 428
    Specific Issue	64.0%	69 264 236	8 020
    BEE Facilitation Value	22.6%	24 458 782	2 832
    Exxaro Equity Investment	19.9%	21 536 715	2 494
    Maximum Third Party Funding (2)	21.5%	23 268 310	2 694
    New Empowerment Structure Value	100.0%	108 224 699	12 530

    Notes:

32. Value is based on the ex Replacement BEE Transaction Exxaro Share price of R115.78, which is calculated as the accretion impact of the Second Repurchase and the dilution impact of the Specific Issue on the Reference Price (before implementation of the Replacement BEE Transaction) of R125.01.

33. The 24.6% MS333 Reinvestment represents 26 623 276 Exxaro Shares reinvested. Should the MS333 Reinvestment exceed 26 623 276 Exxaro Shares, the value raised through the Third Party Funding will be reduced accordingly.

34. The 11.4% IDC Reinvestment represents 12 337 616 Exxaro Shares reinvested.

35. Key terms relating to the New Empowerment Structure

36. Empowerment levels

    Following the implementation of the Replacement BEE Transaction, NewBEECo will directly hold 30.0% of the Exxaro Shares.

37. Term and lock-in arrangements

38. The New Empowerment Structure will have a duration of 10 years. The period during which Exxaro Shares held by NewBEECo will be locked-in, is staggered between seven and ten years.

39. The Exxaro Shares reinvested by Reinvesting MS333 Shareholders and the IDC will become unrestricted on the 7th anniversary of the Replacement BEE Transaction with the remaining Exxaro Shares becoming unrestricted in equal proportions at the end of the 8th, 9th and 10th anniversary of the Replacement BEE Transaction.

40. NewBEECo will have the interim liquidity mechanisms, listed in paragraph 2.4.2.4 below, available to it in order to create liquidity. Notwithstanding anything to the contrary in the Transaction Agreements, Exxaro will only be obliged to approve or implement a liquidity mechanism if:

    • it is satisfied that Exxaro will be compliant with the empowerment shareholding requirements set out in any relevant legislation, or as it may have contractually agreed; and