DELIVERING CHANGE, BUILDING RESILIENCE

Focused Excellence

In this Annual Reporting centre we seek to demonstrate that Kumba has both the appropriate strategy and capacity to deliver on this strategy which centres around optimising value for all our stakeholders. With this clear focus, we remain committed to maximise cash generation, building operational excellence and efficiencies, and driving down costs to safeguard our mines’ viability in a volatile price environment.

Our Business

In this section, we examine our performance and share our business model.

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Overview

Our Business model

Our Strategy

During the turmoil and volatility of the past few years Kumba has demonstrated its resilience and ability to adapt quickly.

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Overview

Our operating context

Our Performance

An effective review of performance needs to include operational, financial and process data

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Performance against strategic focus areas

Governance

Effective governance structures and processes ensure that our business runs efficiently

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Corporate governance

Remuneration and performance

People

Our 2016 performance and practices on employee issues are summarised in the following reviews

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Developing an engaged workforce

Ensuring a safe workplace

Health and wellbeing

Society

Kumba aspires to be a trusted partner with key stakeholders and a leader in being a catalyst for collaborative social development.

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Upholding social standards

Positive social contribution

Environment

We seek to limit our impacts through effective rehabilitation measures, the provision of alternative energy and water services, and the responsible delivery of long-term socio-economic benefits.

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Managing environmental impacts

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Our Business

Overview

In this section, we examine our performance and share our business model.

Key Features

Regrettably two Fatalities

Sishen

21.4%

Residual mining right awarded

Substantial

34%

Reduction in controllable costs

Reduced average cash breakeven price of

US$29/tonne

Balance sheet strengthened to net cash position of

R6.2 BILLION

Heps of R27.30 per share, up

131%

Settlement agreement reached with SARS

Operational performance

Production

41.5 MT

(2015: 44.9 MT)

Waste mined

187.3 MT

(2015: 267.9 MT)

Export sales

39.1 MT

(2015: 43.5 MT)

Domestic sales

3.4 MT

(2015: 4.3 MT)

Employees in 2016

8,332

(2015: 11,790)

Customers in South Africa, China, India, Japan, South Korea, Europe and the Middle East

Our Business model

Our business model illustrates how we create value.

Kumba’s core purpose, its risk and opportunities, strategy, business model, performance and sustainable development are all inseparable elements of the value-creation process.

Overview

Kumba’s strategic focus is to position ourselves for long-term sustainability, while ensuring our immediate viability over the short term given the challenging price environment.

Our strategy focuses on actions aimed at making the Company more competitive and sustainable within the context of the low price environment that is forecast for the foreseeable future.

Our operating context

This year we have identified the following seven issues in our operating context that have important implications for our business model.

  • Bottoming out of the iron ore price
  • Flattening of the cost curve globally
  • Anglo American portfolio restructuring of Kumba
  • Operational excellence and company restructuring
  • Changing regulatory environment and continuing policy uncertainty
  • Heightened stakeholder expectations
  • Nature of iron ore reserves and life of asset
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Our Performance

Performance against strategic focus areas

Performance against strategic focus areas

Kumba’s full year results reflect continued volatile market conditions.

During 2016 Kumba’s realised FOB iron ore price recovered to an average of US$64/tonne resulting in a 13% increase in revenue to R40.8 billion. Operating profit increased by 78% compared to 2015.

Focused Excellence

Increased revenue

R40.8 billion

(2015: R36.1 billion)

Mining costs decreased by

17%

in real terms

Headline earnings

R8.7 billion

(2015: R3.8 billion)

Settlement agreement reached with SARS

Sishen

21.4%

Residual mining right granted

Corporate governance

Sound corporate governance provides a critical foundation, both for protecting stakeholder value and for achieving our strategic growth objectives.

Independent Board oversight and guidance in relation to our operations and activities are key in monitoring and driving compliance, in ensuring good governance, in setting strategy, and in embedding the highest levels of integrity and professionalism that permeate through the organisation.

Value distributed in 2016

R4.6 billion

Employees

R8.5 billion

HDSA businesses

R496 million

Providers of finance

R4.4 billion

Government

Remuneration and performance

Our remuneration activities for this year were dominated by Kumba’s response to the volatile market conditions and subsequent restructuring at Sishen mine.

These volatile conditions continued to place significant pressure on the Company’s business model and its employees, heightening the importance of having effective human resource and remuneration policies.

Developing an engaged workforce

To deliver on our objectives, we endeavour to get the most out of a capable and engaged workforce.

We foster a values-driven, high performance culture through building an organisation structure that is fit for purpose, resourced with the best talent, and empowering leadership to deliver results.

Focused relationships

Regrettably two fatalities

0.28

lost-time injury frequency rate (LTIFR), short of our target of 0.20

32.5%

headcount reduction at Sishen mine

No industrial action since 2012

R211 million

expenditure on training and development

21%

of total mining workforce are women

86%

HDSAs in total workforce

Ensuring a safe workplace

The safety of the people who work for us will always be our main priority.

We strive to achieve our goal of zero harm by managing our activities in a way that eliminates incidents, minimises risk and promotes excellence in the performance of our operations.

Health and wellbeing

Effective control of occupational health risks, and promoting health and wellbeing in the workplace, protects our people, enhances productivity, and is essential in minimising potential long-term liabilities.

Extending our health promotion activities to the broader community complements our internal health drive, and supports local socio-economic development outcomes.

Upholding social standards

Building positive and trusted relationships with the stakeholders and communities around our operations is essential to maintain and strengthen our socio-political licence to operate.

Inclusive stakeholder engagement underpins our approach to respecting human rights and to responding to legitimate stakeholder aspirations and concerns.

Focused relationships

R67 million

in direct social expenditure

HIV-related services to

17,687

community members at UGM clinics

281

households resettled in 2016 as part of Dingleton resettlement

R8.5 billion

paid to BEE suppliers

235

community complaints resolved

Positive social contribution

We seek to ensure a lasting positive legacy in the areas where we mine, by increasing the benefits of our presence and building local capacity to allow development to be sustained beyond the mining sector, and beyond mine closure.

Achieving these objectives depends on collaborative efforts with government institutions, community members, suppliers and other large corporations.

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Environment

Managing environmental impacts

Managing environmental impacts

Ensuring responsible environmental management through the life-cycle stages of an operation can influence our future access to land and capital, improve resource security, and reduce operational risks and mine-closure liabilities.

Focused relationships

No level 3 – 5 incidents in 2016

Energy consumption reduced to 8.45 million GJ

Dust emissions challenges remain at our operations

A-list in CDP’s climate disclosure leadership index

Carbon disclosure leader named by Engaged Tracking

Real Mining. Real People. Real Difference.
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Kumba Iron Ore