Archive - 2010

Commenting on the results, Kumba Iron Ore ("Kumba") CEO Chris Griffith said: "Kumba delivered an exceptional safety, operational, sales and financial performance in 2009 with substantial increases in production and exports sales volumes and strong cash flows driven by an increase in export revenues and tight cost management, notwithstanding the backdrop of global economic recession and substantially reduced prices for the iron ore year."

FINANCIAL HIGHLIGHTS:

• Revenue 10% up to R23.4 billion (2008: 21.4 billion)
• Operating profit of R12.9 billion (2008: 13.5 billion), down 5%
• Export sales volumes up 37% to 34.2Mt (2008: 24.9Mt)
  130% increase in sales to China, 75% of total export sales
• Unit cash cost down 4% in real terms to R98.83 per tonne (2008: R96.53/t)
• Total cash dividend of R14.60 per share; final cash dividend of R7.40 per share
• Over R2 billion operating profit benefit d
• erived from Asset Optimisation and procurement initiatives
• Cash generated of R12.6 billion (2008: 14.5 billion)

OPERATING HIGHLIGHTS:

• Outstanding safety performance continues, LTIFR down 42% to 0.07 (2008: 0.12)
• Sishen mine production up 16% to 39.4Mt (2008: 34.0Mt)
• Ramp up of Kolomela (Sishen South) continues on time and on budget
• Jig Plant production more than doubles to 10.4Mt (2008: 4.7Mt)
  Contributes 26% of Sishen Mine's production Exceptional achievements in cost management and operational efficiencies
• Favourable arbitration award for Kolomela (Sishen South)

On the outlook for 2010, CEO Chris Griffith added: "Global steel demand in 2010 is forecast to grow in excess of 5% per annum over the next three years, leading to increasing iron ore demand. We expect demand for iron ore to rise further during 2010 as Chinese domestic iron ore production falls and a further recovery in steel markets outside of China, in our traditional markets, starts to take hold."

He added: "Kumba is committed to a further increase in production volumes during 2010 with the continued ramp up of the Jig Plant. Waste mining at Sishen will increase as the pit gets deeper and wider. Export sales volumes to China are expected to normalise at around 60% of the geographical sales mix."

Financials

Kumba's revenue increased by 10% to R23.4 billion on the back of a 37% increase in export sales volumes driven by strong demand from China, though tempered by lower export volumes to Europe and Japan. Revenue from higher volumes was mostly offset by a circa 40% reduction in benchmark iron ore export prices for the nine months of the iron ore year, which resulted in a 5% decrease in operating profit to R12.9 billion. Through focused cost management and a 16% increase in production, mainly from the Jig Plant, the small increase in Sishen Mine's unit cash cost on a like-for-like basis was well below inflationary cost escalations. Sishen Mine's unit cash cost for 2009 was R98.83/t compared to R96.53/t at the end of 2008, down 4% in real money terms.

The group continued to generate substantial cash from its operations, with R12.6 billion generated during the year. These cash flows were used to pay taxation of R3.2 billion and aggregate dividends of R8.2 billion. Capital expenditure of R4.0 billion was incurred, of which R1.2 billion was to maintain operations and R2.8 billion for expansion. At 31 December 2009 the group had a net debt position of R3 billion. Interest cover remained strong at 43 times (2008: 33 times).

Headline earnings were R21.82 per share, with a final cash dividend declared of R7.40 per share, bringing the total dividend for 2009 to R14.60 per share.

Safety

Kumba's commitment to zero harm continues to deliver marked achievements. Kumba recorded only ten lost-time injuries ('LTI's') in 2009, which translated into a lost-time injury frequency rate ('LTIFR') of 0.07 (2008: 0.12), a 42% improvement. Thabazimbi Mine continued its excellent performance with a second year without a single LTI. Sishen and Thabazimbi mines worked the full year without a fatality. Kolomela Mine (Sishen South) has achieved 4.3 million LTI-free man-hours to date.

Operations

Total tonnes mined at Sishen Mine increased by 14% from 108.8Mt in 2008 to 128.3Mt, of which waste mined was 82.1Mt, an increase of 28% from the prior year. This increase in waste mining activity was undertaken to mitigate the increasing depth of the ore body, geological constraints in the pit and to secure the future of the mine. Total production at Sishen Mine increased by 16% to 39.4Mt (2008: 34.0 Mt). Production from the DMS Plant increased by 0.6Mt to 29.0Mt. The ramp up of production from the Jig Plant has seen a substantial increase during the year, with production more than doubling that of the prior year to 10.4Mt (2008: 4.7Mt).

Kumba has implemented a number of revenue enhancing and cost management initiatives as part of its asset optimisation programme which realised R2 billion in operating profit benefit in 2009, including once-off revenue enhancement activities that contributed R1.4 billion for 2009. The recurring nature of certain of these initiatives will assist in enhancing the financial performance of the group and protecting operating profit margins in the future.

Market

World crude steel production started to recover during the second half of 2009 with most major steel producing countries posting an increase in output, Chinese steel production grew 14% year-on-year. The increase in steel production coupled with lower Chinese domestic iron ore production, resulted in record seaborne iron ore imports into China. Kumba's export sales volumes were 34.2Mt; a 9.3Mt (37%) increase. Export sales volumes to China increased 130% and totalled 75% of total export volumes for the year. Total domestic sales volumes for the year were 4.0Mt, down 29% due to lower demand.

Outlook

Analysts' forecasts indicate that global steel consumption should grow in excess of 5% per annum over the next three years, leading to an increase in iron ore demand. We expect demand for iron ore to rise further during 2010 as Chinese domestic iron ore production falls and the recovery in steel markets outside of China, in our traditional markets, starts to take hold. Overall, the global seaborne iron ore market remains structurally tight. Current market consensus indicates an increase in benchmark iron ore export prices for the 2010/2011 iron ore year. Domestic sales volumes remain dependent on the off-take requirements from ArcelorMittal.

Kumba is committed to a further increase in production volumes during 2010, with the continued ramp-up of the Jig Plant. Waste mining at Sishen Mine is anticipated to increase as the pit gets deeper and wider and export sales volumes into China are expected to normalise at around 60% of the geographical sales mix.

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