Kumba Iron Ore Limited · JSE:KIO
Kumba Iron Ore — FY2017 Earnings Presentation
50 slides from Kumba Iron Ore's earnings presentation, 2017
Slide 1: Kumba Iron Ore 2017 Annual Financial Results
KUMBA IRON ORE LIMITED 2017 ANNUAL FINANCIAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2017 BUILDING ON FIRM FOUNDATIONS DELIVERING A SUSTAINABLE FUTURE ENHANCING OUTCOMES
Slide 2: Media and investor relations contacts
MEDIA Sinah Phochana sinah.phochana@angloamerican.com Tel: +27 12 683 7019 Mobile: +27 76 066 0655 INVESTOR RELATIONS Penny Himlok penny.himlok@angloamerican.com Tel: +27 12 622 8324 Mobile: +27 82 781 1888 www.angloamericankumba.com
Slide 3: Disclaimer
DISCLAIMER Certain statements made in this presentation constitute forward-looking statements. Forward-looking statements are typically identified by the use of forward-looking terminology such as ‘believes’, ‘expects’, ‘may’, ‘will’, ‘could’, ‘should’, ‘intends’, ‘estimates’, ‘plans’, ‘assumes’ or
Slide 4: Impressive performance across the board
IMPRESSIVE PERFORMANCE ACROSS THE BOARD Safety: Operations: Financials: fatality free and increased productivity benefit from improvement across and efficiency performance and price all metrics Capital allocation: Strategy: Outlook: strong transformation to delivering balance sheet full potential st
Slide 5: Fatality free
FATALITY FREE High potential incidents Lost time injuries Total recordable cases 46% 43% 20% FY16 FY17 0 Fatalities 0.17 LTIFR improvement from 0.28 0.65 TRCFR improvement from 0.78 2 NOTES Kumba Iron Ore Limited Annual financial results for the year ended 31 December 2017
Slide 6: Solid operating and financial performance
SOLID OPERATING AND FINANCIAL PERFORMANCE Production EBITDA Attributable free HEPS cash flow 8% 6% 10% 12% FY16 FY17 45Mt 19.6bn R12.3bn R30.47 R 3 NOTES Kumba Iron Ore Limited Annual financial results for the year ended 31 December 2017
Slide 7: EBITDA improvement due to efficiency and productivity gains
EBITDA IMPROVEMENT DUE TO EFFICIENCY AND PRODUCTIVITY GAINS Rm (1%) 7% 4 985 (4 063) (850) 19 558 18 410 (1 073) 18 275 2 133 (272) 288 (135) 1 283 FY16 Price Currency Inflation Royalties Shipping Total after Volume Opex FY17 non-controllables Operational performance 4 NOTES Kumba Iron Ore Limited A
Slide 8: Significant value shared
SIGNIFICANT VALUE SHARED Employees Shareholders Government Suppliers Communities R4.2bn R10bn R5.9bn R520m R107m salaries and owners of Kumba income tax host community direct social benefits suppliers investment R3.1bn R1.2bn empowerment royalties R9.4bn partners procurement from HDSA businesses 5 N
Slide 9: Market overview
MARKET OVERVIEW NOTES Kumba Iron Ore Limited Annual financial results for the year ended 31 December 2017
Slide 10: Higher steel production but slower iron ore supply expansion
HIGHER STEEL PRODUCTION BUT SLOWER IRON ORE SUPPLY EXPANSION China crude steel production & net exports1 (Mt) Global seaborne iron ore supply2 (Wmt) 1000 150 1800 CAGR 7.8% 3.6% 1600 1400 800 100 1200 Steel production Net exports 1000 600 800 50 600 400 400 200 200 0 0 2011 2012 2013 2014 2015 2016
Slide 11: Steel and iron ore prices diverged
STEEL AND IRON ORE PRICES DIVERGED Steel and iron ore Relationship between Platts lump premium prices in China and port stocks in China 650 150 0.50 17% China billet ($/t) Platts 62 index ($/t) Platts lump premium ($/dmtu) Lump % of total stocks 600 0.45 16% 130 0.40 550 Iron ore price ($/dmt CFR Qi
Slide 12: Record mill profitability buoying demand for premium ores
RECORD MILL PROFITABILITY BUOYING DEMAND FOR PREMIUM ORES Platts index premium and discount ($/dmt) China steel price and high grade premiums 30 650 30 25 600 25 20 550 15 500 20 P65/P62 differential ($/t) 10 450 Billet price ($/t) 5 400 15 $/t - 350 10 (5) 300 (10) 250 5 (15) 200 (20) 150 0 Jan-15
Slide 13: Realised FOB price at US$71/t
REALISED FOB PRICE AT US$71/t $/dmt Export sales geographical split 2 EU/MENA 18% (12) 7 Japan & Korea 17% China 63% 3 2% India & other Asia 71 71 Ex-China sales (Mt) 59 15.2 13.9 Platts 62 index Saldanha - Platts 62 index Fe premium Lump premium Marketing Achieved 2016 2017 CFR China Qingdao freigh
Slide 14: Kumba's competitive advantage
KUMBA’S COMPETITIVE ADVANTAGE 2017 average Fe content (%), Peer comparison 2017 achieved price ($/dmt, FOB), Peer comparison 63.9 64.1 Kumba 71 60.8 60.7 57.7 Peer 1 58 (est) Peer 1 Peer 2 Peer 3 Peer 4 Kumba 2017 Lump:Fine (%), Peer comparison Peer 2 65 66 Peer 3 64 29 25 5 2 Peer 4 41 Peer 1 Peer
Slide 15: Operational overview
OPERATIONAL OVERVIEW NOTES Kumba Iron Ore Limited Annual financial results for the year ended 31 December 2017
Slide 16: Sishen performance underpinned by improved productivity
SISHEN PERFORMANCE UNDERPINNED BY IMPROVED PRODUCTIVITY Sishen waste (Mt) Sishen production (Mt) 18% 10% ▪ 61% reduction in high potential incidents ▪ Waste up 18% to 162Mt driven by efficiencies ▪ Production up 10% to 31.1Mt from 162 31.1 higher plant throughput and yields 137 28.4 FY16 FY17 FY16 F
Slide 17: Operating model – structured approach for improvement
OPERATING MODEL – STRUCTURED APPROACH FOR IMPROVEMENT Sishen fleet productivity (kt/day) Highlights ▪ 62% productivity improvement on Sishen fleet 62% ▪ 31% increase in direct operating hours ▪ 4100 shovels tempo up 63% from 1H16 613 474 529 379 Effective planning and scheduling ▪ 80% improvement in
Slide 18: Kolomela continues strong performance
KOLOMELA CONTINUES STRONG PERFORMANCE Kolomela waste (Mt) Kolomela production (Mt) ▪ 154 days of zero harm 11% 9% ▪ Waste increased 11% to 55.6Mt ▪ Production up 9% to 13.9Mt ▪ Improved performance due to plant 55.6 13.9 and equipment efficiencies 50.2 12.7 FY16 FY17 FY16 FY17 Strip 3.7 3.4 ratio 15
Slide 19: Operational efficiencies from operating model
OPERATIONAL EFFICIENCIES FROM OPERATING MODEL Kolomela DSO product (kt/day) 23% ▪ Significant improvement from 1H16 to 2H17 40.5 45.3 36.7 38.1 ▪ 23% increase in DSO plant production − Improved DOH and tempo 1H16 2H16 1H17 2H17 − Improved reliability Operating Model “go-live” APC roll-out ▪ 18% incr
Slide 20: Logistics performance reflects higher production
LOGISTICS PERFORMANCE REFLECTS HIGHER PRODUCTION Railed to port (Mt) Total shipped (Mt) Total sales (Mt) 6% 7% 6% 42.0 41.6 44.9 42.5 39.8 38.7 FY16 FY17 FY16 FY17 FY16 FY17 17 NOTES Kumba Iron Ore Limited Annual financial results for the year ended 31 December 2017
Slide 21: Financial overview
FINANCIAL OVERVIEW NOTES Kumba Iron Ore Limited Annual financial results for the year ended 31 December 2017
Slide 22: Financial performance highlights
FINANCIAL PERFORMANCE HIGHLIGHTS EBITDA (Rbn)1 ▪ Revenue increased 14% to R46bn 65% ▪ EBITDA of R19.6bn up 6% 18.4 19.6 11.9 ▪ Headline earnings of R9.7bn up 12% FY15 FY16 FY17 ▪ Capex of R3.1bn supports production HEPS (R/share) ▪ Attributable free cash flow of R12.3bn up 10% 158% ▪ 2017 dividend o
Slide 23: Revenue growth from stronger prices and higher volumes
REVENUE GROWTH FROM STRONGER PRICES AND HIGHER VOLUMES Rm 46 379 1 657 (4 108) 4 404 5 930 2 133 40 767 2 747 41 975 38 020 FY16 Price Currency Volume Shipping FY17 Mining operations Shipping ▪ Revenue increased by 14% ▪ Realised average FOB export price rose 11% to $71/t (FY16: $64/t) ▪ 9% stronger
Slide 24: Sishen: improved unit cost through operating efficiencies
SISHEN: IMPROVED UNIT COST THROUGH OPERATING EFFICIENCIES R/t 30 (28) 3 16 (30) 296 287 6% (9%) FY16 Inflation Cost Mining Production Deferred stripping FY17 escalation volume volume Unit cash cost 1 ▪ CPI of 5.3% ▪ Cost escalation due to higher diesel price ▪ Mining cost driven by increased volumes
Slide 25: Kolomela: unit cost driven by plant feedstock
KOLOMELA: UNIT COST DRIVEN BY PLANT FEEDSTOCK R/t (21) 43 (2) 5 11 237 201 8% 9% FY16 Inflation Cost Mining Production Deferred stripping FY17 escalation volume volume 1 Unit cash cost ▪ CPI of 5.3% ▪ Cost escalation due to higher fuel prices ▪ Increased mining cost due to higher volumes and modular
Slide 26: Breakeven - controllable costs contained
BREAKEVEN - CONTROLLABLE COSTS CONTAINED Platts 62% Breakeven Price ($/t) $1 $10 4 5 1 1 40 29 FY16 Controllable costs Price impact Freight Currency FY17 Controllables Non-controllables ▪ Breakeven price up $11/t from FY16 average ▪ Non-controllable costs up $10/t ▪ Controllable costs up $1/t driven
Slide 27: Capital expenditure supports production targets
CAPITAL EXPENDITURE SUPPORTS PRODUCTION TARGETS Rbn 3.9 – 4.1 ▪ 2017 SIB capex boosted operational infrastructure in support of production ▪ Increased capitalisation of deferred stripping 3.1 1.4 – 1.5 due to higher stripping ratio at Sishen 2.4 1.2 Medium term 0.3 0.5 ▪ Fleet renewal and infrastruc
Slide 28: Strong, flexible balance sheet
STRONG, FLEXIBLE BALANCE SHEET Rm 125% 461 (5 883) (3 074) (6 743) 516 (1 559) 22 432 (5 114) (6 333) (1 502) (4 831) 13 874 6 165 7 542 2016 Cash generated Net finance Tax paid Capex Other Interim 2017 Final 2017 Pro-forma from operations income 2017 dividend dividend cash retained (incl. minoritie
Slide 29: Enhancing returns for all stakeholders
ENHANCING RETURNS FOR ALL STAKEHOLDERS Disciplined capital allocation to sustain Additional margin Free cash flow Strict cost stewardship and grow core assets extraction from entire generation after across the business value chain sustaining capex Return of excess capital unless value accretive inve
Slide 30: Strategy
STRATEGY NOTES Kumba Iron Ore Limited Annual financial results for the year ended 31 December 2017
Slide 31: Transformation to full potential
TRANSFORMATION TO FULL POTENTIAL $ Restructuring Step-up Asset base Leveraging Growth performance full potential endowment options 2016 2017 2018 Restructuring Elimination of Horizon 1: Horizon 2: Horizon 3: completed fatalities Operational full potential Growing the core and Opportunistic value Min
Slide 32: Horizon 1: Optimising our assets
HORIZON 1: OPTIMISING OUR ASSETS Operational External Integrated sales & More effective full potential spend operations planning organization OEEs1 still below best Total expenditure ~R28bn Recent step change in the Leaner organisation post 2016 Current situation practices (e.g. 40-60% (over 1 500 s
Slide 33: Horizon 2: Investing to grow the core
HORIZON 2: INVESTING TO GROW THE CORE Completed Construction Pre-feasibility Conceptual 2–3 years 3-10 years Sishen and Kolomela Sishen Sishen Northern Cape UHDMS modular plants 2nd Modular UHDMS plant DMS upgrade to UHDMS full potential Sishen: Reprocessing of remaining JIG Leveraging proven UHDMS
Slide 34: Guidance
GUIDANCE NOTES Kumba Iron Ore Limited Annual financial results for the year ended 31 December 2017
Slide 35: Guidance
GUIDANCE Sishen Kolomela Production: 30 – 31Mt in 2018 Production: ~14Mt in 2018 Waste: 170 – 180Mt in 2018 Waste: 55 – 57Mt in 2018 Unit costs: R295 to R305 in 2018 Unit costs: R240 to R250 in 2018 Strip ratio: to exceed 4 in 2018, LoM ~4 Strip ratio: to exceed 3.5 in 2018, LoM ~4 LoM: 13 years LoM
Slide 36: Unlocking full potential
UNLOCKING FULL POTENTIAL Safe, efficient Sound Well positioned and productive financial for long term operations discipline sustainability 33 NOTES Kumba Iron Ore Limited Annual financial results for the year ended 31 December 2017
Slide 37: Questions
QUESTIONS NOTES Kumba Iron Ore Limited Annual financial results for the year ended 31 December 2017
Slide 38: Annexures
ANNEXURES NOTES Kumba Iron Ore Limited Annual financial results for the year ended 31 December 2017
Slide 39: Annexure 1: Logistics performance reflects higher production
ANNEXURE 1: LOGISTICS PERFORMANCE REFLECTS HIGHER PRODUCTION Mt FY17 FY16 % change 2H17 1H17 % change Railed to port (incl. Saldanha Steel) 42.0 39.8 6 21.2 20.8 2 Sishen mine (incl. Saldanha Steel) 28.5 26.8 6 14.1 14.4 (2) Kolomela mine 13.5 13.0 4 7.1 6.4 11 Total sales 44.9 42.5 6 23.7 21.2 12 E
Slide 40: Annexure 2: Robust operating margin and healthy cash generation
ANNEXURE 2: ROBUST OPERATING MARGIN AND HEALTHY CASH GENERATION Rm FY171 FY161 % change 2H171 1H171 % change Revenue 46 379 40 767 14 24 879 21 500 16 Operating expenses (25 058) (25 451) 2 (11 205) (13 853) 19 Operating profit 21 321 15 316 39 13 674 7 647 79 Operating margin (%)2 36 38 (2) 36 36 -
Slide 41: Annexure 3: Revenue sector analysis
ANNEXURE 3: REVENUE SECTOR ANALYSIS FY17 FY16 % change 2H17 1H17 % change Export (Rm) 39 261 35 161 12 20 886 18 375 14 Tonnes sold (Mt) 41.6 39.1 6 22.1 19.5 13 US Dollar per tonne 71 641 11 71 71 - Rand per tonne 944 899 5 945 942 0.3 Domestic (Rm) 2 714 2 862 (5) 1 283 1 431 (10) Shipping operati
Slide 42: Annexure 4: Operating expenditure driven by volume growth
ANNEXURE 4: OPERATING EXPENDITURE DRIVEN BY VOLUME GROWTH Rm 28 608 436 1 369 470 (839) 1 505 5 815 24 461 1 206 Mining Logistics 5 379 2 342 1 805 4 486 3 117 18 307 15 965 FY16 Mining operations Stock Deferred stripping Escalation, Shipping Selling and FY17 movement non-cash and forex distribution
Slide 43: Annexure 5: Aggregate operating expenditure
ANNEXURE 5: AGGREGATE OPERATING EXPENDITURE Rm FY17 FY16 % change 2H17 1H17 % change Cost of goods sold 18 306 15 965 15 9 521 8 785 8 Cost of goods produced 16 588 15 160 9 8 435 8 153 3 Production costs 16 360 15 470 6 8 704 7 656 14 Sishen mine 11 164 11 372 (2) 5 828 5 336 9 Kolomela mine 4 708
Slide 44: Annexure 6: Sishen and Kolomela unit cash cost structure (R/t)
ANNEXURE 6: SISHEN AND KOLOMELA MINES’ UNIT CASH COST STRUCTURE (R/t) 287 296 74 237 80 201 52 50 43 47 30 59 26 64 96 58 68 44 13 28 27 12 10 10 14 15 53 4 4 46 32 31 (3) (30) (18) (18) Sishen mine Sishen mine Kolomela mine Kolomela mine FY16 FY17 FY16 FY17 Deferred stripping Other Energy Drilling
Slide 45: Annexure 7: Sishen and Kolomela unit cash cost structure (%)
ANNEXURE 7: SISHEN AND KOLOMELA MINES’ UNIT CASH COST STRUCTURE (%) 27 23 21 20 12 12 14 16 21 19 31 38 15 18 13 10 4 4 6 3 3 2 6 2 16 17 15 12 Sishen mine Sishen mine Kolomela mine Kolomela mine FY16 FY17 FY16 FY17 Other Energy Drilling and blasting Maintenance Outside services Fuel Labour 42 NOTES
Slide 46: Annexure 8: Capital expenditure analysis
ANNEXURE 8: CAPITAL EXPENDITURE ANALYSIS 12 months Rm 2016 2017 31 Dec 2018 Forecast Approved expansion 856 575 ~500 Deferred stripping 321 1 194 1 400 – 1 500 Sishen 88 942 1 200 – 1 300 Kolomela 233 252 ~200 SIB Sishen 875 793 1 300 – 1 400 SIB Kolomela 301 507 ~700 Total capital expenditure 2 353
Slide 47: Annexure 9: Sensitivity analysis
ANNEXURE 9: SENSITIVITY ANALYSIS 1% change to key operational drivers, each tested independently Sensitivity analysis (1% change) – EBITDA impact (Rm) (265) Export volume 265 (380) Export price 380 (400) Currency 400 -500 -400 -300 -200 -100 0 100 200 300 400 500 Change per unit of key operational d
Slide 48: Notes
NOTES Kumba Iron Ore Limited Annual financial results for the year ended 31 December 2017
Slide 49: Slide 49
Slide 50: Kumba Iron Ore contact details
Kumba Iron Ore Centurion Gate – Building 2B 124 Akkerboom Road Centurion 0157 www.angloamericankumba.com A member of the Anglo American plc group www.angloamerican.com Find Us On Facebook Follow Us On Twitter