Wrap Text
Interim results for the six months ended 30 June 2015
Kumba Iron Ore Limited
A member of the Anglo American plc group
(Incorporated in the Republic of South Africa)
(Registration number 2005/015852/06)
JSE Share code: KIO
ISIN: ZAE000085346
KUMBA IRON ORE LIMITED
INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2015
KEY FEATURES
- Operations reconfigured to achieve significantly lower cost of production
- 46% drop in average iron ore index price to US$60/tonne
- Total sales volumes increased by 16% to record 26 Mt
- Production of 22.6 Mt, down 1%
- Controllable costs per tonne reduced by 16%
- Normalised earnings down 52% to R9.78 per share
- Thabazimbi closure announced on 16 July 2015
- No interim dividend
INTRODUCTION
Kumba Iron Ore Limited (‘Kumba’ or ‘the group’) announces its results for the six
months ended 30 June 2015.
The group’s safety performance remains a key priority ending the six months without
any loss of life. The lost-time injury frequency rate (LTIFR) was 0.22 (2014:
0.20). While there has been a marginal increase in the number of lost-time
injuries, they have been of a less severe nature. The total recordable case
frequency rate (TRCFR), a measure of frequency of injuries, was 0.77 (2014: 0.78).
The focus on key safety improvement drivers remains in place with continued
emphasis on preventing any loss of life or injury through the implementation of
critical engineering controls and operational risk management.
The past six months continued to be turbulent and challenging for iron ore
producers with further decline and volatility in prices. New low cost supply aided
by the realisation of efficiencies across the sector, lower freight rates and
producer currencies have resulted in a structural change in the iron ore market and
a flattening in the cost curve. This has been exacerbated by muted demand. These
changes in market fundamentals have necessitated a robust review of Kumba’s
business in order to improve its competitive position and reduce cash costs.
RECONFIGURING OF OPERATIONS
As a result of the challenging market conditions, Kumba has undertaken a number of
key interventions, which are expected to result in a reduction in the group’s cash
breakeven price to $45/tonne (62% Fe CFR China) from the $63/tonne in 2014. These
initiatives include reducing overhead costs, reinforcing capital discipline,
reconfiguring the operations and maintaining the focus on product quality through
the production of lump products.
Material revisions have been made to the mine plan at Sishen. The pit has been
reconfigured for lower prices and optimised for cash flow in the near term with a
downward revision of waste and production. Kolomela’s waste profile has also been
optimised to conserve cash and production is expected to increase incrementally.
Capital expenditure has been reduced and re-phased and reducing overheads (head
office and mines) continues to be a key priority. The restructuring of the head
office was completed with a resultant reduction of 40%, or 133, permanent positions
in the workforce (61% reduction including fixed term employees). On 9 July 2015 the
company commenced with the proposed restructuring of support services at the
operations and stay-in-business capital projects functions, which is expected to
result in further overhead cost savings.
THABAZIMBI MINE
Thabazimbi is a high cost mine with difficult mining conditions, which was
exacerbated by a slope failure during June 2015. After considering all options for
the future of the mine, the closure of Thabazimbi was announced on 16 July 2015 as
the mine has reached the end of its economic life.
NO INTERIM DIVIDEND
The volatile and depressed market conditions have significantly reduced pricing
certainty in the near term. In line with the board’s policy, the dividend is
reviewed at each interim and annual reporting period. Taking cognisance of the
pressure of lower cash generation, the initiatives required to preserve cash as
outlined above, and in order to maintain financial flexibility, the board has
decided not to declare an interim 2015 dividend.
OVERVIEW OF SIX MONTHS ENDED 30 JUNE 2015
Total tonnes mined (excluding Thabazimbi) were up by 16% to 160.5 Mt (2014:
138.5 Mt). Total production declined marginally to 22.6 Mt due to lower production
at Sishen of 16.1 Mt, and a continued strong performance at Kolomela of 5.9 Mt.
Total sales volumes increased by 16% to 26 Mt (2014: 22.5 Mt) on the back of record
export sales of 23.2 Mt (2014: 19.7 Mt), as a result of good logistics performance
and shipments totalling 2.3 Mt through the Multi-Purpose Terminal (MPT) at the port
of Saldanha.
Headline earnings were 61% lower at R2.5 billion (2014: R6.5 billion), mainly as a
result of realised iron ore export prices, which weakened by 41% to $61/tonne
(2014: $104/tonne), partially offset by the favourable impact of a 12% weakening of
the Rand against the US Dollar. Whilst operating expenses increased by 4%, the
controllable costs per tonne reduced by 16%. Attributable and headline earnings for
the period were R7.82 and R7.85 per share respectively. Normalised earnings, which
exclude the derecognition of a deferred tax asset of R801 million (R617 million
attributable to Kumba shareholders), was 52% lower than the comparative period at
R9.78 per share (2014: R20.28).
MARKET OVERVIEW
Global crude steel production contracted 2.4% to 809 Mt for the first half of 2015
(2014: 829 Mt). China’s production of 406 Mt was 2.4% lower than the record
production of 416 Mt in 1H 2014, with high Chinese exports supporting soft domestic
demand. Global seaborne iron ore supply was flat at 662 Mt on the back of 6% growth
out of Australia and 11% from Brazil, offset by a decline from India and the rest
of the world. Non-traditional supply sources continue to be displaced by low cost
capacity expansions. Temporary supply bottlenecks were experienced by major iron
ore producers in the early parts of the year, whereas record port shipments in June
2015 and ongoing supply ramp-up, including the commissioning of Roy Hill in
Australia, will support supply growth in the second half of the year.
Average index iron ore prices (CFR China 62% Fe) in the first half of 2015 were
down 46% at $60/tonne for the period (2014: $111/tonne). Index prices have steadily
declined from the beginning of the year to historical lows as a result of increased
supply availability with major projects reaching execution, and subdued seasonal
demand recovery as mills deleveraged inventories.
OPERATIONAL PERFORMANCE
Production summary (unaudited)
Year to date ended
’000 tonnes June 2015 June 2014 % change
Total 22,552 22,793 (1)
- Lump 14,652 14,985 (2)
- Fines 7,900 7,808 1
Mine production 22,552 22,793 (1)
- Sishen Mine 16,062 16,995 (5)
DMS Plant 10,178 10,983 (7)
Jig Plant 5,884 6,012 (2)
- Kolomela Mine 5,853 5,461 7
- Thabazimbi Mine 637 337 89
Sishen mine
Total tonnes mined at Sishen increased by 17% to 125.6 Mt (2014: 107.2 Mt). Total
waste mined was 107.7 Mt (2014: 86.9 Mt), an increase of 24%. Sishen production of
16.1 Mt decreased 5% (2014: 17 Mt) due to blending capacity constraints to the
plants as a result of limited availability of high quality full bench ore in the
second quarter of 2015.
The implementation of the Operating Model in the North mine continues to yield
improved operating equipment productivity and is now being rolled out to the pre-
strip waste mining and heavy mining equipment maintenance areas. In addition, after
obtaining the appropriate licences, Sishen has started using two new waste dumps to
the west of the current pit. This will further facilitate waste removal by reducing
hauling distances and lift factors.
Kolomela mine
Kolomela mine continued to perform strongly. Total tonnes mined at Kolomela mine
rose by 12% to 34.9 Mt, (2014: 31.3 Mt), of which waste mined was 26.3 Mt (2014:
24.4 Mt), an increase of 8%. Waste mined reduced as planned by 15% from 2H 2014.
Going forward waste volumes are expected to reduce from 42 – 46 Mtpa to
35 - 38 Mtpa for 2015, ramping up thereafter. The mine produced 5.9 Mt of ore, an
increase of 7% (2014: 5.5 Mt).
Thabazimbi mine
Thabazimbi produced 0.6 Mt of ore (2014: 0.3 Mt), while waste mining volumes
decreased by 45% to 8.4 Mt (2014: 15.4 Mt). A monitored slope failure took place in
the Kumba pit on 6 June 2015. No injuries were sustained as the pit was evacuated
as a precaution (refer to note 13 in the notes to the interim financial
statements).
Logistics
Volumes railed on the Sishen-Saldanha Iron Ore Export Channel were 11% higher at
21.8 Mt (including 0.7 Mt railed to Saldanha Steel) (2014: 19.7 Mt). Kumba shipped
23 Mt (2014: 19.3 Mt) from the Saldanha port destined for the export market, up
19%, including 2.3 Mt shipped through the multi-purpose terminal (MPT) at the
Saldanha port.
Sales summary (unaudited)
Six months ended
’000 tonnes June 2015 June 2014 % change
Total 25,987 22,499 16
- Export sales 23,204 19,710 18
- Domestic sales 2,783 2,789 -
Sishen mine 2,021 2,484 (19)
Thabazimbi mine 762 305 150
Sales
Total sales were 16% higher at 26 Mt (2014: 22.5 Mt), on the back of record export
sales volumes of 23.2 Mt (2014: 19.7 Mt), including 0.7 Mt from third party
producers. CFR sales accounted for 68% of export sales volumes (2014: 62%).
Finished product inventory held at the mines and ports decreased to 4 Mt from
6.5 Mt as at 31 December 2014 (2014: 3.6 Mt). 60% of total export volumes were
directed to China compared to 66% during the first half of 2014. The group’s
lump:fine ratio was 67:33 for the period (2014: 66:34).
FINANCIAL RESULTS
Revenue
The group’s total revenue of R20.5 billion for the period was 23% lower than the
R26.4 billion for the comparable period in 2014, mainly as a result of the
significant 41% drop in average realised iron ore export price to US$61/tonne
(2014: US$104/tonne). In addition, lower freight rates resulted in a R541 million
reduction in shipping revenue. This was partially offset by the 12% decline in the
Rand/US$ exchange rate (1H2015: R11.91/US$1 compared to 1H2014: R10.68/US$1) and
16% higher total sales volumes.
Operating expenses
Operating expenses rose by 4% to R14.7 billion from R14.1 billion in the first half
of 2014; principally as a result of:
- 15.7 Mt growth in total mining volumes;
- inflationary pressure on input costs of 4.4%;
- higher selling and distribution costs on the back of 31% higher volumes railed
from Kolomela, annual contractual tariff escalations, and the MPT volumes which
attract a higher port tariff; offset by
- Input cost savings from primary equipment operating efficiencies and lower
diesel prices;
- Corporate office overhead cost reduced by R138 million to R691 million
(2014: R829 million) as part of the drive to achieve a lower sustainable overhead
cost base, and
- R448 million lower freight cost.
The reduction in permanent and fixed term employees at the corporate office is
expected to contribute savings of R200 million per annum going forward. Further
savings were achieved through aggressive management of overheads and by curtailing
project and technical studies, partially offset by inflation and currency
movements.
Unit cash costs at Sishen mine of R299 per tonne increased by 10% (FY2014: R272 per
tonne). This is primarily as a result of input cost pressures (+R5/tonne), which
were contained at a 2% increase, higher mining volumes (+R36/tonne) and lower
production volumes (+R29/tonne), partially offset by higher deferred waste
stripping costs (-R42/tonne).
Kolomela mine incurred unit cash costs of R185 per tonne (FY2014: R208 per tonne),
an 11% decrease despite higher mining volumes, mainly as a result of the
capitalisation of ex-pit ore. Higher deferred waste stripping costs benefited unit
costs by R9/tonne.
Operating profit
Kumba’s operating profit margin decreased to 28% (2014: 47%). The group’s mining
operating margin was 32% (2014: 51%) excluding the net freight loss incurred on
shipping operations. Operating profit decreased by 53% to R5.8 billion (2014:
R12.3 billion). The lower revenue and increase in operating expenses outlined
previously impacted profitability.
Cash flow
Cash flow of R8.7 billion was generated. Capital expenditure of R3.3 billion was
incurred, R3.0 billion on stay-in-business (SIB) activities (including deferred
stripping of R1.5 billion), and R0.3 billion on the Dingleton project. Phase 2 of
the Dingleton project, the relocation of the 428 remaining houses, buildings and
businesses, is progressing well and expected to be completed by the end of 2016.
At 30 June 2015 the group had a net debt position of R6.1 billion (2014:
R687 million).
REGULATORY UPDATE
SIOC has not yet been awarded the 21.4% Sishen mining right, which it applied for
early in 2014 following the Constitutional Court judgement on the matter in
December 2013. The Constitutional Court ruled that SIOC held a 78.6% undivided
share of the Sishen mining right and that, based on the provisions of the MPRDA,
only SIOC can apply for, and be granted, the residual 21.4% share of the mining
right at the Sishen mine. The grant of the mining right may be made subject to such
conditions considered by the Minister to be appropriate. Kumba is actively
continuing its engagement with the DMR in order to finalise the grant of the
residual right.
ORE RESERVES AND MINERAL RESOURCES
There have been no material changes to the ore reserves and mineral resources as
disclosed in the 2014 Kumba Integrated Report.
EVENTS AFTER THE REPORTING PERIOD
On 9 July the company commenced with the proposed restructuring of support services
at the Sishen and Kolomela and stay-in-business capital projects functions. On
16 July 2015, the closure of Thabazimbi was announced.
OUTLOOK
Iron ore prices are expected to remain under pressure as Australian and Brazilian
producers increase supply, and demand growth from China slows.
Sishen’s production profile has been moderated to 33 Mt in 2015 and the revised
life-of-mine (LoM) plan has resulted in the waste target for 2015 being revised
down from 240 Mtpa to 200 Mtpa with a ramp up to 230 Mt from 2018. The production
outlook has been set at 36 Mt for 2016 – 2017, rising gradually to 38 Mt
thereafter, with the average LOM stripping ratio remaining at 3.9. The new plan
brings about reduced flexibility from a mine engineering perspective which will be
mitigated through a greater focus on the quality of the execution in the pit and
the execution of the operating model.
Mining at Kolomela will now concentrate on two primary pits with the third pre-
stripped pit being re-phased to 2019. As a result, expected waste volumes have
reduced from 42 – 46 Mtpa to 35 - 38 Mtpa for 2015, ramping up thereafter.
Production is expected to ramp up to 13 Mt within the next two years, with a
reduction of 2 years in the LoM as a result of the annual production capacity
increase. The LoM stripping ratio is 3.3. In support of the anticipated higher
production the mine is also increasing its logistics capacity through reclaiming
and loading efficiencies and improving train turnaround times. Kolomela is expected
to produce in excess of 11 Mt in 2015 with waste of 35 Mt.
Export sales volumes for the year are expected to exceed 43 Mt. Domestic sales
volumes of up to 6.25 Mt are contracted to ArcelorMittal S.A. in terms of the
supply agreement, which are now to be supplied from the Northern Cape.
The group expects total capital expenditure for 2015 to be in the range of
R6.9 billion to R7.2 billion, including unapproved capital expenditure. Capital
expenditure has been reduced and re-phased to conserve cash, with a significant
reduction in stay in business capital of between R7.8 billion and R8.4 billion over
the next three years, mainly due to reduced fleet, related infrastructure and
housing requirements. Capital expenditure will increase from 2018 to 2020 to
support the waste ramp up at Sishen as mentioned above. Deferred stripping has been
reduced by R2.0 billion to R2.1 billion over the next three years largely due to
the revised waste mining profile at Sishen.
The reconfiguration of Sishen and Kolomela through revised mine plans and
organisational restructuring, together with the closure of Thabazimbi, has a major
impact on the business and will result in a challenging second half of 2015. The
cost savings initiatives on overheads and capital expenditure to achieve the
targeted cash conservation will add further complexity as the company navigates the
remainder of this year. The management of Kumba is confident that the measures we
are taking will enable Kumba to remain a viable and resilient business through
these challenging times for the iron ore industry.
Profitability remains sensitive to iron ore export prices and the Rand/US$ exchange
rate.
CHANGES IN DIRECTORATE
Ms Khanyisile Kweyama tendered her resignation from the board with effect from
29 April 2015. Mr Gert Gouws tendered his resignation as a non-executive director
from the board with effect from 8 May 2015.
The board thanks Ms Kweyama and Mr Gouws for their contributions and guidance
during their respective tenures and wishes them all the best in their future
endeavours.
The board announced the appointment of Mr Andile Sangqu as a non-executive director
with effect from 29 June 2015. Mr Sangqu is the Executive Head of Anglo American
South Africa and is appointed onto the company’s board as a shareholder
representative of Anglo American.
Any reference to future financial performance included in this announcement has not
been reviewed or reported on by the company’s external auditors.
The presentation in support of the company’s results for the six months ended
30 June 2015 will be available on the company’s website www.angloamericankumba.com
at 07h30 CAT and the webcast will be available from 11h30 CAT on 21 July 2015.
CONDENSED CONSOLIDATED BALANCE SHEET
as at
Reviewed Reviewed Audited
Rand million 30 June 2015 30 June 2014 31 December 2014
Assets
Property, plant and
equipment 36,870 32,038 35,170
Biological assets 5 5 6
Investments held by
environmental trust 810 781 791
Long-term prepayments and
other receivables 566 627 555
Deferred tax assets - 850 871
Non-current assets 38,251 34,301 37,393
Inventories 6,830 5,128 7,366
Trade and other receivables 4,193 3,375 4,476
Cash and cash equivalents 6,938 3,039 1,664
Current assets 17,961 11,542 13,506
Total assets 56,212 45,843 50,899
Equity
Shareholders' equity 21,129 21,144 20,764
Non-controlling interest 6,324 6,421 6,237
Total equity 27,453 27,565 27,001
Liabilities
Interest-bearing borrowings 13,000 2,000 4,000
Provisions 2,199 1,861 1,964
Deferred tax liabilities 8,836 8,768 8,201
Non-current liabilities 24,035 12,629 14,165
Short-term portion of
interest-bearing borrowings - 1,726 5,593
Short-term portion of provisions 403 296 92
Trade and other payables 3,270 2,826 3,493
Current tax liabilities 1,051 801 555
Current liabilities 4,724 5,649 9,733
Total liabilities 28,759 18,278 23,898
Total equity and liabilities 56,212 45,843 50,899
CONDENSED CONSOLIDATED INCOME STATEMENT
for the period ended
Reviewed Reviewed Audited
6 months 6 months 12 months
Rand million 30 June 2015 30 June 2014 31 December 2014
Revenue 20,469 26,429 47,597
Operating expenses (14,699) (14,124) (28,405)
Operating profit 5,770 12,305 19,192
Finance income 95 35 84
Finance costs (474) (181) (519)
Loss from equity accounted
joint venture (1) (2) (5)
Profit before taxation 5,390 12,157 18,752
Taxation (2,117) (3,584) (4,604)
Profit for the period 3,273 8,573 14,148
Attributable to:
Owners of Kumba 2,508 6,511 10,724
Non-controlling interest 765 2,062 3,424
3,273 8,573 14,148
Earnings per share for profit attributable to the owners of Kumba (Rand per share)
Basic 7.82 20.30 33.44
Diluted 7.82 20.26 33.38
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the period ended
Reviewed Reviewed Audited
6 months 6 months 12 months
Rand million 30 June 2015 30 June 2014 31 December 2014
Profit for the period 3,273 8,573 14,148
Other comprehensive income
for the period, net of tax 174 46 318
Exchange differences on
translation of foreign operations 174 46 352
Reclassification of gain relating
to exchange differences on
translation of foreign operations - - (34)
Total comprehensive income for
the period 3,447 8,619 14,466
Attributable to:
Owners of Kumba 2,642 6,547 11,036
Non-controlling interest 805 2,072 3,430
3,447 8,619 14,466
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the period ended
Reviewed Reviewed Audited
6 months 6 months 12 months
Rand million 30 June 2015 30 June 2014 31 December 2014
Total equity at the
beginning of the period 27,001 27,184 27,184
Changes in share capital and
premium (net of treasury shares)
Treasury shares issued to
employees under employee
share incentive schemes 142 74 93
Purchase of treasury shares - - (107)
Changes in reserves
Equity-settled share-based
payment 243 228 525
Vesting of shares under
employee share incentive schemes (157) (74) (93)
Total comprehensive income for
the period 2,642 6,547 11,036
Dividends paid (2,505) (6,462) (11,521)
Changes in non-controlling interest
Total comprehensive income for
the period 805 2,072 3,430
Dividends paid (796) (2,050) (3,657)
Movement in non-controlling
interest in reserves 78 46 111
Total equity at the end
of the period 27,453 27,565 27,001
Comprising
Share capital and premium
(net of treasury shares) (169) (223) (311)
Equity-settled share-based
payment reserve 1,817 1,398 1,685
Foreign currency translation
reserve 1,390 1,047 1,256
Fair value reserve 59 8 74
Retained earnings 18,032 18,914 18,060
Shareholders' equity 21,129 21,144 20,764
Attributable to the
owners of Kumba 20,279 20,281 19,925
Attributable to the
non-controlling interest 850 863 839
Non-controlling interest 6,324 6,421 6,237
Total equity 27,453 27,565 27,001
Dividend (Rand per share)
Interim - 15.61 15.61
Final n/a n/a 7.73
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
for the period ended
Reviewed Reviewed Audited
6 months 6 months 12 months
Rand million 30 June 2015 30 June 2014 31 December 2014
Cash generated from operations 8,680 15,340 21,769
Net finance costs paid (341) (70) (285)
Taxation paid (67) (2,382) (4,165)
Cash flows from operating
activities 8,272 12,888 17,319
Additions to property, plant
and equipment (3,331) (3,281) (8,477)
Loan granted to joint venture (1) (2) (5)
Proceeds from the disposal of
property, plant and equipment 78 30 78
Cash flows from investing
activities (3,254) (3,253) (8,404)
Purchase of treasury shares - - (107)
Dividends paid to owners of Kumba (2,490) (6,422) (11,450)
Dividends paid to non-controlling
shareholders (811) (2,090) (3,728)
Net interest-bearing
borrowings raised 3,407 877 6,744
Cash flows from financing
activities 106 (7,635) (8,541)
Net increase in cash and
cash equivalents 5,124 2,000 374
Cash and cash equivalents at
beginning of period 1,664 1,053 1,053
Exchange differences on
translation of cash and
cash equivalents 150 (14) 237
Cash and cash equivalents at
end of period 6,938 3,039 1,664
HEADLINE EARNINGS
for the period ended
Reviewed Reviewed Audited
6 months 6 months 12 months
Rand million 30 June 2015 30 June 2014 31 December 2014
Reconciliation of
headline earnings
Profit attributable to
owners of Kumba 2,508 6,511 10,724
Impairment charge - - 439
Net loss/(profit) on disposal
and scrapping of property,
plant and equipment 16 (3) 91
Reclassification of exchange
differences on translation of
foreign operations - - (34)
2,524 6,508 11,220
Taxation effect of adjustments (2) 1 (128)
Non-controlling interest in
adjustments (3) (4) (86)
Headline earnings 2,519 6,505 11,006
Headline earnings (Rand per share)
Basic 7.85 20.28 34.32
Diluted 7.85 20.24 34.26
The calculation of basic and
diluted earnings and headline
earnings per share is based on
the weighted average number of
ordinary shares in issue
as follows:
Weighted average number of
ordinary shares 320,714,572 320,745,287 320,662,676
Diluted weighted average
number of ordinary shares 320,814,017 321,377,681 321,242,611
The dilution of 99,445 at 30 June 2015 (30 June 2014: 632,394) shares to the
weighted average number of ordinary shares is as a result of the vesting of share
options previously granted under the various employee share incentive schemes.
NORMALISED EARNINGS
for the period ended
Unaudited Unaudited Unaudited
6 months 6 months 12 months
Rand million 30 June 2015 30 June 2014 31 December 2014
Reconciliation of
normalised earnings
Headline earnings
attributable to
owners of Kumba 2,519 6,505 11,006
Derecognition of deferred
tax asset 801 - -
3,320 6,505 11,006
Taxation effect of adjustments - - -
Non-controlling interest in
adjustments (184) - -
Normalised earnings 3,136 6,505 11,006
Normalised earnings
(Rand per share)
Basic 9.78 20.28 34.32
Diluted 9.78 20.24 34.26
The calculation of basic and
diluted normalised earnings
per share is based on the weighted
average number of ordinary shares
in issue as follows:
Weighted average number of
ordinary shares 320,714,572 320,745,287 320,662,676
Diluted weighted average
number of ordinary shares 320,814,017 321,377,681 321,242,611
Kumba is disclosing normalised earnings for the first time. Comparative amounts are
also provided.
This measure of earnings is specific to Kumba and is not required in terms of
International Financial Reporting Standards or the JSE Listings Requirements.
Normalised earnings represents earnings from the normal activities of the group.
This is determined by adjusting the headline earnings attributable to the owners of
Kumba for abnormal expense or income items incurred during the year. The
derecognition of the deferred tax asset is an abnormal loss and has therefore been
adjusted in determining normalised earnings.
SALIENT FEATURES AND OPERATING STATISTICS
for the period ended
Unaudited Unaudited Unaudited
6 months 6 months 12 months
Rand million 30 June 2015 30 June 2014 31 December 2014
Share statistics ('000)
Total shares in issue 322,086 322,086 322,086
Weighted average number
of shares 320,715 320,745 320,663
Diluted weighted average
number of shares 320,814 321,378 321,243
Treasury shares 1,216 1,275 1,533
Market information
Closing share price (Rand) 151 339 240
Market capitalisation
(Rand million) 48,622 109,187 77,268
Market capitalisation
(US$ million) 4,005 10,264 6,677
Net asset value (Rand per share) 65.60 65.65 64.47
Capital expenditure (Rand million)
Incurred 3,331 3,281 8,477
Contracted 2,733 2,901 3,430
Authorised but not contracted 3,136 3,434 3,040
Finance lease commitments - 268 232
Operating commitments
Operating lease commitments 129 25 148
Shipping services 8,926 11,316 11,353
Economic information
Average Rand/US Dollar
exchange rate ZAR/US$) 11.91 10.68 10.83
Closing Rand/US Dollar
exchange rate (ZAR/US$) 12.14 10.64 11.57
Sishen mine FOR unit cost
Unit cost (Rand per tonne) 389.3 319.7 331.6
Cash cost (Rand per tonne) 299.1 266.5 271.8
Unit cost (US$ per tonne) 32.7 29.9 30.6
Cash cost (US$ per tonne) 25.1 25.0 25.1
Kolomela mine FOR unit cost
Unit cost (Rand per tonne) 255.0 272.2 269.1
Cash cost (Rand per tonne) 184.7 211.0 207.6
Unit cost (US$ per tonne) 21.4 25.5 24.8
Cash cost (US$ per tonne) 15.5 19.8 19.2
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Corporate information
Kumba is a limited liability company incorporated and domiciled in South Africa.
The main business of Kumba, its subsidiaries, joint ventures and associates is the
exploration, extraction, beneficiation, marketing, sale and shipping of iron ore.
The group is listed on the JSE Limited (JSE).
The condensed consolidated financial statements of Kumba and its subsidiaries for
the six months ended 30 June 2015 were authorised for issue in accordance with a
resolution of the directors on 17 July 2015.
2. Basis of preparation
The condensed consolidated interim financial statements have been prepared, under
the supervision of FT Kotzee CA(SA), chief financial officer, in accordance with
the requirements of the JSE Limited Listings Requirements for interim reports, and
the requirements of the South African Companies Act No 71 of 2008. The Listings
Requirements require interim reports to be prepared in accordance with and
containing the information required by IAS 34: Interim Financial Reporting, as well
as the SAICA Financial Reporting Guides as issued by the Accounting Practices
Committee and Financial Pronouncements as issued by Financial Reporting Standards
Council.
The condensed consolidated financial statements has been prepared in accordance
with the historical cost convention except for certain financial instruments,
share-based payments and biological assets which are stated at fair value, and is
presented in Rand, which is Kumba’s functional and presentation currency.
3. Accounting policies
The accounting policies and methods of computation applied in the preparation of
these condensed consolidated financial statements are in terms of International
Financial Reporting Standards and are consistent with those accounting policies
applied in the preparation of the previous consolidated annual financial
statements.
No new standards, amendments to published standards or interpretations which became
effective for the year commencing on 1 January 2015 had an effect on the reported
results or the group accounting policies. The group did not early adopt any new,
revised or amended accounting standards or interpretations. The accounting
standards, amendments to issued accounting standards and interpretations, which are
relevant to the group but not yet effective at 30 June 2015, are being evaluated
for the impact of these pronouncements.
4. Change in estimates
The life of mine plan on which accounting estimates are based, only includes proved
and probable ore reserves as disclosed in Kumba’s 2014 annual ore reserves and
mineral resources statement.
Management has revised the Sishen and Kolomela life of mine used to calculate the
rehabilitation and decommissioning provisions. This resulted in an increase of the
provisions.
The effect of this change, which was applied prospectively from 1 January 2015, is
detailed below:
Reviewed
Rand million 30 June 2015
Increase in environmental rehabilitation provision 84
Increase in decommissioning provision 30
Decrease in profit after tax attributable to the owners of Kumba 47
Rand per share
Decrease in earnings per share attributable to the owners of Kumba 0.15
The change in estimate in the decommissioning provision has been capitalised to the
related property, plant and equipment and as a result had no effect on profit or
earnings per share.
5. Property, plant and equipment
Reviewed Reviewed Audited
Rand million 30 June 2015 30 June 2014 31 December 2014
Capital expenditure 3,331 3,281 8,477
Comprising:
Expansion 343 438 1,433
Stay in business (SIB) 1,503 2,200 5,206
Deferred stripping 1,485 643 1,838
Transfers from assets under
construction to property,
plant and equipment 2,323 893 5,163
Expansion capital expenditure comprised of the expenditure on the Dingleton
relocation project. SIB capital expenditure to maintain operations was principally
for the acquisition of heavy mining equipment, infrastructure and housing
developments.
6. Share capital and share premium
Reconciliation of share capital and share premium (net of treasury shares):
Reviewed Reviewed Audited
Rand million 30 June 2015 30 June 2014 31 December 2014
Balance at beginning of period (311) (297) (297)
Net movement in treasury shares
under employee share incentive
schemes 142 74 (14)
Purchase of treasury shares - - (107)
Shares issued to employees 142 74 93
Share capital and share premium (169) (223) (311)
Reconciliation of number of shares in issue:
Reviewed Reviewed Audited
Number of shares 30 June 2015 30 June 2014 31 December 2014
Balance at beginning of period 322,085,974 322,085,974 322,085,974
Ordinary shares issued - - -
Balance at end of period 322,085,974 322,085,974 322,085,974
Reconciliation of treasury
shares held:
Balance at beginning of period 1,533,346 1,444,526 1,444,526
Shares purchased - - 299,600
Shares issued to employees under
the Long-Term Incentive Plan,
Kumba Bonus Share Plan and Share
Appreciation Rights Scheme (317,560) (169,202) (210,780)
Balance at end of period 1,215,786 1,275,324 1,533,346
All treasury shares are held as conditional awards under the Kumba Bonus Share
Plan.
7. Interest-bearing borrowings
Kumba’s net debt position at the balance sheet dates was as follows:
Reviewed Reviewed Audited
Rand million 30 June 2015 30 June 2014 31 December 2014
Interest-bearing borrowings 13,000 3,726 9,593
Cash and cash equivalents (6,938) (3,039) (1,664)
Net debt 6,062 687 7,929
Total equity 27,453 27,565 27,001
Interest cover (times) 14 90 44
Movements in interest-bearing borrowings are analysed as follows:
Reviewed Reviewed Audited
Rand million 30 June 2015 30 June 2014 31 December 2014
Balance at the beginning of the period 9,593 2,849 2,849
Interest-bearing borrowings raised 10,199 9,969 14,891
Interest-bearing borrowings repaid (6,560) (9,068) (8,098)
Finance lease repaid (232) (24) (49)
Balance at the end of the period 13,000 3,726 9,593
At 30 June 2015, R13 billion of the R16.5 billion long-term debt facility had been
drawn down and nothing of the total short-term uncommitted facilities of
R8.2 billion had been drawn down. Kumba was not in breach of any of its financial
covenants during the period. The group had undrawn long-term borrowings and
uncommitted short-term facilities at 30 June 2015 of R11.7 billion (June 2014:
R16.5 billion).
8. Significant items included in operating profit
Operating expenses is made up as follows:
Reviewed Reviewed Audited
6 months 6 months 12 months
Rand million 30 June 2015 30 June 2014 31 December 2014
Production costs 8,994 8,396 18,979
Movement in inventories 961 479 (904)
Finished products 1,238 336 (237)
Work-in-progress (277) 143 (667)
Cost of goods sold 9,955 8,875 18,075
Impairment charge - - 439
Mineral royalty 96 835 1,176
Selling and distribution costs 2,891 2,208 4,548
Cost of services rendered – shipping 1,774 2,222 4,203
Sublease rent received (17) (16) (36)
Operating expenses 14,699 14,124 28,405
Operating profit has been derived
after taking into account the
following items:
Employee expenses 1,997 1,754 3,869
Restructuring cost - - 68
Share-based payment expenses 306 276 643
Depreciation of property, plant
and equipment 1,610 1,134 2,636
Deferred waste stripping costs
capitalised (1,485) (643) (1,838)
Net loss/(profit) on disposal and
scrapping of property, plant and
equipment 16 (3) 91
(Gain)/loss on lease receivable (36) - 86
Finance gains (121) (228) (443)
9. Taxation
The group’s effective tax rate was 39% for the period (2014: 29%). The increase is
mainly attributable to the derecognition of a deferred tax asset amounting to
R801 million due to the fact that future taxable profits are not anticipated to be
generated by the relevant operation in view of the reduced iron ore prices.
10. Segmental reporting
The total reported segment revenue is measured in a manner consistent with that
disclosed in the income statement. The performance of the operating segments are
assessed based on a measure of earnings before interest and taxation (EBIT), which
is measured in a manner consistent with ‘Operating profit’ in the financial
statements. Finance income and finance costs are not allocated to segments, as
treasury activity is managed on a central group basis.
Total segment assets comprise finished goods inventory only, which is allocated
based on the operations of the segment and the physical location of the assets.
‘Other segments’ comprise corporate, administration and other expenditure not
allocated to the reported segments.
Products1 Services
Sishen Kolomela Thabazimbi Shipping
Rand million mine mine mine Logistics operations Other Total
Reviewed period ended 30 June 2015
Income statement
Revenue from external customers 14,017 4,357 518 - 1,577 - 20,469
EBIT 6,720 2,539 138 (2,891) (197) (539) 5,770
Significant items included in EBIT:
Depreciation 1,182 357 - 3 - 68 1,610
Staff costs 1,467 312 233 17 - 274 2,303
Balance sheet
Total segment assets 360 219 100 561 - 129 1,369
Cash flow statement
Additions to property, plant
and equipment
Expansion capex 324 1 - - - 18 343
Stay-in-business capex 1,152 256 - 3 - 92 1,503
Deferred stripping 1,259 226 - - - - 1,485
Reviewed period ended 30 June 2014
Income statement
Revenue from external customers 18,744 4,790 777 - 2,118 - 26,429
EBIT 12,237 3,080 (77) (2,208) (104) (623) 12,305
Significant items included in EBIT:
Depreciation 813 303 3 3 - 12 1,134
Staff costs 1,175 274 200 13 - 368 2,030
Balance sheet
Total segment assets 183 214 130 422 - 226 1,175
Cash flow statement
Additions to property, plant
and equipment
Expansion capex 261 62 - - - 115 438
Stay-in-business capex 1,798 372 - 1 - 29 2,200
Deferred stripping 335 92 216 - - - 643
Products1 Services
Sishen Kolomela Thabazimbi Shipping
Rand million mine mine mine Logistics operations Other Total
Audited year ended 31 December 2014
Income statement
Revenue from external customers 33,094 9,437 1,172 - 3,894 - 47,597
EBIT 20,423 5,906 (706) (4,548) (309) (1,574) 19,192
Significant items included in EBIT:
Depreciation 1,858 643 36 6 - 93 2,636
Impairment charge - - 439 - - - 439
Staff costs 2,605 572 420 26 - 957 4,580
Balance sheet
Total segment assets 740 243 124 1,061 - 242 2,410
Cash flow statement
Additions to property, plant
and equipment
Expansion capex 826 370 - - - 237 1,433
Stay-in-business capex 4,281 915 - 10 - - 5,206
Deferred stripping 1,025 351 462 - - - 1,838
1) Derived from extraction, production and selling of iron ore.
Geographical analysis of revenue and non-current assets:
Reviewed Reviewed Audited
6 months 6 months 12 months
Rand million 30 June 2015 30 June 2014 31 December 2014
Total revenue from
external customers 20,469 26,429 47,596
South Africa 2,069 2,424 3,763
Export 18,400 24,005 43,833
China 10,620 15,485 24,906
Rest of Asia 4,000 6,046 14,958
Europe 1,655 2,359 3,687
Middle East and Africa 2,125 115 282
All non-current assets, excluding investments in associates and joint ventures are
located in South Africa, with the exception of R33 million located in Singapore
(June 2014: R2 million), which relates to prepayments.
11. Related party transactions
During the period, Kumba, in the ordinary course of business, entered into various
sale, purchase and service transactions with associates, joint ventures, fellow
subsidiaries, its holding company and Exxaro Resources Limited. These transactions
were subject to terms that are no less favourable than those offered by third
parties.
Reviewed Reviewed Audited
6 months 6 months 12 months
Rand million 30 June 2015 30 June 2014 31 December 2014
Short-term deposit held with
Anglo American SA Finance
Limited1 (AASAF) 6,158 - -
Interest earned on short-term
deposits with AASAF during
the period 36 27 28
Weighted average interest rate 5.79% 5.37% 5.73%
Short-term deposit held with
Anglo American Capital plc1 123 2,447 1,092
Interest earned on facility
during the period 1 * *
Interest-bearing borrowing
from AASAF - 1,469 5,361
Interest paid on borrowings
during the period 65 5 134
Weighted average interest rate 6.91% 6.34% 6.70%
Trade payable owing to
Anglo American Marketing
Limited1 (AAML) 262 242 405
Shipping services provided
by AAML 1,739 2,277 4,152
Dividends paid to Exxaro
Resources Limited 673 1,736 3,095
1 Subsidiaries of the ultimate holding company.
* Interest earned on the deposit is insignificant and is earned at prevailing
market rates.
12. Fair value estimation
The carrying value of financial instruments not carried at fair value approximates
fair value because of the short period to maturity or as a result of market related
variable interest rates. Equity investments held by the environmental trust
amounting to R460 million (2014: R455 million) are carried at fair value. The fair
value measurements are classified as level 1.
13. Contingent asset
A significant monitored slope failure occurred at the Thabazimbi mine in the Kumba
pit during June 2015. No injuries were sustained as the pit was evacuated well
before the failure occurred. Kumba has instituted an insurance claim relating to
this event.
14. Guarantees
The total guarantees issued in favour of the DMR in respect of the group’s
environmental closure liabilities at 30 June 2015 are R2.3 billion (June 2014:
R2.1 billion). Included in this amount are financial guarantees for the
environmental rehabilitation and decommissioning obligations of the group to the
DMR in respect of Thabazimbi mine of R429 million (June 2014: R419 million).
ArcelorMittal S.A. has guaranteed this full amount by means of bank guarantees
issued in favour of SIOC.
15. Regulatory update
21.4% undivided share of the Sishen mine mineral rights
There have been no significant changes to the matters reported on for the year
ended 31 December 2014. SIOC has not yet been awarded the 21.4% Sishen mining
right, which it applied for early in 2014 following the Constitutional Court
judgement on the matter in December 2013. The Constitutional Court ruled that SIOC
held a 78.6% undivided share of the Sishen mining right and that, based on the
provisions of the MPRDA, only SIOC can apply for, and be granted, the residual
21.4% share of the mining right at the Sishen mine. The grant of the mining right
may be made subject to such conditions considered by the Minister to be
appropriate. Kumba is actively continuing its engagement with the DMR in order to
finalise the grant of the residual right.
16. Contingent liabilities
16.1 As at 31 December 2014, the Group reported that it had certain tax matters
under review with the South African Revenue Service (SARS). As at 30 June 2015
the Group was engaged in discussions with SARS around these matters with a
view to seeking resolution. These matters have been considered in consultation
with external tax and legal advisors, who support the Group’s position. We
believe that these matters have been appropriately treated in the results for
the period ended 30 June 2015.
16.2 Rates and taxes levied by the Municipality at Sishen effective from
1 June 2014 reflected a significant increase amounting to R278 million.
Management objected to the higher valuation of the relevant land and the
Municipality appointed a valuer who is reviewing the objections lodged.
Management is of the view that the municipal valuation is fundamentally
flawed and acknowledges its obligation for rates and taxes based on a
reasonable valuation.
17. Corporate governance
The group subscribes to the Code of Good Corporate Practices and Conduct and
complies with the recommendations of the King III Report. Full disclosure of the
group’s compliance is contained in the 2014 Integrated Report.
18. Events after the reporting period
Subsequent to the interim period, the Board announced the closure of Thabazimbi
mine. The financial effect is not expected to be material as limited closure costs
are attributable to Kumba.
Furthermore, Kumba announced that it is proposing a new organisational structure
for its Support Functions at Sishen and Kolomela mines as well as its Stay in
Business (SIB) projects. No further material events have occurred between the end
of the reporting period and the date of the release of these reviewed condensed
consolidated financial statements.
19. Independent auditors’ review report
The auditors, Deloitte & Touche, have issued their unmodified review report on the
condensed consolidated interim financial statements for the six months ended
30 June 2015. The review was conducted in accordance with ISRE 2410 Review of
Interim Financial Information Performed by the Independent Auditor of the Entity.
A copy of the signed auditor’s report on the condensed consolidated interim
financial statements together with the financial information identified in the
auditor’s report are available for inspection at the company’s registered
office.
On behalf of the Board
F Titi NB Mbazima
Chairman Chief executive
17 July 2015
Pretoria
Registered office:
Centurion Gate
Building 2B
124 Akkerboom Road
Centurion, 0157
Republic of South Africa
Tel: +27 12 683 7000
Fax: +27 12 683 7009
Transfer secretaries:
Computershare Investor Services (Proprietary) Limited
70 Marshall Street
Republic of South Africa
PO Box 61051, Marshalltown, 2107
Sponsor to Kumba:
RAND MERCHANT BANK (a division of FirstRand Bank Limited)
Directors:
Non-executive – F Titi (chairman), ZBM Bassa, DD Mokgatle, AJ Morgan, LM Nyhonyha,
AM O’Neill, BP Sonjica, AH Sangqu
Executive – NB Mbazima (chief executive), FT Kotzee (chief financial officer)
Company secretary:
A Parboosing
Company registration number: No 2005/015852/06
Incorporated in the Republic of South Africa
Income tax number: 9586/481/15/3
JSE code: KIO
ISIN: ZAE000085346
(‘Kumba’ or ‘the company’ or ‘the group’)
21 July 2015
Date: 21/07/2015 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
