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KUMBA IRON ORE LIMITED - Extracts from the reviewed interim results for the period ended 30 June 2019 and interim cash dividend declaration

Release Date: 23/07/2019 07:05
Code(s): KIO     PDF:  
 
Wrap Text
Extracts from the reviewed interim results for the period ended 30 June 2019 and interim cash dividend declaration

Kumba Iron Ore Limited
Kumba Iron Ore Limited is a member of the Anglo American plc Group
Registration number: 2005/015852/06 
JSE share code: KIO 
ISIN: ZAE000085346
EXTRACTS FROM THE REVIEWED INTERIM RESULTS FOR THE PERIOD ENDED 30 JUNE 2019 AND INTERIM CASH DIVIDEND DECLARATION

- Fatality free since May 2016    
- EBITDA margin up 22 percentage points to 58%
- Strong balance sheet with net cash of R18.8 billion
- Average realised export price up 57% to US$108/tonne
- Headline earnings up 239% to R10.1 billion or R31.51 per share
- Interim cash dividend of R30.79 per share

OVERVIEW 
Themba Mkhwanazi, Chief Executive of Kumba Iron Ore, said, “Kumba delivered an exceptional financial performance 
in the first half of 2019 by focusing on safe, responsible and efficient production, while achieving optimal 
value for our premium quality products. Most importantly, we marked three years of fatality-free mining by combining 
local excellence and global expertise to transform productivity and safety at Sishen and Kolomela.

Our “value over volume” strategy has met customer demand and delivered a more than threefold increase in EBITDA 
to R20.1 billion. With a very strong opening cash position and attributable free cash flow of R12.7 billion, 
the Board has declared an interim cash dividend of R9.9 billion or R30.79 per share. This represents a payout 
ratio of 98% of headline earnings, above our target range of 50% to 75% of headline earnings.

By integrating our sales and operational strategy, we achieved a 57% increase in our average realised FOB 
iron ore price. This reflects the strengthening of iron ore prices and quality premia, as well as the marketing 
and beneficiating capability of our team, which ensured that our premium product portfolio remains competitive 
and that we continue to create customer value.

We are progressing at a pace towards our margin enhancement target of US$10/tonne. Our operational efficiency 
increased to 67%, which, together with our focus on cost optimisation, delivered savings of R460 million, 
underpinning our EBITDA margin of 58% and our break-even price of US$32/tonne.

Operationally, Kumba experienced a challenging first half which saw production volumes decreasing by 11% to 20.1 Mt
largely due to unscheduled plant maintenance in Q1 2019. We have made good progress in Q2 2019 with production 
increasing by 12% to 10.5 Mt from the first quarter. We remain cautious and production guidance for the year was 
revised down to 42 Mt to 43 Mt. Pleasingly, our logistical performance has improved significantly, supporting 
growth in export sales of 2% and our full year sales guidance which remains at 43 Mt to 44 Mt.

For the second half of the year we aim to improve our safety performance, increase production volumes and 
deliver on our full year R700 million cost-savings target while continuing to achieve optimal market premia. 
Our strategy to extend the life of our mines to over 20 years remains on track, thus providing a more sustainable 
future for our communities which depend on us. Our commitment to disciplined capital allocation and sustainable 
shareholder returns, together with our flexible and resilient balance sheet, ensures that we remain well-positioned 
to deliver sustainable returns.”

OPERATIONAL PERFORMANCE
Kumba experienced operational challenges in the first half, largely due to unscheduled maintenance. Total tonnes mined
decreased marginally by 2% to 138 Mt (H1 2018: 140.4 Mt), while total production volumes reduced by 11% to 20.1 Mt 
(1H1 2018: 22.5 Mt). Good progress was made in Q2 2019, with production increasing by 12% to 10.5 Mt from the first 
quarter.

Sishen's tonnes mined and production volumes decreased to 99.6 Mt (H1 2018: 105.1 Mt) and 13.8 Mt (H1 2018: 15.3 Mt),
respectively with waste movement at 82.8 Mt (H1 2018: 86.6 Mt). At Kolomela, mining productivity continued to improve as
demonstrated by the increase in total tonnes mined by 9% to 38.4 Mt, (H1 2018: 35.3 Mt), with waste stripping up 17% as 
planned to 30.9 Mt (H1 2018: 26.4 Mt). Total production decreased by 12% to 6.3 Mt (H1 2018: 7.2 Mt) due to the 
infrastructure upgrade of the dense media separation plant.

Significant improvement in the logistical performance contributed to the 2% growth in export sales to 19.9 Mt 
(H1 2018: 19.5 Mt). Total sales volumes increased marginally to 21.4 Mt (H1 2018: 21.2 Mt).
 
REVENUE AND EARNINGS BEFORE INTEREST, TAX, DEPRECIATION AND AMORTISATION (EBITDA)
Total revenue increased by 77% to R34.5 billion (H1 2018: R19.5 billion), largely driven by a 57% increase in the
average realised FOB iron ore price to US$108 tonne (H1 2018: US$69/tonne) and the Rand weakening by 16% on average against
the US Dollar (H1 2019: R14.20/US$1 compared to H1 2018: R12.30/US$1), while total sales volumes were broadly flat at 21.4 Mt
(H1 2018: 21.2 Mt).

Unit cash costs at Sishen mine increased by 20% to R370/tonne (FY 2018: R290/tonne), largely attributable to
lower production volumes and the utilisation of high-grade work-in-progress (WIP) stock. Kolomela mine incurred unit 
cash costs of R255/tonne (FY 2018: R249/tonne) as cost savings helped to partially offset cost escalation and lower
production volumes. Kumba achieved an average cash break-even price of US$32/tonne (62%Fe CFR China), an improvement of
US$14/tonne compared to the first half of 2018.

EBITDA of R20.1 billion (H1 2018: R7 billion) reflects an increase of 189% driven by a 35% gain through higher market
premia and increased sales, a 46% higher average Platts62 iron ore price and a 16% weaker currency. This
increase was partly offset by higher operating expenses resulting from an increase in royalties, inflation and a net 
freight loss incurred on shipping operations. Overall, the EBITDA margin improved to 58% (H1 2018: 36%).

Kumba achieved a net profit of R13.2 billion (H1 2018: R3.9 billion).

CASH FLOW
Cash flow generated from operations increased to R19.2 billion (H1 2018: R6.9 billion) which resulted in the group ending
the period with a net cash position of R18.8 billion (H1 2018: R11.7 billion; H2 2018: R11.7 billion) after allowing for
capital expenditure of R2.2 billion and the final 2018 cash dividend payment of R6.6 billion.

INTERIM CASH DIVIDEND DECLARED
In line with our capital allocation framework, the Board has declared an interim cash dividend per share of R30.79.

OUTLOOK
Looking ahead, we will continue to build on the momentum gained in the first six months of the year. Kumba's strategic
objectives are clear - we are targeting a US$10/tonne margin enhancement and a 20-year life of asset. This will allow
us to maximise value and shareholder returns while maintaining financial discipline.

To date in 2019, we have extended our fatality-free safety performance track record, delivered strong financial results 
and will be paying R13 billion of cash to our shareholders in dividends. Our aim in the second half, is to further improve 
on our safety performance, increase production volumes and deliver on our cost-savings target of R700 million, in addition to
continuing to achieve maximum market premia.

We are working hard to further progress our resource development plan and the feasibility study on our UHDMS technology, 
which will add to the life of Sishen mine is 80% complete. At Kolomela, we are unlocking the 85 Mt of resources under 
study and drilling activities are on schedule.

Due to the operational challenges experienced over the first few months of the year, our full year total production
guidance has been revised to 42 Mt to 43 Mt from 43 Mt to 44 Mt. Full year guidance for sales remained constant at 43 Mt
to 44 Mt as we continue to optimise our integrated sales and operations planning. Sishen's production guidance has been
revised to between 29 Mt and 30 Mt, while waste guidance remains unchanged at 170 Mt to 180 Mt. Due to the infrastructure 
upgrade of the DMS plant, we have revised Kolomela's production guidance to ~13 Mt, while waste guidance of 55 Mt to 60 Mt 
was maintained as previously guided.

In line with the revised production guidance at Sishen, the full year unit cash cost guidance of the mine was
increased to between R325/tonne and R335/tonne. Kolomela's unit cash cost guidance was revised down to between 
R255/tonne and R265/tonne.

Our capital expenditure for 2019, including deferred stripping, was revised slightly higher to R4.9 billion to 
R5.1 billion, from the previous range of R4.6 billion to R4.8 billion, due to an increase in deferred stripping 
and capital spares aimed at improving the performance and efficiency of our primary equipment and production plants.

EARNINGS PER SHARE
for the period ended
                                                   30 June      30 June           %      31 December    
Rand per share                                        2019         2018      change             2018    
Earnings
Basic                                                31.39         9.36         235            30.08    
Diluted                                              31.15         9.14         241            29.87    
Headline earnings                                                                                       
Basic                                                31.51         9.31         239            30.28    
Diluted                                              31.26         9.25         239            30.06    
Dividend                                                                                                
Interim                                              30.79        14.51         112            14.51    
Final                                                  n/a          n/a           -            15.73    

SALIENT FEATURES AND OPERATING STATISTICS
for the period ended
                                                   30 June      30 June           %      31 December    
                                                      2019         2018      change             2018    
Market information
Closing share price (Rand)                             499          295          69              283    
Market capitalisation (Rand million)               160,843       94,938          69           91,166    
Net asset value attributable to owners         
of Kumba (Rand per share)                           124.35       103.22          20           109.47    
Operating statistics ('000 tonnes)
Production                                          20,060       22,427         (11)          43,106    
Sishen mine                                         13,757       15,255         (10)          29,246    
Kolomela mine                                        6,303        7,172         (12)          13,860    
Sales                                               21,351       21,173           1           43,257    
Export sales                                        19,886       19,506           2           39,966    
Domestic sales                                       1,464        1,667         (12)           3,291    
Sishen mine FOR unit cost (Rand per tonne)
Unit cost                                           486.67       402.95          21           378.20    
Cash cost                                           370.44       309.45          20           289.97    
Kolomela mine FOR unit cost (Rand per tonne)
Unit cost                                           354.79       342.55           4           354.69    
Cash cost                                           255.31       232.36          10           248.56    

EXTRACTS FROM THE REVIEWED INTERIM RESULTS FOR THE PERIOD ENDED 30 JUNE 2019
This unreviewed short form announcement is the responsibility of the directors of the Company. The information disclosed 
is only a summary of the information in the reviewed full announcement and does not contain full or complete details. The 
full interim results announcement should be considered for any investment decisions. The full interim results announcement 
for Kumba is available for viewing at https://senspdf.jse.co.za/documents/2019/JSE/ISSE/KIO/KumbaInt19.pdf and on the 
Company's website www.angloamericankumba.com/investors/financial-results-centre.aspx. The interim results announcement is 
also available for inspection at the Company's registered office and the offices of our sponsors during normal business hours 
and is available at no charge. Alternatively, copies of the full announcement may be requested from the Company's investor 
relations department (penny.himlok@angloamerican.com).

Directors: 
Non-executive: MSV Gantsho (Chairman), MS Bomela, NS Dlamini, SG French (Irish), 
TP Goodlace (British/South African), NB Langa-Royds, SS Ntsaluba, BP Sonjica, DG Wanblad
Executive: TM Mkhwanazi (Chief Executive), BA Mazarura (Chief Financial Officer)

Sponsor to Kumba:
RAND MERCHANT BANK (A division of FirstRand Bank Limited)

www.angloamericankumba.com

23 July 2019

Date: 23/07/2019 07:05:00
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