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KIO
KIO
KIO - Kumba - Audited Group operating results for the two months ended 31
December 2006
Kumba Iron Ore Limited and its subsidiaries
(Incorporated in the Republic of South Africa)
(Reg No 2005/015852/06)
JSE code: KIO & ISIN: ZAE000085346
("Group" or "Kumba" or "the Company")
Highlights
Audited Unaudited
2 mths 12 mths
* Revenue R2,2bn R8,7bn
* Operating profit R684m R5,4bn
* Headline earnings R262m R2,1bn
* Earnings per share (cps) 84 1 080
* Maiden dividend 80 cents per share
* Fully empowered mining company
COMMENTARY
Reporting period
Kumba Iron Ore Limited ("Kumba" or "Company") was registered as a legal entity
in May 2005. No trading took place in Kumba until November 2006, following the
unbundling of Kumba from Kumba Resources Limited ("Kumba Resources") in terms of
the Kumba Resources empowerment transaction. The published audited results
therefore include trading for only the two-month period ended 31 December 2006.
Where reference is made to the 10-month period from 1 January 2006 to 31 October
2006, or to the 12-month period from 1 January 2006 to 31 December 2006, readers
are advised that this supplementary information has been prepared from financial
information reported by Kumba Resources and is unaudited. As Kumba did not trade
before 1 November 2006, being the date that the Kumba Iron Ore Limited Group
("Group") came into existence, no comparative figures are provided.
Audited Group operating results for the two months ended 31 December 2006
Profit after tax Rm 379
Profit attributable to ordinary shareholders Rm 264
Profit before interest and tax (EBIT) Rm 684
Basic earnings per share cps 84
Dividend declared per share cps 80
The profit for the period ended 31 December 2006 was R379 million, of which R115
million was attributable to minority interest holders. The minority interest
holders` share in the result for the period is effectively 30,3%, compared to
the actual minority interest shareholding of 26%. An accounting charge of R153
million arises from the sale of 3% of the issued shares in Sishen Iron Ore
Company (Proprietary) Limited ("SIOC") which Kumba sold to the SIOC Community
Development Trust as part of the conditions of the Kumba Resources empowerment
transaction. In terms of IFRS 2 the difference between the offer price and the
fair value is charged to the income statement and is not shared by minority
shareholders.
Profit before interest and tax (EBIT) was R684 million for the two month period.
* Export volumes for the two months were 4 million tons ("Mt") bringing total
exports for the year to 21,5 Mt. Domestic sales volumes to Mittal Steel
South Africa Limited ("Mittal Steel") for November and December totalled
1,6 Mt. The majority of export sales during the two months were shipped to
customers in China.
* Costs incurred to maximise throughput and to comply with new pit wall
safety requirements, as well as human resources costs resulted in cost
increases, particularly at the Sishen mine.
Cash flow
Cash and cash equivalents at 31 December 2006 were R1,1 billion, whilst cash
generated from operating activities amounted to R389 million. A net cash outflow
of R140 million for the period related largely to capital expenditure on the
Sishen Expansion Project ("SEP") (R511 million) partially offset by a R400
million increase in cash resources being the opening balance of cash in SIOC
upon the acquisition of SIOC from Kumba Resources. Net interest bearing
borrowings of R884 million were taken up during the two months reporting period.
Net debt
During November 2006, the Group entered into loan agreements in order to replace
previous back to back loan facilities provided by Kumba Resources.
Overview of the 12 months ended 31 December 2006 (unaudited)
Kumba was unbundled from Kumba Resources and subsequently listed on the JSE
Limited ("JSE") on 20 November 2006. Following completion of the Kumba Resources
empowerment transaction, Kumba will comply with the 2014 equity ownership
requirements of the Mining Charter. Applications for conversion of SIOC held old
order rights were lodged in December 2005 and with the Kumba Resources
empowerment transaction now completed, conversion representations to the
Department of Mineral and Energy are in progress.
Global crude steel production for 2006, was 1,201 Mt, an increase of 8,8% over
2005. China`s share of world steel output increased from 31% in 2005 to 34% in
2006, entrenching its position as the largest global producer of steel. The
global iron ore market continued its very strong growth trend of the past few
years, increasing by 13,9% to 1 750 Mt in 2006. China`s consumption of global
iron ore production increased by 33% to 560 Mt. The continued tight supply
situation of iron ore was reflected by the 19% benchmark price increase for
2006/2007 that was settled in May 2006. This was followed by an early settlement
of 9,5% between certain iron ore producers and steel mills during December 2006
for the 2007/2008 iron ore year, starting on 1 April 2007.
In 2006, Kumba`s financial and operational performance was strong with year on
year revenue and EBIT increasing from R6,6 billion to R8,7 billion and from R3,9
billion to R5,4 billion respectively. The underlying EBIT margin increased from
42% in 2005 to 46% in 2006. This excludes the proceeds on the settlement of Hope
Downs in 2005, and the profit on the offshore non-iron ore assets sold to Kumba
Resources in terms of the Kumba Resources empowerment transaction in 2006. It
also excludes the IFRS2 expense of R153 million arising on the sale of equity to
the SIOC Community Development Trust. Inflationary pressure had a negative
impact on profit but was partially offset by continued operating cost savings
from improvement initiatives. Costs were higher, primarily due to higher fuel,
human resource and project-linked operating costs as well as an increase in
stripping and maintenance related activities.
As part of the Kumba Resources empowerment transaction, all offshore non-iron
ore assets were sold to Kumba Resources resulting in a non-recurring profit of
R1,6 billion in September 2006.
Export sales volumes for 2006 decreased by 3% from 2005 to 21,5 Mt, hampered by
a breakdown of loading equipment at the Saldanha port in September 2006. This
constrained shipments and necessitated the rescheduling of vessels. Production
volumes at Sishen mine increased by 1% to 28,7 Mt and tonnage railed from the
mine to the port of Saldanha increased by 1% to 24,3 Mt. Domestic sales volumes
decreased by 9% to 8,3 Mt due to lower demand from Mittal Steel.
Cash from operating activities for the 12 months ended 31 December 2006
increased by 65% from R2,6 billion to R4,3 billion. Cash outflow for capital
expenditure increased from R402 million in 2005 to R1,7 billion in 2006 due to
increased capital expenditure on growth projects.
Safety performance
Kumba made good progress on its way to zero harm status by achieving a lost time
injury frequency rate ("LTIFR") of 0,22 and 0,31 at Sishen and Thabazimbi
respectively. Despite this improvement, and most regrettably the Group had one
fatality at its Sishen operation in April 2006. Sishen mine made good progress
in reducing the number of lost time incidents ("LTI") suffered in 2006; achieved
three million man hours without a LTI for the second time since 2002, and on 31
March 2006 recorded an all time record of 5,3 million man hours without an LTI.
The SEP project achieved an LTIFR of 0,11 during 2006.
Project pipeline
Sishen Expansion Project (SEP): Physically the construction of SEP was 76%
completed at 31 December 2006. Despite engineering difficulties relating to
skills shortages amongst suppliers the project is expected to ramp up according
to plan during the second half of 2007. This project will apply jig technology
to extract 13 million tons per annum ("Mtpa") additional saleable ore from 21
Mtpa of feedstock; about 8 Mtpa material previously accounted for as waste and
13 Mtpa from new run-of-mine material. In August 2006, a decision was taken to
expand SEP production from 10 Mtpa to 13 Mtpa at an additional capital cost of
R1,3 billion. The project is expected to be completed within its budget of R5,1
billion. Ramp up to full capacity is expected in early 2009 and will increase
annual production from Sishen to 42 Mtpa.
A pre feasibility study to expand the current Sishen mine by a further 10 Mtpa -
20 Mtpa, in addition to SEP is due to be completed during 2007, with production
currently anticipated to commence by 2011.
Sishen South Project: The feasibility study will be completed in March 2007.
Following the finalisation of the Transnet feasibility study for the expansion
of the Sishen Saldanha export channel, and successful negotiations of rail
tariffs, Kumba is expected to make an investment decision on the development of
the Sishen South Project in the second half of 2007. The capital cost is
currently estimated at approximately R3 billion for a 9 Mtpa mine.
Project Phoenix: The feasibility study to extend the life of the Thabazimbi mine
by some 20 years through exploitation of the in situ low iron content banded
ironstone formation will be completed in April 2007. However, Mittal Steel
advised in December 2006 that it no longer wishes to participate in Project
Phoenix. The Group is considering alternative options to ensure maximum resource
utilisation.
Faleme - Senegal: Following notification from Miferso that it disputes Kumba`s
rights to the development of the Faleme iron ore project Kumba continues to
engage with the Government of Senegal to resolve the dispute amicably. It
remains the view of the Board that if these negotiations prove to be
unsuccessful, legal action available to Kumba will be pursued to preserve its
contractual rights.
Kumba`s legal advisors have concluded that the particulars of the claim for
US$196 million from an erstwhile potential partner in the Faleme project,
Lithos, as presently framed, do not sustain a cause of action and accordingly no
provision has been raised.
Prospects
The upward trend in global iron ore demand is expected to continue during the
coming year. Prospects for continued real growth in global steel demand remain
positive in 2007, with the strongest growth again expected to come from China
with an anticipated increase of 8% - 10% in steel consumption.
The outlook for Kumba for 2007 is expected to remain positive, given a stable
macro economic environment, continued strong iron ore demand and firm iron ore
prices.
Kumba will focus on growth through its current operations whilst broadening its`
production base further as it actively pursues its pipeline of projects.
PL Zim EJ Myburgh
Chairman Chief Executive Officer
14 February 2007
Pretoria
Registered office Transfer secretaries
Lakefield Office Park Computershare Investor Services
Corner West and Lenchen Roads 2004 (Pty) Limited
Centurion, Pretoria, 0046 70 Marshall Street
Republic of South Africa Johannesburg, 2001
Tel: +27 12 683 7000 South Africa
Fax: +27 12 683 7009 (PO Box 61051, Marshalltown, 2107)
Condensed group income statement
Unaudited*
Audited pro forma
2 months to 12 months to
31 December 31 December
2006 2006
Rm Rm
Revenue 2 171 8 654
Operating expenses (1 487) (3 301)
Operating profit 684 5 353
Finance income 7 39
Finance costs (43) (103)
Profit before taxation 648 5 289
Taxation (269) (1 014)
Profit for the year 379 4 275
Attributable to:
- Equity holders of the parent 264 3 381
- Minority interest 115 894
Ordinary shares (million)
- in issue 314 314
- weighted average number of shares 314 314
- diluted weighted average number of shares 319 319
Attributable earnings per share (cents)
- basic 84 1 080
- diluted 83 -
Dividend declared per share (cents) 80 -
Reconciliation of Headline Earnings
Net profit attributable to ordinary 264 3 381
shareholders
- Net profit on disposal or scrapping of
property, plant and equipment (4) 2
- Net surplus on disposal of investment in
non-iron ore assets - (1 571)
- Transfer to minority interest 1 314
- Taxation effect of adjustments 1 (1)
Headline earnings (Rm) 262 2 125
(cps) 83 677
*Prepared on a basis consistent as used for the preparation of the pro-
forma financial statements presented in the Kumba Iron Ore Limited Pre-
listing Statement, dated 9 October, 2006.
Condensed group balance sheet as at 31 December 2006
Audited
31 December
2006
Rm
Assets
Non-current assets 4 021
Property, plant and equipment 3 864
Biological assets 7
Financial assets 150
Current assets 2 848
Inventories 749
Trade and other receivables 1 005
Cash and cash equivalents 1 094
Total assets 6 869
Shareholders` equity and liabilities
Capital and reserves 839
Share capital 3
Non-distributable reserves 201
Distributable reserves 635
Minority interest 216
Total shareholders` equity 1 055
Non-current liabilities 3 477
Interest-bearing borrowings 2 840
Non-current provisions 152
Deferred taxation 485
Current liabilities 2 337
Trade and other payables 555
Current portion of long-term loans 1 179
Current taxation 603
Total liabilities 5 814
Total equity and liabilities 6 869
Net asset value per share (cents) 336
Capital expenditure
- incurred 511
- contracted 2 477
- authorised but not contracted 3 176
Capital expenditure relating to Thabazimbi (captive mine),
which will be financed by Mittal Steel
- contracted 1
- authorised but not contracted 2
Condensed group cash flow statement
Unaudited*
Audited pro forma
2 months to 12 months to
31 December 31 December
2006 2006
Rm Rm
Cash flows from operating activities 350 1 490
Cash generated from operating activities 389 4 277
Dividend paid - (1 534)
Taxation paid - (1 198)
Interest paid (46) (94)
Interest received 7 39
Cash flows from investing activities (140) (48)
Capital expenditure (511) (1 718)
Proceeds on disposal of property,
plant and equipment 6 -
Surplus from the disposal of investment
in non-iron ore assets - 1 571
Increase in cash resources on acquisition of
a
controlling interest in subsidiaries - note 400 -
3
Other (35) 99
Cash flows from financing activities 884 (939)
Long and short-term loans raised 2 840 2 840
Long and short-term loans repaid (1 956) (3 779)
Increase in cash and cash equivalents 1 094 503
At beginning of year - 591
At end of year 1 094 1 094
*Prepared on a basis consistent as used for the preparation of the pro-
forma financial statements presented in the Kumba Iron Ore Limited Pre-
listing Statement, dated 9 October, 2006..
Condensed Group statement of changes in equity
Audited
2 months to
31 December
2006
Rm
Shareholders` funds at the beginning of the year -
Changes in share capital and premium
- issue of shares 3
- share premium -
Changes in non-distributable reserves
- Currency translation differences 24
- Financial instruments movements (5)
- Equity settlement reserve 182
Changes in distributable reserves
- At acqusition reserve 371
- net profit for the year 264
Changes in minority interest
- Acquisition of subsidiary 93
- Income charge for the year 115
- Transfer to minority reserve 8
Shareholders` funds at the end of the year 1 055
Segmental reporting
The business of the Group represents the iron ore division that has been
unbundled from Kumba Resources and as such is managed as a single business unit.
Segmental reporting is therefore not presented.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Companies Act and JSE Listing Requirements
Compliance with the Companies Act No 61 of 1973 as well as the Listing
Requirements of the JSE has been maintained throughout the reporting
period.
2. Related-party transactions
During the year the Company and its subsidiaries, in the ordinary
course of business, entered into various sale and purchase
transactions with associates and joint ventures. These transactions
were subject to terms that are no less favourable than those arranged
with third parties.
3. Increase in cash resources on acquisition of a controlling interest in
subsidiaries
Rm
Cash paid on acquisition of share (3)
Transferred to pre-acquisition reserves (371)
Fair value of assets acquired (374)
The assets and liabilities arising from the acquisition are
as follows:
Property, plant and equipment 3 400
Investments in joint ventures and associates 1
Financial assets 150
Biological assets 4
Cash and cash equivalents 403
Inventories 785
Trade and other receivables 912
Non-current provisions (157)
Deferred taxation (535)
Receiver of revenue (358)
Trade and other payables (1 024)
Minority (93)
Short term borrowings (3 114)
Fair value of net assets 374
Total purchase consideration (3)
Less:
Cash and cash equivalents in subsidiary acquired 403
Net cash inflow 400
4. Contingent liabilities
Contingent liabilities at balance sheet date not otherwise provided
for in the consolidated annual financial statements, arise from a
guarantee for environmental rehabilitation closure liability of R13
million and guarantee of R10 million to the Lakutshona Housing
Company.
Corporate information
The condensed consolidated financial statements of Kumba and its subsidiaries
for the year ended 31 December 2006 were authorised for issue in accordance with
a resolution of the Board of Directors passed on 14 February 2007.
Kumba is a limited liability company incorporated and domiciled in South Africa.
The Group has its primary listing on the JSE.
BASIS OF PREPARATION AND ACCOUNTING POLICIES
Basis of preparation
This condensed report complies with International Accounting Standard 34,
Interim Financial Reporting, and Schedule 4 of the South African Companies Act.
The Group financial results have been prepared on the historical cost basis
excluding financial instruments and biological assets which are valued at fair
value, and conform to International Financial Reporting Standards.
Audit opinion
The auditors, Deloitte & Touche have issued their opinion on the Group`s
financial statements for the year ended 31 December 2006. The audit was
conducted in accordance with International Standards on Auditing. They have
issued an unmodified audit opinion. A copy of their audit report is available
for inspection at the Company`s registered office. These summarised financial
statements have been derived from the Group financial statements and are
consistent in all material respects with the Group annual financial statements.
Comparatives
The Group was formed with the completion of the Kumba Resources empowerment
transaction during November 2006. Before this date, the holding company was a
dormant company, with issued share capital to the value of R100 and a loan
account of the same amount. No comparative information is therefore presented in
this report.
Significant accounting policies
The accounting policies are consistent with those applied in the Kumba Resources
Limited financial statements for the year ended 31 December 2005. The Group
applied all the relevant new and revised standards and interpretations that were
in issue and effective for years ended on or after 31 December 2005 other than
IFRS4 relating to Thabazimbi.
Unbundling transaction
The Group was formed as part of the Kumba Resources empowerment transaction. The
unbundling of Kumba was effected by way of a distribution of Kumba distribution
shares (in specie) in terms of section 90 of the Companies Act and in accordance
with section 46 of the Income Tax Act in the ratio of one Kumba distribution
share for every one Kumba Resources share held at the close of business on the
record date.
For accounting purposes, the transaction was treated as a transaction between
commonly controlled entities, including IFRIC4 in respect of Thabazimbi and
therefore all assets and liabilities were included at the respective book values
at the unbundling date.
SIOC Community Development Trust and SIOC Employee Share Purchase Scheme
SIOC Community Development Trust and SIOC Employee Share Purchase Scheme each
hold a 3% share in SIOC. These two entities are treated as special purpose
entities, and are therefore included in the Group consolidated results as
presented in this report.
Profit before taxation for the two month period 1 November 2006 - 31 December
2006 is derived after taking the following into account:
2006
Rm
IFRS2 fair value charge 153
Amortisation and depreciation 43
Net financing costs 36
Net realised foreign exchange loss 54
Net unrealised foreign exchange loss 31
Net realised gains on revaluation of derivative instruments (36)
Net profit on disposal of property, plant and equipment (4)
Consultancy fees 26
Operating lease rental expenses 12
Share based payment expenses 32
Net debt
The following schedule provides a summary of the Group`s net debt position at 31
December 2006:
Effective 2006
Net debt interest Maturity Rm
rate %
Non-current
Revolving facility JIBAR + 30.11.09 2 840
100bp
Current
Revolving facility JIBAR + 28.11.07 668
70bp
Interest on non-current facility JIBAR + 31.05.07 34
100bp
Call facility 9,2% 477
1 179
Total borrowings 4 019
Cash and cash equivalents 1 094
Net debt 2 925
Total shareholders` equity 1 055
2006 2006
Unaudited physical information 2 months 12 months
Iron ore
Production Tons 5 401 31 110
thousands
Sales
- Export Tons 3 984 21 495
thousands
- Domestic Tons 1 543 8 307
thousands
Total sales Tons 5 527 29 802
thousands
Notice of maiden dividend
On Wednesday, 14 February 2007 the directors declared a maiden dividend of 80
cents per share on the ordinary shares for the year ended 31 December 2006, as
follows:
- Last day to trade to qualify for dividends
(and change of address or dividend Thursday 15 March 2007
instructions)
- Ex dividend on the JSE Friday 16 March 2007
- Record date Friday 23 March 2007
- Payment date of dividends Monday 26 March 2007
Share certificates may not be dematerialised or rematerialised between Friday,
16 March 2007 and Friday, 23 March 2007, both days inclusive.
By order of the Board
Ms A van der Merwe
Company secretary
14 February 2007
Pretoria
Directors: EJ Myburgh*, VP Uren*, PL Zim, PM Baum, GS Gouws, PB Matlare, AJ
Morgan, ND Moyo, DD Mokgatle *Executive
Date: 15/02/2007 07:00:02 Produced by the JSE SENS Department.
