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KIO
KIO
KIO - Kumba Iron Ore Limited - Audited financial results for the year ended
31 December 2009
Kumba Iron Ore Limited
Company registration no 2005/015852/06
Incorporated in the Republic of South Africa
JSE code: KIO ISIN: ZAE000085346
("Kumba" or "the company" or "the group")
Audited financial results for the year ended 31 December 2009
Highlights
Safety (LTIFR)
42% down to 0.07
Sishen Mine production
16% up to 39.4Mt
Export sales volumes
37% up to 34.2Mt
Sishen Mine unit cash cost
4% down in real terms
Final cash dividend
R7.40 per share
Sishen South arbitration
Favourable award
Commentary
Highlights
Kumba delivered an exceptional operational and sales performance in 2009 with
substantial increases in mining, production and export sales volumes and
strong cash flows driven by an increase in export revenues and tight cost
management, notwithstanding the backdrop of global economic recession.
Kumba`s revenue increased by 10% to R23.4 billion on the back of a 37%
increase in export sales volumes driven by strong demand from China, though
tempered by lower export volumes to Europe and Japan. Despite starting the
year with concerns over the visibility and sustainability of export sales,
the group, increased revenue through higher export sales volumes which was
mostly offset by the 40% reduction in benchmark iron ore export prices
resulting in a 5% decrease in operating profit. Through focused cost
management and a 16% increase in production, mainly from the Jig plant, the
small increase in Sishen Mine`s unit cash cost on a like-for-like basis was
well below inflationary cost escalations. Sishen Mine`s unit cash cost for
2009 was R98.83 (US$11.78) per tonne compared to R96.53 (US$11.70) per tonne
at the end of 2008.
Attributable and headline earnings for the year were R21.88 per share and
R21.82 per share respectively, on which a final cash dividend of R7.40 per
share has been declared. The group`s strong cash flow generation has enabled
the consistent payment of an interim and final dividend since listing on the
JSE Limited in November 2006 aggregating to R43.90 per share. This return of
cash to shareholders has enabled our community trust and employee
shareholders to redeem substantial portions of the original funding required
to invest in Sishen Iron Ore Company (Pty) Limited in early 2010, with full
repayment possible within the next year for the trust.
A favourable award was received in the arbitration with ArcelorMittal SA
Limited (`ArcelorMittal`) and it has been determined that ArcelorMittal is
not entitled to participate in the development of the Sishen South Project
currently under construction.
Safety performance
Kumba`s commitment to zero harm continues to deliver marked achievements. At
existing operations the group improved on its safety performance during the
year, with only ten lost-time injuries (`LTI`s`) being recorded. This
translated into a lost-time injury frequency rate (`LTIFR`) of 0.07 per 200
000 hours compared to the 0.12 incurred in 2008 (a 42% improvement).
Thabazimbi Mine continued its excellent performance by completing its second
year without recording a single LTI. Sishen and Thabazimbi mines worked the
full year without a fatality. In Sishen Mine`s case this was the first time
in five years that the mine worked fatality free. Kolomela Mine (Sishen South
Project) achieved 4.3 million LTI-free man-hours to date.
Notwithstanding this improvement during the year, it was regrettable that we
had suffered one fatality for the year when Mr Tebogo David Marope, a 23 year
old contractor of Concor, was fatally injured during road construction at the
Sishen South Project on 28 January 2009.
Market overview
World crude steel production started to recover during the second half of
2009 with most major steel producing countries posting an increase in output,
compared to the first half of 2009 and second half of 2008. However, world
crude steel production for 2009 was 8% down on the previous year`s output,
reaching 1 220Mt, compared to the previous year`s 1 327Mt. Chinese steel
production for 2009 reached 568Mt, compared to 500Mt in 2008, representing a
13.6% increase year-on-year, and increased in excess of consumption by 30Mt.
The increase in steel production coupled with lower Chinese domestic iron ore
production, resulted in record seaborne iron ore imports into China. The
European, Japanese and Korean markets have started a tentative recovery and
an improvement in iron ore demand has been experienced during the second half
of the year due to some production increases and restocking by the steel
industry.
Operational performance
Total tonnes mined at Sishen Mine increased by 18% from 108.8Mt in 2008 to
128.3Mt, of which waste mined was 82.1Mt, an increase of 28% from the prior
year. This increase in waste mining activity is undertaken to mitigate the
increasing depth of the ore body, geological constraints in the pit and to
secure the future of the mine. Total production at Sishen Mine increased by
16% from 34.0Mt in 2008 to 39.4Mt. Production from the Dense Media Separation
(`DMS`) plant increased by 0.6Mt to 29.0Mt, which was above expectations. The
ramp up of production from the Jig plant has seen a substantial increase
during the year, with production more than doubling that of the prior year.
The 10.4Mt produced by the Jig plant during the year accounted for 26% of
Sishen Mine`s production. Kumba remains on schedule to achieve about 13Mtpa
from the Jig plant during 2010.
The group increased total sales volumes by 21% from 33.0Mt in 2008 to 40.0Mt.
Export sales volumes from Sishen Mine for the year increased by 9.3Mt or 37%
from 24.9Mt in 2008 to 34.2Mt on the back of increasing volumes from the Jig
plant, the successful introduction of a new blended fines product and an
increase in demand from China. Export sales volumes to China totalled 75% of
total export volumes for the year. Total domestic sales volumes for the year
of 5.8Mt are down by 28% or 2.3Mt due to lower demand from ArcelorMittal.
Logistics and export operations have performed adequately in transporting the
increased production achieved for 2009. Volumes railed on the Sishen-Saldanha
export channel increased by 23% to 34.6Mt, whilst a 38% increase in the
volumes shipped from the port at Saldanha was achieved. A record 134 vessels
shipped 21.5Mt by Kumba on behalf of its customers.
Production at Thabazimbi Mine reduced by 7% to 2.5Mt for the year as a result
of lower off-take by ArcelorMittal. The decrease in domestic demand resulted
in a build up of ArcelorMittal`s finished product stock at Thabazimbi Mine,
from 0.8Mt to 1.1Mt.
Operating results
Kumba`s strong operational performance underlaid a solid financial
performance for the year ended 31 December 2009. R12.9 billion operating
profit was achieved for the year, a reduction of R633 million or 5% from the
R13.5 billion in 2008. Kumba`s operating profit margin of 55% for the year
(61% from mining activities), decreased by 8% from 63% (69% from mining
activities) in 2008 as benchmark iron ore prices decreased on average by 40%
for the 2009/2010 iron ore year.
The drop-off in demand for iron ore from Kumba`s traditional markets (Europe,
Japan and Korea), which had started in the fourth quarter of 2008, continued
in 2009. Chinese demand for iron ore, however, continued to grow - not only
because of increased crude steel production, but also because of markedly
lower domestic iron ore production. Kumba was able to divert volumes from
Europe, Japan and Korea into China, which accounted for 75% (43% in 2008) of
Kumba`s export volumes in 2009. 35% of iron ore was sold on an index basis,
and more than 30 new customers were developed. In all, export sales increased
by 37% year-on-year, and sales into China grew by 130%.
Kumba settled benchmark prices in Europe, Japan and Korea in the third
quarter of 2009, applying retroactively from 1 April 2009. Settlements were
in line with other settlements in these markets, and resulted in
approximately a 40% reduction in benchmark prices. No formal, industry-wide
settlement was concluded in China, but sales were effected at prices similar
to settlements in other markets.
Operating profit decreased by 5% or R633 million, principally as a result of:
Increased export sales volumes added R6.6 billion to operating profit;
offset by the year-on-year weighted average decrease of 40% in benchmark iron
ore prices, which reduced operating profit by R5.4 billion; and lower
domestic sales volumes due to the decline in domestic demand, which reduced
operating profit by R377 million. The net effect of these factors was an
increase in operating profit of R0.8 billion.
A R308 million increase in profit from shipping operations. Total tonnes
shipped by Kumba increased by 15.3Mt from 6.2Mt to 21.5Mt during 2009. This
increase in volume was offset by a decrease in the shipping margin achieved
(average shipping margin - US$3/tonne in 2009). The unused portion of the
provision raised in 2008 amounting to US$22.8 million (R191 million) was
released during the year.
The weakening of the average exchange rate of the Rand to the US Dollar
(average exchange rates - R8.39/US$1.00 in 2009 compared with R8.25/US$1.00
in 2008), which contributed R301 million to operating profit, and lower net
valuation gains over 2008 from US$ denominated monetary assets and derivative
instruments, which reduced operating profit by R665 million.
All of which was further offset by a R1.4 billion or 36% increase in
operating expenses (excluding shipping expenses), as a result of the 28%
increase in waste mined at Sishen Mine, 14% increase in volumes produced, and
a 36% increase in logistics costs driven by increased sales volumes during
the year. This increase was further fuelled by inflation, though offset by
lower costs of diesel and blasting products and strict cost management.
Kumba has implemented a number of revenue enhancing and cost management
initiatives as part of the asset optimisation programme which have realised
R2.0 billion in operating profit during the year, including once-off revenue
enhancement activities that contributed R1.4 billion for 2009. The recurring
nature of certain of these initiatives will assist in enhancing the financial
performance of the group and protecting operating profit margins in the
future. These initiatives include, amongst others: increasing export sales
volumes on which shipping services were provided; decreasing maintenance
shutdown intervals; producing and selling niche products to enhance the
premia received and procurement and operating efficiency cost savings. The
flagship Sishen Mine transformation programme launched during the year
("Bokamoso") has started to deliver cost savings in the important area of
operating efficiency in mining. Further value from this programme will be
unlocked as it progresses to the next stages of the production process of the
mine.
The group continued to generate substantial cash from its operations, with
R12.6 billion generated during the year. These cash flows were used to pay
taxation of R3.2 billion and aggregate dividends of R8.2 billion during the
year. Capital expenditure of R4 billion was incurred, of which R1.2 billion
was to maintain operations and R2.8 billion to expand operations, mainly on
Kolomela Mine. At 31 December 2009 the group had a net debt position of R3
billion. Interest cover remained strong at 43 times (33 times at the end of
2008).
During July 2009 Kumba successfully negotiated a new three year term debt
facility of R3.2 billion to replace the R2.8 billion revolving debt facility
that would have matured in November 2009.
The Board reviewed the cash flow generation, growth plans and the capital
structure of Kumba and is pleased to approve a final dividend of R7.40 per
share (interim dividend R7.20 per share).
Kolomela Mine
The development of the Kolomela Mine continues and remains on budget and on
schedule to deliver initial production during the first half of 2012, ramping
up to full capacity of 9Mtpa in 2013. Construction on the project is
progressing well and mining operations commenced after the first blast on 17
September 2009. To date 4Mt of material has been moved; project engineering
is substantially complete; and significant progress has been made on
manufacturing and construction. R3.2 billion of capital expenditure
(including R189 million of capitalised mining operating expenses) has been
incurred to date, of which R2.5 billion has been incurred during the year
ended 31 December 2009.
Mineral resources and ore reserves
There have been no material changes to the ore reserves as disclosed in the
2008 Kumba Annual Report.
New information from exploration around Sishen Mine and the Zandrivierspoort
Project has led to model updates and a subsequent 12% decrease in mineral
resoures from those shown in the Kumba 2008 Annual Report. The Sishen Mine
mineral resources outside the current life of mine plan decreased from 1
628.5Mt to 1 438.5Mt. Mineral resources for the Zandrivierspoort Project
decreased from 421.9Mt to 347.4Mt.
Prospects
Analyst forecasts indicate that global steel consumption should grow in
excess of 5% per annum over the next three years, which would lead to
increasing iron ore demand. Chinese demand for iron ore is expected to grow
by at least 5% during 2010. With Chinese domestic iron ore production falling
this has placed increased pressure on seaborne iron ore imports and spot
prices. A further recovery outside of China is expected during 2010 and
pressures on seaborne iron ore supply continue to rise. Overall, the global
seaborne iron ore market remains structurally tight. The growing demand for
seaborne iron ore is also manifested in the sharp rise in steel scrap and
spot iron ore prices, with the latter indicating a significant premium to
2009 contract prices. Current market consensus indicates an increase in iron
ore export prices for the 2010/2011 iron ore year. Although global steel
demand is expected to return to growth in 2010, this is likely to be moderate
and the sustainability of increase in demand outside of China remains
uncertain. Domestic sales volumes from Thabazimbi and Sishen mines remain
dependent on the off-take requirements from ArcelorMittal.
Kumba is committed to a further increase in production volumes during 2010,
with the continued ramp up of the Jig plant. Waste mining at Sishen Mine is
anticipated to increase as the pit gets deeper and wider. Export sales
volumes into China are expected to normalise at around 60% of the
geographical sales mix.
Kumba`s operating profit remains highly sensitive to the Rand/US Dollar
exchange rate. Relative to the US Dollar, the South African Rand has
strengthened
20% over the past year. The first mining royalty is payable by
Kumba`s mining operations from March 2010.
Management focus will be on asset optimisation initiatives, cost management
and additional production and sales volumes to lessen the adverse effects of
the stronger rand, mining royalty and the cost pressures from an increase in
waste mining.
Changes in directorate
The Board of directors of Kumba announced the resignation of Dr Nkosana Moyo
and Mr Philip Baum as non-executive directors on 12 January 2010. Both Dr
Moyo and Mr Baum were members of the Board of Kumba since its inception in
November 2006.
The chairman of the Board, Mr Lazarus Zim, expresses the Board and
management`s gratitude to Dr Moyo and Mr Baum for their contribution during
their tenure.
Mr David Weston, Anglo American plc`s Group Director of Business Performance
and Projects, was appointed as a non-executive director on 10 February 2010.
Production report for the year ended 31 December 2009
Production summary
Total iron ore production increased by 20% in the fourth quarter from a year
earlier to 11.5Mt and by 14% for the year ended 31 December 2009 to 41.9Mt.
This was due mainly to the 3.1Mt production delivered by the Jig plant during
the quarter and 10.4Mt for the year, as well as an 8% increase in performance
from the DMS plant for the last quarter.
Yearly overview
Year ended
31 Dec 2009 31 Dec %
`000 tonnes 2008 change
Iron ore 41 943 36 699 14
- Lump 25 300 22 042 15
- Fines 16 643 14 657 14
Mine production 41 943 36 699 14
- Sishen Mine 39 388 34 039 16
DMS plant 28 958 28 395 2
Jig plant 10 430 4 747 120
Additional initiatives - 897 -
- Thabazimbi Mine 2 555 2 660 (4)
Quarterly overview
Quarter ended
31 Dec 2009 31 Dec %
`000 tonnes 2008 change
Iron ore 11 466 9 552 20
- Lump 6 790 5 897 15
- Fines 4 676 3 655 28
Mine production 11 466 9 552 20
- Sishen Mine 10 705 8 857 21
DMS plant 7 586 7 028 8
Jig plant 3 119 1 647 89
Additional initiatives - 182 -
- Thabazimbi Mine 761 695 9
Quarter ended
30 Sept 30 Sept %
`000 tonnes 2009 2008 change
Iron ore 11 330 10 084 12
- Lump 6 839 5 965 15
- Fines 4 491 4 119 9
Mine production 11 330 10 084 12
- Sishen Mine 10 651 9 394 13
DMS plant 7 755 7 346 6
Jig plant 2 896 1 808 60
Additional initiatives - 240 -
- Thabazimbi Mine 679 690 (2)
Condensed group balance sheet
as at
Audited Audited
31 Dec 31 Dec
2009 2008
Rm Rm
Assets
Non-current assets 12 031 8 205
Property, plant and equipment 11 568 7 911
Biological assets 7 8
Investments in associates and joint ventures 20 6
Investments held by environmental trust 279 237
Long-term prepayments 28 32
Deferred tax assets 129 11
Current assets 5 776 8 498
Inventories 2 559 1 879
Trade and other receivables 2 195 2 262
Current tax asset 131 547
Cash and cash equivalents 891 3 810
Total assets 17 807 16 703
Equity and liabilities
Shareholders` equity 7 282 6 859
Minority interest 1 674 1 647
Total equity 8 956 8 506
Non-current liabilities 6 609 3 351
Interest-bearing borrowings 3 859 977
Provisions 468 384
Deferred tax liabilities 2 282 1 990
Current liabilities 2 242 4 846
Short-term interest-bearing borrowings 55 2 881
Short-term provisions 4 310
Trade and other payables 2 161 1 655
Current tax liabilities 22 -
Total equity and liabilities 17 807 16 703
Condensed group income statement
for the year ended
Audited Audited
31 Dec 31 Dec 2008
2009
Rm Rm
Revenue 23 408 21 360
Operating expenses (10 528) (7 847)
Operating profit 12 880 13 513
Finance income 286 154
Finance costs (413) (405)
Profit before taxation 12 753 13 262
Taxation (3 949) (4 179)
Profit for the year 8 804 9 083
Attributable to:
Owners of Kumba 6 975 7 208
Minority interest 1 829 1 875
8 804 9 083
Earnings per share for profit attributable
to the owners of Kumba (Rand per share)
Basic 21.88 22.80
Diluted 21.77 22.54
Condensed group statement of other comprehensive income
for the year ended
Audited Audited
31 Dec 31 Dec 2008
2009
Rm Rm
Profit for the year 8 804 9 083
Net effect of (losses)/gains on other
comprehensive income for the year, net of
taxation (316) 707
Exchange differences on translating foreign
operations (315) 713
Net effect of cash flow hedges (5) 5
Taxation 4 (11)
Total comprehensive income for the year 8 488 9 790
Attributable to:
Owners of Kumba 6 717 7 774
Minority interest 1 771 2 016
8 488 9 790
Condensed group statement of changes in equity
for the year ended
Audited Audited
31 Dec 31 Dec 2008
2009
Rm Rm
Total equity at the beginning of the year 8 506 3 397
Changes in share capital and premium
Shares (including treasury shares) issued
during the year 132 80
Purchase of treasury shares (60) -
Changes in reserves
Equity-settled share-based payment expense 112 88
Total comprehensive income for the year 6 717 7 774
Dividends paid (6 478) (3 819)
Changes in minority interest
Total comprehensive income for the year 1 771 2 016
Dividends paid (1 770) (1 051)
Movement in minority interest in reserves 26 21
Total equity at the end of the year 8 956 8 506
Comprising
Share capital and premium 208 136
Equity-settled share-based payment reserve 455 343
Foreign currency translation reserve 319 564
Cash flow hedge accounting reserve (8) 4
Retained earnings 6 308 5 812
Shareholders` equity 7 282 6 859
- attributable to the owners of Kumba 6 780 6 365
- attributable to the minority interest in
SIOC 502 494
Minority interest 1 674 1 647
Total equity 8 956 8 506
Dividend (Rand per share)
Interim 7.20 8.00
Final* 7.40 13.00
Condensed group cash flow statement
for the year ended
Audited Audited
31 Dec 31 Dec 2008
2009
Rm Rm
Cash flows from operating activities 2 666 6 013
Cash generated from operations 12 622 14 519
Net finance costs paid (287) (401)
Taxation paid (3 232) (4 311)
Dividends paid (6 437) (3 794)
Cash flows from investing activities (3 902) (2 487)
Capital expenditure (3 996) (2 563)
Proceeds from the disposal of non-current
assets 39 -
Investments in associates and joint
ventures (15) (3)
Acquisition of business (115) -
Other 185 79
Cash flows from financing activities (1 683) (668)
Shares issued 132 80
Purchase of treasury shares (60) -
Dividends paid to minority shareholders (1 811) (1 076)
Net interest-bearing borrowings raised 56 328
(Decrease)/increase in cash and cash
equivalents (2 919) 2 858
Cash and cash equivalents at beginning of
year 3 810 952
Cash and cash equivalents at end of year 891 3 810
Headline earnings
for the year ended
Audited Audited
31 Dec 31 Dec 2008
2009
Rm Rm
Reconciliation of headline earnings
Attributable profit 6 975 7 208
Net(profit)/loss on disposal and scrapping
of property, plant and equipment (35) 12
Impairment of property, plant and
equipment - 50
Realisation of foreign currency
translation reserve - 19
6 940 7 289
Taxation effect of adjustments 10 (9)
Minority interest in adjustments 5 (4)
Headline earnings 6 955 7 276
Headline earnings (Rand per share)
Basic 21.82 23.02
Diluted 21.71 22.75
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
318 742 724 316 140 923
Diluted weighted average number of
ordinary shares 320 431 059 319 778 849
The adjustment of 1 688 335 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.
Salient features and operating statistics
for the year ended
Unaudited Unaudited
31 Dec 31 Dec
2009 2008
Share statistics (`000)
Total shares in issue 320 415 319 461
Weighted average number of shares 318 743 316 141
Diluted weighted average number of shares 320 431 319 779
Treasury shares 464 1 795
Treasury shares (R million) 62 86
Market information
Closing share price (Rand) 305 162
Market capitalisation (Rand million) 97 727 51 753
Market capitalisation (US$ million) 13 224 5 482
Net asset value (Rand per share) 22.73 21.63
Capital expenditure (Rand million)
Incurred 3 996 2 563
Contracted 2 392 2 090
Authorised but not contracted 6 755 8 753
Capital expenditure relating to Thabazimbi
Mine to be financed by ArcelorMittal SA
(Rand million)
Contracted 6 -
Authorised but not contracted 31 -
Operating commitments
Operating lease commitments 123 144
Shipping services 99 395
Economic information
Average Rand/US dollar exchange rate
(Rand/US$) 8.39 8.25
Closing Rand/US dollar exchange rate
(Rand/US$) 7.39 9.37
Operating statistics (Mt)
Production 41.9 36.7
Sales 40.0 33.0
- export 34.2 24.9
- domestic 5.8 8.1
Sishen Mine FOR unit cost
- Unit cost (Rand per tonne) 111.12 110.77
- Cash cost (Rand per tonne) 98.83 101.86
- Unit cost (US$ per tonne) 13.24 13.43
- Cash cost (US$ per tonne) 11.78 12.35
* The final dividend was declared subsequently to 31 December 2009 and has
not been recognised as a liability in this condensed financial report. It
will be recognised in shareholders` equity in the year to 31 December 2010.
Notes to the condensed consolidated financial report
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.
The condensed consolidated financial report of Kumba and its subsidiaries for
the year ended 31 December 2009 was authorised for issue in accordance with a
resolution of the directors on 17 February 2010.
2. Basis of preparation and accounting policies
The condensed consolidated financial report for the year ended 31 December
2009 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
International Financial Reporting Standards (IFRS).
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 as disclosed below, 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 2008.
Kumba has elected to change its accounting policy in respect of the treatment
of mineral waste stripping expenses in order to provide more reliable and
relevant information about the effects of these costs on the entity`s
financial position and financial performance for the reporting periods, for
the annual period commencing 1 January 2009.
Waste stripping expenses
The removal of overburden or waste ore is required to obtain access to the
ore body. To the extent that the actual stripping ratio is higher than the
average stripping ratio in the early years of a mine`s production phase, the
costs associated with this process are deferred and charged to operating
costs using the expected average stripping ratio over the average life of the
area being mined. This reflects the fact that waste removal is necessary to
gain access to the ore body and therefore realise future economic benefit.
The average life of mine stripping ratio is calculated as the number of
tonnes of waste material expected to be removed during the life of mine, per
tonne of ore mined. The average life of mine cost per tonne is calculated as
the total expected costs to be incurred to mine the ore body divided by the
number of tonnes expected to be mined.
The cost of stripping in any period will therefore be reflective of the
average stripping rates for the ore body as a whole. However, where the pit
profile is such that the actual stripping ratio is below the average life of
mine stripping ratio in the early years no deferral takes place as this would
result in recognition of a liability for which there is no obligation.
Instead this position is monitored and when the cumulative calculation
reflects a debit balance deferral commences.
During the development of a mine, before production commences, stripping
expenses are capitalised as part of the investment in construction of the
mine.
The change in accounting policy had no effect on the financial position or
performance of the group due to the fact that Sishen Mine`s pit profile is
such that the actual stripping ratio is currently below the average life of
mine stripping ratio and therefore no deferral is required.
The group adopted the following amendments to existing standards and a new
standard with effect from 1 January 2009.
IAS 1 (revised), Presentation of Financial Statements
The revised standard requires that changes in equity resulting from
transactions with owners (holders of instruments classified as equity) be
presented separately from non-owner changes in equity (also known as other
comprehensive income). In addition, specific disclosures for components of
other comprehensive income have been introduced. The adoption had no effect
on the financial position or performance of the group.
IFRS 8, Operating segments
IFRS 8 replaces IAS 14, `Segment reporting`, and requires a `management
approach` under which segment information is presented on the same basis as
that used for internal reporting purposes. This has resulted in an increase
in the number of reportable segments presented, as the previously reported
business segment, mining (being mining, extraction and production of iron
ore) has been split further into the different mines that the group operates
as well as its shipping operations.
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker. The chief operating
decision-maker, who is responsible for allocating resources and assessing
performance of the operating segments, has been identified as the Kumba
executive committee.
IFRS 7, Financial Instruments: Disclosures (amendment)
The amendment requires enhanced disclosures about the relative reliability of
fair value measurements and the nature and extent of liquidity risk arising
from financial instruments to which an entity is exposed. For Kumba the
amendment results only in additional disclosures.
IFRS 2, Share-based Payment (amendment)
The amendment clarifies that vesting conditions are service conditions and
performance conditions only. Kumba has adopted this amendment from 1 January
2009. The amendment does not have a material impact on the group`s financial
position or performance.
The South African Institute of Chartered Accountants Circular 3/2009 on
Headline Earnings
This circular replaces circular 8/2007 and provides a link to IFRS and
accounting policy choices through guidance on the calculation of headline
earnings including rules for every IFRS. The adoption of this circular has
had no impact on the group.
Annual Improvements Project 2008
As part of its annual improvements project, the International Accounting
Standards Board (IASB) issued 35 amendments to various issued accounting
standards. These amendments were primarily made to resolve conflicts and
remove inconsistencies between standards, clarify the status of application
guidance in standards, clarify existing IFRS requirements as well as conform
the terminology used in standards with that used in other standards and to
that more widely used. Kumba adopted these amendments in 2009, the
application of which has not had an effect on the results, nor has it
required any restatement of prior period results.
The accounting standards, amendments to issued accounting standards and
interpretations, which are relevant to the group, but not yet effective at 31
December 2009, have not been adopted. The group is currently evaluating the
impact of these pronouncements.
3. Property, plant and equipment
The group incurred capital expenditure on property, plant and equipment of
R4.0 billion for the year ended 31 December 2009 (2008: R2.6 billion) for the
expansion of its operations (R2.8 billion), mainly on the development of
Kolomela Mine (R2.5 billion), and R1.2 billion (2008: R841 million) to
maintain its operations, mainly for the acquisition of mining equipment for
Sishen Mine.
A total of R1.3 billion was transferred from assets under construction to
machinery, plant and equipment during the year.
4. Share capital
The group acquired 325 707 of its own shares through purchases on the JSE
Limited during the year. The total amount paid to acquire the shares was R60
million. The shares have been utilised in the allocation of conditional share
awards under the Kumba Bonus Share Plan. The shares are held as treasury
shares and the purchase consideration has been deducted from equity.
On 21 August 2009 Kumba issued 953 660 shares to the management share option
scheme. Options exercised under the management share option scheme during the
year to 31 December 2009 resulted in 2 610 960 shares being issued (2008: 2
207 840 shares) with exercise proceeds of R132 million (2008: R75 million).
5. Interest-bearing borrowings
Kumba`s net debt position at balance sheet dates was as follows:
Audited Audited
31 Dec 2009 31 Dec 2008
Rm Rm
Long-term interest-bearing borrowings 3 859 977
Short-term interest-bearing borrowings 55 2 881
Total 3 914 3 858
Cash and cash equivalents (891) (3 810)
Net debt 3 023 48
Total equity 8 956 8 506
Interest cover (times) 43 33
Movements in interest-bearing borrowings are analysed as follows:
Audited Audited
31 Dec 2009 31 Dec 2008
Rm Rm
Opening balance as at 1 January 3 858 3 530
Debt raised 2 881 3 847
Repayment of borrowings (2 825) (3 519)
Closing balance 3 914 3 858
During the year Kumba secured a R3.2 billion term loan to refinance the
revolving facility that was maturing in November 2009. To date R3.9 billion
of the R8.6 billion term debt facilities raised in 2008 have been drawn down
to finance Kumba`s expansion. Kumba was not in breach of any of its covenants
during the year. The group had undrawn short- and long-term borrowing
facilities at 31 December 2009 of R8.1 billion.
6. Significant items included in operating profit
Operating expenses
Operating expenses is made up as follows:
Audited Audited
31 Dec 2009 31 Dec 2008
Rm Rm
Production costs 5 601 4 030
Movement in inventories (600) (289)
Finished products (440) (190)
Work-in-progress (160) (99)
Cost of goods sold 5 001 3 741
Selling and distribution costs 2 838 1 977
Cost of services rendered - shipping 2 697 2 085
Impairment of property, plant and
equipment - 50
Sublease rent received (8) (6)
Operating expenditure 10 528 7 847
Operating profit has been derived after taking into account the following
items:
Audited Audited
31 Dec 2009 31 Dec 2008
Rm Rm
Employee expenses 1 672 1 376
Share-based payment expenses 142 106
Depreciation of property, plant and
equipment 530 332
Impairment of property, plant and
equipment - 50
(Profit)/loss on disposal and scrapping
of property, plant and equipment (35) 12
Finance gains (329) (1 043)
- Gains on derivative financial
instruments (736) (133)
- Foreign currency losses/(gains) 407 (910)
Operating (expenses)/profit capitalised (181) 370
- Revenue - 579
- Expenses (181) (209)
7. Acquisition of business
On 15 July 2009 Sishen Iron Ore Company (Pty) Limited (SIOC) acquired Taurus
Investments SA, an Anglo American company incorporated in Luxembourg, for a
cash consideration of R115 million (US$14 million). This company was acquired
to extend the benefit of the group`s offshore operations by creating a
European marketing hub to service the European and Asian markets as well as
to establish collaboration with Anglo American plc`s current operations in
Luxembourg. Shortly after acquiring Taurus, the company was renamed Kumba
International Trading SA.
The effective date of this transaction was 15 July 2009, as this is the date
on which SIOC effectively obtained control by acquiring all the issued share
capital.
The purchase consideration of US$14 million was allocated to the individual
identifiable assets and liabilities on the basis of their relative fair
values at the effective date. No goodwill was recognised as part of the
acquisition.
8. Segmental reporting
The chief operating decision-maker which is responsible for allocating
resources and assessing performance of the operating segments, has been
defined as the Kumba executive committee. Management has determined the
operating segments of the group based on the reports reviewed by the
executive committee.
The executive committee considers the business principally according to the
nature of the products and service provided, with the segment representing a
strategic business unit. The reportable operating segments derive their
revenue primarily from mining, extraction, production and selling of iron ore
and shipping operations charged to external clients.
Corporate, administration and other expenditure not allocated to the
different segments therefore form part of the reconciliation to profit before
taxation under the heading `Other segments`.
The Kumba executive committee assesses the performance of the operating
segments based on a measure of earnings before interest and tax (`EBIT`).
This measurement basis is consistent with `operating profit` in the financial
statements. Interest income and expenditure are not allocated to segments, as
this type of activity is managed on a central group basis.
The total segment revenue comprises revenue from external customers as the
group does not have any inter-segment revenue. The revenue from external
parties reported to the executive committee is measured in a manner
consistent with that disclosed in the income statement.
Sishen Thabazimbi Shipping
Mine Mine operations Total
Rm Rm Rm Rm
Year ended 31 December
2009:
Revenue (from external
customers) 19 473 543 3 392 23 408
EBIT 12 677 44 675 13 396
Depreciation 484 12 - 496
Total assets 724 240 - 964
Additions to non-current
assets* 1 356 3 - 1 359
Sishen Thabazimbi Shipping
Year ended 31 December Mine Mine operations Total
2008: Rm Rm Rm Rm
Revenue (from external
customers) 18 308 640 2 412 21 360
EBIT 13 705 32 317 14 054
Depreciation 295 27 - 322
Total assets 620 80 - 700
Additions to non-current
assets* 1 548 40 - 1 588
* Other than financial instruments and deferred tax
A reconciliation of EBIT to total profit before taxation is provided as
follows:
Audited Audited
31 Dec 2009 31 Dec 2008
Rm Rm
Total EBIT for reportable segments 13 396 14 054
Other segments (516) (541)
Operating profit 12 880 13 513
Net finance costs (127) (251)
Profit before taxation 12 753 13 262
The amounts disclosed with respect to total assets only represents finished
goods inventory. Total assets are measured in a manner that is consistent
with what is disclosed in the balance sheet. These assets are allocated based
on the operations of the segment and the physical location of the asset. Non-
current assets and current assets other that finished product inventory are
not allocated to segments and therefore form part of the reconciliation to
total assets.
A reconciliation of reportable segments` assets to total assets is provided
as follows:
Audited Audited
31 Dec 2009 31 Dec 2008
Rm Rm
Segment assets for reportable segments 964 700
Other segments 1 595 1 179
Inventory per balance sheet 2 559 1 879
Other current assets 3 217 6 619
Non-current assets 12 031 8 205
Total assets 17 807 16 703
Revenue from external customers is derived from mining, extraction,
beneficiation, selling, and shipping of iron ore. The breakdown of the
revenue earned from the sale of iron ore and rendering of shipping services
is provided as follows:
Audited Audited
31 Dec 2009 31 Dec 2008
Rm Rm
Sale of products 20 016 18 948
Shipping services 3 392 2 412
Total revenue 23 408 21 360
Kumba is domiciled in South Africa. The result of its revenue from external
customers and its non-current assets (other than financial instruments and
deferred tax assets) disclosed on a geographical basis, are set out below:
Revenue from external customers.
Audited Audited
31 Dec 2009 31 Dec 2008
Rm Rm
Total revenue 23 408 21 360
South Africa 1 359 1 341
Export 22 049 20 019
Europe 2 151 5 218
China 16 770 9 203
Rest of Asia 3 128 5 598
Non-current assets:
Audited Audited
31 Dec 2009 31 Dec 2008
Rm Rm
Total non-current assets 11 854 8 156
South Africa 11 853 8 155
China 1 -
Rest of Africa - 1
9. 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.
During the year Kumba, withdrew the short-term deposit facility that was
placed with Anglo American SA Finance Limited (2008: R2.9 billion).
10. Contingent liabilities
There have been no significant changes in the contingent liabilities
disclosed at 31 December 2008 that arise from the guarantees provided for
environmental rehabilitation and decommissioning obligations of the Kumba
Rehabilitation Trust Fund (subject to note 12). The bank guarantees for
property acquisitions have been exercised during 2009.
11. Legal proceedings
ArcelorMittal SA Limited (Mittal)
An award has been rendered in the arbitration between Mittal and Sishen Iron
Ore Company (Pty) Ltd (SIOC), a subsidiary of Kumba. The arbitration related
to Mittal`s claim to be entitled to participate in the Sishen South Project
currently under development by SIOC. On 27 October 2009, the Arbitration
Panel issued an award in favour of SIOC and determined that Mittal is not
entitled to participate in the Sishen South Project.
Lithos Corporation (Pty) Limited (Lithos)
Lithos is claiming US$421 million from Kumba for damages. 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 provisionally allocated, being 8 March 2010 to
2 April 2010. No liability has been recognised for this litigation.
La Societe des Mines de Fer du Senegal Oriental (Miferso)
Kumba has initiated arbitration proceedings against Miferso and the Republic
of Senegal under the Rules of Arbitration of the International Chamber of
Commerce. The arbitration hearings took place during the third quarter of
2009. A ruling on the matter is expected during the first half of 2010.
12. Post-balance sheet date events
On 6 January 2010, the SIOC Community Development SPV (Proprietary) Limited
redeemed R336 million of the total preference shares of R458 million issued
to Kumba Iron Ore Limited on 29 November 2006 as part of the group`s funding
of the acquisition of a 3% interest in Sishen Iron Ore Company (Pty) Limited.
In preparing the condensed consolidated financial report, for the year ended
31 December 2009, the SIOC Community Development SPV (Proprietary) Limited is
considered a special purpose entity and is consolidated for accounting
purposes until the funding is fully redeemed.
During January 2010 Sishen Iron Ore Company (Pty) Limited issued financial
guarantees to the Department of Mineral Resources (DMR) to the value of R567
million in respect of the environmental rehabilitation and decommissioning
obligations of the group.
The directors are not aware of any other 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.
13. 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.
14. Independent audit opinion
The auditors, Deloitte & Touche, have issued their opinion on the
consolidated annual financial statements for the year ended 31 December 2009.
The audit was conducted in accordance with International Standards on
Auditing. They have issued an unqualified audit opinion. A copy of their
audit report is available for inspection at the company`s registered office.
These condensed consolidated financial statements have been derived from the
consolidated annual financial statements and are consistent in all material
respects with the consolidated annual financial statements.
On behalf of the board
PL Zim CI Griffith 17 February 2010
Chairman Chief Executive Pretoria
Officer
Notice of final cash dividend
At its board meeting on 17 February 2010 the directors declared a final cash
dividend of R7.40 per share on the ordinary shares from profits accrued
during the year ended 31 December 2009. 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, 5 March 2010
Trading ex dividend commences Monday, 8 March 2010
Record date Friday, 12 March 2010
Dividend payment date Monday, 15 March 2010
Share certificates may not be dematerialised or rematerialised between
Monday, 8 March 2010 and Friday, 12 March 2010, both days inclusive.
By order of the Board
VF Malie 17 February 2010
Company secretary Pretoria
Registered office: Centurion Gate, Building 2B, 124 Akkerboom Road,
Centurion, 0157, Republic of South Africa Tel: +27 12 683 7000 Fax: +27 12
683 7009
Directors: Non-executive - PL Zim (chairman), GS Gouws, PB Matlare, DD
Mokgatle, AJ Morgan, ZBM Bassa, D Weston
Executive - CI Griffith (CEO), VP Uren (CFO)
Company secretary: VF Malie
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)
Further financial results available at www.kumba.co.za
Date: 18/02/2010 08:00:21 Produced by the JSE SENS Department.
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