Kumba Iron Ore Limited · JSE:KIO
Kumba Iron Ore — H1 2019 Earnings Presentation
42 slides from Kumba Iron Ore's earnings presentation, July 2019
Slide 1: Kumba Iron Ore Interim Financial Results for the six months ended 30 June 2019
KUMBA IRON ORE LIMITED INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2019 UNLOCKING OUR FULL POTENTIAL DISCIPLINED GROWTH FOR A SUSTAINABLE FUTURE
Slide 2: Investor Relations and Media contacts
INVESTOR RELATIONS Penny Himlok penny.himlok@angloamerican.com Tel: +27 12 622 8324 Mobile: +27 82 781 1888 MEDIA Sinah Phochana sinah.phochana@angloamerican.com Tel: +27 12 683 7019 Mobile: +27 76 066 0655 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: Fatality free record, SHE performance is our first priority
3 year fatality free record, SHE1performance is our first priority Safety Health Environment 73 Occupational health (new cases) Major incidents (level 3-5) 53 5 0 45 42 1H18: 0 1H18: 0 22 23 23 17 13 Voluntary HIV testing (employees) Rehabilitation (land reshaped) 17 11 80% 22ha 7 11 3 7 1H15 1H16 1
Slide 5: Our value over volume strategy is paying dividends
Our value over volume strategy is paying dividends Demand for premium product Strong EBITDA growth Exceptional returns Export sales EBITDA ROCE1 (%) 19.9Mt R20.1bn 32 105 1H18: 19.5Mt 1H18: R7bn 1H18 1H19 Realised price a differentiator Resilient balance sheet Dividend commitment Average realised FO
Slide 6: Committed to South Africa, partnering for long-term success
Committed to South Africa, partnering for long-term success Rewarding employee talent Contributing to South Africa Supporting local businesses R2.4bn R3.0bn R940m Salaries and benefits Income tax Host community suppliers 1H18: R2.3bn 1H18: R1.3bn 1H18: R451m R867m R6.2bn Mineral royalty Procurement
Slide 7: Continuing to unlock our full potential
Continuing to unlock our full potential Margin enhancement Life extension EBITDA margin (%) ✓Premium product portfolio 68% lump ✓ Sishen: UHDMS feasibility 61% 1H18 68% lump 80% completed 58 ✓ Improved efficiency 67% ✓Kolomela: Ploegfontein 85Mt 36 1H18 63% 33% of exploration programme completed ✓ C
Slide 8: Marketing and Operational Overview
Marketing and Operational Overview 6 NOTES Kumba Iron Ore Limited Reviewed interim results for the six months ended 30 June 2019
Slide 9: Record steel production in China and tight seaborne iron ore supply
Record steel production in China and tight seaborne iron ore supply China Crude Steel Production (Mt) Global Seaborne Iron Ore Supply (Wet Mt) 1 494 1 544 1 536 1 485 1 404 1 418 990 928 1 258 871 822 822 804 808 2013 2014 2015 2016 2017 2018 1H19 1 2013 2014 2015 2016 2017 2018 1H19 1 WSA Crude ste
Slide 10: Premia supported by tighter supply, but limited by mill margins
Premia supported by tighter supply, but limited by mill margins Relationship Between Platts Lump Premium Mill Margin and High Grade Premiums in China and Port Stocks in China (US$/t) Platts lump premium average 0.17 0.14 0.15 0.15 0.25 0.341 ($/dmtu) 300 30 0.5 18% Platts lump premium ($/dmtu) Lump
Slide 11: Focusing on a more diverse customer portfolio resulting in higher premia
Focusing on a more diverse customer portfolio resulting in higher premia Geographic split, 1H16 – 1H19 (%) 5% 1% 3% 1% 20% 19% 18% 16% 1H16 65% 1H17 60% 1H18 57% 1H19 49% 14% 19% 21% 32% China EU/MENA/Americas JKO1 India Kumba product quality evolution, 1H16 – 1H19 (%) Price premium, $/dmt over Plat
Slide 12: Quality is our competitive advantage
Quality is our competitive advantage 1H19 Lump:fine ratio comparison (%) 1H19 Realised price comparison $/dmt, FOB 68 Kumba 108 29 24 Peer 1 85 (est) 6 3 Kumba Peer 1 Peer 2 Peer 3 Peer 4 Peer 2 85 1H19 Average Fe content comparison (%) 64.3 64.2 Peer 3 85 60.8 60.7 57.7 Peer 4 76 (est) Kumba Peer 1
Slide 13: Sishen – challenging start to the year, recovery demonstrated
Sishen – challenging start to the year, recovery demonstrated Total waste mined Total production volumes Increased efficiency 82.8Mt 13.8Mt 67.3% 1H18: 86.6Mt 1H18: 15.3Mt 1H18: 62.6% 2.4% 12% Competitive quality 64.6% 1H18: 64.6% 41.9 7.3 40.9 6.5 Premium Lump:Fine 72.1% 1Q19 2Q19 1Q19 2Q19 1H18: 7
Slide 14: Kolomela – solid mining performance, lower production due to DMS upgrade
Kolomela – solid mining performance, lower production due to DMS upgrade Total waste mined Total production volumes Increased efficiency 30.9Mt 6.3Mt 66.9% 1H18: 26.4Mt 1H18: 7.2Mt 1H18: 63.8% 41% 5% Competitive quality 64.3% 1H18: 64.3% 18.1 12.8 3.1 3.2 Premium Lump:Fine 59.4% 1Q19 2Q19 1Q19 2Q19
Slide 15: Operational efficiency benefit from P101 initiatives
Operational efficiency benefit from P101 initiatives Owner fleet efficiency (kt/day) Driven by Sishen ▪ Haul truck ▪ Maintenance on 2/3 of 4100 shovels 17% 3% 9601: 7.5kt/day − Primary 960 truck fleet impacted (1H18: 8.4kt/day; 2H18: 9.0kt/day) ▪ Offset by 860: 6.5kt/day (1H18: 5.8kt/day; 2H18: 6.2k
Slide 16: Logistics performance significantly improved
Logistics performance significantly improved Railed to port Total sales 22.3Mt 21.4Mt 1H18: 20.8Mt 1H18: 21.2Mt Total shipped Finished product inventory 19.9Mt 4.5Mt 1H18: 19.5Mt 1H18: 6.2Mt 14 NOTES Kumba Iron Ore Limited Reviewed interim results for the six months ended 30 June 2019
Slide 17: Financial Overview
Financial Overview 15 NOTES Kumba Iron Ore Limited Reviewed interim results for the six months ended 30 June 2019
Slide 18: Enhancing shareholder returns
Enhancing shareholder returns Margin enhancement Financial discipline Sustainable returns ✓Average realised FOB price US$108/t ✓Cost savings R460m ✓HEPS R31.51 1H18 US$69/t FY19 target R700m 1H18 R9.31 ✓EBITDA margin 58% ✓Break-even price US$32/t ✓DPS R30.79 1H18 36% 1H18 US$46/t 1H18 R14.51 16 NOTE
Slide 19: Enhanced price premia from continued focus on quality and marketing
Enhanced price premia from continued focus on quality and marketing Kumba 1H19 realised FOB price ($/dmt) 6.1 108.0 3.1 14.8 91.4 10.7 3.3 80.7 $27.3 Platts 62 Index Saldanha - Platts 62 index FOB Fe premium Lump Marketing Timing Realised FOB CFR China Qingdao freight Saldanha premium premium 1H19 p
Slide 20: Revenue driven by market price and currency gains
Revenue driven by market price and currency gains Rm 34 498 4 108 2 147 295 7 930 19 474 2 521 1 853 170 32 351 17 621 1H18 Volume Market Premium Market Price Shipping Currency 1H19 Controllables Non-controllables Mining operations Shipping ▪ Revenue increased by 77% ▪ Average realised FOB export pr
Slide 21: Unit cost – volumes and inflation impact partially offset by cost savings
Unit cost – volumes and inflation impact partially offset by cost savings Sishen Kolomela Cost saving initiatives (Rm) FY18 290 248 21 18 Non-controllables Inflation 6 5 71 2% 2% 190 Cost escalation 1 1 Total: ~R460m Mining 1 35 80 volume WIP 80 11 80 Controllables Production Improved drill, blast,
Slide 22: Break-even price driven by favourable market conditions and margin strategy
Break-even price driven by favourable market conditions and margin strategy Platts 62% break-even price ($/t) 46 (3) (3) 3 43 (7) (6) 2 (2) 2 32 30 $3 $11 1H18 C1 Costs Price SIB Total after Lump Price Inflation Freight Royalties 1H19 premium controllables premium timing and escalation Controllables
Slide 23: EBITDA reflects benefit of strong prices, currency gains and margin strategy
EBITDA reflects benefit of strong prices, currency gains and margin strategy Rm (477) (692) (47) 20 125 7 930 4 022 (558) 2 819 9 389 170 6 958 35% 154% 1H18 Volume Premium Opex Total after Currency Price Inflation Royalties Shipping 1H19 controllables Controllables Non-controllables Competitive pro
Slide 24: Disciplined capital allocation in line with our strategy
Disciplined capital allocation in line with our strategy Capital expenditure 1H19 Rbn ▪ SIB: 4.9–5.1 − Fleet, plant infrastructure and technology spend 1.9–2.0 ▪ Deferred stripping: − Higher stripping ratios ▪ Expansion: 0.4 − Dingleton and UHDMS feasibility study 2.2 Medium term 1.4 1.3 2.6–2.7 ▪ S
Slide 25: Strong balance sheet and capital discipline deliver stellar returns
Strong balance sheet and capital discipline deliver stellar returns Capital allocation framework Capital allocation: 1H19 Rbn (6.6) Balance sheet (0.1) 13.0 13.8 flexibility (3.1) (9.9) 18.8 11.7 5.8 5.8 Discretionary capital options FY18 Cash flow after Final Discretionary 1H19 Interim Pro-forma Ne
Slide 26: Strategy
Strategy 24 NOTES Kumba Iron Ore Limited Reviewed interim results for the six months ended 30 June 2019
Slide 27: Margin enhancement of $10 per tonne by 2022
Margin enhancement of $10 per tonne by 2022 Enhanced product portfolio Improved operational efficiency Cost saving initiatives Total sales of premium products P101 benchmark Cumulative target 40% >100% R2.6bn 1H19: 24% 1H19: 67% 1H19: R460m FY19 target: R700m 25 NOTES Kumba Iron Ore Limited Reviewed
Slide 28: Life of asset over 20 years by 2022
Life of asset over 20 years by 2022 Exploration and low grade Technology and optimisation Efficiency and optimisation beneficiation Sishen Kolomela: Northern Cape exploration: ▪ UHDMS project ▪ Ploegfontein 85Mt under study ▪ Heuningkranz − Low grade C material (40 – 48% Fe) − 33% of exploration pro
Slide 29: Guidance for 2019
Guidance for 2019 Total production Total sales Capex 42 – 43Mt 43 – 44Mt R4.9 – 5.1bn Revised Maintained Revised Sishen Kolomela ▪ Production: 29 – 30Mt ▪ Production: ~13Mt ▪ Waste: 170 – 180Mt ▪ Waste: 55 – 60Mt ▪ Unit costs: R325 – 335/t ▪ Unit costs: R255 – 265/t ▪ Strip ratio: to exceed 4.5, LoM
Slide 30: Our value proposition
Our value proposition Assets Capabilities Sustainable returns ▪ Premium product portfolio ▪ Safe and flexible production ▪ Strong cash generation ▪ Life extension opportunities ▪ Operating model and technology ▪ Capital allocation discipline ▪ License to operate ▪ Marketing ▪ Attractive and sustaina
Slide 31: Strategy Questions
Strategy Questions 29 NOTES Kumba Iron Ore Limited Reviewed interim results for the six months ended 30 June 2019
Slide 32: Annexures
Annexures 30 NOTES Kumba Iron Ore Limited Reviewed interim results for the six months ended 30 June 2019
Slide 33: Annexure 1: Logistics performance significantly improved
Annexure 1: Logistics performance significantly improved Mt 1H19 1H18 % change 2H18 % change Railed to port (incl. Saldanha Steel) 22.3 20.8 7 19.8 13 Sishen mine (incl. Saldanha Steel) 14.9 13.7 9 13.4 11 Kolomela mine 7.3 7.1 3 6.4 14 Total sales 21.4 21.2 1 22.1 (3) Export 19.9 19.5 2 20.5 (3) Do
Slide 34: Annexure 2: Operating margin driven by higher revenue
Annexure 2: Operating margin driven by higher revenue Rm 1H19 1H181 % change 2H181 % change Revenue 34 498 19 474 77 26 251 31 Operating expenses (16 530) (14 390) 15 (15 039) 10 Operating profit 17 968 5 084 252 11 212 60 Operating margin (%)2 52 26 100 43 21 Profit for the period 13 183 3 853 242
Slide 35: Annexure 3: Revenue sector analysis
Annexure 3: Revenue sector analysis 1H19 1H18 % change 2H18 % change Export (Rm) 30 584 16 388 87 21 873 40 Tonnes sold (Mt) 19.9 19.5 2 20.5 (3) US Dollar per tonne 108 69 57 75 44 Rand per tonne 1 537 840 83 1 067 44 Domestic (Rm) 1 767 1 233 43 1 554 14 Shipping operations (Rm) 2 147 1 853 16 2 8
Slide 36: Annexure 4: Operating expenditure driven by stock movement
Annexure 4: Operating expenditure driven by stock movement Rm 15 250 (377) 342 94 65 13 858 1 588 (320) 3 100 3 006 Mining Logistics 956 436 2 210 1 868 9 940 8 984 1H18 Mining Stock Deferred Escalation, Shipping Selling and 1H19 operations movement stripping non-cash and forex distribution 1 Mining
Slide 37: Annexure 5: Operating expenditure analysis
Annexure 5: Operating expenditure analysis Rm 1H19 1H18 % change 2H18 % change Cost of goods sold 9 940 8 984 11 8 843 12 Cost of goods produced 9 089 8 731 4 7 491 21 Production costs 8 566 9 004 (5) 8 657 (1) Sishen mine 6 149 6 282 (2) 5 927 4 Kolomela mine 2 384 2 499 (5) 2 580 (8) Thabazimbi mi
Slide 38: Annexure 6: Sishen and Kolomela unit cash cost structure (R/t)
Annexure 6: Sishen and Kolomela mines’ unit cash cost structure (R/t) 370 116 290 255 82 248 73 70 58 57 41 70 35 58 88 66 52 100 18 34 12 10 14 27 18 4 66 79 15 4 59 30 (21) (47) (66) (59) Sishen mine Sishen mine Kolomela mine Kolomela mine FY18 1H19 FY18 1H19 Deferred stripping Other Energy Drilli
Slide 39: Annexure 7: Sishen and Kolomela unit cash cost structure (%)
Annexure 7: Sishen and Kolomela mines’ unit cash cost structure (%) 24 27 21 22 13 13 17 17 17 28 16 37 15 15 11 4 4 10 6 3 3 1 6 20 1 19 18 12 Sishen mine Sishen mine Kolomela mine Kolomela mine FY18 1H19 FY18 1H19 Other Energy Drilling and blasting Maintenance Outside services Fuel Labour 37 NOTES
Slide 40: Annexure 8: Capital expenditure analysis
Annexure 8: Capital expenditure analysis Rm 1H19 FY18 FY19e Approved expansion 134 506 ~400 Deferred stripping 1 282 1 699 1 900 – 2 000 Sishen 912 1 370 1 300 – 1 400 Kolomela 370 299 600 SIB Sishen 595 1 691 1 900 – 2 000 SIB Kolomela 232 597 700 Total capital expenditure 2 243 4 463 4 900 – 5 100
Slide 41: Annexure 9: Sensitivity analysis 1H19
Annexure 9: Sensitivity analysis 1H19 1% change to key operational drivers, each tested independently Sensitivity analysis (1% change) – EBITDA impact (Rm) (320) Export volume 230 (295) Export price 295 (320) Currency 320 -400 -300 -200 -100 0 100 200 300 400 Change per unit of key operational drive
Slide 42: 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