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Kumba’s cash return to black shareholding now at astounding R23bn

Kumba Iron Ore CEO Norman Mbazima tells Mining Weekly Online’s Martin Creamer that the JSE-listed company is well positioned to meet the Mining Charter requirements. Camerawork and Video Editing: Darlene Creamer.

23rd July 2014

By: Martin Creamer

Creamer Media Editor

  

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JOHANNESBURG (miningweekly.com) – The cash return of Anglo American’s Kumba Iron Ore to its black shareholding since Kumba’s listing on the Johannesburg Stock Exchange in 2006 has risen to R23.5-billion, Kumba CFO Frikkie Kotzee revealed this week.

Kumba subsidiary Sishen Iron Ore Company (SIOC), in its interim dividend for 2014 for the six months to June 30, returned a further R1.8-billion to its black economic empowerment (BEE) entities.

The 3% of SIOC that the community owns, which is currently worth more than R4-billion, is completely unencumbered.

“They don’t owe a cent on it,” Kumba CEO Norman Mbazima told Mining Weekly Online in a video interview on the sidelines of this week’s half-year (H1) results presentation, which saw Kumba dish out another R5-billion in dividends to its shareholders after its operations generated R16.3-billion H1 cash flow. (Also watch attached video clip).

The community has been receiving dividends at a level of more than R500-million a year.

“And all of that is used to help the 300 000 people around our three operations,” Mbazima told Mining Weekly Online, adding that the benefit to the community would be clearly apparent to anyone visiting the areas around the company's mines in both the Northern Cape and Limpopo.

Some 6 209 employees each received a R576 000 capital pay-out in 2011.

“This has been unique in our industry,” said Mbazima, who placed great store in the transformation of South Africa’s mining industry and Mining Charter compliance.

“Kumba is probably one of the most well-placed companies to meet the  requirements of the Mining Charter review,” Mbazima said.

Kumba's employees who own 3% of SIOC stand to receive another large pay-out when the Envision employee share ownership plan (Esop) matures again in November 2016. They have also received dividends in between.

New Mineral Resources Minister Ngoako Ramatlhodi has made clear his intention to enforce charter compliance and the Department of Mineral Resources expects the appointed auditing firm Moloto Solutions to complete its charter audits by year-end.

“We’re certainly there on ownership and we’ve done a great deal on how we procure from black companies. Our employment equity and level of management is well above the levels required by the charter. We are really extremely well-placed to meet the requirements of the review,” Mbazima told Mining Weekly Online in the video interview.

Kumba has had 26% BEE ownership credentials since listing eight years ago following the unbundling of the mining assets out of the former State-owned integrated steelmaking corporation, Iscor, now ArcelorMittal South Africa.

Kumba obtains its empowerment credentials from the black-controlled JSE-listed Exxaro, which incorporated Sipho Nkosi’s black-owned Eyesizwe coal business, Tiso, Eyabantu, Basadi Bakopane and the State-owned Industrial Development Corporation holdings to create South Africa’s largest 55% black-held company.

Eight years later, Exxaro, still under Nkosi, is one of South Africa’s top coal producers and Kumba unceasingly passes on healthy cash dividends to Exxaro, which owns 20% of SIOC. Anglo American, in turn, holds 74% of the shares.

Exxaro received R1.4-billion of the latest R1.8-billion interim dividend pay-out, the community another R204-million to further develop project; employees another R210-million.

But with times not as buoyant as in the past for iron-ore producers, Kumba will have peak net debt of R7.5-billion before cash generation between the end of June 2014 and the dividend payment date, following its payment of interest and the SIOC and Kumba dividends.

The latest Kumba dividend was R15.62 a share.

The board increased dividend cover from 1.2 to 1.3 for the interim dividend against the background of iron-ore price volatility and the group’s capital expenditure requirements.

“Kumba’s dividend policy of returning surplus cash to shareholders remains unchanged, after consideration of growth and investment opportunities, while remaining within the group’s committed debt facilities,” Kotzee reported.

The three mines in Kumba’s stable have relatively long lives. The new Kolomela mine, in the Northern Cape, has a 25-year horizon, excluding all the exploration potential; Sishen has at least another 19 years to go and the Thabazimbi mine, in Limpopo, is being reconfigured into a low-cost, long-life operation.

The company expects to be producing at a rate of 50-million tons a year from 2016, with Sishen being taken to 37-million tons a year, and Kolomela from the current 10-million tons a year up to 13-million tons a year and beyond.

Much depends on the provision of rail capacity from South Africa’s State rail company Transnet.

“Transnet have been fantastic. They have been able to transport every single ton that we’ve produced and sometimes even going beyond the 44-million-ton contract that we have with them,” said Mbazima, adding that the iron-ore export rail line to Saldanha Bay was one of the most efficient lines in the region.

“Transnet have been there for us before and they’ll be there for us when we need them,” he said.

On the Australians bringing 25% more tonnage to the export market and Brazil 8% against South Africa’s 3%, Mbazima was bullish on expansion possibilities.

“We can bring more to the market and we will,” he said, adding that Kumba’s operational issues of the past were behind it.

“We’ll continue to give the benefits to the government, our employees, the communities and to our shareholders,” he concluded.

Kumba has built 3 410 houses for its employees, 413 of them in 2013.

Edited by Creamer Media Reporter

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