To view the PDF file, sign up for a MySharenet subscription.

KUMBA IRON ORE LIMITED - Extracts from the reviewed interim results for the period ended 30 June 2020 and interim cash dividend declaration

Release Date: 28/07/2020 07:05
Code(s): KIO     PDF:  
Wrap Text
Extracts from the reviewed interim results for the period ended 30 June 2020 and interim cash dividend declaration

Kumba Iron Ore Limited is a member of the Anglo American plc Group
Registration number: 2005/015852/06
JSE share code: KIO
ISIN: ZAE000085346
INCOME TAX NUMBER: 9586/481/15/3
(Kumba or the Company or the group)


- Four years of fatality-free production
- R13 billion of shared value created
- Average realised FOB price of US$93/tonne                
- Protected EBITDA margin of 55%               
- ROCE of 84%                
- Net cash of R15.7 billion 
- Interim cash dividend of R19.60 per share

Themba Mkhwanazi, Chief Executive of Kumba said: "Kumba adapted its business quickly and comprehensively to meet the
human, operational and market challenges of the likely enduring reality of Covid-19. The Company delivered a strong
performance in the first half of the year, with EBITDA of R17.4 billion at a margin of 55%. We are a resilient and capital
efficient business with a robust balance sheet, well positioned to navigate the current environment and the longer term. 

The safety and health of our employees and contractors has always been our first priority. We have now marked four
years of being fatality free. In these unprecedented times it is even more critical to safeguard both lives and livelihoods
and support the ecosystem in which we operate. We have implemented an extensive WeCare programme across four pillars of
physical health, mental health, living with dignity, and community response that supports our workforce, communities
and suppliers. In practice, this programme includes screening and testing, workforce education and communication, mental
health support, contingency plans to ensure social distancing at work and to allow for periods of self-isolation, as well 
as remote working. We are contributing to our local communities by providing essential services such as water, healthcare, 
and medical services in partnership with the Provincial Department of Health and the local municipalities. With the support
of our host communities, unions and government and the safe practices of our people, we have been able to reopen and
ramp up production safely.

Kumba's production of 17.9 Mt and sales of 18.6 Mt were in line with our Covid-19 adjusted guidance for the first half 
of the year, following continued improvements as we returned to pre-Covid-19 run-rates in June. Our strong EBITDA
performance translated into R7.1 billion of attributable free cash flow. Taking into account our strong earnings, the
resilience required for our new operating conditions, and need for a robust balance sheet, the Board declared an interim
cash dividend of R19.60 per share, representing a payout ratio of 75% of headline earnings.

We remain committed to our strategic imperatives of margin enhancement and life extension which are key to our
sustainability. Our margin continued to benefit from constructive market prices and currency weakness, as well as the 
early and decisive action taken to protect our margin through additional cash preservation measures including delivering 
R700 million in cost savings for the year to date.

Kumba has been through challenging times before and we know how to respond. Our approach to navigating the pandemic is
based on ensuring the resilience of our business, living our values of care and respect, and fulfilling our purpose to
re-imagine mining to improve people's lives. We are building on our strategy to further strengthen our business and
ensure that we remain agile, resilient and able to meet the challenges that we face."

Kumba's operational performance for the period reflects the lockdown and subsequent reopening of operations in Q2 2020
with reduced workforce levels of approximately 50%, before ramping up production to pre-Covid-19 run-rates in June.
Consequently, total tonnes mined for the period decreased by 15% to 117.6 Mt (H1 2019: 138.0 Mt), with total waste 
reducing by 17% to 94.6 Mt (H1 2019: 113.8 Mt).

Both production and sales are closely managed in line with Transnet's logistical capacity, which increased to
approximately 80% in June 2020. As a result, total production was 11% lower at 17.9 Mt, relative to the 20.1 Mt delivered 
in the same period in 2019 with the impact of the pandemic most evident in the second quarter as volumes decreased by 20%. 

Total sales volumes declined by 13% to 18.6 Mt (H1 2019: 21.4 Mt), driven by lower domestic offtake by ArcelorMittal
SA of 0.4 Mt (H1 2019: 1.5 Mt), while export sales volumes decreased by 8% to 18.3 Mt (H1 2019: 19.9 Mt) due to
logistical constraints and severe coastal weather conditions impacting ship loading at Saldanha port.

Total revenue decreased by 8% to R31.6 billion (H1 2019: R34.5 billion), mainly as a result of lower prices and sales
volumes, partially offset by a weaker exchange rate.

Kumba's average realised iron ore export price decreased by 14% to US$93/tonne (H1 2019: US$108/tonne), while the
average Rand/US$ exchange rate weakened by 17% to R16.67/US$1 (H1 2019: R14.20/US$1). Sales volumes reduced by 13% to 
18.6 Mt (H1 2019: 21.4 Mt) due to lower exports of 1.6 Mt and lower domestic sales of 1.1 Mt. Shipping revenue increased 
by R569 million, benefitting from a weaker currency and higher volumes, partly offset by lower freight rates. 

EBITDA of R17.4 billion reflects a decrease of 14% compared with R20.1 billion in H1 2019. Currency gains from a
weaker exchange rate and reduced operating expenses provided support. However, this was offset by the lower average 
realised FOB price of US$93/tonne (H1 2019: US$108/tonne), the 2.7 Mt impact of lower sales volumes and inflation-led 
cost escalation. 

In line with this, Kumba's EBITDA margin decreased to 55% (H1 2019: 58%), with the mining operating margin declining to
53% (H1 2019: 56%), excluding a net freight loss incurred on shipping operations. 

Kumba ended the period with a net cash position of R15.7 billion (H1 2019: R18.4 billion). Cash flow generated from
operations was R15.0 billion (H1 2019: R19.2 billion), underpinned by EBITDA of R17.4 billion, while working capital
increased due to finished stock increasing to 6.2 Mt (FY 2019: 4.5 Mt).

Attributable and headline earnings per share were R26.21 and R26.19 (H1 2019: R31.39 and R31.51), respectively. In
line with Kumba's capital allocation framework and dividend policy, which targets a payout range of between 50% and 
75% of headline earnings, the Board has declared an interim cash dividend of R19.60 representing 75% of headline 

Safety, health and wellbeing will continue to be our first priority. We are committed to improving on our four-year
fatality-free track record through various initiatives to continue embedding safety behaviour and culture. The Covid-19
response measures implemented are being integrated into the way we operate and do business, and we will continue to
support our communities, business partners, suppliers and customers as part of our commitment to improving lives and

The extent of the impact of Covid-19 on Kumba's operational and financial performance, including our full-year 2020
guidance, will depend on many factors, including the duration and severity of the pandemic and related restrictions, 
all of which are uncertain and cannot be fully predicted. The implications for our export markets are still unfolding.
Although we are encouraged by China's recovery and the reopening of the European economies, we remain alert to the 
possibility of further risks developing, including a second wave of infection.

The Company's full-year 2020 guidance was revised together with our Covid-19 business response update. To date,
operational performance has been in line with expectations and our guidance is as follows:
- Total sales of 38 Mt to 40 Mt
- Total production of 37 Mt to 39 Mt
  - Sishen: ~26 Mt
  - Kolomela: ~12 Mt
- Waste:
  - Sishen: 145 Mt to 160 Mt
  - Kolomela: 45 Mt to 55 Mt

Kumba's unit costs were reviewed to take into account the Covid-19 adjusted production volume guidance and cost
savings target. Sishen's unit costs are expected to increase to between R385/tonne and R395/tonne, while Kolomela's unit 
costs remain between R280/tonne and R290/tonne with cost pressures from mining inflation and managing the Covid-19 impact
expected to continue. 

Since implementing our savings programme in 2018, we have saved R2.6 billion, and have effectively achieved our 2022
savings target two years ahead of time. With this in mind, and knowing we need to step up our rate of saving if we are 
to offset mining inflation, we are aiming to deliver a further R400 million of savings in the second half of 2020,
bringing the total for 2020 to R1.1 billion.

Our longer-term cost-saving targets are under review. In light of the uncertain and fluid environment in which we are
currently operating, we are monitoring developments and considering the potential risks and opportunities under various
scenarios ranging from the environment deteriorating further to positioning for recovery should conditions improve. Once
we have more certainty, we will provide an update on our longer-term cost-saving targets. 

Our capital expenditure guidance of between R5.6 billion to R6.1 billion for 2020 includes the deferral of R1.0
billion of non-critical capital expenditure to 2021.

Themba Mkhwanazi concluded: "Our competitive products, flexible value chain and geographically diverse customer
portfolio base ensure that we are in a position of strength. These unprecedented times further highlight the importance 
of maintaining our cost discipline, talented workforce and the ability to adapt quickly to a fast-evolving environment 
with care and respect for all of our stakeholders. We delivered a solid first half performance with R17.4 billion of 
EBITDA and R7.1 billion in attributable free cash flow. Our robust balance sheet and capital discipline provide us with 
the financial flexibility to allocate capital where it is needed most in our business during this time of uncertainty, while
delivering sustainable returns to our shareholders."

At the Board meeting on 27 July 2020, the directors approved a gross interim cash dividend of 1,960 cents per share on the 
ordinary shares from profits accrued during the period ended 30 June 2020. The dividend has been declared from income reserves.

The dividend will be subject to a dividend withholding tax of 20% for all shareholders who are not exempt from or do not 
qualify for a reduced rate of withholding tax. The net dividend payable to shareholders after withholding tax at a rate 
of 20% amounts to 1,568.00000 cents per share.

The issued share capital at the declaration date is 322,085,974 ordinary shares.

The salient dates are as follows:
Publication of declaration data                                                     Tuesday, 28 July 2020
Last day for trading to qualify and participate in the interim dividend           Tuesday, 18 August 2020
Trading ex-dividend commences                                                   Wednesday, 19 August 2020
Record date                                                                        Friday, 21 August 2020
Dividend payment date                                                              Monday, 24 August 2020

Share certificates may not be dematerialised or rematerialised between Wednesday, 19 August 2020 and
Friday, 21 August 2020, both days inclusive.

for the period ended                                                                     
                                                       30 June      30 June           %      31 December    
Rand per share                                            2020         2019      change             2019    
Basic                                                    26.21        31.39         (17)           50.73    
Diluted                                                  26.15        31.15         (16)           50.58    
Headline earnings                                                                                           
Basic                                                    26.19        31.51         (17)           50.88    
Diluted                                                  26.13        31.26         (16)           50.73    
Interim                                                  19.60        30.79         (36)           30.79    
Final                                                      n/a          n/a           -            15.99    

SALIENT FEATURES AND OPERATING STATISTICS                                                         
for the period ended                                                                              
                                                       30 June      30 June           %      31 December    
                                                          2020         2019      change             2019    
Market information                                                                                          
Closing share price (Rand)                                 463          499          (7)             417    
Market capitalisation (Rand million)                   149,158      160,843          (7)         134,326    
Net asset value attributable to owners
of Kumba (Rand per share)                               123.64       124.35          (1)          112.49    
Operating statistics ('000 tonnes)                                                                          
Production                                              17,924       20,060         (11)          42,388    
Sishen mine                                             12,362       13,757         (10)          29,175    
Kolomela mine                                            5,562        6,303         (12)          13,213    
Sales                                                   18,612       21,351         (13)          42,218    
Export sales                                            18,260       19,886          (8)          40,038    
Domestic sales                                             352        1,464         (76)           2,180    
Sishen mine FOR unit cost (Rand per tonne)
Unit cost                                               469.27       486.67          (4)          467.27    
Cash cost                                               325.40       370.44         (12)          345.11    
Kolomela mine FOR unit cost (Rand per tonne)
Unit cost                                               427.45       354.79          20           374.40    
Cash cost                                               306.40       255.31          20           270.38    

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 
on the Company's website and at 

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 

Directors: Non-executive: MSV Gantsho (Chairman), MS Bomela, SG French (Irish), TP Goodlace (British/South African),
MA Jenkins, 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)

For more information please

28 July 2020

Date: 28-07-2020 07:05:00
Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

Share This Story