Wrap Text
REVIEWED CONDENSED CONSOLIDATED INTERIM FINANCIAL REPORT AND INTERIM CASH DIVIDEND DECLARATION FOR THE SIX MONTHS EN
Kumba Iron Ore Limited
A member of the Anglo American plc group
(Incorporated in the Republic of South Africa)
Registration number: 2005/015852/06
Income Tax number: 9586/481/15/3
JSE Share code: KIO
ISIN: ZAE000085346
(‘Kumba’ or ‘the company’ or ‘the group’)
REVIEWED CONDENSED CONSOLIDATED INTERIM FINANCIAL REPORT AND INTERIM CASH
DIVIDEND DECLARATION FOR THE SIX MONTHS ENDED 30 JUNE 2012
HIGHLIGHTS
- WORLD CLASS SAFETY PERFORMANCE CONTINUES
- KOLOMELA MINE RAMP UP AHEAD OF GUIDANCE - PRODUCTION OF 3.3MT
- TOTAL PRODUCTION UP 13% TO 21.6MT
- RECORD EXPORT SALES VOLUMES UP 13% TO 20.7MT
- HEADLINE EARNINGS R23.07 PER SHARE
- INTERIM CASH DIVIDEND R19.20 PER SHARE
COMMENTARY
HIGHLIGHTS
Kumba is pleased to announce its results for the six months ended 30 June 2012.
The group’s safety performance remains a key priority and, although the group
recorded 9 lost-time injuries during the period, all the sites worked the last
20 months without any loss of life.
Kumba’s headline earnings were R7.4 billion for the six months ended 30 June
2012; 18% below the R9.1 billion achieved in the first half of 2011. The
decrease in earnings was primarily as a result of substantially weaker iron ore
export prices together with cost increases which were partially offset by
higher export sales volumes for the six months. The higher export sales volumes
and a more favourable Rand/US Dollar exchange rate aided the 5% growth in
revenue to R25.2 billion for the six months, another record for the group,
despite the decline in iron ore prices. Attributable and headline earnings for
the period were R23.05 and R23.07 per share respectively, on which an interim
cash dividend of R19.20 per share has been declared.
Despite some operational challenges experienced during the period, total sales
for the half year rose to a record 23.4Mt, an increase of 6% over the 22Mt of
the same period in 2011. Record export sales volumes of 20.7Mt were achieved as
Sishen mine volumes were supplemented with sales from Kolomela mine volumes and
stockpiles.
SAFETY PERFORMANCE
The company remains committed to the safety of its employees at all the group’s
sites and is continually seeking ways to enhance safety initiatives in a drive
to achieve zero harm. Sishen, Thabazimbi and Kolomela mines worked the last 20
months without any loss of life. The group recorded 9 lost-time injuries
(LTI’s) for the period, which resulted in a LTIFR (lost-time injury frequency
rate) of 0.09 compared to the 0.05 achieved in the first half of 2011. Kolomela
mine was LTI-free throughout the period and continued its world class safety
performance by recording 26.4 million LTI-free man hours, with the last LTI
recorded at the site in January 2010.
MARKET OVERVIEW
Global crude steel production increased marginally to 775Mt for the first half
of 2012 compared to 772Mt for the same period in 2011. China’s crude steel
production for the first half of this year of 355Mt was up 1% year on year. At
current run rates it is anticipated that Chinese crude steel production could
increase by 4% year on year to around 715Mt for 2012, supporting a 2% increase
in global crude steel production. Seaborne iron ore supply of some 533Mt for
the first half of 2012 was impacted by adverse weather conditions in Australia
and Brazil during the first quarter, but saw a substantial rebound during the
second quarter. Iron ore index prices traded in a range between $130/tonne and
$150/tonne (CFR China 62% Fe), with a high of ~$150/tonne during April 2012,
averaging at $142/tonne during the first six months (2011: $179/tonne). Index
prices declined steadily from these levels to just above $130/tonne towards the
end of May as Chinese steel mills reduced their off take. Iron ore prices have
since stabilised at around $135/tonne as Chinese steel mills returned to the
market to replenish stockpiles.
OPERATIONAL PERFORMANCE
Total tonnes mined at Sishen mine increased by 16% from 76.7Mt for the first
six months of 2011 to 88.9Mt, of which waste mined was 68.8Mt, an increase of
33% over the first six months of 2011. Total production at Sishen mine
decreased by 4% from 18.6Mt in 2011 to 17.9Mt. Production was impacted by the
availability of material supplied to the mine’s dense media separation (DMS)
and jig plants, as expected in a constrained pit, due to the planned increase
in waste stripping. This position was further impacted by wet pit conditions
resulting from heavy rainfall and poor operator attendance during the first
quarter of 2012. Production run rates recovered in the second quarter of 2012
as the ramp up in waste mining continued to improve resulting in second quarter
production from the mine of 9.4Mt, 12% above the 8.5Mt of the first quarter of
2012.
Total tonnes mined at Kolomela mine increased by 25% from 15.3Mt in 2011 to
19.1Mt, of which waste mined was 15.6Mt, an increase of 6% over the first six
months of 2011. Following the successful commissioning in 2011, the mine
continues to ramp up well with 3.3Mt produced during the six months, more than
double the 1.2Mt produced in the fourth quarter of 2011. Should the current
ramp up performance be sustained, the mine is on track to outperform the 4Mt to
5Mt production guidance for 2012, ramping up to 9Mtpa design capacity in 2013.
Waste mining at Thabazimbi mine decreased by 31% to 16.2Mt from 23.5Mt as the
mine nears the end of its life and geotechnical stoppages impacted the
development of one pit. Production at Thabazimbi mine, although planned to be
lower in 2012, was also impacted by mining feedstock and quality constraints,
and reduced by 21% year on year to 0.4Mt for the six months.
Volumes railed on the Sishen-Saldanha export channel, although impacted by the
production shortfalls at Sishen mine, increased by 3% to a new record level of
20Mt (including 0.7Mt railed to Saldanha Steel), which was made possible by the
ramp up of volumes railed from Kolomela mine to 3.5Mt for the six months. Kumba
shipped 19.5Mt from the Saldanha port destined for the export market, up 4%
year on year.
Total sales volumes for the group for the half year rose to 23.4Mt, an increase
of 6% over the 22Mt of 2011. Export sales volumes for the half year increased
by 2.3Mt or 13% from 18.4Mt in 2011 to 20.7Mt, with 71% of total export volumes
directed to China (compared to 69% during the first half of 2011) and Japan
increasing its off-take from 1.7Mt to 2.3Mt or 11% of total export volumes.
Exports to Europe declined to 11% of total export volumes as weak economic
conditions persisted. Finished product stockpiles increased at Sishen mine from
1.1Mt to 1.2Mt whilst at Qingdao and Saldanha ports stocks decreased from 3.0Mt
to 1.8Mt in support of export sales, when compared to closing stocks at the end
of 2011. Total final product stock of 0.7Mt was held at Kolomela mine at the
end of June 2012. Total domestic sales volumes for the six months of 2.7Mt were
down by 27% or 1.0Mt due to lower demand.
FINANCIAL RESULTS
The group’s total revenue of R25.2 billion (including shipping operations of
R1.7 billion for the first six months of 2012 and R1.2 billion in 2011) for the
period was 5% higher than the R24.1 billion of the same period of 2011. This
was principally the result of an increase of 13% in export sales volumes
achieved and a weaker Rand/US Dollar exchange rate, offset by a year on year
weighted average decrease of 21% in export iron ore prices. Kumba arranged
shipping for 11.9Mt during the period, which, together with a 16% increase in
freight rates, resulted in a 45% growth in turnover from shipping operations to
R1.7 billion.
Kumba’s operating profit margin of 57% for the six months (62% from mining
activities), decreased by 13% from 70% (73% from mining activities) in 2011.
Operating profit of R14.4 billion decreased from R16.9 billion by 15% or R2.5
billion, principally as a result of:
- A weighted average decrease of 21% in iron ore export prices, which reduced
operating profit by R4.9 billion;
- Operating expenses (excluding shipping expenses) increased by R2.7 billion or
14% as a function of a growing company. In addition to above inflationary cost
escalations, the company has seen operating expenses grow as a result of the
planned increase in waste mined at Sishen mine, the bringing into production of
Kolomela mine (for which the capitalisation of operating expenses has ceased)
and additional volumes moved from the mines to Saldanha port for export to
customers;
- Lower domestic sales volumes of 2.7Mt which reduced operating profit by R417
million; and
- A net freight loss incurred by the group’s shipping operations of R63 million
(profit of R187 million earned in the first half of 2011) as a result of
volatile freight rates.
This decrease was offset mainly by:
- A 2.4Mt growth in export sales volumes which added R2.7 billion to operating
profit; and
- The weakening of the average exchange rate of the Rand to the US Dollar
(average exchange rates – R7.93/US$1.00 for the first six months of 2012
compared with R6.88/US$1.00 in the same period of 2011), which increased
operating profit by R2.6 billion.
As a result of the planned increase in mining activity at Sishen mine and above
inflationary cost escalations, the unit cash cost increased by 21% from
R150/tonne at the end of 2011 to R182/tonne for the six months. This increase
was further impacted by the shortfalls in production for the period. As with
the rest of the mining industry, the group has seen above inflationary
escalations in key input costs, such as the diesel price which has increased by
15% from R9.28/litre to R10.67/litre and electricity prices which have
increased by 16% year on year. However, to mitigate this, Kumba remains focused
on achieving further benefit from successful cost management and operational
efficiencies from its asset optimisation programmes and participation in the
Anglo American Supply Chain procurement organisation. Kolomela mine’s unit cash
cost was R174/tonne for the six months. This unit cost should benefit from
increased production as the mine ramps up to design capacity.
The group continued to generate substantial cash from its operations, with
R14.7 billion generated during the six months. These cash flows were used to
pay taxation of R3.6 billion, mineral royalties of R795 million and aggregate
dividends of R9.6 billion during the six months. Capital expenditure of R1.9
billion was incurred, of which R1.1 billion was to maintain operations and R773
million to expand operations, mainly on Kolomela mine and the Sishen Westerly
Expansion Project (SWEP). At 30 June 2012 the group had a net debt position of
R668 million (R1.6 billion net cash at the end of 2011).
Net working capital increased by R2.7 billion from 31 December 2011 to R5.5
billion. This increase was due to the growth in the accounts receivable balance
on the back of higher export sales volumes as well as a decrease in accounts
payable mainly from the payment in the period of the Envision employees’ tax
accrual that existed at the end of December 2011.
ORE RESERVES AND MINERAL RESOURCES
There have been no material changes to the ore reserves and mineral resources
as disclosed in the 2011 Kumba Integrated Report.
PROSPECTS
Although China’s crude steel annualised production rate remains above 700Mtpa,
underlying steel demand remains weak resulting in depressed steel prices. Iron
ore prices are, however, expected to trade in a similar range as seen during
the first half of 2012, supported by high-cost Chinese domestic iron ore
production. The recently announced monetary policy stimulus of interest rate
cuts in China should support demand for steel, but the effect of it remains to
be seen, especially in light of economic uncertainty emanating from Europe.
The ramp up in waste mining at Sishen mine is expected to continue, which will
support an improvement in production rates at the mine during the second half
of 2012. Production at Sishen mine for the full year is anticipated to be in
line with 2011 levels. The ramp up in waste mining will put upward pressure on
unit cash cost of production.
The ramp up of Kolomela mine remains on track and the mine should produce at
least 6Mt in support of export sales volume growth of approximately 3Mt to 4Mt
in 2012, which will be offset by the fact that excess finished product
stockpiles have been depleted to operating levels.
Domestic sales volumes from Sishen and Thabazimbi mines remain dependent on the
offtake requirements or contractual commitments of ArcelorMittal South Africa
Limited.
Relative to the US Dollar, the South African Rand has weakened by around 5%
from the average exchange rate achieved during the first half of 2012. Kumba’s
operating profit remains highly sensitive to the Rand/US Dollar exchange rate.
CHANGES IN DIRECTORATE DURING THE PERIOD
The Board of Directors of Kumba announced the following changes to the board:
- Mr Peter Matlare, a non-executive director of Kumba, resigned from the board
on 31 March 2012. The board expressed its gratitude to Mr Matlare for his
excellent contribution to the board and the company and wished him well in his
future endeavours.
- The appointment of Mr Frikkie Kotzee as executive director and chief
financial officer, effective 1 June 2012.
- The appointment of Ms Buyelwa Sonjica as a non-executive director, effective
1 June 2012.
LATEST EXECUTIVE DIRECTORATE UPDATE
As announced on 19 July 2012, the Board of Kumba has appointed Norman Mbazima
as executive director and chief executive officer, effective 1 September 2012,
following the appointment of Chris Griffith as chief executive officer of Anglo
American Platinum Limited. Mr Mbazima has been the chief executive officer of
Anglo American’s Thermal Coal business since 2009 and was previously the chief
executive officer of Scaw Metals, and joint acting chief executive officer and
chief financial officer of the Platinum business.
PRODUCTION AND SALES REPORT
FOR THE SIX MONTHS ENDED 30 JUNE 2012
Total production of 11.4Mt was 11% higher than the second quarter of 2011 as
the production from Kolomela mine was offset by a 22% decrease in production
from the Sishen mine jig plant as a result of mining feedstock and quality
constraints and maintenance on single line conveyor systems. Production run
rates recovered in the second quarter of 2012 as the ramp up in waste mining
continued to improve resulting in an overall 12% increase in production at
Sishen mine. Following the successful commissioning in 2011, Kolomela mine
continued to ramp up well with 1.7Mt produced during the quarter, an increase
of 15% quarter on quarter.
Unaudited production summary
Quarter ended Quarter ended
’000 tonnes June 2012 June 2011 % change March 2012 % change
Mine production 11,449 10,359 11 10,106 13
– Sishen mine 9,448 10,098 (6) 8,455 12
DMS plant 6,720 6,589 2 5,777 16
Jig plant 2,728 3,509 (22) 2,678 2
– Kolomela mine 1,739 – 100 1,513 15
– Thabazimbi mine 262 261 – 138 89
Unaudited sales summary
Quarter ended Quarter ended
’000 tonnes June 2012 June 2011 % change March 2012 % change
Sales volumes 11,966 11,642 3 11,441 5
– Export sales 10,598 9,806 8 10,121 5
– Domestic sales 1,368 1,836 (25) 1,320 4
Sishen mine 981 1,272 (23) 1,021 (4)
Thabazimbi mine 387 564 (31) 299 29
Unaudited production summary
Six months ended
’000 tonnes June 2012 June 2011 % change
Iron ore 21,556 19,153 13
Lump 13,340 11,784 13
Fines 8,216 7,369 12
Mine production 21,556 19,153 13
– Sishen mine 17,904 18,646 (4)
DMS plant 12,498 12,330 1
Jig plant 5,406 6,316 (14)
– Kolomela mine 3,252 – 100
– Thabazimbi mine 400 507 (21)
Unaudited sales summary
Six months ended
’000 tonnes June 2012 June 2011 % change
Sales volumes 23,407 22,025 6
– Export sales 20,719 18,363 13
– Domestic sales 2,688 3,662 (27)
Sishen mine 2,002 2,536 (21)
Thabazimbi mine 686 1,126 (39)
SALIENT FEATURES AND OPERATING STATISTICS FOR THE PERIOD ENDED
Unaudited Unaudited Unaudited
6 months 6 months 12 months
30 June 30 June 31 December
2012 2011 2011
Share statistics (’000)
Total shares in issue 322,059 322,052 322,059
Treasury shares 721 957 1,076
Treasury shares (Rand million) 293 243 336
Market information
Closing share price (Rand) 548 484 500
Market capitalisation (Rand million) 176,488 155,873 161,030
Market capitalisation (US$ million) 21,289 22,990 19,686
Net asset value (Rand per share) 50.38 51.49 49.16
Capital expenditure (Rand million)
Incurred 1,868 1,898 5,849
Contracted 2,815 2,147 1,988
Authorised but not contracted 2,237 4,176 2,168
Capital expenditure relating to
Thabazimbi mine to be financed by
ArcelorMittal
Contracted 22 186 29
Authorised but not contracted 7 75 7
Operating commitments
Operating lease commitments 722 95 88
Shipping services 8,836 109 9,469
Economic information
Average Rand/US Dollar
exchange rate (ZAR/US$) 7.93 6.88 7.25
Closing Rand/US Dollar
exchange rate (ZAR/US$) 8.29 6.78 8.18
Operating statistics (Mt)
Production 21.6 19.1 41.3
Sishen mine 17.9 18.6 38.9
Kolomela mine 3.3 – 1.5
Thabazimbi mine 0.4 0.5 0.9
Sales 23.4 22.0 43.5
Export 20.7 18.4 37.1
Domestic 2.7 3.6 6.4
Sishen mine 2.0 2.5 5.1
Thabazimbi mine 0.7 1.1 1.3
Sishen mine FOR unit cost
Unit cost (Rand per tonne) 220.09 159.18 178.90
Cash cost (Rand per tonne) 181.90 131.01 150.47
Unit cost (US$ per tonne) 27.76 23.14 24.68
Cash cost (US$ per tonne) 22.95 19.04 20.75
Kolomela mine FOR unit cost
Unit cost (Rand per tonne) 257.06
Cash cost (Rand per tonne) 174.30
Unit cost (US$ per tonne) 32.43
Cash cost (US$ per tonne) 21.99
CONDENSED GROUP BALANCE SHEET AS AT
Reviewed Reviewed Audited
30 June 30 June 31 December
Rand million 2012 2011 2011
Assets
Property, plant and equipment 22,037 17,447 20,878
Biological assets 6 5 6
Investments in associates
and joint ventures 38 24 33
Investments held by
environmental trust 606 423 568
Long-term prepayments and other
receivables 86 50 95
Deferred tax assets 805 617 658
Non-current assets 23,578 18,566 22,238
Inventories 3,716 3,398 3,864
Trade and other receivables 4,872 5,167 3,537
Current tax assets 12 30 32
Cash and cash equivalents 2,526 5,382 4,742
Current assets 11,126 13,977 12,175
Total assets 34,704 32,543 34,413
Equity
Shareholders' equity 16,226 16,583 15,833
Non-controlling interest 4,867 4,976 4,759
Total equity 21,093 21,559 20,592
Liabilities
Interest-bearing borrowings – 3,188 –
Provisions 977 815 901
Deferred tax liabilities 5,923 3,533 4,942
Non-current liabilities 6,900 7,536 5,843
Short-term portion of
interest-bearing borrowings 3,194 – 3,191
Short-term portion of provisions 21 9 11
Trade and other payables 3,106 3,078 4,556
Current tax liabilities 390 361 220
Current liabilities 6,711 3,448 7,978
Total liabilities 13,611 10,984 13,821
Total equity and liabilities 34,704 32,543 34,413
CONDENSED GROUP INCOME STATEMENT FOR THE PERIOD ENDED
Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 31 December
Rand million 2012 2011 2011
Revenue 25,236 24,066 48,553
Operating expenses (10,787) (7,149) (16,587)
Operating profit 14,449 16,917 31,966
Finance income 82 114 241
Finance costs (210) (60) (149)
Profit before taxation 14,321 16,971 32,058
Taxation (4,588) (5,135) (9,760)
Profit for the period 9,733 11,836 22,298
Attributable to:
Owners of Kumba 7,401 9,052 17,042
Non-controlling interest 2,332 2,784 5,256
9,733 11,836 22,298
Earnings per share for
profit attributable
to the owners of Kumba
(Rand per share)
Basic 23.05 28.20 53.11
Diluted 23.00 28.11 52.97
CONDENSED GROUP STATEMENT OF OTHER COMPREHENSIVE INCOME FOR THE PERIOD ENDED
Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 31 December
Rand million 2012 2011 2011
Profit for the period 9,733 11,836 22,298
Other comprehensive income
for the period, net of tax 61 49 404
Exchange differences on
translation of foreign
operations 99 46 363
Net effect of cash flow hedges (38) 3 41
Total comprehensive income
for the period 9,794 11,885 22,702
Attributable to:
Owners of Kumba 7,462 9,081 17,340
Non-controlling interest 2,332 2,804 5,362
9,794 11,885 22,702
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY FOR THE PERIOD ENDED
Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 31 December
Rand million 2012 2011 2011
Total equity at the beginning
of the period 20,592 18,376 18,376
Changes in share capital
and premium
Shares issued during the period 5 4 16
Treasury shares issued to
employees under employee share
incentive schemes 89 102 139
Purchase of treasury shares (51) (140) (278)
Changes in reserves
Equity-settled share-based payment 286 58 265
Vesting of shares under employee
share schemes (109) (102) (139)
Vesting of Envision share scheme – – (2,013)
Total comprehensive income
for the period 7,462 9,081 17,340
Dividends paid (7,244) (6,758) (13,835)
Changes in non-controlling interest
Total comprehensive income
for the period 2,332 2,804 5,362
Envision share scheme second
phase increase – – (4)
Dividends paid (2,339) (1,882) (4,078)
Movement in non-controlling
interest in reserves 70 16 (559)
Total equity at the end
of the period 21,093 21,559 20,592
Comprising
Share capital and premium
(net of treasury shares) 73 119 30
Equity-settled share-based
payment reserve 536 538 307
Foreign currency translation reserve 498 177 423
Cash flow hedge accounting reserve (20) (30) (6)
Retained earnings 15,139 15,779 15,079
Shareholders' equity 16,226 16,583 15,833
Attributable to the owners of Kumba 15,591 15,934 15,214
Attributable to the non-controlling
interest in SIOC 635 649 619
Non-controlling interest 4,867 4,976 4,759
Total equity 21,093 21,559 20,592
Dividend (Rand per share)
Interim* 19.20 21.70 21.70
Final – – 22.50
* The interim dividend was declared after 30 June 2012 and has not been
recognised as a liability in this interim financial report. It will be
recognised in shareholders’ equity in the year ending 31 December 2012.
CONDENSED GROUP CASH FLOW STATEMENT FOR THE PERIOD ENDED
Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 31 December
Rand million 2012 2011 2011
Cash generated from operations 13,890 15,037 32,631
Net finance costs paid (91) (49) (96)
Taxation paid (3,552) (3,739) (7,035)
Cash flows from operating activities 10,247 11,249 25,500
Capital expenditure (1,868) (1,898) (5,849)
Proceeds from the disposal of
non-current assets 1 – 2
Investments in associates
and joint ventures (4) 5 (4)
Cash flows from investing activities (1,871) (1,893) (5,851)
Share capital issued 5 4 16
Purchase of treasury shares (51) (140) (278)
Vesting of Envision share scheme (968) – (1,694)
Dividends paid (7,245) (6,758) (13,742)
Dividends paid to non-controlling
shareholders (2,358) (1,925) (4,170)
Cash flows from financing activities (10,617) (8,819) (19,868)
(Decrease)/increase in cash and cash
equivalents (2,241) 537 (219)
Cash and cash equivalents at beginning
of period 4,742 4,855 4,855
Exchange differences on translation of
cash and cash equivalents 25 (10) 106
Cash and cash equivalents at end of
period 2,526 5,382 4,742
HEADLINE EARNINGS FOR THE PERIOD ENDED
Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 31 December
Rand million 2012 2011 2011
Reconciliation of headline earnings
Attributable profit 7,401 9,052 17,042
Net loss on disposal and scrapping
of property, plant and equipment 13 10 10
7,414 9,062 17,052
Taxation effect of adjustments (2) 2 (3)
Non-controlling interest in adjustments (3) (3) (1)
Headline earnings 7,409 9,061 17,048
Headline earnings (Rand per share)
Basic 23.07 28.23 53.13
Diluted 23.03 28.13 52.99
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:
Reviewed Reviewed Audited
30 June 30 June 31 December
Number of shares 2012 2011 2011
Weighted average number of
ordinary shares 321,146,494 320,991,881 320,895,696
Diluted weighted average number of
ordinary shares 321,739,718 322,065,729 321,719,426
The adjustment of 593,224 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.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL REPORT
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 has its primary listing on the JSE Limited
(JSE).
The condensed consolidated financial report of Kumba and its subsidiaries for
the six months ended 30 June 2012 was authorised for issue in accordance with a
resolution of the directors on 18 July 2012.
2. BASIS OF PREPARATION
The condensed consolidated financial report has been prepared, under the
supervision of Frikkie Kotzee CA(SA), chief financial officer, in accordance
with the recognition and measurement principles of International Financial
Reporting Standards (IFRS), including the information required by International
Accounting Standard (IAS) 34, Interim Financial Reporting, the AC 500 standards
issued by the Accounting Practices Board or its successor, the Listings
Requirements of the JSE, and the requirements of the South African Companies
Act No 71 of 2008, as amended.
The condensed consolidated financial report 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 the condensed consolidated financial report are consistent with those
applied for the year ended 31 December 2011.
In 2012, 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 2012, are being evaluated for the impact of these
pronouncements.
4. PROPERTY, PLANT AND EQUIPMENT
Reviewed Reviewed Audited
30 June 30 June 31 December
Rand million 2012 2011 2011
Capital expenditure 1,868 1,898 5,849
Expansion 773 1,301 3,104
Stay in business 1,095 597 2,745
Transfers from assets under
construction to property,
plant and equipment 1,250 342 8,951
Expansion capital expenditure comprised mainly of housing expenditure and
procurement of heavy mining equipment for Kolomela mine. Stay in business
capital expenditure to maintain operations was principally for the acquisition
of heavy mining equipment and workshop infrastructure for Sishen mine.
5. SHARE CAPITAL
Reviewed Reviewed Audited
30 June 30 June 31 December
Rand million 2012 2011 2011
Reconciliation of share capital
and share premium (including
treasury shares):
Balance at beginning of period 30 153 153
Total shares issued for cash
consideration 5 4 16
Shares issued – share premium – 12 16
Net movement in shares held by
Kumba Iron Ore Management
Share Trust 5 (8) –
Net movement in treasury shares
under employee share incentive
schemes 38 (38) (139)
Purchase of treasury shares (51) (140) (278)
Shares issued to employees 89 102 139
Share capital and share premium 73 119 30
Reviewed Reviewed Audited
30 June 30 June 31 December
Number of shares 2012 2011 2011
Reconciliation of number of shares
in issue:
Balance at beginning of period 322,058,624 321,911,721 321,911,721
Ordinary shares issued – 140,000 5,377,770
Ordinary shares repurchased
and cancelled – – (5,230,867)
Balance at end of period 322,058,624 322,051,721 322,058,624
Reconciliation of treasury
shares held:
Balance at beginning of period 1,075,970 818,272 818,272
Shares purchased 92,129 286,785 550,781
Share issued to employees under the
Long-Term Incentive Plan and Share
Appreciation Rights Scheme (366,391) (215,639) (252,985)
Net movement in shares held by Kumba
Iron Ore Management Share Trust (80,266) 67,730 (40,098)
Balance at end of period 721,442 957,148 1,075,970
Treasury shares held as conditional
share awards under the Kumba Bonus
Share Plan 670,311 714,167 722,701
6. INTEREST-BEARING BORROWINGS
Kumba’s net debt/(cash) position at the balance sheet dates was as follows:
Reviewed Reviewed Audited
30 June 30 June 31 December
Rand million 2012 2011 2011
Interest-bearing borrowings 3,194 3,188 3,191
Cash and cash equivalents (2,526) (5,382) (4,742)
Net debt/(cash) 668 (2,194) (1,551)
Total equity 21,093 21,559 20,592
Interest cover (times) 113 209 206
Movements in interest-bearing borrowings are analysed as follows:
Reviewed Reviewed Audited
30 June 30 June 31 December
Rand million 2012 2011 2011
Opening balance as at 1 January 3,191 3,185 3,185
Deferred transaction costs recognised 3 3 6
Closing balance 3,194 3,188 3,191
The group has successfully negotiated a R3.2 billion revolving credit facility
to ensure that its available long-term debt facilities are maintained at R8.6
billion when the current R3.2 billion term facility matures on 24 July 2012.
At 30 June 2012, R3.2 billion of the total R11.8 billion long-term debt
facilities has been drawn down. Kumba was not in breach of any of its covenants
during the period. The group had undrawn long-term borrowings and uncommitted
short-term facilities at 30 June 2012 of R14.9 billion (2011: R9.3 billion).
7. SIGNIFICANT ITEMS INCLUDED IN OPERATING PROFIT
Operating expenses is made up as follows:
Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 31 December
Rand million 2012 2011 2011
Production costs 6,162 3,888 8,910
Movement in inventories 109 (243) (149)
Finished products 291 46 247
Work-in-progress (182) (289) (396)
Cost of goods sold 6,271 3,645 8,761
Mineral royalty 718 842 1,762
Selling and distribution costs 2,037 1,682 3,698
Cost of services rendered – shipping 1,766 984 2,374
Sublease rent received (5) (4) (8)
Operating expenses 10,787 7,149 16,587
Operating profit has been derived after taking into account the following
items:
Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 31 December
Rand million 2012 2011 2011
Employee expenses 1,280 1,151 2,408
Share-based payment expenses 372 123 369
Depreciation of property, plant
and equipment 702 465 997
Net loss on disposal and scrapping
of property, plant and equipment 13 10 10
Finance gains (43) (313) (587)
(Gains)/losses on derivative
financial instruments (14) (109) 486
Foreign currency gains (29) (204) (1,073)
Operating expenses capitalised – (505) (971)
The capitalisation of operating expenses for the year ended 31 December 2011
mainly related to operating costs of R953 million incurred on 34.6Mt of
material mined at Kolomela mine that have been capitalised to property, plant
and equipment as part of the directly attributable cost of bringing the mine
into production in December 2011.
8. SEGMENTAL REPORTING
Sishen Kolomela Thabazimbi Shipping
Rand million mine mine1 mine operations Total
Reviewed six
months ended
30 June 2012
Revenue
(from external
customers 19,156 3,871 506 1,703 25,236
EBIT 12,601 2,528 19 (64) 15,084
Total segment assets 531 162 180 – 873
Reviewed six
months ended
30 June 2011
Revenue
(from external
customers) 22,451 – 444 1,171 24,066
EBIT 17,069 – 15 187 17,271
Total segment assets 504 – 252 – 756
Audited
12 months ended
31 December 2011
Revenue
(from external
customers) 44,903 32 907 2,711 48,553
EBIT 32,661 (80) 112 337 33,030
Total segment assets 392 133 268 – 793
1 Kolomela mine delivered initial production during 2011 and the financial
performance for the audited 12 months ended 31 December 2011 represented the
month of December 2011.
Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 31 December
Rand million 2012 2011 2011
Revenue from external customers
analysed by goods and services
Sale of products* 23,533 22,895 45,842
Shipping services 1,703 1,171 2,711
Total revenue 25,236 24,066 48,553
Reconciliation of EBIT to total
profit before taxation:
EBIT for reportable segments 15,084 17,271 33,030
Other segments (635) (354) (1,064)
Operating profit 14,449 16,917 31,966
Net finance (costs)/income (128) 54 92
Profit before taxation 14,321 16,971 32,058
Reconciliation of reportable
segments’ assets to total assets:
Segment assets for reportable
segments 873 756 793
Other segments and WIP inventory 2,843 2,642 3,071
Inventory per balance sheet 3,716 3,398 3,864
Other current assets 7,410 10,579 8,311
Non-current assets 23,578 18,566 22,238
Total assets 34,704 32,543 34,413
* Derived from extraction, production and selling of iron ore.
The total reported segment revenue comprises revenue from external customers as
the group does not have any inter-segment revenue and is measured in a manner
consistent with that disclosed in the income statement.
The performance of the operating segments is assessed based on a measure of
earnings before interest and taxation (EBIT), which is 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 asset.
‘Other segments’ comprise corporate, administration and other expenditure not
allocated to the reported segments.
Geographical analysis of revenue and non-current assets
Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 31 December
Rand million 2012 2011 2011
Total revenue from
external customers
South Africa 1,546 1,602 3,388
Export 23,690 22,464 45,165
China 16,325 15,943 29,904
Rest of Asia 4,821 3,441 9,274
Europe 2,422 2,865 5,450
Middle East 122 81 227
Americas – 134 310
25,236 24,066 48,553
Total non-current assets*
South Africa 22,646 17,873 21,450
China 3 3 2
22,649 17,876 21,452
* Excluding prepayments, investments in associates and joint ventures and
deferred tax assets.
9. 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.
Included in cash and cash equivalents at 30 June 2012 is a short-term deposit
facility placed with Anglo American SA Finance Limited of R1,489 million (30
June 2011: R4,081 million). Interest earned on this facility during the year
was market related and amounted to R74 million (30 June 2011: R87 million) at a
weighted average interest rate of 8.44% (30 June 2011: 5.36%).
10. CONTINGENT ASSETS AND LIABILITIES
There have been no significant changes to the contingent assets or liabilities
disclosed at 31 December 2011.
11. LEGAL PROCEEDINGS
11.1 Sishen Supply Agreement arbitration
A dispute arose between Sishen Iron Ore Company Proprietary Limited (SIOC) and
ArcelorMittal South Africa Limited (ArcelorMittal) in February 2010, in
relation to SIOC’s contention that the contract mining agreement concluded
between them in 2001 had become inoperative as a result of the fact that
ArcelorMittal had failed to convert its old order mining rights. This dispute
has been referred to arbitration. On 9 December 2011, SIOC and ArcelorMittal
agreed to postpone the arbitration until final resolution of the mining right
dispute (see 11.2 below).
The current Interim Pricing Agreement (IPA) between SIOC and ArcelorMittal
expires on 31 July 2012. Letters to commence the negotiations regarding the
extension or renewal of the IPA have been exchanged between the parties, and
the parties have commenced with negotiations.
11.2 21.4% undivided share of the Sishen mine mineral rights
On 3 February 2012 both the Department of Mineral Resources (DMR) and Imperial
Crown Trading 289 Proprietary Limited (ICT) submitted applications for leave to
appeal against the High Court judgment delivered in December 2011. SIOC has
noted an application for leave to present a conditional cross appeal, in order
to protect its rights. The application for leave to appeal was heard by the
High Court on 11 May 2012. The High Court granted the DMR and ICT the leave to
appeal at the Supreme Court of Appeal and SIOC leave to conditionally cross
appeal. It is anticipated that the hearing before the Supreme Court of Appeal
will occur during the first quarter of 2013.
The High Court order does not affect the interim supply agreement between
ArcelorMittal and SIOC, which will endure until 31 July 2012 as indicated in
note 11.1 above.
SIOC will continue to take the necessary steps to protect its shareholders’
interests in this regard.
11.3 Lithos Corporation Proprietary Limited
Lithos Corporation Proprietary Limited is claiming US$421 million from Kumba
for damages in relation to the Falémé project in Senegal. Kumba continues to
defend the merits of the claim and is of the view, and has been so advised,
that the basis of the claim and the quantification thereof is fundamentally
flawed. The trial date has now been set for the first quarter of 2013.
11.4 Project Phoenix dispute
A dispute exists between ArcelorMittal and SIOC concerning ArcelorMittal’s
contention that it holds an entitlement to require SIOC to supply ArcelorMittal
with iron ore produced from the Phoenix Project in terms of the Thabazimbi
Supply Agreement. SIOC contends that, as a consequence of ArcelorMittal’s
election to withdraw from participation in the project in 2006, ArcelorMittal
holds no such entitlement.
Mediation discussions between the parties were unable to resolve the dispute,
and the matter will proceed to arbitration proceedings in accordance with the
provisions of the Thabazimbi Supply Agreement.
12. 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 2011 Kumba Integrated Report.
13. EVENTS AFTER THE REPORTING PERIOD
No material events have occurred between the end of the reporting period and
the date of the release of these condensed consolidated financial statements.
14. INDEPENDENT AUDITORS’ REVIEW REPORT
The auditors, Deloitte & Touche, have issued their unmodified review report on
the condensed consolidated interim financial report for the six months ended 30
June 2012. 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 their unmodified review report is available for inspection at
the company’s registered office.
Any reference to future financial performance included in this announcement has
not been reviewed or reported on by the company’s auditors.
On behalf of the Board
AJ Morgan CI Griffith
Interim chairman Chief executive officer
18 July 2012
Pretoria
NOTICE OF INTERIM CASH DIVIDEND
At its Board meeting on 18 July 2012 the directors declared a gross interim
cash dividend of 1,920 cents per share on the ordinary shares from profits
accrued during the year ending 31 December 2012. The dividend has been declared
from income reserves.
The company has utilised Secondary Tax on Companies’ (STC) credits amounting to
49.75772 cents per share. The balance of the dividend will be subject to a
dividend withholding tax of 15% for all shareholders who are not exempt from or
do not qualify for a reduced rate of withholding tax. The net dividend payable
to shareholders subject to withholding tax at a rate of 15% amounts to
1,639.46366 cents per share.
The issued share capital at the declaration date is 322,058,624 ordinary
shares.
The salient dates are as follows
- Last day for trading to qualify and participate in the interim dividend
(and change of address or dividend instructions) Friday, 10 August 2012
- Trading ex dividend commences Monday, 13 August 2012
- Record date Friday, 17 August 2012
- Dividend payment date Monday, 20 August 2012
Share certificates may not be dematerialised or rematerialised between Monday,
13 August 2012 and Friday, 17 August 2012, both days inclusive.
By order of the Board
VF Malie
Company secretary
18 July 2012
Pretoria
Registered office:
Centurion Gate
Building 2B
124 Akkerboom Road
Centurion, 0157
Republic of South Africa
Tel: +27 (0) 12 683 7000
Fax: +27 (0) 12 683 7009
Directors:
Non-executive – AJ Morgan (interim chairman),
ZBM Bassa,
GG Gomwe,
GS Gouws,
DD Mokgatle,
LM Nyhonyha
BP Sonjica,
DM Weston
Executive – CI Griffith (chief executive officer)
FT Kotzee (chief financial officer)
Company secretary:
VF Malie
Transfer secretaries:
Computershare Investor Services (Pty) 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)
Date: 20/07/2012 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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