Kumba Iron Ore Limited · JSE:KIO
Kumba Iron Ore — H1 2020 Earnings Presentation
45 slides from Kumba Iron Ore's earnings presentation, Jul 28, 2020
Slide 1: Kumba Iron Ore Limited 2020 Interim Results
KUMBA IRON ORE LIMITED 2020 Interim Results 28 July 2020
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: Our priorities are purpose-led, values-driven and forward-looking
Our priorities are purpose-led, values-driven and forward-looking Prevention Response Recovery Covid-19 response measures Business priorities Strategic positioning ▪ Integrated screening and testing ▪ Ramp-up to full run-rates ▪ Strategic ambitions remain unchanged ▪ Work-from-home for vulnerable in
Slide 4: Caring for our communities and contributing to livelihoods
Caring for our communities and contributing to livelihoods Prevention Response Recovery Behavioural change and testing Treatment and care Livelihood support ▪ Extensive education and awareness drive ▪ Isolation and quarantine facilities ▪ Continuing essential services and projects ▪ Supplying health
Slide 5: Safety and sustainability commitments remain in focus
Safety and sustainability commitments remain in focus Safety Health Environment LTI Occupational diseases Water consumed and recycled TRC (new cases) 67% Water consumption (Ml) 4 years 4 years 97 voluntary no major fatality free Water recycled (%) HIV test incidents 77 57 51 51 41 33 34 25 25 35 20
Slide 6: Resilient and capital efficient, well positioned in a challenging environment
Resilient and capital efficient, well positioned in a challenging environment Resilient business Capital efficient Total sales Attributable free cash flow 18.6Mt R7.1bn 1H19: 21.4Mt 1H19: R12.7bn Total Production ROCE 17.9Mt 84% 1H19: 20.1Mt 1H19: 105% EBITDA DPS R17.4bn R19.60 1H19: R20.1bn 1H19: R
Slide 7: Creating shared value and improving people’s lives
Creating shared value and improving people’s lives Contributing to South Africa Providing employment Building communities R3.1bn R2.4bn R125.9m Income tax (1H19: R3.0bn) Salaries and benefits (1H19: R2.4bn) Direct social investment (1H19: R71.1m) R1.0bn R55.7m Mineral royalty (1H19: R867m) Covid-19
Slide 8: Marketing and Operational Overview
MARKETING AND OPERATIONAL OVERVIEW
Slide 9: Stable steel output in China despite Covid-19; supply disruptions in Brazil
Stable steel output in China despite Covid-19; supply disruptions in Brazil Platts IODEX 62 index Monthly crude steel production1 (%) 20% 120 US$/dmt, cfr Qingdao 2019 1H2020 10% 100 $93 $91 2017 0% 2016 $71 2018 80 2015 $70 $58 -10% $56 China 60 -20% About 25% of BF capacity RoW shuttered ex-China
Slide 10: Excess lump in short-term, demand structural in long-term
Excess lump in short-term, demand structural in long-term Relationship between lump premium and direct charge stocks Global lump supply into China (Wet Mt) (lumps, pellets) at Chinese ports 250 Platts lump Production issue at Roy Hill; Rio Tinto shipments premia avg 0.17 0.14 0.15 0.15 0.25 0.27 0.2
Slide 11: Our customer diversification strategy remains unchanged
Our customer diversification strategy remains unchanged Traditional markets1 share in Kumba’s total sales Price premium over Platts 62 FOB (%) (US$/dmt) 40-45% 18 42% 17 40% 2 3 35% 34% 31% 12 12 30% 11 2 2 6 16 14 12 10 9 7 2015 2016 2017 2018 2019 1H20 LT (1) 2015 2016 2017 2018 2019 1H20 Lump pre
Slide 12: Kumba’s Fe quality adjusted in response to market demand
Kumba’s Fe quality adjusted in response to market demand 1H20 Average Fe content comparison (%) 1H20 Realised price comparison FOB (US$/dmt) 64.4 64.4 Kumba 93 60.7 60.6 57.8 Vale 81 (Est.) Kumba Vale Rio Tinto BHP FMG 1H20 Lump: Fine ratio comparison (%) Rio Tinto 85 65 BHP 83 28 25 FMG 73 (Est.) 3
Slide 13: Sishen run rates successfully ramped up, in line with logistical capacity
Sishen run rates successfully ramped up, in line with logistical capacity Total waste mined Total production volumes Lost-time injuries (LTIs) 68.4Mt 12.4Mt 7X 1H19: 82.8Mt 1H19: 13.8Mt 1H19: 5 Fe quality Mt 62.5% 64.4% 1H19: 64.6% 2.6 1.6 12.4 Lump:Fine ratio 1.6 9.8 6.6 6.6 8.2 71.2% 1H19: 72.1% 1
Slide 14: Kolomela back to full run-rate, ensuring flexibility to protect our value chain
Kolomela back to full run-rate, ensuring flexibility to protect our value chain Total waste mined Total production volumes Lost-time injuries (LTIs) 26.2Mt 5.6Mt 2x 1H19: 30.9Mt 1H19: 6.3Mt 1H19: 2 Competitive Fe quality Mt 83.3% 64.2% 1.1 1H19: 64.3% 1.0 0.6 5.6 Lump:Fine ratio 4.5 2.9 2.9 3.5 59.3
Slide 15: Operational stability and efficiency starting to gain momentum
Operational stability and efficiency starting to gain momentum Sishen Owner Fleet (%) Kolomela Owner Fleet (%) P101 initiatives 65.0% 58.9% ✓ Payload and truck speed optimisation 1H19: 67.5% 1H19: 66.9% (%) (%) ✓ Improve shovel set-up (1.6%) (3.1%) 14.5% 6.9% 3.3% 4.8% ✓ Reduction in loading time 65
Slide 16: Maintaining flexibility across our value chain, from mine to port
Maintaining flexibility across our value chain, from mine to port Export sales Railed to port 18.2Mt 18.3Mt 1H19: 19.9Mt 1H19: 22.3Mt Sishen 1 Kolomela 2 Domestic sales SOUTH AFRICA 0.4Mt 1H19: 1.5Mt Northern Cape Finished product inventory 6.2Mt Total sales 1H19: 4.5Mt 3 Saldanha Western Cape 18.6M
Slide 17: Strong collaboration with Transnet to mitigate Covid-19 risks
Strong collaboration with Transnet to mitigate Covid-19 risks Covid-19 prevention and response Rail Saldanha Port ▪ Supply of PPEs and PCR testing kits ▪ Schedule management to optimise rail ▪ Ensure optimal stock levels at port ▪ Joint industry and Transnet management ▪ Steady ramp-up post lockdown
Slide 18: Financial Overview
FINANCIAL OVERVIEW
Slide 19: Enhancing shareholder returns
Enhancing shareholder returns Margin enhancement Financial discipline Sustainable returns Average realised FOB price US$93/t Cost savings R700m HEPS R26.19 1H19 US$108/t 1H19 R460m 1H19 R31.51 EBITDA margin 55% Break-even price US$42/t DPS R19.60 1H19 58% 1H19 US$32/t 1H19 R30.79 19
Slide 20: EBITDA reflects weaker price premia and lower sales
EBITDA reflects weaker price premia and lower sales Covid-19 impact partly offset by currency gains and lower opex Primary drivers Rm Controllables 20 124 (3 844) ▪ Total sales volumes down 13% to 18.6Mt 69 (408) (232) (53) (1H19: 21.4Mt) 17 401 5 088 (4 187) ▪ Market premium down to US$12/t 844 (1H
Slide 21: Unit costs driven by lower mining and production volumes
Unit costs driven by lower mining and production volumes Sishen (R/t) 3 6 (21) (13) 9 (7) (47) 50 345 325 3% (9%) Kolomela (R/t) (9) (7) 48 5 2 (9) 3 3 306 270 3% 10% FY19 1 Inflation Cost Mining Maintenance WIP Production Deferred Cost 1H20 1 escalation volume stripping savings Non-controllables Co
Slide 22: Break-even price impacted by weaker price premia
Break-even price impacted by weaker price premia Platts 62% break-even price (US$/t) 5 (0) (8) 3 (1) 1 42 41 42 11 (1) 32 $10 $0 1H19 C1 Costs Price SIB Total after Lump Currency Inflation Freight Royalties 1H20 premium controllables premium and escalation Controllables Non-controllables ▪ Increased
Slide 23: Cost saving initiatives continue to protect our margin
Cost saving initiatives continue to protect our margin Holding our costs steady through the cycle Total cost savings of R2.6bn since 2018 108 93 185 71 69 1H20 355 R700m 90 35 34 35 32 35 29 33 27 66 56 Overheads Mining 1H17 1H18 1H19 1H20 Plant Supply chain Covid-19 EBITDA per tonne (US$/t) Achieve
Slide 24: Capital expenditure to sustain our business
Capital expenditure to sustain our business Capex breakdown 1H20 Medium term outlook Rbn R1bn of non-critical SIB: SIB: spend deferred ▪ Fleet capital spares, infrastructure ▪ Expected to peak 2022, normalising from upgrade and/or maintenance 2024 to ~R3bn p.a. 5.6–6.1 Deferred stripping: Expansion:
Slide 25: Disciplined capital allocation
Disciplined capital allocation Strong free cash flow generation Capital allocation since 1H17 Rbn Rbn 6.7 (6.1) 2.1 10.5 (16.6) 7.1 (1.0) (8.3) 21.1 (2.0) 6.8 R69.7bn (3.8) (6.3) xx 47.0 (xx) 15.7 (xx) 12.3 11.7 12.4 7.5 7.4 8.4 xx Base dividend 1 Top-up dividend 1 FY19 FY18 Cash Cashflow flowafter
Slide 26: Committed to Delivering Sustainable Value
COMMITTED TO DELIVERING SUSTAINABLE VALUE
Slide 27: Margin enhancement protects our business and positions us for the future
Margin enhancement protects our business and positions us for the future Enhanced Improved Cost product portfolio operational efficiency savings initiatives Total sales of premium products P101 benchmark on waste fleet Cumulative target 40% >100% >R2.6bn 1H20: 22% | 1H19: 24% 1H20: 63% | 1H19: 67% 1
Slide 28: Continuing to target a 20 year life of asset
Continuing to target a 20 year life of asset Sishen - Technology Kolomela Kolomela - Exploration Feasibility study Feasibility study Concept and early exploration UHDMS Kapstevel South Ploegfontein and (+43) project pit Heuningkrans Drilling delayed by 89% complete 100% and approved Covid-19, but re
Slide 29: Guidance for 2020
Guidance for 2020 Total production Total sales Capex 37 – 39Mt 38 – 40Mt R5.6 – 6.1bn Sishen Kolomela ▪ Production: ~26Mt ▪ Production: ~12Mt ▪ Waste: 145 – 160Mt ▪ Waste: 45 – 55Mt ▪ Unit costs: R385 – 395/t ▪ Unit costs: R280 – 290/t ▪ Strip ratio: 4.4, LoM ~3.4 ▪ Strip ratio: to exceed 4, LoM ~3.
Slide 30: Our value proposition
Our value proposition Assets Capabilities Sustainable returns ▪ Premium product portfolio ▪ Safe and flexible production ▪ Resilient balance sheet ▪ Life extension opportunities ▪ P101 efficiency and technology ▪ Capital discipline ▪ Talented people ▪ Stakeholder collaboration ▪ Attractive dividend
Slide 31: Thank you
THANK YOU
Slide 32: Annexures
ANNEXURES 32
Slide 33: Annexure 1: Logistics performance reflects Covid-19 related constraints
Annexure 1: Logistics performance reflects Covid-19 related constraints Mt 1H20 1H19 % change 2H19 % change Railed to port (incl. Saldanha Steel) 18.2 22.3 (18) 19.7 (8) Sishen mine (incl. Saldanha Steel) 12.3 14.9 (17) 12.9 (5) Kolomela mine 5.9 7.3 (19) 6.8 (13) Total sales 18.6 21.4 (13) 20.8 (11
Slide 34: Annexure 2: Operating margin driven by lower revenue, while expenses remain flat
Annexure 2: Operating margin driven by lower revenue, while expenses remain flat Rm 1H20 1H19 % change 2H19 % change Revenue 31 579 34 498 (8) 29 787 6 Operating expenses (16 540) (16 530) — (18 943) (13) Operating profit 15 039 17 968 (16) 10 844 39 Operating margin (%) 48 52¹ (8) 36¹ 12 Profit for
Slide 35: Annexure 3: Revenue sector analysis
Annexure 3: Revenue sector analysis 1H20 1H19 % change 2H19 % change Export (Rm) 28 399 30 584 (7) 25 529 11 Tonnes sold (Mt) 18.3 19.9 (8) 20.1 (9) US Dollar per tonne 93 108 (14) 86 8 Rand per tonne 1 552 1 537 1 1 270 22 Domestic (Rm) 464 1 767 (74) 789 (41) Shipping operations (Rm) 2 716 2 147 2
Slide 36: Annexure 4: Price premia adversely affected by steel production cuts outside China
Annexure 4: Price premia adversely affected by steel production cuts outside China Kumba 1H20 realised FOB price (US$/t) Price drivers 0.1 (1.6) ▪ P62 Index CFR China price broadly flat: 92.8 US$91/t 91.1 9.8 (9.8) ▪ Fe premium: average ~US$1.4 per 1% Fe 3.4 81.3 ▪ Lump premium: average US$0.23/dmtu
Slide 37: Annexure 5: Revenue reflects lower realised prices and sales volumes
Annexure 5: Revenue reflects lower realised prices and sales volumes Revenue decreased by 8% impacted by lower controllables Revenue drivers Rm 34 498 Controllables 2 147 31 579 (3 844) 4 195 2 716 ▪ Total sales volumes down 13% to 18.6Mt (3 908) (1H19: 21.4Mt) due to lower domestic 69 569 offtake,
Slide 38: Annexure 6: Operating expenditure analysis
Annexure 6: Operating expenditure analysis Rm 1H20 1H19 % change 2H19 % change Cost of goods sold 12 002 12 161 (1) 14 418 (17) Cost of goods produced 9 170 9 959 (8) 11 015 (17) Production costs 8 967 9 024 (1) 11 885 (25) Sishen mine 6 413 6 149 4 7 285 (12) Kolomela mine 2 587 2 384 9 2 986 (13)
Slide 39: Annexure 7: Operating expenditure driven by stock movement and cost escalation
Annexure 7: Operating expenditure driven by stock movement and cost escalation Rm 15 250 15 082 134 (732) (9) 45 (236) 630 3 109 3 100 Mining Logistics (789) 621 2 202 2 832 9 939 9 150 1H19 Mining Stock Deferred Escalation, Shipping Selling and 1H20 operations movement stripping non-cash and forex
Slide 40: Annexure 8: EBITDA analysis
Annexure 8: EBITDA analysis Rm 1H20 1H19 % change Total sales volumes (Mt) a 18.6 21.4 (13) Benchmark price ($/t) 91 91 — Product premiums ($/t) 12 27 (56) Freight ($/t) (10) (10) — Realised FOB price($/t) 93 108 (14) On-mine unit costs ($/t) (19) (23) 15 Logistics (rail and port) ($/t) (10) (11) 9
Slide 41: Sishen and Kolomela mines’ unit cash cost structure (R/t)
Annexure 9: Sishen and Kolomela mines’ unit cash cost structure (R/t) 345 325 306 103 110 270 92 65 68 50 39 40 66 58 97 93 66 56 47 16 15 13 11 36 13 6 17 4 84 94 81 61 (68) (69) (49) (69) Sishen mine Sishen mine Kolomela mine Kolomela mine FY19 1H20 FY19 1H20 Deferred stripping Other Energy Drilli
Slide 42: Sishen and Kolomela mines’ unit cash cost structure (%)
Annexure 10: Sishen and Kolomela mines’ unit cash cost structure (%) 25 21 24 28 13 10 16 13 16 15 29 26 16 14 11 13 4 4 3 2 3 3 5 1 20 23 20 22 Sishen mine Sishen mine Kolomela mine Kolomela mine FY19 1H20 FY19 1H20 Other Energy Drilling and blasting Maintenance Outside services Fuel Labour 42
Slide 43: Annexure 11: Capital expenditure analysis
Annexure 11: Capital expenditure analysis Rm 1H20 FY19 FY20e Approved expansion 348 592 500 – 600 Deferred stripping 1 237 2 634 2 100 – 2 300 Sishen 854 1 981 1 300 – 1 500 Kolomela 383 653 ~800 SIB 1 242 2 377 2 700 – 2 900 Sishen 892 1 693 1 800 – 2 000 Kolomela 350 684 ~900 Unapproved expansion
Slide 44: Annexure 12: Sensitivity analysis 1H20
Annexure 12: Sensitivity analysis 1H20 1% change to key operational drivers, each tested independently Sensitivity analysis (1% change) – EBITDA impact (Rm) (210) Export volume 210 (270) Export price 270 (300) Currency 300 (400) (300) (200) (100) 0 100 200 300 400 Change per unit of key operational
Slide 45: Annexure 13: Structural changes support quality premiums
Annexure 13: Structural changes support quality premiums Lump premium Beijing air quality Key drivers (Platts, US$/dmtu) (PM 2.5) Annual Average ▪ Tighter emissions standards Steep fall in PM2.5 may reflect lower industrial activity due to Covid-19 ▪ Sinter displacement in blast furnace lockdown 0.2