Anglo American – Kumba Iron Ore - Interim financial results/media/Files/A/Anglo-American... · FY '08 Inflation Cost escalation Asset optimisation Mining volume Production volume

Interim financial results23 July 2009

2

Highlights• Outstanding safety performance continues• Sishen Mine 10% production growth on track: 18.0Mt in 1H09, +14%• Solid increase in export sales volumes: +29% to 17.1Mt• Stockpiles reduced to 4.6Mt, down from a peak of 7.5Mt• Cost management and revenue enhancement initiatives progressing well:

over R700 million operating profit generated• Strong cash flow generation: cash flow from operations R7.5 billion, +63%• Cash returned to shareholders: Interim dividend of R2.3 billion declared

Highlights Safety Operational Financial Projects Outlook Summary Q&A

3

Safety

4

Safety: Outstanding performance continues• Regrettably one fatality at Sishen South Project during January 2009• Improved LTIFR: -33% to 0.08• Thabazimbi Mine LTI free for 21 months by period end• Thabazimbi Mine now almost 7 years without a fatality• Commitment to zero harm, visible achievements

*****

*

*

0

0.2

0.4

0.6

0.8

1

2002 2003 2004 2005 2006 2007 2008 1H '09

LTIF

R

* Fatality

Safety Operational Financial Projects Outlook Summary Q&A

5

Operational review

6

• Sishen Mine production up 14% to 18.0Mt• DMS production of 13.6Mt• Jig plant production ramps up to 4.4Mt• Additional high-cost production initiatives discontinued• Increased waste volumes as planned

Sishen Mine: On track for 10% production growth FY09

Mt6 months

30 Jun 20096 months

30 Jun 2008 % change6 months

31 Dec 2008 % change

Total tonnes mined 58.3 50.9 15% 56.7 3%

Waste mined 37.6 29.3 28% 33.7 12%

ROM production 22.2 21.7 2% 22.9 (3%)

Final product 18.0 15.8 14% 18.2 (1%)

– DMS 13.6 14.0 (3%) 14.4 (6%)

– Jig 4.4 1.3 3.4 29%

– Other – 0.5 0.4

Stripping ratio 1.69 1.35 1.47

Operational review Financial Projects Outlook Summary Q&A

7

Sishen Mine: DMS plant• Production stable at 13.6Mt for the period, despite increasing geological complexity• Continued focus on quality of products in current market conditions


8

Sishen Mine: Jig plant (SEP)• Production of 4.4Mt for the period: contributing 24% of Sishen Mine’s production• 830Kt achieved in June: annualised equivalent production of 10Mtpa• On track to reach nameplate capacity of annualised rate of 13Mtpa in Q4 of 2009

0.2

1.3

4.4

3.4

0

1

2

3

4

5

2H2007 1H2008 2H2008 1H2009

Mt


9

Sishen Mine: Logistics and sales• Export sales volumes up strongly: +29% to 17.1Mt• Stock levels reduced to 4.6Mt, below 2008 closing levels of 5.8Mt• Reduced demand from Europe, Japan and Korea; volumes successfully redirected

to China• Domestic sales reduced in line with demand: -26% to 2.0Mt

Mt6 months

30 Jun 20096 months



Production 18.0 15.8 14% 18.2 (1%)

Railed to port 16.7 12.7 31% 15.1 11%

Total sales 19.1 16.0 19% 14.5 32%

Sales – export 17.1 13.3 29% 11.6 47%

Sales – domestic 2.0 2.7 (26%) 2.9 (31%)


10

Thabazimbi Mine

10

• Record safety performance• Production and sales dependent on demand from AMSA• Increased product stock levels

Mt6 months

30 Jun 20096 months



Total tonnes mined 6.9 5.6 23% 6.6 5%

Waste mined 5.6 3.9 44% 5.0 12%

ROM production 1.3 1.7 (24%) 1.5 (13%)

Production 1.1 1.3 (15%) 1.4 (21%)

Sales – domestic 0.9 1.3 (31%) 1.2 (25%)

Stripping ratio 4.3 2.3 3.3


11

Iron ore market• Steel mills in Europe, Japan and Korea operating at 60-70% of capacity on average

• Iron ore imports into these regions further negatively affected by destocking

• Annualised steel production in China up by almost 10% from 2008 average. Coupled with lower Chinese domestic iron ore production, resulted in record seaborne iron ore imports

• Increased focus on non-contractual customers in China, to absorb contractual volume shortfalls in Europe, Japan and Korea

• China accounted for more than 80% of Kumba’s export sales in 1H09

• Despite weak market conditions, Kumba signed new long-term contracts with Hyundai and Handan; active customer development in other regions continues

• Domestic volume down, in line with lower AMSA demand


12

Financial review

13

Highlights• Revenue up 33% from R9.0 billion to R12.0 billion

• Operating profit up 31% to R6.8 billion

• Over R700 million operating profit benefit from asset optimisation

• Headline earnings R3.4 billion (R10.76 per share), +22% year on year

• Cash generated by operations R7.5 billion

• Interim cash dividend of R2.3 billion declared (R7.20 per share)

12.012.3

9.0

0

5

10

15

1H2008 2H2008 1H2009

R b

illio

n

Revenue

6.85.2

8.3

0

3

6

9

1H2008 2H2008 1H2009

R b

illio

n

Operating profit

Financial review Projects Outlook Summary Q&A

14

Financial overview• Strong financial performance with cash generated of R7.5 billion• Sishen Mine unit cash cost contained at R104/tonne, below inflation

(Rm)6 months

30 Jun 20096 months



Revenue 11 987 9 048 33% 12 312 (3%)

Operating expenses (5 166) (3 802) (36%) (4 045) (28%)

Operating profit 6 821 5 246 31% 8 267 (17%)

Operating margin (%) 57 58 2% 67 –

Profit attributable 4 344 3 545 23% 5 538 (22%)

– Equity holders of Kumba 3 435 2 816 22% 4 392 (22%)

– Minority interest 909 729 25% 1 146 (21%)

Headline earnings 3 422 2 816 22% 4 460 (23%)

Effective tax rate (%) 27 28 – 27 –

Capital expenditure 1 500 806 86% 1 757 (15%)

Cash generated from operations 7 503 4 581 64% 9 938 (25%)


15

Revenue variance

333 556

4 695

1 426

3 142

5 909

434

870

11 98712 312

9 048

3 000

5 000

7 000

9 000

11 000

13 000

15 000

17 000

H1 '08 Volume Price Shipping Currency H2 '08 Volume Price Shipping Currency H1 '09

Rm

• Revenue increased by 33% YOY, driven by 29% increase in export sales volumes


16

Sishen Mine – cash cost variance• 8% increase in cash costs (FOR) vs. FY08:

– Inflation– 23% increase in waste mined

• Offset by 14% increase in production volumes• Focus on cost management and efficiency improvements


10.08

2.278.35

3.93

9.18

104.12(US$11.37)

96.53(US$10.54)

90

95

100

105

110

115

FY '0

8

Infla

tion

Cos

tes

cala

tion

Ass

etop

timis

atio

n

Min

ing

volu

me

Prod

uctio

nvo

lum

e

H1

'09

Cas

h co

st (R

/tonn

e)

17

Selling and distribution costs

212

144 152 95

1 468

1 112

865

0

200

400

600

800

1 000

1 200

1 400

1 600

1 800

2 000

H1 '08 Volume Cost H2 '08 Volume Cost H1 '09

Rm

• Increase of 70% YOY, driven by increase in volumes:– Volumes railed: +31% to 16.7Mt– Volumes shipped: +29% to 17.3Mt


18

Shipping operations – operating profit (US$)• Increase in volumes: +8.5Mt to 12.1Mt• Offset by lower freight margins achieved


114

20

15 32

75

65

(2)

37

- 5

15

35

55

75

95

115

H1

'08

Volu

me

Frei

ght

mar

gin

Prov

isio

n

H2

'08

Volu

me

Frei

ght

mar

gin

H1

'09

US$

m

19

Revenue enhancement and cost management• Asset optimisation delivering benefits: R726 million contribution to 1H09 operating profit

– R520 million through revenue enhancement– R206 million through cost reduction and containment– Promising results from the Sishen Mine transformation programme

• Cost management focus on controllable/discretionary spend


Rm6 months

30 Jun 2009

Revenue enhancement 520

Cost reduction and containment 206

– Continuous improvement 18

– Supply chain 188

Capital expenditure saving 58

Cost avoidance 249

• Increasing shipping operation volumes – R305m• Development of niche products – R91m• Increasing production volumes through planned plant

shutdown optimisation – R124m

• Increasing the load factor of the haul truck fleet and the availability of drills

• Commercial negotiation driving cost reduction andcost containment

• Partial freezing of vacancies, focus on overtime and discretionary spend

20

• Strong cash flow generation (63% increase year on year)• Sishen South Project continues despite market conditions

Cash flow analysis


7 503

9 938

4 581

623

217

348

1 134

589

1 1528 181

3 775

6 003

1 000

2 000

3 000

4 000

5 000

6 000

7 000

8 000

9 000

10 000

H1 '08 H2 '08 H1 '09 H2 '09 FY '10

Rm

Cash generated Capital – SIB Capital – expansion Cash available after capex

Current possible capex range

2 000 to 2 500

Current possible capex range

4 000 to 4 500

21

Cash flow variance• Strong cash flow generation• R5.3 billion returned to shareholders (including R1.2 billion to BEE shareholders)• Capital expenditure funded by debt


7 503

1 681 201

125 1 112

4 137

1 1641 500

5 157

3 810

0

2 000

4 000

6 000

8 000

10 000

12 000

Ope

ning

bala

nce

Cas

hge

nera

ted

Inte

rest

Tax

Div

iden

ds

Min

ority

divi

dend

s

Net

deb

tra

ised

Cap

ital

expe

nditu

re

Oth

er

Clo

sing

bala

nce

Rm

(Net debt R48 million)

(Net debt R383 million)

22

Gearing• Net debt position increased as capital expenditure funded through borrowing facilities• R3.2 billion term loan secured to refinance maturing facility

(Rm) 30 Jun 2009 30 Jun 2008 31 Dec 2008

Interest-bearing borrowings 5 540 4 303 3 858

Cash and cash equivalents (5 157) (2 009) (3 810)

Net debt 383 2 294 48

Total equity 7 387 5 511 8 506

Interest cover (times) 51 27 33

Gross debt/equity (%) 75 78 45

Gross debt/market capitalisation (%) 9.6 4.3 7.5


23

Kumba dividend• Interim cash dividend declared: R7.20 per share• Dividend cover of 1.5 times earnings

Interim dividend Final dividend

30 Jun 2009 30 Jun 2008 31 Dec 2008

Earnings per share (Rand per share) 10.81 8.90 13.90

Dividend per share (Rand per share) 7.20 8.00 13.00

Total dividend declared (Rm) 2 300 2 537 4 153

Dividend cover (times) 1.5 1.1 1.1


24

Projects

25

Sishen South Project• One million man-hours achieved without an LTI• Project continues, despite current market conditions, on time and on budget• First production remains on schedule for 1H 2012, full production expected in 2013• R1.8 billion capital expenditure spent to date, R3.6 billion contractually committed

Projects Outlook Summary Q&A

26

Outlook

27

Outlook: 2H 2009Production volumes• Committed to 10% increase in volumes as planned for 2009 – market permitting• Jig plant ramp-up continues – design capacity expected in Q4Sales volumes• Limited visibility in the export markets for 2H

– No clear and convincing signs of recovery seen yet in Europe– Japan and Korea may be near the bottom, small improvement possible– China still uncertain but cautiously optimistic on ability to redirect volumes into China

• Domestic volumes dependent on off-take from AMSAProfitability*• Price settlements anticipated within three months• 2H09 price declines will affect profitability• Operating profit remains highly sensitive to the Rand/US$ exchange rate• Continued focus on sales, preserving cash and containing costs* The forecast financial information has not been reviewed and reported on by Kumba’s auditors.

Outlook Summary Q&A

28

Summary

29

Summary• Kumba had a strong 1H and continues to perform well• Kumba remains committed to zero harm• Kumba continues to return significant amount of cash to shareholders• Kumba has delivered volume growth• Kumba is focused on cost management and revenue enhancement• Kumba’s Sishen South expansion continues full steam ahead

“We see what could be”

Summary Q&A

30

Q&A

31

Annexures

Revenue – sector analysis

(Rm)6 months

30 Jun 20096 months



Export 9 820 7 034 40% 10 513 (7%)

– Tonnes sold (Mt) 17.1 13.3 29% 11.6 47%

Domestic (Sishen Mine) 355 331 7% 430 (17%)

– Tonnes sold (Mt) 2.0 2.7 (26%) 2.9 (31%)

– Rand per tonne 178 123 45% 148 20%

Domestic (Thabazimbi Mine) 267 260 3% 380 (30%)

– Tonnes sold (Mt) 0.9 1.3 (31%) 1.2 (25%)

– Rand per tonne 297 202 47% 317 (6%)

Shipping operations 1 545 1 423 9% 989 56%

Total revenue 11 987 9 048 33% 12 312 (3%)

32

Aggregate operating expenditure

(Rm)6 months

30 Jun 20096 months



Cost of good sold 2 470 1 961 26% 1 830 35%

Production costs 2 415 1 825 32% 2 633 (8%)

– Sishen Mine 2 067 1 511 37% 2 258 (8%)

– Thabazimbi Mine 321 274 17% 354 (9%)

– Other 27 40 (33%) 21 29%

Inventory movement (110) 97 (386)

– A grade (17) 38 65

– B grade 24 (160) (42)

– Finished product (117) 219 (409)

Other 165 39 (417)

Sublease rentals (6) (3) 100% (3) 100%

Selling and distribution 1 468 865 70% 1 112 32%

Shipping operations 1 234 979 26% 1 106 12%

Operating expenditure 5 166 3 802 36% 4 045 28%

Annexures

33

Headline earnings

(Rm)6 months

30 Jun 20096 months

31 Jun 20086 months

31 Dec 2008

Profit 3 435 2 816 4 392

Net (profit)/loss on disposal or scrapping ofproperty, plant and equipment (22) – 12

Impairment of property, plant and equipment – – 50

Realisation of foreign currency translation reserve – – 19

3 413 2 816 4 473

Taxation effect of adjustments 6 – (9)

Minority interest in adjustments 3 – (4)

Headline earnings 3 422 2 816 4 460

Annexures

34

Reconciliation of attributable profit

(Rm)6 months

30 Jun 20096 months

31 Jun 20086 months

31 Dec 2008

Profit 4 344 3 545 5 538

Attributable to minority interests (909) (729) (1 146)

– Exxaro (20%) (867) (714) (1 121)

– SIOC Community Development Trust (4) (4) (4)

– SIOC Employee Share Participation Scheme (38) (11) (21)

Attributable to owners of Kumba Iron Ore 3 435 2 816 4 392

Annexures

35

Reconciliation of minority interest

(Rm)6 months

30 Jun 20096 months

31 Jun 20086 months

31 Dec 2008

Minority interest – opening balance 1 647 661 1 067

Profit for the year 909 729 1 146

– Exxaro 867 714 1 121

– SIOC Community Development Trust 4 4 4

– Envision 38 11 21

Dividends paid (1 138) (358) (693)

– Exxaro (1 122) (351) (685)

– SIOC Community Development Trust (4) (4) (4)

– Envision (38) (11) (21)

– Recoupment of Envision dividend* 26 8 17

Interest in movement in equity reserves (37) 35 127

Minority interest – closing balance 1 381 1 067 1 647

* Minority interest in the recoupment by SIOC of the dividend received by Envision

Annexures

36

SIOC dividend• R808 million in cash returned to BEE shareholders

(Rm)

Interim dividend

30 Jun 2009Total dividend

2008Final dividend31 Dec 2008

Interim dividend

30 Jun 2008

Gross dividend declared by SIOC 3 419 9 928 6 173 3 755

STC 311 888 561 327

Dividend declared by SIOC 3 108 9 040 5 612 3 428

– Kumba 2 300 6 690 4 153 2 537

– Exxaro 622 1 808 1 123 685

– SIOC Community Development SPV 93 271 168 103

– Envision 93 271 168 103

Annexures

37

Sishen Mine – cost structure (R/tonne)

23.99 25.50 24.97 27.97

15.26 20.52 22.1910.77

12.9212.26

12.9714.15

19.4817.08 12.95

24.69

21.04 21.51

24.96

7.25

9.848.67 10.87

3.12

4.99

4.12 4.13

1.73

2.47

2.11 2.3917.12

-

20

40

60

80

100

120

2008 H1 2008 H2 2008 2009 H1Period

R/to

nne

Labour Outside services Maintenance Fuel Depreciation Drilling and blasting Energy Other

Annexures

38

Sishen Mine – cost structure (%)

26 20 22 24

1620 19 19

12 17 18 11

1516 15

11

9

18 13 1220

888 4

443

222

2

-

10

20

30

40

50

60

70

80

90

100

2008 H1 2008 H2 2008 2009 H1Period

%

Labour Outside services Maintenance Fuel Depreciation Drilling and blasting Energy Other

Annexures

Documents

Anglo American – Kumba Iron Ore - Interim financial results/media/Files/A/Anglo-American... · FY '08 Inflation Cost escalation Asset optimisation Mining volume Production volume