SISHEN SITE VISIT 23 NOVEMBER 2017
AGENDA − Welcome Bothwell Mazarura − Safety induction Mapi Mobwano − Introduction Themba Mkhwanazi − Marketing Timo Smit − Kolomela Masala Mutangwa − Sishen Mapi Mobwano − Technology Glen McGavigan − Conclusion Themba Mkhwanazi − Details of Site Tour Mapi Mobwano 1
INTRODUCTION THEMBA MKHWANAZI
WHAT YOU WILL HEAR ON THE VISIT Marketing Operating Sishen Technology and Model transformation future potential − Producing niche high − Operating Model − Technical excellence − Ultra-high density quality products that implementation update delivering a step change medium separation command premia in performance (UHDMS) plant overview − Progress on delivery − Marketing excellence to − Mine planning focused − Maximising our of productivity achieve industry improvements on value over volume endowment value leading realised prices through innovation 3
FOCUSING ON CASH FLOW AND RETURNS EBITDA (Rbn) EBITDA margin (%) HEPS (R/share) 6bp +53% +36% 43% 14.4 9.1 6.7 9.4 37% 1H16 1H17 1H16 1H17 1H16 1H17 Operating cash flow (Rbn) Dividend (R/share) +54% 16.0 11.7 7.6 Nil 1H16 1H17 1H16 1H17 4
KEY COST METRICS ARE IMPROVING… C1 – Cost ($/dmt) CFR China Cash Cost (US$) 38 75 37 73 73 34 31 27 54 42 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 Breakeven Price (US$) − Breakeven price driven by controllables (C1-cost) 70 66 63 and uncontrollables (freight rates, R:$ exchange 49 rate, lump premium) 29 2012 2013 2014 2015 2016 5
. . . AS IS PRODUCTIVITY Number of Employees & Total Production Productivity ÷ = Contractors Mt (dry) t/employee, indexed 13 178 48.2 142 12 470 44.9 11 773 1.1 43.1 42.4 41.5 11 061 1.4 0.8 0.6 11.6 0.4 4 987 111 5 037 8.5 12.1 4 193 10.8 3 627 100 100 12.7 35.5 7 963 33.7 8 191 31.4 30.9 81 7 580 7 433 7 434 28.4 2 403 5 560 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 6
MAXIMISING THE RETURN POTENTIAL OF OUR CURRENT ASSETS Integrate technology through value chain Safe and energised workforce High performance culture Optimise resource utilisation Technology People Consistent and predictable delivery Offset inflationary pressure Value Costs Mining Mining equipment efficiency Cost conscious culture Productivity Marketing Processing Realise value-in-use premium Quality focus Integrated sales and operations planning Improving throughput 7
CRITICAL INTERVENTIONS IMPROVE SAFETY INDICATORS Fatalities High Potential Lost Time Injuries Total Recordable Incidents Cases − 70 TRC to date this year − No fatalities in 2017 − 19 HPIs to date this year − 19 LTIs to date this year − 20% reduction since − Suffered 3 fatalities since − 67% reduction since − 57% reduction since 2014 (2014: 87) 2014 2014 2014 (2014: 44) Total Recordable Case Lost Time Injury Frequency Rate Frequency Rate 0.28 76 0.28 2 0.23 0.23 0.23 0.23 57 0.19 0.19 39 1 19 0 0 2014 2015 2016 2017 2014 2015 2016 2017 2014 2015 2016 2017 2014 2015 2016 2017 8
IRON ORE MARKETS OVERVIEW TIMO SMIT
KEY TAKEAWAYS Kumba produces high quality iron ore products that command premium prices Demand for high-grade ores is supported by steel capacity rationalization and continued environmental restrictions Lump premia are supported by moderate supply growth and a positive demand outlook Iron ore market highlights in 2017 Iron ore and steel prices have diverged on policy driven steel production cuts in China Over the next 3-6 months (into 2018), iron ore prices to remain supported due to tight steel markets and a stable macro economic situation in China 10
KUMBA’S POSITION IN THE SEABORNE MARKET Full year view - 2016 Kumba’s Overall Sales Kumba’s Sales Market Share and Size Of The Top 10 Iron Ore Exporters (Seaborne Exports 2016, Mt) Portfolio Contract vs Spot Top 5 - 74% Top 10 - 81% 5.0% India & Other Asia 328 14.0% EU/MENA Spot 27.5% 300 93 262 17.0% Japan & Korea 42 64 16 169 3 72.5% Contract 64.0% 235 China 219 198 166 39 29 23 19 15 25 14 14 2016 2016 Rio Tinto Vale BHP FMG Kumba CSN Roy Hill LKAB Assmang Metinvest Sinter Feed Lump Pellet Pellet Feed Source: Company reports, Kumba Market Intelligence (MI) 11
KUMBA PRODUCES HIGH QUALITY IRON ORE PRODUCTS 2016 Average Fe Content (%), Peer Comparison 2016 Lump : Fine Ratio, Peer Comparison 64 64.1 63.9 60.6 60.4 28 24 57.7 2 2 Peer 1 Peer 2 Peer 3 Peer 4 Kumba Peer 1 Peer 2 Peer 3 Peer 4 Kumba Source: Company reports, Kumba Market Intelligence (MI) 12
KUMBA PRODUCTS COMMAND PREMIUM PRICES 2016 Achieved price (US$/dmt, FOB) 1H17 Achieved price (US$/dmt, FOB) peer comparison peer comparison Peer 1 Peer 1 53 59 Peer 2 54 Peer 2 68 Peer 3 Peer 3 54 67 Peer 4 47 Peer 4 45 Kumba Kumba 64 71 Source : Company reports, Kumba Market Intelligence (MI) 13
DISCOUNTS AND PREMIA ARE AT RECORD LEVELS Platts 65 Premium and Platts 58 (Low Alumina) Platts 65 Premium and Platts 58 (Low Alumina) Discount To Platts 62 Index Discount To Platts 62 Index Straight VIU adjusted 50 24 22 20 40 18 16 30 14 12 10 20 8 6 10 4 2 0 0 -2 -4 -10 -6 -8 -10 -20 -12 -14 -30 -16 1-Jan-15 1-Jul-15 1-Jan-16 1-Jul-16 1-Jan-17 1-Jul-17 1-Jan-15 1-Jul-15 1-Jan-16 1-Jul-16 1-Jan-17 1-Jul-17 Platts 65 premium to Platts 62 Platts 58 disc to Platts 62 Platts 65 premium to Platts 62 Platts 58 disc to Platts 62 Source : Platts, Kumba Market Intelligence (MI) 14
DEMAND FOR HIGH GRADE PRODUCT EXPECTED TO REMAIN STRONG − The P65/P62 differential is driven by a combination of structural, seasonal and cyclical factors Structural factors − Steel capacity reductions: Supply side reforms have resulted in an elimination of ~200Mt of Chinese steel capacity since early 2016 − Bigger Blast Furnaces (BFs): Recent BF capacity reductions largely removing smaller BFs (<1000m3) which tended to use relatively high proportions of low grade ores Structural/seasonal factors − Environmental restrictions & winter production cuts: Mills that are unaffected by winter production cuts are chasing productivity gains to maximise steel output Cyclical & temporary factors − Robust steel demand in China: Apparent steel consumption up 3% YoY YTD 2017, buoying steel prices and mill margins at near record highs. Mills focus on productivity and seek high-grade ores − Supply tightness for high grade ores: Vale blending much of its Carajas ore with high silica Southern System fines to produce BRBF product. This should ease as S11D ramps up further Source: Kumba Market Intelligence (MI) 15
LUMP PREMIA REACHED NEW HIGHS (AND LOWS) IN 2017 Historical Movements in Lump Premium ($/dmtu) and Platts 62 Index ($/dmt) 150 0.48 140 0.44 130 0.4 Winter production cuts in Tangshan and strong mill 120 0.36 margins in China Impacts of Tangshan APEC 110 0.32 Horticulture Expo, closures Improved steel Seasonal margins, G20 supply 100 0.28 closures disruptions from Australia 90 0.24 V-day parade 80 0.2 closures 70 0.16 3 rd plenary session, 60 0.12 winters 50 0.08 Record high 40 0.04 port stocks in China 30 0 May- 13 Aug- 13 Nov- 13 Feb- 14 May- 14 Aug- 14 Nov- 14 Feb- 15 May- 15 Aug- 15 Nov- 15 Feb- 16 May- 16 Aug- 16 Nov- 16 Feb- 17 May- 17 Aug- 17 Platts 62 (Lhs, $/dmt) Platts Weekly Lump premium ($/dmtu, Rhs) Source : Platts, Kumba Market Intelligence (MI) 16
LUMP PREMIUM OUTLOOK IS POSITIVE Lump premium to remain Lump Seaborne Supply Outlook (Mt) Lump Premium and Port Stocks in China supported in Q4 and 0.500 18% early 2018 due to: 270 265 253 − Reasonably low port stocks 23 24 0.400 16% 24 in China 38 36 − Weaker domestic 34 concentrate supply during 0.300 14% winter − Chinese sintering closures 0.200 12% from mid-Nov to mid-Mar 201 194 184 − Record Chinese pellet premia (~$60/dmt) increase 0.100 10% the cost of alternative direct- charge material − Higher marginal sintering 0.000 8% 16 17e 18f costs from desulphurization Australia South Africa Brazil Iran RoW Platts lump premia ($/dmtu,LHS) Lump % of total stocks, RHS Source : Kumba Market Intelligence (MI) 17
IRON ORE MARKET HIGHLIGHTS IN 2017
STEEL & IRON ORE PRICES DIVERGED… − YTD 2017 iron ore prices have fallen by ~20% while Chinese steel prices have risen by 30% to trade at near 5 year highs − Consequently, the implied steel to iron ore price ratio has risen to a record 9x as steel prices continue to outperform iron ore Steel (Billet, Yuan/t) and iron ore Steel vs iron ore prices (Platts 62% Fe Index, US$/t) in China (Indexed, Jan 1 2017 = 100) 100 4000 150 140 3500 90 130 3000 80 120 2500 110 70 2000 100 60 90 1500 80 50 1000 70 40 500 60 30 0 50 Jan- 15 Jul- 15 Jan- 16 Jul- 16 Jan- 17 Jul- 17 Jul- 17 Jan- 17 Feb- 17 Mar- 17 Apr- 17 May- 17 Jun- 17 Jul- 17 Aug- 17 Sep- 17 Oct- 17 Nov- 17 P62 index Tangshan billet Platts 62 index (LHS, $/t) Tangshan billet (RHS, Yuan/t) Source : Platts, Kumba Market Intelligence (MI) 19
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