| Thu 21 Jul 2011, 8:00 | | KIO - Kumba Iron Ore Limited - Reviewed condensed consolidated interim financial |
|
KIO
KIO
KIO - Kumba Iron Ore Limited - Reviewed condensed consolidated interim financial
report and cash dividend declaration for the six months ended 30 June 2011
Kumba Iron Ore Limited
Company registration number: 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 2011
SAFETY Significantly improved safety performance
OPERATING PROFIT up 51% to R16.9 billion
HEADLINE EARNINGS up 40% to R9.1 billion
INTERIM CASH DIVIDEND R21.70 per share (2010: R13.50)
KOLOMELA MINE DEVELOPMENT Substantial project progress
BROAD-BASED EMPOWERMENT R11 billion returned to shareholders
HIGHLIGHTS
Kumba has significantly improved its safety performance and has successfully
turned around the regression in its safety performance experienced in 2010. The
group has worked the six months fatality free and has improved its lost-time
injury frequency rate by 58% from the end of 2010.
Kumba`s headline earnings were R9.1 billion for the six months ended 30 June
2011; 40% above the R6.5 billion achieved in the first half of 2010. Operating
profit increased by 51% from R11.2 billion to R16.9 billion thereby improving
the group`s operating profit margin from 63% in 2010 to 70%. The increase in
earnings was achieved primarily as a result of an increase in turnover on the
back of an increase of 56% in year-on-year weighted average realised iron ore
export prices for the six months. Attributable and headline earnings for the
period were R28.20 and R28.23 per share respectively, on which an interim cash
dividend of R21.70 per share has been declared.
Operating performance at all sites was adversely impacted by wet pit conditions
resulting from abnormally high rainfall. Despite these operational challenges,
total sales were maintained at 22Mt. Exports were supplemented with sales from
stockpiles to ensure the group benefited from record export prices arising from
a very strong iron ore market. Sishen mine saw an 18% increase in production and
a 15% increase in export sales during the second quarter of 2011 as operations
recovered from the rain-disrupted first quarter.
The development of Kolomela mine in the Northern Cape has taken substantial
strides forward and overall the project has progressed to 94% of completion.
With construction substantially complete, the project now moves through cold and
then hot commissioning with the first ore anticipated to be fed through the
plant towards the end of the fourth quarter of 2011.
BROAD-BASED EMPOWERMENT
Since its listing in 2006, Kumba through its operating subsidiary Sishen Iron
Ore Company (Pty) Limited (`SIOC`), has returned R11 billion (including the 2011
interim dividend of R2.4 billion) to its broad-based empowerment partners:
* The SIOC Community Development Trust (`the Trust`). The Trust, which owns a 3%
stake in SIOC, redeemed its funding in full during 2010 and now has the ability
to utilise the full dividends received this year of R527 million to fund
sustainable projects in the communities in which we operate;
* Our employees, through the SIOC Employee Share Participation Scheme
(Envision). The scheme participants have received dividends of R279 million
(with
R55 000 of dividends for each participant) since inception.
The Envision scheme matures in November 2011. At a share price of R484 per Kumba
share as at 30 June 2011, R2.5 billion will be distributed to more than 6 000
permanent South African employees below managerial level. This capital payment
will be in addition to the dividends received to date;
* Exxaro Resources Limited (`Exxaro`). Exxaro will have received R8.5 billion in
dividends upon receipt of the interim dividend declared in July 2011.
It is extremely gratifying to note that, despite having to navigate through the
global economic crisis in 2008 and 2009 the group has significantly exceeded the
original expectations of the broad-based empowerment transaction that was
conceived in 2006.
SAFETY PERFORMANCE
Kumba remains committed to the safety of its employees at all the group`s sites
and has intensified its safety initiatives in a drive to achieve zero harm.
Sishen, Thabazimbi and Kolomela mines worked the full six months without a
fatality. The group recorded five lost-time injuries (`LTI`s`) for the period,
which has resulted in the lost-time injury frequency rate of the group improving
to 0.05 compared to the 0.11 achieved in 2010.
Sishen mine recorded three LTI`s and Thabazimbi mine two LTI`s. Kolomela mine
was LTI-free throughout the period and the Kolomela project achieved an
outstanding safety performance by recording 13.3 million LTI-free man hours,
despite the level of construction activity, with the last LTI recorded at the
site in January 2010.
MARKET OVERVIEW
Total world crude steel production continued to grow reaching 760Mt for the
first six months of 2011, up 6% from 717Mt reached in 2010. China`s crude steel
production during the first six months of 2011 increased by 9% year-on-year to
352Mt despite monetary tightening policies. Crude steel production in Japan has
remained flat year-on-year even though production was disrupted by the
earthquake and tsunami in March of this year. Global seaborne iron ore imports
rose by 5% year-on-year to 515Mt fuelled by an 11% increase in China. With
adverse weather and logistics constraints impacting on seaborne iron ore supply,
the market has remained tight, which has incentivised the sourcing of
domestically mined high cost iron ore by Chinese steel mills. Whilst Chinese
domestic iron ore production has increased, the average implied grade continues
to fall.
Iron ore index prices peaked during the first quarter and, although retreating
off these levels, have remained high underpinned by the high cost Chinese
domestic iron ore supply. On average, realised quarterly benchmark and index
prices were virtually the same for the first half of 2011, supported by high
index prices. The majority of Kumba`s export sales volumes remains committed to
long-term and annual contracts and priced on a quarterly benchmark basis,
derived from the iron ore index. In the first half of 2011, iron ore sold on a
quarterly benchmark basis accounted for 71% of total export sales volumes. The
remaining 29% consisted of index sales.
OPERATIONAL PERFORMANCE
Total tonnes mined at Sishen mine increased by 6% from 72.1Mt in 2010 to 76.7Mt,
of which waste mined was 51.8Mt, an increase of 12% from the 46.1Mt of waste
mined during the first six months of 2010. The mine planned to increase its
waste mining, but fell short of plans as mining activity was adversely impacted
by wet pit conditions resulting from excessive rainfall. As a result of the wet
pit conditions, run of mine material supplied to the Dense Media Separation
(`DMS`) plant reduced, causing total production at Sishen mine to decrease by
12% from 21.1Mt in 2010 to 18.6Mt. Production from the DMS plant decreased by
2.4Mt to 12.3Mt. The DMS plant was adversely impacted by maintenance downtime
and wet feedstock causing blockages in the plant. The jig plant achieved a run
rate in excess of design capacity during the second quarter which made good the
shortfall of the first quarter. The jig plant continued to deliver
3.2Mt per
quarter (a third of Sishen mine`s total production).
Total sales volumes for the group for the half year were maintained at
approximately 22Mt. Export sales volumes from Sishen mine for the half year
decreased by 0.4Mt or 2% from 18.8Mt in 2010 to 18.4Mt. Kumba`s export sales
volumes to China totalled 69% of total export volumes for the six months,
compared to 57% during the first half of 2010, as export sales to Japan reduced
from 2.8Mt to 1.7Mt or 9% of total export volumes for the six months partly as a
result of the earthquake and tsunami as well as the rescheduling of some vessels
from June 2011 to July 2011. Notwithstanding lower production in the first half
of 2011, total sales volumes were maintained at approximately 22Mt as 2.8Mt of
stock was used to supplement the lower production from the mine. Finished
product stockpiles were reduced at Sishen mine from 4.7Mt to 2.1Mt. Saldanha
port stock increased from 0.9Mt to 1.1Mt. Total domestic sales volumes for the
six months of 3.7Mt were up by 19% or 0.6Mt due to higher demand from
ArcelorMittal South Africa Limited (`ArcelorMittal`).
Volumes railed on the Sishen-Saldanha iron ore export channel increased by 7% to
a record level of 19.5Mt (including 0.6Mt railed to Saldanha Steel). Kumba
shipped 18.7Mt from the Saldanha port destined for the export market, down 2%
year-on-year, due to a breakdown of loading equipment at the port. The stockpile
level in transit to and at the Qingdao port in China was 1.5Mt at 30 June 2011.
Waste mining at Thabazimbi mine increased by 67% to 23.5Mt as the last new pit
is opened with the progression towards the end of the life of the mine in 2016.
Production at Thabazimbi mine, although planned to be lower in 2011, was also
impacted by abnormally high rainfall, and reduced by 34% year-on-year to 0.5Mt
for the six months. Domestic sales from the mine were higher at 1.1Mt driven by
the off-take requirements of ArcelorMittal and were supplemented from
stockpiles.
FINANCIAL RESULTS
The group`s total mining revenue (excluding shipping operations - R1.2 billion)
of R22.9 billion for the period was 41% higher than the R16.2 billion of the
same period of 2010. This performance was achieved on the back of the year-on-
year weighted average increase of 56% in realised iron ore export prices. This
was partially offset by the continued strengthening of the average exchange rate
of the Rand to the US Dollar.
Kumba`s operating profit margin of 70% for the six months (73% from mining
activities), increased by 7% from 63% (68% from mining activities) in 2010.
Operating profit increased by 51% or R5.7 billion, principally as a result of a
weighted average increase of 56% in realised iron ore export prices, which added
R8.2 billion to operating profit. However, export sales volumes decreased by 2%
which reduced operating profit by R370 million. Domestic revenues were R802
million stronger supported by a recovery in demand.
The increase in operating profit was reduced mainly by:
The strengthening of the average exchange rate of the Rand to the US Dollar
(average exchange rates - R6.88/US$1.00 for the first six months of 2011
compared with R7.52/US$1.00 in the same period of 2010), which reduced operating
profit by R1,943 million;
A R642 million or 14% increase in operating expenses (excluding shipping
expenses) as a result of the 12% and 67% increase in waste mined at Sishen and
Thabazimbi mines respectively, inflationary cost escalations and lower
production volumes; and
The increase in the mineral royalty accrued, which became effective in March
2010, of R296 million.
As a result of the increased mining activity at Sishen mine, a 12% decrease in
production over the first half of 2010 as well as inflationary cost escalations,
the unit cash cost increased by 18% from R111.20/tonne at the end of 2010 (the
2010 unit cash cost was restated to take into account non-cash share-based
payment expenses of R103 million or R2.49/tonne) to R131.01/tonne for the six
months to 30 June 2011. The group has seen above inflationary escalations in key
input costs, such as the diesel price which has increased by 18% from
R7.51/litre to R8.88/litre, electricity prices which have increased by 29% year-
on-year and labour which went up on average by 7%. Waste mining is expected to
increase further in the second half of 2011 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 optimisation programmes and
participation in the Anglo American Supply Chain procurement organisation.
The Bokamoso programme, which is focused on improving operational efficiencies,
has mitigated some of the potential losses due to the abnormal and extended
rainfall experienced in the Northern Cape during the first half of the year. The
operations review conducted at Sishen mine as part of the Anglo American asset
optimisation support has identified a number of new optimisation opportunities
which will be implemented to further improve the performance of the mine.
Further value continues to be extracted by Kumba through its marketing
initiatives to enhance the premia achieved on its niche lump products. The next
phase of developing Kumba`s shipping operations through the conclusion of long-
term freight contracts is nearing finalisation. These asset optimisation and
procurement initiatives have delivered R509 million in increased revenues and
price benefits, operating cost containment of R832 million and reduction in
capital expenditure of R144 million during the period.
The group continued to generate substantial cash from its operations, with R15
billion generated during the six months. These cash flows were used to pay
taxation of R3.7 billion and aggregate dividends of R8.7 billion during the six
months. Capital expenditure of R1.9 billion was incurred, of which R597 million
was to maintain operations and R1.3 billion to expand operations, mainly on
Kolomela mine. At 30 June 2011 the group had a net cash position of R2.2 billion
(R1.7 billion net cash at the end of 2010).
Net working capital increased by R2.6 billion from 31 December 2010 to R5.5
billion. This increase is due to a substantial growth in the accounts receivable
balance on the back of the higher export iron ore prices and an increase in
sales volumes in June 2011 relative to December 2010.
KOLOMELA PROJECT
The development of Kolomela mine remains on target and within budget. Overall
the project has progressed to 94% of completion. With construction substantially
complete, various systems of the plant have been handed over for cold
commissioning. Hot commissioning of the plant is now starting to commence and
will take place over the second half of 2011. During that process ore will be
fed through the plant, resulting in work in process stock and some saleable
product being produced during 2011. Significant progress has been made by
Transnet with the construction of the direct rail link from the mine to the
Sishen-Saldanha iron ore export channel likely to be finalised by the fourth
quarter of 2011.
For the six month ended 30 June 2011, 15.3Mt of waste material was mined at a
cost of R505 million, bringing the total waste mined as part of the mine`s
development since 2008 to 37.3Mt (total cost - 2008 to 2010: R1.3 billion).
600Kt of ore has been mined and stockpiled for the commissioning of the plant.
The life of mine has been extended by eight years to 28 years from the initial
investment decision, as more resources are now economically mineable at the
operation.
As previously guided, at this stage of the project it is anticipated that the
mine will be ramped up to produce an estimated 4Mt to 5Mt during 2012. Kolomela
mine is expected to produce at design capacity of 9Mtpa in 2013.
R5.8 billion of capital expenditure has been incurred to date, of which R679
million has been incurred during the six months ended 30 June 2011, and R1.1
billion has been committed as at 30 June 2011.
MINERAL RESOURCES AND ORE RESERVES
There have been no material changes to the ore reserves as disclosed in the 2010
Kumba Annual Report.
OUTLOOK
Chinese crude steel production is expected to increase by approximately 8% from
2010 levels. However, world steel production is expected to ease back in the
coming months due to stock cycle turns, with global crude steel production
anticipated to increase by approximately 6%. Crude steel production during the
second half of the year is seasonally lower than the first half. This is
expected to put modest downward pressure on iron ore prices in the final quarter
of 2011.
Management has implemented focused plans to recover the majority of the
shortfall in first half production by the end of 2011. Waste mining at Sishen
mine is anticipated to increase as rainfall patterns return to normal. Export
sales for 2011 are expected to remain stable when compared to 2010 levels.
Domestic sales volumes from Sishen and Thabazimbi mines remain dependent on the
off-take requirements from ArcelorMittal and contractual commitments.
Waste mining at all the operational sites continues to increase as planned. In
addition, at Sishen mine, further waste mining is required to make up for the
shortfall in the first half of the year. This is expected to negatively impact
unit cash costs of production.
Relative to the US Dollar, the South African Rand has strengthened on average by
a further 6% from the average exchange rate of 2010. Kumba`s operating profit
remains highly sensitive to the Rand/US Dollar exchange rate.
The High Court review application in relation to the decision of the Department
of Minerals and Resources to grant a prospecting right to Imperial Crown Trading
289 (Pty) Limited and the interdict in respect of the DMR considering ICT`s
subsequent mining right application is enrolled for determination on 15 August
2011.
CHANGES IN DIRECTORATE
The Board of Directors of Kumba announced the appointment of Mr Litha M Nyhonyha
as a non-executive director of Kumba on 22 June 2011.
Vincent Uren has indicated his intention to step down from his position as chief
financial officer as from the end of December 2011 in order to take a break from
corporate life. He will continue to be employed by Kumba in 2012 and will work
exclusively on the legal issues until 30 June 2012. Thereafter, he will make
himself available in an advisory capacity as required. It is with regret that
the Board of directors of Kumba has accepted Vincent`s decision and is pleased
that the company will retain his services. Vincent was appointed to the Kumba
board in May 2006 and has made a significant contribution to the company. He
has also played a positive and substantial role in the legal cases in which the
company is and has been involved. The search process has commenced in terms of
finding a suitable replacement.
PRODUCTION AND SALES REPORT
FOR THE SIX MONTHS ENDED 30 JUNE 2011
Total iron ore production decreased by 1% to 10.4Mt in the second quarter from a
year earlier and by 13% to 19.2Mt for the six months ended 30 June 2011.
Production recovered during the second quarter increasing by 1.6Mt or 18% from
the first quarter, which was severely impacted by the adverse weather
conditions.
Total sales for the second quarter of 2011 of 11.6Mt increased by 6% from a year
earlier. This was due to a 14% increase in export sales to 9.8Mt in the second
quarter of 2011, mainly to customers in China, as well as a 21% increase in
domestic sales volumes. Total export sales for the six months of 18.4Mt were 2%
lower than the 18.8Mt sold during the same period in 2010.
Six months overview
Unaudited six months
ended
30 June 30 June %
`000 tonnes 2011 2010 change
Production summary
Iron ore 19 153 21 935 (13)
Lump 11 784 13 214 (11)
Fines 7 369 8 721 (16)
Mine production 19 153 21 935 (13)
Sishen mine 18 646 21 078 (12)
DMS plant 12 330 14 655 (16)
Jig plant 6 316 6 423 (2)
Thabazimbi mine 507 857 (41)
Sales summary
Total 22 025 21 946 -
Sishen mine 20 899 21 059 (1)
Export sales 18 363 18 817 (2)
Domestic sales 2 536 2 242 13
Thabazimbi mine 1 126 887 27
Quarterly overview
Unaudited Unaudited
quarter ended quarter ended
30 30 31 31
June June % March March %
`000 tonnes 2011 2010 change 2011 2010 change
Production summary
Iron ore 10 359 10 446 (1) 8 794 11 489 (23)
Lump 6 384 6 312 1 5 400 6 902 (22)
Fines 3 975 4 134 (4) 3 394 4 587 (26)
Mine production
10 359 10 446 (1) 8 794 11 489 (23)
Sishen mine 10 098 10 072 - 8 548 11 006 (22)
DMS plant 6 589 6 977 (6) 5 741 7 678 (25)
Jig plant 3 509 3 095 13 2 807 3 328 (16)
Thabazimbi mine 261 374 (30) 246 483 (49)
Sales summary
Total 11 642 11 014 6 10 383 10 932 (5)
Sishen mine 11 078 10 595 5 9 821 10 464 (6)
Export sales 9 806 9 502 3 8 557 9315 (8)
Domestic sales 1 272 1 093 16 1 264 1 149 10
Thabazimbi mine 564 419 35 562 468 20
SALIENT FEATURES AND OPERATING STATISTICS
For the period ended Unaudited Unaudited Unaudited
6 months 6 months 12 months
30 June 2011 30 June 2010 31 Dec 2010
Rm Rm Rm
SHARE STATISTICS (`000)
Total shares in issue 322 052 321 545 321 912
Weighted average number of 320 992 320 195 320 727
shares
Diluted weighted average 322 066 321 474 321 691
number of shares
Treasury shares 953 709 818
Treasury shares 243 150 197
(R million)
MARKET INFORMATION
Closing share price (Rand) 484 316 425
Market capitalisation 155 873 101 608 136 652
(Rand million)
Market capitalisation (US$ 22 990 13 247 20 611
million)
NET ASSET VALUE (Rand per 51.49 35.82 44.54
share)
CAPITAL EXPENDITURE (Rand
million)
Incurred 1 898 1 457 4 723
Contracted 2 147 1 948 1 727
Authorised but not 4 176 6 456 4 965
contracted
CAPITAL EXPENDITURE
RELATING TO THABAZIMBI
MINE TO BE FINANCED BY
ARCELORMITTAL
Contracted 186 4 38
Authorised but not 75 31 48
contracted
OPERATING COMMITMENTS
Operating lease 95 113 104
commitments
Shipping services 109 114 73
ECONOMIC INFORMATION
Average Rand/US Dollar 6.88 7.52 7.30
exchange rate (ZAR/US$)
Closing Rand/US Dollar 6.78 7.67 6.63
exchange rate (ZAR/US$)
OPERATING STATISTICS (Mt)
Production 19.1 21.9 43.3
Sishen mine 18.6 21.1 41.3
Thabazimbi mine 0.5 0.8 2.0
Sales 22.0 21.9 43.1
Export 18.4 18.8 36.1
Dometic 3.6 3.1 7.0
Sishen mine 2.5 2.2 5.0
Thabazimbi mine 1.1 0.9 2.0
SISHEN MINE `FOR` UNIT
COST
Unit cost (Rand per tonne) 159.18 116.50 128.65
Cash cost (Rand per tonne) 131.01 100.35 111.20
Unit cost (US$ per tonne) 23.14 15.49 17.62
Cash cost (US$ per tonne) 19.04 13.34 15.23
NOTICE OF INTERIM CASH DIVIDEND
At its Board meeting on 20 July 2011 the directors declared an
interim cash dividend of R21.70 per share on the ordinary shares
from profits accrued during the year ending 31 December 2011. 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, 12 August 2011
Trading ex dividend commences
Monday, 15 August 2011
Record date
Friday, 19 August 2011
Dividend payment date
Monday, 22 August 2011
Share certificates may not be dematerialised or rematerialised
between Monday, 15 August 2011 and Friday, 19 August 2011, both
days inclusive.
By order of the Board
VF Malie
Company secretary
20 July 2011
Pretoria
Condensed group balance sheet
As at
Reviewed Reviewed Audited
30 June 2011 30 June 2010 31 Dec 2010
Rm Rm Rm
ASSETS
Property, plant and 17 447 12 800 15 866
equipment
Biological assets 5 7 6
Investments in associates 24 30 29
and joint ventures
Investments held by 423 313 372
environmental trust
Long-term prepayments and 50 20 53
other receivables
Deferred tax assets 617 233 472
Non-current assets 18 566 13 403 16 798
Inventories 3 398 2 672 3 102
Trade and other 5 167 5 025 3 096
receivables
Current tax asset 30 - 24
Cash and cash equivalents 5 382 2 264 4 855
Current assets 13 977 9 961 11 077
Total assets 32 543 23 364 27 875
EQUITY
Shareholders` equity 16 583 11 518 14 338
Non-controlling interest 4 976 2 675 4 038
Total equity 21 559 14 193 18 376
LIABILITIES
Interest-bearing 3 188 3 182 3 185
borrowings
Provisions 815 492 672
Deferred tax liabilities 3 533 2 332 2 272
NON-CURRENT LIABILITIES 7 536 6 006 6 129
Short-term portion of 9 3 11
provisions
Trade and other payables 3 078 2 849 3 274
Current tax liabilities 361 313 85
Current liabilities 3 448 3 165 3 370
Total liabilities 10 984 9 171 9 499
Total equity and 32 543 23 364 27 875
liabilities
CONDENSED GROUP INCOME STATEMENT
For the period ended Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 2010 31 Dec 2010
2011 Rm Rm
Rm
Revenue 24 066 17 826 38 704
Operating expenses (7 149) (6 619) (13 573)
OPERATING PROFIT 16 917 11 207 25 131
Finance income 114 58 149
Finance costs (60) (124) (178)
PROFIT BEFORE TAXATION 16 971 11 141 25 102
Taxation (5 135) (3 003) (6 813)
Profit for the period 11 836 8 138 18 289
ATTRIBUTABLE TO:
Owners of Kumba 9 052 6 489 14 323
Non-controlling interest 2 784 1 649 3 966
11 836 8 138 18 289
EARNINGS PER SHARE FOR
PROFIT ATTRIBUTABLE TO THE
OWNERS OF KUMBA (Rand per
share)
Basic 28.20 20.27 44.66
Diluted 28.11 20.19 44.52
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME
For the period ended Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 2011 30 June 2010 31 Dec 2010
Rm Rm Rm
PROFIT FOR THE YEAR 11 836 8 138 18 289
Other comprehensive 49 88 (217)
income/(losses) for the
period, net of tax
Exchange differences on 46 87 (215)
translating foreign
operations
Net effect of cash flow 3 1 (2)
hedges
Total comprehensive income 11 885 8 226 18 072
for the period
ATTRIBUTABLE TO:
Owners of Kumba 9 081 6 546 14 143
Non-controlling interest 2 804 1 680 3 929
11 885 8 226 18 072
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
For the period ended Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 2011 30 June 2010 31 Dec 2010
Rm Rm Rm
Total equity at the 18 376 8 956 8 956
beginning of the period
Changes in share capital
and premium
Shares issued during the 4 56 74
period
Treasury shares issued to 102 15 62
employees under employee
share incentive schemes
Purchase of treasury (140) (103) (191)
shares
Changes in reserves
Equity-settled share-based 58 86 203
payment
Vesting of shares under (102) (15) (63)
employee share schemes
Total comprehensive income 9 081 6 546 14 143
for the period
Dividends paid (6 758) (2 375) (6 756)
Net asset value of SPV on - - (139)
deconsolidation
Change in effective - - (301)
ownership of SIOC
Changes in non-controlling
interest
Total comprehensive income 2 804 1 680 3 929
for the period
Change in effective - - 301
ownership of SIOC
Dividends paid (1 882) (648) (1 834)
Movement in non- 16 (5) (8)
controlling interest in
reserves
Total equity at the end of 21 559 14 193 18 376
the period
Comprising:
Share capital and premium 119 176 153
(net of treasury shares)
Equity-settled share-based 538 546 487
payment reserve
Foreign currency 177 388 142
translation reserve
Cash flow hedge accounting (30) (7) (24)
reserve
Retained earnings 15 779 10 415 13 580
Shareholders` equity 16 583 11 518 14 338
Attributable to the
owners of Kumba 15 934 10 715 13 811
Attributable to the
non-controlling
interest
in SIOC 649 803 527
Non-controlling interest 4 976 2 675 4 038
Total equity 21 559 14 193 18 376
Dividend (Rand per share)
Interim* 21.70 13.50 13.50
Final - - 21.00
*The interim dividend was declared after 30 June 2011, and has not been
recognised as a liability in this interim financial report. It will be
recognised in shareholders` equity in the year ending 31 December 2011.
CONDENSED GROUP CASH FLOW STATEMENT
For the period ended Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 2011 30 June 2010 31 Dec 2010
Rm Rm Rm
Cash generated from 15 037 9 499 25 555
operations
Net finance costs paid (49) (191) (283)
Taxation paid (3 739) (2 633) (7 031)
CASH FLOWS FROM OPERATING 11 249 6 675 18 241
ACTIVITIES
Capital expenditure (1 898) (1 457) (4 723)
Proceeds from the - 1 1
disposal of non-current
assets
Investments in associates 5 (12) (9)
and joint ventures
Net cash outflow on - - (2)
disposal of subsidiaries
CASH FLOWS FROM INVESTING (1 893) (1 468) (4 733)
ACTIVITIES
Share capital issued 4 56 74
Purchase of treasury (140) (103) (191)
shares
Dividends paid (6 758) (2 374) (6 714)
Dividends paid to non- (1 925) (663) (1 876)
controlling shareholders
Net interest-bearing - (732) (729)
borrowings repaid
Increase in non- - - (147)
controlling interest
CASH FLOWS FROM FINANCING (8 819) (3 816) (9 583)
ACTIVITIES
Increase in cash and cash 537 1 391 3 925
equivalents
Cash and cash equivalents 4 855 891 891
at beginning of period
Exchange differences on (10) (18) 39
translation of cash and
cash equivalents
Cash and cash equivalents 5 382 2 264 4 855
at end of period
HEADLINE EARNINGS
For the period ended Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 2011 30 June 2010 31 Dec 2010
Rm Rm Rm
RECONCILIATION OF
HEADLINE EARNINGS
Attributable profit 9 052 6 489 14 323
Net loss on disposal and
scrapping of property,
plant and equipment 10 2 5
Net loss on disposal of - 2 2
investment
9 062 6 493 14 330
Taxation effect of 2 (1) (1)
adjustments
Non-controlling interest (3) - (1)
in adjustments
Headline earnings 9 061 6 492 14 328
HEADLINE EARNINGS (Rand
per share)
Basic 28.23 20.28 44.67
Diluted 28.13 20.19 44.54
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 320 991 881 320 194 536 320 727 067
of ordinary shares
Diluted weighted average 322 065 729 321 474 211 321 691 135
number of ordinary
shares*
*The adjustment of 1 073 848 shares to the weighted average number of ordinary
shares is as a result of the vesting of share options previously granted under
the various employee share incentive schemes.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL REPORT
1.Corporate information
Kumba is a public company incorporated and domiciled in South Africa. The main
business of Kumba, its subsidiaries, joint ventures and associate is the
exploration, extraction, beneficiation, marketing, sale and shipping of iron
ore. The group has its primary listing on the JSE Limited (`JSE`).
The condensed consolidated financial report of Kumba and its subsidiaries for
the six months ended 30 June 2011 was authorised for issue in accordance with a
resolution of the directors on 20 July 2011.
2.Basis of preparation
The condensed consolidated financial report for the six months ended 30 June
2011 has been prepared in compliance with the South African Companies Act No 71
of 2008, as amended, and the Listings Requirements of the JSE. The condensed
consolidated financial information has been prepared within the framework
concepts and recognition and measurement requirements of International Financial
Reporting Standards (`IFRS`), the AC500 standards as issued by the Accounting
Practices Board and in accordance with International Accounting Standard (`IAS`)
34, Interim Financial Reporting.
The condensed consolidated financial report has been prepared in accordance with
the historical cost convention except for certain financial instruments, share-
based payments and biological assets which are stated at fair value, and is
presented in Rand, which is Kumba`s functional and presentation currency.
3. ACCOUNTING POLICIES
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 2010.
3.1. ANNUAL IMPROVEMENTS PROJECT 2010
THE GROUP ADOPTED THE AMENDMENTS TO VARIOUS ISSUED ACCOUNTING STANDARDS ISSUED
BY THE INTERNATIONAL ACCOUNTING STANDARDS BOARD (`IASB`) AS PART OF ITS ANNUAL
IMPROVEMENTS PROJECT 2010 THAT ARE EFFECTIVE FOR REPORTING PERIODS THAT
COMMENCED ON 1 JANUARY 2011. THESE AMENDMENTS HAVE NOT HAD AN EFFECT ON THE
REPORTED RESULTS OR THE GROUP ACCOUNTING POLICIES.
3.2. 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 2011, HAVE NOT BEEN ADOPTED. THE GROUP IS CURRENTLY EVALUATING THE IMPACT
OF THESE PRONOUNCEMENTS.
4.Change in estimates
Management has revised the remaining estimated useful lives of certain items of
property, plant and equipment at Sishen mine, as well as the estimated
rehabilitation and decommissioning provision at both Sishen and Kolomela mines.
The effect of these changes is detailed below:
Reviewed
6 months
30 June 2011
Rm
Increase in environmental rehabilitation 58
provision
Increase in decommissioning provision 11
Increase in accumulated depreciation 32
The change in estimate in the environmental rehabilitation provision and
accumulated depreciation was applied prospectively from 1 January 2011 and
resulted in a decrease in attributable profit before tax for the six month
period ended 30 June 2011 of R90 million. The change in estimate in the
decommissioning provision has been capitalised to the related property, plant
and equipment.
5.Property, plant and equipment
Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 31 Dec
2011 2010 2010
Rm Rm Rm
Capital expenditure 1 898 1 457 4 723
Comprising:
Expansion 1 301 1 224 3 099
Stay in business 597 233 1 624
Transfers from assets 342 521 1 519
under construction to
machinery, plant and
equipment
Expansion capital expenditure comprised mainly the development of Kolomela mine.
Stay in business capital expenditure to maintain operations was principally for
the acquisition of heavy mining equipment for Sishen mine.
6.Share capital
Reconciliation of share capital and share premium (including treasury shares):
Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 2011 30 June 2010 31 Dec 2010
Rm Rm Rm
Balance at beginning 153 208 208
of period
Total shares issued 4 56 74
for cash consideration
Shares issued - 12 55 80
share premium
Net movement in (8) 1 (6)
shares held by Kumba
Iron Ore Management
Share Trust
Net movement in (38) (88) (129)
treasury shares under
employee share
incentive schemes
Purchase of (140) (103) (191)
treasury shares
Shares issued to 102 15 62
employees
Share capital and 119 176 153
share premium
Reconciliation of number of shares in issue:
Number of shares Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 2011 30 June 2010 31 Dec 2010
Balance at beginning 321 911 721 320 415 081 320 415 081
of period
Ordinary shares 140 000 1 130 300 1 496 640
issued
Balance at end of 322 051 721 321 545 381 321 911 721
period
Reconciliation of treasury shares held:
Number of shares Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 30 June 31 Dec 2010
2011 2010
Balance at beginning of 818 272 463 817 463 817
period
Shares purchased 286 785 295 478 515 241
Share issued to employees (215 639) (43 322) (176 464)
under employee share
incentive scheme under the
Long Term Incentive Plan
and Share Appreciation
Rights Scheme
Net movement in shares 67 730 (7 380) 15 678
held by Kumba Iron Ore
Management Share Trust
Balance at end of period 953 148 708 593 818 272
Treasury shares allocated 714 167 553 995 539 969
as conditional share
awards under the Kumba
Bonus Share Plan
7.Interest-bearing borrowings
Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 2011 30 June 2010 31 Dec 2010
Rm Rm Rm
Long-term interest- 3 188 3 182 3 185
bearing borrowings
Cash and cash (5 382) (2 264) (4 855)
equivalents
Net(cash)/debt (2 194) 918 (1 670)
Total equity 21 559 14 193 18 376
Movements in interest-bearing borrowings are analysed as follows:
Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 2011 30 June 2010 31 Dec 2010
Rm Rm Rm
Opening balance as at 1 3 185 3 914 3 914
January
Debt raised - 1 712 4 771
Repayment of borrowings - (2 468) (5 527)
Deferred transaction 3 24 27
costs recognised
Closing balance 3 188 3 182 3 185
R3.2 billion of the total R8.6 billion long-term debt facilities has been drawn
down to finance Kumba`s expansion. Kumba was not in breach of any of its
covenants during the period. The group had undrawn long-term debt and
uncommitted short-term facilities at 30 June 2011 of R9.3 billion (2010: R9.3
billion).
8.Significant items included in operating profit
Operating expenses is made up as follows:
Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 2011 30 June 2010 31 Dec 2010
Rm Rm Rm
Production costs 3 888 3 109 7 029
Movement in inventories (243) (27) (459)
Finished products 46 85 (171)
Work-in-progress (289) (112) (288)
Cost of goods sold 3 645 3 082 6 570
Mineral royalty 842 546 1 410
Selling and distribution 1 682 1 604 3 041
costs
Cost of services 984 1 392 2 560
rendered - shipping
Sublease rent received (4) (5) (8)
Operating expenditure 7 149 6 619 13 573
Operating profit has
been derived after
taking into
account the following
items:
Employee expenses 1 151 996 2 078
Share-based payment 123 106 206
expenses
Depreciation of 465 369 765
property, plant and
equipment
Net loss on disposal and 10 2 5
scrapping of property,
plant and equipment
Net loss on disposal of - 2 2
investment
Finance gains (313) (297) (286)
Gains on derivative (109) (161) (636)
financial instruments
Foreign currency (204) (136) 350
losses
Operating expenses (505) (226) (581)
capitalised
9.Segmental reporting
The Kumba executive committee considers the business principally according to
the nature of the products and service 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 treasury activity is managed on a central group basis.
Total segment assets comprise finished goods inventory only, which is allocated
based on the operations of the segment and the physical location of the asset.
`Other segments` comprise corporate, administration and other expenditure not
allocated to the reported segments.
Reviewed six Sishen Thabazimbi Kolomela Shipping Total
months ended mine Mine mine1 Operations Rm
30 June 2011 Rm Rm Rm Rm
Revenue 22 451 444 - 1 171 24 066
EBIT 17 069 15 - 187 17 271
Total segment 504 252 - - 756
assets
Reviewed six
months ended
30 June 2010
Revenue 15 927 260 - 1 639 17 826
EBIT 11 218 - - 247 11 465
Total 616 265 - - 881
segment
assets
Audited 12
months ended
31 December
2010
Revenue 35 159 666 - 2 879 38 704
EBIT 25 540 (44) - 319 25 815
Total 682 306 - - 988
segment
assets
1 Kolomela mine represents a strategic business unit for Kumba, although it does
not yet qualify as a reportable segment in terms of IFRS 8, Operating Segments.
The development of the mine is well advanced in terms of key deliverables.
Reconciliation of EBIT to total profit before taxation
Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 2011 30 June 2010 31 Dec 2010
Rm Rm Rm
EBIT for reportable 17 271 11 465 25 815
segments
Other segments (354) (258) (684)
Operating profit 16 917 11 207 25 131
Net finance 54 (66) (29)
income/(costs)
Profit before taxation 16 971 11 141 25 102
Revenue from external customers analysed by goods and services:
Rm Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 2011 30 June 2010 31 Dec 2010
Sale of products * 22 895 16 187 35 825
Shipping services 1 171 1 639 2 879
Total revenue 24 066 17 826 38 704
* Derived from extraction, production and selling of iron ore.
Rm Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 2011 30 June 2010 31 Dec 2010
Reconciliation of reportable
segments` assets to total
assets:
Segment assets for reportable 756 881 988
segments
Other segments and WIP 2 642 1 791 2 114
inventory
Inventory per balance sheet 3 398 2 672 3 102
Other current assets 10 579 7 289 7 975
Non-current assets 18 566 13 403 16 798
Total assets 32 543 23 364 27 875
Geographical analysis
Kumba is domiciled in South Africa. The result of its revenue from external
customers and its non-current assets disclosed on a geographical basis, are set
out below:
Reviewed Reviewed Audited
6 months 6 months 12 months
30 June 2011 30 June 2010 31 Dec 2010
Rm Rm Rm
Total revenue from
external customers
South Africa 1 602 798 2 874
Export 22 464 17 028 35 830
China 15 943 11 974 23 112
Rest of Asia 3 441 2 091 7 465
Europe 2 865 2 963 4 896
Middle East and 81 - 300
Northern Africa
South America 134 - 57
Total revenue 24 066 17 826 38 704
Total non-current
assets*
South Africa 17 873 13 119 16 243
China 3 1 2
17 876 13 120 16 245
* Excluding prepayments, investments in associates and joint ventures and
deferred tax assets.
10.Related party transactions
During the period, Kumba, in the ordinary course of business, entered into
various sale, purchase and service transactions with associates, joint ventures,
fellow subsidiaries, its holding company and Exxaro Resources Limited. These
transactions were subject to terms that are no less favourable than those
offered by third parties.
Included in cash and cash equivalents at 30 June 2011 is a short-term deposit
facility placed with Anglo American SA Finance Limited of R4 081 million (31
December 2010: R1 391 million). Interest earned on this facility during the
period was market related and amounted to R87 million (31 December 2010: R4.1
million) at a weighted average interest rate of 5.36% (31 December 2010: 5.30%).
No deposit facility was placed with Anglo American SA Finance Limited at 30 June
2010.
11.Contingent assets and liabilities
11.1. Faleme Project - contingent asset
Kumba initiated arbitration proceedings against La Societe des Mines De Fer Du
Senegal Oriental (Miferso) and the Republic of Senegal under the rules of the
Arbitration of the International Chamber of Commerce in 2007, in relation to the
Faleme Project.
Following the arbitration award rendered in July 2010, a mutually agreed
settlement was concluded between the parties. The parties agreed that the
precise terms of the settlement agreement will remain confidential. The first
settlement was paid by the Republic of Senegal in April 2011. The remaining
settlement amount will be recovered in equal instalments from the Republic of
Senegal over the remaining four-year period, on which contingent legal costs
will be payable. A portion of the amount recovered was committed to social and
community development projects to benefit the population of Senegal.
11.2. Contingent liabilities
There have been no significant changes in the contingent liabilities disclosed
at 31 December 2010.
12. Legal proceedings
12.1. Sishen Supply Agreement arbitration - ArcelorMittal
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. As a result of ArcelorMittal`s failure to convert its old
order mining right, the contract mining agreement automatically lapsed and
became inoperative in its entirety as of 1 May 2009.
As a result, a dispute arose between SIOC and ArcelorMittal, which SIOC has
referred to arbitration. Both parties have exchanged their respective pleadings,
and the arbitration panel has been appointed.
SIOC and ArcelorMittal reached an interim pricing arrangement in respect of the
supply of iron ore to ArcelorMittal from the Sishen mine. This arrangement will
endure until 31 July 2011. In view of the fact that the arbitration proceedings
between the two companies is anticipated to take place in the first half of
2012, SIOC and ArcelorMittal have now agreed to an addendum to the current
interim supply agreement which extends the terms and conditions of the current
interim agreement to allow sufficient time for the arbitration process to be
finalised. The new interim pricing agreement, which is on the same terms and
conditions as the first interim pricing agreement, will commence on 1 August
2011 and endure to 31 July 2012.
12.2. 21.4% undivided share of the Sishen mine mineral rights
After ArcelorMittal failed to convert its older 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 ICT. 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. This review application is enrolled for
determination in the High Court on 15 August 2011.
SIOC initiated an application on 14 December 2010 to interdict ICT from applying
for a mining right in respect of the Sishen mine and the DMR from accepting an
application from ICT or granting such 21.4% mining right to ICT pending the
final determination of the review application. This interdict application is
currently pending.
The DMR informed SIOC on 12 January 2011 that ICT had applied for a 21.4% mining
right over Sishen mine on 9 December 2010, and that the DMR had accepted this
application on 23 December 2010. The DMR`s acceptance of the application means
that the mining right application will now be evaluated according to the
detailed process stipulated in the Mineral Resources and Petroleum Development
Act 2004 before a decision is made as to whether or not to grant the mining
right.
SIOC does not believe that it was lawful for the DMR to have accepted ICT`s
application pending the High Court Review initiated in May 2010, and has
formally objected to, and appealed against, the DMR`s acceptance of ICT`s mining
right application. SIOC`s interdict application to prevent the DMR from
considering ICT`s mining rights application until the finalisation of the review
proceedings is currently enrolled for determination on 15 August 2011.
In addition, SIOC has challenged the DMR`s decision of 25 January 2011 to reject
SIOC`s May 2009 application to be granted the residual 21.4% mining right by
lodging an appeal. No decision on this appeal has been received to date. On 26
January 2011, SIOC lodged a new application for the 21.4% mining right.
On 4 February 2011, SIOC successfully made an application to join ArcelorMittal
as a respondent in the review process. The joinder application was granted by
the High Court on 6 June 2011, and ArcelorMittal has submitted affidavits to the
Court.
SIOC will continue to take the necessary steps to protect its shareholders`
interests in this regard.
12.3. Lithos Corporation (Pty) Limited
Lithos Corporation (Pty) Limited 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. There have been no further
developments in this matter.
13. Events after the reporting date
The directors are not aware of any matter or circumstances arising since the end
of the period and up to the date of this report, not otherwise dealt with in
this report.
14. Corporate governance
The group subscribes to the Code of Good Corporate Practices and Conduct is
currently in the process of implementing the recommendations of the King III
Report and will report fully in the 2011 integrated report.
15. Independent audit review report
The auditors, Deloitte &Touche, have issued their unmodified review report on
the condensed consolidated interim financial report for the six months ended 30
June 2011. The review was conducted in accordance with ISRE 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. Any reference to future financial performance
included in this announcement has not been reviewed and reported on by the
company`s auditors.
On behalf of the Board
AJ Morgan CI Griffith 20 July 2011
Interim chairman Chief executive officer 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: AJ Morgan (interim chairman), GS Gouws, PB Matlare, DD
Mokgatle, ZBM Bassa, DM Weston, GG Gomwe, LM Nyhonyha
Executive: CI Griffith (chief executive officer), VP Uren (chief financial
officer)
Company secretary: VF Malie
Transfer secretaries: Computershare Investor Services (Proprietary) Limited, 70
Marshall Street, Johannesburg, Republic of South Africa, PO Box 61051,
Marshalltown, 2107
Sponsor to Kumba: Rand Merchant Bank (a division of FirstRand Bank Limited)
Date: 21/07/2011 08:00:00 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
