| Thu 22 Jul 2010, 7:15 | | KIO - Kumba - Reviewed condensed consolidated interim financial report and cash |
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KIO
KIO
KIO - Kumba - Reviewed condensed consolidated interim financial report and cash
dividend declaration for the six months ended 30 June 2010
KUMBA IRON ORE LIMITED
Company registration number: No 2005/015852/06
Incorporated in the Republic of South Africa
JSE code: KIO & ISIN: ZAE000085346
("Kumba" or "the company" or "the group")
REVIEWED CONDENSED CONSOLIDATED INTERIM FINANCIAL REPORT AND CASH DIVIDEND
DECLARATION FOR THE SIX MONTHS ENDED 30 JUNE 2010
Highlights
Headline earnings up 90% to R6.5 billion
Interim cash dividend R13.50 per share
Sishen Mine production up 17% to 21.1Mt
Export sales volumes up 10% to 18.8Mt
Sishen Mine unit cash cost increase contained below 4%
Kolomela Mine development on schedule and on budget
Commentary
Highlights
At R6.5 billion Kumba`s headline earnings for the six months ended 30 June 2010
were 90% above the R3.4 billion achieved in the first half of 2009. This
operational and financial performance was due to the implementation of the
group`s production and sales growth plans and cost containment initiatives,
notwithstanding the legal issues which arose in the first half of 2010 and are
referred to in note 11 to the reviewed condensed consolidated interim financial
report. Kumba continues to deliver increasing value to its shareholders. Through
capital appreciation and substantial dividend cash returns to its Black Economic
Empowerment (`BEE`) shareholders Sishen Iron Ore Company (Pty) Limited (`SIOC`)
has contributed towards its commitments to South Africa and empowerment.
Attributable and headline earnings for the period were R20.27 and R20.28 per
share respectively, on which an interim cash dividend of R13.50 per share has
been declared.
Sishen Mine`s production increased by 17% year-on-year or 3.1Mt to 21.1Mt,
principally through the Jig plant ramping up to name plate capacity, and remains
on track to achieving an overall increase of 5% in production volumes for 2010.
The development of Kolomela Mine in the Northern Cape continues and overall
project progress remains on budget and on schedule to deliver initial production
during the first half of 2012.
Operating profit increased by 64% from R6.8 billion to R11.2 billion improving
the group`s operating profit margin from 57% in 2009 to 63%. The operating
profit achieved was impacted by the implementation of the South African mining
royalty effective from 1 March 2010 as well as the relative strengthening of the
Rand against the US Dollar. Operating expenses (excluding the royalty expense
of R546 million) increased by 18% to R6.1 billion. Sishen Mine`s unit cash cost
increase was held below 4%. The increase in production cost due to the 23%
increase in waste mining was more than offset by the benefit of increased
production. Sishen Mine`s unit cash cost for the six months was R102.71
(US$13.66) per tonne compared to R98.83 (US$11.78) per tonne at the end of 2009.
The group`s strong cash flow generation has enabled the declaration of an
interim and final dividend since listing on the JSE Limited in November 2006,
returning R14.0 billion to shareholders to date. This return of cash to
shareholders has assisted in reducing the acquisition debt of the BEE
shareholders of SIOC. Less than four years after its establishment, using the
dividends received from SIOC, the SIOC Community Development Trust will be in a
position to fully redeem the R458 million preference shares issued to pay for
its 3% interest in SIOC in the third quarter of 2010, well ahead of the original
projections. This will result in the trust holding an unencumbered 3% interest
in SIOC (now valued at R3.8 billion based on Kumba`s share price of R316 on 30
June 2010) and the ability to apply all future dividend cash flows to progress
its community development objectives. This is a significant milestone for BEE
and a very worthy initiative to empower our key communities where we operate. In
future Kumba will deconsolidate this 3% shareholding, once the preference shares
are fully redeemed.
Safety performance
On 23 February 2010 we regrettably suffered one fatality when Mr Bosiamane Moses
Machacha, an employee at Kolomela Mine, was fatally injured during road
construction on the Witsand access road to Kolomela Mine. The Board and
management once again extend our sincere condolences to the family, friends and
colleagues of Mr Machacha.
Kumba remains committed to zero harm at all the group`s sites. Kumba`s overall
safety performance improvements suffered a number of setbacks during the first
quarter of 2010, however, this trend has reversed during the second quarter. The
group recorded 9 lost-time injuries (`LTI`s`) for the period, which has resulted
in the lost-time injury frequency rate (`LTIFR`) of the group increasing to 0.11
compared to the 0.07 achieved in 2009. Sishen Mine recorded 5 LTI`s, Thabazimbi
Mine 3 LTI`s and there was a single LTI at Kolomela Mine. Since that LTI,
Kolomela Mine has achieved 3.8 million LTI-free man-hours to date. Sishen and
Thabazimbi mines worked the full six months without a fatality. Sishen Mine has
now worked for 26 months without a fatality and Thabazimbi Mine has been
fatality free for over seven years.
Market overview
The increased demand for iron ore during 2010 is underpinned by higher world
crude steel production, which is estimated to increase to 1.37 billion tonnes in
2010, a 4.6% increase year-on-year. China`s crude steel production during the
first five months of 2010 increased by 21% year-on-year, whilst iron ore imports
into China over the same period increased by 4.1% year-on-year. This increase in
iron ore imports was mainly impacted by the re-opening of many domestic iron ore
mines in China, driven by the much improved iron ore spot prices, higher freight
rates and an increasing demand for iron ore in the traditional markets of
Europe, Japan and Korea on the back of improved market conditions, which further
reduced the seaborne iron ore available to China.
Having assessed industry developments, Kumba has moved to implement quarterly
pricing for its long-term contracts. The majority of its export sales volumes
are currently committed to long-term contracts and the remainder is sold at
index prices mainly to annual customers and as additional volume to long-term
customers in China. Quarterly benchmark prices for the April-June quarter have
been negotiated on the basis of average index prices in the period December 2009
to February 2010, and have increased on average 100% compared to 2009/10 iron
ore year benchmark prices. However, a pricing mechanism for future quarters is
still under negotiation with customers and changing market conditions have led
to significant uncertainty in iron ore prices in the short-term.
Operational performance
Total tonnes mined at Sishen Mine increased by 21% from 59.8Mt in 2009 to
72.1Mt, of which waste mined was 46.1Mt, an increase of 23% from the first six
months of 2009. This increase in waste mining activity is undertaken to mitigate
decreasing geological quality in the pit and to cater for increased production.
Total production at Sishen Mine increased by 17% from 18.0Mt in 2009 to 21.1Mt.
Production from the Dense Media Separation (`DMS`) plant increased by 1.1Mt to
14.7Mt due to an improved plant yield. The ramp up of production from the Jig
plant continues as planned and increased by 7% from the 6.0Mt achieved in the
second half of 2009 to 6.4Mt, and now contributes 30% of Sishen Mine`s
production. The Jig plant remains on schedule to produce between 12.5Mt - 13.0Mt
during 2010.
The group increased total sales volumes by 10% from 20.0Mt in 2009 to 21.9Mt.
Export sales volumes from Sishen Mine for the six months increased by 1.7Mt or
10% from 17.1Mt in 2009 to 18.8Mt on the back of increasing demand from our
traditional markets. Export sales volumes into Europe, Japan and Korea recovered
to 7.9Mt compared to the 2.8Mt in the first half of 2009. Export sales volumes
into China of 10.8Mt totalled 57% of total export volumes for the six months,
24% down from the 14.3Mt in the first half of 2009 as sales returned to
traditional markets in Europe, Japan and Korea. During the first half of 2010,
Kumba sold 5.2Mt (or 28% of export volumes) at index prices taking advantage of
higher prices during this period. Aggregate domestic sales volumes for the first
half of 2010 were 3.1Mt, up 0.2Mt from 2009 first half sales.
Volumes railed on the Sishen-Saldanha export channel increased by 8% to 18.2Mt
(including 0.6Mt railed to Saldanha Steel). This performance was impacted by the
industrial action at Transnet and a significant derailment in April 2010 which
together accounted for approximately 1.2Mt of "lost" export sales volumes. Kumba
implemented contingency plans to aid the railing and loading of iron ore for
export throughout the period of industrial action at Transnet. These plans were
successful in partially mitigating the impact of the strike action upon Kumba`s
operations. The stock on hand at the Saldanha port and 17.6Mt railed during the
period enabled Kumba to load 19.1Mt at the port destined for the export market.
Waste mining at Thabazimbi Mine increased by 152% to 14.1Mt as new pits are
opened as part of the extension of the life of mine to 2016. Production at
Thabazimbi Mine reduced by 27% to 0.8Mt for the six months, in line with the
progression towards the end of the life of the mine. Domestic sales from the
mine were flat due to the off-take requirements of ArcelorMittal South Africa
Limited (`ArcelorMittal`) and logistics constraints.
Financial results
The group`s total mining revenue (excluding shipping operations - R1.6 billion)
of R16.2 billion for the period was 55% higher than the R10.4 billion of the
same period of 2009. This performance was achieved on the back of an average
increase of 100% in contract iron ore export prices for the second quarter of
2010, a 10% increase in total sales volumes, and the sale of 5.2Mt into China at
index prices that traded on average above contract prices and peaked above
US$200 per tonne in April 2010.
Operating profit of R11.2 billion was achieved for the six months, an increase
of R4.4 billion or 64% from the R6.8 billion during the first half of 2009.
Kumba`s operating profit margin of 63% for the six months (68% from mining
activities), increased by 6% from 57% (62% from mining activities) in 2009.
Operating profit increased by 64% or R4.4 billion, principally as a result of:
- A weighted average increase of 73% in iron ore export prices, which added R8.1
billion to operating profit and a 10% growth in export sales volumes contributed
R1.0 billion.
This increase was offset by:
- The strengthening of the average exchange rate of the Rand to the US Dollar
(average exchange rates - R7.52/US$1.00 for the first six months of 2010
compared with R9.16/US$1.00 for the same period of 2009), which reduced
operating profit by R3.1 billion;
- A R1.0 billion or 23% increase in operating expenses (excluding shipping
expenses) as a result of the 23% and 152% increase in waste mined at Sishen and
Thabazimbi mines respectively, a 17% increase in volumes produced, and an 8%
increase in volumes railed which was compounded by an increase in logistics
costs. This increase was further fuelled by inflationary pressures and
significant increases in the cost of diesel and electricity;
- The commencement of the mining royalty payable for the four months from March
to June 2010 at an effective rate of 4.8% of free-on-rail (`FOR`) iron ore
revenue, which added R546 million to operating expenditure; and
- A R64 million decrease in profit from shipping operations. Total tonnes
shipped by Kumba decreased by 2.9Mt from 12.1Mt to 9.2Mt for the first six
months of 2010.
Notwithstanding the increase in activities, including a 23% increase in waste
mining, Kumba reduced Sishen Mine`s unit cash cost from R104.12 during the first
half of 2009 to R102.71 for the same period of 2010. This reduction was aided by
a 17% increase in production over the first half of 2009. The unit cash cost for
the period has been kept flat in real terms when compared to the R98.83 achieved
for the full 2009 year. Waste mining is expected to increase by a further 25% in
the second half of 2010 which will add upward pressure to unit costs. However,
to mitigate this, Kumba remains focused on achieving further benefit from
successful cost management, operational efficiency and revenue enhancements
initiatives from its asset optimisationprogrammes and participation in the Anglo
American Supply Chain procurement organisation. Cost control continues to be a
major focus of the group as it faces the challenges of increased waste mining at
its operations. The flagship Sishen Mine transformation programme (`Bokamoso`)
has delivered further mining operational efficiency gains and contributed to the
increased production of the mine through improvements in the DMS and Jig plant
yields during the period and reaping the ongoing benefits of prior years through
the reduction in the maintenance shutdown period of the DMS plant. Further value
has been extracted by Kumba through its marketing initiatives to enhance the
premia achieved on its niche lump products, capturing the differential between
index export prices and benchmark contract prices by selling 5.2Mt of
uncommitted Sishen Mine production at index prices, professionalising its
shipping operations and deriving incremental value through benchmark contract
price negotiations relative to market movements. These asset optimisation and
procurement initiatives have delivered R917 million in increased revenues and
price benefits, operating cost containment of R293 million and reduction in
capital expenditure of R45 million during the period.
The group continued to generate substantial cash from its operations, with R9.5
billion generated during the six months. These cash flows were used to pay
taxation of R2.6 billion and aggregate dividends of R3.0 billion during the six
months. Capital expenditure of R1.5 billion was incurred, of which R233 million
was to maintain operations and R1.2 billion to expand operations, mainly on
Kolomela Mine. At 30 June 2010 the group had a net debt position of R918 million
(R3.0 billion at the end of 2009). Interest cover remained strong at 53 times
(43 times at the end of 2009).
Kolomela Mine
For the first six months of 2010, 8.2Mt (4.0Mt in the second half of 2009) of
waste material has been mined at Kolomela Mine in the process of developing the
first pit at a capitalised cost of R226 million (R181 million in 2009). The
project has seen significant progress during the period with key deliverables
and major construction elements well advanced. Whilst the construction
activities are gaining momentum, the safety focus on site remains the top
priority with an ongoing intensive programme to entrench the zero harm
objective.
R4.4 billion of capital expenditure (including R407 million of capitalised
mining operating expenses) has been incurred to date, of which R1.1 billion has
been incurred during the six months ended 30 June 2010. This includes R226
million mining operating expenses incurred during the six months.
Mineral resources and ore reserves
There have been no material changes to the ore reserves as disclosed in the 2009
Kumba Annual Report. Kumba is engaged in the improvement of the information and
models, which form the basis of the annual mineral resource and reserve
estimation.
Prospects
Due to the large gap between current index prices which are lower than the
implied July-September 2010 quarterly benchmark prices, uncertainty exists
around future export iron ore pricing mechanisms and price levels for iron ore.
In an operating environment where steel production rates are being reduced it is
uncertain whether increased iron ore prices under the quarterly pricing
mechanism can be passed to customers. Chinese steel production and iron ore
imports in the second half of 2010 are expected to be marginally below levels
achieved during the first half as Chinese steel mills prioritise cost over
productivity and therefore focus on the use of domestic iron ore. The momentum
of the recovery of Kumba`s traditional markets is slowing. Export sales volumes
into China are expected to normalise at around 60% of the geographical sales
mix.
Domestic sales volumes from Thabazimbi Mine remain dependent on the off-take
requirements from ArcelorMittal. Domestic sales volumes from Sishen Mine to
ArcelorMittal remain under dispute and the further supply of iron ore is
dependent on arriving at an acceptable interim pricing agreement.
Waste mining at all the operational sites is anticipated to increase, which will
put upward pressure on unit cash costs of production. Kumba remains committed to
a 5% increase in annual production volumes during 2010, with the continued ramp
up of the Jig plant.
Relative to the US Dollar, the South African Rand has strengthened a further 4%
from the end of 2009. Kumba`s operating profit remains highly sensitive to the
Rand/US Dollar exchange rate. The introduction of the mining royalty during the
first half of 2010, which was in place for four months, will increase as it is
accounted for the full six months of the second half of 2010.
Management focus will be on optimising the asset base, operational and cost
efficiencies and the group`s production and sales volume growth plans to lessen
the adverse effects of the stronger Rand, mining royalty and the cost pressures
driven by the increase in waste mining.
Change in directorate
The Board of directors of Kumba announced the appointment of Mr Godfrey Gomwe as
a non-executive director with effect from 17 May 2010. Mr Gomwe is an executive
director of Anglo American South Africa Limited and he serves on a number of
Anglo American South Africa Limited operational boards and Thebe Investment
Corporation (Pty) Limited as a non-executive director.
Production and sales report for the six months ended 30 June 2010
Total iron ore production increased by 6% to 10.4Mt in the second quarter from a
year earlier and by 15% to 21.9Mt for the six months ended 30 June 2010. This
was due mainly to the 30% increase to 3.1Mt production delivered by the Jig
plant during the quarter and the 45% increase to 6.4Mt for the six months, as
well as an 8% increase to 14.6Mt in performance from the DMS plant for the six
months.
Export sales for the second quarter of 2010 of 9.5Mt decreased by 14% from a
year earlier. This was due to the record sales achieved of 11.0Mt in 2009 as
lost volumes from the first quarter were sold in the second quarter by
redirecting volumes to China. Total export sales for the six months of 18.8Mt
were 10% higher than the 17.1Mt sold during the same period in 2009. The
increase in export sales reflects the strengthening of demand from traditional
markets and China.
Six month overview
Unaudited
Year-to-date
30 June 30 June %
`000 tonnes 2010 2009 change
Production summary
Iron ore 21 935 19 147 15
- Lump 13 214 11 671 13
- Fines 8 721 7 476 17
Mine production 21 935 19 147 15
- Sishen Mine 21 078 18 032 17
DMS plant 14 655 13 617 8
Jig plant 6 423 4 415 45
- Thabazimbi Mine 857 1 115 (23)
Sales summary
Total 21 946 19 997 10
- Sishen Mine 21 059 19 098 10
Export sales 18 817 17 074 10
Domestic sales 2 242 2 024 11
- Thabazimbi Mine 887 899 (1)
Quarterly overview
Unaudited Unaudited
Quarter ended Quarter ended
`000 tonnes 30 30 31 31
June June % March March %
2010 2009 change 2010 2009 change
Production summary
Iron ore 10 446 9 824 6 11 489 9 323 23
- Lump 6 312 6 076 4 6 902 5 595 23
- Fines 4 134 3 748 10 4 587 3 728 23
Mine production 10 446 9 824 6 11 489 9 323 23
- Sishen Mine 10 072 9 339 8 11 006 8 693 27
DMS plant 6 977 6 964 - 7 678 6 653 15
Jig plant 3 095 2 375 30 3 328 2 040 63
- Thabazimbi Mine 374 485 (23) 483 630 (23)
Sales summary
Total 11 014 12 474 (12) 10 932 7 523 45
- Sishen Mine 10 595 12 002 (12) 10 464 7 096 47
Export sales 9 502 11 018 (14) 9 315 6 056 54
Domestic sales 1 093 984 11 1 149 1 040 10
- Thabazimbi Mine 419 472 (11) 468 427 10
CONDENSED GROUP BALANCE SHEET
as at
Notes Reviewed Restated Restated
30 June 30 June 31 December
Rm 2010 2009 2009
Assets
Non-current assets 13 403 9 592 12 031
Property, plant and
equipment 3 12 800 9 267 11 568
Biological assets 7 7 7
Investments in associates
and joint ventures 30 11 20
Investments held by
environmental trust 313 258 279
Long-term prepayments 20 33 28
Deferred tax assets 233 16 129
Current assets 9 961 8 257 5 776
Inventories 2 672 1 905 2 559
Trade and other receivables 5 025 1 195 2 195
Current tax asset - - 131
Cash and cash equivalents 2 264 5 157 891
Total assets 23 364 17 849 17 807
Equity
Shareholders` equity 4 11 518 6 013 7 308
Non-controlling interest 2 675 1 374 1 648
Total equity 14 193 7 387 8 956
Liabilities
Non-current liabilities 6 006 5 371 6 609
Interest-bearing borrowings 5 3 182 2 678 3 859
Provisions 492 410 468
Deferred tax liabilities 2 332 2 283 2 282
Current liabilities 3 165 5 091 2 242
Short-term interest-bearing
borrowings 5 - 2 862 55
Short-term provisions 3 126 4
Trade and other payables 2 849 1 649 2 161
Current tax liabilities 313 454 22
Total liabilities 9 171 10 462 8 851
Total equity and
liabilities 23 364 17 849 17 807
CONDENSED GROUP INCOME STATEMENT
for the period ended
Rm Notes Reviewed Restated Restated
6 months 6 months 12 months
30 June 30 June 31 December
2010 2009 2009
Revenue 17 826 11 987 23 408
Operating expenses 6 (6 619) (5 166) (10 528)
Operating profit 11 207 6 821 12 880
Finance income 58 157 286
Finance costs (124) (230) (413)
Profit before taxation 11 141 6 748 12 753
Taxation (3 003) (2 404) (3 949)
Profit for the period 7 8 138 4 344 8 804
Attributable to:
Owners of Kumba 6 489 3 436 6 992
Non-controlling interest 1 649 908 1 812
8 138 4 344 8 804
Earnings per share for
profit attributable to the
owners of Kumba (Rand per
share)
Basic 20.27 10.81 21.94
Diluted 20.19 10.73 21.82
CONDENSED GROUP STATEMENT OF OTHER COMPREHENSIVE INCOME
for the period ended
Rm Reviewed Restated Restated
6 months 6 months 12 months
30 June 30 June 31 December
2010 2009 2009
Profit for the period 8 138 4 344 8 804
Other comprehensive income for
the period, net of tax 88 (237) (316)
Exchange differences on
translating foreign operations 87 (228) (315)
Net effect of cash flow hedges 1 (15) (5)
Taxation - 6 4
Total comprehensive income for
the period 8 226 4 107 8 488
Attributable to:
Owners of Kumba 6 546 3 248 6 734
Non-controlling interest 1 680 859 1 754
8 226 4 107 8 488
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
for the period ended
Rm Reviewed Restated Restated
6 months 6 months 12 months
30 June 30 June 31 December
2010 2009 2009
Total equity at the beginning
of the period 8 956 8 506 8 506
Change in accounting policy -
share-based payment
classification:
Increase in non-controlling
interest - 1 1
Decrease in retained income - (1) (1)
Total equity at the beginning
of the period - as restated 8 956 8 8 506
506
Changes in share capital and
premium
Shares (including treasury
shares) issued during the
period 71 65 132
Purchase of treasury shares (103) (53) (60)
Changes in reserves
Equity-settled share-based
payment 86 54 118
Vesting of shares under
employee share schemes (15) - -
Total comprehensive income for
the period 6 546 3 248 6 734
Dividends paid (2 375) (4 163) (6 478)
Changes in non-controlling
interest
Total comprehensive income for
the period 1 680 859 1 754
Dividends paid (648) (1 138) (1 770)
Movement in non-controlling
interest in reserves (5) 9 20
Total equity at the end of the
period 14 193 7 387 8 956
Comprising
Share capital and premium 176 148 208
Equity-settled share-based
payment reserve 546 401 465
Foreign currency translation
reserve 388 388 319
Cash flow hedge accounting
reserve (7) (9) (8)
Retained earnings 10 415 5 085 6 324
Shareholders` equity 11 518 6 013 7 308
- Attributable to the owners of
Kumba 10 715 5 601 6 814
- Attributable to the non-
controlling interest in SIOC 803 412 494
Non-controlling interest 2 675 1 374 1 648
Total equity 14 193 7 387 8 956
Dividend (Rand per share)
Interim* 13.50 7.20 7.20
Final - - 7.40
*The interim dividend was declared after 30 June 2010 and has not been
recognised as a liability in this reviewed condensed consolidated
interim financial report. It will be recognised in shareholders` equity
in the year to 31 December 2010.
CONDENSED GROUP CASH FLOW STATEMENT
for the period ended
Rm Reviewed Restated Restated
6 months 6 months 12 months
30 June 30 June 31 December
2010 2009 2009
Cash flows from operating
activities 4 301 2 262 2 788
Cash generated from operations 9 499 7 636 12 744
Net finance costs paid (191) (125) (287)
Taxation paid (2 633) (1 112) (3 232)
Dividends paid (2 374) (4 137) (6 437)
Cash flows from investing
activities (1 468) (1 483) (4 087)
Capital expenditure (1 457) (1 500) (3 996)
Proceeds from the disposal of
non-current assets 1 23 39
Investments in associates and
joint ventures (12) (6) (15)
Acquisition of business - - (115)
Cash flows from financing
activities (1 442) 530 (1 683)
Share capital issued 56 65 132
Purchase of treasury shares (103) (53) (60)
Dividends paid to non-
controlling shareholders (663) (1 164) (1 811)
Net interest-bearing borrowings
(repaid)/raised (732) 1 682 56
Increase/(decrease) in cash and
cash equivalents 1 391 1 309 (2 982)
Cash and cash equivalents at
beginning of period 891 3 810 3 810
Effects of exchange rates on
cash and cash equivalents (18) 38 63
Cash and cash equivalents at
end of period 2 264 5 157 891
HEADLINE EARNINGS
for the period ended
Rm Reviewed Restated Restated
6 months 6 months 12 months
30 June 30 June 31 December
2010 2009 2009
Reconciliation of
headline earnings
Attributable profit 6 489 3 436 6 992
Net loss/(profit) on
disposal or scrapping
of property, plant and
equipment 2 (22) (35)
Net loss on disposal
of investment 2 - -
6 493 3 414 6 957
Taxation effect of
adjustments (1) 6 10
Non-controlling
interest in - 3 5
adjustments
Headline earnings 6 492 3 423 6 972
Headline earnings
(Rand per share)
Basic 20.28 10.77 21.87
Diluted 20.19 10.69 21.76
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 320 194 536 317 890 540 318 742 724
shares
Diluted weighted
average number of
ordinary shares 321 474 211* 320 125 852 320 431 059
*The adjustment of 1 279 675 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 period ended
Unaudited Unaudited Unaudited
6 months 6 months 12 months
30 June 30 June 31 December
2010 2009 2009
Share statistics (`000)
Total shares in issue 321 545 319 461 320 415
Weighted average number of
shares 320 195 317 891 318 743
Diluted weighted average
number of shares 321 474 320 126 320 431
Treasury shares 709 763 464
Treasury shares (Rm) 150 75 62
Market information
Closing share price (Rand) 316 181 305
Market capitalisation (Rm) 101 608 57 822 97 727
Market capitalisation (US$m) 13 247 7 408 13 224
Net asset value (Rand per
share) 35.82 18.82 22.81
Capital expenditure (Rm)
Incurred 1 457 1 500 3 996
Contracted 1 948 2 616 2 392
Authorised but not contracted 6 456 6 676 6 755
Capital expenditure relating
to Thabazimbi Mine to be
financed by ArcelorMittal SA
(Rm)
Contracted 4 2 6
Authorised but not contracted 31 12 31
Operating commitments
Operating lease commitments 113 132 123
Shipping services 114 193 99
Economic information
Average Rand/US dollar
exchange rate (ZAR/US$) 7.52 9.16 8.39
Closing Rand/US dollar
exchange rate (ZAR/US$) 7.67 7.81 7.39
Operating statistics (Mt)
Production 21.9 19.1 41.9
- Sishen Mine 21.1 18.0 39.4
- Thabazimbi Mine 0.8 1.1 2.5
Sales 21.9 20.0 40.0
- Export 18.8 17.1 34.2
- Domestic 3.1 2.9 5.8
Sishen Mine 2.2 2.0 4.0
Thabazimbi Mine 0.9 0.9 1.8
Sishen Mine FOR unit cost
- Unit cost (Rand per tonne) 116.50 114.98 111.12
- Cash cost (Rand per tonne) 102.71 104.12 98.83
- Unit cost (US$ per tonne) 15.49 12.55 13.24
- Cash cost (US$ per tonne) 13.66 11.37 11.78
NOTES TO THE REVIEWED CONDENSED CONSOLIDATED INTERIM 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 has its primary listing on the JSE Limited.
The reviewed condensed consolidated interim financial report of Kumba and its
subsidiaries for the six months ended 30 June 2010 was authorised for issue in
accordance with a resolution of the directors on 21 July 2010.
2.Basis of preparation and accounting policies
The reviewed condensed consolidated financial report for the six months ended 30
June 2010 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 and the AC500
standards as issued by the Accounting Practices Board. The reviewed condensed
consolidated financial report should be read in conjunction with the audited
consolidated annual financial statements for the year ended 31 December 2009,
which have been prepared in accordance with International Financial Reporting
Standards (`IFRS`).
The reviewed condensed consolidated interim 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 reviewed condensed consolidated interim
financial report are consistent with those applied for the year ended 31
December 2009.
The group adopted the following amendments to existing standards with effect
from 1 January 2010.
IFRS 2, Share-based Payment (amendment)
In addition to incorporating IFRIC 8, `Scope of IFRS 2`, and IFRIC 11, `IFRS 2 -
Group and Treasury Share Transactions` into the standard, the amendments expand
on the guidance in IFRIC 11 to address the classification of group arrangements
that were not covered by that interpretation. The amended standard provides that
an entity receiving goods or services in a share-based payment transaction that
is settled by any other entity in the group or any shareholder of such an entity
in cash or other assets is now required to recognise the goods or services
received in its financial statements.
The amendment does not affect the classification of share-based payments in the
consolidated financial statements, but has an impact on the classification of
share-based payments in the stand-alone accounts of Kumba`s subsidiary, Sishen
Iron Ore Company (Pty) Limited, with a consequential impact on the non-
controlling interest reported in the consolidated financial statements.
The amendments to the standard have been applied retrospectively to all employee
share incentive schemes outstanding at the reporting date. The effect on
earnings and headline earnings per share is an increase of 1.3 cents and 0.2
cents for the six months ended 30 June 2010 and 2009 respectively and an
increase in headline earnings per share of 5.2 cents for the year ended 31
December 2009.
The effect on the income statement and equity is disclosed in the table below:
Rm Reviewed Restated Restated
6 months 6 months 12 months
30 June 30 June 31 December
2010 2009 2009
Decrease in earnings
attributable to non-
controlling interest for the
period 4 1 17
Increase in earnings
attributable to the owners of
Kumba for the period 4 1 17
Cumulative decrease in total
non-controlling interest
disclosed in equity 36 7 26
Cumulative increase in equity-
settled share-based payment
reserve disclosed in equity 16 7 10
Cumulative increase in
retained earnings disclosed in
equity 20 - 16
Increase in opening non-
controlling interest disclosed
in equity - 1 1
Decrease in opening retained
earnings disclosed in equity - 1 1
Annual Improvements Project 2008 and 2009
As part of its annual improvements project, the International Accounting
Standards Board (`IASB`) issued a single amendment in 2008 and 15 amendments in
2009 to various issued accounting standards, effective for the reporting period
commencing 1 January 2010. These amendments consist of various necessary, but
non-urgent, amendments to issued accounting standards and interpretations that
will not be part of another major project of the IASB. Kumba adopted these
amendments in 2010, the application of which has not had an effect on the
reported results, with the exception of the amendment to IAS 7, `Statement of
Cash Flows` noted below.
IAS 7, Statement of Cash Flows (amendment)
The guidance provided in IAS 7 has been amended to clarify that only expenditure
that results in a recognised asset in the balance sheet can be classified as a
cash flow from investing activities. This amendment is effective prospectively
for the reporting period commencing 1 January 2010.
Consequently, to the extent that no corresponding asset(s) has been recognised,
the translation effects of cash flows of foreign operations previously disclosed
in the line item `Other` as part of cash flows from investing activities in the
group cash flow statement, has been reallocated to cash flows from operating
activities as well as to the new line item `Effects of exchange rates on cash
and cash equivalents` included on the face of the group cash flow statement for
the six months ended 30 June 2010.
Early adoption of new standards, amendments and interpretations
The accounting standards, amendments to issued accounting standards and
interpretations, which are relevant to the group, but not yet effective at 30
June 2010, 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 R1.5
billion for the six months ended 30 June 2010 (2009: R1.5 billion).
R1.2 billion (2009: R1.2 billion) was incurred for the expansion of its
operations, mainly on the development of Kolomela Mine, and R233 million (2009:
R348 million) to maintain its operations, mainly for the acquisition of mining
equipment for Sishen Mine. A total of R521 million (2009: R1.3 billion) was
transferred from assets under construction to machinery, plant and equipment
during the period as these assets were brought into production.
4.Share capital
The group acquired 295 478 (2009: 301 603) of its own shares through purchases
on the JSE Limited during the period. The total amount paid to acquire the
shares was R103 million (2009: R53 million). The shares are held as treasury
shares and the purchase consideration has been deducted from equity.
237 451 (2009: 293 359) of these shares have been allocated as conditional share
awards under the Kumba Bonus Share Plan. 43 322 (2009: `nil` shares) of these
shares were utilised to redeem conditional awards and share appreciation rights
that have vested under the Long Term Incentive Plan and Share Appreciation
Rights Scheme respectively.
On 19 February 2010 Kumba issued 1 130 300 shares (2009: `nil` shares) to the
Management Share Option Scheme. Options exercised under the Management Share
Option Scheme during the period ended 30 June 2010 resulted in 1 137 680 shares
being issued (2009: 1 333 740 shares) with exercise proceeds of R56 million
(2009: R65 million).
5.Interest-bearing borrowings
Rm Reviewed Restated Restated
6 months 6 months 12 months
30 June 30 June 31 December
2010 2009 2009
Kumba`s net debt position at
balance sheet dates was as
follows:
Long-term interest-bearing
borrowings 3 182 2 678 3 859
Short-term interest-bearing
borrowings - 2 862 55
Total 3 182 5 540 3 914
Cash and cash equivalents (2 264) (5 157) (891)
Net debt 918 383 3 023
Total equity 14 193 7 387 8 956
Interest cover (times) 53 51 43
Movements in interest-bearing
borrowings are analysed as
follows:
Opening balance as at 1
January 3 914 3 858 3 858
Debt raised 1 712 1 700 2 881
Repayment of borrowings (2 444) (18) (2 825)
Closing balance 3 182 5 540 3 914
At 30 June 2010 R3.2 billion of the total R8.6 billion term debt facilities have
been drawn down to finance Kumba`s expansion.
As a result of the strong cash flow generation of the group due to higher prices
and sales volumes, Kumba was able to repay R700 million drawn down against its
R5.4 billion term debt facility outstanding at 31 December 2009 during the
current period. Kumba was not in breach of any of its covenants during the
period. The group had undrawn short- and long-term borrowing facilities at 30
June 2010 of R6.3 billion.
6.Significant items included in operating profit
Rm Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 31 December
2010 2009 2009
Operating expenses is made up
as follows:
Production costs 3 109 2 581 5 601
Movement in inventories (27) (111) (600)
Finished products 85 (117) (440)
Work-in-progress (112) 6 (160)
Cost of goods sold 3 082 2 470 5 001
Mining royalty 546 - -
Selling and distribution costs 1 604 1 468 2 838
Cost of services rendered -
shipping 1 392 1 234 2 697
Sublease rent received (5) (6) (8)
Operating expenditure 6 619 5 166 10 528
Operating profit has been
derived after taking into
account the following items:
Employee expenses 996 786 1 672
Share-based payment expenses 106 68 142
Depreciation of property,
plant and equipment 369 205 530
Net loss/(profit) on disposal
and scrapping of property,
plant and equipment 2 (22) (35)
Net loss on disposal of
investment 2 - -
Finance gains (297) (97) (329)
Gains on derivative
financial instruments (161) (491) (736)
Foreign currency
(gains)/losses (136) 394 407
Operating expenses capitalised (226) (32) (181)
7.Income taxes
The income tax expense is recognised based on management`s best estimate of the
effective annual income tax rate expected for the full financial year. The
estimated effective annual tax rate (excluding Secondary Taxation on Companies)
used for the year to 31 December 2010 is 24.2% (2009: 27.5%).
8.Segmental reporting
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.
The total reported segment revenue comprises revenue from external customers as
the group does not have any inter-segment revenue and is measured in a manner
consistent with that disclosed in the income statement.
The performance of the operating segments are assessed based on a measure of
earnings before interest and tax (`EBIT`), which is consistent with `Operating
profit` in the financial statements. Finance income and finance costs are not
allocated to segments, as this type of 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.
`Other segments` comprise corporate, administration and other expenditure not
allocated to the reported segments.
Rm Sishen Thabazimbi Shipping
Mine Mine operations Total
Period ended 30 June
2010
Revenue (from external
customers) 15 927 260 1 639 17 826
EBIT 11 218 - 247 11 465
Total segment assets 616 265 - 881
Period ended 30 June
2009
Revenue (from external
customers) 10 175 267 1 545 11 987
EBIT 6 718 6 305 7 029
Total segment assets 477 132 - 609
Year ended 31 December
2009
Revenue (from external
customers) 19 473 543 3 392 23 408
EBIT 12 677 44 675 13 396
Total segment assets 724 240 - 964
Rm Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 31 December
2010 2009 2009
Reconciliation of EBIT to total
profit before taxation
EBIT for reportable segments 11 465 7 029 13 396
Other segments (258) (208) (516)
Operating profit 11 207 6 821 12 880
Net finance costs (66) (73) (127)
Profit before taxation 11 141 6 748 12 753
Revenue from external customers
analysed by goods and services
Sale of products * 16 187 10 442 20 016
Shipping services 1 639 1 545 3 392
Total revenue 17 826 11 987 23 408
*Derived from mining, extraction, production and selling of iron ore.
Geographical analysis
Kumba is domiciled in South Africa. The result of its revenue from external
customers disclosed on a geographical basis, is set out below:
Rm Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 31 December
2010 2009 2009
Total revenue from external
customers
South Africa 798 622 1 359
Export 17 028 11 365 22 049
Europe 2 963 520 2 151
China 11 974 9 115 16 770
Rest of Asia 2 091 1 730 3 128
17 826 11 987 23 408
9.Related party transactions
During the six months, Kumba, in the ordinary course of business, entered into
various sale and purchase transactions with associates, joint ventures and its
holding company. These transactions were subject to terms that are no less
favourable than those offered by third parties.
10. Contingent liabilities
During January 2010 SIOC 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 Sishen Mine.
The Taxation Laws Amendment Bill, released by National Treasury on 10 May 2010
for comment, propose changes to the Mineral and Petroleum Resource Royalties Act
No. 28 of 2008. If the proposed amendments are enacted as they are currently
drafted, the mineral royalty payable by Kumba for the six months ended 30 June
2010 could increase.
There have been no other significant changes in the contingent liabilities
disclosed at 31 December 2009.
11.Legal proceedings
Sishen Supply Agreement arbitration
SIOC notified ArcelorMittal on 5 February 2010, that it was no longer entitled
to receive 6.25Mtpa of iron ore contract mined by SIOC at cost plus 3% from
Sishen Mine, as a result of the fact that ArcelorMittal had failed to convert
its old order mining rights. This contract mining agreement, concluded in 2001,
was premised on ArcelorMittal owning an undivided 21.4% interest in the mineral
rights of Sishen Mine and as a result of ArcelorMittal`s failure to convert its
old order mining right, accordingly the contract mining agreement became
inoperative in its entirety as of 1 May 2009.
As a result, a dispute arose between SIOC and ArcelorMittal as to whether the
contract mining agreement became inoperative, which SIOC has referred to
arbitration. SIOC served its statement of claim on 19 April 2010. SIOC has
continued to supply ArcelorMittal with iron ore from Sishen Mine and has
invoiced ArcelorMittal for the delivery of 1.45Mt of iron ore since March 2010
at commercial prices. Kumba has accounted for revenue at cost plus 3% in
preparing the financial results for the period ended 30 June 2010 with the
difference reflected as a contingent asset.
SIOC are engaged with ArcelorMittal in extensive negotiations to agree on an
interim pricing arrangement pending the outcome of the arbitration. In the
absence of ArcelorMittal agreeing on an interim pricing arrangement, SIOC will
only load trains destined for ArcelorMittal effective 1 August 2010 on condition
that, at least 48 hours before the intended loading, payment for that
consignment and the accumulated amounts due for iron ore delivered is paid in
full.
21.4% undivided share of the Sishen Mine mineral rights
After ArcelorMittal failed to convert its old order rights, SIOC applied for the
residual 21.4% mining right previously held by ArcelorMittal and its application
was accepted by the DMR on 4 May 2009. A competing application for a prospecting
right over the same area was also accepted by the DMR. SIOC objected to this
acceptance. Notwithstanding this objection, a prospecting right over the 21.4%
interest was granted by the DMR to Imperial Crown Trading 289 (Pty) Limited
(`ICT`). SIOC has lodged an appeal against the grant of the prospecting right by
the DMR. This appeal process remains ongoing.
In addition, SIOC initiated a review application in the North Gauteng High Court
on 21 May 2010 in relation to the decision of the DMR to grant a prospecting
right to ICT.
Lithos Corporation (Pty) Limited (`Lithos`)
Lithos is claiming US$421 million from Kumba for damages in relation to the
Faleme project in Senegal. 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. The trial date has been
postponed indefinitely. No liability has been recognised for this litigation.
La Societe des Mines de Fer du Senegal Oriental (`Miferso`)
The group initiated arbitration proceedings against Miferso and the Republic of
Senegal under the Rules of Arbitration of the International Chamber of Commerce.
The arbitration remains confidential in nature.
12.Post balance sheet date events
The directors are not aware of any other matter or circumstance arising since
the end of the period 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 and King III reports on corporate governance. The board
is currently in the process of implementing the recommendations of the King III
report. The Board has satisfied itself that Kumba has complied throughout the
period under review in all material aspects with these codes
14.Independent review opinion
The group`s auditors, Deloitte & Touche, has issued their unmodified review
opinion on the condensed consolidated interim financial report for the six
months ended 30 June 2010. Their review was conducted in accordance with
International Standards on Review Engagements 2410, `Review of Interim Financial
Information Performed by the Independent Auditor of the Entity`. A copy of their
unmodified review report is available for inspection at the company`s registered
office.
On behalf of the Board
PL Zim CI Griffith
Chairman Chief Executive Officer
21 July 2010
Pretoria
Notice of interim cash dividend
At its Board meeting on 21 July 2010 the directors declared an interim cash
dividend of R13.50 per share on the ordinary shares from profits accrued during
the year ending 31 December 2010. The salient dates are as follows:
Last day for trading to qualify and
participate in the interim dividend (and
change of address or dividend
instructions) Friday, 13 August 2010
Trading ex dividend commences Monday, 16 August 2010
Record date Friday, 20 August 2010
Dividend payment date Monday, 23 August 2010
Share certificates may not be dematerialised or rematerialised between Monday,
16 August 2010 and Friday, 20 August 2010, both days inclusive.
By order of the Board
VF Malie
Company secretary
Pretoria
21 July 2010
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, G Gomwe 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)
Date: 22/07/2010 07:15:01 Produced by the JSE SENS Department.
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