Kumba Iron Ore Limited · JSE:KIO

Kumba Iron Ore — FY2018 Earnings Presentation

51 slides from Kumba Iron Ore's earnings presentation, 2019

  1. Slide 1: Kumba Iron Ore 2018 Annual Financial Results

    KUMBA IRON ORE LIMITED 2018 ANNUAL FINANCIAL RESULTS UNLOCKING OUR FULL POTENTIAL DISCIPLINED GROWTH FOR A SUSTAINABLE FUTURE Real Mining. Real People. Real Difference.

  2. 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

  3. Slide 3: 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

  4. Slide 4: Delivering on our Tswelelopele strategy

    Delivering on our Tswelelopele strategy Horizon 1 Horizon 2 Margin enhancement Life extension Enhanced product portfolio 64.5% Fe  Total Ore Reserves up 8% by 56.4Mt and Saleable Product up 10% by 56.2Mt FY17 64.1% Fe Our ambitions for 2022:  Improved productivity 65%  UHDMS feasibility 68% comp

  5. Slide 5: Safety, health and environment

    Safety, health and environment Fatality free Safety Health Environment High potential incidents Occupational health (new cases) Major incidents (level 3-5) 67% 5 0 FY18: 7 (FY17: 21) FY17: 2 FY17: 0 Total recordable cases Voluntary HIV testing (employees) Rehabilitation (land reshaped) 45% 91% 130ha

  6. Slide 6: Solid performance and consistent returns

    Solid performance and consistent returns Operational Financial Sustainable returns Total tonnes mined Revenue HEPS (incl. contractors) 292.5Mt R45.7bn 30.47 30.28 FY17: 271.3Mt FY17: R46.4bn FY17 FY18 Production EBITDA DPS (R/share) 43.1Mt R20.6bn 30.97 30.24 FY17: 45.0Mt FY17: R19.6bn FY17 FY18 5

  7. Slide 7: Mutually beneficial partnerships for long-term success

    Mutually beneficial partnerships for long-term success Employees Shareholders Government Local business Communities R4.6bn R9.7bn R4.1bn R1.4bn R124m salaries and owners of income host community direct social benefits Kumba tax suppliers investment FY17: R4.2bn FY17: R10bn FY17: R5.9bn FY17: R520m F

  8. Slide 8: Stakeholder relationships – continuing to make progress

    Stakeholder relationships – continuing to make progress Mining charter Dingleton Transnet Karolo ESOP Thabazimbi MC18 Significant Improved Creating value progress made for our people  Mine transferred to concluded relationships ArcelorMittal SA on  Improvement on  507 households  Constructive 

  9. Slide 9: 8

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  10. Slide 10: Record steel production in China and lower seaborne iron ore supply

    Record steel production in China and lower seaborne iron ore supply China crude steel production (Mt) Global seaborne iron ore supply (wet Mt) 7% 1 529 1 524 1 478 1 382 1 404 928 871 1 245 822 822 804 808 2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018 WSA Crude steel production (Mt) Lo

  11. Slide 11: Premiums will continue to trade above historical levels

    Premiums will continue to trade above historical levels Platts lump premium (US$/dmtu) Platts 62 – 65 differential (%) 2018 50% 2013 2014 2017 2018 YTD 0.5 2013 2014 2015 2016 2017 YTD 2015 2016 $0.21 $0.17 $0.14 $0.15 $0.15 $0.25 $0.35 7% 9% 11% 11% 23% 30% 17% 0.4 40% 0.3 30% LT LT 0.2 view 20% vi

  12. Slide 12: Focus on quality results in better price premia

    Focus on quality results in better price premia Kumba product quality evolution, 2015-18 (%) Export sales – share of premium products1 (%) 64.5 14 68 66 65 64.1 64.1 30 64 64.0 18 16 13 Lump ratio Fe content 2015 2016 2017 2018 2017 2018 Price premium, $/dmt over Platts 62 FOB 2% 3% 17% $6 20% 17 18

  13. Slide 13: Quality remains Kumba's competitive advantage

    Quality remains Kumba’s competitive advantage 2018 Average Fe content comparison (%) 2018 Realised price comparison $/dmt, FOB 64.5 Kumba 72 64.1 60.8 60.7 57.7 Peer 1 62 (est) Kumba Peer 1 Peer 2 Peer 3 Peer 4 Peer 2 63 2018 Lump:fine ratio comparison (%) 68 Peer 3 61 30 24 3 2 Kumba Peer 1 Peer 2

  14. Slide 14: Flexible production aligned to market demand and partly mitigates logistical challenge

    Flexible production aligned to market demand and partly mitigates logistical challenge Enhanced product portfolio (2015 – 2018) Flexible production (4Q17 – 4Q18) 71 72 11.6 11.6 64 10.8 10.5 10.2 53 11.2 60 10.6 10.2 10.1 55 9.7 52 47 6.6 6.2 5.3 68 4.3 4.6 66 65 64.5 64.0 64.1 64 64.1 2015 2016 201

  15. Slide 15: Sishen – Tswelelopele driving assets to full potential

    Sishen – Tswelelopele driving assets to full potential Safety 55% Reduction in high potential incidents FY18: 5 (FY17: 11) Waste Production Quality Lump:Fine 182Mt 29.2Mt 64.6 Fe% 71.8% FY17: 162Mt FY17: 31.1Mt Average FY17: 64.3 Fe% Average FY17: 70.8% 14

  16. Slide 16: Sishen – Tswelelopele driving assets to full potential

    Sishen – Tswelelopele driving assets to full potential Total tonnes mined (incl. contractors) Owner fleet productivity (kt/day) 9% 220.5Mt 453.7 605.2 661.4 FY17: 199.5Mt FY16 FY17 FY18 Haul truck1 productivity (kt/day) Pre-strip shovel1 productivity (kt/day) 23% 7% 8.7 72.0 77.2 7.1 5.2 43.5 FY16 F

  17. Slide 17: Kolomela – Tswelelopele driving assets to full potential

    Kolomela – Tswelelopele driving assets to full potential Safety 80% Reduction in high potential incidents FY18: 1 (FY17: 5) Waste Production Quality Lump:Fine 56.0Mt 13.9Mt 64.3 Fe% 58.7% FY17: 55.6Mt FY17: 13.9Mt FY17: 64.2 Fe% FY17: 57.8% 16

  18. Slide 18: Kolomela – Tswelelopele driving assets to full potential

    Kolomela – Tswelelopele driving assets to full potential Total tonnes mined (incl. contractors) Owner fleet productivity (kt/day) (2%) 72.0Mt 158.2 166.1 162.2 FY17: 71.8Mt FY16 FY17 FY18 Haul truck productivity (kt/day) Pre-strip shovel productivity (kt/day) (2%) 36% 5.1 41.2 4.5 4.4 25.4 30.3 FY16

  19. Slide 19: Total sales delivered within revised guidance following rail challenges

    Total sales delivered within revised guidance following rail challenges Railed to port Total sales 40.6Mt 43.3Mt FY17: 42.0Mt FY17: 44.9Mt Total shipped Finished product inventory 40.3Mt 5.3Mt FY17: 41.6Mt FY17: 4.3Mt 18

  20. Slide 20: Working with Transnet to improve logistics performance

    Working with Transnet to improve logistics performance Logistical challenges Mitigating actions:  Low opening stocks at  Joint executive steering committee port in January  Working closely together to deliver performance  7 derailments in FY18  Focused on achieving above 100% contractual  Ship

  21. Slide 21: Financial overview

    ? FINANCIAL O'

  22. Slide 22: Enhancing shareholder returns

    Enhancing shareholder returns Margin enhancement Financial discipline Sustainable returns Average realised price US$72/tonne Cost savings ~R1bn HEPS R30.28 FY17 US$71/tonne FY18 target R0.8bn FY17 R30.47 EBITDA margin 45% Break-even price US$41 DPS R30.24 FY17 42% FY17 US$40 FY17 R30.97 21

  23. Slide 23: Our focus on quality results in better price premia

    Our focus on quality results in better price premia Kumba 2018 realised FOB price ($/dmt) 2.2 72.1 11.1 1.3 69.5 0.9 0.3 10.8 (14.1) 3.4 0.4 3.0 55.4 Quality uplift $0.4 + $0.3 + $1.3 = $2.0 Platts 62 Index Saldanha - Platts 62 index FOB Fe premium Lump Marketing Realised FOB CFR China Qingdao freig

  24. Slide 24: Revenue – market premia partially offset lower sales volumes

    Revenue – market premia partially offset lower sales volumes Rm 46 379 45 725 (1 544) 178 273 (171) 610 4 404 4 677 41 975 41 048 Mining operations Shipping FY17 Volume Market Premium Market Price Shipping Currency FY18 Controllables Non-controllables  Revenue decreased by 1%  Average realised FOB

  25. Slide 25: Cost savings of ~R1bn well above target of R0.8bn

    Cost savings of ~R1bn well above target of R0.8bn Cost saving initiatives (Rm) Cost savings and improved efficiencies driven by: Mining: Optimised contractor work schedule, drilling, blasting, 50 tyres and diesel 70 Overheads: Fixed cost reduction 75 Supply chain: Contract optimisation Total: 465 La

  26. Slide 26: Sishen's unit costs contained despite lower production volumes and cost escalation

    Sishen’s unit costs contained despite lower production volumes and cost escalation Unit cash cost1 R/t 17 (14) 10 (21) 6 13 (8) 287 290 7% (6%) FY17 Inflation Cost Mining Production Deferred Cost Capital FY18 escalation volume volume stripping savings spares 2 Non-controllables Controllables  Infla

  27. Slide 27: Kolomela's unit costs well managed

    Kolomela’s unit costs well managed Unit cash (3) cost1 R/t 6 9 (12) 11 248 237 8% (3%) FY17 Inflation Cost Mining Deferred stripping Cost savings FY18 escalation volume Non-controllables Controllables  Higher fuel price driving cost escalation  Cost savings offset R11/tonne increase in inflation-r

  28. Slide 28: Break-even price reflects progress made on margin strategy

    Break-even price reflects progress made on margin strategy Platts 62% break-even price ($/t) 2 41 40 (2) (1) 2 39 (4) 4 $1 $2 FY17 Cost savings Price premium SIB Total after Lump premium Inflation Freight FY18 controllables and escalation Controllables Non-controllables  Controllables driven by: 

  29. Slide 29: EBITDA growth reflects benefit of margin enhancement strategy

    EBITDA growth reflects benefit of margin enhancement strategy Rm 178 360 (1 005) 223 20 445 364 20 565 1 949 19 558 (1 544) 482 5% 0% FY17 Volume Premium Opex Total after Currency Price Inflation Royalties Shipping FY18 controllables Controllables Non controllable 28

  30. Slide 30: Capital expenditure supports our strategy

    Capital expenditure supports our strategy 2018 Rbn  SIB1: includes fleet, infrastructure and technology 4.6–4.8 4.5 spend to support operations  Deferred stripping: higher stripping ratios 1.7–1.8  Expansion: Dingleton and completion of Sishen 2nd 1.7 3.1 modular plant 0.5 0.5 1.2 Medium term  S

  31. Slide 31: Strong balance sheet supports sustained returns

    Strong balance sheet supports sustained returns Rm 405 (4 077) (4 463) (12 459) (516) 18 906 2 954 (9 505) (6 641) 13 874 11 670 (1 575) (5 066) 5 029 2017 Cash generated Net finance Tax paid Capex Other Dividends 2018 Final Pro-forma from operations income dividend cash retained Kumba shareholders

  32. Slide 32: Disciplined capital allocation – delivering on our commitment

    Disciplined capital allocation – delivering on our commitment Capital allocation framework FY 2018  Attributable free cashflow of R7.8bn R8.2bn  Add back discretionary spend of R0.4bn Balance sheet flexibility  Paid 2017 final and 2018 interim base (R7.6bn) dividend of R7.1bn  Other adjustments

  33. Slide 33: Strategy

    STRATEGY

  34. Slide 34: Focused delivery on our Tswelelopele strategy

    Focused delivery on our Tswelelopele strategy Horizon 1 Horizon 2 Horizon 3 Operating assets at full potential Leveraging endowment Value accretive opportunities  Improving productivity  Efficiency and optimisation  Opportunistic approach  Cost initiatives targeted  Technology an enabler – UHDM

  35. Slide 35: Horizon 1 – operating assets at full potential by 2022

    Horizon 1 – operating assets at full potential by 2022 Enhanced product portfolio Improved operational efficiency Cost saving initiatives Total sales of premium products Benchmark productivity Cumulative target 40% >100% R2.6bn FY18: 30% FY18: 65% FY18: ~R1bn FY19 target: R700m 34

  36. Slide 36: Horizon 2 – leveraging endowment and Northern Cape opportunities

    Horizon 2 – leveraging endowment and Northern Cape opportunities Ore Reserves of 732.9Mt @ 59.1% Fe Northern Cape opportunities Sishen – 544.6Mt @ 57.5% Fe Kolomela – 188.2Mt @ 63.9% Fe Reserve life 14 years Reserve life 14 years Exploration and research beneficiation technology + 641.9Mt @ 56.2% Fe

  37. Slide 37: Horizon 2 – leveraging endowment and extending Sishen life of asset

    Horizon 2 – leveraging endowment and extending Sishen life of asset 2015 2016 – 2018 Value delivered Strategic redesign of pits Focus on efficiency and optimisation Ore Reserves reclassified Sishen fleet OEE (%) Ore Reserves recovered from 2015 86% 106Mt 35 54 65 78Mt 2014-2016 2017 2018 Saleable Pr

  38. Slide 38: Guidance for 2019

    Guidance for 2019 Sishen Kolomela  Production: ~30Mt  Production: 13 – 14Mt  Waste: 170 – 180Mt  Waste: 55 – 60Mt  Unit costs: R315 – 325/t  Unit costs: R265 – 275/t  Strip ratio: to exceed 4.5, LoM ~3.4  Strip ratio: to exceed 4, LoM ~4  LoM: 14 years  LoM: 14 years Total production Total

  39. Slide 39: 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

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  41. Slide 41: Annexures

    ANNEXURES

  42. Slide 42: Annexure 1: Life extension under investigation

    Annexure 1: Life extension2 under investigation 2018 Ore Reserves 2018 Yield 2018 Reserve life Sishen 544.6Mt @ 57.5% Fe Sishen 76.3% 14 years Kolomela 188.2Mt @ 63.9% Fe Kolomela 95.2% 14 years Mineral In situ Fe Conversion Mineral Resources1 (under investigation) Resources1 grade factor Yield Sish

  43. Slide 43: Annexure 2: Logistics performance reflects challenging environment

    Annexure 2: Logistics performance reflects challenging environment Mt FY18 FY17 % change 2H18 1H18 % change Railed to port (incl. Saldanha Steel) 40.6 42.0 (3) 19.8 20.8 (5) Sishen mine (incl. Saldanha Steel) 27.1 28.5 (5) 13.4 13.7 (2) Kolomela mine 13.5 13.5 — 6.4 7.1 (10) Total sales 43.3 44.9 (4

  44. Slide 44: Annexure 3: Operating margin driven by lower revenue, expense growth well controlled

    Annexure 3: Operating margin driven by lower revenue, expense growth well controlled Rm FY181 FY171 % change 2H181 1H181 % change Revenue 45 725 46 379 (1) 26 251 19 474 35 Operating expenses (29 429) (25 058)2 17 (15 039) (14 390) 5 Operating profit 16 296 21 321 (24) 11 212 5 084 121 Operating mar

  45. Slide 45: Annexure 4: Revenue sector analysis

    Annexure 4: Revenue sector analysis FY18 FY17 % change 2H18 1H18 % change Export (Rm) 38 261 39 261 (3) 21 873 16 388 33 Tonnes sold (Mt) 40.0 41.6 (5) 20.5 19.5 — US Dollar per tonne 72 71 1 75 69 13 Rand per tonne 957 944 1 1 067 840 30 Domestic (Rm) 2 787 2 714 3 1 554 1 233 26 Shipping operation

  46. Slide 46: Annexure 5: Operating expenditure reduced through cost savings and lower volumes

    Annexure 5: Operating expenditure reduced through cost savings and lower volumes Rm 28 6081 1 247 (1 727) 28 5531 (475) 475 46 379 5 815 6 194 Mining Logistics (480) 425 4 486 4 532 18 307 17 827 FY17 Mining operations Stock Deferred stripping Escalation, Shipping Selling and FY18 movement non-cash

  47. Slide 47: Annexure 6: Aggregate operating expenditure

    Annexure 6: Aggregate operating expenditure Rm FY18 FY17 % change 2H18 1H18 % change Cost of goods sold 17 827 18 306 (3) 8 842 8 985 (2) Cost of goods produced 16 222 16 588 (2) 7 491 8 731 (14) Production costs 17 661 16 360 8 8 658 9 003 (4) Sishen mine 12 209 11 164 9 5 927 6 282 (6) Kolomela mi

  48. Slide 48: Annexure 7: Sishen and Kolomela mines' unit cash cost structure (R/t)

    ANNEXURE 7: Sishen and Kolomela mines’ unit cash cost structure (R/t) 290 287 82 248 74 237 52 58 50 57 30 35 59 58 96 100 58 52 12 13 10 27 27 10 66 15 4 15 4 53 31 30 (30) (18) (21) (47) Sishen mine Sishen mine Kolomela mine Kolomela mine FY17 FY18 FY17 FY18 Deferred stripping Other Energy Drillin

  49. Slide 49: Annexure 8: Sishen and Kolomela mines' unit cash cost structure (%)

    ANNEXURE 8: Sishen and Kolomela mines’ unit cash cost structure (%) 23 24 20 21 12 13 16 17 19 17 38 37 18 15 4 4 10 10 3 3 6 6 20 2 1 17 12 12 Sishen mine Sishen mine Kolomela mine Kolomela mine FY17 FY18 FY17 FY18 Other Energy Drilling and blasting Maintenance Outside services Fuel Labour 48

  50. Slide 50: Annexure 9: Capital expenditure analysis

    Annexure 9: Capital expenditure analysis Forecast Rm FY18 FY17 12 months 31 Dec 2019 Approved expansion 506 575 ~400 Deferred stripping 1 669 1 194 1 700 – 1 800 Sishen 1 370 942 1 100 – 1 200 Kolomela 299 252 ~600 SIB 2 288 1 300 2 400 – 2 500 Sishen 1 691 793 1 700 – 1 800 Kolomela 597 507 ~700 To

  51. Slide 51: Annexure 10: Sensitivity analysis for 2018

    Annexure 10: Sensitivity analysis for 2018 1% change to key operational drivers, each tested independently Sensitivity analysis (1% change) – EBITDA impact (Rm) (260) Export volume 260 (375) Export price 375 (400) Currency 400 (500) (400) (300) (200) (100) 0 100 200 300 400 500 Change per unit of ke

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