Wrap Text
Audited preliminary summarised annual results for year ended 31 December 2014 and final 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
AUDITED PRELIMINARY SUMMARISED ANNUAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014 AND FINAL CASH DIVIDEND DECLARATION
KEY FEATURES
- Regrettably one fatality at Sishen mine in April 2014
- Sishen mine's production increased by 15% to 35.5 Mt as recovery plan successfully implemented
- Kolomela mine continued to perform well lifting output by 7% to 11.6 Mt
- Export sales volumes were 4% higher at 40.5 Mt
- Significant 28% drop in average iron ore export prices to US$97 per tonne (Platts IODEX 62% Fe)
- HEPS 29% lower at R34.32 per share
- R2.5 billion final cash dividend declared to shareholders
FINANCIAL RESULTS
COMMENTARY
Kumba Iron Ore Limited ('Kumba' or 'the Group') announces its results for the year ended 31 December 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 crane while doing maintenance work at Sishen mine. The lost-time injury frequency rate
(LTIFR) was 0.23 (2013: 0.18). The focus on key safety improvement drivers remains in place, with continued emphasis on
the implementation of critical controls and greater operational discipline.
In 2014, Kumba successfully delivered on its plans and promises. At Sishen mine, the production target of 35 Mt was
exceeded, producing 35.5 Mt (2013: 30.9 Mt) as the recovery plan was successfully implemented. Waste removal at Sishen
was below target but the strategic redesign was completed and as a result sufficient ore was exposed to increase
flexibility and meet the 2015 production target. The robust performance at Kolomela mine continued, lifting output by
7% to 11.6 Mt. Total export sales volumes increased by 4% to 40.5 Mt (2013: 39.1 Mt).
The year was characterised by the significant drop in the average export iron ore price, down 28% from US$135 to US$97 per
tonne (Platts IODEX 62% Fe). Kumba's achieved average FOB export prices were down US$34 per tonne, or 27% from US$125 to
US$91 per tonne. Lower freight rates have supported FOB prices. Higher grade materials have maintained their premium
despite the fall in underlying prices. Spot lump premiums continued to climb, reaching US¢31/dmtu by the end of the year,
as stricter environmental legislation encouraged usage of direct charge materials. Consequently, the premiums Kumba
achieved on its lump products, a higher lump:fines export ratio, as well as the weaker average ZAR/US$ exchange rate
(2014: R10.83; 2013: R9.62), partially countered the effects of the price decline. As a result, revenue was 13% lower at
R47.6 billion (2013: R54.5 billion). Operating expenses rose by 9% to R28.4 billion principally as a result of input cost
pressures from higher mining volumes, and therefore headline earnings decreased by 29% to R11 billion.
Attributable and headline earnings for the period were R33.44 and R34.32 per share respectively (2013: R48.09 and R48.08),
on which a final cash dividend of R7.73 per share has been declared, at a 1.7 times cover. The increase in dividend cover
from 1.3 times from the 2014 interim dividend to 1.7 times for the final 2014 dividend recognises the impact of lower iron
ore prices on the company's cash generation amidst the continued uncertain market environment. The full year dividend
amounts to R23.34 per share, at 1.4 times cover (2013: R40.04).
To facilitate the expansion of Sishen mine to the west, Phase 1 of the Dingleton relocation project was successfully
completed, with 71 homes in Dingleton North being moved to the new host site. Construction on Phase 2, the relocation of
the 428 remaining houses, buildings and businesses, has commenced and is expected to be completed by 2017.
Sishen Iron Ore Company (Pty) Limited (SIOC) has not yet been awarded the 21.4% Sishen mining right, which it applied for
early in 2014 following the Constitutional Court judgement on the matter in December 2013. The Constitutional Court ruled
that SIOC held a 78.6% undivided share of the Sishen mining right and that, based on the provisions of the Minerals and
Petroleum Resources Development Act (MPRDA), only SIOC can apply for, and be granted, the residual 21.4% share of the
mining right at the Sishen mine. The grant of the mining right may be made subject to such conditions considered by the
Minister to be appropriate. Kumba is actively continuing its engagement with the Department of Mineral Resources (DMR) in
order to finalise the grant of the residual right.
As at 30 June 2014, the Group reported that it had certain tax matters under review with the South African Revenue Service
(SARS). As at 31 December 2014 the Group was engaged in discussions with SARS around these matters with a view to seeking
resolution. These matters have been considered in consultation with external tax and legal advisors, who support the
Group's position. We believe that these matters have been appropriately treated in the results for the year ended
31 December 2014.
For two years now, Kumba has had a stable labour environment with no work stoppages attributable to labour disputes. The
Group concluded a 3 year wage agreement which became effective on 1 July 2014.
MARKET OVERVIEW
The export price at the beginning of the financial year was US$135 per tonne, falling to a five year low of US$72 per tonne
by the end of December 2014, following strong growth in supply, particularly from the major suppliers, and slower
crude steel production growth in China.
Global seaborne iron ore supply rose 11% in 2014 led by a 24% increase in Australian exports as well as a 4% increase in
exports from Brazil and 2% from South Africa. India became a net importer in the second half of the year. It is taking
some time for uneconomic supply to exit the market.
Global crude steel production increased 3.1%, slightly faster than 2013 as higher output in the rest of the world offset
slower growth in China. Chinese growth slowed from 6.5% to 4.5%, while Japan, South Korea and Taiwan benefitted from
additional integrated steel capacity and high capacity utilisation rates. Europe recovered ground lost in 2013, showing
3% growth.
Global steel production slowed in the second half, due to weaker conditions in China and seasonal maintenance in Europe,
despite record high steel exports.
OPERATIONAL PERFORMANCE
Production summary (unaudited)
'000 tonnes
December December
2014 2013 % change
Total 48,197 42,373 14
Lump 31,269 27,087 15
Fines 16,928 15,287 11
Mine production 48,197 42,373 14
Sishen Mine 35,541 30,938 15
DMS Plant 22,911 20,374 12
Jig Plant 12,630 10,564 20
Kolomela Mine 11,568 10,809 7
Thabazimbi Mine 1,088 626 74
Sishen mine
Overall, Kumba showed a marked improvement in production as plans implemented over the past few years yielded benefits.
These were complemented by the implementation of the Operating Model at internal waste and ore mining in the Sishen North
mine in August 2014. The Operating Model represents a consistent approach across the business to ensure that we operate our
assets to their full potential and enhance long-term operational capability. The three basic principles underpinning the
Operating Model are: stability in operations that deliver predictable outcomes, experience lower operating costs and fewer
capital expenditure requirements; lower variation in operational performance to increase capability and efficiency; and
clarity where team members have a clear understanding of their own work, and how their team works. The model is already
yielding results including improving scheduled work, now over 70% compared to 20% on commencement, a 50% reduction in
waiting time on shovels, and 23% efficiency improvements in total tonnes handled since June 2014.
Sishen production of 35.5 Mt increased 15% (2013:30.9 Mt), with total tonnes mined rising to 230 Mt (2013: 209 Mt),
including 187 Mt was waste (2013: 168 Mt). While this is below the previously announced 2014 target of 220 Mt, waste
removal run rates are now meeting targets. Additional contractor capacity has been secured and the performance of Kumba's
own mining fleet improved. The vertical rate of advance at the mine was increased, further strengthening the exposed ore
position. The strategic redesign of the western pushbacks of the pit, together with the improved waste removal run rates,
means sufficient ore has been exposed to support the 2015 production target of 36 Mt. Other key actions at the mine
include:
- The Dingleton relocation project to facilitate Sishen's westward expansion
- Construction of two new waste dumps and
- The five-year-fleet plan and associated infrastructure, which include an on-site maintenance facility to service the
mine's haul trucks. This, along with increasing the fleet of trucks, is set to increase the mine's capacity for moving
ore as the mine ramps up.
Execution of the pit redesign plan has resulted in an improved mining plan that enables better use of equipment, and the
deployment of two priority pushbacks. As a consequence 780 Mt of waste was taken out of the revised life of mine plan with
an 87 Mt reduction in reserves, increasing the net present value of the mine. The outcome was a reduction in the average
life of mine stripping ratio from 4.4 to 3.9. As a result the remaining life-of-mine of Sishen has reduced from 18 years
to 16 years at the end of 2014.
Kolomela mine
Kolomela mine continued its robust performance. Total tonnes mined rose by 18% to 70.4 Mt (2013: 59.9 Mt), including
55.5 Mt of waste (2013: 46.7 Mt), an increase of 19%. The mine produced 11.6 Mt of iron ore, an increase of 7%.
Pre-stripping of the third pit at Kolomela was completed to maintain flexibility and the company aims to increase current
production through de-bottlenecking and optimisation of the plant. With the establishment of the third pit, waste levels
going forward are expected to come down and normalise. The new steady state production capacity is 11 Mtpa, up from 10Mtpa.
As a result, the remaining reserve life of Kolomela has reduced from 24 years to 21 years at the end of 2014 (from
19 years to 16 years excluding inferred resources).
Thabazimbi mine
Production at Thabazimbi mine increased by 74% from 0.6 Mt to 1.1 Mt as planned. The study for the reconfiguration
continues but has been impacted by the current low iron ore price. The low grade project has been suspended and due to the
low price environment in which the company is now operating, the future of this mine is being reconsidered. An impairment
charge of R439 million was recognised related to Thabazimbi mine (refer to note 8 of the summarised consolidated financial
statements).
Logistics
The Sishen-Saldanha Iron Ore Export Channel (IOEC) continued to support the increased production as 42.2 Mt were railed to
Saldanha (including 0.7 Mt volumes from third party producers), an increase of 6% (2013: 39.7 Mt). Kumba shipped 40.1 Mt
from the Saldanha port for the export market, slightly more than the 39.3 Mt in 2013. In addition Saldanha's multi-purpose
terminal (MPT), allowed the Group to export additional tonnage, particularly towards the end of the year. In the fourth
quarter, the MPT accounted for 0.7 Mt of Kumba's exports.
Sales summary (unaudited)
'000 tonnes
Sales summary December 2014 December 2013 % change
Total 45,288 43,708 4
Export sales 40,468 39,076 4
Domestic sales 4,820 4,632 4
Sishen mine 3,853 3,927 (2)
Thabazimbi mine 967 705 37
Sales
Kumba increased sales in 2014 and rebuilt its stockpiles. Total sales for Kumba were 4% higher at 45.3 Mt (2013: 43.7 Mt).
Export sales volumes were up 4% to 40.5 Mt (2013: 39.1 Mt). CFR sales accounted for 62% of export sales volumes
(2013: 63%). Finished product inventory held at the mines and ports rose to 6.5 Mt from 2.9 Mt at the 2013 year end.
Export sales volumes to China accounted for 57% (2013: 68%) of the company's total export volumes for the year, as Kumba
exported more to India in line with its strategy to broaden the customer base. The Group's lump:fine ratio was 67:33 for
the period (2013: 63:37). Variations from one period to another may be expected as a result of changes in stock levels of
individual products. The superior physical characteristics of Kumba's lump ore allows for the production of niche lump
products with very specific sizing, commanding an additional premium in the market.
FINANCIAL RESULTS
Revenue
The Group's total revenue of R47.6 billion for the period decreased 13% from R54.5 billion in 2013, mainly as a result of
the significant drop in average realised iron ore prices (2014: US$91/tonne; 2013: US$125/tonne) offset to an extent by
the weaker average ZAR/US$ exchange rate (2014: R10.83; 2013: R9.62), as well as 4% higher total sales volumes of 45.3 Mt.
Operating expenses
Operating expenses rose by 9% to R28.4 billion from R26.1 billion principally as a result of:
- 37 Mt growth in total mining volumes;
- cost increases in labour, diesel, mining contractor rates and rail and port tariffs
- R456 million higher freight costs;
- R439 million impairment charge for Thabazimbi mine; partially offset by
- higher waste stripping deferred to the balance sheet.
One of the benefits of the successful recovery plan was that unit cash costs at Sishen mine were contained at R272/tonne
despite higher mining volumes (2013: R267/tonne). The input cost pressures (R20/tonne) and higher mining volumes
(R28/tonne) were largely offset by higher production volumes (R40/tonne) and deferred stripping (R13/tonne). As Sishen
approaches the waste peak, unit cash cost growth is expected to peak in 2015 and flatten thereafter. Going forward further
benefits are expected from the reduction in oil prices, increasing productivity and the benefits of the Operating Model.
Kolomela mine incurred unit cash costs of R208/tonne (2013: R182/tonne), a 14% increase. This was due to increased input
costs on diesel, mining contractor rates as a result of increased travelling distances, as well as drilling and blasting
material, and higher mining volumes (R31/tonne). This was offset by the impact of increased production volumes of
R15/tonne and deferred stripping of R15/tonne. Other cash costs (R12/tonne) for the period included additional drilling
cost to ensure optimal placement of waste dumps and reclaimer related maintenance, as well as exploration drilling to
increase the geological confidence in the resource in line with Kolomela's 11 Mt life of mine production capacity.
Thabazimbi delivered the increased production as planned, which incurred additional costs. Unit cash costs rose 6% to
R682/tonne, mainly as a result of 20% higher mining volumes offset by the benefit from delivering on the production
target.
Operating profit
Operating profit of R19.2 billion decreased by 32% (2013: R28.4 billion). Kumba's operating profit margin for 2014
decreased to 40% (2013: 52%), 45% from mining activities (2013: 56%). The fall in iron ore prices and input cost pressures
from higher mining volumes outlined previously impacted profitability.
Cash flow
The Group continued to generate substantial cash from its operations; R22.9 billion for the year (before mineral royalties)
(2013: R31.4 billion). The cash was used to pay dividends of R15.2 billion (2013: R13.7 billion), income tax of
R4.2 billion (2013: R6.2 billion) and mineral royalties of R1.2 billion (2013: R2.1 billion). The Group's working capital
position remains healthy, ensuring sufficient reserves to cover short-term positions.
Capital expenditure of R8.5 billion was incurred. Expansion capex of R1.4 billion focussed on the Dingleton relocation
project and R7.1 billion on stay-in-business (SIB) activities (including heavy mining equipment, infrastructure, housing
and deferred stripping). In light of the current pricing environment, the Group has reduced capital expenditure guidance
(excluding deferred stripping) for 2015 and 2016 from what was previously guided, and optimised our project portfolio
resulting in the deferral of some of the capital spend to later years. The Group expects capital expenditure (excluding
deferred stripping) for 2015 to be in the range of R5.2 billion to R5.6 billion and for 2016 to be between R4.4 billion and
R4.9 billion (excluding unapproved projects).
Deferred stripping capital expenditure per mine estimates are shown in the table below. The increase expected at Sishen
mine is mainly as a result of higher stripping ratios expected in certain areas of the pit as a result of the pushback
design.
(unaudited) (unaudited)
R'million 2014 2015 2016
Sishen 1,025 2,450 - 2,750 3,100 - 3,650
Kolomela 351 450 - 500 350 - 450
Thabazimbi 462 400 - 450 Under review
Total 1,838 3,300 - 3,700 3,450 - 4,100
At 31 December 2014 the Group had a net debt position of R7.9 billion (2013: R1.8 billion).
Projects
The Group's portfolio has been reviewed and optimised to leverage the current asset base. The target remains an additional
~5 Mt in South Africa over the next three to five years, through incremental volumes from the projects at Sishen and
Kolomela. Studies are underway to determine value accretive options to deploy UHDMS and other low grade technologies at
Sishen. Further long-term expansion at Kolomela from current and additional pits is being considered. Despite the
challenges of the current low price environment, the Group will continue to look for long term opportunities in Central
and West Africa to preserve long-term growth options.
Ore reserves and mineral resources
The following changes are reported to the ore reserves and mineral resources as disclosed in the 2013 Kumba Integrated
Report.
As of 31 December 2014, Kumba, from a 100% ownership reporting perspective, had access to an estimated ore reserve of
914 Mt at its three mining operations (Sishen, Kolomela and Thabazimbi), a decrease of 15%. Kumba's estimated mineral
resources, in addition to its ore reserves at these three operations, as well as the Zandrivierspoort magnetite project,
totalled 1.3 billion tonnes, an increase of 11%.
The net decrease of 15% in Kumba's ore reserves in 2014 is primarily attributable to annual run-of-mine production of
52 Mt, as well as the strategic redesign of Sishen which has resulted in a waste reduction of 780 Mt and an 87 Mt reduction
in reserves, increasing the net present value of the mine. As a result the Sishen life-of-mine stripping ratio has reduced
from 4.4 to 3.9 and the reserve life from 18 years to 16 years at the end of 2014. The increase in the proved to probable
ore reserve ratio from 49:51 in 2013 to 70:30 in 2014, is primarily the result of the reversal of the downgrading of 225 Mt
reserves from proved to probable in 2013 at Sishen, subsequent to the granting of the mining right over the Sishen Rail
properties in February 2014. The overall increase in mineral resources of 11% was mainly as a result of sustained
exploration at Kolomela and Thabazimbi. The Kolomela reserve life has reduced from 24 years to 21 years at the end of 2014
(from 19 years to 16 years excluding inferred resources) as a result of the annual saleable product output being increased
from 10 Mtpa to 11 Mtpa.
Appointment of company secretary
The board of Kumba announced the appointment of Ms Avanthi Parboosing as company secretary with effect from 28 July 2014.
Outlook
Crude steel production is forecast to grow by approximately 2% in 2015, with slower growth of 1% to 2% in China and
slightly stronger in the rest of the world. We do not expect a major recovery in the average iron ore price and the Group
has undertaken a number of decisive actions to ensure that Kumba remains a resilient organisation in a low iron ore price
environment. We have:
- reconfigured operations to achieve lower cost production to fill the available rail capacity
- reduced capital expenditure in 2015 and 2016 and optimised our project portfolio resulting in the deferral of some
of the capital spend to later years, as well as cutting exploration, technical and project study expenditure by ~50%.
- reduced the head office workforce by 40% and
- optimised the Sishen LOM plan and removed areas of high stripping ratios.
In addition to the short-term actions already taken, further activities have commenced or are being analysed for
implementation:
- review of Thabazimbi mine as part of the portfolio
- restructuring of support services at operations
- implementation of the Operating Model at mining and plant operations and new initiatives on operational efficiencies
and
- improving supply chain efficiencies.
The production outlook for Sishen mine is 36 Mt in 2015. Following the planned commissioning of a new modular plant in
2015, production guidance for Sishen has been increased for both 2016 and 2017 to 38 Mt.
Kolomela is expected to produce 11 Mt in 2015 and 12 Mt in 2016. It is expected that waste volumes will reach between
240 Mt and 250 Mt at Sishen and between 42 Mt and 46 Mt at Kolomela in 2015.
Export sales volumes for 2015 are targeted at above 43 Mt. Domestic sales volume of up to 6.25 Mtpa is contracted to
ArcelorMittal S.A in terms of the supply agreement.
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. In line with the board's policy, the dividend cover
will be reviewed at each declaration, after considering, amongst other factors, the low iron ore price environment and the
Group's capital expenditure profile. We accordingly envisage further increases to dividend cover in the next dividend
cycle.
Profitability remains sensitive to iron ore export prices and the Rand/US$ exchange rate.
Any reference to future financial performance included in this announcement has not been reviewed or reported on by the
company's auditors.
The presentation in support of the company's results for the year ended 31 December 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 10 February
2015.
SALIENT FEATURES AND OPERATING STATISTICS
for the year ended
Unaudited Unaudited
31 December 31 December
2014 2013
Share statistics ('000)
Total shares in issue 322,086 322,086
Weighted average number of shares 320,663 321,187
Treasury shares 1,533 1,445
Market information
Closing share price (Rand) 240 443
Market capitalisation (Rand million) 77,268 142,829
Market capitalisation (US$ million) 6,677 13,655
Net asset value attributable to owners of Kumba
(Rand per share) 64.47 64.68
Capital expenditure (Rand million)
Incurred 8,477 6,453
Contracted 3,430 600
Authorised but not contracted 3,040 4,943
Finance lease commitments 232 300
Operating commitments
Operating lease commitments 148 27
Shipping services 11,353 12,222
Economic information
Average Rand/US Dollar exchange rate (ZAR/US$) 10.83 9.62
Closing Rand/US Dollar exchange rate (ZAR/US$) 11.57 10.46
Sishen mine FOR unit cost
Unit cost (Rand per tonne) 331.55 325.28
Cash cost (Rand per tonne) 271.84 266.94
Unit cost (US$ per tonne) 30.60 33.81
Cash cost (US$ per tonne) 25.09 27.75
Kolomela mine FOR unit cost
Unit cost (Rand per tonne) 269.13 240.97
Cash cost (Rand per tonne) 207.60 181.81
Unit cost (US$ per tonne) 24.84 25.05
Cash cost (US$ per tonne) 19.16 18.90
SUMMARISED CONSOLIDATED BALANCE SHEET
as at
Audited Audited
31 December 31 December
Rand million Notes 2014 2013
Assets
Property, plant and equipment 5 35,170 29,922
Biological assets 6 6
Investments held by environmental trust 791 737
Long-term prepayments and other receivables 555 605
Deferred tax assets 871 920
Non-current assets 37,393 32,190
Inventories 7,366 5,171
Trade and other receivables 4,476 6,124
Cash and cash equivalents 1,664 1,053
Current assets 13,506 12,348
Total assets 50,899 44,538
Equity
Shareholders' equity 6 20,764 20,831
Non-controlling interest 6,237 6,353
Total equity 27,001 27,184
Liabilities
Interest-bearing borrowings 7 4,000 2,234
Provisions 1,964 1,809
Deferred tax liabilities 8,201 7,888
Non-current liabilities 14,165 11,931
Interest-bearing borrowings 7 5,593 615
Provisions 92 355
Trade and other payables 3,493 3,888
Current tax liabilities 555 565
Current liabilities 9,733 5,423
Total liabilities 23,898 17,354
Total equity and liabilities 50,899 44,538
SUMMARISED CONSOLIDATED INCOME STATEMENT
for the year ended
Audited Audited
31 December 31 December
Rand million Note 2014 2013
Revenue 47,597 54,461
Operating expenses (28,405) (26,076)
Operating profit 8 19,192 28,385
Finance income 84 117
Finance costs (519) (396)
Loss from equity accounted joint venture (5) (46)
Profit before taxation 18,752 28,060
Taxation (4,604) (7,760)
Profit for the year 14,148 20,300
Attributable to:
Owners of Kumba 10,724 15,446
Non-controlling interest 3,424 4,854
14,148 20,300
Earnings per share for profit attributable to
the owners of Kumba (Rand per share)
Basic 33.44 48.09
Diluted 33.38 48.03
SUMMARISED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended
Audited Audited
31 December 31 December
Rand million 2014 2013
Profit for the year 14,148 20,300
Other comprehensive income for the year, net of tax 318 570
Exchange differences on translation of foreign
operations 351 570
Reclassification of gain relating to exchange
differences on translation of foreign operations (34) -
Total comprehensive income for the year 14,466 20,870
Attributable to:
Owners of Kumba 11,036 15,917
Non-controlling interest 3,430 4,953
14,466 20,870
SUMMARISED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended
Audited Audited
31 December 31 December
Rand million 2014 2013
Total equity at the beginning of the year 27,184 19,664
Changes in share capital and premium
Shares issued during the year - 2
Treasury shares issued to employees under
employee share incentive schemes 93 87
Purchase of treasury shares (107) (265)
Changes in reserves
Equity-settled share-based payment 525 504
Vesting of shares under employee share
incentive schemes (93) (91)
Total comprehensive income for the year 11,036 15,917
Dividends paid (11,521) (10,561)
Changes in non-controlling interest
Total comprehensive income for the year 3,430 4,953
Dividends paid (3,657) (3,146)
Movement in non-controlling interest in reserves 111 120
Total equity at the end of the year 27,001 27,184
Comprising
Share capital and premium (net of treasury shares) (311) (297)
Equity-settled share-based payment reserve 1,685 1,236
Foreign currency translation reserve 1,256 1,010
Fair value reserve 74 8
Retained earnings 18,060 18,874
Shareholders' equity 20,764 20,831
Attributable to the owners of Kumba 19,925 19,977
Attributable to non-controlling interest 839 854
Non-controlling interest 6,237 6,353
Total equity 27,001 27,184
Dividend (Rand per share)
Interim 15.61 20.10
Final * 7.73 19.94
* The final dividend was declared after 31 December 2014 and has not been recognised as a liability in this financial
report. It will be recognised in shareholders' equity in the year ending 31 December 2015.
SUMMARISED CONSOLIDATED CASH FLOW STATEMENT
for the year ended
Audited Audited
31 December 31 December
Rand million 2014 2013
Cash generated from operations 21,769 29,354
Net finance costs paid (285) (161)
Taxation paid (4,165) (6,171)
Cash flows from operating activities 17,319 23,022
Additions to property, plant and equipment (8,477) (6,453)
Investments in associate and joint ventures (5) (17)
Proceeds from the disposal of property, plant
and equipment 78 37
Deconsolidation of subsidiary - 5
Cash flows from investing activities (8,404) (6,428)
Shares issued - 2
Purchase of treasury shares (107) (265)
Dividends paid to owners of Kumba (11,450) (10,500)
Dividends paid to non-controlling shareholders (3,728) (3,207)
Net interest-bearing borrowings raised/(repaid) 6,744 (3,332)
Cash flows from financing activities (8,541) (17,302)
Net increase/(decrease) in cash and cash
equivalents 374 (708)
Cash and cash equivalents at beginning of year 1,053 1,527
Foreign currency exchange gains on cash and
cash equivalents 237 234
Cash and cash equivalents at end of year 1,664 1,053
HEADLINE EARNINGS
for the year ended
Audited Audited
31 December 31 December
Rand million 2014 2013
Reconciliation of headline earnings
Profit attributable to owners of Kumba 10,724 15,446
Impairment charge 439 -
Net loss/(profit) on disposal and scrapping of
property, plant and equipment 91 (2)
Reclassification of exchange differences on
translation of foreign operations (34) -
Net profit on disposal of investment - (5)
11,220 15,439
Taxation effect of adjustments (128) 3
Non-controlling interest in adjustments (86) 1
Headline earnings 11,006 15,443
Headline earnings (Rand per share)
Basic 34.32 48.08
Diluted 34.26 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
320,662,676 321,186,591
Diluted weighted average number of ordinary
shares 321,242,611 321,595,563
The dilution adjustment of 579 935 shares at 31 December 2014 (2013: 408 972) is a result of the vesting of share options
previously granted under the various employee share incentive schemes.
NOTES TO THE AUDITED SUMMARISED CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 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 audited summarised consolidated financial statements of Kumba and its subsidiaries for the year ended 31 December 2014
were authorised for issue in accordance with a resolution of the directors on 6 February 2015.
2. BASIS OF PREPARATION
The audited summarised consolidated financial statements have been prepared, under the supervision of FT Kotzee CA(SA),
chief financial officer, in accordance with the requirements of the JSE Limited Listings Requirements for preliminary
reports, and the requirements of the South African Companies Act No 71 of 2008 applicable to summary financial statements.
The Listings Requirements require preliminary reports to be prepared in accordance with the framework concepts and the
measurement and recognition requirements of International Financial Reporting Standards (IFRS) and the SAICA Financial
Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by Financial
Reporting Standards Council and to also, as a minimum, contain the information required by IAS34 Interim Financial
Reporting.
The audited summarised consolidated financial statements have 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 applied in the preparation of the consolidated financial statements from which the summary
consolidated financial statements were derived 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, 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 2014 were adopted by the group:
IFRIC 21 Levies (effective date: 1 January 2014)
In May 2013, the IASB issued IFRIC 21 Levies to address inconsistencies in the current practice in accounting for levies.
The interpretation considers outflows of economic resources, imposed by governments in accordance with legislation. The
scope of the interpretation excludes outflows of economic resources covered by other IFRSs, acquisition of assets,
contractual arrangements with government, fines or penalties.
The application of this standard has not resulted in any changes to the group's financial statements.
Amendments to IAS 36 Impairment of Assets (effective date: 1 January 2014)
The primary intention behind this amendment is to harmonise the disclosure requirements for fair value less costs of
disposal and value in use when present value techniques are used to measure the recoverable amount of impaired assets.
However, the amendment also requires a new disclosure relating to impaired assets.
The application of this standard has not resulted in any additional disclosure to the group's financial statements.
Amendments to IAS 39 Financial Instruments: Recognition and Measurement: Novation of Derivatives and Continuation of Hedge
Accounting (effective date: 1 January 2014)
The amendment to IAS 39 provides relief from discontinuing hedge accounting when novation of a derivative designated as a
hedging instrument meets certain criteria in particular if the novation was a result of a law or legislative change.
The application of this standard has not resulted in any changes to the group's financial statements.
Amendments to IAS 32 Financial Instruments: Presentation: Offsetting Financial Assets and Financial Liabilities (effective
date: 1 January 2014)
The amendment to IAS 32 clarifies that an entity will meet the net settlement criterion if and only if the gross
settlement mechanism has features that eliminate or result in insignificant credit and liquidity risk and that will
process receivables and payables simultaneously.
The application of this standard has not resulted in any changes to the group's financial statements.
Amendments to IFRS 10, IFRS 12, IAS 27 Separate Financial Statements: Investment Entities (effective date: 1 January 2014)
This amendment requires an investment entity to measure investments in certain subsidiaries at fair value through profit
or loss in accordance with IFRS 9 Financial Instruments instead of consolidating those subsidiaries in its consolidated
and separate financial statements, except where a subsidiary provides services that relate to the investment entity's
investment activities, in which case it shall consolidate that subsidiary and apply the requirements of IFRS 3 to the
acquisition of any such subsidiary.
The application of this standard has not resulted in any changes to the group's financial statements.
3.2 New standards, amendments to existing standards and interpretations that are not yet effective and have not been early
adopted
In 2014 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 31 December 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 Sishen and Thabazimbi life
of mine used to calculate the rehabilitation and decommissioning provisions. The effect of this change in estimate, which
was applied prospectively from 1 January 2014, is detailed below:
Audited
Rand million 31 December 2014
Decrease in environmental rehabilitation provision 108
Decrease in decommissioning provision 17
Increase in profit attributable to the owners of Kumba 60
Rand per share
Increase in earnings per share attributable to the owners of Kumba 0.19
The change in estimate in the decommissioning provision has been capitalised to the related property, plant and equipment
and as a result had no effect on profit or earnings per share.
5. PROPERTY, PLANT AND EQUIPMENT
Audited Audited
Rand million 31 December 2014 31 December 2013
Capital expenditure 8,477 6,453
Comprising:
Expansion 1,433 1,132
Stay-in-business (SIB) 5,206 4,498
Deferred stripping 1,838 823
Transfers from assets under construction to property,
plant and equipment 5,163 5,864
Expansion capital expenditure comprised of the Dingleton Project which aims to enable Sishen mine to extract ore resources
between the mine and the town, modular plants construction to beneficiate material not currently processed, as well as the
upgrade of the group's financial systems. SIB capital expenditure to maintain operations was principally for the
replacement and rebuild of the mining fleet, medium- and long-term haul truck maintenance, construction of a warehouse
facility and housing developments.
6. SHARE CAPITAL AND SHARE PREMIUM
Reconciliation of share capital and share premium (net of treasury shares):
Audited Audited
Rand million 31 December 2014 31 December 2013
Balance at beginning of year (297) (121)
Total shares issued for cash consideration - 2
Shares issued - share premium - 2
Net movement in treasury shares under employee share
incentive schemes (14) (178)
Purchase of treasury shares (107) (265)
Shares issued to employees 93 87
(311) (297)
Reconciliation of number of shares in issue:
Audited Audited
Number of shares 31 December 2014 31 December 2013
Balance at beginning of year 322,085,974 322,058,624
Ordinary shares issued - 27,350
Balance at end of year 322,085,974 322,085,974
Reconciliation of treasury shares held:
Balance at beginning of year 1,444,526 1,064,531
Shares purchased 299,600 660,923
Shares issued to employees under the Long-Term Incentive Plan,
Kumba Bonus Share Plan and Share Appreciation Rights Scheme (210,780) (251,570)
Net movement in shares held by Kumba Iron Ore Management
Share Trust - (29,358)
Balance at end of year 1,533,346 1,444,526
All treasury shares are held as conditional awards under the Kumba Bonus Share Plan.
7. INTEREST-BEARING BORROWINGS
Kumba's net debt position at the balance sheet dates was as follows:
Audited Audited
Rand million 31 December 2014 31 December 2013
Interest-bearing borrowings 9,593 2,849
Cash and cash equivalents (1,664) (1,053)
Net debt 7,929 1,796
Total equity 27,001 27,184
Interest cover (times) 44 102
Movements in interest-bearing borrowings are analysed as follows:
Audited Audited
Rand million 31 December 2014 31 December 2013
Balance at the beginning of the year 2,849 5,869
Interest-bearing borrowings raised 14,891 2,000
Interest-bearing borrowings repaid (8,098) (5,332)
Finance lease (repaid)/raised (49) 312
Balance at the end of the year 9,593 2,849
At 31 December 2014, R4.0 billion of the R10.9 billion long-term debt facility had been drawn down and R5.4 billion of the
total short-term uncommitted facilities of R8.2 billion had been drawn down. Kumba was not in breach of any of its
financial covenants during the year. The group had undrawn long-term borrowings and uncommitted short-term facilities at
31 December 2014 of R9.7 billion (2013: R17.4 billion). Subsequent to year end, management has negotiated new committed
debt facilities, which were concluded on 3 February 2015 and increased the total committed debt facilities of the Group to
R16.5 billion.
8. SIGNIFICANT ITEMS INCLUDED IN OPERATING PROFIT
Operating expenses is made up as follows:
Audited Audited
12 months 12 months
Rand million 31 December 2014 31 December 2013
Production costs 18,979 15,411
Movement in inventories (904) 257
Finished products (237) 1,141
Work-in-progress (667) (884)
Cost of goods sold 18,075 15,668
Impairment charge 1 439 -
Mineral royalty 1,176 2,157
Selling and distribution costs 4,548 4,538
Cost of services rendered - shipping 4,203 3,747
Sublease rent received (36) (34)
Operating expenses 28,405 26,076
Operating profit has been derived after taking into account
the following items:
Employee expenses 3,869 3,041
Restructuring costs 68 -
Share-based payment expenses 643 634
Depreciation of property, plant and equipment 2,636 2,039
Deferred waste stripping costs capitalised 2 (1,838) (823)
Net loss/(profit) on disposal and scrapping of property,
plant and equipment 91 (2)
Loss on lease receivable 86 -
Net profit on disposal of investment - (5)
Finance gains (443) (830)
Operating expenses capitalised - (2)
1 The impairment charge relates to Thabazimbi mine's deferred stripping asset. Due to the low iron ore price
environment in which the company is now operating, the future of this mine is being reconsidered. After a detailed
impairment assessment it was concluded the carrying value is not considered recoverable. As a result, the carrying value
of Thabazimbi mine's deferred stripping asset of R439 million was impaired to R Nil.
2 Includes the current year capitalisation for Thabazimbi.
9. SEGMENTAL REPORTING
Shipping
Sishen Kolomela Thabazimbi Logis- opera-
Rand million mine mine mine tics tions Other Total
Audited year ended 31 December 2014
Income statement
Revenue from external customers 33,094 9,437 1,172 - 3,894 - 47,597
Depreciation 1,858 643 36 6 - 93 2,636
Staff costs 2,605 572 420 26 - 957 4,580
Impairment charge - - 439 - - - 439
EBIT1 20,423 5,906 (706)1 (4,548) (309) (1,574) 19,192
Balance sheet
Total segment assets 740 243 124 1,061 - 242 2,410
Cash flow statement
Additions to property, plant and equipment
Expansion capex 826 370 - - - 237 1,433
Stay-in-business capex 4,281 915 - 10 - - 5,206
Deferred stripping 1,025 351 462 - - - 1,838
Audited year ended 31 December 2013
Income statement
Revenue from external customers 36,685 13,022 1,079 - 3,675 - 54,461
Depreciation 1,441 570 1 5 - 5 2,017
Staff costs 2,121 482 364 20 5 682 3,674
EBIT 24,888 9,296 301 (4,538) (72) (1,490) 28,835
Balance sheet
Total segment assets 177 66 75 398 - 478 1,194
Cash flow statement
Additions to property, plant and equipment
Expansion capex 484 285 8 108 - 247 1,132
Stay-in-business capex 3,933 564 1 - - - 4,498
Deferred stripping 637 186 - - - - 823
1 After impairment charge.
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:
Audited Audited
12 months 12 months
Rand million 31 December 2014 31 December 2013
Total revenue from external customers 47,596 54,461
South Africa 3,763 3,672
Export 43,833 50,789
China 24,906 35,154
Rest of Asia 14,958 10,587
Europe 3,687 4,926
Middle East and Africa 282 122
All non-current assets, excluding investments in associates and joint ventures and deferred tax assets, are located in
South Africa, with the exception of R40 million located in Singapore (2013: R20 million), which relates to prepayments.
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.
Audited Audited
12 months 12 months
Rand million 31 December 2014 31 December 2013
Interest earned on short-term deposits1 with Anglo American
SA Finance Limited2 (AASAF) during the year 28 97
Weighted average interest rate 5.73% 4.96%
Short-term deposit held with Anglo American Capital plc2 1,092 572
Interest earned on facility during the year * *
Interest-bearing borrowing from AASAF 5,361 568
Interest paid on borrowings during the year 134 204
Weighted average interest rate 6.70% 6.63%
Trade payable owing to Anglo American Marketing Limited2 (AAML) 405 356
Shipping services provided by AAML 4,152 4,058
Dividends paid to Exxaro Resources Limited 3,095 2,663
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.
11. CONTINGENT LIABILITY
As at 30 June 2014, the Group reported that it had certain tax matters under review with the South African Revenue Service
(SARS). As at 31 December 2014 the Group was engaged in discussions with SARS around these matters with a view to seeking
resolution. These matters have been considered in consultation with external tax and legal advisors, who support the
Group's position. We believe that these matters have been appropriately treated in the results for the year ended
31 December 2014.
12. GUARANTEES
During the year ended 31 December 2014, the group issued additional financial guarantees in favour of the DMR in respect
of its environmental rehabilitation and decommissioning obligations to the value of R225 million, bringing the total as at
31 December 2014 to R2.3 billion (2013: R2.1 billion). Included in this amount are financial guarantees for the
environmental rehabilitation and decommissioning obligations of the group in respect of Thabazimbi mine of R438 million
(2013: R331 million). ArcelorMittal S.A. has guaranteed R429 million of this amount by means of bank guarantees issued in
favour of SIOC.
13. REGULATORY UPDATE
21.4% undivided share of the Sishen mine mineral rights
There have been no significant changes to the matters reported on for the year ended 31 December 2013. SIOC has not yet
been awarded the 21.4% Sishen mining right, which it applied for early in 2014 following the Constitutional Court
judgement on the matter in December 2013. The Constitutional Court ruled that SIOC held a 78.6% undivided share of the
Sishen mining right and that, based on the provisions of the MPRDA, only SIOC can apply for, and be granted, the residual
21.4% share of the mining right at the Sishen mine. The grant of the mining right may be made subject to such conditions
considered by the Minister to be appropriate. Kumba is actively continuing its engagement with the DMR in order to
finalise the grant of the residual right.
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 group's compliance will be contained in the 2014 Integrated Report.
15. 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
audited summarised consolidated financial statements, not otherwise dealt with in this report.
16. INDEPENDENT AUDITORS' REPORT
These summarised consolidated financial statements for the year ended 31 December 2014 have been audited by Deloitte &
Touche, who expressed an unmodified opinion thereon. The auditor also expressed an unmodified opinion on the annual
financial statements from which these summarised consolidated financial statements were derived.
A copy of the auditor's report on the summarised consolidated financial statements and a copy of the auditor's report on
the annual consolidated financial statements is available for inspection at the company's registered office, together with
the financial statements identified in the respective auditor's reports.
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
6 February 2015
Pretoria
NOTICE OF FINAL CASH DIVIDEND
At its Board meeting on 6 February 2015 the directors approved a gross final cash dividend of 773 cents per share on the
ordinary shares from profits accrued during the year ended 31 December 2014. The dividend has been declared from income
reserves.
The company has no unutilised Secondary Tax on Companies' (STC) credits left. 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 657.05000 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, 10 February 2015
- Last day for trading to qualify and
participate in the final dividend
(and change of address or dividend instructions) Friday, 6 March 2015
- Trading ex-dividend commences Monday, 9 March 2015
- Record date Friday, 13 March 2015
- Dividend payment date Monday, 16 March 2015
Share certificates may not be dematerialised or rematerialised between Monday, 9 March 2015 and Friday, 13 March 2015,
both days inclusive.
By order of the Board
A Parboosing
Company secretary
6 February 2015
Pretoria
ADMINISTRATION
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, AM O'Neill, BP Sonjica
Executive
NB Mbazima (chief executive), FT Kotzee (chief financial officer)
COMPANY SECRETARY:
A Parboosing
COMPANY REGISTRATION NUMBER:
No 2005/015852/06
Incorporated in the Republic of South Africa
INCOME TAX NUMBER:
9586/481/15/3
JSE CODE: KIO ISIN: ZAE000085346
('Kumba' or 'the company' or 'the group')
Kumba Iron Ore
Centurion Gate 2B
124 Akkerboom Road Centurion 0157
www.angloamericankumba.com
A member of the Anglo American plc Group
www.angloamerican.com
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10 February 2015
Date: 10/02/2015 07:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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