Kumba Iron Ore Limited · JSE:KIO
Kumba Iron Ore — H1 2016 Earnings Presentation
38 slides from Kumba Iron Ore's earnings presentation, Jul 26, 2016
Slide 1: Driving Change, Defining Our Future: 2016 Interim Results
DRIVING CHANGE DEFINING OUR FUTURE 2016 INTERIM RESULTS 26 JULY 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: Results Summary
RESULTS SUMMARY Key features • Iron ore reference price down 13% to $52/t • Production down 21% to 17.8Mt consistent with revised Sishen mine plan • Resilient financial performance underpinned by successful cash preservation initiatives • HEPS up 20% to R9.41 per share, normalised earnings down 4% •
Slide 4: Significant Changes Delivered
SIGNIFICANT CHANGES DELIVERED Repositioning of business for lower prices continues Asset portfolio revised • Sishen reconfiguration and restructure to lower cost pit shell implemented • Kolomela production on track, and in line to achieve 13Mtpa in 2017 • Thabazimbi mining and processing activity ce
Slide 5: Challenging First Half
CHALLENGING FIRST HALF Emphasis on stabilising production and improving efficiency going forward Safety performance a concern • Regrettably, 2 loss of life incidents • Priorities for 2H16: safety turnaround, behaviour, culture and leadership initiatives Organisational restructure completed • Total w
Slide 6: Financial Performance Improved
FINANCIAL PERFORMANCE IMPROVED Stronger financial metrics underpinned by cash preservation initiatives 28 29 25 30 8 40 7 35 20 25 37 18 6 6.7 30 34 20 5 15 5.7 25 15 4 20 10 3 15 10 18 2 10 5 5 2.3 1 5 20.5 15.7 18.2 0 0 0 0 1H15 2H15 1H16 1H15 2H15 1H16 1H15 2H15 1H16 1 Revenue (Rbn) Ebit margin (
Slide 7: Market Overview
AngloAmerican KUMBA IRON ORE LIMITED MARKET OVERVIEW
Slide 8: Iron Ore Prices
IRON ORE PRICES Recovering from historic lows but supply-demand fundamentals remain challenging • Iron ore prices (62% Fe Platts CFR China) averaged US$52/dmt in 1H16, down 13% • Improving steel mill margins drive stronger iron ore prices, recovering from historic lows in late 2015 • Prices capped b
Slide 9: Seaborne Iron Ore Supply
SEABORNE IRON ORE SUPPLY Ongoing ramp-ups and new projects drive seaborne supply growth Global seaborne iron ore exports* • Australia exports increased 4% 6 months 6 months 6 months • Despite closure of Samarco’s 30 Jun 2016 30 Jun 2015 % 30 Dec 2016 % operations, Brazil exports up 7% Mt Mt % Mt % •
Slide 10: Global Crude Steel Production
GLOBAL CRUDE STEEL PRODUCTION Down in all major regions but up on 2H15 • Global crude steel production contracted 2.5%, Global Crude Steel Production (Mt) -2.5% but up 1.3% on 2H15 • Chinese crude steel production eased 1.7% despite -0.4% -3.7% +1.3% a 5.7% rise in Chinese steel exports • JKT’s1 ste
Slide 11: Export Sales
EXPORT SALES Export sales and prices • Export sales decreased by 22% due to lower 1H16 1H15 2H15 production Total export sales (Mt) 18.1 23.2 20.3 Contract (%) 75 67 75 • Average FOB price fell to US$55/dmt, down Spot (%) 25 33 25 US$6/dmt Average FOB price received 55 61 46 (US$/tonne) • Market ref
Slide 12: Operational Overview
OPERATIONAL OVERVIEW
Slide 13: Sishen Mine
SISHEN MINE Improved run rates expected in 2H16 ‘000 Total tonnes mined per day • New mine plan implemented 800 • Production down 29% to 11.5Mt; waste down 700 511,041 600 40% to 64.9Mt in line with revised mine plan 500 462,445 • Substantial workforce restructuring completed t/day 400 320,483 large
Slide 14: Kolomela Mine
KOLOMELA MINE Production target achieved Daily plant throughput ‘000 • Production of 5.9Mt 60 • Waste mined 20.2Mt, 23% lower, in line with 50 43,502 37,742 mine optimisation 40 31,871 t/day • Work continues to achieve planned target of 30 20 13Mtpa in 2017 10 • Further improvement in plant efficien
Slide 15: Logistics
LOGISTICS Volumes hampered by low stock and reduced production • Volumes railed decreased 16% to 18.3Mt • Volumes shipped down 21% to 18.1Mt • Stocks reduced to 2.3Mt 6 months 6 months % 6 months % Mt 30 Jun 2016 30 Jun 2015 change 31 Dec 2015 change Railed to port 18.3 21.8 (16%) 20.6 (11%) 1 Sishe
Slide 16: Financial Overview
AngloAmerican KUMBA IRON ORE LIMITED ri FINANCIAL (i OVERVIEW
Slide 17: Financial Highlights
FINANCIAL HIGHLIGHTS Initiatives to lower the cost base delivers results 28 29 30 7 • Revenue decreased 11% to R18.2bn 25 6 5.8 18 5 20 5.2 • Costs down 12% to R13bn 15 4 3 10 2.91 • Capex of R1.3bn down 61% 2 5 1 0 0 • HEPS of R9.41 up 20% 1H15 2H15 1H16 Operating profit (Rbn) Operating margin (%)
Slide 18: Breakeven at Lower End of Targeted Range
BREAKEVEN AT LOWER END OF TARGETED RANGE Restructuring delivers meaningful savings Total cash costs vs Breakeven2 ($/t) 18 49 16 17 32-40 34 36 28 26 FY2015 1H16 2016e 1 Controllable costs Non controllable costs Breakeven • Breakeven price down $15/t from the FY2015 • FOB C1 cash cost of Sishen $30/
Slide 19: Financial Review
FINANCIAL REVIEW Robust operating margin and healthy cash generation 6 months 6 months 6 months Rm 30 Jun 20161 30 Jun 2015 % change 31 Dec 2015 % change Revenue 18,182 20,469 (11%) 15,669 16% Operating expenses (12,976) (14,699) (12%) (18,795) (31%) Operating expenses (13,190) (16,088) (18%) (14,08
Slide 20: Revenue
REVENUE Planned reduction in volumes offset by weaker currency Rm 20,469 4,211 3,495 1,036 1,577 535 18,182 1,042 18,892 17,140 1H15 Volume Currency Price Shipping 1H16 Mining operations Shipping • Revenue decreased by 11% • Total sales volumes reduced as planned by 5.8 Mt to 20.2 Mt as a result of
Slide 21: Operating Expenditure
OPERATING EXPENDITURE Cost contained through stringent management Rm 14,603 2,298 1,034 291 457 217 12,724 2,891 232 2,674 1,774 Mining (1,205) 1,317 9,938 8,733 1H15 Mining operations Stock Deferred stripping Other Shipping Selling and 1H16 movement distribution Mining operations1 Shipping Selling
Slide 22: Sishen Unit Cash Cost
SISHEN UNIT CASH COST Cost escalation contained at 1% R/t 391 357 80 10 58 30 7 132 87 311 3271 +1% +4% FY15 Inflation Cost Mining Production Deferred stripping 1H16 escalation volume volume Unit cash cost Impact of deferred stripping on unit cash cost • Impacted positively by 42Mt lower mining volu
Slide 23: Kolomela Unit Cash Cost
KOLOMELA UNIT CASH COST Lower mining volumes and overhead cost savings drive exceptional unit cost performance R/t 206 193 28 6 3 21 21 8 4 178 172 +2% (5%) FY15 Inflation Cost Mining Production Deferred stripping 1H16 escalation volume volume Unit cash cost Impact of deferred stripping on unit cash
Slide 24: Capital Guidance
CAPITAL GUIDANCE Re-based pit design and capital discipline drives optimised capex profile 2016 Medium term Long term • Significant reduction of ~R2bn • Sishen: SIB for reconfigured pit shell and • SIB of ~R2bn p.a. (nominal) (61%), supporting cash preservation enhanced operational efficiencies expe
Slide 25: Strengthened Balance Sheet
STRENGTHENED BALANCE SHEET Net cash position of R548m Net (debt)/cash (Rm) 6 months 6 months 12 months Rm 30 Jun 2016 30 Jun 2015 31 Dec 2015 548 Net cash/(debt) 548 (6,062) (4,604) Total equity 29,114 27,453 25,167 Net debt:EBITDA N/A 14 0.39 Interest cover (times) 16 14 4 (4,604) Net debt/equity (
Slide 26: Outlook
AngloAmerican KUMBA IRON ORE LIMITED OUTLOOK
Slide 27: Regulatory Update
REGULATORY UPDATE Ongoing engagement with authorities Contingent tax liability • Objection to the assessment lodged on 18 July 2016 • SARS granted suspension pending further engagement • Field audit covering 2011 to 2013 years of assessment in progress 21.4% Sishen Mining Right • Awaiting response f
Slide 28: Outlook Remains Challenging
OUTLOOK REMAINS CHALLENGING Prices expected to decline in 2H16 Production Sales • Sishen • Targeting export sales of 38–39Mt for 2016 • ~27Mt in 2016-2020 • Waste ~135-150Mt in 2016, ~150Mt 2017–2020 Market Fundamentals • Kolomela • Supply-demand fundamentals remain challenging • ~12Mt in 2016; incr
Slide 29: Incremental Production Pipeline
INCREMENTAL PRODUCTION PIPELINE Value accretive growth opportunities Low Grade Sishen Sishen Kolomela Technology and DMS upgrade to UHDMS 2nd Modular plant Modular Exploration • Sishen beneficiation • Leveraging low grade • Proven technology, • Proven technology, options technology low risk low risk
Slide 30: Maintaining Robustness Through the Cycle
MAINTAINING ROBUSTNESS THROUGH THE CYCLE Key priorities over the medium term Optimise assets Financial flexibility Future opportunities • Stabilise production • Maintain strong balance • Deliver incremental sheet production projects • Step up financial and operational performance • Sustainable divid
Slide 31: Thank You
KUMBA IRON ORE LIMITED AngloAmerican HANK YOU
Slide 32: Annexures
AngloAmerican KUMBA IRON ORE LIMITED og wa ANNEXURES as
Slide 33: Annexure 1: Revenue Sector Analyses
ANNEXURE 1 Revenue: Sector analyses 6 months 6 months 6 months 30 Jun 2016 30 Jun 2015 % change 31 Dec 2015 % change Export (Rm) 15,412 16,823 (8%) 12,748 21% Tonnes sold (Mt) 18.1 23.2 (22%) 20.3 (11%) US Dollar per tonne 55 61 (10%) 46 20% Rand per tonne 851 725 17% 625 36% Domestic (Rm) 1,728 2,0
Slide 34: Annexure 2: Aggregate Operating Expenditure
ANNEXURE 2 Aggregate operating expenditure 6 months 6 months 6 months Rm 30 Jun 2016 30 Jun 2015 % change 31 Dec 2015 % change Cost of goods sold 8,733 9,938 (12%) 8,224 6% Cost of goods produced 7,123 8,254 (14%) 8,287 (14%) Production costs 7,353 8,531 (14%) 8,396 (12%) Sishen mine 5,527 6,115 (10
Slide 35: Annexure 3: Capital Expenditure Analyses
ANNEXURE 3 Capital expenditure analyses 12 months 12 months 12 Months 12 months 31 Dec 2016 31 Dec 2017 31 Dec 2018 1H16 31 Dec 2015 Rm Medium term forecast Approved expansion 340 870 800 400 100 Deferred stripping 466 2,852 900–1,100 800–900 1,600–1,800 Sishen 340 2,508 700–800 600–700 1,300–1,400
Slide 36: Annexure 4: Sishen and Kolomela Unit Cash Cost Structure (R/t)
ANNEXURE 4 Sishen and Kolomela mines’ unit cash cost structure (R/t) 310.8 326.9 84.6 96.0 54.4 47.0 177.7 63.8 171.5 47.6 40.1 47.5 21.4 101.1 73.0 26.7 24.6 21.3 17.9 15.5 10.1 66.9 9.2 57.9 67.2 13.2 3.2 11.3 59.7 3.4 34.7 26.9 (29.5) (28.5) (21.4) (79.9) Sishen mine Sishen mine Kolomela mine Kol
Slide 37: Annexure 5: Unit Cash Cost Structure Before Deferred Stripping (%)
ANNEXURE 5 Sishen and Kolomela mines’ unit cash cost structure before deferred stripping (%) 22 27 20 25 14 11 13 13 13 16 13 11 21 33 30 26 4 5 3 6 6 2 2 2 15 19 15 13 Sishen mine Sishen mine Kolomela mine Kolomela mine FY15 1H16 FY15 1H16 Other Energy Drilling and blasting Maintenance Outside serv
Slide 38: Annexure 6: Sensitivity Analysis
ANNEXURE 6 Sensitivity analysis for 6 months Change per unit of key operational drivers Sensitivity Analysis Unit change EBIT impact Currency (ZAR/USD) R0.10/$ R115m Export Price (USD/tonne) $1.00/t R275m Volume (Kt) 100Kt R55m Sensitivity Analysis Unit change Breakeven price impact Currency (ZAR/US