| Mon 16 Feb 2009, 8:00 | | KIO - Kumba Iron Ore Limited - Audited condensed consolidated financial report |
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KIO
KIO
KIO - Kumba Iron Ore Limited - Audited condensed consolidated financial report
for the year ended 31 December 2008 and final cash dividend declaration
KUMBA IRON ORE LIMITED
A member of the Anglo American plc group
Incorporated in the Republic of South Africa
Registration number: 2005/015852/06
JSE CODE: KIO ISIN: ZAE000085346
("Kumba" or "the company" or "the group")
AUDITED CONDENSED CONSOLIDATED FINANCIAL REPORT FOR THE YEAR ENDED
31 DECEMBER 2008 AND FINAL CASH DIVIDEND DECLARATION
Commitment to zero harm LTIFR of 0,12
Operating profit up 126% to R13,5 billion
Headline earnings up 131% to R7,3 billion
Final cash dividend R13,00 per share
Sishen Mine`s production up 15% to 34Mt
COMMENTARY
HIGHLIGHTS
Despite the volatility in the global economy towards the end of 2008, Kumba
Iron Ore Limited ("Kumba") has delivered strong financial results for the year
ended 31 December 2008. During April 2008 Kumba`s old order mining rights were
converted and a new mining right granted for the Sishen South project. A
significant step has been taken towards the next phase of growth for Kumba
with the approval of the Sishen South project during the third quarter of
2008.
Attributable profit for the year of R7,2 billion and headline earnings of R7,3
billion more than doubled from R3,2 billion and R3,1 billion achieved in 2007
respectively.
Revenue increased by 86% as a result of stronger iron ore prices, a weaker
Rand, increased revenue from shipping services and higher export sales
volumes. Operating expenses remained under pressure as inflation in South
Africa soared and fuel and other key commodity costs saw unprecedented
increases during the year. Despite the increase in operating costs, Kumba`s
operating margin improved to 63% in 2008 (69% from mining activities) from 52%
(56% from mining activities) in 2007. Cash generated from operations for the
year increased to R14,5 billion compared to the R5,8 billion generated during
2007.
Attributable earnings for the year was R22,80 per share, while headline
earnings increased to R23,02 per share, on which a final cash dividend of
R13,00 per share has been declared, bringing the total dividend for the year
to R21,00 per share (2007 - R7,50 per share).
SAFETY PERFORMANCE
The safety achievements of Kumba during 2008 are a clear reflection of the
commitment to zero harm. When measured by lost-time injuries ("LTI`s") Kumba
has shown significant improvement with 14 LTI`s in 2008 compared to 29 LTI`s
in 2007. The lost-time injury frequency rate ("LTIFR") of the group reduced to
0,12 from 0,22 in 2007. Sishen Mine achieved an LTIFR of 0,12 which is the
best ever performance in the history of this mine. At 31 December 2008
Thabazimbi Mine has worked in excess of six years without a fatality and 15
months without an LTI, with the last LTI reported in September 2007.
Notwithstanding this improvement, it is with regret that the group announced
in its interim results that it suffered one fatality during 2008 when Mr
Kagiso Peace Leboa, a 42 year old truck operator, was fatally injured at
Sishen Mine in April.
OPERATING RESULTS
During 2008 the steel market experienced both sharp rises and steep falls. In
the first half of the year, the steel market rose continuously and broke
historical records. Chinese imports of iron ore rose to 444Mt for the year
pushing iron ore spot prices to an all-time high of close to US$200 per tonne
in early 2008. However, steel prices plummeted from the third quarter on the
back of a sudden fall off in demand.
Iron ore export sales for the first three months of 2008 were based on a 9,5%
increase in iron ore prices for the 2007/2008 iron ore year. An average US
Dollar increase in the iron ore price of 93% for the 2008/2009 iron ore year
(effective from April 2008) was reached by Kumba during the third quarter of
2008, based on its quality product range and long-standing customer
relationships.
Strong financial and operational performance for the year was achieved with
revenue increasing 86% from R11,5 billion in 2007 to R21,4 billion. Operating
profit increased by R7,5 billion from R6,0 billion in 2007 to R13,5 billion,
principally as a result of:
* The year-on-year weighted average price of iron ore from export sale volumes
increased by 64% from US$53,70 per tonne to US$88,31 per tonne (taking into
account small volumes of lower quality production sold at discounted prices
during the fourth quarter of 2008), contributing R5,6 billion to operating
profit.
*The weakening of the average exchange rate of the Rand to the
US Dollar (average spot exchange rates - R8,25/US$1,00 in 2008 compared with
R7,03/US$1,00 in 2007), which contributed R2,6 billion to operating profit.
*Increased operating profit from shipping operations of R189 million. Revenue
from shipping operations increased by R1,4 billion to
R2,5 billion in 2008, whilst shipping expenses increased by R1,2 billion to
R2,1 billion.
*Increased export sales volumes added R263 million.
*All of which was partially offset by a R1,1 billion or 24% increase in net
operating expenses (excluding shipping expenses) after taking into account
foreign exchange gains realised during 2008 of R1,0 billion. Production costs
for Sishen Mine have increased by 36% to R3,8 billion and by 15% to R628
million for Thabazimbi Mine principally due to increased tonnes mined and
production volumes at Sishen Mine, increases in prices of diesel, blasting
material products and steel products, partially offset by lower waste
stripping at Thabazimbi Mine. Inventory movements were adversely impacted by
the cost associated with the utilisation of work-in-process inventory during
2008, compared with the net stockpiling of work-in-process inventory during
2007. Selling, rail and distribution costs increased by 52% year-on-year due
to increases in rail and port tariffs, a higher load factor as Transnet ramps
up for additional export volumes, and the payment to Transnet of a once-off
settlement for prior years of R200 million.
Export sales volumes from Sishen Mine for the year increased marginally by 4%
to 24,9Mt impacted by a drop in demand in the fourth quarter predominantly in
Europe and to a lesser extent the Far East. Sishen Mine`s South African
domestic sales volumes declined by 14% to 5,6Mt due to lower local demand.
Production increased by 15% to 34Mt, principally as a result of the 4,7Mt of
production during the year from the Jig plant. Production in the final quarter
was affected principally due to the focus on increasing the quality of the
production from Sishen Mine to secure export volumes in the short-term. Steps
taken by the mine included the stockpiling of certain lower quality feedstock
and reducing the throughput of the plants to ensure an improved quality was
produced. The lower than anticipated sales in the last quarter left finished
product stocks of 5,8Mt at 31 December 2008, approximately 3,5Mt in excess of
base operating levels. During 2008 Thabazimbi Mine produced 2,7Mt and sold
2,5Mt in the South African domestic market.
Total tonnes mined at Sishen Mine increased by 3% to 107,6Mt. During the year
a net additional 1,5Mt of B-grade material (with an iron content of between
55% and 60%) mined at Sishen Mine at a cost of R202 million was stockpiled for
use in the Jig plant to bring the total B-grade material stockpiled since 1
January 2007 to 10,8Mt with a cost of R642 million. The increase in the cash
cost per tonne of Sishen Mine has been negatively impacted by the lower than
anticipated production volumes from the Jig plant and a reduction in the yield
achieved by the DMS plant, due to geological challenges in the main pit,
requiring additional volumes to be treated to achieve the required production.
Unit cash cost for the year of R96,53 per tonne has increased by 30% from
R74,32 per tonne in 2007 or 11% in US Dollar terms, before taking into account
R251 million to produce the 0,9Mt of additional products to mitigate
production losses from the Jig plant (which adds R5,33 per tonne).
Cash flows of R14,5 billion were generated from operations, an increase of
R8,7 billion on the R5,8 billion generated in 2007. These cash flows were used
to pay taxation of R4,3 billion and dividends of R4,9 billion during the year.
At 31 December 2008, the group had a gross debt position of R3,9 billion and
cash on hand of R3,8 billion. Interest cover remained strong at 33 times (19
times at the end of 2007). Capital expenditure of R841 million was incurred to
maintain operations and R1,7 billion to expand operations.
SISHEN SOUTH PROJECT
Kumba announced the approval of an R8,5 billion investment in the new Sishen
South Mine on 31 July 2008. The Sishen South Mine will be located 80 km south
of the Sishen Mine, near Postmasburg in the Northern Cape. Kumba was granted
new order mining rights for Sishen South and an integrated water-use licence
has been issued for the mine. An agreement has now been signed with Transnet
in respect of the expansion of the Sishen-Saldanha export line and
finalisation of logistical arrangements. Earthworks have started and bulk
construction is scheduled to commence with the establishment of the major
civil contracts during the first quarter of 2009. Planned 2009 capital
expenditure at Sishen South has been optimised along the critical path and
first production remains scheduled for the first half of 2012, ramping up to
full capacity of 9Mtpa in 2013.
MINERAL RESOURCES AND RESERVES
There have been no material changes to the resources and reserves as disclosed
in the 2008 Kumba Annual Report.
PROSPECTS
The uncertainties and challenges faced by the global economy have led to a
period of unprecedented volatility and rapid decreases in commodity prices and
volumes traded. Kumba plans to increase production by some 10% during 2009
should stable market conditions prevail. Kumba will continue to target
customers in China in an attempt to redirect any lost contract volumes from
Europe and Japan. In the short-term minor production cut-backs may be required
to produce higher quality products. However, more substantial cut-backs in
production will depend on the scale of demand cuts from Europe and Japan and
the extent to which this can be absorbed by China. The first half of 2009 is
likely to be very challenging for iron ore sales volumes.
Price negotiations will be a key area of uncertainty in this volatile economic
period. Kumba`s quality product range and the strength of long-standing
customer relationships should enable the group to continue trading
successfully. Kumba remains confident that the iron ore market fundamentals
remain robust in the long term.
The board welcomes the announcement by the National Treasury to defer the
mining royalty, which will assist Kumba in reducing anticipated costs thereby
enhancing its ability to proceed with the development of the Sishen South
project as planned. This project will add a further 2 800 jobs during the
development to the 5 000 current jobs at existing operations.
CHANGES IN DIRECTORATE
Ras Myburgh handed over the role of Chief Executive Officer of Kumba to Chris
Griffith on 1 July 2008, whereupon Ras began his secondment to Eskom.
On 14 December 2008, Zarina Bassa was appointed as a non-executive director of
Kumba.
PRODUCTION REPORT
QUARTERLY OVERVIEW
Total iron ore production increased by 6% in the fourth quarter from a year
earlier to 9,6Mt. This was due mainly to the 1,6Mt of production delivered by
the Jig plant.
Quarter ended Quarter ended
31 Dec 31 Dec Change 30 Sep 30 Sep Change
`000 tonnes 2008 2007 % 2008 2007 %
Iron ore 9 552 8 992 6 10 084 7 813 29
- Lump 5 897 5 221 13 5 965 4 661 28
- Fines 3 655 3 771 (3) 4 119 3 152 31
Mine 9 552 8 992 6 10 084 7 813 29
production
- Sishen Mine 8 857 8 268 7 9 394 7 210 30
DMS plant 7 028 8 095 (13) 7 346 7 210 2
Jig plant 1 647 173 - 1 808 - -
Other 182 - - 240 - -
_ Thabazimbi 695 724 (4) 690 603 14
Mine
YEARLY OVERVIEW
SISHEN MINE - DMS PLANT
28,4Mt was produced by the DMS plant for the year, 1,1Mt less than the record
production achieved from the plant in 2007. Production was negatively
affected due to a reduction in the yield of the plant due to a lower feed
grade fed to the plant.
SISHEN MINE - JIG PLANT (SISHEN EXPANSION PROJECT)
Production from the Jig plant for the year was 4,7Mt. This production level
was lower than anticipated and was impacted by several technical difficulties
as well as the late commissioning of the crushing and sample plants and the
scaling back on throughput in the fourth quarter. Based on the recent
performance from the Jig plant, it is anticipated that an annualised
production rate of 13Mt should be achieved during the fourth quarter of 2009.
Production may need to be scaled back if stable market demand does not prevail
during 2009.
Twelve months ended
31 Dec 31 Dec Change
`000 tonnes 2008 2007 %
Iron ore 36 699 32 401 13
- Lump 22 042 19 044 16
- Fines 14 657 13 357 10
Mine production 36 699 32 401 13
- Sishen Mine 34 039 29 728 15
DMS plant 28 395 29 555 (4)
Jig plant 4 747 173 100
Other 897 - 100
- Thabazimbi Mine 2 660 2 673 -
CONDENSED GROUP BALANCE SHEET
as at
Audited Restated
31 Dec 31 Dec
2008 2007
Rm Rm
Assets
Non-current assets 8 205 6 085
Property, plant and equipment 7 911 5 889
Biological assets 8 6
Investments in associates and joint 6 2
ventures
Investments held by environmental 237 165
trust
Long-term financial assets and 32 14
prepayments
Deferred tax assets 11 9
Current assets 8 498 3 793
Inventories 1 879 1 310
Trade and other receivables 2 262 1 531
Current tax asset 547 -
Cash and cash equivalents 3 810 952
Total assets 16 703 9 878
Equity and liabilities
Shareholders` equity 6 859 2 736
Minority interest 1 647 661
Total equity 8 506 3 397
Non-current liabilities 3 351 2 869
Interest-bearing borrowings 977 1 040
Deferred tax liabilities 1 990 1 490
Provisions 384 339
Current liabilities 4 846 3 612
Short-term interest-bearing borrowings 2 881 2 490
Short-term provisions 310 -
Trade and other payables 1 655 1 058
Current tax liabilities - 64
Total equity and liabilities 16 703 9 878
CONDENSED GROUP INCOME STATEMENT
for the year ended
Audited Restated
31 Dec 31 Dec
2008 2007
Rm Rm
Revenue 21 360 11 497
Operating expenses (7 847) (5 519)
Operating profit 13 513 5 978
Finance income 154 102
Finance costs (405) (270)
Profit before taxation 13 262 5 810
Taxation (4 179) (1 807)
Profit for the year 9 083 4 003
Attributable to:
Equity holders of Kumba 7 208 3 181
Minority interests 1 875 822
9 083 4 003
Attributable earnings per share
(cents)
Basic 2 280 1 011
Diluted 2 254 995
Dividend per share (cents)
Interim 800 350
Final* 1 300 400
*The final dividend was declared subsequent to 31 December 2008 and is
presented for information purposes.
HEADLINE EARNINGS
for the year ended
Audited Restated
31 Dec 31 Dec
2008 2007
Rm Rm
Reconciliation of headline earnings
Attributable profit 7 208 3 181
Net loss/(profit) on disposal and 12 (14)
scrapping of property, plant and
equipment
Impairment of property, plant and 50 -
equipment
Realisation of foreign currency 19 (34)
translation reserve
7 289 3 133
Taxation effect of adjustments (9) 1
Minority interest in adjustments (4) 9
Headline earnings 7 276 3 143
Headline earnings per share (cents)
Basic 2 302 1 000
Diluted 2 275 983
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 316 140 923 314 618 406
shares
Diluted weighted average number of 319 778 849 319 660 289
ordinary shares
The adjustment of 3 637 926 shares to
the weighted average number of
ordinary shares is as a result of the
expected vesting of share options
already granted under the various
share-based payment arrangements.
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
for the year ended
Audited Restated
31 Dec 31 Dec
2008 2007
Rm Rm
Total equity at the beginning
of the year -
as previously disclosed 3 397 1 055
Change in accounting policy - - 1
borrowing costs
Total equity at the beginning
of the year -
restated 3 397 1 056
Changes in share capital and
premium
Shares (including treasury
shares) issued
during the year 80 53
Changes in reserves
Equity-settled share-based 88 73
payments
Profit for the year 7 208 3 181
Foreign currency translation 562 (51)
differences
Movement in the revaluation of 4 2
financial instruments
Dividends paid (3 819) (1 362)
Changes in minority interest
Profit for the year 1 875 822
Dividends paid (1 051) (383)
Movement in minority interest 162 6
in reserves
Total equity at the end of the 8 506 3 397
year
Comprising
Share capital and premium 136 56
Equity-settled share-based 343 255
payment reserve
Foreign currency translation 564 2
reserve
Cash flow hedge accounting 4 -
reserve
Retained earnings 5 812 2 423
Shareholders` equity 6 859 2 736
- attributable equity holders 6 365 2 538
of Kumba Iron Ore
-
attributable to the minority 494 198
interest in Sishen Iron Ore
Company
Minority interest 1 647 661
Total equity 8 506 3 397
CONDENSED GROUP CASH FLOW STATEMENT
for the year ended
Audited Audited
31 Dec 31 Dec
2008 2007
Rm Rm
Cash flows from operating 6 013 2 750
activities
Cash generated from operations 14 519 5 805
Net finance costs paid (401) (301)
Taxation paid (4 311) (1 401)
Dividends paid (3 794) (1 353)
Cash flows from investing (2 487) (2 064)
activities
Capital expenditure (2 563) (2 119)
Proceeds from the disposal of non- - 26
current assets
Acquisition of investments (3) (2)
Other 79 31
Cash flows from financing (668) (828)
activities
Share capital issued 80 53
Dividends paid to minority (1 076) (392)
shareholders
Interest-bearing borrowings 328 (489)
raised/(repaid)
Increase/(decrease) in cash and 2 858 (142)
cash equivalents
Cash and cash equivalents at 952 1 094
beginning of the year
Cash and cash equivalents at end of 3 810 952
the year
SALIENT FEATURES AND OPERATING STATISTICS
for the year ended
Unaudited Unaudited
31 Dec 31 Dec
2008 2007
Share statistics (`000)
Total shares in issue 319 461 317 104
Weighted average number of 316 141 314 618
shares
Diluted weighted average number 319 779 319 660
of shares
Treasury shares 1 795 1 766
Treasury shares (Rand million) 86 43
Market information
Closing share price (Rand) 162 285
Market capitalisation (Rand 51 753 90 374
million)
Market capitalisation (US$ 5 482 13 281
million)
Net asset value per share 2 163 863
(cents)
Capital expenditure (Rand
million)
Incurred 2 563 2 119
Contracted 2 090 589
Authorised but not contracted 8 753 1 185
Capital expenditure relating to
Thabazimbi Mine to be financed
by ArcelorMittal (Rand million)
Contracted - 2
Authorised but not contracted - 2
Operating commitments (Rand
million)
Operating lease commitments 144 56
Shipping services 395 698
Economic information
Average Rand/US dollar exchange 8,25 7,03
rate (Rand/US$)
Closing Rand/US dollar exchange 9,37 6,81
rate (Rand/US$)
Operating statistics (Mt)
Production 36,7 32,4
Sales 33,0 32,9
- export 24,9 24,0
- domestic 8,1 8,9
Sishen Mine unit cost (Rand per 110,77 79,90
tonne)
Sishen Mine cash cost (Rand per 101,86 74,32
tonne)
Sishen Mine unit cost (US$ per 13,43 11,37
tonne)
Sishen Mine cash cost (US$ per 12,35 10,57
tonne)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL REPORT
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 and marketing and
sale of iron ore. The group has its primary listing on the JSE Limited.
The condensed consolidated financial report of Kumba and its subsidiaries for
the year ended 31 December 2008 was authorised for issue in accordance with a
resolution of the directors on 13 February 2009.
BASIS OF PREPARATION AND ACCOUNTING POLICIES
The condensed consolidated financial report for the year ended
31 December 2008 has been prepared in compliance with the South African
Companies Act, No 61 of 1973, as amended, the Listings Requirements of the
JSE Limited and International Accounting Standard 34, Interim Financial
Reporting.
The condensed consolidated financial report has been prepared in accordance
with the historical cost convention except for certain financial instruments,
share-based payments and biological assets which are stated at fair value, and
is presented in Rand, which is Kumba`s functional and presentation currency.
Except for the early adoption of IAS 23 as disclosed, the accounting policies
and methods of computation applied in the preparation of the condensed
consolidated financial report are consistent with those applied for the year
ended 31 December 2007, which comply with International Financial Reporting
Standards ("IFRS").
Kumba adopted the revised IAS 23 Borrowing costs before its effective date,
with effect from 1 January 2008. IAS 23 requires the capitalisation of
borrowing costs that relate to assets that take a substantial period of time
to get ready for use or sale. The requirements of the standard have been
applied retrospectively. The effect on basic earnings per share is an increase
of 29 cents and 26 cents for the year ended 31 December 2008 and 2007
respectively. The effect on headline earnings per share is an increase of 30
cents and 26 cents for the year ended 31 December 2008 and 2007 respectively.
The effect on equity is disclosed in the table below.
Audited Restated
31 Dec 31 Dec
2008 2007
Rm Rm
Increase in opening balance 82 1
Increase in profit before taxation for 162 140
the year
Taxation (45) (39)
Increase in equity attributable to
equity holders
of Kumba 199 102
Minority interest (23) (20)
Increase in shareholders` equity 176 82
The following new interpretations and change to an existing standard, which
are effective for the 2008 financial year, have no impact on the financial
position, results or cash flow information of the group for the year:
* IFRIC 12, Service Concession Arrangements (effective from 1 January 2008);
* IFRIC 14, IAS 19 limit on defined benefit asset (effective from 1 January
2008); and
* Amendment to IAS 39, Financial Instruments: Recognitions and Measurement
(effective from 1 July 2008).
The accounting standard, amendments to issued accounting standards and
interpretations, which are relevant to the group, but not yet effective at 31
December 2008, has not been adopted. The group is currently evaluating the
impact of these pronouncements.
NET DEBT
Kumba`s net debt position at balance sheet dates is as follows:
Audited Audited
31 Dec 31 Dec
2008 2007
Rm Rm
Long-term interest-bearing 977 1 040
borrowings
Short-term interest-bearing 2 881 2 490
borrowings
Total 3 858 3 530
Cash and cash equivalents (3 810) (952)
Net debt 48 2 578
Total equity 8 506 3 397
Interest cover (times) 33 19
DEBT
It is the intention of management to fund Kumba`s capital expansion projects
through debt financing. For this purpose, the group has secured a new R5,4
billion term debt facility. As this debt is used to finance Kumba`s expansion,
the debt profile should return to a longer-term profile in the medium term.
Included in the R2,9 billion short-term borrowings, is a R2,84 billion
revolving facility which reaches maturity in November 2009.
The maximum net debt in terms of current covenants is R5,5 billion. Kumba was
not in breach of any of its covenants during the year.
The group`s total undrawn borrowing facilities at 31 December 2008 amounted to
R6,1 billion.
Share capital
During the year Kumba issued 2 357 920 new ordinary shares to the Kumba Iron
Ore Management Share Trust. The remaining unissued shares are under the
control of the directors of Kumba until the next annual general meeting.
SEGMENTAL REPORTING
Kumba`s single business segment is the mining, extraction and production of
iron ore. The financial disclosures of the business segment are presented in
the condensed consolidated financial report.
Kumba generated its revenue through the sale and transportation of iron ore to
customers in the following geographical regions:
Audited Audited
31 Dec 31 Dec
2008 2007
Rm Rm
Total revenue 21 360 11 497
Domestic 1 341 1 349
Export 20 019 10 148
Europe 5 218 2 999
China 9 203 4 284
Rest of Asia 5 598 2 865
SIGNIFICANT ITEMS INCLUDED IN OPERATING PROFIT
OPERATING EXPENSES
Operating expenses are made up as follows:
Audited Audited
31 Dec 31 Dec
2008 2007
Rm Rm
Production costs 4 030 3 740
Movement in inventories (289) (402)
Finished products (190) 24
Work-in-progress (99) (409)
Other - (17)
Cost of goods sold 3 741 3 338
Selling and distribution costs 1 976 1 300
Cost of services rendered - 2 086 887
shipping
Impairment of property, plant and 50 -
equipment
Sublease rent received (6) (6)
Operating expenditure 7 847 5 519
Operating profit has been derived after taking into account the following
items:
Audited Audited
31 Dec 31 Dec
2008 2007
Rm Rm
Staff costs 1 375 1 017
Share-based payment expenses 106 122
Depreciation of property, plant and 332 228
equipment
Impairment of property, plant and 50 -
equipment
Loss/(profit) on disposal and 12 (14)
scrapping of property, plant and
equipment
Finance gains (1 035) (40)
Operating profit capitalised 370 (93)
- Revenue 579 -
- Expenses (209) (93)
SHARE-BASED PAYMENT EXPENSES
The decrease in the share-based payment expense is mainly due to the revision
of certain assumptions relating to vesting conditions used in determining the
share-based payment expense for the year. This was partly offset by an
increase in the share-based payment expense mainly due to 221 896 additional
awards on the Long-term Incentive Plan ("LTIP") and 220 390 additional rights
on the Share Appreciation Rights Scheme ("SARS") that were awarded to
employees during March 2008. In addition 685 082 share options were awarded
to participants of the Envision scheme during the year.
DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
Management has reviewed the residual values and remaining estimated useful
lives of assets and adjusted these estimates for certain items of property,
plant and equipment as at 31 December 2007. The change in accounting estimate
was applied prospectively from that date for the 2008 financial year. The
revised estimated useful lives and residual values of these assets resulted in
a decrease of R57 million in the current year`s depreciation charge.
OPERATING PROFIT CAPITALISED
The capitalisation of operating profit for the year ended 31 December 2008
relates to operating costs of R209 million incurred on 0,9Mt of ore from the
Jig plant that have been capitalised to property, plant and equipment as part
of the directly attributable cost of bringing the Jig plant to the location
and condition necessary for it to be capable of operating in the manner
intended by management. The related revenue of R579 million from the sale of
ore from the Jig plant earned during this development stage was also
capitalised.
On 1 June 2008 the capitalisation of the revenue and expenses was ceased as
substantially all the activities for bringing the Jig plant in the location
and condition necessary for it to be capable of operating in the manner
intended by management had been completed.
PROPERTY, PLANT AND EQUIPMENT
Capital expenditure on property, plant and equipment was R2,6 billion for the
year ended 31 December 2008. This includes the R370 million capitalised profit
as discussed above. A total of R4,5 billion was transferred from assets under
construction to machinery, plant and equipment for the year. Of this, R4,2
billion related to the Jig plant.
BUSINESS COMBINATION
ACQUISITION
Kumba made a payment of US$5 million towards the end of 2007 in relation to
the Kamambolo and Forecarriah iron ore deposits in the Republic of Guinea,
with a purpose of acquiring a controlling stake in Camfo Minerals CMS-SARL and
Sud-Sud Group Development SA through its investment in Kumba Holdings West
Africa BV, subject to certain conditions. This was accounted for as a
prepayment as at 31 December 2007. In January 2008, the conditions precedent
contained in the purchase agreement were fulfilled by the parties. The excess
purchase price over the fair value of the net assets was ascribed to mineral
properties.
Since the acquisition date exploration costs of R46 million have been incurred
and are included in consolidated profit for the year.
IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT
Based on the latest exploration results the West African mineral
properties have been impaired to their recoverable amount.
RELATED PARTY TRANSACTIONS
During the year Kumba, in the ordinary course of business, entered into
various sale and purchase transactions with associates and joint ventures.
These transactions were subject to terms that are no less favourable than
those offered by third parties.
Included in cash and cash equivalents at 31 December 2008 is a short-term
deposit facility placed with Anglo American SA Finance Limited of R2,9
billion.
CONTINGENT LIABILITIES
Sishen Iron Ore Company issued bank guarantees for property acquisitions
of R77 million during the year.
There have been no significant changes in the contingent liabilities
disclosed at 31 December 2007 that arise from the guarantees provided for
environmental rehabilitation and decommissioning obligations of the Kumba
Rehabilitation Trust Fund.
LEGAL PROCEEDINGS
LITHOS CORPORATION (PTY) LIMITED ("LITHOS")
Kumba continues to defend the merits of the claim and is of the view,
and has been so advised, that the basis of the claim and the quantification
thereof is fundamentally flawed. A trial date has been set for the first
quarter of 2010. No liability has been raised for this matter.
MIFERSO
Kumba has initiated arbitration proceedings against La Societe Des Mines
De Fer Du Senegal Oriental (Miferso) and the Republic of Senegal under the
Rules of Arbitration of the International Chamber of Commerce. This matter
has been enrolled for hearing in the third quarter of 2009. These proceedings
are confidential in nature.
SISHEN SUPPLY AGREEMENT
Kumba and ArcelorMittal have agreed to an arbitration process to resolve
key differences of interpretation of the Sishen Supply Agreement.
Arbitration proceedings were initiated in 2007 by Kumba. This matter has
been enrolled for hearing during the first half of 2009. These proceedings
are confidential in nature.
POST-BALANCE SHEET DATE EVENTS
The directors are not aware of any material matter or circumstance arising
since the end of the year and up to the date of this report, not otherwise
dealt with in this report.
CORPORATE GOVERNANCE
The group subscribes to the Code of Good Corporate Practices and Conduct as
contained in the King II Report on corporate governance and the board has
satisfied itself that Kumba has complied throughout the year under review in
all material aspects with the code.
INDEPENDENT AUDIT OPINION
The auditors, Deloitte & Touche have issued their unmodified audit opinion
on the condensed consolidated financial report for the year ended 31 December
2008. A copy of their unmodified audit opinion is available for inspection at
the company`s registered office.
On behalf of the board
PL Zim CI Griffith 13 February 2009
Chairman Chief Executive Officer Pretoria
NOTICE OF FINAL CASH DIVIDEND
At its board meeting on 13 February 2009 the directors declared a final cash
dividend of R13,00 per share on the ordinary shares from profits accrued
during the year ended 31 December 2008. The salient dates are as follows:
Last day for trading to qualify and participate in the final dividend(and
change of address or dividend instructions)
Friday, 6 March 2009
* Trading ex dividend commences Monday, 9 March 2009
* Record date Friday, 13 March 2009
* Dividend payment date Monday, 16 March 2009
Share certificates may not be dematerialised or rematerialised between
Monday, 9 March 2009 and Friday, 13 March 2009, both days inclusive.
By order of the board
VF Malie 13 February 2009
Company secretary Pretoria
FURTHER FINANCIAL RESULTS AVAILABLE AT WWW.KUMBA.CO.ZA
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 (Pty) Limited, 70 Marshall Street,
Republic of South Africa. PO Box 61051, Marshalltown, 2107
SPONSOR TO KUMBA:
Rand Merchant Bank (a division of FirstRand Bank Limited)
DIRECTORS:
Non-executive - PL Zim (Chairman), PM Baum, GS Gouws, PB Matlare,
DD Mokgatle, AJ Morgan, N Moyo, ZBM Bassa; Executive - CI Griffith
(CEO), VP Uren (CFO)
COMPANY SECRETARY: VF Malie
Date: 16/02/2009 08:00:06 Produced by the JSE SENS Department.
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