Kumba Iron Ore Limited (KIO) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Kumba Iron Ore Interim Results Analyst Roundtable. [Operator Instructions] Please also note that this event is being recorded. I would now like to turn the event over to Penny Himlok. Please go ahead.

Thanks very much. Welcome, everyone, to our first roundtable as election [indiscernible] our first one since 2019 results and [indiscernible] seeing each other again and also hope that we'll see some of the participants in person next summer. What we'll do is go straight into Q&A. We have a few questions in the room. [Operator Instructions] First we were able to take some of the calls [indiscernible] those on the line first. The first one is going to be [indiscernible]. Please go ahead, Garrett.

Sorry, Penny. Garrett [indiscernible]. Please hold. Garrett, you can go ahead.

Apologies. I actually don't have any questions right now. I'm not sure how I got into that queue.

We do have a question from Ian Rossouw.

Guys, can you hear me?

Yes, we can.

Just a couple of questions maybe to Bothwell. Just on your capital expenditure. Obviously, it looks like presumably CapEx that was incurred last year that was paid this year added almost ZAR 2 billion to the first half, I guess, overall cash flow numbers. How should we think of that into the second half in terms of the overall cash CapEx compared to the CapEx guidance of ZAR 10 million to ZAR 11 million?

Yes. So the ZAR 10 million to ZAR 11 million is the actual CapEx that we incurred. And it excludes the capital credit. And typically, for this level of [indiscernible], we are looking for the extra ZAR 2 billion in terms of credit facility period. And I don't have that answer to your question.

Yes. Just do you expect then -- or the ZAR 2 billion additional number, should that some of that reverse in the second half? Or should we expect that then to stay around ZAR 2 million to ZAR 3 million? And therefore, your cash CapEx will probably be about ZAR 2 billion higher than your guidance from obviously, what you incur this year?

Yes. That was mainly in creditors, right? So I'm not sure I fully understand. We had an opening credit [indiscernible] in the credit balance.

Okay. Okay. But your cash flow was ZAR 5.5 million. Capital expenditure was ZAR 3.6 billion. So the cash flow was ZAR 2 billion higher than your -- what you've incurred, right? Is that how we should think about it in the first half?

Yes. That is correct.

So we should assume that...

What I'm trying to make is that you still have closing creditors to the end of the year.

Yes. Okay. Okay. And then maybe just on the sort of follow-up question on the working capital. Outside of sort of price movements, could you give us a sense of other sort of -- obviously, you've been building work in progress from ahead of the UHDMS. How should we think about the second half working capital and also next year? Obviously outside of sort of price movements, obviously, that could impact it.

Yes. So if we think about net inventories that mainly are perhaps the most significant component of our working capital. So this period, you've seen a reduction in finished products [indiscernible] to complement our sales. But you saw an increase in work in progress start off and across all rates, so it was a replenishment of working progress of our decision. And you can see that unit cost benefits. But also, we did introduce the C grade material, which has also impacted us. So you will continue to see an increase in C grade material as [indiscernible] through the year. So that's almost like a structural change, if you like, in terms of working progress movement going forward. And then on finished products, you will see a buildup in stock and leading up to our UHDMS timing in second half of next year. So we will build that finished product first so that during the time period, we're still able to rail and sell our products. So there will be a buildup of stocks, especially on the finished product side. The rest is pretty much -- there are just timing differences on receivables. Receivables are sometimes also driven by wages and prices. The higher wages, the more you will see locked up in receivables for a time because it's a timing issue and that payables is largely a timing issue as well.

We can come back to the questions you have. I just want to move through the list and we'll come back. We've got a question from [indiscernible].

Sorry, my system quickly froze for a moment.

[indiscernible] for a moment. This was actually [indiscernible] and then on the Q&A side.

Patrick's line is open.

[indiscernible]

I think it was asked in the main presentation but just wanted to go back to the idea around raising a bit of debt for the projects. Is it -- I mean should we think about this as the way to defend the 75% payouts of headline earnings? Or is it around just getting project financing and kind of ring-fencing the financing around the project for -- is there any kind of tax benefit or something that we're missing there? And then just to confirm, would it still be done through sort of the Anglo American finance arm of Anglo? Would it still -- would it be an intercompany owned, not third-party debt?

Yes. So first of all, it will be Anglo American facility. If you recall, up until now, we have uncommitted facilities with the parent and the change in ours is that we bought committed facilities of ZAR 8 million on exactly the same terms as our existing facilities with external lender. So -- just mirror each other. And the intention here is to introduce a growth efficiency on our balance sheet because, obviously, as you know, using debt, we pay interest, which is tax deductible. So you do get that benefit. You get the benefit from an internal equity perspective or in a way to cost of capital. But yes, you do then have the opportunity to release some cash for distribution to our shareholders. So that end you will see. But it's in no way defending the 75% in terms of our dividend payout effect our projections -- with or without the debt, we would have been able. That's how we came up with the range -- a range that we are able to maintain through the cycle. This is just an opportunity to get a more efficient balance sheet and [indiscernible] is that we will get more cash available for distribution.

[indiscernible] questions?

Not currently on the conference call.

[indiscernible] to go back to the room. Just [indiscernible].

Maybe this dividend [indiscernible]. So you didn't think you're going to have [indiscernible] So you've spoken about ZAR 5 billion minimum cash balance before. And also, it's quite easy to model, right -- dividend that but generally given that number now that you would look at. Do you have on the balance sheet? Can you give us something like that?

We started off with ZAR 5 million -- we actually went down to ZAR 2.5 million. And then the last, we're going to go down to 0. So it's a portion that we are getting. The numbers we look out for at the moment, as I said, we are targeting funding expansion projects probably think about -- probably about ZAR 7 billion to ZAR 8 billion spending expansion projects -- this year and next year. So that will mean not sure in terms of what we know that from the utilities. So that will be some [indiscernible].

Stay on your line of questions.

Can I ask on the marketing figure -- the biggest tool or am I mistaken? But I wanted to ask in this environment, I mean how much marketing team you may have to -- how confident are you about marketing -- in this environment?

[indiscernible] department still. So what we've shown is an overall premium for the dollar. That's the marketing team and timing effect launched into one. And last year, we benefited from -- effect. This time -- actually worked against us. And the timing effect has certainly been bigger than the dollar. So the actual marketing premium has actually been higher than the $2 that we're targeting. So we could all turn that margin premium even in today's environment -- picture a little bit, particularly for the half year results, you're adjusting -- a 6-month period. The longer the time period, the less the overall timing impact is going to be. So that's a little bit -- but if you were to strip it out, the marketing premium would be about $2 that we're targeting.

You showed there's a cost savings of ZAR 604 million, I think it was. One of the biggest numbers in that was a change to mine plan. My sort of sense of the 101 scheduling planning is that you don't turn your mind a lot and this is an unusual kind of activity -- I don't actually know what happened in terms of a change to mine plan. So maybe we can talk just a little bit about what -- felt odd to me. It didn't feel lucky actually in the slot.

So in the general detail wasn't the change in mine plan. We spoke about the mine plan -- there's not also changes mine plan because for -- every year, we do a lot mine plan. We identified certain opportunities. But if you look at the -- we saw opportunities to reduce waste shipping. And it was through optimization of road angles, making a little bit steeper narrowing a little bit. So it was all to do with optimization. And then looking at how we can do some short hauls -- so it wasn't changing the plan. It was -- and we do that every year. And we're building on those benefits over the life of mine. And when they can do those, we can bring them forward we do. But it really is optimization taking -- not changing it at the expense of the long term.

I was -- to get to the sort of reconcile for those savings numbers, if you look -- what is normal operating activity? And what is -- I don't know -- frankly. It feels like a dark cloud to me [indiscernible].

And then it is going to be more efficient next year. And you think more efficient, what I do is I look at the cross connect had they not improve the efficiency and then compare to how much of your cost in improved efficiency. And that's the same thing. That's clearly before the end. So that's why I'm not sure the savings separately to the actual interest -- in relation to cost escalation and so on.

Why don't you bring with savings -- because your truck efficiency -- right down? Why don't you bring that in as a negative to the number? You even show us a negative. We had some positives but this was the negative. Otherwise, you're just seeing half of the picture.

You will see -- you most customers on the mine we work the mining costs have increased because our holding probably not as it. And we will explain that in the mining cost. So we have to whatever has happened on that side to show. And then we will show the savings.

Because the way I would say if you -- your efficiency level is 100 and -- delivered ZAR 105 million delivered and you showed us the savings. But if your efficiency drops to 90 so credit again the number because it doesn't feel like you're doing this like in terms of the difficulties you've had -- I don't feel like a negative credit to that 604 number. I don't want to get picky about that.

No. The 604 is only possible -- want to track when we actually -- savings. You will see -- because you will then -- on other side.

And I think that that's me to difficult to reconcile because we see the savings but time political way -- so you actually depending.

Can I ask a question on I sort of asked earlier a those are coming on the landholders increase from -- we know that getting the latest -- production -- into 2023? So going into -- price going to improve significantly -- it probably high easier traction is not in to be the timing on year-on-year basis. So we've spoken about the sort of see the long-term latest of numbers between 2019. Are you still confident of those numbers given that the world is [indiscernible]?

Yes, because I think the long term is supported by a cost of synergy has also come up. So -- and we previously were talking about a long-term -- and that's really in response to other cost -- has moved. So that cost of all is still going to be there, even if there's more supply on coming into the market. And yes, you're right. There is more -- going into the market from South and from Guada having a high longstanding that I should also mention though that people are also beginning to realize that these products can also give you benefits in terms of CO2 emissions because you save on the findings. And that I think will provide it go for the demand for products -- of CO2 overall still making is about 2 tons of CO2 per ton of -- so it's about 15%. So clearly, if you can use lump and you can evolve -- very significant CO2 savings. Now we then use that lump or as you want to have a little bit of a penalty -- is lower -- savings is going to be even less. But nonetheless, it's going to be -- I think that is becoming more and more important. So that will provide a little bit of a boost for the -- materials.

Just as a quick follow-up into this year, picking half of this year trying to -- you could actually see them that suddenly a harsh sort of steel or syncope they have and the cost which is in a high availability of -- to recover 2 million in quarter that copy?

It could also be that China is going to be focusing more on the CO2 side also following other markets. I think to be that China is going to be focused more on that and they can be actually faster and more than what people expect -- for example. I mean just announced that they're going to be building a DRI plant in Zongjian. Nobody expected that. Everybody is saying that Europe is leading into the serious time making and the other markets -- be a long time before China -- catching on now. I think we're going to see a change in the China.

Starting the session on to take any more carton line. Firstly, to base option and for the year and a name with us.

Anyhow, I have opened up everybody's lines. We currently still have Ian, Patrick and Sashi on the line.

We can go to Sashi.

[indiscernible]

Just some questions from Angela -- asked could you provide some color -- as mentioned, the 4.5 million tonnes [indiscernible].

And we'd like to see the distribution of stock differently even what it is and cost of 4.5% of gold that are sitting on discussing point in ports. That's not a level -- longer term -- little bit more difficult. But as -- the presentation, the silver lining is that it's -- much closer integration with production affecting the -- cars that are acquired into the -- we have managed to get by with -- levels. But I'd like to see -- I'd like to see -- we will at that level at the moment.

I've got the question from Brice Willemsen from Integral Asset Management who has asked how do you think that on -- need to spend consistent -- question and what [indiscernible]?

All of us wish we know the answer to the question. So I think brilliant questions. So given -- has been doing the slightly longer shutdowns, indications are that there's more maintenance required. And while we have been talking about with Transnet is the aspect of doing technical assessment together. So we'll essentially come for -- so what I can be saying that we do have open and honest relationship with Transnet. So we have agreed on doing a technical assessment on our -- and then I would essentially look at the overall infrastructure. And the key reason why we want to do this is to figure out exactly the answer to the question. So the ongoing maintenance is good. But for us to say this is exactly what else is required, we do need the technical assessment. And that's through what we call the -- forum. So it's not just ourselves but it's the other iron ore producers that recently use the line as well and Transnet. So we are in the process of finalizing the RFP. It will be through an independent party. And we're actually looking forward to that because it will give us exactly the answer to that -- the media -- here. It's taken quite a bit for us to actually get Transnet to agree to do this. And I like the fact that all of us will be looking at exactly the data.

Just one more question on -- I think this is -- to what we've seen. What are the rail costs for the term [indiscernible]?

Maybe just a comment on the whole -- how that -- that capitalization of the -- then you see that sort of stock on the cost line and -- so I guess the difference is if you look at it is we go -- tax A, B and C. Previously, we used to only allocate costs to A and B with no cost allocated -- so what we've now done with the approval of -- going to -- now has a value. And that value has been rolling even -- so when you mine -- and we always mine it. But now I can say the first approval, when you mine now and you're returning cost, so you're probably still -- mining cost -- you had to mine in any case. Now when you allocate your cost, you allocate to all the impact -- but because you are not processing -- and yet you are still filing it. You are not just deferring some mining costs under the -- and that's how you get your benefit in -- through the income statement because -- that mining cost that you did will move to -- because some of -- on the balance sheet. So as long as the mining scene -- deferral of -- costs. So it's almost like you're changing the ratio and I think -- change your run cost base. And then it will come back to a statement which actually process [indiscernible].

The benefit to that demand higher volumes. So if we don't get high volumes -- cost effectively. If you get more volume, there's a benefit because you're selling more material.

So if you don't get high volumes and the problem we got that has that you haven't been getting the high volume you don't get the high volumes and suddenly you're sharing your costs a matter which material you use, you're going to have to take our cost of you just want to get a bigger stockpile in [indiscernible]. But you can't are putting it on your balance sheet. So your cost is not going to right? And then the -- was always pretty mixed on 2 value streams that you can do. Yes, you increase the production but that's subject to limit on your -- new logistics. But it not only increases production, it increases the quality of your product. So you're actually able to process in A and B grade and increase your proportion of premium products -- value proposition. So you're not just reducing diluting your cost -- actually increasing revenue side as well. And there we still get the benefit of processing our C grade at the end of life and -- so I will just go on the balance sheet, additional -- so you are the taking mining cost. It's economically -- yes. But we do look at it, I mean when you look at it from earning perspective, you have to look at the entrusting the cost. You still think when I do versus if I -- what will that what is the long-term line price per I don't think we're going to get for it. So you if the costs are higher than that you impair and you will never be charged [indiscernible]. So that what would be a re-compete final is to use don't analyst that I can ask all of you -- but you are looking overall team 65 and 75, so much slightly even more optimistic than that. And our long-term crisis outside of [indiscernible].

So we have a proper marketing side or the as to that not up but at a more sort of level. And I think that is the general net when you were doing a mix.

You sort of spoke about recovering the plant and coming on one by one. And you have excess capacity and so you're going to bring 2 on and then move on to the next one and bring those on. How many are running at the moment? How many with not the stuff over by the stockpile that you did earlier on the refocus.

So we're not running anything yet. So we start conversion of the modulars in January and then we do them one by one, doing 2 by 2. And then we do the big tie-in the money we expect now is so that's all the detail design work into the modules themselves pipelines coming through.

So all the allows each sale of the city, which is the [indiscernible].

We've got about 60 days.

[indiscernible] how many?

I mean I think there's the module, and then we're taking them all out over the period of the year and maybe a bit high [indiscernible].

[indiscernible] can I ask with regard to the new -- can you just provide us what the shareholding is at the alive in terms of Exar, Kumba and in the communities team? I just want to have a better understanding of how this one is going to where that changes the percentage holding of the cycle that it's just, I don't know, 1.21 to 1.8.

So currently, we've got accelerated these level at just under 21%. And then you've got the fire CDT, the community development trust 3%. The rest is -- American. We're going to issue 1.2% -- so each of the shareholders will [indiscernible].

[indiscernible] to take a question a little bit cover asked during the results presentation on and your confidence to actually ramp up in the second half of the year. I look at the on average increment about 6.2 million or 6 million tonnes. I mean and I just want to ask 6 million, do you think we can get to the 6.2 million or not? And the reason I'm asking this is because in terms of the safety issues, I think you mentioned that up until July -- those issues. Then I started thinking maybe 6.2 million is a bit -- and so for this other -- let's talk on run rate.

Yes. So if you look at sales, if you take the second half of the year, it's 180-odd days. If you talk about 6.2 million, that gives you roughly 1,000 tonnes a day. We certainly -- in our processing plants, we certainly do have the capacity to produce. So the -- rate is always a lot higher than what you see. What is happening is -- and certainly, given that the tough quarter 1 we had, we had to have a relook at our strategy in terms of how the production plan will fit in. And those are the things we have done because the plants were not running that hard earlier during the year, we had opportunity to lot of opportunistic maintenance. So that has been one. So it's all about just catching up on the -- so July, we were ramping up certainly. I think end of July, all the misfires will be gone and then -- the business as usual.

Let's just talk about bandwidth.

Yes. So -- 12.5, we should be running at around 1.07 billion tonnes a month I mean what we need to do the rest of the year, we need to run at about 1.2 billion, 1.3 billion. And we demonstrated that previously to be -- it's all about making sure -- and this is why focus on mining to make sure we can get the tonnes output and also utilizing some -- so that sort of plants got capacity. It's all about making sure we deliver [indiscernible].

Can I come back to my question? So I'm rather -- person but if there is dilution from all the shareholders of the size level, then how is it -- the scene?

It is free from the fact that we don't expect the employees to pay for it. So it's not your traditional -- your shares are encumbered and you have the capital appreciation we need to cover -- the shareholders, the existing shareholders -- diluted.

On the truck recession, I'm getting ZAR 20,000 -- 20,000 every year on a rolling 3-year basis. And that's just -- you're running -- but it's a spreadsheet. They're not actually shares that are earned -- by selling units -- okay. And then 1 point something percent is your green dividend to 1.2 which is the dividend. So you just take the total dividend divided by how many units that people have got. And that's the dividend they get paid. And they get paid that once a year, twice a year, twice the year same time as shareholders get paid.

Green clients. And so if I say, for example, I was truck driver ZAR 20,000 for this year at -- the ship has fell below, which -- today. Does that matter? Or could that intend to sort of [indiscernible]?

Not exactly the same. It's exactly on the time we should best in comments that 200 shares at exactly like in our own management on our share price. And then the shares if your units you get the market in so the lit a capital loss or gain to participate in the -- so what an employee actually gets after 3 years of the scheme growing because they get an annual allocation, they will get 3 years before. There would have been earnings the dividend on that ZAR 20,000 worth of shares and participate in the dividend of the new -- we actually have a good scheme for in terms of potential [indiscernible].

Share process at they will after 3 years rolling less after 3 years will be getting ZAR 20,000, ZAR 40,000 and ZAR 60,000. Let's say ZAR 60,000 every year a 3-year-old always thing. So in 3 years last year. So it's ZAR 20,000 every year I'm not a -- on that [indiscernible] that goes up with inflation every year.

Yes. That's inflation plus there will be spending.

It's Ian. Just one question on Bothwell on your commentary around funding the projects with debt. Should we assume therefore from the second half of this year, all the expansion in CapEx going to -- and UHDMS will be debt funded? Or is there a proportion?

Yes, you can.

Okay. All right. And that will also be the case for 2023 and 2024, I guess if there's any residual capital spending in 2024?

Yes. I was saying, I think we've got about ZAR 7 billion and we have seen on those budgets until the end of next year and power this year and next year. So therefore, we pay for -- to fund those projects. I think must be clear. And as for what I was looking for in the presentation was in wondering because we are also constantly also looking at iron ore prices in the environmental. And if it looks like we are getting into an environment we're having balance sheet is not the right thing to do. We will adjust that down profile. So we will look at it 6 months and we relay what we are on for a period.

told you it's going in prices are going to go up, right? So you can draw down.

When are we going to see resources conversions to reserve? And then what are you looking at? What's -- I got to your numbers but are you -- is it the C grade resources that converting into that was already done -- so more on all of that.

Working through our organization. And that's all underground resources that do any circa some converted any of stock. So we do have service that we've got more than enough coming out of the pits actually feed the plant and whatever we need. So we are doing drilling on those the historic. So we just want to be kind of sure what's there. But there's no reason things they couldn't come in. Again this will be end of life discussions unless we change our strategy around volume. But -- and so next reserve resource reserve conversions will be what kind of in terms of pipeline. Yes. So I mean so I think using we've done, and we're looking to optimize that and the next project we're working on is called and then in after that. So we're -- we'll be with those studies. So our whole strategy is how do we get it comes this the most 2034, session 239. So that's really our priority. But as a decision, we automate the technology, we'll keep on optimizing the plan and hopefully adding to that. And when do you think we're going to see those conversions probably win concept PCs with probably about 2 to 3 years, and those will come through just -- grants because it's a much earlier project. We're seeing that as like replacement for Kolomela. So that's much longer term. So we've got a pipeline we're working on.

Can I ask another one?

[indiscernible]

[indiscernible] has always been very constrained looking like now.

I think this year, what we did as part of the mine planning process, what we did is we put in these hard limits on what should go bottom and what should go top. Currently, it's looking very healthy. And that is the planning auction we'll apply right through that any plan in put in place, this is the minimum -- so this has been one big change in the planning genes that we have made.

So sort of sale production we had to online.

Blasted stock, how much you have got it in a bit and then how much you are saying right in front of the plan.

And in the process.

Answering the last one, that is higher -- so January, February, it was a lot lower as we. Towards until June, we started building up to that and right up to the end of the year taking operating further where we get to a base where we are operator.

So usability in is getting back to a point where those -- in place. So we set it off load. But the key is, and that's why we call it stable production. Those assets are meant to be in place same time. And clearly, that's not really.

So planning are no longer just based on output. You put these artificial constraints on the plan based on these buffers that we want. So that's what the critical change we have done in our plan.

2 quick questions on custom. You said first production we can hustle next year. But from my understanding -- so do we saw the substantial increase from custodian in Kolomela and resort time -- and on -- are you going to be able to give some numbers or indicative numbers?

The central graph if you have Kolomela it should be. So we had a different thing in the office. We have beaten those -- and then we're bringing on new which has got yourself and then prove from -- so the whole center of gravity is shifting. And we see that seem to be greater shifting from all these new pits around 2026 as when that gravity start shifting. So that's why we're being as stripping now to make sure we hit first all by the end of the quarter, quarter 4 next year and then get really into the whole by 2026. So that's a natural revision.

So custom production at about 30 million in propane are looking earnings year -- and in a coal actual rate or do you see a drop down with [indiscernible]?

Look, we don't know yet because we haven't done in cost of go from time, but the intention we have is trying to keep Dallas that's our intention.

And should we have the cost benefit implications you guys as a customer mill comes online next year?

No. I mean you'll see it in mine profile waste stripping waste tripping does goes cost yourself is the highest stripping it -- you do see that go a little bit but it's in the guidance at well 4.5 in the next 5 years.

Just the end resources. So some in life opportunities [indiscernible].

No, definitely looking -- and we all say when we look at the Northern Cape, we do believe it is underexplored. You've got the traditional or vocation, the commons, the but we've done exploration area, other geos so with an exploration fund, which we've added looking time, [indiscernible] is our next few projects, but we are doing additional exploration. But the other [indiscernible] we also apply the Northern Cape as technology. So if you look at the beneficiation technology, we went UHDMS. All of that turns previous waste into ore. So when you apply that lens of exploration of what's in the ground and the technology we have, we do need more beyond the 2039 and it's a bit [indiscernible] we lost 10 years, ZAR 1.5 billion on exploration. We said we diverted spending ZAR 3.6 billion. So we're investing in exploration and technologies on moving.

[indiscernible] last one.

If there's anything you need to know as you digest results, please feel free to reach out to Penny.

Yes, an interesting -- I think the questions sent interaction and looking forward to integrating going forward. Thank you very much.

Thank you very much.

Thank you.