Wrap Text
Provisional audited annual results for the year ended 31 December 2018 and final cash dividend declaration
KUMBA IRON ORE LIMITED
Incorporated in the Republic of South Africa
REGISTRATION NUMBER: 2005/015852/06
JSE code: KIO
ISIN: ZAE000085346
INCOME TAX NUMBER: 9586/481/15/3
("Kumba" or "the Company" or "the group")
PROVISIONAL AUDITED ANNUAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2018 AND FINAL CASH DIVIDEND DECLARATION
DELIVERING ON OUR STRATEGY AND CREATING VALUE FOR ALL OUR STAKEHOLDERS
Themba Mkhwanazi, Chief executive of Kumba, said, "In 2018, Kumba continued to achieve important milestones in our
strategy of unlocking our full potential through margin expansion and life of mine extension. We kept our commitment on safety
and remained fatality-free with significant improvement across multiple safety indicators. Our focus on productivity and
efficiency continued to gain traction as we reached 65% of benchmark. This, together with our drive to optimise costs,
saw us realise close to R1 billion of cost savings against our target of R800 million.
The flexibility in our approach to production allowed us to lift product qualities to an average of 64.5% Fe, enabling
higher price realisation whilst mitigating logistical constraints. We achieved our production and sales volume
guidance, with unit costs remaining well contained. This solid performance resulted in net cash generated from operations of
R18.9 billion, which coupled with disciplined capital allocation, translated into a total dividend of R30.24 per share for
the year. Furthermore, in line with our resource development plan, I am pleased to announce that we were granted the right
to expand Kolomela into the adjacent Heuningkranz area which presents an exciting opportunity to extend our life of
mine.
It is clear that alongside the solid performance achieved, Kumba has significant value to unlock. While challenges
are part of the uncertain environment that we operate in, the quality of our assets ensures that we are well positioned
to serve our diversified and growing customer base, and we have the right strategy and teams in place to create
sustainable shareholder value".
KEY FEATURES
Delivering sustainable shareholder returns
- Strong cash generated from operations of R18.9 billion
- Headline earnings of R30.28 per share
- Final cash dividend of R15.73 per share, total dividend of R30.24 per share
Strong safety and operational performance
- Maintained fatality free record
- High potential incidents reduced by 67%
- Operating efficiency up from 58% to 65% of benchmark
Margin benefit from enhanced product portfolio
- Product quality improved from 64.1% to an average Fe of 64.5%
- Average realised FOB export price of US$72/tonne
- Cost savings of close to R1 billion exceeded target of R800 million
- EBITDA margin up 3 percentage points to 45%
COMMENTARY
RESULTS OVERVIEW
Safety is of fundamental importance to Kumba and throughout 2018 we continued to roll-out our fatalities elimination
framework which embeds the principles of safe behaviour. We believe that having a culture of safety is what makes the
difference, and this is demonstrated by our track record of remaining fatality free since May 2016. To further emphasise that
safety is non-negotiable, Kumba has linked safety to business performance through its incentive structure to recognise
and reward a positive safety culture. High potential incidents, which is a leading indicator of fatalities, reduced by 67%
to 7 (2017: 21). Of the lagging indicators, the total recordable case frequency rate declined to 1.80 (2017: 3.23) and
lost-time injuries remained similar to 2017 at 21.
Total tonnes mined increased 8% to 292.5 Mt with operating efficiency improving from 58% last year to 65% of benchmark
in 2018. Total production reduced by 4% to 43.1 Mt, as planned, within our guidance of between 43 Mt and 44 Mt. At the
mine level, Sishen delivered 29.2 Mt and Kolomela 13.9 Mt of production with ongoing improvements in productivity,
resulting in the reduction of unscheduled work by up to 40%. Sishen and Kolomela achieved an 81% and 80% mine to plan
compliance, respectively.
Our flexible production enabled a timeous response to the rail constraints and to market demand for premium quality
products. Planned plant production volumes were reduced to mitigate elevated levels of finished stock and the quality of
the product portfolio improved to benefit from the quality and lump premium.
Total sales volumes were well within guidance of between 42 Mt and 44 Mt at 43.3 Mt (2017: 44.9 Mt) although export sales
volumes decreased by 4% to 40.0 Mt (2017: 41.6 Mt). The decrease was as a result of a combination of missed sales
opportunities due to derailments experienced, single loading due to the six-week scheduled refurbishment of a ship loader,
and temporary closure of the Iron Ore Export Channel (IOEC) due to a truck colliding with a railway bridge in November 2018.
Kumba made good progress on margin enhancement with the EBITDA margin improving to 45% (2017: 42%) which contained the
break-even price at US$41/tonne (2017: US$40/tonne). This was driven by the cumulative effect of the price premia and
cost saving initiatives which largely offset higher on-mine stay-in-business (SIB) capital expediture, fuel prices and
freight rates.
We continued to unlock further value from our resource development plan. As a result of the optimised pit slope
design built into the updated life of mine plans, reserve life increased to 14 years from 13 years in 2017 and we
recovered an additional 56.4 Mt of Ore Reserves and 56.2 Mt of Saleable Product.
Notwithstanding the significant headwinds in 2018, Kumba achieved headline earnings in 2018 of R9.7 billion, similar to
that of 2017, supported by a 1% increase in the average realised iron ore export price to US$72/tonne (2017:
US$71/tonne) and R1 billion of cost savings. Attributable earnings decreased by 22% to R9.6 billion compared to a 2017
result of R12.3 billion which had benefited from the positive impact of an impairment reversal of R4.8 billion before tax.
Attributable and headline earnings per share for the year were R30.08 and R30.28 respectively (2017: R38.63 and R30.47).
DIVIDEND
Kumba announced a new dividend policy on 24 July 2018, based on a more definitive target payout ratio that demonstrates
the prioritisation of sustainable shareholder returns through the cycle and disciplined capital allocation following
the continued success of our strategy in driving operational and margin improvement, as well as our ability to generate cash
sustainably, supported by a clearer path to life extension.
The new dividend policy targets a dividend range of between 50% and 75% of headline earnings. Along with
prioritising shareholder returns in allocating capital, our aim is to maintain a flexible capital structure and
continue to protect the balance sheet from market volatility, as well as to ensure an appropriate level of capital is
allocated to life extension projects.
The Board has declared a final cash dividend of R15.73 per share, which together with the interim dividend of R14.51
per share, results in a total dividend for the year of R30.24 per share (2017: R30.97). This equates to 100% of headline
earnings for 2018, as the interim dividend included a once-off top-up cash dividend of R7.53 per share to reset the
balance sheet net cash position.
MARKET OVERVIEW
The Platts 62% IODEX CFR China index averaged US$69.5/dmt in 2018, down 2.5% relative to 2017. However, steel prices
rose by 12% and mill profitability reached record highs. Higher profitability incentivised mills to push for productivity gains.
Consequently, the Platts 62-65 index differential rose to a record US$27/dmt during the year and averaged US$21/dmt for 2018,
around 1.3 times the 2017 level. This differential is currently at US$13 as mill margins have decreased by an estimated 30%.
Due to a shortage of low-alumina ores, the alumina coefficient rallied from approximately US$1.50 per 1% alumina at the start of
the year to a level of more than US$8 per 1% by mid-year. However, alumina penalty has reversed most of its gains in the second
half of 2018 and is currently at approximately US$4 per 1% alumina.
Property and machinery sectors buoyed 2018 steel demand in China. New property starts grew at the highest level post the global
financial crisis and reached an all-time high. Excavator sales rose 45%, offsetting lower demand from infrastructure which
experienced low investment growth of approximately 4%. The slowdown in infrastructure activity is largely reflective of the
clampdown on local government and off-balance sheet financing activities as the M1- M2 money supply growth remained negative for
a 10th consecutive month in December 2018 at -6.6%.
Iron ore supply from the top four Australian producers edged up by 2.8% while Vale's iron ore shipments rose an
estimated 6% to approximately 390Mtpa on the ramp-up of S11D to 60% of its 90Mtpa capacity.
2018 was an exceptional year for lump premiu with a record annual average of of US$0.25/dmtu. This is currently trading at
US$0.33/dmtu.Frequent production cuts in northern China provinces and recent supply disruptions at major iron ore miners in
the second half of 2018, has tightened the lump availability at Chinese ports where stocks have fallen to a near 12-month
low of approximately 15 Mt (at 41 ports) by year end.
OPERATIONAL PERFORMANCE
At the operational level, the alignment between sales and operations was strengthened, and flexibility increased
across the system to deliver operational and cost efficiency both safely and sustainably. In line with our strategy to
unlock full potential, we focused on a number of areas, including the improvement of safety performance; increasing
productivity and operational efficiency, as well as optimising operating and capital expenditure.
Kumba continued to embed the fatalities elimination framework based on the six elements of leadership, culture, risk
and change management, learning from incidents, technology, monitoring and assurance. Earlier this year, we completed
our Sacred Covenant training for all employees, and successfully implemented a safety intervention plan at Kolomela.
A "Stop for safety day" was held at both mines to reinforce the importance of safety over production.
All this has contributed towards the strong safety culture and our track record of remaining fatality free since May 2016.
The use of technology has also led to better safety performance with the automation of braking on trucks and collision
avoidance systems, as well as the use of drones to inspect areas of work during high risk activities such as blasting.
This year, the total recordable case frequency rate improved to 1.80 (2017: 3.23), high potential incidents, which are
leading indicators of fatalities, reduced by 67% to 7 (2017: 21) and the number of injuries resulting in lost-time
remained similar to 2017.
To increase productivity and operational efficiency, a number of initiatives were implemented aimed at improving
primary mining equipment productivity using double-sided loading, optimising haul distances and improving shovel and truck
reliability, amongst others.
Alongside these initiatives, ongoing implementation of the Operating Model has ensured the continuous improvement of
operations. At Sishen, the focus areas in 2018 included the stabilisation of the work management processes in the mining
and truck maintenance areas and implementation at the processing plant and drilling maintenance sections. In the mining
areas, work management enables a fully integrated view of all activities in the pit and ensures greater adherence to the
mining schedule. The most visible and immediate impact was the reduction of unscheduled work by up to 40% in some areas
with Sishen achieving an 81% mine to plan compliance. At Kolomela, the operating model led to improved work management
practices in mining, mobile equipment maintenance and the processing plant.
Given the rail constrained environment, focus was placed on improving the train load out and turnaround times at our mines,
as well as at reducing the variability of individual wagon loads. Technology has been a key enabler of safety and strategic
delivery. During the period, we rolled out additional auto-drills enabling 24/7 drilling, implemented truck payload
optimisation, installed advanced control rooms to monitor and manage production in real-time, and introduced advanced process
control systems to increase productivity rates. These initiatives and our continuous drive to improve productivity and
efficiency resulted in efficiency improving to 65% of benchmark.
Our strategy of optimising operating and capital expenditure focused on improving contractor and supplier management
by leveraging the group's global procurement agreements to deliver cost savings on amongst others, truck tyres, fuel and
spare parts.
Capital expenditure at our mines was aimed at improving the safety, productivity and efficiency of operations. These
included the separation of light vehicle and heavy vehicle roads, automation of the wash plant facility, installation of
new chutes to reduce downtime associated with blockages, upgrade of crushers and the full ramp up of the second modular
plant at Sishen in the second half of 2018.
Production summary (unaudited)
Total tonnes mined increased 8% to 292.5 Mt while total production volumes decreased by 4% to 43.1 Mt (2017: 45.0 Mt).
Our flexible production enabled a timeous response to the rail constraints and market demand for premium quality
products. Planned production volumes were reduced to mitigate elevated levels of finished stock and the quality of the
product portfolio improved to benefit from the quality and lump premia.
The process to improve the quality of ore involved increasing densities and maintaining the Dense Media Separation
(DMS) plant at maximum cut density. This resulted in the overall plant yield reducing by 1.2%. However, product quality
improved from an average of 64.1% to 64.5% Fe and the lump:fine ratio from 66% to 68%, ensuring that Kumba is well
positioned to meet market demand for premium products.
December December
'000 tonnes 2018 2017 % change
Total 43,106 44,983 (4)
Lump 29,172 29,812 (2)
Fines 13,934 15,171 (8)
Mine production 43,106 44,983 (4)
Sishen mine 29,246 31,119 (6)
Kolomela mine 13,860 13,864 -
Sishen operations
Total tonnes mined at Sishen increased by 11% to 220.5 Mt (2017: 199.5 Mt), following a 9% increase in owner fleet
productivity. Our strategy to maximise value of tonnes mined resulted in total production decreasing to 29.2 Mt
(2017: 31.1 Mt). Consistent with the mine plan, the stripping ratio increased to 4.7 compared to 4.3 in 2017, resulting
in the amount of waste mined increasing to 182 Mt (2017: 162 Mt).
Sishen's second modular ultra-high dense media separation (UHDMS) plant was completed in August and commissioned in
November 2018. The modular plant will treat the remaining JIG discards and supports our focus on the beneficiation of
low-grade ore.
Progress continued to be made on the Dingleton project. Of the 517 original families, only 10 households remain.
Engagements with the remaining households are continuing and the process is well on track. Sishen's consolidated mining
right, incorporating Dingleton, was executed on 29 June 2018.
Kolomela mine
Total tonnes mined increased by 0.4% to 72.0 Mt (2017: 71.8 Mt), with production remaining flat at 13.9 Mt and waste
stripping increasing to 56.0 Mt (2017: 55.6 Mt). Due to rail constraints and sufficient finished stock levels at the
mine, additional maintenance was undertaken on the DMS modular plant to ensure optimal performance through life of mine.
Good productivity and efficiency gains were achieved with the 996-waste shovel tempo increasing by 36%. Kolomela achieved
an 80% mine to plan compliance.
Logistics
A significant number of incidents along the IOEC line during the course of the year led to volumes railed to port
reducing by 3.3% to 40.6 Mt (2017: 42.0 Mt). In addition to seven train derailments, Transnet declared force majeure on
Kumba following a truck colliding with a railway bridge, resulting in the temporary closure of the IOEC line.
Since the half year, however, good progress was made in improving the level of engagement between Kumba and Transnet.
A joint executive steering committee was formed to manage the performance on the IOEC line, and this has led to better
collaboration as demonstrated by the efficient construction and reopening of the railway bridge two days earlier than
expected. Fortunately, there were no injuries and due to the quick recovery time, stock at port was sufficient to meet
shipments.
At Saldanha port, severe weather disruptions together with the scheduled upgrade of the shiploader, which resulted in
single loading over a six-week period, contributed to total shipments decreasing by 3.1% to 40.3 Mt (2017: 41.6 Mt). To
partly mitigate these events, 1.1 Mt of iron ore was shipped through the multi-purpose terminal.
Sales summary (unaudited)
'000 tonnes December December
2018 2017 % change
Total 43,257 44,892 (4)
Export sales 39,966 41,615 (4)
Domestic sales 3,291 3,277 -
Despite the logistical challenges experienced, total sales of 43.3 Mt (2017: 44.9 Mt) remained within guidance of
42 Mt to 44 Mt. The decrease was driven by total export sales decreasing 3.8% to 40.0 Mt (2017: 41.6 Mt), including 1.2 Mt
sourced from third-party producers, while domestic sales remained at similar levels to 2017 at 3.3 Mt. Total finished
stock for the year held at the mine and port reduced to 5.3 Mt, below the 6.2 Mt reported at 30 June 2018 (31 December 2017:
4.3 Mt).
66% of sales (2017: 69%) were on a cost and freight (CFR) basis with the remainder sold free on board (FOB).
Contractual sales comprised 77% (2017: 70%) of total export sales volumes.
Kumba continued to build its market position and further diversified its customer portfolio with sales in regions
utilising direct-charge materials continuing to increase, in line with the company's strategy of realising higher average
prices for its quality products. China represented 56% (2017: 63%) of Kumba's export sales portfolio whilst the share of
the EU/MENA region increased to 21% (2017: 18%) and Japan and Korea to 20% (2017: 17%).
FINANCIAL RESULTS
Revenue
Total revenue decreased by 1% to R45.7 billion compared to R46.4 billion for 2017, mainly as a result of total sales volumes
reducing by 4%. This, together with the marginal strengthening of the average Rand/US$ exchange rate to R13.24/US$1
(2017: R13.30/US$1) were partially offset by a 1% increase in the average realised iron ore export price to US$72/tonne
(2017: US$71/tonne). Freight rates strengthened by US$2.5/tonne compared to 2017, resulting in a R273 million increase in
shipping revenue.
Kumba's higher average achieved FOB price was driven by higher lump, Fe and market premia, largely offsetting the
impact of weaker iron ore index prices in 2018. On average, the Platts 62 index price decreased by US$1.8/tonne to
US$69.5/tonne, whilst the achieved lump, Fe and market premia increased by US$5.4/tonne to US$16.7/tonne and freight rates
increased by US$2.6/tonne to US$14.1/tonne.
Operating expenses
Operating expenses, excluding the reversal of the Sishen impairment in 2017, decreased marginally to R29.4 billion compared
to R29.8 billion in the prior year, principally as a result of lower production and sales volumes as well as the benefit
of cost savings. Cost savings of R976 million from operating efficiency improvements and overhead cost reductions largely
offset inflationary pressure on input costs and higher distribution costs. Selling and distribution costs increased by
6% largely due to higher demurrage caused by rail constraints and above inflation increases in Transnet tariffs.
Freight costs of R4.5 billion remained constant year-on-year as 2.2 Mt lower shipping volumes were offset by a
US$1.20/tonne higher average Platts freight rate on the Saldanha-Qingdao route. Spot freight rates averaged US$13.00/tonne,
a 10% increase from US$11.8/tonne in 2017.
Unit cash costs at Sishen increased by 1% to R290/tonne (2017: R287/tonne). This was primarily as a result of lower
production volumes and above inflation mining-related cost escalations including diesel prices, which were partially
offset by cost savings. In addition, during the year, the group capitalised an increased number of equipment spares as
property, plant and equipment, for which the reconditioning costs incurred met the recognition criteria.
Kolomela mine incurred unit cash costs of R248/tonne (2017: R237/tonne), representing a 5% increase in line with
expectations, due to higher mining volumes and above inflationary pressures from higher fuel prices, partially offset by
savings on overhead costs.
Earnings before interest, tax, depreciation and amortisation (EBITDA)
Despite the challenging environment, Kumba produced an EBITDA of R20.6 billion, representing an increase of 5.1%
compared to R19.6 billion in the previous year. Growth was primarily driven by the 1% increase in the average realised FOB
export iron ore price to US$72/tonne (2017: US$71/tonne) and cost savings of around R1 billion, demonstrating the success
of our margin enhancement strategy. The benefit of our strategy, was partially offset by the 4% decrease in total sales
volumes and above inflation cost escalation.
Kumba's EBITDA margin increased by 3 percentage points to 45% (2017: 42%) and the mining operating margin improved to
50% (2017: 47%), excluding the net freight profit incurred on shipping operations. Net profit decreased by 22% to
R12.6 billion (2017: R16.1 billion), after the 2017 impairment reversal of R4.8 billion before taxation.
Cash flow
Kumba ended the year with a net cash position of R11.7 billion (2017: R13.9 billion). Cash flow generated from
operations decreased by 16% to R18.9 billion (2017: R22.4 billion), due to higher working capital requirements which offset
the increase in EBITDA. The increase in working capital largely relates to the higher finished stock of 5.3 Mt
(2017: 4.3 Mt) following logistical challenges on the rail line.
Total committed debt facilities of R12 billion (revolving facility) mature in 2020. Financial guarantees issued in favour
of the Department of Mineral Resources (DMR) in respect of environmental closure liabilities were R2.9 billion. The annual
revision of closure costs reflected a further shortfall of R586 million in respect of the rehabilitation of the Sishen and
Kolomela mines. Guarantees for the shortfall will be issued in due course.
We created stakeholder value by paying income tax of R4.1 billion (2017: R5.9 billion) and mineral royalties of
R983 million (2017: R1.2 billion) to government, providing capital expenditure of R4.5 billion (2017: R3.1 billion), and
distributing dividends to shareholders of R12.5 billion (2017: R6.7 billion).
Capital expenditure of R4.5 billion was incurred: R2.3 billion on SIB activities, R1.7 billion on deferred stripping,
and R0.5 billion on expansions, which included R0.2 billion on the Dingleton project and R0.2 billion on the second
Sishen modular plant, commissioned in November 2018.
Included in SIB capital expenditure is reconditioning or overhauling costs for capital spares, which are components of
heavy mining equipment. During the year, the group recognised an increased number of capital spares for which the
reconditioning costs incurred met the capitalisation criteria for recognition as property, plant and equipment. These
reconditioning activities are anticipated to improve the performance of the equipment beyond their original expectations
and this has resulted in the recognition of higher SIB capital expenditure than in prior years. The capitalised costs are
depreciated over the expected overhaul intervals of the capital spares.
ORE RESERVES AND MINERAL RESOURCES
The following changes were recorded for the 2018 Kumba Ore Reserves and Mineral Resources Statement.
Kumba's total ore reserves as at 31 December 2018 are estimated to be 732.9 Mt (at 59.1% Fe) at Sishen and Kolomela, a
net increase of 8% from 676.4 Mt in 2017.
Sishen's ore reserves increased 9% year-on-year, mainly attributable to a steepening of the pit slopes of the Sishen
pit design based on advances made in the spatial geotechnical modelling field thus allowing for optimisation of pit slope
designs. As a result of the optimised pit slope design built into the updated life of mine plan, Sishen's reserve life
has increased from 13 years in 2017 to 14 years in 2018.
The continued focus on on-lease exploration at Kolomela, made available additional Measured and Indicated Mineral
Resources for conversion to Ore Reserves and resulted in Kolomela's reserve life remaining at 14 years and ore reserves
increasing by 7% year-on-year.
Kumba's estimated mineral resources, in addition to its ore reserves totalled 1.1 billion tonnes (at 48.0% Fe), a
year-on-year increase of 12%.
The comprehensive 2018 Ore Reserve (and Saleable Product) and Mineral Resource Report can be accessed at:
https://www.angloamericankumba.com/investors/annual-reporting/reports-archive/2018.aspx
REGULATORY UPDATE
Mining Charter
Kumba welcomes the gazetting of Mining Charter 2018 by the Minister of Mineral Resources on 27 September 2018.
The Mining Charter 2018 is a significant improvement on the draft 2017 and 2018 Mining Charters and deals in a more
constructive way with numerous issues that had proven to be challenging under the 2010 Charter. We also greatly appreciate
the extensive efforts made by the Minister and his team to engage with and take on board the feedback of numerous
stakeholder groups in finalising this charter.
In its submission to the DMR on 27 August 2018, Kumba presented a number of proposals that we believe would assist in
achieving greater competitiveness, investment and growth for the mining industry.
While we are still in the process of reviewing and undertaking a full assessment of the implications of the new
charter, we welcome certain improvements and points of clarity that have been incorporated.
These include:
- No additional ownership requirements for existing mining rights
- The requirement for the 1% EBITDA trickle dividend has been removed
- The inclusion of an equity equivalent ownership structure for communities
- The removal of the "free carried interest" shareholding requirement for community and employee share ownership
schemes
- Provisions regarding prospecting rights have been withdrawn
- The Foreign Supplier contribution provision has been removed.
However, we do still have a few significant concerns that we believe may continue to affect the sustainability of the
mining industry in South Africa.
These include, but are not limited to:
- Continued regulatory uncertainty arising from the recent favourable decision of the High Court in the Minerals
Council of South Africa's application for a declaratory order as to various issues pertaining to the status of the
Mining Charter
- Application of the Charter (designed for mining) to licences granted under the Precious Metals Act and the Diamonds
Act, some of which must be renewed annually
- The provisions suggesting that new and further BEE ownership transactions will need to be concluded at the point of
renewal of a mining right.
Furthermore, we are concerned that Mining Charter 2018 will, in certain respects, be difficult to implement legally
and practically, and that may have unintended adverse consequences for the industry.
A further amendment to the Mining Charter of 2018 was gazetted in December 2018. This amendment has clarified that our
first reports as to progress with our Charter initiatives under the Mining Charter 2018 will be due in March 2020 and
this is a welcome development.
Kumba has consistently affirmed its support for the government's national transformation objectives in relation to the
mining industry and has consistently acknowledged its role in promoting transformation in South Africa.
Correspondingly, Anglo American has a longstanding track record of driving and supporting sustainable transformation in
the mining industry, and we are certainly committed to continuing that journey.
Mineral and Petroleum Resources Development Act (MPRDA)
On 24 August 2018, the Minister of Mineral Resources announced the withdrawal of the MPRDA Amendment Bill. As a result,
all amendments that have previously been proposed now fall away, bringing certainty to mining regulation.
Sishen consolidated mining right granted
Sishen's application to extend the mining right to include the Dingleton properties was granted on 25 June 2018 and
notarially executed on 29 June 2018. Mining operations in this area will only commence once the required environmental
authorisation has been approved, which is expected soon. The grant allows Sishen mine to expand its current mining
operations within the adjacent Dingleton area.
Kolomela consolidated mining right granted
The Section 102 application to amend the Kolomela mining right and the Mining work programme to include Heuningkranz
and portion 1 of Langverwacht was granted on 14 October 2018. The Environmental authorisation was approved on
7 November 2018. The grant allows Kolomela mine to expand its current mining operations within the adjacent
Heuningkranz area.
Thabazimbi transfer to ArcelorMittal SA
On 1 November 2018, the employees, assets and liabilities as well as the mining rights and the assumed liabilities for
the mine were transferred at a nominal purchase consideration from Sishen Iron Ore Company Proprietary Limited to
Thabazimbi Iron Ore Mine Proprietary Limited (a wholly owned subsidiary of ArcelorMittal South Africa, previously
ArcelorMittal South Africa Operations Proprietary Limited.
EVENTS AFTER THE REPORTING PERIOD
There were no significant events from 31 December 2018 to the date of this report, not otherwise dealt with in this
report.
CHANGES IN DIRECTORATE
The following changes to the Board were announced during the 2018 financial year:
- Mr Allen Morgan stepped down as an independent non-executive director and chairperson of the Remuneration Committee,
with effect from 11 May 2018.
- Terence Goodlace was appointed as lead independent non-executive director. Mr Goodlace stepped down as the chairman
of the Risk and Opportunities Committee and remains a member of the committee.
- Dolly Mokgatle was appointed as the chairman of the Risk and Opportunities Committee. Mrs Mokgatle stepped down as
the chairman of the Social, Ethics and Transformation Committee but remained a member of the committee.
- Buyelwa Sonjica was appointed as the chairman of the Social, Ethics and Transformation Committee.
- Ntombi Langa-Royds was appointed as the chairman of the Human Resources and Remuneration Committee, following
Mr Morgan's retirement from the Board and as the chairman of the committee
CHANGES IN MANAGEMENT
The Board announced the appointment of:
- Darrin Strange as Chief operating officer with effect from 1 May 2018.
- Sam Martin as Executive Head: Strategy and business development with effect from 16 July 2018.
OUTLOOK FOR 2019
Full year production guidance is between 43 Mt and 44 Mt with Sishen producing around 30 Mt of product and mining
between 170 Mt and 180 Mt of waste. Sishen's stripping ratio in 2019 is expected to exceed 4.5, with the average LoM
stripping ratio reducing to approximately 3.4. Kolomela's production guidance is between 13 Mt and 14 Mt and waste at
55 Mt to 60 Mt. The stripping ratio for the mine is expected to exceed 4 in 2019, with the LoM average at approximately 4.
Total sales volumes are likely to be between 43 Mt and 44 Mt, including domestic sales volumes of around 3 Mt of the
6.25 Mt contracted to ArcelorMittal SA in terms of the supply agreement. Delivery of production and sales volumes as guided
will be in line with rail performance and finished stock levels. We continue to engage with Transnet to optimise
efficiencies and ensure that we achieve maximum rail capacity.
Unit costs are expected to be between R315/tonne and R325/tonne for Sishen and between R265/tonne and R275/tonne for
Kolomela. Costs will remain under pressure as a result of increases in fuel, labour and maintenance costs, with partial
offset from our cost savings programme, targeting R700 million in 2019.
The 2019 outlook for capital expenditure, including deferred stripping, is expected to be in the range of R4.6 billion
to R4.8 billion. Beyond 2019, it is anticipated that expansion capital will include amongst others, our UHDMS
technology, currently in feasibility phase. Construction expected to start in 2020 and capital expenditure for the
UHDMS project is expected to be between R2 billion and R3 billion. Further information will be available once the
feasibility study is completed towards the end of 2019.
Iron ore export prices and the Rand/US$ exchange rate are key factors influencing Kumba's financial and operational
performance. Shareholders are advised that these forecasts have not been reviewed or reported on by our auditors.
Themba Mkhwanazi concluded, "We are continuing to make good progress on transforming Kumba into a company that
delivers sustainable returns through the cycle, underpinned by the economic benefit offered by our differentiated product
quality.
We are delivering our strategy to maximise the potential of our world class asset base by leveraging our existing
capabilities whilst embracing new technologies to produce safely and efficiently. Importantly, at the half year, we put in
place the new dividend policy that targets a pay-out of 50 to 75% of headline earnings. The dividend policy has been well
received and it places greater transparency around our commitment to disciplined capital allocation and ongoing
shareholder returns."
The presentation of the Company's results for the year ended 31 December 2018 will be available on the Company's website
http://www.angloamericankumba.com at 07:05 CAT and the webcast will be available from 11:00 CAT on 19 February 2019.
SALIENT FEATURES AND OPERATING STATISTICS
for the year ended
Unaudited Unaudited
31 December 31 December
2018 2017
Share statistics ('000)
Total shares in issue 322,086 322,086
Weighted average number of shares 319,602 319,303
Diluted weighted average number of shares 321,920 321,481
Treasury shares 2,565 2,627
Market information
Closing share price (Rand) 283 379
Market capitalisation (Rand million) 91,166 122,112
Market capitalisation (US$ million) 6,341 9,923
Net asset value attributable to owners of Kumba (Rand per share) 109.47 107.95
Capital expenditure (Rand million)
Incurred 4,463 3,074
Contracted 694 597
Authorised but not contracted 1,555 1,634
Operating commitments
Lease commitments 608 794
Shipping services 6,205 5,260
Economic information
Average Rand/US Dollar exchange rate (ZAR/US$) 13.24 13.30
Closing Rand/US Dollar exchange rate (ZAR/US$) 14.38 12.31
Sishen mine FOR unit cost
Unit cost (Rand per tonne) 378.20 375.42
Cash cost (Rand per tonne) 289.97 287.33
Unit cost (US$ per tonne) 28.56 28.23
Cash cost (US$ per tonne) 21.90 21.60
Kolomela mine FOR unit cost
Unit cost (Rand per tonne) 354.69 336.67
Cash cost (Rand per tonne) 248.56 236.67
Unit cost (US$ per tonne) 26.79 25.31
Cash cost (US$ per tonne) 18.77 17.79
SUMMARISED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at
Audited Audited
31 December 31 December
Rand million Notes 2018 2017
ASSETS
Property, plant and equipment 5 37,723 36,833
Biological assets 3 3
Investments held by environmental trust 621 627
Long-term prepayments and other receivables 216 211
Inventories 6 2,410 2,841
Deferred tax assets - 72
Non-current assets 40,973 40,587
Inventories 6 6,236 4,061
Trade and other receivables 4,157 2,709
Contract assets 9 -
Current tax assets 6 -
Cash and cash equivalents 7 11,670 13,874
Current assets 22,078 20,644
Assets of disposal group classified as held for sale 12 - 1,235
Total assets 63,051 62,466
EQUITY
Shareholders' equity 8 35,260 34,769
Non-controlling interests 10,927 10,777
Total equity 46,187 45,546
LIABILITIES
Provisions 2,239 1,860
Deferred tax liabilities 8,805 8,860
Non-current liabilities 11,044 10,720
Provisions 72 147
Trade and other payables 5,460 4,945
Contract liabilities 288 -
Current tax liabilities - 59
Current liabilities 5,820 5,151
Liabilities of disposal group classified as held for sale 12 - 1,049
Total liabilities 16,864 16,920
Total equity and liabilities 63,051 62,466
SUMMARISED CONSOLIDATED STATEMENT OF PROFIT OR LOSS
for the year ended
Audited Audited
31 December 31 December
Rand million Notes 2018 2017
Revenue 45,725 46,379
Operating expenses (29,365) (24,989)
Operating profit 9 16,360 21,390
Finance income 499 637
Finance costs (179) (339)
Profit before taxation 16,680 21,688
Taxation (4,026) (5,481)
Profit for the year from continuing operations 12,654 16,207
Discontinued operation
Loss from discontinued operation 12 (59) (74)
Profit for the year 12,595 16,133
Attributable to:
Owners of Kumba 9,615 12,335
Non-controlling interests 2,980 3,798
12,595 16,133
Basic earnings/(loss) per share attributable to
the ordinary equity holders of Kumba (Rand per share)
From continuing operations 30.22 38.86
From discontinued operation (0.14) (0.23)
Total basic earnings per share 30.08 38.63
Diluted earnings/(loss) per share attributable to
the ordinary equity holders of Kumba (Rand per share)
From continuing operations 30.01 38.60
From discontinued operation (0.14) (0.23)
Total diluted earnings per share 29.87 38.37
SUMMARISED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
for the year ended
Audited Audited
31 December 31 December
Rand million 2018 2017
Profit for the year 12,595 16,133
Other comprehensive income/(loss) for the year 523 (454)
Exchange differences on translation of foreign operations1 523 (454)
Total comprehensive income for the year 13,118 15,679
Attributable to:
Owners of Kumba 10,014 11,989
Non-controlling interests 3,104 3,690
13,118 15,679
1 There is no tax attributable to items included in other comprehensive income and items 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 2018 2017
Total equity at the beginning of the year 45,546 36,536
Changes in share capital and premium
Treasury shares issued to employees under employee
share incentive schemes 73 121
Purchase of treasury shares1 (112) (61)
Changes in reserves
Equity-settled share-based payment 94 135
Vesting of shares under employee share incentive schemes (73) (121)
Total comprehensive income for the year 10,014 11,989
Dividends paid (9,505) (5,144)
Changes in non-controlling interests
Total comprehensive income for the year 3,104 3,690
Dividends paid (2,954) (1,599)
Total equity at the end of the year 46,187 45,546
Comprising:
Share capital and premium (net of treasury shares) (93) (54)
Equity-settled share-based payment reserve 203 186
Foreign currency translation reserve 1,312 916
Retained earnings 33,838 33,721
Shareholders' equity 35,260 34,769
Non-controlling interests 10,927 10,777
Total equity 46,187 45,546
Dividend (Rand per share)
Interim 14.51 15.97
Final2 15.73 15.00
Total 30.24 30.97
1 The average price paid for the purchase of the shares in 2018 was R284.12 per share (2017: R214.77 per share).
2 The final dividend was declared after 31 December 2018 and has not been recognised as a liability in this
summarised financial report. It will be recognised in shareholders' equity for the 2019 financial year.
SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended
Audited Audited
31 December 31 December
Rand million 2018 2017
Cash generated from operations 18,906 22,432
Net finance income received 405 461
Taxation paid (4,077) (5,883)
Cash flows from operating activities 15,234 17,010
Additions to property, plant and equipment (4,463) (3,074)
Proceeds from disposal of property, plant and equipment 17 27
Cash flows utilised in investing activities (4,446) (3,047)
Purchase of treasury shares (112) (61)
Dividends paid to owners of Kumba (9,505) (5,144)
Dividends paid to non-controlling shareholders (2,954) (1,599)
Interest-bearing borrowings repaid - (4,500)
Cash flows utilised in financing activities (12,571) (11,304)
Net (decrease)/increase in cash and cash equivalents (1,783) 2,659
Cash and cash equivalents at beginning of year 13,874 10,665
Foreign currency exchange (losses)/gains on cash and cash equivalents (421) 550
Cash and cash equivalents at end of year 11,670 13,874
HEADLINE EARNINGS
for the year ended
Audited Audited
31 December 31 December
Rand million 2018 2017
Reconciliation of headline earnings
Profit attributable to owners of Kumba 9,615 12,335
Impairment reversal - (4,789)
Net loss on disposal and scrapping of property, plant and equipment 86 63
Net loss on disposal of discontinued operation 18 -
9,719 7,609
Taxation effect of adjustments (23) 1,309
Non-controlling interests in adjustments (19) 810
Headline earnings 9,677 9,728
Headline earnings (Rand per share)
Basic 30.28 30.47
Diluted 30.06 30.26
The calculation of basic and diluted earnings and headline earnings
per share is based on the weighted average number of ordinary shares
in issue as follows:
Weighted average number of ordinary shares 319,601,762 319,302,962
Diluted weighted average number of ordinary shares 321,919,841 321,481,081
The dilution adjustment of shares at 2,318,079 at 31 December 2018
(2017: 2,178,119) is a result of the share options previously granted
under the various employee share incentive schemes not yet vested.
NORMALISED EARNINGS
for the year ended
Audited Audited
31 December 31 December
Rand million 2018 2017
Reconciliation of normalised earnings
Headline earnings attributable to owners of Kumba 9,677 9,728
Net utilisation of deferred tax asset 72 14
9,749 9,742
Taxation effect of adjustments - -
Non-controlling interests in adjustments (17) (3)
Normalised earnings 9,732 9,739
Normalised earnings (Rand per share)
Basic 30.45 30.50
Diluted 30.23 30.29
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 319,601,762 319,302,962
Diluted weighted average number of ordinary shares 321,919,841 321,481,081
This measure of normalised 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, as disclosed in the
accounting policies in the annual financial statements.
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 and
utilisation 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 2018
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 2018 were authorised for issue in accordance with a resolution of the directors on 15 February 2019.
2. BASIS OF PREPARATION
The audited summarised consolidated financial statements have been prepared, under the supervision of
BA Mazarura 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 summarised consolidated 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 consolidated financial statements from which these summarised consolidated financial statements were
derived have been prepared in accordance with the historical cost convention except for certain financial instruments,
share-based payments, discontinued operation and disposal group held for sale 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 Going concern
In assessing whether the group can continue in operational existence for the foreseeable future, the directors
have reviewed the group financial budgets with their underlying business plans. 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$ exchange rate and the iron ore price.
Based on the current financial position, 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. In the light of the going concern assessment
performed by the Board, the audited consolidated financial statements have been prepared on a going concern basis.
2.2 Accounting judgements, estimates and assumptions
In preparing the consolidated 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 2017, except as disclosed below.
3. ACCOUNTING POLICIES
The accounting policies and methods of computation applied in the preparation of these 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 Amendments to published standards and interpretations
A number of amendments to accounting standards were effective for the first time for the financial year beginning
on or after 1 January 2018. Comparative information has not been presented.
3.1.1 New standards effective for annual periods beginning on or after 1 January 2018
The following standards, amendments to published standards and interpretations, which are effective for the
year commencing on 1 January 2018, were adopted by the group:
IFRS 9 Financial instruments
IFRS 9 replaces IAS 39 and sets out the updated requirements for recognition and measurement, impairment,
derecognition and general hedge accounting of financial instruments. These requirements specifically deal
with the classification and measurement of financial instruments. With regards to classification, subsequent
to initial recognition, the financial assets are to be classified as either armortised cost, fair value
through profit or loss or fair value through other comprehensive income, based on the business model and
contractual cashflow characteristics. The measurement of impairment losses are based on an expected credit
loss model, which takes into account the time value of money, probability weighting as well as forward
looking information. IFRS 9 further requires consideration of the disaggregation of the debtors' book when
considering impairments where revenue streams are likely to have different risk profiles.
The adoption of this new standard had no material impact on the group's earnings for the year.
IFRS 15 Revenue from contracts with customers
IFRS 15 replaces all existing revenue requirements in IFRS and applies to all revenue arising from contracts
with customers. The standard requires an entity to recognise revenue in such a manner as to depict the
transfer of goods or services to customers at an amount representing the consideration, to which the entity
expects to be entitled in exchange for those goods or services. The identified contracts with customers are
required to be evaluated to determine the performance obligations, the transaction price and the point at
which the performance obligation is satisfied by transferring promised goods or services to the customers.
IFRS 15 requires that an entity should apply the standard using either one of the following transition
approaches: (a) retrospectively to each prior reporting period; or (b) retrospectively with the cumulative
effect of initially applying the standard recognised at the date of initial application. The group applied
the modified retrospective approach on adoption.
The group's revenue is primarily derived from commodity sales for which the point of recognition is
dependent on the contract sales terms known as the International Commercial terms (Incoterms). Under Incoterms
(i.e. cost, insurance and freight (CIF) and cost and freight (CFR)), the seller is required to contract and
pay for the costs and freight necessary to bring the goods to a named port destination.
Consequently, the freight service on export commodity contracts with CIF/CFR Incoterms represents a separate
performance obligation as defined under IFRS 15 and as such, a portion of the revenue earned under these
contracts, representing the obligation to perform the freight service, is deferred and recognised when this
obligation has been fulfilled, along with the associated costs.
The impact of applying IFRS 15 in the 2018 financial year was as follows:
- Net decrease in profit after tax of R201 million
- No material impact on opening retained earnings
- Increase in current assets of R9 million
- Increase in current liabilities of R288 million
3.2 New standards, amendments to existing standards and interpretations that are not yet effective and have not been
early adopted
At the date of authorisation of these summarised consolidated financial statements, the following standard,
amendments to existing standard and interpretations were in issue but not yet effective in the 2018 financial year
and has not been early adopted.
IFRS 16 Leases
IFRS 16 Leases became effective for the group from 1 January 2019, replacing IAS 17 Leases. IFRS 16 sets out
updated requirements on recognition and measurement of leases. The group has elected to adopt the modified
retrospective transition approach and therefore the cumulative effect of transition to IFRS 16 will be
recognised in Retained earnings and the comparative period will not be restated.
The principal impact of IFRS 16 will be to change the accounting treatment by lessees of leases currently
classified as operating leases. Lease agreements will give rise to the recognition by the lessees of a right
of use asset and a related liability for future lease payments.
Based on the impact assessment performed, the application of IFRS 16 is expected to have a significant impact
on the group's consolidated financial statements, particularly in relation to the recognition of the right of
use assets and lease liabilities that were previously treated as operating leases.
The most significant expected impact of transitioning to IFRS 16 in the 2019 financial year, based upon Kumba's
current contractual arrangements, is estimated to be:
- recognising a lease liability of approximately R400 million to R500 million
- recognising a right of use asset of approximately R350 million to R450 million. The right of use asset will
principally relate to rental of properties and mining equipment
- the balance representing an adjustment to retained earnings
Depreciation of the right of use asset and the finance charge representing the unwinding of the discount on
the lease liability will be recorded in the statement of profit or loss. The impact of the standard on EBITDA
and profit before tax following adoption is not expected to be significant although the presentation of the
leases in the statement of profit or loss will change.
4. CHANGES 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 reporting period date, for changes in these estimates.
The life of mine plan (LoMP) on which accounting estimates are based only includes proved and probable ore reserves
as disclosed in Kumba's 2018 annual ore reserves and mineral resources statement. The most significant changes in
the provisions for 2018 arises from the change in the LoMP as well as the timing of the expected cash flows for both
Sishen and Kolomela.
The effect of the change in estimate of the rehabilitation and decommissioning provision is detailed below:
Audited Audited
31 December 31 December
Rand million 2018 2017
Increase in environmental rehabilitation provision 414 77
Decrease in decommissioning provision (21) (199)
Increase in profit after tax attributable to the owners of Kumba 393 42
Rand per share
Effect on earnings per share attributable to the owners of Kumba 0.71 0.13
The change in estimate of the decommissioning provision has been capitalised to the related property, plant and
equipment and as a result had an insignificant effect on profit or earnings per share.
5. PROPERTY, PLANT AND EQUIPMENT
Audited Audited
31 December 31 December
Rand million 2018 2017
Capital expenditure 4,463 3,074
Comprising:
Expansion 506 575
Stay-in-business (SIB) 2,288 1,305
Deferred stripping 1,669 1,194
Transfers from assets under construction to property, plant and equipment 1,053 1,704
Expansion capital expenditure comprises mainly the Dingleton project and the completion of the Sishen 2nd modular
plant.
SIB capital expenditure principally related to fleet and infrastructure to support production.
The increase in the deferred stripping costs is mainly attributable to the increase in the stripping ratio of the
Sishen mine components to which the capitalisation relates.
6. INVENTORIES
Audited Audited
31 December 31 December
Rand million 2018 2017
Finished products 1,550 1,240
Work-in-progress 5,678 4,238
Plant spares and stores 1,418 1,424
Total inventories 8,646 6,902
Non-current portion of work-in-progress inventories 2,410 2,841
Current portion of inventories 6,236 4,061
Total inventories 8,646 6,902
During the year, the group wrote down inventory of R157 million (2017: R726 million). Rnil (2017: R228 million) of
inventory was written off to a zero carrying amount. No inventories were encumbered during the year.
Work-in-progress inventory balances which will not be processed within the next 12 months are presented as non-current.
7. NET CASH AND DEBT FACILITIES
Kumba's net cash position at the statement of financial position dates was as follows:
Audited Audited
31 December 31 December
Rand million 2018 2017
Net cash
Cash and cash equivalents 11,670 13,874
Movements in interest-bearing borrowings are analysed as follows:
Audited Audited
31 December 31 December
Rand million 2018 2017
Balance at beginning and end of year - 4,500
Interest-bearing borrowings repaid - (4,500)
Balance at the end of the year - -
The group's debt facilities consist of a committed R12 billion (31 December 2017: R12 billion) revolving credit
facility which matures in 2020 and uncommitted facilities of R8.3 billion (31 December 2017: R8.3 billion).
The committed and uncommitted facilities were undrawn at 31 December 2018 and 31 December 2017.
8. SHARE CAPITAL AND SHARE PREMIUM
Reconciliation of share capital and share premium (net of treasury shares):
Audited Audited
31 December 31 December
Rand million 2018 2017
Balance at beginning of year (54) (114)
Net movement in treasury shares under employee share incentive schemes (39) 60
Purchase of treasury shares (112) (61)
Share issued to employees 73 121
Balance at the end of the year (93) (54)
Reconciliation of number of shares in issue:
Audited Audited
31 December 31 December
2018 2017
Balance at beginning and end of year 322,085,974 322,085,974
Reconciliation of treasury shares held:
Balance at beginning of year 2,626,977 2,797,627
Shares purchased 395,399 284,194
Shares issued to employees under the Long-Term Incentive Plan, the
Kumba Bonus Share Plan and the SIOC Employee Benefit Scheme (457,212) (454,844)
Balance at the end of the year 2,565,164 2,626,977
All treasury shares are held as conditional awards under the Kumba Bonus Share Plan and the SIOC Employee Benefit
Scheme.
9. SIGNIFICANT ITEMS INCLUDED IN OPERATING PROFIT
Operating expenses are made up as follows:
Audited Audited
31 December 31 December
Rand million 2018 2017
Production costs 19,072 17,824
Movement in inventories (1,272) 452
Finished products 167 224
Work-in-progress (1,440) 228
Cost of goods sold 17,800 18,276
Impairment reversal - (4,789)
Mineral royalty 876 1,239
Selling and distribution costs 6,194 5,815
Cost of services rendered - shipping 4,532 4,485
Sublease rent received (37) (37)
Operating expenses 29,365 24,989
Operating profit has been derived after taking into account the following items:
Employee expenses 4,499 4,030
Termination benefits 10 8
Share-based payment expenses 117 146
Depreciation of property, plant and equipment 4,269 3,014
Deferred waste stripping costs (1,669) (1,194)
Net loss on disposal and scrapping of property, plant and equipment 86 63
Net finance (gains)/losses (116) 216
Unrealised losses/(gains) on derivative financial instruments 21 (112)
Net foreign currency (gains)/losses
Realised (39) 310
Unrealised (108) 77
Net fair value losses/(gains) on investments held by the environmental trust 10 (59)
10. TAXATION
The group's effective tax rate was 24% for the year (2017: 25%).
11. SEGMENTAL REPORTING
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision-maker (CODM). The CODM, who is responsible for allocating resources and assessing performance of the
operating segments, has been identified as the Kumba Executive Committee.
The Kumba Executive Committee considers the business principally according to the nature of the products and
services provided, with the identified segments each representing a strategic business unit. "Other segments"
comprise corporate, administration and other expenditure not allocated to the reported segments.
The total reported segment revenue comprises revenue from external customers, and is measured in a manner
consistent with that disclosed in the statement of profit or loss. The performance of the operating segments is
assessed based on earnings before tax, interest, depreciation and amortisation (EBITDA), which is considered a more
appropriate measure of profitability for the group's businesses. 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 asset.
Depreciation, staff costs, impairment of assets and additions to property, plant and equipment are not reported to
the CODM per segment, but are significant items which are included in EBITDA and/or reported on for the group as a
whole.
Products1 Services Other Total3
Sishen Kolomela Thabazimbi Logistics2 Shipping
Rand million mine mine mine operations
Audited year ended 31 December 2018
Statement of profit or loss
Revenue from external
customers 29,383 11,665 - - 4,677 - 45,725
EBITDA 20,261 7,443 (63) (6,184) 145 (1,036) 20,566
Significant items included in
the statement of profit or loss:
Depreciation 3,096 1,136 - 10 - 27 4,269
Staff costs 2,855 955 - 40 - 776 4,626
Statement of financial position
Total segment assets 713 673 - 161 - 3 1,550
Statement of cash flows
Additions to property, plant and equipment
Expansion capex 506 - - - - - 506
Stay-in-business capex 1,688 597 - 3 - - 2,288
Deferred stripping 1,370 299 - - - - 1,669
Products1 Services Other Total3
Rand million Sishen Kolomela Thabazimbi Logistics2 Shipping
mine mine mine operations
Audited year ended
31 December 2017
Statement of profit or loss
Revenue from external
customers 30,252 11,723 - - 4,404 - 46,379
EBITDA 18,842 7,481 (56) (5,806) (83) (820) 19,558
Significant items included in
the statement of profit or loss:
Depreciation 1,934 1,001 13 9 - 70 3,027
Impairment reversal (4,789) - - - - - (4,789)
Staff costs 2,523 849 - 41 - 771 4,184
Statement of financial position
Total segment assets 695 349 - 166 - 30 1,240
Statement of cash flows
Additions to property, plant and equipment
Expansion capex 575 - - - - - 575
Stay-in-business capex 684 446 - 2 - 173 1,305
Deferred stripping 942 252 - - - - 1,194
1 Derived from extraction, production and selling of iron ore.
2 No revenue is reported for this segment as its performance is reviewed with reference to volumes railed and
rail tariffs achieved.
3 The amounts in the total column are inclusive of the Thabazimbi mine amounts. These amounts are not included in
each line item on the statement of profit or loss as Thabazimbi mine has been disclosed separately as a discontinued
operation.
Geographical analysis of revenue and non-current assets:
Audited Audited
31 December 31 December
Rand million 2018 2017
Total revenue from external customers 45,725 46,379
South Africa 2,787 2,714
Export 42,938 43,665
China 24,350 27,260
Rest of Asia 9,587 8,538
Europe 8,263 6,626
Middle East and North Africa 738 1,241
All non-current assets, excluding investments in associates and joint ventures, are located in South Africa.
At 31 December 2017, R14 million of the non-current assets relating to prepayments were located in Singapore.
12. DISCONTINUED OPERATION AND DISPOSAL GROUP HELD FOR SALE
As announced in 2017, Sishen Iron Ore Company Proprietary Limited (SIOC) and ArcelorMittal SA had entered into an
agreement to transfer Thabazimbi mine to ArcelorMittal SA, subject to the fulfilment of certain conditions precedent.
On 10 July 2018, SIOC received the grant letter from the Department of Mineral Resources (DMR) in respect of
section 11 of the Mineral and Petroleum Resources Development Act (MPRDA) approving the cession of the Thabazimbi
mining rights to ArcelorMittal SA.
Subsequently, on 12 October 2018, Kumba and ArcelorMittal SA announced that all the conditions precedent to the transfer
of Thabazimbi mine, together with the mining rights, had either been fulfilled or waived. On 1 November 2018,
the employees, assets and liabilities as well as the mining rights and the assumed liabilities of Thabazimbi mine
were transferred at a nominal purchase consideration from SIOC to Thabazimbi Iron Ore Mine Proprietary Limited (a wholly
owned subsidiary of ArcelorMittal SA, previously ArcelorMittal South Africa Operations Proprietary Limited).
The Thabazimbi operation continued to be classified as a discontinued operation until 1 November 2018.
Analysis of the result of the Thabazimbi mine is as follows:
Audited Audited
31 December 31 December
Rand million 2018 2017
Operating expenses1 (64) (69)
Operating loss (64) (69)
Net finance cost2 (18) (34)
Loss before tax (82) (103)
Income tax expense 23 29
Loss after income tax (59) (74)
Attributable to owners of the parent (45) (56)
Attributable to the non-controlling interests (14) (18)
Loss from discontinued operation (59) (74)
Cash flow utilised in discontinued operation
Net cash flows utilised in operating activities (118) (128)
Net cash utilised in discontinued operation (118) (128)
1 Operating expenses consist of closure activities.
2 This amount relates to discounting of the rehabilitation provision.
Assets and liabilities of disposal group held for sale at:
Audited Audited
31 December 31 December
Rand million 2018 2017
ASSETS
Biological assets - 11
Investments held by environmental trust - 325
Long-term prepayments and other receivables - 459
Trade and other receivables - 440
Total assets - 1,235
LIABILITIES
Non-current provisions - (812)
Current provisions - (237)
Total liabilities - (1,049)
Net carrying amount sold - 186
The transaction resulted in a net non-cash loss of R18 million analysed as follows:
Audited
31 October
Rand million 2018
ASSETS
Investments held by environmental trust 329
Long-term prepayments and other receivables 496
Trade and other receivables 192
Total assets 1,017
LIABILITIES
Non-current provisions (991)
Current provisions (8)
Total liabilities (999)
Net carrying amount sold 18
Consideration received -
Net loss (18)
13. 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 Level 33
Audited 12 months - 31 December 2018
Investments held by the environmental trust 621 - -
Long-term prepayments and other receivables4 - - 47
Derivative financial instruments classified as cash and cash equivalents - 27 -
621 27 47
Audited 12 months - 31 December 2017
Investments held by the environmental trust 952 - -
Derivative financial instruments classified as cash and cash equivalents - 244 -
952 244 -
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.
4 In the prior year, this was included in the trade receivables and disclosed at amortised cost.
14. RELATED PARTY TRANSACTIONS
During the year, Kumba and its subsidiaries, 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 Limited2. These transactions were subject to terms that are no less favourable than those offered by
third parties.
Audited Audited
31 December 31 December
Rand million 2018 2017
Short-term deposit held with Anglo American SA Finance Limited (AASAF)1
- Deposit 5,338 6,899
- Weighted average interest rate (%) 6.99 7.17
Interest earned on short-term deposits with AASAF during the year 395 577
Short-term deposit held with Anglo American Capital plc1 4,890 4,907
Interest earned on facility during the year 57 32
- Trade payable owing to Anglo American Marketing Limited (AAML)1 502 635
- Shipping services provided by AAML 4,572 4,462
Dividends paid to Exxaro Resources Limited2 2,569 1,390
1 Subsidiaries of the ultimate holding company.
2 Exxaro Resources Limited is SIOC's 20.62 % (2017: 20.62 %) Black Economic Empowerment shareholder.
15. CONTINGENT LIABILITIES
On 29 June 2018, the South African Revenue Services (SARS) issued the group with additional income tax assessments
relating to a tax audit on the deductibility of certain expenditure incurred, covering the 2012 to 2014 years
of assessment. The group objected against these assessments after consultation with external tax and legal advisers.
On 11 December 2018, the SARS advised that it has disallowed the objection. Kumba is in the process of preparing
an appeal against this outcome. Based on the external legal and tax advice, the group believes that these matters
have been appropriately treated in the results for the year ended 31 December 2018.
There were no other contingent liabilities at 31 December 2018.
16. GUARANTEES
The total guarantees issued in favour of the DMR in respect of the group's environmental closure liabilities at
31 December 2018 were R2.9 billion (2017: R2.8 billion). Included in this amount are financial guarantees for the
environmental rehabilitation and decommissioning obligations of the group to the DMR in respect of the Thabazimbi mine
of R439 million (2017: R439 million). ArcelorMittal SA has guaranteed R439 million of this amount by means of bank
guarantees issued in favour of SIOC. The relevant parties are in the process of exchanging the Thabazimbi guarantees
as part of the sale transaction (Refer to note 12).
As a result of the annual revision of closure costs, a shortfall of R586 million arose. Guarantees in respect of the
shortfall will be issued in due course.
17. REGULATORY UPDATE
The Reviewed Mining Charter (MCIII)
Kumba welcomes the gazetting of Mining Charter 2018 by the Minister of Mineral Resources on 27 September 2018.
The Mining Charter 2018 is a significant improvement on the draft 2017 and 2018 Mining Charters and deals in a more
constructive way with numerous issues that had proven to be challenging under the 2010 Charter. We also greatly
appreciate the extensive efforts made by the Minister and his team to engage with and take on board the feedback
of numerous stakeholder groups in finalising this charter.
In its submission to the Department of Mineral Resources (DMR) on 27 August 2018, Kumba presented a number of
proposals that we believe would assist in achieving greater competitiveness, investment and growth for the
mining industry.
While we are still in the process of reviewing and undertaking a full assessment of the implications of the
new charter, we welcome certain improvements and points of clarity that have been incorporated.
These include:
- No additional ownership requirements for existing mining rights
- The requirement for the 1% EBITDA trickle dividend has been removed
- The inclusion of an equity equivalent ownership structure for communities
- The removal of the "free carried interest" shareholding requirement for community and employee share
ownership schemes
- Provisions regarding prospecting rights have been withdrawn
- The Foreign Supplier contribution provision has been removed.
However, we do still have a few significant concerns that we believe may continue to affect the sustainability
of the mining industry in South Africa.
These include, but are not limited to:
- Continued regulatory uncertainty arising from the recent favourable decision of the High Court in the
Minerals Council of South Africa's application for a declaratory order as to various issues pertaining to the
status of the Mining Charter
- Application of the Charter (designed for mining) to licences granted under the Precious Metals Act and the
Diamonds Act, some of which must be renewed annually
- The provisions suggesting that new and further BEE ownership transactions will need to be concluded at the
point of renewal of a mining right.
Furthermore, we are concerned that Mining Charter 2018 will, in certain respects, be difficult to implement
legally and practically, and that may have unintended adverse consequences for the industry.
A further amendment to the Mining Charter of 2018 was gazetted in December 2018. This amendment has clarified
that our first reports as to progress with our Charter initiatives under the Mining Charter 2018 will be due in
March 2020 and this is a welcome development.
Kumba has consistently affirmed its support for the government's national transformation objectives in relation
to the mining industry and has consistently acknowledged its role in promoting transformation in South Africa.
Correspondingly, Anglo American has a longstanding track record of driving and supporting sustainable transformation
in the mining industry, and we are certainly committed to continuing that journey.
18. CORPORATE GOVERNANCE
The group subscribes to the Code of Good Corporate Practices and Conduct and complies with the recommendations of
the King IV Report. The Board charter is aligned with the provisions of all relevant statutory and regulatory
requirements including, amongst others, King IV. Full disclosure of the group's compliance will be contained in
the 2018 Integrated Report.
19. EVENTS AFTER THE REPORTING PERIOD
There have been no material events subsequent to 31 December 2018, not otherwise dealt with in this report.
20. INDEPENDENT AUDITOR'S REPORT
These summarised consolidated financial statements for the year ended 31 December 2018 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 report on the consolidated financial statements and 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.
The auditor's report does not necessarily report on all of the information contained in these financial results.
Shareholders are therefore advised that in order to obtain a full understanding of the nature of the auditor's
engagement they should obtain a copy of the auditor's report together with the accompanying financial information
from the issuer's registered office.
Any reference to future financial performance included in this announcement has not been audited or reported on
by the Company's auditors.
21. RESOURCES AND RESERVE
All Resources and Reserve related information listed is derived from the 2018 Kumba Iron Ore Reserve and Resources
statement, which is available on the website, www.angloamericankumba.com/investors/annual-reporting.aspx, as reported
under the "The South African Code for the Reporting of Exploration Results, Mineral Resources and Mineral Reserves"
(the SAMREC Code of 2016) 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
MSV Gantsho TM Mkhwanazi
Chairman Chief executive
15 February 2019
Pretoria
NOTICE OF FINAL CASH DIVIDEND
At its Board meeting on 15 February 2019, the directors approved a gross final cash dividend of 1,573 cents
per share on the ordinary shares from profits accrued during the period ended 31 December 2018. The dividend has
been declared from income reserves.
The dividend will be subject to a dividend withholding tax of 20% for all shareholders who are not exempt from or
do not qualify for a reduced rate of withholding tax. The net dividend payable to shareholders subject to
withholding tax at a rate of 20% amounts to 1,258.40000 cents per share.
The issued share capital at the declaration date is 322,085,974 ordinary shares.
The salient dates are as follows:
Publication of declaration data Tuesday, February 19, 2019
Last day for trading to qualify and participate in the final dividend Tuesday, March 12, 2019
Trading ex-dividend commences Wednesday, March 13, 2019
Record date Friday, March 15, 2019
Dividend payment date Monday, March 18, 2019
Share certificates may not be dematerialised or rematerialised between Wednesday, 13 March 2019 and
Friday, 15 March 2019 both days inclusive. Any change of address or dividend instructions must be provided
by the last day for trading.
By order of the Board
CD Appollis
Company secretary
19 February 2019
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: MSV Gantsho (Chairman), MS Bomela, NS Dlamini, SG French (Irish), TP Goodlace (British/South African),
NB Langa-Royds, DD Mokgatle, SS Ntsaluba, ST Pearce (Australian), BP Sonjica
Executive: TM Mkhwanazi (Chief executive), BA Mazarura (Chief financial officer)
COMPANY SECRETARY
CD Appollis
COMPANY REGISTRATION NUMBER
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")
www.angloamericankumba.com
A member of the Anglo American plc group
www.angloamerican.com
Our website provides more information on our Company and its performance: www.angloamericankumba.com
19 February 2019
Date: 19/02/2019 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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