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KUMBA IRON ORE LIMITED - Interim results for the six months ended 30 June 2015

Release Date: 21/07/2015 07:05
Code(s): KIO     PDF:  
Wrap Text
Interim results for the six months ended 30 June 2015

Kumba Iron Ore Limited 
A member of the Anglo American plc group 
(Incorporated in the Republic of South Africa) 
(Registration number 2005/015852/06) 
JSE Share code: KIO 
ISIN: ZAE000085346


KUMBA IRON ORE LIMITED 
INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2015


KEY FEATURES 

-  Operations reconfigured to achieve significantly lower cost of production 
-  46% drop in average iron ore index price to US$60/tonne
-  Total sales volumes increased by 16% to record 26 Mt 
-  Production of 22.6 Mt, down 1%
-  Controllable costs per tonne reduced by 16%
-  Normalised earnings down 52% to R9.78 per share 
-  Thabazimbi closure announced on 16 July 2015
-  No interim dividend


INTRODUCTION

Kumba Iron Ore Limited (‘Kumba’ or ‘the group’) announces its results for the six 
months ended 30 June 2015.  

The group’s safety performance remains a key priority ending the six months without 
any loss of life. The lost-time injury frequency rate (LTIFR) was 0.22 (2014: 
0.20). While there has been a marginal increase in the number of lost-time 
injuries, they have been of a less severe nature. The total recordable case 
frequency rate (TRCFR), a measure of frequency of injuries, was 0.77 (2014: 0.78).
The focus on key safety improvement drivers remains in place with continued 
emphasis on preventing any loss of life or injury through the implementation of 
critical engineering controls and operational risk management.

The past six months continued to be turbulent and challenging for iron ore 
producers with further decline and volatility in prices. New low cost supply aided 
by the realisation of efficiencies across the sector, lower freight rates and 
producer currencies have resulted in a structural change in the iron ore market and 
a flattening in the cost curve. This has been exacerbated by muted demand. These 
changes in market fundamentals have necessitated a robust review of Kumba’s 
business in order to improve its competitive position and reduce cash costs. 

RECONFIGURING OF OPERATIONS

As a result of the challenging market conditions, Kumba has undertaken a number of 
key interventions, which are expected to result in a reduction in the group’s cash 
breakeven price to $45/tonne (62% Fe CFR China) from the $63/tonne in 2014. These 
initiatives include reducing overhead costs, reinforcing capital discipline, 
reconfiguring the operations and maintaining the focus on product quality through 
the production of lump products. 

Material revisions have been made to the mine plan at Sishen. The pit has been 
reconfigured for lower prices and optimised for cash flow in the near term with a 
downward revision of waste and production. Kolomela’s waste profile has also been 
optimised to conserve cash and production is expected to increase incrementally. 

Capital expenditure has been reduced and re-phased and reducing overheads (head 
office and mines) continues to be a key priority. The restructuring of the head 
office was completed with a resultant reduction of 40%, or 133, permanent positions 
in the workforce (61% reduction including fixed term employees). On 9 July 2015 the 
company commenced with the proposed restructuring of support services at the 
operations and stay-in-business capital projects functions, which is expected to 
result in further overhead cost savings.  

THABAZIMBI MINE

Thabazimbi is a high cost mine with difficult mining conditions, which was 
exacerbated by a slope failure during June 2015. After considering all options for 
the future of the mine, the closure of Thabazimbi was announced on 16 July 2015 as 
the mine has reached the end of its economic life. 

NO INTERIM DIVIDEND

The volatile and depressed market conditions have significantly reduced pricing 
certainty in the near term. In line with the board’s policy, the dividend is 
reviewed at each interim and annual reporting period. Taking cognisance of the 
pressure of lower cash generation, the initiatives required to preserve cash as 
outlined above, and in order to maintain financial flexibility, the board has 
decided not to declare an interim 2015 dividend.  

OVERVIEW OF SIX MONTHS ENDED 30 JUNE 2015

Total tonnes mined (excluding Thabazimbi) were up by 16% to 160.5 Mt (2014: 
138.5 Mt). Total production declined marginally to 22.6 Mt due to lower production 
at Sishen of 16.1 Mt, and a continued strong performance at Kolomela of 5.9 Mt. 
Total sales volumes increased by 16% to 26 Mt (2014: 22.5 Mt) on the back of record 
export sales of 23.2 Mt (2014: 19.7 Mt), as a result of good logistics performance 
and shipments totalling 2.3 Mt through the Multi-Purpose Terminal (MPT) at the port 
of Saldanha. 

Headline earnings were 61% lower at R2.5 billion (2014: R6.5 billion), mainly as a 
result of realised iron ore export prices, which weakened by 41% to $61/tonne 
(2014: $104/tonne), partially offset by the favourable impact of a 12% weakening of 
the Rand against the US Dollar. Whilst operating expenses increased by 4%, the 
controllable costs per tonne reduced by 16%. Attributable and headline earnings for 
the period were R7.82 and R7.85 per share respectively. Normalised earnings, which 
exclude the derecognition of a deferred tax asset of R801 million (R617 million 
attributable to Kumba shareholders), was 52% lower than the comparative period at 
R9.78 per share (2014: R20.28).

MARKET OVERVIEW

Global crude steel production contracted 2.4% to 809 Mt for the first half of 2015 
(2014: 829 Mt). China’s production of 406 Mt was 2.4% lower than the record 
production of 416 Mt in 1H 2014, with high Chinese exports supporting soft domestic 
demand. Global seaborne iron ore supply was flat at 662 Mt on the back of 6% growth 
out of Australia and 11% from Brazil, offset by a decline from India and the rest 
of the world. Non-traditional supply sources continue to be displaced by low cost 
capacity expansions. Temporary supply bottlenecks were experienced by major iron 
ore producers in the early parts of the year, whereas record port shipments in June 
2015 and ongoing supply ramp-up, including the commissioning of Roy Hill in 
Australia, will support supply growth in the second half of the year.

Average index iron ore prices (CFR China 62% Fe) in the first half of 2015 were 
down 46% at $60/tonne for the period (2014: $111/tonne). Index prices have steadily 
declined from the beginning of the year to historical lows as a result of increased 
supply availability with major projects reaching execution, and subdued seasonal 
demand recovery as mills deleveraged inventories. 

OPERATIONAL PERFORMANCE

Production summary (unaudited)
                                     Year to date ended
’000 tonnes                     June 2015            June 2014          % change
Total                              22,552               22,793                (1)
  -  Lump                          14,652               14,985                (2)
  -  Fines                          7,900                7,808                 1
Mine production                    22,552               22,793                (1)
  -  Sishen Mine                   16,062               16,995                (5)
        DMS Plant                  10,178               10,983                (7)
        Jig Plant                   5,884                6,012                (2)
  -  Kolomela Mine                  5,853                5,461                 7
  -  Thabazimbi Mine                  637                  337                89

Sishen mine

Total tonnes mined at Sishen increased by 17% to 125.6 Mt (2014: 107.2 Mt). Total 
waste mined was 107.7 Mt (2014: 86.9 Mt), an increase of 24%. Sishen production of 
16.1 Mt decreased 5% (2014: 17 Mt) due to blending capacity constraints to the 
plants as a result of limited availability of high quality full bench ore in the 
second quarter of 2015. 

The implementation of the Operating Model in the North mine continues to yield 
improved operating equipment productivity and is now being rolled out to the pre-
strip waste mining and heavy mining equipment maintenance areas. In addition, after 
obtaining the appropriate licences, Sishen has started using two new waste dumps to 
the west of the current pit. This will further facilitate waste removal by reducing 
hauling distances and lift factors.

Kolomela mine

Kolomela mine continued to perform strongly. Total tonnes mined at Kolomela mine 
rose by 12% to 34.9 Mt, (2014: 31.3 Mt), of which waste mined was 26.3 Mt (2014: 
24.4 Mt), an increase of 8%. Waste mined reduced as planned by 15% from 2H 2014. 
Going forward waste volumes are expected to reduce from 42 – 46 Mtpa to 
35 - 38 Mtpa for 2015, ramping up thereafter. The mine produced 5.9 Mt of ore, an 
increase of 7% (2014: 5.5 Mt). 

Thabazimbi mine

Thabazimbi produced 0.6 Mt of ore (2014: 0.3 Mt), while waste mining volumes 
decreased by 45% to 8.4 Mt (2014: 15.4 Mt). A monitored slope failure took place in 
the Kumba pit on 6 June 2015. No injuries were sustained as the pit was evacuated 
as a precaution (refer to note 13 in the notes to the interim financial 
statements).

Logistics

Volumes railed on the Sishen-Saldanha Iron Ore Export Channel were 11% higher at 
21.8 Mt (including 0.7 Mt railed to Saldanha Steel) (2014: 19.7 Mt). Kumba shipped 
23 Mt (2014: 19.3 Mt) from the Saldanha port destined for the export market, up 
19%, including 2.3 Mt shipped through the multi-purpose terminal (MPT) at the 
Saldanha port.

Sales summary (unaudited)
                                     Six months ended
’000 tonnes                     June 2015            June 2014         % change 
Total                              25,987               22,499               16
  -  Export sales                  23,204               19,710               18
  -  Domestic sales                 2,783                2,789                -
        Sishen mine                 2,021                2,484              (19)
        Thabazimbi mine               762                  305              150

Sales

Total sales were 16% higher at 26 Mt (2014: 22.5 Mt), on the back of record export 
sales volumes of 23.2 Mt (2014: 19.7 Mt), including 0.7 Mt from third party 
producers. CFR sales accounted for 68% of export sales volumes (2014: 62%). 
Finished product inventory held at the mines and ports decreased to 4 Mt from 
6.5 Mt as at 31 December 2014 (2014: 3.6 Mt). 60% of total export volumes were 
directed to China compared to 66% during the first half of 2014. The group’s 
lump:fine ratio was 67:33 for the period (2014: 66:34). 

FINANCIAL RESULTS

Revenue

The group’s total revenue of R20.5 billion for the period was 23% lower than the 
R26.4 billion for the comparable period in 2014, mainly as a result of the 
significant 41% drop in average realised iron ore export price to US$61/tonne 
(2014: US$104/tonne). In addition, lower freight rates resulted in a R541 million 
reduction in shipping revenue.  This was partially offset by the 12% decline in the 
Rand/US$ exchange rate (1H2015: R11.91/US$1 compared to 1H2014: R10.68/US$1) and 
16% higher total sales volumes.

Operating expenses

Operating expenses rose by 4% to R14.7 billion from R14.1 billion in the first half 
of 2014; principally as a result of:
-  15.7 Mt growth in total mining volumes;
-  inflationary pressure on input costs of 4.4%;
-  higher selling and distribution costs on the back of 31% higher volumes railed 
   from Kolomela, annual contractual tariff escalations, and the MPT volumes which 
   attract a higher port tariff; offset by
-  Input cost savings from primary equipment operating efficiencies and lower 
   diesel prices;
-  Corporate office overhead cost reduced by R138 million to R691 million 
  (2014: R829 million) as part of the drive to achieve a lower sustainable overhead 
   cost base, and
-  R448 million lower freight cost.

The reduction in permanent and fixed term employees at the corporate office is 
expected to contribute savings of R200 million per annum going forward. Further 
savings were achieved through aggressive management of overheads and by curtailing 
project and technical studies, partially offset by inflation and currency 
movements. 

Unit cash costs at Sishen mine of R299 per tonne increased by 10% (FY2014: R272 per 
tonne). This is primarily as a result of input cost pressures (+R5/tonne), which 
were contained at a 2% increase, higher mining volumes (+R36/tonne) and lower 
production volumes (+R29/tonne), partially offset by higher deferred waste 
stripping costs (-R42/tonne). 

Kolomela mine incurred unit cash costs of R185 per tonne (FY2014: R208 per tonne), 
an 11% decrease despite higher mining volumes, mainly as a result of the 
capitalisation of ex-pit ore. Higher deferred waste stripping costs benefited unit 
costs by R9/tonne. 

Operating profit

Kumba’s operating profit margin decreased to 28% (2014: 47%). The group’s mining 
operating margin was 32% (2014: 51%) excluding the net freight loss incurred on 
shipping operations. Operating profit decreased by 53% to R5.8 billion (2014: 
R12.3 billion). The lower revenue and increase in operating expenses outlined 
previously impacted profitability.

Cash flow

Cash flow of R8.7 billion was generated. Capital expenditure of R3.3 billion was 
incurred, R3.0 billion on stay-in-business (SIB) activities (including deferred 
stripping of R1.5 billion), and R0.3 billion on the Dingleton project. Phase 2 of 
the Dingleton project, the relocation of the 428 remaining houses, buildings and 
businesses, is progressing well and expected to be completed by the end of 2016.
At 30 June 2015 the group had a net debt position of R6.1 billion (2014: 
R687 million). 

REGULATORY UPDATE

SIOC has not yet been awarded the 21.4% Sishen mining right, which it applied for 
early in 2014 following the Constitutional Court judgement on the matter in 
December 2013. The Constitutional Court ruled that SIOC held a 78.6% undivided 
share of the Sishen mining right and that, based on the provisions of the MPRDA, 
only SIOC can apply for, and be granted, the residual 21.4% share of the mining 
right at the Sishen mine. The grant of the mining right may be made subject to such 
conditions considered by the Minister to be appropriate. Kumba is actively 
continuing its engagement with the DMR in order to finalise the grant of the 
residual right.

ORE RESERVES AND MINERAL RESOURCES

There have been no material changes to the ore reserves and mineral resources as 
disclosed in the 2014 Kumba Integrated Report.

EVENTS AFTER THE REPORTING PERIOD

On 9 July the company commenced with the proposed restructuring of support services 
at the Sishen and Kolomela and stay-in-business capital projects functions.  On 
16 July 2015, the closure of Thabazimbi was announced.

OUTLOOK

Iron ore prices are expected to remain under pressure as Australian and Brazilian 
producers increase supply, and demand growth from China slows. 

Sishen’s production profile has been moderated to 33 Mt in 2015 and the revised 
life-of-mine (LoM) plan has resulted in the waste target for 2015 being revised 
down from 240 Mtpa to 200 Mtpa with a ramp up to 230 Mt from 2018. The production 
outlook has been set at 36 Mt for 2016 – 2017, rising gradually to 38 Mt 
thereafter, with the average LOM stripping ratio remaining at 3.9. The new plan 
brings about reduced flexibility from a mine engineering perspective which will be 
mitigated through a greater focus on the quality of the execution in the pit and 
the execution of the operating model.

Mining at Kolomela will now concentrate on two primary pits with the third pre-
stripped pit being re-phased to 2019. As a result, expected waste volumes have 
reduced from 42 – 46 Mtpa to 35 - 38 Mtpa for 2015, ramping up thereafter. 
Production is expected to ramp up to 13 Mt within the next two years, with a 
reduction of 2 years in the LoM as a result of the annual production capacity 
increase. The LoM stripping ratio is 3.3. In support of the anticipated higher 
production the mine is also increasing its logistics capacity through reclaiming 
and loading efficiencies and improving train turnaround times. Kolomela is expected 
to produce in excess of 11 Mt in 2015 with waste of 35 Mt.

Export sales volumes for the year are expected to exceed 43 Mt.  Domestic sales 
volumes of up to 6.25 Mt are contracted to ArcelorMittal S.A. in terms of the 
supply agreement, which are now to be supplied from the Northern Cape.

The group expects total capital expenditure for 2015 to be in the range of 
R6.9 billion to R7.2 billion, including unapproved capital expenditure. Capital 
expenditure has been reduced and re-phased to conserve cash, with a significant 
reduction in stay in business capital of between R7.8 billion and R8.4 billion over 
the next three years, mainly due to reduced fleet, related infrastructure and 
housing requirements. Capital expenditure will increase from 2018 to 2020 to 
support the waste ramp up at Sishen as mentioned above. Deferred stripping has been 
reduced by R2.0 billion to R2.1 billion over the next three years largely due to 
the revised waste mining profile at Sishen.

The reconfiguration of Sishen and Kolomela through revised mine plans and 
organisational restructuring, together with the closure of Thabazimbi, has a major 
impact on the business and will result in a challenging second half of 2015. The 
cost savings initiatives on overheads and capital expenditure to achieve the 
targeted cash conservation will add further complexity as the company navigates the 
remainder of this year. The management of Kumba is confident that the measures we 
are taking will enable Kumba to remain a viable and resilient business through 
these challenging times for the iron ore industry.

Profitability remains sensitive to iron ore export prices and the Rand/US$ exchange 
rate.

CHANGES IN DIRECTORATE

Ms Khanyisile Kweyama tendered her resignation from the board with effect from 
29 April 2015. Mr Gert Gouws tendered his resignation as a non-executive director 
from the board with effect from 8 May 2015. 

The board thanks Ms Kweyama and Mr Gouws for their contributions and guidance 
during their respective tenures and wishes them all the best in their future 
endeavours.

The board announced the appointment of Mr Andile Sangqu as a non-executive director 
with effect from 29 June 2015. Mr Sangqu is the Executive Head of Anglo American 
South Africa and is appointed onto the company’s board as a shareholder 
representative of Anglo American. 

Any reference to future financial performance included in this announcement has not 
been reviewed or reported on by the company’s external auditors.

The presentation in support of the company’s results for the six months ended 
30 June 2015 will be available on the company’s website www.angloamericankumba.com 
at 07h30 CAT and the webcast will be available from 11h30 CAT on 21 July 2015. 


CONDENSED CONSOLIDATED BALANCE SHEET 
as at 

                                   Reviewed         Reviewed               Audited
Rand million                   30 June 2015     30 June 2014      31 December 2014
Assets 
Property, plant and 
equipment                            36,870           32,038                35,170 
Biological assets                         5                5                     6 
Investments held by 
environmental trust                     810              781                   791 
Long-term prepayments and 
other receivables                       566              627                   555 
Deferred tax assets                       -              850                   871 
Non-current assets                   38,251           34,301                37,393 

Inventories                           6,830            5,128                 7,366 
Trade and other receivables           4,193            3,375                 4,476 
Cash and cash equivalents             6,938            3,039                 1,664 
Current assets                       17,961           11,542                13,506 

Total assets                         56,212           45,843                50,899 

Equity

Shareholders' equity                 21,129           21,144                20,764 
Non-controlling interest              6,324            6,421                 6,237 
Total equity                         27,453           27,565                27,001 

Liabilities

Interest-bearing borrowings          13,000            2,000                 4,000 
Provisions                            2,199            1,861                 1,964 
Deferred tax liabilities              8,836            8,768                 8,201 
Non-current liabilities              24,035           12,629                14,165 

Short-term portion of 
interest-bearing borrowings               -            1,726                 5,593 
Short-term portion of provisions        403              296                    92 
Trade and other payables              3,270            2,826                 3,493 
Current tax liabilities               1,051              801                   555 
Current liabilities                   4,724            5,649                 9,733 
Total liabilities                    28,759           18,278                23,898 

Total equity and liabilities         56,212           45,843                50,899 


CONDENSED CONSOLIDATED INCOME STATEMENT 
for the period ended 
                                   Reviewed         Reviewed               Audited
                                   6 months         6 months             12 months
Rand million                   30 June 2015     30 June 2014      31 December 2014
Revenue                              20,469           26,429                47,597 
Operating expenses                  (14,699)         (14,124)              (28,405)
Operating profit                      5,770           12,305                19,192 
Finance income                           95               35                    84 
Finance costs                          (474)            (181)                 (519)
Loss from equity accounted 
joint venture                            (1)              (2)                   (5)
Profit before taxation                5,390           12,157                18,752 
Taxation                             (2,117)          (3,584)               (4,604)
Profit for the period                 3,273            8,573                14,148 

Attributable to: 
Owners of Kumba                       2,508            6,511                10,724 
Non-controlling interest                765            2,062                 3,424 
                                      3,273            8,573                14,148 

Earnings per share for profit attributable to the owners of Kumba (Rand per share)

Basic                                  7.82            20.30                 33.44 
Diluted                                7.82            20.26                 33.38 


CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the period ended 
                                   Reviewed         Reviewed              Audited
                                   6 months         6 months            12 months
Rand million                   30 June 2015     30 June 2014     31 December 2014
Profit for the period                 3,273            8,573               14,148 
Other comprehensive income 
for the period, net of tax              174               46                  318 
Exchange differences on 
translation of foreign operations       174               46                  352 
Reclassification of gain relating 
to exchange differences on 
translation of foreign operations         -                -                  (34)

Total comprehensive income for 
the period                            3,447            8,619               14,466 

Attributable to: 
Owners of Kumba                       2,642            6,547               11,036 
Non-controlling interest                805            2,072                3,430 
                                      3,447            8,619               14,466 


CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the period ended 

                                   Reviewed         Reviewed              Audited
                                   6 months         6 months            12 months
Rand million                   30 June 2015     30 June 2014     31 December 2014

Total equity at the 
beginning of the period              27,001           27,184               27,184 

Changes in share capital and 
premium (net of treasury shares)
  Treasury shares issued to 
  employees under employee 
  share incentive schemes               142               74                    93 
  Purchase of treasury shares             -                -                  (107)

Changes in reserves 
  Equity-settled share-based 
  payment                               243              228                   525 
  Vesting of shares under 
  employee share incentive schemes     (157)             (74)                  (93)
  Total comprehensive income for 
  the period                          2,642            6,547                11,036 
  Dividends paid                     (2,505)          (6,462)              (11,521)

Changes in non-controlling interest 
  Total comprehensive income for 
  the period                            805            2,072                 3,430 
  Dividends paid                       (796)          (2,050)               (3,657)
  Movement in non-controlling 
  interest in reserves                   78               46                   111 

Total equity at the end 
of the period                        27,453           27,565                27,001 

Comprising
Share capital and premium 
(net of treasury shares)               (169)            (223)                 (311)
Equity-settled share-based 
payment reserve                       1,817            1,398                 1,685 
Foreign currency translation 
reserve                               1,390            1,047                 1,256 
Fair value reserve                       59                8                    74 
Retained earnings                    18,032           18,914                18,060 
Shareholders' equity                 21,129           21,144                20,764 
  Attributable to the 
  owners of Kumba                    20,279           20,281                19,925 
  Attributable to the 
  non-controlling interest              850              863                   839 

Non-controlling interest              6,324            6,421                 6,237 
Total equity                         27,453           27,565                27,001 

Dividend (Rand per share)
Interim                                   -            15.61                 15.61 
Final                                   n/a              n/a                  7.73 


CONDENSED CONSOLIDATED CASH FLOW STATEMENT
for the period ended 
                                   Reviewed         Reviewed              Audited 
                                   6 months         6 months            12 months 
Rand million                   30 June 2015     30 June 2014     31 December 2014 
Cash generated from operations        8,680           15,340               21,769 
Net finance costs paid                 (341)             (70)                (285)
Taxation paid                           (67)          (2,382)              (4,165)
Cash flows from operating 
activities                            8,272           12,888               17,319 

Additions to property, plant 
and equipment                        (3,331)          (3,281)              (8,477)
Loan granted to joint venture            (1)              (2)                  (5)
Proceeds from the disposal of 
property, plant and equipment            78               30                   78 
Cash flows from investing 
activities                           (3,254)          (3,253)              (8,404)

Purchase of treasury shares               -                -                 (107)
Dividends paid to owners of Kumba    (2,490)          (6,422)             (11,450)
Dividends paid to non-controlling 
shareholders                           (811)          (2,090)              (3,728)
Net interest-bearing 
borrowings raised                     3,407              877                6,744 
Cash flows from financing 
activities                              106           (7,635)              (8,541)

Net increase in cash and 
cash equivalents                      5,124            2,000                  374 
Cash and cash equivalents at 
beginning of period                   1,664            1,053                1,053 
Exchange differences on 
translation of cash and 
cash equivalents                        150              (14)                 237 
Cash and cash equivalents at 
end of period                         6,938            3,039                1,664 


HEADLINE EARNINGS
for the period ended 
                                   Reviewed         Reviewed              Audited 
                                   6 months         6 months            12 months 
Rand million                   30 June 2015     30 June 2014     31 December 2014 
Reconciliation of 
headline earnings 
Profit attributable to 
owners of Kumba                       2,508            6,511               10,724 
Impairment charge                         -                -                  439 
Net loss/(profit) on disposal 
and scrapping of property, 
plant and equipment                      16               (3)                  91 
Reclassification of exchange 
differences on translation of 
foreign operations                        -                -                  (34)
                                      2,524            6,508               11,220 
Taxation effect of adjustments           (2)               1                 (128)
Non-controlling interest in 
adjustments                              (3)              (4)                 (86)
Headline earnings                     2,519            6,505               11,006 

Headline earnings (Rand per share) 
Basic                                  7.85            20.28                34.32 
Diluted                                7.85            20.24                34.26 

The calculation of basic and 
diluted earnings and headline 
earnings per share is based on 
the weighted average number of 
ordinary shares in issue 
as follows: 

  Weighted average number of 
  ordinary shares               320,714,572      320,745,287          320,662,676 
  Diluted weighted average 
  number of ordinary shares     320,814,017      321,377,681          321,242,611 

The dilution of 99,445 at 30 June 2015 (30 June 2014: 632,394) shares to the 
weighted average number of ordinary shares is as a result of the vesting of share 
options previously granted under the various employee share incentive schemes.


NORMALISED EARNINGS 
for the period ended  
                                  Unaudited        Unaudited            Unaudited 
                                   6 months         6 months            12 months 
Rand million                   30 June 2015     30 June 2014     31 December 2014 
Reconciliation of 
normalised earnings  
Headline earnings 
attributable to 
owners of Kumba                      2,519             6,505               11,006 
Derecognition of deferred 
tax asset                              801                 -                    - 
                                     3,320             6,505               11,006 
Taxation effect of adjustments           -                 -                    - 
Non-controlling interest in 
adjustments                           (184)                -                    - 
Normalised earnings                  3,136             6,505               11,006 

Normalised earnings 
(Rand per share)
Basic                                 9.78             20.28                34.32 
Diluted                               9.78             20.24                34.26 

The calculation of basic and 
diluted normalised earnings 
per share is based on the weighted 
average number of ordinary shares 
in issue as follows: 

  Weighted average number of 
  ordinary shares               320,714,572      320,745,287          320,662,676 
  Diluted weighted average 
  number of ordinary shares     320,814,017      321,377,681          321,242,611 

Kumba is disclosing normalised earnings for the first time. Comparative amounts are 
also provided. 

This measure of earnings is specific to Kumba and is not required in terms of 
International Financial Reporting Standards or the JSE Listings Requirements. 
Normalised earnings represents earnings from the normal activities of the group. 

This is determined by adjusting the headline earnings attributable to the owners of 
Kumba for abnormal expense or income items incurred during the year. The 
derecognition of the deferred tax asset is an abnormal loss and has therefore been 
adjusted in determining normalised earnings.


SALIENT FEATURES AND OPERATING STATISTICS
for the period ended 
                                  Unaudited        Unaudited            Unaudited
                                   6 months         6 months            12 months
Rand million                   30 June 2015     30 June 2014     31 December 2014
Share statistics ('000) 
  Total shares in issue             322,086          322,086              322,086 
  Weighted average number 
  of shares                         320,715          320,745              320,663 
  Diluted weighted average 
  number of shares                  320,814          321,378              321,243 
  Treasury shares                     1,216            1,275                1,533 

Market information 
  Closing share price (Rand)            151              339                  240 
  Market capitalisation 
  (Rand million)                     48,622          109,187               77,268 
  Market capitalisation 
  (US$ million)                       4,005           10,264                6,677 

Net asset value (Rand per share)      65.60            65.65                64.47 

Capital expenditure (Rand million) 
  Incurred                            3,331            3,281                8,477 
  Contracted                          2,733            2,901                3,430 
  Authorised but not contracted       3,136            3,434                3,040 

  Finance lease commitments               -              268                  232 

  Operating commitments 
    Operating lease commitments         129               25                  148 
    Shipping services                 8,926           11,316               11,353 

Economic information 
  Average Rand/US Dollar 
  exchange rate ZAR/US$)              11.91            10.68                 10.83 
  Closing Rand/US Dollar 
  exchange rate (ZAR/US$)             12.14            10.64                 11.57 

Sishen mine FOR unit cost 
  Unit cost (Rand per tonne)          389.3            319.7                 331.6 
  Cash cost (Rand per tonne)          299.1            266.5                 271.8 
  Unit cost (US$ per tonne)            32.7             29.9                  30.6 
  Cash cost (US$ per tonne)            25.1             25.0                  25.1 

Kolomela mine FOR unit cost 
  Unit cost (Rand per tonne)          255.0            272.2                 269.1 
  Cash cost (Rand per tonne)          184.7            211.0                 207.6 
  Unit cost (US$ per tonne)            21.4             25.5                  24.8 
  Cash cost (US$ per tonne)            15.5             19.8                  19.2 


NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

1.  Corporate information

Kumba is a limited liability company incorporated and domiciled in South Africa. 
The main business of Kumba, its subsidiaries, joint ventures and associates is the 
exploration, extraction, beneficiation, marketing, sale and shipping of iron ore. 
The group is listed on the JSE Limited (JSE).

The condensed consolidated financial statements of Kumba and its subsidiaries for 
the six months ended 30 June 2015 were authorised for issue in accordance with a 
resolution of the directors on 17 July 2015.

2.  Basis of preparation 

The condensed consolidated interim financial statements have been prepared, under 
the supervision of FT Kotzee CA(SA), chief financial officer, in accordance with 
the requirements of the JSE Limited Listings Requirements for interim reports, and 
the requirements of the South African Companies Act No 71 of 2008. The Listings 
Requirements require interim reports to be prepared in accordance with and 
containing the information required by IAS 34: Interim Financial Reporting, as well 
as the SAICA Financial Reporting Guides as issued by the Accounting Practices 
Committee and Financial Pronouncements as issued by Financial Reporting Standards 
Council. 

The condensed consolidated financial statements has been prepared in accordance 
with the historical cost convention except for certain financial instruments, 
share-based payments and biological assets which are stated at fair value, and is 
presented in Rand, which is Kumba’s functional and presentation currency.

3.  Accounting policies 

The accounting policies and methods of computation applied in the preparation of 
these condensed consolidated financial statements are in terms of International 
Financial Reporting Standards and are consistent with those accounting policies 
applied in the preparation of the previous consolidated annual financial 
statements.

No new standards, amendments to published standards or interpretations which became 
effective for the year commencing on 1 January 2015 had an effect on the reported 
results or the group accounting policies. The group did not early adopt any new, 
revised or amended accounting standards or interpretations. The accounting 
standards, amendments to issued accounting standards and interpretations, which are 
relevant to the group but not yet effective at 30 June 2015, are being evaluated 
for the impact of these pronouncements.

4.  Change in estimates

The life of mine plan on which accounting estimates are based, only includes proved 
and probable ore reserves as disclosed in Kumba’s 2014 annual ore reserves and 
mineral resources statement. 

Management has revised the Sishen and Kolomela life of mine used to calculate the 
rehabilitation and decommissioning provisions. This resulted in an increase of the 
provisions.

The effect of this change, which was applied prospectively from 1 January 2015, is 
detailed below:
                                                                         Reviewed
Rand million                                                         30 June 2015
Increase in environmental rehabilitation provision                             84
Increase in decommissioning provision                                          30
Decrease in profit after tax attributable to the owners of Kumba               47
Rand per share 
Decrease in earnings per share attributable to the owners of Kumba           0.15

The change in estimate in the decommissioning provision has been capitalised to the 
related property, plant and equipment and as a result had no effect on profit or 
earnings per share.

5.  Property, plant and equipment

                                   Reviewed         Reviewed              Audited
Rand million                   30 June 2015     30 June 2014     31 December 2014
Capital expenditure                   3,331            3,281                8,477
Comprising: 
Expansion                               343              438                1,433
Stay in business (SIB)                1,503            2,200                5,206
Deferred stripping                    1,485              643                1,838

Transfers from assets under 
construction to property, 
plant and equipment                   2,323              893                5,163

Expansion capital expenditure comprised of the expenditure on the Dingleton 
relocation project. SIB capital expenditure to maintain operations was principally 
for the acquisition of heavy mining equipment, infrastructure and housing 
developments. 

6.  Share capital and share premium

Reconciliation of share capital and share premium (net of treasury shares):

                                       Reviewed       Reviewed            Audited
Rand million                       30 June 2015   30 June 2014   31 December 2014
Balance at beginning of period             (311)          (297)              (297)
Net movement in treasury shares 
under employee share incentive 
schemes                                     142             74                (14)
  Purchase of treasury shares                 -              -               (107)
  Shares issued to employees                142             74                 93 

Share capital and share premium            (169)          (223)              (311)

Reconciliation of number of shares in issue:
                                       Reviewed       Reviewed            Audited
Number of shares                   30 June 2015   30 June 2014   31 December 2014
Balance at beginning of period      322,085,974    322,085,974        322,085,974
Ordinary shares issued                        -              -                  -
Balance at end of period            322,085,974    322,085,974        322,085,974

Reconciliation of treasury 
shares held:
Balance at beginning of period        1,533,346      1,444,526          1,444,526
Shares purchased                              -              -            299,600
Shares issued to employees under 
the Long-Term Incentive Plan, 
Kumba Bonus Share Plan and Share 
Appreciation Rights Scheme             (317,560)      (169,202)          (210,780)
Balance at end of period              1,215,786      1,275,324          1,533,346

All treasury shares are held as conditional awards under the Kumba Bonus Share 
Plan.

7.  Interest-bearing borrowings

Kumba’s net debt position at the balance sheet dates was as follows:

                                       Reviewed       Reviewed            Audited
Rand million                       30 June 2015   30 June 2014   31 December 2014
Interest-bearing borrowings              13,000          3,726              9,593
Cash and cash equivalents                (6,938)        (3,039)            (1,664)
Net debt                                  6,062            687              7,929
Total equity                             27,453         27,565             27,001
Interest cover (times)                       14             90                 44

Movements in interest-bearing borrowings are analysed as follows:

                                       Reviewed       Reviewed            Audited
Rand million                       30 June 2015   30 June 2014   31 December 2014
Balance at the beginning of the period    9,593          2,849              2,849
Interest-bearing borrowings raised       10,199          9,969             14,891
Interest-bearing borrowings repaid       (6,560)        (9,068)            (8,098)
Finance lease repaid                       (232)           (24)               (49)
Balance at the end of the period         13,000          3,726              9,593

At 30 June 2015, R13 billion of the R16.5 billion long-term debt facility had been 
drawn down and nothing of the total short-term uncommitted facilities of 
R8.2 billion had been drawn down. Kumba was not in breach of any of its financial 
covenants during the period. The group had undrawn long-term borrowings and 
uncommitted short-term facilities at 30 June 2015 of R11.7 billion (June 2014: 
R16.5 billion).

8.  Significant items included in operating profit

Operating expenses is made up as follows:
                                       Reviewed       Reviewed            Audited
                                       6 months       6 months          12 months
Rand million                       30 June 2015   30 June 2014   31 December 2014
Production costs                          8,994          8,396             18,979
Movement in inventories                     961            479               (904)
Finished products                         1,238            336               (237)
Work-in-progress                           (277)           143               (667)

Cost of goods sold                        9,955          8,875             18,075
Impairment charge                             -              -                439
Mineral royalty                              96            835              1,176
Selling and distribution costs            2,891          2,208              4,548
Cost of services rendered – shipping      1,774          2,222              4,203
Sublease rent received                      (17)           (16)               (36)
Operating expenses                       14,699         14,124             28,405

Operating profit has been derived 
after taking into account the 
following items:    
Employee expenses                         1,997           1,754             3,869
Restructuring cost                            -               -                68
Share-based payment expenses                306             276               643
Depreciation of property, plant 
and equipment                             1,610           1,134             2,636
Deferred waste stripping costs 
capitalised                              (1,485)           (643)           (1,838)
Net loss/(profit) on disposal and 
scrapping of property, plant and 
equipment                                    16              (3)               91
(Gain)/loss on lease receivable             (36)              -                86
Finance gains                              (121)           (228)             (443)

9.  Taxation

The group’s effective tax rate was 39% for the period (2014: 29%). The increase is 
mainly attributable to the derecognition of a deferred tax asset amounting to 
R801 million due to the fact that future taxable profits are not anticipated to be 
generated by the relevant operation in view of the reduced iron ore prices. 

10.  Segmental reporting

The total reported segment revenue is measured in a manner consistent with that 
disclosed in the income statement. The performance of the operating segments are 
assessed based on a measure of earnings before interest and taxation (EBIT), which 
is measured in a manner consistent with ‘Operating profit’ in the financial 
statements. Finance income and finance costs are not allocated to segments, as 
treasury activity is managed on a central group basis. 

Total segment assets comprise finished goods inventory only, which is allocated 
based on the operations of the segment and the physical location of the assets. 

‘Other segments’ comprise corporate, administration and other expenditure not 
allocated to the reported segments.

                                                   Products1                        Services 
                                          Sishen    Kolomela    Thabazimbi                   Shipping
Rand million                                mine        mine          mine    Logistics    operations    Other     Total
Reviewed period ended 30 June 2015 
Income statement
Revenue from external customers           14,017       4,357           518            -         1,577        -    20,469
EBIT                                       6,720       2,539           138       (2,891)         (197)    (539)    5,770
Significant items included in EBIT:
Depreciation                               1,182         357             -            3             -       68     1,610
Staff costs                                1,467         312           233           17             -      274     2,303
Balance sheet
Total segment assets                         360         219           100          561             -      129     1,369
Cash flow statement
Additions to property, plant 
and equipment
Expansion capex                              324           1             -            -             -       18       343 
Stay-in-business capex                     1,152         256             -            3             -       92     1,503 
Deferred stripping                         1,259         226             -            -             -        -     1,485 

Reviewed period ended 30 June 2014   
Income statement
Revenue from external customers           18,744       4,790           777            -         2,118        -    26,429 
EBIT                                      12,237       3,080           (77)      (2,208)         (104)    (623)   12,305 
Significant items included in EBIT:
Depreciation                                 813         303             3            3             -       12     1,134 
Staff costs                                1,175         274           200           13             -      368     2,030 
Balance sheet
Total segment assets                         183         214           130          422             -      226     1,175 
Cash flow statement
Additions to property, plant 
and equipment 
Expansion capex                              261          62             -            -             -      115       438 
Stay-in-business capex                     1,798         372             -            1             -       29     2,200 
Deferred stripping                           335          92           216            -             -        -       643 


                                                   Products1                        Services 
                                          Sishen    Kolomela    Thabazimbi                   Shipping
Rand million                                mine        mine          mine    Logistics    operations    Other     Total
Audited year ended 31 December 2014
Income statement
Revenue from external customers           33,094       9,437         1,172            -         3,894        -     47,597 
EBIT                                      20,423       5,906          (706)      (4,548)         (309)  (1,574)    19,192 
Significant items included in EBIT:
  Depreciation                             1,858         643            36            6             -       93      2,636 
  Impairment charge                            -           -           439            -             -        -        439 
  Staff costs                              2,605         572           420           26             -      957      4,580 
Balance sheet
Total segment assets                         740         243           124        1,061             -      242      2,410 
Cash flow statement
Additions to property, plant 
and equipment 
  Expansion capex                            826         370             -            -             -      237      1,433 
  Stay-in-business capex                   4,281         915             -           10             -        -      5,206 
  Deferred stripping                       1,025         351           462            -             -        -      1,838 

1) Derived from extraction, production and selling of iron ore.

Geographical analysis of revenue and non-current assets:

                                       Reviewed       Reviewed            Audited
                                       6 months       6 months          12 months
Rand million                       30 June 2015   30 June 2014   31 December 2014
Total revenue from 
external customers                       20,469         26,429             47,596 
South Africa                              2,069          2,424              3,763 
Export                                   18,400         24,005             43,833 
China                                    10,620         15,485             24,906 
Rest of Asia                              4,000          6,046             14,958 
Europe                                    1,655          2,359              3,687 
Middle East and Africa                    2,125            115                282 

All non-current assets, excluding  investments in associates and joint ventures are 
located in South Africa, with the exception of R33 million located in Singapore 
(June 2014: R2 million), which relates to prepayments.

11.  Related party transactions

During the period, Kumba, in the ordinary course of business, entered into various 
sale, purchase and service transactions with associates, joint ventures, fellow 
subsidiaries, its holding company and Exxaro Resources Limited. These transactions 
were subject to terms that are no less favourable than those offered by third 
parties.
                                       Reviewed       Reviewed            Audited
                                       6 months       6 months          12 months
Rand million                       30 June 2015   30 June 2014   31 December 2014
Short-term deposit held with 
Anglo American SA Finance 
Limited1 (AASAF)                          6,158              -                  - 
Interest earned on short-term 
deposits with AASAF during 
the period                                   36             27                 28 
Weighted average interest rate             5.79%          5.37%              5.73% 
Short-term deposit held with 
Anglo American Capital plc1                 123          2,447              1,092 
Interest earned on facility 
during the period                             1              *                  * 
Interest-bearing borrowing 
from AASAF                                    -          1,469              5,361 
Interest paid on borrowings 
during the period                            65              5                134 
Weighted average interest rate             6.91%          6.34%              6.70% 
Trade payable owing to 
Anglo American Marketing 
Limited1 (AAML)                             262            242                405 
Shipping services provided 
by AAML                                   1,739          2,277              4,152 
Dividends paid to Exxaro 
Resources Limited                           673          1,736              3,095 

1  Subsidiaries of the ultimate holding company.
*  Interest earned on the deposit is insignificant and is earned at prevailing 
   market rates.

12.  Fair value estimation

The carrying value of financial instruments not carried at fair value approximates 
fair value because of the short period to maturity or as a result of market related 
variable interest rates. Equity investments held by the environmental trust 
amounting to R460 million (2014: R455 million) are carried at fair value. The fair 
value measurements are classified as level 1. 

13.  Contingent asset

A significant monitored slope failure occurred at the Thabazimbi mine in the Kumba 
pit during June 2015. No injuries were sustained as the pit was evacuated well 
before the failure occurred. Kumba has instituted an insurance claim relating to 
this event.

14.  Guarantees
The total guarantees issued in favour of the DMR in respect of the group’s 
environmental closure liabilities at 30 June 2015 are R2.3 billion (June 2014: 
R2.1 billion). Included in this amount are financial guarantees for the 
environmental rehabilitation and decommissioning obligations of the group to the 
DMR in respect of Thabazimbi mine of R429 million (June 2014: R419 million). 
ArcelorMittal S.A. has guaranteed this full amount by means of bank guarantees 
issued in favour of SIOC.  

15.  Regulatory update

21.4% undivided share of the Sishen mine mineral rights

There have been no significant changes to the matters reported on for the year 
ended 31 December 2014. SIOC has not yet been awarded the 21.4% Sishen mining 
right, which it applied for early in 2014 following the Constitutional Court 
judgement on the matter in December 2013. The Constitutional Court ruled that SIOC 
held a 78.6% undivided share of the Sishen mining right and that, based on the 
provisions of the MPRDA, only SIOC can apply for, and be granted, the residual 
21.4% share of the mining right at the Sishen mine. The grant of the mining right 
may be made subject to such conditions considered by the Minister to be 
appropriate. Kumba is actively continuing its engagement with the DMR in order to 
finalise the grant of the residual right.

16.  Contingent liabilities

16.1 As at 31 December 2014, the Group reported that it had certain tax matters 
     under review with the South African Revenue Service (SARS). As at 30 June 2015 
     the Group was engaged in discussions with SARS around these matters with a 
     view to seeking resolution. These matters have been considered in consultation 
     with external tax and legal advisors, who support the Group’s position. We 
     believe that these matters have been appropriately treated in the results for 
     the period ended 30 June 2015.

16.2 Rates and taxes levied by the Municipality at Sishen effective from 
     1 June 2014 reflected a significant increase amounting to R278 million. 
     Management objected to the higher valuation of the relevant land and the 
     Municipality appointed a valuer who is reviewing the objections lodged. 
     Management is of the view that the municipal valuation is fundamentally 
     flawed and acknowledges its obligation for rates and taxes based on a 
     reasonable valuation.

17.  Corporate governance

The group subscribes to the Code of Good Corporate Practices and Conduct and 
complies with the recommendations of the King III Report. Full disclosure of the 
group’s compliance is contained in the 2014 Integrated Report.

18.  Events after the reporting period

Subsequent to the interim period, the Board announced the closure of Thabazimbi 
mine. The financial effect is not expected to be material as limited closure costs 
are attributable to Kumba.

Furthermore, Kumba announced that it is proposing a new organisational structure 
for its Support Functions at Sishen and Kolomela mines as well as its Stay in 
Business (SIB) projects. No further material events have occurred between the end 
of the reporting period and the date of the release of these reviewed condensed 
consolidated financial statements.

19.  Independent auditors’ review report

The auditors, Deloitte & Touche, have issued their unmodified review report on the 
condensed consolidated interim financial statements for the six months ended 
30 June 2015. The review was conducted in accordance with ISRE 2410 Review of 
Interim Financial Information Performed by the Independent Auditor of the Entity. 

A copy of the signed auditor’s report on the condensed consolidated interim 
financial statements together with the financial information identified in the 
auditor’s report are available for inspection at the company’s registered 
office.

On behalf of the Board


F Titi                        NB Mbazima
Chairman                      Chief executive

17 July 2015
Pretoria



Registered office:
Centurion Gate 
Building 2B
124 Akkerboom Road
Centurion, 0157
Republic of South Africa
Tel: +27 12 683 7000
Fax: +27 12 683 7009

Transfer secretaries:
Computershare Investor Services (Proprietary) Limited
70 Marshall Street
Republic of South Africa
PO Box 61051, Marshalltown, 2107

Sponsor to Kumba:
RAND MERCHANT BANK (a division of FirstRand Bank Limited)

Directors:
Non-executive – F Titi (chairman), ZBM Bassa, DD Mokgatle, AJ Morgan, LM Nyhonyha, 
AM O’Neill, BP Sonjica, AH Sangqu
Executive – NB Mbazima (chief executive), FT Kotzee (chief financial officer)

Company secretary:
A Parboosing 

Company registration number: No 2005/015852/06
Incorporated in the Republic of South Africa
Income tax number: 9586/481/15/3
JSE code: KIO
ISIN: ZAE000085346
(‘Kumba’ or ‘the company’ or ‘the group’)


21 July 2015

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