Kumba Iron Ore Limited · JSE:KIO
Kumba Iron Ore — FY2015 Earnings Presentation
44 slides from Kumba Iron Ore's earnings presentation, Feb 9, 2016
Slide 1: 2015 Annual Results
2015 ANNUAL RESULTS 9 FEBRUARY 2016
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: The Year in Context
THE YEAR IN CONTEXT A turbulent and challenging operating environment • No loss of life in 2015 • Price decline severely impacted earnings and profitability • Sishen production underperformance, but in line with revised Q3 guidance • Kolomela continued to perform well • Cost and capital management d
Slide 4: Repositioning the Business for Lower Prices
REPOSITIONING THE BUSINESS FOR LOWER PRICES Actions taken during the year • Operational focus on value (cash generation) versus volume • Sishen reconfigured to a lower cost pit shell • Kolomela waste profile optimised and incremental ramp up of low cost tonnes continues • Thabazimbi closure in progr
Slide 5: R4.0bn Reduction in Controllable Costs
R4.0bn REDUCTION IN CONTROLLABLE COSTS Strong focus on cash preservation Capex (Rbn) Corporate overheads and Headcount reduction for head office, Study costs (Rbn) support services and Thabazimbi (20%) (43%) (53%1) 8.5 8.5–9.3 2.1 6.8 1.2 2,578 1,222 2014 2015 2014 2015 2014 2015 Feb 2015 Guidance P
Slide 6: Response to Further Deterioration in Price
RESPONSE TO FURTHER DETERIORATION IN PRICE Sishen reconfigured to lower cost pit shell Sishen waste profile (Mt) 250 Objectives 200 • Transition mine to lower cost of production 150 100 • Ensure sustainability at lower prices 50 0 Impact (2016 – 2020) 2016 2017 2018 2019 2020 2021 2022 2023 2024 202
Slide 7: Maintaining Cost Reduction Momentum
MAINTAINING COST REDUCTION MOMENTUM Breakeven price anticipated to reduce to ˂$40/t for 2016 Total cash costs vs Breakeven ($/t) 63 28 49 18 41 13 32–40 45 36 30 FY2014 FY2015 Dec 15 2016e Controllable costs Non controllable costs1 Breakeven • Breakeven target achieved ($41/t vs $45/t set in 1H15) C
Slide 8: Strong Commitment to Capital Preservation
STRONG COMMITMENT TO CAPITAL PRESERVATION De-leveraging balance sheet a key priority Rand billion 42% 7.9 6.1 4.6 Dec-14 Jun-15 Dec-15 Net debt • Debt reduced by 42% due to cost focus, capital preservation and dividend suspended • Debt position anticipated to improve should current market conditions
Slide 9: Results Overview
KUMBA IRON ORE LIMITED
Slide 10: Safety Focus Remains on Critical Controls
SAFETY FOCUS REMAINS ON CRITICAL CONTROLS Committed to zero harm Safety Fatalities • No loss of life in 2015 3 • Improved safety performance – less injuries and reduced severity 2 • Thabazimbi major slope failure – effective critical control monitoring 1 triggered life-saving response 0 0 0 2010 201
Slide 11: Market Overview
KUMBA IRON ORE LIMITED
Slide 12: Further Pressure on Iron Ore Prices
FURTHER PRESSURE ON IRON ORE PRICES No recovery to historical averages in the near term • Iron ore prices (62% Fe Platts CFR China) averaged US$56/t in 2015, down 42% • Prices declined to historical lows as a result of: • Increased supply from Australia and Brazil • Lower crude steel production in C
Slide 13: Global Crude Steel Production Declined
GLOBAL CRUDE STEEL PRODUCTION DECLINED Down in all major regions Global crude steel production (Mt) 1.3% (2.9%) • Global crude steel production declined 1,626 1,647 1,599 2.9% in 2015 439 450 433 • China’s crude steel production declined 199 205 196 166 169 166 notwithstanding record steel exports 8
Slide 14: China Crude Steel Production Has Peaked
CHINA CRUDE STEEL PRODUCTION HAS PEAKED Down despite record high finished steel exports China crude steel production and net exports (Mt) 900 20 • Chinese crude steel contracted 2.3% 12.4% 0.1% (2.3%) (3.2%) in 2015 800 4.1% 49 76 97 15 94 42 12 12 700 10 33 • Finished steel exports up 19% to 111Mt
Slide 15: Continued Supply Growth in 2015
CONTINUED SUPPLY GROWTH IN 2015 Growth from majors partially offset by supply rationalisation from juniors • Seaborne exports increased by 42Mt up 3% Global seaborne iron ore exports (Mwt) • Minas Rio and rising shipments to Malaysia 1H15 2H15e HoH 2014 2015e YoY supported a 8% increase in Brazilian
Slide 16: Record Export Sales Achieved
RECORD EXPORT SALES ACHIEVED Higher volumes but lower price in line with the index • Export sales increased by 7% Export sales and prices underpinned by increased 2015 2014 2013 shipments through the multi Total export sales (Mt) 43.5 40.5 39.1 purpose terminal at Saldanha Contract (%) 72 72 79 Spot
Slide 17: Operational Overview
KUMBA IRON ORE LIMITED OPERATIONAL OVERVIEW
Slide 18: Sishen Mine
SISHEN MINE Production impacted by challenging second half • Production of 31Mt down 12%, in line with Sishen’s production profile 35 250 3Q15 guidance 30 31 200 25 27 27 Production (Mt) • Shortage of high grade material in 2H15 Waste (Mt) 20 150 caused feedstock constraints to the plants 15 100 • 2
Slide 19: New Sishen Mine Plan
NEW SISHEN MINE PLAN Key processes underway Transition to be completed during 1H16 • Equipment being moved, sold or retained for future use • Headcount rationalisation • Section 189 notice issued • ~45% reduction in workforce (2,633 permanent and 1,300 contractors) • Sustainable savings of ~R550m fr
Slide 20: Kolomela Mine
KOLOMELA MINE Production target exceeded • Production of 12.1Mt, up 4%, due to improvements Kolomela’s production profile 14 50 in plant efficiencies and throughput rates 12 13 • Waste of 45.7Mt, 18% lower as a result of 12 12 40 Production (Mt) 10 cessation of pre-stripping in the third pit Waste (
Slide 21: Logistics and Sales
LOGISTICS AND SALES Sales underpinned by port performance • Volumes railed remained flat at 42.4Mt • Volumes shipped increased 8% to 43.5Mt due to use of the multi-purpose terminal • Stocks reduced to 4.7Mt Mt 2015 2014 % change 2H15 1H15 % change Railed to port 42.4 42.2 0.5% 20.6 21.8 (6%) Sishen
Slide 22: Financial Overview
KUMBA IRON ORE LIMITED
Slide 23: Financial Highlights
FINANCIAL HIGHLIGHTS Deteriorating price impacts financial performance • Unprecedented decline in iron ore price – Operating profit (Rbn) down 42% to $56/t 19.2 • Revenue decreased 24% to R36bn • Initiatives to lower the cost base deliver 6.0 1 results 2.6 • Net debt position improves to R4.6bn 2014
Slide 24: Financial Review
FINANCIAL REVIEW Results reflect challenging environment Rm 2015 2014 % change 2H15 1H15 % change Revenue 36,138 47,597 (24%) 15,669 20,469 (23%) Operating expenses (33,494) (28,405) 18% (18,795) (14,699) 28% Operating expenses (30,177) (28,628) 5% (14,089) (16,088) (12%) Impairment charge (5,978) (
Slide 25: Revenue
REVENUE Lower realised prices partially offset by weak Rand • Revenue decreased by 24% • Realised average FOB export prices decreased by 42% to $53/t • 18% weaker average ZAR/$ exchange rate of R12.76 • Total sales volumes increased by 2.5Mt to 47.8Mt 47,597 18,107 3,894 2,666 482 36,138 Rand millio
Slide 26: Operating Expenditure
OPERATING EXPENDITURE Costs contained through stringent management • Mining costs down 3% in real terms mainly from lower fuel prices and lower mining volumes at Thabazimbi and Kolomela • Freight rates declined to historical low levels reaching $4.0/t during Jan 2016 • Selling and distribution up du
Slide 27: Sishen Unit Cash Cost
SISHEN UNIT CASH COST In line with guidance despite lower production • Cost escalation contained below inflation • Mining cost driven by 31Mt growth in mining volumes, partially offset by overhead cost savings • Impacted negatively by 4.1Mt lower production volumes 79.9 36.3 41.7 34.1 Rand per tonne
Slide 28: Kolomela Unit Cash Cost
KOLOMELA UNIT CASH COST Higher production and waste optimisation drives exceptional unit cost performance • Cost escalation contained at 3%, well below inflation • Lower mining costs from 10Mt lower volumes and overhead cost savings • Higher production volumes supports unit cost decrease 30.4 9.6 3.
Slide 29: Capital Expenditure of R6.8bn
CAPITAL EXPENDITURE OF R6.8bn Significant capex savings delivered, on track for further savings • Significant capex cuts vs. Feb 2015 guidance • Significant SIB cuts for 2016–2017: • Sishen: new pit shell reduces fleet and • Lower waste tonnes mined from optimised pit infrastructure capex design, re
Slide 30: 42% Reduction in Net Debt
42% REDUCTION IN NET DEBT Stringent cost control and focus on cash preservation • Net debt to EBITDA stable notwithstanding decline in profitability • Further debt reduction in 2016 if current market parameters prevail; business remains highly geared to price, freight, and currency Rm 2015 2014 % ch
Slide 31: Regulatory Update
KUMBA IRON ORE LIMITED REGULATORY UPDATE
Slide 32: Regulatory Update
REGULATORY UPDATE Ongoing engagement with authorities Contingent tax liability • Objection to letter of findings from SARS for 2006–2010 submitted in Dec 2015 21.4% Sishen Mining Right • Notice received from DMR consenting to addition of 21.4% mining right with conditions • Appeal submitted to the M
Slide 33: Outlook
KUMBA IRON ORE LIMITED
Slide 34: Outlook Remains Challenging
OUTLOOK REMAINS CHALLENGING Price pressure to continue Production • Sishen • ~27Mt in 2016–2020 • Waste ~135–150Mt in 2016–2020, no impact on life of mine • Kolomela • ~12Mt in 2016; increase to 13Mt by 2017 • Waste ~46–48Mt in 2016–2020, life of mine increased by 2 years Export Sales • Targeting ~4
Slide 35: Summary
SUMMARY Resilience and flexibility in a low price environment • Significant progress made with cash flow preservation • Industry to remain under continued pressure • No price recovery expected over the medium term • Tough decisions made to safeguard viability of our business • Targeting decrease in
Slide 36: Annexures
KUMBA IRON ORE LIMITED ANNEXURES
Slide 37: Annexure 1: Revenue Sector Analyses
ANNEXURE 1 Revenue: Sector analyses 2015 2014 % change 2H15 1H15 % change Export (Rm) 29,571 39,939 (26%) 12,748 16,823 (24%) Tonnes sold (Mt) 43.5 40.5 7% 20.4 23.2 (12%) US Dollar per tonne 53 91 (42%) 47 61 (23%) Rand per tonne 679 986 (31%) 625 725 (14%) Domestic (Rm)1 3,155 3,764 (16%) 1,086 2,
Slide 38: Annexure 2: Domestic Revenue Analyses
ANNEXURE 2 Domestic revenue analyses 2015 2014 % change 2H15 1H15 % change Domestic (Sishen mine) (Rm)1 2,277 2,592 (12%) 726 1,551 (53%) Tonnes sold (Mt) 2.97 3.8 (22%) 0.9 2.0 (55%) Rand per tonne 727 682 7% 726 776 (6%) Domestic (Thabazimbi mine)2 (Rm) 878 1,172 (25%) 360 518 (31%) Tonnes sold (M
Slide 39: Annexure 3: Aggregate Operating Expenditure
ANNEXURE 3 Aggregate operating expenditure Rm 2015 2014 % change 2H15 1H15 % change Cost of goods sold 18,162 18,039 1% 8,224 9,938 (17%) Cost of goods produced 16,541 16,429 1% 8,287 8,254 0.4% Production costs 16,927 17,096 (1%) 8,396 8,531 (2%) Sishen mine 12,776 12,598 1% 6,661 6,115 9% Kolomela
Slide 40: Annexure 4: Capital Expenditure Analyses 2014–2018
ANNEXURE 4 Capital expenditure analyses 2014–2018 2014 2015 2016e 2017e 2018e Rm Medium term forecast Approved expansion 1,433 870 800 400 100 Deferred stripping 1,838 2,852 700–900 1,300–1,500 1,700–1,900 Sishen 1,025 2,508 400–500 1,050–1,150 1,600–1,700 Kolomela 351 344 300–400 250–350 100–200 Th
Slide 41: Annexure 5: Unit Cash Cost Structure (R/t)
ANNEXURE 5 Sishen and Kolomela mines’ unit cash cost structure (R/t) 310.8 84.6 271.8 58.4 63.8 207.6 37.3 177.7 58.3 101.1 34.5 40.1 74.4 26.7 75.1 54.4 66.9 35.5 17.9 22.4 14.7 9.2 17.8 21.4 7.0 2.7 13.2 52.4 59.7 3.2 48.2 34.7 (28.9) (30.4) (28.5) (79.9) Sishen mine Sishen mine Kolomela mine Kolo
Slide 42: Annexure 6: Unit Cash Cost Structure (%)
ANNEXURE 6 Sishen and Kolomela mines’ unit cash cost structure (%) 120% 110% 27 18 23 100% 22 90% 17 15 21 80% 21 70% 60% 36 38 33 27 50% 40% 10 13 12 17 30% 9 5 1 8 20% 3 2 3 2 10% 20 17 24 20 0% (11) (15) -10% (20) (18) -20% -30% Sishen mine Sishen mine Kolomela mine Kolomela mine FY14 FY15 FY14 F
Slide 43: Annexure 7: Seaborne Iron Ore Cost Curve
ANNEXURE 7 Seaborne iron ore cost curve • Non-traditional suppliers increasingly vulnerable to low iron ore pricing environment • Extensive cost cutting drives combined with favourable movements in producer currencies, freight, and oil has resulted in a lower and flatter iron ore cost curve • Majors
Slide 44: Annexure 8: Sensitivity Analysis 2015
ANNEXURE 8 Sensitivity analysis 2015a 1% change to key operational drivers, each tested independently Sensitivity analysis (1% change) – EBIT impact (Rm) -150 Export volume 150 -290 Export price 290 -315 Currency 315 -400 -300 -200 -100 0 100 200 300 400 Change per unit of key operational drivers, e