Archive - 2013

“Sishen mine continued to ramp-up production following the unprotected strike in the fourth quarter of 2012, while Kolomela mine continued with an exceptional performance following a successful ramp-up in 2012.

“Now that we have two mines in the Northern Cape, we have conducted a technical and strategic review of these assets over the past few months. As part of this optimisation our main objective is to satisfy domestic demand and to fill the rail line to optimise exports. We are considering various scenarios at Sishen and Kolomela mines, to balance both production and costs.

“The interim dividend of R20.10 per share is maintained at 1.2 x cover which is both an expression of our confidence in the business as well as our commitment to shareholder returns.”

KEY FEATURES: FINANCIAL

• Revenue increased by 4% to R26.3 billion
• Operating profit decreased by 4% to R14.3 billion
• Export sales volumes were down 3% from record levels in 1H12
• Headline earnings of R24.13 per share
• R6.5 billion final cash dividend declared to shareholders, in line with 1.2 times dividend cover
• R2.3 billion capital expenditure
• Net cash position of R2.3 billion

KEY FEATURES: OPERATIONAL

• No loss of life. We have however had 14 lost time injuries for the period, but an ongoing safety programme is in place to address deteriorating LIFTR in first half
• Production of 21.6 Mt in line with 1H12
  • Sishen mine’s 2Q13 production up by 13% on the first quarter of 2013 as production continued to improve after the 2012 strike
  • Exceptional performance at Kolomela mine continu
• R310 million spent on new employee housing this year bringing total spent on housing since 2006 to R2.2 billion

OPTIMISATION OF NORTHERN CAPE ASSETS

• Technical and strategic review of Northern Cape assets conducted assessing status of Sishen and Kolomela mines
  • Objective is to satisfy domestic demand and optimally fill available export capa
    • Kumba’s export capacity on the Iron Ore Export Channel (IOEC) is ~42Mt and will remain so in the near future
  • Balance between production and costs for both mines to ensure maximum value
  • Growth options including Iron Ore Export Channel capacity expansion
  • Estimated production level at this stage for Sishen mine is approximately ~37Mtp
  • Potential to increase production from Kolomela mine beyond 9Mt from current pits
• Optimisation review continues; with expected finalisation of estimates late in 2H1

Market overview

Global crude steel production increased by 3% to 787 Mt for the first half of 2013 (2012: 766 Mt), with China’s record production of 385 Mt being 8% higher (2012: 356 Mt). However, faced with strong pressure on steel margins, Chinese steel mills reduced iron ore inventory levels and, as a result, demand for seaborne iron ore grew at a slower pace than crude steel production.

Europe’s ongoing struggle with austerity measures translated into a 4% decrease in crude steel production, with the rest of the world making up the difference. The improvement in the outlook for the Japanese domestic auto industry has driven increased domestic crude steel production with anticipation of higher finished steel export volumes. Global seaborne iron ore supply grew by 4%, driven by strong growth of 18% from Australia, partially offset by a 1% decline from Brazil. As demand and supply for seaborne iron ore grew in tandem, average prices in the first half of 2013 were marginally down and averaged $137/t for the period (six months to 30 June 2012: $142/t). Iron ore index (CFR China 62% Fe) prices peaked in February at $160/t but steadily declined since then, ending the first half of 2013 at $115/t.

Outlook

Steel fundamentals remain under pressure as the Chinese economy slows down, with manufacturing activity receding as a result of declining export orders. Iron ore prices are expected to remain under pressure as supply exceeds demand in the second half of the year, though restocking by steel mills may support prices in the near term.

Production outlook for Sishen mine in 2013 remains at ~ 37Mt, reflecting the knock-on effect of the 2012 strike. In order to address the current pit constraints at Sishen mine, the waste mining ramp-up at Sishen continues, with waste levels planned to increase to between 240 Mt and 270 Mt by 2016. We remain on track with this waste plan to mine an additional 40 to 50Mt of waste at Sishen this year to catch up on our waste plans that were impacted by the strike in 2012. This will put upward pressure on cash unit costs but will get us to a position of increased flexibility earlier.

Kolomela mine’s production outlook for this year remains at approximately 9Mt. We anticipate mining around 45Mt of waste for 2013.

Export sales volumes estimate is maintained at around 40 Mt for the year as a whole.

Profitability remains sensitive to iron ore export prices and the Rand/US$ exchange rate.

“Although the first six months of 2013 presented challenges for the iron ore industry and for Kumba, it is pleasing to see that the Group continued to demonstrate strong financial and operational performances and continues to make outstanding returns to shareholders. Optimisation of our current operations, together with our mining expertise, skilled workforce, unrelenting focus on safety and cost management, positions us well for the future. Finally, we are proud when independent, objective third parties recognise our achievements and are pleased with the number of accolades we have received,” Mbazima conclude.