Wrap Text
Reviewed condensed consolidated interim results for the six months ended 30 June 2014 and 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)
JSE Share code: KIO
ISIN: ZAE000085346
KUMBA IRON ORE LIMITED
REVIEWED CONDENSED CONSOLIDATED INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS ENDED
30 JUNE 2014 AND INTERIM CASH DIVIDEND DECLARATION
KEY FEATURES
- Regrettably we had one fatality at Sishen mine
- Production of 22.8 Mt, up by 5% from 21.6 Mt in 1H13
– Sishen mine’s production up by 5% as recovery plan is executed
– Strong performance at Kolomela mine continued
- Planned increase in waste mined at Sishen mine continues, up by 6% to 86.9 Mt
- Operating profit decreased by 14% due to lower export iron ore
prices and increased costs from mining activities
- Total sales volumes increased by 2% to 22.5 Mt
- R5 billion interim cash dividend declared to shareholders
COMMENTARY
Kumba Iron Ore Limited (‘Kumba’ or ‘the group’) announces its results for the six
months ended 30 June 2014.
The group’s safety performance remains a key priority. Regrettably, one of our
colleagues tragically lost his life in April 2014 when he fell from a height while
doing maintenance work on a crane at Sishen mine. The lost-time injury frequency
rate (LTIFR) was 0.20 (2013: 0.15). The focus on key safety improvement drivers
remains in place with continued emphasis on preventing any loss of life or injury
through the implementation of critical engineering controls and greater operational
discipline.
Kumba delivered a solid operational performance for the half year, with total
tonnes mined up by 7% to 154.2 million tonnes (Mt) (2013: 144.0 Mt) as the
production recovery plan at Sishen mine is executed and the strong performance at
Kolomela mine continued. Total sales volumes increased by 2% to 22.5 Mt
(2013: 22.1 Mt).
Sishen Iron ore Company (Pty) Limited (SIOC) has submitted its application for the
21.4% undivided mining right at Sishen mine. In terms of the Constitutional Court
ruling, SIOC is the only party that could apply for, and be granted, the right.
SIOC is engaging with the Department of Mineral Resources (DMR) to finalise the
granting of the right.
The first half of 2014 saw a stable labour environment. Wage negotiations, which
commenced in June 2014, are progressing and are expected to be concluded soon.
Headline earnings were 16% lower at R6.5 billion (2013: R7.7 billion), mainly as a
result of realised iron ore export prices, which weakened by 17%, together with
input cost pressure during the period under review, partially offset by the
favourable impact of a 16% depreciation of the Rand.
Attributable and headline earnings for the period were R20.30 and R20.28 per share
respectively, on which an interim cash dividend of R15.61 per share has been
declared at 1.3 times cover. In line with the board’s policy of reviewing the
dividend at each declaration, the board increased the dividend cover from 1.2 to
1.3 for the 2014 interim dividend, after considering, amongst other factors, iron
ore price volatility and the group’s capital expenditure requirements.
Market overview
Global crude steel production increased by 4% to 819 Mt for the first half of 2014
(2013: 791 Mt), with China’s record production of 409 Mt being 5% higher
(2013: 389 Mt). In a seasonal pattern, Chinese steel mills drew down iron ore
inventory levels in early 2014, reducing iron ore demand. Global seaborne iron ore
supply has grown strongly and increased to around 700 Mt, driven by strong export
growth of 25% from Australia, with a further 8% growth from Brazil. Chinese imports
of iron ore grew strongly and displaced some of the high cost domestic material.
The strong supply of iron ore, particularly from Australia, resulted in pressure on
iron prices since the beginning of 2014. Average iron ore prices in the first half
of 2014 were down by 19% at $111/tonne (2013: $137/tonne). Iron ore index
(CFR China 62% Fe) prices steadily declined from $134/tonne at the beginning of the
year, with the index ending the first half of 2014 at $93/tonne.
Operational performance
Production summary (unaudited)
Six months ended
’000 tonnes June 2014 June 2013 % change
Product type 22,793 21,613 5
Lump 14,967 13,057 15
Fines 7,826 8,556 (9)
Mine production 22,793 21,613 5
Sishen mine 16,995 16,114 5
DMS plant 10,983 10,717 2
Jig plant 6,012 5,397 11
Kolomela mine 5,461 5,264 4
Thabazimbi mine 337 235 43
Sishen mine
Sishen’s pit continued to be mined according to the production recovery plan during
the six months. The strategic redesign of the western pushbacks of the pit at
Sishen mine was completed in the first half of 2014. Execution of the pit redesign
plan is in progress, resulting in an improved mining plan that enables better
utilisation of equipment, and the deployment of two priority pushbacks, with
~600 Mt of waste taken out from the revised life of mine plan, reducing the average
life of mine stripping ratio to 4.0.
Key initiatives of the improved mining plan to achieve 37 Mt production in 2016
include:
- a focus on productivity through improved scheduling of work by implementation of
the Business Process Framework;
- the Dingleton project;
- construction of two new waste dumps; and
- the five-year fleet plan and associated infrastructure.
The Dingleton project to facilitate the expansion of Sishen to the west has
commenced, and construction of the houses, businesses, churches and schools is
underway.
Total tonnes mined at Sishen increased by 5% to 107.2 Mt (2013: 102.5 Mt). Total
waste mined was 86.9 Mt (2013: 82.1 Mt), an increase of 6%, as internal waste
mining to expose sufficient ore to achieve 35 Mt production in 2014 was ahead of
schedule. Waste pre-stripping to achieve future production was impacted by
excessive rainfall during the period. There has been a 50% improvement in the
performance of the mining fleet to June 2014, as well an increase in floor stock.
Waste mining plans for the second half of the year were completed and are being
executed, which includes further ramp-up and fleet efficiency improvements.
Total iron ore production at Sishen mine increased by 5% to 17 Mt (2013: 16.1 Mt)
in line with the mining plan to ramp up production to 37 Mt by 2016.
Kolomela mine
Kolomela mine continued to perform strongly. Total tonnes mined at Kolomela mine
rose by 11% to 31.3 Mt (2013: 28.2 Mt), of which waste mined was 24.4 Mt
(2013: 21.7 Mt), an increase of 12%. The mine produced 5.5 Mt of iron ore, an
increase of 4%. A reclaimer breakdown at the mine in the first quarter of the year
resulted in increased stock at the mine to 1.2 Mt at 30 June 2014. Pre-stripping of
the third pit at Kolomela is in progress to maintain flexibility. The group aims to
increase current production through de-bottlenecking and optimisation of the plant.
Thabazimbi mine
A major reconfiguration is planned for Thabazimbi to capture low grade
opportunities and increase production to 2 million tonnes per annum (Mtpa).
The project study for the reconfiguration is progressing through the feasibility
phase. Waste mining at Thabazimbi mine increased by 18% to 15.4 Mt (2013: 13.0 Mt)
as the mine progresses to its next phase. Production at Thabazimbi mine increased
to 0.3 Mt for the six months (2013: 0.2 Mt). The mine is expected to produce ~1 Mt
in 2014.
Logistics
Volumes railed on the Sishen-Saldanha Iron Ore Export Channel (IOEC) were
5% lower at 19.7 Mt (including 0.7 Mt railed to Saldanha Steel) (2013: 20.7 Mt).
Volumes railed from Kolomela mine were 4.5 Mt for the six months (2013: 5.5 Mt) and
were impacted by the breakdown of a reclaimer referred to above. Kumba shipped
19.3 Mt from the Saldanha port destined for the export market, down 4%.
Sales summary (unaudited)
Six months ended
’000 tonnes June 2014 June 2013 % change
Sales volumes 22,499 22,137 2
Export sales 19,710 20,123 (2)
Domestic sales 2,789 2,014 38
Sishen mine 2,484 1,710 45
Thabazimbi mine 305 303 1
Sales
Total sales for Kumba for the half year were 2% higher at 22.5 Mt (2013: 22.1 Mt),
mainly as a result of a 38% increase in domestic sales volumes made in terms of the
new supply agreement with ArcelorMittal South Africa Limited (ArcelorMittal
S.A.). Export sales volumes were marginally down at 19.7 Mt (1H2013: 20.1 Mt). CFR
sales accounted for 62% of export sales volumes (2013: 63%). Finished product
inventory held at the mines and ports increased to 3.6 Mt from 2.9 Mt as at
31 December 2013 (1H2013: 3.6 Mt).
66% of total export volumes were directed to China compared to 67% during the first
half of 2013. The group’s lump:fine ratio was 66:34 for the period (2013: 61:39).
Small variations from one period to another may be expected as a result of changes
in stock levels of individual products.
FINANCIAL RESULTS
Revenue
The group’s total revenue of R26.4 billion for the period was marginally higher
than the R26.3 billion for the comparable period in 2013, mainly as a result of the
16% decline in the Rand/US$ exchange rate (1H2014: R10.68/US$1 compared to 1H2013:
R9.19/US$1), 2% higher total sales volumes and R556 million higher shipping
revenue, largely offset by 17% lower average realised export iron ore prices (2014:
US$104/tonne; 2013: US$125/tonne).
Operating expenses
Operating expenses rose by 18% to R14.1 billion from R12 billion in the first half
of 2013; principally as a result of:
- 10.2 Mt growth in total mining volumes;
- inflationary pressure on input costs from CPI of 6.2%;
- above-inflationary input cost increases in diesel, mining contractor rate,
blasting material and tyre prices; and
- R541 million higher freight costs offset by 5% lower selling and distribution
costs.
Unit cash costs at Sishen mine remained flat at R266 per tonne (FY2013: R267 per
tonne). This is primarily as a result of input cost pressures (+R12/tonne) and
higher mining volumes (+R15/tonne) being largely offset by higher production
volumes (-R26/tonne).
Kolomela mine incurred unit cash costs of R211 per tonne (FY2013: R182 per tonne),
a 16% increase. The increase was due to input cost pressures (+R8/tonne), and
higher mining volumes (+R7/tonne), marginally offset by improved production volumes
(-R2/tonne). In addition, drilling cost to ensure optimal placement of waste dumps,
reclaimer related maintenance and exploration drilling to increase geological
confidence in resources in the life of mine plan was incurred (+R16/tonne).
Operating profit
Kumba’s operating profit margin for the first half of 2014 decreased by 8% to 47%
(2013: 55%), 51% from mining activities (2013: 58%).
Operating profit decreased by 14% to R12.3 billion (2013: R14.3 billion). The
increase in operating expenses outlined previously has impacted profitability.
Cash flow
The group continued to generate substantial cash from its operations, with
R15.3 billion generated during the six months. These cash flows were used to pay
taxation of R2.4 billion, royalties of R0.9 billion and aggregate dividends of
R8.5 billion during the six months. The group’s working capital position remains
healthy, ensuring sufficient reserves to cover short-term positions.
At 30 June 2014 the group had a net debt position of R687 million
(2013: R2.3 billion net cash).
Capital expenditure
Capital expenditure of R3.3 billion was incurred: R2.8 billion on stay-in-business
(SIB) activities (including deferred stripping), and R643 million on expansion
projects. The group expects total capital expenditure for 2014 to be in the range
of R7.5 billion to R8.2 billion. Capital expenditure in 2015 and 2016 will include
the results of the finalisation of the Sishen fleet plan for the next 5 years, as
well as the construction activities related to the Dingleton project, which is
expected to cost an estimated R4.2 billion over a four to six year period. The
level of sustainable SIB capex in future, is expected to average around
R1.7 billion per annum through the cycle. This excludes once-off capital items,
namely the ramp up in the mining fleet at Sishen and related infrastructure, which
relates to the growth of the mine.
Ore reserves and mineral resources
There have been no material changes to the ore reserves and mineral resources as
disclosed in the 2013 Kumba Integrated Report.
Growth
The group remains focused on delivering on its growth strategy, targeting an
additional ~5 Mt in South Africa over the next three to five years, through
incremental growth at Sishen and Kolomela. The projects in support of the growth
target are in various stages of study and subject to internal approval. The project
pipeline remains dependent on available rail line capacity, among other factors,
and Kumba continues to work together with Transnet to determine an optimum solution
for incremental expansion of the IOEC.
The exploration programme in Liberia under the joint venture with Jonah Capital was
completed. The programme was found not to be economic and therefore closed. The
group’s long-term growth strategy remains unchanged with the focused assessment of
various opportunities in target countries in Central and West Africa continuing.
Outlook
In China, recent data are consistent with a recovery in economic growth – which
should hold at around 7% to 7.5% over the next 18 months – following the
authorities’ targeted stimulus measures in the spring. China’s housing market and
the financial system remain fragile and there are concerns around the impact of the
government’s high-profile anti-corruption campaign.
Iron ore prices are expected to remain at current levels in the third quarter of
the year, though restocking by steel mills and a slowdown in Chinese domestic iron
ore production in their winter is expected to support prices towards the end of the
year. Lump premiums are expected to increase to approach the marginal cost of
sintering in the second half of the year.
The production outlook for Sishen mine in 2014 remains at around 35 Mt. The Sishen
pit, however, remains constrained, therefore the planned waste ramp up is
continuing as part of the strategy to improve mining flexibility over the longer
term. It is expected that waste tonnages will reach ~220 Mt for the year as a
whole.
At Kolomela mine, 2014 output remains at approximately 10 Mt in line with the
mine’s production design capacity, with waste mined at approximately 40 to 50 Mt.
Export sales volumes for the year are expected to be in line with 2013 levels.
Domestic sales volumes are anticipated to be 6.25 Mt for the year in line with the
supply agreement with ArcelorMittal S.A.
It remains the group’s intent to continue to pay excess cash to its shareholders,
after considering growth and investment opportunities, while remaining within its
committed debt facilities.
Profitability remains sensitive to iron ore export prices and the Rand/US$ exchange
rate.
Appointment of Company Secretary
The board of Kumba announced the appointment of Ms Avanthi Parboosing as company
secretary with effect from 28 July 2014. She will be replacing Mr Kevin Lester,
Head of Legal Anglo American South Africa, who has been acting as company secretary
on a temporary basis from 1 March 2014. The board expresses gratitude to Mr Lester
for his contribution to the Company during this time.
The presentation in support of the company’s results for the six months ended
30 June 2014 will be available on the company’s website www.angloamericankumba.com
at 08h30 CAT and the webcast will be available from 11h30 CAT on 22 July 2014.
SALIENT FEATURES AND OPERATING STATISTICS
for the period ended
Unaudited Unaudited Unaudited
6 months 6 months 12 months
Note 30 June 2014 30 June 2013 31 December 2013
Share statistics (‘000) 6
Total shares in issue 322,086 322,086 322,086
Weighted average number
of shares 320,745 321,150 321,187
Diluted weighted average
number of shares 321,378 321,745 321,596
Treasury shares 1,275 875 1,445
Treasury shares (Rand million) 590 409 665
Market information
Closing share price (Rand) 339 461 443
Market capitalisation
(Rand million) 109,187 148,353 142,829
Market capitalisation
(US$ million) 10,264 14,910 13,655
Net asset value
(Rand per share) 65.65 60.42 64.68
Capital expenditure
(Rand million)
Incurred 5 3,281 2,322 6,453
Contracted 2,901 2,318 600
Authorised but not contracted 3,434 1,551 4,943
Finance lease commitments 268 339 300
Operating commitments
Operating lease commitments 25 60 27
Shipping services 11,316 9,228 12,222
Economic information
Average Rand/US Dollar
exchange rate (ZAR/US$) 10.68 9.19 9.62
Closing Rand/US Dollar
exchange rate (ZAR/US$) 10.64 9.95 10.46
Sishen mine FOR unit cost
Unit cost (Rand per tonne) 319.7 287.8 325.3
Cash cost (Rand per tonne) 266.5 238.9 266.9
Unit cost (US$ per tonne) 29.9 31.3 33.8
Cash cost (US$ per tonne) 25.0 26.0 27.7
Kolomela mine FOR unit cost
Unit cost (Rand per tonne) 272.2 229.9 241.0
Cash cost (Rand per tonne) 211.0 172.5 181.8
Unit cost (US$ per tonne) 25.5 25.0 25.0
Cash cost (US$ per tonne) 19.8 18.8 18.9
Thabazimbi mine FOR unit cost
Unit cost (Rand per tonne) 1,368.0
Cash cost (Rand per tonne) 985.0
Unit cost (US$ per tonne) 128.1
Cash cost (US$ per tonne) 92.3
CONDENSED GROUP BALANCE SHEET
as at
Rand million
Note
Reviewed Reviewed Audited
Rand million Note 30 June 2014 30 June 2013 31 December 2013
Assets
Property, plant and
Equipment 5 32,038 26,944 29,922
Biological assets 5 8 6
Investments held by
environmental trust 781 691 737
Long-term prepayments and
other receivables 627 322 605
Deferred tax assets 850 946 920
Non-current assets 34,301 28,911 32,190
Inventories 5,128 4,464 5,171
Trade and other receivables 3,375 3,264 6,124
Current tax asset – 87 –
Cash and cash equivalents 3,039 2,685 1,053
Current assets 11,542 10,500 12,348
Total assets 45,843 39,411 44,538
Equity
Shareholders’ equity 6 21,144 19,460 20,831
Non-controlling interest 6,421 5,878 6,353
Total equity 27,565 25,338 27,184
Liabilities
Interest-bearing borrowings 7 2,000 262 2,234
Provisions 4 1,861 1,741 1,809
Deferred tax liabilities 8,768 7,480 7,888
Non-current liabilities 12,629 9,483 11,931
Short-term portion of
interest-bearing borrowings 7 1,726 96 615
Short-term portion of
Provisions 296 30 355
Trade and other payables 2,826 3,675 3,888
Current tax liabilities 801 789 565
Current liabilities 5,649 4,590 5,423
Total liabilities 18,278 14,073 17,354
Total equity and liabilities 45,843 39,411 44,538
CONDENSED GROUP INCOME STATEMENT
for the period ended
Reviewed Reviewed Audited
6 months 6 months 12 months
Rand million Note 30 June 2014 30 June 2013 31 December 2013
Revenue 26,429 26,299 54,461
Operating expenses 8 (14,124) (11,960) (26,076)
Operating profit 12,305 14,339 28,385
Finance income 35 30 117
Finance costs (181) (168) (396)
Loss from equity accounted
joint venture (2) (34) (46)
Profit before taxation 12,157 14,167 28,060
Taxation (3,584) (4,002) (7,760)
Profit for the period 8,573 10,165 20,300
Attributable to:
Owners of Kumba 6,511 7,759 15,446
Non-controlling interest 2,062 2,406 4,854
8,573 10,165 20,300
Earnings per share for profit
attributable to the owners
of Kumba (Rand per share)
Basic 20.30 24.16 48.09
Diluted 20.26 24.12 48.03
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME
for the period ended
Reviewed Reviewed Audited
6 months 6 months 12 months
Rand million Note 30 June 2014 30 June 2013 31 December 2013
Profit for the period 8,573 10,165 20,300
Other comprehensive income
for the period, net of tax 46 350 570
Exchange differences on
translation of foreign
operations 46 351 570
Net effect of cash
flow hedges – (1) –
Total comprehensive income
for the period 8,619 10,515 20,870
Attributable to:
Owners of Kumba 6,547 8,038 15,917
Non-controlling interest 2,072 2,477 4,953
8,619 10,515 20,870
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
for the period ended
Reviewed Reviewed Audited
6 months 6 months 12 months
Rand million Note 30 June 2014 30 June 2013 31 December 2013
Total equity at the
beginning of the period 27,184 19,664 19,664
Changes in share capital
and premium 6
Shares issued during the
period – 1 2
Treasury shares issued to
employees under employee
share incentive schemes 74 79 87
Purchase of treasury shares – – (265)
Changes in reserves
Equity-settled share-based
Payment 228 234 504
Vesting of shares under
employee share incentive
schemes (74) (83) (91)
Total comprehensive
income for the period 6,547 8,038 15,917
Dividends paid (6,462) (4,047) (10,561)
Changes in non-controlling
interest
Total comprehensive income
for the period 2,072 2,477 4,953
Dividends paid (2,050) (1,079) (3,146)
Movement in non-controlling
interest in reserves 46 54 120
Total equity at the end
of the period 27,565 25,338 27,184
Comprising
Share capital and premium
(net of treasury shares) 6 (223) (41) (297)
Equity-settled share-based
payment reserve 1,398 971 1,236
Foreign currency translation
reserve 1,047 842 1,010
Cash flow hedge reserve 8 (15) 8
Retained earnings 18,914 17,703 18,874
Shareholders’ equity 21,144 19,460 20,831
Attributable to the
owners of Kumba 20,281 18,670 19,977
Attributable to the
non-controlling interest 863 790 854
Non-controlling interest 6,421 5,878 6,353
Total equity 27,565 25,338 27,184
Dividend (Rand per share)
Interim * 15.61 20.10 20.10
Final 19.94
* The interim dividend was declared after 30 June 2014 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 2014.
CONDENSED GROUP CASH FLOW STATEMENT
for the period ended
Reviewed Reviewed Audited
6 months 6 months 12 months
Rand million Note 30 June 2014 30 June 2013 31 December 2013
Cash generated from
Operations 15,340 17,092 29,354
Net finance costs paid (70) (80) (161)
Taxation paid (2,382) (2,756) (6,171)
Cash flows from operating
activities 12,888 14,256 23,022
Additions to property, plant
and equipment 5 (3,281) (2,322) (6,453)
Investments in other
financial assets (2) – (17)
Proceeds from the disposal of
property, plant and equipment 30 17 37
Proceeds from disposal of
investments – – 5
Cash flows from investing
activities (3,253) (2,305) (6,428)
Shares issued 6 – 1 2
Purchase of treasury shares 6 – – (265)
Dividends paid to owners
of Kumba (6,422) (4,047) (10,500)
Dividends paid to
non-controlling shareholders (2,090) (1,079) (3,207)
Net interest-bearing
borrowings raised/(repaid) 7 877 (5,831) (3,332)
Cash flows from financing
activities (7,635) (10,956) (17,302)
Net increase/(decrease)
in cash and cash equivalents 2,000 995 (708)
Cash and cash equivalents
at beginning of period 1,053 1,527 1,527
Exchange differences on
translation of cash and
cash equivalents (14) 163 234
Cash and cash equivalents
at end of period 3,039 2,685 1,053
HEADLINE EARNINGS
for the period ended
Reviewed Reviewed Audited
6 months 6 months 12 months
Rand million 30 June 2014 30 June 2013 31 December 2013
Reconciliation of
headline earnings
Profit attributable to
owners of Kumba 6,511 7,759 15,446
Net profit on disposal and
scrapping of property, plant
and equipment (3) (13) (2)
Net profit on disposal of
investment – (5) (5)
6,508 7,741 15,439
Taxation effect of adjustments 1 4 3
Non-controlling interest
in adjustments (4) 3 1
Headline earnings 6,505 7,748 15,443
Headline earnings (Rand per share)
Basic 20.28 24.13 48.08
Diluted 20.24 24.08 48.02
The calculation of basic and
diluted earnings and headline
earnings per share is based on
the weighted average number of
ordinary shares in issue as
follows:
Weighted average number
of ordinary shares 320,745,287 321,149,798 321,186,591
Diluted weighted average
number of ordinary shares 321,377,681 321,745,418 321,595,563
The adjustment of 632,394 at 30 June 2014 ( 30 June 2013: 595,620) 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
for the six months ended 30 June 2014
1. CORPORATE INFORMATION
Kumba is a limited liability company incorporated and domiciled in South Africa.
The main business of Kumba, its subsidiaries, joint ventures and associates is the
exploration, extraction, beneficiation, marketing, sale, and shipping of iron ore.
The group is listed on the JSE Limited (JSE).
The condensed consolidated financial report of Kumba and its subsidiaries for the
six months ended 30 June 2014 was authorised for issue in accordance with a
resolution of the directors on 18 July 2014.
2. BASIS OF PREPARATION
The condensed consolidated interim financial statements has been prepared, under
the supervision of FT Kotzee CA(SA), chief financial officer, and in accordance
with International Financial Reporting Standard, (IAS) 34 Interim Financial
Reporting, the SAICA Financial Reporting Guides as issued by the Accounting
Practices Committee, Financial Pronouncements as issued by Financial Reporting
Standards Council, and the requirements of the South African Companies Act No 71
of 2008.
The condensed consolidated interim 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
these interim financial statements are in terms of International Financial
Reporting Standards and are consistent with those accounting policies applied in
the preparation of the previous consolidated annual financial statements.
No new standards, amendments to published standards or interpretations which became
effective for the year commencing on 1 January 2014 had an effect on the reported
results or the group accounting policies.
The group did not early adopt any new, revised or amended accounting standards or
interpretations. The accounting standards, amendments to issued accounting
standards and interpretations, which are relevant to the group but not yet
effective at 30 June 2014, are being evaluated for the impact of these
pronouncements.
4. CHANGE IN ESTIMATES
The life of mine plan on which accounting estimates are based, only includes proved
and probable ore reserves as disclosed in Kumba’s 2013 annual ore reserves and
mineral resources statement.
Management has revised the estimated rehabilitation and decommissioning provisions
for the three mines. Management has also revised the Sishen and Thabazimbi life of
mine used to calculate the mines’ provisions. This resulted in a decrease of the
provisions, offset by the notional interest raised for the period.
The effect of this change is detailed below:
Rand million Reviewed
30 June 2014
Increase in environmental rehabilitation provision (13)
Decrease in decommissioning provision (3)
The change in estimate in the environmental rehabilitation provision was applied
prospectively from 1 January 2014 and resulted in a increase in attributable profit
and basic, diluted and headline earnings per share for the period ended
30 June 2014 of R13 million and 3 cents, respectively. The change in estimate in
the decommissioning provision has been capitalised to the related property, plant
and equipment.
The revised Sishen and Thabazimbi life of mine plans extended the useful lives of
certain classes of fixed assets. The change was applied prospectively from the date
on which the revised life of mine plans were approved.
5. PROPERTY, PLANT AND EQUIPMENT
Reviewed Reviewed Audited
Rand million 30 June 2014 30 June 2013 31 December 2013
Capital expenditure 3,281 2,322 6,453
Expansion 438 451 1,132
Stay in business (SIB) 2,200 1,465 4,498
Deferred stripping 643 406 823
Transfers from assets under
construction to property,
plant and equipment 893 2,074 5,864
Expansion capital expenditure comprised of the expenditure on the Dingleton
project and the upgrade of the group’s financial systems. SIB capital expenditure
to maintain operations was principally for the acquisition of heavy mining
equipment, infrastructure and housing developments.
6. SHARE CAPITAL AND SHARE PREMIUM
Reconciliation of share capital and share premium (net of treasury shares):
Reviewed Reviewed Audited
Rand million 30 June 2014 30 June 2013 31 December 2013
Balance at beginning of period (297) (121) (121)
Total shares issued for cash
consideration – 1 2
Shares issued – share premium – – 2
Net movement in shares held by
Kumba Iron Ore Management
Share Trust – 1 –
Net movement in treasury shares
under employee share
incentive schemes 74 79 (178)
Purchase of treasury shares – – (265)
Shares issued to employees 74 79 87
Share capital and share premium (223) (41) (297)
Reconciliation of number of shares in issue:
Reviewed Reviewed Audited
Number of shares 30 June 2014 30 June 2013 31 December 2013
Balance at beginning of period 322,085,974 322,058,624 322,058,624
Ordinary shares issued – 27,350 27,350
Balance at end of period 322,085,974 322,085,974 322,085,974
Reconciliation of treasury
shares held:
Balance at beginning of period 1,444,526 1,064,531 1,064,531
Shares purchased - 8,573 660,923
Shares issued to employees under
the Long-Term Incentive Plan,
Kumba Bonus Share Plan and
Share Appreciation Rights Scheme (169,202) (207,494) (251,570)
Net movement in shares held by
Kumba Iron Ore Management
Share Trust - 9,870 (29,358)
Balance at end of period 1,275,324 875,480 1,444,526
All treasury shares are held as conditional awards under the Kumba Bonus Share Plan
(30 June 2013: 836,252 shares).
7. INTEREST-BEARING BORROWINGS
Kumba’s net debt/(cash) position at the balance sheet dates was as follows:
Reviewed Reviewed Audited
6 months 6 months 12 months
Rand million 30 June 2014 30 June 2013 31 December 2013
Interest-bearing borrowings 3,726 358 2,849
Cash and cash equivalents (3,039) (2,685) (1,053)
Net debt/(cash) 687 (2,327) 1,796
Total equity 27,565 25,338 27,184
Interest cover (times) 90 108 102
Movements in interest-bearing borrowings are analysed as follows:
Reviewed Reviewed Audited
6 months 6 months 12 months
Rand million 30 June 2014 30 June 2013 31 December 2013
Balance at the beginning
of the period 2,849 5,869 5,869
Interest-bearing borrowings
raised 9,969 8,290 2,000
Interest-bearing borrowings
Repaid (9,068) (14,121) (5,332)
Finance lease (repaid)/raised (24) 320 312
Balance at the end of the period 3,726 358 2,849
At 30 June 2014, R2.0 billion of the R10.9 billion long-term debt facility had been
drawn down and R1.5 billion of the total short-term uncommitted facilities of
R9.1 billion had been drawn down. Kumba was not in breach of any of its financial
covenants during the period. The group had undrawn long-term borrowings and
uncommitted short-term facilities of R16.5 billion (June 2013: R15 billion).
8. SIGNIFICANT ITEMS INCLUDED IN OPERATING PROFIT
Operating expenses is made up as follows:
Reviewed Reviewed Audited
6 months 6 months 12 months
Rand million 30 June 2014 30 June 2013 31 December 2013
Production costs 8,396 6,914 15,411
Movement in inventories 479 153 257
Finished products 336 497 1,141
Work-in-progress 143 (344) (884)
Cost of goods sold 8,875 7,067 15,668
Mineral royalty 835 904 2,157
Selling and distribution costs 2,208 2,324 4,538
Cost of services rendered –
shipping 2,222 1,681 3,747
Sublease rent received (16) (16) (34)
Operating expenses 14,124 11,960 26,076
Operating profit has been derived
after taking into account the
following items:
Employee expenses 1,754 1,454 3,039
Share-based payment expenses 276 303 635
Depreciation of property, plant
and equipment 1,134 918 2,039
Deferred waste stripping costs
Capitalised (643) (406) (823)
Net profit on disposal and
scrapping of property, plant
and equipment (3) (13) (2)
Net profit on disposal of
investment – – (5)
Finance gains (228) (562) (830)
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.
Reviewed Reviewed Audited
6 months 6 months 12 months
Rand million 30 June 2014 30 June 2013 31 December 2013
Interest earned on short-term
deposits 1 with Anglo American
SA Finance Limited 2 (AASAF)
during the period 27 20 96
Weighted average interest rate 5.37% 4.94% 4.96%
Short-term deposit held with
Anglo American Capital plc 2 2,447 2,200 572
Interest earned on facility
during the period * * *
Interest-bearing borrowing
from AASAF 1,469 49 568
Interest paid on borrowings
during the period 5 77 204
Weighted average interest rate 6.34% 6.51% 6.63%
Trade payable owing to Anglo
American Marketing Limited 2 (AAML) 242 88 356
Shipping services provided by AAML 2,277 1,779 4,058
Dividends paid to Exxaro Resources
Limited 1,736 914 1,750
1) There were no short-term deposits placed with AASAF on the reporting dates for
all periods presented.
2) Subsidiaries of the ultimate holding company.
* Interest earned on the deposit is insignificant and is earned at prevailing
market rates.
10. SEGMENTAL REPORTING
The total reported segment revenue is measured in a manner consistent with that
disclosed in the income statement. The performance of the operating segments are
assessed based on a measure of earnings before interest and taxation (EBIT), which
is measured in a manner consistent with ‘Operating profit’ in the financial
statements. Finance income and finance costs are not allocated to segments, as
treasury activity is managed on a central group basis.
Total segment assets comprise finished goods inventory only, which is allocated
based on the operations of the segment and the physical location of the assets.
‘Other segments’ comprise corporate, administration and other expenditure not
allocated to the reported segments.
Products 1 Services
Thaba- Shipping
Sishen Kolomela zimbi Logis- opera-
Rand million mine mine mine tics tions Other Total
Reviewed six
months ended
30 June 2014
Income statement
Revenue from
external customers 18,744 4,790 777 – 2,118 – 26,429
EBIT 2 12,237 3,080 (77) (2,208) (104) (623) 12,305
Significant items
included in EBIT:
Depreciation 813 303 3 3 – 12 1,134
Staff costs 1,175 274 200 13 – 368 2,030
Balance sheet
Total segment
assets 183 214 130 422 – 226 1,175
Cash flow statement
Additions to
property, plant and
equipment
Expansion capex 3 261 62 – – – 115 438
Stay-in-business
capex 4 1,798 372 – 1 – 29 2,200
Deferred stripping 335 92 216 – – – 643
Products 1 Services
Thaba- Shipping
Sishen Kolomela zimbi Logis- opera-
Rand million mine mine mine tics tions Other Total
Reviewed six
months ended
30 June 2013
Income statement
Revenue from
external customers 18,124 6,091 522 – 1,562 – 26,299
EBIT 13,598 4,493 82 (2,324) (119) – 15,730
Significant items
included in EBIT:
Depreciation 631 273 1 2 – 11 918
Staff costs 996 226 174 – 3 358 1,757
Balance sheet
Total segment
assets 135 80 106 574 – 216 1,111
Cash flow statement
Additions to property,
plant and equipment
Expansion capex 3 54 208 – 106 – 83 451
Stay-in-business
capex 1,375 66 – – – 24 1,465
Deferred stripping 323 83 – – – – 406
Audited year ended
31 December 2013
Income statement
Revenue from
external customers 36,685 13,022 1,079 – 3,675 – 54,461
EBIT 24,888 9,296 301 (4,538) (72) (1,490) 28,835
Significant items
included in EBIT:
Depreciation 1,441 570 1 5 – 22 2,039
Staff costs 2,121 482 364 20 5 682 3,674
Balance sheet
Total segment
assets 177 66 75 – 398 478 1,194
Cash flow statement
Additions to property,
plant and equipment
Expansion capex 3 484 285 8 108 – 247 1,132
Stay-in-business
capex 3,933 564 1 – – – 4,498
Deferred stripping 637 186 – – – – 823
1) Derived from extraction, production and selling of iron ore.
2) 0.7Mt of Sishen ore sold to ArcelorMittal S.A. was priced at a Thabazimbi Floor
Price (TFP) stipulated in the Supply Agreement. This resulted in R139 million of
additional revenue for the segment, when compared to the revenue that it would have
earned on these tonnes if sold at the Sishen price applied to the balance of the
domestic sales.
3) The capital expenditure allocated to the ‘Other’ segment is in respect of an
information management systems upgrade rolled out groupwide. This
expenditure has not been allocated to the various segments.
4) Thabazimbi mine’s stay-in-business and expansion capex is derecognised, as these
assets are deemed to be leased to ArcelorMittal S.A. based on the terms of the
Supply Agreement (IFRIC 4 adjustment).
Reviewed Reviewed Audited
6 months 6 months 12 months
Rand million 30 June 2014 30 June 2013 31 December 2013
Reconciliation of
segments’ assets to
total inventory:
Segment assets 1,175 1,111 1,194
WIP inventory, plant
spares and stores 3,953 3,353 3,977
Inventory per balance sheet 5,128 4,464 5,171
Geographical analysis of revenue and non-current assets:
Total revenue from external customers
Reviewed Reviewed Audited
6 months 6 months 12 months
Rand million 30 June 2014 30 June 2013 31 December 2013
South
Africa 2,424 1,641 3,672
China 15,485 17,006 35,154
Rest of
Asia 6,046 5,080 10,587
Europe 2,359 2,456 4,926
MENA 115 116 122
Total revenue from external customers 26,429 26,299 54,461
Non-current assets
All non-current assets, excluding prepayments, investments in associates and joint
ventures and deferred tax assets, are located in South Africa, with the exception
of R2 million located in Singapore (June 2013: R2 million).
11. CONTINGENT ASSET
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. The terms of the agreement are continued to be met and the
amount is no longer material.
12. GUARANTEES
During the period ended 30 June 2014, the group negotiated additional financial
guarantee facilities of R88 million for the group’s environmental rehabilitation
and decommissioning obligations to the DMR with Rand Merchant Bank.
The total guarantees issued for environmental closure liabilities at 30 June 2014
are R2.1 billion (June 2013: R986 million; December 2013: R2.1 billion). Included
in this amount are financial guarantees for the environmental rehabilitation and
decommissioning obligations of the group to the DMR in respect of Thabazimbi mine
of R419 million (2013: R’nil). ArcelorMittal S.A. has guaranteed this full amount
by means of bank guarantees issued in favour of SIOC.
13. LEGAL PROCEEDINGS
There have been no significant changes to the legal matters reported on for the
year ended 31 December 2013. SIOC has not yet been awarded the 21.4% Sishen mining
right, which it applied for following the Constitutional Court judgment on the
matter in December 2013.
14. OTHER
As at 30 June 2014, the South African tax authorities were in the process of
reviewing certain of the group’s tax matters. The board believes that these matters
have been appropriately treated in the results for the period ended 30 June 2014.
15. 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 2013 Integrated Report.
16. EVENTS AFTER THE REPORTING PERIOD
No further material events have occurred between the end of the reporting period
and the date of the release of these reviewed condensed consolidated financial
statements.
17. 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 2014. 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
F Titi NB Mbazima
Chairman Chief executive
18 July 2014
Pretoria
NOTICE OF INTERIM CASH DIVIDEND
At its Board meeting on 18 July 2014 the directors approved a gross interim cash
dividend of 1 561 cents per share on the ordinary shares from profits accrued
during the period ended 30 June 2014. The dividend has been declared from income
reserves.
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 1 326.85000 cents per share.
The issued share capital at the declaration date is 322,085,974 ordinary shares.
The salient dates are as follows:
- Date of declaration Tuesday, 22 July 2014
- Last day for trading to qualify and participate
in the interim dividend (and change of address or
dividend instructions) Friday, 8 August 2014
- Trading ex-dividend commences Monday, 11 August 2014
- Record date Friday, 15 August 2014
- Dividend payment date Monday, 18 August 2014
Share certificates may not be dematerialised or rematerialised between Monday,
11 August 2014 and Friday, 15 August 2014, both days inclusive.
By order of the Board
KN Lester
Acting company secretary
18 July 2014
Pretoria
REGISTERED OFFICE:
Centurion Gate, Building 2B
124 Akkerboom Road
Centurion, Pretoria, 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, AM O’Neill, BP Sonjica
Executive – NB Mbazima (chief executive), FT Kotzee (chief financial officer)
ACTING COMPANY SECRETARY:
KN Lester
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’)
Kumba Iron Ore
Centurion Gate, Building 2B
124 Akkerboom Road
Centurion, Pretoria
Republic of South Africa
0157
www.angloamericankumba.com
A member of the Anglo American plc Group
www.angloamerican.com
22 July 2014
Date: 22/07/2014 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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