Wrap Text
Audited provisional summarised annual financial results for the year ended 31 December 2016
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 code: KIO
ISIN: ZAE000085346
('Kumba' or 'the Company' or 'the group')
Audited provisional summarised annual financial results for the year ended 31 December 2016
Kumba Iron Ore Limited ('Kumba' or 'the Company' or 'the group') announces its results for the year ended
31 December 2016.
KEY FEATURES
- Regrettably two fatalities
- Production of 41.5 Mt, Sishen and Kolomela exceeding targets
- Substantial 34% reduction in controllable costs
- HEPS of R27.30 per share, up 131%
- Average cash breakeven price reduced to US$29/tonne on the back of an
average realised price of US$64/tonne
- Balance sheet strengthened to net cash position of R6.2 billion
- Sishen 21.4% residual mining right granted and settlement agreement
reached with SARS
SAFETY
Safety remains the key priority for the group. Regrettably two of our colleagues, Grahame Skansi and Gideon Dihaisi,
lost their lives in the first half of the year. During the year, we have greatly strengthened our focus on the prevention
of injuries and the elimination of fatalities, and adopted a framework to drive this objective with an emphasis on
leadership, operational risk management and the implementation of critical controls. This was supported by increasing
employee engagement, safer technologies, and additional leadership interventions aimed at pursuing a zero harm workplace.
The total recordable case frequency rate (TRCFR), a measure of frequency of injuries, reduced to 0.78 (2015: 0.89) and the
lost-time injury frequency rate (LTIFR) was 0.28 (2015: 0.23).
A PLEASING SET OF RESULTS IN A YEAR OF TRANSITION
Over the past two years, Kumba implemented key interventions to reset the cost base and preserve cash. This entailed
moving from a volume to a value- based strategy by reconfiguring the mines to reduce the amount of waste mined and to
reduce costs in all operational areas. The strong set of results delivered in 2016 reflects not only the benefit of higher
iron ore prices, but the progress made in the execution of this strategy. Headline earnings per share increased by 131%
to R27.30 (2015: R11.82). Basic earnings rose to R26.98 per share, compared to the R1.46 per share in 2015 which was
impacted by the impairment charge relating to Sishen mine of R6 billion. Normalised earnings were 108% higher than the
comparative period at R27.10 per share (2015: R13.02 per share).
Sishen delivered a robust performance despite the operational challenges experienced in the first half as a result of
the transition to the revised pit configuration. The new mine plan, based on a lower cost pit shell, was successfully
implemented and the mine delivered against key priorities for the year, achieving a marked recovery in productivity during
the second half of the year. The substantial workforce restructuring was completed and regrettably some 2,500 full-time
employees and contractors left the Company. This took place mainly through voluntary separation and without any work
stoppages. We are pleased that overall labour relations have been stable throughout the year. The mine delivered a strong
improvement in operational performance for the full year, producing 28 Mt, exceeding our target of 27 Mt. Waste mined of
137 Mt was at the lower end of the targeted range.
Kolomela exceeded expectations yet again, producing 12.7 Mt, benefiting from increased throughput as a result of
further plant optimisation. The mine, which was originally designed to produce 9 Mtpa, is on track to produce between 13 Mt
and 14 Mt in 2017 without significant additional capital expenditure.
Total production for the year was 41.5 Mt, a decrease of 8%, in line with planned lower mining volumes at Sishen.
Export sales of 39.1 Mt were achieved. Higher realised iron ore prices and robust cost management resulted in the group's
operating margin rising from 24% to 38%. Kumba realised an average FOB price of US$64/tonne in 2016 (2015: US$53/tonne)
due to efficient marketing activities and a greater demand for higher grade ore. This was aided by the 15% weaker average
ZAR/US$ exchange rate (2016: R14.69; 2015: R12.76), partially offset by 11% lower total sales volumes of 42.5 Mt
(2015:47.8 Mt).
Controllable costs reduced by 34% driven by a 24% decrease in operating expenditure to R25.4 billion and 65% lower
capital expenditure of R2.4 billion. As a result, free cash flow generation increased by 181% to R16.7 billion,
strengthening the balance sheet to a net cash position of R6.2 billion. Kumba's average cash breakeven price for the year
reduced to US$29/tonne from US$49/tonne in 2015, below the guided range of US$32 - US$40/tonne.
The tough decisions taken to reset the cost base, stabilise operating performance and improve financial health, have
made the Company more resilient and better positioned to cope with volatile market conditions. Going forward the group is
targeting further improvements in productivity rates and reductions in operating costs. Ongoing headwinds, such as cost
inflation, achieving the required improvement in operational performance at Sishen and the rising strip ratio, make
further progress from the current base essential.
REGULATORY UPDATE
Sishen 21.4% residual mining right granted
In October 2016, the Department of Mineral Resources (DMR) granted the residual 21.4% undivided share of the mining
right for the Sishen mine to Kumba's subsidiary, Sishen Iron Ore Company (Pty) Ltd (SIOC) following the completion of an
internal appeal process, as prescribed by section 96 of the Minerals and Petroleum Resources Development Act (MPRDA).
As a result of the grant of the residual 21.4% undivided share, SIOC is now the sole and exclusive holder of the right
to mine iron ore and quartzite at the Sishen mine. This residual mining right will be incorporated into the 78.6%
Sishen mining right that SIOC successfully converted in 2009.
The consent to amend SIOC's mining right, by the inclusion of the residual 21.4% undivided share, is subject to
various conditions. The conditions, where applicable, will ultimately form part of the conditions to the Sishen mining right.
These include the requirement for the continuation of the existing Existing Export Parity price based supply agreement between
SIOC and ArcelorMittal SA Limited (AMSA) in its role as a strategic South African steel producer, as well as SIOC's
continued support of skills development, research and development and initiatives to enable preferential procurement.
Settlement agreement with SARS
The group has concluded an agreement with the South African Revenue Service (SARS) to settle a dispute relating to
assessments received for the years 2006 to 2010 inclusive, and the tax treatment of the relevant issues in the years 2011
to 2015 inclusive, for a full and final total settlement amount of R2.5 billion.
An amount of R1.5 billion had previously been provided for in the group's annual financial statements for the tax
years up to 2015, and an additional R1.0 billion has been accounted for in 2016 in respect of this settlement agreement.
The settlement will be paid in full in Q1 2017, with appropriate adjustments made for current advance payments held on
account.
The 2016 tax charge has been computed on a basis that is consistent with the settlement agreement.
As a responsible corporate citizen, our policy is to be tax compliant in all jurisdictions in which we operate.
DIVIDEND
In line with the board's policy of declaring excess cash, the declaration of a dividend is reviewed at each interim
and annual reporting period, taking into account, amongst other things, the group's net funding position. The board
remains cognisant of the volatility in certain uncontrollable market factors, such as iron ore prices, which are expected to
be under pressure from continued supply growth, as well as exchange rates and freight rates.
While the reinstatement of the dividend is a key priority for the group, the board concluded that it would be prudent
to remain ungeared over the short to medium term whilst the period of price volatility continues. Furthermore, in order
to maintain balance sheet flexibility in the context of the Anglo American portfolio review, the board has decided not
to declare a final 2016 dividend, but will review this again during the course of 2017.
UNWIND OF ENVISION
On 10 November 2016, the second phase of SIOC's employee share ownership scheme trust, Envision, came to an end. As a
result of the weighted average share price being below the strike price on vesting date, none of the shares vested to
beneficiaries of the Trust. Consequently there was no capital distribution to employees. However, over Envision's second
tenure of five years, the Trust received R1.58 billion in dividends, of which R557 million was distributed to employees
(~R75,000 per employee after tax).
THABAZIMBI TRANSFER TO AMSA
SIOC and AMSA announced that they have entered into an agreement to transfer Thabazimbi mine to AMSA. The agreement is
expected to become effective in the first half of 2017. Upon the transaction becoming effective, the employees, assets
and liabilities will transfer to AMSA at a nominal purchase consideration plus the assumed liabilities of which 96% is
already AMSA's contractual liability. These liabilities include the mine's social closure plan based on the identified
need of the Thabazimbi community. If the conditions are not satisfied by 28 April 2017 (or a later date agreed to by the
companies), the agreement will lapse and SIOC will proceed with the closure of the mine.
The transfer would simplify the current arrangement by making AMSA solely responsible for Thabazimbi's closure and
rehabilitation.
The Thabazimbi mine assets and related liabilities that will transfer to AMSA have been presented separately in the
balance sheet as assets and liabilities of the disposal group held for sale at 31 December 2016 (refer to note 10 in the
summarised consolidated financial statements).
MARKET OVERVIEW
Iron ore prices (Platts 62% Fe CFR China) improved from previous lows of US$38.50/dmt in mid-December 2015 to
US$79.65/dmt by the end of 2016, approximately doubling from the beginning of the year. The average index iron ore price for
the year increased by 5.3% to US$58/dmt. The price rise has been supported by a moderate recovery in Chinese crude steel
production and easing supply growth from Australia and Brazil. The average lump premium also benefited, increasing by
6.1% during 2016 to US$0.15/dmtu by year end, on the back of greater demand for direct charge materials and increased
environmental inspections in China which primarily targeted sintering capacity.
Seaborne supply growth, although moderating, in combination with subdued growth in crude steel production is expected
to put pressure on prices going forward.
OPERATIONAL PERFORMANCE
Production summary (unaudited)
'000 tonnes December December
2016 2015 % change
Total 41,476 44,878 (8)
Lump 26,802 29,003 (8)
Fines 14,674 15,875 (8)
Mine production 41,476 44,878 (8)
Sishen mine 28,380 31,393 (10)
DMS Plant 17,432 20,261 (13)
Jig Plant 10,948 11,132 (4)
Kolomela mine 12,726 12,054 6
Thabazimbi mine 370 1,431 (74)
Sishen mine
Sishen delivered a robust performance despite a challenging first half. During the year a new mine plan, based on a
lower cost pit shell, was finalised and successfully implemented. The workforce restructuring was completed without
interruption and mining was stabilised at higher second half run rates.
The mine produced 28.4 Mt (2015: 31.4 Mt) for the full year, a decrease of 10% with total tonnes mined reducing by 32%
to 178.3 Mt (2015: 261.4 Mt) in line with the new plan. The higher production resulted from improved mining
productivity, access to low strip ratio ore and higher plant yields during the second half. Waste removal was within the
lower end of the targeted range (135 - 150 Mt) at 137 Mt (2015: 222 Mt), impacted by equipment efficiencies. Run rates have
been stable, stockpiles built up and contractor capacity is in place to ensure targets are met.
The Sishen modular plant progressed to feasibility phase and is expected to be commissioned in 2018, and will produce
0.7 Mt over the life of mine, with indicative capital expenditure of around R400 million.
Kolomela mine
Kolomela continued to surpass expectations producing 12.7 Mt (2015: 12.1 Mt), an increase of 5%, as efficiencies and
throughput in the plant continued to improve. The mine is on track to produce between 13 Mt and 14 Mt for 2017. Total
tonnes mined increased by 6% to 64 Mt (2015: 60.6 Mt), including 50.2 Mt of waste (2015: 45.7 Mt), an increase of 10%, in
line with higher production.
The mine plan at Kolomela was optimised, which included the ramping up of production, and the deferral of mining at
the third pit. The modular plant was also commissioned in the third quarter and is on track to deliver ~0.7 Mt in 2017.
The drive to increase plant throughput will continue at Kolomela using the Operating Model and technology benefits.
The mine is targeting a 20% improvement in fleet efficiency for 2017 to offset cost inflation. Kolomela's life of mine
decreased from 21 to 18 years as a result of the planned ramp-up in production.
Logistics
Total ore railed was 39.8 Mt, a decrease of 2.6 Mt in line with lower production from Sishen. Although, higher
production rates were achieved in the second half, this resulted in rail and port constraints, which were exacerbated by the
planned maintenance shutdown in the third quarter. Rail volumes included 0.1 Mt purchased from third party producers.
Kumba shipped 38.7 Mt from the Saldanha port for the export market, an 11% decrease from the 43.5 Mt in 2015.
Sales summary (unaudited)
'000 tonnes December December
2016 2015 % change
Total 42,484 47,837 (11)
Export sales 39,061 43,560 (10)
Domestic sales 3,423 4,277 (20)
Sishen mine 2,735 2,966 (8)
Thabazimbi mine 688 1,311 (48)
Sales
Total sales decreased by 11% to 42.5 Mt (2015: 47.8 Mt). Export sales of 39.1 Mt were achieved, 10% lower as a result
of planned lower production at Sishen. China accounted for 64% (2015: 63%) of the export sales portfolio and CFR sales
accounted for 70%. The group's lump:fine sales ratio was 64:36 for the period (2015: 65:35). Domestic sales to AMSA
amounted to 3.4 Mt (2015: 4.3 Mt).
Finished product stock reduced from 4.7 Mt at the end of 2015 to a more optimal level of 3.5 Mt at 31 December 2016.
FINANCIAL RESULTS
Impairment assessment
In the prior year, the group recognised an impairment charge of R6 billion with respect to the property, plant and
equipment of Sishen mine. Given that market conditions have improved in the current year, it was considered appropriate to
re-assess Sishen mine for impairment at 31 December 2016.
Despite the short-term volatility in iron ore prices, continued supply growth is expected to put pressure on long-term
iron ore prices. In this context, no portion of the impairment charge previously recognised was reversed.
Refer to note 5 in the summarised consolidated financial statements which detail the key assumptions applied in
preparing the impairment calculation.
Discontinued operation
Following the decision to close the Thabazimbi mine in 2015, mining activities ceased in September 2015 and the
remaining plant operations ceased on 31 March 2016. The Thabazimbi operation is therefore classified as a discontinued
operation for the year ended 31 December 2016, and as a result, the comparative figures have been restated to present the
discontinued operation separately from continuing operations.
Revenue
The group's total revenue of R40.8 billion for the period increased by 13% from R36.1 billion in 2015, mainly as a
result of the increase in average realised FOB iron ore prices (2016: US$64/tonne; 2015: US$53/tonne), and the weaker
average ZAR/US$ exchange rate (2016: R14.69; 2015: R12.76). This was partially offset by 11% lower total sales volumes of
42.5 Mt (2015: 47.8 Mt). Capesize freight rates from Saldanha to China averaged $6.81/tonne for the year, a 15% decrease,
resulting in a R665 million decrease in freight revenue.
Operating expenses
Operating expenses, excluding impairments and royalties, decreased by 10% as a result of the stringent cost control measures
implemented. Mining costs decreased by 17% in real terms from lower mining volumes, fuel prices and contractors' rates. This
was offset by a decrease in the capitalisation of deferred stripping costs due to lower waste volumes and strip ratio at
Sishen.
Unit cash costs at Sishen mine decreased by 5% to R296/tonne, (2015: R311/tonne), driven by the 38% decrease in waste
mined. The lower mining volumes were partially offset by lower production volumes, lower deferred stripping and input
cost pressures. Cost escalation was contained below inflation principally as a result of lower fuel prices.
Kolomela mine incurred unit cash costs of R201/tonne (2015: R178/tonne), a 13% increase. Higher mining volumes and lower
deferred stripping were the main contributors. Cost escalation was contained well below inflation at 3% as a result of lower
diesel prices and cost of blasting material, which was partially offset by higher production.
Operating profit
Operating profit of R15.3 billion increased by 78% (2015: R8.6 billion excluding the impairment charge). Kumba's
operating profit margin increased to 38% (2015: 24%), 41% from mining activities (2015: 27%). The weakening of the
ZAR/US$ exchange rate and the increase in iron ore prices for the year contributed to the increase in profitability.
Cash flow
The group's cash generated from operations increased by 24% from R13.8 billion in 2015 to R17.2 billion. The cash was
used to pay income tax of R3.4 billion (2015: R0.6 billion) and capital expenditure of R2.4 billion (2015: R6.8 billion)
was incurred. The increase in the income tax paid in 2016 was as a result of higher profitability and the lower capital
expenditure incurred during the year. At 31 December 2016 the group had a net cash position of R6.2 billion (2015: net
debt position of R4.6 billion). The group's working capital position remains healthy and included an increase of
R2.1 billion in trade and other receivables on the back of higher realised prices.
Expansion capital expenditure of R0.9 billion focused on the Dingleton relocation project and R1.2 billion was spent on
stay-in-business (SIB) activities, including heavy mining equipment and infrastructure, and R0.3 billion deferred stripping
was capitalised. Capital expenditure for 2017, including deferred stripping, is expected to be in the range of R2.6 billion
to R2.8 billion, and between R3.5 billion and R3.7 billion for 2018, excluding unapproved projects.
ORE RESERVES AND MINERAL RESOURCES
The following changes are reported to the ore reserves and mineral resources relative to that disclosed in the 2015
Kumba Integrated Report.
As at 31 December 2016, Kumba, from a 100% reporting perspective, had access to ore reserves of 744 Mt (at 59.7% Fe)
at its two mining operations (Sishen and Kolomela), a 16% net decrease from 2015.
Sishen mine's ore reserves reduced by 18% (120.5 Mt). This is in line with the guidance provided in the 2015 resource
and reserve statement which indicated that reserves were expected to reduce by ~150 Mt as a result of the selection of a
smaller, but more cost effective, pit layout for the Sishen life of mine. Commensurately, the mineral resources reduced
by 19% (98.6 Mt). A larger reduction in mineral resources was offset by the inclusion of 213 Mt of lower grade mineral
resources, following the approval of the prefeasibility study for the Sishen low grade project.
Kolomela's ore reserves decreased by 10%, primarily due to production. The Kolomela mineral resources increased by 8%
due to the re-allocation of ore reserves to mineral resources associated with a decrease in the Kapstevel South pit
layout size.
As indicated in 2015, Thabazimbi mine's production ceased in 2016, and the mineral resources have been removed from
the portfolio as Kumba can no longer demonstrate reasonable prospects for eventual economic extraction.
Kumba's estimated mineral resources, in addition to its ore reserves at the two operations and the Zandrivierspoort
magnetite project, totalled 1.1 billion tonnes (at 46.5% Fe), a year-on-year decrease of 8%.
MINING CHARTER
Significant uncertainty remains around the draft Mining Charter III process which may impact future empowerment of
mining companies and granting of new mining rights. The Chamber of Mines is actively engaging in order to obtain greater
clarity as to the future requirements and Kumba continues to closely monitor these developments.
CHANGES IN DIRECTORATE
The following non-executive directors have stepped down from the board in 2016:
- Mr T O'Neill as non-executive director on 6 February 2016
- Mr LM Nyhonyha as independent non-executive director on 31 December 2016
The board thanks the directors for their contributions and guidance during their respective tenures and wishes them
all the best in their future endeavours.
The Chief executive and executive director of the Company, Mr Norman Mbazima stepped down with effect from
30 August 2016.
The board thanks Mr Mbazima for his impeccable leadership over the last four years, which coincided with tumultuous
times for the mining sector and a steep decline in the iron ore price. He responded swiftly to these challenges, and
displayed the sort of temperament, technical insight and integrity which attracted the support of staff and stakeholders
even as he led the Company through major changes. We wish him every success as he focuses on the wider imperatives of
Anglo American in South Africa.
The Company announced the following appointments to the board:
- Mr TM Mkhwanazi as executive director and Chief executive on 1 September 2016
- Mr SG French as non-executive alternate director on 1 November 2016
- Ms NS Dlamini as non-executive director on 1 November 2016.
The board welcomes Mr Themba Mkhwanazi to his new role as Chief executive of Kumba. Mr Mkhwanazi was previously the
CEO of Anglo American's thermal coal business in South Africa. He has extensive experience in the resources industry,
including 18 years in South Africa, as well as in the USA and Australia. Sishen and Kolomela are world class assets, and the
board believes that Mr Mkhwanazi's proven technical, sales and management experience will add great value and will help
secure the long-term future of these high quality iron ore mines.
OUTLOOK
The global and local macro-economic and socio-political environment remains challenging despite the recent rise in
iron ore prices. Given the current volatility and the long-term iron ore price outlook, cash preservation remains the
overriding priority at this stage. Improving productivity, alongside ongoing strict cost discipline and the realisation of
appropriate pricing for the Company's high quality products are very compelling levers to generate attractive returns with
low risk for shareholders. The core focus for 2017 will therefore be to step up these initiatives from current levels,
supported by the Operating Model and technology improvements, in order to realise the full potential of the assets,
provide confidence in delivery and enhance profitability.
These initiatives are expected to increase mining efficiencies, improve geological confidence and mine to plan
compliance, build buffer stockpiles, enhance plant efficiencies and maintain the product quality focus. Clear and concise
plans are in place to deliver the required improvement.
The group will continue with disciplined capital allocation and prioritising the reinstatement of dividends. In
addition work continues to progress the value accretive project pipeline by utilising beneficiation technologies for
application to ultrafine material to unlock value from what is currently regarded as waste.
Sishen is expected to produce between 27 and 28 Mt of iron ore, and 150 to 160 Mt of waste, in 2017 - 2020. As
a result of the reconfigured pit, Sishen's life of mine increased from 15 to 17 years. The strip ratio is expected to
exceed 4 over the medium term, given higher waste requirements, with the average life of mine strip ratio at ~4. To
achieve this, a strong focus on productivity, using the Operating Model, will be required, with an average improvement
of 20% in mining equipment efficiencies from current levels. Going forward, our target is to keep Sishen's unit cash costs
growth below mining inflation through the productivity initiatives.
The upgrade of the Sishen DMS plant to UHDMS has progressed to pre-feasibility stage and, as a result, the group has
declared an additional 213 Mt resource at Sishen. First production is expected by 2020, and is expected to add ~2 Mtpa over
Sishen's life of mine.
Kolomela is expected to produce between 13 - 14 Mtpa in 2017 - 2020, with further improvements in plant efficiency and
throughput rates, which will be delivered through the Operating Model and technology initiatives. The mine is targeting
20% equipment efficiencies for the year. Waste guidance remains at ~50 - 55 Mt from 2017 to 2020, in line with higher
production. The strip ratio is expected to be ~3.9 over the medium term, with the average life of mine strip ratio at 3.8.
The ramp up of the modular plant is expected to be completed in 2017, contributing 0.7 Mtpa. Kolomela's unit costs are likely
to increase principally due to cost escalations and the commissioning of the DMS modular plant.
Kumba is targeting total sales of 40 - 42 Mt in 2017. Domestic sales volumes of up to 6.25 Mt are contracted to AMSA.
Profitability remains sensitive to iron ore export prices and the ZAR/US$ exchange rate. Any reference to future
financial performance included in this announcement has not been reviewed or reported on by the Company's auditors.
Further to the announcement by Anglo American in February 2016 of a potential exit from Kumba, the business and the
board, through a separately constituted committee, have focused on ensuring that Kumba is in a position to sustainably
continue business post an exit and that the appropriate governance is in place through an exit process. Shareholders will
be updated on any developments related to Anglo American's portfolio review, as appropriate.
The presentation of the Company's results for the year ended 31 December 2016 will be available on the Company's website
www.angloamericankumba.com at 07:00 CAT and the webcast will be available from 11:30 CAT on 14 February 2017.
SALIENT FEATURES AND OPERATING STATISTICS
for the year ended
Unaudited Unaudited
31 December 31 December
2016 2015
Share statistics ('000)
Total shares in issue 322,086 322,086
Weighted average number of shares 319,521 320,817
Treasury shares 2,798 1,110
Market information
Closing share price (Rand) 159 41
Market capitalisation (Rand million) 51,212 13,270
Market capitalisation (US$ million) 3,730 858
Net asset value attributable to owners of Kumba (Rand per share) 86.47 59.98
Capital expenditure (Rand million)
Incurred 2,353 6,752
Contracted 644 1,115
Authorised but not contracted 2,208 1,553
Operating commitments
Operating lease commitments 89 113
Shipping services 8,692 10,431
Economic information
Average Rand/US Dollar exchange rate (ZAR/US$) 14.69 12.76
Closing Rand/US Dollar exchange rate (ZAR/US$) 13.73 15.47
Sishen mine FOR unit cost
Unit cost (Rand per tonne) 412.04 403.47
Cash cost (Rand per tonne) 296.19 310.80
Unit cost (US$ per tonne) 28.05 31.62
Cash cost (US$ per tonne) 20.16 24.36
Kolomela mine FOR unit cost
Unit cost (Rand per tonne) 283.42 245.74
Cash cost (Rand per tonne) 201.09 177.70
Unit cost (US$ per tonne) 19.29 19.26
Cash cost (US$ per tonne) 13.69 13.93
SUMMARISED CONSOLIDATED BALANCE SHEET
as at
Audited Audited
31 December 31 December
Rand million Notes 2016 2015
Assets
Property, plant and equipment 5 32,131 32,671
Biological assets 2 11
Investments held by environmental trust 559 818
Long-term prepayments and other receivables 84 581
Inventories 2,889 2,560
Deferred tax assets 87 1
Non-current assets 35,752 36,642
Inventories 4,604 5,056
Trade and other receivables 5,253 3,212
Cash and cash equivalents 10,665 3,601
Current assets 20,522 11,869
Assets of disposal group classified as held for sale 10 938 -
Total assets 57,212 48,511
Equity
Shareholders' equity 6 27,850 19,320
Non-controlling interest 8,686 5,847
Total equity 36,536 25,167
Liabilities
Interest-bearing borrowings 7 4,500 8,000
Provisions 1,967 2,717
Deferred tax liabilities 7,462 7,680
Non-current liabilities 13,929 18,397
Interest-bearing borrowings 7 - 205
Provisions 164 349
Trade and other payables 3,741 3,407
Current tax liabilities 1,906 986
Current liabilities 5,811 4,947
Liabilities of disposal group classified as held for sale 10 936 -
Total liabilities 20,676 23,344
Total equity and liabilities 57,212 48,511
SUMMARISED CONSOLIDATED INCOME STATEMENT
for the year ended
Audited
Audited Restated
31 December 31 December
Rand million Note 2016 2015
Revenue 40,155 35,260
Operating expenses (24,881) (32,564)
Operating profit 8 15,274 2,696
Finance income 295 148
Finance costs (496) (853)
Share of profit of equity accounted joint venture 2 6
Profit before taxation 15,075 1,997
Taxation (3,934) (1,280)
Profit for the year from continuing operations 11,141 717
Discontinued operations
Profit/(loss) from discontinued operations 3 (90)
Profit for the year 11,144 627
Attributable to:
Owners of Kumba 8,621 469
Non-controlling interest 2,523 158
11,144 627
Basic earnings/(loss) per share attributable to the
ordinary equity holders of Kumba (Rand per share)
From continuing operations 26.97 1.68
From discontinued operations 0.01 (0.22)
Total basic earnings per share 26.98 1.46
Diluted earnings/(loss) per share attributable to the
ordinary equity holders of Kumba (Rand per share)
From continuing operations 26.83 1.68
From discontinued operations 0.01 (0.22)
Total diluted earnings per share 26.84 1.46
The comparative amounts for 2015 have been restated to reflect Thabazimbi mine as a discontinued operation.
SUMMARISED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended
Audited Audited
31 December 31 December
Rand million 2016 2015
Profit for the year 11,144 627
Other comprehensive income for the year, net of tax (233) 255
Exchange differences on translation of foreign operations1 (233) 255
Total comprehensive income for the year 10,911 882
Attributable to:
Owners of Kumba 8,442 592
Non-controlling interest 2,469 290
10,911 882
1 There is no tax attributable to items included in other comprehensive income and all items will be subsequently
reclassified to profit or loss.
SUMMARISED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended
Audited Audited
31 December 31 December
Rand million 2016 2015
Total equity at the beginning of the year 25,167 27,001
Changes in share capital and premium
Treasury shares issued to employees under
employee share incentive schemes 197 180
Purchase of treasury shares (180) -
Changes in reserves
Equity-settled share-based payment 513 469
Vesting of shares under employee share incentive schemes (197) (180)
Total comprehensive income for the year 8,442 592
Dividends paid - (2,505)
Changes in non-controlling interest
Total comprehensive income for the year 2,469 290
Dividends paid - (796)
Equity-settled share-based payment 125 116
Total equity at the end of the year 36,536 25,167
Comprising
Share capital and premium (net of treasury shares) (114) (131)
Equity-settled share-based payment reserve* 172 2,021
Foreign currency translation reserve 1,262 1,453
Retained earnings 26,530 15,977
Shareholders' equity 27,850 19,320
Attributable to the owners of Kumba 27,850 18,534
Attributable to non-controlling interest - 786
Non-controlling interest 8,686 5,847
Total equity 36,536 25,167
Dividend (Rand per share)
Interim - -
Final - -
* The second phase of the employee share ownership scheme, Envision, unwound in November 2016. On vesting,
the equity-settled share based payment reserve was reclassified to retained earnings.
SUMMARISED CONSOLIDATED CASH FLOW STATEMENT
for the year ended
Audited Audited
31 December 31 December
Rand million 2016 2015
Cash generated from operations 17,218 13,841
Income from investments 2 -
Net finance costs paid (319) (578)
Taxation paid (3,363) (594)
Cash flows from operating activities 13,538 12,669
Additions to property, plant and equipment (2,353) (6,752)
Loan repaid by joint venture - 5
Proceeds from the disposal of property, plant and equipment 9 120
Cash flows used in investing activities (2,344) (6,627)
Purchase of treasury shares (180) -
Dividends paid to owners of Kumba - (2,490)
Dividends paid to non-controlling shareholders - (811)
Net interest-bearing borrowings repaid (3,705) (1,388)
Cash flows used in financing activities (3,885) (4,689)
Net increase in cash and cash equivalents 7,309 1,353
Cash and cash equivalents at beginning of year 3,601 1,664
Foreign currency exchange gains on cash and cash equivalents (245) 584
Cash and cash equivalents at end of year 10,665 3,601
HEADLINE EARNINGS
for the year ended
Audited Audited
31 December 31 December
Rand million 2016 2015
Reconciliation of headline earnings
Profit attributable to owners of Kumba 8,621 469
Impairment charge 4 5,978
Net loss on disposal and scrapping of property,
plant and equipment 186 9
Insurance proceeds - (29)
8,811 6,427
Taxation effect of adjustments (54) (1,644)
Non-controlling interest in adjustments (33) (991)
Headline earnings 8,724 3,792
Headline earnings (Rand per share)
Basic 27.30 11.82
Diluted 27.16 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 319,520,658 320,817,364
Diluted weighted average number of ordinary shares 321,163,523 320,817,364
The dilution adjustment of 1,642,865 shares at 31 December 2016 (2015: zero) is a result of the vesting
of share options previously granted under the various employee share incentive schemes.
NORMALISED EARNINGS
for the year ended
Unaudited Unaudited
31 December 31 December
Rand million 2016 2015
Reconciliation of normalised earnings
Headline earnings attributable to owners of Kumba 8,724 3,792
Gain on lease receivable - (418)
(Recognition)/derecognition of deferred tax asset (86) 801
8,638 4,175
Taxation effect of adjustments - 117
Non-controlling interest in adjustments 20 (115)
Normalised earnings 8,658 4,177
Normalised earnings (Rand per share)
Basic 27.10 13.02
Diluted 26.96 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 319,520,658 320,817,364
Diluted weighted average number of ordinary shares 321,163,523 320,817,364
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 recurring activities
of the group.
This is determined by adjusting the headline earnings attributable to the owners of Kumba for non-recurring
expense or income items incurred during the year. The recognition of the deferred tax asset is a non-recurring
item and has therefore been adjusted in determining normalised earnings.
NOTES TO THE AUDITED SUMMARISED CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 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 audited summarised consolidated financial statements of Kumba and its subsidiaries for the year ended
31 December 2016 were authorised for issue in accordance with a resolution of the directors on 10 February 2017.
2. Basis of preparation
The audited summarised consolidated financial statements have been prepared, under the supervision of FT Kotzee CA(SA),
Chief financial officer, in accordance with the requirements of the JSE Limited Listings Requirements for provisional
reports, and the requirements of the South African Companies Act No 71 of 2008 applicable to summary financial statements.
The Listings Requirements require provisional reports to be prepared in accordance with the framework concepts and the
measurement and recognition requirements of International Financial Reporting Standards (IFRS) and the SAICA Financial
Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by Financial
Reporting Standards Council and to also, as a minimum, contain the information required by IAS 34 Interim Financial
Reporting.
The audited summarised consolidated financial statements have been prepared in accordance with the historical cost
convention except for certain financial instruments, share-based payments and biological assets which are stated at
fair value, and is presented in Rand, which is Kumba's functional and presentation currency.
3. Accounting policies
The accounting policies applied in the preparation of the consolidated financial statements from which the summarised
consolidated financial statements were derived are in terms of International Financial Reporting Standards and are
consistent with those accounting policies applied in the preparation of the previous consolidated annual financial
statements, except as disclosed below.
3.1 New standards, amendments to published standards and interpretations
None of the standards, amendments to published standards and interpretations which became effective for the year
commencing on 1 January 2016 had an impact on the group.
3.2 New standards, amendments to existing standards and interpretations that are not yet effective and have not been
early adopted
In 2016 the group did not early adopt any new, revised or amended accounting standards or interpretations. The
accounting standards, amendments to issued accounting standards and interpretations, which are relevant to the group
but not yet effective at 31 December 2016, are being evaluated for the impact of these pronouncements.
4. Change in estimates
The measurement of the environmental rehabilitation and decommissioning provisions is 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 (LoM) plan on which accounting
estimates are based only includes proved and probable ore reserves as disclosed in Kumba's annual ore reserves and
mineral resources statement. The most significant change in the provision for 2016 arises from changes in the LoM,
inflationary changes and limited scope changes. The effect of the change in estimate of the rehabilitation and
decommissioning obligation quantum, which was applied prospectively from 1 January 2016, is detailed below:
Audited
31 December
Rand million 2016
Decrease in environmental rehabilitation provision (3)
Increase in decommissioning provision 9
Increase in profit attributable to the owners of Kumba 1
Rand per share
Effect on earnings per share attributable to the owners of Kumba -
The change in estimate in the decommissioning provision has been capitalised to the related property, plant and equipment
and as a result had no effect on profit or earnings per share.
5. Property, plant and equipment
Audited Audited
31 December 31 December
Rand million 2016 2015
Capital expenditure 2,520 6,752
Comprising:
Expansion 856 870
Stay-in-business (SIB)* 1,343 3,030
Deferred stripping 321 2,852
Transfers from assets under construction to property, plant and equipment 2,392 3,419
* Included in the SIB expenditure above is a non-cash addition of R167 million relating to the unguaranteed residual value
under a finance lease.
Expansion capital expenditure comprises mainly the expenditure on the Dingleton relocation project. SIB capital expenditure
to maintain operations was principally for the acquisition of heavy mining equipment and infrastructure.
Impairment assessment
Kumba produces iron ore at Sishen and Kolomela mines in the Northern Cape province. The two mines are treated as separate
cash-generating units (CGUs). Each CGU consists of its respective mining assets located in the Northern Cape. In the 2015
financial year, Sishen was impaired by R6 billion, including an associated deferred tax credit of R1.7 billion. Kolomela
was not impaired.
The increases in iron ore prices and Kumba's market capitalisation in the current year were considered indicators for
potential impairment reversal for Sishen. The group's non-financial assets, other than inventories and deferred tax assets,
were assessed for impairment or reversal of impairment. Recoverable amounts were estimated for individual assets or, where
an individual asset cannot generate cash inflows independently, the recoverable amount was determined for the CGU to which
the asset belongs.
Consistent with the prior year, the carrying value of Kolomela at 31 December 2016 was recoverable and therefore, no
impairment charge was recorded. The recoverable amount of Sishen at 31 December 2016, determined on a discounted
cash flow (DCF) basis, was R19.9 billion, which was reasonably comparable to the carrying value of R19.5 billion. Despite
the short-term volatility in iron ore prices, continued supply growth is expected to put pressure on iron ore prices. As a
result, the group's assumption on the long-term iron ore price outlook remains conservative. In this context, the resulting
headroom for the Sishen CGU of R0.4 billion was considered not significant and therefore no portion of the impairment charge
previously recognised was reversed.
The DCF model is sensitive to forecast iron ore prices, the ZAR/US$ exchange rate and the discount rate applied. The
valuation is most sensitive to fluctuations in iron ore prices. It was considered whether a reasonably possible change
in any of the key assumptions, would result in additional impairment or reversal of previous impairment, as shown in the
table below:
Result of sensitivity
Additional impairment/
Assumption Movement in assumption (Reversal of impairment) R'billion
Iron ore price -/+ 5% 1.8 / (2.6)
ZAR/US$ exchange rates -/+ 5% 1.6 / (2.5)
Discount rate +/- 100 basis points 1.1 / (2.2)
6. Share capital and share premium
Reconciliation of share capital and share premium (net of treasury shares):
Audited Audited
31 December 31 December
Rand million 2016 2015
Balance at beginning of year (131) (311)
Net movement in treasury shares under employee share incentive schemes 17 180
Purchase of treasury shares (180) -
Shares issued to employees 197 180
Balance at end of year (114) (131)
Reconciliation of number of shares in issue:
Audited Audited
31 December 31 December
Number of shares 2016 2015
Balance at beginning and end of year 322,085,974 322,085,974
Reconciliation of treasury shares held:
Balance at beginning of year 1,109,732 1,553,346
Shares purchased 2,140,891 -
Shares issued to employees under the Long-Term Incentive Plan and
Kumba Bonus Share Plan (452,996) (423,614)
Balance at end of year 2,797,627 1,109,732
All treasury shares are held as conditional awards under the Kumba Bonus Share Plan.
7. Interest-bearing borrowings
Kumba's net (cash)/debt position at the balance sheet dates was as follows:
Audited Audited
31 December 31 December
Rand million 2016 2015
Interest-bearing borrowings 4,500 8,205
Cash and cash equivalents (10,665) (3,601)
Net (cash)/debt (6,165) 4,604
Total equity 36,536 25,167
Interest cover (times) 36 4
Movements in interest-bearing borrowings are analysed as follows:
Audited Audited
31 December 31 December
Rand million 2016 2015
Balance at the beginning of the year 8,205 9,593
Interest-bearing borrowings raised 30 10,400
Interest-bearing borrowings repaid (3,735) (11,556)
Finance lease repaid - (232)
Balance at the end of the year 4,500 8,205
The group's committed debt facilities of R16.5 billion (R4.5 billion term facility and R12 billion revolving facility)
mature in 2020. At 31 December 2016, R4.5 billion of the committed facility had been drawn down. The directors approved
the early settlement of the term facility and notice was given to the lenders on 3 February 2017. As a result of the
settlement, the loan cannot be drawn again, effectively reducing the group's committed debt facilities to R12 billion.
The group also had undrawn uncommitted facilities of R8.3 billion at 31 December 2016. The group was not in breach of
any of its financial covenants during the year.
8. Significant items included in operating profit
Operating expenses are made up as follows:
Restated
Audited Audited
31 December 31 December
Rand million 2016 2015
Production costs 15,819 16,210
Movement in inventories (368) 1,072
Finished products 84 1,427
Work-in-progress (452) (355)
Cost of goods sold 15,451 17,282
Impairment charge1 - 5,978
Mineral royalty 963 172
Selling and distribution costs 5,379 5,507
Cost of services rendered - shipping 3,115 3,657
Sublease rent received (27) (32)
Operating expenses 24,881 32,564
Operating profit was derived after taking into account the following items:
Employee expenses 3,498 3,639
Net restructuring costs 384 34
Share-based payment expenses 647 593
Depreciation of property, plant and equipment 3,089 3,223
Deferred waste stripping costs capitalised (321) (2,852)
Net loss on disposal and scrapping of property, plant and equipment 191 9
Gains on lease receivable (164) -
Insurance proceeds - (29)
Finance gains (657) (813)
Net (gains)/losses on derivative financial instruments
Realised (420) 133
Unrealised (570) (35)
Net foreign currency (gains)/losses
Realised 286 (907)
Unrealised 69 14
Fair value gains on investments held by the environmental trust (22) (18)
1 The impairment charge in 2015 relates to Sishen mine.
9. Segmental reporting
Sishen Kolomela Thabazimbi Shipping
Rand million mine mine mine2 Logistics operations Other Total
Audited year ended 31 December 2016
Income statement
Revenue from external customers 26,644 10,764 612 - 2,747 - 40,767
Depreciation 1,992 943 2 9 - 145 3,091
Staff costs 3,045 738 62 29 - 717 4,591
Impairment charge - - 4 - - - 4
EBIT1 14,194 6,539 41 (5,379) (370) 290 15,315
Balance sheet
Total segment assets 606 163 - 651 - 58 1,478
Cash flow statement
Additions to property, plant and equipment3
Expansion capex 735 110 - - - 11 856
Stay-in-business capex 729 259 - 1 - 187 1,176
Deferred stripping 88 233 - - - - 321
Audited year ended 31Â December 2015
Income statement
Revenue from external customers 23,869 7,980 878 - 3,411 - 36,138
Depreciation 2,428 732 - 6 - 157 3,323
Staff costs 3,048 642 429 30 - 517 4,666
Impairment charge 5,978 - - - - - 5,978
EBIT1 4,273 4,423 (52) (5,506) (247) (247) 2,644
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 After impairment charge.
2 The segment information above includes the results of Thabazimbi and therefore differs from the information presented in the
income statement.
3 As a result of the Thabazimbi mine lease termination, Thabazimbi mine recognised assets of R167 million and a gain in profit or
loss of R164 million. These are non-cash additions and therefore not included above.
The total reported segment revenue is measured in a manner consistent with that disclosed in the income statement.
The performance of the operating segments are assessed based on a measure of earnings before interest and taxation (EBIT),
which is measured in a manner consistent with 'Operating profit' in the financial statements. Finance income and finance
costs are not allocated to segments, as treasury activity is managed on a central group basis.
Total segment assets comprise finished goods inventory only, which is allocated based on the operations of the segment and the
physical location of the assets.
'Other segments' comprise corporate, administration and other expenditure not allocated to the reported segments.
Geographical analysis of revenue and non-current assets:
Audited Audited
31 December 31 December
Rand million 2016 2015
Total revenue from external customers1 40,767 36,138
South Africa 2,862 3,155
Export 37,905 32,983
China 25,054 19,974
Rest of Asia 7,730 9,879
Europe 4,846 3,130
Middle East and Africa 275 -
1 Including South African external sales for Thabazimbi mine of R612 million (2015: R878 million).
10. Discontinued operations and disposal group held for sale
All remaining plant operations at the Thabazimbi mine ceased in 2016 following the decision to close the mine in 2015.
The Thabazimbi operation is classified as a discontinued operation for the year ended 31 December 2016, and as a result,
the comparative figures have been restated to show the discontinued operation separately from continuing operations.
Analysis of the result of the Thabazimbi mine is as follows:
Restated
Audited Audited
31 December 31 December
Rand million 2016 2015
Revenue 612 878
Operating expenses (571) (930)
Operating profit/(loss) 41 (52)
Net finance income 4 94
Profit before tax 45 42
Income tax expense (42) (132)
Profit/(loss) after income tax of discontinued operation 3 (90)
Attributable to owners of the parent 2 (69)
Attributable to the NCI 1 (21)
Profit/(loss) from discontinued operation 3 (90)
Cash flow from discontinued operations
Net cash flows from operating activities 279 639
SIOC and AMSA have entered into an agreement to transfer Thabazimbi mine to AMSA. The agreement is expected to become
effective in 2017, subject to certain conditions. Mining operations at Thabazimbi ceased in 2015 and processing operations
ceased on 31 March 2016. The identified assets and liabilities of Thabazimbi mine (as indicated in the disclosure below) will
be transferred at a nominal purchase consideration plus the assumed liabilities. If the conditions have not been satisfied
by 28 April 2017 (or a later date agreed to by the companies), the agreement will lapse and SIOC will proceed with closure
of the mine.
The requirements of IFRS 5 have been considered and as a result, the Thabazimbi mine assets and related liabilities
that will transfer to AMSA to be presented as part of non-current assets and liabilities held for sale as at 31 December 2016.
In addition, the results of Thabazimbi mine are presented as a discontinued operation for the year ended 31 December 2016.
Comparative figures have been restated where required. An impairment loss of R4 million has been recognised related to
the Thabazimbi mine assets that were not part of the lease with AMSA.
Non-current assets held for sale and the associated liabilities
Audited
31 December
Rand million 2016
ASSETS
Property, plant and equipment 8
Biological assets 18
Investments held by environmental trust 296
Long-term payments and other receivables 515
Inventories 5
Trade and other receivables 96
Total assets 938
LIABILITIES
Non-current provisions (822)
Current provisions (114)
Total liabilities (936)
Net carrying amount sold 2
11. 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 11 Level 22
Audited 31 December 2016
Investments held by the environmental trust4 855 -
Cash and cash equivalents
- Derivative financial assets5 - 615
Cash and cash equivalents
- Derivative financial liabilities5 - (28)
855 587
Audited 31 December 2015
Investments held by the environmental trust 818 -
Trade and other receivables
- Derivative financial assets5 - 38
Trade and other payables
- Derivative financial liabilities5 - (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 market-related prices).
3 Level 3 fair value measurements are derived from valuation techniques that include inputs that are not based on
observable market data. There were no level 3 measurement in 2016 or 2015.
4 Including Thabazimbi's investments disclosed as held for sale in note 10.
5 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. In 2016
these derivatives are presented as part of cash and cash equivalents.
12. Related party transactions
During the period, Kumba, in the ordinary course of business, entered into various sale, purchase and service
transactions with associates, joint ventures, fellow subsidiaries, its holding Company and Exxaro Resources Limited.
These transactions were subject to terms that are no less favourable than those offered by third parties.
Audited Audited
12 months 12 months
31 December 31 December
Rand million 2016 2015
Short-term deposit held with Anglo American SA Finance Limited1 (AASAF) 7,430 839
- Deposit 12 - 205
- Weighted average interest rate - 6.48%
- Deposit 2 7,430 634
- Weighted average interest rate 7.02% 5.96%
Interest earned on short-term deposits AASAF during the year 262 120
Short-term deposit held with Anglo American Capital plc1 1,991 2,059
Interest earned on facility during the year * *
Interest-bearing borrowing from AASAF - 205
Interest paid on borrowings during the year 7 67
Weighted average interest rate 8.16% 7.05%
Trade payable owing to Anglo American Marketing Limited2 (AAML) 195 433
Shipping services provided by AAML 3,107 3,642
Dividends paid to Exxaro Resources Limited - 673
1 Subsidiaries of the ultimate holding Company.
2 This deposit was settled during the year.
* Interest earned on the deposit is insignificant and is earned at prevailing market rates.
13. Contingent liabilities
(a) Settlement agreement with SARS
In February 2016, the group announced the receipt of a tax assessment from the South African Revenue Service (SARS),
relating to Sishen Iron Ore Company (Pty) Ltd's (SIOC) 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. During
March 2016 the group submitted an application for the suspension of payment in relation to the assessment, followed
in July 2016 by its objection to the assessment.
In September 2016, SIOC received a letter of findings from SARS in relation to the 2011 tax year, indicating potential
adjustments to the Company's taxable income which would result in an additional tax liability of approximately
R1.0 billion, excluding any potential interest and penalties, should Kumba ultimately be assessed on this basis.
On 3 February 2017, the group concluded an agreement with the SARS to settle a dispute relating to the assessments
received for the years 2006 to 2010, and the tax treatment of the relevant issues in the years 2011 to 2015, inclusive,
for a full and final total settlement amount of R2.5 billion.
Kumba had previously provided for an amount of R1.5 billion in its annual financial statements for the financial years
up to 2015, and an additional R1.0 billion has been accounted for in 2016 in respect of this settlement agreement. The
settlement will be paid in full in the first quarter of 2017, with appropriate adjustments made for current advance
payments held on account.
As a responsible corporate citizen, the group's policy is to be tax compliant in all jurisdictions in which it operates.
(b) Municipal rates and taxes
As previously reported, rates and taxes levied by the municipality at Sishen since 1 June 2014 were significantly higher
than previously levied. Subsequent to year end, the group settled the rates and taxes matter with the municipality at
Sishen. The settlement is effective immediately and property values and the quantum of the rates and taxes will be adjusted
retrospectively to the date of the publication of the 2014 municipal valuation roll.
14. Guarantees
The group has issued financial guarantees in favour of the DMR in respect of its environmental rehabilitation and decommissioning
obligations to the value of R2.8 billion (2015: R2.3 billion). Included in this amount are financial guarantees for the
environmental rehabilitation and decommissioning obligations of the group in respect of Thabazimbi mine of R438 million
(2015: R438 million). AMSA has guaranteed R429 million of this amount by means of bank guarantees issued in favour of SIOC.
As a result of the annual revision of closure costs a further shortfall of R311 million arose. Guarantees for the shortfall
will be issued in due course. AMSA has guaranteed R300 million of this amount by means of bank guarantees issued in favour
of SIOC.
15. Regulatory update
(a) 21.4% undivided share of the Sishen mine mineral rights
In October 2016, the DMR granted the residual 21.4% undivided share of the mining right for the Sishen mine to Kumba's
subsidiary, SIOC following the completion of an internal appeal process, as prescribed by section 96 of the MPRDA.
As a result of the grant of the residual 21.4% undivided share, SIOC is now the sole and exclusive holder of the right
to mine iron ore and quartzite at the Sishen mine. This residual mining right will be incorporated into the 78.6% Sishen
mining right that SIOC successfully converted in 2009.
The consent to amend SIOC's mining right, by the inclusion of the residual 21.4% undivided share, is subject to various
conditions. The conditions, where applicable, will ultimately form part of the conditions to the Sishen mining right.
These include the requirement for the continuation of the existing Export Parity Price (EPP) based supply agreement
between SIOC and AMSA in its role as a strategic South African steel producer, as well as SIOC's continued support of
skills development, research and development and initiatives to enable preferential procurement.
(b) Mining Charter
Significant uncertainty remains around the draft Mining Charter III process which may impact future empowerment of
mining companies and granting of new mining rights. The Chamber of Mines is actively engaging in order to obtain greater
clarity as to the future requirements and Kumba continues to closely monitor these developments.
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 will be contained in the 2016 Integrated Report.
17. Events after the reporting period
Besides the decision to early settle the loan of R4.5 billion as discussed in note 7 and the settlement agreements with
SARS and the municipality at Sishen as discussed in note 13, no further material events have occurred between the end of
the reporting period and the date of the release of these audited summarised consolidated financial statements.
18. Independent auditor's report
These summarised consolidated financial statements for the year ended 31 December 2016 have been audited by Deloitte & Touche,
who expressed an unmodified opinion thereon. The auditor also expressed an unmodified opinion on the consolidated financial
statements from which these summarised consolidated financial statements were derived.
A copy of the auditor's reports on the consolidated financial statements and the summarised consolidated financial
statements are available for inspection at the Company's registered office, together with the financial statements identified
in the respective auditor's reports.
Any reference to future financial performance included in this announcement has not been reviewed or reported on by the
Company's auditor.
All Resource and Reserve related information listed is derived from the 2016 Kumba Iron Ore Reserve and Resource statement
(to be published on 10 April 2017) as reported under the 'The South African Code for the Reporting of Exploration Results,
Mineral Resources and Mineral Reserves' (the SAMREC Code - 2007 Edition, July 2009 amended version) by Competent Persons who
are employed by SIOC and have the required qualifications and experience to qualify as Competent Persons for Mineral Resources
or Mineral Reserves under the SAMREC Code.
On behalf of the board
F Titi TM Mkhwanazi
Chairman Chief executive
10 February 2017
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
Rosebank Towers, 15 Biermann Avenue
Rosebank 2196, 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,
BP Sonjica, AH Sangqu, N Viljoen, SG French, NS Dlamini
Executive: TM Mkhwanazi (chief executive), FT Kotzee (chief financial officer)
Company secretary
A Parboosing
Income tax number
9586/481/15/3
Other sources of information
Our website provides more information on
our Company and its performance.
www.angloamericankumba.com
A member of the Anglo American plc group
www.angloamerican.com
14 February 2017
Date: 14/02/2017 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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