FOCUSED EXCELLENCE KUMBA IRON ORE LIMITED KEY FEATURES FATALITY - PDF document

REVIEWED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2017 AND CASH DIVIDEND DECLARATION DELIVERING CHANGE BUILDING RESILIENCE FOCUSED EXCELLENCE KUMBA IRON ORE LIMITED

KEY FEATURES FATALITY FREE AND REDUCED LOST-TIME INJURIES PRODUCTIVITY IMPROVEMENT RESUL TED IN PRODUCTION OF 21.9 MT, UP 23% IMPROVED FINANCIAL PERFORMANCE WITH STRONG CASH GENERATION REVENUE OF R21.5 BILLION, UP 22% HEADLINE EARNINGS OF R4.6 BILLION, R14.42 PER SHARE, UP 53% BALANCE SHEET STRENGTHENED WITH NET CASH OF R13.5 BILLION DIVIDEND REINSTATED – R15.97 PER SHARE INTERIM CASH DIVIDEND OTHER SOURCES OF INFORMATION Our website provides more information on our Company and its performance. www.angloamericankumba.com

FINANCIAL RESULTS COMMENTARY COMMENTARY SAFETY DIVIDEND REINSTATED The focus on safety remains a key priority The Board has decided to resume paying a dividend, in accordance with the Board’s policy for the group. The continuous effort in our of returning excess cash to shareholders, whilst safety performance included an emphasis on retaining a high level of balance sheet fmexibility. leadership, operational risk management and A conservative approach remains critical in the implementation of critical controls, which have context of an ongoing volatile price environment. resulted in encouraging improvements refmected in our leading indicator reporting. No fatalities Taking cognisance of the uncertain environment, were recorded during the fjrst half of 2017. The but also recognising the strong cash balance built total recordable case frequency rate, a measure up by the group, the Board has decided to pay an of frequency of injuries, was 0.73 (1H16: 0.83) interim cash dividend of R15.97 per share. and the lost-time injury frequency rate (L TIFR) The dividend policy remains under review and decreased to 0.23 (1H16: 0.27). the Board will continue to assess the Company’s requirements at each interim and annual reporting SIGNIFICANT IMPROVEMENT IN period, taking into account the prevailing risks PRODUCTIVITY AND EFFICIENCIES and opportunities, as well as the future earnings DELIVERED outlook. Themba Mkhwanazi, Chief executive of Kumba, notes, “I am pleased to report that Kumba has REGULATORY UPDATE delivered on our key objectives set for the fjrst half. The Reviewed Mining Charter (MCIII) Kumba was fatality free and improved signifjcantly On 15 June 2017, the South African Department on all key safety indicators. Our operational of Mineral Resources (DMR) published its performance was again encouraging, with another Reviewed Mining Charter 2017 (MCIII). Kumba has expressed its concern that, unlike the step change in productivity from the revised collaborative process for agreeing the 2004 Sishen mine plan and enhanced fmeet effjciencies. and 2010 Mining Charters, the MCIII was not This resulted in a 23% improvement in production. concluded through agreement between the “Stronger operational performance and DMR and all relevant stakeholders, including commodity prices resulted in the operating the mining industry, despite the best efforts of margin improving to 36% from 29% in 1H16, those stakeholders over the preceding year. and headline earnings increasing 53%. Cash fmow Unfortunately, the practical experience of the conversion was strong with operating free cash mining industry in implementing the previous Mining Charters – which themselves have fmow up 48% to R8.3 billion resulting in a robust contributed to the achievement of the signifjcant R13.5 billion net cash position. This has enabled transformation that exists across the South African us to resume dividend payments, with an interim mining industry today – was not taken into account dividend of R5.1 billion declared representing in the development of MCIII. R15.97 per share. While the overall progress has been very encouraging, substantial effort was Kumba is supportive of the legal course of action required simply to offset cost infmation and there is being followed by the Chamber of Mines, with no room for complacency. The team is therefore the ultimate objective of arriving at a negotiated examining every aspect of the value chain in order solution that is practical to implement, and that preserves and enhances investment in what is to improve Kumba’s ability to endure any future a critically important industry for South Africa. price volatility.” 1 Reviewed interim results for the six months ended 30 June 2017 KUMBA IRON ORE LIMITED

FINANCIAL RESULTS COMMENTARY COMMENTARY CONTINUED In the absence of new investment, South Africa the agreement will lapse and SIOC will proceed will fail to deliver the economic growth required with the closure of the mine. to create greater levels of employment and The agreement is expected to become effective socio-economic upliftment for the benefjt of all in the second half of 2017, at which time the South Africans. Kumba is committed to meeting employees, assets and liabilities will transfer South Africa’s transformation objectives and has to ArcelorMittal SA at a nominal purchase been a longstanding and major contributor to the consideration plus the assumed liabilities of which country’s transformation. 97% is already ArcelorMittal SA’s contractual On 14 July 2017, the Chamber of Mines advised liability. These liabilities include the mine’s social that the Minister of Mineral Resources has given a closure plan based on the identifjed needs of the written undertaking that the Minister and the DMR, Thabazimbi community. The transfer will simplify will not implement or apply the provisions of the the current arrangement by making ArcelorMittal 2017 Reviewed Mining Charter in any way, pending SA solely responsible for Thabazimbi’s closure judgment in the urgent interdict application brought and rehabilitation. The Thabazimbi mine assets by the Chamber of Mines. Kumba welcomes the and related liabilities that will transfer have been undertaking and will continue to engage through presented separately in the balance sheet as the Chamber of Mines. assets and liabilities of the disposal group held for sale at 30 June 2017 (refer to note 9 in the Sishen consolidated mining right granted condensed consolidated fjnancial statements). An application, in terms of Section 102 of the Mineral and Petroleum Resources Development MARKET OVERVIEW Act No 28 of 2002, to extend Sishen mine’s mining The Platts 62%Fe CFR index reached US$95.05 per right by the inclusion of the adjacent Sishen tonne in February, the highest level since August Iron Ore (Pty) Ltd (SIOC) Prospecting Rights 2014, driven by Chinese New Year restocking (including Dingleton) and other properties, was and rising steel prices. Iron ore prices have lodged on 1 July 2016. This application is required subsequently fallen and ended the fjrst half of the by Sishen mine to expand its current mining year at US$63 per tonne. Economic activity in China operations within the adjacent Dingleton area. remained buoyant, with a rise in domestic steel The offjcial grant letter was received from the prices and improved margins prompting mills to DMR on 6 July 2017 and the process to amend ramp-up capacity and boosting demand for iron the Sishen mining right, will now proceed. Mining ore. Strengthening iron ore prices have resulted in operations will only commence once the required high cost supply coming back into the market, with environmental authorisation, in terms of the iron ore supply from high cost seaborne suppliers, National Environmental Management Act 1998 primarily from India, increasing 20% year-on-year. (Act 107 of 1998), has been approved, which is expected soon. The lump premium started the year at 10 US cents/ dmtu and ended the fjrst half at 21 US cents/dmtu, Thabazimbi transfer to ArcelorMittal SA reaching an historic low of almost 2 US cents/dmtu SIOC and ArcelorMittal SA announced in 2016 in April. The recent rally in premiums is on the back that they had entered into an agreement to transfer Thabazimbi mine to ArcelorMittal SA, of lower availability of lump product at Chinese ports subject to the fulfjlment of certain conditions. If and record mill margins, incentivising a renewed these conditions are not satisfjed by 31 August focus on productivity and supporting demand for 2017 (the later date agreed to by the companies), direct charge material. 2 Reviewed interim results for the six months ended 30 June 2017 KUMBA IRON ORE LIMITED