Slide 1: 2016 Annual Results
2016 ANNUAL RESULTS 14 FEBRUARY 2017
Slide 2: 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 3: Agenda
AGENDA 1. Introduction / Results overview Themba Mkhwanazi 2. Market overview Themba Mkhwanazi 3. Operations Themba Mkhwanazi 4. Financial performance Frikkie Kotzee 5. Strategy and outlook Themba Mkhwanazi 2
Slide 4: Summary
SUMMARY Safety a challenge Need to work to eliminate fatalities More robust operating platform in place Sishen and Kolomela production above target Cost base materially reset Financial health improved Higher margins and free cash flow generation Strong balance sheet Sishen 21.4% residual mining ri
Slide 5: Path to sustainable excellence in performance
PATH TO SUSTAINABLE EXCELLENCE IN PERFORMANCE Understanding Embedding Delivering challenges operating principles outcomes Safe production Safety framework Zero harm Mining Operating performance Consistent, predictable, high Waste Continued Operating Model implementation quality operations and premiu
Slide 6: Solid results in a year of transition
SOLID RESULTS IN A YEAR OF TRANSITION 17Mt 24Mt 1H16 2H16 $64/t Average price $29/t Cash breakeven Improvement Exceptional Significant in production price realisation cost reduction 5
Slide 7: Cost and capex discipline delivering meaningful gains
COST AND CAPEX DISCIPLINE DELIVERING MEANINGFUL GAINS Platts 62% Breakeven Price ($/t) 49 4 2 8 7 3 29 FY15 Production - Timing impact Sishen restructure Price realisation Non-controllables1 FY16 Sishen restructure of site capex benefit and Kolomela restructuring productivity 1. Currency, inflation,
Slide 8: Safety has been a challenge and is our highest priority
SAFETY HAS BEEN A CHALLENGE AND IS OUR HIGHEST PRIORITY 180 Safety Indicators • Regrettably we lost two colleagues in work related 160 fatalities in 1H16 158 140 • Concerted efforts invested in eliminating fatalities and preventing injuries 120 • Leadership reflections 100 • Critical control monitor
Slide 9: Market Overview
KUMBA IRON ORE LIMITED MARKET OVERVIEW
Slide 10: Prices recovering from previous lows
PRICES RECOVERING FROM PREVIOUS LOWS Platts IODEX Monthly Average (US$/dmt) Platts Lump Premium Monthly Average (US$/dmtu) 170 0.35 150 0.30 2013 $135 130 0.25 US$/dmt CFR Qingdao US$/dmtu CFR Qingdao 2013 $0.21 110 0.20 2014 2014 $97 $0.17 2016 2015 $0.15 90 0.15 $0.14 YTD 2017 $82 70 0.10 2015 201
Slide 11: Lower supply growth and moderating steel production
LOWER SUPPLY GROWTH AND MODERATING STEEL PRODUCTION China Crude Steel Production & Net Exports1 (Mt) Global Seaborne Iron Ore Supply (Wmt) 1 000 150 1 600 1 400 800 1 200 100 1 000 Steel production Net Exports 600 800 600 50 400 400 200 200 0 0 2011 2012 2013 2014 2015 2016 2011 2012 2013 2014 2015
Slide 12: $11/dmt improvement in realised FOB prices
$11/dmt IMPROVEMENT IN REALISED FOB PRICES 70 11 65 64 60 7 1 $/dmt 55 Export sales geographical split 3 India & 53 other EU/MENA Asia 14% 5% 50 Japan and Korea 17% China 45 64% 40 Realised Increase in Decrease in Saldanha - Price realisation Realised FOB price 2015 Platts 62% Index Qingdao freight
Slide 13: Value generation due to superior product portfolio
VALUE GENERATION DUE TO SUPERIOR PRODUCT PORTFOLIO 2016 Average Fe Content (%), Peer Comparison 2016 Achieved Price (US$/dmt, FOB), Peer Comparison 63.9 64.1 Peer 1 51 (est) 60.6 60.4 57.7 Peer 2 54 Peer 1 Peer 2 Peer 3 Peer 4 Kumba 2016 Lump:Fine Ratio, Peer Comparison Peer 3 54 64 Peer 4 47 28 24
Slide 14: Operational Overview
KUMBA IRON ORE LIMITED OPERATIONAL OVERVIEW
Slide 15: Sishen delivers against targets despite challenging 1H16
SISHEN DELIVERS AGAINST TARGETS DESPITE CHALLENGING 1H16 Sishen Production and Waste (Mt) • Finalised and implemented new mine plan based 50 240 on lower cost pit shell 200 • Workforce restructuring completed without interruption 40 • Mining stable at higher 2H16 run rates 160 30 • Full year product
Slide 16: Sishen operational efficiencies are critical to offset cost inflation
SISHEN OPERATIONAL EFFICIENCIES ARE CRITICAL TO OFFSET COST INFLATION Pre-strip Shovel Tempos1 Performance 6 000 • Significant improvement in 2H16 45% 13% Tonnes/hour • 4Q16 operated at 1H17 required rates • Step-up in equipment efficiencies weighted 0 1Q16 2Q16 3Q16 4Q16 1H17f 2H17f towards 2H17 Tr
Slide 17: Kolomela positioned to exceed 13Mt in 2017
KOLOMELA POSITIONED TO EXCEED 13Mt IN 2017 Kolomela Production and Waste (Mt) • Full year production of 12.7Mt due continued 20 60 optimisation and implementation of the operating model at plant 50 15 • Waste of 50Mt in line with higher production as planned 40 • Modular plant commissioned and on tr
Slide 18: Improved logistics performance in 2H16
IMPROVED LOGISTICS PERFORMANCE IN 2H16 • 39.8Mt railed • Stocks reduced to more optimal level of 3.5Mt, with further reduction of 0.5Mt targeted Mt 2016 2015 % change 2H16 1H16 % change Railed to port 39.8 42.4 (6%) 21.5 18.3 17% Sishen mine (incl. Saldanha Steel) 26.8 30.2 (11%) 15.1 11.7 29% Kolom
Slide 19: Operational guidance FY17
OPERATIONAL GUIDANCE FY17 Sishen • 27– 28Mt in 2017 to 2020 • Waste 150 –160Mt from 2017 to 2020 • Strip ratio to exceed 4 over the medium term, LoM ~4 Kolomela • 13–14Mtpa in 2017 to 2020 • Waste 50Mt–55Mt from 2017 to 2020 • Strip ratio at ~3.9 in the medium term, LoM ~3.8 Thabazimbi • Targeting t
Slide 20: Financial Overview
KUMBA IRON ORE LIMITED FINANCIAL OVERVIEW
Slide 21: Financial highlights
FINANCIAL HIGHLIGHTS EBITDA (Rbn) • Substantial improvement of 21% in realised 18 iron ore price to $64/t • Revenue increased 13% to R41bn 121 • Initiatives to lower the cost base deliver results 2015 2016 • Net cash position of R6.2bn • Headline earnings of R8.7bn up 130% Net (Debt)/Cash (Rbn) 10.8
Slide 22: Financial review
FINANCIAL REVIEW Rm 20161 2015 % change 2H16 1H161 % change Revenue 40,767 36,138 13% 22,585 18,182 24% Operating expenses (25,451) (33,494) (24%) (12,475) (12,976) (4%) Operating expenses (24,782) (30,177) (18%) (11,592) (13,190) (12%) Impairment charge (4) (5,978) (100%) - (4) (100%) Mineral royal
Slide 23: Revenue: higher realised prices partially offset by lower volumes
REVENUE: HIGHER REALISED PRICES PARTIALLY OFFSET BY LOWER VOLUMES • Revenue increased by 13% • 15% weaker average ZAR/$ exchange rate of R14.69 • Realised FOB export prices increased by 21% to $64/t driven by higher spot prices and improved price realisation • Total sales volumes decreased by 5.3Mt
Slide 24: Operating expenditure
OPERATING EXPENDITURE • Mining costs down 17% in real terms largely due to reconfiguration of Sishen pit and closure of Thabazimbi • Freight rates declined to historical low levels, on average 15% lower from 2015 • Lower deferred stripping capitalisation as Sishen targeting low strip waste areas • S
Slide 25: Sishen unit cash cost
SISHEN UNIT CASH COST GOOD COST PERFORMANCE IN A YEAR OF SIGNIFICANT CHANGE • Cost escalation contained below inflation due to lower diesel price and supply chain discipline • Mining cost benefitted from 85Mt lower mining volumes and overhead cost savings from optimised pit shell • Impacted negative
Slide 26: Kolomela unit cash cost
KOLOMELA UNIT CASH COST: MINING AND PRODUCTION VOLUME GROWTH DRIVES UNIT COST PERFORMANCE • Cost escalation contained at 3%, well below inflation, aided by lower mining input prices and overhead cost savings • 5Mt ramp-up in mining volumes in support of further production volume growth • Higher prod
Slide 27: Capital guidance: re-based pit design and capital discipline
CAPITAL GUIDANCE: RE-BASED PIT DESIGN AND CAPITAL DISCIPLINE DRIVES OPTIMISED CAPEX PROFILE 2016 Medium term Long term • Significant SIB reduction • Sishen: maintenance of • SIB of ~R2bn p.a. (nominal) of ~R2bn (61%), driven by: infrastructure in support of expected through the cycle • Completion of
Slide 28: Strong balance sheet: net cash position of R6.2bn
STRONG BALANCE SHEET NET CASH POSITION OF R6.2BN • Significant repositioning of operations has • Excess cash utilised to pay down debt allowed strong cash generation in rebased • R4.5bn term facility early-settled post year end lower iron ore price environment • R12bn undrawn committed debt faciliti
Slide 29: Outlook and Strategy
KUMBA IRON ORE LIMITED OUTLOOK AND STRATEGY
Slide 30: Our future is dependent on operational excellence and embracing technology for growth
OUR FUTURE IS DEPENDENT ON OPERATIONAL EXCELLENCE AND EMBRACING TECHNOLOGY FOR GROWTH $ Step-up Leveraging Crisis Restructuring performance endowment 2015 2016 2017 Medium term Business under Restructuring Continued implementation Technology adoption for cost, pressure completed of Operating Model a
Slide 31: Maximising the return potential of our current assets
MAXIMISING THE RETURN POTENTIAL OF OUR CURRENT ASSETS Integrate technology through value chain Safe and stable workforce Optimise resource utilisation High performance culture Technology People Consistent and predictable delivery Offset inflationary pressure Costs Value Mining Mining equipment effic
Slide 32: Adopting technology to improve safety, efficiency and resource utilisation
ADOPTING TECHNOLOGY TO IMPROVE SAFETY, EFFICIENCY AND RESOURCE UTILISATION Mining and Plant Sishen Resource Utilisation Industrial IT infrastructure upgrade Separation In-situ grade Estimated Technology density cut-off Value unlock (g/cc) (%Fe) Modular Dispatch upgrade 1970 DMS ≤ 3.6 >60 Autonomous
Slide 33: Disciplined capital allocation framework
DISCIPLINED CAPITAL ALLOCATION FRAMEWORK Capital allocation priorities Balance sheet flexibility Operating performance Financial performance Future Sustaining growth capex Reduce operating Strong free cash flow costs and returns Dividends Improve productivity Deliver new projects Capital efficiency
Slide 34: Progressing our value accretive project pipeline
PROGRESSING OUR VALUE ACCRETIVE PROJECT PIPELINE Sishen Low Grade Kolomela Sishen DMS upgrade Technology and Modular 2nd Modular plant to UHDMS Exploration Feasibility Pre-Feasibility Conceptual Implementation 1 year 2–3 years ~10 years Commissioned and Proven technology, Leveraging low grade Sishen
Slide 35: Summary
SUMMARY Safety a challenge Need to work to eliminate fatalities More robust operating platform in place Sishen and Kolomela production above target Cost base materially reset Financial health improved Higher margins and free cash flow generation Strong balance sheet Sishen 21.4% residual mining ri
Slide 36: Questions
QUESTIONS KUMBA IRON ORE LIMITED
Slide 37: Annexure 1: Revenue: sector analyses
ANNEXURE 1: REVENUE: SECTOR ANALYSES 2016 2015 % change 2H16 1H16 % change Export (Rm) 35,158 29,571 19% 19,746 15,412 28% Tonnes sold (Mt) 39.1 43.5 (10%) 21 18.1 16% US Dollar per tonne 61 53 15% 67 55 22% Rand per tonne 899 679 32% 940 851 10% Domestic (Rm) 2,862 3,155 (9%) 1,134 1,728 (34%) Ship
Slide 38: Annexure 2: Aggregate operating expenditure
ANNEXURE 2: AGGREGATE OPERATING EXPENDITURE Rm 2016 2015 % change 2H16 1H16 % change Cost of goods sold 15,965 18,160 (12%) 7,232 8,733 (17%) Cost of goods produced 15,160 16,541 (8%) 8,037 7,123 13% Production costs 15,470 16,927 (9%) 8,117 7,353 10% Sishen mine 11,372 12,776 (11%) 5,845 5,527 6% K
Slide 39: Annexure 3: Capital expenditure analyses
ANNEXURE 3: CAPITAL EXPENDITURE ANALYSES 12 months 12 months 2015 2016 31 Dec 2017 31 Dec 2018 Rm Medium term forecast Approved expansion 870 856 ~300 ~100 Deferred stripping 2,852 321 900–1,000 1,700–1,800 Sishen 2,508 88 600–700 1,400–1,500 Kolomela 344 233 ~300 ~300 SIB Sishen 2,418 875 900–1,000
Slide 40: Annexure 4: Sishen and Kolomela unit cash cost structure (R/t)
ANNEXURE 4: SISHEN AND KOLOMELA UNIT CASH COST STRUCTURE (R/t) 311 85 296 54 80 178 201 64 44 40 47 43 21 28 101 27 26 64 18 67 68 9 12 10 13 3 14 4 60 46 36 32 (3) (18) (29) (80) Sishen mine Sishen mine Kolomela mine Kolomela mine FY15 FY16 FY15 FY16 Deferred stripping Other Energy Drilling and bla
Slide 41: Annexure 5: Sishen and Kolomela unit cash cost structure (%)
ANNEXURE 5: SISHEN AND KOLOMELA MINES’ UNIT CASH COST STRUCTURE (%) 22 20 21 27 10 13 14 15 13 12 16 14 32 31 26 21 5 4 6 6 2 3 2 2 15 16 17 15 Sishen mine Sishen mine Kolomela mine Kolomela mine FY15 FY16 FY15 FY16 Other Energy Drilling and blasting Outside services Fuel Maintenance Labour 40
Slide 42: Annexure 6: Operational metrics
ANNEXURE 6: OPERATIONAL METRICS Sishen Mt 2016 2015 % change 2H16 1H16 % change Total tonnes mined 178.3 261.4 (32%) 94.6 83.7 13% Waste mined 137.1 222.2 (38%) 72.2 64.9 11% Ex-pit ore 41.2 39.2 5% 22.4 18.8 19% Production 28.4 31.4 (10%) 16.9 11.5 47% Stripping ratio1 3.3 5.7 3.2 3.5 Finished prod
Slide 43: Annexure 7: Export sales and prices
ANNEXURE 7: EXPORT SALES AND PRICES Export sales and prices 2016 2015 2014 Total export sales (Mt) 39.1 43.5 40.5 Contract (%) 72 72 72 Spot (%) 28 28 28 Average FOB price received (US$/t) 64 53 91 Export sales geographical split % Europe/MENA/ America 14 10 10 Japan and Korea 17 20 21 India and Oth
Slide 44: Annexure 8: Sensitivity analysis – FY16
ANNEXURE 8: SENSITIVITY ANALYSIS – FY16 1% change to key operational drivers Sensitivity analysis (1% change) – EBIT impact (Rm) -235 Export volume 235 -340 Export price 340 -370 Currency 370 -500 -400 -300 -200 -100 0 100 200 300 400 500 Change per unit of key operational drivers, each tested indep
Slide 45: Footnotes to slide 31: Adopting technology to improve safety, efficiency and resource utilisation
FOOTNOTES TO SLIDE 31: ADOPTING TECHNOLOGY TO IMPROVE SAFETY, EFFICIENCY AND RESOURCE UTILISATION 1. Sishen Mine Ore Reserve (run-of-mine) estimates as at 31 December 2016 (please refer to R&R Section of 2016 Kumba Integrated Report): 353.8Mt (@55.8% Fe) Proved and 198.4Mt (@ 54.5% Fe) Probable 2. S