Kumba Iron Ore Limited · JSE:KIO

Kumba Iron Ore — FY2019 Earnings Presentation

44 slides from Kumba Iron Ore's earnings presentation, Feb 18, 2020

  1. Slide 1: Re-imagining Mining to Improve People's Lives: 2019 Annual Results

    KUMBA IRON ORE LIMITED RE-IMAGINING MINING TO IMPROVE PEOPLE’S LIVES 2019 Annual Results, 18 February 2020

  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: Safety and sustainability is our core value

    Safety and sustainability is our core value Safety Health Environment LTI TRC Occupational diseases Major incidents (new cases) (level 3 – 5) 158 92% Achieved 3.5 years voluntary rehabilitation fatality free HIV test targets 97 77 51 28 41 12 41 35 20 21 17 2 7 8 1 0 0 0 0 2015 2016 2017 2018 2019 2

  4. Slide 4: Continuing to deliver exceptional shareholder value

    Continuing to deliver exceptional shareholder value Favourable export demand Strong EBITDA growth Exceptional returns and higher realised price and cash generation Export sales EBITDA ROCE 40Mt R33.4bn 83% FY18: 40Mt FY18: R20.6bn FY18: 49% Average realised FOB price Attributable free cash flow DPS

  5. Slide 5: Delivering value through margin enhancement and life extension

    Delivering value through margin enhancement and life extension Enhanced EBITDA margin Kolomela pit optimisation: 52% LoM strip ratio reduced to 3.8 FY18: 45% Sishen UHDMS Feasibility completed H2 2020e Implemented by H1 2023e Improved operational efficiency 68% Exploration drill programmes  2 new p

  6. Slide 6: Creating shared value and improving people's lives

    Creating shared value and improving people’s lives Delivering shareholder returns Rewarding employee talent R15.1bn R5.0bn Owners of Kumba (FY18: R9.7bn) Salaries and benefits (FY18: R4.6bn) R4.7bn Supporting local businesses Empowerment partners (FY18: R3bn) R13.9bn BEE business suppliers (FY18: R1

  7. Slide 7: Marketing and Operational Overview

    MARKETING AND OPERATIONAL OVERVIEW Reimagining Mining, Improving People’s Lives 6

  8. Slide 8: Unexpectedly strong Chinese demand coincided with supply disruptions

    Unexpectedly strong Chinese demand coincided with supply disruptions Platts IODEX average (US$/dmt) China pig iron production1 (Mt) 130 1% 7% 3% 5% 110 809 696 701 748 768 2019 $93 US$/dmt, cfr Qingdao 2015 2016 2017 2018 2019 90 2017 2018 Big 4 miners iron ore shipments, actual vs guidance2 2015 $7

  9. Slide 9: Premia underpinned by 'flight to quality', but limited by mill margins

    Premia underpinned by ‘flight to quality’, but limited by mill margins Platts lump premium High grade premium and mill margins (US$/dmtu) (Monthly average, US$/dmt) 300 30 2015 2016 2017 2018 2019 YTD $0.14 $0.15 $0.15 $0.25 $0.27 $0.25 0.5 250 25 0.4 200 20 0.3 150 15 LT view 0.2 ~$0.21 100 10 0.1

  10. Slide 10: Greater reliance on seaborne ore as mills move to the coast

    Greater reliance on seaborne ore as mills move to the coast Seaborne iron ore demand will rise as mills shift to coastal …but seaborne iron ore supply growth from the big 4 is provinces… tapering off Big 4 miners iron ore shipments (Wet Mt) Hebei Steel Shougang Ansteel 345 344 366 CITIC Sinogiant 33

  11. Slide 11: Diversified customer portfolio results in higher premia

    Diversified customer portfolio results in higher premia Traditional market share in Kumba’s total sales (%) Price premium over Platts 62 FOB (US$/dmt) 42 40 18 35 17 17 31 30 19 17 12 17 11 20 25 6 21 18 14 10 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 Europe/MENA/Americas Japan and Korea Sou

  12. Slide 12: Our quality is our competitive advantage

    Our quality is our competitive advantage 2019 average Fe content comparison (%) 2019 realised price comparison US$/dmt, FOB Kumba 97 64.2 64.5 60.8 60.7 57.8 Vale 76 (Est.) Kumba Vale Rio Tinto BHP FMG Rio Tinto 86 2019 lump:fine ratio comparison (%) 67 BHP 85 28 25 3 6 FMG 73 Kumba Vale Rio Tinto B

  13. Slide 13: Sishen – challenging start to the year, recovery demonstrated in H2

    Sishen – challenging start to the year, recovery demonstrated in H2 Total waste mined Total production volumes Reduced LTIs 181.1Mt 29.2Mt 14% FY18: 182Mt FY18: 29.2Mt FY19: 12 (FY18: 14) Competitive Fe quality Mt Mt 19% 12% 64.3% FY18: 64.6% 98.3 15.4 13.8 Lump:Fine ratio 71.4% 82.8 FY18: 71.8% 1H1

  14. 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 Reduced LTIs 63.2Mt 13.2Mt 40% FY18: 56Mt FY18: 13.9Mt FY19: 3 (FY18: 5) Competitive Fe quality Mt Mt 5% 10% 64.1% FY18: 64.3% 32.3 6.9 Lump:Fine ratio 30.9 58.1% 6.3 FY18: 58.7% 1H19

  15. Slide 15: Operational efficiency – focused on improving equipment reliability

    Operational efficiency – focused on improving equipment reliability Sishen Owner Fleet OEE (%) Kolomela Owner Fleet OEE (%) P101 initiatives 8% 5% 20% 2%  Targeting P101 benchmark efficiency  Double-sided loading to improve tempo 65 68 66 67 60 55  Payload, DOH and truck speed optimisation 2017 2

  16. Slide 16: Rail performance significantly improved, while total sales reflects lower domestic offtake

    Rail performance significantly improved, while total sales reflects lower domestic offtake Export sales Railed to port 40Mt 42Mt FY18: 40Mt FY18: 40.6Mt Domestic sales 2.2Mt FY18: 3.3Mt Finished product inventory 6.4Mt Total sales FY18: 5.3Mt 42.2Mt FY18: 43.3Mt 15

  17. Slide 17: Financial Overview

    FINANCIAL OVERVIEW Reimagining Mining, Improving People’s Lives 16

  18. Slide 18: Enhancing shareholder returns

    Enhancing shareholder returns Margin enhancement Financial discipline Sustainable returns Average realised FOB price US$97/t Cost savings R920m HEPS R50.88 FY18 US$72/t FY19 target R700m FY18 R30.28 EBITDA margin 52% Break-even price US$45/t DPS R46.78 FY18 45% FY18 US$41/t FY18 R30.24 17

  19. Slide 19: Price premia reflect continued focus on quality and diversification

    Price premia reflect continued focus on quality and diversification Kumba FY19 realised FOB price (US$/dmt) Price drivers 1.0 Average market prices: 1.9  P62 Index CFR China price 11.9 +34% average: US$93/dmt 14.0 93.4  Fe premium: 3.2 average: ~US$1.5 per 1% Fe 97.4  Lump premium: 79.4 average:

  20. Slide 20: Revenue driven by market price and currency gains

    Revenue driven by market price and currency gains Revenue increased by 41% Revenue drivers Rm 64 285 4 704 5 615 Controllables 938 13 351  Sales volumes down 2% due 45 725 to lower domestic offtake (871) 438 4 677  Market premium +US$1.4/t to US$18.0/t (FY18: US$16.6/t) 58 670 41 048 Non-controlla

  21. Slide 21: Unit cash cost – maintenance and cost escalation partly offset by savings

    Unit cash cost – maintenance and cost escalation partly offset by savings Sishen 1 (Rm) (21) 50 (15) 5 36 12 (13) 345 290 6% 13% Kolomela (Rm) 13 6 2 (26) 18 (13) 12 10 270 248 9% 0% FY18 1 Inflation Cost Mining Maintenance WIP Production Deferred Cost FY19 1 escalation volume stripping savings Non-

  22. Slide 22: Unit costs impacted by increased maintenance and WIP utilisation

    Unit costs impacted by increased maintenance and WIP utilisation Maintenance costs for 2019 Guidance for 2020 Rm Maintenance 655  2019: total maintenance R3.5bn, R1.3bn up year-on-year (R655m unscheduled) 608  2020: expected scheduled maintenance ~R3.0bn 3 509 2 246 WIP movement  2019: negative S

  23. Slide 23: Cost savings delivered ahead of target

    Cost savings delivered ahead of target Cost savings initiatives 2019 (Rm) Cumulative cost savings (Rm) 40 34 104 1 900 392 Total: Cumulative 152 R920m target 1 500 198 ~1 000 Mining: Improved drill, blast, tyre and diesel efficiencies Target Overheads: Fixed cost savings 800 Projects: Project scope

  24. Slide 24: Break-even price reflects increased on-mine costs and SIB capex

    Break-even price reflects increased on-mine costs and SIB capex Platts 62% break-even price (US$/t) (1) 2 (1) 3 3 45 45 (5) 3 41 (0) 42 $4 $0 FY18 C1 Costs Price SIB Total after Lump Currency Inflation Freight Royalties FY19 premium controllables premium and escalation Controllables Non-controllable

  25. Slide 25: EBITDA reflects higher revenue, partially offset by cost increases

    EBITDA reflects higher revenue, partially offset by cost increases 45% EBITDA margin 52% Rm (989) (1 535) (139) 33 373 13 351 (871) 646 4 444 20 566 (2 100) 18 241 (11%) 83% FY18 Volume Premium Opex Total after Currency Price Inflation Royalties Shipping FY19 controllables Controllables Non-controll

  26. Slide 26: Capital expenditure to sustain and grow our business

    Capital expenditure to sustain and grow our business Capital expenditure FY19 Rbn SIB: 6.6–7.1  Capital spares, plant and other infrastructure spend, and fleet Deferred stripping: 1.8-2.0 5.6  Mining in higher strip ratio areas Expansion: 4.5 1.2-1.3  Dingleton, UHDMS/Kapstevel feasibility, P101

  27. Slide 27: Disciplined capital allocation supports shareholder returns

    Disciplined capital allocation supports shareholder returns Capital allocation: FY19 Capital allocation: 2018 – 2019 Rbn Rbn 4.3 1.1 (16.6) (16.6) 4.7 21.1 21.0 R42.6bn (3.8) (3.8) 25.7 xx 6.8 6.8 (xx) 1.6 (xx) 5.2 11.7 11.7 12.4 12.3 8.4 xx 5.5 5.5 Base dividend 1 Top-up dividend 1 FY18 FY18 Cash C

  28. Slide 28: Committed to Delivering Our Strategy

    COMMITTED TO DELIVERING OUR STRATEGY Reimagining Mining, Improving People’s Lives 27

  29. Slide 29: Operating at full potential by 2022

    Operating at full potential by 2022 Enhanced product portfolio Improved operational efficiency Cost saving initiatives Total sales of premium products P101 benchmark on waste fleet Cumulative target 40% >100% >R2.6bn FY19: 19% FY19: 68% FY20: R960m target To date: R1.9bn 28

  30. Slide 30: Leveraging our endowment – targeting 20 year life of asset

    Leveraging our endowment – targeting 20 year life of asset Sishen and Kolomela Sishen - Technology Kolomela - Exploration Northern Cape Exploration Life of Mine Feasibility Prefeasibility/concept Early exploration Focusing on optimisation Sishen Ploegfontein Heuningkranz and efficiencies UHDMS proje

  31. Slide 31: Guidance for 2020

    Guidance for 2020 Total production Total sales Capex 41.5 – 42.5Mt 42 – 43Mt R6.6 – 7.1bn Sishen Kolomela  Production: ~ 29Mt  Production: ~13Mt  Waste: 170 – 180Mt  Waste: 55 – 60Mt  Unit costs: R355 – 370/t  Unit costs: R280 – 290/t  Strip ratio: 4.4, LoM ~3.4  Strip ratio: to exceed 4, Lo

  32. Slide 32: Our value proposition

    Our value proposition Asset Capabilities Sustainable returns (2018-2019)  Premium product portfolio  Safe and flexible production  R54bn EBITDA  Life extension opportunities  P101 efficiency and technology  R25bn attributable free cash flow  License to operate  Talented people  ROCE of 83%

  33. Slide 33: Thank you

    THANK YOU

  34. Slide 34: Annexures

    ANNEXURES Reimagining Mining, Improving People’s Lives 33

  35. Slide 35: Annexure 1: Logistics performance

    Annexure 1: Logistics performance Mt FY19 FY18 % change 2H19 1H19 % change Railed to port (incl. Saldanha Steel) 42.0 40.6 3 19.7 22.3 (12) Sishen mine (incl. Saldanha Steel) 27.8 27.1 3 12.9 14.9 8 Kolomela mine 14.2 13.5 5 6.9 7.3 (5) Total sales 42.2 43.3 (3) 20.8 21.4 (3) Export 40.0 40.0 — 20.1

  36. Slide 36: Annexure 2: Operating margin

    Annexure 2: Operating margin Rm FY19 FY18 % change 2H19 1H19 % change Revenue 64 285 45 725 41 29 787 34 498 (14) Operating expenses (35 474) (29 429) 21 (18 943) (16 530) 15 Operating profit 28 811 16 296 77 10 844 17 968 (40) Operating margin (%)1 45 36 9 36 52 (16) Profit for the period 21 316 12

  37. Slide 37: Annexure 3: Revenue analysis

    Annexure 3: Revenue analysis FY19 FY18 % change 2H19 1H19 % change Export (Rm) 56 113 38 261 47 25 529 30 584 (17) Tonnes sold (Mt) 40.0 40.0 — 20.1 19.9 1 US Dollar per tonne 97 72 35 86 108 (20) Rand per tonne 1 402 957 46 1 270 1 537 (17) Domestic (Rm) 2 557 2 787 (8) 789 1 767 (55) Shipping oper

  38. Slide 38: Annexure 4: Expense drivers

    Annexure 4: Expense drivers Rm 33 0401 1 073 307 1 316 (965) 923 28 5531 1 833 6 501 6 194 Mining Logistics 3 107 1 380 5 605 4 532 20 934 17 827 FY18 Mining operations Stock Deferred stripping Escalation, Shipping Selling and FY19 movement non-cash and forex distribution 1 Mining operations Shippin

  39. Slide 39: Annexure 5: Expense Analysis

    Annexure 5: Expense Analysis Rm FY19 FY18 % change 2H19 1H19 % change Cost of goods sold 20,934 17,827 17 10,994 9,940 11 Cost of goods produced 18,951 16,222 17 9,862 9,089 9 Production costs 18,900 17,661 7 10,334 8,566 21 Sishen mine 13,434 12,209 10 7,285 6,149 18 Kolomela mine 5,370 5,079 6 2,9

  40. Slide 40: Sishen and Kolomela mines' unit cash cost structure (R/t)

    Annexure 6: Sishen and Kolomela mines’ unit cash cost structure (R/t) 345 290 103 270 82 68 65 248 58 40 57 66 35 58 93 66 100 52 16 36 12 13 10 27 17 4 66 84 15 4 61 30 (21) (47) (68) (49) Sishen mine Sishen mine Kolomela mine Kolomela mine FY18 FY19 FY18 FY19 Deferred stripping Other Energy Drilli

  41. Slide 41: Annexure 7: Sishen and Kolomela mines' unit cash cost structure (%)

    Annexure 7: Sishen and Kolomela mines’ unit cash cost structure (%) 24 25 21 21 13 13 17 16 17 16 29 37 15 16 11 4 4 10 5 3 3 1 6 20 20 1 20 12 Sishen mine Sishen mine Kolomela mine Kolomela mine FY18 FY19 FY18 FY19 Other Energy Drilling and blasting Maintenance Outside services Fuel Labour 40

  42. Slide 42: Annexure 8: Capital expenditure analysis

    Annexure 8: Capital expenditure analysis Forecast Rm FY19 FY18 12 months 31 Dec 2020 Approved expansion 592 506 900 Deferred stripping 2 634 1 669 1 800 – 2 000 Sishen 1 981 1 370 1 000 – 1 100 Kolomela 653 299 800 – 900 SIB 2 377 2 288 3 600 – 3 800 Sishen 1 693 1 691 2 400 – 2 500 Kolomela 684 597

  43. Slide 43: Annexure 9: Sensitivity analysis for 2019

    Annexure 9: Sensitivity analysis for 2019 1% change to key operational drivers, each tested independently Sensitivity analysis (1% change) – EBITDA impact (Rm) (410) Export volume 410 (535) Export price 535 (560) Currency 560 (800) (600) (400) (200) 0 200 400 600 800 Change per unit of key operation

  44. Slide 44: Annexure 10: Structural changes support quality premiums

    Annexure 10: Structural changes support quality premiums Lump premium (Platts, US$/dmtu)1 Beijing air quality (PM 2.5)1 Annual average  Tighter emissions standards  Escalating sinter costs 0.25 0.28 85 80 ~0.21  Sinter displaced by lump 73 0.17 58 54 0.14 0.15 0.15 35 2014 2015 2016 2017 2018 201

Kumba Iron Ore — FY2019 Earnings Presentation on 6ix