Kumba Iron Ore Limited · JSE:KIO
Kumba Iron Ore — FY2020 Earnings Presentation
45 slides from Kumba Iron Ore's earnings presentation, Feb 23, 2021
Slide 1: Kumba Iron Ore 2020 Annual Results
KUMBA IRON ORE LIMITED 2020 Annual Results 23 February 2021 Kolomela Mine Dense media separation plant
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: Agenda
Agenda 2020 Performance overview Themba Mkhwanazi UHDMS and Life of Mine Themba Mkhwanazi Marketing and operations Themba Mkhwanazi Financial performance Bothwell Mazarura Fortifying our business for the future Themba Mkhwanazi Guidance and conclusion Themba Mkhwanazi 3
Slide 4: 2020 Highlights: resilient, profitable and capital efficient
2020 Highlights | resilient, profitable and capital efficient Export sales ROCE 39.3Mt 109% FY19: 40Mt FY19: 83% Total production Attributable free cash flow 37.0Mt R20.7bn FY19: 42.4Mt FY19: R17.1bn EBITDA DPS R45.8bn R60.90 FY19: R33.4bn FY19: R46.78 4
Slide 5: Covid-19: adapting and keeping the engine running
Covid-19 | adapting and keeping the engine running Safe and healthy people Responsible operations Supporting our stakeholders Preserved financial strength • Screening & testing • Safe production • Providing essential services • Cost savings of R1.3bn • Quarantining & isolating • Protecting value cha
Slide 6: Safety and health: beating our record
Safety and health | beating our record Safety Health LTI Occupational diseases (new cases) TRC 4 years, 88% 7 months voluntary fatality free HIV testing 97 77 51 41 39 35 20 21 17 18 12 2 5 8 0 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 • Driving behavioural & culture change • No silica dust
Slide 7: Environment: delivering sustainability
Environment | delivering sustainability Climate change Water intensity and recycled Carbon emissions (Mt C02e) >5 years Water intensity (l/t) 19 Ml water no major provided to Water recycled (%) environmental communities incidents 57 1.00 1.00 44 33 25 27 0.96 0.96 0.91 139 147 151 152 141 2016 2017
Slide 8: Enduring value: safeguarding lives and livelihoods
Enduring value | safeguarding lives and livelihoods Contributing to South Africa Delivering shareholder returns Building communities R10.1bn R19.6bn R264m Income tax (FY19: R7.8bn) Owners of Kumba (FY19: R15.1bn) Direct social investment (FY19: R171m) R3.0bn R6.4bn R93.2m Mineral royalty (FY19: R2.6
Slide 9: UHDMS project: compelling value and life extension
UHDMS project | compelling value and life extension Investment Projected Maximise value horizon returns and improve sustainability R3.6bn >30% ~US$1/t¹ capital expenditure internal rate of return product premium from 2024 2H 2021 >40% 3.8-3.1 breaking ground EBITDA margin lower strip ratio 2H 2023
Slide 10: Life of mine: delivering through optimisation, technology and exploration
Life of mine | delivering through optimisation, technology and exploration 2018 - 2019 2020 > 2021 Life extension to 2040 Sishen Sishen Sishen Optimisation and efficiency Phase 2 optimisation UHDMS project approved Kolomela Kolomela Kolomela Ambition: Heuningkranz incorporated Kapstevel South approv
Slide 11: Marketing and operations
Marketing and operations 11
Slide 12: Markets: China steel production at new record highs
Markets | China steel production at new record highs China Crude Steel Production (Mt)1 Global Seaborne Iron Ore Supply (Wet Mt) 1,054 995 1 538 1 538 1 582 1 489 1 531 928 871 1 411 804 808 459 421 519 417 470 366 1,045 1,072 1,079 1,117 1,061 1,063 2015 2016 2017 2018 2019 2020 2015 2016 2017 2018
Slide 13: Lump premium: tight coke supply, demand structural in long-term
Lump premium | tight coke supply, demand structural in long-term Relationship between lump premium and direct charge Share of Direct Charge Ores in Chinese Blast furnaces1 (%) stocks (lumps, pellets) at Chinese ports Platts lump premia avg 0.17 0.14 0.15 0.15 0.25 0.27 0.15 ($/dmtu) 36 25 0.50 26 27
Slide 14: Product premium: driven by ex-China demand recovery
Product premium | driven by ex-China demand recovery Crude Steel Production in EU-28 and JKT Markets (%) Traditional markets1 share in Kumba’s total sales (%) 15% 40-45% 47% 10% 40% 42% 38% 35% 30% 31% 5% 0% 2015 2016 2017 2018 2019 4Q20 2020 LT -5% -10% Price premium over Platts 62 FOB (US$/dmt) -1
Slide 15: Peer comparison: quality pays
Peer comparison | quality pays FY20 Fe qualities comparison (%) FY20 Realised price comparison FOB (US$/dmt)¹ 64.3 63.6 Kumba 115 60.7 60.6 57.8 Vale 99 (Est) Kumba Vale Rio Tinto BHP FMG FY20 Lump: Fine ratio comparison (%) Rio Tinto 99 69 BHP 98 28 25 FMG 88 3 8 Kumba Vale Rio Tinto BHP FMG Source
Slide 16: Operational performance: building momentum in H2
Operational performance | building momentum in H2 Total waste volumes Total production volumes 204.8Mt 37.0Mt FY19: 244.3Mt FY19: 42.4Mt Competitive Fe 16.5% 6.7% 64.2% FY19: 64.2% 110.2 19.1 17.9 94.6 30 6.0 5.6 26.2 68.4 80.1 12.4 13.0 Lump:Fine ratio 67.7% 1H20 2H20 1H20 2H20 FY19: 67.2% Sishen K
Slide 17: P101 efficiency: focus on recovery and improvement
P101 efficiency | focus on recovery and improvement Total shovel fleet OEEs1 Total truck fleet OEEs2 P101 benchmark on truck fleet (%) (%) • Technology – guided spotting and real time condition monitoring • Recovering from Covid-19 impacts • Improving payload and shovel fill factors 100 85 87 • Incr
Slide 18: Export sales: solid performance
Export sales | solid performance Railed to port Finished stock Export sales 37.5Mt 4.7Mt 39.3Mt FY19: 42Mt FY19: 6.4Mt FY19: 40Mt Export sales (Mt) Domestic sales 4Q20 maintenance vs. 3Q19 0.4Mt FY19: 2.2Mt 10.5 10.3 10.9 10.1 8.1 Total sales 4Q19 1Q20 2Q20 3Q20 4Q20 39.7Mt FY19: 42.2Mt 18
Slide 19: Financial overview
Financial overview 19
Slide 20: Continuing to deliver shareholder returns
Continuing to deliver shareholder returns Margin enhancement Financial discipline Sustainable returns Average realised FOB price Cost savings HEPS 1 US$115/t R1.3bn R71.07 FY19: US$97/t FY19: R920m FY19: R50.88 EBITDA margin Break-even price DPS 57% US$45/t R60.90 FY19: 52% FY19: US$45/t FY19: R46.7
Slide 21: EBITDA: strong revenue growth and cost discipline
EBITDA | Strong revenue growth and cost discipline EBITDA up 37% driven by higher prices and weaker currency Key underlying drivers Rm Controllables • Total sales down 6% to 39.7Mt (795) (1,082) (FY19: 42.2Mt) (16) 10,318 45,808 • Market premium down to US$17/t (FY19: US$18/t) 8,918 33,373 (3,158) (
Slide 22: Unit costs: lower production, partially offset by savings
Unit costs | lower production, partially offset by savings Sishen Cost savings (R/t) 16 (7) (Rm) 11 (4) (24) 47 (7) (15) 352 362 345 278 2% 3% 613 FY20 Kolomela R1.3bn (R/t) (25) 36 253 (3) (15) 16 17 9 (1) 63 93 304 270 278 3% 9% FY19 1 Inflation Cost Total after Mining Maintenance WIP Production D
Slide 23: Break-even price contained
Break-even price contained Platts 62% break-even price (US$/t) 1 5 (7) 45 (4) 3 45 2 (2) 2 45 43 $0 $0 FY19 C1 Costs Price SIB Total after Lump Currency Inflation Freight Royalties FY20 premium controllables premium and escalation Controllables Non-controllables 23
Slide 24: Strategy: driving margin gains
strategy | driving margin gains Enhanced product portfolio (US$/t) Containing costs and leveraging Enhanced product Fe premium higher iron ore prices (US$/t) premium Price realisation above market levels C1 unit cash cost 5.4 5.1 EBITDA Achieved FOB price 115 ~US$2/t 4.9 2.0 1.9 0.8 97 3.4 3.2 4.1 I
Slide 25: Capital investment: sustain and develop our business
Capital investment | sustain and develop our business Rbn FY 21 and medium term outlook 10.8 – 11.3 SIB: • R1bn deferred from 2020 to 2021 • Plant, infrastructure, capital spares 4.8-4.9 • Normalising from 2024 to c.R3bn 5.6 5.7 Expansion: 0.6 0.6 3.8-4.0 • Kapstevel South (2020 – 2023) 2.4 2.6 − To
Slide 26: Balance sheet: resilient and efficient, with strong cashflow
Balance sheet | resilient and efficient, with strong cashflow Strong free cash flow generation Capital allocation 2018 ─ 2020 Rbn 6.8 (14.4) 1.8 7.3 25.5 (17.8) (1.2) (4.5) R74.4bn 10.5 (13.3) 48.0 22.2 12.3 4.4 Base dividend¹ Top-up dividend¹ FY19 Cash flow after Base Discretionary FY20 Final Pro-f
Slide 27: Fortifying our business for the future
Fortifying our business for the future
Slide 28: Strategy: continuing to unlock value since 2018
strategy | continuing to unlock value since 2018 Safe operations Margin performance 4 years, 7 months 45% to 57% fatality free EBITDA margin gain Life of mine extension Capital discipline 30%¹ R58.5bn additional ore reserves dividends paid (cumulative) 1. Excluding annual depletion 28
Slide 29: Strategy: simple, efficient and competitive
strategy | simple, efficient and competitive Simplified Improved Cost product portfolio operational efficiency savings initiatives Product premium above market P101 benchmark on truck fleet Maintain C1 costs $2/t >100% ≤US$34/t 29
Slide 30: Guidance: 2021 full year
Guidance | 2021 full year Total production Total sales Capex 40 – 41Mt 40 – 41Mt R10.8 – 11.3bn Sishen Kolomela • Production: ~28Mt • Production: ~13Mt • Waste: 150 – 170Mt • Waste: 55 – 65Mt³ • Unit costs: R395 – 405/t • Unit costs: R300 – 310/t • Strip ratio: 4.5, LoM ~3.8¹ | 3.7, LoM ~3.1² • Stri
Slide 31: Value proposition: well positioned for the long-term
Value proposition | well positioned for the long-term ESG excellence Margin performance Life of mine extension Capital discipline • Safe, healthy environment • Enhanced product premia • Optimisation and efficiency • Strong balance sheet • Thriving communities • Operational efficiency • Technology •
Slide 32: Annexures
Annexures
Slide 33: Annexure 1: Logistical performance improvements in H2
Annexure 1: Logistical performance improvements in H2 Mt FY20 FY19 % change 2H20 1H20 % change Railed to port (incl. Saldanha Steel) 37.5 42.0 (11) 19.3 18.2 6 Sishen mine (incl. Saldanha Steel) 25.5 27.8 (8) 13.2 12.3 7 Kolomela mine 12.0 14.2 (16) 6.1 5.9 3 Total sales 39.7 42.2 (6) 21.1 18.6 13 E
Slide 34: Annexure 2: Operating margin driven by revenue, offset by expense increase
Annexure 2: Operating margin driven by revenue, offset by expense increase Rm FY20 FY19 % change 2H20 1H20 % change Revenue 80 104 64 285 25 48 525 31 579 54 Operating expenses (39 266) (35 474) 11 (22 726) (16 540) 37 Operating profit 40 838 28 811 42 25 799 15 039 72 Operating margin (%) 51 45 13
Slide 35: Annexure 3: Revenue sector analysis
Annexure 3: Revenue sector analysis FY20 FY19 % change 2H20 1H20 % change Export (Rm) 74 115 56 113 32 45 716 28 399 61 Tonnes sold (Mt) 39.3 40.0 (2) 21.0 18.3 15 US Dollar per tonne 115 97 19 134 93 45 Rand per tonne 1 886 1 402 35 2 177 1 552 40 Domestic (Rm) 409 2 557 (84) (55) 464 >100 Shipping
Slide 36: Annexure 4: Price premia reflects product quality and a favourable market
Annexure 4: Price premia reflects product quality and a favourable market Kumba FY20 realised FOB price (US$/dmt) Price Drivers Average market prices: $17.2 • P62 index CFR China price +17% average: US$108.9 114.6 • Fe premium: 5.8 Average: ~US$1.76 per 1% Fe 108.9 0.8 • Lump premium: Average: US$0.
Slide 37: Annexure 5: Revenue driven by stronger prices and currency gains
Annexure 5: Revenue driven by stronger prices and currency gains Revenue up 25% despite lower sales Revenue drivers Rm Controllables 80 104 • Total sales volumes down 6% to 5 580 9 066 39.7Mt (FY19: 42.2Mt) due to lower 64 285 (35) domestic offtake, Covid-19 5 615 10 318 (3 158) restrictions and wea
Slide 38: Annexure 6: Operating expenditure analysis
Annexure 6: Operating expenditure analysis Rm FY20 FY19 % change 2H20 1H20 % change Raw materials and consumables 1 449 1 835 (21) 941 508 85 Inventory movement in FP 2 361 14 >100 1 513 848 78 Inventory movement in WIP (1 321) (34) <100 (676) (645) (5) Inventory written down to NRV 902 85 >100 902
Slide 39: Annexure 7: Operating expenditure driven by stock movement
Annexure 7: Operating expenditure driven by stock movement Rm 35 7731 33 0401 1,877 631 285 (132) (7) 79 6580 6501 Mining Logistics 5598 5605 +2 661 +72 23 595 20 934 FY19² Mining Stock Deferred Escalation, Shipping Selling and FY20² operations movement stripping non-cash and forex distribution Mini
Slide 40: Annexure 8: EBITDA analysis
Annexure 8: EBITDA analysis Rm FY20 FY19 % change Total sales volumes (Mt) a 39.7 42.2 (6) Benchmark price ($/t) 109 93 17 Product premiums ($/t) 17 18 (6) Freight ($/t) (11) (14) 21 Realised FOB price($/t) 115 97 19 On-mine cash unit costs ($/t) (21) (22) 5 Logistics (rail and port) ($/t) (10) (11)
Slide 41: Annexure 9: Sishen and Kolomela unit cash cost structure (R/t)
Annexure 9: Sishen and Kolomela mines’ unit cash cost structure (R/t) 345 362 304 103 117 270 86 65 58 68 38 40 66 74 107 93 66 70 53 16 36 13 21 16 5 14 17 4 84 68 83 61 (68) (60) (49) (84) Sishen mine Sishen mine Kolomela mine Kolomela mine FY19 FY20 FY19 FY20 Deferred stripping Other Energy Drill
Slide 42: Annexure 10: Sishen and Kolomela unit cash cost structure (%)
Annexure 10: Sishen and Kolomela mines’ unit cash cost structure (%) 25 21 22 28 13 10 16 14 16 29 28 17 16 17 11 14 4 5 4 1 3 5 1 3 20 20 21 16 Sishen mine Sishen mine Kolomela mine Kolomela mine FY19 FY20 FY19 FY20 Other Energy Drilling and blasting Maintenance Outside services Fuel Labour 42
Slide 43: Annexure 11: Capital expenditure analysis
Annexure 11: Capital expenditure analysis Rm Forecast FY20 FY19 12 months 31 Dec FY21e Approved expansion 591 592 4 700 - 4 800 Deferred stripping 2 502 2 634 2 200 - 2 400 Sishen 1 523 1 981 1 400 - 1 500 Kolomela 979 653 800 - 900 SIB 2 653 2 377 3 800 - 4 000 Sishen 1 797 1 693 2 800 - 2 900 Kolo
Slide 44: Annexure 12: Sensitivity analysis FY20
Annexure 12: Sensitivity analysis FY20 1% change to key operational drivers, each tested independently Sensitivity analysis (1% change) – EBITDA impact (Rm) (570) Export volume 570 (700) Export price 700 (730) Currency 730 (1,000) (800) (600) (400) (200) 0 200 400 600 800 1,000 Change per unit of ke
Slide 45: Image descriptions
Image descriptions Slide 1 Kolomela: Dense media separation plant Slide 20 Kolomela: Load-out station Slide 3 Kolomela: Leeufontein pit dual loading system Slide 27 Kolomela: Stacker reclaimer Slide 4 Sishen: Stacker and Reclaimer Slide 28 1. Sishen: pre-flight inspection before aerial survey Slide