Wrap Text
Reviewed interim financial results for the six months ended 30 June 2016 and changes in directorate
KUMBA IRON ORE LIMITED
A member of the Anglo American plc group
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’)
REVIEWED INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2016 AND CHANGES IN DIRECTORATE AND EXECUTIVE MANAGEMENT
DRIVING CHANGE, DEFINING OUR FUTURE
KEY FEATURES
• Regrettably, two fatalities
• Financial performance underpinned by strong cash generation
• Cash breakeven price within targeted range at $34/tonne
• Substantial R3.1 billion reduction in controllable costs
• Balance sheet strengthened to net cash position of R548 million
• Restructuring of Sishen completed successfully
• Production reduced by 21% to 17.8 Mt consistent with revised Sishen mine plan
• HEPS of R3 billion, R9.41 per share, up 20%
Kumba Iron Ore Limited (‘Kumba’ or ’the company‘ or ‘the group’) announces its results for the six months ended 30 June 2016.
Safety
The focus on safety remains the key priority for the group. Regrettably, two of our colleagues lost their lives in the
first six months of the year. It is with deep regret that we report the deaths of Mr Grahame Skansi, a drill operator
at Kolomela mine, on 27 January 2016, and Mr Gideon Dihaisi, a learner electrician at Sishen mine, on 10 May 2016. Our
heartfelt condolences go out to their loved ones. Any injury or loss of life in the work environment is both tragic and
unacceptable. We have revised our safety programmes and plans to drive a turnaround. Interventions have been initiated to
enhance employees’ understanding of risk, ensure role clarity and improve overall engagement through safety
communication. The implementation of critical engineering controls for priority unwanted events continues. The total
recordable case frequency rate, a measure of frequency of injuries, was 0.83 (2015: 0.77) and the lost-time injury frequency
rate (LTIFR) increased to 0.27 (2015: 0.22). The interventions in our safety performance are starting to yield results with
encouraging improvements in our leading indicator reporting.
Significant changes delivered
Norman Mbazima, Chief Executive of Kumba, notes, “This time last year, Kumba was facing a significantly deteriorating price
environment which brought about immense change to the industry. Iron ore prices have since declined by a further 13%,
reflecting the deep shift in commodity markets. Dynamic iron ore market fundamentals, including low cost supply, the flattening
of the cost curve and more muted demand from China, necessitated a thorough review of Kumba’s business in order to
further improve its competitive position and reduce cash costs. As a result, we moved decisively to implement major changes
which included closing unprofitable ore sources, moving Sishen to a lower cost pit shell, restructuring the entire
organisation, reducing cash costs, preserving cash and introducing operational improvements. I am pleased to report that we
have made substantial progress as reflected in this set of mid-year results.
We revised our asset portfolio by ceasing operations and commencing closure processes at the high cost Thabazimbi
mine, ramping up low cost production at Kolomela and significantly restructuring our core asset, Sishen, to cope with lower
prices. This enabled us to reset our operational and capital expenditure, bringing down cash costs and our cash
breakeven price to more competitive levels. The improvement in prices over the past six months from the low of $38.50/tonne
in December 2015, the R3.1 billion savings in controllable costs, including a 61% reduction in capital expenditure
to R1.3 billion, enabled us to generate strong free cash flow, which supported the substantial debt reduction
from a net debt position of R4.6 billion at the end of 2015. At 30 June 2016, Kumba was in a net cash position of
R548 million, which provides us with good financial flexibility to cope with the challenges that lie ahead. Kumba is
now much more resilient and better positioned for lower prices.”
Operations reflect challenging first half
The first half of 2016 has been exceptionally challenging operationally as a result of the transition to the revised 2016 mine
plan at Sishen and the consequential major reduction in the workforce. The revised mine plan necessitated an extensive
redeployment of mining equipment resulting in a 30% reduction in the mining fleet. We are considering the future use of the
equipment.
The restructuring process at Sishen commenced on 28 January 2016 and involved a review of the complete organisational
structure. As such, the process affected every role on the mine as we aimed to ensure that the workforce matched the new
mine plan, in terms of the reduced equipment and substantially increased productivity rates. The process has largely
been completed and resulted in a reduction in the workforce of some 1,500 full-time employees and 900 contractors,
equivalent to a 31% overall reduction. This took place mainly through voluntary separation and without any work stoppages.
We are pleased that overall labour relations have been stable throughout the period.
Total production was reduced by 21% to 17.8 Mt, most of which was due to the significantly revised mine plan at
Sishen. This reduction was affected further by disruptions caused by the restructuring process, higher than normal rainfall
and safety related stoppages.
We have seen a marked recovery in productivity and key operational performance drivers at Sishen post the restructuring,
which, together with Kolomela’s steady performance, gives us confidence that we will achieve full year guidance
on production of ~39 Mt. Notwithstanding the fact that the second half catch-up is likely to put pressure on the logistics
channel, we are confident of achieving our revised export sales guidance of ~38 - 39 Mt.
Robust financial performance
Capital and cost discipline remains fundamental to our business model as we move forward in this uncertain and
volatile landscape. The transformation in our cash cost base has provided us with a reasonable uplift in our operating
margin to 29%, compared to the 18% in 2H 2015, and in line with the 28% of 1H 2015. Despite lower realised prices and volumes,
on a normalised basis, our year on year financial performance has remained quite robust. Operating free cash flow was
strong, up 18% to R6.7 billion and we have delivered an improved return on capital employed of 37% (1H 2015: 34%). We aim to
continue to transform our cost base, working towards the most important shareholder principle - that of growing
sustainable free cash flow and reinstating the dividend.
No interim dividend
The board’s approach is to review the declaration of a dividend at each interim and annual reporting period. Taking
cognisance of the continued market volatility and uncertain outlook, we intend to continue to strengthen our balance sheet
as outlined above and focus our efforts on stabilising and further improving our operational performance. The board has
therefore decided not to declare an interim 2016 dividend.
Overview of six months ended 30 June 2016
Total tonnes mined were 110 Mt, 35% lower than the 170 Mt of 1H 2015, in line with the new pit configuration at
Sishen. Total production declined to 17.8 Mt due to the planned reduction in production at Sishen of 11.5 Mt, and a continued strong
performance at Kolomela of 5.9 Mt, with the balance made up by the final Thabazimbi volumes. Total sales volumes decreased
by 22% to 20.2 Mt (2015: 26 Mt) on the back of lower export sales of 18.1 Mt (2015: 23.2 Mt), due to the lower
production.
Kumba reduced controllable costs by $8/tonne from the average for the full year 2015 to achieve an average cash
breakeven price of $34/tonne (CFR China) in the first six months of 2016, well within the targeted range of $32/tonne -
$40/tonne. The improvements include savings in operating costs of $3.64/tonne, capital expenditure reduced by $4.83 tonne,
and lower freight rates assisted further with approximately $2/tonne. FOB cash costs for the company were down 18% to
$27/tonne, while Sishen and Kolomela achieved $30/tonne and $21/tonne, respectively.
Headline earnings increased by 20% to R3 billion (2015: R2.5 billion), mainly as a result of the derecognition of a
deferred tax asset of R617 million in H1 2015. Earnings were impacted by lower realised iron ore export prices, which
weakened by 10% to an average of $55/tonne (2015: $61/tonne), partially offset by the favourable impact of a 29% weakening
of the Rand against the US Dollar. Attributable and headline earnings for the period were R9.30 and R9.41 per share,
respectively. Normalised earnings were 4% lower than the comparative period at R9.41 per share (2015: R9.78 per share).
Regulatory update
In 2015, Sishen Iron Ore Company (Pty) Limited (SIOC) received notice from the Department of Mineral Resources (DMR)
that the Director General of the DMR had consented to the amendment of SIOC’s mining right in respect of the Sishen mine,
by the inclusion of the residual 21.4% undivided share of the mining right for the Sishen mine, subject to certain
conditions (which are described by the DMR as “proposals”). The conditions were not capable of being accepted by SIOC as
SIOC believes the Mineral and Petroleum Resources Development Act (MPRDA) does not provide for the imposition of such
conditions, they are not practically implementable and lack sufficient detail to provide the company with legal certainty.
SIOC submitted an internal appeal in terms of section 96 of the MPRDA to the Minister of Mineral Resources, which sets
out the basis of its objections to the proposals. SIOC has not yet received a response and continues to engage with the
DMR in this regard.
SARS assessment
On 29 February 2016, the group announced the receipt of a tax assessment from SARS, relating to SIOC’s overseas sales
and marketing businesses, covering the period 2006 to 2010, for the amount of R5.5 billion. This included interest and
penalties of R3.7 billion. On 18 July 2016, the group submitted its objection to the assessment.
An application was submitted to the Commissioner of SARS for a suspension of payment. SARS granted the suspension of
payment until 31 July 2016 to allow for the evaluation of SIOC’s grounds of objection. SARS will resubmit SIOC’s
application for the suspension of payment to the relevant SARS committee to consider the continuation of the suspension in
light of SIOC’s objection.
The field audit, covering the 2011 to 2013 years of assessment, is in progress.
The group considered these matters in consultation with specialist external tax and legal advisers and disagrees with
SARS’ audit findings, and believes that all the above matters have been appropriately treated in the results for the six
months ended 30 June 2016.
Market overview
Global crude steel production contracted 2.5% to 794 Mt for the first half of 2016 (2015: 814 Mt). China’s production
of 401 Mt was 2% lower despite a 6% year on year increase in Chinese steel exports. The improvement in downstream demand
in China, driven by a record liquidity injection and accelerated infrastructure spending, has temporarily staved off
the overcapacity in the domestic steel sector, pushing steel prices higher. This positive demand environment and improved
steel mill margins have driven up Chinese crude steel production, boosting demand for iron ore.
Global seaborne iron ore supply was 5% higher at 699 Mt (2015: 667 Mt) due to higher exports from Australia and
Brazil, tempered by seasonal disruptions. The price rally during 1H 2016 incentivised non-traditional higher cost supply
sources to re-enter the market.
Notwithstanding the iron ore price recovery up to $70.50/tonne in April 2016 from the historic lows in 2015, average index
iron ore prices (CFR China 62% Fe) in the first half of 2016 were down 13%, from $60/tonne in 1H 2015 to $52/tonne. Trading
in steel and iron ore futures has contributed to the significant price volatility over the period. Mine restarts, seasonal
supply uptick and continued weakening supply and demand fundamentals are expected to result in further pressure on the iron
ore price for the remainder of the year.
Operational performance
Production summary (unaudited)
Year to date ended
’000 tonnes June June % change
2016 2015
Total 17,788 22,552 (21)
Lump 11,391 14,652 (22)
Fines 6,397 7,900 (19)
Mine production 17,788 22,552 (21)
Sishen mine 11,541 16,062 (29)
DMS plant 6,727 10,178 (34)
Jig plant 4,814 5,884 (18)
Kolomela mine 5,877 5,853 -
Thabazimbi mine 370 637 (42)
Sishen mine
Sishen’s operations were impacted by the implementation of the revised mine plan, which effectively halved mining
volumes, and the consequential major reduction in the workforce as detailed earlier. As a result, total tonnes mined at
Sishen decreased by 33% to 83.7 Mt (2015: 125.6 Mt). Through the implementation of the changes, the mine’s stripping ratio
reduced to 3.5 for the six months, compared to 5.7 for the FY 2015, which reflects the positive results expected from the
new plan.
Production at Sishen declined by 29% to 11.5 Mt (2015: 16.1 Mt) and waste mined was 64.9 Mt, a 40% reduction from
2015. Run rates for the half year were affected by the significant restructuring process, which commenced in the first
quarter, and which has now been substantially completed. This was further aggravated by higher levels of rainfall, and safety
incidences, including a fatality. Rainfall averaged 72 mm per month compared to a long-term average of 42 mm and an
average of 22 mm in the corresponding period.
The successful restructuring has increased the mine’s flexibility and run rates on key operating parameters have shown
a marked improvement during June 2016. Average daily total tonnes handled and ex-pit ore improved by 28% and 38%,
respectively, compared to May 2016, in support of the guided production for the full year of ~27 Mt.
Kolomela mine
At Kolomela, the revised mining plan announced at the end of 2015 was implemented, in line with the optimisation of
the mine. As a result, total tonnes mined was 24% lower at 26.7 Mt, (2015: 34.9 Mt). Waste mined was 20.2 Mt
(2015: 26.3Mt), a decrease of 23%, as planned. Operations were impacted by a safety stoppage early in the period following
the fatality which occurred in January 2016. The mine produced 5.9 Mt of ore (2015: 5.9 Mt) from 24% lower ex-pit ore,
benefiting from stockpiled material. Plant efficiencies and throughput continue to improve in support of the mine’s targets.
Operating Model
The implementation of the Operating Model continues to yield operational efficiency improvements and supported the
restructuring during H1 2016 at both mines, where the clarity of work that is assigned through the Operating Model assisted
greatly in the configuration of the new structures.
The roll out of the Operating Model at Sishen continues and has now been implemented in various parts of the mining
and maintenance departments. The first Operating Model implementation at Kolomela mine went live during H1 2016, where
work management processes were implemented at both the plant maintenance and plant operations. This work is currently in
the stabilisation phase, and the mine has already seen significant benefits from the implementation, most notably the
reduction in plant throughput variation.
Logistics
Kumba’s volumes railed on the Sishen-Saldanha Iron Ore Export Channel were 16% lower at 18.3 Mt (including 0.7 Mt
railed to Saldanha Steel) (2015: 21.8 Mt), impacted by low stock levels as a result of reduced production. The group is in
ongoing discussions with Transnet to mitigate the impact of any volume shortfalls. Kumba shipped 18.1 Mt (2015: 23 Mt)
from the Saldanha port destined for the export market, down 21%, including 0.3 Mt shipped through the multi-purpose
terminal (MPT) at the Saldanha port.
Sales summary (unaudited)
’000 tonnes June 2016 June 2015 % change
Total 20,210 25,987 (22)
Export sales 18,106 23,204 (22)
Domestic sales 2,104 2,783 (24)
Sishen mine 1,416 2,021 (30)
Thabazimbi mine 688 762 (10)
Sales
Total sales were 22% lower at 20.2 Mt (2015: 26 Mt), as export sales volumes of 18.1 Mt (2015: 23.2 Mt), including
0.7 Mt from third party producers, were impacted by the lower production. CFR sales accounted for 70% of export sales
volumes (2015: 68%). Finished product inventory held at the mines and ports decreased to 2.3 Mt from 4.7 Mt as at
31 December 2015 (30 June 2015: 3.9 Mt). 65% of total export volumes were directed to China compared to 60% during the
first half of 2015. The group’s lump:fine ratio was 63:37 for the period (2015: 67:33).
Financial results
Discontinued operation
Kumba announced the decision to initiate closure procedures at Thabazimbi on 16 July 2015, following an extensive
review of the mine in response to a combination of factors that affected the mine’s economic viability. Mining activities
at Thabazimbi ceased in September 2015, while processing activities ceased on 31 March 2016. Thabazimbi is therefore
classified as a discontinued operation in the results for the period ended 30 June 2016, and the comparative figures have
been restated to disclose the discontinued operation separately from continuing operations.
Revenue
The group’s total revenue from continuing operations of R17.6 billion for the period was 12% lower than the R20 billion
for the comparable period in 2015, mainly as a result of the 10% drop in average realised iron ore export price to
US$55/tonne (2015: US$61/tonne), and 22% lower total sales volumes. In addition, lower freight rates resulted in a
R535 million reduction in shipping revenue. This was partially offset by the 29% decline in the average Rand/US$
exchange rate (1H 2016: R15.40/US$1 compared to 1H 2015: R11.91/US$1), together with a higher lump premium in
the second quarter. Premiums increased by 69% to $0.18/dmtu in Q2 2016 from that of the first quarter, on the back of
increased demand for direct charge material supported by stronger steel prices. However, compared to the 1H 2015 average
of $0.20/dmtu, premiums were still down 28% to $0.15/dmtu.
Operating expenses
Operating expenses from continuing operations were 13% lower at R12.4 billion from R14.3 billion in the first half of 2015;
principally as a result of lower total mining volumes, resulting in a 12% saving on mining costs, savings from overhead reductions,
and lower diesel prices and contractor rates. Selling and distribution costs reduced by R217 million as a result of 16% lower
volumes railed. R457 million lower freight costs were incurred on the back of the Platts freight rate on the Saldanha-Qingdao
route dropping by $2/wmt. Spot freight rates averaged R5.30/tonne, 31% down from $7.70/tonne in 1H 2015. This was
offset by inflationary pressure on input costs of 6.2%.
The reduction in permanent and fixed term employees through the labour restructuring process at Sishen resulted in
R377 million additional retrenchment cost in the period. This is expected to contribute to annual sustainable savings from
2017 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 R327 per tonne increased by 5% (FY 2015: R311 per tonne). This is primarily a result
of lower production volumes (+R87/tonne), lower deferred waste stripping costs capitalised driven by a lower stripping
ratio of 3.5, (+R58/tonne) and inflationary pressure on input costs (+R3/tonne), partially offset by lower mining
volumes (-R132/tonne).
Kolomela mine incurred unit cash costs of R172 per tonne (FY 2015: R178 per tonne), a 3% decrease from lower mining
volumes (-R21/tonne) and overhead support services cost savings. This was partially offset by lower capitalisation of
deferred waste stripping costs (+R8/tonne).
Operating profit
Kumba’s operating profit margin was 1% higher at 29% (2015: 28%). The group’s mining operating margin was reasonable
at 32% (2015: 32%), excluding the net freight loss incurred on shipping operations mainly as a result of long-term fixed
price chartering contracts. Operating profit decreased by 8% to R5.2 billion (2015: R5.6 billion). The lower revenue
outlined previously impacted profitability, partially offset by the savings in operating expenses.
Cash flow
Cash flow of R7.6 billion was generated from operations during the six months which enabled the group to end the
period in a net cash position of R548 million (1H 2015: net debt of R6.1 billion; 31 December 2015: net debt of R4.6 billion).
Capital expenditure of R1.3 billion was incurred, R0.5 billion on stay-in-business (SIB) activities, R0.5 billion
on deferred stripping, and R340 million on expansions, which included R309 million on the Dingleton project. The relocation
of the remaining houses for the Dingleton project has progressed well and is expected to be completed on schedule and
within budget.
The group expects total capital expenditure for 2016 (including deferred stripping) to be in the range of R2.9 billion
to R3.1 billion, excluding unapproved projects.
Deferred stripping capital expenditure per mine estimates are shown in the table below:
(unaudited)
R million 1H 2016 2016 2017 2018
Sishen 340 700 - 800 600 - 700 1,300 - 1,400
Kolomela 126 200 - 300 200 300 - 400
Total 466 900 - 1,100 800 - 900 1,600 - 1,800
Ore reserves and mineral resources
There have been no material changes to the ore reserves and mineral resources as disclosed in the 2015 Kumba
Integrated Report. As reported in February 2016, it is expected that the 2016 Kumba ore reserves and mineral resources may
decrease materially (~150 Mt) from those stated in 2015, pending the update of the group’s ore reserves and mineral resources
in the second half of this year, including a detailed update for the reconfiguration of the Sishen mine.
Events after the reporting period
There were no significant events that occurred from 30 June 2016 to the date of this report, not otherwise dealt with
in this report.
Changes in directorate and executive management
Kumba announces Norman Mbazima’s decision to step down as Chief Executive after four years with the company to focus on his role
as Deputy Chairman of Anglo American South Africa, effective 31 August 2016. Themba Mkhwanazi will take up the role of Chief
Executive with effect from 1 September 2016. Themba is currently the CEO of Anglo American Coal South Africa.
The Board thanks Norman for his impeccable leadership over the last four years and wishes him every success as he focuses on the
wider imperatives of Anglo American in South Africa.
Outlook
The review of Sishen’s 2016 mine plan and related mining model has been completed, including updated material and
metallurgical classification, providing more confidence in the plan that was revised late 2015. The second half of 2016 is
therefore expected to be a more stable operating environment and Kumba remains confident of delivering production and
waste targets for 2016 of ~27 Mt and ~135 - 150 Mt, respectively. This means a significantly increased run rate in H2 2016.
Good indications that the required run rate should be achieved were seen in June 2016. The mine continues to explore
opportunities to feed the plants from secondary sources of material, with the processing of some stockpile material
expected to materialise during the remainder of the year. Production and waste is expected to be ~27 Mt and ~150 Mt from
2017 - 2020, respectively.
Kumba is accelerating study work on its low grade beneficiation projects at Sishen to utilise spare plant capacity,
which includes leveraging off low-grade technology to upgrade the DMS plant to UHDMS, as well as the construction of a
second modular plant at Sishen. This will further de-risk the mine plan and provide options to simplify and optimise the
plant feed strategy. Estimated capital expenditure for the second modular plant is expected to be ~R400 - R600 million.
The two projects are expected to deliver additional production of ~3 Mtpa over the life of mine.
Kolomela is on track to achieve ~12 Mt for this year, significantly above its original design capacity. Work continues
to achieve ~13 Mt in 2017, which will be aided by further improvements in plant efficiency and throughput rates. Waste
guidance remains at ~46-48 Mt in 2016, and ~50-55 Mt from 2017 - 2020. The construction of a modular plant at Kolomela
has commenced and is progressing well. The plant is expected to be commissioned in 2017, contributing ~0.7 Mtpa.
Estimated 2016 capital expenditure is ~R120 million with total project capital estimated at ~R420 million. Work is under
way to extend production for the life of mine.
The continuation of Kumba’s mine plan reviews during this period has not indicated any significant issues. Further
work is being undertaken to reconfirm all short, medium and long-term mine plans and guidance will be provided on these
horizons when this process has been completed.
Kumba continues to target a cash breakeven price of between $32/tonne and $40/tonne CFR for 2016. Volatility in non-controllable
costs, however, is anticipated to continue.
Export sales volumes are expected to be under pressure as we go through the winter months and experience the annual
maintenance shutdown on the iron ore export channel in H2, and from lower third party ore purchases, which resulted in
reduced stockpiles. Full year guidance has therefore been reduced to ~38 - 39 Mt compared to previous guidance of 40 Mt.
Domestic sales volumes of up to 6.25 Mt are contracted to ArcelorMittal SA in terms of the supply agreement, however ~3 Mt
is expected for 2016.
Iron ore prices are expected to remain under pressure in the short to medium term. The group’s profitability remains
sensitive to the volatility in iron ore export prices and the Rand/US$ exchange rate. Kumba will continue to optimise its
assets by stepping up financial and operational performance to grow free cash flow and returns. The company will focus
on maintaining a strong balance sheet to provide flexibility to deal with price volatility.
Anglo American and Kumba continue to work together to evaluate options for the divestment of Anglo American’s 69.7%
shareholding and how the business can best create sustainable value for all its stakeholders. Shareholders will be updated
on any further developments, as appropriate.
The presentation of the company’s results for the six months ended 30 June 2016 will be available on the company’s
website www.angloamericankumba.com at 08h00 CAT and the webcast will be available from 11h30 CAT on 26 July 2016.
SALIENT FEATURES AND OPERATING STATISTICS
for the period ended
Unaudited Unaudited Unaudited
6 months 6 months 12 months
30 June 30 June 31 December
2016 2015 2015
Share statistics (‘000)
Total shares in issue 322,086 322,086 322,086
Weighted average number of shares 319,826 320,715 320,817
Diluted weighted average number of shares 320,706 320,814 320,817
Treasury shares 3,003 1,216 1,110
Market information
Closing share price (Rand) 111 151 41
Market capitalisation (Rand million) 35,752 48,622 13,270
Market capitalisation (US$ million) 2,435 4,005 858
Net asset value (Rand per share) 69.42 65.60 59.98
Capital expenditure (Rand million)
Incurred 1,294 3,331 6,752
Contracted 806 2,733 1,115
Authorised but not contracted 2,719 3,136 1,553
Operating commitments
Operating lease commitments 105 129 113
Shipping services 8,847 8,926 10,431
Economic information
Average Rand/US Dollar exchange rate (ZAR/US$) 15.40 11.91 12.76
Closing Rand/US Dollar exchange rate (ZAR/US$) 14.68 12.14 15.47
Sishen mine FOR unit cost
Unit cost (Rand per tonne) 480.2 389.3 403.5
Cash cost (Rand per tonne) 326.9 299.1 310.8
Unit cost (US$ per tonne) 31.2 32.7 31.6
Cash cost (US$ per tonne) 21.2 25.1 24.4
Kolomela mine FOR unit cost
Unit cost (Rand per tonne) 253.8 255.0 245.7
Cash cost (Rand per tonne) 171.5 184.7 177.7
Unit cost (US$ per tonne) 16.5 21.4 19.3
Cash cost (US$ per tonne) 11.1 15.5 13.9
CONDENSED GROUP BALANCE SHEET
as at
Rand million Restated
Reviewed Reviewed Audited
30 June 30 June 31 December
2016 2015 2015
Assets
Property, plant and equipment 32,680 36,870 32,671
Biological assets 10 5 11
Investments held by environmental trust 844 810 818
Long-term prepayments and other receivables 547 566 581
Inventories 2,518 2,431 2,560
Deferred tax assets 1 - 1
Non-current assets 36,600 40,682 36,642
Inventories 4,305 4,399 5,056
Trade and other receivables 2,992 4,193 3,212
Cash and cash equivalents 5,048 6,938 3,601
Current assets 12,345 15,530 11,869
Total assets 48,945 56,212 48,511
Equity
Shareholders’ equity 22,360 21,129 19,320
Non-controlling interest 6,754 6,324 5,847
Total equity 29,114 27,453 25,167
Liabilities
Interest-bearing borrowings 4,500 13,000 8,000
Provisions 2,931 2,199 2,717
Deferred tax liabilities 7,860 8,836 7,680
Non-current liabilities 15,291 24,035 18,397
Short-term portion of interest-bearing borrowings - - 205
Short-term portion of provisions 518 403 349
Trade and other payables 2,696 3,270 3,407
Current tax liabilities 1,326 1,051 986
Current liabilities 4,540 4,724 4,947
Total liabilities 19,831 28,759 23,344
Total equity and liabilities 48,945 56,212 48,511
CONDENSED GROUP INCOME STATEMENT
for the period ended
Rand million Restated Restated
Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 31 December
2016 2015 2015
Revenue 17,566 19,951 35,260
Operating expenses (12,411) (14,319) (32,564)
Operating profit 5,155 5,632 2,696
Finance income 75 46 148
Finance costs (305) (451) (853)
(Loss)/profit from equity accounted joint venture - (1) 6
Profit before taxation 4,925 5,226 1,997
Taxation (1,146) (2,069) (1,280)
Profit for the period from continuing operations 3,779 3,157 717
Discontinued operations
Profit/(loss) from discontinued operations 41 116 (90)
Profit for the year 3,820 3,273 627
Attributable to:
Owners of Kumba 2,974 2,508 469
Non-controlling interest 846 765 158
3,820 3,273 627
Basic earnings/(loss) per share attributable to the
ordinary equity holders of Kumba (Rand per share)
From continuing operations 9.20 7.54 1.68
From discontinued operations 0.10 0.28 (0.22)
Total basic earnings per share 9.30 7.82 1.46
Diluted earnings/(loss) per share attributable to the
ordinary equity holders of Kumba (Rand per share)
From continuing operations 9.17 7.54 1.68
From discontinued operations 0.10 0.28 (0.22)
Total basic earnings per share 9.27 7.82 1.46
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME
for the period ended
Rand million Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 31 December
2016 2015 2015
Profit for the period 3,820 3,273 627
Other comprehensive (loss)/income for the period, (57) 174 255
net of tax
Exchange differences on translation of foreign operations (57) 174 255
Total comprehensive income for the period 3,763 3,447 882
Attributable to:
Owners of Kumba 2,930 2,642 592
Non-controlling interest 833 805 290
3,763 3,447 882
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
for the period ended
Rand million Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 31 December
2016 2015 2015
Total equity at the beginning of the period 25,167 27,001 27,001
Changes in share capital and premium (net of
treasury shares)
Treasury shares issued to employees under
employee share incentive schemes 127 142 180
Purchase of treasury shares (180) - -
Changes in reserves
Equity-settled share-based payment 289 243 469
Vesting of shares under employee share
incentive schemes (127) (157) (180)
Total comprehensive income for the period 2,930 2,642 592
Dividends paid - (2,505) (2,505)
Changes in non-controlling interest
Total comprehensive income for the period 833 805 290
Dividends paid - (796) (796)
Movement in non-controlling interest in reserves 75 78 116
Total equity at the end of the period 29,114 27,453 25,167
Comprising
Share capital and premium (net of treasury shares) (184) (169) (131)
Equity-settled share-based payment reserve 2,191 1,817 2,021
Foreign currency translation reserve 1,409 1,390 1,453
Fair value reserve - 59 -
Retained earnings 18,944 18,032 15,977
Shareholders’ equity 22,360 21,129 19,320
Attributable to the owners of Kumba 21,452 20,279 18,534
Attributable to the non-controlling interest 908 850 786
Non-controlling interest 6,754 6,324 5,847
Total equity at the end of the period 29,114 27,453 25,167
Dividend (Rand per share)
Interim - - -
Final n/a n/a -
CONDENSED GROUP CASH FLOW STATEMENT
for the period ended
Rand million Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 31 December
2016 2015 2015
Cash generated from operations 7,632 8,680 13,841
Net finance costs paid (258) (341) (578)
Taxation paid (646) (67) (594)
Cash flows from operating activities 6,728 8,272 12,669
Additions to property, plant and equipment (1,294) (3,331) (6,752)
Loan granted/(repaid) to joint venture - (1) 5
Proceeds from the disposal of property, plant and
equipment 3 78 120
Cash flows from investing activities (1,291) (3,254) (6,627)
Purchase of treasury shares (180) - -
Dividends paid to owners of Kumba - (2,490) (2,490)
Dividends paid to non-controlling shareholders - (811) (811)
Net interest-bearing borrowings (repaid)/raised (3,705) 3,407 (1,388)
Cash flows from financing activities (3,885) 106 (4,689)
Net increase in cash and cash equivalents 1,552 5,124 1,353
Cash and cash equivalents at the beginning of the period 3,601 1,664 1,664
Exchange differences on translation of cash and cash
equivalents (105) 150 584
Cash and cash equivalents at the end of the period 5,048 6,938 3,601
HEADLINE EARNINGS
for the period ended
Rand million Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 31 December
2016 2015 2015
Reconciliation of headline earnings
Profit attributable to owners of Kumba 2,974 2,508 469
Impairment charge 4 - 5,978
Net loss on disposal and scrapping of property, plant
and equipment 60 16 9
Insurance proceeds received for items of property, plant
and equipment written off in prior periods - - (29)
3,038 2,524 6,427
Taxation effect of adjustments (19) (2) (1,644)
Non-controlling interest in adjustments (10) (3) (991)
Headline earnings 3,009 2,519 3,792
Headline earnings (Rand per share)
Basic 9.41 7.85 11.82
Diluted 9.38 7.85 11.82
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 319,825,728 320,714,572 320,817,364
Diluted weighted average number of ordinary shares 320,705,715 320,814,017 320,817,364
The dilution of 879,987 shares to the weighted average number of ordinary shares at 30 June 2016 (30 June 2015: 99,445
and 31 December 2015: nil) 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
Rand million Unaudited Unaudited Unaudited
6 months 6 months 12 months
30 June 30 June 31 December
2016 2015 2015
Reconciliation of normalised earnings
Headline earnings attributable to owners of Kumba 3,009 2,519 3,792
Gain on lease receivable - - (418)
Derecognition of deferred tax asset - 801 801
3,009 3,320 4,175
Taxation effect of adjustments - - 117
Non-controlling interest in adjustments - (184) (115)
Normalised earnings 3,009 3,136 4,177
Normalised earnings (Rand per share)
Basic 9.41 9.78 13.02
Diluted 9.38 9.78 13.02
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 319,825,728 320,714,572 320,817,364
Diluted weighted average number of ordinary shares 320,705,715 320,814,017 320,817,364
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.
Normalised earnings 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 and a once-off gain realised on a lease receivable
are non-recurring items and have therefore been adjusted in determining normalised earnings in the comparative periods. There were
no adjusting items in the current period.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the six months ended 30 June 2016
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 interim financial statements of Kumba and its subsidiaries for the six months ended 30 June 2016
were authorised for issue in accordance with a resolution of the Directors on 20 July 2016.
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 IAS 34, Interim Financial Reporting and in compliance with the JSE Listings
Requirements for interim reports, the South African Companies Act No 71 of 2008 and 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 interim 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 are presented in Rand, which is Kumba’s functional and presentation currency. All financial information
presented in Rand has been rounded off to the nearest million.
2.1. Comparative figures
The Thabazimbi mine is classified as a discontinued operation for the period ended 30 June 2016, and as a result,
the comparative figures have been restated to show the discontinued operation separately from continuing
operations. Refer to note 10 for more information.
2.2. Accounting policies
The accounting policies and methods of computation applied in the preparation of these condensed consolidated
interim financial statements are in terms of International Financial Reporting Standards and are consistent
with those accounting policies applied in the preparation of the previous consolidated annual financial
statements.
No new standards, amendments to published standards or interpretations which became effective for the year
commencing on 1 January 2016 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 2016, are being evaluated for the impact of these pronouncements.
2.3. Going concern
In determining the appropriate basis of preparation of the condensed consolidated interim financial statements,
the directors are required to consider whether the group can continue in operational existence for the
foreseeable future. The financial performance of the group is dependent upon the wider economic environment in
which the group operates. Factors exist which are outside the control of management which can have a significant
impact on the business, specifically the volatility in the Rand/US Dollar exchange rate and the iron ore price.
These condensed consolidated interim financial statements are prepared on a going-concern basis. The board is
satisfied that the group is sufficiently liquid and solvent to be able to support the current operations for the
next 12 months.
2.4. Accounting judgements, estimates and assumptions
In preparing these condensed consolidated interim financial statements, the significant judgements made by
management in applying the group’s accounting policies and the key sources of estimation uncertainty are
consistent with those applied to the consolidated financial statements for the year ended 31 December 2015.
2.5. Change in estimates
The measurement of the environmental rehabilitation and decommissioning provisions are a key area where
management’s judgement is required. The closure provisions are measured at the present value of the expected
future cash flows required to perform the rehabilitation and decommissioning. This calculation requires the use
of certain estimates and assumptions when determining the amount and timing of the future cash flows and the
discount rate. The closure provisions are updated at each balance sheet date for changes in these estimates.
The life of mine plan on which accounting estimates are based, only includes proved and probable ore reserves
as disclosed in Kumba’s 2015 annual ore reserves and mineral resources statement. The Kolomela life of mine
plan used to calculate the rehabilitation and decommissioning provisions was revised. This resulted in an
increase in the provisions.
The effect of this change, which was applied prospectively from 1 January 2016, is detailed below:
Rand million Reviewed
30 June 2016
Increase in environmental rehabilitation provision 198
Increase in decommissioning provision 18
Decrease in profit after tax attributable to the owners of Kumba 110
Rand per share
Decrease in earnings per share attributable to the owners of Kumba 0.34
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.
3. Property, plant and equipment
Rand million Reviewed Reviewed Audited
30 June 30 June 31 December
2016 2015 2015
Capital expenditure 1,458 3,331 6,752
Comprising:
Expansion 340 343 870
Stay in business (SIB)* 652 1,503 3,030
Deferred stripping 466 1,485 2,852
Transfers from assets under construction to property, plant and equipment 855 2,323 3,419
* Included in the SIB expenditure above is a non-cash addition of R164 million relating to the unguaranteed residual
value under a finance lease.
Expansion capital expenditure comprised mainly of the expenditure on the Dingleton relocation project. SIB capital expenditure
to maintain operations was principally for the acquisition of heavy mining equipment and infrastructure.
4. Inventory reclassification
Rand million Restated
Reviewed Reviewed Audited
30 June 30 June 31 December
2016 2015 2015
Finished products 881 1,369 1,852
Work-in-progress 4,386 4,048 4,156
Plant spares and stores 1,556 1,413 1,608
Total inventories 6,823 6,830 7,616
Non-current portion of work-in-progress inventories 2,518 2,431 2,560
Total current inventories 4,305 4,399 5,056
Total inventories 6,823 6,830 7,616
In 2015, the group reassessed the nature of its work-in-progress inventories following the revision of the group’s mine
plan. Previously, all work-in-progress inventory balances were classified as current. After the reassessment, it was
concluded that not all work-in-progress inventory will be processed within the next year. Work-in-progress inventory
balances which will not be processed within the next year were reclassified to non-current. This reassessment was applied
retrospectively and as a result, the comparative interim figures were reclassified. The reclassification was already
applied in the 31 December 2015 financial statements.
5. Share capital and share premium
Reconciliation of share capital and share premium (net of treasury shares):
Rand million Reviewed Reviewed Audited
30 June 30 June 31 December
2016 2015 2015
Balance at the beginning of the period (131) (311) (311)
Net movement in treasury shares under employee share incentive schemes (53) 142 180
Purchase of treasury shares (180) - -
Shares issued to employees 127 142 180
Share capital and share premium (184) (169) (131)
Reconciliation of number of shares in issue:
Number of shares Reviewed Reviewed Audited
30 June 30 June 31 December
2016 2015 2015
Balance at the beginning and the end of the period 322,085,974 322,085,974 322,085,974
Reconciliation of treasury shares held:
Balance at the beginning of the period 1,109,732 1,533,346 1,533,346
Shares purchased 2,140,891 - -
Shares issued to employees under the Long-Term Incentive
Plan and Kumba Bonus Share Plan (247,892) (317,560) (423,614)
Balance at the end of the period 3,002,731 1,215,786 1,109,732
All treasury shares are held as conditional awards under the Kumba Bonus Share Plan.
6. Interest-bearing borrowings
Kumba’s net cash/(debt) position at the balance sheet dates was as follows:
Rand million Reviewed Reviewed Audited
30 June 30 June 31 December
2016 2015 2015
Interest-bearing borrowings (4,500) (13,000) (8,205)
Cash and cash equivalents 5,048 6,938 3,601
Net cash/(debt) 548 (6,062) (4,604)
Total equity 29,114 27,453 25,167
Interest cover (times)* 16 12 3
*Restated to remove the impact of the discontinued operation.
Movements in interest-bearing borrowings are analysed as follows:
Rand million Reviewed Reviewed Audited
30 June 30 June 31 December
2016 2015 2015
Balance at the beginning of the period 8,205 9,593 9,593
Interest-bearing borrowings raised 30 10,199 10,400
Interest-bearing borrowings repaid (3,735) (6,560) (11,556)
Finance lease repaid - (232) (232)
Balance at the end of the period 4,500 13,000 8,205
At 30 June 2016, Kumba had drawn R4.5 billion on the term facility. The group had undrawn committed facilities of
R12 billion (June 2015: R3.5 billion and December 2015: R8.5 billion) and uncommitted facilities of R8.3 billion at
30 June 2016 (June 2015: R8.2 billion and December 2015: R8.3 billion).
Kumba was in compliance with its debt covenants at 30 June 2016.
7. Significant items included in operating profit
Operating expenses is made up as follows:
Rand million Restated Restated
Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 31 December
2016 2015 2015
Production costs 7,852 8,483 16,213
Movement in inventories 359 1,094 1,072
Finished products 733 1,214 1,427
Work-in-progress (374) (120) (355)
Cost of goods sold 8,211 9,577 17,285
Impairment charge - - 5,978
Mineral royalty 234 94 172
Selling and distribution costs 2,674 2,891 5,506
Cost of services rendered - shipping 1,317 1,774 3,657
Sublease rent received (25) (17) (34)
Operating expenses 12,411 14,319 32,564
Operating profit has been derived after taking into account
the following items:
Employee expenses 1,797 1,764 3,610
Net restructuring cost 377 - 34
Share-based payment expenses 366 306 593
Depreciation of property, plant and equipment 1,496 1,610 3,323
Deferred waste stripping costs capitalised (466) (1,485) (2,852)
Net loss on disposal and scrapping of property, plant and equipment 60 16 9
Gain on lease receivable (164) - (418)
Net finance (losses)/gains 8 (121) (822)
Net (gains)/losses on derivative financial instruments (166) 2 98
Net foreign currency losses/(gains) 198 (105) (893)
Net fair value (gains) on investments held by the environmental trust (24) (18) (27)
Insurance proceeds received on items of property, plant and equipment
written off in prior periods - - (29)
8. Taxation
The group’s effective tax rate was 23% for the period (June 2015: 39% and December 2015: 69%). The prior periods’
effective tax rate was impacted by the derecognition of a deferred tax asset amounting to R801 million.
9. Segmental reporting
Total reported segment revenue is measured in a manner consistent with that disclosed in the income statement. The
performance of the operating segments are assessed based on a measure of earnings before interest and taxation (EBIT),
which is measured in a manner consistent with ‘Operating profit’ in the financial statements. Finance income and finance
costs are not allocated to segments, as treasury activity is managed on a central group basis.
Total segment assets comprise finished goods inventory only, which is allocated based on the operations of the segment
and the physical location of the assets.
‘Other segments’ comprise corporate, administration and other expenditure not allocated to the reported segments.
Products 3 Services
Rand million Sishen Kolomela Thabazimbi Shipping
mine mine mine 1 Logistics operations Other Total
Reviewed period ended 30 June 2016
Income statement
Revenue from external customers 11,308 5,216 616 - 1,042 - 18,182
EBIT 5,036 3,280 51 (2,675) (275) (211) 5,206
Significant items included in EBIT:
Depreciation 973 446 - 4 - 73 1,496
Staff costs 1,677 354 61 15 - 494 2,601
Balance sheet
Total segment assets 257 72 - 343 - 209 881
Cash flow statement
Additions to property, plant and equipment
Expansion capex 313 27 - - - - 340
Stay-in-business capex 375 113 - - - - 488
Deferred stripping 340 126 - - - - 466
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
Audited year ended 31 December 2015
Income statement
Revenue from external customers 23,869 7,980 878 - 3,411 - 36,138
EBIT 2 4,273 4,423 (52) (5,506) (247) (247) 2,644
Significant items included in EBIT:
Depreciation 2,428 732 - 6 - 157 3,323
Staff costs 3,048 642 429 30 - 517 4,666
Impairment 5,978 - - - - - 5,978
Balance sheet
Total segment assets 651 198 224 510 - 269 1,852
Cash flow statement
Additions to property, plant and equipment
Expansion capex 857 - - - - 13 870
Stay-in-business capex 2,350 498 - 4 - 178 3,030
Deferred stripping 2,508 344 - - - - 2,852
1 Thabazimbi mine is reported as a discontinued operation. Please refer to note 10.
2 After impairment.
3 Derived from extraction, production and selling of iron ore.
Geographical analysis of revenue and non-current assets:
Rand million Restated Restated
Reviewed Reviewed Audited
6 Months 6 months 12 months
30 June 30 June 31 December
2016 2015 2015
Total revenue from external customers 17,566 19,951 35,260
South Africa 1,112 1,551 2,237
Export 16,454 18,400 32,983
China 11,086 10,620 19,974
Rest of Asia 3,185 4,000 9,879
Europe 2,183 1,655 3,130
Middle East and Africa - 2,125 -
All non-current assets, excluding investments in associates and joint venture are located in South Africa, with the
exception of R22 million located in Singapore (June 2015: R33 million and December 2015: R32 million), which relates
to prepayments.
10. Discontinued operations
All remaining plant operations at the Thabazimbi mine ceased on 31 March 2016 following an extensive review of the
Thabazimbi mine in response to a combination of factors which adversely affected the mine’s economic viability which
resulted in the decision taken in 2015 to close the mine. The Thabazimbi operation is classified as a discontinued
operation for the period ended 30 June 2016, and as a result, the comparative figures have been restated to present
the discontinued operation separately from continuing operations. Analysis of the results of the Thabazimbi mine is
as follows:
Results of discontinued operation
Rand million Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 31 December
2016 2015 2015
Revenue 616 518 878
Operating expenses (565) (380) (930)
Operating profit/(loss) 51 138 (52)
Net finance income 5 26 94
Profit before tax 56 164 42
Income tax expense (15) (48) (132)
Profit/(loss) after income tax of discontinued operation 41 116 (90)
Attributable to owners of Kumba 32 89 (69)
Attributable to the non-controlling interest 9 27 (21)
Profit/(loss) from discontinued operation 41 116 (90)
Cash flow from discontinued operations
Net cash flows from operating activities 374 47 639
Net cash generated by Thabazimbi 374 47 639
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.
Rand million Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 31 December
2016 2015 2015
Short-term deposits held with Anglo American SA Finance Limited1 (AASAF) 2,277 6,158 839
- Deposit one - - 205
- Weighted average interest rate (%) 6.83 - 6.48
- Deposit two 2,277 6,158 634
- Weighted average interest rate (%) 6.70 5.79 5.96
Interest earned on short-term deposits with AASAF during the year 60 36 120
Short-term deposit held with Anglo American Capital plc1 1,970 123 2,059
Interest earned on facility during the period 3 1 *
Interest-bearing borrowing from AASAF - - 205
Interest paid on borrowings during the period 7 65 67
Weighted average interest rate (%) 8.16 6.91 6.70
Trade payable owing to Anglo American Marketing Limited 1 (AAML) 186 262 433
Shipping services provided by AAML 1,299 1,739 3,642
Dividends paid to Exxaro Resources Limited - 673 673
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.
The table below presents the group’s assets and liabilities that are measured at fair value:
Rand million Level 1 1 Level 2 2 Level 3 3
Reviewed six months - 30 June 2016
Investments held by the environmental trust 844 - -
Derivative financial assets - 96 -
Derivative financial liabilities - (3) -
844 93 -
Reviewed six months - 30 June 2015
Investments held by the environmental trust 810 - -
810 - -
Audited 12 months - 31 December 2015
Investments held by the environmental trust 818 - -
Derivative financial assets - 38 -
Derivative financial liabilities - (1) -
818 37 -
1 Level 1 fair value measurements are derived from unadjusted quoted prices in active markets for identical assets or
liabilities.
2 Level 2 fair value measurements are derived from inputs other than quoted prices included within level 1 that are
observable either directly or indirectly (i.e. derived from prices).
3 Level 3 fair value measurements are derived from valuation techniques that include inputs that are not based on
observable market data.
The iron ore derivatives are measured at fair value using market-related inputs. The measurement is therefore classified
within level 2 of the fair value hierarchy. The inputs used in the model are the forward iron ore price on the inception
date as well as the iron ore price on the date the fair value calculation is performed.
13. Contingent liabilities
13.1 Taxation
On 29 February 2016, the group announced the receipt of a tax assessment from SARS, relating to SIOC’s overseas
sales and marketing businesses, covering the period 2006 to 2010, for the amount of R5.5 billion. This included
interest and penalties of R3.7 billion. On 18 July 2016, the group submitted its objection to the assessment.
An application was submitted to the Commissioner of SARS for a suspension of payment. SARS granted the suspension
of payment until 31 July 2016 to allow for the evaluation of SIOC’s grounds of objection. SARS will resubmit
SIOC’s application for the suspension of payment to the relevant SARS committee to consider the continuation of
the suspension in light of SIOC’s objection.
The field audit, covering the 2011 to 2013 years of assessment, is in progress.
The group considered these matters in consultation with specialist external tax and legal advisers and disagrees
with SARS’ audit findings and believes that all the above matters have been appropriately treated in the results
for the six months ended 30 June 2016.
13.2 Municipal rates and taxes
Rates and taxes levied by the Municipality at Sishen effective from 1 June 2014 reflected a significant increase
amounting to R575 million (June 2015: R278 million and December 2015: R437 million). Management objected to the
higher valuation and exhausted all appeals to the Municipality. The matter will now be referred to the Valuations
Appeal Board for a final decision. 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.
14. Guarantees
The total guarantees issued in favour of the DMR in respect of the group’s environmental closure liabilities at 30 June 2016
are R2.8 billion (June 2015: R2.3 billion and 31 December 2015: R2.3 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 R438 million (June 2015: R429 million and 31 December 2015: R438 million), which ArcelorMittal SA has
guaranteed by means of bank guarantees issued in favour of SIOC. As a consequence of the revision of closure costs, a shortfall
of R633 million arose (of which R329 million relates to ArcelorMittal SA). SIOC is in discussions with ArcelorMittal SA
regarding the shortfall.
15. Regulatory update
21.4% undivided share of the Sishen mine mineral rights
In 2015, SIOC received notice from the DMR that the Director General of the DMR had consented to the amendment of
SIOC’s mining right in respect of the Sishen mine, by the inclusion of the residual 21.4% undivided share of the mining
right for the Sishen mine, subject to certain conditions (which are described by the DMR as “proposals”). The conditions
were not capable of being accepted by SIOC as SIOC believes the Mineral and Petroleum Resources Development Act (MPRDA)
does not provide for the imposition of such conditions, they are not practically implementable and lack sufficient
detail to provide the company with legal certainty.
SIOC submitted an internal appeal in terms of section 96 of the MPRDA to the Minister of Mineral Resources, which set out
the basis of its objections to the proposals. SIOC has not yet received a response and will continue to engage with the
DMR in this regard.
16. 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 2015 Integrated Report.
17. Events after the reporting period
There have been no material events subsequent to 30 June 2016, not otherwise dealt with in this report.
18. 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 2016. 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 auditors’ report on the condensed consolidated interim financial statements is available for inspection at the
company’s registered office.
Any reference to future financial performance included in this announcement has not been reviewed or reported on by the
company’s auditors.
On behalf of the board
F Titi NB Mbazima
Chairman Chief executive
20 July 2016
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, DD Mokgatle, AJ Morgan, LM Nyhonyha,
BP Sonjica, AH Sangqu, N Viljoen
Executive: NB Mbazima (chief executive), FT Kotzee (chief financial officer)
Company secretary
A Parboosing
26 July 2016
Date: 26/07/2016 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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