More annual reports from Exxaro Resources Ltd:
2023 ReportA N N U A L R E P O R T 2 0 0 4 H a r n e s s i n g t h e P O W E R o f t h e e a r t h A N N U A L R E P O R T 2 0 0 4 O U R V I S I O N Kumba’s vision is to outperform the mining and mineral sector in creating value for all stakeholders through exceptional people and superior processes. C O N T E N T S Group operational structure Fold-out: Operational areas Group review at a glance Summary of business operations Group profile Our values Business objectives Chairman’s statement Chief executive’s review Macro-economic review Commodity review The China factor Financial review Business operations review Growth Review of mineral resources and reserves Legislative compliance Executive committee Directorate Corporate governance Risk management Shareholders’ information Shareholders’ analysis Economic summary Safety, health and environmental management summary Social summary The way forward for sustainability Case studies Assurance report Index to Global Reporting Initiative Indicators Group cash value added statement Supplementary financial information Selected group financial data Definitions Financial index Notice of annual general meeting Short biographies of Kumba directors seeking re-election Annexure A: The proposed Kumba Resources Long-term Incentive Plan 2005 and Deferred Bonus Plan 2005 Administration and Shareholders’ diary Form of proxy 1 2 4 6 8 12 17 18 19 22 33 43 47 52 56 58 60 66 69 71 74 75 82 89 90 94 96 101 102 104 105 106 172 175 176 182 183 KUMBA RESOURCES’ FOOTPRINT P7 FOCUS ON STAKEHOLDER PROSPERITY P21 A STEPPING STONE OF OPPORTUNITY FOR SOUTH AFRICA P32 A NEW GENERATION MINING COMPANY P55 CREATING BALANCE IN OUR ENVIRONMENT P73 DETERMINED TO UPLIFT OUR PEOPLE P81 FRONT COVER: (Clockwise top left) Stacking and reclaiming at Saldanha; foreman August Mosima oversees loading at Grootegeluk; mineral separation plant at Ticor SA; and (centre) one of Sishen’s workhorses – a 730E with a 200-tonne carrying capacity. G R O U P O P E R A T I O N A L S T R U C T U R E Iron ore – Sishen mine Coal – Grootegeluk mine Heavy minerals – Ticor SA SISHEN IRON ORE THABAZIMBI GROOTEGELUK LEEUWPAN COAL KUMBA RESOURCES TSHIKONDENI HEAVY MINERALS BASE METALS INDUSTRIAL MINERALS FERROSILICON TICOR SA (SMELTER) TICOR LTD 51,54% (AUSTRALIA) CHIFENG 28% (CHINA) ZINCOR GLEN DOUGLAS TICOR SA (MINE) TICOR 60% 40% ROSH PINAH 89,5 (NAMIBIA) Heavy minerals – Ticor Limited Base metals – Zincor refinery Industrial minerals – Glen Douglas mine Kumba holds 100% unless otherwise indicated. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 1 K U M B A ’ S L O C A T I O N S Amsterdam (Netherlands) 4 Faleme (Senegal) Kipushi (DRC) Namibia South Africa Iron ore Sishen 1 Thabazimbi 2 Sishen South 3 Faleme 4 5 Hope Downs Coal 6 Grootegeluk Tshikondeni 7 Leeuwpan 8 Inyanda JV 9 10 Moranbah South Heavy minerals Empangeni smelter 11 12 Hillendale Fairbreeze 13 Tiwest 14 Toliara 15 Base metals 16 Zincor 17 Rosh Pinah Chifeng 18 Kipushi 19 Industrial minerals 20 Glen Douglas 21 Ferrosilicon 18 Beijing Chifeng Hong Kong 19 China 15 Toliara (Madagascar) Hope Downs Tiwest Perth 5 14 10 Australia Moranbah South NAMIBIA 17 6 21 16 8 2 20 1 3 SOUTH AFRICA 7 9 11 12 13 Southern African operations Operations Growth projects Representative offices K U M B A A N N U A L R E P O R T 2 0 0 4 G R O U P R E V I E W A T A G L A N C E Abridged financial statements INCOME STATEMENTS Revenue Net operating profit (incl. impairments and goodwill amortisation) Net financing costs Investment and equity income Taxation Minority interest Add back items for headline earnings Headline earnings Headline earnings per share (cents) (restated) Dividends per share (cents)3 Average realised exchange rate (R/US$) CASH FLOW STATEMENTS Cash flow from normal operations Proceeds on sale of assets Capital expenditure Disposal of intangible fixed assets Increase in cash resources on acquisition of a controlling interest in subsidiaries Investments Foreign currency translations Shares issued Unbundling costs Cash flows included above relating to non-interest-bearing debt Non-cash flow movements in net debt of the group arising from currency translation differences Non-cash flow movements in net debt of the group arising from special purpose entities Increase in net debt on acquisition of a controlling interest in subsidiaries Loans from minority shareholders (Increase)/decrease in net debt GROUP BALANCE SHEETS Assets Non-current assets Property, plant and equipment Biological assets 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) (restated) Earnings per ordinary share – Attributable earnings (cents) (restated) – Headline earnings (cents) (restated) Dividend per ordinary share (cents)3 Dividend cover (times)4 Net asset value per ordinary share (cents) Attributable cash flow per ordinary share (cents) Compound annual growth rate % 14,6 25,2 12,6 8,3 16,4 16,0 15,1 18,0 16,0 (7,9) 12-months ended 31 December 2004 Unaudited1 Rm 8 709 1 380 (271) (1) (341) (90) 96 773 258 125 6,51 1 432 50 (886) 3 (10) (80) (1) 185 (22) (3) 668 At 31 December 2004 Audited1 Rm 8 473 31 71 (53) 96 63 285 1 258 2 745 12 969 5 353 1 110 6 463 2 331 609 425 1 042 836 1 263 12 969 1 909 302 300 226 258 125 2 1 773 439 Years ended 30 June 2003 Audited Restated2 Rm 2002 Audited Rm 2001 Unaudited Pro forma Rm 5 404 629 (271) 137 (107) 123 511 195 7 469 1 189 (244) 2 (229) 66 784 265 60 9,01 7 182 1 608 (242) 83 (465) (8) 122 1 098 385 85 10,18 780 44 (1 386) 2 184 25 (1 085) 366 (34) (8) 2 (181) (18) (891) 95 (1 231) At 30 June 2003 Audited Restated2 Rm 8 205 29 98 (80) 118 154 272 964 2 679 12 439 4 895 1 191 6 086 2 801 388 355 1 055 537 1 217 12 439 2 374 297 297 244 265 60 4 1 648 266 (50) (9) 393 (44) (16) 1 398 At 30 June 2002 Audited Rm At 30 June 2001 Unaudited Pro forma Rm 5 710 4 987 23 1 184 423 212 679 1 977 10 208 4 816 487 5 303 882 178 389 1 204 940 1 312 10 208 1 143 297 285 343 385 85 5 1 622 762 47 810 294 1 577 7 715 3 270 349 3 619 1 242 398 727 1 299 430 7 715 2 541 272 262 148 195 1 202 1. Following the acquisition of a majority shareholding by Anglo American plc, the group changed its year end from 30 June to 31 December. 2. Restated for prior year adjustments and changes in accounting policies in respect of the consolidation of the Management Share Trust, and biological assets. 3. Dividends are disclosed according to the period to which they relate and not according to date of declaration. 4. Dividend cover in relation to headline earnings. K U M B A A N N U A L R E P O R T 2 0 0 4 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) – EBIT 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 (R000) 12-months ended 31 December 2004 Years ended 30 June 2003 2002 Unaudited pro forma 2001 14 13 15 14 17 16 5 8 2 30 0,9 1 15 15 16 14 17 16 4 7 2 39 1,3 3 25 24 27 23 27 22 7 9 1 22 0,5 1 14 12 16 12 12 11 3 1 70 2,8 9 691 899 10 574 706 9 636 745 11 694 462 1. Ratios for previous years have been adjusted to reflect the inclusion of impairment charges and goodwill amortisation in net operating profit. Operating margin Revenue and total assets Net finance cost cover – EBITDA % 25 20 15 10 5 0 n o i l l i m d n a R 14 000 12 000 10 000 8 000 6 000 4 000 2 000 0 s e m i T 10 9 8 7 6 5 4 3 2 1 0 FY02 FY03 12M04 FY02 FY03 12M04 FY02 FY03 12M04 Revenue Total assets Net debt and debt-to-equity ratio Return on equity, invested capital and capital employed Net debt to EBITDA ) m R ( t b e d t e N 2 500 2 000 1 500 1 000 500 0 45 40 35 30 25 20 15 10 5 0 ) % ( o i t a r y t i u q e o t t b e d t e N 30 25 20 % 15 10 5 0 s e m i T 1,6 1,4 1,2 1,0 0,8 0,6 0,4 0,2 0 FY02 FY03 12M04 FY02 FY03 12M04 FY02 FY03 12M04 Net debt Net debt to equity ratio Return on equity Return on capital employed Return on invested capital S U M M A R Y O F B U S I N E S S O P E R A T I O N S 1 000 tonnes IRON ORE PRODUCTION Sishen Thabazimbi Total SALES Sishen exports COKING COAL PRODUCTION Grootegeluk Tshikondeni Durnacol Hlobane Total THERMAL COAL Production Sales to Eskom OTHER COAL PRODUCTION Grootegeluk Leeuwpan Northfield Hlobane Total HEAVY MINERALS – TICOR SA2 PRODUCTION Ilmenite Zircon Rutile Low manganese pig iron (LMPI) Scrap pig iron Chloride slag Sulphate slag HEAVY MINERALS – TICOR LIMITED3 PRODUCTION Ilmenite Zircon Rutile Leucoxene Synthetic rutile Pigment ZINC PRODUCTION Rosh Pinah (zinc concentrate) Zincor (zinc metal) Chifeng (zinc metal) 4 Rosh Pinah (lead concentrate) GLEN DOUGLAS PRODUCTION Dolomite Aggregate Lime 12-months ended 31 December 2004 Rm 12-months ended 31 December 2003 Rm 2003 2002 Years ended 30 June 2001 2000 1999 27 609 2 503 30 112 27 110 2 484 29 594 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 20 923 20 446 20 946 19 916 18 057 18 750 16 842 1 972 437 1 781 381 1 830 377 1 670 404 1 536 408 182 1 312 375 386 2 409 2 162 2 207 2 074 2 126 2 073 1 207 343 415 22 1 987 14 017 14 356 13 869 14 097 13 036 13 051 13 351 13 198 12 037 11 934 12 261 12 072 11 495 11 829 1 403 1 615 1 323 1 610 1 313 1 456 1 194 1 631 1 258 1 575 1 152 934 706 906 59 1 3 018 2 933 2 769 2 825 2 833 2 086 1 672 262 49 20 63 5 96 40 236 38 18 11 112 54 124 104 12 27 653 705 73 176 50 17 25 6 27 20 217 40 17 16 97 48 108 111 3 31 668 579 76 91 53 20 3 214 40 18 13 90 47 91 115 22 642 586 99 44 45 19 223 39 15 9 89 46 75 105 28 543 650 95 221 45 16 8 105 46 72 105 22 618 537 112 180 37 14 9 100 45 72 103 20 508 364 102 159 32 10 7 81 42 79 110 23 597 364 97 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 was consolidated from 1 April 2003. The production tonnes reflect Ticor’s 50% interest in its Tiwest joint venture. Physical information provided for periods prior to consolidation are for comparative purposes only. 4. The effective interest in the physical information of the Chifeng (Hongye) refinery has been disclosed. K U M B A A N N U A L R E P O R T 2 0 0 4 G R O U P P R O F I L E Iron ore – the Sishen and Thabazimbi mines produced over 30,1Mt of lumpy and fine iron ore, of which 20,9Mt 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. Sishen Coal – collectively, Grootegeluk, Leeuwpan and Tshikondeni mines produced over 19,4Mt 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. Grootegeluk Heavy minerals – 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, a significant titanium producer. The smelter complex at Empangeni, comprising two furnaces, is currently being commissioned and at full production will produce 250ktpa of titanium dioxide slag and 140ktpa of low manganese pig iron. Ticor Limited’s Tiwest joint venture in Western Australia, in which it has a 50% interest, produces 90ktpa of titanium dioxide, 720ktpa of heavy minerals concentrate and 450ktpa of ilmenite. Ticor SA 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 a low-cost producer of zinc metal. In addition to South Africa and Namibia, this business unit also has an interest in the expansion of the Chifeng zinc refinery in China. Rosh Pinah 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 mine near Meyerton in Gauteng provides a range of products to steelworks and other consumers. Unless otherwise indicated, production volumes are for the 12 months ended 31 December 2004. Glen Douglas P A G E 2 K U M B A A N N U A L R E P O R T 2 0 0 4 Operations Regional location Ownership B U S I N E S S E S I r o n o r e Sishen mine Northern Cape C o a l H e a v y m i n e r a l s Thabazimbi mine Grootegeluk mine Leeuwpan mine Tshikondeni mine Ticor South Africa Limpopo Limpopo Division of Sishen Iron Ore Company (Pty) Ltd Division of Sishen Iron Ore Company (Pty) Ltd Division of Kumba Coal (Pty) Ltd Mpumalanga Limpopo Division of Kumba Coal (Pty) Ltd Division of Kumba Coal (Pty) Ltd KwaZulu-Natal Kumba Resources Ltd (60%) Ticor Ltd (40%) Ticor Ltd 1 Australia Subsidiary of Kumba Resources Ltd (51,54%) Products Lump ore Fine ore Lump ore Fine ore Thermal coal (Eskom) Semi-soft coking coal Thermal coal (other) Thermal coal (other) Coking coal Zircon Rutile Ilmenite Chloride slag Sulphate slag Low manganese pig iron (LMPI) Zircon Rutile Ilmenite Synthetic rutile Leucoxene Zinc metal Sulphuric acid Metallurgical dolomite Aggregate Lime Atomised ferrosilicon Sales for 12-months to December 2004 000 tonnes % export 70 84 30 18 13 100 100 100 100 100 100 100 100 100 100 100 15 1 100 16 634 10 865 1 315 1 230 13 926 1 991 1 493 1 713 434 48 17 27 84 24 58 38 21 30 50 17 107 142 119 12 12 17 661 706 74 6 n/a B a s e m e t a l s Zincor refinery Gauteng Subsidiary of Kumba Base Metals (Pty) Ltd Zinc metal Sulphuric acid Rosh Pinah mine Chifeng refinery 2 Namibia Subsidiary of Kumba Resources Ltd (89,5%) Zinc concentrate Lead concentrate China Joint venture (28%) Industrial minerals Glen Douglas Gauteng Subsidiary of Kumba Resources Ltd Gauteng Division of Sishen Iron Ore Company (Pty) Ltd Gauteng 22,34% Information technology I N V E S T M E N T S O t h e r mine Kumba Ferrosilicon Advanced Software Technologies Group 1. Sales tonnes disclosed reflect Ticor Limited’s 50% interest in the Tiwest joint venture. 2. Sales tonnes disclosed represent the effective interest in the physical information of the Chifeng (Hongye) refinery. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 3 O U R V A L U E S TOP: Kumba’s iron ore export channel through the port of Saldanha is an example of a mutually-beneficial and long-term relationship with a key business partner. ABOVE: Fabric classes at the Itireleng Skills Development Centre at Thabazimbi mine, where community member Dora Molefe and trainer Nela Roux go through their paces. K U M B A S T A K E H O L D E R C H A R T E R Kumba Resources Limited is an independently-managed, diversified South African mining company with world-class assets and operations. The stakeholder charter defines our goals, our commitment to our stakeholders and the values that underpin the way we manage 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 O U R V A L U E S The foundation values that guide us in the conduct of our business are: • Integrity • Respect • Accountability • Fairness • Caring These values provide the foundation for our behaviour. Building on these values, Kumba’s motivational values energise its people. These values embody our commitment to people, teamwork, a bias for action, continuous improvement and performance excellence: • People make it happen • We do it together • Let’s do it • We do it better every time 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). S T A K E H O L D E R R E L A T I O N S 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 to: E M P L O Y E E S • Manage our employees in an equitable, trustworthy and transparent manner • Invest in their development and provide the challenges and opportunities they need to reach their full potential • Value diversity and reflect the demographics of the communities where we operate in the profile of our workforce • Actively care for their safety, health and welfare • Energise our employees to continuously deliver superior operational performances. I N V E S T O R S • Provide regular and comprehensive presentations and reports on our operations, financial results and the triple bottom line • Make our commitment to sustainable development and corporate governance a distinguishing feature of our business • Comply with the laws and regulations governing our business • Benchmark our operations and codes of conduct against international standards. P A G E 4 K U M B A A N N U A L R E P O R T 2 0 0 4 are environmentally friendly. Media C O M M U N I T I E S • Recognise and respect the communities where we operate as hosts and partners, in meeting the environmental and socio-economic challenges of sustainable development • Accept responsibility for participating in building capacity and alleviating poverty in the areas in which we operate • Accept that the sustainability of host communities extends beyond the finite time frames associated with our operations • Ensure that operational processes C U S T O M E R S A N D B U S I N E S S P A R T N E R S • Build mutually-beneficial, long- term relationships through the quality of products, the reliability of services and business integrity • Recognise the need to add value throughout the supply chain • Share the benefits derived from operations with relevant stakeholders in an equitable manner. G O V E R N M E N T A L B O D I E S • Respect the laws and regulations governing our business in the areas where we operate • Support national aspirations and policies aimed at building democratic and prosperous societies. M E D I A • Acknowledge and respect the media as a primary channel of communication in modern society • Engage in open and honest dialogue and expect, in return, fair, balanced and objective reporting. S T A K E H O L D E R E N G A G E M E N T Apart from the annual report, Kumba engages with stakeholders in several forms. Our stakeholders Interaction Employees Investors • Quarterly group newsletter • Employee representative structures • Intranet • Roadshows and meetings • Surveys of investor satisfaction • Presentations, visits, website Communities • Representation on community forums, structures and Customers and business partners Governmental bodies processes • Partnerships in community initiatives • Regular communication notices • Operational communication processes • Regular business partner workshops and presentations • Employment equity, SHE forums • Active engagement with recognised trade unions • Local forums, structures and processes • Formal community relations and structures • Site open days • Interviews and briefings • Site visits and presentations • E-mail and website communication T H E K U M B A W A Y This is a programme aimed at developing a Kumba culture in support of our vision to outperform the mining and mineral sector in creating value for all stakeholders through exceptional people and superior processes. It focuses on: • 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 effectively implementing these. Kumba Way initiatives include: • People performance management • Continuous improvement • Target setting • Capital and project management • Mineral resource management • Physical asset management. 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. 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 across the group. These are monitored, reviewed and refined where necessary. Both progress and the processes will be continually measured. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 5 B U S I N E S S O B J E C T I V E S The Kumba vision has been translated into a series of business objectives that can be actively and accurately measured. These objectives are translated into specific financial and operational targets as well as selected non-financial targets. Financial targets • Return on equity (ROE) (%) • Return on capital employed (ROCE) (%) • Ebitda interest cover (times) Operational targets • Business improvement programme consisting of revenue-enhancement and cost-saving initiatives Actual 12-months to 31 December 2004 Actual 12-months to 31 December 2003 13 17 8 12 12 6 538 initiatives implemented to the value of R400 million Cost increases below inflation Target 16 1 13 1 >6 R800 million contribution to net operating profit from the 2006 financial year Non-financial targets • Safety – number of fatalities – lost-day injury frequency rate (per million manhours worked) • Safety, health and environmental certification (number) • Employment equity – management (2008) (%) – women (2008) (%) • HIV/Aids voluntary testing and counselling at pilot sites (2006) (%) • Human resources development (% of payroll) 1. Benchmarked against the upper quartile of a peer group comparison. 0 1,75 10 40 10 95 6 2 2,54 8 28 12 40 5,7 4 2,10 2 20 10 5,7 P A G E 6 K U M B A A N N U A L R E P O R T 2 0 0 4 K U M B A R E S O U R C E S ’ F O O T P R I N T We are creating a sustainable future by ensuring the development of our people and the communities in which we operate. We are prepared to be measured on our triple bottom-line performance. TOP: Artisan Manie van Dyk performs routine maintenance work on the secondary crusher at Leeuwpan. CENTRE: Trainees from the Thabazimbi community take a break from their programme at the Itireleng Skills Development Centre. RIGHT: An inspection of a dried residue dam at Ticor SA. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 7 C H A I R M A N ’ S S T A T E M E N T I N T R O D U C T I O N Following the acquisition of a majority shareholding by Anglo American plc (Anglo), Kumba has changed its year end from 30 June to 31 December and is reporting audited financial and non-financial results for the 18-months to 31 December 2004. Kumba celebrated its third year as a listed company as South Africa commemorated its first ten years of democracy. In one decade, our country has achieved, against all odds, a political, economic and social miracle we can be proud of. While we still face many challenges – at company, industry and national level – it has been a privilege to do business in a steadily improving economy, for which the government must take due credit. The strength of the rand, although detrimental for exporters such as Kumba, reflects widespread confidence in our economy and our ability as a nation to transform and therefore perform. A year of notable achievements and excellent operational performance DAWN MAROLE – CHAIRMAN Mining is arguably one of the industries that has recorded the most progress in the past decade. Its successes have led the field in many instances and its setbacks have been fewer, albeit sometimes larger than most. Today, the industry accounts for nearly 12% of our gross fixed capital formation and 39% of the market capitalisation of the JSE Securities Exchange South Africa (JSE). The workplace has been transformed by the tripartite approach – between government, labour and employers – by performance-based remuneration and technological advances. South African mining companies are now global participants, with activities on every continent. Progress, indeed, in just ten years. We welcome the government’s R180 billion extended infrastructure development programme, highlighted by President Thabo Mbeki in his address to parliament in February 2005, particularly given the growth in certain commodity sectors such as iron ore and coal. We reiterate our willing support for public-private partnerships that will accelerate the process to support the growth of South Africa and enable us to advance our own expansion plans, particularly in iron ore and coal, to capitalise on growing global demand for these commodities. Kumba has delivered excellent results against the backdrop of a substantially stronger currency and despite tough zinc market conditions. I am pleased to advise that the board has decided to approve the payment of a final dividend of 90 cents per share, with a total dividend of 145 cents per share declared for the past 18-month financial period. P A G E 8 K U M B A A N N U A L R E P O R T 2 0 0 4 Our results reflect the willingness of our teams to meet challenges head on In challenging times, our executive directors and general managers have performed superbly, reflecting the expertise and efficiency of our teams and their willingness to deal with challenges head on. B U S I N E S S E N V I R O N M E N T In May 2004, the Mineral and Petroleum Resources Development Act (Minerals Act) was promulgated. This sets the timeline for the conversion of mineral rights to “new order” rights after complying with the requirements of the Minerals Act. Kumba is confident of meeting these requirements in the set time frames and fully supports this legislation, which is intended to change the ownership profile of the industry. However, as participants in this industry, we believe the objectives of the Minerals Act, as well as those of the broad-based socio-economic empowerment charter for the industry (see p52 Legislative compliance), can only be realised if the following criteria are met: • South Africa’s mining industry is successful in the international marketplace, where it must seek a large part of its investment and where it sells its products • The socio-economic challenges facing the industry are addressed in a significant and meaningful way. The review period was characterised by strong commodity demand, particularly from China, which boosted metal and mineral prices. The continued strength of the rand, which gained some 15% against the US dollar in 2004, has resulted in the currency being the second-best performer against the US currency this year. The rand touched a six-year high of R5,63 against the dollar in December 2004. The average spot exchange rate for 2004 was R6,36 compared with R7,40 for 2003, and this has sharply reduced the competitiveness of South African exporters. A strong rand has also made imports into South Africa more attractive, which must ultimately affect our ability to create jobs. D I R E C T O R A T E Following the change in shareholding, Kumba welcomed four Anglo execu- tives to its board during the review period. These directors – Philip Baum, Barry Davison, Bill Nairn and Lazarus Zim – have added value through their international perspective and access to valuable benchmarking data, further strengthening the board. An exchange rate that reflects a better balance between the interests of the export and import sectors is required. While the South African Reserve Bank has been very successful at monetary policy implementation in the economy and has continued to build up foreign exchange reserves responsibly, we believe this programme should be accelerated and interest rates kept at levels that support South Africa’s economic growth. The chief executive details the stra- tegic plan under way in Kumba to mitigate the effects of currency strength. Our approach is that cur- rency strength is a variable that has to be managed; companies that manage it well will emerge stronger, better organisations. S H A R E H O L D I N G C H A N G E In December 2003, Anglo increased its total shareholding in Kumba to 66,62% through a wholly-owned subsidiary. In the review period, Anglo has proved to be a supportive shareholder, and there are many synergies and common values between the groups. Encouragingly, having a London-listed major shareholder has required very little change in the way Kumba does business to conform to international governance requirements. E C O N O M I C E M P O W E R M E N T Kumba is currently in discussions with Anglo to develop a suitable empowerment model, one that truly reflects South African society and that will enable us to realise our aspiration to be a national champion in empowerment, given our position as the largest listed diversified mining company resident in South Africa. H I V / A I D S Kumba has a comprehensive HIV/Aids strategy, regarded as one of the best in the country for its proactive approach. In a 2003 evaluation done by a global investment bank, UBS, on risk exposure of South African companies to HIV/Aids, Kumba was rated second overall in terms of strategy. Kumba’s HIV/Aids prevalence testing and counselling programme is well advanced at all business units. The implementation of pilot anti-retroviral programmes began at the Zincor refinery, Grootegeluk mine and the corporate office and all employees who voluntarily tested HIV positive are enrolled on the programme. This is detailed on p82. During the review period, the mining industry guide on HIV/Aids, commissioned by the International Finance Corporation, was published. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 9 Chairman’s statement continued International corporate governance standards in place This guide, informed largely by the policies and procedures at Kumba’s Sishen mine, is intended to be the benchmark for smaller southern African mining companies to launch programmes to manage the pandemic. C O R P O R A T E G O V E R N A N C E During the year, Kumba’s corporate governance processes were aligned with those of Anglo. The minimal changes required underscore the international practices in place at Kumba and are reflected in numerous awards and accolades, detailed below. A Y E A R O F A C H I E V E M E N T • Kumba’s annual report for the year to 30 June 2003 was judged third best in the country in the prestigious annual Ernst & Young Excellence in Corporate Reporting awards. Given that this was only our second annual report, integrating sustainability reporting, being placed third was indeed an honour – and a new challenge. • Kumba was one of the inaugural companies on the JSE Socially Responsible Investment (SRI) Index, which measures companies on corporate governance, economic, social and environmental criteria. Only 51 companies of the 160 comprising the All Share index qualified for the new index. • Kumba was ranked first in the mining sector in the independent ratings compiled by Empowerdex, recognising the group’s above- average spending on training and development. The Empowerdex (the economic empowerment rating agency) survey measured companies’ compliance with empowerment levels. • Kumba was also first in its sector in the Deloitte/Financial Mail survey of “Best company to work for” which covered 106 companies and over 400 000 employees. • Our chief executive, Dr Con Fauconnier was named “Boss of Peer group educators at Sishen assisted the International Finance Corporation to compile an HIV/Aids guide for the mining sector. the Year®”, re-elected president of the Chamber of Mines and awarded an honorary doctorate by the University of the Free State in acknowledgement of his professional contributions to the mining industry and university programmes in the mining field. In just three years, Kumba is delivering on its promise to lead by example and to change the face and perception of the mining industry. Achievements such as these vindicate our decision from the outset to create a company that could benchmark itself against the best and not be found wanting. D E V E L O P M E N T S I N A F R I C A A N D A B R O A D During the year, we consolidated our operating position in China, via our joint venture with a Chinese company in the zinc refinery at Chifeng, Inner Mongolia; and extended our Australian footprint by initiating a joint venture agreement (with Anglo Coal) to evaluate and possibly develop our Moranbah South coking coal property in Queensland. While the arbitration ruling, detailed in the chief executive’s review, over the Hope Downs project in Western Australia was a disappointment, we will continue to pursue the significant growth opportunities available to us both locally and internationally. Until our participation in the project is finally resolved, we remain committed to the contractual arrangements with our partner. Our commitment to seeking appropriate opportunities on the African continent has been reaffirmed by the commencement, in conjunction with subsidiary Ticor, of an exploration P A G E 10 K U M B A A N N U A L R E P O R T 2 0 0 4 The new financial year will be one of delivering on growth projects programme on a mineral sands property in south-western Madagascar; and in the conclusion of a joint venture agreement with an agency of the government of Senegal to conduct a feasibility study into the development of the Faleme iron ore property. These investments are in addition to our existing operations at Rosh Pinah lead/zinc mine in southern Namibia and our interest in reviving the Kipushi zinc property in the Democratic Republic of Congo. We remain fully supportive of the NEPAD (New Partnership for Africa’s Development) initiative launched two years ago by our president and continually work to find ways in which to give it substance in our business. A P P R E C I A T I O N Kumba is driven by its people, its culture and its commitment to continuous improvement. Results for the period clearly reflect the calibre and enthusiasm of our people at all levels, the expertise of our management team and the contribution of our board members. On behalf of the board, I thank every one who has contributed greatly to the group’s success through innovation and passion. I also thank my fellow board members for their constructive counsel, which is so important in guiding the group, and the dedicated chairmen of the respective board committees. Dr Fauconnier is a visionary leader and an inspiration to a management team that I believe is among the best in the industry. Their commitment augurs well for Kumba’s continued growth and success in a global market. We greatly value the close relationships we have developed with senior members of relevant government departments and industry bodies. We will continue to foster these relationships for the good of the industry and our nation. developed in recent years will begin to bear fruit as Kumba unfolds an exciting future. With a strong expansion pipeline in place, excellent growth prospects in many of our commodities and an empowerment model approaching finalisation, Kumba is well placed to capitalise on opportunities in its field and participate in the infrastructural improvement plans of partners, such as the state-owned enterprises, which will help underpin South Africa’s global competitiveness. Kumba’s rising share price – a 47% increase since December 2003 – clearly indicates that investors perceive value in the company. We will continue to focus on creating the environment that will enable us to deliver that value to all our stakeholders. P R O S P E C T S The 2005 financial year will be one of delivery, one in which the plans Dawn Marole Chairman 11 March 2005 A Y E A R O F A C H I E V E M E N T S Kumba’s annual report for the year to 30 June 2003 was judged third best in the country in the prestigious annual Ernst & Young Excellence in Corporate Reporting awards. Kumba was ranked first in the mining sector in the independent ratings compiled by Empowerdex. Kumba was also first in its sector in the Deloitte/Financial Mail survey of “Best company to work for”. Kumba was one of the inaugural companies included on the JSE Socially Responsible Investment Index. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 11 C H I E F E X E C U T I V E ’ S R E V I E W Kumba’s third year coincided with South Africa’s third democratic elections. To mark the occasion, Kumba was a major sponsor of the prestigious publication, South Africa The Good News 2014 – the story of our future. The sentiment in this publication reflects our confidence in the future of this country and recognises the determination of so many people to make a real difference in improving the quality of life of all our citizens. O V E R V I E W The physical performance of Kumba’s businesses for the review period was excellent, particularly when facing markets characterised by the impact of a strong rand on prices for most of our commodities. While US dollar prices for iron ore, coal and zircon were good, the prices for titanium dioxide pigment and slag were slow to follow the upward price trend in commodities. The zinc price is recovering, which benefits our Rosh Pinah operation but to a lesser extent Zincor whose profitability is currently Our third year coincided with South Africa’s third democratic elections CON FAUCONNIER – CHIEF EXECUTIVE under pressure due to low zinc treatment charges and poor concentrate quality. Under these circumstances, Kumba’s financial performance was good, with revenue increasing by 15% due to higher production levels, higher sales volumes, increased commodity prices and the financial consolidation of our Australian subsidiary, Ticor Limited, from April 2003. Our financial results are detailed in the financial review on p22. H I G H L I G H T S There were many highlights for Kumba during the review period, some of which the chairman has noted. Operationally, highlights of the year included: • ISO 14001 and OSHAS 18001 certifications – Sishen, Grootegeluk, Thabazimbi, Tshikondeni, Ticor SA, Zincor, Glen Douglas and Ferrosilicon achieved this prestigious international accreditation during the review period. By world standards, these are remarkable achievements and a fitting challenge for our other business units. • Record safety performance – Kumba has improved its safety levels every year, with the yearly target for lost-day injury frequency rate (per million manhours worked) now at 1,75 from 2,5 in 2004. Regrettably, two people died during the year which is two too many. Unfortunately a further two fatalities occurred early in 2005. Our target remains zero fatalities, and we will continue to monitor safety standards very closely to ensure we achieve it. • A waterfall last seen over 50 years ago flowed from the top of the Hlobane mountain in KwaZulu- Natal due to a successful rehabilitation process that focused P A G E 12 K U M B A A N N U A L R E P O R T 2 0 0 4 A business improvement programme will add R800 million to net operating profit from 2006 on an integrated water management plan during the ongoing closure activities at our Hlobane mine. This waterfall, an environmental first in the history of mine rehabilitation, ensures the sustainability of one of the most important water catchment areas in the province (p90). • Towards the end of the year, expansion projects totalling over R500 million received board approval. At Grootegeluk, a new plant is being built to treat and beneficiate 700ktpa coal for the production of market coke. The plant is expected to be commissioned in July 2006. Expansions at Leeuwpan will add an additional 1Mtpa of power station coal to the product portfolio. It will be railed under a supply contract to Eskom’s Majuba power station from August 2005. • The ramp up of the furnaces at Ticor SA – the first furnace was commissioned in March 2003 and the second was recommissioned in December 2004. Our investment in heavy minerals is now beginning to reap dividends, with production at the mine and minerals separation plant delivering excellent results. By 2006, this operation will be producing 250ktpa of titanium slag and 145ktpa of low manganese pig iron, adding volume and diversity to the existing heavy minerals product range. • Thabazimbi iron ore mine received a gold award from the National Productivity Institute for its selective mining project and a project to beneficiate lower-grade ore is under way which could increase current production and extend the life of mine by more than 20 years (p91). • AlloyStream™ (formerly Ifcon™) is a process technology developed and patented by Kumba for the low-cost production of metals from a variety of feedstocks. During 2004, the process was tested in the production of ferromanganese. Promising results have prompted discussions with various participants in the industry to conduct feedstock-specific feasibility studies for a commercial scale plant. • In China, the Chifeng zinc refinery in Inner Mongolia was expanded to double capacity to 50ktpa of zinc metal. Operating in China has presented a steep learning curve but the results reflect our ability to manage a foreign operation, specifically in China, which is the world’s most important market for base metals. • Kumba continues to enhance its risk management systems, which are on par with best practice in our industry. • Kumba’s numerous awards during the year are testimony to the calibre of our people and their commitment to achieving targets in challenging markets. • Training and development – internally and externally, Kumba is touching the lives of thousands of people through skills development, from basic to advanced, from enterprise-focused to entrepreneurial. Notably, Kumba trained 24% of all apprentices in the mining industry during 2004. B U S I N E S S I S S U E S Kumba has proactively managed the risk of a strong currency, which has a substantial effect on our bottom line, by increasing efficiencies to support earnings. We believe the rand will remain strong for most of 2005. We welcome the improved stability of the currency which enables some form of forward planning and believe that with a better balance between the needs of importers and exporters, the latter should be able to prosper. Accordingly, towards the end of 2003 Kumba initiated a revised strategy which has been launched across the group to accelerate the improvement processes already under way. This was done in light of an adverse macro- economic environment created by a volatile commodities market, the sustained strength of the rand against the US dollar and cost escalations, many of which were beyond our control, particularly administered prices such as rail tariffs on the general freight lines and fuel prices. To enable the group to remain competitive and achieve its growth aspirations, the executive team re- examined the way the company is structured and managed. We wanted to ensure we have a robust group that is capable of dealing with adverse macro-economic conditions and one that is capable of capturing current and future growth opportunities. The result was an ambitious, but realistic, business improvement programme that will add R800 million to net operating profit in FY2006. This is based on achieving our required investment returns at an exchange rate of R7,00 against the US dollar and long-term commodity prices and sustaining viable operations at an exchange rate of R6,00 against the US dollar. The programme is comprehensive: it will achieve the target through a combination of cost reduction, increased throughput and revenue, and improved business processes. Unfortunately, a limited number of jobs may be affected, but as a responsible employer, we have a rigorous process in place to minimise this potential. This includes redeployment of affected people in light of the group’s growth opportunities, and natural attrition. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 13 Chief executive’s review continued Sustainability is integral to the foundation values that guide the way we do business The continued strength of the rand validates this strategic decision and the need for the programme. The magnificent response of Kumba’s people to the challenge, and the efforts of the dedicated business improvement programme team, has seen 1 001 ideas generated, of which 538 were implemented to contribute R400 million in the review period. Of this, R169 million consisted of savings. We are confident that all the programme’s targets will be met by December 2005. Transport and the associated infrastructure are key elements in Kumba’s ability to meet growing demand for our exports. Infrastructural expansion to manage the additional capacity is critical and the support of new management teams at state-owned enterprises, Transnet and its associated divisions, SA Port Operations, the National Port Authority and Spoornet, is most encouraging. As part of the government’s infrastructural expansion plan, 12Mtpa will be added to the capacity of the Sishen/Saldanha rail line and port facilities by 2009 to cater for the needs of Kumba. Studies are currently under way to evaluate the feasibility of a further 17Mtpa iron ore expansion. Once the Richards Bay Coal Terminal (RBCT) Phase V expansion is finally approved by Transnet, Kumba will also be able to export 2,5Mtpa of coal through the South Dunes Coal Terminal consortium. We are pleased that an agreement signed in March 2005 with Transnet provides a new contract for the transport and handling of export iron ore from Sishen through Saldanha. The contract caters for a rand-based tariff and capacity of up to 35Mtpa of exports by 2009. I acknowledge the sterling efforts made by Transnet group chief executive, Maria Ramos, Transnet executive director, Pradeep Maharaj, Kumba business operations director, Mike Kilbride, and their respective negotiating teams, to reach a mutually-beneficial agreement that signals a new era. The expansion of the export channel paves the way for the implementation of the Sishen expansion project, which received board approval in February 2005, and the development of the Sishen South project. These two projects will lift iron ore exports from the Northern Cape to over 40Mtpa. The advent of the RBCT Phase V expansion will also enable Kumba to initiate the Inyanda coal mine – a joint venture with empowerment company, Eyesizwe Coal – and increase coal exports to over 3Mtpa. These growth opportunities are detailed on p43. Expansion projects and opportunities will benefit from improved empowerment credentials for Kumba. Constructive discussions with Anglo about an empowerment partner for Kumba and the most appropriate model through which to achieve empowerment are well advanced. The chairman has noted the introduction of legislation that affects Kumba’s operations. There is an encouraging level of engagement between the industry and the Department of Minerals and Energy on technicalities that arise in the implementation of the Mineral and Petroleum Resources Development Act. For example, the implications of the Institution of Legal Proceedings Against Certain Organs of State Act, 2002 (ILPA), posed a potential problem for the industry. This was discussed with the department and satisfactorily resolved. Kumba has taken the decision that the assurances from government were adequate for Kumba to refrain from instituting possible claims for compensation in the event of expropriation under the act. Likewise, when uncertainty arose around the ownership requirements for unused state-owned mineral rights, this was also resolved through discussion with the department and labour. S U S T A I N A B I L I T Y Kumba adopted triple bottom-line reporting in its 2003 annual report, which successfully integrated financial and non-financial reporting to stakeholders. For Kumba, sustainability is more than a business imperative, it is integral to the foundation values (p4) that guide the way we do business. It is evident in all our triple bottom-line practices and is part of our passion to improve the quality of life in the communities that give us our licence to operate. Both the 2004 and 2003 annual reports incorporate our sustainability A train on the Sishen/Saldanha iron ore rail line. P A G E 14 K U M B A A N N U A L R E P O R T 2 0 0 4 A clearly-defined strategy underpins a common purpose reporting and are based on the internationally-recognised Global Reporting Initiative (GRI) guidelines. GRI guidelines for the mining sector are in draft form, and are expected to be finalised in 2005. These will be incorporated into Kumba’s sustainability reporting as we progress incrementally towards meeting GRI “in accordance” guidelines. Given the change in Kumba’s year end from June to December, in the latter half of 2004 we published an interim (1 July 2003 – 30 June 2004) sustainability review report on our website (www.kumbaresources.com) to update stakeholders on progress. In that period, we made good progress in many areas, specifically in training and development, job creation, HIV/Aids awareness projects and electronic environmental management systems. Our commitment to meeting and exceeding our targets is firm. Throughout the group, processes are under way to ensure that we can report measurable results and useful information to stakeholders to provide an informed understanding of Kumba’s impact on the economy, society and environment in which we operate. One of the benefits of being a young company is that we were able, from the outset, to create a contemporary company, one that considered global best practice and sustainability as equally-important performance indicators to profitability. We acknowledged then, in 2001, that our constituency was bigger than shareholders and adopted a multi- stakeholder approach, one that considers the rights of all who deal with Kumba, directly and indirectly, as we protect the rights of future generations. These acknowledgements are the bedrock of our future survival and we are ready to be measured by our triple bottom-line performance. Our commitment is reflected in the considerably broader scope of the independent review of our sustainability reporting, detailed on p94, and we will use KPMG’s assurance report findings in our developments in this arena. Importantly, as our international operations develop, our economic, social and environmental performance will be consistent across three continents, whether legislated or self-imposed, and aligned to GRI guidelines. During the year, we formalised our commitment to sustainability as an integral part of our business strategy with the development of a group-wide strategic sustainability framework. The responsibility for reporting to the board on sustainability issues rests with me and is an integral part of the chief executive’s report I prepare for board meetings. This monitors our progress towards targets in eight focus areas: • Financial • Governance, ownership and control • Resource utilisation • Workplace • Environment • Community and external stakeholders • Suppliers • Customers At each operation, sustainability issues are now integrated into the business plan against which performance is measured. S T R A T E G Y Kumba’s strategy is clearly defined and well communicated. 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. • Integrate sustainability into all operations. Accordingly, Kumba will focus on growing its iron ore, coal and heavy minerals businesses. As the prognosis on zinc (base metals) is uncertain, the immediate challenge is to restore the business to a sound financial footing and make an appropriate decision when there is more clarity in this market. Kumba will also consider investing in other commodities such as manganese, given the potential synergies in the Northern Cape and the potential of our AlloyStream™ technology. Against the background of escalating costs and rand strength, the Kumba business improvement programme referred to earlier remains an integral part of our short- to medium-term strategy for all business units as well as the corporate office. I N T E R N A T I O N A L Attempts to resolve the withholding of approval of Anglo as controlling shareholder by Kumba’s partner in the Hope Downs iron ore project in Western Australia through discussions and mediation failed. The matter was then referred to arbitration in the second half of 2004. The arbitrators ruled in December 2004 that Hancock Prospecting (Pty) Limited (Hancock) has not withheld its approval unreasonably. Kumba has K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 15 Chief executive’s review continued Our people have proven their passion for performance lodged a notice of appeal with the Supreme Court of Western Australia on legal advice to preserve its rights in the project. Concurrently, a process for determining an agreed fair value at which Hancock can acquire Kumba’s project interest has commenced. If agreement cannot be reached between Kumba and Hancock, an independent expert is to be appointed to determine a fair value. Kumba will continue to seek a solution in the best interests of all its stakeholders within the contractual framework governing its relationship with its partner. A P P R E C I A T I O N The review period has been one of the most testing, but rewarding, in our short history. The way our people have risen to the challenge has been both humbling and inspiring. Throughout the group, at every level, individuals have given of their best consistently, proving their passion for performance and highlighting the considerable technical and managerial competencies that characterise Kumba’s operations. As a team, Kumba has developed a reputation for delivering solid operating results, irrespective of the impact the market has on our business. I thank every one of our employees for the obvious pride they take in their work and the energy they bring to our business. Kumba has developed strong relationships with customers around the world because of the quality of our products and service. I thank our customers for their loyalty and support and our suppliers who continue to play an important role in our supply chain. As far as our service providers are concerned, I express our sincere appreciation to KPMG for the professional and unbiased manner in which they have conducted the audit of our group since its listing in 2001. We welcome Deloitte who have become our auditors since the change in control of Kumba and thank them for the constructive manner in which they have engaged with us in performing the group’s audit for the period under review. Throughout the considerable changes and challenges we have faced during the year, our trade unions have participated constructively and added value to our engagements. These sound relationships augur well for our continued progress. On behalf of management, I thank our board of directors for their constructive contribution and counsel. In particular, our chairman, Dawn Marole, is playing a key role in Kumba’s interactions with government and in guiding our strategic development for which we thank her. O U T L O O K Kumba faces another challenging year, but a most exciting one as the planning and preparation of recent years begins to unfold and new projects come on stream. The board has approved over R3,4 billion for expansion projects, including those at Sishen, Grootegeluk and Leeuwpan, detailed on p43 – p45. Our expansion in the Waterberg coalfield heralds the further development of the largest remaining reserves of coal in the country, a region which holds much further potential for Kumba and its customers such as Eskom. Once approval is obtained from Transnet for the expansion of the Richards Bay Coal Terminal, our Inyanda coal mine will go ahead immediately. The new contract with Transnet has also allowed us to start immediately with the Sishen expansion project. In the light of prevailing economic and supply/demand factors, commodity price forecasts for 2005/2006 have been revised upwards, with notable increases in coal and exceptional increases in iron ore. Growing demand from China is very positive for iron ore and coal. China is also now a net importer of refined zinc which should further underpin the recent increase in the price of zinc (p19). However, the continued shortage of zinc concentrate will keep treatment charges depressed, impacting negatively on the results of Zincor although enhancing those of Rosh Pinah. Given our expectations for continued strength in the rand, the focus on our business improvement programme will proceed unabated in the new financial year and we are confident of achieving our targets. This initiative, together with stronger commodity markets, in particular the forecast 71,5% increase in the US dollar price of iron ore from April 2005, higher coal prices and further recovery in the US dollar price of zinc, will have a positive impact on the group’s results. However, earnings will continue to be affected by the rand. Dr Con Fauconnier Chief executive 11 March 2005 P A G E 16 K U M B A A N N U A L R E P O R T 2 0 0 4 M A C R O - E C O N O M I C R E V I E W The 18-month period under review saw strong economic expansion worldwide, with projected aggregate gross domestic product (GDP) growth in 2004 of more than 4% – the strongest since 1988 (graph below). The main drivers of this improvement in economic performance were low real interest rates worldwide, tax cuts and improved consumer and business confidence. Whereas strong growth was experienced in the US and China, that of Europe and Japan was less robust. However, towards the end of the period, some deceleration in the global economic pace became evident, primarily due to weak labour markets in the major world economies, high oil prices and the fact that fiscal and interest rate stimuli were gradually being withdrawn. Another contributing factor towards this slowdown was a lack of independent growth outside the US and China, with economic expansion in Europe and the rest of Asia being primarily export driven. Growth moderation in the US and China, therefore, had a negative impact on global expansion. The depreciation of the US dollar also started exerting a negative impact on the export-led growth strategies of Europe and Asia. These adverse economic developments are expected to persist in 2005, leading to a further slowdown in world economic growth. Leading economic indicators and most surveys of purchasing managers from around the world also show that economic expansion has probably passed its peak. However, there is general expectation that the economic recovery will still have some staying power, especially in the US and Asia, excluding Japan. Global economic growth is thus expected to be lower in 2005 than in 2004, but still marginally above the long-term trend growth rate of 3,1% per annum. In South Africa, relatively strong economic growth was experienced in 2004, projected to be above 3,5%. Inflation during the year was well within the South African Reserve Bank’s target range of 3 – 6%, largely due to the appreciation of the rand against the US dollar, and persistent monetary and fiscal discipline. These positive economic conditions are expected to continue in 2005. However, the strength of the rand had a severe impact on the export earnings of the mining and manufacturing industries. Real gross domestic product growth rates ) % ( h t w o r g P D G d l r o W 20 15 10 5 0 -5 Forecast 5 8 9 1 6 8 9 1 7 8 9 1 8 8 9 1 9 8 9 1 0 9 9 1 1 9 9 1 2 9 9 1 3 9 9 1 4 9 9 1 5 9 9 1 6 9 9 1 7 9 9 1 8 9 9 1 9 9 9 1 0 0 0 2 1 0 0 2 2 0 0 2 3 0 0 2 4 0 0 2 5 0 0 2 Source: Global Insight China World South Africa K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 17 C O M M O D I T Y R E V I E W C O M M O D I T Y P R I C E S Strong commodity demand stemming from rapid economic growth in China and elsewhere in the world boosted mineral and metal prices during the last 18 months. Favourable market conditions are expected to continue in 2005, especially in terms of bulk commodities, which will generally remain in short supply. Steel production worldwide rose by more than 7%, both in 2003 and 2004, driven to a large degree by increased output in China of more than 20% per annum. Iron ore contract prices rose by 18,6% in April 2004 (graph below), but strong demand for ore in China resulted in spot prices in that country at times being more than double the equivalent contract prices. The shortage of iron ore is expected to continue and the first settlements for 2005 indicate significant contract price increases in the region of 71,5%. Contract prices for hard coking, semi-soft coking and thermal coal increased in 2004 by 25%, 43% and 64%, respectively. Further significant increases have been negotiated for 2005. Early price settlements for hard coking coal were above US$120/t, more than double the 2004 price. Prices for semi-soft coking coal have been settled at some 85% above the 2004 price and that for thermal coal at about 20%. The average RBCT spot thermal coal price was 78% higher in 2004 than in 2003, but the average for 2005 is expected to be similar to or somewhat lower than the previous year. The LME cash zinc price rose from about US$800/t in early July 2003 to more than US$1 200/t in December 2004, an increase of over 50%. The average price in 2004 was some 27% higher than in 2003. Zinc stocks started declining significantly in late 2004, a trend that is expected to continue in 2005. Analyst consensus suggests that this should lead to a further increase in the average price of zinc in 2005 of between 10 – 20%. However, due to extremely tight market conditions in the zinc concentrate market, treatment charges are expected to remain severely depressed in 2005, comparable to the situation in 2003 and 2004. Historical Chinese iron ore imports and nominal iron ore prices Despite an estimated increase of some 8% in world titanium dioxide pigment demand in 2004, titanium dioxide feedstock prices were similar to, or lower than, the relatively depressed prices of 2003. This was due to a significantly oversupplied market. A moderate improvement in prices for titanium dioxide feedstock is possible in 2005. Unlike the other heavy mineral sands products, zircon experienced extremely tight market conditions and prices increased in 2003 and 2004 by 15 – 20% per annum. A similar increase is expected in 2005. Due to the weakening of the US dollar against the currencies of commodity- producing countries in 2004, price increases in the currencies of these countries were significantly less than in US dollar terms. The 18,6% increase in iron ore prices in US dollars for 2004, for example, was on average only 4,7% in Australian dollar terms and 1,1% in South African rand terms. The US dollar is expected to remain weak against the currencies of the most important commodity-producing countries in 2005. ) u t m / c S U ( s e c i r p e r o n o r I 50 45 40 35 30 25 20 250 200 150 100 50 0 ) t M ( s t r o p m i a n i h C 0 8 9 1 1 8 9 1 2 8 9 1 3 8 9 1 4 8 9 1 5 8 9 1 6 8 9 1 7 8 9 1 8 8 9 1 9 8 9 1 0 9 9 1 1 9 9 1 2 9 9 1 3 9 9 1 4 9 9 1 5 9 9 1 6 9 9 1 7 9 9 1 8 9 9 1 9 9 9 1 0 0 0 2 1 0 0 2 2 0 0 2 3 0 0 2 4 0 0 2 Sources: IISI. BGS, AME and CRU China imports Lump prices Fines prices P A G E 18 K U M B A A N N U A L R E P O R T 2 0 0 4 T H E C H I N A F A C T O R China is an increasingly important driver of many commodity markets, fuelled by strong materials-intensive growth over the last decade or more. Citigroup notes that the Chinese contribution to global economic growth and commodities consumption has been dramatic: • China accounts for 4% of global GDP on an exchange rate basis • It accounts for 13% of world GDP on a purchasing power parity basis, up from 9% in 1995 • It accounts for 12% of world industrial production, up from 6% in 1995. China also accounted for some 16% of global demand for commodities in 2003. Its share of world market demand for individual commodities such as steel was 27%, for iron ore 29% and for zinc 21%. It is a major importer of raw materials, to such an extent that demand from China played a major role in the dramatic rise of global dry bulk freight rates in 2003 and 2004. Strong increases in raw materials demand throughout China also exposed inadequacies in the country’s transport and energy infrastructure in 2003 and 2004. Bottlenecks resulted in production being periodically constrained in a wide spectrum of industries. However, accelerated investment in new capacity should see these problems resolved by 2006 or 2007. It is estimated that real GDP growth in China was some 9,5% in 2004, driven to a large extent by fixed investment expenditure. The investment-GDP ratio was 43% in 2003, which is not sustainable. A major platform for the high investment rate is the fact that China has the capacity to build industrial plants at a capital cost estimated to be 30 – 40% lower than western counterparts. To prevent overheating of the economy, and to curb investment spending, the Chinese authorities employed various measures in 2004, including administrative controls and monetary and fiscal instruments. These measures are expected to lead to a moderate and controlled deceleration in growth in the next few years, to about 7,5% per annum. A rate of 7% per annum is viewed as the minimum required by the Chinese government to achieve its economic and social objectives. A slowdown in investment expenditure growth will probably have an adverse impact on commodity demand, and some signs of this were already in evidence in late 2004 when, for example, China became a net exporter of steel as the increase in domestic consumption decelerated. Preliminary statistics indicate that steel consumption in that country rose by 10,8% in 2004, compared to growth rates above 20% in the previous three years. The dependence of China on imported raw materials has resulted in the government encouraging large Chinese companies to invest in foreign resource concerns to secure a steady supply of natural resources. It is widely expected that, over time, the commodity intensity of China’s GDP will fall. Nevertheless, even a halving of consumption growth from rates of more than 20% per annum would still leave a healthy, and more The Chinese contribution to global economic growth and commodities consumption has been dramatic. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 19 The China factor continued The Chinese contribution to global economic growth has been spectacular sustainable, rate of expansion in commodity demand. The intensity of use of metals and minerals in China lags far behind those of the developed economies of the world and, especially, those of the newly-industrialised economies, such as Korea and Taiwan. It is, therefore, possible that strong growth in commodity consumption could be sustained, albeit at rates somewhat lower than those experienced during the last few years. Mineral demand in China is extremely important to Kumba, both directly and indirectly. Directly, about 40% of Kumba’s iron ore exports went to that country in 2004. Some 87% of the worldwide increase in iron ore imports in 2004 was due to increased consumption in China. Kumba’s iron ore exports to China started in 1989 and grew to more than 8Mt in 2004. From 1989 to 2004, more than 75Mt of iron ore has been shipped to that country. Additionally, in 1994, Kumba made an investment of US$10 million to improve port facilities at Qingdao Port in China, followed by another investment of US$3 million in 2002. These investments facilitate the logistics of the company’s imports into the county. Indirectly, economic growth and the concomitant increase in mineral consumption in China have led to a significant increase in international commodity prices. The country is expected to have a positive impact on commodity markets for the foreseeable future. Strong growth in China’s commodity consumption could be sustained, albeit at rates somewhat lower than these experienced during the last few years. P A G E 20 K U M B A A N N U A L R E P O R T 2 0 0 4 F O C U S O N S T A K E H O L D E R P R O S P E R I T Y Our vision, values and governing principles ensure that stakeholder value is enhanced. We will continue to create wealth for stakeholders by doing what we do better than anyone else and better than before. TOP: Upper section of an upcurrent classifier at Sishen. CENTRE: A stacker reclaimer at work at Leeuwpan. BELOW: The Rosh Pinah mine produced a record 124kt of zinc-containing concentrates in the review period. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 21 F I N A N C I A L R E V I E W • Solid financial performance • Revenue up 15% • Net operating profit up 41% • Net debt decrease by R669 million • Strong financial metrics C H A N G E I N F I N A N C I A L Y E A R A N D C O M P A R A T I V E A N A L Y S I S Following the acquisition of a majority shareholding by Anglo American plc in Kumba in December 2003, the group changed its year end from 30 June to 31 December and is presenting audited financial results for the 18 months ended 31 December 2004. Interim results reviewed by the group’s auditors were published for the six months to 31 December 2003 and the 12 months to 30 June 2004. Unaudited financial results and physical information for the 12-month periods to 31 December 2004 and 2003 respectively, which are aligned with the group’s new financial year, are given on p102 to p103, and in the fold-out. Comments are for comparative purposes based on an analysis of the group’s results for these periods. P102 and p103 also contain a comparison of the group’s unaudited financial results for the six months ended 31 December 2004 compared with the reviewed corresponding period ended 31 December 2003. O V E R V I E W O F G R O U P O P E R A T I N G R E S U L T S The 12-month period to December 2004 was characterised by excellent operational performance, higher sales volumes, increased US dollar commodity prices and ongoing business improvement initiatives. These factors offset the impact of a stronger rand. As a result, revenue increased by R1 117 million to R8 708 million and net operating profit by R404 million to R1 380 million, with a significant improvement in the group’s operating margin (Table 1). Table 1 R million Revenue Net operating profit Adjusted for non-recurring impairment charges and net deficit/(surpluses) realised on disposal of assets and investments 1, 2 Adjusted net operating profit Depreciation and amortisation Earnings before interest, tax, depreciation and amortisation (Ebitda) Operating margin (%) Ebitda margin (%) 1. Impairments, including reversal of earlier impairment on disposal of assets. 2. Net surplus on the disposal of assets and investments. 18-months ended 31 December 2004 12 599 1 855 11 1 866 971 2 837 15 23 12-months ended 31 December 2004 8 708 1 380 53 1 433 652 2 085 16 24 2003 7 591 976 (46) 930 613 1 543 13 20 P A G E 22 K U M B A A N N U A L R E P O R T 2 0 0 4 Year end changed from June to December S E G M E N T A L R E S U L T S Segmental results are shown in tables 2 and 3 Table 2 Revenue R million Iron ore Coal Heavy minerals – Ticor SA – Ticor Limited Base metals Industrial minerals Other Total R/US$ exchange rate realised Table 3 Net operating profit (Rm)/Margin (%) Iron ore Coal Heavy minerals – Ticor SA – Ticor Limited Base metals Industrial minerals Other Total 18-months ended 31 December 2004 6 064 2 733 2 438 668 1 770 1 212 138 14 12 599 6,67 2004 Rm 820 430 254 (10) 264 (116) 20 (28) 18-months ended 31 December 2004 Rm 1 119 548 206 (19) 225 (151) 30 103 1 855 1 380 12-months ended 31 December 2004 4 250 1 878 1 662 514 1 148 811 95 12 8 708 6,51 12-months ended 31 December % 19 23 23 21 16 2003 Rm 664 272 (6) (6) (80) 21 105 976 2003 3 789 1 678 1 211 314 897 808 82 23 7 591 7,64 % 18 16 26 13 I R O N O R E Revenue for the 12 months to 31 December 2004 increased by 12% and net operating profit by 23% over the comparative period as higher US dollar average prices of 18,62% from 1 April 2004 (compared with a price increase of 9% on average from 1 April 2003), and stronger sales volumes together with an ongoing cost focus, offset the effect of the stronger rand. The international US dollar prices for iron ore are set from 1 April until 31 March the following year. C O A L Revenue increased by 12% over the comparative period as a result of high sales prices and volumes. The higher revenue together with cost containment initiatives resulted in a substantial improvement in net operating profit of 58%. H E A V Y M I N E R A L S T I C O R S A Revenue increased by 64% over the comparative period due to higher sales of titanium slag and pig iron together with stronger zircon, pig iron and rutile prices. The stronger currency and shut-down of furnace 2 (p38) led to an operating loss of R10 million. T I C O R L I M I T E D Ticor Limited, through its 50% joint venture in Tiwest, increased revenue by 28% over the comparative period as a result of higher sales and better mineral prices. Ticor Limited was fully consolidated into Kumba’s accounts from 1 April 2003. A contribution of R264 million was made to the group’s K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 23 Financial review continued net operating profit due to the higher revenue, cost savings and the non- recurring impairment charge of R89 million relating to Ticor Chemicals raised in 2003, which offset its net operating profit in that year. B A S E M E T A L S Revenue increased marginally as the realisation of a lead sales order of Rosh Pinah which moved into 2005, negated the effect of a 7,8% increase in the average rand price of zinc over the comparative period. non-recurring impairment charges, resulted in an operating loss of R116 million for the past 12-month period. Lower treatment charges, an increase in the environmental rehabilitation provision on mine closure according to the standards applicable to the group’s South African operations and Table 4: Base metals adjusted net operating profit R million Net operating (loss) Adjusted for: • Impairment of ZnERGY (Pty) Limited 1 • Impairment of preference shareholding in Rosh Pinah Mine Holdings (Pty) Limited 2 • Environmental rehabilitation provision • Other provisions Adjusted net operating (loss) Depreciation and amortisation 18-months ended 31 December 2004 (151) 26 9 25 15 (76) 69 (7) 12-months ended 31 December 2004 (116) 26 9 25 15 (41) 45 4 2003 (80) (80) 58 (22) Adjusted earnings before interest, tax, depreciation and amortisation 1. The impairment of the investment in ZnERGY (Pty) Limited, a zinc air fuel battery component manufacturing plant, was due to the liquidation of its technology provider and critical component supplier, Zoxy Energy Systems AG. 2. The impairment was raised against a preference share investment made in 2000 in a strong US dollar and zinc price environment to facilitate a 5% empowerment interest in Rosh Pinah Zinc Corporation (Pty) Limited. P A G E 24 K U M B A A N N U A L R E P O R T 2 0 0 4 Heavy minerals now contributing 19% to group revenue The revenue and net operating profit (EBIT) contribution of the various businesses is as follows: Revenue contribution 12m04 12m03 49% Iron ore Iron ore 50% 22% Coal Coal 22% 19% Heavy minerals Heavy minerals 16% 9% Base metals Base metals 11% 1% Industrial minerals Industrial minerals 1% EBIT contribution 12m04 12m03 54% Iron ore Iron ore 62% 28% Coal Coal 26% 17% Heavy minerals Heavy minerals 0% 0% Base metals Base metals 0% 1% Industrial minerals Industrial minerals 2% 0% Other Other 10% N E T F I N A N C I N G C O S T S Net financing costs consist of interest expense, net of interest earned and interest capitalised on project developments. Net financing costs increased marginally to R271 million and were covered eight times by Ebitda compared with six times in the 12 months to 31 December 2003. The average monthly effective cost of borrowings decreased from 12,5% per annum to 11,3% per annum in line with lower interest rates. At 31 December 2004, 65% of our corporate borrowings were at fixed interest rates while all of the Ticor SA project loans bear interest at fixed rates. Interest cost of R118 million was capitalised, mainly in respect of the project loan facilities taken up for the Ticor SA project, compared with R96 million in the comparative period. Capitalisation of interest on the project loans for the mine operation of Ticor SA ceased in December 2001 and for the smelter operation on 31 December 2004. I N C O M E F R O M E Q U I T Y - A C C O U N T E D I N V E S T M E N T S Our share of attributable losses from investments, before tax, has reduced significantly as a consequence of an anticipated lower loss to be reported by AST Group Limited (AST) and a first contribution from our investment in the Chifeng-Kumba-Hongye Zinc Refinery in China (Table 5). K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 25 Financial review continued Table 5: Income from equity-accounted investments R million Ticor Limited 1 AST Transorient Ore Supplies 2 Chifeng Zinc Refinery 3 Total 1. Equity-accounted until 31 March 2003; consolidated from 1 April 2003. 2. Incorporated joint venture for the distribution of iron ore sales into east Asia. 3. Production commenced in December 2003. 18-months ended 31 December 2004 12-months ended 31 December 2004 2003 (43) 20 10 (13) (23) 13 9 (1) 8 (64) 14 1 (41) E A R N I N G S The substantial increase in net operating profit and the reduction in the equity-accounted loss from that reported for the comparative 12-month period, offset to some extent by a significantly higher tax charge, resulted in profit attributable to ordinary shareholders increasing by 21% to R677 million. Headline earnings were 34% higher at R774 million or 258 cents per share. Table 6: Earnings R million 18-months ended 31 December 2004 Attributable earnings Adjusted for: • Net (surplus)/deficit on disposal or scrapping of operating assets • Impairment charges after reversal of prior period impairment of assets 1 • Closure cost • Goodwill amortisation • Our share of associates’ goodwill amortisation and exceptional items • Tax effect Headline earnings 1.Impairment charges raised: 942 (24) 35 35 (6) 47 (12) 1 017 • Ticor Chemicals cyanide plant in Australia resulting from unfavourable market conditions and the stronger Australian dollar • Investment in ZnERGY (Pty) Limited • Preference share investment in Rosh Pinah Mine Holdings (Pty) Limited • Reversal of impairment of shipping assets sold in September 2003 • Other Total impairments 89 26 9 (90) 1 35 12-months ended 31 December 2004 677 110 (57) 35 (4) 29 (16) 774 26 9 (90) (2) (57) 2003 559 (138) 92 7 50 7 577 89 3 92 P A G E 26 K U M B A A N N U A L R E P O R T 2 0 0 4 Final dividend of 90 cents per share T A X A T I O N The tax change for the 12-month period to 31 December 2004 increased to R341 million in line with the improved net operating profit. The effective tax rate is 30,8%. The rate of 21,7% in the comparative period was mainly due to a tax write- off on the acquisition of mining equipment. D I V I D E N D S The board reviewed our policy of declaring annual dividends and approved the payment of interim dividends from the end of the group’s 2003 financial year. The board accordingly approved the following dividends for the 18-month period ended 31 December 2004. Period ended: 31 December 2003 30 June 2004 31 December 2004 Dividend (cps) 20 35 90 Declared February 2004 Paid/Payable March 2004 August 2004 September 2004 February 2005 March 2005 Dividends declared for the 12 months to 30 June 2004 were 3,2 times covered by attributable earnings and 2,15 times for the 18 months to 31 December 2004. Our policy remains to declare regular dividends. The level of dividend payments is reviewed against Table 7: Cash flow prevailing trading conditions and our balance sheet structure and available cash flow, taking cognisance of value- adding growth opportunities. from operating activities of R160 million to R1 432 million over the comparative period. C A S H F L O W Higher earnings before interest, tax, depreciation and amortisation resulted in an increase in cash flow R million Cash flow from operating activities Cash used in investing activities • New capacity • Other capital expenditure • Net impact of Ticor Limited consolidation Asset and investment disposals Share issue 1 Other movements 2 (Increase)/decrease in net debt 18-months ended 31 December 2004 1 605 (826) (570) 238 132 (114) 465 12-months ended 31 December 2004 1 432 (487) (399) 50 (1) 74 669 2003 1 272 (988) (348) 366 224 133 (1 240) (581) 1. Proceeds from the issue of shares under the management share scheme after the mandatory offer by Anglo American plc in November 2003. 2. Primarily non-cash flow movements in net debt arising from currency translation differences and the acquisition of a controlling interest in Ticor Limited on 1 April 2003. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 27 Financial review continued D I V E S T M E N T O F N O N - C O R E I N T E R E S T S In line with the group’s strategy to remain focused on its core commodity businesses and to consider other commodities which could be complementary, we divested during the past 18-month period of certain non-core investments. Following a rights issue undertaken by AST Group Limited (AST) in October 2003 as part of a business improvement and financial restructuring programme, our interest in AST reduced from a shareholding of 26,7% and an outstanding loan of R35 million to 26,4% and a secured loan of R24 million. In terms of a recently announced restructuring of AST, it will, subject to shareholders’ approval, acquire the businesses of Gijima Info Technologies Afrika (Pty) Limited as its black economic empowerment partner and simultaneously undertake a rights issue of R160 million. Kumba will underwrite the rights issue to the extent of R20 million by converting a portion of its secured loan into shares. Should we subscribe for shares to the full extent of our underwriting commitment, our shareholding of 22,34% and secured loan of R41 million at 31 December 2004 will nevertheless reduce to 12% and a secured loan exposure of R21 million. The restructuring is expected to restore AST’s profitability. AST is an important information technology supplier to the Kumba group. We will continue to pursue opportunities to divest from our residual interest. Divestment • 30,13% interest in Mincor Resources NL, a listed Australian mining and exploration company into which our gold and exploration assets were vended in 1999 • 40% interest in two bulk ore carriers Pre-tax proceeds (Rm) Book value (Rm) Pre-tax surplus (Rm) 103 73 31 27 72 46 F I N A N C I A L S T R U C T U R E Net debt decreased by R669 million to R1 909 million at 31 December 2004 as a result of the stronger cash flow generated and lower capital expenditure. The group’s net debt to equity ratio was 30% with net debt 0,9 times Ebitda compared with 41% and 1,7 times Ebitda at 31 December 2003. The redemption profile of our long- term interest-bearing borrowings is well spread with significant undrawn facilities and a low utilisation of short-term bank lines (Table 8). C A P I T A L E X P E N D I T U R E Table 9 contains a comparison of capital expenditure for the 12-month periods ended 31 December 2004 and 2003 together with an estimate for the 2005 financial year. Our investment in the Ticor SA project has dominated our capital expenditure into new production capacity over the past two calendar years while the approved Sishen expansion and coal projects (p43 to p45) account for 56% of the 2005 estimated capital expenditure. Table 8: Debt structure R million Long term Corporate Heavy minerals project finance Ticor Limited Short term Total debt Cash and cash equivalents Net debt Drawn Undrawn Maturity profile 282 2005 2006 2007 2008 After 2008 784 556 865 234 676 3 115 1 503 1 017 595 3 115 52 3 167 (1 258) 1 909 P A G E 28 K U M B A A N N U A L R E P O R T 2 0 0 4 Capital expenditure dominated by investment in Ticor SA in past two years Table 9: Capital expenditure R million Sustaining and environmental Expansion • Iron ore • Coal • Heavy minerals • Base metals • Other Total H E D G I N G Our hedging of export earnings is focused on short-term forward periods within board-approved policy parameters. Hedging contributed R60 million for the past 12 months and R100 million for the 18-month period to 31 December 2004. Financial year 2005 Estimate 18-months ended 31 December 2004 476 767 401 164 28 – 570 79 81 624 42 – 1 836 1 396 12-months ended 31 December 2004 399 38 66 351 32 – 886 2003 348 137 30 779 40 2 1 336 B U S I N E S S I M P R O V E M E N T P R O G R A M M E The chief executive in his review on p13 sets out the imperative for, and details of, the business improvement programme launched by the group. The target set in 2004 of an R800 million sustainable contribution to net operating profit from our 2006 financial year will be rigorously tracked and reported. Some R665 million of this R800 million, expressed in 2005 money terms, is expected to realise in 2005. The graph depicting EBIT comparison shows that the benefits of the business improvement processes have already started to flow through to the group’s results for the past 12 months which reflect higher sales volumes and cost savings. EBIT comparison n o i l l i m R 976 T I B E 3 0 M 2 1 1 373 (641) (269) (343) 380 (271) 175 169 1 549 (169) 1 380 s e l a S e c i r P e t a r e g n a h c x E n o i t a l f n I e m u l o V Production t s o c n o i t u b i r t s i D d t L r o c i T s g n i v a s t s o C T I B E ” e r o C “ T I B E 4 0 M 2 1 s m e t i g n i r r u c e r - n o N K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 29 Financial review continued a majority shareholding by Anglo in the group in December 2003 resulted in the liquidity and tradeability of the share decreasing significantly. Although this has affected its rating, Kumba’s share price nevertheless, in the year under review has outperformed the JSE Resources index by 14% but underperformed the ALSI 40 index by 3%. This can be compared to a performance in line with the ALSI 40 in 2003 and a 5% outperformance of the Resources index over the same period. P O S T - R E T I R E M E N T B E N E F I T L I A B I L I T Y 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. Kumba is a participating employer in a number of defined contribution funds and two closed defined benefit funds. These defined benefit funds were adequately funded as per the latest actuarial valuations on 31 December 2003 and 31 December 2002 respectively. the volume weighted average share price was R40,07 against R32,47 for the previous year, while the daily trade in shares averaged 271 247 in 2004 compared with 671 310 in the corresponding period. In the year under review, the share peaked at R49,00 in November 2004 (against a high of R39,95 in the previous financial year) and bottomed at R32,35 in June 2004 versus a low of R24,10 in April 2003. Following a solid set of results and news of the first iron ore price settlements for 2005, Kumba’s share reached a new high of R70,40 on 4 March 2005. S H A R E P R I C E P E R F O R M A N C E A year-on-year, 12 months to 31 December comparison shows that Since listing on 26 November 2001, Kumba has outperformed both the ALSI 40 (+25%) and Resources (+35%) indices. The acquisition of Table 10: Share price analysis (SA cents per share) Year-end 31 December 2004 2003 2002 2004 First quarter Second quarter Third quarter Fourth quarter 2003 First quarter Second quarter Third quarter Fourth quarter High 4 900 3 995 5 850 4 363 4 450 4 920 4 900 3 425 3 390 3 995 3 799 Low 3 235 2 410 3 001 3 711 3 235 3 325 3 950 2 510 2 410 3 000 3 380 Median 4 007 3 247 4 158 4 164 3 781 4 007 4 462 3 098 2 873 3 345 3 649 P A G E 30 K U M B A A N N U A L R E P O R T 2 0 0 4 Share price against daily traded volumes 6 000 000 5 000 000 4 000 000 3 000 000 2 000 000 1 000 000 0 6 000 5 000 4 000 3 000 2 000 1 000 0 ) e r a h s r e p s t n e c ( Jan 2003 Feb 2003 Mar 2003 May 2003 Jun 2003 Aug 2003 Sep 2003 Nov 2003 Dec 2003 Jan 2004 Mar 2004 Apr 2004 Jun 2004 Jul 2004 Sep 2004 Oct 2004 Dec 2004 Volume traded (millions) Share price (cents per share) Relative share price performance (y-o-y) r a e y - n o - r a e Y 55 50 45 40 35 30 25 20 15 10 5 0 Jan 2003 Apr 2003 Jul 2003 Oct 2003 Jan 2004 Apr 2004 Jul 2004 Oct 2004 Dec 2004 KMB ALSI 40 Resources Index K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 31 A S T E P P I N G S T O N E O F O P P O R T U N I T Y F O R S O U T H A F R I C A 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 through the development of our country’s people. TOP: The Tshikondeni mine in Limpopo province. CENTRE: From left, shift foremen Petrus Jonkers and Pieter Tities, and supervisor William Leberegan, use a dispatch system to monitor and control the allocation of equipment at Sishen. BELOW: Production at Zincor refinery. P A G E 32 K U M B A A N N U A L R E P O R T 2 0 0 4 B U S I N E S S O P E R A T I O N S R E V I E W The physical performance of all the business units has been excellent and reflects a strong commitment to performance management and the development of people. Strong commodity demand, largely due to ever-growing demand from China, resulted in increased prices and improved volumes for the commodities that Kumba produces. Record production of iron ore was achieved as a result of strong demand from the domestic and export markets. Good domestic demand from the power, steel and ferroalloy sectors resulted in record levels of sales of our various coal and industrial minerals products. The heavy minerals business continued with ramping up the two furnaces at the South African operations while the Australian operations had an excellent production performance. The zinc business had another difficult year. While metal prices did recover during the year, low treatment charges and the strong rand negated higher prices. reduction in fatalities, by half, to two is gratifying but our goal remains an injury-free environment and all our operations are committed to this. The loss of two colleagues is deeply regretted and it is most unfortunate that a further two fatalities occurred early in 2005. The initiative to have all our operations listed for international certification on safety and the environment, OSHAS 18001 and ISO 14001 respectively, has progressed well. During 2004, the group obtained international environmental and safety management certifications (ISO 14001 and OHSAS 1800) in eight of its ten operations. O P E R A T I O N A L E X C E L L E N C E Achievements The programme to improve performance through initiatives focused on people, processes and operational excellence yielded a number of excellent results: A good safety, health and environment performance is paramount to the success of all our operations. The • Record iron ore production output of 27,6Mt from Sishen mine • Record of 22,1Mt of iron ore railed from Sishen to the Saldanha port • Record annual iron ore sales of 30,3Mt in total • Record coal production output of 17,4Mt from Grootegeluk mine • Record annual coal sales of 19,6Mt in total • Record zinc concentrate production output of 124kt from the Rosh Pinah mine • Record attributable pigment and synthetic rutile production of 54kt and 112kt respectively at Ticor Limited’s Tiwest joint venture • Cost containment at all operations. Challenging targets have been set for the coming year A business improvement programme at all business and service units is being managed as part of the Kumba initiative to improve overall performance from 2006 by a contribution of R800 million in operating profit per annum. Comparative analysis The review of the individual business operations reflects the 12-month period ended 31 December 2004 against the 12 months to 31 December 2003. Physical information for the periods is shown on p3 and in the fold-out. FAR LEFT: Leeuwpan mine surveyor Leon Adendorff and contractor Kevin Langeveldt assist with the calibration of a computer- aided system that uses GPS to accurately position earthmoving equipment to prevent cross-contamination of coal extracted from seams containing different levels of quality. ABOVE: The Tshikondeni box-cut and entrance leading to the underground workings. BELOW: David Keepi and J Basiami survey the loading of iron ore on to rail wagons at the Sishen mine. Sishen’s exports are transported via an 861km dedicated iron ore rail line to the port of Saldanha. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 33 Business operations review continued Record production levels and notable improvement in operating efficiency I R O N O R E Physical information Total production Total sales Exports Domestic Capital expenditure (R million) * = metric tonnes Y-O-Y = year-on-year O V E R V I E W Kumba is a leading global high-grade lump iron ore producer. The principal iron ore assets are the mines at Sishen (Northern Cape) and Thabazimbi (Limpopo). Together, the mines produce 30Mtpa of iron ore, which accounts for 81% of South Africa’s total demand and 4% of the global seaborne trade. The combined resources of these mines exceed two billion tonnes of high-quality iron ore. Sishen is under a contractual obligation to deliver 6,25Mtpa of iron ore to Mittal Steel South Africa Limited (Mittal) at cost plus a 3% management fee and Thabazimbi mine supplies iron ore exclusively to Mittal on the same basis. As an export-driven operation, Kumba’s iron ore division performed extremely well during the review period. 2004 000t* 30 112 30 294 20 923 9 371 172 Y-O-Y % 2 2 2 1 (28) Export revenue contribution China Japan UK 38% 23% 13% Germany Austria Other 10% 9% 7% curtailed production levels. Selective mining practices with resulting ore gains reduced the overall stripping ratio at Sishen to 1,8, which has proven to be a sustainable practice without undue risk of unexposed ore. Final product output increased by 1,8% on the back of record production levels during the second quarter of 2004. Sishen mine’s excellent operational performance outstripped the Sishen/Saldanha rail line capacity and performance, resulting in full stockpiles which On a year-on-year basis, exports from Sishen increased by 2,3%, underpinned by strong international demand for iron ore, particularly from Asian economies. Exports were made to 30 major steel producers in eight countries and accounted for 76% of Sishen’s production. Domestic sales improved by 1,5%, mainly driven by increased demand from Mittal. Some 18% of operating expenses and 100% of distribution costs were US dollar-denominated. Strong international demand for resources resulted in substantial increases in commodity prices, which mitigated the pressure of the strong local currency. Despite the unfavourable currency, there was a notable improvement in the operating efficiency as reflected by the operating margins on p23. Both Sishen and Thabazimbi achieved excellent safety results during the period. The lost-day injury frequency rate declined from 3,07 in December 2003 to 2,54 in December 2004. Kumba’s strategic intent is to grow this division and optimise shareholder value. To achieve this, the division aims to increase production to 72Mtpa by 2011 and sustainably enhance shareholder value. This strategy entails competing in the global iron ore market in a focused and differentiated manner by: • Reducing or containing operating expenses to increase the operating margin and return on capital employed • Establishing and sustaining preferred-supplier status in high- margin markets • Increasing international and domestic sales by developing new business ventures • Being a responsible corporate citizen. P R O S P E C T S The tight supply/demand situation in the seaborne iron ore industry continued during the past 12 months, P A G E 34 K U M B A A N N U A L R E P O R T 2 0 0 4 Given a buoyant outlook for iron ore, capacity expansions are under way again driven by demand from Asian economies and underpinning the announcement of several expansion projects by producers performing at record levels. The iron ore market outlook remains positive. Annual price negotiations for 2005/2006 are under way and initial settlements have been made at 71,5%, effective April 2005. This is substantially more than the 18,6% achieved in April 2004. The global steel market is buoyant, with record prices across a range of products and geographical regions. Steel production in China for 2004 was 23% above the 2003 level. Kumba’s customers in Europe, Japan and China have all been operating at capacity and it is expected that current demand will continue at least into the second half of 2005. In the short term, rail capacity will be increased to the contractual volume of 23,5Mtpa. A revised train schedule to deliver these volumes is being commissioned early in 2005. The commissioning of a new rail wagon tippler at Saldanha port is planned for the second half of 2005. A new ship loader at the port was commissioned in June 2004 and is currently in full operation. Although the commissioning of other equipment is slightly behind schedule, it is expected that all new equipment will be operational by December 2005. The planned capacity ramp up from the current 29,0Mtpa will entail upgrading all rail wagons to 100-tonne capacity and introducing 324-rail wagon trains versus the current 216-wagon trains. All passing loops will also become operational. C A P I T A L E X P E N D I T U R E In March 2005, Kumba signed an agreement with Transnet that provides a new contract for the transport and handling of export iron ore from Sishen to Saldanha. The contract caters for a rand-based tariff and capacity of up to 35Mtpa by 2009. R million Sustaining Environmental Expansion Total Actual 2004 Estimate 2005 130 4 38 172 154 18 767 939 TOP: Johannes Dihude and Tok Venter share notes at the conveyor section transporting iron ore to Sishen’s upcurrent classifier plant. CENTRE: At Thabazimbi’s wash and screen section are process controller John July and drill rig foreman Jack Majadibodu. LEFT: A new tippler under construction at Saldanha. The tippler is expected to be commissioned in the second half of 2005 and is part of expansion plans to ramp up capacity for iron ore exports. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 35 Business operations review continued Record throughput at all units to meet higher demand C O A L Physical information Total production Total sales Eskom Domestic Exports Capital expenditure (R million) * = metric tonnes Y-O-Y = year-on-year 2004 000t* Y-O-Y % 19 444 19 558 14 356 4 112 1 090 171 3 2 2 6 (3) 39 O V E R V I E W The coal division operates three collieries in South Africa, and is the country’s fifth-largest coal producer. Grootegeluk (Limpopo) and Leeuwpan (Mpumalanga) are open-pit operations, while Tshikondeni (Limpopo) is an underground mine that supplies its full production to Mittal at cost plus a management fee of 3%. Coal has been identified as a growth commodity for Kumba. During the period, through improved operational performance, the division delivered record throughput at all business units. Some 19,4Mt of coal was produced. Grootegeluk accounted for the bulk of production, with a new record of 17,4Mt, while Tshikondeni achieved new highs in monthly production and dispatch, exceeding the previous year’s levels by 15%. The division again concentrated on higher-margin market segments by increasing sales volumes of product in the metals market, which boosted revenues. Collectively, the collieries increased production of thermal, metallurgical and other coal by 2,5% against higher demand from all sectors. Overall yields were slightly lower than the previous year, mainly as a result of Grootegeluk producing a higher amount of high-value, lower-yield semi-soft coking coal. The combined effect of the above resulted in the coal division increasing its operating margin from 16% to 23% (including the cost-plus arrangement at Tshikondeni mine). Notably, the division posted the best safety performance in the group, with a record low lost-day injury frequency rate of 1,7, and Grootegeluk and Tshikondeni received ISO 14001 and OSHAS 18001 certifications. High electricity demand and the high availability of Eskom’s Matimba power station resulted in record sales of thermal coal from Grootegeluk. In collaboration with Spoornet, the efficiency of rail flows from Grootegeluk was improved, resulting in record dispatches of 3,4Mt against a previous record of 3,1Mt. An agreement was concluded with Mittal to supply an additional 500ktpa coking coal for the production of market coke from July 2006. The approved project includes construction of an extra beneficiation plant for this purpose. A further agreement was concluded with Mittal to supply 180ktpa coal from Grootegeluk to Newcastle for pulverised coal injection (PCI) into the blast furnace from 2005. An agreement was concluded in terms of which 1,0Mt of thermal coal per annum will be supplied from Leeuwpan to Eskom’s Majuba power station. Sales into the export market were 1,1Mt, marginally lower than the previous year mainly due to the sale of coal to Majuba power station. These will only increase when the RBCT Phase V expansion project is commissioned. Prices obtained were approximately 6% higher than the previous year. The strong exchange rate was countered by better commodity prices for the review period. Some 14% of revenue and 12% of cost are US dollar-based. Through operational efficiency, market positioning, value growth and effective sustainability management, the coal division is aiming to double its output to 40Mtpa by 2010 as the preferred supplier to the metals, reductant and energy markets. Capital expenditure increased from R123 million to R171 million for replacements and de-bottlenecking initiatives. P A G E 36 K U M B A A N N U A L R E P O R T 2 0 0 4 Two brownfields expansion projects to boost production P R O S P E C T S Prospects for Kumba’s coal division in the new financial year are positive. Both domestic and global coal demand are expected to remain high and support prices. Global free-on-board prices for hard coking coal were fixed at over US$120 per tonne, and this will have a positive impact on the prices of all metallurgical coal sold into the domestic market. Equally, strong local demand is expected. Domestic demand for power station coal will continue to be high and this bodes well for Grootegeluk and Leeuwpan. During the review period, two brownfields expansion projects were approved for implementation at Grootegeluk and Leeuwpan respectively. These projects will capitalise on the shortage of metallurgical coal in the metals market (semi-soft coking coal) and the shortage of domestic thermal coal for power generation. The projects will come on stream during 2005/06 and will boost total coal production to 21,7Mtpa. In the longer term, the Waterberg is expected to become the preferred location for new coal-fired power generation and the production of high-grade export coal. Kumba Coal is well positioned to play a pivotal role in supplying additional coal for improved power-generation capacity in this region to alleviate the capacity shortfall projected from 2009 in South Africa. This and other coal growth opportunities are detailed on p44. jig project at Leeuwpan during the latter half of 2005 will augment sales volumes. The successful implementation of the business improvement programme’s cost savings and revenue-enhancement initiatives during 2005 are expected to result in a net improvement in operating margin for Kumba’s coal division. C A P I T A L E X P E N D I T U R E R million Sustaining Environmental Expansion Total Actual 2004 Estimate 2005 100 5 66 171 56 41 401 498 TOP: The supply of thermal coal from Leeuwpan mine to Eskom’s Majuba power station resulted in an agreement to supply 1,0Mt of thermal coal per year to the power utility. Production and sales volumes are set to increase. The commissioning of the ABOVE: High electricity demand from Eskom’s Matimba power station in Limpopo province (foreground) resulted in record sales of thermal coal in the review period for the nearby Grootegeluk mine (background). K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 37 Business operations review continued Smelter construction completed within budget and on schedule H E A V Y M I N E R A L S Physical information Ticor SA Ticor Limited** Total production Ilmenite Zircon Rutile Low manganese pig iron (LMPI) Synthetic rutile Pigment Chloride slag High-grade sulphate slag Total sales Ilmenite Zircon Rutile Synthetic rutile Low manganese pig iron Chloride slag High-grade sulphate slag * Metric tonnes. 2004 000t* 459*** 49 20 63 96 40 27 48 17 58 84 24 Y-O-Y % – (2) 18 152 256 100 (54) (6) (43) 480 600 2004 000t* 236 38 18 112 53 30 38 21 50 Y-O-Y % 9 (5) 6 15 10 (45) (3) 31 2 ** Tonnages reflect 50% of the production and sales volumes of the Tiwest joint venture in which Ticor Limited has a 50% interest. *** Ilmenite at Ticor SA refers to crude ilmenite. Y-O-Y = year on year O V E R V I E W Through its strategic investment in Ticor Limited, listed on the Australian stock exchange, and Ticor SA, Kumba’s heavy minerals division is positioned to become a significant producer of feedstock in 2006. At the Ticor SA operation, smelter ramp up continued during the review period, leading to higher slag and low manganese pig iron production. Furnace 2 was shut down from September to December 2004 to carry out maintenance and improvements to ensure that the smelter will be ready to take full advantage of the expected increase in market demand for slag in future years. This furnace has already ramped up to 90% of production capacity since recommissioning. Zircon production decreased slightly at both operations due to lower-grade areas being mined. At the Ticor SA operations, crude ilmenite continued to be stockpiled as feedstock for the smelter. This stockpile is expected to decrease rapidly when the furnaces reach full capacity. To supplement ongoing ilmenite supply to the furnaces, a second mine, Fairbreeze (south of the Hillendale operation), is planned to be commissioned in 2007. This will also boost zircon and rutile production. Despite the strong operational performance, operating results are being severely impacted by the strong Australian dollar and rand which have both appreciated considerably against the US dollar. Although there was strong demand for pigment, price increases were relatively subdued during the year. This, coupled with a supply surplus for titanium dioxide feedstocks, resulted in ongoing pressure on slag and synthetic rutile prices. Price increases have been negotiated for both products in 2005. Demand for zircon, rutile and low manganese pig iron was, however, strong and prices rose accordingly during the year. A continuation of this trend is expected into 2005. Ilmenite sales for both Ticor SA and Tiwest were lower than the previous calendar year due to the timing of demand and, for Ticor SA, the strategic decision to use the product in the higher-value upstream production of titanium slag. Sales of chloride slag, high-grade sulphate slag and low manganese pig iron increased substantially as the smelter ramped up. This increase will continue into 2005. In April 2004, Ticor Limited closed its chemical operations in Gladstone, Queensland. This decision was based on changed market dynamics and the strong Australian dollar. Production ceased in May 2004 and by year end the property, plant and equipment and stock had been sold for A$5 million. P A G E 38 K U M B A A N N U A L R E P O R T 2 0 0 4 On track to become a significant producer of slag feedstock Recovery of working capital and the management of environmental clearances have proceeded in line with the closure plan. The strategic intent and focus of the heavy minerals division is to become a global leader in titanium dioxide, delivering sustainable shareholder value. A key driver to achieving the strategy will be the business improvement programmes at both Tiwest and Ticor SA. P R O S P E C T S By the end of 2004, the Tiwest business improvement programme had realised approximately A$30 million (R135 million) in earnings for Ticor. One of the major successes was the record production of both synthetic rutile and titanium dioxide pigment, which respectively increased by 15% and 13% over 2003 levels. Further production increases for both synthetic rutile and pigment are planned during 2005 and 2006 with only minor capital expenditure. The full benefits of the business improvement programme at Ticor SA are expected to be realised by the end of 2006. C A P I T A L E X P E N D I T U R E Estimate Actual R million 2004 2005 Sustaining Environmental Expansion Total 125 4 351 480 102 10 164 276 TOP: Aerial view of Ticor SA smelter blockyard and slag plant. ABOVE: Hydraulic mining at the Hillendale mine. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 39 Business operations review continued Record production in Namibia, Chinese refinery capacity doubled B A S E M E T A L S Physical information Total production Zinc concentrate Zinc metal Lead concentrate Total sales Zinc metal Domestic Exports and other Lead concentrate * = metric tonnes Y-O-Y = year on year 2004 000t* Y-O-Y % 124 116 27 119 91 28 12 15 2 (13) 4 7 (3) (66) O V E R V I E W The base metals division comprises the operations of Rosh Pinah and Zincor and its interest in Chifeng. Rosh Pinah in southern Namibia is an underground lead/zinc mine that produced a record 124kt of zinc- containing concentrates for the year ended 31 December 2004. These concentrates account for 55% of Zincor’s annual requirements. Some 12kt of lead-containing concentrates were exported through Walvis Bay during the year. Increased production resulted primarily from higher feed grades, continued de-bottlenecking and increased efficiency. The Zincor refinery produced 104kt of zinc metal during the review period. The main reason for lower production is the deteriorating quality of concentrates from the refinery’s main suppliers, with a decrease in the zinc grade and an increase in impurity levels. Zincor is the only zinc supplier to the South African market and the leading supplier of zinc in east Africa, with established markets in Kenya and Tanzania. The Chifeng refinery in Inner Mongolia, China, successfully commissioned the second phase of the project to double production capacity to 50kt of zinc per annum. Production ramp up reached 95% at the end of December 2004. Kumba’s attributable production for the 12 months ending December was 12kt of zinc metal. As the base metals division exercises joint control over the refinery, our interest is equity- accounted. All metal sales are to domestic Chinese markets. Kumba’s strategic intent in the base metals division focuses primarily on improving the efficiency and competitive positions of Rosh Pinah and Zincor. This will be achieved largely through releasing the full revenue-enhancement and cost- saving initiatives in the business improvement programme. Zincor’s feedstock supply is a major focus area due to the closure of two local zinc concentrate producers, making Zincor reliant on the Rosh Pinah and Black Mountain (Anglo) zinc mines, with the balance made up by imports. Local demand was strong during the year and sales at Zincor were higher despite lower production levels. Zinc concentrate production at Rosh Pinah increased by 16kt due to excellent operating efficiencies and this resulted in higher concentrate sales. Sales for lead concentrates were lower due to ships’ loading schedules being deferred to the first half of 2005. Kumba’s 85% investment in ZnERGY (Pty) Limited was impaired by R26 million due to the insolvency of Zoxy Limited. ZnERGY manufactured zinc air fuel battery components under licence from Zoxy Energy Systems AG. Zoxy was also the supplier of a critical component to ZnERGY and buyer of the final product. Zoxy filed for bankruptcy under German law, resulting in the closure of the ZnERGY plant. An impairment provision of R9 million was raised against a preference share investment made in 2000, in a strong US dollar and zinc price environment, to facilitate a 5% empowerment interest in Rosh Pinah Zinc Corporation (Pty) Limited. The environmental rehabilitation provision at Rosh Pinah was increased by R25 million to bring it in line with the group’s South African mine closure rehabilitation standards. P R O S P E C T S Zinc prices have recovered substantially, in line with the rest of the base metals suite, from the 22-year lows of the past two years and traded between an intra-year low of US$943 and US$1 270 per tonne. P A G E 40 K U M B A A N N U A L R E P O R T 2 0 0 4 Business improvement programme under way At the end of the year, the zinc price rallied, with prices firming above the US$1 200 per tonne level. The global refined zinc market recorded a deficit for 2004 and this is expected to continue in 2005, with prices well supported above the US$1 000 per tonne level. Price volatility will probably remain, but an upward trend is expected to be maintained. Most refineries continued to be under severe pressure as concentrates were in short supply, resulting in contract treatment charges being lower during the review period. The shortage of concentrate is forecast to remain during 2005, with the resultant negative effect on treatment charges. Zinc metal demand in Chinese markets is currently strong and China has moved from being a large exporter of refined zinc to a net importer. This has been a key positive development in the zinc market. A business improvement programme was initiated during the review period to protect declining margins resulting from the continued depressed zinc price and the strength of the rand. The target of the cost-reduction and revenue-enhancement initiative is to achieve an operating profit improvement of some R115 million from the 2003 base year by the end of 2005. Progress to date has been satisfactory, with Rosh Pinah achieving the 70% target level and Zincor at above the 40% level. C A P I T A L E X P E N D I T U R E Estimate Actual R million 2004 2005 Sustaining Environmental Expansion Total 17 13 32 62 37 9 28 74 TOP: The Rosh Pinah mine in southern Namibia. ABOVE: Jumbo zinc ingots at the Zincor electrolytic refinery are readied for transport. LEFT: Zincor, situated in Gauteng province, is a low-cost producer of zinc metal. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 41 Business operations review continued Continuing to benefit from growth in the steel and construction industries I N D U S T R I A L M I N E R A L S Total production – Glen Douglas (000t) – Bridgetown (000t) – Ferrosilicon (t) Total sales Glen Douglas – domestic (000t) Bridgetown – domestic (000t) Ferrosilicon – domestic (t) Revenue Operating profit Operating margin Capital expenditure Y-O-Y = year on year O V E R V I E W Kumba’s interest in industrial minerals comprises the Glen Douglas open-cast mine, producing metallurgical dolomite, aggregate Y-O-Y % 8 0 5 9 0 0 Y-O-Y % 16 (1) (5) 2004 1 431 180 5 670 1 441 180 5 408 Rm 95 20 21 7 and small quantities of agricultural lime; a ferrosilicon plant in Pretoria producing a superior gas-atomised ferrosilicon powder; and 50% of the Bridgetown dolomite mine joint venture in the Western Cape. The success of the Glen Douglas operation is based on its ability to meet the requirements of the steel industry, particularly the demand for metallurgical dolomite from Mittal, and to maintain market share in the aggregate business in southern Gauteng at around 10%. Recorded sales were ahead of budget due to higher demand, specifically for aggregate materials for the construction industry. The focus on product recoveries from the waste dump marginally reduced stripping and mining costs. The operation continues to benefit from growth in the steel and construction industry. The profitable ferrosilicon operations are strategically positioned to meet the beneficiation needs at Kumba’s iron ore mines, with some 75% of output being sold to the group’s Sishen and Thabazimbi businesses. The operation increased market penetration during the period, benefiting from favourable unit production costs, higher production and growth in the steel sector, which boosted demand for iron ore. Additional benefits were derived from an aggressive sales strategy and marketing product in the diamond, chrome and export markets. Bridgetown recorded excellent results and secured a ten-year contract during 2003 to supply dolomite to Saldanha Steel. P R O S P E C T S As part of the strategic business review, Kumba is considering divesting of its interests in Glen Douglas and the 50% share in the Bridgetown joint venture. The dolomite sales are strongly supported by the buoyant steel sector and the ferrosilicon business enjoys the benefits of high production levels of iron ore. C A P I T A L E X P E N D I T U R E R million Sustaining Environmental Expansion Actual 2004 Estimate 2005 7 – – 7 8 – – 8 The Glen Douglas mine produces dolomite, aggregate and small quantities of agricultural lime. Total P A G E 42 K U M B A A N N U A L R E P O R T 2 0 0 4 G R O W T H As noted by the chief executive, Kumba’s pipeline of growth opportunities is at an exciting stage of development, with FY2005 seeing the execution of several projects that have been investigated in recent years. I R O N O R E Sishen Expansion Project A thorough review of Kumba’s assets in the Northern Cape was conducted in the second half of calendar 2003, against a background of rapid growth in demand for ore, new beneficiation technology, the marked appreciation in the value of the rand relative to the US dollar and concern about long- term increases in the stripping ratio at Sishen. This analysis led to a decision to investigate the potential to extract additional ore, some of a lower quality, from existing run-of-mine and previously stockpiled material. Following completion of a pre- feasibility study in December 2003, a feasibility study on the Sishen expansion project was completed in July 2004, and was followed by a comprehensive optimisation, redesign and risk mitigation process, which was completed and approved. Total cost of the study is some R30 million. This project will utilise current waste material and an average 10Mtpa new material to increase run-of-mine from the current 34Mtpa to 50Mtpa. The 16Mtpa feed to the new plant will be processed through a newly-built plant incorporating recent, but proven, jigging technology to produce about 10Mtpa of saleable ore with an average iron content of 64% compared with the 66% iron content of normal Sishen product. This in turn will result in a marked reduction in the current and long-term stripping ratio for the mine, as much of the material to be mined was previously treated as waste; indeed, some of this material has already been stockpiled in anticipation of the project proceeding. Total capital is estimated at R2,966 billion. The Sishen expansion project will begin delivery of product by mid-2007, ramping up to full capacity by the beginning of 2009. The current review of the life- of-mine plan indicates that the Sishen expansion project will enable the resource not currently planned for mining to be included in further reserve statements. The Sishen expansion project was approved by the Kumba board in February 2005. Sishen South Project This involves the development of a greenfields open- cast operation on a group of iron ore bodies that lies some 70km south of Sishen mine, and immediately to the west of the current mining operations of Assmang’s Beeshoek project. The persistent strength of the rand has made many greenfields projects, including Sishen South, less attractive than previously, because of their sensitivity to fluctuations in rand- denominated revenue relative to their initial investment cost. For this reason, the Sishen expansion project, detailed above, has taken precedence over Sishen South in terms of accessing new capacity along the export channel to Saldanha Bay. Nevertheless, Sishen South remains an attractive project: it is intended ultimately to produce some 9,0Mtpa of Sishen high-quality ore for export by 2010, for a capital cost of about R2,2 billion, although alternatives to commence with a smaller operation are at an advanced stage of evaluation. Potential to produce a 64% iron product as for the Sishen expansion project will increase resource utilisation and mine capacity. Timing of the development of Sishen Pipeline of growth opportunities at an exciting stage of development, with several projects under way TOP: Drilling at the Sishen South project. ABOVE: The pilot jig plant is an integral part of new infrastructure to be used in the Sishen expansion project. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 43 Growth continued Sishen expansion project will add 10Mtpa of saleable iron ore South will be guided by availability of export channel capacity, via either Saldanha or Coega. Phoenix Project Phoenix is a project being evaluated at the Thabazimbi mine in Limpopo province, north of Rustenburg, and is exploring the potential to recover saleable high- grade ore from the low-grade banded ironstone formations that host the well-known, but depleting, ore bodies at the mine. A technological process has been developed successfully and is currently undergoing commercial feasibility study. If proven viable, Phoenix could produce 2 – 3Mtpa of ore that would eventually replace and even increase current production, all of which is delivered to Mittal on a cost-plus basis. A mutually-beneficial commercial agreement with Mittal will need to be negotiated for Kumba to participate in the development of Phoenix. Hope Downs Despite approval from the boards of both Kumba and its controlling shareholder to proceed with the development of Hope Downs, progress with the project was signi- ficantly delayed as a result of an objec- tion raised by our Australian partner in the project, Hancock, to the change of control in Kumba that resulted from the acquisition of a 66,62% stake in the company by subsidiaries of the Anglo group. This dispute eventually led to arbitration, resolution of which only occurred in December 2004, a year after the objection was raised. Subsequently, arbitrators ruled that Hancock’s refusal to accept the change of control of Kumba was not unreasonable. In terms of the agreement between Kumba and Hancock, this gives Hancock the right to acquire Kumba’s interest in the project at an agreed price, or according to a value determined by an independent valuer. This process is under way, as is an appeal lodged by Kumba against the arbitration ruling. Meanwhile, Kumba continues to honour its obligation to work with Hancock to prepare the Hope Downs’ project for development as soon as possible. Faleme The Faleme deposit, located in the extreme south-eastern corner of Senegal, is owned by a governmental development company, Miferso. Kumba concluded an agreement with Miferso in July 2004 in terms of which the two parties will explore the potential to create an export-oriented iron ore mine at Faleme. It is envisaged that up to 12Mtpa of high-grade ore will be mined over a 20-year period and transported to a new terminal to be built on the Atlantic coast south of the capital, Dakar, for sale mainly into the European market. The principal constraint to the development of the project will be infrastructure: construction of over 300km of new railway line will be required to join the existing line linking Dakar to Bamako in neighbouring Mali; 430km of the existing line will need to be upgraded; and a terminal would have to be built at the port of Bargny. A preliminary estimate of the capital required for the project is US$950 million, comprising US$306 million for the mine and port-handling facilities; US$537 million for provision of rail and rolling stock; and US$107 million for the deep-water terminal. In terms of the agreement, Kumba has the option to acquire an 80% interest in the mine, the development of which would be its responsibility, while Miferso would be responsible for the development of the associated infrastructure, with assistance from international funding agencies. A pre- feasibility study, currently in progress, is due for completion by June 2005 and, if positive, will lead to a full bankable feasibility study, covering all aspects of the project. Construction could commence by mid-2008, with commissioning by mid-2011. C O A L Grootegeluk 6 Phase 1 (GG6/1) In August 2004, Kumba’s board approved the development of a new plant module at the GG2 plant at Grootegeluk mine to treat and beneficiate coal previously sent untreated to the adjacent Matimba power station. The new plant, GG6/1, will extract a fraction of semi-soft coking coal from the run-of-mine material and supply 530ktpa to the coking plants being refurbished by Mittal at its Newcastle facility. GG6/1 is now under construction and due for commissioning in July 2006 at a capital cost of R323 million. Grootegeluk Char/Formed Coke A feasibility study on the possibility of producing char and formed coke from benches 11 and 13 in the Grootegeluk pit is continuing. The feasibility study to produce char for the ferroalloy industry will be completed by March 2005 and, if successful, could lead to construction commencing in January 2007. It is envisaged that production from the char plant will start at 80ktpa and ramp up to 240ktpa by 2009. The preliminary capital estimate for the plant is R85 million. Test work to confirm the quality of formed coke will be done as part of a feasibility study to be completed by December 2005. Waterberg Development The largest reserves of coal in South Africa lie in this area. A pre-feasibility study on the P A G E 44 K U M B A A N N U A L R E P O R T 2 0 0 4 Waterberg coalfield is the future of South Africa’s coal industry possible expansion of Grootegeluk mine to supply an additional 6Mtpa of power station coal to an expanded Matimba power station is under way. The study investigates both options of power station expansion, namely pulverised fuel and fluidised bed combustion. The study will be completed by March 2005 and, if successful, will move into a feasibility phase to be completed by March 2006. Production from the expanded facility could commence by early 2008. Leeuwpan Jig In August 2004, the Kumba board approved the Leeuwpan jig project. The jig plant will add an additional 1Mtpa of power station coal to the Leeuwpan product portfolio. This product will be railed under a supply contract to Eskom’s Majuba power station and will be commissioned in August 2005, at a capital cost of R90 million. Inyanda Coal Mine Inyanda Coal is a joint venture between Kumba Coal and Eyesizwe Coal. Inyanda Coal is current- ly preparing to construct a new 1Mtpa export thermal coal mine near Witbank. The project has been approved by both the Kumba and Eyesizwe Coal boards, subject to Richards Bay Phase V expansion. Com- missioning of the mine will take place 18 months after final approvals have been obtained. South Dunes Coal Terminal Kumba Coal is a 42% shareholder in the RBCT Phase V expansion through the South Dunes Coal Terminal vehicle. The approval of Transnet to proceed with this project is awaited and is long outstanding. Construction of the facility will span a period of 27 months and will give Kumba Coal a 2,5Mtpa export allocation. Moranbah South In December 2004, Kumba concluded an agreement with Anglo Coal Australia to jointly explore the potential to develop a greenfields hard coking coal mine on the adjacent properties of Moranbah South and Grosvenor South, located near the village of Moranbah in the central Bowen Basin coalfield of Queensland, Australia. As part of its contribution to the project, Anglo Coal Australia will fund the additional exploration and feasibility work Grootegeluk’s beneficiated coal stockpiles and the plant area, with the pit in the background. Grootegeluk 6 Phase 1 is one of Kumba’s growth prospects. needed to take it to approval status, although Kumba will retain a right to 50% participation in the venture and an obligation to contribute to funding its development. The deposit contains substantial resources of high-grade coking coal, which will probably require extraction by a combination of open-pit and underground mining. H E A V Y M I N E R A L S Fairbreeze is located south of Ticor SA’s existing Hillendale mine near Richards Bay in KwaZulu-Natal. Fairbreeze is designed to supplement output from Hillendale as the latter’s grades decline in future. Like Hillendale, Fairbreeze will incorporate hydraulic mining, with heavy mineral concentrate being treated at Ticor SA’s Empangeni mineral separation plant. Detailed engineering for the Fairbreeze mine commenced in July 2004 with completion scheduled for mid-2005. The three main consultants responsible for the design of the plant, residue dam and infrastructure have been appointed. Ongoing work will involve updating the engineering specifications, value engineering and evaluating the options for water supply. Production is scheduled to commence in 2007. Toliara Sands Project comprises the Ranobe deposit and further prospective tenement holdings located north of the port of Toliara in south-west Madagascar. An option agreement with Madagascar Resources NL (MRNL), a junior Australian exploration company, was signed by Ticor Limited in November 2003 and simultaneously a “back-to- back” agreement was signed between Kumba and Ticor, giving Kumba a 60% stake in the project. This agreement K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 45 Growth continued Heavy minerals to become important contributor to results production that has been achieved at the Rosh Pinah mine in southern Namibia during the last year (from 108ktpa to 124ktpa) has necessitated an acceleration of the exploration programme to define new resources there to replace those being depleted more rapidly than before. Several successes have been achieved, but more will be needed if the mine’s life is to be extended beyond its present estimate of five years. An intensified exploration programme is under way with this objective in mind. Democratic Republic of Congo projects Kumba has long been associated with two projects in the Democratic Republic of Congo (DRC): the Kamoto copper/cobalt mine and the Kipushi zinc/silver/lead mine, both located in south-eastern Katanga province and previously mined by the state mining company, Gécamines. As with many other projects in the DRC, Kumba’s ability to make progress with either of these projects has been severely hampered by the reluctance of important constituencies within the DRC to embrace the mining code developed in 2002 by the government in conjunction with the World Bank. While the company retains an interest in the properties, no work has been conducted there during the last year. A L L O Y S T R E A M ™ Formerly referred to as Ifcon™, AlloyStream™ is a process technology developed and patented by Kumba in terms of which fine metalliferous ore is converted directly to the metal using cheaper reductants and less electric power than conventional technology, and with lower environmental impact. During the last year, the process has been tested specifically in the production of ferromanganese, using a purpose- built, sub-commercial scale furnace at Kumba’s pilot plant facility in Pretoria. The results of these trials have been sufficiently promising that discussions have commenced with various participants in the industry with a view to conducting feedstock- specific feasibility studies for a commercial scale plant. provides Ticor and Kumba with the option to purchase MRNL’s interest in the Toliara Sands project after com- pletion of an exploration programme and bankable feasibility study. An option fee of US$2 million has been paid to MRNL, giving Ticor and Kumba exclusive rights to the Toliara Sands project. Ticor and Kumba will fund exploration, pre-feasibility and (if justified and approved) feasibility studies. The pre-feasibility study is currently being conducted to evaluate the project to assess its suitability as feedstock supplier. Indications are that the resource contains smelter- quality ilmenite sufficient to supply the existing two furnaces at Empangeni for 33 years or to underwrite a smelter expansion when market conditions improve. Additionally, the resource contains significant zircon and rutile by- product credits and indications of high-grade ilmenite suitable for synthetic rutile processing. B A S E M E T A L S Chifeng Kumba Hongye Zinc Refinery Commissioning of the second 25ktpa module at the refinery in Inner Mongolia Autonomous Region of China was completed successfully in early 2004 and ramp up to 95% of full capacity has been achieved, within budget and ahead of schedule. Details of the expansion, in which Kumba has a 60% stake, giving it an effective interest of 28% in total, are contained in the operations report. Current development work includes an analysis of zinc concentrate availability in Inner Mongolia. Rosh Pinah Exploration The dramatic increase in zinc concentrate Construction of the Leeuwpan jig plant which will enable production of a further 1Mtpa of power station coal. P A G E 46 K U M B A A N N U A L R E P O R T 2 0 0 4 R E V I E W O F M I N E R A L R E S O U R C E S A N D R E S E R V E S The mineral resources and ore reserves attributed to Kumba’s current operations and development projects are summarised in the tables on p48 – p51. Kumba’s tenure over its mineral assets as listed in the tables was audited and is confirmed. The status of the Hope Downs mineral resource as tabled may change in future, pending the outcome of an appeal against the arbitration decision allowing Hancock to buy Kumba’s 50% share in the project. Note that mineral resources are reported in addition to ore reserves; this differs from previous years, when mineral resources were reported inclusive of ore reserves. This change explains the significant difference between the figures reported this year and those previously reported. The Braeburn and Fairbreeze C-extension heavy minerals resources are subject to successful prospecting rights conversion. Mineral resources and ore reserves were estimated by the competent persons on an operational basis and in accordance with the SAMREC code (2000) for South African properties and the JORC code (1999) for Australian properties. All competent persons have sufficient relevant experience in the style of mineralisation, the type of deposit or mining method and in the activity for which they have taken responsibility, to qualify as “competent persons” as defined in these codes. They have signed off their respective estimates in the original mineral resource and ore reserve statements for the various operations and consent to the inclu- sion of the information in this report in the form and context in which it appears. A list of Kumba’s competent persons is available from the company secretary on written request. In addition, the processes and calculations associated with the estimates have been audited by internal independent competent persons. The person within Kumba designated to take corporate responsibility for mineral resources and ore reserves, HJ van der Berg, the undersigned, has reviewed and endorsed the estimates reported. HJ van der Berg MSc (Geology), BSc (Hons) (Geology), Pr Sci Nat (400099/01) Manager, Geological Services Kumba has been actively involved during the consultation phase leading up to the promulgation of Act No 28 of 2002: Mineral and Petroleum Resources Development Act, 2002. Kumba fully supports the objectives of the Act and is committed to its implementation based on sound business principles. All applications pending on 1 May 2004 have been resubmitted under the new dispensation. The plan for conversion of old order to new order mineral rights is in place and will be executed as appropriate and according to compliance pre- conditions and good practice. The Limpopo and Eastern Cape heavy minerals deposits may be interpreted as “unused old order rights” although they form part of the heavy minerals business plan and will be utilised at a later stage, according to the life-of-mine schedule. Documents for conversion will be submitted before the end of April 2005. As part of Kumba’s objective to use its mineral resources optimally, extensive research and testing of different technologies have confirmed the potential to upgrade low-grade iron ore and banded iron formation to an iron ore product with marketable iron levels. This development could have an effect on the business cases of both Sishen and Thabazimbi mines. If this process is proven to be economically viable, the present mineral resource and ore reserve estimates will increase significantly. Combined with the continuous improvement of selective mining practices, this technology could have a positive impact on the profitability and lives of both mines. Innovative mineral resource utilisation is also part of the coal strategy in Kumba. Tests have indicated that raw coal from zone 11 at Grootegeluk is suitable for fluidised bed combustion by Eskom. This would save on beneficiation costs and add production capacity to the operation. Another opportunity being investigated at Grootegeluk is the production of char from shallow- lying zones 2 and 3. The calcrete overburden in the area is being investigated as a possible sorbent for the fluidised bed combustion process. Rosh Pinah mine in the south of Namibia has a calculated life of mine of five to six years, depending on the production rate. The present prospecting initiative is focused on mine exploration to identify and prove mineable ore reserves that can be utilised with limited further development of existing infrastructure. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 47 Review of mineral resources and reserves continued Kumba’s objective is to use its mineral resources optimally Table 1: Mineral resources reported inclusive of ore reserves for 2003 and 2004 2004 2003* Commodity Operation Iron ore Sishen mine+ Thabazimbi mine Hope Downs (Hope 1) Australia(1) Sishen South project(2) Zandrivierspoort Coal Grootegeluk mine Leeuwpan mine Tshikondeni mine Moranbah South Australia Inyanda+ Strehla Heavy minerals Hillendale mine + Braeburn(3) Fairbreeze A+B+C+C ext(6) Gravelotte sand % attributable to Kumba Resource category 78,6 Measured Indicated Inferred Total 78,6 Measured Indicated Inferred Total 50,0 Measured Indicated Inferred Total 100,0 Measured Indicated Inferred Total 50,0 Measured Indicated Inferred Total 100,0 Measured Indicated Inferred Total 100,0 Measured Indicated Inferred Total 100,0 Measured Indicated Inferred Total 100,0 Measured Indicated Inferred Total 50,0 Measured Indicated Inferred Total 100,0 Measured Indicated Inferred Total 80,6 Measured Indicated Inferred Total 80,6 Measured Indicated Inferred Total 80,6 Measured Indicated Inferred Total Tonnes (million) 754 636 249 1 639 43 19 21 83 199 291 29 519 146 147 118 411 – 447 – 447 1 463 2 075 2 513 6 051 186,9 9,8 – 196,7 27,2 10,1 – 37,3 – 586 124 710 15,3 – – 15,3 – 22,5 – 22,5 56 – – 56 196 27 – 223 75 – – 75 Grade % Fe 65,2 64,8 64,2 64,9 63,1 62,4 62,1 62,7 62,1 61,1 60,4 61,5 65,4 64,6 63,5 64,5 – 34,9 – 34,9 Coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal % Ilmenite 3,7 – – 3,7 3,7 2,5 – 3,6 % Ilmenite 9,1 – – 9,1 Tonnes (million) 975 411 248 1 634 40 26 24 90 199 291 29 519 130 126 87 343 – 447 – 447 1 521 2 075 2 513 6 109 159,9 29,8 – 189,7 30,0 10,1 – 40,1 – 586 124 710 15,3 – – 15,3 – 22,5 – 22,5 75 – – 75 140 75 – 215 75 – – 75 Grade % change % Fe 65,1 64,6 64,3 64,8 62,5 62,5 61,8 62,3 62,1 61,1 60,4 61,5 65,5 64,5 64,1 64,8 – 34,9 – 34,9 Coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal Raw coal % Ilmenite 3,8 – – 3,8 2,8 4,6 – 3,4 % Ilmenite 9,1 – – 9,1 0,27 (8,01) – 19,90 – (0,94) 3,69 (7,05) – – – (25,20) 3,70 – P A G E 48 K U M B A A N N U A L R E P O R T 2 0 0 4 Mineral resources are now reported in addition to ore reserves Table 1: Mineral resources reported inclusive of ore reserves for 2003 and 2004 continued 2004 2003* Commodity Operation Heavy minerals continued KwaZulu-Natal(4) – Block P and Fairbreeze D Eastern Cape – Nombanjana, Ngcizele Sandy Point old and recent Limpopo sand – Gravelotte pebbles and Letsitele sand Limpopo rock – Gravelotte rock and Letsitele rock Tiwest, Australia – Cooljarloo Tiwest, Australia – Jurien Ticor, Australia – Magnetic minerals Base metals Rosh Pinah % attributable to Kumba Resource category Tonnes (million) 80,6 Measured Indicated Inferred Total 80,6 Measured Indicated Inferred Total 80,6 Measured Indicated Inferred Total 80,6 Measured Indicated Inferred Total 25,8 Measured Indicated Inferred Total 25,8 Measured Indicated Inferred Total 51,5 Measured Indicated Inferred Total 89,5 Measured Indicated Inferred Total – 50 – 50 233 – – 233 13 – 31 44 – 54 112 166 137 322 27,7 480,7 44 9,1 – 53,1 1,3 75,4 – 76,7 2,3 3,5 0,6 6,4 Grade – 3,0 – 3,0 4,5 – – 4,5 10,5 – 4,0 5,9 – 25,9 20,7 22,4 % THM 3,2 2,4 1,9 2,6 4,6 5,5 – 4,8 6,9 6,6 – 6,6 % Zn 8,2 11,0 9,0 9,8 % Pb 2,2 3,0 3,8 2,8 Tonnes (million) Grade % change – 84 – 84 233 – – 233 13 – 31 44 – 54 112 166 103 316 45,2 464,2 44 9,1 – 53,1 1,3 75,4 – 76,7 2,0 3,8 0,9 6,7 – 3,0 – 3,0 4,5 – – 4,5 10,5 – 4,0 5,9 – 25,9 20,7 22,4 % THM 3,6 2,6 2,4 2,8 4,6 5,5 – 4,7 6,9 6,6 – 6,6 % Zn 8,4 12,6 9,5 10,9 % Pb 3,0 3,0 3,6 3,1 (40,72) – – – 4,96 – – (3,68) Industrial minerals Glen Douglas dolomite mine 100,0 Measured Indicated Inferred Metallurgical dolomite % SiO2 <2,5 <2,5 <2,5 186 – 117 Metallurgical dolomite % SiO2 <2,5 <2,5 <2,5 187 – 117 Total 303 <2,5 304 <2,5 (0,37) Aggregate Aggregate Measured Indicated Inferred Total 50,0 Measured Indicated Inferred – – 145 145 Raw material Raw material Raw material Raw material Raw material Metallurgical dolomite 8,0 – 3,8 <2,5 <2,5 <2,5 – – 145 145 Raw material Raw material Raw material Raw material Raw material Metallurgical dolomite 7,6 – 12,7 <2,5 <2,5 <2,5 – Total 11,8 <2,5 20,3 <2,5 (41,65) Bridgetown dolomite mine (5) Footnotes * Period of reporting is July 2003 to December 2004; mineral resource figures include ore reserve estimates; estimates are considered SAMREC/JORC compliant. + Audited by independent, third party auditors during reporting period. 1. Status may change pending Kumba's appeal re arbitration. 2. Mineral resources increased because geological models for several of the deposits were updated to include additional exploration results. 3. Geological model revisions subsequent to additional drilling resulted in a decrease in mineral resources. 4. Relinquishing the prospecting rights on the KwaZulu-Natal deposits due to disappointing exploration results led to a decrease in mineral resource estimates. 5. Prospecting rights on the inferred mineral resource south of the northern quarry reported in 2003 were relinquished because of poor exploration results. 6. Braeburn and Fairbreeze C extension mineral resources subject to successful prospecting rights conversion. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 49 Review of mineral resources and reserves continued Table 2: Ore reserve estimates for 2003 and 2004 2004 2003* Commodity Operation % attributable to Kumba Reserve category ROM (Mt) Grade Saleable product Grade Saleable product % change Iron ore Sishen mine+ 78,6 Proved Probable Total Proved Probable Total 78,6 50,0 Proved Probable 100,0 50,0 100,0 100,0 100,0 Total N/A N/A Proved Probable Total Proved Probable Total Proved Probable Total 510 208 718 15 1 16 190 259 449 706 67 773 111 48 159 7,1 – 7,1 % Fe 63,6 63,7 63,6 60,9 61,5 60,9 61,9 61,1 61,4 Coking (Mt) 35,1 5,0 40,1 N/A N/A N/A 4,1 – 4,1 Iron ore (Mt) 436 @ 66,3% Fe 178 @ 66,1% Fe 614 @ 66,3% Fe 13 @ 63,5% Fe 1 @ 64,1% Fe 14 @ 63,5% Fe Not reported Not reported Not reported Thermal (Mt) 264 26 Metall. (Mt) 40,0 0,7 290 40,7 57 23 80 N/A N/A N/A N/A ROM (Mt) 655 132 787 15 5 20 190 259 449 768 67 835 87 48 135 9,7 – 9,7 % Fe 63,1 62,7 63,0 63,0 62,1 62,8 61,9 61,1 61,4 Coking (Mt) 38,6 4,4 43,0 N/A N/A N/A 4,9 – 4,9 Iron ore (Mt) 525 @ 66,0% Fe 103 @ 65,8% Fe 628 @ 65,9% Fe (8,87) 13 4 17 Not reported Not reported Not reported (19,23) – Thermal (Mt) 306 28 Metall. (Mt) 43,5 0,7 334 44,2 (7,44) 39 18 58 N/A N/A N/A Thabazimbi mine(8) Hope Downs (Hope 1) Australia(1) Sishen South Zandrivierspoort Coal Grootegeluk mine Leeuwpan mine(9) Tshikondeni mine(10) Moranbah South 100,0 Inyanda(11) + 50,0 Strehla 100,0 Proved Probable Total 14,6 – 14,6 A-grade export steam coal 10,1 – 10,1 Heavy minerals Hillendale mine(12) (excl Braeburn) Fairbreeze A+B+C (excl Fairbreeze C ext) 80,6 Proved Probable Total 80,6 Proved Probable Total Proved Probable Total 41 – 41 138 20 158 52 – 52 Gravelotte sand 80,6 Eastern Cape Limpopo sand Limpopo rock 80,6 80,6 80,6 – – – Tiwest, Australia – Coolljarloo(13) 25,8 Proved Probable Total 43,2 131 174,2 % THM 6,6 – 6,6 6,1 4,2 5,9 13,0 – 13,0 % THM 2,9 2,5 2,6 THM Composition % Rut % Zir % Ilm – 3,2 3,2 – 3,3 3,3 – – 58,4 – 58,4 59,7 49,1 58,7 85,0 – 85,0 7,2 7,2 57 – 57 – 120 8,1 8,1 – – 38 158 52 – 52 47,4 108 8,1 – 8,1 5,3 7,6 5,9 13,0 – 13,0 % THM 4,0 2,8 3,2 Not reported Not reported Not reported N/A % THM THM Composition % Rut % Zir % Ilm – 2,4 2,4 – 3,3 3,3 – – – 6,5 6,5 – 8,1 8,1 – – 50,5 – 50,5 59,0 51,2 56,9 85,0 – 85,0 THM Composition % Rut 4,5 4,1 % Zir 10 10 % Ilm 60 61 61 4,2 10 155,4 THM Composition % Rut 4,4 4,1 % Zir 11 9 % Ilm 58 62 61 4,2 10 12,26 N/A N/A N/A N/A – 18,13 (26,12) 100,00 (27,57) 0,18 P A G E 50 K U M B A A N N U A L R E P O R T 2 0 0 4 Table 2: Ore reserve estimates for 2003 and 2004 continued Commodity Operation Heavy minerals continued Tiwest, Australia – Jurien Ticor, Australia – Magnetic minerals % attributable to Kumba Reserve category 25,8 Proved Probable Total 51,5 Proved 2004 2003* ROM (Mt) 13,9 1,9 15,8 – 22,1 22,1 1,0 2,7 3,7 34 – 34 7,7 – 7,7 12,2 – 12,2 – – – Grade Saleable product 6,3 6,6 6,3 – 10,0 10,0 % Zn 9,5 10,9 10,6 55 54 55 – 48 48 8,4 6,1 8,1 – 7,0 7,0 11 7 11 – 10 10 Zn metal Pb metal (kt) 26 72 (kt) 91 299 390 98 % Pb 2,7 2,6 2,7 %SiO2 <2,5 – <2,5 ~1,0 – ~1,0 Raw dolomite – Raw dolomite Plant fines – Plant fines Metallurgical dolomite (Mt) N/A – N/A 4,6 – 4,6 Aggregate (Mt) N/A – N/A 3,9 3,9 ROM (Mt) 13,9 1,9 15,8 – 22,1 22,1 1,6 3,7 5,3 35 – 35 7,3 – 7,3 18,4 – 18,4 Grade Saleable product % change 6,3 6,6 6,3 – 10,0 10,0 % Zn 7,0 11,5 10,2 55 54 55 – 48 48 % Pb 2,5 2,7 2,7 8,4 6,1 8,1 – 7,0 7,0 11 7 11 – 10 10 – – Zn metal Pb metal (kt) 41 102 (kt) 112 431 543 143 (30,86) Metallurgical dolomite (Mt) N/A – N/A 3,7 3,7 Aggregate (Mt) 12,8 – (3,27) 5,87 12,8 (33,97) %SiO2 <2,5 – <2,5 ~1,0 – ~1,0 Raw dolomite – Raw dolomite Not reported Not reported Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Base metals Rosh Pinah(7) 89,5 Industrial minerals Glen Douglas dolomite mine Bridgetown dolomite mine Glen Douglas dolomite mine(14) Bridgetown dolomite mine 100,0 50,0 100,0 50,0 Period of reporting is July 2003 to December 2004; ore reserve estimates are included in mineral resource estimates; estimates are considered SAMREC/JORC compliant. Audited by independent, third-party auditors during reporting period. Footnotes * + 1. Status may change pending Kumba’s appeal re arbitration. 7. Normal production depletion (1,28Mt), changes to mining layouts and minor mining losses contributed to the change in ore reserves over the reporting period. 8. Change mainly due to production depletion; the exclusion of the "west" West pit at Donkerhoek because of high mining costs is offset by gains due to new mining layouts. 9. 10. Normal production depletion and minor changes to mining layouts resulted in the decrease in ore reserves for the reporting period. 11. Coal reserve estimates were not reported in 2003. 12. Most of the change is attributable to normal production; Braeburn had been erroneously included in the ore reserves in 2003. 13. Mineral resource and subsequent ore reserve models were updated to include the most recent exploration results. 14. The aggregate tonnage was inaccurately determined in 2003 (18,4Mt); it has been recalculated at 12,2Mt. The slightly more than 18% increase in coal reserves is the result of an increase in yield, made possible by changes in specifications required by clients. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 51 L E G I S L A T I V E C O M P L I A N C E PROGRESS AGAINST SCORECARD FOR THE BROAD-BASED SOCIO-ECONOMIC EMPOWERMENT CHARTER FOR THE SOUTH AFRICAN MINING INDUSTRY R E Q U I R E M E N T S P R O G R E S S S E C T I O N Human resources development • Has the company offered the development opportunity to be functionally literate and numerate by the year 2005 and are employees being trained? • Has the company implemented career paths for HDSA employees, including skills development plans? • Has the company developed systems through which empowerment groups can be mentored? Social summary – workplace issues Social summary – workplace issues • Fully company-sponsored, voluntary ABET programmes running at all mines (except where employees are 100% literate) • Leeuwpan, Ticor SA 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 being implemented • Human resources development (HRD) policy in place dealing with accelerated development • 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 • A 50% joint venture with Eyesizwe Coal for development of Inyanda Coal reserves includes skills transfer through mentorship and service level agreement • Kumba trains 24% of all apprentices in the South African mining industry, most are HDSA Employment equity • Has the company published its employment equity plan and reported on its annual progress in meeting that plan? • Plans submitted to Department of Labour and N/A policy published on Kumba website • Has the company established a plan to • Employment equity plans in place, supported by achieve a target for HDSA participation in management of 40% within five years and is it implementing the plan? strategies in HRD policy • Measured and monitored up to board level each quarter • Plans monitored per division • HDSA overall: 28% • HDSA senior management: 31% • HDSA middle management: 27% • HDSA first-line management: 33% • HDSA board: 28% Social summary – workplace issues • Has the company identified a talent pool and is it fast-tracking it? • Formal performance management and succession- planning processes make it easy to fast-track all management levels N/A • HDSA talent pool catered for in succession-planning process P A G E 52 K U M B A A N N U A L R E P O R T 2 0 0 4 Targets for employment equity already exceeded in two categories PROGRESS AGAINST SCORECARD FOR THE BROAD-BASED SOCIO-ECONOMIC EMPOWERMENT CHARTER FOR THE SOUTH AFRICAN MINING INDUSTRY continued R E Q U I R E M E N T S P R O G R E S S S E C T I O N • Has the company established a plan to achieve the target for female participation in mining of 10% within five years and is it implementing the plan? • Current recruitment plans achieving results • Women currently 12% of workforce Social summary – workplace issues – Board level: 6% – Senior management: 6% – Middle management: 14% – First-line management: 11% 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 cooperated in the formulation of integrated development plans and is the company cooperating with government in the implementation of these plans for communities where mining takes place and for major labour-sending areas? • Recruitment policy is non-discriminatory • Few, if any, foreign migrant workers employed • Emphasis on local recruitment • Collaborated on integrated development plans for Thabazimbi, Mutale and Vhembe Councils and Kgalagadi Development Node N/A N/A • Range of interventions are all aligned with integrated SHE summary development plans and register of community needs • Forums established to engage local • Has there been effort on the side of the communication communities company to engage the local mine community • Skills and ABET provided for the unemployed, and major labour-sending area communities? skills training for government institutions, training of trainers programmes, capacity building • Partnership with MQA in Kgalagadi and Newcastle to train ex-mineworkers • Company spent R13 million during the financial year on social investment programmes Social summary – corporate social investment Housing and living conditions • home ownership • 3 004 employees (44%) live in affordable rental For company-provided housing, has the mine, • Company housing policy in place, focusing on 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. • 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 ownership over four years company housing • 1 895 housing units to be made available for home units Social summary – workplace issues • 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. • Mechanisms exist for employees to engage N/A management and suppliers • Quality of food contractually regulated – human resources policy stipulates quality requirements K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 53 Legislative compliance continued Preferential discretionary procurement ahead of target PROGRESS AGAINST SCORECARD FOR THE BROAD-BASED SOCIO-ECONOMIC EMPOWERMENT CHARTER FOR THE SOUTH AFRICAN MINING INDUSTRY continued R E Q U I R E M E N T S P R O G R E S S S E C T I O N Procurement • Has the company given HDSAs preferred- supplier status? • Policy, guidelines and systems in place to promote N/A procurement from HDSA companies • Preference is given to black-owned and black empowerment suppliers • Has the company identified current level of • Auditable system in place and performance tracked N/A procurement from HDSA companies in terms of capital goods, consumables and services? • Has the company indicated commitment to a progression of procurement from 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? Ownership and joint venture • Has the mining company achieved HDSA participation in terms of ownership for equity or attributable units of production of 15% in HDSA hands within five years and 26% in ten years? • Kumba has developed policies since 2001 and is committed to progression over time Social summary – HDSA procurement • Co-founder of SA National Preferential Procurement Forum and support facilitation of regional and provincial collaboration as initiated by the Department of Minerals and Energy • R616 million or 14,7% discretionary procurement to HDSAs during the year (ahead of target of 13,0%) and 18% target for 2005 financial year N/A • Ownership implementation framework developed and approved and all strategic business units mandated to achieve specific objectives at asset level to ensure Kumba meets 15% and 26% targets within required time frame • Tiso Kgalagadi Consortium’s 4,8% equity stake in Kumba facilitated through a 10% discount • 50% joint venture development of Inyanda Coal mine with Eyesizwe Coal • Together with its major shareholder, Anglo, Kumba has embarked on an intense process that will result in Kumba achieving its empowerment ownership objectives during 2005 Beneficiation • Has the mining company identified its current • Baseline level established for various commodities N/A level of beneficiation? • New beneficiation projects identified and evaluation • Has the mining company established its base line level of beneficiation and indicated the extent that this will have to be grown to qualify for an offset? of potential ongoing • Kumba has a specific case to make for beneficiation credits based on its unique supply agreements with the steel industry, covering iron ore, coal, zinc and dolomite Reporting • Has the company reported on an annual basis its progress towards achieving its commitments in its annual report? • Extensive reporting on progress through the scorecard, website and annual report Business objectives, Chief executive’s review, SHE summary, Social summary P A G E 54 K U M B A A N N U A L R E P O R T 2 0 0 4 A N E W G E N E R A T I O N M I N I N G C O M P A N Y As a leading, diversified South African-based resources company, Kumba has taken its place at the forefront of innovation and technology. To entrench this position, we will continue to develop solutions that generate shared rewards. TOP: Happiness Monana, a master metallurgical technician at Sishen, inspects the level of material at the jig pilot plant. ABOVE: Low manganese pig iron is processed for loading at Ticor SA in Empangeni, KwaZulu- Natal. BELOW: Overburden is loaded at Grootegeluk. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 55 E X E C U T I V E C O M M I T T E E P A G E 56 K U M B A A N N U A L R E P O R T 2 0 0 4 An experienced management team guides strategic development DIRK VAN STADEN Dirk van Staden has 25 years’ experience in finance, eight of those in the mining industry. His mandate is to achieve Kumba’s business objectives and goals through effective strategies and planning. RICHARD WADLEY Richard Wadley has 35 years’ experience in exploration, marketing and business development. He is responsible for formulating and implementing effective strategies to ensure Kumba’s growth. Details of executive directors appear on p58 – p59. DR CON FAUCONNIER Dr Fauconnier has spent his entire career in the mining industry and has been instrumental in the transformation of the industry in South Africa. He is responsible for ensuring Kumba’s sustainable growth in creating value for all stakeholders. MIKE KILBRIDE Mike Kilbride has 27 years’ experience in mining. He is responsible for creating value for stakeholders by executing the strategic direction approved by the board. CHARLES MEINTJES Charles Meintjes, a chartered accountant by profession, is responsible for corporate services that support Kumba’s sustainable growth by achieving set business goals and objectives. CLOCKWISE FROM TOP LEFT: Mike Kilbride, Fergus Marupen, Ras Myburgh, Con Fauconnier, Dirk van Staden, Marie Viljoen, Richard Wadley, Charles Meintjes and Trevor Arran. TREVOR ARRAN BSc (Hons)(Econ Geology), BEP, Dip Project Management, general manager corporate affairs and investor relations, is responsible for positioning Kumba as a corporate citizen with good governance practices, supportive of effective community development, and proactive stakeholder relations. FERGUS MARUPEN BA (Hons Psych), BEd, MDip (HR) (MBA), general manager human resources, is mandated to develop and implement an effective human resources strategy that supports Kumba’s business strategy by applying leading-edge practices and technology. RAS MYBURGH BEng (Elec), BSc (Hons) (Energy Studies), MBA, EDP, general manager transformation and empowerment, is responsible for formulating and coordinating the implementation of Kumba’s business improvement and empowerment transformation strategies. MARIE VILJOEN Marie is company secretary and has 18 years’ experience in the field. She assumes responsibility for the group’s secretarial administrative business and corporate governance services to ensure that Kumba meets its statutory and legal responsibilities. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 57 D I R E C T O R A T E MLD Marole – Dawn (44) Non-executive chairman PM Baum – Philip (50) Non-executive director MJ Kilbride – Mike (52) Executive director, business BCom, DTE, MBA (North Eastern BCom, LLB, Higher Diploma in Tax Law operations University, Boston, USA) Dr CJ Fauconnier – Con (57) BE Davison – Barry (59) Non-executive director Chief executive BA (Wits), Graduates Commerce BSc (Hons)(Min Eng)(RSM), Senior Executive Programme (London Business School) Pr Eng (Int), BSc (Eng)(Mining), Diploma (Birmingham University), Dr D Konar – Len (50) BSc (Hons)(Eng), MSc (Eng), Advanced CIS Diploma, Advanced Non-executive director DEng (Pretoria), MBA (Oregon, USA), Executives Programme (Unisa) BCom, CA(SA), MAS, DCom DSc (hc) (Free State), Strategic Leadership Programme (Oxford), TL de Beer – Tom (69) CF Meintjes – Charles (42) Senior Executive Finance Programme Non-executive director Executive director, corporate services (Oxford) BCom, CA(SA), Executive Programme BCom Acc, BCompt (Hons), CA(SA), in Business (Columbia, USA) Advanced Management Programme (Wharton) JJ Geldenhuys – Jurie (61) Non-executive director BSc (Eng)(Electrical), BSc (Eng) (Mining), MBA (Stanford), Pr Eng P A G E 58 K U M B A A N N U A L R E P O R T 2 0 0 4 The breadth and depth of experience of the board is a competitive advantage AJ Morgan – Allen (57) Non-executive director Dr NS Segal – Nick (64) Non-executive director RG Wadley – Richard (57) Executive director, strategy and BSc, BEng (Electrical), Pr Eng BSc (Eng), PhD (Phys Chem)(Rand), business development DPhil (Economics)(Oxon) BSc (Hons)(Geology), WA Nairn – Bill (60) Non-executive director BSc (Eng) SA Nkosi – Sipho (50) Non-executive director F Titi – Fani (42) Non-executive director BSc (Hons), MA, MBA MSc (Min Eng)(Wits), Advanced Management Programme (Harvard) PL Zim – Lazarus (44) Non-executive director DJ van Staden – Dirk (55) BCom, BCom (Hons)(Econ), BCom, BCom (Hons)(Econ), MBA, Executive director, finance MCom (Econ) Diploma in Marketing Management BJuris, LLB, Advanced Management Programme (Insead) CML Savage – Cedric (65) Non-executive director BSc Eng, Pr Eng, MBA, ISMP (Harvard) K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 59 C O R P O R A T E G O V E R N A N C E I N T R O D U C T I O N Dr Con Fauconnier, Kumba’s chief executive, believes that “corporate governance is more than just putting in place structures and reporting mechanisms. Corporate governance is about commitment and achieving a balance between the demands of conformance governance and performance measurement.” The board supports this view and is committed to a sound set of governance principles tailored in accordance with the application of common law principles, the detailed rules of the JSE Securities Exchange South Africa (JSE) and the Companies Act, 61 of 1973 (as amended), as well as the recommendations of the two King reports on corporate governance. The chief executive and executive management recognise the need to conduct the business of Kumba and its entities in terms of the spirit and principles of the Code of Corporate Practices and Conduct (the Code) by: • Acknowledging the responsibility towards the community, society and to the environment in which the group operates • Continually examining its management structures, culture, policies and strategies and the ways in which it deals with various stakeholders to effect best practice • Implementing systems that will satisfy the requirements relative to governance demands, ethical behaviour, risk management and performance stability. C O M P L I A N C E W I T H K I N G I I The directors are of the opinion that Kumba complies with, and has applied, the requirements of King II for the period under review. All entities in the group are required to subscribe to the spirit and principles of the Code. In addition, the Code is applied to all operating entities of the nature and size identified in King II. A P P R O A C H T O C O R P O R A T E G O V E R N A N C E Kumba’s corporate governance approach provides an integrated strategic management framework necessary to achieve the performance standards required to operate in the best interests of its profitability, environment and communities. The relationship between Kumba’s stakeholders and those entrusted to manage the company’s resources are based on the qualities of leadership, accountability and the transparency of Kumba’s strategies and processes. Leadership Role of the board The board subscribes to long-term sustainability of corporate capital, as well as a triple bottom-line emphasis on financial, environmental and social capital. Furthermore, the board focuses on maintaining a balance between the interests of stakeholders and the collective good of the group in terms of its charter, accepting that it is ultimately responsible and accountable for the affairs of the company. Key features of the responsibilities of the board include: • Directing and controlling the business of the company to achieve continuing prosperity and to act in the best interest of Kumba • Adopting strategic plans and monitoring budgeting and operational performance • Presenting annual financial statements, interim reports and related disclosure requirements • Taking responsibility for the preparation and approval of financial statements • Delegating authority to board committees and executive management • Overseeing succession planning and director selection • Administrating appointments to and removals from the board • Evaluating the board and individual director performance • Monitoring, guiding and supervising executive management performance against approved key performance indicators • Ensuring that the company manages the business with integrity and in conformance with best practice standards • Providing a risk management strategy and policy framework • Controlling compliance with laws and regulations • Ensuring effective stakeholder communication. Kumba’s non-executive directors are independent of management and have an understanding of the company’s mission and strategic plan, a comprehension of Kumba’s business and specialist expertise to add value to the company. Role of the committees of the board Specific responsibilities have been delegated to the three committees in support of the functioning of the board: • Audit committee • Human resources and remuneration (HR and Rem) committee • Safety, health and environment (SHE) committee The membership and principal functions of these committees are set out on p62. These committees serve in accordance with written terms of references approved by the board, which are reviewed and updated annually. Role of executives and management Executives’ and managers’ responsibilities include, inter alia, to lead through developing, implementing and monitoring P A G E 60 K U M B A A N N U A L R E P O R T 2 0 0 4 Corporate governance is about commitment and achieving a balance . . . business strategies strongly founded on corporate values, ethical conduct and quality service delivery. Executive action and supervision are directed by a variety of governance structures. The executive committee is a management advisory forum chaired by the chief executive and includes the executive directors; general manager corporate affairs and investor relations; general manager human resources; general manager transformation and empowerment and the company secretary. The general managers of Kumba’s iron ore, coal, heavy minerals, base metals, industrial mineral business operations and the general manager SHE, attend by invitation. The committee meets on a monthly basis to assist the chief executive in formulating group strategies, monitoring performance, defining Kumba’s risk-tolerance capacity and acting as a sounding board on issues to be presented to the board. Accountability At Kumba the board accepts its duty to address matters of significant interest and concern to stakeholders, taking into account greater demands for accountability, and to ensure maintenance of objectivity in recognising and balancing the interests of stakeholders for the collective good of the group. Transparency Kumba recognises the need for full, equal and timeous disclosure of information to stakeholders as prescribed by various policies governing communication and conduct with stakeholders. B O A R D S T R U C T U R E A N D R E L A T E D M A T T E R S B O A R D C O M P O S I T I O N The board comprises 18 directors, with six independent non-executive directors (as defined by JSE rules) and five executive directors. The chairman, Mrs Dawn Marole, is an independent non-executive director. To ensure efficient staggering of director rotation, directors are subject to retirement and may be nominated for re-election every three years. The retirement age for a non-executive director is 70 years, becoming effective at the annual general meeting after the date on which he/she turned 70. Existing practices and procedures require the board to engage in selecting its own members and in planning for its own succession. A performance assessment of both the board and individual directors will be undertaken to plan for the continuity of experience and knowledge, matching the configuration of the board with the strategic direction of Kumba. C H A I R M A N A N D C H I E F E X E C U T I V E From its listing date, Kumba has upheld separation of the operational role of the chief executive and the chairman’s role to facilitate the smooth and efficient functioning of the board. Their respective statements of responsibilities were approved at a board meeting held in February 2004. D I R E C T O R S The directors are credible, skilled and experienced and bring appropriate judgement to bear on corporate issues. Practices and procedures have been established in liaison with the company secretary to familiarise directors with the group’s operations, senior management, and the business environment and to induct them in their fiduciary duties and responsibilities. Directors can visit operational centres to better familiarise themselves with business operations. The focus is on continuous provision of information relating to group performance and industry activities, facilitated through a dedicated directors’ website. A company policy on attendance by Kumba directors and board committee chairmen at shareholder meetings is in place. C O M P A N Y S E C R E T A R Y The company secretary assumes responsibility for the group company secretarial administrative business and corporate governance service so that obligations are met and directors and management are able to make the fullest possible contributions to the success of an effective and well- run organisation. The company secretary supports the running of the board, including board committees, ensuring that the board carries out its business in a professional and efficient manner, in line with its statutory, legal and other responsibilities. B O A R D M E E T I N G S The board meets at least five times a year and, if necessary, more often. During the period 1 July 2003 to 31 December 2004, the board met ten times. Information on the attendance of individual directors is provided on p65. Where directors are unable to attend a meeting, tele- and videoconferencing facilities are made available to allow them to participate. The information needs of the board are reviewed regularly. The agenda has been adapted to focus firstly on strategy and performance monitoring followed by governance-related matters. Efficient and timely procedures of informing and briefing board members are in place. Management ensures that board members are provided with relevant information to enable the board to K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 61 Corporate governance continued . . . between conformance, governance and performance measurement make informed decisions. Directors are kept appropriately informed of material developments affecting the group between board meetings. B O A R D C O M M I T T E E S All three Kumba board committees have detailed mandates from the board, fully aligning their duties and responsibilities with those of the board. Experienced, knowledgeable independent non-executive directors chair these board committees. Board committees are subject to regular evaluation by the board. The effectiveness of the audit committee has been evaluated as excellent for the past three years, whilst an evaluation process in respect of other board-appointed committees has been introduced. The minutes of each committee meeting are presented to the board for information. Audit committee Members This committee comprises four non-executive directors – Dr D Konar (chairman), Mr TL de Beer, Dr NS Segal and Mr PL Zim, of whom the first three are independent. Mr Zim was appointed on 7 June 2004 and served as a member until 31 December 2004. Composition and proceedings Meetings are held at least four times a year and are attended by the external and internal auditors and, on invitation, the chairman and members of the executive management. The committee has discussions with the company’s internal and independent auditors on their evaluations of the company’s internal accounting controls and the overall quality of the company’s financial reporting, with and without management present. The committee met six times during the period under review. Role of the committee The audit committee assists the board in relation to its responsibility for the preparation of the financial statements of Kumba and its subsidiaries and ensures that the interim and annual financial statements, and other formal announcements relating to the company’s financial performance, comply with all statutory and JSE requirements. Focus areas are: • Integrity of financial reporting judgements and estimates • Compliance with applicable legislation and regulations • Matters relating to financial and internal control, accounting policies, reporting and disclosure • Reviewing and recommending to the board interim and year-end financial statements and dividend announcements • Ensuring that all risks to which the group is exposed are identified and managed in a well-defined control environment • Monitoring values and ethics • Security and fraud controls • Evaluation of the performance of the external and internal auditors • Reviewing/approving external/internal audit plans, findings, reports and fees • Asset valuations and revaluations • General and specific provisions • Basis for the going concern assumption. The audit committee approved a policy addressing the services that may be performed by the external auditors during August 2002, which was updated in February 2005. Compliance with the policy is reported annually to the audit committee. PM Baum, of whom the first four are independent; and the chief executive, Dr CJ Fauconnier. Composition and proceedings The executive director finance and general manager human resources attend meetings by invitation. These delegates and the chief executive director do not participate in discussions and decisions regarding their own remuneration and benefits. Four meetings are scheduled annually, with special meetings called as required. The committee met nine times during the period. Role of the committee The committee has a clearly defined mandate from the board directed at: • Ensuring the group’s chairman, directors and senior executives are rewarded for their individual contributions to overall performance • Ensuring the group’s remuneration strategies, packages and schemes are related to the achievement of business objectives and the delivery of shareholder value • Ensuring appropriate human resources strategies, policies and practices • Reviewing executive and non- executive director succession planning, mapped against the objectives of the board and the strategic direction of the group. In accordance with the board charter, the committee, together with the chairmen of the standing board committees, annually undertakes a performance assessment of the chief executive. HR and Rem committee Members This committee comprises five non- executive directors: Mr TL de Beer (chairman), Mrs MLD Marole, Messrs JJ Geldenhuys, F Titi and SHE committee Members This committee comprises four non-executive directors – Messrs JJ Geldenhuys (chairman), AJ Morgan, SA Nkosi and WA Nairn, of whom the P A G E 62 K U M B A A N N U A L R E P O R T 2 0 0 4 Integrated strategic management framework creates wealth for stakeholders first three are independent; and two executive directors, Dr CJ Fauconnier and Mr MJ Kilbride. • Any period when an issuer is trading under a cautionary announcement. Composition and proceedings The general manager SHE attends all meetings. Members of the executive committee and general managers of the business units also attend meetings by invitation. The committee met four times during the period under review. Role of the committee The SHE committee is responsible for formulating and recommending policies, strategies and programmes to the board in all matters affecting safety, health and environment throughout the group, ensuring that these policies and programmes are in line with legislation, effectively implemented and that SHE performance is regularly measured and evaluated. D I R E C T O R S ’ S H A R E D E A L I N G S The group has various policies and procedures to address conflicts of interests. These cover areas such as management share interests and directorships in companies with which Kumba has contractual relationships. The group has a procedure in place to restrict dealing in its securities by directors, officers and other selected employees during closed periods as defined in the JSE Listings Requirements below: • The date from the expiration of the first six-month period of a financial year up to the date of publication of the interim results • The date from the financial year end up to the date of earliest publication of the year-end financial results G O I N G - C O N C E R N S T A T E M E N T The board has considered and recorded the facts and assumptions on which it relies to conclude that the group will continue as a going concern in the financial year ahead. The board is of the opinion that the business will be a going concern in the year ahead and its statement in this regard is also contained in the statement on the responsibility of directors for the annual financial statements. F I N A N C I A L A N D O P E R A T I O N A L R E P O R T I N G D I S C L O S U R E Kumba uses a broad range of channels to communicate financial information, such as the JSE Securities Exchange News Service (SENS), the Internet for its interim and annual results, presentations to fund managers and analysts, paid press reports, the annual report and news releases to newspapers and news agencies. R I S K M A N A G E M E N T P R O C E S S At Kumba, the risk management process is not a separate activity within management but an integral part of good management processes. Risk management entails a process of identifying, analysing and mitigating risks which could prevent Kumba from achieving critical business objectives. It includes implementing and monitoring control activities to manage risk throughout the group by developing risk management plans which cover activities as diverse as reviews of operating performance, information technology and management information systems, increased competition and contestability, outsourcing, performance management and information, professional development, staff appraisal, including client surveys, reconciliations of accounts, approvals and segregation of duties. Control activities to mitigate risk are designed and implemented and relevant information regularly collected and communicated throughout the group. Management monitors performance to ensure that objectives are being achieved and control activities are operating effectively. There were no major breaks in internal control during the period. Effective governance arrangements require directors to ensure the establishment by management of appropriate protocols to identify potential risks as well as opportunities and to establish processes and practices to manage all risks associated with the company’s operations. The board is kept abreast of the major trends impacting on the company, potential risks and opportunities at bi-annual discussions. The detailed risk management report appears on p66 to p68. R E M U N E R A T I O N P O L I C I E S Kumba’s performance-driven remuneration policy, governed by the HR & Rem committee, positions the total remuneration of executive directors and employees at or near the median compared with companies with which it is competing for talent. Employees who accept the challenge of our business objectives and who excel in accomplishing them achieve above-average rewards and career advancement. A significant part of the K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 63 Corporate governance continued Risk management is an integral part of good management processes remuneration of employees is linked to personal and company performance. • Comply with industry standards and applicable codes of conduct All employees, including executive directors, are entitled to take part in an annual bonus and gain-share scheme, based on achieving and exceeding performance targets set by the HR & Rem committee. Senior management and staff specialists are eligible to participate in the Kumba management share option scheme. The aim of the group’s remuneration policy is to ensure that executive directors and employees who are not in the bargaining unit are rewarded in a way that enables the group to attract and retain employees of the highest quality – people who are motivated to achieve performance superior to competitors, which serves the best interests of shareholders. The HR and Rem committee considers and submits recommendations to the board on the fees for each non- executive director. Any changes to fees are recommended for approval by the board and presented to shareholders at the annual general meeting for approval before imple- mentation and payment. The fee is determined according to, among others, the median remuneration paid by comparable companies. Non-executive directors are not bound by service contracts, and there are no service contracts exceeding six months relating to the position of any executive director. There is full disclosure in the remuneration report on p111 of various remuneration matters in respect of the directors. O R G A N I S A T I O N A L I N T E G R I T Y A N D E T H I C S Kumba’s code of ethics provides a basis for ethical behaviour and guidance to the company and its employees to: • Act with honesty in performing duties • Apply due care in the use of company information, equipment and facilities • Exercise consideration and sensitivity in dealings with stakeholders. This approach is practised at all levels in the group and forms an integral part of Kumba’s operations. Conduct that violates these ethical principles may constitute grounds for disciplinary action in terms of Kumba’s conditions of employment and its disciplinary code. Kumba’s board of directors, employees and the unions have endorsed the group’s code of ethics, while the general manager, human resources and the company secretary monitor compliance with the code. Awareness of ethical behaviour is encouraged by regular communication with employees of the group. Beside Kumba’s other compliance and enforcement initiatives, a fraud prevention policy has been developed and widely communicated. A fraud philosophy statement, signed by the chief executive, encapsulates the fraud prevention policy and reads as follows: We are committed to the highest standards of honesty, integrity and fairness, and have a zero tolerance for the commissioning or concealment of fraudulent acts by employees, contractors and suppliers. The conduct of our employees must be characterised by the fundamental values of integrity, respect, accountability, fairness and caring. All employees are responsible for the reporting of fraud through the available channels. All reporting of such acts will be investigated and appropriate action will be taken, which includes legal action where prima facie evidence exists. Kumba’s stakeholder charter forms part of an ethics base that encompasses its code of ethics, the code of conduct and the Kumba Way as set out on p5 of this report. As part of the policy, a toll-free hotline has been established as a mechanism through which all stakeholders can report suspected fraud, corruption or any unethical conduct, with assured anonymity. Details are as follows: Hotline Hotfax Hotmail 0800 201 519 012 307 3085 hotline@aurco.com During the year, 20 cases of suspected fraud were reported. Eight of these complaints were received through the toll-free fraud hotline. Four disciplinary cases resulted in dismissals, a total of ten investigations resulted in criminal prosecution and six were found to be unsubstantiated. I N T E G R A T E D S U S T A I N A B I L I T Y R E P O R T I N G Kumba harmonises social and environmental responsibilities with its business pursuits. These cover trade practices, environmental policies, energy and waste policies, employee welfare and safety, and community relations. A selection of these principles includes: • Ensuring that the business is ecologically sustainable, meeting the needs of the present without compromising the future • Aiming for maximum commercial benefit but realising that the livelihood of employees and intermediaries depends on paying them a fair market price P A G E 64 K U M B A A N N U A L R E P O R T 2 0 0 4 Building long-term relationships with stakeholders is a business imperative • Supporting long-term, sustainable partnership-based relationships with the communities in which the group’s businesses operate • Promoting respect for human rights on the part of suppliers • Contributing to communities through donations, social investment and partnerships with communities. This broad view of responsibility and accountability underpins the concept of Kumba’s triple bottom-line reporting. Kumba is among the first group of companies listed on the JSE All Share Index to comply with the requirements of the new JSE Socially Responsible Investment (SRI) Index, and one of the first 51 of the 160 All Share Index companies to meet the requirements of the corporate governance, economic, social and environmental criteria. The data provider for the index, Sustainability Research & Intelligence, commended Kumba for its disclosure level in terms of quantitative and qualitative information in respect of the four areas measured. C O M M U N I C A T I O N S W I T H S T A K E H O L D E R S A N D S H A R E H O L D E R S At Kumba, building long-term and mutually beneficial relationships with our stakeholders is a business imperative. The group manages relations through the corporate affairs and investor relations department, which is responsible for ensuring appropriate communication with the investment community. Contact is maintained with domestic and international institutional shareholders, fund and asset managers and analysts by means of investor road shows, presentations to the investment community as well as liaison with major shareholders. Kumba is committed to providing timely, accurate announcements and circulars to our shareholders in accordance with the JSE Listings Requirements. R E C O R D O F A T T E N D A N C E A T D I R E C T O R S ’ M E E T I N G S F O R T H E P E R I O D I J U LY 2 0 0 3 T O 3 1 D E C E M B E R 2 0 0 4 Board/special meetings (10#) Audit committee (6#) Safety, health and environment committee (4#) Human resources and remuneration committee (9#) Board of directors Attendance Composition Attendance Composition Attendance Composition Attendance 10 10 5 6 9 10 10 10 10 10 5 9 7 10 9 10 10 5 By invitation By invitation Member By invitation Chairman By invitation Member By invitation Member MLD Marole† Dr CJ Fauconnier* PM Baum• BE Davison^ TL de Beer† JJ Geldenhuys† MJ Kilbride* Dr D Konar† CF Meintjes* AJ Morgan† WA Nairn• SA Nkosi CML Savage Dr NS Segal† F Titi DJ van Staden* RG Wadley* PL Zim• # Number of meetings † Independent non-executive director * Executive director • Appointed on 17 February 2004 ^ Appointed on 16 September 2003 Member Chairman Member Member Member Member 5 6 6 6 6 6 6 6 2 4 4 3 4 2 4 Member Member Member Chairman Member Member By invitation 9 8 6 8 9 7 6 K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 65 R I S K M A N A G E M E N T R I S K P H I L O S O P H Y It is Kumba’s vision to outperform the mining and mineral sector in creating value for stakeholders through exceptional people and superior processes. To achieve this: • We are committed to develop and maintain an integrated, enterprise- wide risk management programme (ERM). In this process, Kumba will apply a logical, systematic and repetitive methodology that will identify, analyse, assess, treat and monitor all risks, whether they are insurable or not • We communicate accurate and timeous information to people within the organisation tasked to minimise losses and maximise opportunities, to assist them in achieving their respective strategic business objectives • We recognise the complexity and diversity of risks that face Kumba and we are integrating all our efforts to maximise opportunities and minimise exposures to risk and to reduce it, where necessary, to levels commensurate with our risk appetite. R I S K A P P E T I T E The board, guided and assisted by the executive risk management committee, defines, approves and communicates Kumba’s risk appetite or risk-tolerance capacity. The risk-bearing capacity (tolerance) of Kumba is a function of the company’s ability to endure unforeseen losses and the effect such losses may have on the company’s share value and market capitalisation. Risk-bearing capacity cannot be expressed as a static value as it constantly changes due to: • International supply and demand for our products • Production cost which in turn is constantly influenced by changes in input costs • The quantity and value of fixed and current assets used in the production process. The main objective for the determination of the risk-bearing capacity is to establish the optimal risk-tolerance capacity of Kumba. The most effective way for the board to demonstrate its risk appetite (and commitment to the ERM programme) is to exceed shareholder expectation in terms of performance. Through its actions and proven commitment, the board can clearly demonstrate: • How much risk will be allowed to be taken to achieve strategic business objectives • That risks that could impact on performance have been identified, tracked and monitored • How the process could potentially increase shareholder value. A clearly-formulated risk appetite or risk-tolerance strategy communicated by the board in terms of monitoring and governance procedures, a centralised ERM hub dedicated to strategic direction and policy development and risk committees operating at divisional level expediting ERM policy reflect an embedded ERM programme. Our ERM approach is aimed at: • Minimising losses caused by adverse events • Reducing surprises to earnings and reputational damage • Contributing to the protection of shareholder value. Kumba’s view is that business is about taking calculated risks, weighed and measured against the company’s risk appetite. R I S K C U L T U R E Kumba strives to achieve zero tolerance for compliance failures and to speedily identify and rectify any deviation. Constant emphasis is placed on the promotion of a risk- conscious culture throughout the company and this proactively supports the achievement of strategic business objectives. Continuous monitoring of the existing and changing risk profile of the company is the responsibility of each risk owner. Divisional risk committees play an important role in the identification of operational risk as well as in the development and application of generic mitigating strategies. They also have a risk oversight function by being closer to activities that could cause an adverse outcome. The committee operates under the chairmanship of the head of the business centre and meets once every quarter. The group risk manager attends all these meetings. At Kumba, a healthy exchange of information on potential, new and resolved risks occurs across commodities. This management communication underscores Kumba’s risk-conscious culture that is embedded vertically as well as horizontally in the company. P A G E 66 K U M B A A N N U A L R E P O R T 2 0 0 4 Integrated, enterprise-wide risk management programme firmly in place R I S K M A N A G E M E N T O B J E C T I V E S The ERM process adopted in Kumba is solely aimed at providing an effective and consistent risk management methodology. The process is continuous, consisting of well-defined steps which, when taken in sequence, support better decision- making by contributing a greater insight into risks and their impacts. Risks from all sources are identified and once these surpass the materiality threshold, a formal process begins in which casual factors and consequences are identified and the correlation with other risks and the current risk- mitigating strategy are reviewed. ESTABLISH THE CONTEXT • The strategic context • The organisational context • The risk management context • Set and communicate business objectives • Consider internal and external business objectives IDENTIFY THE RISKS Headline risk areas Evolving risks ANALYSE RISKS DETERMINE EXISTING CONTROLS Determine likelihood Determine impact Estimate level of risk E VA L U AT E R I S K S Compare against criteria Set risk priorities Consider control measures Risk acceptable N O Y E S Accept Reduce likelihood Reduce impact Transfer in full or in part Terminate Consider feasibility costs and benefits Recommend treatment strategies Select treatment strategy Prepare treatment plans Reduce likelihood Reduce impact Transfer in full or in part Terminate Risk acceptable Y E S Retain E T A C I N U M M O C Identify treatment options Assess treatment options Prepare treatment plans Implement treatment plans W E I V E R D N A R O T I N O M K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 67 Risk management continued Enhanced decision-making through greater insight into the impact and likelihood of risk T O P R I S K S Risk Impact Probability of occurrence Control measures • Impact of continued rand and Australian dollar strength on profitability High High Kumba business improvement programme launched with rigorous tracking (p13 and p29). Judicious hedging policy. • Sluggish titanium slag market High Medium recovering slowly, affecting heavy minerals’ profitability Analysis of TiO2 market forces; cost reduction initiatives; sustained focus on continuous improvement and ramp up to position for recovery. • Changes in environmental High Medium legislation can result in increased rehabilitation costs and/or demand on cash resources • Optimum value release for High Medium Kumba combined with mining charter compliance not achieved • Insufficient availability of zinc concentrates of acceptable quality and cost High Medium • Delays in infrastructure capacity High Medium expansions constraining growth in iron ore exports Increased emphasis on ongoing rehabilitation during life of mine; proactively study and manage proposed legislation; implement best practices; demonstrate responsible corporate citizenship. Coordinated process between Kumba and its major shareholder; business models to assess scenarios and implications; pursue sound value-release initiatives. Secure alternative suppliers; long-term concentrate offtake agreements from foreign mines; maximise Rosh Pinah and Black Mountain offtake. Ongoing constructive engagement on operational efficiency and initiative to ensure short- and medium-term additional capacity through a project managed by a joint Kumba/Transnet steering team. New contract for the transport and handling of export iron ore and additional capacity signed. • Inability to deliver growth and Medium Medium add value for Kumba stakeholders Maintain bankable capital structure. Strategic equity partners. Capital raising. • Delay in RBCT Phase V will result Medium Medium in higher distribution cost and lower export prices Ongoing engagement of role players in Phase V expansion project and ensuring throughput commitments by participants. P A G E 68 K U M B A A N N U A L R E P O R T 2 0 0 4 S H A R E H O L D E R S ’ I N F O R M A T I O N M A R K E T L I S T I N G S A N D O T H E R I N F O R M A T I O N The principal market for Kumba Resources Limited is the JSE. As a constituent of the All Share Top 40 index (ALSI 40 index), Kumba shares trade through the STRATE system. STRATE is the authorised central securities depositary (CSD) for equities in South Africa that incorporates an electronic settlement system. STRATE achieves secure, electronic settlement of share transactions on the JSE and for off- market trades. Shares in companies listed on the JSE can no longer be bought or sold unless they have been dematerialised on to the STRATE system. This process involves submitting paper share certificates to a custodian bank or JSE member firm (broker) for conversion into an electronic record, an exercise referred to as dematerialisation. The introduction of the Johannesburg Equity Trading (JET) system a few years ago highlighted the deficiencies in the JSE’s paper-based settlement system. Shares were no longer traded on a trading floor, and this contributed to a massive leap in the number of trades each day. Back- office support services were incapable of handling this increase in daily transactions efficiently in a paper- based environment. The transition to an efficient settlement system has increased market activity and will certainly improve the international perception of the South African market by reducing settlement and operational risk in the market, increasing efficiency and ultimately reducing costs. Accordingly, by heightening investor appeal, STRATE enables South Africa to compete effectively with other international markets, and not just those of emerging countries. For additional information please refer to the STRATE website: www.strate.co.za. Closing JSE share prices are published in most national and regional SA newspapers and are available during the day on the Kumba and other websites. Share prices are also available on I-Net Bridge, Reuters and Bloomberg. Kumba has an over-the-counter (OTC) sponsored American depositary receipt (ADR) facility with the Bank of New York (BoNY) under a deposit agreement. A D R H O L D E R S ADR holders may instruct the BoNY as to how the shares represented by their ADRs should be voted. Registered holders of ADRs will have the annual and interim reports mailed to them at their recorded address. Brokers or financial institutions, which hold ADRs for shareholder clients, are responsible for forwarding shareholder information to their clients and will be provided with copies of the annual and interim reports for this purpose. D I V I D E N D D E T E R M I N A T I O N Dividends are determined in South African rand (ZAR) and are then declared payable in the same currency by the group. ADR shareholders are paid in US dollar by the group’s ADR bank, BoNY. BoNY effects the conversion of ZAR-determined dividend in US dollars on behalf of its US ADR shareholders. Contact Computershare or BoNY for further details. S U P P L E M E N T A R Y I N F O R M A T I O N G E N E R A L S H A R E H O L D E R E N Q U I R I E S Computershare is the registrar for Kumba. All enquiries and correspondence concerning shareholding (other than shares held in ADR form) should be directed to the registrar. Computershare’s contact details are on p182. Shareholders must notify Computershare promptly in writing of any change of address. All enquiries concerning shares held in ADR form should be directed to the BoNY, whose contact details are also given on p182 or alternatively visit their website at: www.adrbny.com. Shareholders can obtain details about their own shareholding on the Internet. Full details, including how to gain secure access to this personalised enquiry facility, are provided on the Computershare website: www.computershare.com. C O N S O L I D A T I O N O F S H A R E C E R T I F I C A T E S If your certificated shareholding in Kumba is represented by several individual share certificates, you may wish to have these replaced by one consolidated certificate; there is no charge for this service. You should send your share certificates to Computershare together with a letter of instruction. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 69 Shareholders’ information continued Since listing, Kumba outperformed the ALSI 40 by 25% and the resource index by 35% P U B L I C A T I O N O F F I N A N C I A L S T A T E M E N T S Shareholders wishing to receive the annual report and/or the interim report in electronic rather than paper form should register their instruction on the Kumba website at: www.kumbaresources.com. S H A R E H O L D E R I N F O R M A T I O N M A J O R S H A R E H O L D E R S As far as is known, Kumba is directly controlled by another corporation, Anglo American plc, which owns and/or controls directly more than 10% of its shares. As of 31 December 2004, the two entities known to Kumba as owning more than 10% of its shares were Anglo American plc and Industrial Development Corporation of South Africa (IDC) with 201 092 500 and 41 498 615 shares, representing 66,62% and 13,75% respectively. Kumba does not know of any arrangements which may result in a change of this control. As of 31 December 2004, the total amount of the voting securities owned by the directors of Kumba was 70 318 ordinary shares, representing approximately 0,02% of the number of shares in issue. P A G E 70 K U M B A A N N U A L R E P O R T 2 0 0 4 S H A R E H O L D E R S ’ A N A L Y S I S R E G I S T E R D A T E : 3 1 D E C E M B E R 2 0 0 4 Issued share capital: 301 854 211 shares of R0,01 each Shareholder spread (shares) 1 – 1 000 1 001 – 10 000 10 001 – 100 000 100 001 – 1 000 000 1 000 001 shares and over Distribution of shareholders Banks Close corporations Endowment funds Holding company Individuals Insurance companies Investment companies Medical aid schemes Mutual funds Nominees and trusts Other corporations Pension funds Private companies Public companies Share trust Public/non-public shareholders Non-public shareholders Directors and associates of the company Strategic holdings (more than 10%) Share trust Public shareholders Beneficial shareholders’ holding of 3% or more Anglo American Corporation Industrial Development Corporation Stimela Mining (Pty) Limited Public Investment Commissioners State Street Bank & Trust Co (Custodian) Number of shareholders 26 321 1 113 216 65 14 27 729 Number of shareholders 110 121 31 1 25 801 39 12 4 95 1 047 60 149 247 11 1 27 729 Number of shareholdings 11 3 3 1 27 711 27 729 % 94,92 4,01 0,79 0,23 0,05 Number of shares 4 601 965 3 159 414 6 576 384 19 448 432 268 068 016 % 1,52 1,05 2,18 6,44 88,81 100,00 301 854 211 100,00 % 0,40 0,44 0,11 93,05 0,14 0,04 0,01 0,34 3,78 0,22 0,54 0,89 0,04 Number of shares 55 727 243 68 096 240 609 169 999 200 6 959 916 2 498 353 1 840 052 37 446 6 514 637 1 274 337 81 258 23 317 075 31 576 082 1 174 775 545 132 % 18,46 0,02 0,08 56,32 2,31 0,83 0,61 0,01 2,16 0,42 0,03 7,72 10,46 0,39 0,18 100,00 301 854 211 100,00 % Number of shares 0,03 243 207 377 0,01 0,01 70 318 242 591 927 545 132 99,95 58 646 834 % 80,57 0,02 80,37 0,18 19,43 100,00 301 854 211 100,00 Number of shares 169 999 200 41 498 615 31 093 300 15 669 636 5 257 456 % 56,32 13,75 10,30 5,19 1,74 K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 71 Shareholders’ analysis continued Share price appreciation of 16% reflects perceived value by investors B R E A K D O W N O F N O N - P U B L I C H O L D I N G S Directors Wadley, RG Fauconnier, CJ Konar, D Total Strategic holdings (more than 10%) Anglo American Corporation Industrial Development Corporation Stimela Mining (Pty) Limited Total Share trusts Kumba Management Share Trust Total Beneficial breakdowns Public Investment Commissioners – RMB Asset Management – RMB Asset Management – Public Investment Commissioners – Stanlib Asset Management – Old Mutual Asset Management State Street Bank & Trust Co (Custodian) Number of shares 47 870 22 280 168 70 318 Number of shares % of shares 0,015 0,007 0,00 0,022 % of shares 169 999 200 41 498 615 31 093 300 242 591 115 80,37 Number of shares 545 132 545 132 Number of shares 15 669 636 6 075 459 3 222 737 2 582 191 2 288 601 1 500 648 5 257 456 % of shares 0,18 % of shares 5,19 1,74 P A G E 72 K U M B A A N N U A L R E P O R T 2 0 0 4 C R E A T I N G B A L A N C E I N O U R E N V I R O N M E N T As we extract value from our diverse operations, we replenish natural resources by rehabilitating our land. We develop our communities today, so that together we can create a sustainable planet for tomorrow. TOP: Progressive vegetation rehabilitation on slopes at Sishen mine. CENTRE: Ongoing rehabilitation through the planting of indigenous trees at Ticor SA. BELOW: Pit manager Karel Haggard monitors Leeuwpan mine’s high wall and spoil areas. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 73 E C O N O M I C S U M M A R Y In terms of GRI guidelines, the direct economic impact of certain economic performance indicators are disclosed below. Direct economic impact Indicator Details Customers Net sales • rand value of revenue • tonnage Geographic breakdown of markets • Iron ore • Coal • Heavy minerals • Base metals • 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 (12 months to December 2004) Suppliers Employees p116 Business operations review on p33 to p42 Summary of business operations in fold-out Business operations review on p34 Predominantly South Africa Predominantly outside South Africa Predominantly South Africa Predominantly South Africa Segmental report on p159 and p160 Summary of business operations review in fold-out Note 5 on p129 – Supplier base of ±5 000 – 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 1 732 364 187 887 2 887 4 148 Total (R000) 1 927 286 Providers of capital Distributions (interest and capital) to providers of capital Increase/decrease in retained earnings Note 22 on p145 and Annexure 1 on p167 Refer to group statement of changes in equity on p120 Public sector Tax paid per type and per country Note 9 on p132 Subsidies received per country or region Zero Donations in cash to communities, societies, etc p87 and p88 P A G E 74 K U M B A A N N U A L R E P O R T 2 0 0 4 S A F E T Y , H E A L T H A N D E N V I R O N M E N T A L M A N A G E M E N T S U M M A R Y By complying with all relevant safety, health and environmental management (SHE) legislation and international obligations, the group is committed to consult with stakeholders, achieve high standards of environmental performance, and implement internationally-accepted standards for occupational health, safety and environmental management. Kumba aims to continuously improve safety, health and environmental performance and SHE management systems in all operations as an integral part of our commitment to sustainable development. Overall responsibility for SHE monitoring and performance rests with the Kumba board, exercised through the SHE committee and consulting forums at corporate level and at each division. At Kumba, SHE covers all operational aspects and activities with the potential to affect the safety and health of people and the environment. This duty of care covers the entire life cycle of our operations, from exploration and planning to operation, closure, decommissioning, remediation and rehabilitation and post-closure care that focuses mainly on ensuring that environmental sustainability is achieved. The SHE policy and management standards have been developed in consultation with relevant stakeholders and are mandatory for all Kumba operations. The objectives are to: • Provide a risk-based SHE management framework, consistent with national legislation, the Kumba SHE policy, ISO 14001, OHSAS 18001, and other internationally- recognised standards that support the implementation of SHE best practice across all Kumba operations • Provide a Kumba-wide framework to effect SHE legal compliance • Set out and formalise expectations for the progressive development and implementation of more specific and detailed SHE management systems at all levels of Kumba operations • Provide performance criteria against which SHE management systems across Kumba can be measured • Provide a basis from which to drive SHE continuous improvement • Integrate SHE elements into all relevant existing Kumba policies and practices. The SHE management process is driven to a large extent by well- established risk management principles. Processes and working areas are broken down into units, where baseline risk assessments are followed by issue-based risk assessments. All operational teams are trained in applying risk assessment on new projects and tasks. Control measures to reduce risk are implemented systematically according to the following risk parameters: • Engineering design • Engineering control and SHE systems • Early warning systems • Administrative control (eg procedures, training and inspections) • General protective mechanisms and processes. O H S A S 1 8 0 0 1 A N D I S O 1 4 0 0 1 C E R T I F I C A T I O N We planned to have all our operating business units certified for ISO/OHSAS management systems (ie to OHSAS 18001 and ISO 14001 standards) by 31 December 2004 (Table 1). The operations which did not meet this target are well positioned to achieve accreditation in the 2005 financial year. The status of certifications at the end of the reporting period is tabled overleaf. Grootegeluk is one of the operations to have achieved OHSAS 18001 and ISO 14001 certification. Here Grootegeluk’s safety officer SHEQ, Dave Reyneke, and head of quality management and SHEQ systems, Renier Swart, reflect on the achievement. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 75 Safety, health and environmental management summary continued Our duty of care covers all operational aspects and activities Table 1: OHSAS 18001 and ISO 14001 certification Business unit Sishen Thabazimbi Grootegeluk Ferrosilicon Zincor OHSAS 18001 Obtained Obtained Obtained Obtained Obtained ISO 14001 Obtained Obtained Obtained Obtained Obtained Leeuwpan Planned for December 2005 Planned for December 2005 Tshikondeni Obtained Preliminary certification Rosh Pinah Planned for September 2005 Planned for September 2005 Glen Douglas Ticor Recommended Obtained Recommended Obtained To ensure a fully-integrated SHE risk management system, some of our business units went further to integrate the ISO/OHSAS management tools into a single system. In 2004, Tshikondeni and Ferrosilicon received integrated ISO/OHSAS certifications, demonstrating that their SHE management systems are devoid of duplication, resource wastage, fragmented solution options and decision-making. S A F E T Y A N D H E A L T H In health and safety management, the focus is on minimising major occupational risks in the work environment including: • Self-propelled mobile equipment • Fire and explosives • Fall of ground • Electricity and other sources of energy • Human behaviour • Noise exposure • Airborne pollutant exposure • Radiation and ventilation. Occupational safety and health incidents and trends are reported to the relevant authorities in accordance with prescribed standards. The relevant indicators used are aligned with the industry initiative to achieve uniform parameters. All incidents are analysed monthly and bi-annually to determine the contributing factors and implement proactive measures to prevent further incidents. Lessons learned from incidents are shared throughout the group. Legal assessment forms part of the ISO/OHSAS certification process and all divisions have a legal register. No legal action for non-compliance occurred over the review period. Additionally, Kumba makes every effort to keep disabled employees in service, including accommodating them in alternative positions. S A F E T Y T A R G E T S The following safety targets have been set for the company for the 2005 financial year: • Kumba aspires to a zero-injury rate at all its activities. Regrettably, two fatalities were reported for the 18-month period ended 31 December 2004 (both within 2004). While this is below the four fatalities recorded in the calendar year ended 31 December 2003, it is still regarded as unacceptable • A 30% yearly improvement on the lost-day injury frequency rate (LDIFR) is applied. The new target for 2005 is 1,75. Graph 1: Lost-day injury frequency rate E T A R Y C N E U Q E R F 4,0 3,5 3,0 2,5 2,0 1,5 1,0 0,5 0 02 03 04 D A T A L I M I T A T I O N S The LDIFR is the total number of lost-day injuries multiplied by a million divided by the man-hours worked, including overtime and excluding sick leave or any other leave. Up to December 2004, sick leave and other leave were not fully accounted for, however, initiatives to address this by December 2005 are in place. The Kumba LDIFR for the 12 months ended 31 December 2004 is 2,54 and 2,35 for the 18 months ended 31 December 2004. New initiatives such as the introduction of I Care safety rules and the reduction of unsafe acts are being rolled out across all our operations. H E A L T H T A R G E T S Health targets for 2004 were: • The reduction in the number of new compensatable cases of occupational diseases • The reduction in the number of employees exposed to noise over 85dB (A) per shift through engineering control measures. P A G E 76 K U M B A A N N U A L R E P O R T 2 0 0 4 The right of future generations to use the environment guides our actions No quantitative targets were set, however new targets will be reviewed in the context of new legislation and other industrial commitments to meet the following targets for future reporting periods: • Air quality index of <1 for 80% of exposed employees by 2006 • Risk-based medical surveillance by December 2005 • By December 2008, 95% of all exposure measurement results below the occupational exposure limit for respirable crystalline silica of 0,1mg/m3 • After December 2013, using present diagnostic techniques, no new cases of silicosis will occur among previously-unexposed individuals • After December 2008, the hearing conservation programmes implemented by industry must ensure that there is no deterioration in hearing greater than 10% among occupationally- exposed individuals • By December 2013, the total noise emitted by all equipment installed in any workplace must not exceed a sound pressure level of 110dB (A) at any location in that workplace • Monitoring of risk reduction and implementing proactive indicators by December 2005. Occupational hygiene formed an integral part of our occupational health management programme to ensure that the work environment is conducive to high health standards. All the mandatory codes of practice in terms of the Mine Health and Safety Act (29 of 1996) were implemented. To increase employee awareness, computer-based training modules were developed for occupational health. Graph 2: Suspected cases of noise-induced loss for the reporting periods 2002, 2003 and 2004 S E S A C F O R E B M U N 30 25 20 15 10 5 0 02 03 04 The high number of noise-induced hearing loss cases within Kumba is attributed to the following: training practitioners in identifying and reporting noise-induced hearing loss resulted in increased capacity to detect suspected cases; and changes in noise-induced hearing loss reporting legislation, in terms of the Compensation for Injuries and Diseases Act (No 130 of 1993) which required new baseline assessments of all employees who are exposed to noise (2001 – 2003) resulted in increased reporting of suspected cases. E N V I R O N M E N T A L M A N A G E M E N T In line with our commitment to give due consideration to the environment at all our activities, we updated our environmental management policy in acknowledgement of all stakeholders’ rights to an environment that is not harmful to their safety and well-being. The right of future generations to use the environment to their advantage is also considered during business planning cycles, including operational, decommissioning and closure phases. Kumba is committed to promoting good relationships and enhancing capacity in the local communities where we operate. The highlight of the review period was the implementation of an electronic environmental management system to enable consolidation of environmental data and statistics on, among others, water consumption and environmental incidents. Table 2: Suspected occupational disease cases, reported vs accepted cases 1 July 2003 to 31 December 2004 Cardio- pulmonary tuberculosis Asbestos- related disease Other Coal dust occupational pneumo- lung diseases coniosis Noise- induced hearing loss Silicosis Total Suspected cases 2004 July 2003 – December 2004 Accepted cases 2004 July 2003 – December 2004 4 4 2 3 2 2 0 0 5 5 2 2 2 17 2 5 28 58 16 22 K U M B A A N N U A L R E P O R T 2 0 0 4 0 0 1 1 42 86 23 33 P A G E 77 Safety, health and environmental management summary continued Environmental management systems conform to international standards The focus will be expanded to include air quality and biodiversity issues. E N V I R O N M E N T A L M A N A G E M E N T S Y S T E M S Kumba’s proactive approach to environmental management is illustrated by the implementation of advanced systems which will facilitate, among others, incident management, corrective action, data collection, data analysis and reporting. This does not only allow us to measure and analyse environmental data and resource consumption for every division in line with national legislation and internationally- accepted norms, but also complements the ISO 14001 management system. The benefits of electronic reporting include quicker response times – which reduce real risk and the quantum of damage – as well as sharing knowledge and producing verifiable data and statistics. The system has been installed at five divisions and will be implemented at the remainder in due course. This will enable us to establish baselines throughout the group during the new financial year and allow environmental performance to be compared year on year against internal targets as well as with best- practice standards. E N V I R O N M E N T A L R I S K S Kumba is in the process of developing an integrated, enterprise-wide risk management programme. Environmental management risks will also be evaluated via this systematic and repeatable methodology that will identify, analyse, assess and rank risks. The diversity of environmental risks are thus treated according to international principles and integrated in the overall risk management system. The risk management tools are integrated into the environmental management module of the environmental management system to facilitate standardisation and ease of use across the group. L A N D M A N A G E M E N T Land management data (as at 31 December 2004) has not changed since the previous reporting period. Environmental programme management reports (EMPRs) are being updated to be more in line with new legislative requirements. E N V I R O N M E N T A L P E R F O R M A N C E Environmental management data collection focused on Kumba’s specific risk and performance issues, which are also compatible with GRI. The following data fields were selected as a starting point: • Land controlled • Land disturbed • Land rehabilitated • Electricity use • Diesel use • Water use • Hazardous waste generated • Number of environmental incidents. Initiatives to empower the divisions to report on these issues started in 2002. Data is being collected on a monthly basis for these parameters. To convert these fields into useful environmental performance indicators (EPIs) according to the GRI, water, electricity and diesel use are divided by the tonnage of product produced for the reporting period. Kumba’s environmental management data cover GRI elements EN 1, 3, 18, 23 and 29 and considerable progress has been made during 2004 regarding EN 6, 10, 13, 20, 21, 25 and 26 (emissions to air as well as ecology issues) on baseline information and monitoring programmes. Special attention has been given to the quality of environmental data reporting since 2002. Looking at the indicators produced for Kumba in total over this period, an improvement is apparent in the diesel use while electricity and water use indicators as well as the number of incidents show a decline in performance (see charts and tables). The former is as a result of savings optimisation while the latter indicate a large amount of under-reporting in the past. The suite of parameters will be systematically expanded during 2005 to include air quality monitoring issues and ecological management tracking via biodiversity action plans. Level 1 (minor) incidents generally indicate an upward trend, probably as a result of ISO 14001 implementation and related management support systems (Table 3). R E H A B I L I T A T I O N Rehabilitation activities are implemented according to authority- approved plans. A process was initiated to regularly report on the mining operations’ compliance to environmental management programme reports (EMPRs). Some mining operations have commenced with quantifying their authority-approved plans in such a way that the status of compliance P A G E 78 K U M B A A N N U A L R E P O R T 2 0 0 4 No fines imposed for environmental non-conformance rehabilitation techniques, volumes of water decanting from the mine are decreased and downstream water quality is improved. All mining operations have updated estimated final closure liabilities as well as immediate closure liabilities where applicable. Provision for the cost of closure and post-closure liabilities for all mines is managed through an independent rehabilitation trust fund and verified by an independent third party. could be properly measured for reporting. The first reporting will be during 2005. At the Durnacol colliery in KwaZulu- Natal, major mine closure rehabilitation activities were completed during the review period, while at Hlobane colliery, closure rehabilitation is well advanced and an updated environmental management programme report was submitted to the authorities for approval. As part of an integrated water management plan, sealing of surface fractures to prevent clean water from entering old underground mine workings was so successful that the Hlobane waterfall, last seen with cascading water more than 50 years ago, is flowing again. Through these Kentrige Makhanya inspects a rehabilitation test slope at Sishen. Graph 3: Electricity use per tonne produced 2002, 2003 and 2004 Graph 4: Water use per tonne product produced 2002, 2003 and 2004 Graph 5: Diesel use per tonne product produced 2002, 2003 and 2004 e n n o T / J G 0,12 0,10 0,08 0,06 0,04 0,02 0 e n n o t r e p s e r t e m c i b u C 0,6 0,5 0,4 0,3 0,2 0,1 0 e n n o t r e p e n n o T 0,0018 0,0016 0,0014 0,0012 0,0010 0,0008 0,0006 0,0004 0,0002 0 02 03 04 02 03 04 02 03 04 K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 79 Safety, health and environmental management summary continued Table 3: Environmental incident statistics Business unit Iron ore Sishen Thabazimbi Coal Grootegeluk Tshikondeni Leeuwpan Heavy minerals Ticor SA Base metals Zincor Rosh Pinah Industrial minerals Glen Douglas Total 2004 INCIDENTS 2003 INCIDENTS Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 480 79 232 8 59 119 125 * 13 1 115 1 0 0 1 0 24 0 1 0 27 0 0 0 0 0 0 0 0 0 0 455 8 90 * * 101 126 * 5 785 0 0 0 * 0 21 6 2 1 30 0 0 0 0 0 0 0 0 0 0 * During 2003 most of the level 1 environmental incidents were grouped with general housekeeping issues. Type of incident Brief description Catastrophic (level 3) Significant impact, extensive or long-term effect. Reportable (level 2) Moderate impact, medium-term effect, reportable to the relevant government authorities. Other incidents (level 1) Minor impacts, short-term effect Table 4: Electricity, diesel consumption and water use per business unit: July 2003 to December 2004 (18 months) Business unit Sishen Thabazimbi Grootegeluk Leeuwpan Tshikondeni Ticor SA Glen Douglas Zincor (excluding sulphuric acid) Rosh Pinah (zinc and lead concentrate) Total Electricity (Gj) 1 541 570 212 724 1 252 343 93 366 193 673 2 041 074 66 014 2 654 163 228 159 8 283 086 Diesel (t) 57 329 10 077 20 906 5 864 2 021 2 883 2 443 1 256 1 769 Water (m3) 9 264 549 3 528 184 3 723 943 115 967 300 382 9 486 250 4 585 051 2 439 423 1 727 348 104 548 35 171 097 Product (kt) 41 146 3 806 26 105 2 460 630 772 2 107 159 223 77 408 P A G E 80 K U M B A A N N U A L R E P O R T 2 0 0 4 D E T E R M I N E D T O U P L I F T O U R P E O P L E We will create a sustainable future by ensuring the development of our people and the communities around our operations. RIGHT: Alice Mophatleng at work at Boitirelo Jewellers, a project near Sishen that meets both social development and beneficiation objectives. CENTRE: Ticor SA implemented the use of micro-science kits at eight local high schools. Here pupils at Dover Farm School conduct science experiments. RIGHT: From left, Elias Malahlela, Moses Molefe and Patrick Boikhutso undergo welding and metalwork training at the Itireleng Skills Development Centre, a social development project for the community surrounding the Thabazimbi mine. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 81 S O C I A L S U M M A R Y W O R K P L A C E I S S U E S E M P L O Y M E N T Currently, Kumba employs 8 963 permanent employees. This excludes the employees of Ticor Limited, Australia. Various contractors and suppliers support the company’s operations, creating an additional 4 000 jobs. During this reporting period, there was a net decrease rather than increase in net job creation per province/region. This could largely be attributed to the Kumba business improvement programme that is aimed at stream- lining business operations primarily by reducing costs, increasing throughput and revenue, and improving business processes, while minimising potential job losses. With the proposed extensions to mining operations that will take place at the Grootegeluk and Sishen mines, further jobs could be created. Kumba is working towards reporting on net job creation per region as required by GRI. E M P L O Y M E N T E Q U I T Y Kumba has an employment equity policy for the development and promotion of historically disadvan- taged South Africans (HDSAs), women and people with disabilities. At the end of December 2004, 66% of the total workforce was black, coloured or Asian. To realise our employment equity goals, detailed employment equity plans are in place for every division. Employment equity progress is actively managed in the management cate- gories, where currently 28% of the Kumba board and 31% of general managers are employment equity candidates. The focus remains on in- creasing the number of equity candi- dates, particularly at middle management levels. Target 2008** 00 01 02 03 Oct 04 The current status of HDSA representation in our management and professionally-qualified categories as well as representation by women (all levels) is illustrated in graphs 1 and 2. Graph 1 indicates that Kumba’s performance on HDSA targets has increased steadily each year and is currently at 28%, up from 20% in 2003. Graph 1: Employment equity progress – Management categories 40 30 % 20 10 0 00* 01* 02* 03* Oct 04** * HDSA includes blacks, coloureds and Asians – not white women ** HDSA includes blacks, coloureds, Asians and white women Graph 2 indicates that Kumba’s performance on targets for women, increased from 10% in 2003 to over 12% in 2004, already 2% above the target. H I V / A I D S The Kumba HIV/Aids policy was finalised in 2003 when the agreement with recognised unions was signed. The policy was developed with the involvement of shop stewards from all divisions, union officials from their respective head offices and representatives from all divisions. Graph 2: Employment equity progress – Women all levels Target 2008** % 14 12 10 8 6 4 2 0 The main objectives of the Kumba HIV/Aids strategy are to: • Prevent more people from becoming infected with HIV/Aids • Extend the lives of those infected for as long as possible to the benefit of the company and society at large • Ensure the impact of HIV/Aids on the company is managed to enable Kumba to grow and contribute to South Africa’s developing economy. Measurement A knowledge, attitude and practice survey was conducted at all divisions during 2002. Actuaries and consultants also conducted a financial impact analysis in the second half of 2002. One of the outcomes of the impact analysis was the savings that could be realised with a prevention and treatment programme. Graph 3 indicates the amounts that could be saved by Kumba over an 18-year period (2003 to 2020). The cumulative savings will be R373,6 million. P A G E 82 K U M B A A N N U A L R E P O R T 2 0 0 4 Excellent progress towards achieving employment equity targets Kumba has developed a 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, in 2003 on risk exposure of South African companies to HIV/Aids, Kumba was rated second overall in terms of strategy. Graph 3: Annual total savings after interventions n o i l l i m d n a R 30 20 10 0 -10 -20 -30 ’02 ’04 ’06 ’08 ’10 ’12 ’14 ’16 ’18 ’20 HIV/Aids management Programmes are in place or planned at all divisions and the corporate office. They include voluntary counselling and testing, peer Table 1: Prevalence education, wellness programmes and community-based programmes and treatment of sexually-transmitted diseases. An anti-retroviral pilot programme was implemented at two business units in October 2003 and also at the corporate centre in 2004. The programme proved successful and is being extended to more operations. Implementation of the programme saw a total of 132 HIV-positive employees enroll on the programme. This represents 80% of possible positive cases as determined by the prevalence testing at Zincor, 35% at Grootegeluk and 20% at corporate office. All HIV-positive employees who were detected by voluntary counselling and testing held throughout the period are enrolled on the programme. Cost of the programme Table 1 indicates Kumba’s progress with its voluntary counselling and testing programme. At least 70% of the total workforce and contractors participated in the programme. This high level of participation enabled the company to develop comprehensive employee assistance programmes that included the provision of anti-retrovirals. Kumba spent R2,7 million on HIV/Aids during the review period. This was mainly spent on a medical care and disease management HIV programme consisting of appropriate supplements as well as immune boosters, preventative therapy and ART (including pathology and supplying the drugs) to three pilot sites, voluntary counselling and testing, awareness training for employees and managers and the identification and training of peer educators. Community programme In 2003, Kumba commissioned an independent study to establish the status of current HIV/Aids programmes and initiatives in the Thabazimbi community in Limpopo. The intention of the Re Tlo Lwana pilot was to strengthen and extend the group’s HIV/Aids approach to host communities. The words translate to “we will fight” in SeSotho. Thabazimbi was chosen as a pilot site, with a view to replicating the strategy at other Kumba operations. The strategy focused on several key interventions: • Conducting HIV/Aids prevention programmes in and around the mining community Business unit Sishen Sishen Glen Douglas Ferrosilicon Grootegeluk Kumba HQ Leeuwpan Zincor Thabazimbi Ticor Tshikondeni Rosh Pinah Date tested December 2002 June 2004 November 2002 November 2003 November 2003 February 2004 December 2003 November 2003 June 2004 Planned for March 2005 October 2004 June 2004 % tested 52,00 63,00 98,00 97,40 77,00 77,00 87,00 78,80 76,00 84,00 82,00 HIV positive Province Province HIV % 11 9,70 14,70 10,80 8,60 3,50 N Cape N Cape Gauteng Gauteng Limpopo Gauteng 22,00* Mpumalanga Gauteng 16,40* Limpopo 15,20 12,20 22,90 Limpopo Namibia 15,90 15,90 29,80 29,80 14,50 29,80 29,20 29,80 14,50 14,50 22,00 * Includes contractors (Zincor 235 (23,4% positive) and 453 Kumba employees (12,8% positive); Leeuwpan 182 contractors (24,7% positive). K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 83 Social summary continued Investment in training well ahead of industry average • Conducting voluntary counselling and testing projects • HIV/Aids awareness and education programmes • Initiating comprehensive community home-based care programmes for families whose members are already infected • Initiating income-generating projects for indigent communities around Kumba mines. The success of the Re Tlo Lwana project is reflected in improved disclosure cases, increased availability of condoms, effective condom usage, improved capacity of community- based organisations, improved public- private partnership networks and increased awareness of HIV/Aids. The project is now being rolled out nationally at Kumba operations in Northern Cape, Mpumalanga, Gauteng and KwaZulu-Natal. In each region, the focus will be on consulting with stakeholders and customising each project to meet stated community needs. E M P L O Y E E M A N A G E M E N T R E L A T I O N S Employees have the freedom of association to join a trade union of choice. The following trade unions have recognition, subject to the criteria of the respective recognition agreements, at the various operations to bargain on behalf of their members in the bargaining units: United Association of South Africa (UASA); National Union of Mineworkers (NUM); Solidarity; Building, Allied, Mining and Construction Workers Union (BAMCWU) and Mine Workers Union of Namibia (MUN). Employees have the right to elect shop stewards of their choice. Collective agreements between the various employers within Kumba and the trade unions regulate the relationship. These include: • Recognition agreements • Full-time shop stewards’ agreement • Full-time health and safety representative agreements • Communication and participative structure agreements • Agency shop agreement. Conditions of employment are negotiated annually. Through collective bargaining, employees receive a number of benefits that exceed the minimum requirements of the Basic Conditions of Employment Act. These enhanced benefits include: leave (including a leave bonus), sick leave, maternity leave and family responsibility leave. Allowances are also paid for housing, standby, call outs and shift work. Consultation Regular meetings are held with employee representatives (trade unions) at operations and centrally to inform employees through their representatives on relevant issues such as business and financial results. The trade unions are consulted on new or revised policies and procedures such as the disciplinary procedure, which includes appeal and non-retaliation procedures. Agreements on changes in operations such as continuous operations have been negotiated with the respective trade unions at the relevant division. H U M A N R I G H T S Kumba, as a responsible employer, complies with all labour legislation in South Africa, eg the Constitution of the Republic of South Africa, Labour Relations Act, Basic Conditions of Employment Act, Employment Equity Act, Skills Development Act, Unemployment Insurance Act, Mine Health and Safety Act, and Compensation for Occupational Injuries and Diseases Act. Kumba also complies with the ILO guidelines. Kumba ensures that child labour is not tolerated and that forced or compulsory labour is not practised. Through induction programmes for employees, Kumba ensures that they are educated about human rights. Policies on discrimination, harassment and racism as well as structures, such as equity committees, exist to protect employees’ human rights in the workplace. Agreements with security providers ensure that security personnel receive education in human rights. Employee training on human rights takes place through the Jay Hall Leadership Training programme, diversity management and entrenching foundational and motivational values through the Kumba Way programme. W O R K E N V I R O N M E N T Since listing, Kumba has repeatedly been rated by credible, independent publications and institutions as being among the top 40 companies in South Africa on elements such as salary and benefits, incentive schemes, and education, training and development (see A year of achievement on p10). H U M A N R E S O U R C E S D E V E L O P M E N T Kumba is firmly committed to developing its employees, and is an industry leader in investing in training (Table 2, p85). During the review period, the group invested R73 million in training and developing employees. This equates to 5,7% of total payroll, well ahead of the Mining Qualifications Authority’s average of 4,0% for mining companies with over 5 000 employees. P A G E 84 K U M B A A N N U A L R E P O R T 2 0 0 4 Sharing knowledge across the group towards best practice Table 2: Beneficiaries of training Job category Legislators, senior officials and managers Professionals Technicians and associated professionals Clerks Service, shop and market sales workers Craft and related trade workers Plant and machine operators/assemblers Labourers and related workers Total % of staff who received training Average number of interventions per beneficiary 99 71 88 73 18 73 87 75 2,2 3,6 3,0 2,3 1,0 3,0 2,9 2,4 From Table 2, it is clear that in Kumba: • With the exception of service workers, more than 70% of employees in other job categories were beneficiaries of training during the period • With the exception of service workers, beneficiaries of training in all job categories were exposed to more than two training interventions during the period. The number of training interventions is especially high in the categories of professionals, technicians and related professionals, craft and related trade workers and plant operators. R E C R U I T M E N T Kumba applies a policy of non- discriminatory recruitment. Divisions generally employ residents from local communities, except where specific skills are not available. About 70% of employees at business units come from local communities. During the review period, staff turnover in terms of voluntary resignations was 4,6%, which is low against industry norms and suggests Kumba has a strong ability to retain staff. This high retention rate is one of the reasons that Kumba was voted best mining company to work for in 2004. H O U S I N G Kumba’s housing strategy, focused on home ownership, is being rolled out at each division. The current status of housing in Kumba is summarised in Table 3. Table 3: Housing status Description Homeowners Rental units Affordable rental units Other Total Number of employees 1 359 1 341 3 004 1 066 6 770 % 20 20 44 16 100 The housing programme conforms to the requirements of the mining charter and will be fully implemented by 2008. Rental houses will be sold at market value to employees and, where feasible, hostels will be converted into single units. Prior to this reporting period, R17 million was spent on housing to comply with the mining charter. During this reporting period, Kumba (at Sishen) issued a guarantee of R10 million towards a housing development project. A further R8 million was made available for the development of infrastructure. A further R4,5 million is budgeted for the development of services for 2005. C O M M U N I T I E S O F P R A C T I C E Kumba has developed communities of practice for effective group-wide knowledge sharing. The focus is primarily on the core competencies required for Kumba’s growth and sustainability, and these communities ensure the establishment and sharing of best practices and learning. This approach has been taken from organisations recognised as the leaders in knowledge management. These communities have been able to lower the risk of losing key knowledge workers, and new people productively incorporated into the group faster than before. A team of dedicated knowledge management practitioners proactively facilitates and serves these communities of practice, to ensure maximum value from knowledge sharing. Much interest has been generated through the success of the Kumba communities of practice and many organisations visit Kumba to learn about the knowledge-sharing processes and concepts being implemented. The aim of the knowledge management team is to value the intangible assets of Kumba to ensure that these are safeguarded into the future. P R O F E S S I O N A L S - I N - T R A I N I N G , B U R S A R S P R O G R A M M E A N D B R I D G I N G S C H O O L In a skills-deficient market, Kumba is committed to ensuring a steady supply of suitably qualified professionals. The group continues to fund bursaries, primarily for engineering and geology studies. In the review period, Kumba invested R23 million in the bursary and professionals-in-training programmes. This includes the bridging school where school leavers are given the opportunity to improve their entry qualifications for universities. Since the establishment of Kumba’s bridging school some ten K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 85 Social summary continued Building and retaining a pool of leaders is a priority years ago, 269 HDSA learners graduated from the school and obtained an average of 78% for mathematics and 72% for physical science on the higher grade. priority for Kumba. Initiatives to achieve this include a comprehensive succession planning process and enhancing strategic leadership competencies. MQA’s unit standards generation and qualification design processes. H D S A P R O C U R E M E N T Kumba’s HDSA procurement spending increased to R616 million in the period compared to R128 million in 2002. Kumba participates in SME development programmes that enrolled over 200 suppliers in Limpopo, Northern Cape and Gauteng. This programme assists HDSA companies with the skills required to participate in the Kumba HDSA procurement programme. Kumba was a founding member of the South African Mining Preferential Procurement Forum (SAMPPF) which led to a number of initiatives that help Kumba meet its mining charter requirements and encouraged some of the mines in the areas of Kumba’s operations to participate in the regional forums of the programme. Early results are most encouraging. D A T A L I M I T A T I O N S Kumba’s HDSA procurement data includes the value of purchases from suppliers that would qualify as black owned (>50% ownership), black empowered (25 – 50% ownership), black influenced (5 – 25% ownership), white female (where the qualifying percentage of ownership is retained by females) and disability ownership (where the qualifying percentage of ownership is retained by persons with disabilities). Kumba has developed a set of leadership competencies that are aligned with the company’s strategic imperatives. Business units contract with various service providers to develop these leadership competencies through management programmes, development centres, enrolment in tertiary institutions for further education and training and workshops in a range of leadership development areas. Talent management is constantly monitored. The level of readiness for promotion and performance are two of the more important criteria used in determining the talent pool for succession planning and developmental purposes. S C H O O L O F F I N A N C E The Kumba School of Finance is an accredited training organisation with the South African Institute of Chartered Accountants. It provides training outside of public practice (TOPP) to employees aiming for associate general accountant (AGA) or chartered accountant (CA) qualifications. Twelve employees are currently enrolled in the TOPP programme, with 83% from designated groups. M Q A I N V O L V E M E N T Kumba’s human resources development professionals continue to contribute significantly to the national and sectoral transformation process through their membership and participation in bodies such as Business Unity, South Africa’s committee for education and training, and the MQA’s sector skills planning committee. Kumba professionals are also playing a prominent role in the The R616 million spending noted above includes procurement from black-owned and black-empowered companies. We are satisfied that our systems and controls monitor HDSA procurement that relates to all the HDSA suppliers detailed above. Kumba endeavours to align with Anglo procurement guiding principles and it is expected that this alignment will be fully completed within the 2005 financial year. Currently, there are 25 full-time learners studying at the Kumba bridging school and 129 bursary holders studying at South African universities. Of these bursary holders, 66% are HDSAs. Notably, the drop- out rate for Kumba first-year students is under 6% compared with the South African average of 30%, reflecting the quality of our bridging school – which supplies over half of our bursars – and our ability to recognise talent and award bursaries accordingly. Sixty-five graduates are in training, with 60% being black, coloured or Asian. L E A R N E R S H I P S In the annual training report submitted to the Mining Qualifications Authority (MQA), Kumba reported 365 apprentices in training (since converted to engineering learnerships through the MQA), all on a bursary scheme. Of these learners, 75% are black, coloured or Asian, and 7,3% are females. Notably, this represents 24% of all apprentices trained in the mining industry. The technical training centres at Lephalale (Ellisras) and Sishen are accredited as training providers by the MQA. The net cost to Kumba, after MQA grants have been discounted, is R9 million. Kumba’s commitment to engineering learnerships exceeds its own require- ments by building the pool of skills for the industry and training unemployed people in line with the growth and development summit targets. L E A D E R S H I P D E V E L O P M E N T A N D S U C C E S S I O N P L A N N I N G Building and retaining a pool of current and future leaders remains a P A G E 86 K U M B A A N N U A L R E P O R T 2 0 0 4 We use a results-driven approach in partnership with host communities C O R P O R A T E S O C I A L I N V E S T M E N T By aligning itself with national and provincial growth and development strategies, and guided by corporate governance protocols and principles spelt out in the King II report and GRI guidelines, Kumba has successfully positioned itself as a leader in corpo- rate social investment. We use a results-driven approach of developing, implementing and monitoring corpo- rate social investment programmes in partnership with our host communities. Full details of our policies are available on www.kumbaresources.com. K E Y F O C U S A R E A S A N D N A T I O N A L F L A G S H I P P R O J E C T S During the review period, Kumba spent R13 million on corporate social investment initiatives, and R31 million between 2002 and 2004. Graph 4: Distribution of CSI investment Education Leadership development Health – HIV/Aids SMME development Infrastructure development Environment Job creation Total = R13 million 50% 1% 13% 10% 15% 6% 5% N A T I O N A L F L A G S H I P P R O J E C T S Kumba has initiated three corporate social investment and community relations projects classified as national flagship projects. These address issues of major concern in areas of education, HIV/Aids and environmental awareness. Whole School Development Programme This project assists 24 schools (equally split between Limpopo and Northern Cape) to benefit from a satellite-based education system designed to improve the standards of educators, techno- logical literacy of learners and attrac- tiveness of careers in technical fields such as engineering. The concept of Kumba’s whole school development project has been well received by the heads of the education departments in these provinces. Extension of HIV/Aids programmes to communities To ensure the well-being of our host communities, we have undertaken several initiatives to contain the spread of life-threatening diseases like HIV and Aids by providing counselling and support to community members who are already infected and affected by HIV and Aids. Working with employees, labour unions, local communities and traditional healers, health and social institutions, and state departments, Kumba’s community HIV/Aids campaign has started to yield positive benefits. Our specific interventions on HIV/Aids prevention include: • HIV/Aids awareness and education • Anonymous voluntary HIV testing • Counselling and support in a caring environment • Home-based care training for families whose members are already infected • Income-generating projects for unemployed communities around Kumba mines. The project tackles the HIV/Aids pandemic as a social programme and includes the educational and nutritional side of interventions. During the year, 24 people were trained as home-based caregivers, peer educators, counsellors or mentors. Environmental sustainability and community awareness programme This project raises awareness and creates jobs through environmental Kumba sponsors the Weskus School at Saldanha. programmes. The temporary use of land for extracting non-renewable resources has implications that extend beyond the life of the mining operation. Closure and rehabilitation planning is a legal and social responsibility and Kumba readily acknowledges that our environmental responsibility and the sustainability of our host communities extends beyond these parameters. An integral component of this extended responsibility is the need to ensure that the mined land is returned to the local economy and can be maintained, cared for and used sustainably by its future custodians. A partnership between Sishen and Kgalagadi municipality has seen the establishment of a community environment committee. A pilot environment awareness programme has been initiated. In line with the development plan of the local municipality, several potential projects have been identified. These are in the areas of recycling and beautification of waste disposal sites. The result will be improved awareness and creation of jobs. Working with local authorities and following the recognised principles of sustainable development, we strive to limit our impact on the environment by ensuring that our footprints are covered with extensive rehabilitation and conservation programmes that are understood and appreciated by host communities who are, in most cases, the custodians of mined land. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 87 Social summary continued Sustainability is a process of dynamic development O T H E R I N I T I A T I V E S Kumba participates in a variety of other corporate social investment initiatives, including: • Business Trust – public/private sector partnership focused on creating jobs, improving education, and reducing crime. • New Africa Mining Fund – Kumba has contributed R20 million to an initiative of the mining industry and government to facilitate access to capital for junior mining entrepreneurs, while giving investors the prospects of competitive returns. • Minerals Education Trust – supporting academic staff and lecturers in the mining and metallurgy sector to ensure the supply of high-quality new engineering graduates. • Institute for Higher Education – supporting higher education and training in mathematics and science in the Northern Cape. • University of Stellenbosch Transformation Chair – sponsoring the position of a senior lecturer in transformation at the university’s business school to develop a leading academic source of knowledge in social and economic transformation in South Africa. • University of Zululand Integrated Rural Development Chair – improving the economic lives of rural communities in Zululand, using an interdisciplinary approach and involving all stakeholders. • Peace Parks Foundation – supporting transfrontier conservation areas for sustainable economic development based on the management and conservation of ecosystems, natural resources and biodiversity. K U M B A F O U N D A T I O N To ensure effective management of funds allocated for community development, the Kumba Foundation, an independently-managed body, monitors progress in community development programmes through the project monitoring system and procedures. The foundation also funds learners through Kumba’s bridging school, detailed on p85. M O N I T O R I N G A N D E V A L U A T I N G T O E N S U R E S U S T A I N A B L E P R O J E C T S For Kumba, sustainability is a process of development. It is dynamic, ongoing and guided by community involvement in decision making. While always focused on building capacity, we have predetermined entry and exit points, and the process is driven by a formal project management system. Our policy of aligning our initiatives to national priorities ensures that we build meaningful partnerships with all stakeholders. Kumba is currently developing a common platform for measurement standards and audit methodology for all corporate social investment initiatives. S T A K E H O L D E R E N G A G E M E N T Kumba recognises the need to create synergies with communities, businesses and government around our business units. It is vital to develop a uniform approach to stakeholder engagement, as this tends to be an area of most vulnerability in terms of managing stakeholder relations effectively. Our business units have formal, democratically constituted structures to facilitate open and honest engagement, consultation and mutually beneficial partnerships with stakeholders on issues of common social, economic and environmental concerns. Representatives of these structures range from unions, government, NGOs, civil organisation, mine management, municipalities, as well as traditional leaders. This process further ensures that all development programmes are aligned with the District and Local Municipalities’ Integrated Development Plans (IDPs), as well as Provincial Growth and Development strategies. P O L I T I C A L C O N T R I B U T I O N S In the review period, Kumba donated R1 million to South African political parties towards national general elections funding. The Butterfield Bakery at Kathu near Sishen started off as a social development joint venture and is one of the franchise’s most successful outlets. From left, Kagisho Mogotsi, Calvirn Batshabane and Albert Marrume at work. P A G E 88 K U M B A A N N U A L R E P O R T 2 0 0 4 T H E W A Y F O R W A R D F O R S U S T A I N A B I L I T Y Our way forward is clear: sustainability is a dynamic process that requires constant monitoring, continuous improvement and group- wide commitment. It also requires careful identification of our key risks and appropriate systems and processes to manage these risks for present and future generations. In the table below, we distinguish our focus areas on the basis of urgency and relevance to Kumba’s specific context. The impact on Kumba’s business and the inherent risk has been taken into account in the categorisation. Some of the elements are already well developed within the organisation and, in these cases, performance needs to be maintained. In others, significant resources are needed to bring performance to required levels. Kumba’s multi-stakeholder approach aims to ensure that the interests of all our stakeholders are well looked after, from our employees, suppliers, government, communities in which we operate, to the environment and the financial aspect. Our commitment to sustainability is real, tangible and ingrained throughout our operations. Kumba’s inclusion in the inaugural JSE SRI Index gives Kumba stakeholders assurance that we are on the right track and is testimony to our view that empowerment is a fundamental prerequisite for the long-term development and sustainability of the South African economy. R E L E V A N C E A N D U R G E N C Y I N K U M B A C O N T E X T Urgent and immediate focus Continuation/maintenance Develop within longer term Social impact management Mine closure Supply chain compliance Employment equity Social development/national social priorities Product stewardship Natural environment HIV/Aids Leadership in sustainability Historically disadvantaged South African ownership and control Health and safety in the work environment Stakeholder engagement Labour relations Natural resource management (including mineral resources) Business sustainability (financial, operational) Corporate governance Human resource development Shareholder rights Supplier relations/developmental procurement Human rights K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 89 C A S E S T U D I E S H L O B A N E W A T E R F A L L F L O W S A G A I N A F T E R F I V E D E C A D E S The Hlobane Waterfall near Vryheid in KwaZulu-Natal is flowing again after more than 50 years, thanks to pioneering restorative work carried out by Kumba. The waterfall stopped flowing decades ago due to mining activity at the underground Hlobane colliery, with cracks up to two metres wide developing on Hlobane mountain. Rain that mingled with water run-off from Hlobane mountain became contaminated after seeping into the cracks and through three coal seams before decanting into nearby water catchments. With that, the Hlobane waterfall stopped flowing. Kumba closed Hlobane mine five years ago and devised a solution that would minimise mine-related water pollution. The easier and cheaper option would have been to divert the contaminated water to a single decanting point, treat it, and then reintroduce it to the area’s water system. This option was rejected due to the porous nature of Hlobane mountain, which made it difficult to divert all underground water to a single point. Other options included building embankments on either side of the river, or putting concrete slabs over the cracks to divert the water to another catchment area. These options were rejected as environmentally unfriendly and for their technical difficulty (and hence probability of failure). Instead, Kumba opted for a more complex solution: to plug the cracks with a sealing liner painted with bitumen, and underlined with a mixture of available soil and bentonite clay. This seal had to be flexible, durable and non-toxic: the bitumen film is non-toxic and bentonite is a naturally-occurring substance. The seal was then covered with rocks and soil and vegetated to prevent it being washed away. This is one of the first projects of its kind to be successfully carried out in the world. Uniquely, it is part of an integrated water management system. Kumba has already sealed about one kilometre of cracks over an area covering about 1 200 hectares, and even though the project is not yet finished, the Hlobane waterfall is again flowing – despite poor rains recently. Hlobane mountain was previously the source of four different water catchment areas, but the cracks induced by underground mining activity had disturbed this natural flow. Though some of the cracks were visible to the naked eye, many were not. The cracks were mapped using visual inspection, electro-magnetic and resistivity surveys and infra-red photo-imaging. Cracks were most prevalent above areas where whole seams were mined out, often creating instability in overhanging rocks. This type of mining seldom occurs today, and has been superseded by other mining methods that do not cause geological instability. The project has attracted interest from water management experts around the world, and Kumba has been asked to share the experience at various conferences. This year, Kumba plans to continue plugging the remaining gaps, a process which is likely to be ongoing. The objective of the project is to keep A team sealing the cracks on Hlobane mountain as part of Kumba’s pioneering rehabilitation work near the now-closed Hlobane colliery. P A G E 90 K U M B A A N N U A L R E P O R T 2 0 0 4 Going beyond legal requirements to acknowledge stakeholders’ rights clean water clean, by minimising the exposure of Hlobane mountain’s water to pollutants. This objective has been achieved and will be monitored accordingly. South African law requires the minimisation or prevention of water pollution prior to the issue of a mine closure certificate. Kumba exceeded its legal requirements in its restorative work at Hlobane mountain, in line with its philosophy of sustainable development that involves actively caring for the environment and resources and acknowledging stakeholders’ rights to a safe and healthy natural environment. Selective mining is a common-sense approach to mining that seeks to recover as much ore from the ground as cleanly and efficiently as possible. The main elements for successful selective mining are: accurate geology and planning, disciplined blasting, loading and hauling and effective grade control and blending. In implementing selective mining at Thabazimbi, paradigms were challenged to maximise saleable product, as opposed to moving tons of by-product that could not be sold. Initiated in 2000, the mine had recorded notable successes by 2003: T H A B A Z I M B I T A K E S G O L D Due to its successful selective mining project, Thabazimbi iron ore mine received a prestigious gold award from South Africa’s National Productivity Institute (NPI) in 2004. • Yield rose from 78% to 89% and 87% respectively in 2001 and 2002, and in some cases over 90% • A vast improvement in constant bed-qualities was achieved • Valueless by-products, phosphate, alumina and potassium decreased Assistant foreman Andre Zimba with primary mining equipment at Thabazimbi. • In 2003, planned production was met in 11 out of 12 months – a vast improvement on the previous year when production ran on schedule twice • The mine was also able to build up necessary buffer stockpiles. S I S H E N ’ S R O L E I N C O M M U N I T Y A C K N O W L E D G E D Sishen’s successful and proactive approach to community development is being used as a case study by the Unisa Centre for Corporate Citizenship. Sishen, located just west of Kuruman in the Northern Cape, is home to approximately 3 200 mine-connected families. Kathu, the mine’s town, is part of a wider system of rural communities with a total population of nearly 30 000 people, mostly low-income rural farm labourers and subsistence farmers. The following edited extracts from the Unisa study highlight the importance of a multi-stakeholder approach to sustainable development. I T ’ S N O T A L W A Y S A B O U T B U D G E T Corporate citizenship is not unlike any other department in any other company. Most managers would be happier with bigger budgets to help them meet their targets, and the team at Sishen is no different. But this team proves that budget is not always the answer. Rather, finding resources available locally and linking these to market demand combined with creative management and the right intervention at the right time can often achieve a lot more than any additional spend could. The Sishen team has an ambitious agenda to meet with a relatively limited budget. For a company of this K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 91 Case studies continued Social investment built on relationships with key stakeholders nature, social investment is about more than development. It is about building relationships with key stakeholders, such as government and local communities, and mitigating risk. The company is required to align its projects with the development needs of the province, and the legislative requirements of the mining charter. The mine’s corporate citizenship manager also sits on various regional development forums, and its social investment plan needs to incorporate the requirements of the Kgalagadi District Municipality Mining Forum, the Gamagara Development Forum, the Kgamagara IDP Representative Forum and the development planning of the municipality. While ensuring that it is aligned with all these various levels of compliance, the mine has to ensure that its meets its obligations to the surrounding communities. While the development plans of the municipalities consider many aspects of development, the mine has concentrated its efforts on two of these – human development and training, and job creation. C O N N E C T I N G R E S O U R C E S A N D D E V E L O P I N G P A R T N E R S H I P S I N C R E A S E S C A P A C I T Y What is remarkable about Sishen’s project is the level of interconnected- ness of all its components, and the level of cooperation between the stakeholders. When the leather project required a larger tanning machine, Kgalagadi Charcoal required a new donkey cart or the Tshipi Training Centre required new buildings, students at the Tshipi Centre were trained, used and paid to complete this work. When the owners of the Butterfield project required training in baking and business management, this was offered at the Kathu Technical College with the support of Sishen. What is also evident is the value of strong well-managed partnerships in making things work. These partnerships in various projects exist with government at various levels, the communities and other parties such as Mintek which supports the jewellery project, the local hospital which supports the health learnership, the Institute of Leatherworks supporting the leather project, or the farmers who support the charcoal project. community a push start towards achieving their own economic liberation. While the money can initiate projects and remains there as a support, it is up to the community to make them work in the long term. Kumba and Sishen believe that the historical practice of handouts is over. Sishen continues to follow the progress of each of its projects and will provide support when required, but the true aim is for the mine to exit projects to achieve sustainable enterprises and individuals who are economically self-sufficient. C O M M U N I T Y T O A C C E P T R E S P O N S I B I L I T Y Each of the projects in education and training and enterprise development are designed to give people in the Details of the numerous individual projects initiated and supported by Kumba and its operations are available on www.kumbaresources.com. The Kgalagadi Charcoal project at Sishen. P A G E 92 K U M B A A N N U A L R E P O R T 2 0 0 4 R E P O R T S C O P E Contact person Reporting period Date of most recent report Hilton Atkinson +27 12 307 4843 hilton.atkinson@kumbaresources.com www.kumbaresources.com 1 July 2003 – 31 December 2004 Published September 2003 for financial year to 30 June 2003 Boundaries of report and any specific limitations on the scope Kumba’s non-financial reporting is currently limited to southern African operations. Significant changes in size, structure, ownership or products/services since previous report Basis for reporting on joint ventures, partially-owned subsidiaries, leased facilities, outsourced operations and other situations that can significantly affect comparability from period to period and/or between reporting organisations Explanation of the nature and effect of any restatements of information provided in earlier reports, reasons (eg change of base year/periods, measurement methods) In December 2003, Anglo American plc became the majority shareholder of Kumba, holding 66,62%. Kumba’s approach to sustainability reporting is well aligned with those adopted by Anglo American. Disclosed in the annual financial statements where applicable. Not applicable K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 93 A S S U R A N C E R E P O R T R E S P O N S I B I L I T Y O F T H E A S S U R A N C E P R O V I D E R Our responsibility is to express our conclusions based on our independent assurance engagement, performed in accordance with the International Standard on Assurance Engagements 3000 (Revised): Assurance engagements other than audits or reviews of historical financial information issued by the International Auditing and Assurance Standards Board. These standards require us to comply with ethical requirements and to plan and perform the assurance engagement to obtain reasonable or limited assurance expressed below, regarding the subject matter of the engagement. This engagement does not constitute an audit or review performed in accordance with International Standards on Auditing or International Standards on Review Engagements and consequently an audit or review opinion is not expressed. Any reference to the term “audit” contained elsewhere in the body of the Report does not relate to the assurance engagement performed by us. W O R K P E R F O R M E D A N D L I M I T A T I O N S The procedures selected depend on our judgement, including the assessment of the risks of material misstatement of the subject matter and purpose of our engagement. In making these assessments we have considered internal controls relevant to the company’s preparation and presentation of information in the Report, in order to design procedures appropriate for gathering sufficient evidence to determine that the following areas are not materially misstated or misleading: • The selected 2004 sustainability performance indicators at the selected site, together with the associated statements • The Report’s compliance with the “in accordance with” requirements of the (GRI) Guidelines. Our assessment of these internal controls is not for the purpose of expressing a conclusion on the effectiveness of the company’s internal controls. We believe that the evidence that we have obtained is sufficient and appropriate to provide a basis for our conclusions, expressed below, for each of the areas that were the subject of our assurance engagement. The subject matter, criteria and limitations for each aspect of the assurance engagement, the work performed and conclusions are detailed separately below. S E L E C T E D 2 0 0 4 S U S T A I N A B I L I T Y P E R F O R M A N C E I N D I C A T O R S The sustainability performance indicators selected by Kumba, in conjunction with KPMG, to be the subject of the assurance engagement were determined by considering Kumba’s key sustainability risks, identifying those sustainability indicators most relevant to management and stakeholder decision-making processes, and our experience of the associated sustainability reporting systems and processes. These indicators are collectively referred to as the “selected 2004 sustainability performance indicators”. • The 2004 sustainability performance indicator selected for purposes of expressing reasonable assurance was: total fatalities. • The 2004 sustainability performance indicators selected for purposes of expressing limited assurance were: lost-day injury frequency rate (LDIFR); total new cases of occupational disease (“suspected”); water used for primary activities; total electricity consumed; total diesel consumed; and total value of HDSA procurement. Independent assurance report to the Directors of Kumba Resources on the sustainability sections of the Annual Report for 2004 I N T R O D U C T I O N We have performed our assurance engagement of Kumba Resources’ sustainability sections of the Annual Report (the Report) set out on p73 to p100 in the 2004 Annual Report, with respect to the following areas: • Selected 2004 sustainability performance indicators at selected sites for the 18-month period from 1 July 2003 to 31 December 2004 • Whether the Report complies with the ‘in accordance with’ requirements of the 2002 Global Reporting Initiative (GRI) Sustainability Reporting Guidelines (the Guidelines). R E S P O N S I B I L I T I E S O F D I R E C T O R S The Directors of Kumba Resources are responsible for the preparation and presentation of the Report for 2004 and the information and assessments contained within it; for determining the company and the group’s objectives in respect of sustainability performance and development of appropriate sustainability indicators. This responsibility includes designing, implementing and maintaining appropriate performance management and internal control systems to record, monitor and improve the accuracy, completeness and reliability of financial, operational, safety, health, environmental and social management information from which the reported information is derived. P A G E 94 K U M B A A N N U A L R E P O R T 2 0 0 4 There are no generally accepted standards for reporting sustainability performance information. Kumba has developed its own set of Safety, Health and Environment (SHE) Reporting Guidelines for reporting sustainability performance indicators. The reliability of sustainability performance indicators is subject to inherent limitations given their nature and methods for determining, calculating or estimating such data. No assurance is expressed in relation to the remaining sustainability performance indicators not covered by our work performed, or at sites not visited during our assurance engagement. In addition to the internally developed Kumba SHE Reporting Guidelines, the GRI Guidelines relating to accuracy and consistency of information were used as the criteria for assessing the selected sustainability performance indicators. Our work performed with respect to the selected 2004 sustainability performance indicators consisted of: • Conducting three site visits (Sishen mine, Grootegeluk mine and Zincor refinery) to review the selected 2004 sustainability performance indicator management systems and the associated reliability of the selected 2004 sustainability performance indicators. These three sites are collectively referred to as “the selected sites” • Assessing the systems and processes the selected sites have in place to meet the requirements of Kumba’s SHE Reporting Guidelines to generate, aggregate and report the selected 2004 sustainability performance indicators at the selected sites • Conducting interviews with management at head office to further investigate the accuracy and consistency of the sustainability performance data, including systems and controls • Reviewing the consistency between the selected 2004 sustainability performance indicators and associated statements in the Report, in light of the findings from the site visits and the analytical review. We believe that our work performed provides an appropriate basis for our conclusion. In our opinion, except for the limitations indicated above, and based on our work described above, total fatalities for the 18-month period ending 31 December 2004 at the three sites reviewed, is fairly stated based on Kumba’s SHE Reporting Guidelines. We draw attention to p76 and p86 (respectively) of the Report regarding material inaccuracies affecting the reporting of LDIFR and HDSA Procurement information, arising from incorrect interpretations of definitions applied at the selected sites. Except for the limitations indicated above, and based on our work described above, and subject to the effect of any changes that might have been necessary to the LDIFR and HDSA Procurement information arising from the matter reported in the preceding paragraph, nothing has come to our attention that causes us to believe that the information included in the Report regarding the following performance indicators: total new cases of occupational disease (“suspected”); water used for primary activities; total electricity consumed; and total diesel consumed for the 18-month period ending 31 December 2004 at the selected sites is materially misstated based on Kumba sustainability internal reporting guidance. C O M P L I A N C E W I T H T H E 2 0 0 2 G R I G U I D E L I N E S Our assurance engagement was to determine whether the Report complies with the “in accordance with” requirements of the 2002 GRI Guidelines. Our work performed consisted of: • Conducting a review of the Report • Considering whether the Report has met the requirements for stating that it is “in accordance with” the 2002 GRI Guidelines, namely that: – Kumba adequately reports on the 44 numbered elements in Sections 1 to 3 of Part C of the GRI Guidelines – The Report includes a GRI Content Index – A response has been given to each core indicator in Section 5 of Part C of the GRI Guidelines – The Report is consistent with the principles in Part B of the GRI Guidelines – The Report includes a GRI “in accordance with” statement signed by either the board or CEO. We believe that our assurance engagement provides an appropriate basis for our conclusion. In our opinion, based on the work performed, the Report demonstrates progress toward compliance with the ‘in accordance with’ requirements of the 2002 GRI Guidelines, but does not fully meet these requirements. KPMG Services (Pty) Limited Johannesburg 4 March 2005 K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 95 I N D E X T O G L O B A L R E P O R T I N G I N I T I A T I V E I N D I C A T O R S GRI ELEMENT TOPIC Vision and strategy FY2003 FY2004 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 3.9 (cid:51) (cid:54) 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 Identification of stakeholders (cid:54) √ √ √ √ √ √ √ √ √ √ (cid:54) √ (cid:54) (cid:54) √ √ n/a n/a √ n/a √ √ web √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ n/a n/a √ √ √ √ √ √ √ √ √ √ √ √ √ √ 15 IFC OFC 1, 2 1 1 Fold-out 3 2 2 4/5 93 93 93 93 93 93 93 n/a 74, 75, 77, 83 47, 75 – 80, 82 – 88 52 – 54, 60 – 65, 77 15, 61, 94 web 60 60 60 60 64 56 74, 75, 82, 84 65 4, 5 sufficient disclosure partial disclosure n/a not applicable na not available P A G E 96 K U M B A A N N U A L R E P O R T 2 0 0 4 GRI ELEMENT TOPIC FY2003 FY2004 3.10 3.11 3.12 3.13 3.14 3.15 3.16 3.17 3.18 3.19 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 Index Performance indicators Economic EC1 EC2 EC3 EC4 EC11 EC5 EC6 EC7 EC8 EC9 EC10 EC12 EC13 Customers Net sales 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 (cid:51) (cid:54) sufficient disclosure partial disclosure n/a not applicable na not available x x x n/a √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ zero √ n/a n/a (cid:54) (cid:54) (cid:54) √ √ √ (cid:54) (cid:54) (cid:54) √ √ √ √ √ √ √ √ √ (cid:54) √ √ √ √ √ √ √ √ √ na √ 4, 5 4, 5 4, 5 66 14, 85, 94 87 88 5 77 42 6, 13 85 83 – 86 94, 104 62, 64 60, 75 Fold-out, 6 34, 74 54, 74, 84 74 74 74, 82 74 74 74 74 74 8 – 16 K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 97 Index to Global Reporting Initiative indicators continued GRI ELEMENT 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 Social LA1 LA2 LA12 TOPIC FY2003 FY2004 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 Employment Breakdown of workforce Net job creation and average turnover segmented by region/country Employee benefits beyond legal mandate √ na √ na na √ na √ na na na na na √ na na na na na √ na na na na na na na √ na na na na na na na √ (cid:54) n/a √ na √ na na √ na √ (cid:54) (cid:54) na (cid:54) na √ (cid:54) (cid:54) (cid:54) (cid:54) na √ na na (cid:54) na na (cid:54) na (cid:54) na na na na nil na na √ (cid:54) √ 79 80 79 80 78 78 78 78 78 78 78 77 78 78 78 75 82 82 84 (cid:51) (cid:54) sufficient disclosure partial disclosure n/a not applicable na not available P A G E 98 K U M B A A N N U A L R E P O R T 2 0 0 4 GRI ELEMENT LA3 LA4 LA13 LA5 LA6 LA7 LA8 LA14 LA15 LA9 LA16 LA17 LA10 LA11 HR1 HR2 HR3 HR8 HR4 HR5 HR6 HR7 HR9 HR10 (cid:51) (cid:54) sufficient disclosure partial disclosure FY2003 √ √ √ √ √ √ √ √ √ TOPIC 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 na Employee training on human rights in operations √ 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 √ √ √ na √ √ √ √ √ √ √ √ √ n/a not applicable na not available FY2004 √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ na √ √ √ √ √ √ √ 84 84 84 77 84 76 78 84 84 84, 85 84, 85 84, 85 84, 85 82 84 84 84 84 84 84 84 84 84 K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 99 Index to Global Reporting Initiative indicators continued GRI ELEMENT HR11 TOPIC Security practices Human rights training for security personnel HR12 HR13 HR14 SO1 SO4 SO2 SO3 SO5 SO6 SO7 PR1 PR2 PR7 PR8 PR9 PR10 PR3 PR11 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 (cid:51) (cid:54) sufficient disclosure partial disclosure n/a not applicable na not available FY2003 FY2004 √ √ √ na √ na √ √ n/a n/a √ n/a n/a n/a n/a √ n/a n/a n/a 84 87, 88 88 87, 88 11 64 88 88 64 √ √ √ na (cid:54) √ √ √ √ n/a √ n/a n/a n/a n/a na zero na zero P A G E 100 K U M B A A N N U A L R E P O R T 2 0 0 4 G R O U P C A S H V A L U E A D D E D S T A T E M E N T for the 18-months ended 31 December 2004 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 Provide shareholders with cash dividends Cash disbursed among stakeholders Cash retained in the group to maintain and develop operations NOTES TO THE GROUP 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 18-months ended 31 Dec 2004 Rm 12 535 18 (7 053) 5 500 Wealth created % Year ended 30 June 2003 Rm Wealth created % 7 136 49 (3 948) 100 3 237 100 46 10 11 9 76 24 2 646 310 578 361 3 895 1 605 310 1 169 19 21 1 519 985 416 1 401 48 6 10 7 71 29 1 513 312 349 283 2 457 780 312 883 10 11 1 216 596 345 941 Cash disbursed among stakeholders 2004 2003 68% Remunerate employees for services Remunerate employees 61% for services 8% Pay direct taxes to the state Pay direct taxes to 13% the state 15% Provide lenders with a return on borrowings Provide lenders with 14% return on borrowings 9% Provide shareholders with cash dividends Provide shareholders 12% with cash dividends K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 101 S U P P L E M E N T A R Y F I N A N C I A L I N F O R M A T I O N INCOME STATEMENTS for the periods ended 31 December 2004 Revenue Operating expenses Net operating profit Net financing costs Income from equity-accounted investments Profit before taxation Taxation Profit from ordinary activities Minority interest Net profit attributable to ordinary shareholders Attributable earnings per share (cents) – basic – diluted Weighted number of shares Diluted Dividend paid per share (cents) 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 – Net surplus on disposal of investment in joint venture and associates – Closure cost Taxation effect of adjustments Headline earnings Headline earnings per share (cents) – basic – diluted CASH FLOW STATEMENTS for the periods ended 31 December 2004 Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 12-months ended 6-months ended Unaudited Unaudited 31 Dec 2003 Rm 31 Dec 2004 Rm Unaudited 31 Dec 2004 Rm Restated Reviewed Unaudited 31 Dec 2003 Rm 30 June 2004 Rm 8 709 7 329 1 380 (271) (1) 1 108 (341) 767 (90) 677 226 224 300 302 125 677 (57) 10 (4) 19 109 1 35 (17) 773 258 256 7 591 6 615 976 (252) (41) 683 (148) 535 24 559 189 189 296 296 80 559 92 42 7 8 (66) (72) 7 577 195 195 4 374 3 608 4 333 3 720 3 891 3 416 766 (134) 9 641 (181) 460 (46) 414 138 137 300 302 90 414 (89) (3) (2) 12 113 (9) 436 145 144 613 (137) (10) 466 (160) 306 (44) 262 88 87 298 300 35 262 32 14 (2) 6 (4) 1 35 (8) 336 113 112 475 (130) (12) 333 (93) 240 25 265 90 90 296 296 20 265 92 16 (2) 1 (61) (73) 5 243 82 82 1 432 (924) (266) 242 1 015 1 257 1 272 (788) (436) 48 967 1 015 746 (382) (341) 23 1 235 1 258 685 (539) 74 220 1 015 1 235 176 (398) 273 51 964 1 015 P A G E 102 K U M B A A N N U A L R E P O R T 2 0 0 4 BALANCE SHEETS Assets Non-current assets Property, plant and equipment Biological assets Intangible assets Goodwill Investments in associates and joint ventures Deferred taxation Other 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 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 Shareholders for dividend Total current liabilities Total equity and liabilities Net debt Restated Audited Unaudited At 31 Dec 2003 Rm At 31 Dec 2004 Rm 8 473 31 71 (53) 96 63 285 8 966 1 348 1 397 1 258 4 003 8 315 34 95 (78) 129 63 375 8 933 1 442 1 310 1 014 3 766 12 969 12 699 2 812 (73) 2 614 5 353 1 110 6 463 2 331 609 425 1 042 4 407 1 061 836 182 20 2 761 162 2 092 5 015 1 227 6 242 2 324 476 209 899 3 908 1 138 1 268 123 20 2 099 2 549 12 969 12 699 1 909 2 578 K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 103 S E L E C T E D G R O U P F I N A N C I A L D A T A T R A N S L A T E D I N T O U S D O L L A R S 18-months ended 31 Dec 2004 US$ million 12-months ended 31 Dec 2004 US$ million 12-months ended 31 Dec 2003 US$ million Year ended 30 June 2003 US$ million 2 229 (1 901) 1 370 (1 153) 1 016 (886) INCOME STATEMENT Revenue Operating expenses Net operating profit Net financing costs Income from equity-accounted investments Profit before taxation Taxation Minority interest Net profit attributable to ordinary shareholders Attributable earnings per share (US cents) Headline earnings Headline earnings per share (US cents) BALANCE SHEET Assets Non-current assets Property, plant and equipment Biological assets 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 CASH FLOW STATEMENT Cash available from operations Proceeds on disposal of assets Investments – Acquisition of subsidiary – Acquisition of joint ventures and associates Capital expenditure Other Net cash inflow 328 (71) (2) 255 (77) (11) 167 56 180 60 1 499 5 13 (9) 17 11 50 222 486 2 294 947 196 412 367 148 224 2 294 338 284 42 (247) (28) 51 217 (43) 174 (54) (14) 106 36 122 41 225 8 (2) (139) (12) 80 827 (695) 132 (27) 105 (25) 80 27 87 30 1 105 4 13 (11) 16 21 37 130 361 130 (34) (5) 91 (20) 3 74 25 77 26 1 257 5 14 (12) 19 10 57 153 416 1 919 1 676 758 185 351 239 192 194 659 160 377 242 72 166 1 919 390 1 676 320 170 17 49 (16) (179) 24 65 86 5 41 (4) (154) (1) (27) The group statements on this page have been expressed in US dollars for information purposes. The average US dollar/rand for the 18 months to 31 December 2004 of US$1:R5,6534 (12 months to 31 December 2003 US$1:R9,0275) has been used to translate the income and cash flow statements, while the balance sheet has been translated at the closing rate (US$1:R5,6525 at 31 December 2004 and US$1:R7,425 at 31 December 2003). P A G E 104 K U M B A A N N U A L R E P O R T 2 0 0 4 D E F I N I T I O N S A T T R I B U T A B L E C A S H F L O W P E R O R D I N A R Y S H A R E 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. C A P I T A L E M P L O Y E D Total shareholders’ equity plus net debt minus non-current financial asset investments C A S H A N D C A S H E Q U I V A L E N T S Comprise cash on hand and current accounts in bank, net of bank overdrafts together with any highly liquid investments readily convertible to known amounts of cash and not subject to significant risk of changes in value C U R R E N T R A T I O Current assets divided by current liabilities D I V I D E N D C O V E R Headline earnings per ordinary share divided by dividends per ordinary share D I V I D E N D Y I E L D Dividends per ordinary share divided by the closing share price and the JSE Securities Exchange SA E A R N I N G S P E R O R D I N A R Y S H A R E – 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 recognising the taxation and minority impacts on these adjustments, divided by the weighted average number of ordinary shares in issue during the year F I N A N C I N G C O S T C O V E R – EBIT – net operating profit divided by net financing costs – EBITDA – net operating profit plus income from investments in associates and incorporated joint ventures as a percentage of average capital employed before depreciation, amortisation, impairment charges and net deficit/surplus on sale of investments and assets, divided by net financing costs H E A D L I N E E A R N I N G S Y I E L D Headline earnings per ordinary share divided by the closing share price on the JSE Securities Exchange SA I N V E S T E D C A P I T A L Total shareholders’ equity, interest- bearing debt, non-current provisions and net deferred taxation less cash and cash equivalents N E T A S S E T S Sum of non-current assets and current assets less all interest-free liabilities N E T D E B T T O E Q U I T Y R A T I O Interest-bearing debt less cash and cash equivalents as percentage of total shareholders’ equity N E T E Q U I T Y P E R O R D I N A R Y S H A R E Ordinary shareholders’ equity divided by the number of ordinary shares in issue at the year end N U M B E R O F Y E A R S T O R E P A Y I N T E R E S T- B E A R I N G D E B T Interest-bearing debt divided by cash flow from operating activities before dividends paid O P E R A T I N G M A R G I N Net operating profit as a percentage of revenue O P E R A T I N G P R O F I T P E R E M P L O Y E E Operating profit divided by the average number of employees during the year R E T U R N O N C A P I T A L E M P L O Y E D Net operating profit plus income from non-equity accounted investments R E T U R N O N O R D I N A R Y S H A R E H O L D E R S ’ E Q U I T Y – Attributable earnings Attributable earnings 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 R E T U R N O N I N V E S T E D C A P I T A L 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 invested capital R E T U R N O N N E T A S S E T S 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 net assets R E V E N U E P E R E M P L O Y E E Revenue divided by the average number of employees during the year T O T A L A S S E T T U R N O V E R Revenue divided by average total assets W E I G H T E D A V E R A G E N U M B E R O F S H A R E S I N I S S U E 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 K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 105 Financial index CONTENTS ANNEXURES 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 Page 107 107 108 109 111 116 117 118 119 121 122 1. Non-current interest-bearing borrowings 2. Investments in associates, joint ventures and other investments 3. Investments in subsidiaries 167 168 170 WWW.KUMBARESOURCES.COM P A G E 106 K U M B A A N N U A L R E P O R T 2 0 0 4 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 Financial Reporting Standards have been followed, applicable accounting policies have been used while prudent judgements and estimates have been made. In order for the directors to discharge their 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 coordinate 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 financial statements and maintaining accountability for assets and liabilities. the The directors have reviewed the group’s financial budgets with their underlying business plans for the period to 31 December 2005. 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 15 February 2005 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 p108. 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 period ended 31 December 2004, 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 15 February 2005 K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 107 Report of the independent auditors TO THE MEMBERS OF KUMBA RESOURCES LIMITED We have audited the financial statements and the group financial statements of Kumba Resources Limited, set out on p109 to p171 for the 18-month period ended 31 December 2004. 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 31 December 2004 and the results of their operations and cash flows for the period 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 in South Africa. Deloitte & Touche Registered Accountants and Auditors Chartered Accountants (SA) Sandton 15 February 2005 P A G E 108 K U M B A A N N U A L R E P O R T 2 0 0 4 Report of the directors The directors have pleasure in presenting the annual Kumba and its subsidiaries have passed no other special or financial statements for Kumba Resources Limited ordinary shareholders’ resolutions of material interest or of (“Kumba”) and the group for the 18-months ended substantive nature. 31 December 2004. CHANGE OF YEAR-END The group changed its year-end from 30 June to SHARE CAPITAL The total number of shares in issue increased during the period to 301 854 211. The increase can be summarised 31 December to be in line with the year-end of its majority as follows: shareholder, Anglo American plc and is consequently reporting on an 18-month period. Date of issue Number of shares 296 962 801 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. CORPORATE GOVERNANCE The board endorses the Code of Corporate Practice and Conduct as set out in the King II Report on Corporate Governance and has satisfied itself that Kumba has complied throughout the period in all material aspects with the King II Code. A detailed report can be found on p60 to p65. REGISTRATION DETAILS Kumba is a listed company on the JSE Securities Exchange South Africa. The company registration number is 2000/011076/06. The registered office is Roger Dyason Road, Pretoria West, Republic of South Africa, 0183. ACTIVITIES AND FINANCIAL RESULTS Detailed reports on the activities and performance of the group and the various divisions of the group are contained in the financial review on p22 to p31 and in the business operations review on p33 to p42. These reports are unaudited. PROPERTY, PLANT AND EQUIPMENT Capital expenditure for the period amounted to R1 396 million (30 June 2003: R1 386 million). Opening balance Issued in terms of the Management Share Option Scheme due to options exercised at prices ranging from R13,18 to R36,10 19 November 2003 4 891 410 301 854 211 SHAREHOLDERS An analysis of shareholders and shareholdings appears on p71 to p72 of the annual report. DIVIDEND PAYMENT Dividend number two Kumba paid a final dividend of R177 million on 29 September 2003 for the year ended June 2003. The STC amounted to R22 million. Dividend number three and four On 29 March 2004 and 13 September 2004 the company paid interim dividends of R60 million and R105 million respectively, the STC amounted to R8 million and R13 million. Dividend number five SHAREHOLDERS’ RESOLUTIONS At the third annual general meeting of shareholders, held on Final dividend number 5 of 90 cents per share has been declared in South African currency in respect of the period 19 November 2003, the following resolutions were passed: ended 31 December 2004. The dividend will be paid on – resolution to authorise the directors to allot and issue Monday, 14 March 2005 to shareholders recorded in the unissued ordinary shares required to be allotted pursuant books of the company at the close of business on 11 March to the share incentive scheme; 2005. To comply with the requirements of STRATE the last – resolution to authorise directors to issue unissued shares day to trade cum dividend will be Friday, 4 March 2005. The for cash; and shares commence trading ex dividend on Monday, 7 March – resolution to authorise Kumba to acquire its own shares. 2005 and the record date is Friday, 11 March 2005. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 109 Report of the directors continued 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. 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 (A$21 million) to a range of Australian and overseas financial institutions. The profit on the disposal has been reflected in the 2004 financial year. Kumba disposed of its interest in two bulk ore carriers with a carrying value of R27 million in September 2003 for a purchase consideration of R73 million. The carrying value of R27 million is post a R90 million impairment accounted for in the 2002 financial year. The financial result of the disposal has been adequately disclosed in the 2004 financial year (refer to note 8). The investment in Chifeng Kumba Hongye Zinc Corporation Limited was reclassified from a subsidiary to a joint venture arrangement and is consequently equity accounted. CHANGE IN ACCOUNTING POLICIES The accounting policies are consistent with those applied in the annual financial statements for the year ended 30 June 2003 except for the consolidation of the Management Share Trust, and biological assets (refer note 1 of the annual financial statements). SUBSEQUENT EVENTS The directors are not aware of any matter or circumstance arising since the end of the financial period, not otherwise dealt with in this report or in the group financial statements that would significantly affect the operations or the results of the group. DIRECTORATE AND SHAREHOLDINGS The names of the directors in office at the date of this report are set out on p58 and p59. During the period under review, the following directors were appointed: PM Baum WA Nairn PL Zim 17 February 2004 17 February 2004 17 February 2004 Mrs MLD Marole was re-elected as chairman of the board with effect from 1 November 2004. The following directors are required to retire by rotation in terms of clause 16.1 of the articles of association at the forthcoming annual general meeting: TL de Beer JJ Geldenhuys Dr D Konar At the forthcoming annual general meeting the directors mentioned above will retire and, being eligible, will offer themselves for re-election. COMPANY SECRETARY The company secretary is Marie Viljoen. The company secretary’s registered address is: Roger Dyason Road, Pretoria West 0183, Republic of South Africa PO Box 9229 Pretoria, 0001, Republic of South Africa INDEPENDENT AUDITORS Anglo American plc acquired a controlling interest in Kumba during December 2003. In line with current practice of appointing a single service provider for the statutory auditing of corporate groups, Kumba appointed Deloitte & Touche as its statutory auditors from 16 February 2004 to replace KPMG Inc. subsequent to their review of Kumba’s interim results for the period ended 31 December 2003. Deloitte & Touche will continue in office in accordance with section 270(2) of the Companies Act, 1973, of South Africa. P A G E 110 K U M B A A N N U A L R E P O R T 2 0 0 4 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 remuneration committee. REMUNERATION POLICY The human resources and remuneration committee has a clearly defined mandate from the board aimed at: – ensuring that the company’s chairman, directors and senior executives are fairly rewarded for their individual contributions to the company’s overall performance; and – ensuring that the company’s remuneration strategies and packages, including the incentive schemes, are related to SUMMARY OF REMUNERATION performance, are suitably competitive and give due regard to the interests of the shareholders and the financial and commercial health of the company. DIRECTORS’ SERVICE CONTRACTS All executive directors’ normal contracts are subject to six calendar months’ notice. Non-executive directors are not bound by service contracts. There are no restraints of trade associated with the contracts. Name FOR THE 18-MONTHS ENDED 31 DECEMBER 2004 Executive directors Dr CJ Fauconnier MJ Kilbride CF Meintjes DJ van Staden RG Wadley Basic salary Fees for services Per- formance bonus1 Benefit and allowance2 Retire- ment fund Medical fund contri- butions Gains on share scheme3 Other Total 3 251 761 1 799 401 1 777 820 1 760 764 1 623 352 352 292 213 825 192 761 199 653 203 669 872 890 1 040 905 486 172 641 224 779 890 248 793 216 692 232 020 229 731 18 456 22 712 24 764 22 764 – 1 450 612 1 180 505 3 268 325 1 775 103 4 055 3 206 3 101 3 107 3 127 4 499 454 4 779 454 3 881 815 6 127 857 4 614 872 Less gains on share scheme Total remuneration paid by Kumba Non-executive directors MLD Marole (Chairman) PM Baum4 BE Davison4 TL de Beer JJ Geldenhuys Dr D Konar AJ Morgan WA Nairn4 SA Nkosi CML Savage NS Segal F Titi5 PL Zim4 GS Gouws6 470 000 124 167 156 250 337 500 322 500 307 500 232 500 119 167 232 500 187 500 247 500 224 167 124 167 14 203 15 052 5 672 3 974 14 982 16 511 10 549 5 811 4 099 9 156 873 12 040 4 099 1 361 23 903 452 (7 674 545) 16 228 907 485 052 129 839 160 224 352 482 339 011 318 049 238 311 123 266 241 656 187 500 248 373 236 207 128 266 15 564 3 203 800 1. The performance bonus scheme was approved by the board. This incentive applies to all employees throughout the group. 2. Includes travel and entertainment allowances. 3. As set out on p114. 4. Fees paid to their respective employers and not to them as individuals. 5. Fees paid to respective employer during period 1 July 2003 to October 2003 (R33 333), thereafter paid directly to individual (R190 834). 6. Resigned during October 2003, fees and allowances paid to respective employer and not to the individual. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 111 Directors’ remuneration continued Basic salary Fees for services Per- formance bonus1 Benefit and allowance2 Retire- ment fund Medical fund contri- butions Gains on share scheme3 Other Total 1 801 817 1 080 404 1 026 742 1 044 872 1 034 908 193 894 125 117 111 393 115 120 119 658 524 914 421 005 309 971 336 563 400 984 123 356 110 027 114 377 119 179 10 296 10 296 10 296 10 296 121 344 10 450 2 541 371 7 145 1 767 323 6 887 1 696 660 6 633 1 627 861 6 947 1 681 676 Name FOR THE YEAR ENDED 30 JUNE 2003 Executive directors Dr CJ Fauconnier MJ Kilbride CF Meintjes DJ van Staden RG Wadley Less gains on share scheme Total remuneration paid by Kumba Non-executive directors MLD Marole (Chairman) TL de Beer JJ Geldenhuys GS Gouws4 Dr D Konar AJ Morgan SA Nkosi Prof NS Segal F Titi4 CML Savage 144 833 167 000 167 000 60 518 135 500 104 000 72 500 101 750 83 373 67 500 2 256 3 766 2 518 6 305 1 872 546 1 695 3 776 9 314 891 (121 344) 9 193 547 147 089 170 766 169 518 66 823 137 372 104 546 74 195 101 750 87 149 67 500 1 126 708 1. The performance bonus scheme was approved by the board. This incentive applies to all employees throughout the group. 2. Includes travel and entertainment allowances. 3. As set out on p114. 4. Fees paid to their respective employers and not to them as individuals. 5. Fees paid to respective employer during period 1 July 2003 to October 2003 (R33 333), thereafter paid directly to individual (R190 834). 6. Resigned during October 2003, fees and allowances paid to respective employer and not to the individual. Retirement amounts paid or receivable by executive directors are paid or received under defined contribution retirement funds. P A G E 112 K U M B A A N N U A L R E P O R T 2 0 0 4 DIRECTORS’ INTEREST IN KUMBA SHARES Director AT 31 DECEMBER 2004 Dr CJ Fauconnier MJ Kilbride CF Meintjes DJ van Staden RG Wadley MLD Marole (Chairman) TL de Beer JJ Geldenhuys GS Gouws Dr D Konar AJ Morgan WA Nairn SA Nkosi NS Segal F Titi AT 30 JUNE 2003 Dr CJ Fauconnier MJ Kilbride CF Meintjes DJ van Staden RG Wadley MLD Marole (Chairman) TL de Beer JJ Geldenhuys GS Gouws Dr D Konar AJ Morgan SA Nkosi Prof NS Segal F Titi Beneficial Non-beneficial Direct Indirect Direct Indirect 21 880 47 870 168 96 870 28 990 18 490 47 870 168 51 649 103 750 843 799 There has been no change to the interest of directors in share capital since the year-end. On 31 December 2004 no director had direct or indirect interests of more than 1% in the share capital of the company. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 113 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 31 December 2004 Exercise price R Exercisable period Proceeds if exercisable at 31 December 2004 R Pre-tax gain/(loss) if exercisable at 31 December 2004* R Options exercised during the year Exercise price R Sale price/ market price R Pre-tax gain R Date exercised Name FOR THE 18-MONTHS ENDED 31 DECEMBER 2004 Executive directors Dr CJ Fauconnier Total MJ Kilbride Total CF Meintjes Total DJ van Staden Total RG Wadley Total 307 520 65 440 92 880 465 840 35 840 151 320 40 710 50 750 278 620 20 490 24 890 135 640 35 220 48 040 264 280 37 080 141 350 35 630 49 730 263 790 209 280 39 020 44 380 292 680 28,05 35,00 41,50 18,74 28,05 35,00 41,50 18,50 18,74 28,05 35,00 41,50 2008/12/03 2009/11/01 2011/03/16 2010/07/25 2008/12/03 2009/11/01 2011/03/16 2009/01/04 2010/07/25 2008/12/03 2009/11/01 2011/03/16 13 530 880 2 879 360 4 086 720 20 496 960 1 576 960 6 658 080 1 791 240 2 233 000 12 259 280 901 560 1 095 160 5 968 160 1 549 680 2 113 760 11 628 320 18,74 2010/07/25 1 631 520 4 904 944 588 960 232 200 5 726 104 905 318 2 413 554 366 390 126 875 3 812 137 522 495 628 721 2 163 458 316 980 120 100 3 751 754 936 641 28,05 2008/12/03 6 219 400 2 254 533 35,00 41,50 2009/11/01 2011/03/16 28,05 35,00 41,50 2008/12/03 2009/11/01 2011/03/16 1 567 720 2 188 120 11 606 760 9 208 320 1 716 880 1 952 720 12 877 920 320 670 124 325 3 636 169 3 338 016 351 180 110 950 3 800 146 23 880 64 840 88 720 5 120 8 290 8 290 58 120 79 820 7 915 1 345 20 570 40 000 69 830 18,50 18,74 18,74 28,05 18,74 18,74 28,05 28,05 * It is presumed that directors will not exercise options which are out of the money. MANAGEMENT DEFERRED PURCHASE SHARE SCHEME – KUMBA SHARES Options held at 31 December 2004 Exercise price R Exercisable period Proceeds if exercisable at 31 December 2004 R Pre-tax gain/(loss) if exercisable at 31 December 2004 R Options exercised during the year Exercise price R FOR THE 18-MONTHS ENDED 31 DECEMBER 2004 Executive directors Dr CJ Fauconnier MJ Kilbride CF Meintjes DJ van Staden Total RG Wadley Total 16 780 5 120 20 000 15 000 16 510 10 000 27 030 88 540 982 60 908 61 890 11,75 18,50 10,00 10,00 10,00 11,75 11,75 8,42 8,42 18,74 28,05 37,10 37,10 438 437 586 802 2003/12/03 2003/12/03 41,80 44,45 41,80 37,30 42,00 41,80 41,80 42,00 Sale price/ market price R 37,10 41,80 35,50 35,51 35,52 35,50 36,20 37,20 37,10 2004/02/19 2004/04/28 2004/04/28 2003/12/09 2004/03/01 2004/03/01 2004/03/01 2004/03/01 1 025 239 119 296 213 136 191 167 537 610 1 061 209 184 103 31 016 282 838 558 000 1 055 956 Pre-tax gain R Date exercised 425 373 119 296 510 000 382 650 421 335 237 500 660 884 2 212 369 28 262 1 746 841 1 775 103 2003/12/09 2004/02/19 2003/12/18 2003/12/18 2003/12/18 2003/12/19 2003/12/19 2003/12/09 2003/12/09 P A G E 114 K U M B A A N N U A L R E P O R T 2 0 0 4 MANAGEMENT SHARE OPTION SCHEME Options held at year-end Exercise price R Exercisable period Name 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 Proceeds if exercisable at 30 June 2003 R Pre-tax gain/(loss) if exercisable at 30 June 2003* R 9 256 352 1 969 744 11 226 096 1 797 572 6 506 416 1 225 371 630 416 (320 656) 309 760 678 419 443 128 (199 479) 28,05 35,00 2008/03/12 2009/11/01 2010/07/25 2008/12/03 2009/11/01 18,74 28,05 35,00 18,50 18,74 28,05 35,00 18,74 28,05 35,00 9 529 359 922 068 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 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 which are out of the money. ** 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 Proceeds if exercisable at 30 June 2003 R Pre-tax gain/(loss) if exercisable at 30 June 2003 R Options exercised during the year Exercise price R Sale price/ market price R Pre-tax gain R Date exercised 16 780 5 120 51 510 37 030 88 540 61 890 11,75 18,50 10,00 11,75 2007/11/04 2009/01/04 2007/03/23 2007/11/04 505 078 154 112 307 913 59 392 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 Name FOR THE YEAR ENDED 30 JUNE 2003 Executive directors Dr CJ Fauconnier MJ Kilbride CF Meintjes DJ van Staden Total RG Wadley K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 115 Income statements for the 18-months ended 31 December 2004 REVENUE Operating expenses NET OPERATING PROFIT Interest income Interest expense Income from investments (Loss)/income from equity accounted investments PROFIT BEFORE TAXATION Taxation PROFIT FROM ORDINARY ACTIVITIES Minority interest NET PROFIT ATTRIBUTABLE TO ORDINARY SHAREHOLDERS ATTRIBUTABLE EARNINGS PER SHARE (CENTS) – basic (2003 as previously reported) – basic restated for June 2003 – diluted (2003 as previously reported) – diluted restated for June 2003 Dividend paid per share (cents) in respect of the previous financial year Dividend paid per share (cents) in respect of the first interim period Dividend paid per share (cents) in respect of the second interim period Final dividend declared per share (cents) in respect of this 18-month period 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/(profit) on disposal or scrapping of property, plant and equipment – Net surplus on disposal of investment in joint venture and associates – Closure cost Taxation effect of adjustments HEADLINE EARNINGS HEADLINE EARNINGS PER SHARE (CENTS) – basic (2003 as previously reported) – basic as restated for June 2003 – diluted (2003 as previously reported) – diluted restated for June 2003 Notes 4 5 6 6 7 16 9 10 11 8 16 15 16 5 5 5 10 GROUP COMPANY Restated Year ended 30 June 2003 Rm 18-months ended 31 Dec 2004 Rm Restated Year ended 30 June 2003 Rm 721 (689) 32 18 (290) 650 410 (51) 359 545 (446) 99 61 (243) 529 446 (29) 417 359 417 7 469 (6 280) 1 189 77 (321) 2 947 (229) 718 718 242 244 240 242 85 18-months ended 31 Dec 2004 Rm 12 599 (10 744) 1 855 47 (448) (13) 1 441 (434) 1 007 (65) 942 314 312 60 20 35 90 942 718 35 27 (6) 20 48 (72) 35 (12) 1 017 339 337 2 38 21 7 (3) 1 784 264 267 262 265 P A G E 116 K U M B A A N N U A L R E P O R T 2 0 0 4 Balance sheets at 31 December 2004 ASSETS Non-current assets Property, plant and equipment Biological assets 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 earnings 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 GROUP COMPANY At 31 Dec 2004 Rm Restated At 30 June 2003 Rm At 31 Dec 2004 Rm Restated At 30 June 2003 Rm Notes 12 13 14 15 16 17 25 18 19 20 21 22 23 24 25 26 22 24 8 473 31 71 (53) 96 63 285 8 205 29 98 (80) 118 154 272 8 966 8 796 1 348 1 397 1 258 4 003 1 346 1 333 964 3 643 45 38 31 4 461 21 54 4 612 68 126 194 93 4 158 20 32 4 341 78 156 234 12 969 12 439 4 806 4 575 2 812 (73) 2 614 5 353 1 110 6 463 2 331 609 425 1 042 4 407 1 061 836 182 20 2 099 2 647 230 2 018 4 895 1 191 6 086 2 801 388 355 1 055 4 599 1 095 537 94 28 1 754 12 969 12 439 1 909 2 374 2 812 116 166 3 094 2 680 113 151 2 944 3 094 2 944 1 112 1 032 15 5 1 127 1 037 216 368 1 585 4 806 1 354 145 446 3 594 4 575 1 322 K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 117 GROUP COMPANY 18-months ended 31 Dec 2004 Rm Restated Year ended 30 June 2003 Rm 18-months ended 31 Dec 2004 Rm Restated Year ended 30 June 2003 Rm Cash flow statements for the 18-months ended 31 December 2004 CASH FLOWS FROM OPERATING ACTIVITIES Cash retained from operations Income from equity accounted investments Income from investments Net financing costs Normal taxation paid Dividend paid CASH FLOWS FROM INVESTING ACTIVITIES Investment to maintain operations Investment to expand operations Proceeds from disposal of property, plant and equipment Proceeds from disposal of associate 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 INFLOW/(OUTFLOW) CASH FLOWS FROM FINANCING ACTIVITIES Non-current interest-bearing borrowings raised Non-current interest-bearing borrowings repaid Current interest-bearing borrowings raised/(repaid) Proceed 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 inflow as above Add: – Shares issued – Cash flows included above relating to non-interest-bearing debt – Loans (to)/from minority shareholders – Increase in net debt on acquisition of controlling interest in subsidiaries – 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 27.9 (INCREASE)/DECREASE IN NET DEBT Notes 27.1 27.2 27.3 27.4 27.5 27.6 27.7 27.8 27.9 (63) 2 614 18 (355) (311) (361) 1 605 (571) (825) 138 100 (96) 1 564 49 (240) (310) (283) 780 (264) (1 122) 44 (36) 366 (34) 28 (1 317) (1 018) 288 (238) 967 (1 139) 47 132 (1) 6 294 964 1 258 288 132 (1) (22) 101 (33) 465 2 094 (1 241) (425) 95 523 285 679 964 (238) 2 95 (891) (18) (11) (170) (1 231) (13) 650 (265) (54) (344) (26) (16) (68) 529 (182) (32) (252) (5) (14) 6 (159) (108) (4) (179) (205) 565 (445) (78) 133 175 (30) 156 126 (37) (153) (158) 379 (406) (27) (185) 341 156 P A G E 118 K U M B A A N N U A L R E P O R T 2 0 0 4 Group statement of changes in equity for the 18-months ended 31 December 2004 Non-distributable reserves Attributable reserves of equity accounted investments Rm Shares held by Share Trust Share capital Rm Share premium Rm Foreign currency translation Rm Financial instruments revaluation Rm Insurance reserve Rm Retained earnings Rm Total Rm 3 2 677 67 567 67 2 1 433 4 816 (35) (35) 4 4 3 2 677 (35) 67 567 67 2 1 437 4 785 (18) (414) (6) 77 (361) (19) (414) 1 (432) (42) 57 (21) 77 (76) 2 (38) (42) 57 56 718 (252) 3 2 76 718 (252) 3 38 (3) 2 018 4 895 3 5 OPENING BALANCE AS AT 1 JULY 2002 Prior year adjustments: (refer note 2) – consolidation of Management Share Trust – revaluation of biological assets Restated Net (losses)/gains not recognised in income statement1 Currency translation differences Financial instruments fair value movements recognised in equity – recognised in current year income – recognised in equity – fair value adjustment Realised in associate and joint venture Net profit1 Dividend paid Reduction in dividends paid to Management Share Trust Movement in shares issued to Management Share Trust Transfer of equity accounted earnings Transfer to insurance reserve Balance at 30 June 2003 3 2 677 (33) 11 153 61 K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 119 Group statement of changes in equity continued for the 18-months ended 31 December 2004 Non-distributable reserves Attributable reserves of equity accounted investments Rm Shares held by Share Trust Share capital Rm Share premium Rm Foreign currency translation Rm Financial instruments revaluation Rm Insurance reserve Rm Retained earnings Rm Total Rm 3 2 677 (33) 11 153 61 5 2 018 4 895 (22) (294) (13) 27 (302) (6) (257) (23) (286) (9) 9 51 (41) (15) (13) (16) 132 33 31 51 (56) (11) 942 (344) 2 132 33 18 942 (344) 2 (31) (5) (5) 3 2 809 20 (141) 48 2 614 5 353 BALANCE AT 30 JUNE 2003 Prior year adjustment Net (losses)/gains not recognised in income statement1 Currency translation differences Transfer from/to currency translation reserve Financial instruments fair value movements recognised in equity – recognised in current year income – recognised in equity – fair value adjustment Deferred taxation Realised in associate and joint venture Net profit1 Dividend paid2 Reduction in dividends paid to Management Share Trust Issue of share capital Movement in shares issued to Management Share Trust Transfer of equity accounted earnings Transfer from insurance reserve BALANCE AT 31 DECEMBER 2004 1. Total recognised gains and losses R640 million (2003: R357 million). 2. The company paid a dividend relating to the 2003 financial year of R177 million during September 2003, the STC applicable was R22 million. During March 2004 and September 2004 the company paid dividends of R60 million and R105 million respectively, the STC applicable was R8 million and R13 million. Note: Dividend declared after balance sheet date amounts to 90 cents per share. STC at 12,5% is payable on all distributions to shareholders (refer note 11). Foreign currency translation reserve The foreign currency translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign entities that are not integral to the operations of the group. Financial instruments revaluation reserve The financial instruments revaluation reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments where the hedged transaction has not yet occurred. Insurance reserve The insurance reserve represents the unrealised portion of commission receivable from re-insurers. P A G E 120 K U M B A A N N U A L R E P O R T 2 0 0 4 Company statement of changes in equity for the 18-months ended 31 December 2004 Share capital Rm Share premium Rm 3 2 677 OPENING BALANCE AS AT 1 JULY 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 Net (losses)/gains not recognised in income statement1 3 2 677 Currency translation differences Financial instruments fair value movements recognised in equity Realised in joint venture Net profit1 Dividend paid2 Issue of share capital 132 Non-distributable reserves Foreign currency translation Rm Financial instruments revaluation Rm 131 (11) (11) 120 (2) (2) (7) (7) (7) 5 5 Retained earnings Rm (21) 7 7 417 (252) 151 359 (344) Total Rm 2 790 (11) (11) (7) 7 417 (252) 2 944 3 (2) 5 359 (344) 132 BALANCE AT 31 DECEMBER 2004 3 2 809 118 (2) 166 3 094 1. Total recognised gains and losses R362 million (2003: R406 million) 2. The company paid a dividend relating to the 2003 financial year of R177 million during September 2003, the STC applicable was R22 million. During March 2004 and September 2004 the company paid dividends of R60 million and R105 million respectively, the STC applicable was R8 million and R13 million. Note: Dividend declared after balance sheet date amounts to 90 cents per share. Secondary Tax on Companies (“STC”) at 12,5% is payable on all distributions to shareholders. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 121 Notes to the annual financial statements for the 18-months ended 31 December 2004 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 Financial Reporting Standards effective financial for statements are prepared on the historical cost basis modified by the restatement of financial instruments and biological assets to fair value. financial year. The the group’s Where comparative financial information is reported, the accounting policies have been applied consistently for all periods. Changes in accounting policy are set out in note 2. 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. group The results of subsidiaries are included for the duration of the period in which the group exercises control over the subsidiary. All inter-company transactions and resulting profits and losses between the 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 within the group. companies eliminated are 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 amortisation and accumulated impairment losses, if any. It represents the excess of the cost of an acquisition over the fair value of the group’s share of the identifiable net assets of that entity at the date of acquisition. Goodwill is amortised using the straight-line basis 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 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 the 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 of the period 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 are eliminated. Where necessary, the results of associates and joint ventures are restated to ensure consistency with group policies. 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 investments in associates and joint ventures are reduced to their recoverable amount where this is lower than their carrying amount. 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 P A G E 122 K U M B A A N N U A L R E P O R T 2 0 0 4 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 use of the asset. Moulds and depreciated based on the usage thereof. refractory furnace relines are The estimated maximum useful lives of items of property, plant and equipment are: Buildings and infrastructure (including residential buildings) Mineral properties Fixed plant and equipment Mobile equipment, built-in process computers, underground mining equipment and reconditionable spares Loose tools and computer equipment Development costs Refractory relines Site preparation, mining development and exploration 15 years 5 years 5 years 8 years 25 years 25 years 25 years 20 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. Direct 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. For a sale and leaseback transaction that results in a finance lease, any excess of sales proceeds over the carrying amount is deferred and recognised on the straight-line basis over the period of the lease. 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 the straight-line basis over the period of the lease. Biological assets Biological assets are measured on initial recognition and at each balance sheet date at their fair value less estimated point-of-sale costs and any change in value is included in the net profit or loss for the period in which it arises. Plantations are measured at their fair value less estimated point-of-sale costs. The fair value of the plantations is determined by an independent appraiser, based on the Faustman Formula as applied within the forestry industry. Livestock are measured at their fair value less estimated point-of-sale costs, fair value being determined by the age and size of the animals and market price. Market price is determined on the basis that the animal is sold to be slaughtered. Livestock held for sale is classified as consumable biological assets. Game is measured at their fair value less estimated point-of-sale costs, fair value being determined as market price. Market price is determined on the live auction selling prices. Game held for sale are classified as consumable biological assets. Intangible assets An intangible assets 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, licences 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 K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 123 Notes to the annual financial statements continued for the 18-months ended 31 December 2004 over the estimated useful life of the project or asset. The carrying amounts are reviewed at each balance sheet date to determine whether there is any indication of impairment. 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 the net selling price and the 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 assessments of the time value of money and the risks specific to the asset. An impairment loss is recognised whenever the carrying amount exceeds the recoverable amount. For an asset that does not generate cash inflows largely independent of those from other assets, 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 Stock 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 amortised 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 subsequently measured at fair value. If a financial liability is designated as a hedged item, it is subject to measurement under hedge accounting provisions. Derivative instruments Derivative instruments are measured at fair value. 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 they arise. – 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 losses from instruments, remeasuring cash flow hedging including cash flow hedges for forecast foreign currency denominated transactions and for interest rate swaps, are initially recognised directly in equity. Should the hedged firm commitment or forecast transaction result in the recognition of an asset or a liability, then the cumulative amount recognised in equity is adjusted against the initial measurement of the asset or liability. For other cash the cumulative amount recognised in equity is included in net profit or loss in the period when the commitment or forecast transaction affects profit or loss. flow hedges, – When a hedging instrument or hedge relationship is terminated but the hedged transaction is still expected to occur, the cumulative unrealised gain or loss at that point remains in equity and is recognised in accordance with the above policy when the transaction occurs. If the hedged transaction is no longer probable, the cumulative unrealised gain or loss recognised in equity is recognised in the income statement immediately. Offset Where a legally enforceable right of offset exists for recognised financial assets and financial liabilities, and there is an intention to settle the liability and realise the asset simultaneously, or to settle on a net basis, all related financial effects are offset. Inventories Inventories are valued at the lower of cost, determined on a moving average basis, and 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 charges. Fixed production overheads are allocated on the basis of normal capacity. Writedowns Writedowns to net realisable value and inventory losses are expensed in the period in which the write downs or losses occur. Foreign currencies Transactions and balances Transactions denominated in foreign currencies are translated at the rate of exchange ruling at the P A G E 124 K U M B A A N N U A L R E P O R T 2 0 0 4 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. Foreign entities The financial statements of foreign entities are translated into South African rand as follows: – assets and liabilities at rates of exchange ruling at balance sheet date; – income, expenditure and cash flow items at weighted average rates; and – goodwill and fair value adjustments arising on acquisition at rates of exchange ruling at balance sheet date. All resulting exchange differences are reflected as part of shareholders’ equity. On disposal, such translation differences are recognised in the income statement as part of the cumulative gain or loss on disposal. Foreign currency hedges Foreign currency hedges are dealt with in the financial instruments accounting policy. Revenue recognition Revenue, which excludes value added tax and sales between group companies, represents 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. 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 the accrual basis in accordance with the substance of the relevant agreements. 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 the 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 amount of the obligation. Where the effect of discounting to present value is material, provisions are adjusted to reflect the time value of money, and where appropriate, the risk specific to the liability. Environment and rehabilitation Provision is made 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. Expenditure on plant and equipment for pollution control is capitalised and depreciated over the useful lives of the assets whilst the cost of ongoing current programmes to prevent and control pollution and to rehabilitate the environment is charged against income as incurred. Annual contributions are made to the group’s Environmental Rehabilitation Trust Fund, created in accordance with statutory requirements, to provide for the funding of the estimated cost of pollution control and rehabilitation during, and at the end of, the life of mines. The Environmental Rehabilitation Trust Fund is consolidated. 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 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 Retirement The group provides defined benefit and defined contribution funds for the benefit of employees, the assets of which are held in separate funds. These funds are funded by payments from employees and the group, taking account of the recommendations of independent actuaries. The group’s contribution to the defined contribution fund is charged to the income statement in the year to which it relates. The defined benefit funds consist of pensioner members and an insignificant number of employee members and are closed to new entrants. The benefit costs and obligations are assessed using the projected unit credit method. Under this method, the cost of providing benefits is charged to the income statement so as to spread the regular cost over the service lives of employees in accordance with the advice of the actuaries who perform a statutory valuation of the plans every three years. Interim valuations are also performed on an annual basis. Valuations are performed on a date which does coincide with the balance sheet date. Consideration is given to any event that could impact the funds up to balance sheet date. The net surplus or deficit in the K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 125 Notes to the annual financial statements continued for the 18-months ended 31 December 2004 Discontinuing operations Discontinuing operations are significant, distinguishable components of an enterprise that have been sold, abandoned or are the subject of formal plans for disposal or discontinuance. The profit or loss on the sale or abandonment of a discontinuing operation is determined from the formalised discontinuance date. Segment reporting The primary business segments are iron ore, coal, heavy minerals, base metals, and industrial minerals. On a secondary segment basis, significant geographic marketing regions have been identified. The basis of segment reporting is representative of the internal structure used for management reporting. Cash and cash equivalents For the purpose of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held on call, and investments in money market instruments, net of bank overdrafts, all of which are available for use by the group unless otherwise stated. Comparatives The group has changed its year-end from 30 June to 31 December to be in line with the year-end of its shareholder, Anglo American plc. majority Consequently the amounts for corresponding items in the income statement, statement of changes in equity, cash flows and related notes are not comparable. Please refer to p102 to p103 where unaudited supplementary financial information is presented for comparative purposes. Where necessary, the June 2003 figures have been adjusted to conform with changes in presentation for the current period, as follows: – leave pay obligation has been reclassified as an accrual and is presented as part of trade and other payables at 31 December 2004. The leave pay benefit accrual was R212 million (2003: R146 million); – deferred taxation assets and liabilities have been reclassified to ensure better presentation; and – goodwill amortisation and impairment charges have been included in net operating profit on the face of the income statement and are disclosed in detail in the notes to the financial statements. Refer to note 2 relating to prior year adjustments and changes in accounting policy, to comparative figures. 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. 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 is recognised and provided for at balance sheet date, based on current total cost to company. long-term benefits Termination benefits Termination benefits are payable whenever an employee’s employment is terminated before the normal retirement date or whenever an employee accepts voluntary redundancy in exchange for these benefits. The group recognises termination benefits when it has demonstrated its commitment to either terminate the employment of current employees according to a detailed formal plan without possibility of withdrawal 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 sheet date, they are discounted to present value. Equity compensation benefits Senior management, including executive directors, has been granted share options. Grants are based on existing ordinary shares and can be purchased or the purchase can be deferred. The option or purchase price equals market price on the date preceding the date of the grant. When the options are exercised they can either be: – purchased and if vesting according to the rules of the scheme, recorded in share capital and share premium at the amount of the option price; or – 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. Dividend Dividends paid are recognised by the company when the shareholder’s right to receive payment is 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 notes to the financial statements. Secondary tax on companies (STC) Taxation costs incurred on dividends are included in the taxation line in the income statement in the year in which they are declared. P A G E 126 K U M B A A N N U A L R E P O R T 2 0 0 4 GROUP COMPANY 18-months ended 31 Dec 2004 Rm Restated Year ended 30 June 2003 Rm 18-months ended 31 Dec 2004 Rm Restated Year ended 30 June 2003 Rm 2. PRIOR YEAR ADJUSTMENTS/CHANGES IN ACCOUNTING POLICIES Consolidation of Kumba Management Share Trust Kumba operates the Kumba Management Share Trust for senior employees and executive directors of Kumba. The trust has been consolidated for the 18-month period. Prior years’ figures have been restated. The amounts of the adjustment for the current and previous 12-month period are as follows: Statement of changes in equity impact – Reduction of dividends paid to external parties Balance sheet impact – Share capital and premium increase/(decrease) – Retained income increase – Current liabilities increase – Trade and other receivables decrease Impact on weighted average number of shares Weighted average number of shares before this prior year adjustment Adjusted for shares held by Management Share Trust Weighted average number of shares after this prior year adjustment The consolidation has no taxation implications. There were no amounts attributable to the minorities. The amount of the adjustment relating to the 2002 financial statements is a decrease of R35 million in shareholders’ reserves, a decrease of R3 million in financial assets, a decrease of R24 million in trade and other receivables and an increase of R14 million in trade and other payables. Accounting for biological assets With effect 1 July 2003 the group has changed its accounting policy to comply with IAS 41 Agriculture. This resulted in the reclassification of certain inventories as biological assets and the fair value of plantations. Income statement impact – Fair value adjustment plantations Balance sheet impact – Retained income increase – Biological assets increase – Inventories decrease – Deferred taxation liabilities increase 2 33 5 13 17 301 (1) 300 3 (33) 3 8 22 297 (3) 294 1 5 31 24 2 4 29 23 2 The amount of the adjustment relating to the 2002 financial statements is an increase of R4 million in retained income, an increase of R25 million in biological assets, a decrease of R19 million in inventories and an increase of R2 million in deferred taxation liabilities. There were no amounts attributable to the minorities. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 127 Notes to the annual financial statements continued for the 18-months ended 31 December 2004 2. 3. PRIOR YEAR ADJUSTMENTS/CHANGES IN ACCOUNTING POLICIES (continued) Leave pay The leave pay obligation of R146 million for the group on 1 July 2003 has been reclassified as an accrual and is presented as part of trade and other payables. In terms of the group policy, employees are entitled to accumulate non-statutory vested leave benefits not taken within a leave cycle. GROUP COMPANY 18-months ended 31 Dec 2004 Rm Restated Year ended 30 June 2003 Rm 18-months ended 31 Dec 2004 Rm Restated Year ended 30 June 2003 Rm CLOSURE OF TICOR CHEMICALS PLANT On 21 April 2004 Ticor Limited announced its intention to discontinue its chemicals business, included in the heavy minerals segment. The revenue, operating results, assets, liabilities and cash flow of the chemicals business for the current and previous periods are: Revenue Expenses Provision for closure Provision for impairment Pre-tax loss Income tax expense Total assets Total external liabilities Cash inflows from operating activities In June 2004, a contract was signed for A$5 million for the sale of the plant, equipment and portion of the land owned by Ticor Chemicals. All proceeds from the sale have been received including A$0,5 million which was initially held in escrow until particular environmental releases had been obtained. Negotiations continue for the sale of the remaining land held by Ticor Chemicals. It is anticipated that an agreement will be reached for the sale early in the new calendar year. 217 192 35 89 (102) 28 76 6 50 254 258 (4) 5 240 100 37 4. REVENUE Sale of goods Services 12 599 7 469 12 599 7 469 12 709 721 8 537 545 P A G E 128 K U M B A A N N U A L R E P O R T 2 0 0 4 GROUP COMPANY 18-months ended 31 Dec 2004 Rm Restated Year ended 30 June 2003 Rm 18-months ended 31 Dec 2004 Rm Restated Year ended 30 June 2003 Rm Notes 2 475 1 224 2 408 35 243 1 830 1 783 1 081 35 (6) 508 969 8 (304) (296) (25) 10 744 8 942 1 798 (25) 35 (6) 10 744 1 54 8 117 673 4 112 8 35 (6) 35 11 33 228 1 340 1 128 1 155 1 237 768 2 21 237 529 3 (194) (154) (17) 6 280 5 016 1 258 (17) 2 21 6 280 30 6 60 376 5 52 3 2 21 8 4 89 8 15 12 14 8 15 12 12 12 12 12 12 12 14 8 15 37 297 5 27 253 2 9 51 6 8 (6) 689 644 (6) 51 689 1 7 51 12 92 57 187 1 14 160 1 20 4 5 (3) 446 449 (3) 446 1 4 30 5. 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 – Impairment charges – Goodwill amortisation – Energy – Depreciation on property, plant and equipment – Amortisation of intangible assets – Movement in inventories – Own work capitalised – Sublease received Cost by function – Costs of goods sold/services rendered – Selling and distribution costs – Sublease rent received – Impairment charges – Goodwill amortisation The above costs are stated after including: Depreciation and amortisation – buildings – mineral properties – residential buildings – buildings and infrastructure – machinery, plant and equipment – leased assets under finance leases – site preparation, mining development, exploration and rehabilitation – amortisation of intangible assets Impairment charges Goodwill amortisation Closure cost Reconditionable spares usage Research and development costs Consultancy fees K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 129 Notes to the annual financial statements continued for the 18-months ended 31 December 2004 GROUP COMPANY 18-months ended 31 Dec 2004 Rm Restated Year ended 30 June 2003 Rm 18-months ended 31 Dec 2004 Rm Restated Year ended 30 June 2003 Rm Notes 5. OPERATING EXPENSES (continued) Cost by function (continued) Operating lease rentals expenses – property – equipment Operating sublease rentals received – property – other Contingent rentals received Net deficit/(profit) on disposal or scrapping of property, plant and equipment Net profit on disposal of investment Auditors’ remuneration – audit fees – other services Fair value adjustment on financial assets – (gain)/loss Fair value adjustment on financial liabilities – loss Net realised losses on currency exchange differences Net unrealised (gains)/losses on currency exchange differences Net realised (gains)/losses on the revaluation of derivative instruments Net unrealised losses/(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 79 93 (25) (1) 48 (72) 12 1 (28) 5 210 (121) (173) 124 35 41 (17) (2) (3) 7 1 193 92 (144) (19) 28 31 (6) 2 4 13 5 20 (118) (22) 129 16 3 9 19 (3) (2) 5 3 35 13 1 (11) 9 1 Note Pensions Retirement amounts paid or receivable by executive directors are paid or received under defined contribution retirement funds. Operating lease arrangements – contingent rent received The basis to determine contingent rent received is 25% of all extraordinary maintenance of the building. P A G E 130 K U M B A A N N U A L R E P O R T 2 0 0 4 6. 7. 8. NET FINANCING COSTS Interest expense and loan costs Finance leases Interest income Interest received from joint ventures Net interest expense Interest adjustment on non-current provisions Financing costs of R176 million were capitalised during the year (2003: R32 million). Financing costs capitalised relate to funds specifically borrowed for the purposes of obtaining a qualifying asset. INCOME FROM INVESTMENTS Subsidiaries Unlisted shares – Dividends – Net interest received IMPAIRMENT CHARGES Included in operating expenses are the following impairment losses: Impairment of cyanide chemicals plant Impairment of fixed assets Reversal of impairment of shipping assets Reversal of impairment of other fixed assets Impairment of intangible assets Impairment of investments Impairment of associates Taxation effect Net effect on attributable earnings GROUP COMPANY 18-months ended 31 Dec 2004 Rm Restated Year ended 30 June 2003 Rm 18-months ended 31 Dec 2004 Rm Restated Year ended 30 June 2003 Rm 396 6 (41) (6) 355 46 401 309 8 (77) 240 4 244 283 (12) (6) 265 7 272 243 (61) 182 182 381 269 650 354 175 529 (89) (15) 90 1 (11) (10) (1) (35) (35) (2) (2) (2) (51) (51) (51) The chemicals plant was impaired on 31 December 2003 by an amount of R89 million. The decision was based on the sharp strengthening of the Australian dollar in December, a change in the supply/demand balance for sodium cyanide and aggressive pricing policies of competitors. An impairment of R26 million (R15 million fixed assets and R11 million intangible assets) was raised by ZnERGY (Pty) Limited, a zinc air fuel battery component manufacturer after its only supplier of raw materials, Zoxy (Pty) Limited, was put into liquidation. Kumba was the joint owner of two bulk ore carriers that were leased to Safore, a joint venture engaged in shipping operations. During 2002 the assets were impaired by an amount of R90 million based on the value in use. Kumba disposed of its interest in the carriers during the period under review for R73 million against a post-impairment book value of R27 million, and subsequently reversed the impairment. An impairment of R10 million was raised against a preference share investment in Rosh Pinah Mine Holdings (Pty) Limited, the investment was made in 2000 in a strong US$ and zinc price environment to facilitate a 5% empowerment interest in Rosh Pinah (Pty) Limited. The carrying amounts of certain other investments were greater than the market value and were impaired. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 131 Notes to the annual financial statements continued for the 18-months ended 31 December 2004 9. TAXATION Charge to income South African normal taxation – Current – current year – Deferred – current year – prior year Foreign normal taxation – Current – current year – prior year – Deferred – current year – prior year Share of associates’ and joint ventures’ taxation Secondary tax on companies Non-residents share withholding tax Total Reconciliation of taxation rates Taxation as a percentage of profit before taxation Taxation effect of – Assessed losses (not provided for)/not utilised – Capital (losses)/profits – Disallowable expenditure – 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 – Other – Secondary Tax on Companies – Withholding tax – Prior year adjustment GROUP COMPANY 18-months ended 31 Dec 2004 Rm Restated Year ended 30 June 2003 Rm 18-months ended 31 Dec 2004 Rm Restated Year ended 30 June 2003 Rm (323) 9 14 23 (48) 11 (37) (43) (2) (45) (7) (43) (2) (140) (29) (29) (11) (11) (5) (5) (10) (32) (2) (434) (229) % 30,13 % 24,14 (0,90) (0,49) (5,25) 8,94 0,21 (1,54) 0,40 (2,99) (0,15) 1,64 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) (15) 1 1 (6) 9 9 (37) (51) % 12,34 1,10 (2,27) 27,89 (32) (29) % 6,24 (0,01) (2,35) (0,26) 24,19 8,75 (9,06) 0,52 (7,08) Standard tax rate 30,00 30,00 30,00 30,00 Effective tax rate excluding (loss)/income from equity accounted investments, impairment charge and share of taxation thereon 28,70 23,10 P A G E 132 K U M B A A N N U A L R E P O R T 2 0 0 4 10. 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) Adjusted for the shares held by the Kumba Management Share Trust (million) Adjusted weighted average number of ordinary shares in issue (million) Headline earnings per share (cents) (restated for 2003) 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. Weighted average number of ordinary shares in issue (million) as calculated above 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) Diluted headline earnings per share restated for 2003 (cents) 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 restated for 2003 (cents) For the diluted attributable earnings per share the weighted average number of ordinary shares is adjusted as above. GROUP 18-months ended 31 Dec 2004 Rm Restated Year ended 30 June 2003 Rm 1 017 301 (1) 300 339 300 2 302 337 942 300 314 784 297 (3) 294 267 294 2 296 265 718 294 244 Diluted earnings per share (cents) 312 242 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. 11. DIVIDEND The company paid a final dividend for the June 2003 financial year of R177 million during September 2003, the STC applicable was R22 million. During March 2004 and September 2004 the company paid interim dividends of R60 million and R105 million respectively, the STC applicable was R8 million and R13 million. The directors have resolved to declare a final dividend of 90 cents per share, payable on Monday, 14 March 2005. This will give rise to STC of R34 million. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 133 Notes to the annual financial statements continued for the 18-months ended 31 December 2004 Site pre- paration, mining develop- ment, Land and Mineral buildings properties Rm Rm Residential Buildings Machinery, exploration Extensions and reha- under con- and infra- plant and struction bilitation structure equipment Rm Rm Rm land and buildings Rm Rm At end of period 141 1 023 (40) (23) 55 (264) 500 (35) 210 1 820 7 890 1 285 12. PROPERTY, PLANT AND EQUIPMENT Group 2004 Gross carrying amount At beginning of period Additions Non-cash flow additions Changes in decommissioning provision Disposals Exchange differences on translation Other movements 141 8 (4) (2) (2) Accumulated depreciation At beginning of period Depreciation charges Accumulated depreciation on disposals Exchange differences on translation Other movements At end of period Impairment of assets At beginning of period Impairment reversals Impairment charges Exchange differences on translation Net carrying amount at end of period 1 056 3 4 120 9 1 1 609 184 6 7 143 829 31 (13) (11) (349) 1 071 16 25 (2) 4 121 71 8 (9) 125 54 1 (1) (9) 422 117 (2) (9) 1 2 646 677 (213) (119) (6) 170 70 529 2 985 90 (90) 94 (5) 89 9 (1) 8 438 112 (10) 5 545 1 (1) Total Rm 11 998 1 396 258 (2) (409) (371) 12 870 3 702 969 (224) (148) 4 299 91 (91) 104 (6) 98 858 347 191 (32) (7) (767) 590 1 1 141 853 51 1 283 4 816 740 589 8 473 P A G E 134 K U M B A A N N U A L R E P O R T 2 0 0 4 Site pre- paration, mining develop- ment, Residential Buildings Machinery, exploration Extensions and reha- under con- and infra- plant and struction bilitation structure equipment Rm Rm Rm land and buildings Rm Rm Total Rm Land and Mineral buildings properties Rm Rm 12. PROPERTY, PLANT AND EQUIPMENT (continued) 2003 restated Gross carrying amount At beginning of year Additions Non-cash flow additions Acquisition of subsidiary Disposals Discontinuing operation Exchange differences on translation Other movements 107 21 685 6 20 (9) 357 (3) 126 1 3 (10) 1 029 165 3 187 (3) 4 662 660 24 1 427 (65) 676 37 24 311 (4) 975 497 103 44 8 260 1 386 155 2 349 (94) 1 1 7 4 5 223 (80) 515 9 18 (761) (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 Discontinuing operation Exchange differences on translation Other movements At end of year Impairment of assets At beginning of year Exchange differences on translation Net carrying amount at end of year 27 30 66 2 125 296 1 785 288 2 469 73 6 60 65 381 556 52 98 (8) (1) (41) (3) 2 (35) 3 71 422 2 646 438 80 10 90 1 1 529 785 (53) (28) 3 702 81 10 91 141 931 49 1 187 4 407 632 858 8 205 Included above are fully depreciated assets with an original cost of R799 million (2003: R491 million) which are still in use. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 135 Notes to the annual financial statements continued for the 18-months ended 31 December 2004 12. PROPERTY, PLANT AND EQUIPMENT (continued) The net carrying amount of machinery, plant and equipment includes: Assets held under finance leases (refer note 22) – cost – accumulated depreciation At 31 Dec At 30 June 2003 Rm 2004 Rm 55 6 49 101 12 89 For detail of property, plant and equipment pledged as security refer to annexure 1. The replacement value of assets for insurance purposes amounts to R19,7 billion (2003: R15,8 billion). A register of fixed property is available for inspection at the registered office of the company. Site pre- paration, mining develop- ment, Land and Mineral buildings properties Rm Rm Residential Buildings Machinery, exploration Extensions and reha- under con- and infra- plant and struction bilitation structure equipment Rm Rm Rm land and buildings Rm Rm Company 2004 Gross carrying amount At beginning of period Additions Disposals At end of period Accumulated depreciation At beginning of period Depreciation charges Accumulated depreciation on disposals At end of period Net carrying amount at end of period 13 13 6 1 7 6 41 2 (4) 39 25 7 (3) 29 10 15 14 29 Total Rm 69 16 (4) 81 31 8 (3) 36 29 45 P A G E 136 K U M B A A N N U A L R E P O R T 2 0 0 4 Site pre- paration, mining develop- ment, Residential Buildings Machinery, exploration Extensions and reha- under con- and infra- plant and struction bilitation structure equipment Rm Rm Rm land and buildings Rm Rm Land and Mineral buildings properties Rm Rm 6 (6) 12. PROPERTY, PLANT AND EQUIPMENT (continued) 2003 restated 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 Total Rm 70 14 (15) 69 31 5 (5) 31 15 38 Included above are fully depreciated assets with an original cost of R nil million (2003: R nil million) which are still in use. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 137 Notes to the annual financial statements continued for the 18-months ended 31 December 2004 13. BIOLOGICAL ASSETS Group 2004 Carrying amount At beginning of period Acquisitions Gains arising from changes attributable to physical changes and price changes Disposals Reclassification to inventory At end of period The plantation was valued by Mr JM Potgieter, an independent appraiser, on 9 December 2004. Group 2003 restated At beginning of year Acquisitions Revaluation of plantations Gains arising from changes attributable to physical changes and price changes Disposals Reclassification to inventory At end of year Plantations consist of wattle and blue gum trees. Livestock consists of cattle, sheep and goats. Plantation Rm Livestock Rm Game Rm Total Rm 6 1 (1) 6 1 6 (1) 6 7 5 (2) 10 5 3 (1) 7 16 1 (2) 15 13 3 2 (1) (1) 16 29 1 6 (2) (3) 31 18 4 6 5 (2) (2) 29 Game consists of rhino, buffalo, warthog, giraffe, ostrich and a large variety of antelope. P A G E 138 K U M B A A N N U A L R E P O R T 2 0 0 4 14. INTANGIBLE ASSETS Patents, licences and franchise Gross carrying amount At beginning of period Acquisition of subsidiary Exchange differences At end of period Accumulated amortisation At beginning of period Acquisition of subsidiary Amortisation charge Exchange differences At end of period Impairment charge Charge for the period Net carrying amount at end of year 15. GOODWILL Positive goodwill At beginning of period Amortisation charge At end of period Comprising: Cost Accumulated amortisation Negative goodwill* At beginning of period Acquisition of subsidiary Exchange differences Amortisation At end of period Comprising: Cost Accumulated amortisation GROUP COMPANY At 31 Dec 2004 Rm Restated At 30 June 2003 Rm At 31 Dec 2004 Rm Restated At 30 June 2003 Rm 117 (12) 105 19 8 (4) 23 11 71 117 117 16 3 19 98 23 (23) 243 243 243 243 (80) 21 6 (53) (61) 8 (53) (82) 2 (80) (82) 2 (80) * The negative goodwill arising during 2003 results from the acquisition of Ticor Limited and is amortised over 12,7 years. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 139 Notes to the annual financial statements continued for the 18-months ended 31 December 2004 16. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES Associated companies – Listed – Unlisted Joint ventures (unlisted) – Incorporated – Unincorporated Total GROUP COMPANY At 31 Dec 2004 Rm Restated At 30 June 2003 Rm At 31 Dec 2004 Rm Restated At 30 June 2003 Rm 6 1 7 82 7 89 96 100 1 101 10 7 17 118 24 24 7 7 31 86 86 7 7 93 Refer to annexure 2 for market and directors’ valuations of investments. ASSOCIATED COMPANIES JOINT VENTURES Investments At 31 Dec 2004 Rm Loans At 31 Dec 2004 Rm Total At 31 Dec 2004 Rm Investments At 31 Dec 2004 Rm Loans At 31 Dec 2004 Rm Total At 31 Dec 2004 Rm Group At beginning of period Reclassification of Hongye Reclassification as financial asset Additional interests acquired 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 amortisation* – Share of taxation (refer note 9) Dividends paid Exchange difference adjustments Impairment loss At end of year (refer Annexure 2) 62 15 (21) 5 (20) (27) (9) 1 6 39 (35) (2) (1) 1 101 (35) 15 (2) (21) 5 (20) (27) (9) 7 17 14 62 29 2 (18) (16) (1) 89 17 14 62 29 2 (18) (16) (1) 89 P A G E 140 K U M B A A N N U A L R E P O R T 2 0 0 4 ASSOCIATED COMPANIES JOINT VENTURES Loans Investments Total At 30 June At 30 June At 30 June At 30 June At 30 June At 30 June 2003 Rm Total Investments 2003 Rm 2003 Rm 2003 Rm 2003 Rm 2003 Rm Loans 16. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES (continued) Restated At beginning of year Additional interests acquired Acquisitioning 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 9) Dividends paid Exchange difference adjustments Share of reserve movements in the year Impairment loss At end of year (refer Annexure 2) 1 142 44 (966) (1) 32 (7) (38) (7) (33) (179) 77 (2) 62 13 28 (2) 39 1 155 44 (966) 28 (1) 32 (7) (38) (7) (33) (181) 77 (2) 101 29 29 15 (3) (16) (8) 17 15 (3) (16) (8) 17 * (Losses)/income from equity accounted investments as disclosed in the income statement, amounts to (R13 million) (2003: income R2 million). Aggregate post-acquisition reserves: – Associate companies – Joint ventures Total At 31 Dec 2004 Rm At 30 June 2003 Rm 2 18 20 3 8 11 K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 141 Notes to the annual financial statements continued for the 18-months ended 31 December 2004 16. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES (continued) Company At beginning of year Additional interests acquired Reclassification as financial asset Impairment loss At end of year (refer Annexure 2) ASSOCIATED COMPANIES JOINT VENTURES Investments At 31 Dec 2004 Rm Loans At 31 Dec 2004 Rm Total At 31 Dec 2004 Rm Investments At 31 Dec 2004 Rm Loans At 31 Dec 2004 Rm Total At 31 Dec 2004 Rm 51 24 (51) 24 35 (35) 86 24 (35) (51) 24 7 7 7 7 ASSOCIATED COMPANIES JOINT VENTURES Loans Investments Total At 30 June At 30 June At 30 June At 30 June At 30 June At 30 June 2003 Rm Total Investments 2003 Rm 2003 Rm 2003 Rm 2003 Rm 2003 Rm Loans At beginning of year Movement in indebtedness to/from associated companies/repayments At end of year (refer Annexure 2) 51 51 1 34 35 52 34 86 7 7 7 7 17. INVESTMENTS IN SUBSIDIARIES Shares at cost less impairment losses Indebtedness – by subsidiaries – to subsidiaries Total (refer Annexure 3) Aggregate attributable after tax profits and losses of subsidiaries: – Profits – Losses 18. FINANCIAL ASSETS Environmental Rehabilitation Trust Asset Long-term receivables Investments (refer Annexure 2) GROUP COMPANY At 31 Dec 2004 Rm Restated At 30 June 2003 Rm At 31 Dec 2004 Rm Restated At 30 June 2003 Rm 1 609 1 386 3 028 (176) 2 852 4 461 2 988 (216) 2 772 4 158 8 052 (5 042) 6 288 (4 246) 183 49 53 285 143 50 79 272 5 23 26 54 7 3 22 32 P A G E 142 K U M B A A N N U A L R E P O R T 2 0 0 4 19. INVENTORIES Finished products Work-in-progress Raw materials Plant spares and stores Merchandise Reclassification as biological assets Included above are inventories relating to the Ticor SA project which might be sold or utilised in production over more than twelve months. Included in merchandise are biological assets classified as inventories. Included in the above are inventories carried at net realisable value: Finished products Work-in-progress Raw materials Plant spares and stores Merchandise Inventory sold where delivery is delayed at the buyer’s request but the buyer takes title, amounted to R25 million (2003: R nil million). 20. TRADE AND OTHER RECEIVABLES Trade Other Derivative instruments GROUP COMPANY At 31 Dec 2004 Rm Restated At 30 June 2003 Rm At 31 Dec 2004 Rm Restated At 30 June 2003 Rm 365 603 131 240 9 377 602 131 227 32 (23) 1 348 1 346 90 274 35 9 408 13 2 31 32 78 1 150 156 91 1 397 1 071 234 28 1 333 2 46 20 68 2 63 13 78 K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 143 Notes to the annual financial statements continued for the 18-months ended 31 December 2004 21. SHARE CAPITAL Share capital at par value Authorised 500 000 000 ordinary shares of R0,01 each Issued 301 854 211 (2003: 296 962 801) ordinary shares of R0,01 each Share premium Shares held by Kumba Management Share Trust Total The Kumba Management Share Trust has been consolidated. Reconciliation of unissued authorised shares Number of unissued authorised ordinary shares at beginning of period (million) Number of shares issued during the period (million) Number of unissued authorised shares at end of period GROUP COMPANY At 31 Dec 2004 Rm Restated At 30 June 2003 Rm At 31 Dec 2004 Rm Restated At 30 June 2003 Rm 5 5 5 5 3 2 809 2 812 3 2 677 (33) 2 647 3 2 809 3 2 677 2 812 2 680 203 (5) 198 203 203 203 (5) 198 203 203 The following resolutions pertain to the unissued ordinary shares under the control of the directors until the forthcoming annual general meeting: 1. Subject to the provisions of the Companies Act 61 of 1973, as amended (“the Act”), and the requirements of the JSE Securities Exchange South Africa (“JSE”), the directors be and are hereby authorised to allot and issue at their discretion such number of the remaining authorised but unissued ordinary shares of one cent each in the capital of the company as may be required to be allotted and issued pursuant to the Share Incentive Scheme (“the Scheme”). 2. Directors are authorised to issue the unissued ordinary shares of one cent each in the capital of the company (after setting aside so many shares as may be required to be allotted and issued by the company pursuant to the Scheme) for cash, without restrictions to any public shareholder, as defined by the JSE Listings Requirements, as and when suitable opportunities arise, subject to the following conditions: – that this authority shall only be valid until the next annual general meeting of the company but shall not extend beyond 15 months from the date of this general meeting; – that 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 issues in aggregate in any 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 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 agreed by the directors of the company. 3. Directors are authorised to acquire from time to time shares issued by the company, provided that: – any such acquisition of shares shall be implemented on the JSE (the open market); – this approval will be valid only until the next annual general meeting of the company and will not extend beyond 15 months from the date of this general meeting and may be varied or revoked by special resolution by any general meeting of the company at any time prior to such annual general meeting; – an announcement will be published as soon as the company, or the subsidiaries respectively, has 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 be, of 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; – 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 – 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. The above authorities are valid until the next annual general meeting. P A G E 144 K U M B A A N N U A L R E P O R T 2 0 0 4 22. INTEREST-BEARING BORROWINGS Non-current borrowings Summary of loans by financial year of redemption 2003 2004 2005 2006 2007 2008 2009 onwards Total non-current borrowings (refer 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 (refer note 12). 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 23. OTHER LONG-TERM PAYABLES Other long-term payables: tied-mining operations Other long-term payables GROUP COMPANY At 31 Dec 2004 Rm Restated At 30 June 2003 Rm At 31 Dec 2004 Rm Restated At 30 June 2003 Rm 784 556 865 234 676 3 115 (784) 2 331 407 697 1 126 273 705 3 208 (407) 2 801 368 385 670 57 1 480 (368) 1 112 292 200 622 99 111 1 324 (292) 1 032 2 331 2 801 1 112 1 032 52 784 836 130 407 537 368 368 154 292 446 3 167 3 338 1 480 1 478 15 1 16 1 15 14 1 15 607 2 609 30 27 57 7 50 25 25 50 386 2 388 Ispat 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 mine as specified in the supply agreements. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 145 Notes to the annual financial statements continued for the 18-months ended 31 December 2004 24. PROVISIONS Group For the year ended 31 December 2004 At beginning of year Charge to income statement Additional provisions Unused amounts reversed Interest adjustment Provisions capitalised to property, plant and equipment Acquisition of subsidiary Utilised during year Exchange differences At end of year Current portion included in current liabilities Total non-current provisions For the year ended 30 June 2003 – Restated At beginning of year Charge to income statement Additional provisions Unused amounts reversed Interest adjustment Provisions capitalised to property, plant and equipment Acquisition of subsidiary Utilised during year Reclassification to trade and other payables At end of year Current portion included in current liabilities Total non-current provisions Environmental rehabilitation Rm Leave pay benefits Rm 362 55 55 46 (2) (21) (3) 437 (12) 425 286 20 20 4 15 39 (2) 362 (18) 344 110 39 41 (2) 27 (30) (146) Restructuring Rm 21 (13) 8 (8) 32 (11) 21 (10) 11 Total Rm 383 55 55 46 (2) (34) (3) 445 (20) 425 428 59 61 (2) 4 15 66 (43) (146) 383 (28) 355 P A G E 146 K U M B A A N N U A L R E P O R T 2 0 0 4 Environmental rehabilitation Rm Leave pay benefits Rm Restructuring Rm Total Rm 24. PROVISIONS (continued) Company For the year ended 31 December 2004 At beginning of year Charge to income statement Additional provisions Unused amounts reversed Interest adjustment Utilised during year At end of year Current portion included in current liabilities Total non-current provisions For the year ended 30 June 2003 – Restated At beginning of year Charge to income statement Additional provisions Unused amounts reversed Interest adjustment Utilised during year Reclassification of leave pay benefits At end of year Current portion included in current liabilities Total non-current provisions 5 3 3 7 15 15 1 4 4 5 5 24 10 11 (1) (9) (25) 5 3 3 7 15 15 25 14 15 (1) (9) (25) 5 5 Environmental rehabilitation Provision is made 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 R190 million (2003: R143 million) at period 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 The leave pay obligation has been reclassified as an accrual and is presented as part of trade and other payables. In terms of the group policy, employees are entitled to accumulate non-statutory 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 restructuring will be completed within the next two years. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 147 Notes to the annual financial statements continued for the 18-months ended 31 December 2004 GROUP COMPANY At 31 Dec 2004 Rm Restated At 30 June 2003 Rm At 31 Dec 2004 Rm Restated At 30 June 2003 Rm 25. DEFERRED TAXATION The movement on the deferred taxation account is as follows: At beginning of period Acquisition of subsidiary Non-distributable reserve charge Prior year adjustments Income statement charge – current (refer note 9) At end of period – prior Comprising: Deferred taxation liabilities – Property, plant and equipment – Foreign taxation to be set-off for group tax entity – Foreign taxation losses carried forward – Inventories – Leave pay accrual – Provisions – Adjustment on foreign loan – Environmental rehabilitation asset – Prepayments – Unrealised profits – Bad debt revaluation – Assessed losses Deferred taxation assets – Provisions – Property, plant and equipment – Environmental rehabilitation asset – Inventories – Bad debt revaluation – Leave pay accrual – Prepayments – Taxation losses carried forward – Foreign taxation losses carried forward – Foreign taxation losses to be set-off for group tax entity 901 56 34 (12) 979 1 158 (102) (26) 20 (41) (56) 41 34 2 24 (12) 781 49 35 2 34 901 1 248 (147) 19 (34) (53) (1) 20 10 1 (2) (6) 1 042 1 055 (42) 186 5 (1) (14) 2 (221) (80) 102 (63) 979 (10) 199 3 (1) (1) (10) 7 (242) (246) 147 (154) 901 Calculated taxation losses Available for offset against future South African taxable income included above 777 827 (20) (11) (1) (9) (21) (20) (4) (7) 2 (1) (11) (21) (21) (5) (5) 2 (1) (8) 8 (11) (20) (20) 37 The deferred taxation assets raised with regard to assessed losses amount to R339 million, and is mainly attributable to the ramp-up phase of the heavy minerals project. P A G E 148 K U M B A A N N U A L R E P O R T 2 0 0 4 26. TRADE AND OTHER PAYABLES Trade Other Leave pay accrual Derivative instruments At 31 Dec 2004 Rm 453 378 212 18 GROUP COMPANY Restated At 30 June 2003 Rm At 31 Dec 2004 Rm Restated At 30 June 2003 Rm 533 399 146 17 15 149 37 15 216 25 77 37 6 145 18-months Restated ended Year ended 30 June 2003 Rm 31 Dec 2004 Rm 1 061 1 095 18-months Restated ended Year ended 30 June 2003 Rm 31 Dec 2004 Rm 27. 27.1 NOTES TO THE CASH FLOW STATEMENT Cash retained from operations Net operating income/(loss) Adjusted for non-cash movements – Prior year adjustment – Depreciation – Impairment charges – Goodwill amortisation – Provisions – Foreign exchange revaluations and fair value adjustments – Reconditionable spares usage` – Net deficit on disposal or scrapping of property, plant and equipment – Net deficit on disposal of investments Working capital movements – Increase in inventories – (Increase)/decrease in trade and other receivables – Decrease/(increase) in non-current financial assets – Increase/(decrease) in trade and other payables – Utilisation of provisions (refer note 24) 27.2 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 27.3 Net financing costs Net financing costs as per income statement Financing costs not involving cash flow (refer note 24) 27.4 Normal taxation paid Amounts unpaid at beginning of year Prior year adjustment Adjusted opening balance Amounts charged to the income statements Arising on translation of foreign entities Amounts unpaid at end of year 1 855 1 189 4 933 35 (6) 55 (19) 11 37 (72) (42) (269) (23) 149 (34) 523 21 2 59 72 8 (12) (108) 18 32 (212) (28) 32 8 51 3 4 2 (84) (120) 21 70 2 614 1 564 (13) (13) 18 13 18 (401) 46 (355) (94) 2 (92) (410) 10 181 (311) 2 49 (2) 49 (244) 4 (240) (223) (223) (183) 2 94 (310) (272) 7 (265) (3) (3) (52) 1 (54) 99 5 14 2 5 (127) 44 17 (118) (9) (68) (182) (182) 3 3 (38) 3 (32) K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 149 Notes to the annual financial statements continued for the 18-months ended 31 December 2004 NOTES TO THE CASH FLOW STATEMENT (continued) 27. 27.5 Dividend 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 27.6 Investments to maintain operations Replacement of property, plant and equipment Reconditional spares 27.7 Investments to expand operations Expansion and new technology 27.8 Investment in other non-current assets Increase in associates, joint ventures and other investments Increase in investments in subsidiaries 27.9 Foreign currency translation reserve At beginning of year Closing balance Movement Transfers (to)/from NDR Unrealised profits/(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 – intangible assets – proceeds from investments sold – investments acquired – long-term loans – short-term loans GROUP COMPANY At 31 Dec 2004 Rm Restated At 30 June 2003 Rm At 31 Dec 2004 Rm Restated At 30 June 2003 Rm (342) (19) (249) (34) (344) (252) (361) (283) (344) (252) (526) (45) (571) (825) (825) (93) (3) (96) 169 (121) (290) (4) 14 (217) (434) (41) (117) (15) 101 6 10 (1) (215) (9) (120) (35) 2 (63) (234) (30) (264) (1 122) (1 122) (36) (36) 636 169 (467) 107 (55) (21) (464) (17) (110) (18) 128 2 3 (71) (211) (172) 2 28 (16) (16) (14) (14) (20) (139) (159) 120 118 (2) (2) 1 1 (34) (74) (108) 131 120 (11) (7) (26) 7 1 (4) (37) P A G E 150 K U M B A A N N U A L R E P O R T 2 0 0 4 28. FINANCIAL INSTRUMENTS The centralised corporate treasury function (other than Ticor Limited which operates on a decentralised basis, but within the approved group policies) provides services to all the businesses in the group, coordinates 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 they report to the board audit committee. 28.1 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. The group maintains a fully covered exchange rate position in respect of foreign currency borrowings and imported capital equipment resulting in these exposures being fully converted to rand. Trade-related import exposures are managed through the use of natural hedges arising from export revenue as well as through FECs. Trade-related export exposures are hedged using FECs and currency options with specific focus on short-term receivables. In respect of a US$105 million loan liability of Ticor Limited, a natural hedge exists between US$ revenue and US$ borrowings. Accordingly, future sales proceeds to be applied to the repayment of US$ borrowings are recorded at the historical exchange rate effective at the date of loan draw down. Material FECs and currency options, which relate either to specific balance sheet items or do not form part of a hedging relationship at 31 December 2004 and 30 June 2003, are summarised as follows: Foreign currency 2004 Exports United States dollar – FECs Attributable to minorities Loans United States dollar1 Imports United States dollar – FECs Euro – FECs Australian dollars – FECs Foreign currency 2003 Exports United States dollar – FECs Foreign amount Market- related value Rm Recognised fair value gains/ (losses) Rm Contract value Rm 37 209 255 46 (18) 100 566 681 (115) 1 1 1 3 9 6 3 9 7 (1) 68 516 530 14 1. Kumba entered into a syndicated loan of US$150 million, of which US$100 million was drawn down at 31 December 2004. The fair value profit of R115 million of the liability has been accounted for in foreign exchange profit. The amount drawn down has been hedged by entering into a cross currency swap. The fair value of the cross currency swap is included in the table above. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 151 Notes to the annual financial statements continued for the 18-months ended 31 December 2004 Foreign amount Market- related value Rm Recognised fair value gains/ (losses) Rm Contract value Rm 28. 28.1 FINANCIAL INSTRUMENTS (continued) 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 for which the proceeds are not yet receivable. Details of the contracts at 31 December 2004 and 30 June 2003, are as follows: Foreign currency 2004 Exports1 United States dollar – FECs United States dollar – Put options United States dollar – Call options Attributable to minorities Taxation on items charged directly to equity Imports United States dollar – FECs Euro – FECs Note: unrealised exchange gains or losses amounting to R41 million (30 June 2003: 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 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 Swedish krona – FECs German mark – FECs Danish krone – FECs Australian dollars – FECs Great Britain pounds – FECs 8 7 7 3 88 14 5 16 8 6 7 43 40 40 18 3 653 104 41 117 66 1 8 1 48 50 50 20 3 701 112 37 128 72 9 1 5 10 10 (12) (7) (2) 48 8 (27) 4 (11) (6) 1 (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. Uncovered debtors at 31 December 2004 amount to US$62 million. All capital imports were fully hedged. Imports (other than capital imports) not fully hedged amount to US$1,5 million. Monetary items have been translated at the closing rate at the last day of the reporting period US$1:R5,6525 (2003: US$1:R7,425). P A G E 152 K U M B A A N N U A L R E P O R T 2 0 0 4 28. 28.2 FINANCIAL INSTRUMENTS (continued) Price hedging Prices for future purchases and sales of goods and services are generally established on normal commercial terms through agents or direct with suppliers and customers. Price hedging is undertaken on a limited scale for future zinc sales at Rosh Pinah Zinc Corporation (Pty) Limited and Kumba Base Metals Limited (previously 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: 2004 Recognised transactions 2003 Recognised transactions Market- related value Rm Contract value Rm Recognised gains/ (losses) Rm 9 4 9 4 Tons 1 335 750 28.3 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 31 Dec 2004 Term borrowings Call borrowings % of total borrowings At 30 June 2003 Term borrowings Call borrowings % of total borrowings 1 – 6 months Rm 7 – 12 months Rm Beyond Total 1 year borrowings Rm Rm 815 52 27 911 130 31 2 300 73 2 297 69 3 115 52 100 3 208 130 100 K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 153 Notes to the annual financial statements continued for the 18-months ended 31 December 2004 28. 28.3 FINANCIAL INSTRUMENTS (continued) Interest rate risk management (continued) 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 % Floating interest receivable % Fixed interest payable % Fixed Recognised fair value gain/(loss) Rm interest receivable % At 31 Dec 2004 Local Interest rate derivatives up to 1 year: – Interest rate swaps Interest rate derivatives beyond 1 year: – Interest rate swaps Foreign Interest rate derivatives beyond 1 year: – Cross currency swaps 200 100 100 113 113 125 $30m $20m $15m $15m $10m $10m 3m Jibar + 1% margin 3m Jibar + 1% margin 3m Jibar + 1% margin 3m Jibar + 3,06% margin 10,00 10,00 12,10 13,00 9,20 (1,80) (1,90) (1,80) 3m Jibar + 3,06% margin 3m Jibar + 1,625% margin 12,41 4,20 10,43 (2,00) 3m Jibar 3m Jibar 3m Jibar 3m Libor + 0,95% margin + 0,7% margin 3m Libor + 0,91% margin + 0,7% margin 3m Libor + 0,90% margin + 0,7% margin 3m Libor + 0,90% margin + 0,7% margin 3m Libor + 0,88% margin + 0,7% margin 3m Libor + 0,89% margin + 0,7% margin 3m Jibar 3m Jibar 3m Jibar (32,80) (21,80) (18,30) (18,30) (12,10) (12,10) At 30 June 2003 Interest rate derivatives up to 1 year: – Interest rate flexi-swaps 200 3m Jibar + 1% margin 13,00 13,20 P A G E 154 K U M B A A N N U A L R E P O R T 2 0 0 4 FINANCIAL INSTRUMENTS (continued) 28. 28.4 Maturity profile of financial instruments The maturity profiles of financial assets and liabilities at 31 December 2004 and 30 June 2003 are summarised as follows: (The derivative instruments reflect the contract amounts) 0 – 12 months Rm 1 – 2 years Rm 3 – 5 years Rm >5 years Rm At 31 December 2004 Assets Financial assets Cash and cash equivalents Trade and other receivables Liabilities Interest-bearing borrowings Trade and other payables Percentage profile (%) 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 (%) Derivative instruments as at 31 December 2004 (included in the above) Recognised transactions – Buy – Sell Forecasted transactions – Buy – Sell Derivative instruments as at 30 June 2003 (included in the above) Recognised transactions – Buy – Sell Forecasted transactions – Buy – Sell 1 258 1 397 836 1 061 758 (59) 964 1 333 537 1 095 665 (35) 19 255 23 147 530 222 330 Total Rm 285 1 258 1 397 3 167 1 061 212 964 1 333 3 338 1 095 38 61 186 556 1 099 676 (518) (1 038) (490) (1 288) 81 38 100 40 40 172 697 1 399 705 (657) (1 399) (533) (1 924) 35 73 28 100 681 5 371 26 112 700 255 23 147 530 253 813 K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 155 Notes to the annual financial statements continued for the 18-months ended 31 December 2004 28. 28.5 FINANCIAL INSTRUMENTS (continued) Fair value of financial instruments At 31 December 2004 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 Restated Year ended 30 June 2003 Rm Restated Year ended 30 June 2003 Rm At 31 Dec 2004 Rm At 31 Dec 2004 Rm 285 1 258 1 397 2 331 836 1 061 272 964 1 333 2 801 537 1 095 285 1 258 1 397 2 158 987 1 061 272 964 1 333 2 855 560 1 095 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 31 December 2004, the negative R41 million (2003: R70 million) fair value of instruments is made up of: – Favourable contracts – Unfavourable contracts Restated Year ended 30 June 2003 Rm At 31 Dec 2004 Rm 84 126 88 18 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. 28.6 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 exists with such clients resulting in limited credit exposure which exposure, where dictated by customer credit worthiness or country risk assessment, is further mitigated through a combination of confirmed letters of credit and credit risk insurance. P A G E 156 K U M B A A N N U A L R E P O R T 2 0 0 4 28. 28.6 FINANCIAL INSTRUMENTS (continued) Credit risk management (continued) 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 Restated Year ended 30 June 2003 % At 31 Dec 2004 % 91 7 2 100 30 22 20 1 23 4 91 7 2 100 29 26 18 10 11 6 100 100 28.7 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 Restated Year ended 30 June 2003 Rm At 31 Dec 2004 Rm 5 353 3 167 2 186 4 895 3 338 1 557 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 were set at 100% of shareholders’ funds for the 2004 financial period (2003: 100%). 29. 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 16 and annexure 2 whilst income is disclosed in note 16. Interest income from joint ventures of R6 million (2003: R nil million) is included in net financing costs (refer note 6). The group purchased goods and services to the value of R133 million (2003: R123 million) from, and sold goods to the value of R nil million (2003: R nil million) to associates and joint ventures. The outstanding balances at year-end are as follows: – Included in trade and other receivables (refer note 20) R20 million (2003: R4 million) – Included in trade and other payables (refer note 26) R6 million (2003: R8 million) – Included in cash and cash equivalents R nil million (2003: R nil million) – Included in the carrying value of associates and joint ventures (refer note 16) are long-term loans of R1 million (2003: R39 million) – Included in long-term debtors R nil million (2003: R nil million) – Included in financial assets R21 million (2003: R nil million) (refer note 18) K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 157 Notes to the annual financial statements continued for the 18-months ended 31 December 2004 29. RELATED PARTY TRANSACTIONS (continued) Subsidiaries Details of income from and investments in subsidiaries are disclosed in notes 7 and 17 respectively, and annexure 3. Corporate service fee from subsidiaries The following corporate service fee from subsidiaries was received by Kumba Resources Limited: Sishen Iron Ore Company (Pty) Limited Kumba Coal (Pty) Limited Kumba Base Metals Limited 18-months ended 31 Dec 2004 Rm Restated Year ended 30 June 2003 Rm 236 115 351 220 69 7 296 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 Kumba Resources Management Share Trust Nature of business Offshore insurance captive Insurance captive Trust fund for mine closure Financing company Financing company Financing company 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 31. Anglo Group The Kumba Resources group purchased goods and services to the value of R170 million from, and sold goods to the value of R157 million to fellow subsidiaries of the Anglo group. The outstanding balances at year-end are as follows: – Included in trade and other receivables (refer note 20) R39 million – Included in trade and other payables (refer note 26) R nil million Shareholders The principal shareholders of the company are detailed in the “Analysis of shareholders” schedule on p71 of the annual report. Contingent liabilities Details are disclosed in note 32. P A G E 158 K U M B A A N N U A L R E P O R T 2 0 0 4 30. SEGMENT REPORTING Iron ore Coal Heavy minerals Base metals Industrial minerals Other Total Restated 2003 Rm 2004 Rm Restated 2003 Rm 2004 Rm Restated 2003 Rm 2004 Rm Restated 2003 Rm 2004 Rm Restated 2003 Rm 2004 Rm Restated 2003 Rm 2004 Rm Restated 2003 Rm 2004 Rm Business segmentation Segment revenue – Total turnover – Inter-group 6 064 4 234 2 733 1 638 2 438 587 1 212 892 External 6 064 4 234 2 733 1 638 2 438 587 1 212 892 177 (39) 138 1 119 880 548 279 206 62 (151) (9) 30 103 (25) 78 21 32 (18) 14 52 (12) 12 656 (57) 7 506 (37) 40 12 599 7 469 103 (44) 1 855 1 189 Segment net operating profit/(loss) Depreciation and amortisation of intangible assets Impairment charge Goodwill amortisation Income/(loss) from equity accounted investments Cash inflow from operations Other non-cash flow items not disclosed above Capital expenditure – Cash flow – Non-cash flow Segment assets and liabilities – Assets per balance sheet – Investments in associates and joint ventures – Liabilities per balance sheet Number of employees (number) 386 235 2 224 (1) 20 15 137 279 92 89 (6) (3) 58 1 498 1 160 682 304 397 109 5 51 (8) 9 (3) 41 270 198 468 211 104 315 216 56 272 125 50 175 801 947 801 947 4 526 4 198 1 683 1 640 4 123 4 442 10 10 1 1 68 35 10 23 37 83 4 87 72 72 41 24 9 6 11 (88) 21 977 532 35 (6) 2 21 (43) (71) (13) 2 11 38 25 (24) (45) 2 614 1 564 8 73 73 (1) 7 7 (14) 19 19 18 25 25 16 127 1 396 258 1 654 1 386 154 1 540 5 5 291 97 66 2 372 1 684 12 873 12 321 13 107 96 118 1 603 1 402 850 808 2 042 2 304 136 105 31 23 1 844 1 712 6 506 6 353 4 199 4 312 2 716 2 675 794 1 395 1 092 1 127 169 133 721 932 9 691 10 574 K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 159 Notes to the annual financial statements continued for the 18-months ended 31 December 2004 Carrying amount of segment assets 2004 Rm Carrying amount of segment assets 2003 Rm Additions to property, plant and equipment (non-cash flow) Additions to property, plant and equipment (non-cash flow) Additions to property, plant and equipment (non-cash flow) Additions to property, plant and equipment (non-cash flow) 2004 Rm 2003 Rm 2004 Rm 2003 Rm Segment revenue Segment revenue 2004 Rm 2003 Rm 5 055 35 6 071 3 774 1 158 (3 494) 3 112 134 1 423 2 347 122 331 9 910 107 1 253 959 1 126 (386) 9 040 456 1 994 733 (309) 525 254 4 154 1 260 38 93 5 1 328 25 33 12 599 7 469 12 969 12 439 258 154 1 396 1 386 30. SEGMENT REPORTING (continued) Geographical segmentation – South Africa – Africa – Europe – Asia – Australia – Other Total segment 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 and includes impairment charges and goodwill amortisation. 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 recoverable corporate costs. Segment assets and liabilities include directly and reasonably allocable operating assets, investments in associates and joint ventures and liabilities. P A G E 160 K U M B A A N N U A L R E P O R T 2 0 0 4 31. 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: – Kumba Selector Pension Fund and Kumba Selector Provident Fund, both operating as defined contribution funds. – Iscor Employees’ Provident Fund, operating as a defined contribution fund. – 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. In compliance with the Pension Funds Act, after the unbundling from Ispat Iscor Limited in 2001, Kumba employees were transferred from the Iscor Selector Pension Fund and Iscor Selector Provident Fund to the Kumba Selector Pension Fund and Kumba Selector Provident Fund during the period under review. 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 31 December 2004 and 30 June 2003 and employer contributions to each fund were as follows: Kumba Selector Funds Iscor Employees’ Provident Fund Other funds *18-month period Working members 2004 Number Working members 2003 Number 3 407 5 097 821 9 325 3 836 4 218 468 8 522 Employer contri- butions 2004* Rm Employer contri- butions 2003 Rm 87 42 28 157 51 24 3 78 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 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 2002) and at the interim valuation at 31 December 2003 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. The statutory valuation of the Iscor Retirement Fund at 31 December 2003 remains subject to the finalisation of the legislation relating to the surplus apportionment. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 161 Notes to the annual financial statements continued for the 18-months ended 31 December 2004 31. EMPLOYEE BENEFITS (continued) Funded status The funded status of the two defined retirement benefit funds (Iscor Pension Fund at 31 December 2003 and Iscor Retirement Fund at 31 December 2002) for members of both Kumba and Ispat Iscor Limited was as follows: Iscor Iscor Pension Retirement Fund 2002 Rm Fund 2003 Rm Fair value of plan assets Present value of funded obligation Net asset Surplus not recognised Unrecognised actuarial losses Net liability as per balance sheet 6 136 (6 136) 321 (273) 48 (48) 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 2003 amounted to R523 million (2002: R285 million) and in the Iscor Retirement fund to R77 million. Principal actuarial assumptions (expressed as weighted averages) at 31 December 2003 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 Interim valuation 2003 % Statutory valuation 2001 % Iscor Retirement Fund Interim valuation 2001 % Statutory valuation 2002 % 10,0 5,0 2,5 7,51 10,0 5,0 2,5 7,51 10,0 4,5 n/a2 n/a2 10,0 4,5 n/a2 n/a2 Future pension increases were allowed to the extent that the investment return exceeds the post-retirement discount rate. 1. Excluding merit increases according to age 2. 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 R84 million (2003: R47 million for the 12-month period to 30 June 2003). Kumba has no post-retirement medical aid obligation for current or retired employees. P A G E 162 K U M B A A N N U A L R E P O R T 2 0 0 4 31. EMPLOYEE BENEFITS (continued) 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 share scheme rights and obligations of employees which were in existence at the time of transfer of the employees from Iscor to Kumba on unbundling of Kumba effective July 2001. 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 not exercised will lapse. A total of 30,2 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 30,2 million shares, 13,6 million shares are available in the share scheme for future offers to participants, while 16,6 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 2003 Add: Net effect of scheme shares released, forfeitures and adjustments to scheme allocation Less: Share offers accepted Number of shares available for future utilisation, at 31 December 2004 Million 9,0 8,5 (3,9) 13,6 At 31 December 2004 the company’s loan to the Kumba Management Share Trust amounted to R16 939 844 (2003: R23 102 391). The loan is interest free and has no fixed repayment terms. This amount is reflected as an intercompany loan in the company’s accounts and eliminated at group level. The market value of the shares available for utilisation at the end of the year amounted to R596 784 276. Details of the option/purchase schemes are: Outstanding at beginning of the period Issued Exercised Lapsed/cancelled Outstanding at end of the period Options Deferred purchase Dec 2004 Million June 2003 Million 18,6 3,9 (5,3) (0,9) 16,3 14,7 4,2 (0,1) (0,2) 18,6 Dec 2004 Million 1,9 (1,6) June 2003 Million 2,0 (0,1) 0,3 1,9 K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 163 Notes to the annual financial statements continued for the 18-months ended 31 December 2004 Options Deferred purchase Dec 2004 June 2003 Dec 2004 June 2003 2010/2011 24,50 – 42,40 2009/2010 24,50 – 51,50 158 150 31,88 – 44,75 204 26,10 – 47,00 4 31,88 – 44,75 61 27,50 – 41,30 3 Options Deferred purchase Exercise price R Outstanding ’000 Exercise price R Outstanding ’000 11,75 – 13,10 17,07 – 28,05 11,71 – 51,50 13,66 – 37,51 36,75 – 43,00 71 8 479 3 491 1 010 3 317 16 368 Options ’000 18 550 (2 182) 16 368 8,89 – 13,10 8,42 – 18,90 8,06 – 20,80 19,93 – 23,26 Deferred purchase ’000 1 913 (1 659) 254 97 25 78 54 254 Total ’000 20 463 (3 840) 16 623 31. EMPLOYEE BENEFITS (continued) Details of issues during the period 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 period are as follows: Exercise price per share (share price range) (R) Total proceeds if shares are issued (R million) Terms of the options and deferred purchase shares outstanding at 31 December 2004 are as follows: Expiry date 2006 2007 2008 2009 2010 2011 Total Number of shares vesting at beginning of the period Net change during the period Number of shares vesting at end of the period Directors’ interests in shares For details refer to the report of the directors P A G E 164 K U M B A A N N U A L R E P O R T 2 0 0 4 32. 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 – Other contingent liabilities1 GROUP COMPANY At 31 Dec 2004 Rm At 30 June 2003 Rm At 31 Dec 2004 Rm At 30 June 2003 Rm 2 34 5 31 14 610 2 636 14 1. Includes the group’s share of contingent liabilities of associates and joint ventures of R nil million (2003: R nil 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 and occurrence of any possible outflows are uncertain. 33. COMMITMENTS Capital commitments Capital expenditure contracted for plant and equipment Capital expenditure authorised for plant and equipment but not contracted GROUP COMPANY At 31 Dec 2004 Rm Restated At 30 June 2003 Rm At 31 Dec 2004 Rm Restated At 30 June 2003 Rm 219 668 345 624 40 14 29 34 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 2003 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. Kumba has contributed R5,9 million towards the fund since March 2003. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 165 Notes to the annual financial statements continued for the 18-months ended 31 December 2004 33. COMMITMENTS (continued) Operating lease commitments The future minimum lease payments under non-cancellable operating leases are as follows: – Less than one year – More than one year and less than five years – More than five years Total Included in above operating lease commitments is an operating lease commitment in regards to a building which terminates in 2008. Various options are available to both the lessor and lessee on mutual agreement on termination of the operating lease. Operating sublease Non-cancellable operating lease rentals are receivable as follows: – Less than one year – More than one year and less than five years – More than five years Total GROUP COMPANY At 31 Dec 2004 Rm Restated At 30 June 2003 Rm At 31 Dec 2004 Rm Restated At 30 June 2003 Rm 39 120 8 167 7 21 28 45 150 42 237 5 28 5 38 32 93 125 7 21 28 37 127 19 183 5 28 5 38 P A G E 166 K U M B A A N N U A L R E P O R T 2 0 0 4 Annexure 1: Non-current interest-bearing borrowings Final repayment date Rate of interest per year (payable half-yearly) 2004 Rate of interest per year (payable half-yearly) 2003 Fixed % Floating % Fixed % Floating % 13,210 13,210 7,600 9,180 12,410 12,410 15,030 10,340 12,300 14,220 14,939 13,830 14,200 7,850 14,760 14,939 13,830 14,200 3,230 6,920 7,300 2,310 1 2 3 4 5 6 7 2004 2004 2005 2006 2006 2008 2004 2005 2008 2010 2013 2004 2007 2016 LOCAL Unsecured loans Secured loan FOREIGN Unsecured loans (US$) Total non-current interest-bearing borrowings (refer note 22) GROUP COMPANY At 31 Dec 2004 Rm Restated At 30 June 2003 Rm At 31 Dec 2004 Rm Restated At 30 June 2003 Rm 75 99 200 250 250 450 1 324 200 250 125 340 915 75 99 200 250 250 450 1 324 5 43 319 741 200 250 125 340 915 13 244 774 9 1 040 1 108 565 595 1 160 32 744 776 565 565 3 115 3 208 1 480 1 324 1. Capitalised lease agreement secured by machinery, plant and equipment with a book value of Rnil million (2003: R34 million). 2. Capitalised lease agreement secured by machinery, plant and equipment with a book value of R49 million (2003: R53 million), payable monthly. 3. Dedicated project finance facility, for Ticor South Africa KZN (Pty) Limited secured by notarial bond over property, plant and equipment with a book value of R945 million (2003: R968 million). 4. Dedicated project finance facility for Ticor South Africa (Pty) Limited secured by notarial bond over property, plant and equipment with a book value of R2 019 million (2003: R1 414 million). 5. Dedicated Mineral Development Fund finance facility, for Rosh Pinah Zinc Corporation (Pty) Limited, secured by notarial bond over property, plant and equipment with a book value of R24 million. 6. US$150 million revolving credit facility of which US$100 million has been drawn as at 31 December 2004. 7. US$105 million senior notes issued by Ticor Finance (A.C.T.) Pty Limited, an entity controlled by Ticor Limited. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 167 Annexure 2: Investments in associates, joint ventures and other investments for the 18-months ended 31 December 2004 Nature of business1 Number of shares held Percentage holding Group carrying amount Company carrying amount Year-end other than 31 December At Restated At 31 Dec 30 June 2003 % 2004 % At Restated At 31 Dec 30 June 2003 Rm 2004 Rm At Restated At 31 Dec 30 June 2003 Rm 2004 Rm C A A A A B B D C A A & M E A B 44 400 000 22,34 52 251 000 26,74 30,13 25 000 50,00 50,00 1 333 33,00 33,00 50,00 40,00 40,00 50,00 4 000 400 400 2 000 50 500 50,00 40,00 40,00 50,00 50,00 50,00 28,30 1 50,00 50,00 40,00 50,00 40,00 A 11 299 435 10,30 15,37 ASSOCIATED COMPANIES Listed AST Group Limited Mincor Resources NL (Australian)2 UNLISTED Manganore Iron Mining Limited South Dunes Coal Terminal Co (Pty) Limited Total associated companies (refer note 16) JOINT VENTURES Incorporated Unlisted Pietersburg Iron Company (Pty) Limited Safore (Pty) Limited Sishen Shipping (Pty) Limited Transorient Ore Supplies Limited Rosh Kor Township Prop Inyanda Coal (Pty) Limited Chifeng Kumba Hongye Zinc Corporation Limited Sibelo Resources Development (Pty) Limited Unincorporated Bridgetown Dolomite Mine Safore Total joint ventures (refer note 16) INVESTMENT COMPANIES Mineral Deposits Limited Other Total other investments (refer note 18) Total investment The investments are valued at balance sheet date. Listed shares are valued at market value and unlisted shares at directors’ value. Market value of listed shares Directors’ valuation of unlisted shares and joint ventures 6 1 7 3 7 72 82 7 7 89 20 33 53 149 44 186 69 31 1 101 3 7 10 7 7 17 7 72 79 197 138 108 24 86 30 June 30 June 24 86 28 February 7 7 7 26 26 57 29 7 7 7 7 22 22 115 29 7 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, E – Exploration, M – Manufacturing. 2. Mincor Resources NL disposed during July 2003. P A G E 168 K U M B A A N N U A L R E P O R T 2 0 0 4 The group’s effective share of the balance sheets at 31 December 2004 and 31 June 2003, income statements and cash flow statements for the 18 months to 31 December 2004 and 12 months to 30 June 2003, in respect of associated companies and joint ventures are as follows: Associated companies Joint ventures Ticor Limited2 (included in associated companies) 2004 Rm 555 (582) (27) (12) (39) (9) (48) (3) (51) 59 64 123 12 3 25 13 8 62 Restated 20031 Rm 1 088 (1 061) 27 (43) (4) (20) (6) (26) 5 (21) 1 346 661 2 007 1 150 2 445 21 60 47 282 123 2 007 7 4 (10) 42 (124) (3) (8) 1 (93) 2004 Rm 152 (118) 34 (1) 33 2 35 35 84 96 180 100 11 9 60 180 12 (83) 87 (1) 15 Restated 2003 Rm 7 (4) 3 3 3 3 6 14 20 10 10 20 (2) (1) 2003 Rm 498 (409) 89 (26) (4) 59 (19) 40 40 1 207 531 1 738 1 114 401 21 54 148 1 738 56 (120) (8) (3) (72) INCOME STATEMENTS Revenue Operating expenses Net operating (loss)/profit Net financing costs Loss from equity accounted investments (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 Total equity and liabilities 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 1. The investment in Chifeng Kumba Hongye Zinc Corporation Limited was reclassified from a subsidiary to a joint venture arrangement and is consequently equity accounted. 2. Ticor Limited was consolidated from 1 April 2003. For 2003 only the nine months from 1 July 2002 to 31 March 2003 were included. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 169 Interest of company Investment in shares Indebtedness Annexure 3: Investments in subsidiaries1 for the 18-months ended 31 December 2004 Country of incor- poration2 Nature of business3 DIRECT INVESTMENTS Colonna Properties (Pty) Limited Cullinan Refractories (Pty) Limited Ferroland Grondtrust (Pty) Limited Glen Douglas Dolomite (Pty) Limited Ticor South Africa KZN (Pty) Limited (effectively 80,61%) Kumba Base Metals Limited Kumba Base Metals Namibia (Pty) Limited Kumba Coal (Pty) Limited Kumba Properties (Groenkloof) (Pty) Limited Kumba Properties (Kloofzicht) (Pty) Limited Kumba Properties (Princess Grant) (Pty) Limited Mineral Exploration Company of Southern Africa (Pty) Limited Rocsi Holdings (BVI) Limited Sishen Iron Ore Company (Pty) Limited Ticor South Africa (Pty) Limited (effectively 80,61%) Kumba Resources Management Share Trust Clipeus Investment Holdings (Pty) Limited INDIRECT INVESTMENTS Anocon Investments (Pty) Limited Coastal Coal (Pty) Limited Confin Limited Downs Holding BV Groler Investments Limited Ipcor N.V. Iscor Congo S.P.R.L. Kamofin Limited Kumba Base Metals International BV4 Kumba Australia Pty Limited Kumba Base Metals China Limited Kumba Finance Ireland Limited Kumba Heavy Minerals BV Kumba Holdings (BVI) SA Kumba Holdings (Australia) Pty Limited Kumba Hong Kong Limited Kumba International BV Kumba Investments (Australia) Pty Limited Minsa (Pty) Limited Mtunzini Sands (Pty) Limited Rosh Pinah Zinc Corporation (Pty) Limited (89,47%) Sishen South Mining (Pty) Limited Taurus Marine Limited Ticor Limited (effectively 51,54%) Ticor Chemical Company Pty Limited (effectively 51,54%) Crisa Pty Limited (effectively 51,54%) RSA RSA RSA RSA RSA RSA NAM RSA RSA RSA RSA RSA BVI RSA RSA RSA RSA RSA RSA MAU NE SWL NV DRC MAU NE AUS HK IRL NE BVI & RSA AUS HK NE AUS RSA RSA NAM RSA CMN AUS AUS AUS B A D A A M C A B B B B H A M T H A A C A H C C C A C C C A H H C C H B A A A S A M C Issued capital – unlisted ordinary shares R 200 1 000 2 10 000 At 31 Dec 2004 R 2 518 966 1 000 2 10 000 Restated At 30 June 2003 R 2 518 966 1 000 2 10 000 200 5 500 000 6 003 355 247 712 500 6 003 355 247 712 500 1 1 1 1 1 1 1 000 1 1 000 1 1 1 1 1 1 200 200 1 352 808 130 1 129 720 003 1 000 1 000 510 1 510 200 717 524 937 1 510 1 1 100 5 000 1 61 362 258 958 27 078 747 61 362 11 1 000 1 225 200 180 9 437 677 5 832 9 961 692 5 3 200 2 000 1 1 000 420 679 000 10 10 At 31 Dec 2004 Rm Restated At 30 June 2003 Rm 27 (13) 647 (50) 276 5 19 572 (91) 464 5 1 1 153 805 (17) 1 413 377 (95) (107) 28 82 14 (1) 53 67 P A G E 170 K U M B A A N N U A L R E P O R T 2 0 0 4 Country of incor- poration2 Nature of business3 INDIRECT INVESTMENTS (continued) Bertini Pty Limited (effectively 51,54%) Ticor Chemicals Ghana Pty Limited (51,54%) Omacor Sac (effectively 51,54%) Ticor Resources Pty Limited (effectively 51,54%) Magnetic Minerals Limited (effectively 51,54%) TiO2 Corporation NL (effectively 51,54%) Tific Pty Limited (effectively 51,54%) Yalgoo Minerals Pty Limited (effectively 51,54%) Pigment Holdings Pty Limited (effectively 51,54%) Synthetic Rutile Holdings Pty Limited (effectively 51,54%) Senbar Holdings Pty Limited (effectively 51,54%) Ticor (Overseas) Holdings Pty Limited (effectively 51,54%) Ticor SA Holdings (Pty) Limited (effectively 51,54%)5 Ticor Titanium Australia Pty Limited (effectively 51,54%) Rocit Investments Pty Limited (effectively 51,54%) Ticor (Bermuda) Holdings Limited (effectively 51,54%) Ticor (Bermuda) Minerals Limited (effectively 51,54%) Ticor Finance (A.C.T.) Pty Limited (effectively 51,54%) Ticor Energy Pty Limited (effectively 51,54%) The Durban Navigation Collieries (Pty) Limited The Vryheid (Natal) Railway Coal and Iron Company Limited Trojan Bulk Shipping Limited Tshikondeni Mining Company (Pty) Limited ZnERGY (Pty) Limited (85%) ZnERGY Marketing (Pty) Limited (effectively 85%) Total investments in subsidiaries (note 17) AUS GHANA PERU AUS AUS AUS AUS AUS AUS AUS AUS AUS RSA AUS RSA BER BER AUS AUS RSA RSA CMN RSA RSA RSA C C C H A A H H C C C H H H H H H F F A A S A M C Issued capital – unlisted ordinary shares R 10 10 10 180 337 136 31 740 964 85 101 240 10 48 216 010 10 10 10 10 40 000 10 3 157 714 74 836 74 836 10 10 516 000 3 675 1 000 2 240 1 Interest of company Investment in shares Indebtedness At 31 Dec 2004 R Restated At 30 June 2003 R At 31 Dec 2004 Rm Restated At 30 June 2003 Rm (1) 5 (17) 3 1 609 056 668 1 385 968 540 2 852 2 772 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, SWL – Switzerland, MAU – Mauritius, NE – Netherlands, SWL – Switzerland, BER – Bermuda. 3. A – Mining, B – Property, C – Service, D – Land management, F – Finance, H – Holdings, M – Manufacturing, S – Shipping, T – Trust. 4. Previously Kumba Africa BV. 5. Previously Ticor South Africa (Pty) Limited. 6. The investment in Chifeng Kumba Hongye Zinc Corporation Limited was reclassified from a subsidiary to a joint venture arrangement and is consequently equity accounted. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 171 Notice of annual general meeting Notice is hereby given that the fourth annual general meeting of members of Kumba Resources Limited will be held at the Corporate Office, Dyason Road, Pretoria West, South Africa, at 14:00 on Friday, 15 April 2005. The following business will be transacted and resolutions proposed, with or without modification: 7. 1. 2. 3. 4. 5. 6. ORDINARY RESOLUTION NUMBER 1 Approval of financial statements To receive and adopt the annual financial statements of the group for the period ended 31 December 2004, including the directors’ report and the report of the auditors thereon. ORDINARY RESOLUTION NUMBER 2 Re-appointment of independent auditors To ratify the re-appointment of Deloitte & Touche as auditors of the company for the ensuing year. ORDINARY RESOLUTION NUMBER 3 Auditors’ fees To authorise the directors to determine the auditors’ remuneration for the period ended 31 December 2004. ORDINARY RESOLUTION NUMBER 4 Re-election of directors To re-elect the following directors appointed to the board since the last annual general meeting: 4.1 PM Baum 4.2 WA Nairn 4.3 PL Zim To re-elect the following directors who retire by rotation in terms of the articles of association of the company: 4.4 4.5 4.6 Dr D Konar TL de Beer JJ Geldenhuys Such re-elections are to be voted on individually unless a resolution is agreed to by the meeting (without any vote against it) that a single resolution be used. An abbreviated curriculum vitae in respect of each director offering themselves for re-election is set out on p175 of the annual report. ORDINARY RESOLUTION NUMBER 5 Remuneration of non-executive directors To approve the proposed remuneration for the period 1 January 2005 to 31 December 2005: Chairman: Director: Audit committee chairman: Audit committee member: Board committee chairman: Board committee member: R267 500 R133 750 R85 600 R42 800 R64 200 R32 100 ORDINARY RESOLUTION NUMBER 6 Renewal of the authority that the unissued shares be placed under the control of the directors “Resolved that subject to the provisions of the Companies Act, 61 of 1973, as amended (the Act), and the Listing Requirements of the JSE Securities Exchange South Africa (JSE), the directors are hereby authorised to allot and issue at their discretion until the next annual general meeting of the company, authorised but unissued shares for such purposes as they may determine, after setting aside so many shares as may be required to be allotted and issued by the company pursuant the company’s approved employee share incentive schemes (the schemes).” to ORDINARY RESOLUTION NUMBER 7 General authority to issue shares for cash “Resolved that pursuant to the articles of association of the company and subject to the Act, and the Listings Requirements of the JSE, the directors are hereby authorised, by way of a general authority, to allot and issue ordinary shares for cash on the following basis, after setting aside so many shares as may be required to be allotted and issued by the company pursuant to the schemes, without restrictions to any public shareholder, as defined by the Listings Requirements of the JSE, as and when suitable opportunities arise, subject to the following conditions: 7.1 this authority shall not extend beyond the next annual general meeting or fifteen months from the date of this annual general meeting, whichever date is earlier; a press announcement giving full details, including the impact on net asset value and earnings per share, be published at the time of any issue representing, on a cumulative basis within one year, 5% or more of the number of shares in issue prior to the issue/s; the shares be issued to public shareholders as defined by the JSE and not to related parties; any issue in the aggregate in any one year shall not exceed 15% of the number of shares of the company’s issued ordinary share capital; and in determining the price at which an issue of shares be made in terms of this authority, the maximum discount permitted will be 10% of the weighted average traded price of the shares over the thirty days prior to the date that the price of the issue is determined or agreed to by the directors. In the event that shares have not traded in the said thirty day period a ruling will be obtained from the committee of the JSE.” 7.2 7.3 7.4 7.5 8. 8.1 8.2 8.3 The approval of a 75% majority of the votes cast by shareholders present or represented by proxy at the meeting is required for ordinary resolution number 7 to become effective. ORDINARY RESOLUTION NUMBER 8 “Resolved that: The company adopts and approves the Kumba Resources Long-Term Incentive Plan 2005, as contained in the plan rules for the Long-Term Incentive Plan 2005, a copy of which was laid before the meeting; The company adopts and approves the Kumba Resources Deferred Bonus Plan 2005, as contained in the plan rules for the Deferred Bonus Plan 2005, a copy of which was laid before the meeting; The company authorises the board of directors to do all things necessary and incidental to the implementation of the above resolution, including the signature of the plan rules referred to in 8.1 and 8.2 above, and all related or ancillary documents, on behalf of the company.” The documents setting out the full rules of the respective schemes will be available for inspection during normal business hours at the registered office of the company from 24 March 2005 to 15 April 2005. P A G E 172 K U M B A A N N U A L R E P O R T 2 0 0 4 The reasons for and effects of the ordinary resolutions are set out in the explanatory notes that form part of this notice. 9. SPECIAL RESOLUTION NUMBER 1 Authority to repurchase shares “Resolved that by way of a general authority, the company or any subsidiary of the company may, subject to the Act, the articles of association of the company or subsidiary respectively and the Listings Requirements of the JSE, from time to time purchase shares issued by itself or shares in its holding company, as and when deemed appropriate.” Pursuant to the above, the following additional information, required in terms of the Listings Requirements of the JSE, is submitted. It is recorded that the general repurchase will be subject to the following limitations: 9.1 that the repurchase is effected through the order book operated by the JSE trading system and is done without any prior understanding or arrangement between the company and the counterparty; that this authority shall not extend beyond 15 months from the date of this resolution or the date of the next annual general meeting, whichever is the earlier date; that an announcement containing full details of such repurchases is published as soon as the company has repurchased shares constituting, on a cumulative basis, 3% of the number of shares in issue prior to the repurchases and for each 3%, on a cumulative basis, thereafter; that the repurchase of shares shall not, in the aggregate, in any one financial year, exceed 20% of the company’s issued share capital at the time this authority is given; that at any one time, the company may only appoint one agent to effect any repurchase; that the repurchase of shares will not take place during a prohibited period and will not affect compliance with the shareholders’ spread requirements as laid down by the JSE; 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 repurchase. 9.2 9.3 9.4 9.5 9.6 9.7 The reason for this special resolution is, and the effect thereof will be to grant, in terms of the provisions of the Act and the Listings Requirements of the JSE, and subject to the terms and conditions embodied in the said special resolution, a general authority to the directors to approve the repurchase by the company of its own shares. At the present time the directors have no specific intention with regard to the utilisation of this authority, which will only be used if the circumstances are appropriate. DISCLOSURES REQUIRED IN TERMS OF THE LISTINGS REQUIREMENTS OF THE JSE In terms of the Listings Requirements of the JSE, the following disclosures are requiring shareholders’ approval to: • authorise the company, or any of its subsidiaries, to repurchase any of its shares as set out in the special resolution above; and required when • the general authority to issue shares for cash as set out in ordinary resolution number 7. Working capital statement The directors of the company agree that they will not undertake any repurchase unless: • the company and the group will be able, in the ordinary course of business, to pay its debts; • the assets of the company and the group will be in excess of the liabilities of the company and the group, recognised and measured in accordance with the accounting policies used in the latest annual financial statements; • the share capital and reserves of the company and the group will be adequate for ordinary business purposes; and • the working capital resources of the company and the group will be adequate for ordinary business purposes. Litigation statement Other than disclosed or accounted for in these annual financial statements, the directors of the company, whose names are given on p58 of these annual financial statements, are not aware of any legal or arbitration proceedings, pending or threatened against the group, which may have or have had a material effect on the group’s financial position in the 18 months preceding the date of this notice of annual general meeting. Material changes Other than the facts and developments reported on in these annual financial statements, there have been no material changes in the affairs, financial or trading position of the group since the signature date of this annual report and the posting date thereof. The following further disclosures required in terms of the Listings Requirements of the JSE are set out in accordance with the reference pages in these annual financial statements of which this notice forms part: • Directors and management – refer to p56 to p59; • Major shareholders of the company – refer to p71; • Directors’ interest in the company’s shares – refer p113; • Share capital of the company – refer p109. By order of the board MS Viljoen Company secretary 10. To transact such other business as may be transacted at an annual general meeting. Pretoria 23 March 2005 K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 173 Notice of annual general meeting continued SPECIAL BUSINESS Special resolution 1: General authority to permit the repurchase of shares The reason for the special resolution is to grant the directors of the company a general authority for the acquisition of the company’s shares by the company, or a subsidiary of the company. The effect of the special resolution, once registered, will be to permit the company or any of its subsidiaries to repurchase such securities subject to the limitations applicable. This authority will only be used if circumstances are appropriate. EXPLANATORY NOTES TO RESOLUTIONS FOR CONSIDERATION AT THE ANNUAL GENERAL MEETING Ordinary business Resolution 1: Approval of financial statements The directors must present to shareholders at the annual general meeting statements incorporating the directors’ report and the report of the auditors, for the period ended 31 December 2004. These are contained within the annual report. the annual financial Resolution 2: Re-appointment of independent auditors The reason for proposing ordinary resolution number 2 is to confirm the appointment of Deloitte & Touche as external auditors of the company. Anglo American plc acquired a controlling interest in Kumba during December 2003. In line with current practice of appointing a single service provider for the statutory auditing of corporate groups, Kumba appointed Deloitte & Touche as its statutory auditors from 16 February 2004 in place of KPMG Inc. Resolution 3: Auditors’ fees It is usual for this matter to be left to the directors, as they will be conversant with the amount of work that was involved in the audit. The chairman will therefore move a resolution to this effect authorising the directors to attend to this matter. Resolution 4: Re-election of directors Under the articles of association, one third of the directors are required to retire at each annual general meeting and may offer themselves for re-election. In addition, any person appointed to fill a casual vacancy on the board of directors, or as an addition thereto, is similarly required to retire and is eligible for re-election at the next annual general meeting. Biographical details of the directors, who are offering themselves for re-election, appear on p175. Resolution 5: Remuneration of non-executive directors The company in general meeting as per the articles of association shall from time to time determine the remuneration of directors, subject to shareholders’ approval. Resolutions 6 and 7: Directors’ control of unissued ordinary shares The existing authorities relating to resolutions 6 and 7 are due to expire at the forthcoming annual general meeting. The directors consider it advantageous to renew these authorities to enable the company to take advantage of business opportunities, which might arise in the future. Resolution 8: Adoption and approval of new share incentive schemes Recent developments in taxation legislation, accounting standards and best practice in local and global share schemes have required a review of the company’s existing share option scheme. In line with global best practice, and emerging South African practice, the HR and Rem committee recommends adoption of a Long-Term Incentive Plan, and a Deferred Bonus Plan. The recommended schemes are in line with practice in FTSE 100 and FTSE 500 companies in the UK and with several recently adopted schemes for large JSE listed or dual listed companies. P A G E 174 K U M B A A N N U A L R E P O R T 2 0 0 4 Short biographies of Kumba directors seeking re-election Name: PM Baum – Philip (50) Academic qualifications: BCom, LLB, Higher Diploma in Tax Law Designation: Non-executive director Experience: Philip is CEO of Anglo American plc’s Ferrous Metals and Industries Division. He joined Anglo American Corporation of South Africa Limited (AAC) in 1979. In 1991 he was appointed an alternate director and in 1997 an executive director of AAC. From 1996 to 2001 he was the chief executive of Anglo American Corporation Zimbabwe Limited. In March 2001, Philip was appointed chief operating officer of AAC. He was appointed to his present position in October 2003. Name: WA Nairn – Bill (60) Academic qualifications: BSc (Eng) Designation: Non-executive director Experience: Bill was appointed chief executive and managing director of JCI Limited in 1994. Bill joined Anglo American Corporation of South Africa Limited (AAC) in 1997, when he was appointed an executive director. In January 2000, he was appointed group technical director of Anglo American plc (AA plc) and retired from the AA plc board at the end of 2004. He has remained a non-executive director of Anglo Platinum, AngloGold Ashanti, Boart Longyear and Kumba, as well as serving on various board safety and sustainable development committees. Name: PL Zim – Lazarus (44) Academic qualifications: BCom, BCom (Hons)(Econ), MCom (Econ) Designation: Non-executive director Experience: Lazarus was appointed chief executive officer of Anglo American Corporation of South Africa Limited (AAC) on 1 February 2005. He was deputy chief executive officer from 1 October 2003 to end January 2005. He is also chairman of Anglo Operations Limited and serves on a number of boards in the Anglo American Group including Anglo American Platinum Corporation Limited. Before joining AAC Lazarus was managing director of MTN International where he led all MTN operations outside South Africa. Name: TL de Beer – Tom (69) Academic qualifications: BCom, CA(SA), Executive Programme in Business (Columbia USA) Designation: Non-executive director Experience: From 1954 to 1964 Thomas worked as an accountant. In 1965 he joined the corporate finance department of Federale Mynbou. In 1978 he was appointed chief executive finance of General Mining and in 1983 finance director of Gencor Limited, in which capacity he remained until unbundling of Gencor in 1993 and in 1981 he moved to Gencor Limited as the chief executive – finance. He was appointed chairman of Genbel in 1986. Name: JJ Geldenhuys – Jurie (61) Academic qualifications: BSc (Eng)(Electrical), BSc (Eng)(Mining), MBA (Stanford), Pr Eng Designation: Non-executive director Experience: From 1965 to 1981 Jurie held production and managerial posts on the gold, platinum and copper-zinc mines of the Anglovaal Limited group. From 1981 till his retirement in 2002 he served in technical and executive capacities involving gold, base metals, coal, ferrous metals and industrial minerals. He has served on the boards of a number of listed mining companies and Chamber of Mines related companies. He was Chamber of Mines president during 1993 – 1994 and has served on parastatal councils. He retired as managing director of Avgold Limited in 2000. Name: Dr D Konar – Len (50) Academic qualifications: BCom, CA(SA), MAS, DCom Designation: Non-executive director Experience: Immediately after completing his articles of clerkship at Ernst & Young in Durban, Len commenced his career as an academic at the University of Durban-Westville. He subsequently spent six years with the IDT as head of investments and internal audit, prior to becoming a professional director of companies and consultant. He is currently a director of the South African Reserve Bank, Old Mutual South Africa, Sappi, Steinhoff and JD Group. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 175 Annexure A The proposed Kumba Resources Long-term Incentive Plan 2005 (LTIP) and Deferred Bonus Plan 2005 (DBP) Recent developments in taxation legislation, accounting standards and best practice in local and global share schemes have required a review of the company’s existing share option scheme. In particular the costs of the existing scheme are not deductible in the company’s hands, but the benefits are fully taxable in the employees’ hands. In line with global best practice, and emerging South African practice, the remuneration committee of the company recommends the adoption of the following plans: the LTIP, and a DBP. The recommended schemes are in line with practice in FTSE 100 and FTSE 500 companies in the UK and with several recently adopted schemes for large JSE Securities Exchange South Africa (the JSE) listed or dual-listed companies. A third scheme, similar to an option scheme, based on equity settled share appreciation rights (SAR) is under consideration to replace the existing share option scheme. The company will seek approval for this scheme at the next annual general meeting. All awards under the existing and proposed plans will be made with due consideration to the potential dilution (to a maximum of 10% of the issued capital), the expected costs to the company and the expected benefits to participants, arising from awards under the current share option plan, the proposed LTIP and DBP, and the potential SAR scheme. The proposed plans are structured to optimise the company’s taxation position, and the reflection of the new accounting charges that are required under the new standard (IFRS 2/AC139), while providing a benefit that will assist in the attraction, retention and reward of executives and senior management. The primary intent of the new schemes will be to purchase shares in the market to settle the scheme benefits, so the schemes will not be as dilutive as the current share option scheme. The company will retain the right to issue new shares at its election to mitigate the risk of a spike in the share price which could expose the company to liquidity risk. In any case, the company will be limited to issuing 10% of the company’s ordinary shares in settlement of benefits of all company share schemes over any ten- year period. Due to the settlement method of the scheme (equity rather than cash-settled) the scheme will enjoy a favourable treatment under the new IFRS 2 accounting standard which permits the charge which is made to reflect the grant of new instruments to be stated using the initial assessment of financial market conditions at the time of grant. This treatment is generally viewed more favourably than the treatment of cash-settled share-based payments which require market conditions to be marked to market, leading to higher volatility, and the possibility of large additional charges if market factors such as the share price and the share volatility lead to significantly higher instrument valuations before they are settled. The new schemes also support the principle of alignment of management and shareholder interests – performance conditions governing the vesting of the scheme instruments are related to total shareholder return and return on capital employed relative to targets that are intended to be stretching but achievable. Targets are linked where applicable to the company’s medium-term business plan, over rolling three-year performance periods. Please note the term “Face Value of the Award” when used in the context of setting limits (overall and individual) in the salient features and the rules refers to the face value of the shares associated with the LTIP or DBP award. This should not be confused with the “Expected Value of the Award” which is used when establishing the accounting cost of the award for reflection in the company’s financial statements, and the value of the benefit of awards for scheme members used by the remuneration committee to establish appropriate variable remuneration levels relative to benchmarks. The LTIP and DBP will be established by the company under which executive directors and employees of the company and its subsidiaries and associates will be awarded rights to receive shares in the company based on the value of these awards (after the deduction of employee tax) when performance conditions have been met and the awards have vested. A summary of the main terms of the plans and the performance conditions that will be applied to the initial grant is set out below. Note that performance conditions for subsequent awards may utilise different performance measures and targets, but will be no less challenging in the context of the prevailing business environment. SALIENT FEATURES OF THE KUMBA RESOURCES LTIP The LTIP will be established by the company under which executive directors and employees of the company and its subsidiaries and associates will be awarded rights to a number of shares in the ordinary share capital of the company as will be set forth in grant letters. A summary of the main terms of the LTIP is set out below: 1. 2. 2.1 Eligibility Any executive directors or employees of any participating company may be selected by the remuneration committee to be participants in the plan. Non-executive directors who are members of the committee may not participate in the plan. Performance conditions The vesting of LTIP awards will be conditional upon the achievement of group performance levels (established by the remuneration committee) over a performance period of 3 (three) years (LTIP performance period), as set out in the grant letter. P A G E 176 K U M B A A N N U A L R E P O R T 2 0 0 4 2.2 2.2.1 2.2.2 The performance conditions referred to above will be set as of the date of grant of the LTIP award. Two performance conditions will be imposed for the initial grant: The total shareholder return (TSR) condition. The return on capital employed (ROCE) condition. 2.3 2.4 2.5 For the initial award, 50% of the LTIP award will be subject to the TSR condition and 50% will be subject to the ROCE condition. The grant of all LTIP awards will be conditional upon the participant remaining employed within the group for a minimum employment period of 3 (three) years (LTIP minimum employment period) as set out in the grant letter. If a participant ceases to be employed within the group during the LTIP minimum employment period, all LTIP awards granted to the participant will lapse. 2.6 2.6.1 2.6.2 The TSR condition The Kumba TSR will be compared to the TSR of a peer group over the LTIP performance period, averaged over a 6 (six) month period. The peer group will comprise at least 16 members. Subject to the participant remaining employed by the group for the LTIP minimum employment period, if the TSR over the LTIP performance period: 2.6.2.1 ranks within the upper quartile of the TSR of the peer group, then the whole LTIP award, which is subject to the TSR condition will become unconditional and will vest; 2.6.2.2 ranks at the median TSR of the peer group, then not more than 30% (thirty percent) of the LTIP award, will become unconditional and will vest. The remainder of the LTIP award subject to the TSR condition will lapse and will be of no further force or effect; 2.6.2.3 ranks less than the upper quartile rank of the peer group and ranks greater than the median of the peer group, then the percentage of the LTIP award, subject to the TSR condition, which becomes unconditional and will vest, will be linearly apportioned as the ranking of the TSR increases. The remainder of the LTIP award, subject to the TSR condition, will lapse and will be of no further force or effect; 2.6.2.4 ranks less than the median TSR of the peer group then the whole of the LTIP award, subject to the TSR condition, will lapse and will be of no force or effect whatsoever. 2.7 2.7.1 2.7.2 2.7.3 2.7.4 2.7.5 The ROCE condition The ROCE measure is a return on capital employed measure with a number of adjustments. Targets are set by the remuneration committee based on existing ROCE performance in the base year of an LTIP and planned ROCE performance in the final year of the LTIP performance period. Subject to the participant remaining employed by the group for the LTIP minimum employment period, the number of LTIP awards that vest in terms of the ROCE condition is determined as follows: If the ROCE in the final year of the LTIP performance period of the company is equal to the minimum ROCE target, then the minimum ROCE award (30% of the grant subject to the ROCE condition) vests. If the ROCE in the final year of the LTIP performance period is equal to, or exceeds the maximum ROCE target, then the maximum award (100% of grant) vests. The award vests linearly between 30% and 100% for performance between the minimum ROCE target and the maximum ROCE target. The principles underlying these targets are: 2.7.6 2.7.6.1 The lower target for existing capital is equal to the actual ROCE in the base year. 2.7.6.2 The upper target for existing capital is implied by the current three-year plan. The achievement of the plan in final year will give rise to a 90% payout of the LTIP. This builds some stretch into the target to achieve more than the plan. 2.7.6.3 The upper and lower targets for incremental capital are set to the nominal pre-tax weighted average cost of capital of Kumba. 2.7.7 Operating profit Income from associates Price adjustments to base year Realised and unrealised foreign exchange (gains)/losses ROCE definition ROCE = Adjusted operating profit/average capital employed Where, in respect of the financial year being measured: Adjusted operating profit Equals Plus Plus Plus And: Adjusted capital employed Equals Less The price adjustment for any year within an LTIP is calculated as follows: [(Commodity price ave of base year* inflation factor) – (commodity price at ave for the year)]* Volume of commodity sold in the year. Capital employed Capital projects in progress 2.7.8 K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 177 Annexure A The proposed Kumba Resources Long-term Incentive Plan 2005 (LTIP) and Deferred Bonus Plan 2005 (DBP) continued 2.7.9 The inflation factor converts commodity prices from the base year to their nominal equivalent in any given year. The inflation factor to be used for the LTIP is the South African CPI-X index. 2.7.10 Average capital employed is taken as the average of the opening and closing balances (after adjustments) of capital employed in the year over which profit is measured. 2.7.11 Other adjustments may be applied from time to time by the remuneration committee to reflect change in circumstances (for example, disposals). 3. 3.1 3.1.1 3.1.2 Limits Shares available for the plan The aggregate number of shares which may be allocated under the plan on any day, when added to the total number of unvested awards which have been allocated previously under this plan and any other employee share scheme operated by the company, shall not exceed 10% of the number of issued ordinary shares of the company from time to time, being 30,2 million at present. For this purpose, one ordinary share shall be allocated for each unvested conditional award. The committee may, with the approval of the JSE, where required, adjust the number of shares available for the plan (without the prior approval of the company in general meeting) on a proportionate basis to take account of: 3.1.2.1 a capital issue or a rights offer of shares or a subdivision or consolidation of shares of the company or a reduction of capital or repayment of monies to shareholders; 3.1.2.2 any other circumstances where such adjustment may be necessary or appropriate, except a new issue of shares by the company for acquisition purposes. 3.2 3.2.1 Individual limit The maximum number of shares allocated to all unvested awards granted to any participant, in respect of this plan and any other employee share scheme operated by the company, shall not exceed the limit determined from time to time by the directors, which number of shares shall not exceed 1% of the issued ordinary share capital of the company from time to time, being 30,2 million at present. 4. 4.1 4.2 4.3 5. 6. 6.1 6.2 Termination of employment Subject to the provisions of this clause, a participant whose employment with all companies in the group terminates for any reason other than as set out in the following paragraphs before the end of a performance period will cease to be entitled to any grant, unless the committee determines otherwise. Retirement, retrenchment, ill health, disability, or any other circumstances which the company may consider appropriate If a participant’s employment with any company in the group terminates before the end of a performance period, by reason of retrenchment, ill health, retirement, disability or any other circumstance which the company may consider appropriate, the committee may, in their absolute discretion by written notice to the participant deem a pro-rata portion of the LTIP award to vest within 6 (six) months (or such extended period as the committee regards as appropriate) of the date of cessation of employment. In exercising its discretion, the committee will take into consideration the extent to which the performance conditions have been satisfied and the proportion of the performance period that has endured. Death If a participant’s employment with any company in the group terminates by reason of death, a proportion of the grant vests on the date of death. That proportion reflects the number of whole months of the performance period, which have run at the date of death. The number of shares which vest shall be calculated as soon as practicable, and notified to the executor of the deceased participant’s estate and released no longer than 6 (six) months from the date of death and the provisions of 2 shall apply accordingly. Settlement method The company may, at its election, settle the conditional awards by issuing new shares, or by instructing any third party (including a share trust constituted for this purpose) to acquire and deliver the shares to employees. The company may not issue more than 10% of its issued share capital over any rolling 10-year period following the adoption of this scheme, in the settlement of employee and director share-based payments. The number of shares in issue at the end of the 10-year period, less shares issued to settle share-based payments, shall be used for this calculation. Application will be made for a listing of the shares at the time of issue. Reconstruction or takeover In the event of a reconstruction or takeover of the company before the vesting date, the committee must review the performance condition and the extent to which it has been satisfied up to the date of the reconstruction or takeover, and calculate the number of shares to vest in each participant accordingly. Settlement shall be made for the vested shares so calculated as soon as practicable. If there is an internal reconstruction or other event which does not involve any substantial change in the ultimate control of the company, and therefore is not a reconstruction or takeover, or if any other event happens which may affect grants, including the shares ceasing to be listed on the JSE, the committee may take such action as it considers appropriate to protect the interests of participants, including converting grants into equivalent grants in respect of shares in one or more other companies. P A G E 178 K U M B A A N N U A L R E P O R T 2 0 0 4 7. 7.1 8. 9. 10. Variation in share capital In the event of a rights issue, capitalisation issue or other event affecting the share capital of the company, a demerger (in whatever form) or in the event of the company making distributions including a distribution in specie or a payment in terms of section 90 of the Companies Act, 61 of 1973, as amended, (the Act) (other than a dividend paid in the ordinary course of business out of distributable reserves) before the release date in respect of a conditional award, the committee may make such adjustment to the number of shares comprised in the relevant grants as it thinks appropriate. General The salient features as circulated to shareholders and the plan rules will be available for inspection during normal business hours at the company’s registered office from 24 March 2005 to 15 April 2005. Amendments The plan rules may be amended by the board subject to prior approval of the JSE, provided that no amendment shall operate in respect of the following matters unless such amendments have received the approval of the company in general meeting: – eligibility to participate in the plan; – the number of shares subject to the plan; – the basis for determining offers; – the adjustment of offers in the event of a variation of capital of the company; – the voting, dividend and other rights attaching to the shares of the plan; – the limitations on benefits or maximum entitlements. Glossary of terms “Base pay” “Business day” “Committee” “Employee” “Letter of grant” “Market value” “Participant” “Participating company” “Performance condition” “Performance period” “Shares” “Value of grant” “Vesting date” “Total shareholder return (TSR)” The total cash package of an employee; a day on which the JSE is open for the transaction of business; the remuneration committee of the board of directors of the company or any duly authorised committee; any person holding full-time salaried employment or office (including any executive director) of the group; a document prepared by the company which details the name of the participant to whom the conditional award is granted, the number of shares in respect of which the conditional award is granted, and any applicable conditions pertaining thereto; the volume weighted average of the market price of a company share as quoted on the JSE; an employee to whom a grant has been made and who has accepted a grant and includes the executor of a deceased estate or a family trust where appropriate, but excludes non-executive directors who are members of the committee; the company and its subsidiaries and associated organisations, all as defined in the Act; the condition specified in the letter of grant, to which a grant is subject; the period in respect of which a performance condition is to be satisfied; ordinary shares of one cent each in the capital of the company and includes any shares representing them following a reconstruction or takeover; the market value of shares related to the grant determined as at the date of grant; means the date on which a participant becomes entitled to receive settlement due to the fulfilment of performance conditions and “vest” and “vested” shall be construed accordingly; means the return to shareholders from the change in the share price and the payment of dividends and other distributions. SALIENT FEATURES OF THE KUMBA RESOURCES DBP The DBP will be established by the company under which executive directors and employees of the company and its subsidiaries and associates will have the opportunity to acquire shares (pledged shares) with the after-tax component of the annual bonus. This will entitle employees to receive a matching award comprising of shares in the ordinary share capital of the company as will be set forth in grant letters. A summary of the main terms of the DBP is set out below: 1. 2. Eligibility Any executive directors or employees of any participating company may be selected by the remuneration committee to be participants in the plan. Non-executive directors who are members of the committee may not participate in the plan. Vesting conditions The vesting of the matching awards will be conditional upon the employee holding the pledged shares until the release date, and remaining in the employ of the company until the release date as set out in the grant letter. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 179 Annexure A The proposed Kumba Resources Long-term Incentive Plan 2005 (LTIP) and Deferred Bonus Plan 2005 (DBP) continued 3. 3.1 3.1.1 3.1.2 Limits Shares available for the plan The aggregate number of matching shares which may be awarded as a result of the holding of pledged shares under the plan on any day, when added to the total number of unvested awards allocated previously under this plan and any other employee share scheme operated by the company, shall not exceed 10% of the number of issued ordinary shares of the company from time to time being 30,1 million at present. The committee may, subject to the approval of the JSE, where required, issue further shares for the purposes of the plan in place of those shares received by an employee pursuant to the vesting of the matching award. For this purpose, one ordinary share shall be allocated for each unvested matching award related to currently pledged shares in terms of the plan. The committee may, with the approval of the JSE, where required, adjust the number of shares available for the plan (without the prior approval of the company in general meeting) on a proportionate basis to take account of: 3.1.2.1 a capital issue or a rights offer of shares or a subdivision or consolidation of shares of the company or a reduction of capital or repayment of monies to shareholders; 3.1.2.2 any other circumstances where such adjustment may be necessary or appropriate, except a new issue of shares by the company for acquisition purposes. 3.2 3.2.1 Individual limit The maximum number of shares allocated to all unvested awards granted to any participant, in respect of this plan and any other employee share scheme operated by the company, shall not exceed the limit determined from time to time by the directors, which number of shares shall not exceed 1% of the issued ordinary share capital of the company from time to time, being 30,2 million at present. 4. 4.1 4.2 4.3 5. 5.1 5.2 6. 6.1 6.2 Termination of employment Subject to the following provisions of this clause, if the participant ceases to be employed by any participating company before the vesting date, he shall not be entitled to receive a matching award on the vesting date, unless the committee decides otherwise. Retrenchment, ill health, disability, retirement or any other circumstances which the company may consider appropriate If a participant’s employment with any company in the group terminates before the release date due to his redundancy, ill health, disability, retirement or any other circumstances which the company may consider appropriate, a proportion of his matching awards vests on the date of termination. That proportion reflects the number of whole months of the pledge period which have run at the date of termination of employment. The number of shares which vest shall be calculated as soon as practicable, and notified to the participant. Death If the participant’s employment is terminated by reason of death, an executor of the deceased estate, as the case may be, shall be entitled on termination to request the transfer to the estate of the pledged shares. A proportion of the matching awards vests on the date of death. That proportion reflects the number of whole months of the pledge period which have run at the date of death. The number of shares which vest shall be calculated as soon as practicable, and notified to the executor of the deceased participant’s estate. Reconstruction or takeover In the event of a reconstruction or takeover, the participant shall be entitled to receive the pledged shares and the matching award forthwith. If there is an internal reconstruction or other event which does not involve any substantial change in the ultimate control of the company, and therefore is not a reconstruction or takeover, or if any other event happens which may affect offers, including the shares ceasing to be listed on the JSE, the committee may take such action as it considers appropriate to protect the interests of participants, including converting offers into equivalent offers in respect of shares in one or more other companies. Variation in share capital Pledged shares If there is a rights issue or other variation of share capital of the company, under which shareholders are offered the opportunity to make any choice, the participant shall be entitled to give instructions to the trust as to the choice to be made in respect of pledged shares held by the trust on his behalf. The trust shall transfer to the participant any proceeds on the sale of rights, and any securities issued on the take up of rights, at the participant’s request. Matching awards The committee may vary the amount of shares comprised in the matching award to take account of any variation in the share capital of the company, or a special or extraordinary distribution including a distribution in specie or a payment in terms of section 90 of the Act (other than a dividend paid in the ordinary course of business out of distributable reserves) or other transaction which might adversely affect the value of shares, to ensure that the participant is not disadvantaged. P A G E 180 K U M B A A N N U A L R E P O R T 2 0 0 4 7. 8. 9. General The salient features as circulated to shareholders and the plan rules will be available for inspection during normal business hours at the company’s registered office from 24 March 2005 to 15 April 2005. Amendments The plan rules may be amended by the board subject to prior approval of the JSE, provided that no amendment shall operate in respect of the following matters unless such amendments have received the approval of the company in general meeting: – eligibility to participate in the plan; – the number of shares subject to the plan; – the basis for determining offers; – the adjustment of offers in the event of a variation of capital of the company; – the voting, dividend and other rights attaching to the shares of the plan; – the limitations on benefits or maximum entitlements. Glossary of terms “Base pay” “Business day” “Committee” “Employee” “Date of offer” “Matching award” “Market value” “Offer to participate” “Participant” “Participating company” “Pledged shares” “Release date” “Shares” “Vesting date” The total cash package of an employee; a day on which the JSE is open for the transaction of business; the remuneration committee of the board of directors of the company or any duly authorised committee; any person holding full-time salaried employment or office (including any executive director) of the group; the date on which the committee resolves to grant a matching awards to an employee as specified in the letter of offer; an award of shares made to a participant equal in value to the market value of the pledged shares on the vesting date; the volume weighted average of the market price of a company share as quoted on the JSE; a document prepared by the company which details the name of the participant, the number of pledged shares and matching shares relating to each pledged share, the release date and any applicable conditions pertaining thereto; an employee who has been selected to participate in the plan, offered the opportunity to participate and who has accepted the offer to participate, and includes the executor of his deceased estate or a family trust where appropriate, but excludes non-executive directors who are members of the committee; the company and its subsidiaries and associated organisations, all as defined in the Act; a number of shares acquired by a participant with a portion of the after-tax component of his annual bonus; the date on which the settlement for the vested matching award is made and the pledged shares are released from the pledge; ordinary shares of one cent each in the capital of the company and includes any shares representing them following a reconstruction or takeover; the date on which a participant becomes entitled to the matching award as is specified in the offer to participate and “vest” and “vested” shall be construed accordingly. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 181 Kumba administration Secretary and registered office MS Viljoen Kumba Resources Limited Roger Dyason Road Pretoria West Pretoria 0183 PO Box 9229 Pretoria 0001 South Africa Telephone +27 12 307 5000 Company registration number: 2000/011076/06 JSE share code: KMB ISIN code: ZAE000034310 Auditors Deloitte & Touche Private Bag X6 Gallo Manor 2052 Commercial bankers Absa Bank Limited Shareholders’ diary FINANCIAL YEAR-END ANNUAL GENERAL MEETING REPORTS AND ACCOUNTS Interim report for the half-year ending 30 June Announcement of annual results Annual Report DISTRIBUTION Final dividend declaration Payment Interim dividend declaration Payment 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 Registrars Computershare Investor Services 2004 (Pty) Limited Ground Floor, 70 Marshall Street Johannesburg, 2001 PO Box 61051 Marshalltown 2107 31 December April/May Published July/August February March February March July/August September P A G E 182 K U M B A A N N U A L R E P O R T 2 0 0 4 KUMBA RESOURCES LIMITED (Incorporated in the Republic of South Africa) (Registration No 2000/011076/06) (“Kumba” or “the company”) JSE share code: KMB ISIN code: ZAE 000034310 Form of proxy TO BE COMPLETED BY CERTIFICATED SHAREHOLDERS AND DEMATERIALISED SHAREHOLDERS WITH “OWN NAME” REGISTRATION ONLY For completion by registered members of Kumba unable to attend the annual general meeting of the company to be held at 14:00 on Friday, 15 April 2005, 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 at 14:00 on Friday, 15 April 2005, at Kumba Corporate Centre, Roger Dyason Road, Pretoria West, or at any adjournment thereof, 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 1. Resolution to adopt the 2004 audited group financial statements 2. 3. 4. Resolution to re-appoint Deloitte & Touche as auditors Resolution to authorise the directors to determine auditors’ remuneration Resolution to re-elect the directors required to retire in terms of the articles of association 4.1 Mr PM Baum 4.2 Mr WA Nairn 4.3 Mr PL Zim Resolution to re-elect directors required to retire by rotation 4.4 Mr TL de Beer 4.5 Mr JJ Geldenhuys 4.6 Dr D Konar 5. 6. 7. 8. Resolution to approve the non-executive directors’ remuneration for the period 1 January 2005 to 31 December 2005 Resolution to authorise the directors to allot and issue unissued ordinary shares Resolution to authorise the directors to allot and issue ordinary shares for cash Resolution for approval of Kumba Resources Long-Term Incentive Scheme 2005 (LTIP) and Kumba Resources Deferred Bonus Plan 2005 (DBP) Special business 1. Special resolution to authorise directors to repurchase company shares Please indicate with an “X” in the appropriate spaces provided above how you wish your vote to be cast. If no indication is given, the proxy may vote or abstain as he/she sees fit. Signed at Signature this day of 2005 Assisted by me, where applicable (name and signature) Please read the notes on the reverse side hereof. K U M B A A N N U A L R E P O R T 2 0 0 4 P A G E 183 Form of proxy continued 3. 4. 5. 6. 7. 8. A form of proxy is only to be completed by those ordinary shareholders who are: NOTES 1. 1.1 holding ordinary shares in certificated form; or 1.2 2. recorded on sub-register electronic form in “own name”. If you have already dematerialised your ordinary shares through a Central Securities Depository participant (CSDP) or broker and wish to attend the annual general meeting, you must request your CSDP or broker to provide you with a Letter of Representation or you must instruct your CSDP or broker to vote by proxy on your behalf in terms of the agreement entered into between yourself and your CSDP or broker. A member may insert the name of a proxy or the names of two alternative proxies of the member’s choice in the space. The person whose name stands first on the form of proxy and who is present at the annual general meeting of shareholders will be entitled to act to the exclusion of those whose names follow. On a show of hands a member of the company present in person or by proxy shall have 1 (one) vote irrespective of the number of shares he/she holds or represents, provided that a proxy shall, irrespective of the number of members he/she represents, have only 1 (one) vote. On a poll a member who is present in person or represented by proxy shall be entitled to that proportion of the total votes in the company, which the aggregate amount of the nominal value of the shares held by him/her, bears to the aggregate amount of the nominal value of all the shares issued by the company. A member’s instructions to the proxy must be indicated by the insertion of the relevant numbers of votes exercisable by the member in the appropriate box provided. Failure to comply with the above will be deemed to authorise the proxy to vote or to abstain from voting at the annual general meeting as he/she deems fit in respect of all the member’s votes exercisable thereat. A member or the proxy is not obliged to use all the votes exercisable by the member or by the proxy, but the total of the votes cast and in respect of which abstention is recorded may not exceed the total of the votes exercisable by the member or by the proxy. Forms of proxy must be lodged at, or posted to Computershare Investor Services 2004 (Pty) Limited, to be received not later than 48 hours before the time fixed for the meeting (excluding Saturdays, Sundays and public holidays). For shareholders on the South African register: Computershare Investor Services 2004 (Pty) Limited Ground Floor, 70 Marshall Street, Johannesburg, 2001 PO Box 1053, Johannesburg, 2000 www.computershare.com 011 370 5000 Over-the-Counter American Depositary Receipt (ADR) holders Kumba has an 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: American Depositary Receipt Facility (ADR) Bank of New York 101 Barclay Street New York, NY 10286 www.adrbny.com shareowners@bankofny.com +(1) 888 815 5133 The completion and lodging of this form of proxy will not preclude the relevant member from attending the annual general meeting and speaking and voting in person thereat to the exclusion of any proxy appointed in terms hereof. Documentary evidence establishing the authority of a person signing this form of proxy in a representative capacity or other legal capacity must be attached to this form of proxy, unless previously recorded by the transfer secretaries or waived by the chairman of the annual general meeting. Any alteration or correction made to this form of proxy must be initialled by the signatory/ies. 9. 10. Notwithstanding the aforegoing, the chairman of the annual general meeting may waive any formalities that would otherwise 11. be a prerequisite for a valid proxy. If any shares are jointly held, all joint members must sign this form of proxy. If more than one of those members is present at the annual general meeting, either in person or by proxy, the person whose name first appears in the register shall be entitled to vote. P A G E 184 K U M B A A N N U A L R E P O R T 2 0 0 4 Vi s i t u s a t w w w. k u m b a r e s o u r c e s . c o m G R A P H I C O R 3 2 0 5 3
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