Exxaro Resources Ltd
Annual Report 2003

Plain-text annual report

ANNUAL REPORT 2003 HARNESSING THE POWER OF THE EARTH Annual Report 2003 OUR VISION Kumba's vision is to outperform the mining and mineral sector in creating value for all stakeholders through exceptional people and superior processes. KUMBA RESOURCES’ FOOTPRINT A STEPPING STONE OF OPPORTUNITY FOR SOUTH AFRICA A NEW GENERATION MINING COMPANY CREATING BALANCE IN OUR ENVIRONMENT FOCUS ON STAKEHOLDER PROSPERITY DETERMINED TO UPLIFT OUR PEOPLE CONTENTS Group structure Foldout: Operational areas Group review at a glance Summary of business operations Group profile Our values Business objectives Chairman’s statement Chief executive’s review Financial review Business operations review Growth opportunities Review of mineral resources and reserves Legislative compliance Executive committee Directorate Corporate governance Risk management www.kumbaresources.com 1 2 4 6 8 12 18 25 36 38 40 43 44 46 52 Shareholders’ information Shareholders’ analysis Economic summary Safety, health and environment summary Social summary Way forward Independent review report Index to Global Reporting Initiative Indicators Group cash value added statement Selected group financial data Definitions Financial index Notice of annual general meeting Short biographies of Kumba directors seeking re-election Administration and Shareholders’ diary Voting instruction form Form of proxy 54 56 58 59 66 73 74 76 81 82 83 84 144 147 148 149 151 GROUP STRUCTURE Heavy minerals – Ticor Limited Coal – Grootegeluk mine Iron ore – Sishen mine THABAZIMBI MINE GROOTE- GELUK MINE SISHEN MINE LEEUWPAN MINE TSHIKON- DENI MINE TICOR LTD (Australia) 51,4% 40% TICOR SA 60% IRON ORE COAL KUMBA RESOURCES HEAVY MINERALS BASE METALS INDUSTRIAL MINERALS ROSH PINAH MINE 95% (Namibia) ZINCOR REFINERY HONGYE ZINC REFINERY 60% (China) FERRO- SILICON GLEN DOUGLAS MINE ZnERGY 85% Heavy minerals – Ticor SA smelter Base metals – Zincor refinery Industrial minerals – Glen Douglas mine Kumba holds 100% unless otherwise indicated. 1 OPERATIONAL AREAS Namibia South Africa 1 2 3 4 5 6 7 8 9 Sishen iron ore mine Thabazimbi iron ore mine Grootegeluk coal mine Tshikondeni coal mine Leeuwpan coal mine Zincor refinery Rosh Pinah zinc mine Ticor SA smelter Hillendale heavy minerals mine 10 Glen Douglas mine China Australia 4 3 2 10 6 5 8 9 7 1 Southern African operations GROUP REVIEW AT A GLANCE Years ended 30 June 2003 Rm 2002 Rm Unaudited pro forma 2001 Two-year CAGR1 rate % 17,6 44,1 23,9 16,3 28,3 ABRIDGED FINANCIAL STATEMENTS INCOME STATEMENTS REVENUE NET OPERATING PROFIT Financing costs Investment and equity income Exceptional items Impairment charges Goodwill amortisation Taxation Minority interest Add back items for headline earnings HEADLINE EARNINGS HEADLINE EARNINGS PER SHARE (CENTS) DIVIDENDS PER SHARE (CENTS) PAID IN RESPECT OF THE 2002 YEAR CASH FLOW STATEMENTS Cash flow from normal operations Proceeds on sale of assets Capital expenditure Increase in cash resources on acquisition of a controlling interest in subsidiaries Acquisition of joint ventures and associates Investments Foreign currency translations Shares issued Unbundling costs Cash flows included above relating to non-interesting-bearing debt Non-cash flow movements in net debt of the group arising from currency translation differences Increase in net debt on acquisition of a controlling interest in subsidiaries Loans from minority shareholders (INCREASE)/DECREASE IN NET DEBT BALANCE SHEETS ASSETS Non-current assets Property, plant and equipment Intangible asset Goodwill Investments in associates and joint ventures Deferred taxation Financial assets Current assets Cash and cash equivalents Inventories, trade- and other receivables TOTAL ASSETS EQUITY AND LIABILITIES CAPITAL AND RESERVES Shareholders’ funds Minority interest TOTAL SHAREHOLDERS’ INTEREST Non-current liabilities Interest-bearing borrowings Other long-term payables Non-current provisions Deferred taxation Current liabilities Interest-bearing borrowings Other TOTAL EQUITY AND LIABILITIES NET DEBT ANALYSIS PER SHARE Number of shares in issue (million) Weighted average number shares in issue (million) Earnings per ordinary share – Attributable earnings (cents) – Headline earnings (cents) Dividend per ordinary share (cents)2 Dividend cover (times)3 Net asset value per ordinary share (cents) Attributable cash flow per ordinary share (cents) 7 469 1 212 (244) 2 (2) (21) (229) 66 784 264,0 85 780 44 (1 386) 366 (34) (36) 28 2 (199) (891) 95 (1 231) 8 205 98 (80) 118 485 272 964 2 724 7 182 1 683 (242) 83 (101) 26 (465) (8) 122 1 098 385,3 2 184 25 (1 085) (50) (9) 393 (44) (16) 1398 5 710 23 1 184 423 212 679 1 977 28,7 12 786 10 208 22,7 30,0 28,7 (3,3) 4 921 1 191 6 112 2 801 388 501 1 384 537 1 063 12 786 2 374 297 297 241,8 264,0 85 3,9 1 657 266,2 4 816 487 5 303 882 178 389 1 204 940 1 312 10 208 1 143 297 285 342,5 385,3 1 622 761,5 5 404 584 (271) 137 72 (27) (107) 123 511 195,0 4 987 47 810 294 1 577 7 715 3 270 349 3 619 1 242 398 727 1 299 430 7 715 2 541 272 262 148,1 195,0 1 202 1. Compound annual growth rate. 2. Declared in August and paid in September 2003 in respect of the year ended 30 June 2002. 3. Previous year’s earnings divided by the dividend paid in the reporting year. The dividend of 60 cents per share declared in August and paid in September 2003 in respect of the year ended 30 June 2003 is covered 4,0 times by the earnings of that year. RATIOS Profitability and asset management Return on net assets (%) Return on ordinary shareholders’ equity – Attributable earnings (%) – Headline earnings (%) Return on invested capital (%) Return on capital employed (%) Operating margin (%) Solvency and liquidity Net financing cost cover (times) – EBITDA Current ratio (times) Net debt-to-equity (%) Net debt to earnings before interest, tax, depreciation and amortisation (times) Number of years to repay interest-bearing debt Productivity Average number of employees Revenue per employee excluding Ticor Limited (R’000) Cash value added (Rm) ** Compound annual growth rate. 25 20 15 10 5 0 10 8 6 4 2 0 Two-year CAGR ** rate % Years ended 30 June 2003 2002 Unaudited pro forma 2001 27 20 23 24 27 23 8,8 1,2 22 0,53 0,83 9 636 745 3 883 14 12 16 12 12 11 3,4 0,9 70 2,75 11 694 462 3,5 11,8 8,0 11,8 20,6 44,5 59,9 (25,4) (29,7) (9,1) 26,9 15 15 16 14 15 16 7,1 2,3 39 1,36 3,13 9 674 744 2 954 14 000 12 000 10 000 8 000 6 000 4 000 2 000 0 ’01* ’02 ’03 ’01* ’02 ’03 ’01* ’02 ’03 OPERATING MARGIN (%) NET FINANCING COST COVER – EBITDA (TIMES) REVENUE AND TOTAL ASSETS (RM) Revenue Total assets * Pro forma * Pro forma * Pro forma 3,0 2,5 2,0 1,5 1,0 0,5 0 Rm 3 000 2 500 2 000 1 500 1 000 500 0 % 80 70 60 50 40 30 20 10 0 30 25 20 15 10 5 0 ’01* ’02 ’03 NET DEBT TO EBITDA (TIMES) ’01* ’02 ’03 NET DEBT AND NET DEBT-TO-EQUITY RATIO Net debt (Rm) Net debt-to-equity ratio (%) ’01* ’02 ’03 RETURN ON EQUITY, INVESTED CAPITAL AND CAPITAL EMPLOYED (%) Return on equity Return on invested capital Return on capital employed * Pro forma * Pro forma * Pro forma SUMMARY OF BUSINESS OPERATIONS1 IRON ORE PRODUCTION (000 TONNES) Sishen Thabazimbi Total SALES Sishen exports (000 tonnes) COKING COAL PRODUCTION (000 TONNES) Grootegeluk Tshikondeni Durnacol Hlobane Total THERMAL COAL (000 TONNES) Production Sales to Eskom OTHER COAL PRODUCTION (000 TONNES) Grootegeluk Leeuwpan Northfield Hlobane Total ZINC PRODUCTION (000 TONNES) Rosh Pinah (zinc concentrate) Zincor (zinc metal) Rosh Pinah (lead concentrate) HEAVY MINERALS – TICOR SA 2 PRODUCTION (000 TONNES) Ilmenite Zircon Rutile Low manganese pig iron (LMPI) HEAVY MINERALS – TICOR LTD 3 PRODUCTION (000 TONNES) Ilmenite Zircon Rutile Leucoxene Synthetic rutile Pigment GLEN DOUGLAS PRODUCTION (000 TONNES) Dolomite Aggregate Lime 2003 2002 Years ended 30 June 2000 2001 1999 1998 26 168 2 389 28 557 25 903 2 421 28 324 24 842 2 202 27 044 22 669 2 156 24 825 21 601 2 901 24 502 23 439 2 789 26 228 20 946 19 916 18 057 18 750 16 842 18 332 1 830 377 1 670 404 1 536 408 182 1 312 375 386 2 207 2 074 2 126 2 073 1 207 343 415 22 1 987 1 402 328 677 199 2 606 13 036 13 051 13 351 13 198 12 037 11 934 12 261 12 072 11 495 11 829 12 847 12 857 1 313 1 456 1 194 1 631 1 258 1 575 1 152 934 706 906 59 1 504 738 250 92 2 769 2 825 2 833 2 086 1 672 1 584 91 115 22 91 53 20 3 428 80 36 26 179 94 642 586 99 75 105 28 44 45 19 445 77 29 18 178 91 543 650 95 72 105 22 72 103 20 79 110 23 71 25 441 90 31 16 210 91 618 537 112 359 73 27 17 200 89 508 364 102 318 64 19 13 162 84 597 364 97 335 63 22 18 193 82 863 405 113 1. Kumba listed on 26 November 2001 and information before this date relates to Kumba as the mining division of Iscor Limited before its unbundling. 2. Project in ramp-up phase. 3. Ticor Limited consolidated from 1 April 2003 and the full production tonnes of the Tiwest joint venture in which Ticor has a 50% interest, is provided for comparative purposes only. GROUP PROFILE Iron ore – the Sishen and Thabazimbi mines produced over 28,6Mtpa of lumpy and fine iron ore, of which 20,9Mtpa was exported. Sishen is one of the largest single open-pit mines in the world, known for its high grade and consistent product quality. The 861km rail system that links Sishen to the dedicated deep- water port and bulk-loading facility at Saldanha is one of the most efficient in the world and has advanced logistical systems for handling and loading iron ore. Coal – collectively, Grootegeluk, Leeuwpan and Tshikondeni mines produce over 18Mtpa of thermal, metallurgical and coking coal, most of which (thermal) is consumed by the national power utility, Eskom. Grootegeluk is one of the lowest-cost and most efficient mining operations in the world. The mine also operates the world’s largest coal beneficiation plant. Base metals – the Rosh Pinah lead/zinc mine in southern Namibia and Zincor refinery near Springs in Gauteng constitute one of the few integrated zinc mining and refinery operations in the world. The Zincor electrolytic refinery is also one of the lowest-cost producers of zinc metal in the global marketplace. In addition to South Africa and Namibia, this business unit also has an interest in the expansion of the Hongye zinc refinery in China. Heavy minerals – officially opened in September 2001, the Ticor SA heavy minerals project near Empangeni in KwaZulu-Natal uses innovative techniques and a new mining method in this highly-specialised industry to make Kumba and its Australian subsidiary, Ticor Limited, the world’s third-largest titanium producer by 2005. The smelter complex at Empangeni, comprising two furnaces, is currently being commissioned and at full production will produce 250 000 tonnes of slag and 140 000 tonnes of low manganese pig iron. Industrial minerals – a dedicated plant in Pretoria manufactures high-quality atomised ferrosilicon which plays a strategic role in the beneficiation process of iron ore. The Glen Douglas dolomite quarry near Meyerton in Gauteng provides a range of products to steelworks and other consumers. Sishen Grootegeluk Zincor Ticor SA Glen Douglas 2 Operations Regional location Ownership BUSINESSES Iron ore Sishen mine Northern Cape Coal Thabazimbi mine Grootegeluk mine Leeuwpan mine Tshikondeni mine Limpopo Limpopo Mpumalanga Limpopo Base metals Zincor refinery Gauteng Rosh Pinah mine Namibia ZnERGY Gauteng Division of Sishen Iron Ore Company (Pty) Ltd Division of Sishen Iron Ore Company (Pty) Ltd Division of Kumba Coal (Pty) Ltd Division of Kumba Coal (Pty) Ltd Division of Kumba Coal (Pty) Ltd Subsidiary of Kumba Resources Ltd Subsidiary of Kumba Resources Ltd (95%) Subsidiary of Kumba Resources Ltd (85%) Subsidiary of Kumba Resources Ltd (60%) Heavy minerals Hongye refinery Ticor South Africa China KwaZulu-Natal Kumba Resources Ltd (60%) Ticor Ltd (40%) Ticor Ltd Australia Subsidiary of Kumba Resources Ltd (51,4%) Industrial minerals Glen Douglas mine Gauteng Subsidiary of Kumba Resources Ltd Kumba Ferrosilicon Gauteng Division of Sishen Iron Ore Company (Pty) Ltd Products Lump ore Fine ore Lump ore Fine ore Thermal coal (Eskom) Semi-soft coking coal Thermal coal (other) Thermal coal (other) Coking coal Zinc metal Sulphuric acid Zinc concentrate Lead concentrate Zinc-air fuel cells Zinc-air anodes Zinc metal Sulphuric acid Zircon Rutile Ilmenite Chloride slag Sulphate slag Low manganese pig iron (LMPI) Zircon Rutile Ilmenite Synthetic rutile Leucoxcene Pigment Metallurgical dolomite Aggregate Lime Atomised ferrosilicon INVESTMENTS Mining related Safore Other Advanced Software Technologies Group 100% owned except where otherwise stated. Western Cape- based 40% Bulk shipping Gauteng 26,7% Information technology Sales for 2003 000 tonnes % export 69 89 34 18 16 18 1 100 100 100 100 100 100 100 100 100 100 16 670 10 615 1 310 1 121 12 972 1 883 1 320 1 450 375 112 166 85 30 60 19 50 83 28 126 81 19 81 642 585 94 5 n/a n/a 3 OUR VALUES KUMBA STAKEHOLDER CHARTER Kumba Resources Limited (Kumba) is an independent, diversified South African mining company with world- class assets and operations. The charter defines our goals, our commitment to our stakeholders and the values that underpin the way we run our business. We believe the business justification for economic, environmental and social reporting is embodied in our relationships with external parties. Transparency and open dialogue about performance, priorities and future sustainability initiatives help to strengthen these relationships and build trust. Through its focus on sustaining five main types of capital – financial, natural (renewable and non-renewable), human, social and beneficiation – Kumba ensures its long-term future for the benefit of all stakeholders, aligning itself with the guidelines of the Global Reporting Initiative (GRI), a multinational organisation based in the Netherlands that has developed the most widely accepted framework for triple bottom-line reporting (financial, social and environmental). OUR STRATEGY To grow and prosper, we will: • Build a balanced portfolio of globally-competitive commodity businesses. • Attract and retain a highly-skilled and motivated workforce. • Promote innovation and employ appropriate technology. • Nurture a culture of continuous improvement and operational excellence. • Reward our shareholders with superior returns and capital growth. STAKEHOLDER RELATIONS At Kumba, building long-term, stable and mutually-beneficial relationships with our stakeholders is a business imperative. To achieve this goal, the guidelines we follow are: Employees • To manage our employees and inter-personal relationships in an equitable, trustworthy and transparent manner. • To invest in their development and provide the challenges and opportunities they need to reach their full potential. • To value diversity and reflect the demographics of the communities where we operate in the profile of our workforce. • To actively care for their safety, health and welfare. • To energise our employees to continuously deliver superior operational performances. Investors • To make corporate governance and our commitment to sustainable development a distinguishing feature of our business. • To comply with the laws and regulations governing our business. • To benchmark our operations and codes of conduct against international standards. • To provide regular and comprehensive reports on our operations, financial results and the triple bottom line. Communities • To recognise and respect the communities where we operate as hosts and partners, in meeting the environmental and socio-economic challenges of sustainable development. • To accept responsibility for participating in building capacity and alleviating poverty in the areas in which we operate. • To accept that the sustainability of host communities extends beyond the finite time frames associated with our operations. • To ensure that operational processes are environmentally friendly. Customers and business partners • To build mutually-beneficial, long- term relationships through the quality of products, the reliability of services and business integrity. • To recognise the need to add value throughout the supply chain. Governmental bodies • To respect the laws and regulations governing our business in the areas where we operate. • To support national aspirations and policies aimed at building democratic and prosperous societies. • To share the benefits derived from operations with relevant stakeholders in an equitable manner. Media • To acknowledge and respect the media as a primary channel of communication in modern society. • To engage in open and honest dialogue and expect, in return, fair, balanced and objective reporting. 4 OUR VALUES The foundation values that guide us in the conduct of our business are: • Integrity • Accountability • Caring • Respect • Fairness These values provide the foundation for our behaviour and embrace our commitment to people, teamwork, a bias for action, continuous improvement and performance excellence. Building on these values, Kumba’s motivational values that energise its people are: • People make it happen • Let’s do it • We do it together • We do it better every time THE KUMBA WAY This is a process that aims to achieve world-class performance throughout the organisation to create value for all stakeholders and a strong, competitive advantage by focusing on three areas: • A common vision and set of values, creating an open, positive and trusting environment • Governance processes that provide the framework and tools to challenge and measure the performance of all employees • Operational excellence by identifying best practices across and beyond the organisation and implementing these. Kumba Way initiatives include: • Continuous improvement • Target setting • Capital and project management • Mineral resource management • People performance Every aspect of the Kumba Way process is closely aligned to the business strategy. Business objectives are divided into measurable components, which are cascaded down into individual performance contracts. In implementing the Kumba Way, existing processes were examined, surveys conducted and the results analysed for an accurate understanding of existing practices. A study of best practices, internal and external, was conducted to identify shortcomings in current practices. The key principles – those practices that would lead to the most substantial results if implemented – formed the basis of the detailed design for each initiative. New processes were implemented at pilot sites. These are closely monitored, reviewed and refined where necessary, and implemented across the group. Both progress and the processes will be continually measured. 5 BUSINESS OBJECTIVES The Kumba vision has been translated into a series of business objectives that can be actively measured. These objectives are translated into specific financial and operational targets as well as selected non-financial targets. Financial targets • Return on equity (ROE) (%) over the cycle Operational targets • Business improvement initiatives Non-financial targets • Safety – number of fatalities – lost time injury frequency rate • International environmental certifications (number) Target 20 Actual 2003 15 2% cost reduction (real) Cost increases below inflation 0 2,5 9 4 3,07 2 6 KUMBA RESOURCES’ FOOTPRINT As a true and proud South African resources company, we have chosen a path that reflects the richness of our land. Our aim is to harness the power of the earth, empower our people, and ensure a culture of continuous improvement and operational excellence. 7 CHAIRMAN’S STATEMENT relationship with Eyesizwe Coal, a black-owned company, and the joint venture in the Kalbasfontein coal mining project. Our empowerment strategy strives to be integrated, balanced and takes a long-term view so that we can effectively measure our progress towards sustainable broad-based socio-economic empowerment. Opportunities for furthering empowerment are being pursued across the group, in all aspects of our business. In terms of the mining charter scorecard, I am pleased to report that substantial progress has been made to fulfil all the requirements of the charter. The New Africa Mining Fund was launched in October 2002 as a private equity investment fund aimed at developing new sustainable junior mining opportunities on the African continent. An initiative of the mining industry and government, the fund facilitates access to capital for junior mining entrepreneurs, while providing investors with the prospect of competitive returns on the funds invested. Kumba pledged R20 million towards the fund, which now exceeds R560 million, to be drawn down over a six-year period. On the proposed Royalties Bill, Kumba has been an active participant in the interaction with government and other interested parties to seek the most equitable form of royalty payments. However, Kumba believes it is more appropriate for royalties to be based on profit as opposed to revenue. Equally, the possibility of future variations needs to be clarified to instil long-term confidence in the Dawn Marole – Chairman It is with great pleasure that I present the chairman’s statement for Kumba in this, the second annual report since the group’s listing in November 2001. Despite the tough market conditions which prevailed during the year under review, Kumba has delivered solid results. I am pleased that the board was able to declare a dividend of 60 SA cents per share. I believe these results are testimony to the ability of management to focus on the business and implement value-enhancing initiatives at a time when several macro and other issues potentially threatened that focus. Legislation and regulation introduced during the year have redefined the industry, specifically the Mineral and Petroleum Resources Development Act (Minerals Act), with its attendant mining charter and scorecard, and the proposed Mineral and Petroleum Royalty Bill (Royalties Bill). Kumba supports the underlying principles and objectives of the Minerals Act and the group’s commitment to empowerment is clear and focused. Our empowerment partners, Tiso Kgalagadi Consortium, came on board shortly after Kumba listed, well ahead of the current legislation. This has been followed by the formalisation of the company’s 8 RESULTS AND PROGRESS REFLECT THE TALENT AND COMMITMENT OF KUMBA’S PEOPLE AT ALL LEVELS process. It would be desirable that developing rural communities associated with the projects or resources from which it originates, benefit most from the royalty regime. This can be achieved by permitting investments made in “labour-sending” communities and those around mining operations, to be directly offset against royalty payments. Moving to currency issues – given that the bulk of Kumba’s revenue is US dollar-denominated, the iron ore strategic business unit in particular, and the group in general, are highly geared to the exchange rate. Most importantly, Kumba, the local minerals industry, and South Africa in general will benefit from a stable rand which underpins strong export growth and supports local expansion. At the same time as the unprecedented rand strength, Kumba and the mining industry have also had to contend with non- negotiable cost increases, especially those emanating from parastatals. An example is the large increases in Spoornet’s general freight rail tariffs on certain domestic routes which affected our coal exports. Such input cost increases are daunting challenges to management at the operations at a time when cost reductions and increased productivity are the only controllable drivers to maintaining profitability. The sharp increase in the oil price as a result of the ongoing conflict in Iraq has also had a major impact on Kumba’s performance, as the group is one of the country’s largest users of petroleum-related products – at a cost of some R300 million per year. The slower than anticipated return to normal production levels in Iraq since the end of the war may result in oil prices remaining high for some time. As the largest iron ore operator in the Northern Cape, Kumba’s position on rationalisation in that industry is clear: • to capitalise on the considerable release of value in that area • to ensure optimal exploitation of the resource base in a sustainable manner • to realise the maximum synergies that exist between current regional assets and achieve the most effective use of the logistical infrastructure. In this regard, the resolve to enhance the transport capacity of the Sishen-Saldanha rail and the Saldanha port storage and loading infrastructure as well as the potential use of the Port of Ngqura (Coega) for iron ore exports, are of paramount importance. At Richards Bay, the South Dunes Coal Terminal Company, in which Kumba is a major participant, negotiated an agreement with Richards Bay Coal Terminal to take up 6,5Mtpa from the terminal’s 10,0Mtpa Phase V coal export expansion project at the port. This breakthrough, largely facilitated by Kumba, will create the opportunity for access of more than 3Mtpa to export markets for empowerment- related coal production. Unfortunately, the go-ahead for the Phase V expansion project is currently being delayed by the dispute between the SA Ports Authority and Richards Bay Coal Terminal on the allocation of a small amount of current throughput capacity to black economic empow- erment companies. Ironically, the unintended consequence of this impasse has led to an escalation in capital costs and could potentially jeopardise the viability of the entire project, to the detriment of the very people it was designed to benefit. Anglo American Plc (Anglo) increased its shareholding in Kumba to 20,1% and acquired an option on a further 10,01%. For most of the year, this has been the subject of a highly- publicised dispute between Anglo and Industrial Development Corporation while under the consideration of the competition authorities. The ruling of the Competition Tribunal has now provided greater clarity for the group. It is important that we continue to follow the consistent approach we adopted throughout the process, namely that the responsibility of the Kumba board and management is to consider the best interests of the group at all times. It is appropriate that I take this opportunity to commend board members and management on their ability to remain focused during this period to continue to run robust operations delivering maximum benefit from the group’s assets for all stakeholders. DEVELOPMENTS IN AFRICA The New Partnership for Africa’s Development (Nepad) heralds a new chapter in the emerging era of African self-determination. Nepad’s peer 9 Chairman’s statement continued CONSULTATIVE HIV/AIDS POLICY IN PLACE, ANTI-RETROVIRAL THERAPY BEING PILOTED AT TWO SITES review mechanism will assist to ensure that a more attractive environment is created for investment in African economies. These developments are fully supported by Kumba. Kumba is pursuing business interests in Africa beyond South Africa and Namibia, which include the Faléme iron ore project in Senegal, the Kipushi zinc/copper and Kamoto copper/cobalt projects in the Democratic Republic of Congo, and a mineral sands development at Tulear in south-western Madagascar. SUSTAINABILITY REPORTING This is Kumba’s first integrated report, covering the financial, environmental and social performance of the group. It demonstrates that consideration for people, the environment and the economy is closely tied to Kumba’s financial sustainability. We firmly believe that being a sustainable organisation makes business sense for the financial bottom line. In several areas of our non-financial reporting, targets have been set. In other areas, they are still being established. However, it is a process to which we are committed and a promise we make to all our stakeholders – that we care about minimising the impact of our operations and optimising the development of all the people around us. HIV/AIDS With the support of Kumba’s recognised unions, the board approved the group’s HIV/AIDS policy and the introduction of pilot anti-retroviral therapy programmes at the Grootegeluk colliery and Zincor refinery. If successful, the therapy will be implemented at remaining operations. DIRECTORATE Hans Smith retired as non-executive chairman and member of the Kumba board and I was appointed as non- executive chairman in November 2002. Hans was a key figure in Kumba’s formation and an enthusiastic supporter of Kumba’s proactive and dynamic approach. On behalf of the board, I thank him most sincerely for the wise counsel and support he gave Kumba in its critically important first period as an independent entity. Kumba is proud of its board independence, with six of ten non- executive board members being independent. APPRECIATION Kumba has made great strides for a company in its infancy, progress that reflects the talent and commitment of its people at all levels. Particularly, I thank my fellow directors whose constructive views are so important in guiding the group, and the dedicated chairmen of the board committees. In Dr Fauconnier, Kumba is privileged to have a chief executive whose leadership is inspirational and who heads a management team that is arguably one of the best in the industry. Since listing, we have established close relationships with senior members of relevant government departments and industry bodies, relationships that we value greatly and will continue to nurture. PROSPECTS It is my responsibility to help chart a course for this group that not only ensures superior shareholder returns, but is also beneficial to all other stakeholders, including the employees of Kumba. We expect another year of solid performance in our underlying operations. The strength of the rand will pose greater challenges for some commodities than others, but we are confident that our people will continue to rise to these challenges. The initial success of our sizeable heavy minerals project also inspires confidence and bodes well for the future. Investors have bought into Kumba because they perceive value in the company. We will continue to strive to create the environment which will deliver that value in the best interests of the company, its shareholders and its people. Dawn Marole Chairman 10 September 2003 10 A NEW GENERATION MINING COMPANY We are a diversified South African-based resources company at the forefront of innovation and technology. To maintain this position going forward, we will continue to develop new innovations that generate shared rewards. 11 CHIEF EXECUTIVE’S REVIEW earnings in the 2004 financial year, given our expectation that the rand will continue to be stronger than in the previous year. While we accept the views of both the Reserve Bank and government that South Africa needs to adjust to a stronger rand environment, it must be recognised that many of the revenue and cost pressures making it difficult for local exporters to survive in a strong rand environment are beyond the control of industry. For example: • In the commodity business, exporters are price takers and cannot pass domestic cost increases on to customers. • In South Africa, almost half of the fixed capital assets of the economy is controlled by government either directly through parastatals or municipalities and Con Fauconnier – Chief Executive OVERVIEW Kumba’s second year as an Kumba has taken great strides in its the like. Business, therefore, has reporting standards in that we have either limited or no choice in independent entity was again marked embraced sustainability reporting. the procurement of certain goods by stable operational performance We believe that triple bottom-line and services and often has to and an increased focus on cost reporting actually has a fourth contend with extraordinary cost containment and production dimension – using our mineral efficiency. While turnover rose by resources wisely and in a increases. In Kumba’s case, the group contends with the 4%, attributable earnings decreased sustainable manner, both through following situations: by 26%, due mainly to the sustained technology and innovative and – General freight line tariffs for strengthening of the rand, lower responsible management. coal exports increased by 80% iron ore prices for nine months of the financial year, and a severely As the chairman has noted, a volatile since 1 July 2002. This increase, coupled to the depressed market for zinc. domestic currency affects the ability of current dollar market prices Fortunately, as from 1 April 2003, most commodity companies to plan and strong rand exchange rate, the iron ore prices increased by 8,9% ahead, apart from the immediate effect has rendered coal exports for lump ore and 9,0% for fine ore. of currency volatility on earnings. We uneconomical. These prices will remain in force until will manage this risk proactively by – Government set a precedent the end of March 2004. increasing efficiencies to support for the country’s annual wage 12 STABLE OPERATIONAL PERFORMANCE, INCREASED FOCUS ON COST CONTAINMENT AND PRODUCTION EFFICIENCY negotiations with the relatively the interests of other parties, as shareholders. In the meantime, high wage increases it granted we believe a consolidated operation we have continued to plan the to its employees, the second would release the maximum development of the proposed Sishen consecutive year that this has synergistic value for all stakeholders South mine. Our preferred option, as occurred. through optimal development of the presented to government and other • The war in Iraq and ongoing conflict assets. However, we have in recent stakeholders, involves the optimal has left a legacy of relatively high months concentrated on an exchange sustainable development of the oil prices. This seriously affects the of mineral rights and the so-called resource base, extracting maximum cost structure of Kumba’s highly mechanised operations, which consume six million litres of diesel and other fuel products per month. If exporters are to cope with the strong rand environment, all service providers, including government, will have to remain focused on cost containment and efficiency improvement, otherwise the inevitable result will be the demise of exporters, particularly in the minerals industry. A strong case must be made here for close cooperation between industry and the various government agencies to ensure that solutions are found that serve the interests of South Africa best in the long run. A sterling example of such cooperation in recent years has been the excellent results achieved by Kumba and Spoornet in terms of improvements in efficiency levels on the Orex rail line. This has led to huge benefits for both parties and the country in general. The issue of rationalisation of iron ore interests in the Northern Cape has been under discussion and negotiation for some time. Kumba supports the concept of a full amalgamation, with due regard to North-South model, which also has synergies that exist between current the potential to unlock substantial, regional assets, and the most albeit lesser, value for both sets of efficient use of rail infrastructure, NORTHERN CAPE IRON ORE OPERATIONS North Kathu Sishen iron ore mine Olifantshoek Legend Tar road Railway line Town Kumba properties Assmang properties Existing pit Ore bodies Deep ore Loop 18 Sishen South iron ore deposit Assmang iron ore mine Postmasburg Saldanha 10km 0 20km 13 Chief executive’s review continued including the expansion of the The Chinese market demand for Kumba has embraced the concept of Sishen-Saldanha rail and port iron ore continues to expand at corporate citizenship on its journey infrastructure and the possible use of unprecedented rates. If South Africa is towards sustainability. This initiative the general freight line for iron ore to maintain its position in this rapidly aims to integrate all activities exports through the Port of Ngqura expanding market, it is essential that currently undertaken across the group (Coega) near Port Elizabeth in the the implementation of the expansion in areas of social investment, safety, Eastern Cape. We believe that by programme at the port of Saldanha health, environment, human resources managing and operating the regional and the plans to increase the Orex rail development, employment equity, assets and exploiting the iron ore line’s annual capacity to 38Mtpa be preferential procurement and black reserves as a single business unit, completed as soon as possible. economic empowerment. best practices could be applied across the production sites to The negative effect of very high The mining charter and its attendant achieve additional savings on general freight rail tariff increases mining scorecard developed during overheads. This model would also during the year has made certain of the course of the year under review maximise profits arising from Kumba’s products, particularly coal, form an integral part of the Minerals optimal product and logistical uneconomical in the export market. Act. The charter requires that the configuration, a single railway line This highlights the importance of industry assists companies owned by user and would facilitate significant the Richards Bay Coal Terminal historically disadvantaged South empowerment ownership. Phase V (South Dunes Coal Africans (HDSAs) to secure financing Terminal) expansion to be given the to fund their participation in an Delays in the implementation of go-ahead with the concomitant amount of R100 billion within the the project to expand the Sishen- resolution of the common user first five years. This equates to Saldanha rail line and port to tonnage issues. Phase V stands on roughly 15% of the value of the 29Mtpa by June 2005 have the its own merit and we firmly believe industry, and is in pursuance of a potential to curtail hard currency it should not be delayed by broader longer-term (ten-year) target of inflow into the country and the issues concerning Richards Bay Coal 26% based on a willing buyer – creation of jobs, by limiting exports. Terminal and SA Ports Authority. As willing seller basis, at fair market These expansions will allow Kumba was indicated by our chairman, we value. Kumba is already well down to rail about 23,5Mtpa of which contend that this would seriously the track in meeting the 1,8Mtpa is to Saldanha Steel jeopardise the very empowerment requirements of the charter. We view (Iscor Limited). that government is seeking to all the targets as realistic and encourage and promote. achievable, and they are in line with Concurrently, Kumba, Spoornet and SA the strategy we set for ourselves from Port Operations are also exploring the At the time of the group’s formation, the outset when we created the feasibility of a further increase in the Kumba chose to position itself as a group. In some cases, such as capacity of the Sishen-Saldanha rail line South African-based company in the empowering women, we have already and the Saldanha port by at least true spirit of citizenship. This is the met the set requirements and will 8,5Mtpa to 38Mtpa to cater for the foundation on which we built our continue to strive to reach even expansion of Kumba’s iron ore approach and engagement with all higher levels. We are confident of production in the Northern Cape through stakeholders, particularly with the achieving our empowerment targets its Sishen South project or some major changes happening in the sooner rather than later, however variation of the North-South model. legislative environment. timing of the conversion of our 14 EMBRACED THE CONCEPT OF CORPORATE CITIZENSHIP ON OUR JOURNEY TOWARDS SUSTAINABILITY mineral rights depends on the final important stage. The Sishen South, to corporate level and results are outcome of the Royalties Bill. project’s technical feasibility study reported to the board bi-annually. has been completed and is HIGHLIGHTS • In March 2003, in line with the currently being evaluated. Kumba • Our determination to make our is thus well placed to participate value system a tangible reality was strategy of developing our heavy in regional industry rationalisation, entrenched in November 2002, minerals business through Ticor as noted earlier. Should a North- with the launch of the Kumba Limited (Ticor), Kumba increased South model or some other form Way, which embodies its shareholding in the Australian- of rationalisation emerge from commitment, teamwork, a shared listed heavy minerals group to the current negotiations in the vision, seeking better ways to do 51,4%, making it a subsidiary of Northern Cape as being things and encouraging the the group. Accordingly, Ticor’s economically more favourable, aspirations of all. The Kumba Way results are now fully consolidated the planned capacity expansion is founded on identifying best (since 1 April 2003), and Ticor’s could be achieved through practices throughout the group financial year end will change implementation of the revised or externally and using these to from December to June to reflect configuration. that of its holding company, realise our goal and practice of continuous improvement. Kumba. The partnership between • In China, the joint venture Kumba and Ticor has made a between our base metals division, • In April 2003, our subsidiary significant contribution to the the Chifeng Hongye Zinc ZnERGY (Zinc-air Energy Systems), latter’s success in the heavy Smelting Company and the started manufacturing zinc-air minerals industry in both Australia Baiyinnuoer Lead Zinc Mine fuel cells at a plant site in and South Africa. Company Limited received final Pretoria. This project was approval from the Kumba board announced at the World Summit • Our investment in the Ticor SA in February 2003. This has for Sustainable Development heavy minerals project is signalled the start of the in Johannesburg in 2002. beginning to reap dividends, with expansion and joint operation of Manufacturing under licence from the first furnace of the Empangeni the Hongye zinc refinery and the a German firm, ZOXY Energy smelter starting up on schedule roaster at Lindong (as detailed in Systems AG (ZOXY), ZnERGY will and commissioning beginning in the review of growth opportunities). meet the growing demand for high- March 2003. Production at the It will give Kumba a better density, long-life and low-cost mine and minerals separation understanding and stronger battery systems. It is a practical plant has already yielded excellent foothold in China, which is the and recyclable means of energy results. This division has very world’s most important market storage that will help reduce the promising prospects and is likely for base metals. to become the second-largest environmental impact of using conventional batteries to generate contributor to Kumba’s revenue • Kumba has made significant power, particularly in areas with and earnings after iron ore by progress in enhancing its risk little or no access to conventional 2006. management systems, which are electricity. ZOXY has achieved now on par with best practice in great success in breaking into the • The development of Sishen, our industry. These systems are European uninterrupted power specifically Sishen South, is at an reviewed regularly, from operational supply markets. 15 Chief executive’s review continued • Sustainable development and Special tribute also needs to be is no exception. The global outlook corporate citizenship are now a paid to our customers for their loyal for commodities, other than iron ore, fundamental part of Kumba’s support, to our suppliers from whom is expected to remain weak to muted. strategy. As detailed in the we have enjoyed excellent service This outlook, coupled to input cost summary reports on pages 58 delivery and to our trade unions structure increases such as rail tariffs to 72, Kumba is committed to with whom we maintain sound and high oil prices, will test the mettle ensuring that, at all times and in relationships and who have of all Kumba’s people to further all our operations, the operating supported all the major initiatives improve efficiencies. standards we maintain and the in the group. legacy we leave behind is positive Earnings are expected to remain for the surrounding communities On behalf of management, I thank under pressure in the new financial and the environment. our board of directors for their year. However, we are clearly focused support, independence and on steps that can be taken to ensure • Kumba continued to honour its commitment to good corporate that we continue to operate efficiently commitment to training and governance. In particular, our and are confident of again producing development of its employees as chairman, Dawn Marole, is adding outstanding operating results that part of the group’s socio-economic tremendous value to the group and should underpin earnings in these empowerment strategy and to we look forward to continued tough market conditions. further improve efficiency levels. guidance and counsel from the During the year, Kumba invested board under her leadership. R62,2 million in training and devel- oping employees, equating to 5,7% of total payroll. This is above the OUTLOOK Kumba faces a challenging year Mining Qualifications Authority’s ahead, but there are several positive average of 3,8% for mining factors that we believe will assist our companies with more than 5 000 performance, including the increase Con Fauconnier employees. Kumba is proud to have negotiated for iron ore prices until Chief Executive trained 24% of the total number of March 2004. Equally, following the 10 September 2003 artisan trainees in the mining indus- successful ramp-up of heavy minerals try during the year under review. production, the first shipments of titanium slag will be made soon. APPRECIATION In just two years, Kumba has taken Kumba will benefit from the expected reduction in interest rates as we are truly giant strides, underpinned by in a net borrowed position. Finally, one of the best teams in the mining underscoring the fundamental industry – people determined to strength of the group, all our make it happen. Our technical and operations are expected to produce managerial competencies compare good physical performance during with the best in the industry. The the new financial year. integrity, the ethics by which our people live and work set us apart As noted, sustained rand strength and I thank them most sincerely. affects all exporters, and Kumba 16 FOCUS ON STAKEHOLDER PROSPERITY We will continue to create wealth for all stakeholders by doing what we do better than anybody else. Our vision, values and governing principles ensure that stakeholder prosperity will be enhanced. 17 FINANCIAL REVIEW OVERVIEW OF GROUP OPERATING RESULTS The group maintained strong production levels and sales volumes for the year. Depressed global commodity prices and the substantial strengthening of the rand, however, placed operating margins under pressure (table 1). • Currency Impact An average exchange rate of R9,01 to the US dollar was realised on export proceeds compared with R10,18 for the 2002 financial year while debtors and balances denoted in US dollar and derivative instruments were revalued at a closing spot rate of R8,42 on 30 June 2003, compared with R10,37 which prevailed on 30 June 2002. The group’s operating margin, excluding this currency effect, would have remained constant year on year (table 2). Table 1 R million Revenue 2003 2002 20011 Pro forma 7 469 7 182 5 404 Net operating profit Depreciation 1 212 532 1 683 454 7932 340 Other Total CAGR3 % 17,6 23,6 • Segmental Results Segmental results are shown in tables 3 and 4. Table 3 Revenue R million 2003 2002 Iron Ore Coal 4 234 1 638 Base Metals Heavy Minerals Industrial Minerals 892 587 78 40 4 340 1 489 941 227 57 128 7 469 7 182 Table 4 Net operating profit Earnings before interest, tax, depreciation and amortisation (Ebitda) 1 744 2 137 1 133 24,1 R million 2003 2002 Operating margin (%) Ebitda margin (%) 16 23 23 30 15 21 3,3 4,7 1. As contained in the pre-listing statement of 29 October 2001. 2. Net operating profit of R584 million adjusted for a non-recurring charge of R209 million for scrapping of plant. 3. Compound annual growth rate. Table 2 Iron Ore Coal Base Metals Heavy Minerals Industrial Minerals 882 279 15 59 21 (44) 1 221 255 102 54 15 36 1 212 1 683 Other Total Adjustment for currency impact (R million) 2003 2002 Net operating profit Unrealised revaluation loss/(gain) Realised exchange rate effect 1 212 73 573 1 683 (9) Net operating profit, excluding currency movement 1 858 1 674 Operating margin, excluding currency effect (%) 23 23 Revenue from iron ore for the 2003 financial year decreased marginally as the 9% average increase in iron ore prices in the last quarter and higher export volumes of 1Mt were more than offset by the lower prices 18 STRONG PRODUCTION LEVELS AND SALES VOLUMES AFFECTED BY DEPRESSED GLOBAL COMMODITY PRICES AND A STRONG RAND in the first nine months (an average Despite the record production and being stockpiled for smelting and decrease of 4% from the previous sales volumes at both the Rosh processing into titanium slag and year) and the strong rand. This, Pinah mine and the Zincor refinery, pig iron. together with higher production the stronger currency, a lower zinc volumes and increased stripping of price of 13% in rand terms together Revenue increased by 159% to overburden, insurance premiums with substantially lower globally R587 million mainly as a and environmental provisions, based zinc concentrate treatment consequence of the consolidation of resulted in a 28% decrease in net charges paid to refineries, resulted the Australian heavy minerals and operating profit to R882 million. in revenue decreasing by 5% to pigment producer, Ticor. Net R892 million and net operating operating profit increased marginally Higher coal prices accounted for a profit from R102 million to from R54 million to R59 million as 10% increase in revenue as sales R15 million. volumes were maintained despite the consolidation effect of Ticor was largely offset by the impact of a major generator failure at the At the Ticor SA heavy minerals the stronger rand on Ticor SA, a Matimba power station. Net operation, production of ilmenite, higher depreciation charge and the operating profit improved by 9% to zircon and rutile increased costs of the mining operation being R279 million notwithstanding the substantially with both zircon and charged to the income statement as increased costs of planned rutile fully sold. Market conditions for it was brought into substantial maintenance programmes and ilmenite remained unfavourable and operating use. higher insurance premiums. crude ilmenite was largely Industrial minerals continued to benefit from favourable market conditions in the steel and construction sectors, resulting in a significant improvement in both revenue and net operating profit. NET FINANCING COSTS Net financing costs consist of interest expense, net of interest earned and interest capitalised on project developments. The average monthly effective cost of borrowings increased from 10,5% pa to 12,63% pa in line with an upward interest rate cycle. Net Iron ore Coal Base metals Heavy minerals Industrial minerals Other 56% 22% 12% 8% 1% 1% Iron ore Coal Base metals Heavy minerals Industrial minerals Other 73% 23% 1% 5% 2% (4)% REVENUE NET OPERATING PROFIT financing costs increased marginally to R244 million and were covered 19 Financial review continued seven times by Ebitda compared with allocation of debt upon the nine times in the 2002 financial year. unbundling of Kumba from Iscor Limited in November 2001. Although Interest cost of R32 million was regarded as a non-core investment capitalised, mainly in respect of the for our business, AST is an important project loan facilities taken up for information technology service the Ticor SA project, compared provider to the Kumba group. Kumba, with no capitalisation in the accordingly, together with AST’s 2002 financial year. banker and other creditors, agreed EARNINGS A lower net operating profit and the significant reduction in income from equity accounted investments, offset to some extent by a lower tax charge, resulted in a decline in both attributable profit and headline earnings (table 6). INCOME FROM EQUITY ACCOUNTED INVESTMENTS Our share of attributable profit from investments, before tax, has to a major business improvement and financial restructuring programme to restore AST to profitability with a focus on its core business areas. TAXATION The tax charge for the year reduced to R229 million in line with the decline in operating profits. decreased significantly as a con- Kumba will underwrite R35 million The effective tax rate of 24% is mainly sequence of the loss reported by AST of a rights issue of R89 million to be the result of a tax write-off on the Group Limited (AST) which offset other undertaken by AST in October 2003 acquisition of certain mining equipment. equity accounted income (table 5). which could potentially increase our shareholding to 34,3% should all We have a 26,7% interest in AST other shareholders of AST not follow which we acquired as part of the their rights. Table 5 Table 6 R million 2003 2002 R million Ticor Limited* AST Trans Orient Ore Supplies Other Total 57 (73) 15 3 2 72 (8) 17 2 83 Attributable earnings Adjusted for: • Net (surplus)/deficit on disposal or scrapping of operating assets • Impairment charges • Goodwill amortisation • Our share of associates’ goodwill * Equity accounted for 9 months of the year. amortisation and exceptional items • Tax effect on the above items 2003 2002 718 976 % (26) (3) 2 21 45 1 4 101 (26) 52 (9) Headline earnings 784 1 098 (29) 20 DIVIDEND OF 60 CENTS PER SHARE DECLARED CONSOLIDATION OF TICOR LIMITED Following the increase of our shareholding in Ticor to 50,12% in March, we consolidated Ticor from 1 April 2003. The effect of the consolidation is shown in table 7. We have subsequently increased our shareholding in Ticor to 51,38% as at 30 June 2003. DIVIDENDS The effect of the challenging market conditions on the group’s operating results and cash flow necessitated a review of the level of the maiden dividend of 85 cents per share that was declared in August and paid in CASH FLOW The lower earnings before interest, tax, depreciation and amortisation, increased working capital requirements (mainly in respect of the Ticor SA project and as a consequence of the consolidation of Ticor), finance charges and dividend and tax payments, resulted in a reduced cash flow from operating activities from R2 184 million to R780 million (table 8). Cash flow, before the investment into the Ticor SA project development, was R319 million positive. Table 7 R million Revenue Net operating profit Equity accounted income before tax Attributable profit Headline earnings Consolidated group Ticor effect 7 469 1 212 2 718 784 2 374 2751 351 572 49 46 432 September 2002, based on the group’s Net debt exceptional results in a weak currency environment in the 2002 financial year. 1. For the quarter ended 30 June 2003. 2. For the nine months ended 31 March 2003. Note 23 to the financial statements contains a detailed analysis of the business combination effect. The board accordingly approved a dividend of 60 cents per share in South African currency for the Table 8 financial year ended 30 June 2003 payable in September 2003. The R million dividend is covered 4 times by Cash flow from operating activities attributable earnings. Cash used in investing activities • Capital expenditure – Ticor SA project It remains our aim to declare regular • Capital expenditure – other dividends annually in August, payable • Proceeds on disposal of property, plant and equipment in September. The level of dividend • Increase in cash resources on acquisition of a payments is reviewed against prevailing controlling interest in subsidiaries trading conditions, our balance sheet • Acquisition of joint ventures and associates structure and available cash flow, Other 2003 2002 780 2 184 (923) (463) 44 366 (34) (8) (631) (454) 25 (59) taking cognisance of value adding growth opportunities. Net cash (outflow)/inflow (238) 1 065 21 Financial review continued DIVESTMENT OF NON-CORE INTERESTS Subsequent to 30 June 2003, we CAPITAL EXPENDITURE Table 10 shows a comparison of The group’s capital expenditure over the last two financial years has been estimated and actual capital dominated by the investment in both divested of our 30,13% interest in expenditure for the 2003 year, the mining and smelting heavy Mincor Resources NL, a listed together with an estimate for the minerals operations of the Ticor SA Australian mining and exploration next year. project in KwaZulu-Natal. company into which our gold and exploration assets were vended in 1999. The proceeds of the sale, before tax, at a price of 41 Australian cents per share, were AUD21 million (R103 million). Table 9 Loan composition Rm Rm Year Rm Drawn Available Redemption profile Negotiations are presently taking place with the objective to sell our 40% interest in two bulk ore carriers while our position as a major share- holder in AST will be regularly reviewed. FINANCIAL STRUCTURE Net borrowings increased by R1 231 million to R2 374 million mainly as a result of the high level of capital investment in the Ticor SA project, and the consolidation of the net debt of Ticor Limited, Australia. The group’s debt to equity ratio was 39% with net debt 1,4 times Ebitda. The composition of Kumba’s net debt, and the redemption profile of the long term interest-bearing borrowings, is shown in table 9. The group is presently assessing Long term • Corporate • Ticor SA project • Ticor Ltd Short term Total Cash balances Net debt Table 10 1 404 1 060 744 3 208 60 2004 2005 2006 60 2007 Thereafter 130 1 820 1 880 3 338 (964) 2 374 R million Estimate Estimate* Actual 2004 2003 Sustaining capital Expansions Environmental 347 257 47 480 446 146 43 1 156 247 203 13 923 407 697 1 126 273 705 3 208 2002 Actual 283 146 25 631 1 131 1 791 1 386 1 085 alternative funding sources with the Ticor SA project objective of refinancing a portion of the loan maturities up to 2006 with Total a well spread redemption profile. *2002 annual report estimate. 22 CAPITAL EXPENDITURE IN THE PAST TWO YEARS DOMINATED BY INVESTMENT IN TICOR SA POST-RETIREMENT BENEFIT LIABILITY The three accredited medical aid funds are structured to exclude any employer liability for post-retirement medical benefits in respect of either existing or past employees. performance up to the 52-week low by 27%. Since then, relative rand on 25 April 2003 (corresponding stability and general investor with a 2,5 year high in the rand appetite for resources shares have against the US dollar) under- seen Kumba outperforming the performed the JSE Resources index index by 20%. Our retirement benefit funds comprise a number of defined contribution 8 050 000 10 050 000 funds and two closed defined benefit funds. These funds were adequately funded as per the last actuarial valuation. SHARE PRICE PERFORMANCE A year-on-year comparison shows that the volume weighted average share price for the year under review was R33,79 against R43,31 for the previous year, while daily trade in shares averaged 623 513 in 2003 compared with 1 268 534 in the corresponding period. In the current financial year, the share peaked at R49,05 in July 2002 (against a high of R59,00 in the previous financial year) and bottomed at R24,13 in April 2003. Since listing, Kumba has outperformed both the Alsi 40 and Resources indices. However, during the second half of the year under review, the relative rand strength and volatility has had a negative impact on resource shares in general and our share price in particular, so much so that share price R59.00 R55.87 R49,05 R33.41 R29.83 R30.20 R24.13 70 60 50 40 30 20 10 0 6 050 000 R29.08 4 050 000 2 050 000 50 000 Nov ’01 Jan ’02 Feb ’02 Mar ’02 Apr ’02 May ’02 Jun ’02 Jul ’02 Aug ’02 Sep ’02 Oct ’02 Nov ’02 Dec ’02 Jan ’03 Feb ’03 Mar ’03 Apr ’03 May ’03 SHARE PRICE AGAINST DAILY TRADING VOLUMES Volume traded Share price 60 55 50 45 40 35 30 25 20 15 10 5 0 Nov ’01 Jan ’02 Mar ’02 May ’02 Jul ’02 Sep ’02 Nov ’02 Jan ’03 Mar ’03 May ’03 RELATIVE SHARE PRICE PERFORMANCE SINCE LISTING KMB ALSI 40 Resources Index 23 A STEPPING STONE OF OPPORTUNITY FOR SOUTH AFRICA A common purpose is the upliftment of our country and its people. Kumba is firmly anchored in South African soil and our commitment to the country enables us to act as a stepping stone to a brighter future. 24 BUSINESS OPERATIONS REVIEW OVERVIEW The positive operational results of the five strategic business units (SBUs) reflect the strong drive for people performance and operational excellence. Very high levels of world steel production, supported by phenomenal growth in Chinese iron ore imports, resulted in strong demand for iron ore. Good OPERATIONAL EXCELLENCE Achievements: The programme to improve performance through initiatives focused on people, processes and operational excellence brought about a number of excellent results: domestic demand from the steel, ferroalloy and power utility sectors • Record iron ore production output supported the strong sales of coal and industrial minerals products. The heavy minerals business enjoyed good sales of zircon and, during the year, offtake agreements for titanium dioxide slag were finalised. The of 26,2Mt from Sishen mine • Record of 26,1Mt of iron ore railed from Sishen to the zinc business remained depressed, with metal prices and treatment charges Saldanha port at record lows, exacerbated by the strength of the rand. The safety, health, environmental and quality performance reflects a • The ramp-up of the first furnace at the Ticor SA heavy minerals business is progressing according substantial improvement and the number of fatalities has been halved to to schedule four from the previous year’s eight. The goal remains an injury-free environment and the loss of four colleagues is deeply regretted. Several of our operations have now been accredited with international • Record annual coal sales at the Grootegeluk mine • Record annual production of zinc metal of 115 000 tonnes standards for safety, OSHAS 18001, and environment, ISO 14001, and from Zincor a programme to have all operations accredited is under way, with completion • Record annual production of zinc scheduled for December 2004. concentrate of 91 229 tonnes from the Rosh Pinah mine • Increased sales volumes to the value of R429 million • Cost containment below inflation Targets: Challenging targets have been set: • Increase in sales tonnages of 2% to the value of R426 million in the 2004 financial year • A reduction in real production costs of 2% to the value of R123 million in the 2004 financial year • Business improvement programmes at Base Metals to realise value of R115 million by the 2005 financial year 25 Business operations review continued IRON ORE Physical information Total production Total sales Exports Domestic Capital expenditure (R million) * = metric tonnes Y-O-Y = year-on-year The iron ore strategic business unit (SBU) is one of the world’s major high- grade lump iron ore producers. It operates two mines in South Africa, Sishen in the Northern Cape and Thabazimbi in Limpopo. Sishen accounts for 4% (21Mt) of global seaborne trade and 85% of local production, while all of Thabazimbi’s production is supplied to Iscor on a cost recovery basis plus a management fee of 3% of such cost. Actual tonnage sold for the year increased by 6% due to high demand and the good performance of the total business logistical chain. During the review period, Sishen 2003 000t* 28 557 29 716 20 946 8 770 211 Y-O-Y % +1 +6 +5 +7 -17 China RSA Japan UK Germany Austria Other REVENUE 32% 21% 15% 10% 7% 7% 8% material feedstock into furnaces when blended with other ores due to its high iron content and superior physical properties. Sishen continuously focuses on maximising production and distribution volumes. Having implemented sophisticated production management systems and through plant modifications, Sishen is expected to reach 27Mtpa capacity by December 2004. The new up-current classifier plant will add 300 000tpa of fine ore capacity. The utilisation of improved primary feed systems as well as focused measurement of the production process will facilitate a further 700 000tpa capacity. These initiatives will also improve the ore extraction efficiency and the mine’s competitive position. Concurrently, the rail and port infrastructure associated with exports is being upgraded by Transnet. Negotiations between Kumba and Transnet for additional rail line and iron ore export capacity through the port of Saldanha Bay started during the year. A project team will determine the ultimate capacity of the and Thabazimbi produced record In April 2003, global iron ore prices infrastructure before the allocation of tonnages of iron ore with Sishen increased by 9,0% for fine and 8,9% capacity can be finalised. Technical accounting for 92% of the total for lump ore, reflecting the influence studies are under way to evaluate and production. Sishen exported 76% of Chinese demand and were fixed of its production through Saldanha for 12 months. China is the most determine the feasibility of a number of options to increase local iron ore Bay to 34 major steel producers in important growth factor in the iron ore production by up to 8,5Mtpa within 12 countries around the world, while market and has indicated a demand five years. The domestic and other 24% was railed to Iscor, Saldanha for increased quantities of Sishen iron growth opportunities in Australia are Steel mill and other domestic ore. Sishen ore is highly sought after discussed in the growth opportunities consumers. as it improves the quality of the raw review on page 36. 26 RECORD PRODUCTION FROM ONE OF THE WORLD’S MAJOR HIGH-GRADE LUMP IRON ORE PRODUCERS Cost containment is an ongoing priority at Sishen and various programmes have been launched. Selective mining techniques that will have a positive effect on waste removal have been implemented, and ore gains have already been experienced. Programmes to contain the cost of maintenance, especially the cost of wear and tear and consumption of steel in the crushers as well as wear on the conveyer belts, have been successfully implemented. Highlights of the review period include a decrease in the lost day injury rate at Thabazimbi from 2,78 to 1,21 and final approval of the Sishen environmental management plan. Sishen also received a golden award from the National Productivity Institute, while its mine sampling laboratory received internationally-recognised ISO 17025 accreditation. CAPITAL EXPENDITURE R million Sustaining Environmental Expansion Total Actual Estimate 2003 2004 76 2 133 211 166 24 51 241 Iron ore operations and new housing development at the Sishen and Thabazimbi mines. 27 Business operations review continued COAL Physical information Total production Total sales Eskom Other domestic Exports Capital expenditure (R million) * = metric tonnes Y-O-Y = year-on-year 2003 000t* 18 012 18 000 13 051 3 821 1 128 125 Y-O-Y % -1 0 -1 +3 -4 +26 The coal SBU operates three collieries as the metals market, into which in South Africa and is the country’s record sales were realised. fifth-largest coal producer. Grootegeluk mine in Limpopo and Production at Grootegeluk was affected Leeuwpan in Mpumalanga, are by a turbine failure on one of the six conventional open-pit operations. units at Matimba, one of Eskom’s Tshikondeni, in Limpopo, is an major power stations, which persisted underground mine that supplies its for the greater part of the year. The entire production to Iscor at cost plus relatively high volumes of thermal coal a management fee of 3% of supplied to this market despite the such cost. turbine failure were achieved through improved availability and utilisation During the year, the collieries of power station supply equipment. Tshikondeni’s re-engineering programme has led to the development and implementation of a new mine plan, which is on schedule. The SBU is strategically positioned in the market to supply coal to Eskom and is the fourth-largest supplier to the utility. The geographical location of Leeuwpan relative to the Majuba and Thutuka power stations which experienced shortages of coal supply and the mine’s ability to supply timeously a product of consistent quality, has resulted in Eskom showing an interest in coal supply from Leeuwpan. As an interim arrangement the mine has started to supply the power station with coal during the last quarter of the financial year. Total sales to the metals segment were 1,5Mt for the year, which were in line with sales for the previous year. Some 64% of sales prices are US dollar- based and an average increase of 4% in dollar terms was realised during the year. On the remaining 36% of sales that are rand-based, an increase of produced 18Mt of thermal, A strong focus in improving the 8% was realised. metallurgical and coking coal with efficiencies of a logistical rail Grootegeluk accounting for 90% of bottleneck at Grootegeluk has resulted Export volumes of 1,1Mt were in line the total production. in a record volume of coal dispatched with the previous year. Average US of some 3,1Mt against a previous dollar prices were approximately 9% Overall, both operational and financial record of 2,8Mt. performance were boosted by a higher, but rand income was lower due to the stronger exchange rate, continued focus on cost efficiency Leeuwpan recorded a solid performance higher distribution costs and the cost resulting in an annual average in terms of operations and cost control of export allocation through the decrease in costs of 1,9% (real) for despite the negative impact on Richards Bay Coal Terminal. the past three years. The SBU also production, having encountered an focused on maximising throughput to unexpected area of devolatilised coal A brownfield project planned by the higher margin market segments, such seams during the year. SBU is a second-stage beneficiation 28 RECORD PRODUCTION HIGHLIGHTS THE SUCCESS OF A MULTI-FACETED CONTINUOUS IMPROVEMENT PROGRAMME project at Grootegeluk where suitable products will be produced for ultimate consumption in the coke market sector. CAPITAL EXPENDITURE Actual Estimate R million 2003 2004 Sustaining Environmental Expansion Total 96 8 21 125 84 21 100 205 Above: The Grootegeluk mine with the Matimba power station in the distance. Left and below: Operations at Grootegeluk. 29 Business operations review continued BASE METALS Physical information Total production Zinc concentrate Zinc metal Lead concentrate Total sales Zinc metal Domestic Exports Lead concentrate Capital expenditure (R million) * = metric tonnes Y-O-Y = year-on-year 2003 000t* Y-O-Y % 228 91 115 22 112 92 20 30 73 +10 +21 +10 -21 +4 -2 +43 +20 -19 The base metals SBU comprises the from the effect of a low price by through the utilisation of imported Zincor and Rosh Pinah operations. a weaker local currency. The concentrates with higher grades and Rosh Pinah in southern Namibia is strengthening of the rand resulted in increased plant availability. Zincor is an underground lead zinc mine that a sharp reduction in the realised rand the leading supplier of zinc in east produced a record of 91 229 tonnes zinc price to approximately R6 200 Africa, with well-established markets of zinc-containing concentrates. per tonne. in Kenya and Tanzania. These concentrates account for 37% of Zincor’s annual requirements. Although local zinc metal sales were In an effort to increase the per Lead-containing concentrates, which relatively soft during the year, capita consumption of zinc in amounted to 30 000 tonnes during increased exports resulted in record South Africa, the SBU has been the year, were exported through sales for Zincor while Rosh Pinah instrumental in founding the southern Walvis Bay. Increased production achieved higher sales of lead African branch of the International resulted primarily from higher feed concentrates. grades and de-bottlenecking. Zinc Association (IZASA). The aim is to promote the use of zinc through The Zincor zinc refinery has long-term various technical and marketing The global zinc market remained in offtake agreements with its major initiatives into the primary industries oversupply throughout the year, customers, and produced 115 000 that consume zinc metal. resulting in weak US dollar prices, tonnes of zinc metal during the year. which traded between $740 and This capacity will increase as To protect declining margins resulting $800 per tonne. During the first half de-bottlenecking activities continue. from the continued depressed zinc of the year, the SBU was shielded The record production was achieved price and the strength of the rand, 30 ONE OF THE FEW INTEGRATED ZINC MINING AND SMELTING OPERATIONS IN THE WORLD the SBU has embarked upon a business improvement programme. This cost reduction and revenue enhancement initiative targets an operating profit improvement of some R115 million by June 2005. CAPITAL EXPENDITURE Actual Estimate R million 2003 2004 Sustaining Environmental Expansion Total 22 3 48 73 19 2 106 127 The higher capital expenditure in respect of project developments is mainly as a consequence of the expansion of the Hongye refinery in China which is dealt with in the growth opportunities review on page 36. Base metals operations at the Zincor refinery, and ZnERGY plant (below and right). 31 Business operations review continued HEAVY MINERALS Physical information Ticor SA Ticor Ltd1 Total production Ilmenite Zircon Rutile Low manganese pig iron (LMPI) Leucoxcene Synthetic rutile Pigment Total sales Ilmenite Zircon Rutile Leucoxcene Synthetic rutile Pigment 2003 000t* 91 53 20 Y-O-Y % +107% +18% +5% 3 100% 50 60 19 +39% +82% +58% 2003 000t* 428 80 36 26 179 94 126 83 28 19 81 81 Y-O-Y % -4% +4% +24% +44% +1% +3% -22% -5% -3% -21% -13% -9% 1. Tonnages reflect 100% of the production and sales volumes of the Tiwest joint venture in which Ticor Ltd has a 50% interest. * = metric tonnes Y-O-Y = year-on-year Through its strategic investment in Ticor Limited and Ticor SA, the SBU is positioned to become the third largest producer of slag feedstock by 2005, when both furnaces at Ticor SA are at full production. During the year under review, the SBU had to contend with the continued downturn in the world economy and ongoing downward pressure on titanium feedstock prices. Demand for zircon remained strong, with significant potential in the Chinese market. Sales of zircon and rutile from Ticor SA increased by 82% and 58% year-on-year respectively. Ilmenite prices were negatively affected by the depressed market conditions and competition from Indian producers, although sales for the year were higher. A long-term off-take agreement for ilmenite was concluded early in 2003. At the Ticor SA operations, most of the crude ilmenite continued to be stockpiled for feedstock to the smelter. The increase in production of the various products was the result of the successful commissioning of the up-front desliming cyclone and increased efficiencies at the primary wet and mineral separation plants. The first furnace of the smelter was commissioned in March 2003 and its ramp-up programme is on schedule. The construction of the second furnace is more than 95% complete. Phase 1 of the Ticor SA project, consisting of the Hillendale mine and the mineral separation plant, has reached full production capacity and was completed on schedule and within its budget of R738 million. The first furnace (phase 2 of the project) has also been completed on schedule and within its budget of R916 million. Construction of the second furnace is on schedule and within its budget of R361 million. The project’s total funding requirements of R3 500 million, which includes the development of the Fairbreeze mine and working capital requirements, are funded by: Shareholders: Kumba Ticor Ltd Project finance loans Funding requirements R million 2 200 1 300 900 1 300 3 500 The operations of Ticor Ltd in Australia include a mine at Cooljarloo, a synthetic rutile plant at Chandala, a pigment plant at Kwinana and a cyanide plant at Gladstone. The cyanide plant is 100% owned while the heavy minerals operation consists of the mine, and synthetic rutile and pigment plants which are owned jointly with Kerr McGee. The Tiwest 32 ON TRACK TO BE THE THIRD-LARGEST PRODUCER OF HEAVY MINERALS FEEDSTOCK BY 2005 joint venture is one of the few fully integrated mines to pigment producers. Ticor SA’s Empangeni operations. During the year Ticor Ltd completed the acquisition of Magnetic Minerals Ltd through which it secured additional heavy minerals reserves in Western Australia. This will extend the life of mining operations of Ticor Ltd. Ticor SA continues to evaluate resources in the Eastern Cape (Centane) and in KwaZulu-Natal (Port Durnford), and the prospect of acquiring prospecting rights in Madagascar (Tulear). Market consensus is that feedstock demand is expected to grow at 2,6% pa with the main growth in the chloride slag sector, which is anticipated to remain in oversupply until 2005. Ticor SA has concluded long-term off-take agreements for the major portion of its chloride slag production. Ticor SA is on schedule to deliver its first consignment of chloride slag towards the second quarter of the 2004 financial year. The first shipment of low manganese pig iron (LMPI) occurred in August 2003. CAPITAL EXPENDITURE Actual 2003 R million Estimate 2004 Sustaining Environmental Expansion Total 28 – 923 951 32 – 480 512 33 Business operations review continued INDUSTRIAL MINERALS Physical information Total dolomite production Total dolomite sales Metallurgical Aggregate Lime Total ferrosilicon production Total ferrosilicon sales Capital expenditure (R million) * = metric tonnes Y-O-Y = year-on-year 2003 000t* 1 327 1 321 642 585 94 5 5 5 Y-O-Y % +3 +1 +15 -10 0 0 +25 +56 The Glen Douglas mine supplies the requirements of the domestic steel industry, in particular the demand for metallurgical dolomite from Iscor, and maintains its market share of some 10% in the aggregate business in southern Gauteng. The operations benefited from positive growth in the steel and construction industry during the year. The Bridgetown joint venture supplies dolomite to the Saldanha Steel mill. The ferrosilicon operations are strategically positioned to meet the beneficiation needs of Kumba’s iron ore mines with some 75% of output The SBU comprises the Glen Douglas producing a superior gas-atomised supplied to the mines and an open-cast mine producing ferrosilicon powder; and a 50% increased market penetration in the metallurgical dolomite, aggregate and interest in the Bridgetown diamond, chrome and export markets. small quantities of agricultural lime; dolomite mining joint venture in a ferrosilicon plant in Pretoria the Western Cape. 34 OPERATIONS BENEFITED FROM POSITIVE GROWTH IN THE STEEL AND CONSTRUCTION INDUSTRY The Glen Douglas dolomite mine situated in Gauteng and its social responsibility programmes. 35 GROWTH OPPORTUNITIES IRON ORE Sishen South is an important iron ore project in the Kgalagadi region of the Northern Cape, and 70km south of Sishen mine. A R55-million study to confirm the technical and economic potential of the project in a bankable format is nearing completion and this, together with the environmental and social impact assessments required to secure a mining permit, will be completed by December 2003. If treated on a stand-alone basis, Sishen South would be developed as an 8-10Mtpa open-pit mine at a capital cost of around R2 billion, including beneficiation facilities that would render its output compatible with the high-grade ore produced from Sishen. Under this scenario, Sishen South ore would be railed via Sishen to the export terminal at Saldanha Bay. Alternative development scenarios involve the exchange or amalgamation of iron ore assets owned by the two main operators in the region, and are the subject of continuing discussion between the parties concerned. Subsequent to the year end, a heads of agreement was signed with Assmang. Conversion to bankable status of the technical feasibility study into the Hope Downs iron ore project in the Pilbara district of Western Australia has continued since the completion of a value-engineering exercise early in 2003. The project is a joint venture between Kumba and Hancock Prospecting (Pty) Limited, a Perth- based company that discovered and undertook the initial evaluation of the property. The present study commenced in 1998 on the assumption that access to existing privately-owned rail infrastructure could be secured that would facilitate the export of 10-15Mtpa of high-grade Marra Mamba ore from Hope Downs via one of three terminals along the Australian west coast, some 350km distant. When it became apparent that this option might be difficult to achieve, the rail owners being competing iron ore producers, the study was extended to include provision for the construction of new rail infrastructure and a terminal at Port Hedland. This resulted in an increase in the capital cost of the project to its current level of AUD1,6 billion, necessitating in turn, an increase in the scale of operations to 25Mtpa. The reserve base of 450Mt, with substantial additional adjacent resources, would be sufficient to sustain an operation of this size; and forecast market growth would be able to accommodate such output without difficulty. The project team is currently compiling an information memorandum, which selected potential equity investors will be invited to receive during the Pilbara Australia second half of 2003. In the meantime, efforts continue to be made to identify mutually-beneficial rail-access agreements with the owners of existing infrastructure. In West Africa, a due diligence study on three iron ore deposits in Gabon concluded that resource quality and the absence of rail and port infrastructure detract from their development potential. Other deposits in closer proximity to existing rail infrastructure are currently under investigation. In Senegal, a due diligence study of the Faléme deposit showed that the property could have commercial potential only if infrastructure development were to be funded by government or international organisations. Discussions in this regard are continuing. COAL Kumba’s coal business unit and empowerment company, Eyesizwe Coal, have concluded an agreement to develop jointly an open-pit coal mine at Kalbasfontein, north-east of Witbank in Mpumalanga, for an expected capital investment of R300 million. Development of the mine, which is planned to produce 1,0Mtpa of export-quality steam coal, will commence as soon as the long- awaited approval of the port authorities has been obtained for the phase V expansion of the coal terminal at Richards Bay. A feasibility study was undertaken to determine the viability of second- stage washing in the number 2 beneficiation plant at Grootegeluk 36 to increase production of semi-soft coking coal. The project envisages the production of an additional 0,7Mtpa of material destined for supply to the coke-making facilities of Suprachem, as well as to other domestic and international customers. A decision to proceed with the modification of the plant will be taken once Suprachem confirms its own expansion plans. A pre-feasibility investigation into the production of char/formed coke, also at Grootegeluk, is nearing completion and it is expected that a full feasibility study will be conducted during the coming year. The scope of this project includes the open-cast and possible high wall underground mining of benches 11 and 13 in the current Grootegeluk pit, together with the construction of a separate beneficiation plant and three char- manufacturing facilities. The latter would cater for the reductant requirements of the ferrochrome, ferromanganese and titanium slag industries. A second phase will consider the manufacture of formed coke for the ferroalloy sector. At full production, the overall project could produce 0,6Mtpa of char and 0,4Mtpa of formed coke. A strategy to develop additional coal reserves in the Waterberg Field in a phased programme has been drafted and is currently being discussed with relevant government departments and potential partners. BASE METALS Exploration for further ore bodies to augment the reserves available to Rosh Pinah mine continued, with significant new resources discovered during the past year. In China, work on the expansion of the Hongye zinc refinery at Chifeng in Inner Mongolia is progressing well following the approval of the Kumba board to proceed with the project. This entails doubling the capacity of the refinery to 50 000 tonnes of zinc metal per annum, a target that is scheduled to be met towards the end of 2004. Kumba’s 60% participation in the venture, which includes construction of a roasting plant and overall management of the total business, limits its total exposure to Yuan140 million (R125 million); other participants are the owners of the Hongye refinery and the principal suppliers of concentrate feedstock. Despite continued efforts on the part of the South African government and other brokers to halt hostilities in the Democratic Republic of Congo (DRC), it has so far proved impossible to secure the unqualified support of all protagonists. This, together with the reluctance of important constituencies within the DRC to accept the new mining code developed by the government in collaboration with World Bank, has delayed a return to conditions conducive to investment. Consequently, it has not been possible either to proceed with a feasibility study on the refurbishment of the Kipushi zinc/copper mine or with an update of the feasibility study conducted in 1998 on the Kamoto copper/cobalt mine during the last year. The ZnERGY plant in which Kumba has a 85% interest was established late in the financial year and is in the process of ramping up to full production. The R16 million plant, with an annual design capacity in excess of 200 000 units, produces environmentally friendly zinc-air fuel cells under licence from ZOXY Energy Systems AG of Germany. The product is destined predominantly for Europe, while the African market, for which the company has exclusive marketing rights, is developed. HEAVY MINERALS During July, Kumba’s Australian subsidiary Ticor Limited announced that it had concluded an agreement with Madagascar Resources NL to conduct feasibility studies on the Tulear mineral sands deposits in south-western Madagascar. Preliminary indications are that the extent of mineralisation at Tulear has the potential to support an expansion of the Empangeni smelting operation near Richards Bay. IFCON™ In the previous annual report, reference was made to research being undertaken on the development of a new process technology, IFCON™, that appeared to have potential for the low-cost production of metals from a variety of feedstock. During the last year, this work continued to the point where a demonstration furnace, designed to test the commercial viability of the process, was commissioned at the close of the reporting period. A number of smelting campaigns are scheduled for the coming year, with particular emphasis on determining the application of the process to ferroalloy manufacture. 37 REVIEW OF MINERAL RESOURCES AND RESERVES The mineral resources and reserves Kumba believes that although a Grootegeluk is focusing strongly on the attributed to Kumba’s current mineral deposit is, by definition, a development of high-value products operations and development projects finite and exhaustible resource no from selected coal units in the are summarised in the tables on matter how large it may appear, the succession. Thabazimbi has extended page 39. All projects are being re- economical life of a resource can be the life of its reserves beyond evaluated to establish their status and comprehensively extended through expectation by the ingenious relevance under the conditions responsible and skilful exploitation implementation of selective mining. created by the new Mineral and ethics. It is therefore the group’s Tshikondeni, by being creative in the Petroleum Resources Development explicit policy to enhance mineral adaptation of mining techniques, has Act No 28 of 2002. resource management at all its succeeded in mining coal originally operations through responsible regarded as unmineable; consci- Resource and reserve estimates listed exploitation, innovative practices and entious marketing efforts have led to in the tables have been compiled in creative development. the creation of niche markets for accordance with the SAMREC code previously underrated, low-volatile coal in respect of southern African Kumba has access to high-quality from the Leeuwpan pit; and at Rosh properties and the JORC code in resources in all its core commodities Pinah, careful blending of ores of respect of Australian properties. and the two principal operations, widely varying zinc:lead ratios had Estimates were determined using Sishen iron ore mine and ensured acceptable feedstock for the internationally-accepted methods Grootegeluk coal mine, are both plant that optimises the available by competent persons as defined by founded on extensive mineral resource base. the SAMREC code. The figures have resources. Nevertheless, in both been reviewed and endorsed by the cases, as well as at the smaller The mineral resource at Sishen South competent person within Kumba mines, the principle of optimal has increased significantly by the responsible for mineral resources and utilisation of the mineral resource acquisition and exploration of two reserves estimates, HJ van der Berg, through innovative geological, adjacent properties. The limited the undersigned. metallurgical and mining initiatives drilling completed to date indicates has been implemented as part of the there is good potential to find more total process philosophy from the ore of high quality and the programme exploration phase through to delivery is continuing. Planned exploration of final product to the client. drilling in the vicinity of the Leeuwpan coal mine in the immediate future At Sishen, the use of geostatistical should add valuable reserves to the and geophysical methods to qualify life-of-mine plan. Exploration of the and quantify ore more accurately is area surrounding Rosh Pinah mine has showing very promising results, and intensified, following the discovery of HJ van der Berg projects to utilise previously significant new mineralisation during Manager, Geological Services unsuitable ore are well advanced. the last year. 38 Estimated mineral resources Estimated mineral reserves in situ resources (Mt) Probable (Mt) Proved (Mt) Total (Mt) Commodity Mine Inferred Indicated Measured Total Cut-off grade RoM Saleable RoM Saleable RoM Saleable Average grade Base metals Rosh Pinah mine 0,89 3,83 2,01 6,73 4% Zn+Pb 3,74 – 1,61 – 5,35 – 10,2% Zn Iron ore Sishen mine 248,47 411,08 974,77 1 634,32 60% Fe 131,80 102,46 655,46 525,29 787,26 627,75 61,1% Fe Thabazimbi mine 24,38 26,15 40,44 90,97 60% Fe 5,22 4,41 15,04 12,72 20,26 17,13 62,8% Fe Heavy minerals Hillendale minea Fairbreeze (A+B+C)a Gravelotte (sand)a – – – – 70,40 70,40 1,5% llm – 75,22 139,85 215,07 1,5% llm 37,85 – 75,06 75,06 3,0% llm – – – – 57,13 120,15 52,35 – – – 57,13 158,00 52,35 – – 4,1% llm 3,3% llm – 11,0% llm Coal Grootegeluk mine 2 512,94 2 075,28 1 520,91 6 109,12 Leeuwpan mine Tshikondeni mine – – 29,80 10,10 159,92 189,72 30,02 40,12 raw coal raw coal raw coal Industrial Glen Douglas mine minerals – metallurgical dolomite – aggregate dolomite – aggregate outside mine plan Bridgetown 117,34 – 145,06 dolomite mine 12,7 – – – – 186,74 304,08 < 2,5% SIO2 – – – raw material 145,06 raw material 7,57 20,27 < 2,5% SIO2 Mineral reserves are included within mineral resources Mineral resources and reserves have been compiled according to the SAMREC code a Held as a 60:40 joint venture with Ticor Limited 66,97 47,60 33,31 18,22 768,08 387,08 835,05 420,39 86,80 9,67 39,49 134,40 4,91 9,67 57,71 4,91 34,91 18,37 – – – – 34,91 18,37 – – – – – – – – –– 7,29 3,65 7,29 3,65 – – – – – Estimated mineral resources Estimated mineral reserves in situ resources (Mt) Probable (Mt) Proved (Mt) Total (Mt) Commodity Project* Inferred Indicated Measured Total (Mt) Average grade RoM Saleable RoM Saleable RoM Saleable Average grade Cut-off grade Iron ore Coal Heavy minerals Hope Downs (Hope 1)b Sishen South Zandrivierspoort Kalbasfonteinc Strehlac Moranbah Southd KwaZulu-Natala, e Eastern Capea, f Limpopo Province (sand)a, g Limpopo Province (rock)a, h 29 291 199 519 61,5% Fe 259 190 449 61,4% Fe 57% 86,92 126,01 129,85 342,78 64,76% Fe – – – 447,0 – 447,0 35,0% Fe 22,52 123,73 586,46 – 15,26 15,26 22,52 710,19 raw coal raw coal raw coal – – – – 31,30 83,99 4,45 88,44 2,5% llm – – 232,94 232,94 4,5% llm 12,50 43,80 5,9% llm 112,30 53,60 – 165,90 22,4% llm * Project is defined by the undertaking of at least pre-feasibility study work. Mineral resources are SAMREC code compliant except for Hope 1 and Moranbah (JORC code compliant) a Held as a 60:40 joint venture with Ticor Limited b Joint venture with Hancock Prospecting (Pty) Ltd, Australia c Thermal coal d Queensland, Australia e Includes Braeburn, Fairbreeze D, Block P and KwaZulu-Natal deposits f The Centane deposits g Includes Gravelotte pebble deposit and Letsitele sand deposit h Includes Gravelotte and Letsitele rock deposits 39 LEGISLATIVE COMPLIANCE PROGRESS IN ACCORDANCE WITH THE SCORECARD FOR THE BROAD-BASED SOCIO-ECONOMIC EMPOWERMENT CHARTER FOR THE SOUTH AFRICAN MINING INDUSTRY REQUIREMENTS PROGRESS Human resources development • Has the company offered the opportunity to be functionally literate and numerate by the year 2005 and are employees being trained? • • • • Fully company sponsored, voluntary ABET programmes running at all mines Leeuwpan and Corporate Office 100% literate Screening and counselling of all ABET candidates to take informed decisions about participation in ABET is undertaken Incentive scheme to make ABET more attractive is being implemented CROSS REFERENCE Pages 68 – 69 • Has the company implemented career • Human Resources Development (HRD) policy Pages 68 – 69 paths for HDSA employees including in place dealing with accelerated development skills development plans? • Formal succession planning and individual development plans rigorously used for all management and professional categories • HDSA employees receive special career planning consideration and mentor support • Has the company developed systems • Concluded an employee exchange development/ through which empowerment groups can operational exposure agreement with Tiso Capital, be mentored? an empowerment company • Concluded a 50% joint venture with Eyesizwe Coal for development of Kalbasfontein reserves. Agreement includes skills transfer through mentorship and service level agreement • Kumba trains 24% of all apprentices in the South African mining industry of which the majority are HDSA Employment equity • Has the company published its • Plans submitted to Department of Labour and Page 67 employment equity plan and reported on its annual progress in meeting that plan? published on Kumba website • Has the company established a plan to • Employment equity plans in place, supported Page 67 achieve a target for HDSA participation in by strategies in the HRD policy management of 40% within five years and • Measured and monitored up to board level is it implementing the plan? on quarterly basis • Has the company identified a talent pool • • • • Plans monitored per business unit Current HDSA management categories: 20% Current executive management categories: 33% Formal performance management and succession Page 69 and is it fast tracking it? planning processes make it easy to fast-track all management levels • HDSA talent pool catered for in succession planning process 40 THE TRUE SPIRIT OF CITIZENSHIP GUIDES OUR ENGAGEMENT WITH ALL STAKEHOLDERS PROGRESS IN ACCORDANCE WITH THE SCORECARD FOR THE BROAD-BASED SOCIO-ECONOMIC EMPOWERMENT CHARTER FOR THE SOUTH AFRICAN MINING INDUSTRY (CONTINUED) REQUIREMENTS PROGRESS Current recruitment plans achieving results • • Women currently 10% of workforce CROSS REFERENCE Page 14 • Has the company established a plan to achieve the target for women participation in mining of 10% within five years and is it implementing the plan? Migrant labour • Has the company subscribed to government and industry agreements to ensure non-discrimination against foreign migrant labour? Mine community and rural development • Has the company co-operated in the formulation of integrated development plans and is the company co-operating with government in the implementation of these plans for communities where mining takes place and for major labour sending areas? Has there been effort on the side of the company to engage the local mine community and major labour sending area communities? Housing and living conditions • For company provided housing, has the mine, in consultation with stakeholders, established measures for improving the standard of housing, including the upgrading of hostels, conversion of hostels to family units and promoted home ownership options for mine employees? Companies will be required to indicate what they have done to improve housing and show a plan to progress the issue over time and show it is implementing the plan • For company provided nutrition, has the mine established measures for improving the nutrition of mine employees? Companies will be required to indicate what they have done to improve nutrition and show a plan to progress the issue over time and show it is implementing the plan • Recruitment policy is non-discriminatory • • Few if any foreign migrant workers employed Emphasis on local recruitment Pages 67 – 68 • Collaborated on integrated development plans for Thabazimbi, Mutale and Vhembe Councils and Kgalagadi Development Node • Range of interventions are all aligned with Pages 70 – 71 integrated development plans and register of community needs Forums established to engage local communication communities Skills and ABET provided for the unemployed, skills training for government institutions, training of trainers programmes, capacity building Partnership with MQA in Kgalagadi and Newcastle to train ex-mineworkers Company spent R18 million during the financial year on social investment programmes • • • • • Page 68 Company housing policy in place, focusing on home ownership 2 802 employees (35%) live in hostels • • More than R10 million will be spent to upgrade hostels to family units and single quarters over four years 763 employees assisted to become owners of company housing 1 895 housing units to be made available for home ownership over four years • • • Mechanisms exist for employees to engage Page 67 management and suppliers • Quality of food contractually regulated – human resources policy stipulates quality requirements 41 Legislative compliance continued PROGRESS IN ACCORDANCE WITH THE SCORECARD FOR THE BROAD-BASED SOCIO-ECONOMIC EMPOWERMENT CHARTER FOR THE SOUTH AFRICAN MINING INDUSTRY (CONTINUED) REQUIREMENTS PROGRESS Procurement • Has the company given HDSAs preferred supplier status? • Has the company identified current level of procurement from HDSA companies in terms of capital goods, consumables and services? • • • • Policy, guidelines and systems in place to promote procurement from HDSA companies Preference is given to black-owned and black empowerment suppliers An auditable system is in place and performance is tracked 4,3% discretionary procurement to HDSAs during the year and 15% target by 2004 financial year CROSS REFERENCE Page 8 Page 8 • Has the company indicated a commitment • Kumba has developed policies in this regard since Page 8 to a progression of procurement from 2001 and is committed to a progression over time HDSA companies over a three to five-year time frame in terms of capital goods, consumables, and to what extent has the commitment been implemented? • • Co-founder of SA National Preferential Procurement Forum 4,3% discretionary procurement to HDSAs during the year and 15% target by 2004 financial year Ownership and joint venture • Has the mining company achieved • Ownership implementation framework developed Page 8 HDSA participation in terms of ownership and approved and all strategic business units for equity or attributable units of mandated to achieve specific objectives at asset production of 15% in HDSA hands within level to ensure Kumba meets 15% five years and 26% in ten years? and 26% targets within required timeframe • • Tiso Kgalagadi Consortium’s 4,8% equity stake in Kumba facilitated through a 10% discount 50% joint venture development of Kalbasfontein coal mine with Eyesizwe Coal Beneficiation • Has the mining company identified its • Baseline level established for various current level of beneficiation? commodities • Has the mining company established its • New beneficiation projects identified and base line level of beneficiation and evaluation of potential ongoing indicated the extent that this will have to • Kumba has a specific case to make for be grown in order to qualify for an offset? beneficiation credits based on its unique supply Supply agreement with Iscor Pages 26 – 29 agreements with the steel industry, covering iron ore, coal, zinc and dolomite Reporting • Has the company reported on an annual • Extensive reporting on progress through the 2003 annual report basis its progress towards achieving its commitments in its annual report? scorecard and various areas of this report 42 EXECUTIVE COMMITTEE 6 5 3 7 9 8 10 4 1 2 1 2 3 4 5 6 7 8 9 10 Marie Viljoen Dr Con Fauconnier Pat Mdoda Richard Wadley Trevor Arran Charles Meintjes Ras Myburgh Neels Howatt Dirk van Staden Mike Kilbride 43 DIRECTORATE MLD (Dawn) Marole (43) Non-Executive Chairman BCom, DTE, MBA North Eastern University Boston, USA Dr CJ (Con) Fauconnier (55)* Chief Executive Pr Eng (Int), BSc (Eng)(Mining), BSc (Hons)(Eng), MSc (Eng), DEng (Pretoria), MBA (Oregon), Strategic Leadership Programme (Oxford), Senior Executive Finance Programme (Oxford) TL (Tom) de Beer (68) BCom, CA(SA), Executive Programme in Business (Columbia USA) AJ (Allen) Morgan (56) BScB Eng (Electrical), Pr Eng SA (Sipho) Nkosi (49) BCom, BCom (Hons)(Econ), MBA, Diploma in Marketing Management CML (Cedric) Savage (64) BSc Eng, Pr Eng, MBA, ISMP (Harvard) CF (Charles) Meintjes (40)* Corporate Services BCom Acc, BCompt (Hons), CA(SA); Advanced Management Programme (Wharton) * Executive 44 JJ (Jurie) Geldenhuys (59) BSc Electrical Engineering, BSc (Eng)(Mining), MBA (Stanford) GS (Gert) Gouws (44) BCom, BCom (Hons), CA(SA), FCMA, Advanced Management Programme (Insead) MJ (Mike) Kilbride (51)* Business Operations BSc (Hons) (Min Eng)(RSM); Senior Executive Programme (London Business School) Dr D (Len) Konar (49) BCom, CA(SA), MAS, DCom Prof NS (Nick) Segal (63) BSc (Eng), PhD (Phys Chem)(Rand), DPhil (Economics)(Oxon) F (Fani) Titi (41) BSc (Hons), MA University of California, MBA DJ (Dirk) van Staden (54)* Finance BJuris, LLB, Advanced Management Programme (Insead) RG (Richard) Wadley (56)* Strategy and Business Development BSc (Hons)(Geology), MSc (Min Eng)(Wits), Advanced Management Programme (AMP)(Harvard) 45 CORPORATE GOVERNANCE Kumba is committed to conforming to strategic direction. The board focuses report on compliance with the group’s good corporate governance principles on maintaining a balance between the strategies and with the country’s laws. and is in compliance with all the key interests of stakeholders and the Effective controls, checks and requirements of South Africa’s King II collective good of the group. balances are in operation. Report on corporate governance, and that of the JSE Securities Exchange Accountability: Recognising and Outlined below are the systems and South Africa. balancing the interests of all processes through which Kumba’s stakeholders for the collective good operative governance is managed. The chairman of the King committee of the group. on corporate governance states, and Kumba endorses, that good corporate The board accepts its duty to governance rules, however, do not address matters of significant BOARD POLICIES AND PROCEDURES In a recent assessment of its own necessarily result in good boards. The interest and concern to all efficiency, the board determined that board has long recognised that good stakeholders, taking into account the it is in full and effective control corporate governance is essentially greater demands for transparency and over the group, and that the group’s about leadership. Therefore, corporate accountability. It strives to present compliance record and activities are governance within Kumba, in effect, a balanced and understandable excellent. consists of the cumulative assessment of the group’s position consequences of a multitude of so that all stakeholders with a The existing systems of internal quality decisions over time on all legitimate interest can obtain a full, control are based on established levels on a large variety of issues fair and honest account of the organisational structures, together affecting companies. group’s performance. with written policies and procedures, The key principles underpinning this Supervision: Monitoring and disciplines and the comparison of philosophy have been put into overseeing management performance actual results against these budgets practice through the board charter, to ensure that Kumba’s businesses and forecasts. All company policies, which provides a framework to are managed with integrity and procedures and practices and discharge its principal duties, namely: compare with best international substantive matters are dealt with at practices. board level. including budgeting and forecasting Direction: Formulating the strategic direction for the group’s sustainability Executive action and its supervision The group has a formal practice and in the long term. is achieved by a variety of governance procedure in place to prohibit dealing structures. The functioning of the in its securities by directors, officers In a recent annual self-assessment board is facilitated through the use and other selected employees, during process, the directors evaluated the of various board committees and by closed periods as defined in the board itself to be effective in its proper assessment of risk and the JSE Securities Exchange Listings consideration and acceptance of maintenance of sound internal Requirements. strategic plans and direction. To controls. Appropriate committees, determine that the group’s strategy is internal and external auditors In as much as a code consists of a well formulated and executed, non- implement safeguards to ensure that set of rules, policies and principles, executive directors contribute to the internal systems and controls are well the group has, although not codified, annual process of establishing designed and which monitor and various policies and procedures to 46 address conflicts of interests. specific powers and authorities to The non-executive directors are These cover areas such as share itself. Consequently the board takes sufficiently credible, skilled and interests and directorships of all key decisions. Kumba directors in companies with experienced and bring appropriate judgement to bear, independent of which Kumba has contractual Further information in respect of management, on the main corporate relationships and outside interests directors appears on page 51. issues. The board has satisfied itself by managers which could possibly lead to conflicts of interests. BOARD COMPOSITION The board has evaluated its composition as complementary, with a strong contingent of independent non-executive directors. They contribute to an independent view to matters under consideration and add to the breadth and depth of experience of the board, exercising significant influence at board meetings. Kumba has non-executive director representation of two to one executive director. There are six independent non-executive directors. Existing practices and procedures require the board to engage in selecting its own members and in planning for its own succession and continuity of experience and knowledge. To ensure efficient staggering of CHAIRMAN AND CHIEF EXECUTIVE From inception, Kumba has main- tained separation of the operational role of the chief executive and the chairman’s role to facilitate the smooth and efficient functioning of the board. To maintain a high standard of performance in the chairman’s role, the performance of the chairman is formally appraised from time to time. The board is in the process of developing appropriate performance criteria that can be measured relative to stakeholder performance objectives. A board policy has been formulated to assist the chairman to formally appraise the performance of the chief executive annually, in consultation with the respective chairmen of the safety, health and environment, that the group’s procedures and practices in regard to succession planning ensure that the best potential managers are identified, developed and suitably fast-tracked. Directors have in terms of company policy, free access to the company secretary, and to independent professional advisers, whether in legal, technical or accounting areas, at the group’s expense. All directors have unrestricted access to all company information and records, as well as to management officials. The company secretary provides a central source of guidance and advice to the board, and within the group, on matters of ethics and good governance. Practices and procedures have been established in liaison with the company secretary to familiarise directors with the group’s operations, senior manage- director rotation, the group has a human resources and remuneration, ment, and the business environment programme in place, giving effect to and audit committees. the arrangement that directors are subject to retirement and may be nominated for re-election every BOARD OF DIRECTORS Corporate governance, as formulated and to induct them in their fiduciary duties and responsibilities. To improve the process, directors visit operational centres to better familiarise themselves three years. in the King Report, requires a board to with business operations. assist in ensuring there is an In its self-assessment, the board has appropriate balance of power and A company policy on attendance satisfied itself regarding the defining authority on the board. The directors by Kumba directors and board of appropriate levels of materiality have judged the balance of power and committee chairmen at shareholder and reservation of detailed and authority on the board to be very good. meetings has been formulated. 47 Corporate governance continued The board recently evaluated the committee. All Kumba board Its primary responsibility is to assist relationship between non-executive committees have received detailed the board in discharging its duty directors and the group’s chief formal mandates from the board, with executive and executive management their duties and responsibilities fully as excellent. aligned with those of the board. BOARD MEETINGS The full board meets formally at The audit committee consists entirely of non-executive directors least five times per year and, if and the other committees consist necessary, more frequently. of a majority of non-executive During the 2002/3 financial year, directors. Experienced, knowledgeable the board met eight times. non-executive directors chair all Kumba board committees. Apart from the ongoing process of the board considering information Arrangements are in place to supplied at each meeting, the board ensure that board committees are in its annual self-assessment process free to take independent, professional, specifically addresses the provision external advice as and when of information. The board has necessary. The purpose of this is judged and satisfied itself that the to ensure that board committee operational and financial information members are, at all times, comfortable it receives regularly is outstanding. with the pool of specialised knowledge As for ad hoc and other information available and accessible to them. needs, the board fully considers its needs and decides on the additional Board committees are subject to information it requires, if any. regular evaluation by the board. The board specifically addresses the The board, through the process of matter of efficiency of the committees annual self-assessment and reviews, as part of the annual board self- identifies issues needing attention assessment process. The minutes of and requiring improvement as regards each of the board committee compliance with its duties and meetings are submitted to the responsibilities and its ability to add board for information and discussion value to company business. if necessary. These minutes reflect the proceedings at these meetings BOARD COMMITTEES Kumba has established four standing and the decisions taken by the committees. board committees, namely the chairman committee, audit committee, human resources and AUDIT COMMITTEE This committee comprises three remuneration committee and the independent non-executive directors, safety, health and environment with one director acting as chairman. relating to the group’s: • Accounting policies • Financial reporting practices • Internal control and safeguarding of assets • Identification and evaluation of significant risks. The committee met four times during the year for these purposes. The chief executive, directors of finance, operations and corporate services, the manager of the outsourced audit and advisory services and the external auditors attend meetings by invitation. They have unrestricted access to the chairman and members of the committee. The committee is satisfied that the external auditors have remained independent throughout the year in completion of their duties. HUMAN RESOURCES AND REMUNERATION COMMITTEE This committee consists of four non- executive directors and the chief executive and is chaired by a non- executive director. Four meetings are scheduled annually, with ad hoc meetings convened when required. The executive director finance and general manager human resources attend meetings by invitation. The committee has a clearly-defined mandate from the board directed at: • Ensuring the group’s chairman, directors and senior executives are fairly rewarded for their individual contributions to overall performance. 48 TRANSPARENCY IS ONE OF KUMBA’S KEY PILLARS, DRIVEN BY AN INDEPENDENT BOARD • Ensuring the group’s remuneration The committee is responsible for The committee is subject to regular strategies, packages and schemes ensuring that these policies and review and has not been granted any are related to performance, are programmes are in line with additional or delegated board powers. suitably competitive and give legislation, are effectively due regard to the interests of implemented and that SHE ACCOUNTING AND AUDITING shareholders and the financial performance is regularly measured The board is satisfied that there is an and commercial soundness of and evaluated. efficient independent internal audit the group. function in the group. • Ensuring appropriate human CHAIRMAN COMMITTEE resources strategies, policies and The committee, consisting of the The group has established procedures practices. chairman and the respective and practices to facilitate the • Reviewing executive succession chairmen of the audit, human achievement of objectives in the and the development plans and resources and remuneration and following categories: recommending candidates for SHE committees, was formed in • Effectiveness and efficiency of senior positions to the board. November 2002 to create an operations In discharging its responsibilities, the between these chairmen. The • Compliance with applicable laws, committee consults widely within principal purpose of the committee regulations and standards effective communication forum • Reliability of financial reporting the group and draws extensively on is to enhance the business of the external surveys and independent board by means of: Close cooperation, consultation and advice and information. • Assuming shared leadership to coordination on audits between SAFETY, HEALTH AND ENVIRONMENT (SHE) COMMITTEE aid and assist the directors in external and internal auditors support diagnosing issues for this process. comprehensive evaluation by the board. The board has formulated principles for This committee, chaired by an • Reviewing the role and function of the execution of non-audit functions independent non-executive director, the chairman and that of the chief and services to avoid conflicts of consists of two other non-executive executive. interest by external auditors. directors, the chief executive and the • Bridging the gap between executive director of operations. It is respective committees in the light The board has delegated the responsible for formulating and of the move from single to triple responsibility of making recommending policies, strategies bottom-line reporting concept. recommendations to the board for and programmes in all matters • Providing a central source of the appointment of the external affecting safety, health and guidance and advice to the auditor to the audit committee. environment throughout the group to board on matters of ethics and the board. The general manager SHE good governance. and land management attends all The board has introduced a procedure for recording, in the meetings by invitation. Members of The committee will also make board meeting minutes, the facts the executive committee and general recommendations on any potential and assumptions used in the managers of the business units attend conflict of interest or questionable assessment of the going concern meetings by invitation. situations of a material nature. status of the group at year end. 49 Corporate governance continued FINANCIAL AND OPERATIONAL REPORTING DISCLOSURE Kumba utilises a broad range of • integrity • respect channels to distribute financial • accountability information, such as the Securities Exchange News Service (SENS), the Internet for its interim and annual • fairness • caring following fundamental values: Non-executive directors are not bound by service contracts. Executive directors and Kumba employees The aim of the group’s remuneration policy is to ensure that executive results, presentations to fund managers These values have been developed directors and employees who are not and analysts, paid press reports, the for the benefit of the group and its in the bargaining unit are rewarded in annual report and news releases to employees to guide the moral way of a way that enables the group to newspapers and news agencies. acceptable and responsible behaviour attract and retain employees of the without which business cannot be highest quality – people who are RELATIONS WITH SHAREHOLDERS AND STAKEHOLDERS At Kumba, building long-term and mutually-beneficial relationships with our stakeholders is a business imperative. Kumba’s stakeholder charter forms part of an ethics base that encompasses its code of ethics, the Kumba Way and the code of conduct. The group proactively manages its relations with stakeholders, and maintains the highest standards of integrity and behaviour in all its dealings with stakeholders and society at large. Kumba maintains a position of impartiality and in principle does not support party-political causes. ORGANISATIONAL INTEGRITY AND ETHICS In pursuit of Kumba’s vision to outperform the mining and mineral sector in creating value for all stakeholders through exceptional sustained. motivated to achieve performance superior to competitors, which serves Kumba’s board of directors, employees the best interests of shareholders. and the unions have endorsed the group’s code of ethics. In addition to Kumba’s other compliance and enforcement activities, a fraud prevention policy has been established as a mechanism through which all stakeholders can report suspected fraud or corruption with guaranteed anonymity. REMUNERATION POLICIES Non-executive directors The human resources and remuneration committee considers and submits recommendations to the Kumba board on the fees to be paid to each non-executive director. Any changes to fees are approved by the board and submitted to shareholders at the annual general meeting for Kumba’s performance-driven remuneration policy, governed by the human resources and remuneration committee, is to position the total remuneration of executive directors and employees at or near the median compared to companies with which it is competing for talent. Challenging performance criteria are used, tied to performance and efforts rather than general market fluctuations. A significant part of the remuneration of these employees is linked to company performance. Above-average rewards and career advancement are achieved by employees who accept the challenge of our business objectives and who excel in accomplishing them. Details on remuneration paid to executive approval prior to implementation and directors is published on page 88. payment. The level of fees is, among people and superior processes, the others, determined according to the All employees, including executive conduct of its businesses and its median remuneration paid by directors, are entitled to participate employees is characterised by the comparable companies. in an annual bonus and gain-share 50 RECOGNISING AND BALANCING THE INTERESTS OF ALL STAKEHOLDERS FOR THE COLLECTIVE GOOD OF THE GROUP scheme, based on achieving and become entitled to a severance sustainability. During the financial exceeding performance targets package of one year’s remuneration if year under review, Kumba was ranked set by the human resources and their services are terminated before number two on the ENF Sustainability remuneration committee. Senior 1 July 2004. There are no restraints Assessment and is number 16 on the management and staff specialists of trade associated with the contracts. ENF Sustainability Index in terms of are eligible to participate in the Kumba management share option scheme. SUSTAINABILITY REPORTING Within the group, sustainability market capitalisation. Kumba is committed to the issues are considered a vital business implementation of triple bottom-line All executive directors’ normal service element. Kumba has been selected reporting in terms of the GRI as it contracts are subject to one month’s as a participant of the Edward Nathan accepts that good governance and notice. In terms of a retention & Friedland (ENF) Sustainability social and environment issues are arrangement approved by the human Index for its achievements in, and integral to the group’s profitability resources and remuneration ongoing commitment to, good and creation of long-term committee, executive directors may corporate citizenship and sustainability. BOARD AND BOARD COMMITTEE ATTENDANCE REGISTER Board/special meetings (8#) Attendance Chairman committee (3#) Audit committee (4#) Safety, health and environment committee (3#) Human resources and remuneration committee (5#) Composition Attendance Composition Attendance Composition Attendance Composition Attendance Chairman Member Member Member Member 7 8 7 8 7 7 8 7 7 7 8 7 8 7 7 3 By invitation 3 By invitation 2 3 3 Member – – By invitation Chairman By invitation – – – Member – By invitation – 2 4 4 – – 2 4 4 – – – 4 – 4 – – Member – Chairman – Member – – Member Member – – – – – – 2 – 3 – 2 – – 3 2 – – – Member Member Chairman Member – – – – – – – – Member – By invitation – – 4 4 5 5 – – – – – – – – 2 4 – Board of directors MLD Marole† Dr CJ Fauconnier* TL de Beer† JJ Geldenhuys† GS Gouws MJ Kilbride* Dr D Konar† CF Meintjes* AJ Morgan† SA Nkosi CML Savage Prof NS Segal† F Titi DJ van Staden* RG Wadley* Ms Marole, Messrs Kilbride, Meintjes, Van Staden and Wadley’s attendance was not required at one of the eight meetings held as the meeting was specifically scheduled to approve the appointment of Ms Marole as chairman. Messrs Nkosi and Titi were appointed to serve as members on respective committees from 1 May 2003 # Number of meetings per annum † Independent non-executive director * Executive director 51 RISK MANAGEMENT Pure risks are identified and risk zinc price hedging operations are market is accessible. Hedging of the awareness is promoted at all business controlled by dealing only with US dollar zinc price and units and at the corporate centre. financial institutions of high credit corresponding exchange rate exposure The group insures against losses standing. The credit exposure to during the year resulted in an average arising from catastrophic events any one counter-party is managed price of R7 475/tonne being realised which include fire, flood, explosion, by setting transaction limits. compared with an average market earthquake and machinery price of R6 949/tonne. Prices for breakdown, and business interruption Exchange rate exposure on loans and other commodities are established on from these events. capital expenditure is fully covered. commercial terms with customers and Hedging of expected net foreign suppliers, other than the 6,25Mtpa Kumba accepts internal insurance currency receipts from exports less of iron ore supplied by Sishen mine deductibles that vary in line with the trading imports is undertaken on a at its cost of production, to the steel nature of the risk, and insures a limited shorter-term forward basis. mills of Iscor. The Thabazimbi iron further layer with captive insurance Variations to this policy are subject to ore and Tshikondeni coking coal companies through whom the group board approval. thereafter purchases cover from local mines are contracted to sell their full production to Iscor. The total costs of and international third-party At year-end Kumba had a currency running the captive mines and capital insurance companies. An aggregate forward sales book of US$8 million at expenditure incurred, are recovered limit also exists. an average rate of R7,71 to a US dollar from Iscor. A management fee of 3% spread out until November 2003. is added to these costs. The group renews its insurance annually on 1 July. Placement of Interest rate risks are addressed by Technology risks are addressed as cover has become more difficult with maintaining a mix of fixed and follows: significantly higher premiums due floating rate loan facilities, with 71% • Annual audits are conducted to to a substantial hardening of the of term loans financed on a fixed review the security of SAP R3 as insurance market, particularly in basis at year-end. The group actively our main business system and relation to mining assets. manages the ratio of fixed to floating standard operating procedures rates in the light of interest rate exist. Credit risk in relation to: expectations and the risk profile of • Disaster recovery programmes are • trading activities are low due to a projects. high proportion of term supply in place for this and all other major systems. arrangements with long-standing Liquidity risk is managed by • Process technology risk, in general, clients, mitigated further where maintaining a high proportion of net is low. dictated by customer debt in longer-term facilities and • Internally developed technology is creditworthiness or country risk substantial standby bank facilities as protected by patents, where assessment, through a combination more fully reported on in the appropriate. of confirmed letters of credit and discussion of our financial structure credit risk insurance. Kumba’s bad in financial review. debt write-offs are negligible. Safety, health and environmental risks are assessed and control measures • counter-party exposures arising Price hedging is undertaken on a implemented on an ongoing basis from money market investments, limited scale in respect of zinc metal as more fully described on foreign currency, interest rate and for which an international hedging pages 59 to 64. 52 ENABLING ENHANCED DECISION-MAKING THROUGH GREATER INSIGHT INTO RISKS AND THEIR IMPACT HIGH-LEVEL BUSINESS RISKS Risk Impact Probability of occurence Control measures • Impact of continued rand High High strength combined with soft commodity prices • Erosion of margins as a result of increased cost trends • Interests of key shareholders may affect optimum value release for the group High High • Financing of growth High Medium opportunities • Sustained focus on continuous improvement • Specific cost reduction initiatives of 2% per annum in real terms to protect margins • Pursue maximum value release initiatives and focus on operational excellence in the best interests of the group and all its stakeholders • Capital allocation linked to project prioritisation • Strategic equity partners for major projects • Capital raising • Compliance with mining High Medium • Anchor empowerment agreement with the charter/scorecard Tiso Kgalagadi consortium • Agreement with Eyesizwe Coal on development of Kalbasfontein • Empowerment framework developed to facilitate equity/asset based ownership transactions • Programme for compliance with mining legislation • Achieving the ramp-up schedule of the heavy minerals smelter phase of Ticor SA High Medium • Best available resources committed and technology applied to the smelter phase • Ramp-up of first furnace and targeted commissioning of second furnace on schedule • Plant breakdown or bottlenecks Medium Medium • Continuous constructive engagement between in the logistics chain affecting the group’s iron ore exports which account for 73% of net operating income Kumba and Transnet on operational efficiency and infrastructure expansion • New port equipment currently being installed with Kumba Technology participation • Record export shipments for the past two years achieved • Prevalence of HIV/AIDS Medium Medium • Corporate AIDS strategy in place, including awareness campaign, knowledge/attitude/practices studies, know-your-status campaigns • Two pilot sites have been identified for administering anti-retroviral treatment (ART) of infected employees 53 SHAREHOLDERS’ INFORMATION MARKET LISTINGS AND SHARE PRICES Kumba Resources Limited improve the international perception of the South African market by DIVIDEND DETERMINATION Dividends are determined in South reducing settlement and operational African rand (ZAR) and are then The principal market for Kumba is the risk in the market, increasing declared payable in the same JSE Securities Exchange South Africa efficiency and ultimately reducing currency by the group. ADR (JSE). As a constituent of the All costs. Accordingly, by heightening shareholders are paid in US dollar Share Top 40 index (ALSI 40 index), investor appeal, STRATE enables by the group’s ADR BoNY. BoNY Kumba shares trade through the South Africa to compete effectively effects the conversion of ZAR- STRATE system. with other international markets, and determined dividend in US dollar not just those of emerging countries. on behalf of its US ADR STRATE is the authorised Central For additional information please shareholders. Contact Computershare Securities Depositary (CSD) for refer to the STRATE website: (ZAR dividend) or BoNY (ADR equities in South Africa that www.strate.co.za dividend) for further details. incorporates an electronic settlement system. STRATE achieves secure, Closing JSE share prices are electronic settlement of share published in most national and transactions on the JSE and for off- regional South African newspapers SUPPLEMENTARY INFORMATION General shareholder enquiries market trades. Shares in companies and are available during the day on Computershare (Pty) Limited listed on the JSE can no longer be the Kumba and other websites. Share (Computershare) are the registrars bought or sold unless they have been prices are also available on I-Net for Kumba. All enquiries and dematerialised onto the STRATE Bridge, Reuters and Bloomberg. correspondence concerning system. This process involves shareholdings (other than shares held submitting paper share certificates to Kumba has an Over-the-Counter in ADR form) should be directed to a custodian bank or JSE member firm (OTC) American Depositary the registrar. Computershare’s contact (‘broker’) for conversion into an Receipt (ADR) facility with details are listed in Kumba electronic record, an exercise referred The Bank of New York (BoNY) administration on page 148. to as ‘dematerialisation’. under a deposit agreement. Shareholders must notify The introduction of the JSE Equity ADR holders Trading (JET) system a few years ago ADR holders may instruct BoNY as to Computershare promptly in writing of any change of address. highlighted the deficiencies in the how the shares represented by their All enquiries concerning shares held JSE’s paper-based settlement system. ADRs should be voted. Registered in ADR form should be directed to Shares were no longer traded on a holders of ADRs will have the annual BoNY, whose contact details are also trading floor, and this contributed to a and interim reports mailed to them given in Kumba administration on massive leap in the number of trades at their record address. Brokers page 148 or alternatively visit their each day. Back-office support services or financial institutions, which hold website at: www.adrbny.com were incapable of handling this ADRs for shareholder clients, are increase in daily transactions responsible for forwarding Shareholders can obtain details about efficiently in a paper-based shareholder information to their their own shareholding on the environment. The transition to an clients and will be provided with Internet. Full details, including how efficient settlement system has copies of the annual and interim to gain secure access to this increased market activity and will reports for this purpose. personalised enquiry facility, are 54 provided for on the Computershare Publication of financial statements 30 June 2003, the two entities website: www.computershare.com Shareholders wishing to receive the known to Kumba as owning more annual report and/or the interim than 10% of its shares were Anglo Consolidation of share certificates announcement in electronic rather American Plc (Anglo) and Industrial If your certificated shareholding in than paper form should register their Development Corporation with Kumba is represented by several instruction on the Kumba website at: 89 369 924 and 41 498 165 individual share certificates, you may www.kumbaresources.com shares, representing 30,1% and wish to have these replaced by one consolidated certificate; there is no Major shareholders 14,0% respectively. As of 30 June 2003, the total amount of the voting charge for this service. You should As far as is known, Kumba was securities owned by the directors of send your share certificates to not directly or indirectly controlled Kumba was 192 220 ordinary Computershare together with a letter by another corporation or by shares representing about 0,06% of instruction. any institution at year-end. As at of the number of shares in issue. SHARE PRICE ANALYSIS (SA CENTS PER SHARE) Year ended 30 June 2003 2002 2003 First quarter Second quarter Third quarter Fourth quarter 2002 First quarter Second quarter Third quarter Fourth quarter High 4 905 5 837 4 905 3 913 3 466 3 399 na 3 535 5 837 5 587 Low Median 2 413 2 770 3 341 2 983 2 508 2 413 na 2 770 3 183 3 974 3 379 4 331 4 007 3 498 3 098 2 875 na 3 110 4 292 4 822 55 SHAREHOLDERS’ ANALYSIS ANALYSIS OF SHARE REGISTER AS AT 30 JUNE 2003 Number of shareholders 1 – 100 101 – 1 000 1 001 – 50 000 50 001 – 100 000 100 001 – 1 000 000 Above 1 000 000 Total Public and non-public shareholders as at 30 June 2003 Industrial Development Corporation of South Africa Limited Anglo American Plc – Deutsche Bank option Anglo American Plc Tiso Kgalagadi Consortium Kumba Management Share Trust Directors Non-public shareholders Public shareholders/Free float South African private and fund managers Foreign fund managers Number of holders Number of shares 3 973 26 719 1 962 90 131 33 196 463 5 527 715 12 747 656 6 618 496 38 653 982 233 218 489 32 908 296 962 801 Number of shareholders Holding 1 1 1 1 1 5 41 498 165 29 731 628 59 638 296 14 141 085 3 336 126 192 220 10 32 898 148 537 520 148 425 281 105 207 711 43 217 570 % 0,1 1,9 4,3 2,2 13,0 78,5 100 % 13,97 10,02 20,08 4,76 1,13 0,06 50,02 49,98 35,43 14,55 Total 32 908 296 962 801 100,00 10 LARGEST SHAREHOLDERS AS AT 30 JUNE 2003 Shareholder Anglo American Plc* Industrial Development Corporation Old Mutual Public Investment Commissioner Tiso Kgalagadi Consortium Brown Brothers Harriman & Co JPMorgan Chase Bank StanLib State Street Bank & Trust Rand Merchant Bank Total Number of fully % of issued capital paid shares 89 369 924 41 498 165 18 082 060 17 359 232 14 141 085 8 631 293 8 442 990 7 485 772 6 136 073 4 164 914 215 311 508 30,1 14,0 6,1 5,8 4,8 2,9 2,8 2,5 2,1 1,4 72,5 * To our knowledge the shares are held by Anglo directly and through Stimela Mining Limited and under Deutsche Bank option. 56 CREATING BALANCE IN OUR ENVIRONMENT As we extract value from our operations, we constantly rehabilitate the earth. Just as these pebbles are in perfect balance, we create harmony today for a sustainable planet tomorrow. 57 ECONOMIC SUMMARY In terms of GRI guidelines, the direct economic impact of certain economic performance indicators are disclosed below. Direct economic impact Indicator Details Customers Suppliers Employees Net sales • rand value of revenue • tonnage Geographic breakdown of markets • Iron ore • Coal • Base metals • Heavy minerals • Industrial minerals • Group Cost of all goods, materials and services purchased Percentage of contracts paid in accordance with agreed terms Supplier breakdown per organisation and country – suppliers from whom purchases represent 10% or more of the total purchases in the period Payroll and benefits broken down by region (R million) Page 92 Business operations review on pages 25 – 35 Business operations review on page 26 Predominantly South Africa Predominantly South Africa Predominantly outside South Africa Predominantly South Africa Segmental report on pages 131 – 132 Note 2 on pages 103 – 104 – Supplier base of ±4 000 – Kumba aims to timeously effect >90% of payments to suppliers in accordance with contracts. >95% of payments meet this target Approximately 50% of the cost of all goods, materials and services purchased are procured from Kumba’s 20 main suppliers Spoornet, a division of Transnet, is being paid in excess of 10% of the total Africa Australia Europe China Total 1 290 127 43 502 4 548 1 823 1 340 000 Providers of capital Distributions (interest and capital) to providers of capital Increase/decrease in retained earnings Annexure 1 on page 139 Refer to group statement of changes in equity on page 95 Public sector Tax paid per type and per country Note 6 on page 106 Subsidies received per country or region Zero Donations in cash to communities, societies, etc Pages 70 – 71 58 SAFETY, HEALTH AND ENVIRONMENT SUMMARY SAFETY, HEALTH AND ENVIRONMENTAL MANAGEMENT (SHE) Kumba is active in mining and SAFETY AND HEALTH Kumba aspires to a zero injury rate 57 were noise-induced hearing loss, seven were cases of tuberculosis at all its activities and the four fatal and 26 were due to occupational- accidents reported for the year are related lung diseases. Eight mineral-related operations and, by unacceptable. The following safety occupational diseases reported were complying with all applicable SHE targets have been set for the company accepted as compensatable diseases legislation and relevant international for the 2004 financial year: by the Compensation Commissioner. obligations, is committed to consult • zero fatalities with stakeholders, achieve high • a 30% improvement on the lost The group makes every effort to keep standards of environmental performance, implement day injury frequency rate (LDIFR) disabled employees in service even if • a 30% improvement in the severity they are accommodated in alternative internationally-accepted standards rate of injuries for occupational health, safety positions. Currently, the company employs 41 people with disabilities. and environmental management and Incidents and statistics are reported continuously improve operations to the relevant authorities in Legal assessment forms part of the regarding safety, health and accordance with the prescribed ISO/OHSAS certification process and environmental performance and standards. The indicators used are all business units established a legal SHE management systems. aligned with the industry initiative for register. No legal action for non- uniform parameters. compliance occurred over the last The safety and health of our financial year. employees and the responsible Although the LDIFR of 3,07 for 2003 management of the natural is a slight improvement from the The SHE management process is resources form an integral part previous year and compares well based on sound risk management of our commitment to sustainable with the best in the South African principles. Processes and working development. mining industry, it falls short of the areas are broken down into units, target of 2,5 that was set for the where baseline risk assessments are Overall responsibility for SHE financial year. monitoring and performance rests with followed by issue-based risk assessments. All operational teams are the Kumba board, exercised through In health management, the focus trained in applying risk assessment on the SHE committee and consulting is on hygiene monitoring and new projects and tasks. forums at corporate level and at each appropriate measures to reduce business unit. SHE policies and exposure levels, together with risk- Control measures to reduce risk are management standards are revised driven medical surveillance to reduce implemented according to the bi-annually with inputs from all reportable health cases. relevant stakeholders. following sequence: • Engineering design The effect HIV/AIDS might have on • Engineering control and safety During the latter part of the year, the the incidence of occupational responsibility for leadership and diseases is still unknown. direction of quality management processes was added to the safety, Of the 90 cases of occupational devices • Warning devices • Administrative control (eg procedures, training and health and environmental management of Kumba. diseases reported for the year inspections) (comparably a mid to low aggregate), • Personal protective equipment. 59 Safety, health and environment summary continued Business unit Sishen Thabazimbi Grootegeluk Leeuwpan Tshikondeni Zincor Rosh Pinah Glen Douglas Ferrosilicon ISO 14001 Obtained OHSAS 18001 Systems are being established for Obtained data collection and reporting so that June 2004 March 2004 December 2003 December 2003 the company can measure and analyse environmental data and consumption of resources for every December 2004 December 2004 business unit and activity, in line with December 2004 December 2004 internationally accepted norms. Obtained December 2004 June 2004 December 2003 The objective is to establish application, consumption and June 2004 June 2004 generate baselines throughout the The target to have all operating business units’ safety and health management systems certified to the ISO 14001 and OHSAS 18001 standards was developed further with each unit’s own schedule and plan. The final target date is 30 December 2004. Sishen was the first business unit to achieve OHSAS 18001 certification. December 2004 December 2004 group during the 2004 financial year. The business units will further establish verifiable data and statistics in the coming year. This will lead to The major risk areas for safety and the focus on safety, health and the development of further health are: environment disciplines. • Noise levels, which are reduced through engineering measures. Hearing protection is supplied ENVIRONMENT Kumba’s environmental management where needed, supported by policy demonstrates its commitment environmental performance indicators that allow environmental performance to be compared year on year, and with best practice standards. continuous medical surveillance. to actively caring for the environment The focus will be expanded to • Reducing dust levels at all and its resources at all our activities, include management of air quality operations. Dust monitoring acknowledging all stakeholders’ rights and greenhouse gases. programmes are in place at all to a safe and healthy natural operations and medical environment, for themselves and The table opposite reflects indicators surveillance is done accordingly. future generations. The group is of electricity, diesel oil and water • The risk of fall of ground exists committed to promoting good at the two underground mines, relationships and enhancing consumption for the year. Comparable information for Tshikondeni and Rosh Pinah. capacities of the local communities previous years is not available. Well-established codes of where it operates. practice are used together with comprehensive training. This year, the focus was on putting • At Zincor, risks associated with systems into operation to enable chemicals and fires are managed consolidation of environmental data through codes of practice and and statistics on: special training. • Land use • Energy use The effective application of the • Water consumption Kumba incident investigation • Waste generation protocol, developed internally with • Environmental incidents the necessary training, will augment 60 ACTIVELY CARING FOR THE ENVIRONMENT AND OUR RESOURCES AT ALL OUR ACTIVITIES, ACKNOWLEDGING STAKEHOLDERS’ RIGHTS TO A SAFE AND HEALTHY NATURAL ENVIRONMENT ELECTRICITY, DIESEL OIL AND WATER CONSUMPTION Environmental indicator 2003 Actual (1 July 2002 – 30 June 2003) Business unit Iron ore Sishen Thabazimbi Coal Grootegeluk Tshikondeni Leeuwpan Base metals Zincor Rosh Pinah Heavy minerals Ticor SA Industrial minerals Glen Douglas Electricity Gj/t product Diesel oil kl/t product Water used m3/t product 38 632 56 226 49 010 322 332 42 562 2 186 3 063 940 4 162 3 805 159 628 671 787 203 437 2 434 058 436 813 16 560 000 1 337 115 12 572 14 665 13 845 621 10 173 080 622 896 218 22 317 073 Product kt 26 169 2 389 16 178 377 1 456 115* 113 164 30 524 1 518 1 124 390 1 327 * Zinc production only (excluding acid production of 187 000t) Business unit Iron ore Sishen Thabazimbi Coal Grootegeluk Tshikondeni Leeuwpan Hlobane Base metals Zincor Rosh Pinah Heavy minerals Ticor SA Industrial minerals Glen Douglas Land controlled1 ha Land authorised2 ha 33 145 10 730 26 274 9 874 18 294 22 027 2 646 5 359 6 525 22 027 2 646 5 359 200 1 221 200 1 221 Land Land disturbed rehabilitated ha ha 4 171 n/a 684 4 616 99 4 950 200 283 0 n/a 0 20 19 4 200 0 0 0 General Hazardous waste t waste t Total tons mined kt 160 n/a n/a 6 52 4 55 n/a n/a 10 1 0 97 927 35 819 52 525 750 12 359 N/A 2,210 n/a 118 30 235 1 083 224 12 7 426 1 352 1 352 344 472 400 350 25 216 0 2 827 1. Land controlled: Area of land under the control of the company/entity. 2. Land authorised: Area of land that is under a mining authorisation (mines) or permit (heavy industry). 61 Safety, health and environment summary continued ENVIRONMENTAL RISKS Formal environmental risk Zincor obtained ISO 14001 to transfer properties and rights to certification during the year under the local community. assessments were performed at all review. Together with Sishen, two business units. The highest environ- of the nine business units of the All mining operations have updated the mental risks for the open-cast mines company now have ISO 14001 certi- estimated final closure liabilities as well are dust generation, air pollution, mine waste dump rehabilitation and groundwater pollution. At the Sishen mine, the effect of dewatering at the mine on the groundwater tables of adjacent farms poses a risk of water shortages. Noise and vibration levels at the Glen Douglas mine and the Leeuwpan mine, although within acceptable levels, may have residential complaints as a consequence. Both underground mining operations, Tshikondeni and Rosh Pinah, indicate a risk in the disposal of process water. Rosh Pinah has identified, as a potential risk, lead pollution along the transport route of the lead concentrate. At Zincor, the highest potential risks are groundwater pollution, air pollution and surface water management. fication. All other units are scheduled as immediate closure liabilities (if for certification by December 2004. applicable) during the year. Provision REHABILITATION Major mine closure rehabilitation for the cost of closure and post-closure liabilities for all mines is managed through an independent rehabilitation activities are being performed at the trust fund with an investment balance Hlobane and Durnacol collieries in of R143 million at year end. In addi- KwaZulu-Natal. tion, the group had raised provisions totalling R362 million at year end. The freshwater dam wall and spillway at Hlobane was redesigned and upgraded to ensure dam safety and to protect the dam for the community. ENVIRONMENTAL PERFORMANCE Close attention is being directed Surface fractures are being sealed to towards the development and prevent clean water from entering implementation of proper environ- old underground mine workings. mental management systems at all This forms part of an integrated business units which will conform with water management plan that is being internationally-accepted standards. implemented to manage decanting mine water. Silviculture practices Iron ore have been improved to enhance The land area controlled by Sishen the rehabilitation of land disturbed is 33 200ha, of which 4 200ha are by mining. disturbed by mining activities. As a result of quality control for the At Durnacol, final closure specifications of final products, many rehabilitation is progressing. ore faces are required to be exposed All risks are being managed as high priority through proper environmental management actions and follow-up Demolition of the mining and therefore negligible final infrastructure commenced during rehabilitation can be undertaken at the year. Extensive reshaping of a this stage of the mining programme. risk assessments will be performed. coal discard dump is under way. ENVIRONMENTAL MANAGEMENT SYSTEMS Kumba has chosen the ISO 14001 Slimes dams are being transferred to Several environmental management the dump and cleaned up to reduce projects are being implemented at the footprint. Maintenance of Sishen to comply with the environ- buildings and infrastructure required mental management programme report. internationally accepted standard in the end-use plan is being for the group’s environmental management systems. maintained while community The Sishen South project is in structures have been put in place the feasibility phase at present. During 62 ENVIRONMENTAL MANAGEMENT SYSTEMS WHICH CONFORM TO INTERNATIONALLY ACCEPTED STANDARDS the pre-feasibility study, ecologically- There have been no significant envi- risks and liabilities and to assess the sensitive areas were identified. The ronmental incidents at any of the coal capacity and capabilities to manage pans in the areas are part of the operations. No fines have been those risks properly. Western Ghaap Panveld ecosystem imposed by any environmental – a general habitat that occurred over regulatory authority. a very limited area and, as such, represented a unique setting. Initial Base metals There have been no significant environmental incidents at any of the base metals operations. No fines investigations indicated that less The Zincor refinery annually generates have been imposed for non-compliance than 60% of the original ecosystem 2 210 tonnes of general domestic with any relevant international, remains in relatively good condition. waste and 120 tonnes of hazardous national, regional or local regulations The impact of the project would have waste. Hazardous waste, such as in respect of environmental matters. reduced this to less than 20%. cadmium cake, is being partially stored A twofold study was initiated – the using the permitted method while most Heavy minerals primary objective was the optimisation of it is shipped to customers in east At the heavy minerals mining and of the mine plan to preserve as many Asia observing the Basel Convention smelting company, Ticor SA, operating pans as possible, and a secondary requirements. phase focused on a more accurate near Empangeni in KwaZulu-Natal, the area under control is 1 352ha, of delineation of the ecosystem. As a Being next to the Blesbokspruit which 344ha are disturbed by mining result, the revised mine plan would (a Ramsar site), Zincor is managing or industrial activities. leave more than 40% of the original and contributing to extensive bio- ecosystem intact. Additional work monitoring on the borders of the plant Kumba aims to establish an industry is under way to identify areas for area to manage potential impacts benchmark in the heavy minerals dedicated future conservation of the immediately. Western Ghaap Panveld. industry, and a set of performance indicators has been developed to Zincor continuously monitors sulphur measure and drive progress in the There have been no significant dioxide concentrations in stack critical area of environmental environmental incidents at any of the emissions, with the purpose of making management, including rehabilitation. iron ore operations. No fines have data available to the general public been imposed by any environmental through an environmental room. Apart from upgrading the environ- regulatory authority. Complaints from the public are mental management organisational handled through this facility. structure, the environmental Coal programmes have been reviewed At all three mines, regular contact At Rosh Pinah, studies are being during the year, namely air quality with interested and affected parties conducted to determine whether the management, water quality takes place, with particular focus at transportation of lead concentrate management, environmental Tshikondeni, which is partially inside could cause pollution. awareness training, internal auditing a protected area. and environmental incident reporting. Prior to the investment, detailed At the Hlobane colliery, on closure, environmental management evaluations One environmental incident (overflow 4 200ha of the 5 359ha have been and legislation studies were conducted of storm water) that was required to be rehabilitated while final closure at the zinc refinery company in Hongye, reported to the relevant regulator has activities continue. China, to identify major environmental been classified as a significant 63 Safety, health and environment summary continued environmental incident. As a consequence of a heavy downpour during a thunderstorm in July 2002, the water in the stormwater dam at Hillendale mine overflowed into the neighbouring residential area. This resulted in claims for compensation for damage caused. The necessary steps and actions have been taken to prevent further incidents. Industrial minerals The land area controlled by the Glen Douglas dolomite mine is 472ha of which 350ha are disturbed by mining activities – 25ha have been rehabilitated. Complaints relating to dust and noise impacts were resolved through the well-established and developed interested-and-affected-party forum that meets regularly. There have been no significant environmental incidents at any of the industrial minerals operations. No fines have been imposed by any environmental regulatory authority. 64 DETERMINED TO UPLIFT OUR PEOPLE We will create a sustainable future by ensuring the development of Kumba’s people and the communities which are affected by our operations. 65 SOCIAL SUMMARY offices and representatives from all However, Kumba has developed a EMPLOYMENT Currently, Kumba employs 9 674 permanent employees which business units. excludes the employees of Ticor Measurement Limited, Australia. Various contractors A knowledge, attitude and practice and suppliers support the company’s (KAP) survey was conducted at all operations, creating an additional business units during 2002. Actuaries 4 000 jobs. Kumba will report on net and consultants also conducted a job creation per region in the 2004 financial impact analysis in the annual report. second half of 2002. comprehensive HIV/AIDS strategy, regarded as one of the best in the country in terms of proactive approach. In an evaluation done by a global investment bank, UBS, this year on risk exposure of South African companies to HIV/AIDS, Kumba was rated second overall in terms of strategy. GRAPH A Graph C indicates Kumba’s prevalence in terms of the mining industry. GRAPH B HUMAN RIGHTS Kumba is a responsible employer that complies with all labour legislation in South Africa, eg the constitution, Labour Relations Act, Employment Equity Act, Skills Development Bill and Basic Conditions of Employment Act. Accordingly, Kumba ensures that: • Child labour is not tolerated • Forced and compulsory labour are not practised • Employees are educated about 30 000 20 000 10 000 0 -10 000 -20 000 -30 000 ’02 ’04 ’06 ’08 ’10 ’12 ’14 ’16 ’18 ’20 ANNUAL TOTAL SAVINGS AFTER INTERVENTIONS (Rm) human rights in accordance with One of the outcomes of the impact the noted legislation analysis was the savings that could be • Security personnel are educated in realised with a prevention and and respect human rights. This is treatment programme. reinforced through agreements with security companies Graph A indicates the amounts that • The guidelines of the International could be saved by Kumba over an Labour Organisation are complied with. 18 year period (2003 to 2020). The cumulative savings will be R373 651 000. HIV/AIDS The Kumba HIV/AIDS policy was Graph B indicates Kumba’s finalised on 18 March 2003 when the estimated HIV prevalence without agreement with recognised unions any intervention. This shows that was signed. The policy was developed by 2020 about 18,2% of our with the involvement of shop stewards workforce will be HIV positive and from all business units, union 4,6% will be HIV sick if no officials from their respective head interventions are made. 66 35 30 25 20 15 10 5 0 35 30 25 20 15 10 5 0 2003 2005 2010 2015 2020 ESTIMATED HIV PREVALENCE (%) HIV positive HIV sick GRAPH C d l o G m u n i t a l P l a o C a b m u K s d n o m a i D ESTIMATED HIV PREVALENCE BY INDUSTRY 2003 (%) S Mi i f Mi l d E 4 J l 2003 WE HAVE DEVELOPED A COMPREHENSIVE HIV/AIDS STRATEGY REGARDED AS ONE OF THE BEST IN THE COUNTRY IN TERMS OF PROACTIVE APPROACH Prevalence studies have been and 33% of general managers are factor to the success and efficiency completed at Sishen, Northern Cape employment equity candidates. of the group. (11,0%) and Glen Douglas, Gauteng Concerted efforts are being made (14,6%). The prevalence rates as to increase the number of equity Kumba follows an approach of modelled by NMG-Levy are estimated candidates, with special emphasis constructive engagement of all at 11% for Kumba. This prevalence on middle management levels. stakeholders in matters pertaining rate means that Kumba is underexposed relative to the mining industry as a whole. HIV/AIDS management Programmes are in place or planned at all business units and the corporate office, which include voluntary counselling and testing, peer education, wellness programmes and community-based programmes and treatment of sexually-transmitted diseases. Anti-retroviral pilot programmes are being implemented 45 40 35 30 25 20 15 10 5 0 GRAPH D 2003 2005 2008 EMPLOYMENT EQUITY PROGRESS: MANAGEMENT CATEGORIES (%) HDSA A – G Roles Women to the employment relationship. This approach focuses and supports the group’s strategic objectives by creating a working environment where the employment relationship will assist to bring about a more competitive company. Effective participation structures exist at corporate and business unit level, where interaction with organised labour on matters regarding the employment relationship takes place regularly. at two business units in October Labour relations A total of 88,35% of employees in 2003. If successful, the programme Kumba accepts that sound labour the bargaining unit at Kumba are will be extended to more operations. relations is a major contributory unionised. The main trade union role EMPLOYMENT EQUITY Kumba has embarked on a process for the development and promotion of historically disadvantaged South Africans (HDSAs), women and people with disabilities. At the end of June 2003, 65% of the total workforce was black, coloured or Asian. To realise its employment equity goals, detailed employment equity plans have been compiled for every business unit. Employment equity (Graph D) progress is being actively managed in the management categories where currently 27% of the Kumba board 67 Social summary continued players are the National Union of Housing statistics This equates to 5,7% of total payroll, Mineworkers with 63,19%, Solidarity Number of well ahead of the Mining Qualifications with 15,34% and the Building Allied Description employees % Authority’s average of 3,8% for mining and Construction Workers Union with 6,64% membership. Home ownership Kumba The group again experienced no labour unrest or strikes in the year covered by this report. Various policies regarding the employ- ment relationship (eg disciplinary and houses bought 1 256 12,98 Rental Kumba units 1 672 17,28 Hostels Other* Total 2 779 28,73 3 967 41,01 9 674 100,00 grievance procedures, disability and * People who own or rent non-Kumba housing. retrenchment policies) are constantly reviewed, with consultation or nego- The housing programme conforms to tiation with the trade unions to create the requirements of the mining the optimal working environment. charter and will be fully implemented by 2008. Rental houses will be sold companies with over 5 000 employees. More than 63% of the company’s employees benefited from training during the year. Beneficiaries of training Category % trained Plant and machine operator/professional Craft and related trade workers Technician and associated professionals Labourer and related workers 99 97 92 78 WORK ENVIRONMENT Since listing, Kumba has been rated at market value to employees and, The average number of training where feasible, hostels will be interventions to which Kumba’s by credible, independent publications converted into single units. employees were exposed is more than and institutions as being among the top 40 companies in South Africa on elements such as salary and benefits, RECRUITMENT Kumba applies a policy of one training intervention per employee. Again, this index was exceptionally high in the case of the incentive schemes, and education, non-discriminatory recruitment. The plant and machine operator (an training and development. general approach of business units is average 4,5 training interventions per HOUSING Kumba’s approach is to focus on to employ residents from local employee), craft and related trade communities, except where specific workers (average of 3,5 training skills are not available. About 70% interventions per employee), and the home ownership and enabling of employees at business units are technician and associated strategies to make this possible, employed from local communities. professionals (average of 3,4 training driven by a joint housing forum at each business unit. Kumba spent R17 million on HUMAN RESOURCES DEVELOPMENT Kumba is committed to the interventions per employee). Graduates-in-training, bursars programme and bridging school housing for employees during the development of its employees. It has Kumba is committed to ensuring a financial year under review, and maintained its position among industry steady stream of suitably-qualified will spend an additional R10 million employers who invest significantly in professionals in a skills-deficient in the 2004 financial year. The training and developing their people. market. The group continues to fund current status of housing Kumba’s During the past financial year, the bursaries, mainly for engineering and personnel at business units is group invested R62,2 million in geology studies. Kumba invested summarised as follows: training and developing employees. R23 million in the bursary and 68 1,8% OF PRE-TAX PROFITS SPENT ON CORPORATE SOCIAL INVESTMENT graduate-in-training programmes for training outside of public practice committee. Kumba professionals the review period. This investment (TOPP) to employees aspiring to are also playing a prominent role includes the bridging school where attain the associate general in unit standards generation and grade 12 learners are provided the accountant (AGA) or chartered qualification design processes of opportunity to improve their entry accountant (CA) qualification. the MQA. qualifications for universities. Currently, there are 25 full-time learners and 127 bursary holders studying at South African universities. Of these, 60% are black, coloured or Asian. Sixty-five graduates are in training, with 41% being black, m R coloured or Asian. Learnerships Kumba has 412 apprentices (recently converted to learnerships through the Mining Qualifications Authority) in training, all on a 70 60 50 40 30 20 10 0 n o i t a c u d E g n i n i a r t d n a g n i s u o H s e i r a s r u B KUMBA SPEND IN 2002/03 SOCIAL INVESTMENT AND COMMUNITY DEVELOPMENT Responsible corporate governance and the management of the company’s impact on society and its relationships with stakeholders are playing an increasingly important role in the successful achievement of the company’s vision and business goals. Kumba fully acknowledges that it has a crucial role to play in supporting the philosophy of sustainable development and bursary scheme. This represents Thirty-one employees are currently building prosperous societies. The 24% of all apprentices trained in enrolled in the TOPP programme, group has made an unequivocal the mining industry. The technical with 77% from the designated commitment to the concept of training centres at Ellisras and groups. Sishen were accredited as training sustainable development and subscribes to the socio-economic providers by the Mining Qualifications In addition, two HDSA bursars are transformation of the mining industry Authority during the year. currently studying at South African as defined in the Minerals Act and universities towards qualifications as attendant mining charter. Leadership development and chartered accountants. transformation Kumba’s areas of focus are: The attraction, retention and devel- Mining Qualifications Authority (MQA) • Education, training and skills opment of current and future leaders involvement development remain priorities. This is achieved Kumba’s human resources • Healthcare promotion, particularly through a number of initiatives, development professionals are HIV/AIDS programmes including a comprehensive succession contributing significantly to the • Job creation planning process, and enhancing national and sectoral transformation • Small, medium and micro strategic leadership competencies. process through their membership enterprise development and participation in bodies such as • Conservation of environment, School of finance the National Skills Authority, the including awareness programmes The Kumba School of Finance is National Board for Further Education, • Infrastructure development an accredited training organisation Business South Africa’s committee with the South African Institute of for education and training, and the Corporate social investment (CSI) Chartered Accountants and provides MQA’s sector skills planning programmes, managed as an integral 69 Social summary continued part of the group’s business, are providing total wellness at HIV/AIDS- training centre in Sishen, Northern tangible evidence of its commitment infected residences at Lephalale Cape, conducts programmes that to social development and reflect demonstrates the commitment to reflect Kumba’s commitment to skills directly on its values of social working with communities to fight development, education, training investment. Kumba spends no less the adverse effects of AIDS. and job creation. than 1% of its consolidated pre-tax profit, based on a three-year rolling Kumba’s school development In alleviating poverty among its host average, on CSI programmes. In the programme is a focal point in the field communities, Kumba has engaged in year under review, Kumba spent of education, with special emphasis on various private-public partnership R18 million on its investment science, mathematics, engineering and programmes that aim to reduce high programmes which translates to technology. The bursary scheme and unemployment levels and enhance 1,8% of pre-tax profits. Healthcare, bridging school programmes have business skills so that the host education, training and skills provided opportunities for young communities become independent development receive the larger portion people to improve entry requirements and contribute towards creating jobs of the budget allocation. Through CSI in universities and colleges to follow for themselves. As such, programmes initiatives, Kumba continues to their challenging careers. The recent initiated include entrepreneur ensure that its host communities partnership with the Northern Cape promotion, infrastructure development value corporate citizenship by Department of Education in the launch with special focus on labour-intensive partnering them with other relevant of the National Institute for Higher projects. The Ticor SA operation in stakeholders and government in Education illustrates how Kumba KwaZulu-Natal plays an important implementing sustainable community values the contribution of institutions role in the support of women in development programmes. Most of in education and training for science. mining through its involvement and the business units meet the support of the regional structure of requirements of the mining charter The high rate of unemployment the South African Women in Mining relating to the delivery of socio- among the host communities is great Association (SAWIMA). economic development such as cause for concern. In addressing this cooperating in the development of problem, various technical training Caring for the environment and integrated development programmes, and skills development programmes natural resources is an additional representative decision-making have been implemented around all responsibility. Working with local structures and programmes for labour- areas of operations. Through such authorities and following the sending areas. programmes, more than 65 students recognised principles of sustainable have acquired artisan skills at development, Kumba strives to limit In partnership with the communities, Grootegeluk and 49% of them are its impact on the environment while Kumba has built schools, houses and employed at the mine. The Itereleng promoting conservation of natural clinics around areas of its operations; skills development centre at resources and biodiversity. Kumba it takes care of the natural and social Thabazimbi in Limpopo was upgraded does this to ensure that its footprints environment; and cooperates to provide much-needed skills in the are covered with extensive rigorously in the fight against the community such as bricklaying, rehabilitation and conservation scourge of HIV/AIDS and other carpentry, craftwork, knitting and programmes. Through the diseases. The Lephalale section dressmaking. These skills provide commitment to maintain the 21 company established at support to the community’s environment and its ecological Grootegeluk with the sole aim of sustainable livelihood. The Tshipi integrity, it ensures that direct 70 SUPPORTING THE PHILOSOPHY OF SUSTAINABLE DEVELOPMENT AND BUILDING PROSPEROUS COMMUNITIES benefits such as skills development In partnership with the MQA and and mining operations are preparing and the creation of job opportunities other mining houses, Kumba is their own social and labour policies that enhance the environmental participating in two projects, to the which will ensure that Kumba’s knowledge of communities are value of R10 million, in the poverty operations meet the objectives and also established. nodes of Majuba in Newcastle and principles of the plan. Kumba has, Kgalagadi near Sishen, to train and however, subscribed to the principles In supporting conservation and build capacity in projects by former during the closure of the Durnacol maintenance of South Africa’s employees and their dependants. and Hlobane collieries. biological diversity, Kumba has committed itself to an investment of Kumba is a member of the Business R10 million over 10 years for the Trust, a joint programme between creation of Peace Parks. This private sector and government to investment intends to promote stimulate job creation through conservation objectives and to extend targeted programmes and capacity the involvement to large-scale projects building. The trust sought to provide that care for the environment while socio-economic consolidation of the providing sustainable job opportunities political gains ushered in by the for communities. The Peace Parks 1994 dispensation. Foundation facilitates the establishment of transfrontier With these programmes and conservation areas, thereby supporting initiatives, Kumba establishes its sustainable economic development, commitment to the principles of the the conservation of biodiversity and new Minerals Act, which requires that regional peace and stability. all mining companies develop a social and labour plan. All business units A Blesbokspruit Trust for Environment project has been launched at Zincor in partnership with the communities. This has resulted in positive spin-offs in the nature conservation and environmental management initiatives. Education 50% Infrastructure development 15% Health – HIV/AIDS SMME development Environment Job creation Leadership development 10% 10% 9% 5% 1% CSI SPEND YEAR 2002/3 71 Social case studies BRIDGING SCHOOL “Without financial support, your enrol for tertiary education in developed a R22 million social plan engineering and geology. Students to mitigate the impact of closing in dreams could remain dreams.” Those also receive life skills, computer December 2000. were the words of Rasai Ntsoelengoe, skills, language proficiency and a young learner from Gauteng who technical drawing skills. Some 1 800 people faced faced a bleak future in 1994. So did retrenchment on closure, a serious Venon Ngubo. Both young men Since 1995, 219 learners have issue for the community. successfully attended the Kumba notched up 147 A and B symbols in Redeployment to other Kumba Resources bridging school in 1995. mathematics with 101 A and B operations and surrounding labour- Both were offered bursaries to study symbols in science. Of these intensive industries and using the degree of their choice. Both students, 105 received bursaries from retrenched people in the elected metallurgical engineering at Kumba for tertiary study, while 90% environmental rehabilitation Wits University and graduated in of the balance received bursaries from programme secured jobs for some, 2001, completing their experiential other mining companies. To date, but not enough. training at various Kumba operations. 35 bridging school learners have Both face considerably brighter been employed as qualified engineers For 1 200 other retrenched futures today, thanks to their hard or geologists at Kumba, while some employees, a R3 million training work and the stepping stone of the 60% of Kumba’s bursary holders have programme developed an array of bridging school. come through the bridging school. skills, from driving licences to entrepreneurial ventures. Faced with the challenge of finding sufficient learners with the potential DURNACOL When the chief employer in a remote But Kumba had a greater aim than to succeed at tertiary level, Kumba rural area reaches the end of just its skills programme. The project initiated its bridging school in 1995, operations, it can often be the end of initiated in 1995 with broad focusing on historically disadvantaged the surrounding community as well. consultation ensured that Durnacol learners from its operational areas. Not so at Kumba’s Durnacol colliery would be a fully-functional and self- The school enables learners to in northern KwaZulu-Natal. Knowing sustainable township in its own right, improve in their results in in the early 1990s that the mine had built on the existing facilities and mathematics and physical science to just another decade, Durnacol resources of the mining operation, donated by Kumba. In the process, over 400 people are now proud home owners, some assisted by the state RDP fund, with the proceeds of the sales being reinvested in community projects. The proclamation of Durnacol as a town is expected before the end of calendar 2003, a fitting testimony to Kumba’s commitment to sustainability and the communities in which it operates. 72 WAY FORWARD Sustainability accounting and process is under way to secure Systems to supply the required reporting is an integral element of attitudinal changes as well as information are developed on a Kumba’s group-wide strategic plan. systems changes. It is an ongoing process and our priority basis. For safety and health, the upgrade and centralisation of the commitment to develop both its In the year under review, an Site Safe four system will cater for all accounting and reporting will be assessment of the company’s the statistical needs while the Pivot evident in future years. performance in the management of system now implemented will cater corporate citizenship was done with for environmental information needs. Constructive engagement and the assistance of the African Institute feedback from stakeholders will of Corporate Citizenship. This audit Measurements and indices will be assist in ensuring that Kumba examined the practices, formalisation identified on a priority basis and reports can add value to a broad integration across the organisation targets set where appropriate. We range of stakeholders. and the extent to which it is expect it will take another two years embedded into departments and to have all systems in place to comply The Kumba vision is to make structures. This assessment is with all the requirements of GRI. sustainability the business of all followed by a process to update employees. Sustainability risks are strategies in sustainability A process of consultation with identified dealt with via the board throughout management and the focus on stakeholders to determine information the organisation. In this way, an reporting in accordance with the needs and means of communication organisational transformation GRI requirements. will form part of the strategy process. 73 INDEPENDENT REVIEW REPORT E D WA R D N AT H A N & F R I E D L A N D C O R P O R A T E L A W A D V I S E R S & C O N S U L T A N T S INTRODUCTION Edward Nathan & Friedland (Pty) performance indicators that were the subject of review are as follows: Limited (ENF) was engaged by Kumba 1. HIV/AIDS prevalence and policies Resources Limited (Kumba) to review 2. Training and development spend its sustainability reporting in its and programmes annual report. Under the terms of 3. Labour union membership and engagement, the review would focus labour relations on selected social, economic and 4. Payroll and benefits environmental performance indicators 5. Foundation spend that are reported in the Kumba annual 6. Water usage report of 2003. In accordance with 7. Land usage and rehabilitation the terms of engagement, the purpose 8. SHE structures, polices and of this report is to verify the systems responsibilities and processes used to obtain the 9. Governance processes, structures information in the annual report as and policies. well as to assure that the information contained therein is correct. This review is made solely to Kumba. RESPONSIBILITIES OF DIRECTORS OF KUMBA The directors are responsible for the ENF, to the fullest extent permitted preparation of the annual report and by law, does not accept or assume the information and assessments any responsibility or liability to any contained therein. They are also third person in respect of any information, including the responsible for determining the group’s objectives in respect of conclusions, provided in this review. sustainable development/sustainability SCOPE OF REVIEW Kumba instructed ENF to: • Review its annual report • Identify a selection of sustainability performance indicators • Provide a review that includes a verification of the systems and performance as well as for establishing and maintaining appropriate performance management and internal control systems from which the reported information is derived. RESPONSIBILITY OF THE REVIEWER ENF’s responsibility, as reviewer, is processes used for compiling the to report on the selected 2003 information and the correctness of performance indicators and state- the indicators. ments. The manner in which this was done is set out below. Within ENF’s ENF duly selected the indicators for responsibility is the obligation to review, taking account of the key risks report on any disclosures in the report facing Kumba as discussed in its relating to the selected 2003 annual report. The 2003 group performance indicators and 74 associated statements that ENF may knowledge of the industry and the consider to be inconsistent. ENF is group’s operations. also obliged to report the absence of any information and/or explanations The ENF review does not constitute required to conduct the review, as an audit and, accordingly, provides well as any additional information limited assurance on the reliability that may come to light, the omission of the selected 2003 performance of which may result in the selected indicators and associated statements. 2003 performance indicators together with the associated statements being materially misleading. BASIS OF REVIEW There are no generally accepted CONCLUSIONS Having reviewed each of the indicators listed above, as stated in the annual report 2003, the ENF review found that the management standards for the reporting or review of and board structures in place to sustainability performance. The review manage sustainability issues are is therefore based upon the emerging fundamentally sound. The ENF review best practices for such reviews and also found that the systems and includes the use of the Global processes used were suitable and that Reporting Initiative Guidelines for the information used to compile the non-financial performance reporting. reviewed indicators, in the report, was accurate. There was no indication The review process included: that any of the information reported • Obtaining an understanding of the about the selected 2003 performance systems used to generate, aggre- indicators was materially misstated or gate and report the selected 2003 misleading or that any material performance indicators information had been omitted. ENF • Conducting interviews with commends Kumba on its commitment management to obtain an under- to sustainability reporting. standing of the consistency of the reporting process compared with Review certification: the prior year and to obtain explanations for performance trends • Testing the accuracy of the aggregation process for the selected 2003 performance indicators at group level • Reviewing the presentation of the ENF EnviroLaw & Sustainability selected 2003 performance Services indicators and associated state- Edward Nathan & Friedland ments in the report, in light of (Pty) Limited the findings and our cumulative 9 September 2003 75 INDEX TO GLOBAL REPORTING INITIATIVE INDICATORS GRI ELEMENT Vision and strategy 1.1 1.2 Profile 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 2.11 2.12 2.13 2.14 2.15 2.16 2.17 2.18 2.19 2.20 2.21 2.22 Governance structure and management systems 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 TOPIC Vision and strategy Key elements of the report Name Major products Operational structure Major divisions and joint ventures Countries of operation Nature of ownership Nature of markets served Scale of organisation Stakeholders Contact details Reporting period Date of previous report Boundaries of report Significant changes on prior year Basis for reporting on joint ventures, etc Explanation of restatements Decisions not to apply GRI principles Definitions Significant changes in measurement methods on key economic, environmental and social information Policies and practices to ensure accuracy Policy and practice on independent assurance Additional information Governance structure Independent non-executive directors Expertise of board members Supervisory board processes Link between executive compensation and achievement of goals Organisational structure and key responsible individuals Principles and policies on economic, environment and social performance Mechanisms for shareholder interaction with board members PAGE SECTION IN THIS REPORT 4 2 1 1 1 54 2 2, 25 4 148 84 25 25 25 n/a n/a 83 n/a 74 74 46 46 46 46 6 1, 43, 46 4 148 Our values Contents Front cover Group profile Group structure Group structure Operational areas Shareholder information Group profile Group profile, Business operations review Our values Kumba administration Financial Index Published September 2002 Business operations review Business operations review Business operations review Financial definitions Independent review report Independent review report www.kumbaresources.com Corporate governance Corporate governance Corporate governance Corporate governance Business objectives Group structure, Executive committee, Corporate governance Our values Shareholders’ diary na – not available n/a – not applicable 76 GRI ELEMENT TOPIC PAGE SECTION IN THIS REPORT 3.9 3.10 3.11 3.12 3.13 3.14 3.15 3.16 3.17 3.18 3.19 Identification of stakeholders Stakeholder consultation Information from stakeholder consultation Use of information from stakeholder consultation Precautionary approach External principles endorsed Industry, business and advocacy organisations Upstream and downstream impacts – outsourcing/supplier management – product and service stewardship Indirect impacts Major changes in locations or operations Programmes and procedures in economic, environmental and social performance – priority and target setting – major improvement programmes – internal communication and training – performance monitoring – internal and external audit – senior management review 3.20 Certification of management systems GRI content index 4.1 Performance indicators Economic EC1 Index Customers Net sales EC2 EC3 EC4 EC11 EC5 EC6 EC7 EC8 EC9 EC10 EC12 EC13 Geographic breakdown Suppliers Cost of procurement Percentage paid on contracted terms Supplier breakdown Employees Total payroll and benefits Providers of capital Distributions Retained earnings Public sector Total taxes paid Subsidies received Donations Total spent on non-core business infrastructure development Indirect impacts Indirect economic impacts Our values Our values Annual report Annual report and website Our values Social summary Our values SHE and social summaries Growth opportunities Business objectives Kumba Way Social summary Kumba Way, Financial review and Social summary Corporate governance Corporate governance Corporate governance, SHE summary Global Reporting Initiative Index Economic summary Economic summary Economic summary Economic summary Economic summary Economic summary Economic summary Economic summary Economic summary Economic summary Economic summary 4 4 n/a 4 66 4 59, 66 36 6 4 66 4, 18, 66 46 46 46, 59 76 58 58 58 58 58 58 58 58 58 58 58 n/a n/a * Performance indicators are provided in order of core indicator and additional indicator in the GRI Reporting Guidelines. na – not available n/a – not applicable 77 Index to Global Reporting Initiative indicators continued GRI ELEMENT TOPIC PAGE SECTION IN THIS REPORT Environmental EN1 EN2 EN3 EN4 EN17 EN18 EN19 EN5 EN20 EN21 EN22 EN6 EN7 EN23 EN24 EN25 EN26 EN27 EN28 EN29 EN8 EN9 EN10 EN11 EN12 EN13 EN30 EN31 EN32 EN33 EN14 EN15 EN16 EN34 EN35 SHE summary SHE summary SHE summary SHE summary SHE summary SHE summary SHE summary Materials used other than water Materials waste from external sources Direct energy use Indirect energy use Renewable energy sources Energy consumption Indirect (up/downstream) energy use Total water use Water use and ecosystems affected Withdrawals of ground and surface water Recycling of water Land in biodiversity-rich habitats Impacts on biodiversity in terrestrial, fresh water and marine habitats Land for production activities or extractive use Impermeable surface of land Impacts on protected or sensitive areas Changes to natural habitats from activities and habitats protected or restored Objectives for protecting and restoring ecosystems Protected species with habitats in operational areas Business units in or around protected or sensitive areas Greenhouse gas emissions Ozone-depleting substances Other significant air emissions Waste by type and definition Discharges to water Spills of chemicals, oils and fuels Indirect greenhouse gas emissions Hazardous waste Ecosystems/habitats affected by water run-off Performance of suppliers Impacts of products and services Products reclaimable Fines for environmental non-performance Impacts of transportation used for logistical purposes Total environmental expenditure by type 59 na 59 na na 59 na 59 na na na na na 59 na na na na na 59 na na na na na na na 59 na na na na na na na * Performance indicators are provided in order of core indicator and additional indicator in the GRI Reporting Guidelines. na – not available n/a – not applicable 78 GRI ELEMENT TOPIC Social LA1 LA2 LA12 LA3 LA4 LA13 LA5 LA6 LA7 LA8 LA14 LA15 LA9 LA16 LA17 LA10 LA11 HR1 HR2 HR3 HR8 Employment Breakdown of workforce Net job creation and average turnover segmented by region/country Employee benefits beyond legal mandate Labour/management relations Employees represented by trade unions, bona fide employee representatives or covered by collective bargaining agreements Information, consultation and negotiation with employees over changes in operations Formal worker representation in decision- making or management, including corporate governance Health and safety Recording and notification of occupational accidents and diseases Formal health and safety committees with management and worker representation Standard injury, lost day and absentee rates and work-related fatalities (including sub-contracted workers) Policies or programmes on HIV/AIDS Compliance with ILO guidelines Agreements with trade unions or employee representatives covering health and safety at work Training and education Average hours of training per year per employee by category Programmes to support continued employability of employees and to manage career endings Programmes for skills management or lifelong learning Diversity and opportunity Equal opportunities and monitoring systems Senior management and corporate governance bodies, including male/female ratio and cultural diversity Human rights Human rights and operations, including monitoring mechanisms Human rights impacts on investment and procurement Human rights within supply chain including monitoring systems Employee training on human rights in operations PAGE 66 131 n/a 66 66 66 59 46, 59 46, 59 66 66 66 66 66 66 66 SECTION IN THIS REPORT Social summary Segmental report Social summary Social summary Social summary SHE summary Corporate governance, SHE summary Corporate governance, SHE summary Social summary Social summary Social summary Social summary Social summary Social summary Social summary 46, 66 Corporate governance, Social summary 66 66 66 66 Social summary Social summary Social summary Social summary * Performance indicators are provided in order of core indicator and additional indicator in the GRI Reporting Guidelines. na – not available n/a – not applicable 79 Index to Global Reporting Initiative indicators continued GRI ELEMENT TOPIC PAGE SECTION IN THIS REPORT HR4 HR5 HR6 HR7 HR9 HR10 HR11 HR12 HR13 HR14 SO1 SO4 SO2 SO3 SO5 SO6 SO7 PR1 PR2 PR7 PR8 PR9 PR10 PR3 PR11 Non-discrimination Discrimination in operations Freedom of association and collective bargaining Freedom of association Child labour Forced and compulsory labour Disciplinary practices Appeal practices Non-retaliation Security practices Human rights training for security personnel Indigenous rights Needs of indigenous people Jointly-managed community grievance mechanisms Share of operating revenues redistributed to local communities Community Communities affected by operations Awards for social, ethical and environmental performance Bribery and corruption Policy Political contributions Political lobbying and contributions Money paid to political bodies Competition and pricing Court decisions on anti-trust and monopoly regulations Mechanisms to prevent anti-competitive behaviour Customer health and safety Customer health and safety during use of products and services Products and services Product information and labelling Non-compliance on product information and labelling Customer satisfaction Advertising Advertising Breaches of advertising and marketing regulations Respect for privacy Consumer privacy Breaches of consumer privacy 66 66 66 66 66 na 66 66 66 66 66 na 46 46 n/a n/a 46 n/a n/a n/a n/a 46 n/a n/a n/a Social summary Social summary Social summary Social summary Social summary Social summary Social summary Social summary Social summary Social summary Corporate governance Corporate governance Corporate governance Corporate governance * Performance indicators are provided in order of core indicators and additional indicator lists provided in the GRI Reporting Guidelines. na – not available n/a – not applicable 80 GROUP CASH VALUE ADDED STATEMENT FOR THE YEAR ENDED 30 JUNE 2003 The value added statement shows the wealth the group has created through mining, beneficiation, trading and investing operations. The statement below summarises the total cash wealth created and how it was disbursed among the group’s stakeholders, leaving a retained amount which was re-invested in the group for the replacement of assets and further development of operations. CASH GENERATED Cash derived from sales and services Income from investments and interest received Paid to suppliers for materials and services CASH VALUE ADDED CASH UTILISED TO Remunerate employees for services Pay direct taxes to the state Provide lenders with a return on borrowings CASH DISBURSED AMONG STAKEHOLDERS CASH RETAINED IN THE GROUP TO MAINTAIN AND DEVELOP OPERATIONS NOTES TO THE GROUP CASH VALUE ADDED STATEMENT 1. TAXATION CONTRIBUTION Direct taxes (as above) Value added taxes levied on purchases of goods and services Regional service council levies Rates and taxes paid to local authorities GROSS CONTRIBUTIONS 2. ADDITIONAL AMOUNTS COLLECTED BY THE GROUP ON BEHALF OF GOVERNMENT Value added tax and other duties charged on turnover Employees’ tax deducted from remuneration paid Wealth created % Wealth created % 2003 Rm 7 136 49 (4 231) 2002 Rm 6 963 47 (3 127) 2 954 100 3 883 100 32 4 8 44 56 1 513 312 349 2 174 780 312 883 10 11 1 216 596 345 941 51 11 12 74 26 1 238 149 312 1 699 2 184 149 530 7 7 693 488 208 696 81 SELECTED GROUP FINANCIAL DATA TRANSLATED INTO US DOLLARS FOR THE YEAR ENDED 30 JUNE 2003 INCOME STATEMENT REVENUE Operating expenses NET OPERATING PROFIT Net financing costs Income from equity accounted investments Impairment charges Goodwill amortisation PROFIT BEFORE TAXATION Taxation NET PROFIT ATTRIBUTABLE TO ORDINARY SHAREHOLDERS ATTRIBUTABLE EARNINGS PER SHARE (US CENTS) BALANCE SHEET ASSETS NON-CURRENT ASSETS Property, plant and equipment Intangible assets Goodwill Investments in associates and joint ventures Deferred taxation Financial assets CURRENT ASSETS Cash and cash equivalents Other TOTAL ASSETS EQUITY AND LIABILITIES SHAREHOLDERS’ FUNDS MINORITY INTEREST NON-CURRENT LIABILITIES Interest-bearing borrowings Deferred taxation and provisions CURRENT LIABILITIES Interest-bearing borrowings Other TOTAL EQUITY AND LIABILITIES Net debt (refer to definitions on page 83) CASH FLOW STATEMENT Cash available from operations Proceeds on disposal of assets Investments – Acquisition of subsidiary – Acquisition of joint ventures and associates – Other Capital expenditure – Heavy minerals – Other NET CASH (OUTFLOW)/INFLOW 2003 USD million 2002 USD million 827 (693) 134 (27) (2) 105 (25) 80 26,8 1 105 13 (11) 16 65 37 130 367 1 722 663 160 377 306 73 143 1 722 320 86 5 41 (4) (1) (102) (51) (26) 704 (539) 165 (24) 8 (10) 3 142 (46) 96 33,6 551 2 114 41 24 65 188 985 465 47 85 171 91 126 985 111 213 2 (5) (62) (45) 103 The group statements on this page have been expressed in US dollars for information purposes. The average US dollar/rand for the year US$1: R9,0275 (US$1: R10,19) has been used to translate the income and cash flow statements, while the balance sheet has been translated at the closing rate at the last day of the reporting period at US$1: R7,425 (US$1: R10,367). 82 DEFINITIONS Attributable cash flow per ordinary share Cash flow from operating activities, after adjusting for minority participation therein, divided by the weighted average number of ordinary shares in issue during the year. Cash and cash equivalents Comprise cash on hand and current accounts in bank, net of bank over- drafts, together with any highly liquid investments readily convertible to known amounts of cash and not subject to significant risk of changes in value. Current ratio Current assets divided by current liabilities. Dividend cover Atrributable earnings per ordinary share divided by dividends per ordinary share. Dividend yield Dividends per ordinary share divided by the closing share price quoted on the JSE Securities Exchange SA. Earnings per ordinary share – Attributable earnings basis Earnings attributable to ordinary shareholders divided by the weighted average number of ordinary shares in issue during the year. – Headline earnings basis Earnings attributable to ordinary shareholders adjusted for profits and losses on items of a capital nature, and recognising the taxation and minority impacts on these adjust- ments, divided by the weighted average number of ordinary shares in issue during the year. Financing cost cover – Ebit – net operating profit divided by net financing costs. – Ebitda – net operating profit before depreciation and amortisation divided by net financing costs. Headline earnings yield Headline earnings per ordinary share divided by the closing share price quoted on the JSE Securities Exchange SA. Invested capital Total shareholders’ equity, interest- bearing debt, non-current provisions and net deferred taxation, less cash and cash equivalents. Net assets Sum of non-current assets and current assets less all interest-free liabilities. Net debt-to-equity ratio Interest-bearing debt less cash and cash equivalents, as percentage of total shareholders’ equity. Net equity per ordinary share Ordinary shareholders’ equity divided by the number of ordinary shares in issue at the year-end. Number of years to repay interest- bearing debt Interest-bearing debt divided by cash flow from operating activities before dividends paid. Return on ordinary shareholders’ equity – Attributable earnings Earnings attributable to ordinary shareholders as a percentage of average ordinary shareholders’ equity. – Headline earnings Headline earnings attributable to ordinary shareholders as a percentage of average ordinary shareholders’ equity. Return on invested capital Net operating profit plus income from non-equity accounted investments plus income from investments in associates and incorporated joint ventures, as a percentage of the average invested capital. Return on net assets Net operating profit plus income from non-equity accounted investments plus income from investments in associates and incorporated joint ventures, as a percentage of the average net assets. Revenue per employee Revenue divided by the average number of employees during the year. Operating margin Net operating profit as a percentage of revenue. Total asset turnover Revenue divided by average total assets. Operating profit per employee Operating profit divided by the average number of employees during the year. Return on capital employed Net operating profit plus income from non-equity accounted investments plus income from investments in associates and incorporated joint ventures, as a percentage of average total shareholders’ funds and interest- bearing borrowings. Weighted average number of shares in issue The number of shares in issue at the beginning of the year, increased by shares issued during the year, weighted on a time basis for the period which they have participated in the income of the group. In the case of shares issued pursuant to a share capitalisation award in lieu of dividends, the participation of such shares is deemed to be from the date of issue. 83 FINANCIAL INDEX CONTENTS ANNEXURES Page 85 85 86 87 1. Non-current interest-bearing borrowings 139 2. Investments in associates, joint ventures and other investments 3. Investments in subsidiaries 140 – 141 142 – 143 88 – 91 92 93 94 95 96 97 www.kumbaresources.com Directors’ responsibility for financial reporting Certificate by company secretary Report of the independent auditors Report of the directors Directors’ remuneration Income statements Balance sheets Cash flow statements Group statement of changes in equity Company statement of changes in equity Notes to the annual financial statements 84 KUMBA FINANCIAL REPORTING 2003 Directors’ responsibility for financial reporting TO THE MEMBERS OF KUMBA RESOURCES LIMITED The directors of the company are responsible for maintaining adequate accounting records, the preparation of the annual financial statements of the company and group, and to develop and maintain a sound system of internal control to safeguard shareholders’ investments and the group’s assets. In presenting the accompanying financial statements, South African statements of Generally Accepted Accounting Practice and International Accounting Standards have been followed, applicable accounting policies have been used while prudent judgements and estimates have been made. their to discharge the directors For responsibilities, management has developed and continues to maintain a system of internal control aimed at reducing the risk of error or loss in a cost-effective manner. Such systems can provide reasonable but not absolute assurance against material misstatement or loss. The directors, primarily through the audit committee which consists of non-executive directors, meet periodically with the external and internal auditors, as well as executive management to evaluate matters concerning accounting policies, internal control, auditing and financial reporting. The group’s internal auditors independently evaluate the internal controls and co-ordinate their audit coverage with the external auditors. The external auditors are responsible for reporting on the financial statements. The external and internal auditors have unrestricted access to all records, property and personnel as well as to the audit committee. The directors are not aware of any material breakdown in the functioning of these controls and systems during the year under review. The directors are of the opinion, based on the information and explanations given by management and the internal auditors, and on comment by the external auditors on the results of their audit conducted for the purpose of expressing their opinion, that the internal accounting controls are adequate, so that the financial records may be relied on for preparing the financial statements and maintaining accountability for assets and liabilities. As the directors have reviewed the group’s financial budgets with their underlying business plans for the period to 30 June 2004, and in the light of the current financial position and existing borrowing facilities, they consider it appropriate that the annual financial statements be prepared on the going- concern basis. Against this background, the directors of the company accept responsibility for the annual financial statements, which were approved by the board of directors on 19 August 2003 and are signed on its behalf by MLD Marole Chairman Dr CJ Fauconnier Chief Executive DJ van Staden Director The external auditors have audited the annual financial statements of the company and group and their unqualified report appears on page 86. Certificate by company secretary In terms of the Companies Act 61 of 1973 of South Africa, as amended, I, Marie Viljoen, in my capacity as company secretary, confirm that for the year ended 30 June 2003, the company has lodged with the Registrar of Companies all such returns as are required of a public company in terms of this Act and that all such returns are true, correct and up to date. M Viljoen Company Secretary 19 August 2003 85 Report of the independent auditors TO THE MEMBERS OF KUMBA RESOURCES LIMITED We have audited the annual financial statements and the group annual financial statements of Kumba Resources Limited set out on pages 87 to 143 for the year ended 30 June 2003. These financial statements are the responsibility of the company’s directors. Our responsibility is to express an opinion on these financial statements based on our audit. SCOPE We conducted our audit in accordance with statements of South African auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement. An audit includes: – examining on a test basis, evidence supporting the amounts and disclosures in the financial statements; – assessing the accounting principles used and significant estimates made by management; and – evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. AUDIT OPINION In our opinion, the financial statements fairly present, in all material respects, the financial position of the company and of the group at 30 June 2003 and the results of their operations and cash flows for the year then ended in accordance with South African Statements of Generally Accepted Accounting Practice and International Financial Reporting Standards, and in the manner required by the Companies Act 61 of 1973 of South Africa, as amended. KPMG Inc. Registered Accountants and Auditors Chartered Accountants (SA) Johannesburg 19 August 2003 86 KUMBA FINANCIAL REPORTING 2003 The directors have pleasure in presenting the annual financial statements for Kumba Resources Limited (Kumba) and the group for the year ended 30 June 2003. NATURE OF BUSINESS Kumba, incorporated in South Africa, is a mining group of companies focusing on extracting and processing a range of minerals and metals including iron ore, coal, heavy minerals, base metals and selected industrial minerals. REGISTRATION DETAILS Kumba is a listed company on the JSE Securities Exchange SA in the resource sector. The company registration number is 2000/011076/06. The registered office is Roger Dyason Road, Pretoria West, Pretoria, 0002, Republic of South Africa. ACTIVITIES AND FINANCIAL RESULTS Detailed reports on the activities and performance of the group and the various business operations are provided in the business operations review. PROPERTY, PLANT AND EQUIPMENT Capital expenditure for the year amounted to R1 386 million (2002: R1 085 million). SHAREHOLDERS’ RESOLUTIONS At the second annual general meeting of shareholders, held on 18 November 2002, the following resolutions were passed: – placing of unissued shares under the control of the directors subject to the conditions set out in note 16; – granting of authority to directors to issue the unissued shares for cash; and – granting of general authority to the company and its subsidiaries from time to time, being authorised thereto by their respective articles, to acquire in terms of sections 85 and 89 of the Companies Act and the listing requirements of the JSE Securities Exchange SA, shares issued by the company. Report of the directors the requirements of STRATE the last day to trade cum dividend is Thursday, 18 September 2003. The shares will commence trading ex dividend on Friday, 19 September 2003 and the record date is Friday, 26 September 2003. No shares may be dematerialised or rematerialised between Friday, 19 September 2003 and Friday, 26 September 2003, both days inclusive. INVESTMENTS AND SUBSIDIARIES The financial information in respect of investments, and interests in subsidiaries of the company, is disclosed in annexures 2 and 3 to the financial statements. During the year Kumba acquired the following investments: – Ticor Limited (Ticor) (titanium dioxide company listed in Australia) Kumba increased its shareholding in Ticor to 50,12% thereby acquiring a controlling interest. Ticor has been consolidated effective from 1 April 2003. During June 2003 the group further increased its interest in Ticor to 51,38% by acquiring an additional 1,26%. – Magnetic Minerals Limited (acquisition and exploration of mineral tenements prospectives) On 1 April 2003 Ticor acquired a controlling interest in Magnetic Minerals Limited resulting in the consolidation thereof from such date. – ZnERGY (Proprietary) Limited (project for the production of zinc-air fuel cells) On 30 November 2002 the group acquired an additional 8,5% of the issued share capital of ZnERGY (Pty) Ltd. A further acquisition of 30% was made on 1 April 2003 bringing the interest of the group at 30 June 2003 to 85%. Kumba announced on 28 July 2003 that it has disposed of its stake in Australian nickel miner Mincor Resources NL on 25 July 2003. The shares were sold for R103 million (AUD21 million) to a range of Australian and overseas financial institutions. The profit on the disposal will be reflected in the 2004 financial year. (Refer to annexure 2 for carrying amount at 30 June 2003.) The group or its subsidiaries have passed no other special or ordinary shareholders’ resolutions of material interest or of a substantive nature. DIRECTORATE AND SHAREHOLDINGS The names of the directors in office at the date of this report are provided in the annual report. SHARE CAPITAL The group did not issue any shares during the year. SHAREHOLDERS An analysis of shareholders and shareholding is provided in the shareholders’ analysis. DIVIDEND Dividend number 2 of 60 cents per share has been declared in South African currency in respect of the year ended 30 June 2003. The dividend will be paid on Monday, 29 September 2003 to shareholders recorded in the books of the company at the close of business on 26 September 2003. To comply with During the current financial year, the following retirement and appointment took place: Mr HJ Smith Ms MLD Marole Retired Appointed chairman 1 November 2002 1 November 2002 At the forthcoming annual general meeting, Ms MLD Marole, Messrs GS Gouws, AJ Morgan, BE Davison and Prof NS Segal will retire by rotation and, being eligible, will offer themselves for re-election. INDEPENDENT AUDITORS The auditors of the company, KPMG Inc, will continue in office in accordance with section 270(2) of the Companies Act, 1973, of South Africa. 87 Directors’ remuneration This report on remuneration and related matters covers issues which are the concern of the board as a whole in addition to those which were dealt with by the human resources and remuneration committee. REMUNERATION POLICY The human resources and remuneration committee have a clearly defined mandate from the board aimed at: – ensuring that the company’s chairman, directors and senior individual executives are contributions to the company’s overall performance; and – ensuring that the company’s remuneration strategies and packages, including the remuneration schemes, are related to performance, are suitably competitive and give due regard to the interests of the shareholders and the financial and commercial health of the company. rewarded fairly their for the fees to be paid to each non-executive director. Any changes to the fees will be approved by the board and submitted to the shareholders in a general meeting for approval prior to implementation and payment. The level of fees will among others be determined according to the median remuneration paid by comparable companies. DIRECTORS’ SERVICE CONTRACTS Service contracts of executive directors are subject to one calendar month’s notice. In terms of a retention arrangement implemented by the company, executive directors may become entitled to a severance package of one year’s remuneration if their services are terminated before 1 July 2004. There are no restraints of trade associated with the contracts. Non- executive directors are not bound by service contracts. The human resource and remuneration committee considers and submits recommendations to the Kumba board concerning SUMMARY OF REMUNERATION Basic salary Fees for services Per- formance bonus1 Gain share incentive1 Benefit and allowances2 Pension fund contri- butions Medical fund contri- butions Gains on share scheme3 Other Total FOR THE YEAR ENDED 30 JUNE 2003 Executive directors Dr CJ Fauconnier MJ Kilbride CF Meintjes DJ van Staden RG Wadley 1 801 817 1 080 404 1 026 742 1 044 872 1 034 908 Less gains on share scheme Total remuneration paid by Kumba 193 894 125 117 111 393 115 120 119 658 524 914 421 005 309 971 336 563 400 984 123 356 110 027 114 377 119 179 10 296 10 296 10 296 10 296 121 344 10 450 7 145 6 887 6 633 6 947 Non-executive directors TL de Beer JJ Geldenhuys GS Gouws4 Dr D Konar MLD Marole (Chairman) AJ Morgan SA Nkosi Prof NS Segal F Titi4 CML Savage FOR THE YEAR ENDED 30 JUNE 2002 Executive directors Dr CJ Fauconnier MJ Kilbride CF Meintjes DJ van Staden RG Wadley 167 000 167 000 60 518 135 500 144 833 104 000 72 500 101 750 83 373 67 500 3 766 2 518 6 305 1 872 2 256 546 1 695 3 776 1 542 955 942 207 901 162 907 061 916 963 174 700 113 354 101 416 103 629 106 898 592 891 384 697 344 182 351 692 362 787 554 289 418 589 316 318 336 987 366 329 109 928 98 238 102 504 106 355 8 760 8 760 8 760 8 760 6 705 967 1 166 278 1 921 031 1 407 523 765 027 Less gains on share scheme Total remuneration paid by Kumba 88 KUMBA FINANCIAL REPORTING 2003 2 541 371 1 767 323 1 696 660 1 627 861 1 681 676 9 314 891 (121 344) 9 193 547 170 766 169 518 66 823 137 372 147 089 104 546 74 194 101 750 87 149 67 500 1 126 707 651 651 651 651 651 9 580 213 3 144 464 3 691 758 3 218 807 2 625 010 22 260 252 (11 965 826) 10 294 426 SUMMARY OF REMUNERATION (continued) Basic salary Fees for services Per- formance bonus1 Gain share incentive1 Benefit and allowances2 Pension fund contri- butions Medical fund contri- butions Gains on share scheme3 Other Total Non-executive directors HJ Smith (Chairman) TL de Beer CT Fenton JJ Geldenhuys GS Gouws4 Dr D Konar MLD Marole AJ Morgan SA Nkosi Prof NS Segal F Titi4 CML Savage 90 000 152 750 65 250 152 750 57 901 123 500 94 250 94 250 60 000 92 000 20 000 5 000 90 000 152 750 65 250 152 750 57 901 123 500 94 250 94 250 60 000 92 000 20 000 5 000 1 007 651 1. The performance bonus and gain share incentive schemes were approved by the board. These incentives apply to all employees throughout the group. 2. Includes travel and entertainment allowances. 3. As set out on pages 90 and 91. 4. Fees paid to their respective employers and not to them as individuals. Pensions paid or receivable by executive directors are paid or received under contributory pension schemes. DIRECTORS’ INTEREST IN KUMBA SHARES Beneficial Non-beneficial Direct Indirect Direct Indirect AS AT 30 JUNE 2003 Executive directors Dr CJ Fauconnier MJ Kilbride CF Meintjes DJ van Staden RG Wadley Non-executive directors MLD Marole (Chairman) TL de Beer JJ Geldenhuys GS Gouws Dr D Konar AJ Morgan SA Nkosi Prof NS Segal F Titi CML Savage AS AT 30 JUNE 2002 Executive directors Dr CJ Fauconnier MJ Kilbride CF Meintjes DJ van Staden RG Wadley Non-executive directors HJ Smith (Chairman) TL de Beer CT Fenton JJ Geldenhuys GS Gouws Dr D Konar MLD Marole AJ Morgan SA Nkosi Prof NS Segal F Titi CML Savage 103 750 96 870 28 990 18 490 47 870 15 000 28 990 18 623 47 870 843 799 843 799 There has been no change to the interest of directors in share capital since the year-end. On 30 June 2003 no director had direct or indirect interests of more than 1% in the share capital of the company. 89 Directors’ remuneration (continued) Directors’ share options and restricted share awards The following options and rights in shares in the company were outstanding in favour of directors of the company under the company’s share option schemes: MANAGEMENT SHARE OPTION SCHEME Options held at year-end Exercise price R Exercisable period Pre-tax Proceeds if gain/(loss) if exercisable exercisable at 30 June at 30 June 2003 2003 R* R FOR THE YEAR ENDED 30 JUNE 2003 Executive directors Dr CJ Fauconnier Total MJ Kilbride Total CF Meintjes Total DJ van Staden Total RG Wadley Total 307 520 65 440 372 960 59 720 216 160 40 710 316 590 25 610 41 470 193 760 35 220 296 060 46 340 201 920 35 630 283 890 209 280 39 020 248 300 28,05 35,00 2008/12/03 2009/11/01 9 256 352 1 969 744 630 416 (320 656) 11 226 096 309 760 18,74 28,05 35,00 2010/07/25 2008/12/03 2009/11/01 1 797 572 6 506 416 1 225 371 678 419 443 128 (199 479) 9 529 359 922 068 18,50 18,74 28,05 35,00 2009/01/04 2010/07/25 2008/12/03 2009/11/01 770 861 1 248 247 5 832 176 1 060 122 297 076 471 099 397 208 (172 578) 8 911 406 992 805 18,74 28,05 35,00 2010/07/25 2008/12/03 2009/11/01 1 394 834 6 077 792 1 072 463 526 422 413 936 (174 587) 8 545 089 765 771 28,05 35,00 2008/12/03 2009/11/01 6 299 328 1 174 502 429 024 (191 198) 7 473 830 237 826 * It is presumed that directors will not exercise options that result in a pre-tax loss. No options were exercised during the year ended 30 June 2003. MANAGEMENT DEFERRED PURCHASE SHARE SCHEME – KUMBA SHARES Options held at year-end Exercise price R Exercisable period Pre-tax Proceeds if gain/(loss) if exercisable exercisable at 30 June at 30 June 2003 2003 R R Options exercised during the year Exercise price R Sale price/ market price R Pre-tax gain R Date exercised FOR THE YEAR ENDED 30 JUNE 2003 Executive directors Dr CJ Fauconnier MJ Kilbride CF Meintjes DJ van Staden Total RG Wadley 16 780 5 120 51 510 37 030 88 540 61 890 11,75 2007/11/04 18,50 2009/01/04 505 078 154 112 307 913 59 392 10,00 11,75 2007/03/23 2007/11/04 1 550 451 1 114 603 1 035 351 679 501 2 665 054 1 714 852 8,42 2008/03/01 1 862 889 1 341 775 10 240 18,50 30,35 121 344 2003/05/27 90 KUMBA FINANCIAL REPORTING 2003 MANAGEMENT SHARE OPTION SCHEME Options held at year-end Exercise price R Exercisable period Pre-tax Proceeds if gain/(loss) if exercisable exercisable at 30 June at 30 June 2002 2002 R R FOR THE YEAR ENDED 30 JUNE 2002 Executive directors Dr CJ Fauconnier MJ Kilbride Total CF Meintjes Total DJ van Staden Total RG Wadley 307 520 59 720 216 160 275 880 25 610 41 470 193 760 260 840 46 340 201 920 248 260 209 280 28,05 2008/12/03 14 514 944 5 889 008 2 818 784 18,74 2010/07/25 28,05 2008/12/03 10 202 752 1 699 631 4 139 464 13 021 536 5 839 095 18,50 2009/01/04 18,74 2010/07/25 28,05 2008/12/03 1 208 792 1 957 384 9 145 472 735 007 1 180 236 3 710 504 12 311 648 5 625 747 18,74 2010/07/25 28,05 2008/12/03 2 187 248 9 530 624 1 318 836 3 866 768 11 717 872 5 185 604 28,05 2008/12/03 9 878 016 4 007 712 * No options were exercised during the year ended 30 June 2002. MANAGEMENT DEFERRED PURCHASE SHARE SCHEME – KUMBA SHARES Options held at year-end Exercise price R Exercisable period Pre-tax Proceeds if gain/(loss) if exercisable exercisable at 30 June at 30 June 2002 2002 R R Options exercised during the year Exercise price R Sale price/ market price R Pre-tax gain R Date exercised FOR THE YEAR ENDED 30 JUNE 2002 Executive directors Dr CJ Fauconnier 65 620 120 000 11,75 2007/11/04 10,00 2007/03/23 3 097 264 5 664 000 2 326 229 4 464 000 93 740 26 260 43 740 4 300 15 000 5 700 10 000 10 000 10,00 10,00 11,75 10,00 10,00 10,00 10,00 10,00 29,00 28,97 28,97 48,50 48,60 48,70 50,75 51,00 1 781 060 2001/12/05 498 152 2001/12/05 753 203 2001/12/05 208 550 2002/05/24 729 000 2002/05/24 277 590 2002/05/24 507 500 2002/05/28 510 000 2002/05/28 Total MJ Kilbride CF Meintjes DJ van Staden Total RG Wadley 185 620 16 780 15 360 51 510 37 030 88 540 61 890 8 761 264 6 790 229 5 265 055 11,75 2007/11/04 792 016 594 851 18,50 2009/01/04 724 992 440 832 10 240 18,50 51,00 332 800 2002/06/05 10,00 2007/03/23 11,75 2007/11/04 2 431 272 1 747 816 1 916 172 1 312 714 4 179 088 3 228 886 8,42 2008/03/01 2 921 208 2 400 094 91 Income statements FOR THE YEAR ENDED 30 JUNE 2003 REVENUE Operating expenses NET OPERATING PROFIT/(LOSS) Net financing costs Income from investments Income from equity accounted investments Impairment charges Goodwill amortisation PROFIT/(LOSS) BEFORE TAXATION Taxation PROFIT/(LOSS) FROM ORDINARY ACTIVITIES Minority interest NET PROFIT/(LOSS) ATTRIBUTABLE TO ORDINARY SHAREHOLDERS RECONCILIATION OF HEADLINE EARNINGS Net profit attributable to ordinary shareholders Adjusted for: – impairment charges – share of associates goodwill amortisation – goodwill amortisation – share of associates exceptional items – net deficit on disposal or scrapping of property, plant and equipment Taxation effect of adjustments HEADLINE EARNINGS HEADLINE EARNINGS PER SHARE (CENTS) – basic – diluted ATTRIBUTABLE EARNINGS PER SHARE (CENTS) – basic – diluted Dividend paid per share (cents) Notes 2 3 4 11 5 10 6 5 11 10 11 7 7 GROUP COMPANY 2002 Rm 7 182 (5 499) 1 683 (242) 83 (101) 26 1 449 (465) 984 (8) 2003 Rm 8 91 99 (182) 529 446 (29) 417 2002 Rm (18) (18) (213) 196 (35) 8 (27) 976 417 (27) 976 101 40 (26) 12 4 (9) 2003 Rm 7 469 (6 257) 1 212 (244) 2 (2) (21) 947 (229) 718 718 718 2 38 21 7 (3) 1 784 1 098 264,0 262,2 241,8 240,1 85,0 385,3 376,0 342,5 334,2 92 KUMBA FINANCIAL REPORTING 2003 ASSETS Non-current assets Property, plant and equipment Intangible assets Goodwill Investments in associates and joint ventures Investments in subsidiaries Deferred taxation Financial assets Total non-current assets Current assets Inventories Trade and other receivables Cash and cash equivalents Total current assets Total assets EQUITY AND LIABILITIES Capital and reserves Share capital Non-distributable reserves Retained income/(loss) Ordinary shareholders’ equity Minority interest Total shareholders’ interest Non-current liabilities Interest-bearing borrowings Other long-term payables Non-current provisions Deferred taxation Total non-current liabilities Current liabilities Trade and other payables Interest-bearing borrowings Taxation Current provisions Total current liabilities Total equity and liabilities Net debt 8 9 10 11 12 20 13 14 15 16 17 18 19 20 21 17 19 Balance sheets AT 30 JUNE 2003 GROUP COMPANY Notes 2003 Rm 2002 Rm 2003 Rm 2002 Rm 5 710 38 39 8 205 98 (80) 118 485 272 23 1 184 423 212 9 098 7 552 1 369 1 355 964 3 688 955 1 022 679 2 656 93 4 158 31 32 4 352 78 156 234 59 3 732 12 29 3 871 163 341 504 12 786 10 208 4 586 4 375 2 680 230 2 011 4 921 1 191 6 112 2 801 388 501 1 384 5 074 941 537 94 28 2 680 703 1 433 4 816 487 5 303 882 178 389 1 204 2 653 1 050 940 223 39 1 600 2 252 12 786 10 208 2 374 1 143 2 680 113 151 2 944 2 680 131 (21) 2 790 2 944 2 790 1 032 30 11 1 073 120 446 3 569 4 586 1 322 474 25 1 500 235 853 (3) 1 085 4 375 986 93 Cash flow statements FOR THE YEAR ENDED 30 JUNE 2003 Notes 22.1 22.2 22.3 22.4 22.5 22.6 22.7 22.8 23 22.9 CASH FLOWS FROM OPERATING ACTIVITIES Cash retained from operations Income from equity accounted investments Income from investments Net financing costs Dividends paid Normal taxation paid CASH FLOWS FROM INVESTING ACTIVITIES Investment to maintain operations Investment to expand operations Proceeds from disposal of property, plant and equipment Investment in other non-current assets Increase in cash resources on acquisition of a controlling interest in subsidiaries Acquisition of joint ventures and associates Foreign currency translations NET CASH (OUTFLOW)/INFLOW CASH FLOWS FROM FINANCING ACTIVITIES Non-current interest-bearing borrowings raised Non-current interest-bearing borrowings repaid Current interest-bearing borrowings repaid Proceeds from issuance of share capital Increase in loans from minority shareholders NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR CALCULATION OF MOVEMENT IN NET DEBT Net cash (outflow)/inflow Add: – shares issued – unbundling costs – cash flows included above relating to non-interest-bearing debt – loans from minority shareholders – increase in net debt on acquisition of a controlling interest in subsidiaries 23 – non-cash flow movement in net debt applicable to special purpose entities – non-cash flow movements in net debt applicable to currency translation differences of transactions denominated in foreign currency – non-cash flow movements in net debt applicable to currency translation differences of net debt items of foreign entities GROUP COMPANY 2003 Rm (68) 529 (182) (252) (32) (5) (14) 6 (108) (37) (153) (158) 379 (406) (27) (185) 341 156 2002 Rm 67 196 (212) 51 (6) 409 98 501 552 (99) (278) 349 (28) 524 (183) 341 2003 Rm 1 567 49 (240) (286) (310) 780 (264) (1 122) 44 (36) 366 (34) 28 2002 Rm 2 522 47 (236) (149) 2 184 (303) (782) 25 (50) (9) (1 018) (1 119) (238) 1 065 2 094 (1 241) (425) 95 523 285 679 964 406 (359) (706) 349 (310) 755 (76) 679 (238) 1 065 393 (44) 2 95 (891) (18) (11) 22.9 (170) (16) (INCREASE)/DECREASE IN NET DEBT (1 231) 1 398 94 KUMBA FINANCIAL REPORTING 2003 Group statement of changes in equity FOR THE YEAR ENDED 30 JUNE 2003 NON-DISTRIBUTABLE RESERVES Attributable reserves of equity accounted premium investments Rm Share Rm Share capital Rm Foreign Financial currency instruments translation revaluation Rm Rm 3 2 721 (44) 3 2 677 363 204 204 567 (414) (414) 15 52 52 67 (6) (42) 57 (21) 271 (220) (115) (105) 16 67 (18) (19) 77 (76) (38) 3 2 677 11 153 61 Insurance reserve Rm Retained income Rm Total Rm 751 1 400 (240) (187) (53) 976 2 724 (44) (276) (276) 976 (16) (2) 1 433 4 816 (361) (432) (42) 57 56 718 (252) 77 1 76 718 (252) 38 (3) 2 011 4 921 (200) (200) 2 2 3 5 3 2 677 11 153 61 5 1 811 4 721 OPENING BALANCE AS AT 1 JULY 2001 Unbundling Net (losses)/gains not recognised in income statement2 Currency translation differences Financial instruments fair value movements recognised in equity1 Net profit2 Issue of share capital Unbundling costs Transfer of equity accounted earnings Transfer to insurance reserve BALANCE AT 30 JUNE 2002 Net (losses)/gains not recognised in income statement2 Currency translation differences Financial instruments fair value movements recognised in equity1 – recognised in current year income – recognised in equity – fair value adjustment Realised in associate and joint venture Net profit2 Dividend paid3 Transfer of equity accounted earnings Transfer to insurance reserve BALANCE AT 30 JUNE 2003 Dividends declared after balance sheet date (including STC)4 EFFECT OF DIVIDENDS DECLARED AFTER BALANCE SHEET DATE ON EQUITY 1. Attributable reserves of equity accounted investments includes share of associates’ debt hedging reserve R nil million (2002: R105 million). 2. Total recognised gains and losses R357 million (2002: R736 million). 3. The group paid a dividend of R252 million during September 2002, the STC applicable was R32 million. 4. Dividend declared after balance sheet date amounts to 60 cents per share. STC at 12,5% is payable on all distributions to shareholders. 95 Company statement of changes in equity FOR THE YEAR ENDED 30 JUNE 2003 NON-DISTRIBUTABLE RESERVES Share capital Rm Share premium Rm Foreign currency translation Rm Financial instruments revaluation Rm Retained income Rm Total Rm OPENING BALANCE AS AT 1 JULY 2001 Unbundling Net gains not recognised in income statement1 Currency translation differences Net loss1 Issue of share capital Unbundling costs BALANCE AT 30 JUNE 2002 Net (losses)/gains not recognised in income statement1 Currency translation differences Financial instruments fair value movements recognised in equity Realised in joint venture Net profit1 Dividend paid2 BALANCE AT 30 JUNE 2003 Investment income – dividend declared by subsidiaries after balance sheet date Dividends declared after balance sheet date (including STC)3 EFFECT OF DIVIDENDS DECLARED AFTER BALANCE SHEET DATE ON EQUITY 3 3 2 721 (44) 2 677 9 122 122 131 (11) (11) (7) (7) 3 2 677 120 (7) 6 15 (27) 122 122 (27) 2 724 (44) (21) 2 790 7 7 417 (252) 151 200 (11) (11) (7) 7 417 (252) 2 944 200 (200) (200) 3 2 677 120 (7) 151 2 944 1. Total recognised gains and losses R406 million (2002: R95 million). 2. The group paid a dividend of R252 million during September 2002, the STC applicable was R32 million. 3. Dividend per share amounts to 60 cents. STC at 12,5% is payable on all distributions to shareholders. 96 KUMBA FINANCIAL REPORTING 2003 Notes to the annual financial statements 1. ACCOUNTING POLICIES PRINCIPAL ACCOUNTING POLICIES The principal accounting policies of the group and the disclosures made in the annual financial statements conform with South African Statements of Generally Accepted Accounting Practice and comply with International Accounting Standards effective for the group’s financial year. The financial statements are prepared on the historical cost basis modified by the restatement of financial instruments to fair value. Where comparative financial information is reported, the accounting policies have been applied consistently for all periods. BASIS OF CONSOLIDATION The group annual financial statements present the consolidated financial position and changes therein, operating results and cash flow information of the company and its subsidiaries. Subsidiaries are those entities in which the group has an interest of more than one half of the voting rights or the power to exercise control so as to obtain benefits from their activities. The results of subsidiaries are included for the duration in which the group exercises control over the subsidiary. All inter-company transactions and resulting profits and losses between the group companies are eliminated on consolidation. Where necessary, accounting policies for subsidiaries are changed to ensure consistency with the policies adopted by the group. If it is not practical to change the policies, the appropriate adjustments are made on consolidation to ensure consistency with the group. The company carries its investments in subsidiaries at cost less accumulated impairment losses. The results of special purpose entities that in substance are controlled by the group, are consolidated. GOODWILL Goodwill is reflected at cost less accumulated Goodwill is amortised using the straight-line method over its estimated useful life, which is assessed on an annual basis, not exceeding a period of 20 years. Negative goodwill Negative goodwill arising on an acquisition represents the excess of the fair value of the net identifiable assets acquired over the cost of acquisition. To the extent that negative goodwill relates to an expectation of future losses and expenses that are identified in the plan of acquisition and can be measured reliably, but which have not yet been recognised, it is recognised in the income statement when the future losses and expenses are recognised. Any remaining negative goodwill, but not exceeding the fair values of the non- monetary assets acquired is recognised in the income statement over the weighted average useful life of the acquired depreciable/amortisable assets. Negative goodwill in excess of the fair values of non-monetary assets acquired is recognised immediately in the income statement. The gain or loss on disposal of an entity includes the unamortised balance of goodwill relating to that entity. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES An associate is an entity over which the group has the ability to exercise significant influence, but which it does not control. A joint venture is an entity jointly controlled by the group and one or more other venturers in terms of a contractual arrangement. It may involve a corporation, partnership or other entity in which the group has an interest. Investments in associates and joint ventures are accounted for in the group financial statements using the equity method for the duration in which the group has the ability to exercise significant influence or joint control. Equity accounted income represents the group’s proportionate share of profits of these entities and the share of taxation thereon. The retained earnings net of any dividends are transferred to a non- distributable reserve. All unrealised profits and losses amortisation and accumulated impairment losses, if are eliminated. any. It represents the excess of the cost of an acquisition over the fair value of the group’s share Where necessary, the results of associates and joint of the identifiable net assets of that entity at the date of acquisition. ventures are restated to ensure consistency with group policies. 97 Notes to the annual financial statements (continued) The group’s interest in associates and joint ventures is carried in the balance sheet at an amount that reflects its share of the net assets and the unamortised portion of goodwill on acquisition. Goodwill on the acquisition of associates and joint ventures is treated in accordance with the group’s accounting policy for goodwill. Carrying amounts of in associates and joint ventures are reduced to their recoverable amount where this is lower than their carrying amount. investments Where the group’s share of losses of an associate or joint venture exceeds the carrying amount of the associate or joint venture, the associate or joint venture is carried at nil. Additional losses are only recognised to the extent that the group has incurred obligations in respect of the associate or joint venture. PROPERTY, PLANT AND EQUIPMENT Land and extensions under construction are stated at cost and are not depreciated. Buildings, including certain non-mining residential buildings and all other items of property, plant and equipment are reflected at cost less accumulated depreciation and accumulated impairment losses. Depreciation is charged on a systematic basis over the estimated useful lives of the assets after taking into account the estimated residual value of the assets. Useful life is either the period of time over which the asset is expected to be used or the number of production or similar units expected to be obtained from the asset. Moulds and refractory furnace relines are depreciated based on the usage thereof. 25 years 25 years The estimated maximum useful lives of items of property, plant and equipment are: Buildings and infrastructure (including residential buildings) Fixed plant and equipment Mobile equipment, built-in process computers, underground mining equipment and reconditionable spares Loose tools and computer equipment Development costs Refractory reline Site preparation, mining development and exploration Mineral properties 15 years 5 years 5 years 8 years 20 years 25 years Maintenance and repairs which neither materially add to the value of assets nor appreciably prolong their useful lives are charged against income. Where an item of plant and equipment comprises major components with different useful lives, the components are accounted for as separate items of property, plant and equipment. Directly attributable expenses relating to mining and other major capital projects, site preparations and exploration are capitalised until the asset is brought to a working condition for its intended use. These costs include dismantling and site restoration costs to the extent these are recognised as a provision. Financing costs directly associated with the construction or acquisition of qualifying assets are capitalised at interest rates relating to loans specifically raised for that purpose, or at the average borrowing rate where the general pool of group borrowings was utilised. Capitalisation of borrowing costs ceases when the asset is substantially complete. Directly attributable costs associated with the acquisition, development and installation of certain software are capitalised. Such assets are depreciated using the amortisation methods and periods applicable to computer equipment. Surpluses and deficits on the disposal of property, plant and equipment are taken to income. LEASED ASSETS Leases involving plant and equipment whereby the lessor provides finance to the group with the asset as security and where the group assumes substantially all the benefits and risks of ownership are classified as finance leases. Assets acquired in terms of finance leases are capitalised at the lower of fair value and the present value of the minimum lease payments at inception of the lease and depreciated over the useful life of the asset. The capital element of future obligations under the leases is included as a liability in the balance sheet. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The interest element of the finance charge is charged against income over the lease period using the effective interest rate method. 98 KUMBA FINANCIAL REPORTING 2003 For a sale and leaseback transaction that results in a assessments of the time value of money and the finance lease, any excess of sales proceeds over the risks specific to the asset. An impairment loss is carrying amount is deferred and recognised on a recognised whenever the carrying amount exceeds the straight-line basis over the period of the lease. recoverable amount. Leases of assets to the group under which all the risks and benefits of ownership are effectively retained by the lessor, are classified as operating leases. Payments made under operating leases are charged against income on a straight-line basis over the period of the lease. INTANGIBLE ASSETS An intangible asset is recognised at cost if it is probable that future economic benefits will flow to the enterprise. Amortisation is charged on a systematic basis over the estimated useful lives of the intangible assets. The estimated maximum useful lives of intangible assets are: Patents, licence and franchise 20 years Subsequent expenditure on capitalised intangible assets is capitalised only if it increases the future benefits embodied in the specific asset to which it relates. RESEARCH, DEVELOPMENT AND EXPLORATION COSTS Research, development and exploration costs are charged against income until they result in projects that are evaluated as being technically or commercially feasible, the group has sufficient resources to complete development and can demonstrate how the asset will generate future economic benefits, in which event these costs are capitalised and amortised on the straight-line basis over the estimated useful life of the project/asset. IMPAIRMENT OF ASSETS The carrying amounts of assets mentioned in the accounting policy notes are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount is estimated as the higher of net selling price and value in use. In assessing value in use, the expected future cash flows are discounted to their present value using a pre- tax discount rate that reflects current market those from other assets, For an asset that does not generate cash inflows largely independent of the recoverable amount is determined for the cash- generating unit to which the asset belongs. An impairment loss is recognised whenever the carrying amount of the cash-generating unit exceeds its recoverable amount. A previously recognised impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount, however not to an amount higher than the carrying amount that would have been determined (net of depreciation) had no impairment loss been recognised in prior years. For goodwill a recognised impairment loss is not reversed, unless the impairment loss was caused by a specific external event of an exceptional nature that is not expected to recur and the increase relates clearly to the reversal of the effect of that specific event. FINANCIAL INSTRUMENTS Measurement Financial instruments are initially measured at cost, which includes transaction costs. Subsequent to initial recognition these instruments are measured as set out below. Investments Marketable securities are carried at market value, which is calculated by reference to Securities Exchange quoted selling prices at the close of business on the balance sheet date. Other investments are shown at fair value. Gains and losses are recognised in income. Trade and other receivables Trade and other receivables originated by the group are stated at cost less provision for doubtful debts. Cash and cash equivalents Cash and cash equivalents are measured at fair value. Financial liabilities Financial liabilities are recognised at amortised cost, namely original debt less principal payments and amortisations, except for derivatives which are measured at fair value. 99 Notes to the annual financial statements (continued) Derivative instruments Derivative instruments are measured at fair value. charges. Fixed production overheads are allocated on the basis of normal capacity. Gains and losses on subsequent measurement Gains and losses on subsequent measurement are recognised as follows: – gains and losses arising from a change in the fair value of financial instruments that are not part of a hedging relationship are included in net profit or loss for the period in which it arises. – gains and losses from measuring fair value hedging instruments, including fair value hedges for foreign currency denominated transactions, are recognised immediately in net profit or loss. – effective portion of gains and flow hedging from losses instruments, remeasuring cash including cash flow hedges for forecast foreign Writedowns Writedowns to net realisable value and inventory losses are expensed in the period in which the writedowns or losses occur. FOREIGN CURRENCIES Transactions and balances Transactions denominated in foreign currencies are translated at the rate of exchange ruling at the transaction date. Monetary items denominated in foreign currencies are translated at the rate of exchange ruling at the balance sheet date. Gains or losses arising on translation are credited to or charged against income. currency denominated transactions and for interest Foreign entities rate swaps, are initially recognised directly in equity. The financial statements of foreign entities are Should the hedged firm commitment or forecast translated into South African rand as follows: transaction result in the recognition of an asset or a – assets and liabilities at rates of exchange ruling at liability, then the cumulative amount recognised in balance sheet date; equity is adjusted against the initial measurement of – income, expenditure and cash flow items at weighted the asset or liability. For other cash flow hedges, the average rates; and cumulative amount recognised in equity is included – goodwill and fair value adjustments arising on in net profit or loss in the period when the acquisition at rates of exchange ruling at balance commitment or forecast transaction affects profit sheet date. or loss. – when a hedging instrument or hedge relationship is All resulting exchange differences are reflected as part terminated but the hedged transaction still is of shareholders’ equity. On disposal, such translation expected to occur, the cumulative unrealised gains or differences are recognised in the income statement as losses at that point remains in equity and are part of the cumulative gain or loss on disposal. recognised in accordance with the above policy when the transaction occurs. If the hedged transaction is Foreign currency hedges no longer probable, the cumulative unrealised gain or Foreign currency hedges are dealt with in the financial loss recognised in equity is recognised in the income instruments accounting policy. statement immediately. Offset REVENUE RECOGNITION Revenue, which excludes value added tax and sales Where a legally enforceable right of offset exists for between group companies, represents the gross value recognised financial assets and financial liabilities, of goods invoiced. Export revenues are recorded and there is an intention to settle the liability and according to the relevant sales terms, when the risks realise the asset simultaneously, or to settle on a net and rewards of ownership are transferred. basis, all related financial effects are offset. INVENTORIES Inventories are valued at the lower of cost, determined on a moving average basis, or net realisable value. The cost of finished goods and work-in-progress comprises raw materials, direct labour, other direct costs and fixed production overheads, but excludes interest Revenue from the sale of goods is recognised when significant risks and rewards of ownership of the goods are transferred to the buyer. Revenue arising from services and royalties is recognised on an accrual basis in accordance with the substance of the relevant agreements. 100 KUMBA FINANCIAL REPORTING 2003 Revenue from the operation of bulk ships is recognised on a proportionate basis where voyages have not terminated at year end. INTEREST AND DIVIDEND INCOME Interest is recognised on a time proportion basis, taking account of the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the group. Dividends are recognised when the right to receive payment is established. PROVISIONS Provisions are recognised when the group has a present legal or constructive obligation as a result of past events, for which it is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate can be made of the differences relating to goodwill not deductible for taxation purposes and the initial recognition of assets or liabilities which affect neither accounting nor taxable profit or loss. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the associated unused tax losses and deductible temporary differences can be utilised. Deferred taxation is calculated using taxation rates that have been enacted at balance sheet date. The effect on deferred taxation of any changes in taxation rates is charged to the income statement, except to the extent that it relates to items previously charged or credited directly to equity. EMPLOYEE BENEFITS Post-employment benefits amount of the obligation. Where the effect of Retirement discounting to present value is material, provisions are The group provides defined benefit and defined adjusted to reflect the time value of money, and where contribution funds for the benefit of employees, the appropriate, the risk specific to the liability. assets of which are held in separate funds. These funds ENVIRONMENT AND REHABILITATION Provision is made on a progressive basis for are funded by payments from employees and the group, taking account of the recommendations of independent actuaries. The group's contribution to the defined environmental rehabilitation costs where either a legal contribution fund is charged to the income statement or constructive obligation is recognised as a result of in the year to which it relates. past events. Estimates are based upon costs that are regularly reviewed and adjusted as appropriate for new The defined benefit funds consist of pensioner circumstances. members and an insignificant number of employee members and are closed to new entrants. The benefit Expenditure on plant and equipment for pollution costs and obligations are assessed using the projected control is capitalised and depreciated over the useful unit credit method. Under this method, the cost of lives of the assets while the cost of ongoing current providing benefits is charged to the income statement programmes to prevent and control pollution and to so as to spread the regular cost over the service lives of rehabilitate the environment is charged against income employees in accordance with the advice of the as incurred. actuaries who perform a statutory valuation of the plans every three years. Annual contributions are made to the group's Environmental Rehabilitation Trust Fund, created in Interim valuations are also performed on an annual accordance with statutory requirements, to provide for basis. Valuations are performed on a date which does the funding of the estimated cost of pollution control not coincide with the balance sheet date. and rehabilitation during, and at the end of, the life Consideration is given to any event that could impact of mines. DEFERRED TAXATION Deferred taxation is provided using the balance sheet liability method on all temporary differences between the carrying amounts for financial reporting purposes and the amounts used for taxation purposes, except the funds up to balance sheet date. The net surplus or deficit in the benefit obligation is the difference between the present value of the funded obligation and the fair value of plan assets. No actuarial surplus is recognised as the group’s ability to access the future economic benefit is uncertain. Actuarial losses, if any, are recognised in income as and when they arise. 101 Notes to the annual financial statements (continued) Medical No contributions are made to the medical aid of retired employees. Short and long-term benefits The cost of all short-term employee benefits, such as salaries, bonuses, housing allowances, medical and other contributions, is recognised during the period in which the employee renders the related service. The vesting portion of long-term benefits is recognised and provided for at balance sheet date, based on current salary rates. Termination benefits Termination benefits are payable whenever an employee’s employment is terminated before the normal to right receive payment DIVIDEND Dividends paid are recognised by the company when is the shareholders’ established. These dividends are recorded and disclosed as dividends paid in the statement of changes in equity. Dividends proposed or declared subsequent to the year end are not recognised at the balance sheet date, but are disclosed in the statement of changes in equity to show the effect the dividend would have had on equity. Taxation costs incurred on dividends are included in the taxation line in the income statement in the year in which they are declared. DISCONTINUING OPERATIONS Discontinuing operations are significant, retirement date or whenever an employee accepts distinguishable components of an enterprise that has voluntary redundancy in exchange for these benefits. been sold, abandoned or is the subject of formal The group recognises termination benefits when it has demonstrated its commitment to either terminate the The profit or loss on the sale or abandonment of a employment of current employees according to a discontinuing operation is determined from the detailed formal plan without possibility of withdrawal formalised discontinuance date. plans for disposal or discontinuance. or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. If the benefits fall due more than 12 months after balance SEGMENT REPORTING The primary business segments are iron ore, coal, base sheet date, they are discounted to present value. metals, heavy minerals and industrial minerals. Equity compensation benefits On a secondary segment basis, significant geographic Senior management, including executive directors, marketing regions have been identified. have been granted share options. Grants are based on existing ordinary shares and can be purchased or the The basis of segment reporting is representative of the purchase can be deferred. The option or purchase price internal structure used for management reporting. equals market price on the date preceding the date of the grant. CASH AND CASH EQUIVALENTS For the purpose of the cash flow statement, cash and When the options are exercised they can either be: cash equivalents comprise cash on hand, deposits held – purchased and if vesting according to the rules of the on call, and investments in money market instruments, scheme, recorded in share capital and share net of bank overdrafts, all of which are available for use premium at the amount of the option price; or by the group unless otherwise stated. – payment can be deferred resulting in no increase in share capital or share premium until paid for and vesting according to the rules of the scheme. EXCEPTIONAL ITEMS Exceptional items are material items which derive from events or transactions that fall within the ordinary activities of the group and which individually or, if of a similar type, in aggregate, need to be disclosed by virtue of their size or incidence. COMPARATIVES Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year. 102 KUMBA FINANCIAL REPORTING 2003 2. OPERATING EXPENSES COST BY TYPE – raw materials and consumables – staff costs – salaries and wages – termination benefits – pension and medical costs – general charges – railage and transport – repairs and maintenance – energy – depreciation on property, plant and equipment – amortisation of intangible assets – movement in inventories – own work capitalised – cost recoveries – sublease received COST BY FUNCTION – Costs of goods sold – Selling and distribution costs – Sublease rent received The above costs are stated after including: Depreciation and amortisation – residential buildings – buildings and infrastructure – machinery, plant and equipment – site preparation, mining development exploration and rehabilitation – mineral properties – leased assets under finance leases – rehabilitation – amortisation of intangible assets Reconditionable spares usage Research and development costs Consultancy fees Operating lease rentals expenses – property – equipment Operating sublease rentals received – property Contingent rentals received GROUP COMPANY 2003 Rm 2002 Rm 2003 Rm 2002 Rm 1 224 1 045 1 340 1 128 1 155 1 237 768 237 529 3 (194) (154) 1 380 1 83 819 1 247 703 174 454 (282) (110) (17) (15) 6 257 5 499 5 016 1 258 (17) 6 257 4 286 1 228 (15) 5 499 6 60 376 51 30 5 1 3 8 4 89 35 41 6 51 296 51 27 22 1 8 1 64 26 47 (17) (2) (14) (2) 57 187 1 14 160 1 20 4 5 (537) (3) (91) (88) (3) (91) 1 4 30 9 19 (3) (2) 38 242 1 199 1 8 3 7 (478) (3) 18 21 (3) 18 1 6 32 13 11 103 Notes to the annual financial statements (continued) GROUP COMPANY 2003 Rm 2002 Rm 2003 Rm 2002 Rm (3) 7 1 193 92 (144) (19) 9 1 (4) 4 (164) (5) 51 (4) 10 1 5 3 35 13 1 (11) 9 1 7 1 (60) 1 (6) (2) 10 1 2. OPERATING EXPENSES (continued) Net (profit)/deficit on disposal or scrapping of property, plant and equipment Auditors’ remuneration – audit fees – other services Net realised losses/(gains) on currency exchange differences Net unrealised losses/(gains) on currency exchange differences Net realised (gains)/losses on the revaluation of derivative instruments Net unrealised gains on the revaluation of derivative instruments Directors’ emoluments (refer to the report of the directors) – executive directors – remuneration received as directors of the company – non-executive directors – remuneration received as directors of the company Note: Pensions Pensions paid or receivable by executive directors are paid or received under contributory pension schemes. Operating lease arrangements – contingent rent received The basis to determine contingent rent received is 25% of all extraordinary maintenance of the building. 104 KUMBA FINANCIAL REPORTING 2003 3. NET FINANCING COSTS Interest expense and loan costs Finance leases Interest income Net interest expense Interest adjustment on non-current provisions Financing costs of R32 million have been capitalised during the year (2002: R nil million). Financing costs capitalised relates to funds specifically borrowed for the purposes of obtaining a qualifying asset. 4. INCOME FROM INVESTMENTS SUBSIDIARIES Unlisted shares – dividends – net interest received 5. IMPAIRMENT CHARGES Impairment of shipping assets (refer note 8) Impairment of other assets Impairment of investment in associates Impairment of investment in joint ventures Impairment of other investments Taxation effect Net effect on attributable earnings The carrying amount of certain investments was greater than the market value thereof. This is considered to be of a permanent nature and was impaired. GROUP COMPANY 2003 Rm 2002 Rm 2003 Rm 2002 Rm 309 8 (77) 240 4 244 309 3 (76) 236 6 242 243 (61) 182 182 260 (48) 212 1 213 354 175 529 196 196 (80) (1) (2) (18) (101) 7 (94) (2) (2) (2) 105 Notes to the annual financial statements (continued) GROUP COMPANY 2003 Rm 2002 Rm 2003 Rm 2002 Rm (6) 9 3 5 (32) (29) % 6,24 (0,01) (2,35) (0,26) 24,19 8,75 8 % 21,70 52,00 6,50 (49,30) 0,52 (7,08) (0,90) 6. TAXATION CHARGE TO INCOME South African normal taxation – current – current year – deferred – current year Foreign normal taxation – current – current year – deferred – current year Share of associates’ and joint ventures’ taxation Secondary tax on companies Non-residents’ share withholdings tax (359) (84) 1 16 17 (39) (140) (29) (11) (5) (16) (10) (32) (2) Total (229) (465) RECONCILIATION OF TAXATION RATES Taxation as a percentage of profit before taxation Taxation effect of – assessed losses not created – capital profits/(losses) – disallowable expenditure – environmental rehabilitation asset – exempt income – inventories – realisation of profits – learnership allowances – reversal of non-tax deductible provisions – share of associates’ and joint ventures’ differences – tax rate differences – temporary differences not provided for – other – secondary tax on companies – withholding tax STANDARD TAX RATE % 32,10 (0,20) (2,80) (2,10) 4,00 (1,00) % 24,14 0,07 4,56 (0,43) 2,34 1,73 0,23 (0,03) (1,16) 0,37 1,31 0,39 (3,33) (0,19) Effective tax rate excluding (loss)/income from equity accounted investments, impairment charge and share of taxation thereon 23,10 29,50 106 KUMBA FINANCIAL REPORTING 2003 30,00 30,00 30,00 30,00 7. EARNINGS PER SHARE Basic headline earnings per share is calculated by dividing the headline earnings by the weighted average number of ordinary shares in issue during the year. Headline earnings (R million) Weighted average number of ordinary shares in issue (million) Headline earnings per share (cents) For the diluted headline earnings per share the weighted average number of ordinary shares is adjusted to assume conversion of not yet released purchased shares and options under the management share scheme, net of shares held by the scheme for releasing purposes. Diluted headline earnings per share is calculated by dividing headline earnings by the adjusted weighted average number of shares in issue. GROUP 2003 2002 784 297 264,0 1098 285 385,3 Weighted average number of ordinary shares in issue (million) Adjusted for options and net purchased shares in terms of the management share scheme (million) Weighted average number for diluted headline earnings per share (million) 297 2 299 285 7 292 Diluted headline earnings per share (cents) 262,2 376,0 Basic attributable earnings per share is calculated by dividing the net profit attributable to shareholders by the weighted average number of ordinary shares in issue during the year. Net profit attributable to ordinary shareholders (R million) Weighted average number of ordinary shares in issue (million) Basic earnings per share (cents) 718 297 241,8 976 285 342,5 For the diluted attributable earnings per share the weighted average number of ordinary shares is adjusted as above Diluted earnings per share (cents) 240,1 334,2 For the current year, shares under option had an effect on the adjusted weighted average number of shares in issue as the average option price attached to the option shares was lower than the average market price. 107 Notes to the annual financial statements (continued) Land and buildings Rm Mineral properties Rm Residential land and buildings Rm Buildings and infra- structure Rm Machinery, plant and equipment Rm Site preparation, mining development, explor- ation and rehabilitation Rm Extensions under construction Rm Total 2003 Rm 8. PROPERTY, PLANT AND EQUIPMENT GROUP Gross carrying amount At beginning of year Additions Non-cash flow additions Acquisition of subsidiary Disposals Exchange differences on translation Other movements 107 21 20 (9) 1 1 685 6 357 (3) 7 4 126 1 3 (10) 1 029 165 3 187 (3) 5 223 4 662 660 24 1 427 (65) (80) 515 676 37 24 311 (4) 9 18 975 497 103 44 (761) 8 260 1 386 155 2 349 (94) (58) At end of year 141 1 056 120 1 609 7 143 1 071 858 11 998 Accumulated depreciation At beginning of year Depreciation charges Acquisition of subsidiary Accumulated depreciation on disposals Exchange differences on translation At end of year Impairment of assets At beginning of year Impairment charges NET CARRYING AMOUNT AT END OF YEAR 27 30 66 2 125 73 6 (8) 296 60 65 (1) 2 1 785 381 556 (41) (35) 288 52 98 (3) 3 71 422 2 646 438 80 10 90 1 1 2 469 529 785 (53) (28) 3 702 81 10 91 141 931 49 1 187 4 407 632 858 8 205 108 KUMBA FINANCIAL REPORTING 2003 Land and buildings Rm Mineral properties Rm Residential land and buildings Rm Buildings and infra- structure Rm Machinery, plant and equipment Rm Site preparation, mining development, explor- ation and rehabilitation Rm Extensions under construction Rm Total 2003 Rm 6 (6) 8. PROPERTY, PLANT AND EQUIPMENT (continued) COMPANY Gross carrying amount At beginning of year Additions Disposals Other movements At end of year Accumulated depreciation At beginning of year Depreciation charges Accumulated depreciation on disposals At end of year NET CARRYING AMOUNT AT END OF YEAR 13 13 5 1 6 7 46 (9) 4 41 26 4 (5) 25 16 5 14 (4) 15 15 70 14 (15) 69 31 5 (5) 31 38 Included above are fully depreciated assets with an original cost of R491 million (2002: R32 million) which are still in use. The net carrying amount of machinery, plant and equipment includes: Assets held under finance leases (refer note 17) – cost – accumulated depreciation For details on property, plant and equipment pledged as security refer to annexure 1. The replacement value of assets for insurance purposes amounts to R15,8 billion (2002: R8,2 billion). A register of fixed property is available for inspection at the registered office of the company. 2003 Rm 2002 Rm 101 12 89 98 6 92 109 Notes to the annual financial statements (continued) Land and buildings Rm Mineral properties Rm Residential land and buildings Rm Buildings and infra- structure Rm Machinery, plant and equipment Rm Site preparation, mining development, explor- ation and rehabilitation Rm Extensions under construction Rm Total 2002 Rm 8. PROPERTY, PLANT AND EQUIPMENT (continued) GROUP Gross carrying amount At beginning of year Unbundling Additions Non-cash flow additions Disposals Exchange differences on translation Other movements At end of year Accumulated depreciation At beginning of year Unbundling Depreciation charges Accumulated depreciation on disposals Exchange differences on translation Other movements At end of year Impairment of assets At beginning of year Unbundling Impairment charges At end of year NET CARRYING AMOUNT AT END OF YEAR 168 6 (5) (62) 107 621 64 685 27 128 1 2 (6) 578 115 6 (2) 1 332 3 530 322 36 (67) 95 746 583 29 12 1 399 612 85 52 (1 121) 7 007 1 085 141 (80) 95 12 126 1 029 4 662 676 975 8 260 71 6 246 51 1 464 318 236 52 (4) (1) (46) 35 14 2 017 454 (51) 35 14 27 73 296 1 785 288 2 469 80 80 1 1 81 81 107 658 53 733 2 797 387 975 5 710 110 KUMBA FINANCIAL REPORTING 2003 Land and buildings Rm Mineral properties Rm Residential land and buildings Rm Buildings and infra- structure Rm Machinery, plant and equipment Rm Site preparation, mining development, explor- ation and rehabilitation Rm Extensions under construction Rm Total 2002 Rm 8. PROPERTY, PLANT AND EQUIPMENT (continued) COMPANY Gross carrying amount At beginning of year Unbundling Additions Disposals Other movements At end of year Accumulated depreciation At beginning of year Unbundling Depreciation charges Accumulated depreciation on disposals At end of year 8 (2) 6 NET CARRYING AMOUNT AT END OF YEAR 6 14 (1) 13 4 1 5 8 50 4 (8) 46 23 6 (3) 26 20 3 2 5 75 6 (10) (1) 70 27 7 (3) 31 5 39 111 Notes to the annual financial statements (continued) GROUP COMPANY 2003 Rm 2002 Rm 2003 Rm 2002 Rm 9. INTANGIBLE ASSETS PATENTS, LICENCES AND FRANCHISE GROSS CARRYING AMOUNT At beginning of year Acquisition of subsidiary At end of year ACCUMULATED AMORTISATION At beginning of year Acquisition of subsidiary Amortisation charge At end of year NET CARRYING AMOUNT AT END OF YEAR 10. GOODWILL POSITIVE GOODWILL At beginning of year Unbundling Amortisation charge* At end of year Comprising: Cost Accumulated amortisation NEGATIVE GOODWILL At beginning of year Unbundling Additions Recognised in income* At end of year Comprising: Cost Accumulated amortisation 117 117 16 3 19 98 23 (23) 243 243 (82) 2 (80) (131) 51 (80) 46 (23) 23 243 220 23 (49) 49 (49) 49 The negative goodwill arising during 2003 results from the acquisition of Ticor Limited and is amortised over 12,7 years. * Goodwill amortisation as disclosed per the income statement. 112 KUMBA FINANCIAL REPORTING 2003 GROUP COMPANY 2003 Rm 2002 Rm 2003 Rm 2002 Rm 11. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES ASSOCIATED COMPANIES – listed – unlisted JOINT VENTURES (UNLISTED) – incorporated – unincorporated 100 1 101 10 7 17 1 152 3 1 155 19 10 29 Total 118 1 184 Refer to annexure 2 for market and directors’ valuations of investments. 86 86 7 7 93 ASSOCIATED COMPANIES JOINT VENTURES Loans 2003 Rm GROUP At beginning of year Additional interests acquired Acquisition of controlling interest in associate, now consolidated Movement in indebtedness to/from associated companies/repayments Disposals Net share of results – share of results before taxation as per income statement* – share of exceptional items* – share of goodwill* – share of taxation (refer note 6) Dividends paid Investments 2003 Rm Loans 2003 Rm 13 28 1 142 44 (966) (1) 32 (7) (38) (7) (33) Exchange difference adjustments (179) (2) Share of reserve movements in the year Impairment loss AT END OF YEAR (ANNEXURE 2) COMPANY At beginning of year Movement in indebtedness to/from associated companies/repayments AT END OF YEAR (ANNEXURE 2) 77 (2) 62 51 51 39 1 34 35 Total Investments 2003 Rm 1 155 44 (966) 28 (1) 32 (7) (38) (7) (33) (181) 77 (2) 101 52 34 86 2003 Rm 29 15 (3) (16) (8) 17 7 7 51 1 52 7 7 59 Total 2003 Rm 29 15 (3) (16) (8) 17 7 7 113 Notes to the annual financial statements (continued) ASSOCIATED COMPANIES Investments 2002 Rm Loans 2002 Rm Total 2002 Investments 2002 JOINT VENTURES Loans 2002 Rm Rm Rm 11. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES (continued) GROUP At beginning of year Unbundling Additional interests acquired Movement in indebtedness to/from associated companies/repayments Net share of results – share of results before taxation as per income statement* – share of exceptional items* – share of goodwill* – share of taxation (refer note 6) Dividends paid Exchange difference adjustments Share of reserve movements in the year Impairment loss 857 94 12 869 94 (2) (2) 116 (12) (40) (35) (47) 316 (105) (2) 116 (12) (40) (35) (47) 319 (105) (2) 3 6 7 19 (4) 1 AT END OF YEAR (ANNEXURE 2) 1 142 13 1 155 29 COMPANY At beginning of year Unbundling Additional interests acquired Movement in indebtedness to/from associated companies/repayments AT END OF YEAR (ANNEXURE 2) 51 51 51 1 52 1 1 7 7 * Income from equity accounted investments as disclosed in the income statement, amounts to R2 million (2002: R83 million). Total 2002 Rm 6 7 19 (4) 1 29 7 7 Aggregate post-acquisition reserves: – associated companies – joint ventures TOTAL 2003 Rm 2002 Rm 3 8 11 24 43 67 114 KUMBA FINANCIAL REPORTING 2003 GROUP COMPANY 2003 Rm 2002 Rm 2003 Rm 2002 Rm 12. INVESTMENTS IN SUBSIDIARIES Shares at cost less impairment losses Indebtedness: – by subsidiaries – to subsidiaries TOTAL (ANNEXURE 3) Aggregate attributable after tax profits/(losses) of subsidiaries: – profits – losses 13. FINANCIAL ASSETS Environmental Rehabilitation Trust Fund asset Long-term receivables Investments (refer to annexure 2) 14. INVENTORIES Finished products Work-in-progress Raw materials Plant spares and stores Merchandise Included above are inventories relating to the Ticor SA project which might be sold or utilised in production over more than 12 months. Included in the above are inventories carried at net realisable value: – finished products – raw materials – plant spares and stores – merchandise 15. TRADE AND OTHER RECEIVABLES Trade Other Derivative instruments 6 288 (4 246) 3 226 (1 804) 143 50 79 272 377 602 131 227 32 1 369 13 2 31 32 78 1 071 256 28 1 355 135 40 37 212 345 409 47 128 26 955 26 14 26 66 722 275 25 1 022 1 386 1 185 2 988 (216) 2 772 4 158 2 947 (400) 2 547 3 732 7 3 22 32 7 1 21 29 2 63 13 78 163 163 115 Notes to the annual financial statements (continued) 16. SHARE CAPITAL SHARE CAPITAL AT PAR VALUE Authorised 500 000 000 ordinary shares of R0,01 each Issued 296 962 801 ordinary shares of R0,01 each Share premium TOTAL RECONCILIATION OF AUTHORISED SHARES Number of authorised ordinary shares at beginning of year (million) Number of shares issued during the year (million) Number of outstanding authorised shares at end of year GROUP COMPANY 2003 Rm 2002 Rm 2003 Rm 2002 Rm 5 5 5 5 3 2 677 2 680 203 203 3 2 677 2 680 500 297 203 3 2 677 2 680 203 203 3 2 677 2 680 500 297 203 The unissued ordinary shares are under the control of the directors until the forthcoming annual general meeting subject to the following conditions: – the authority is valid until the next annual general meeting but shall not extend beyond 15 months; – a paid press announcement giving full details, including the impact on net asset value and earnings per share, be published after any issue representing, on a cumulative basis within one financial year, 5% or more of the number of shares in issue prior to the issue concerned; – that the issue in aggregate in one financial year shall not exceed 15% of the number of shares of the company’s issued ordinary share capital; and – that, in determining the price at which an issue of shares for cash will be made in terms of this authority, the maximum discount permitted shall be 10% of the weighted average trading price of the ordinary shares on the JSE Securities Exchange SA (adjusted for any dividend declared but not yet paid or for any capitalisation award made to shareholders) over the 30 business days prior to the date that the price of the issue is determined or agreed by the directors of the company. 116 KUMBA FINANCIAL REPORTING 2003 17. INTEREST-BEARING BORROWINGS NON-CURRENT BORROWINGS Summary of loans by financial year of redemption 2003 2004 2005 2006 2007 2008 onwards Total non-current borrowings (annexure 1) Current portion included in current liabilities Total Details of interest rates payable on borrowings are shown in annexure 1. INTEREST-BEARING BORROWINGS Non-current borrowings Short-term borrowings Current portion of non-current borrowings Total short-term borrowings Total Included in the above interest-bearing borrowings are obligations relating to finance leases. Details are: Minimum lease payments: – less than 1 year – more than 1 year and less than 5 years – more than 5 years – total – less future finance charges Present value of lease liabilities Representing lease liabilities: – current – non-current (more than 1 year and less than 5 years) – non-current (more than 5 years) Total 18. OTHER LONG-TERM PAYABLES Other long-term payables: Iscor captive mines Other long-term payables GROUP COMPANY 2003 Rm 2002 Rm 2003 Rm 2002 Rm 407 697 1 126 273 705 3 208 (407) 2 801 2 801 130 407 537 931 221 124 86 71 380 1 813 (931) 882 882 9 931 940 292 200 622 99 111 1 324 (292) 1 032 1 032 154 292 446 844 138 36 300 1 318 (844) 474 474 9 844 853 3 338 1 822 1 478 1 327 30 27 57 7 50 25 25 50 386 2 388 44 55 99 16 83 40 43 83 178 178 Iscor has funded the capital expenditure at the Thabazimbi and Tshikondeni captive mines in terms of supply agreements. The funds are repayable over the life of the assets as specified in the supply agreements. 117 Notes to the annual financial statements (continued) 19. PROVISIONS GROUP For the year ended 30 June 2002 At beginning of year Unbundling Charge to income statement Additional provisions Interest adjustment Unused amounts reversed Utilised during year At end of year Current portion included in current liabilities Total non-current provisions For the year ended 30 June 2003 At beginning of year Charge to income statement Additional provisions Acquisition of subsidiary Provisions capitalised to property, plant and equipment Interest adjustment Unused amounts reversed Utilised during year At end of year Current portion included in current liabilities Total non-current provisions Environmental rehabilitation Rm Leave pay benefits Restructuring Rm Rm Total Rm 290 11 5 6 (15) 286 (22) 264 286 78 20 39 15 4 (2) 362 (18) 344 106 44 47 (3) (40) 110 110 110 66 41 27 (2) (30) 146 146 21 13 13 (2) 32 (17) 15 32 (11) 21 (10) 11 417 68 65 6 (3) (57) 428 (39) 389 428 144 61 66 15 4 (2) (43) 529 (28) 501 118 KUMBA FINANCIAL REPORTING 2003 19. PROVISIONS (continued) COMPANY For the year ended 30 June 2002 At beginning of year Unbundling Charge to income statement Additional provisions Interest adjustment Unused amounts reversed Utilised during year At end of year Current portion included in current liabilities Total non-current provisions For the year ended 30 June 2003 At beginning of year Charge to income statement Transfer to subsidiaries Additional provisions Interest adjustment Unused amounts reversed Utilised during year At end of year Current portion included in current liabilities Total non-current provisions Environmental rehabilitation Rm Leave pay benefits Restructuring Rm Rm Total Rm 1 1 1 1 1 4 4 5 5 25 7 10 (3) (8) 24 24 24 10 11 (1) (9) 25 25 25 8 10 1 (3) (8) 25 25 25 14 15 (1) (9) 30 30 ENVIRONMENTAL REHABILITATION Provision is made on a progressive basis for environmental rehabilitation costs where either a legal or constructive obligation is recognised as a result of past events. Estimates are based upon costs that are regularly reviewed and adjusted as appropriate for new circumstances. Contributions towards the cost of the mine closure are also made to the Kumba Rehabilitation Trust Fund and the balance of the fund amounted to R143 million (2002: R135 million) (refer to note 13) at year-end. This amount is included in the financial assets of the group. Cash flows will take place when the mines are rehabilitated. LEAVE PAY BENEFITS In terms of the group policy, employees are entitled to accumulate vested leave benefits not taken within a leave cycle. The obligation is reviewed annually. RESTRUCTURING The liability includes accruals for plant and facility closures, including the dismantling costs thereof and employee termination costs, in terms of announced restructuring plans for the Durnacol mine. Provision is made on a piecemeal basis, only for those restructuring obligations supported by a formally approved plan. The time frame for the restructuring is five years. 119 Notes to the annual financial statements (continued) GROUP COMPANY 2003 Rm 2002 Rm 2003 Rm 2002 Rm 20. DEFERRED TAXATION The movement on the deferred taxation account is as follows: At beginning of year Unbundling Acquisition of subsidiary Non-distributable reserve charge Income statement charge (note 6) At end of year Comprising: Deferred taxation liabilities – property, plant and equipment – foreign taxation to be set-off for group tax entity – inventories – environmental rehabilitation trust fund asset – prepayments – unrealised profits Deferred taxation assets – provisions – property, plant and equipment – inventories – other – taxation losses carried forward – foreign taxation losses carried forward – foreign taxation losses to be set-off for group tax entity 781 49 35 34 899 1 473 (147) 17 23 17 1 713 68 781 1 167 6 31 1 384 1 204 (110) (26) (1) (1) (248) (246) 147 (485) 899 (94) (255) (74) (423) 781 CALCULATED TAXATION LOSSES Available for set-off against future South African taxable income included above 827 850 470 627 (47) 1 050 120 21. TRADE AND OTHER PAYABLES Trade Other Derivative instruments 533 391 17 941 120 KUMBA FINANCIAL REPORTING 2003 (11) (9) (20) 1 2 8 11 (14) (6) (11) (31) (20) 37 25 89 6 (6) (5) (11) (1) 2 1 (12) (12) (11) 29 208 (2) 235 22. NOTES TO THE CASH FLOW STATEMENT 22.1 CASH RETAINED FROM OPERATIONS Net operating income/(loss) Adjusted for non-cash movements – depreciation – provisions – foreign exchange revaluations – reconditionable spares usage – net deficit on disposal or scrapping of property, plant and equipment – net deficit on disposal or scrapping of investments Working capital movements – increase in inventories – decrease/(increase) in trade and other receivables – decrease/(increase) in non-current financial assets – (decrease)/increase in trade and other payables – utilisation of provisions (note 19) 22.2 INCOME FROM EQUITY ACCOUNTED INVESTMENTS Income from equity accounted investments as per income statement Dividends received from equity accounted investments Less: Non-cash flow income from equity accounted investments 22.3 NET FINANCING COSTS Net financing costs as per income statement Financing costs not involving cash flow (note 19) 22.4 DIVIDENDS PAID Amounts unpaid at beginning of year Dividends declared and paid Dividends declared and paid by subsidiaries to minorities Amounts unpaid at end of year 22.5 NORMAL TAXATION PAID Amounts unpaid at beginning of year Unbundling Adjusted opening balance Amounts charged to the income statement Arising on translation of foreign entities Amounts unpaid at end of year GROUP COMPANY 2003 Rm 2002 Rm 2003 Rm 2002 Rm 1 212 1 683 523 59 72 8 (12) (108) 21 32 (212) (28) 454 62 (44) 8 (4) (135) (182) 30 707 (57) 1 567 2 522 2 49 (2) 49 (244) 4 (240) (252) (34) (286) (223) (223) (183) 2 94 (310) 83 47 (83) 47 (242) 6 (236) (12) (12) (358) (2) 223 (149) 99 5 14 2 5 (127) 44 17 (118) (9) (68) (182) (182) (252) (252) 3 3 (38) 3 (32) (18) 7 7 (37) 7 39 117 (26) (21) (8) 67 (213) 1 (212) 3 (3) 121 Notes to the annual financial statements (continued) GROUP COMPANY 2003 Rm 2002 Rm 2003 Rm 2002 Rm (6) (6) (1) 243 167 409 9 131 122 (23) (1) (234) (30) (264) (1 122) (1 122) (36) (275) (28) (303) (782) (782) (62) 12 (14) (14) (34) (74) (36) (50) (108) 131 120 (11) (7) (26) 7 636 169 (467) 107 (55) (21) (464) (17) (110) (18) 649 701 52 (168) (16) 398 275 (17) 12 18 128 111 2 3 (71) (209) (172) 2 (2) 28 (2) 60 325 (13) (3) (216) (9) (37) 98 22. NOTES TO THE CASH FLOW STATEMENT (continued) 22.6 INVESTMENT TO MAINTAIN OPERATIONS Replacement of property, plant and equipment Reconditionable spares 22.7 INVESTMENT TO EXPAND OPERATIONS Expansion and new technology 22.8 INVESTMENT IN OTHER NON-CURRENT ASSETS Increase in associates, joint ventures and other investments Decrease/(increase) in investments in subsidiaries Proceeds on disposal of investments 22.9 FOREIGN CURRENCY TRANSLATION RESERVE At beginning of year Unbundling Closing balance Movement Transfers from/(to) NDR Unrealised losses in relation to foreign transactions Revaluation of long-term loans Less arising on translation of foreign entities: – inventories – accounts receivable – financial assets – derivatives – accounts payable – utilisation of provision – taxation paid – dividends paid – fixed assets acquired – proceeds from investments sold – investments acquired – long-term loans – short-term loans – share capital 122 KUMBA FINANCIAL REPORTING 2003 23. ACQUISITIONS TICOR LIMITED (AUSTRALIA) On 1 April 2003, the group acquired an additional 0,21% of the issued share capital of Ticor Ltd, bringing the interest of the group to 50,12% which infers control. Ticor is included in the heavy minerals business segment. On 27 June 2003, an additional 1,26% was acquired bringing the interest of the group to 51,38% at 30 June 2003. The acquired business contributed revenues of R275 million and operating profits of R35 million to the group for the period from 1 April 2003 to 30 June 2003. MAGNETIC MINERALS LIMITED On 1 April 2003 Ticor Ltd acquired a controlling interest in Magnetic Minerals Ltd resulting in the consolidation thereof from such date. ZnERGY (PROPRIETARY) LIMITED On 30 November 2002 the group acquired an additional 8,5% of the issued share capital of ZnERGY (Pty) Ltd, which is included in the base metals segment. An additional 30% was acquired on 1 April 2003 bringing the interest of the group at 30 June 2003 to 85%. The acquired business contributed revenues of R nil million and operating profits of R nil million to the group for the period from 1 December 2002 to 30 June 2003. Details of assets acquired and goodwill are as follows Purchase consideration: – cash paid on acquisition – additional interest of fair value of assets acquired Negative goodwill The assets and liabilities arising from the acquisition are as follows: – cash and cash equivalents – property, plant and equipment – financial assets – investments – intangible assets – inventories – trade and other receivables – trade and other payables – interest-bearing borrowings – non-current provisions – current provisions – deferred taxation Fair value of net assets Negative goodwill Minority interest Total purchase consideration Less: – cash and cash equivalents in subsidiary acquired – value of shares held before consolidation Cash inflow on acquisition of controlling interest (refer to cash flow statement) Magnetic Minerals Ltd Rm ZnERGY (Pty) Ltd Rm (111) 111 4 113 2 (12) 107 9 12 (6) (15) Ticor Ltd Rm (943) 1 147 204 370 1 442 9 823 87 254 480 (238) (876) (59) (7) (49) 2 236 (204) (1 085) 947 107 (4) (103) (370) (943) (366) Total Rm (1 054) 1 258 204 374 1 564 9 823 101 254 480 (256) (891) (59) (7) (49) 2 343 (204) (1 085) 1 054 (374) (1 046) (366) 123 Notes to the annual financial statements (continued) 24. FINANCIAL INSTRUMENTS The centralised corporate treasury function provides services to all the businesses in the group, co-ordinates access to domestic and international financial markets, and manages the financial risks relating to the group’s operations. The group’s objective in using financial instruments is to reduce the uncertainty over future cash flows arising from movements in currency, interest rates and base metal prices. Currency and interest rate exposure is managed within board-approved policies and guidelines, which restrict the use of derivatives to the hedging of specific underlying currency, interest rate and base metal price exposures. Compliance with group policies and exposure limits is reviewed by the internal auditors on a continuous basis and reports to the board audit committee. 24.1 FOREIGN CURRENCY RISK MANAGEMENT The group undertakes transactions denominated in foreign currencies, hence exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters utilising forward exchange contracts (FECs), currency options and currency swap agreements. Material FECs and currency options, which relate to specific balance sheet items or do not form part of a hedging relationship at 30 June 2003 and 30 June 2002, are summarised as follows: FOREIGN CURRENCY 2003 Exports Market related value Rm Recognised Contract fair value value Rm gains/(losses) Rm Foreign amount United States dollar – FECs 68 516 530 14 2002 Exports United States dollar – FECs United States dollar – Put options United States dollar – Call options Imports United States dollar – FECs 21 12 33 1 218 138 346 221 130 350 3 (8) 4 10 10 124 KUMBA FINANCIAL REPORTING 2003 24. FINANCIAL INSTRUMENTS (continued) 24.1 FOREIGN CURRENCY RISK MANAGEMENT (continued) The group has entered into certain forward exchange contracts, which relate to specific foreign commitments not yet due and export earnings of which the proceeds are not yet receivable. Details of the contracts at 30 June 2003 and 30 June 2002 are as follows: FOREIGN CURRENCY 2003 Exports1 United States dollar – FECs United States dollar – Put options United States dollar – Call options Attributable to minorities Loans2 United States dollar – FECs Imports2 United States dollar – FECs Euro – FECs Japanese yen – FECs Danish krona – FECs Australian dollars – FECs Market related value Rm Contract value Rm Recognised fair value in equity Rm Foreign amount 88 14 5 16 8 6 7 653 104 41 117 66 1 8 1 701 112 37 128 72 9 1 48 8 (27) 4 (11) (6) 1 (1) Note: Unrealised exchange gains or losses amounting to R45 million arising from the revaluation of Ticor Limited’s foreign currency loans which are a natural hedge against specific future export sales revenue, are recognised in equity as hedge accounting has been applied. FOREIGN CURRENCY 2002 Exports1 United States dollar – FECs United States dollar – Put options United States dollar – Call options Loans2 United States dollar – FECs Imports2 United States dollar – FECs Euro – FECs Swedish krona – FECs Danish krona – FECs Great Britain pounds – FECs Market related value Rm Recognised Contract fair value value Rm in equity Rm Foreign amount 9 3 9 6 10 22 2 7 91 31 91 70 51 224 2 10 1 90 31 94 45 48 181 2 9 1 (1) (3) 25 3 42 1 1. Recognised fair value in equity to be released to income statement within six months. 2. Recognised fair value in equity to be released to income statement within three years. 125 Notes to the annual financial statements (continued) 24. FINANCIAL INSTRUMENTS (continued) 24.2 PRICE HEDGING Prices for future purchases and sales of goods and services are generally established on normal commercial terms through agents or directly with suppliers and customers. Price hedging is undertaken on a limited scale for future zinc sales of Rosh Pinah Zinc Corporation (Pty) Limited and Zinc Corporation of South Africa Limited to secure operating margins and reduce cash flow volatility. The forward hedged position at balance sheet date is shown below: 2003 Recognised transactions 2002 Recognised transactions Market related value Rm 4 Tons 750 1 250 7,5 Contract value Rm Recognised gains Rm 4 10 2,5 24.3 INTEREST RATE RISK MANAGEMENT The group is exposed to interest rate risk as it borrows and deposits funds at both fixed and floating interest rates. The risk is managed by maintaining an appropriate mix between fixed and floating rate borrowings taking into account future interest rate expectations. A proportion of term borrowings were entered into at floating interest rates in anticipation of a decrease in the interest rate cycle. The interest rate repricing profile is summarised below: At 30 June 2003 Term borrowings Call borrowings % of total borrowings At 30 June 2002 Term borrowings Call borrowings % of total borrowings 1 – 6 months Rm 911 130 31 1 373 9 76 7 – 12 months Rm Beyond 1 year Total borrowings 2 297 69 440 24 3 208 130 100 1 813 9 100 The group makes use of interest rate derivatives to hedge specific exposures in the interest rate repricing profile of existing borrowings. The value of borrowings hedged by interest rate derivatives, the instruments used and the respective rates applicable to these contracts were as follows: Borrowings hedged Rm Floating interest payable % Fixed interest receivable % Recognised fair value gains Rm 200 3m Jibar +1% margin 13% 13,2 100 100 9,67 3m Jibar – 1,74bp 11,5 3m Jibar 0,5 0,6 At 30 June 2003 Interest rate derivatives up to 1 year: – interest rate flexi-swap At 30 June 2002 Interest rate swaps beyond 1 year – collar structure (cap and floor) – interest rate flexi-swap 126 KUMBA FINANCIAL REPORTING 2003 24. FINANCIAL INSTRUMENTS (continued) 24.4 MATURITY PROFILE OF FINANCIAL INSTRUMENTS The maturity profiles of financial assets and liabilities at 30 June 2003 and 30 June 2002 are summarised as follows: (The derivative instruments reflect the contract amounts) At 30 June 2003 Assets Financial assets Cash and cash equivalents Trade and other receivables Liabilities Interest-bearing borrowings Trade and other payables Percentage profile (%) At 30 June 2002 Assets Financial assets Cash and cash equivalents Trade and other receivables Liabilities Interest-bearing borrowings Trade and other payables 0 – 12 months Rm 964 1 355 537 941 841 (50) 679 1 022 940 1 050 3 – 5 years Rm 1 – 2 years Rm 129 > 5 years Rm 143 697 1 399 705 Total Rm 272 964 1 355 3 338 941 (568) (1 399) (562) (1 688) 83 33 100 34 40 172 221 210 451 Percentage profile (%) 30 19 22 29 (289) (181) (210) (279) Derivative instruments as at 30 June 2003 (included in the above) Recognised transactions – buy – sell Forecasted transactions – buy – sell Derivative instruments as at 30 June 2002 (included in the above) Recognised transactions – buy – sell Forecasted transactions – buy – sell 530 222 330 10 701 251 215 5 371 26 112 10 25 212 679 1 022 1 822 1 050 (959) 100 530 253 813 10 701 286 215 127 Notes to the annual financial statements (continued) 24. FINANCIAL INSTRUMENTS (continued) 24.5 FAIR VALUE OF FINANCIAL INSTRUMENTS At 30 June 2003 the carrying amounts of cash and cash equivalents, trade and other receivables and trade and other payables approximate their fair values due to the short-term maturities of these assets and liabilities. Assets Financial assets Cash and cash equivalents Trade and other receivables Liabilities Non-current interest-bearing borrowings Current interest-bearing borrowings Trade and other payables CARRYING VALUE FAIR VALUE 2003 Rm 272 964 1 355 2 801 537 941 2002 Rm 212 679 1 022 882 940 1 050 2003 Rm 272 964 1 355 2 855 560 941 2002 Rm 212 679 1 022 876 938 1 050 LIABILITIES The fair value of long and medium-term borrowings is calculated using quoted prices, or where such prices are not available, discounted cash flow analyses using the applicable yield curve for the duration of the borrowing. DERIVATIVE INSTRUMENTS Comprise forward exchange contracts, currency options, interest rate collars and swaps as well as zinc forward contracts. The fair value of derivative instruments, included in hedging assets and liabilities are calculated using quoted prices. Where such prices are not available use is made of discounted cash flow analyses using the applicable yield curve for the duration of the instruments. At 30 June 2003, the R70 million (2002: R72 million) fair value of instruments is made up of: Favourable contracts Unfavourable contracts 2003 Rm 88 18 2002 Rm 83 11 When an anticipated future transaction has been hedged and the underlying position has not been recognised in the financial statements, any change in fair value of the hedging instrument is recognised directly in equity. 128 KUMBA FINANCIAL REPORTING 2003 24. FINANCIAL INSTRUMENTS (continued) 24.6 CREDIT RISK MANAGEMENT Credit risk relates to potential exposure on cash and cash equivalents, investments, trade receivables and hedged positions. The group limits its counterparty exposure arising from money market and derivative instruments by only dealing with well- established financial institutions of high credit standing. The group exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded are spread amongst approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the board annually. Trade debtors consist of a number of customers, with whom Kumba has long-standing relationships. A high portion of term supply arrangements exist with such clients resulting in limited credit exposure which exposure, where dictated by customer creditworthiness or country risk assessment, is further mitigated through a combination of confirmed letters of credit and credit risk insurance. Detail of the credit risk exposure above 5% BY INDUSTRY Manufacturing (including structural metal) Public utilities Other BY GEOGRAPHICAL AREA South Africa Asia Europe Australia USA Other 2003 % 2002 % 91 7 2 100 29 26 18 10 11 6 100 89 8 3 100 38 39 21 2 100 24.7 LIQUIDITY RISK MANAGEMENT The group manages liquidity risk by monitoring forecast cash flows and ensuring that adequate unutilised borrowing facilities are maintained. Borrowing capacity is determined by the directors in terms of the articles of association, from time to time: Amount approved Total borrowings Unutilised borrowing capacity 2003 Rm 2002 Rm 4 921 3 338 1 583 8 428 1 822 6 606 For the 2002 financial year it was approved that the borrowing powers (total interest-bearing debt) of the company and its subsidiaries initially be determined at 175% of shareholders’ funds to cater for a substantial allocation of debt to Kumba in order to facilitate the unbundling process. In line with the reduction in debt and the strengthening of the group’s capital base the borrowing powers of the company and the group for the 2003 financial year was reduced to 100% of shareholders’ funds. 129 Notes to the annual financial statements (continued) 25. RELATED-PARTY TRANSACTIONS During the year the company and its subsidiaries, in the ordinary course of business, entered into various sale and purchase transactions with associates and joint ventures. These transactions occurred under terms that are no less favourable than those arranged with third parties. ASSOCIATES AND JOINT VENTURES Details of investments in associates and joint ventures are disclosed in note 11 and annexure 2 whilst income is disclosed in note 11. Interest income from joint ventures of R nil million (2002: R nil million) is included in net financing costs (note 3). The group purchased goods and services to the value of R123 million (2002: R82 million) from, and sold goods to the value of R nil million (2002: R nil million) to associates and joint ventures. The outstanding balances at year-end are as follows: – included in trade and other receivables (note 15) R4 million (2002: R2 million) – included in trade and other payables (note 21) R8 million (2002: R8 million) – included in cash and cash equivalents R nil million (2002: R nil million) – included in the carrying value of associates and joint ventures (note 11) are long-term loans of R39 million (2002: R13 million) – included in long-term debtors R nil million (2002: R nil million) SUBSIDIARIES Details of income from, and investments in subsidiaries are disclosed in notes 4 and 12 respectively, and annexure 3. SPECIAL PURPOSE ENTITIES The group has an interest in the following special purpose entities which are consolidated unless otherwise indicated: Entity Ferrosure (Isle of Man) Insurance Company Limited Ferrosure (SA) Insurance Company Limited Kumba Environmental Rehabilitation Fund Minco Leasing Limited Oreco Leasing Limited Vulcan Leasing Limited Nature of business Offshore insurance captive Insurance captive Trust fund for mine closure Financing company Financing company Financing company Kumba Resources Management Share Trust (not consolidated) Management share incentive trust DIRECTORS Details relating to directors’ emoluments and shareholdings (including options) in the company are disclosed in the report of the directors. SENIOR EMPLOYEES Details relating to option and share transactions are disclosed in note 27. SHAREHOLDERS The principal shareholders of the company are provided in the annual report. CONTINGENT LIABILITIES Details are disclosed in note 28. 130 KUMBA FINANCIAL REPORTING 2003 26. SEGMENT REPORTING Iron ore Coal Base metals Heavy Industrial minerals minerals Other Total 2003 2002 2003 2002 2003 2002 2003 2002 2003 2002 2003 2002 2003 2002 Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm BUSINESS SEGMENTATION Segment revenue – total turnover – inter-group 4 234 4 334 1 638 1 489 892 941 587 227 103 77 52 114 7 506 7 182 6 (25) (20) (12) 14 (37) External 4 234 4 340 1 638 1 489 892 941 587 227 78 57 40 128 7 469 7 182 Segment net operating profit/(loss) Depreciation Income/(loss) from equity accounted investments Impairment charge Goodwill amortisation 882 1 221 279 255 235 215 137 130 15 41 102 29 17 15 2 1 21 6 59 92 58 54 47 73 18 15 (44) 36 1 212 1 683 6 2 21 27 532 454 (71) (9) 82 2 2 83 101 Cash inflow from operations 1 160 1 364 304 400 Other non-cash flow items 51 (1) 9 50 24 11 8 23 (3) (49) 21 (26) 234 109 62 25 22 (42) 440 1 567 2 522 (7) 41 2 18 (22) 127 22 Capital expenditure – cash flow – non-cash flow Segment assets and liabilities 211 104 254 108 125 50 99 33 73 90 947 631 315 362 175 132 73 90 947 631 5 5 3 3 25 8 1 386 1 085 154 141 25 8 1 540 1 226 – assets per balance sheet 4 251 4 160 1 666 1 576 293 422 4 676 1 238 67 47 1 715 1 581 12 668 9 024 – investments in associates and joint ventures 10 19 1 2 1 004 3 107 156 118 1 184 – liabilities per balance sheet 1 455 1 473 834 810 107 129 2 538 796 24 24 1 717 1 673 6 674 4 905 Number of employees (number) 4 312 4 153 2 675 2 927 1 127 1 187 1 3951 340 133 161 932 868 10 574 9 636 1. Includes the employees of Ticor Limited, Australia. 131 Notes to the annual financial statements (continued) 26. SEGMENT REPORTING (continued) Additions Additions to to Additions Additions Carrying Carrying to to property, property, amount amount property, property, plant and plant and of of plant and plant and equipment equipment Segment Segment segment segment equipment equipment (Non- (Non- revenue revenue assets assets (Cash flow) (Cash flow) cash flow) cash flow) 2003 Rm 2002 Rm 2003 Rm 2002 Rm 2003 Rm 2002 Rm 2003 Rm 2002 Rm 3 112 134 1 423 2 347 122 331 2 856 92 1 510 2 471 253 9 387 456 1 994 733 (309) 525 7 712 168 752 137 1 016 1 328 25 1 050 35 154 141 33 GEOGRAPHICAL SEGMENTATION – South Africa – Africa – Europe – Asia – Australia – Other Total segment 7 469 7 182 12 786 9 785 1 386 1 085 154 141 Total segment revenue, which excludes value-added tax and sales between group companies, represent the gross value of goods invoiced. Export revenues are recorded according to the relevant sales terms, when the risks and rewards of ownership are transferred. Total segment revenue further includes operating revenues directly and reasonably allocable to the segments. Segment revenue includes sales made between segments. These sales are made on a commercial basis. Segment net operating profit equals segment revenue less segment expenses. Segment expenses represent direct or reasonably allocable operating expenses on a segment basis. Segment expenses exclude interest, losses on investments and income tax expenses, but include head office expense allocations. Segment assets and liabilities include directly and reasonably allocable operating assets, investments in associates and joint ventures and liabilities. 132 KUMBA FINANCIAL REPORTING 2003 27. EMPLOYEE BENEFITS RETIREMENT FUNDS Independent funds provide retirement and other benefits for all permanent employees, retired employees, and their dependants. At the end of the financial year, the main funds to which Kumba was a participating employer are as follows: – Iscor Pension Fund, operating as a defined benefit fund. This fund is closed to new entrants. – Iscor Retirement Fund, operating as a defined benefit fund. This fund is closed to new entrants. – Iscor Selector Pension Fund and Iscor Selector Provident Fund, both operating as defined contribution funds. – Iscor Employees’ Provident Fund, operating as a defined contribution fund. Members pay a contribution of 7%, with the employer’s contribution of 10% to the above funds being expensed as incurred. All funds are governed by the South African Pension Funds Act of 1956. DEFINED CONTRIBUTION FUNDS Membership of each fund at 30 June 2003 and employer contributions to each fund were as follows: Iscor Selector Funds Iscor Employees’ Provident Fund Other funds Working members 2003 Number 3 836 4 622 64 8 522 Working members Employer Employer contributions contributions 2002 Number 3 723 4 654 80 8 457 2003 Rm 51 24 3 78 2002 Rm 44 21 3 68 Due to the nature of these funds the accrued liabilities by definition equates to the total assets under control of these funds. DEFINED BENEFIT FUNDS Statutory actuarial valuations are performed at intervals of not more than three years. The valuations are performed as at the financial year-end of the funds in question which is 31 December. At the last statutory valuation of the funds within the group (Iscor Pension Fund at 31 December 2001 and the Iscor Retirement Fund at 31 December 2000) and at the interim valuation at 31 December 2002 for the Iscor Pension Fund and 31 December 2001 for the Iscor Retirement Fund, the actuaries were of the opinion that the funds were adequately funded. 133 Notes to the annual financial statements (continued) 27. EMPLOYEE BENEFITS (continued) FUNDED STATUS The funded status of the two defined retirement benefit funds (Iscor Pension Fund at 31 December 2002 and Iscor Retirement Fund at 31 December 2001) for both Iscor and Kumba members was as follows: Fair value of plan assets Present value of funded obligation Net asset Surplus not recognised Net liability as per balance sheet 2002 Rm 6 856 (6 701) 155 (155) 2001 Rm 7 160 (6 814) 346 (346) The pension plan assets consist primarily of equity (local and offshore), interest-bearing stock and property. The actual return on the assets in the Iscor Pension Fund as at 31 December 2002 amounted to R285 million. Principal actuarial assumptions (expressed as weighted averages) at 31 December 2001 were as follows: Pre-retirement discount rate Post-retirement discount rate Expected real after tax return on fund’s assets Future general and merit salary increases Iscor Pension Fund Iscor Retirement Fund Interim valuation Statutory valuation Interim valuation 2002 % 10,0 5,0 2,5 7,5* 2001 % 10,0 5,0 2,5 7,5* 2001 % 10,0 4,5 n/a# n/a# Future pension increases were allowed for the extent that the investment return exceeds the post-retirement discount rate. * Excluding merit increases according to age. # Not applicable. MEDICAL FUNDS The group and company contribute to defined benefit medical aid schemes for the benefit of permanent employees and their dependants. The contributions charged against income amounted to R47 million (2002: R40 million). Kumba has no post- retirement medical aid obligation for current or retired employees. EQUITY COMPENSATION BENEFITS Kumba operates the Kumba Management Deferred Purchase Share Scheme and the Kumba Management Share Option Scheme for senior employees and executive directors of Kumba. The Kumba Management Deferred Purchase Share Scheme consists of a combination of an option scheme, a purchase scheme and a deferred purchase scheme and governs to maturity the existing share scheme rights and obligations of employees transferred from Iscor to Kumba on unbundling. 134 KUMBA FINANCIAL REPORTING 2003 27. EMPLOYEE BENEFITS (continued) The Kumba Management Share Option Scheme consists of the granting of options in respect of ordinary Kumba shares, at market value, to eligible participants. The aggregate number of shares in the issued share capital of Kumba which may at any time be purchased by or allocated and issued to the trustees of both the Kumba Management Deferred Purchase Share Scheme and the Kumba Management Share Option Scheme may not exceed 10% in total of the shares then in issue in the share capital of Kumba. The maximum number of Kumba shares to which any one eligible participant is entitled in total in respect of both schemes albeit by way of an allotment and issue of Kumba shares and/or the grant of options shall not exceed 1% of the shares then in issue in the share capital of Kumba. Shares and/or options held in terms of Kumba Management Deferred Purchase Share Scheme are released in five equal tranches commencing on the second anniversary of an offer date and expire on the ninth anniversary of an offer date. Options granted in terms of the Kumba Management Share Option Scheme can be exercised over five years commencing on the first anniversary of the offer date, provided that by the seventh anniversary of the offer date all options granted are to be exercised, failing which those options not exercised will lapse. A total of 29,7 million shares of the company, representing 10% of the issued shares, have been approved and allocated by shareholders for purposes of the schemes. Of the total of 29,7 million shares, 9 million shares are available in the share scheme for future offers to participants, while 20,6 million shares are allocated as options or deferred purchase shares to participants. Details are as follows: Number of shares available for utilisation in terms of the Kumba Management Share Schemes as at 1 July 2002 Add: Net effect of scheme shares released, forfeitures and adjustments to scheme allocation Less: Share offers accepted Number of shares available for future utilisation as at 30 June 2003 Million 12,7 0,5 (4,2) 9,0 At 30 June 2003 the company’s loan to the Kumba Management Share Trust amounted to R23 million (2002: R26 million). The loan is interest free and has no fixed repayment terms. This amount is reflected as a current asset. The market value of the shares available for utilisation at the end of the year amounted to R273 million. 135 Notes to the annual financial statements (continued) 27. EMPLOYEE BENEFITS (continued) EQUITY COMPENSATION BENEFITS (continued) Details of the option/purchase schemes are: Outstanding at beginning of year Issued Conversion to deferred purchase scheme Exercised Lapsed/cancelled Outstanding at end of year Options Deferred purchase 2003 Million 15,0 4,2 (0,1) (0,2) 18,9 2002 Million 1,0 14,3 2003 Million 2,0 2002 Million 3,2 (0,3) (0,1) 15,0 1,9 (1,2) 2,0 Details of issues during the year are as follows: Expiry date Exercise price (share price range) (R) Total proceeds if options are immediately exercised/deferred purchase shares immediately paid (R million) Details of options/deferred purchase shares exercised during the year are as follows: 2009/2010 2008/2009 24,50 – 51,50 28,05 – 46,90 150 395 Exercise price per share (Share price range) (R) Total proceeds if shares are issued (R million) 26,10 – 47,00 27,60 – 55,00 27,50 – 41,30 28,25 – 59,00 4 4 3 14 Terms of the options and deferred purchase shares outstanding at year-end are as follows: Options Deferred purchase Exercise price R Outstanding ’000 Exercise price R Outstanding ’000 10,88 – 13,10 12,07 – 28,05 9,17 – 51,50 13,66 – 32,55 19,85 – 19,85 254 8,89 – 13,10 13 348 4 227 8,42 – 18,90 8,06 – 20,80 721 10,00 – 23,26 15 1 260 256 214 168 1 913 Total ’000 Deferred purchase ’000 2 005 (91) 16 974 3 789 1 914 20 763 18 550 Options ’000 14 969 3 880 18 849 Expiry date 2006 2007 2008 2009 2010 2011 Total Number of shares vesting at beginning of year Net change during year Number of shares vesting at end of year DIRECTORS’ INTERESTS IN SHARES For details refer to the report of the directors. 136 KUMBA FINANCIAL REPORTING 2003 28. CONTINGENT LIABILITIES Contingent liabilities at balance sheet date, not otherwise provided for in these annual financial statements, arising from: – guarantees in the normal course of business from which it is anticipated that no material liabilities will arise: – related parties – other – other1 GROUP COMPANY 2003 Rm 2002 Rm 2003 Rm 2002 Rm 5 31 14 2 54 36 636 14 256 1. Includes the group’s share of contingent liabilities of associates and joint ventures of R nil million (2002: R23 million). Included in the company’s guarantees are guarantees relating to the Ticor SA project loans as provided by the company. On consolidation the project loans are included in net debt, and the contingent liability of the company eliminated. These contingent liabilities have no tax impact. The timing of any possible outflows are uncertain. 137 Notes to the annual financial statements (continued) GROUP COMPANY 2003 Rm 2002 Rm 2003 Rm 2002 Rm 29. COMMITMENTS CAPITAL COMMITMENTS Capital expenditure contracted for plant and equipment Capital expenditure authorised for plant and equipment but not contracted for 345 624 The above includes the group’s share of capital commitments of associates and joint ventures Capital expenditure will be financed from available cash resources, funds generated from operations and available borrowing capacity. A trust known as The New Africa Mining Fund was established during the year to make portfolio investments in junior mining projects within the Republic of South Africa and elsewhere on the continent of Africa. Kumba Resources as an investor participant to the fund, has committed to contribute R20 million towards the fund. The fund manager can draw down this balance or any portion as and when required by serving a 10-day notice to Kumba. The commitment period commenced on 1 March 2003 and expires on 28 February 2009. OPERATING LEASE COMMITMENTS The future minimum lease payments under non- cancellable operating leases are as follows: – less than 1 year – more than 1 year and less than 5 years – more than 5 years TOTAL OPERATING SUBLEASE Non-cancellable operating lease rentals are receivable as follows: – less than 1 year – more than 1 year and less than 5 years – more than 5 years TOTAL 45 150 42 237 5 28 5 38 625 588 48 29 111 77 217 4 23 27 29 34 4 37 127 19 183 5 28 5 38 28 98 52 178 4 23 27 138 KUMBA FINANCIAL REPORTING 2003 Annexure 1: Non-current interest-bearing borrowings Final repayment date Rate of interest per year (payable half-yearly) 2003 Rate of interest per year (payable half-yearly) 2002 GROUP COMPANY Fixed % Floating % Fixed % Floating % 2003 Rm 2002 Rm 2003 Rm 2002 Rm 2002/03 2002/03 2002/03 2002/03 2003/04 2004/05 2005/06 2005/06 2005/06 2007/08 2007/08 15,030 10,340 12,300 14,220 13,210 12,410 12,581 12,711 13,963 13,650 13,963 6,040 140 200 150 150 225 153 140 200 150 150 225 153 75 99 200 250 250 450 75 99 200 250 250 450 11,670 300 300 1 324 1 318 1 324 1 318 2003/04 2005/06 2007/08 2010/11 14,760 14,939 13,830 14,200 14,678 14,939 13,830 1 2 3 4 5 43 319 741 22 59 360 1 108 441 2005/06 2013/14 7,300 2,310 2,8755 6 32 744 776 54 54 3 208 1 813 1 324 1 318 LOCAL UNSECURED LOANS SECURED LOAN FOREIGN UNSECURED LOANS (USD) TOTAL NON-CURRENT INTEREST-BEARING BORROWINGS (note 17) 1. Capitalised lease agreement secured by machinery, plant and equipment with a book value of R34 million (2002: R37 million), payable monthly. 2. Capitalised lease agreement secured by machinery, plant and equipment with a book value of R53 million (2002: R55 million), payable monthly. 3. Dedicated project finance facility for Ticor South Africa KZN (Pty) Limited and Ticor South Africa (Pty) Limited secured by notarial bond over property, plant and equipment with a book value of R968 million (2002: R943 million). 4. Dedicated project finance facility secured by notarial bond over property, plant and equipment with a book value of R1 414 million. 5. Payable semi-annually and varies with LIBOR. 6. US$100 million senior notes issued by Ticor Finance (ACT) (Pty) Limited, an entity controlled by Ticor Limited. 139 Annexure 2: Investments in associates, joint ventures and other investments Number Nature of business1 of shares Percentage holding held Group carrying amount Company carrying amount Year-end other than 30 June 2003 % 2002 % 2003 Rm 2002 Rm 2003 Rm 2002 Rm 94 86 51 ASSOCIATED COMPANIES LISTED AST Group Limited Mincor Resources NL (Australian) Ticor Limited (Australian)(2) UNLISTED Manganore Iron Mining Limited A South Dunes Coal Terminal Co (Pty) Limited ZnERGY (Pty) Limited(3) A M A A C 180 000 000 52 251 000 26,74 30,73 30,13 34,11 49,15 25 000 50,00 50,00 1 333 93 33,00 33,00 46,50 69 31 1 54 1 004 2 1 TOTAL ASSOCIATED COMPANIES (note 11) JOINT VENTURES INCORPORATED UNLISTED Pietersburg Iron Company (Pty) Limited Safore (Pty) Limited Sishen Shipping (Pty) Limited Trans Orient Ore Supplies (Pty) Limited UNINCORPORATED Bridgetown Dolomite Mine Safore TOTAL JOINT VENTURES (note 11) INVESTMENT COMPANIES Mineral Deposits Limited Other TOTAL OTHER INVESTMENTS (note 13) TOTAL INVESTMENT Market value of listed shares as at 30 June Directors’ valuation of unlisted shares and joint ventures A B B D A B 4 000 400 400 50,00 40,00 40,00 50,00 40,00 40,00 4 000 50,00 50,00 50,00 40,00 50,00 40,00 A 11 299 000 15,37 15,37 101 1 155 86 3 3 7 10 7 7 17 7 72 79 197 16 19 10 10 29 9 28 37 1 221 138 1 340 108 60 7 7 7 22 22 115 29 7 31 December 31 December 31 December 28 February 1 52 7 7 7 21 21 80 149 31 Where the above entities’ financial year-ends are not coterminous with that of the company, financial information has been obtained from published information or management accounts as appropriate. 1. A – Mining, B – Shipping charter, C – Service, D – Iron ore merchant, M – Manufacturing. 2. Ticor Limited consolidated from 1 April 2003. 3. Previously Cross Continental Energy Storage System (Pty) Limited, consolidated from 1 December 2002. 140 KUMBA FINANCIAL REPORTING 2003 The group’s effective share of balance sheet, income statement and cash flow items in respect of associated companies and joint ventures are as follows: Associated companies Joint ventures Ticor Limited* (included in associated companies) 2003 Rm 2002 Rm 2003 Rm 2002 Rm 2003 Rm 2002 Rm INCOME STATEMENTS REVENUE Operating expenses NET OPERATING PROFIT Net financing costs Income from investments Income from equity accounted investments Impairment charge Exceptional items Goodwill amortised (LOSS)/PROFIT BEFORE TAXATION Taxation (LOSS)/PROFIT AFTER TAXATION Outside shareholders’ interest NET (LOSS)/PROFIT ATTRIBUTABLE TO ORDINARY SHAREHOLDERS BALANCE SHEETS NON-CURRENT ASSETS CURRENT ASSETS TOTAL ASSETS EQUITY AND LIABILITIES ORDINARY SHAREHOLDERS’ EQUITY MINORITY INTEREST NON-CURRENT LIABILITIES Interest-bearing borrowings Non-current provisions Deferred taxation and other CURRENT LIABILITIES Interest-bearing borrowings Other 1 088 (1 019) 1 518 (1 301) 69 (43) (4) (3) (39) (20) (6) (26) 5 (21) 1 346 661 2 007 1 150 2 445 21 60 47 282 217 (9) 4 (17) (52) (42) 101 (48) 53 53 1 688 893 2 581 1 394 20 561 34 134 33 405 TOTAL EQUITY AND LIABILITIES 2 007 2 581 CASH FLOW STATEMENTS Net cash flows from operating activities Net cash flows from investing activities Net cash flows from financing activities Foreign currency translations NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS 42 (124) (3) (8) 131 (365) (78) 163 (93) (149) * Consolidated from 1 April, only the nine months from 1 July 2002 to 31 March 2003. 7 (4) 3 3 3 3 6 14 20 10 10 20 (2) (1) (3) 31 (11) 20 20 (3) 17 17 5 96 101 498 (409) 89 (26) (4) 59 (19) 40 755 (623) 132 (7) 4 (43) 86 (31) 55 40 55 1 207 531 1 738 1 408 678 2 086 21 1 114 1 251 3 77 101 52 401 21 54 148 1 738 56 (120) (8) 509 34 114 178 2 086 31 (208) (141) 163 52 (72) (155) 141 Interest of company Investment in shares Indebtedness 2003 R 2002 R 2003 Rm 2002 Rm Annexure 3: Investments in subsidiaries1 Issued capital – unlisted ordinary shares R 200 1 000 2 10 000 200 5 500 000 1 1 1 1 2 518 966 1 000 2 10 000 6 003 355 247 712 500 1 1 000 2 518 966 1 000 2 10 000 6 003 355 247 712 500 1 1 000 1 1 1 1 200 717 524 937 1 200 1 129 720 003 1 000 200 928 767 821 1 000 510 510 510 100 5 000 1 61 362 56 916 258 958 27 078 747 61 362 11 1 225 200 9 437 677 5 832 9 961 692 5 3 200 2 000 1 1 000 420 679 000 10 10 10 10 10 Country of incor- Nature of poration2 business3 RSA RSA RSA RSA DIRECT INVESTMENTS Colonna Properties (Pty) Limited Cullinan Refractories (Pty) Limited(4) Ferroland Grondtrust (Pty) Limited Glen Douglas Dolomite (Pty) Limited Ticor South Africa KZN (Pty) Limited (effectively 80%)(5) RSA Kumba Base Metals Limited(6) RSA NAM Kumba Base Metals Namibia (Pty) Limited Kumba Coal (Pty) Limited RSA Kumba Properties (Groenkloof) (Pty) Limited(7) RSA Kumba Properties (Kloofzicht) (Pty) Limited(8) RSA Kumba Properties (Princess Grant) (Pty) Limited(9) Mineral Exploration Company of Southern Africa (Pty) Limited Rocsi Holdings (BVI) Limited Sishen Iron Ore Company (Pty) Limited Ticor South Africa (Pty) Limited (effectively 80%)(10) RSA BVI RSA RSA RSA INDIRECT INVESTMENTS RSA Anacon Investments (Pty) Limited RSA Coastal Coal (Pty) Limited MAU Confin Limited NE Downs Holding BV JRS Ferrofin (Jersey) Limited SWL Groler Investments Limited NV Ipcor N.V. DRC Iscor Congo S.P.R.L. MAU Kamofin Limited NE Kumba Africa BV AUS Kumba Australia (Pty) Limited IRL Kumba Finance Ireland Limited BVI Kumba Holdings (BVI) SA AUS Kumba Holdings (Australia) (Pty) Limited HK Kumba Hong Kong Limited Kumba International BV NE Kumba Investments (Australia) (Pty) Limited AUS RSA Minsa (Pty) Limited Mtunzini Sands (Pty) Limited RSA Rosh Pinah Zinc Corporation (Pty) Limited (95%) Sishen South Mining (Pty) Limited Taurus Marine Limited Ticor Limited (effectively 51,38%) Ticor Chemical Company (Pty) Limited (effectively 51,38%) Crisa (Pty) Limited (effectively 51,38%) Bertini (Pty) Limited (effectively 51,38%) Ticor Chemicals Ghana (Pty) Limited (indirect 51,38%) Omacor Sac (effectively 51,38%) NAM RSA CMN AUS GHANA PERU AUS AUS AUS 142 KUMBA FINANCIAL REPORTING 2003 B A D A A M C A B B B B H A M A A C A C H C C C A C C H H C C H B A A A S A M C C C C 19 572 (91) 464 5 1 1 413 377 16 5 315 (228) 9 566 (36) 1 605 337 (107) (118) 27 16 (1) 49 14 (1) 53 67 Country of incor- Nature of poration2 business3 Issued capital – unlisted ordinary shares Interest of company Investment in shares Indebtedness R 2003 R 2002 R 2003 Rm 2002 Rm AUS AUS AUS AUS AUS AUS AUS AUS INDIRECT INVESTMENTS (continued) Ticor Resources (Pty) Limited (effectively 51,38%) Magnetic Minerals Limited (effectively 51,38%) TiO2 Corporation NL (effectively 51,38%) Tific (Pty) Limited (effectively 51,38%) Yalgoo Minerals (Pty) Limited (effectively 51,38%) Pigment Holdings (Pty) Limited (effectively 51,38%) Synthetic Rutile Holdings (Pty) Limited (effectively 51,38%) Senbar Holdings (Pty) Limited (effectively 51,38%) Ticor (Overseas) Holdings (Pty) Limited (effectively 51,38%) Ticor Titanium Australia (Pty) Limited (effectively 51,38%) Rocit Investments (Pty) Limited (effectively 51,38%) Ticor (Bermuda) Holdings Limited (effectively 51,38%) Ticor (Bermuda) Minerals Limited (effectively 51,38%) Ticor Finance (A.C.T.) (Pty) Limited AUS (effectively 51,38%) Ticor Energy (Pty) Limited (effectively 51,38%) AUS The Durban Navigation Collieries (Pty) Limited RSA The Vryheid (Natal) Railway Coal and Iron Company Limited Trojan Bulk Shipping Limited Tshikondeni Mining Company (Pty) Limited ZnERGY (Pty) Limited (85%) RSA CMN RSA RSA BER BER AUS AUS RSA H A A H H C C C H H H H H F F A A S A M 180 337 136 31 740 964 85 101 240 10 48 216 010 10 10 10 10 10 3 157 714 74 836 74 836 10 10 516 000 3 675 1 000 2 240 (17) 3 (17) 2 TOTAL INVESTMENTS IN SUBSIDIARIES (note 12) 1 385 968 540 1 185 016 355 2 772 2 547 1. At 100% holding except where otherwise indicated. 2. RSA – Republic of South Africa, AUS – Australia, NAM – Namibia, DRC – Democratic Republic of Congo, MOZ – Mozambique, HK – Hong Kong, UK – United Kingdom, NV – Netherlands Antilles, BVI – British Virgin Islands, CMN – Cayman Islands, IRL – Ireland, JRS – Jersey, MAU – Mauritius, NE – Netherlands, BER – Bermuda. 3. A – Mining, B – Property, C – Service, D – Land management, F – Finance, H – Holdings, M – Manufacturing, S – Shipping. 4. Previously Kumba Base Metals Limited. 5. Previously IHM Heavy Minerals (Pty) Limited. 6. Previously Zinc Corporation of SA Limited. 7. Previously Vicva Investments Fifty Nine (Pty) Limited. 8. Previously Vicva Investments Sixty Six (Pty) Limited. 9. Previously Vicva Investments Fifty Six (Pty) Limited. 10. Previously Tiscor (Pty) Limited. 143 Notice of annual general meeting Notice is hereby given that the third annual general meeting of required to be allotted and issued by the company pursuant members of Kumba Resources Limited will be held at the to the scheme for cash, without restrictions to any public Kumba Corporate Centre, Roger Dyason Road, Pretoria West, shareholder, as defined by the Listings Requirements of the South Africa, at 14:30 on Wednesday, 19 November 2003 for JSE, as and when suitable opportunities arise, subject to the following business: the following conditions: ORDINARY BUSINESS 1. To receive and adopt the annual financial statements for 7.1 that this authority will only be valid until the next annual general meeting but will not extend beyond 15 months from the date of this general meeting; the year ended 30 June 2003, including the directors’ 7.2 that a paid press announcement giving full details, report and the report of the auditors. including the impact on net asset value and earnings 2. To re-elect the following directors of the company in per share, be published after any issue representing, accordance with the provisions of the articles of association: on a cumulative basis within one financial year, 5% or Ms MLD Marole, Messrs BE Davison, GS Gouws, AJ Morgan more of the number of shares in issue prior to the and Professor NS Segal. issue concerned; 3. To approve the remuneration of the non-executive directors 7.3 that the issues in the aggregate in any one financial for the year ended 30 June 2003. year will not exceed 15% of the number of shares of 4. To approve the following annual fees as the maximum the company’s issued ordinary share capital; and non-executive directors’ remuneration for the period 7.4 that, in determining the price at which an issue of 1 July 2003 to 30 June 2004: Chairman: Director: Audit committee chairman: Audit committee member: Board committee chairman: Board committee member: R250 000 R125 000 R 80 000 R 40 000 R 60 000 R 30 000 shares for cash will be made in terms of this authority, the maximum discount permitted will be 10% of the weighted average traded price of the ordinary shares on the JSE (adjusted for any dividend declared but not yet paid or for any capitalisation award made to shareholders) over the 30 business days prior to the date that the price of the issue is determined or 5. To authorise the directors to determine the auditors’ fees agreed by the directors of the company.” for the year ended 30 June 2003. A 75% majority is required of the votes cast by shareholders 6. To consider and, if thought fit, to pass, with or without present or represented by a proxy at the meeting for the modification, the following resolution as an ordinary resolution: approval of this ordinary resolution. “That subject to the provisions of the Companies Act 61 of 1973, as amended (the Act), and the Listings Requirements of the JSE Securities Exchange South Africa SPECIAL BUSINESS 8. To consider and, if thought fit, to pass, with or without (JSE), the directors are hereby authorised to allot and issue modification, the following resolution as a special resolution: at their discretion all the remaining authorised but “That by way of a general authority, the company; and any unissued ordinary shares of one cent each in the capital of of its subsidiaries from time to time through their directors, the company for such purposes as they may determine, being authorised thereto in terms of the articles of association after setting aside so many shares as may be required to be of the company and the subsidiaries respectively, are allotted and issued by the company pursuant to the share authorised in terms of sections 85 and 89 of the Act, and the incentive scheme (the scheme).” Listings Requirements of the JSE, to acquire from time to 7. To consider and, if thought fit, to pass, with or without time shares issued by the company, provided that: modification, the following resolution as an ordinary resolution: 8.1 any such acquisition of shares will be implemented on “That in terms of the Listings Requirements of the JSE, the the JSE (the open market); directors are hereby authorised to issue the unissued 8.2 this approval will be valid only until the next annual ordinary shares of one cent each in the capital of the general meeting of the company; and will not extend company, after setting aside so many shares as may be beyond 15 months from the date of this general 144 KUMBA FINANCIAL REPORTING 2003 meeting; and may be varied or revoked by special resolution by any general meeting of the company at NOTES FORMS OF PROXY/VOTING INSTRUCTION FORMS any time prior to such annual general meeting; Kumba shareholders 8.3 an announcement containing full details of such acquisition will be published as soon as the company, or the subsidiaries respectively, have acquired shares issued by the company constituting, on a cumulative basis, not less than 3% of the number of shares in the company in issue as at the date of this approval; and an announcement will be published in respect of each subsequent acquisition by either the company or by the subsidiaries respectively, as the case may A member entitled to attend and vote at the annual general meeting may appoint one or more proxies to attend, speak and, on a poll, vote in his/her stead. A proxy need not be a member of the company. A form of proxy, as well as a voting instruction form, accompany this notice. The transfer secretaries must receive duly completed forms of proxy not less than 48 hours before the time of meeting. The attention of shareholders is directed to the additional notes contained in the forms of proxy, relating to the completion and timeous submission of be, of shares issued by the company, constituting, on forms of proxy. a cumulative basis, not less than 3% of the number of shares in the company in issue as at the date of this approval; 8.4 the company and its subsidiaries respectively will not be entitled to acquire shares issued by the company constituting, on a cumulative basis, more than 20% of the number of shares in the company in issue as at the date of this approval; and 8.5 shares issued by the company may not be acquired at a price greater than 10% above the weighted average traded price of the company’s shares for the five business days immediately preceding the date of the relevant acquisition. 9. To transact such other business as may be transacted at an annual general meeting. Members who have already appointed a CSDP (Central Securities Depositary Participant) or broker may use the enclosed voting instruction form for the purpose of advising their CSDP or broker of their voting instructions. Members should contact their CSDP or broker with regard to the cut-off time for lodging of voting instruction forms. If, however, such members wish to attend the annual general meeting in person, they will need to request their CSDP or broker to provide them with the necessary authority in terms of the custody agreement entered into between the shareholder and the CSDP or broker. Should members require assistance in appointing a CSDP or a broker to hold the electronic shareholding balances, and settle or receive money or shares on their behalf, the company’s transfer secretaries can be contacted for assistance in this regard. The reasons for and the effects of the resolutions are set out in the explanatory notes that form part of this notice. ADR holders By order of the board MS Viljoen Company Secretary 30 September 2003 Kumba has an Over-the-Counter American Depositary Receipt (ADR) facility with The Bank of New York (BoNY) under a deposit agreement. ADR holders may instruct BoNY as to how the shares represented by their ADRs should be voted. Enquiries Computershare (Pty) Ltd www.computershare.com, +27 (0)11 370 5000 American Depositary Receipt Facility (ADR) www.adrbny.com, shareowners@bankofny.com +(1) 888 269 2377 145 Notice of annual general meeting (continued) EXPLANATORY NOTES TO RESOLUTIONS FOR CONSIDERATION AT THE ANNUAL GENERAL MEETING ORDINARY BUSINESS SPECIAL BUSINESS SPECIAL RESOLUTION: GENERAL AUTHORITY TO PERMIT THE REPURCHASE OF SHARES The reason for the special resolution is to grant the directors RESOLUTION 1: CONSIDERATION OF ANNUAL FINANCIAL of the company a general authority for the acquisition of the STATEMENTS company’s shares by the company, or a subsidiary of the The directors must present to shareholders at the annual general company. meeting the annual financial statements incorporating the directors’ report and the report of the auditors, for the year ended The effect of the special resolution will be to authorise the 30 June 2003. These are contained within the annual report. directors of the company to procure that the company or any of its subsidiaries may purchase shares issued by the company. RESOLUTION 2: RE-ELECTION OF DIRECTORS Under the articles of association, one third of the directors are The directors, after considering the effect of a repurchase, up required to retire at each annual general meeting and may offer to the maximum limit, of the company's issued shares, are of themselves for re-election. In addition, any person appointed to the opinion that if such repurchases were implemented: fill a casual vacancy on the board of directors, or as an addition • the company and the group will be able in the ordinary thereto, is similarly required to retire and is eligible for re- course of business to pay its debts for a period of election at the next annual general meeting. Biographical 12 months after the date of the notice issued in respect of details of the directors who retire and, being eligible, are the annual general meeting; offering themselves for re-election appear on page 147. • the assets of the company and the group will be in excess of the liabilities of the company and the group for a period RESOLUTION 3 AND 4: REMUNERATION OF NON- of 12 months after the date of the notice issued in respect EXECUTIVE DIRECTORS of the annual general meeting. For this purpose, the assets Unless the remuneration has been determined at a previous and liabilities will be recognised and measured in meeting for a number of years, the company in general accordance with the accounting policies used in the latest meeting as per the articles of association shall from time to audited group annual financial statements; time determine the remuneration of directors. • the share capital and reserves of the company and the group RESOLUTION 5: AUDITORS’ FEES will be adequate for a period of 12 months after the date of notice issued in respect of the annual general meeting; and It is usual for this matter to be left to the directors, as they will • the working capital of the company and the group will be be conversant with the amount of work that was involved in the adequate for a period of 12 months after the date of notice audit. The chairman will therefore move a resolution to this issued in respect of the annual general meeting. effect authorising the directors to attend to this matter. The sponsor’s working capital letter in terms of section 2.12 of RESOLUTIONS 6 AND 7: DIRECTORS’ CONTROL OF the Listings Requirements of the JSE, shall be submitted prior UNISSUED ORDINARY SHARES to the date upon which the company enters into the market. The existing authorities relating to resolutions 6 and 7 are due to expire at the forthcoming annual general meeting, unless At the present time the directors have no specific intention renewed. The directors consider it advantageous to renew these with regard to the utilisation of this authority, which will only authorities to enable the company to take advantage of business be used if the circumstances are appropriate. opportunities which might arise in the future. 146 KUMBA FINANCIAL REPORTING 2003 Short biographies of Kumba directors seeking re-election Name: Marion Lesego Dawn Marole (43) Academic qualifications: BCom, DTE, MBA North Eastern University Boston, USA. Experience: Dawn worked as auditor for the Bophuthatswana Government Auditor-General department. In 1984, she joined Setlogelo Technikon as lecturer. Since 1995, she has held various posts with the Development Bank of Southern Africa, Nedbank in the corporate credit department and was a founder executive director of Thebe Health Care. She joined Fabcos Investment Holdings in 1999 and acted as deputy chief executive officer of Fabvest Investment Holdings until August 2003. Current directorships: Tsogo Sun Investment Limited, Tsogo Investment (Pty) Limited, Premier Foods (Pty) Limited, Anchor Yeast Zimbabwe (Pty) Limited. Name: Barry Erskine Davison (58) Academic qualifications: BA (Wits), Graduates Commerce diploma (Birmingham University), Advanced CIS diploma, Advanced Executives Programme (UNISA). Occupation: Chairman of Anglo American Platinum Corporation Limited, president of the Chamber of Mines of South Africa and a non-executive director of Nedcor Ltd and Nedbank Ltd. Experience: Barry was Anglo Platinum’s chief executive from 1997 until June 2003. In 1986 he joined the board of Anglo American Corporation of South Africa Limited. Appointed to Anglo American Plc board on 15 May 2001. He has extensive mining industry experience, with a career starting at Johannesburg Consolidated Investment Company Limited, Consolidated Metallurgical Industries Limited, Consolidated Murchison Limited and Rustenburg Platinum Mines Limited. Current directorships: Anglo American Plc, Anglo American Corporation of South Africa Limited, Anglo American Platinum Corporation Limited, Lebowa Platinum Mines Limited, Potgietersrust Platinum Limited, Rustenburg Platinum Mines Limited and Precious Metals Refiners (Pty) Limited. Name: Gert Stephanus Gouws (44) Academic qualifications: BCom, BCom (Hons), CA(SA), FCMA, Advanced Management Programme (Insead). Occupation: Executive vice-president and chief financial officer, Industrial Development Corporation SA Limited (IDC). Experience: Held various positions in the IDC since 1983. Current directorships: IDC (alternate), Algorax (Pty) Limited (chairman), Atlantis Business Park (Pty) Limited (chairman), DMC Catalyst (Pty) Limited, The Export-Import Finance Corporation of South Africa, Findevco (Pty) Limited, Impofin (Pty) Limited, Kindoc Nominees (Pty) Limited, Konbel (Pty) Limited, Konoil (Pty) Limited, OMG Automotive Catalysts SA (Pty) Limited (chairman). Name: Allen John Morgan (56) Academic qualifications: BScB Eng (Electrical), Pr Eng. Occupation: Director of companies. Experience: Allen started his career as an electrical engineer with Eskom in 1971. He was promoted to regional manager of Eskom Orange Free State in 1986. In 1988, he was appointed distribution division manager and, in the same year, he was promoted to deputy general manager, distribution and marketing. He was appointed to Eskom’s board in 1992 and served as executive director marketing and electrification, executive director sales and customer service and Eskom chief executive (1994 – 2000). Current directorships: Eskom Holdings Limited (non-executive director), Murray & Roberts Holdings Limited (non-executive director). Name: Nick Saul Segal (63) Academic qualifications: BSc (Eng), PhD (Phys Chem)(Rand), DPhil (Economics)(Oxon). Occupation: Director of the Graduate School of Business, University of Cape Town. Experience: From 1970 to 1974, Nick was employed by the World Bank as the senior economist on India. In 1978, he joined Coopers & Lybrand in the city of London as associate director. He founded international economic and public policy consultants, Segal Quince Wicksteed Limited in 1983 in the UK. In 1992, he joined JCI Limited as group consultant, becoming a director in 1995. From 1997 to 1998, he served as an executive director of Anglovaal Limited. In 1999, he took up the position of director of the Graduate School of Business, University of Cape Town. He was president of the Chamber of Mines (1996-97), deputy chair of the organised business representative body, Business South Africa (1996-98), a member of the Presidential Labour Market Commission (1995-96), and a member of the Council on Higher Education (1998-2002). 147 Kumba administration Secretary and registered office MS Viljoen Kumba Resources Limited Roger Dyason Road Pretoria West, Pretoria, 0002 (PO Box 9229, Pretoria, 0001, South Africa) Company registration number: 2000/011076/06 Share code: KMB ISIN code: ZAE000034310 Auditors KPMG Inc KPMG Crescent 85 Empire Road Parktown, 2193 Commercial bankers Absa Bank Limited Corporate law advisers CLS Consulting Services (Pty) Limited United States ADR Depositary The Bank of New York ADR Department 101 Barclay Street New York, NY 10286 United States of America Sponsor JP Morgan Equities Limited 1 Fricker Road Illovo Johannesburg, 2196 Transfer secretaries Computershare (Pty) Limited 70 Marshall Street Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107) Shareholders’ diary FINANCIAL YEAR-END ANNUAL GENERAL MEETING REPORTS AND ACCOUNTS Interim report for the half-year ending 31 December Announcement of annual results Annual Report DISTRIBUTION Dividend declaration Payment 148 KUMBA FINANCIAL REPORTING 2003 30 June November Published February August September August September Voting instruction form KUMBA RESOURCES LIMITED (Incorporated in the Republic of South Africa) (Registration No. 2000/011076/06) (Kumba or the company) JSE share code: KMB ONLY FOR USE BY REGISTERED MEMBERS WHO HAVE APPOINTED A CENTRAL SECURITIES DEPOSITARY PARTICIPANT (CSDP) OR BROKER For use in respect of the annual general meeting of the company to be held at 14:30 on Wednesday, 19 November 2003, at the Kumba Corporate Centre, Roger Dyason Road, Pretoria West, South Africa, or at any adjournment thereof. Members who have already appointed a CSDP or broker may use this form to advise their CSDP or broker of their voting instructions on the proposed resolutions in the spaces provided below. However, should such members wish to attend the annual general meeting in person, they will need to request their CSDP or broker to provide them with the necessary authority in terms of the custody agreement entered into between the shareholders and the CSDP or broker. I/We being a member(s) of the company holding shares hereby indicate in the spaces provided below to my/our CSDP/broker my/our voting instructions on the resolutions to be proposed at the annual general meeting of the company to be held at 14:30 on Wednesday, 19 November 2003 or at any adjournment thereof: For Against Abstain VOTING INSTRUCTIONS Ordinary business Resolution 1 – Adoption of 2003 audited financial statements Resolution 2 – Re-election of directors Ms MLD Marole Mr BE Davison Mr GS Gouws Mr AJ Morgan Professor NS Segal Resolution 3 – Non-executive directors’ remuneration for the year ended 30 June 2003 Resolution 4 – Non-executive directors’ remuneration for the period 1 July 2003 to 30 June 2004 Resolution 5 – Directors’ authorisation to determine auditors’ fees for the year ended 30 June 2003 Resolution 6 – Directors’ authorisation to allot and issue unissued ordinary shares Resolution 7 – Directors’ authorisation to allot and issue ordinary shares for cash Special business Special Resolution – Directors’ authorisation to repurchase shares Signed at Signature Assisted by me, where applicable (name and signature) this day of 2003 Notes 1. Please indicate in the appropriate spaces the number of votes to be cast. Each share carries the right to one vote. 2. All the votes need not be exercised neither need all votes be cast in the same way, but the total of the votes cast and in respect of which abstention is directed may not exceed the total of the votes exercisable. 3. The signatory must initial any alteration or correction made to this voting instruction form. 4. When there are joint holders of shares, any one holder may sign the voting instruction form. 5. Completed voting instruction forms should be forwarded to the shareholder’s CSDP or broker. Members should contact their CSDP or broker with regard to the cut-off time for lodging of voting instruction forms. 149 Form of proxy KUMBA RESOURCES LIMITED (Incorporated in the Republic of South Africa) (Registration No. 2000/011076/06) (Kumba or the company) JSE share code: KMB ONLY FOR USE BY REGISTERED MEMBERS WHO HAVE NOT APPOINTED A CENTRAL SECURITIES DEPOSITARY PARTICIPANT (CSDP) OR BROKER For completion by registered members of Kumba unable to attend the annual general meeting of the company to be held at 14:30 on Wednesday, 19 November 2003, at the Kumba Corporate Centre, Roger Dyason Road, Pretoria West, South Africa, or at any adjournment thereof. I/We of being the holder/s of 1 2 shares in the company, do hereby appoint: (address) or, failing him/her or, failing him/her the chairman of the annual general meeting as my/our proxy to attend, speak and, on a poll, vote on my/our behalf at the annual general meeting of members to be held on Wednesday, 19 November 2003 at 14:30, at Kumba Corporate Centre, Roger Dyason Road, Pretoria West, South Africa or at any adjournment, and to vote or abstain from voting as follows on the ordinary and special resolutions to be proposed at such meeting: For Against Abstain Ordinary business Resolution 1 – Adoption of 2003 audited financial statements Resolution 2 – Re-election of directors Ms MLD Marole Mr BE Davison Mr GS Gouws Mr AJ Morgan Professor NS Segal Resolution 3 – Non-executive directors’ remuneration for the year ended 30 June 2003 Resolution 4 – Non-executive directors’ remuneration for the period 1 July 2003 to 30 June 2004 Resolution 5 – Directors’ authorisation to determine auditors’ fees for the year ended 30 June 2003 Resolution 6 – Directors’ authorisation to allot and issue unissued ordinary shares Resolution 7 – Directors’ authorisation to allot and issue ordinary shares for cash Special business Special Resolution – Directors’ authorisation to repurchase shares Signed at Signature Assisted by me, where applicable (name and signature) this day of 2003 Notes 1. By marking the appropriate spaces, the member acknowledges that the vote of his/her proxy may be exercised at the discretion of the chairman. 2. A member entitled to attend and vote at the annual general meeting may appoint a proxy or proxies to attend, speak and, on a poll, vote in his/her stead. A proxy need not be a member of the company. 3. Every person present and entitled to vote at the annual general meeting as a registered member or as a representative of a body corporate will on a show of hands have one vote only, irrespective of the number of shares such person holds or represents, but in the event of a poll, every share shall have one vote. 4. Forms of proxy must be lodged at, posted or faxed to Computershare (Pty) Ltd (+27 (0)11 370 5000), to be received not later than 48 hours before the time fixed for the meeting. 151 Visit us at www.kumbaresources.com G R A P H I C O R 2 9 1 8 4 Visit us at www.kumbaresources.com 

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