| Thu 9 Feb 2012, 8:02 | | KIO - Kumba Iron Ore Limited - Audited annual results for the year ended 31 |
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KIO
KIO
KIO - Kumba Iron Ore Limited - Audited annual results for the year ended 31
December 2011 and cash dividend declaration
Kumba Iron Ore Limited
A member of the Anglo American plc group
(Incorporated in the Republic of South Africa)
(Registration number 2005/015852/06)
JSE Share code: KIO
ISIN: ZAE000085346
AUDITED ANNUAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2011 AND CASH DIVIDEND
DECLARATION
Highlights for the year ended 31 December 2011
- Significantly improved safety performance
- Envision returns R2.7 billion to employees
- Kolomela mine - first production five months ahead of schedule
- Export sales volumes up 3% to 37.1Mt
- Headline earnings up 19% to R17.0 billion
- Final cash dividend of R22.50 per share
Commentary
Highlights
Kumba significantly improved its safety performance in 2011. The group is
pleased to announce a year of operation without any loss of life, and a
substantial improvement in our underlying safety performance reflected in a 33%
improved lost-time injury frequency rate (`LTIFR`).
Excellent progress was made at Kolomela mine, which was brought into production
five months ahead of schedule. The plant was successfully commissioned during
2011, delivering production of 1.5Mt for the year. Kolomela mine`s ramp up is on
track to produce between 4Mt and 5Mt in 2012, before producing at full design
capacity of 9Mtpa in 2013.
Kumba continues to make a meaningful contribution towards South Africa`s broad
based empowerment, through both capital appreciation and the payment of
substantial cash dividends to the black economic empowerment (`BEE`)
shareholders of Sishen Iron Ore Company (Pty) Limited (`SIOC`):
- The group announced the maturity of the first phase of Envision, its broad
based employee share scheme with 6,209 permanent employee members, on 29
November 2011. Envision was valued at R2.665 billion at the conclusion of its
first phase, resulting in employee members who have worked for Kumba over the
five year period since its inception in 2006, each receiving R576,045 (pre-tax).
Members of the scheme have already received up to R55,000 in dividends through
the course of the five year term. The second five year phase of the scheme
commenced on 10 November 2011. Envision is a diverse broad based empowerment
success story and sets a benchmark for empowerment goals and ideals in South
Africa.
- The SIOC Community Development Trust, which owns an unencumbered 3% of SIOC,
has received R1.3 billion in dividends since its inception five years ago, of
which R527 million was received in 2011. These funds contribute towards
sustainable community projects.
- Exxaro Resources Limited has received R8.5 billion in dividends since its
listing five years ago.
Kumba`s contribution to the South African government by means of income tax and
the mineral royalty over the five years since listing amounted to R26.1 billion.
The legal proceedings in which Kumba is involved reached a milestone with the
favourable High Court judgment handed down during December 2011, securing 100%
of the mineral rights for Sishen mine. However, on 3 February 2012, both the
Department of Mineral Resources (`DMR`) and Imperial Crown Trading 289 (Pty)
Limited (`ICT`) submitted applications for leave to appeal against the High
Court judgment. Notwithstanding the protracted nature of these proceedings,
Kumba`s operational and financial performances have not been affected during
this time and remained strong.
Kumba`s headline earnings for the year ended 31 December 2011 were a record
R17.0 billion, 19% more than the R14.3 billion achieved in 2010. This financial
performance was achieved mainly as a result of a weighted average increase of
26% in export iron ore prices realised by the group and a 3% increase in export
sales volumes. Attributable and headline earnings for the year were R53.11 and
R53.13 per share respectively, on which a final cash dividend of R22.50 per
share has been declared (total dividend for 2011 was R44.20 per share).
Safety performance
Kumba`s overall safety performance saw a significant improvement in 2011 with
the focused safety improvement plans implemented in 2011 delivering results. The
group ended the year, for the first time since listing five years ago, without
any loss of life.
The group recorded 17 lost-time injuries (`LTI`s`) for the year, which resulted
in the LTIFR of the group improving to 0.08 per 200,000 hours compared to the
0.12 achieved in 2010, a 33% improvement. Kolomela mine continued its impressive
safety record and achieved 22.2 million LTI-free man-hours and 16.6 million
fatality-free man-hours.
Kumba remains committed to zero harm at all the group`s sites and management has
intensified the focus on compliance with operational safety standards and major
hazard prevention to further reduce the prevalence of high potential incidents.
Market overview
Demand for iron ore globally is largely dependent on the state of the steel
industry worldwide and, more specifically, on that of the steel manufacturing
sector in China. The country is the largest steel producer and consumer of iron
ore in the world and accounts for more than two-thirds of global seaborne iron
ore imports.
In 2011, global steel production was up by 6% to 1.5 billion tonnes (2010: 1.4
billion tonnes), of which 683Mt was produced in China (2010: 637Mt), an increase
of 7% (2010: 11%). China`s seaborne iron ore imports rose by 8% to 654Mt (2010:
603Mt). The balance of China`s iron ore needs was met by domestic iron ore
production, which was virtually unchanged at 301Mt (on a rich ore equivalent
basis). However, Chinese crude steel production slowed considerably towards year
end as a result of lower steel prices and slower steel demand, down 7% in the
second half of the year compared to the first half. At the same time Chinese
seaborne imports of iron ore were up 11% in the second half compared to the
first half. The combination of higher seaborne ore supplies and lower crude
steel production resulted in a sharp fall in index prices in the final quarter
of 2011, reducing the need for high priced domestic ore in the second half of
the year.
The global economic uncertainty in the second half of the year, coupled with a
credit liquidity squeeze in China, particularly affecting downstream steel
stocking by end users and the construction sector, caused steel prices to fall.
In turn, steel mills cut production, slowed purchasing of raw materials, focused
on fine ore (rather than lump ore) and turned to sourcing lower grade ore to
limit absolute costs. This halted increases in the spot price of iron ore and
curtailed the demand and pricing for high quality and lump ore. By the end of
the third quarter, steel production had started to slow noticeably as steel
prices continued to weaken and market sentiment remained uncertain.
Steel demand and pricing in Europe has been subdued since April 2011, following
concerns around the European sovereign debt crisis. Japanese steel production
and prices were initially affected by the earthquake and tsunami during the
first quarter but recovered during the third quarter. However, as economic
concerns increased this also weighed heavily on steel prices in Japan towards
the end of the year. As a result, European and Japanese steel producers started
to implement production slowdowns in an attempt to stabilise steel markets.
Consequently, iron ore off-take in these regions has slowed and China was the
target of diverted contractual tonnages from a number of suppliers.
Spot iron ore prices fell to a low of $116.75/tonne CFR at the end of October
2011, losing around 35% from the peak achieved in early September 2011.
Similarly, lump iron ore premiums came under severe pressure during the fourth
quarter of 2011.
Steel markets in China remain subdued but have stabilised and steel production
decreases levelled out. Steel producers resumed the sourcing of iron ore during
November 2011 as stocks had been run down and spot iron ore pricing found a
support level provided by high cost Chinese domestic iron ore production. Spot
prices have recovered and climbed to around $140.00/tonne CFR to China in
December 2011.
Operational performance
Notwithstanding the challenging start to the year caused by the abnormal
rainfall, total tonnes mined at Sishen mine increased by 8% from 153.2Mt in 2010
to 165.0Mt, of which waste material mined comprised 72% or 119.0Mt, an increase
of 17.0Mt or 17%. Production at Sishen mine decreased by 6% from 41.3Mt in 2010
to 38.9Mt. Production from the mine`s dense media separation (DMS) plant, of
25.4Mt for 2011, was hampered by rain and mining feedstock constraints. In order
to mitigate some of these shortfalls, the mine proactively supplemented
production by temporarily adjusting the jig plant ore quality in order to
operate at above design capacity. As a result the jig plant delivered 13.5Mt for
the year. Excellent progress was made at Kolomela mine, which was brought into
production five months ahead of schedule, as a result of the outstanding
performance by the project team and Transnet. A total of 30.3Mt of waste
material was pre-stripped during 2011 (2010: 18.6Mt) as two open pits are being
developed, at a capitalised cost of R953 million (R793 million for 2010). The
plant was successfully commissioned during 2011, delivering production of 1.5Mt
for the year.
Kumba increased total sales volumes by 1% from 43.1Mt in 2010 to 43.5Mt in 2011.
Export sales volumes increased by 1.0Mt or 3% from 36.1Mt in 2010 to a record of
37.1Mt. China accounted for 68% of the export sales volumes (61% during 2010).
73% of exports were sold under long-term or annual contracts and 27% at prices
derived from index. Total domestic sales volumes for the year of 6.4Mt were down
by 8% or 0.6Mt due to lower demand from ArcelorMittal South Africa Limited
(`ArcelorMittal`) and plant shutdowns at the Saldanha and Newcastle plants.
A record breaking 39.1Mt was railed on the Sishen-Saldanha line in 2011, an
increase of 7%, which includes 0.4Mt railed from Kolomela mine. The decrease in
production from Sishen mine was supplemented by stock from the mine, which
resulted in a net 3.6Mt reduction in the stock level at the mine to 1.1Mt. Kumba
loaded 37.6Mt for the export market, an improvement of 2% from the prior year,
which included the first shipment of 0.1Mt of Kolomela lump ore from the
Saldanha Port to Qingdao in China. As a result the stock level at the Saldanha
Port increased to 1.3Mt.
Waste mining at Thabazimbi mine increased by 11.0Mt to 44.2Mt as the development
of the last new pit progressed. Production at Thabazimbi mine reduced by 55% to
0.9Mt for the year in line with the progression towards the end of the life of
the mine and reduced off-take from ArcelorMittal.
Financial results
The group`s total mining revenue (excluding shipping operations - R2.7 billion
in 2011; R2.9 billion in 2010) of R45.8 billion for the year was 28% higher than
the R35.8 billion of 2010. Operating profit increased by 27% from R25.1 billion
to a record R32.0 billion. The group`s operating profit margin increased
marginally to 66%. Excluding the margin earned from providing a shipping service
to customers, the group`s mining operating margin remained stable at 69%.
The operating profit achieved was affected by the increase in operating expenses
on the back of the growth in mining volumes across the group and above
inflationary cost increases.
Operating profit improved principally as a result of:
- A weighted average increase of 26% in export iron ore prices, which added R8.9
billion to operating profit and a 3% growth in export sales volumes which
contributed R954 million; and
- An R18 million rise in profit from shipping operations. Total tonnes shipped
by Kumba on behalf of customers increased by 3.0Mt from 18.7Mt in 2010 to 21.7Mt
for 2011.
This increase in operating profit was offset by:
- A R2.5 billion or 36% increase in operating expenses (excluding selling and
distribution expenses, shipping expenses and the mineral royalty) driven by the
substantial increase in waste mined at Sishen and Thabazimbi mines, higher
maintenance activity, inflationary pressures and a significant rise in the cost
of diesel; and
- A R656 million increase in selling and distribution costs, mainly as a result
of a 7% improvement in total volumes railed;
- The mineral royalty for 2011, at an effective rate of 4.4% of free-on-rail
(`FOR`) iron ore revenue, which added R352 million to operating expenditure; and
- The average Rand/US Dollar exchange rate of R7.25/US$1.00 was marginally
stronger than the R7.30/US$1.00 achieved during 2010, which resulted in a
decline in revenue of some R335 million.
The planned increase in waste mining, coupled with the production shortfalls at
Sishen mine, were the main drivers behind a 35% increase in the unit cash cost
for the year to R150/tonne compared to R111/tonne at the end of 2010. The
increase was further driven by above inflationary pressures on input costs.
Kumba continues to focus on operational excellence, productivity improvements
and efficiencies. Achieving this optimisation is currently a critical factor at
Sishen mine, where management is facing a challenging period of increasing waste
stripping set to continue for the next two to three years. The western-dipping
ore body requires increased waste stripping and tight pit conditions constrain
face lengths which, in turn, limits flexibility. Sishen mine`s productivity
improvement project, `Bokamoso` continues to deliver efficiency and productivity
improvements required to partially offset cost pressures associated with
increased mining activity.
The group continued to generate substantial cash from its operations, with R34.3
billion (before the mineral royalty of R1.7 billion) generated during the year,
27% more than the R27.0 billion of 2010. These cash flows were used to pay
aggregate dividends of R17.9 billion, taxation of R7.0 billion and mineral
royalties of R1.7 billion during 2011. Capital expenditure of R5.8 billion was
incurred, of which R2.7 billion was to maintain operations, mainly for Sishen
mine`s fleet expansion programme. R3.1 billion was invested to expand
operations, mainly on Kolomela mine. Capital expenditure of R317 million was
spent on the Sishen Westerly Expansion Project (`SWEP`) in 2011 (2010: R62
million). This project will provide access to 283Mt of run of mine ore at Sishen
mine from 2013. Total capital expenditure on this project is expected to be
approximately R1 billion.
At 31 December 2011 the group was in a net cash position of R1.6 billion (R1.7
billion net cash at the end of 2010).
Net working capital decreased by R79 million from 31 December 2010 to R2.8
billion. This decrease is due to an increase in payables as a result of the
employees` tax on the Envision payout, offset by the growth in the accounts
receivable balance on the back of the higher export iron ore prices and an
increase in sales volumes in December 2011 relative to December 2010.
Mineral resources and ore reserves
As at 31 December 2011 Kumba had ore reserves estimated at 1.2 billion tonnes at
its three mining operations: Sishen, Kolomela and Thabazimbi mines. Kumba`s
estimated mineral resources in excess of its ore reserves at these three
operations as well as the Zandrivierspoort magnetite project and Phoenix project
are 1.3 billion tonnes. The net decrease of 6% in Kumba`s ore reserves in 2011
was primarily attributable to annual production.
Kumba`s mineral resources, excluding ore reserves, showed a net increase of 13%
from 2010 to 2011. The increase is primarily attributable to the re-allocation
of lower-grade ore reserves to inferred mineral resources at Sishen mine,
following a re-evaluation of the geological confidence associated with the grade
estimation of this material. This resulted in 15% inferred mineral resources
being included for the 2011 Sishen life of mine plan.
Outlook *
The short-term outlook for the global seaborne iron ore market is impacted by
ongoing macro-economic uncertainty. Monetary tightening measures to control
inflation in emerging economies such as China started to have the intended
effect. In addition, a lack of co-ordinated policy response to tackle the
European sovereign debt crisis also impacted demand. Despite the short-term
macro-economic uncertainty, medium to long-term prospects for demand remains
robust as China continues to industrialise and urbanise. Nevertheless, as China
shifts from an investment intensive to consumption driven economy, the rate of
growth for steel materials is expected to moderate to a more sustainable level.
While demand is a key driver for pricing, supply constraints also play a crucial
role. In the short-term iron ore supply is anticipated to remain tight amid
seasonal weather impacts in Brazil and Western Australia, and government`s moves
in India to control export. Ongoing challenges producers face in delivering new
supply will lead to increasing capital intensity and underpinned long-term
pricing outlook.
Waste mining at Sishen mine is anticipated to increase in line with the planned
ramp up that commenced in 2009, which will put upward pressure on unit cash
costs of production. Annual production volumes from Sishen mine are expected to
increase back to design capacity.
Kumba`s ability to supply iron ore to the market will be enhanced by the ramping
up of Kolomela mine during 2012 to produce between 4Mt and 5Mt in 2012. Export
sales volumes in 2012 are anticipated to grow by some
3Mt from the volumes
achieved in 2011 as volumes from Kolomela mine ramp up, offset by the fact that
excess finished product stockpiles at Sishen mine have been depleted to
operating levels. Domestic sales volumes remain dependent on the off-take
requirements from ArcelorMittal.
Kumba`s operating profit remains highly sensitive to the Rand/US Dollar exchange
rate.
Management focus will be on executing the group`s strategy by optimising the
value of current operations, capturing value across the value chain and
delivering on the group`s growth aspirations.
* Any reference to future financial performance included in this announcement
has not been reviewed or reported on by the company`s auditors and does not
constitute an earnings forecast.
Changes in directorate
The Board of directors of Kumba announced the following changes in Kumba`s
directorate during the year:
- Mr Vincent Uren stepped down from his position as chief financial officer at
the end of December 2011 in order to take a break from corporate life. He
continues to be employed by Kumba in 2012 and will work exclusively on the legal
issues until 30 June 2012. The process to appoint a chief financial officer to
replace Mr Uren is ongoing. Mr Martin Poggiolini, the company`s head of finance,
has been appointed to act in the position of chief financial officer with effect
from 31 December 2011.
- The appointment of Mr Litha M Nyhonyha as a non-executive director of Kumba
on 14 June 2011.
Production and sales report
Total production decreased by 5% year on year to 41.3Mt as a result of a decline
in production from Sishen mine due to feedstock constraints at the mine`s DMS
plant. Kolomela mine produced 1.5Mt for the year. Total export sales volume of
37.1Mt for the year increased by 3% year on year. Domestic sales of 6.4Mt
declined by 8% year on year due to reduced off-take from ArcelorMittal.
Unaudited Unaudited
`000 tonnes 31 Dec 2011 31 Dec 2010 % change
Yearly overview
Total production 41,268 43,384 (5)
- Sishen mine 38,899 41,337 (6)
DMS plant 25,359 28,053 (10)
Jig plant 13,540 13,284 2
- Kolomela mine 1,466 - 100
- Thabazimbi mine 903 2,047 (56)
Sales summary
Total 43,572 43,107 1
- Export sales 37,131 36,086 3
- Domestic sales 6,441 7,021 (8)
Sishen mine 5,082 5,035 1
Thabazimbi mine 1,359 1,986 (32)
Condensed group balance sheet
As at
Audited Audited
Rand million Notes 31 Dec 2011 31 Dec 2010
Assets
Property, plant and equipment 5 20,878 15,866
Biological assets 6 6
Investments in associates and
joint ventures 33 29
Investments held by environmental
trust 568 372
Long-term prepayments and other
receivables 95 53
Deferred tax assets 658 472
Non-current assets 22,238 16,798
Inventories 3,864 3,102
Trade and other receivables 3,537 3,096
Current tax asset 32 24
Cash and cash equivalents 4,742 4,855
Current assets 12,175 11,077
Total assets 34,413 27,875
Equity
Shareholders` equity 6 15,833 14,338
Non-controlling interest 4,759 4,038
Total equity 20,592 18,376
Liabilities
Interest-bearing borrowings 7 - 3,185
Provisions 901 672
Deferred tax liabilities 4,942 2,272
Non-current liabilities 5,843 6,129
Short-term interest-bearing borrowings 7 3,191 -
Short-term provisions 11 11
Trade and other payables 4,556 3,274
Current tax liabilities 220 85
Current liabilities 7,978 3,370
Total liabilities 13,821 9,499
Total equity and liabilities 34,413 27,875
Condensed group income statement
for the year ended
Audited Audited
Rand million Note 31 Dec 2011 31 Dec 2010
Revenue 48,553 38,704
Operating expenses 9 (16,587) (13,573)
Operating profit 9 31,966 25,131
Finance income 241 149
Finance costs (149) (178)
Profit before taxation 32,058 25,102
Taxation (9,760) (6,813)
Profit for the year 22,298 18,289
Attributable to:
Owners of Kumba 17,042 14,323
Non-controlling interest 5,256 3,966
22,298 18,289
Earnings per share for profit
attributable to the owners
of Kumba (Rand per share)
Basic 53.11 44.66
Diluted 52.97 44.52
Condensed group statement of other
comprehensive income
for the year ended
Audited Audited
Rand million 31 Dec 2011 31 Dec 2010
Profit for the year 22,298 18,289
Other comprehensive income/(losses)
for the year, net of tax 404 (217)
- Exchange differences on translation
of foreign operations 363 (215)
- Net effect of cash flow hedges 41 (2)
Total comprehensive income for the year 22,702 18,072
Attributable to:
Owners of Kumba 17,340 14,143
Non-controlling interest 5,362 3,929
22,702 18,072
Condensed group statement of changes in equity
for the year ended
Audited Audited
Rand million Note 31 Dec 2011 31 Dec 2010
Total equity at the beginning of
the year 18,376 8,956
Changes in share capital and premium
- Shares issued during the year 16 74
- Treasury shares issued to employees
under employee share incentive schemes 139 62
- Purchase of treasury shares (278) (191)
Changes in reserves
- Equity-settled share-based payment 265 203
- Vesting of shares under employee
share incentive schemes (139) (63)
- Vesting of Envision share scheme 8 (2,013) -
- Net asset value of SPV on
deconsolidation - (139)
- Change in effective ownership of SIOC - (301)
- Total comprehensive income for the year 17,340 14,143
- Dividends paid (13,835) (6,756)
Changes in non-controlling interest
- Total comprehensive income for the year 5,362 3,929
- Envision share scheme second
phase increase 8 (4) -
- Change in effective ownership of SIOC - 301
- Dividends paid (4,078) (1,834)
- Movement in non-controlling interest
in reserves (559) (8)
Total equity at the end of the year 20,592 18,376
Comprising
Share capital and premium
(net of treasury shares) 30 153
Equity-settled share-based payment
reserve 307 487
Foreign currency translation reserve 423 142
Cash flow hedge accounting reserve (6) (24)
Retained earnings 15,079 13,580
Shareholders` equity 15,833 14,338
- Attributable to the owners of Kumba 15,214 13,811
- Attributable to the non-controlling
interest 619 527
Non-controlling interest 4,759 4,038
Total equity 20,592 18,376
Dividend (Rand per share)
Interim 21.70 13.50
Final* 22.50 21.00
* The final dividend was declared after
31 December 2011 and has not been
recognised as a liability in this
condensed consolidated financial report.
It will be recognised in shareholders`
equity in the year ending 31 December 2012.
Condensed group cash flow statement
for the year ended
Audited Audited
Rand million Note 31 Dec 2011 31 Dec 2010
Cash generated from operations 32,631 25,555
Net finance costs paid (96) (283)
Taxation paid (7,035) (7,031)
Cash flows from operating activities 25,500 18,241
Capital expenditure (5,849) (4,723)
Proceeds from the disposal of
non-current assets 2 1
Investments in associates and
joint ventures (4) (9)
Net cash outflow on disposal of
subsidiaries - (2)
Cash flows from investing activities (5,851) (4,733)
Share capital issued 16 74
Purchase of treasury shares (278) (191)
Vesting of Envision share scheme 8 (1,694) -
Increase in non-controlling interest - (147)
Dividends paid (13,742) (6,714)
Dividends paid to non-controlling
shareholders (4,170) (1,876)
Net interest-bearing borrowings repaid - (729)
Cash flows from financing activities (19,868) (9,583)
(Decrease)/increase in cash and
cash equivalents (219) 3,925
Cash and cash equivalents at
beginning of year 4,855 891
Exchange differences on cash and
cash equivalents 106 39
Cash and cash equivalents at
end of year 4,742 4,855
Headline earnings for the year ended
Audited Audited
Rand million 31 Dec 2011 31 Dec 2010
Reconciliation of headline earnings
Attributable profit 17,042 14,323
Net loss on disposal and scrapping
of property, plant and equipment 10 5
Net loss on disposal of investment - 2
17,052 14,330
Taxation effect of adjustments (3) (1)
Non-controlling interest in adjustments (1) (1)
Headline earnings 17,048 14,328
Headline earnings (Rand per share)
Basic 53.13 44.67
Diluted 52.99 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 of
ordinary shares 320,895,696 320,727,067
Diluted weighted average number of
ordinary shares 321,719,426 321,691,135
The adjustment of 823,730 shares to the weighted average number of ordinary
shares is as a result of the vesting of share options previously granted under
various employee share incentive schemes.
Salient features and operating statistics
for the year ended
Unaudited Unaudited
31 Dec 2011 31 Dec 2010
Share statistics (`000)
- Total shares in issue 322,059 321,912
- Weighted average number of shares 320,896 320,727
- Diluted weighted average number
of shares 321,719 321,691
- Treasury shares 1,076 818
- Treasury shares (Rand million) 336 197
Market information
- Closing share price (Rand) 500 425
- Market capitalisation (Rand million) 161,030 136,652
- Market capitalisation (US$ million) 19,686 20,611
Net asset value (Rand per share) 49.16 44.54
Capital expenditure (Rand million)
- Incurred 5,849 4,723
- Contracted 1,988 1,727
- Authorised but not contracted 2,168 4,965
Capital expenditure relating to
Thabazimbi Mine to be financed by
ArcelorMittal
- Contracted 29 38
- Authorised but not contracted 7 48
Operating commitments
- Operating lease commitments 88 104
- Shipping services 9,469 73
Economic information
- Average Rand/US dollar exchange
rate (ZAR/US$) 7.25 7.30
- Closing Rand/US dollar exchange
rate (ZAR/US$) 8.18 6.63
Operating statistics (Mt)
- Production 41.3 43.3
- Sishen mine 38.9 41.3
- Kolomela mine 1.5 -
- Thabazimbi mine 0.9 2.0
- Sales 43.5 43.1
- Export 37.1 36.1
- Domestic 6.4 7.0
- Sishen mine 5.1 5.0
- Thabazimbi mine 1.3 2.0
Sishen mine FOR unit cost
- Unit cost (Rand per tonne) 178.90 128.65
- Cash cost (Rand per tonne) 150.47 111.20
- Unit cost (US$ per tonne) 24.68 17.62
- Cash cost (US$ per tonne) 20.75 15.23
Notes to the audited condensed consolidated financial report
1. Corporate information
Kumba is a limited liability company incorporated and domiciled in South Africa.
The main business of Kumba, its subsidiaries, joint ventures and associates is
the exploration, extraction, beneficiation, marketing, sale and shipping of iron
ore. The group has its primary listing on the JSE Limited (`JSE`).
The condensed consolidated financial report of Kumba and its subsidiaries for
the year ended 31 December 2011 was authorised for issue in accordance with a
resolution of the directors on 7 February 2012.
2. Basis of preparation
The group results have been prepared, under the supervision of Martin Poggiolini
CA(SA), acting chief financial officer, in accordance with the recognition and
measurement principles of International Financial Reporting Standards (IFRS),
including the information required by IAS 34: Interim Financial Reporting, the
AC 500 standards issued by the Accounting Practices Board or its successor, the
Listings Requirements of the JSE, and the requirements of the Companies Act of
South Africa.
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 New standards, amendments to published standards and interpretations
The following amendments to published standards and interpretations which became
effective for the year commencing on 1 January 2011 were adopted by the group:
IAS 24 - Related party disclosures (amendment)
This amendment simplifies the definition of a related party, clarifying its
intended meaning and eliminating inconsistencies from the definition and
provides a partial exemption from the disclosure requirements for government-
related entities. This amendment did not have a significant impact on the
reported results for the year ended 31 December 2011.
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 New standards, amendments to existing standards and interpretations that are
not yet effective and have not been early adopted
In 2011, the group did not early adopt any new, revised or amended accounting
standards or interpretations. The following new accounting standards and
interpretation have been identified as being relevant to the group and are in
the process of being evaluated in order to assess the possible impact on the
group`s financial statements.
IFRS 10 - Consolidated financial statements (effective date: 1 January 2013)
This standard builds on existing principles by identifying the concept of
control as the determining factor in whether an entity should be included within
the consolidated financial statements. The standard provides additional guidance
to assist in determining control where this is difficult to assess. This new
standard might impact the entities that the group consolidates as its
subsidiaries.
IFRS 11 - Joint arrangements (effective date: 1 January 2013)
This standard provides for a more realistic reflection of joint arrangements by
focusing on the rights and obligations of the arrangement, rather than its legal
form. Proportional consolidation of joint ventures is no longer allowed, which
may impact the accounting treatment of the group`s investments in joint
ventures.
IFRS 12 - Disclosures of interests in other entities (effective date: 1 January
2013)
This standard includes the disclosure requirements for all forms of interests in
other entities, including joint arrangements, associates, special purpose
vehicles and other off balance sheet vehicles.
IFRS 13 - Fair value measurement (effective date: 1 January 2013)
This standard aims to improve consistency and reduce complexity by providing a
precise definition of fair value and a single source of fair value measurement
and disclosure requirements for use across IFRSs. The requirements do not extend
the use of fair value accounting but provide guidance on how it should be
applied where its use is already required or permitted by other standards within
IFRSs.
IFRIC 20 - Stripping costs in the production phase of a surface mine (effective
date: 1 January 2013)
In surface mining operations, entities may find it necessary to remove mine
waste materials (`overburden`) to gain access to mineral ore deposits. This
waste removal activity is known as `stripping`. The Interpretation clarifies
there can be benefits accruing to an entity from stripping activity: usable ore
that can be used to produce inventory and improved access to further quantities
of material that will be mined in future periods. The Interpretation considers
when and how to account for the benefits arising from the stripping activity, as
well as how to measure these benefits both initially and subsequently.
It is anticipated that the application of the interpretation will not have a
significant impact on the group`s operations as the interpretation is in line
with the group`s current accounting policy on waste stripping cost.
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 provisions at both Sishen and Kolomela mines.
The change in estimate at Kolomela mine was mainly as a result of a decrease in
the useful life resulting from the exclusion of inferred mineral resources from
the life of mine plan for accounting purposes. The life of mine plan on which
accounting estimates are based only includes proved and probable ore resources
as disclosed in Kumba`s annual ore reserves and mineral resources statement. The
effect of these changes is detailed below:
Audited
Rand million 31 Dec 2011
Increase in environmental
rehabilitation provision 67
Increase in decommissioning provision 20
Increase in accumulated depreciation 55
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 taxation and headline
earnings per share for the year ended 31 December 2011 of R122 million and 21
cents, respectively. The change in estimate in the decommissioning provision has
been capitalised to the related property, plant and equipment.
5. Property, plant and equipment
Audited Audited
Rand million 31 Dec 2011 31 Dec 2010
Capital expenditure 5,849 4,723
Comprising:
- Expansion 3,089 3,099
- Stay in business 2,745 1,624
Transfers from assets under construction
to property, plant and equipment 8,951 1,519
Expansion capital expenditure comprised mainly of 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.
The development of Kolomela mine was largely completed during 2011, and the mine
commenced with commercial production in December 2011. On 1 December 2011 the
capitalisation of mining operating expenses was ceased as substantially all the
activities for bringing the mine in the location and condition necessary for it
to be capable of operating in the manner intended by management had been
completed. R7.7 billion was subsequently transferred to property, plant,
infrastructure and equipment from assets under construction.
6. Share capital
Audited Audited
Rand million 31 Dec 2011 31 Dec 2010
Reconciliation of share capital
and share premium
(including treasury shares):
Balance at beginning of year 153 208
Total shares issued for cash consideration 16 74
- Shares issued - share premium 16 80
- Net movement in shares held by Kumba
Iron Ore Management Share Trust - (6)
Net movement in treasury shares under
employee share incentive schemes (139) (129)
- Purchase of treasury shares* (278) (191)
- Shares issued to employees 139 62
Share capital and share premium 30 153
* The group acquired 550,781 (2010: 515,241) of its own shares through purchases
on the JSE during the year. The total amount paid to acquire the shares was R278
million (2010: R191 million). The shares are held as treasury shares and the
purchase consideration has been deducted from equity.
Audited Audited
Number of shares 31 Dec 2011 31 Dec 2010
Reconciliation of number of shares
in issue:
Balance at beginning of year 321,911,721 320,415,081
Ordinary shares issued 5,377,770 1,496,640
Ordinary shares repurchased and cancelled
(Refer to note 8) (5,230,867) -
Balance at end of year 322,058,624 321,911,721
Audited Audited
Number of shares 31 Dec 2011 31 Dec 2010
Reconciliation of treasury shares held:
Balance at beginning of year 818,272 463,817
Shares purchased 550,781 515,241
Share issued to employees under the
Long-Term Incentive Plan and Share
Appreciation Rights Scheme (252,985) (176,464)
Net movement in shares held by Kumba
Iron Ore Management Share Trust (40,098) 15,678
Balance at end of year 1,075,970 818,272
Treasury shares held as conditional
share awards under the Kumba
Bonus Share Plan 722,701 539,969
7. Interest-bearing borrowings Kumba`s net cash position at balance sheet dates
was as follows:
Audited Audited
Rand million 31 Dec 2011 31 Dec 2010
Long-term interest-bearing borrowings - 3,185
Short-term portion of long-term
interest-bearing borrowings 3,191 -
Total 3,191 3,185
Cash and cash equivalents (4,742) (4,855)
Net cash (1,551) (1,670)
Total equity 20,592 18,376
Interest cover (times) 206 77
Movements in interest-bearing borrowings are analysed as follows:
Audited Audited
Rand million 31 Dec 2011 31 Dec 2010
Balance at beginning of year 3,185 3,914
Debt raised - 4,771
Repayment of borrowings - (5,527)
Deferred transaction costs recognised 6 27
Balance at end of year 3,191 3,185
At 31 December 2011 R3.2 billion of the total R8.6 billion long-term debt
facilities has been drawn down to finance Kumba`s expansion. The R3.2 billion
debt facility matures in 2012 and is due for repayment on 31 July 2012. Kumba
was not in breach of any of its covenants during the year. The group had undrawn
long-term borrowing and uncommitted short-term facilities at 31 December 2011 of
R9 billion (2010: R9.3 billion).
8. Unwinding of phase one of Envision
Envision, SIOC`s broad-based equity participation scheme for employees below
managerial level, was set up to provide a framework for the incentivisation and
retention of certain employees, as well as effective participation in the equity
transition of the group as contemplated in the Mining Charter.
Envision was structured as a ten year scheme, divided into two capital
appreciation periods. The first capital appreciation period vested on 17
November 2011. The second capital appreciation period commenced on 10 November
2011 with the issue of 3.09% in the share capital of SIOC to the Envision trust.
This resulted in a net increase in the non-controlling interest in SIOC of R4
million.
The unwind of phase one resulted in a net cash outflow for the group through the
implementation of the specific share repurchase by Kumba undertaken to monetise
the value for employee participants. The actual monetary impact was R2.67
billion, based on a Kumba 5 day average share price of R508.82 per share on 17
November 2011.
9. Significant items included in operating profit
Operating expenses
Operating expenses are made up as follows:
12 months 12 months
Audited Audited
Rand million 31 Dec 2011 31 Dec 2010
Production costs 8,910 7,029
Movement in inventories (149) (459)
- Finished products 247 (171)
- Work-in-progress (396) (288)
Cost of goods sold 8,761 6,570
Mineral royalty 1,762 1,410
Selling and distribution costs 3,698 3,041
Cost of services rendered - shipping 2,374 2,560
Sublease rent received (8) (8)
Operating expenditure 16,587 13,573
Operating profit has been derived after
taking into account the following items:
12 months 12 months
Audited Audited
Rand million 31 Dec 2011 31 Dec 2010
Employee expenses 2,408 2,078
Share-based payment expenses 369 206
Depreciation of property, plant and
equipment 997 765
Net loss on disposal and scrapping of
property, plant and equipment 10 5
Net loss on disposal of investment - 2
Net finance gains (587) (286)
- Losses/(gains) on derivative
financial instruments 486 (636)
- Foreign currency (gains)/losses (1,073) 350
Operating expenses capitalised (971) (581)
The capitalisation of operating expenses for the year ended 31 December 2011
mainly relates to operating costs of R953 million incurred on 34.6Mt of material
mined at Kolomela mine that have been capitalised to property, plant and
equipment as part of the directly attributable cost of bringing the mine into
production in December 2011 (Refer to note 5).
10. 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 taxation (`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.
Rand million Sishen Thabazimbi Kolomela Shipping Total
mine mine mine1 operations
Year ended
31 December 2011
Revenue
(from external
customers) 44,903 907 32 2,711 48,553
EBIT 32,661 112 (80) 337 33,030
Total segment assets 392 268 133 - 793
Year ended
31 December 2010
Revenue
(from external
customers) 35,159 666 - 2,879 38,704
EBIT 25,540 (44) - 319 25,815
Total segment assets 682 306 - - 988
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 mine delivered initial production during 2011 and the financial performance
represents the month of December 2011.
12 months 12 months
Audited Audited
Rand million 31 Dec 2011 31 Dec 2010
Revenue from external customers
analysed by goods and services
Sale of products* 45,842 35,825
Shipping services 2,711 2,879
Total revenue 48,553 38,704
* Derived from extraction,
production and selling of iron ore.
12 months 12 months
Audited Audited
Rand million 31 Dec 2011 31 Dec 2010
Reconciliation of EBIT to
total profit before taxation
EBIT for reportable segments 33,030 25,815
Other segments (1,064) (684)
Operating profit 31,966 25,131
Net finance income/(costs) 92 (29)
Profit before taxation 32,058 25,102
Reconciliation of reportable
segments` assets to total assets
Segment assets for reportable segments 793 988
Other segments and WIP inventory 3,071 2,114
Inventory per balance sheet 3,864 3,102
Other current assets 8,311 7,975
Non-current assets 22,238 16,798
Total assets 34,413 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.
12 months 12 months
Audited Audited
Rand million 31 Dec 2011 31 Dec 2010
Total revenue from external customers
South Africa 3,388 2,874
Export 45,165 35,830
- China 29,904 23,112
- Rest of Asia 9,274 7,465
- Europe 5,450 4,896
- Middle East 227 300
- Americas 310 57
48,553 38,704
Total non-current assets*
South Africa 21,450 16,242
China 2 2
21,452 16,244
* Excluding prepayments, investments in associates and joint ventures and
deferred tax assets.
11. Related party transactions
During the year, Kumba, in the ordinary course of business, entered into various
sale and purchase transactions with associates, joint ventures, Exxaro Resources
Limited and its holding company. These transactions were subject to terms that
are no less favourable than those offered by third parties.
Included in cash and cash equivalents at 31 December 2011 is a short-term
deposit facility placed with Anglo American SA Finance Limited of R3 885 million
(31 December 2010: R4 081 million). Interest earned on this facility during the
year was market related and amounted to R197 million (31 December 2010: R4.1
million) at a weighted average interest rate of 5.36% (31 December 2010: 5.30%).
12. Contingent assets and liabilities
12.1 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.
12.2 Contingent liabilities
During the year SIOC issued financial guarantees to the Department of Mineral
Resources (DMR) to the value of R286 million, in addition to the R581 million at
the end of 2010, in respect of the environmental rehabilitation and
decommissioning obligations of the group.
There have been no other significant changes in the contingent liabilities
disclosed at 31 December 2010.
13. Legal proceedings
13.1 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. During 2011, three arbitrators were appointed and May
2012 was set as the date for the arbitration to begin. On 9 December 2011, SIOC
and AMSA agreed to postpone the arbitration until the final resolution of the
mining right dispute (see 13.2 below).
SIOC and ArcelorMittal reached an interim pricing arrangement in respect of the
supply of iron ore to ArcelorMittal from the Sishen mine. This interim
arrangement endured until 31 July 2011. SIOC and ArcelorMittal agreed to an
addendum to the interim supply agreement which extended the terms and conditions
of the current interim agreement. The new interim pricing agreement, which is on
the same terms and conditions as the first interim pricing agreement, commenced
on 1 August 2011 and will endure to 31 July 2012.
13.2 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 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.
The High Court Review, in which SIOC challenged the award of the 21.4%
prospecting right over Sishen mine by the DMR to ICT, was presided over by Judge
Raymond Zondo in the North Gauteng High Court in Pretoria, South Africa, from 15
- 18 August 2011.
On 21 December 2011 judgment was delivered in the High Court regarding the
status of the mining rights at Sishen mine. The High Court held that, upon the
conversion of SIOC`s old order mining right relating to the Sishen mine
properties in 2008, SIOC became the exclusive holder of a converted mining right
for iron ore and quartzite in respect of the Sishen mine properties. The High
Court held further that as a consequence, any decision taken by the DMR after
such conversion in 2008 to accept or grant any further rights to iron ore at the
Sishen mine properties was void. Finally, the High Court reviewed and set aside
the decision of the Minister of Mineral Resources or her delegate to grant a
prospecting right to ICT relating to iron ore as to a 21.4% share in respect of
the Sishen mine properties. On 3 February 2012, both the DMR and ICT submitted
applications for leave to appeal against the High Court judgment.
The High Court order does not affect the interim supply agreement between AMSA
and SIOC, which will endure until 31 July 2012 as indicated in note 13.1 above.
SIOC will continue to take the necessary steps to protect its shareholders`
interests in this regard.
13.3 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.
14. Corporate governance
The group subscribes to the Code of Good Corporate Practices and Conduct (the
Code) and complies with the recommendations of the King III Report. Full
disclosure of the group`s compliance will be contained in the 2011 Integrated
Report.
15. Events after the reporting period
No material events have occurred between the end of the reporting period and the
date of the release of these condensed consolidated financial statements, not
otherwise dealt with in these financial statements.
16. Independent audit opinion
The auditors, Deloitte & Touche, have issued their opinion on the group`s annual
financial statements for the year ended 31 December 2011. The audit was
conducted in accordance with International Standards on Auditing. They have
issued an unmodified audit opinion.
These condensed consolidated financial statements have been derived from the
group financial statements and are consistent in all material respects with the
group financial statements. A copy of their audit report is available for
inspection at the company`s registered office, and is incorporated in the full
annual financial statements. Any reference to future financial performance
included in this announcement has not been reviewed or reported on by the
company`s auditors.
On behalf of the Board
AJ Morgan
Interim chairman
CI Griffith
Chief executive officer
7 February 2012
Pretoria
Notice of final cash dividend
At its Board meeting on 7 February 2012 the directors declared a final cash
dividend of R22.50 per share on the ordinary shares from profits accrued during
the year ended 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, 9 March 2012
- Trading ex dividend commences Monday, 12 March 2012
- Record date Friday, 16 March 2012
- Dividend payment date Monday, 19 March 2012
Share certificates may not be dematerialised or rematerialised between Monday,
12 March 2012 and Friday, 16 March 2012, both days inclusive.
By order of the Board
VF Malie
Company secretary
7 February 2012
Pretoria
Administration
Registered office:
Centurion Gate
Building 2B
124 Akkerboom Road
Centurion, 0157
Republic of South Africa
Tel: +27 (0) 12 683 7000
Fax: +27 (0) 12 683 7009
Transfer secretaries:
Computershare Investor Services (Pty) Limited
70 Marshall Street
Republic of South Africa
PO Box 61051, Marshalltown, 2107
Sponsor to Kumba:
Rand Merchant Bank (a division of FirstRand
Bank Limited)
Directors:
Non-executive - AJ Morgan (interim chairman),
GS Gouws,
PB Matlare,
DD Mokgatle,
ZBM Bassa,
DM Weston,
GG Gomwe,
LM Nyhonyha
Executive - CI Griffith (chief executive officer)
Company secretary:
VF Malie
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`)
Date: 09/02/2012 08:02:36 Produced by the JSE SENS Department.
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