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Interim financial results for the six months ended 30 June 2013 and interim cash dividend declaration
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)
KUMBA IRON ORE LIMITED
INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013 AND
INTERIM CASH DIVIDEND DECLARATION
KEY FEATURES
- No loss of life
- Planned increase in waste mined at Sishen mine continues; up by 19% to 82 Mt
- Production of 21.6 Mt in line in 1H12
- Sishen mines 2Q13 production up by 13% on 1Q13 as production continues to improve
- Exceptional performance at Kolomela mine continues
- Export sales volumes decreased by 3%,down from record levels in 1H12
- Operating profit decreased by 4% due to increased costs from mining activities
Kumba continues to deliver value to its shareholders, maintaining a steady
performance through the first half of the year in a variable operating
environment. We have also carried out some work over the past few months aimed
at optimising production from both our Northern Cape mines. We are considering
various scenarios at Sishen and Kolomela mines after conducting a technical
review, to balance both production and costs. We will keep a close watch on
the global steel market through the remainder of 2013; and I am confident we
have the right team in place to ensure delivery, while continuing our
unrelenting focus on safety and cost management. Norman Mbazima, Chief
executive.
COMMENTARY
Kumba Iron Ore Limited (Kumba or the group) wishes to announce its results
for the six months ended 30 June 2013. In reviewing Kumbas performance for
the half year and comparing it to the corresponding period in 2012, one should
bear the following in mind: The first half of 2012 was a relatively stable
period for Sishen mine, although it had a slow start to the year on production,
whilst the first half of 2013 was a ramp-up period following the unprotected
strike in October 2012. Similarly for Kolomela mine, the first six months of
2012 were right in the midst of ramp up following commissioning, compared to
the first half of 2013, which was effectively steady state.
The groups safety performance remains a key priority and all the sites worked
the six months under review without any loss of life. Fourteen LTIs were
recorded for the period resulting in an LTIFR of 0.15 (2012: 0.09).
Kumba delivered steady performance for the half year, with headline earnings of
R7.7 billion, which was in line with the R7.7 billion achieved in the first
half of 2012. The favourable impact of a 16% weaker currency was partially
offset by 7% weaker iron ore export prices realised during the period under
review, resulting in revenue increasing by 4% to R26.3 billion, despite total
sales volumes decreasing by 5% from the record levels achieved in the
comparable period in 2012 to 22.1 million metric tonnes (Mt). The groups focus
centred on re-establishing production at Sishen mine post the strike and
maintaining the forward momentum at Kolomela mine, as it reached monthly capacity
production.
Attributable and headline earnings for the period were R24.16 and R24.13 per
share respectively, on which an interim cash dividend of R20.10 per share has
been declared.
On 28 March 2013, the Supreme Court of Appeal (SCA) issued its judgment in the
Sishen mine mineral rights matter, on the appeal of the Department of Mineral
Resources (DMR) and Imperial Crown Trading 289 Proprietary Limited (ICT)
against the High Court judgment delivered in December 2011. The SCA held that
the Sishen Iron Ore Company Proprietary Limited (SIOC) is the exclusive holder
of the mining right at the Sishen mine. Both the DMR and ICT have applied for
leave of appeal to the constitutional court to challenge the SCA judgment. The
hearing before the constitutional court will be held on 3 September 2013. Refer
to note 13 to the condensed consolidated interim financial statements for
further detail.
MARKET OVERVIEW
Global crude steel production increased by 3% to 787 Mt for the first half of
2013 (2012: 766 Mt), with Chinas record production of 385 Mt being 8% higher
(2012: 356 Mt). However, faced with strong pressure on steel margins, Chinese
steel mills reduced iron ore inventory levels and, as a result, demand for
seaborne iron ore grew at a slower pace than crude steel production. Europes
ongoing struggle with austerity measures translated into a 4% decrease in
production, with the rest of the world contributing the difference. The
improvement in the outlook for the Japanese domestic auto industry has driven
increased domestic crude steel production with anticipation of higher finished
steel export volumes.
Global seaborne iron ore supply grew by 4%, driven by strong growth of 18% from
Australia, partially offset by a 1% decline from Brazil.
As demand and supply for seaborne iron ore grew in tandem, average prices in
the first half of 2013 were marginally down and averaged $137/tonne for the
period (six months to 30 June 2012: $142/tonne). Iron ore index (CFR China 62%
Fe) prices peaked in February at $160/tonne but steadily declined since then,
ending the first half of 2013 at $115/tonne.
OPERATIONAL PERFORMANCE
Safety performance
No loss of life incidents occurred during the half year. Kolomela achieved 21.7
million fatality-free and LTI-free hours, which is an outstanding performance
in light of the continued expansion of mining and production activities on the
mine. Notwithstanding this performance, however, there was a deterioration in
Kumbas LTIFR to 0.15. A Safety Indaba was held to renew our focus on
individual responsibility and behaviour and various processes are underway to
improve visible felt leadership and hazard identification.
Unaudited production summary
Six months ended
000 tonnes June 2013 June 2012 % change
Iron ore 21,613 21,556
- Lump 13,057 13,340 (2)
- Fines 8,556 8,216 4
Mine production 21,613 21,556
Sishen mine 16,114 17,904 (10)
DMS plant 10,717 12,498 (14)
Jig plant 5,397 5,406
Kolomela mine 5,264 3,252 62
Thabazimbi mine 235 400 (41)
Sishen mine
At Sishen mine, the waste stripping ramp up is continuing as part of the
strategy to improve mining flexibility in the longer term. Total tonnes mined
at Sishen increased by 15% to 102.6 Mt (2012: 88.9 Mt), of which waste mined
was 82.1 Mt (2012: 68.8 Mt), an increase of 19%. Total iron ore production at
Sishen mine decreased by 10% to 16.1 Mt (2012: 17.9 Mt). Production rates at
the mine continued to improve quarter on quarter according to plan following
the strike in 2012. Production was also
impacted by the availability of material supplied to the mines dense media
separation (DMS) and jig plants. This was expected, given a currently
constrained pit, and is being addressed through the planned increase in waste
stripping. This additional waste mining is expected to have an upward cost
impact at Sishen mine over the next few years, but will result in a position of
increased flexibility in the pit.
Kolomela mine
After delivering an exceptional performance in its ramp-up year in 2012,
Kolomela mine continues to perform well. Total tonnes mined at Kolomela mine
rose by 55% to 29.7 Mt, when compared to the same period in its ramp-up year
(2012: 19.1 Mt), of which waste mined was 23.2 Mt (2012: 15.6 Mt), an increase
of 49%. The mine produced 5.3 Mt of iron ore, an increase of 62%.
Thabazimbi mine
Waste mining at Thabazimbi mine decreased by 20% to 13.0 Mt (2012: 16.2 Mt) 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, was also impacted by mining feedstock and quality constraints, and
reduced to 0.2 Mt for the six months (2012: 0.4 Mt). The future of the current
operation is under discussion with ArcelorMittal South Africa Limited (AMSA).
Logistics
Volumes railed on the Sishen-Saldanha iron ore export channel, although
impacted by the production shortfalls at Sishen mine, increased by 4% to a new
record level of 20.9 Mt (including 0.7 Mt railed to Saldanha Steel), which was
made possible by the ramp up of volumes railed from Kolomela mine to 5.5 Mt for
the six months (2012: 3.5 Mt), an increase of 57%, as well as the excellent
performance by Transnet. Kumba shipped 20.0 Mt from the Saldanha port destined
for the export market, up 3% year on year.
Unaudited sales summary
Six months ended
000 tonnes June 2013 June 2012 % change
Total 22,137 23,407 (5)
Export sales 20,123 20,719 (3)
Domestic sales 2,014 2,688 (25)
Sishen mine 1,711 2,002 (14)
Thabazimbi mine 303 686 (56)
Sales
Total sales for Kumba for the half year were 22.1 Mt, a 5% decrease compared to
the record sales of 23.4 Mt in the first half of 2012. Export sales volumes
declined by 3% from 20.7 Mt to 20.1 Mt, mainly as a result of Sishens lower
production volumes offset by Kolomela production growth. 67% of total export
volumes were directed to China (compared to 71% during the first half of 2012).
Finished product stockpiles at Qingdao and Saldanha ports increased to 2.3 Mt
(2012: 1.8 Mt). Total domestic sales volumes for the six months of 2.0 Mt
were down by 25%, or 0.7 Mt, due to lower demand.
FINANCIAL RESULTS
Revenue
The groups total revenue of R26.3 billion for the period was 4% higher than
the R25.2 billion for the comparable period in 2012, mainly as a result of a
weaker Rand (1H2013: R9.19 compared to 1H2012: R7.93). This was partially
offset by a 3% and 25% reduction in export and domestic sales volumes
respectively and 7% lower realised iron ore export prices.
Operating expenses
Operating expenses rose 16% to R12.0 billion from R10.3 billion in the first
half of 2012; principally as a result of:
- a 20.4 Mt growth in mining volumes;
- inflationary pressure on input costs from CPI of 5.8%; and
- above-inflationary input cost increases in diesel,mining contractors,
blasting material and tyre prices.
Similarly, unit cash costs at Sishen mine increased by 21% to R239/tonne
(FY2012: R198/tonne). This is primarily as a result of above inflationary
increases in input costs mentioned above, which added R28/tonne. The planned
increase in waste mining volumes at the mine continues and added another
R11/tonne, with the 10% decrease in production at the mine adding R10/tonne.
Kolomela mine incurred unit cash costs of R172/tonne (FY2012: R180/tonne),
a 4% decrease, mainly as a result of ramp-up costs included in the 2012 base.
The operating expenses for the six months ended 30 June 2012 were restated with
R470 million (net reduction) (31 December 2012: R493 million reduction) to take
into account the impact of the adoption of IFRIC 20, Stripping costs in the
production phase of a surface mine. The impact on Kumbas profit for the six
months ended 30 June 2012 was R338 million (year ended 31 December 2012:
R 355 million). As a result, Sishen mines unit cash cost for FY2012 reflected
above, reduced by R12/tonne, while the net impact on Kolomelas unit cash cost
was a decrease of R11/tonne. Refer to note 3.1 to the condensed consolidated
interim financial statements for further detail.
Operating profit
Kumbas operating profit margin of 55% for the six months (58% from mining
activities) decreased by 4% from 59% (64% from mining activities) for the
comparative period in 2012. Operating profit of R14.3 billion decreased by 4%
from the R14.9 billion achieved in the first six months of 2012. The increase
in operating expenses outlined previously has impacted profitability.
Cash flow
The group continued to generate substantial cash from its operations, with
R17.1 billion generated during the six months. These cash flows were used
to pay taxation of R2.8 billion, royalties of R0.8 billion and aggregate
dividends of R5.1 billion during the six months. The groups working capital
position remains healthy, ensuring sufficient reserves to cover short-term
positions. Capital expenditure of R2.3 billion was incurred, R1.9 billion on
SIB activities (including deferred stripping), and R451 million on expansion.
At 30 June 2013 the group had a net cash position of R2.3 billion (R668 million
net debt at the end of June 2012).
Ore reserves and mineral resources
There have been no material changes to the ore reserves and mineral resources
as disclosed in the 2012 Kumba Integrated Report.
OUTLOOK
Steel fundamentals remain under pressure as the Chinese economy slows down,
with manufacturing activity receding as a result of declining export orders.
Iron ore prices are expected to remain under pressure as supply exceeds demand
in the second half of the year, though restocking by steel mills may support
prices in the near term.
Kumbas main objectives remain to satisfy domestic demand and to fill the iron
ore export channel to optimise exports. The export capacity on the rail line
is approximately 42 Mt and will remain so in the near future. With two
operating mines in the Northern Cape, following Kolomelas successful ramp up
in 2012, it brings the benefit of flexibility. Kumba has conducted a technical
and strategic review of these assets over the past few months aimed at
optimising production.
The production outlook for Sishen mine in 2013 remains at around 37 Mt,
reflecting the knock-on effect of the 2012 strike. Sishen mines pit, however,
remains constrained and therefore the planned waste ramp up is continuing as
part of the strategy to improve mining flexibility for the longer term. Waste
levels at the mine are planned to increase to between 240 Mt and 270 Mt by
2016. The estimated production level for Sishen mine is around 37 Mtpa going
forward.
The production outlook for Kolomela mine remains at approximately 9 Mt for
2013. Export sales volumes for the year as a whole is expected to be around
40 Mt.
Profitability remains sensitive to iron ore export prices and the Rand/US$
exchange rate.
SALIENT FEATURES AND OPERATING STATISTICS FOR THE PERIOD ENDED
Restated Restated
Unaudited Unaudited Unaudited
6 months 6 months 12 months
30 June 30 June 31 December
2013 2012 2012
Share statistics (000)
Total shares in issue 322,086 322,059 322,059
Weighted average number of shares 321,150 321,146 321,223
Diluted weighted average number of
shares 321,745 321,740 321,754
Treasury shares 875 721 1,064
Treasury shares (Rand million) 409 293 487
Market information
Closing share price (Rand) 461 548 569
Market capitalisation (Rand million) 148,353 176,488 183,213
Market capitalisation (US$ million) 14,910 21,277 21,616
Net asset value (Rand per share) 60.42 51.19 47.32
Capital expenditure (Rand million)
Incurred 2,322 2,338 5,903
Contracted 2,318 2,815 722
Authorised but not contracted 1,551 2,237 1,335
Capital expenditure relating to
Thabazimbi mine to be financed
by AMSA
Contracted 4 22 7
Authorised but not contracted 30 7 16
Finance lease commitments 339
Operating commitments
Operating lease commitments 60 722 93
Shipping services 9,228 8,836 8,762
Economic information
Average Rand/US Dollar
exchange rate (ZAR/US$) 9.19 7.93 8.19
Closing Rand/US Dollar
exchange rate (ZAR/US$) 9.95 8.29 8.48
Operating statistics (Mt)
Production 21.6 21.6 43.0
Sishen mine 16.1 17.9 33.7
Kolomela mine 5.3 3.3 8.5
Thabazimbi mine 0.2 0.4 0.8
Sales 22.1 23.4 44.4
Export 20.1 20.7 39.7
Domestic 2.0 2.7 4.7
Sishen mine 1.7 2.0 3.5
Thabazimbi mine 0.3 0.7 1.2
Sishen mine FOR unit cost
Unit cost (Rand per tonne) 287.84 220.09 257.39
Cash cost (Rand per tonne) 238.91 160.16 197.75
Unit cost (US$ per tonne) 31.32 27.76 31.43
Cash cost (US$ per tonne) 26.00 20.20 24.15
Kolomela mine FOR unit cost
Unit cost (Rand per tonne) 229.91 257.06 255.69
Cash cost (Rand per tonne) 172.45 178.33 180.20
Unit cost (US$ per tonne) 25.02 32.43 31.22
Cash cost (US$ per tonne) 18.76 22.50 22.00
FINANCIAL RESULTS
The reviewed condensed consolidated financial results for the six months ended
30 June 2013 will also be published on Kumbas website on 23 July 2013 at 8h00
CAT. Kumba will be hosting a presentation of the groups interim results on
23 July 2013 at 11h30 CAT. A copy of the presentation will also be available on
Kumbas website at 11h00 CAT.
www.angloamericankumba.com
CONDENSED GROUP BALANCE SHEET AS AT
Restated Restated
Reviewed Reviewed Audited Audited
30 June 30 June 31 December 01 January
Rand million 2013 2012 2012 2012
Assets
Property, plant and equipment 26,944 22,507 25,258 20,878
Biological assets 8 6 8 6
Investments in associates and
joint ventures 38 47 33
Investments held by
environmental trust 691 606 673 568
Long-term prepayments and
other receivables 322 86 130 95
Deferred tax assets 946 805 842 658
Non-current assets 28,911 24,048 26,958 22,238
Inventories 4,464 3,716 4,136 3,864
Trade and other receivables 3,264 4,872 4,332 3,537
Current tax asset 87 12 76 32
Cash and cash equivalents 2,685 2,526 1,527 4,742
Current assets 10,500 11,126 10,071 12,175
Total assets 39,411 35,174 37,029 34,413
Equity
Shareholders equity 19,460 16,486 15,238 15,833
Non-controlling interest 5,878 4,945 4,426 4,759
Total equity 25,338 21,431 19,664 20,592
Liabilities
Interest-bearing borrowings 262 3,200
Provisions 1,741 977 1,420 901
Deferred tax liabilities 7,480 6,055 6,835 4,942
Non-current liabilities 9,483 7,032 11,455 5,843
Short-term portion of
interest-bearing borrowings 96 3,194 2,669 3,191
Short-term portion of
provisions 30 21 26 11
Trade and other payables 3,675 3,106 3,012 4,556
Current tax liabilities 789 390 203 220
Current liabilities 4,590 6,711 5 910 7,978
Total liabilities 14,073 13,743 17,365 13,821
Total equity and liabilities 39,411 35,174 37,029 34,413
CONDENSED GROUP INCOME STATEMENT FOR THE PERIOD ENDED
Restated Restated
Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 31 December
Rand million 2013 2012 2012
Revenue 26,299 25,236 45,446
Operating expenses (11,960) (10,317) (21,800)
Operating profit 14,339 14,919 23,646
Finance income 30 82 102
Finance costs (168) (210) (405)
Loss from equity accounted
joint venture (34)
Profit before taxation 14,167 14,791 23,343
Taxation (4,002) (4,720) (6,888)
Profit for the period 10,165 10,071 16,455
Attributable to:
Owners of Kumba 7,759 7,661 12,486
Non-controlling interest 2,406 2,410 3,969
10,165 10,071 16,455
Earnings per share for profit
attributable to the owners
of Kumba (Rand per share)
Basic 24.16 23.86 38.87
Diluted 24.12 23.81 38.81
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME FOR THE PERIOD ENDED
Restated Restated
Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 31 December
Rand million 2013 2012 2012
Profit for the period 10,165 10,071 16,455
Other comprehensive income for
the period, net of tax 350 61 155
Exchange differences on translation
of foreign operations 351 99 193
Net effect of cash flow hedges (1) (38) (38)
Total comprehensive income for
the period 10,515 10,132 16,610
Attributable to:
Owners of Kumba 8,038 7,722 12,615
Non-controlling interest 2,477 2,410 3,995
10,515 10,132 16,610
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY FOR THE PERIOD ENDED
Restated Restated
Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 31 December
Rand million 2013 2012 2012
Total equity at the beginning of
the period * 19,664 20,592 20,592
Changes in share capital and
premium
Shares issued during the period 1 5 5
Treasury shares issued to employees
under employee share incentive
schemes 79 89 105
Purchase of treasury shares (51) (261)
Changes in reserves
Equity-settled share-based payment 234 286 579
Vesting of shares under employee
share incentive schemes (83) (109) (123)
Total comprehensive income for
the period 8,038 7,722 12,615
Dividends paid (4,047) (7,244) (13,516)
Changes in non-controlling interest
Total comprehensive income for
the period 2,477 2,410 3,995
Dividends paid (1,079) (2,339) (4,490)
Movement in non-controlling
interest in reserves 54 70 163
Total equity at the end of
the period 25,338 21,431 19,664
Comprising
Share capital and premium
(net of treasury shares) (41) 73 (121)
Equity-settled share-based
payment reserve 971 536 822
Foreign currency translation reserve 842 498 571
Cash flow hedge reserve (15) (20) (24)
Retained earnings 17,703 15,399 13,990
Shareholders equity 19,460 16,486 15,238
Attributable to the owners of Kumba 18,693 15,841 14,663
Attributable to the non-controlling
interest 767 645 575
Non-controlling interest 5,878 4,945 4,426
Total equity 25,338 21,431 19,664
Dividend (Rand per share)
Interim ** 20.10 19.20 19.20
Final 12.50
* The adoption of IFRIC 20 Stripping costs in the production phase of a
surface mine did not impact the 2012 opening balance.
** The interim dividend was declared after 30 June 2013 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 2013.
CONDENSED GROUP CASH FLOW STATEMENT FOR THE PERIOD ENDED
Restated Restated
Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 31 December
Rand million 2013 2012 2012
Cash generated from operations 17,092 14,383 24,674
Net finance costs paid (80) (91) (227)
Taxation paid (2,756) (3,552) (5,215)
Cash flows from operating activities 14,256 10,740 19,232
Additions to property, plant and
equipment (2,322) (2,338) (5,903)
Investments in associate and
joint ventures (4) (14)
Investments held by environmental
trust (23) (45)
Proceeds from the disposal of
property, plant and equipment 17 1 37
Proceeds from disposal of investments 3
Cash flows from investing activities (2,305) (2,364) (5,922)
Shares issued 1 5 5
Purchase of treasury shares (51) (261)
Vesting of Envision share scheme (968) (968)
Dividends paid to owners of Kumba (4,047) (7,245) (13,428)
Dividends paid to non-controlling
shareholders (1,079) (2,358) (4,578)
Net interest-bearing borrowings
(repaid)/raised (5,831) 2,678
Cash flows from financing activities (10,956) (10,617) (16,552)
Net increase/(decrease) in cash and
cash equivalents 995 (2,241) (3,242)
Cash and cash equivalents at
beginning of period 1,527 4,742 4,742
Exchange differences on translation of
cash and cash equivalents 163 25 27
Cash and cash equivalents at end of
period 2,685 2,526 1,527
HEADLINE EARNINGS FOR THE PERIOD ENDED
Restated Restated
Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 31 December
Rand million 2013 2012 2012
Reconciliation of headline earnings
Profit attributable to owners of Kumba 7,759 7,661 12,486
Net (profit)/loss on disposal and
scrapping of property, plant and
equipment (13) 13 (21)
Net profit on disposal of investment (5) (3)
7,741 7,674 12,462
Taxation effect of adjustments 4 (2) 6
Non-controlling interest in adjustments 3 (3) 4
Headline earnings 7,748 7,669 12,472
Headline earnings (Rand per share)
Basic 24.13 23.88 38.83
Diluted 24.08 23.84 38.76
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 321,149,798 321,146,494 321,223,241
Diluted weighted average
number of ordinary shares 321,745,418 321,739,718 321,753,827
The adjustment of 595,620 at 30 June 2013 (30 June 2012: 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 REVIEWED 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 2013 was authorised for issue in accordance with a
resolution of the directors on 19 July 2013.
2. BASIS OF PREPARATION
The condensed consolidated interim financial report has been prepared, under
the supervision of FT Kotzee CA(SA), chief financial officer, in accordance
with International Financial Reporting Standard, (IAS) 34 Interim Financial
Reporting, the SAICA Financial Reporting Guides as issued by the Accounting
Practices Committee, the Listings Requirements of the JSE, and the requirements
of the South African Companies Act No 71 of 2008.
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 Kumbas 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 period ended 31 December 2012, except as disclosed below.
3.1 New standards, amendments to published standards and interpretations
The following standards, amendments to published standards and interpretations
which became effective for the year commencing on 1 January 2013 were adopted
by the group:
IFRIC 20 Stripping costs in the production phase of a surface mine (effective
date: 1 January 2013)
In surface mining operations, entities may find it necessary to remove waste
materials (overburden) to gain access to mineral ore deposits. This waste
removal activity is known as stripping. The interpretation clarifies that
there are two benefits accruing to an entity from stripping activity: usable
ore that can be used to produce inventory and improved access to further
quantities of material that will be mined in future periods. The interpretation
considers when and how to account for the benefits arising from the stripping
activity, as well as how to measure these benefits both initially and
subsequently.
The adoption of the IFRIC required the company to componentise each of its
mines into geographically distinct ore bodies to which the stripping activities
being undertaken within that component could be allocated. This is a change
from the accounting policy previously applied, which required each mine to be
accounted for as a single component when calculating the value of waste
stripping costs to be deferred. This change has resulted in additional
stripping costs being deferred.
The IFRIC has also resulted in the company depreciating the deferred costs
capitalised on a unit of production method, with reference the ex-pit ore
production from a component. Under the previous accounting policy adopted,
deferred stripping costs were only depreciated to the extent the actual
stripping ratio achieved for the current period fell below the life of mine
stripping ratio. This change has resulted in the deferred stripping assets
being recognised for each component being depreciated in earlier periods.
The transitional provisions of IFRIC 20 requires an entity to apply this IFRIC
to production stripping costs incurred on or after the beginning of the
earliest period presented. The group has adopted the IFRIC for the current
accounting period, which commenced on 1 January 2013. The IFRIC is therefore
applied to production stripping costs incurred on or after 1 January 2012.
A summary of the impact of the change in accounting policy on the results is
set out below:
6 months 6 months 12 months
30 June 30 June 31 December
2013 2012 2012
Impact of As prev- Restated As prev- Restated
IFRIC 20 iously for As iously for As
Rand million restatement reported IFRIC 20 restated reported IFRIC 20 restated
Balance sheet impact
Increase in assets
Property, plant and
equipment
Cost 397 27,069 470 27,539 30,597 504 31,101
Accumulated
depreciation (15) 5,032 5,032 5,832 11 5,843
Increase in equity
and liabilities
Retained earnings 212 15,139 260 15,399 13,716 274 13,990
Non-controlling
interest 63 4,867 78 4,945 4,345 81 4,426
Deferred tax
liabilities 107 5,923 132 6,055 6,697 138 6,835
Income statement
impact
Decrease in operating
expenses (382) 10,787 (470) 10,317 22,293 (493) 21,800
Increase in taxation
deferred tax 107 4,588 132 4,720 6,750 138 6,888
Increase in net
income for
the period 275 9,733 338 10,071 16,100 355 16,455
Attributable to
owners of Kumba 212 7,401 260 7,661 12,212 274 12,486
Attributable to
Non-controlling
interest 63 2,332 78 2,410 3,888 81 3,969
Basic earnings per
share 0.66 23.05 0.81 23.86 38.02 0.85 38.87
Headline earnings
per share 0.66 23.07 0.81 23.88 37.97 0.85 38.83
IFRS 11 Joint arrangements (effective date: 1 January 2013)
This standard provides for a more realistic reflection of joint arrangements by
focusing on the rights and obligations of the arrangement, rather than its
legal form. Proportionate consolidation of joint ventures is no longer allowed.
The standard resulted in the groups 50% joint investment in the Polokwane Iron
Ore Company Proprietary Limited being classified as a joint venture
relationship under IFRS 11. The entity was previously proportionately
consolidated into the group. Under the new standard the entity has been
consolidated into the group applying the equity method of accounting.
The impact of the adoption of the standard was not significant for the
financial year ended 31 December 2012. The standard has therefore been applied
prospectively from 1 January 2013. A loss of R34 million was recognised for the
period. This resulted in no investment balance being recognised in the balance
sheet, as the losses for the period were greater than the groups interest in
the entity.
IFRS 10 Consolidated financial statements (effective date: 1 January 2013)
This standard builds on existing principles by identifying the concept of
control as the determining factor in whether an entity should be included
within the consolidated financial statements. The standard provides additional
guidance to assist in determining control where this is difficult to assess.
The application of the standard has not resulted in any changes to the groups
financial statements.
IFRS 12 Disclosures of interests in other entities (effective date:
1 January 2013)
This standard includes the disclosure requirements for all forms of interests
in other entities, including joint arrangements, associates, special purpose
vehicles and other off balance sheet vehicles. The standard has not had an
effect on the reported results or the group accounting policies for the six
months ended 30 June 2013 and will not affect the reported results of the
group.
It will, however, result in additional note disclosure being provided in the
notes to the annual financial statements for the financial year ended
31 December 2013.
IFRS 13 Fair value measurement (effective date: 1 January 2013)
This standard aims to improve consistency and reduce complexity by providing a
precise definition of fair value and a single source of fair value measurement
and disclosure requirements for use across IFRSs. The requirements, which are
largely aligned between IFRSs and US GAAP, do not extend the use of fair value
accounting but provide guidance on how it should be applied where its use is
already required or permitted by other standards within IFRSs.
Amendments to IAS 27 Separate financial statements (effective date:
1 January 2013)
The amendments to the standard were issued following the issuance of IFRS 10.
The revised IAS 27 deals only with the accounting for subsidiaries, associates
and joint ventures in the separate financial statements of the parent company.
The application of the standard has not resulted in any changes to the groups
financial statements.
Annual improvements to IFRSs 2009 to 2011 cycle (effective date:
1 January 2013)
The group adopted the amendments to five issued accounting standards issued by
the International Accounting Standards Board (IASB) as part of its Annual
Improvements to IFRSs for the 2009 to 2011 cycle. These amendments have not had
an effect on the reported results or the groups accounting policies.
3.2 New standards, amendments to existing standards and interpretations that
are not yet effective and have not been early adopted
In 2013 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 2013, 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 Kumbas 2012 annual ore
reserves and mineral resources statement. There has been no change on the life
of mine plans of the groups mines for the period under review. Management has
revised the estimated rehabilitation and decommissioning provisions for
Thabazimbi mine. The effect of this change is detailed below:
Reviewed
Rand million 30 June 2013
Increase in environmental rehabilitation provision 248
Increase in decommissioning provision 8
The change in estimate in the environmental rehabilitation provision was
applied prospectively from 1 January 2013 and resulted in a decrease in
attributable profit and headline earnings per share for the period ended
30 June 2013 of R191 million and 60 cents, respectively. The change in estimate
in the decommissioning provision has been capitalised to the related property,
plant and equipment.
5. PROPERTY, PLANT AND EQUIPMENT
Restated Restated
Reviewed Reviewed Audited
30 June 30 June 31 December
Rand million 2013 2012 2012
Capital expenditure 2,322 2,338 5,903
Comprising:
Expansion 451 773 2,195
Stay in business (SIB) 1,474 1,095 3,204
Deferred stripping 397 470 504
Transfers from assets under
construction to property,
plant and equipment 2,074 1,250 3,905
Expansion capital expenditure comprised the expenditure for Kolomela mine and
the first phase of SWEP (Sishen Westerly Expansion Project), both of which are
nearing completion. SIB capital expenditure to maintain operations was
principally for the acquisition of heavy mining equipment, workshop
infrastructure for Sishen mine and housing developments.
6. SHARE CAPITAL
Reconciliation of share capital and share premium (net of treasury shares)
Reviewed Reviewed Audited
30 June 30 June 31 December
Rand million 2013 2012 2012
Balance at beginning of period (121) 30 30
Total shares issued for
cash consideration 1 5 5
Shares issued share premium
Net movement in shares held by
Kumba Iron Ore Management Share Trust 1 5 5
Net movement in treasury shares
under employee share incentive schemes 79 38 (156)
Purchase of treasury shares (51) (261)
Shares issued to employees 79 89 105
Share capital and share premium (41) 73 (121)
Reconciliation of number of shares in issue:
Reviewed Reviewed Audited
30 June 30 June 31 December
Number of shares 2013 2012 2012
Balance at beginning of period 322,058,624 322,058,624 322,058,624
Ordinary shares issued 27,350 84,332
Ordinary shares repurchased and
cancelled (84,332)
Balance at end of period 322,085,974 322,058,624 322,058,624
Reconciliation of treasury
shares held:
Balance at beginning of period 1,064,531 1,075,970 1,075,970
Shares purchased - 92,129 473,435
Shares issued to employees under
the Long-Term Incentive Plan,
Kumba Bonus Share Plan and
Share Appreciation Rights Scheme (198,921) (366,391) (400,542)
Net movement in shares held by
Kumba Iron Ore Management Share Trust 9,870 (80,266) (84,332)
Balance at end of period 875,480 721,442 1,064,531
Treasury shares held as conditional
share awards under the
Kumba Bonus Share Plan 836,252 670,311 1,035,173
7. INTEREST-BEARING BORROWINGS
Kumbas net (cash)/debt position at the balance sheet dates was as follows:
Restated Restated
Reviewed Reviewed Audited
30 June 30 June 31 December
Rand million 2013 2012 2012
Interest-bearing borrowings 358 3,194 5,869
Cash and cash equivalents (2,685) (2,526) (1,527)
Net (cash)/debt (2,327) 668 4,342
Total equity 25,338 21,431 19,664
Interest cover (times) 108 113 76
Movements in interest-bearing borrowings are analysed as follows:
Reviewed Reviewed Audited
30 June 30 June 31 December
Rand million 2013 2012 2012
Balance at the beginning of
the period 5,869 3,191 3,191
Interest-bearing borrowings raised 8,290 5,869
Interest-bearing borrowings repaid (14,121) (3,195)
Finance lease 320
Deferred transaction costs recognised 3 4
Balance at the end of the period 358 3,194 5,869
At 30 June 2013, the R9.2 billion long-term debt facilities had not been drawn
down and R49 million of the total short-term uncommitted facilities of
R5.9 billion has been drawn down. Kumba was not in breach of any of its
covenants during the period. The group had undrawn long-term borrowing and
uncommitted short-term facilities at 30 June 2013 of R15 billion (June 2012:
R11.7 billion).
A committed debt facility of R6 billion was secured which replaced a maturing
facility, effective from 1 January 2013. The interest on the facility is
charged at Jibar plus a margin, determined by the period for which the funds
are borrowed.
The group entered into a finance lease in respect of mining equipment during
the period.
8. SIGNIFICANT ITEMS INCLUDED IN OPERATING PROFIT
Operating expenses is made up as follows:
Restated Restated
Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 31 December
Rand million 2013 2012 2012
Production costs 6,914 5,692 13,339
Movement in inventories 153 109 59
Finished products 497 291 441
Work-in-progress (344) (182) (382)
Cost of goods sold 7,067 5,801 13,398
Mineral royalty 904 718 1,127
Selling and distribution costs 2,324 2,037 4,065
Cost of services rendered shipping 1,681 1,766 3,222
Sublease rent received (16) (5) (12)
Operating expenses 11,960 10,317 21,800
Operating profit has been derived
after taking into account the
following items:
Employee expenses 1,454 1,280 3,466
Share-based payment expenses 303 372 756
Depreciation of property, plant and
equipment 918 702 1,534
Deferred waste stripping costs
Capitalised (refer to note 3.1) (397) (470) (504)
Net (profit)/loss on disposal and
scrapping of property, plant and
equipment (13) 13 (21)
Finance gains (562) (43) (148)
Operating expenses capitalised (1) (98)
9. SEGMENTAL REPORTING
Sishen Kolomela Thabazimbi Logis- Shipping
Rand million mine mine mine tics1 operations Total
Reviewed
period ended
30 June 2013
Revenue from
external
customers 18,124 6,091 522 1,562 26,299
Depreciation 631 273 1 905
EBIT 13,598 4,493 82 (2,324) (119) 15,730
Total segment
assets 605 183 106 894
Restated
reviewed
period ended
30 June 2012
Revenue from
external
customers 19,156 3,871 506 1,703 25,236
Depreciation 459 229 2 690
EBIT 14,750 2,956 19 (2,037) (64) 15,624
Total segment
assets 531 162 180 873
Restated audited
year ended
31 December 2012
Revenue from
external
customers2 33,001 8,239 1,014 3,192 45,446
Depreciation 1,033 471 3 1,507
EBIT 23,559 5,945 (25) (4,065) (30) 25,384
Total segment
assets 404 198 130 732
1 A new segment, Logistics, was reported for 2012, following an internal
restructuring of our operations. It represents our rail and port operations and
the related costs.
2 Inter-segment revenue is no longer reported for the Logistics segment as was
the case for the year ended 31 December 2012 in the Annual Financial Statements
2012. The reason for this being that the groups executive committee, as the
CODM, reviews the segments performance with reference only to volumes railed
and rail tariffs achieved.
Restated Restated
Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 31 December
Rand million 2013 2012 2012
Sale of products * 24,737 23,533 42,254
Shipping services 1,562 1,703 3,192
Total revenue 26,299 25,236 45,446
* Derived from extraction, production and selling of iron ore.
Restated Restated
Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 31 December
Rand million 2013 2012 2012
Reconciliation of reportable
segments EBIT to total profit
before taxation:
EBIT for reportable segments 15,730 15,624 25,384
Other segments (1,391) (705) (1,738)
Operating profit 14,339 14,919 23,646
Net finance costs (138) (128) (303)
Loss from equity accounted
joint venture (34)
Profit before taxation 14,167 14,791 23,343
Reconciliation of reportable
segments depreciation
to total depreciation:
Depreciation for reportable segments 905 690 1,507
Other segments 13 12 27
Depreciation 918 702 1,534
Reconciliation of reportable segments
assets to total assets:
Segment assets for reportable segments 894 873 732
Other segments and WIP inventory 3,570 2,843 3,404
Inventory per balance sheet 4,464 3,716 4,136
Other current assets 6,036 7,410 5,935
Non-current assets 28,911 24,048 26,958
Total assets 39,411 35,174 37,029
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.
Geographical analysis of revenue and non-current assets
Restated Restated
Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 31 December
Rand million 2013 2012 2012
Total revenue from
external customers
South Africa 1,641 1,546 2,832
Export 24,658 23,690 42,614
China 17,006 16,325 28,277
Rest of Asia 5,080 4,821 9,889
Europe 2,456 2,422 4,322
Middle East 122 126
Africa 116
26,299 25,236 45,446
Total non-current assets *
South Africa 27,641 22,646 25,938
China 3 1
Singapore 2
27,643 22,649 25,939
* Excluding prepayments, investments in associates and joint ventures and
deferred tax assets.
10. 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.
No short-term deposit facilities were placed with Anglo American SA Finance
Limited (AASAF) at 30 June 2013 (30 June 2012: R1,489 million). There was no
interest earned on facilities during the period (30 June 2012: R74 million;
weighted average interest rate 30 June 2012: 8.44%).
At 30 June 2013 a short-term deposit is held with Anglo American Capital of
R2.2 billion (30 June 2012: R nil). The interest earned on the deposit is
insignificant as the funds are deposited in the account for two to three days
at a time.
Interest-bearing borrowings drawn down at 30 June 2013 of R49 million (30 June
2012: R nil) was from facilities with AASAF. Interest paid on these borrowings
during the period was market related and amounted to R77 million (30 June 2012:
R nil) at a weighted average interest rate of 5.60% per annum.
11. CONTINGENT ASSETS AND LIABILITIES
Kumba initiated arbitration proceedings against La Société des Mines de Fer du
Sénégal Oriental (Miferso) and the State of Senegal under the rules of the
Arbitration of the International Chamber of Commerce in 2007, in relation to
the Falémé Project.
Following the arbitration award rendered in July 2010, a mutually agreed
settlement was concluded between the parties. The settlement agreement was
revised in June 2013. The parties agreed that the precise terms of the
settlement agreement will remain confidential.
12. GUARANTEES
During the six months ended 30 June 2013, the group issued additional financial
guarantees to the Department of Mineral Resources (DMR) in respect of
Thabazimbi mine of R132 million (2012: R nil), for the environmental
rehabilitation and decommissioning obligations of the group. AMSA has
guaranteed the R132 million by means of a bank guarantee issued in favour of
Sishen Iron Ore Company Proprietary Limited (SIOC). The total guarantees issued
for environmental closure liabilities at 30 June 2013
is R986 million.
13. LEGAL PROCEEDINGS
13.1 Sishen Supply Agreement arbitration
A dispute arose between SIOC and AMSA in February 2010, in relation to SIOCs
contention that the contract mining agreement concluded between them in 2001
had become inoperative as a result of the fact that AMSA had failed to convert
its old order mining rights. This dispute has been referred to arbitration.
The hearing of the arbitration has been postponed until after the final
resolution of the mining rights dispute (see 13.2 below). The sale of iron ore
from the Sishen mine to AMSA currently remains regulated in terms of the
Interim Pricing Agreement concluded in December 2012 and applies to the period
1 January 2013 to 31 December 2013 or finalisation of the arbitration
(whichever is sooner).
13.2 21.4% undivided share of the Sishen mine mineral rights On 28 March 2013,
the Supreme Court of Appeal (SCA) issued its judgment on the appeal of the DMR
and Imperial Crown Trading 289 Proprietary Limited (ICT) against the High Court
judgment delivered in December 2011. The SCA held that SIOC is the exclusive
holder of the mining right at the Sishen mine.
Both the DMR and ICT have applied for leave of appeal to the Constitutional
Court to challenge the SCA judgment. The hearing before the Constitutional
Court will be held on 3 September 2013.
The High Court order does not affect the interim supply agreement between AMSA
and SIOC, which will endure until 31 December 2013 as indicated in note 13.1
above.
SIOC will continue to take the necessary steps to protect its shareholders
interests in this regard.
13.3 Project Phoenix dispute
A dispute exists between AMSA and SIOC concerning AMSAs contention that it
holds an entitlement to require SIOC to supply AMSA with iron ore produced from
the Phoenix Project in terms of the Thabazimbi Supply Agreement.
In February 2013, AMSA referred a dispute to arbitration, in relation to its
claimed entitlement to participate in SIOCs Phoenix Project. SIOC denies
AMSAs claimed participation entitlement. No further steps have subsequently
been taken by AMSA in this regard. SIOC is continuing with formal engagement
with AMSA on this matter.
13.4 Sishen Supply Agreement cost recovery
A dispute relating to historical cost recovery by SIOC, in terms of the Sishen-
AMSA supply agreement (prior to 2010) has been declared by AMSA has indicated
its intention to pursue the matter. Kumba will defend its position.
13.5 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. On 9 April 2013
judgment was handed down in the matter and Kumbas application for absolution
from the instance was upheld. Lithos claim was dismissed with costs. An
application by Lithos to seek leave to appeal against that judgment was
dismissed by the High Court on 20 May 2013.
On 18 June 2013, Lithos launched an application to apply for leave to appeal to
the SCA. Kumba is opposing this application. 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.
14. 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 groups compliance is contained in the 2012 Integrated Report.
15. 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.
16. 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 2013. 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
companys registered office.
Any reference to future financial performance included in this announcement has
not been reviewed or reported on by the companys auditors.
On behalf of the Board
F Titi NB Mbazima
Chairman Chief executive
19 July 2013
Pretoria
NOTICE OF INTERIM CASH DIVIDEND
At its Board meeting on 19 July 2013 the directors declared a gross interim
cash dividend of 2,010 cents per share on the ordinary shares from profits
accrued during the year ending 31 December 2013. The dividend has been declared
from income reserves.
The company has utilised Secondary Tax on Companies (STC) credits amounting to
0.01820 cents per share. 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 who
are subject to withholding tax at a rate of 15% amounts to 1,708.50273 cents
per share.
The issued share capital at the declaration date is 322,085,974 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) Thursday, 8 August 2013
- Trading ex dividend commences Monday, 12 August 2013
- Record date Friday, 16 August 2013
- Dividend payment date Monday, 19 August 2013
Share certificates may not be dematerialised or rematerialised between Monday,
12 August 2013 and Friday, 16 August 2013, both days inclusive.
By order of the Board
VF Malie
Company secretary
19 July 2013
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, GS Gouws, KT Kweyama,
DD Mokgatle, AJ Morgan, LM Nyhonyha, BP Sonjica, DM Weston
Executive NB Mbazima (chief executive)
FT Kotzee (chief financial officer)
Company secretary:
VF Malie
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)
Date: 23/07/2013 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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