DRIVING CHANGE, DEFINING OUR FUTURE - SUSTAINABILITY REPORT 2015 KUMBA IRON ORE LIMITED
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SUSTAINABILITY REPORT 2015
DRIVING CHANGE,
DEFINING OUR FUTURE
KUMBA IRON ORE LIMITEDINTRODUCTION
OUR APPROACH TO REPORTING
DRIVING CHANGE, DEFINING OUR FUTURE
NAVIGATING OUR 2015 REPORTS This sustainability report (SR) provides information relating to Kumba’s,
business and operational performance on the material economic, social
Sustainability report (SR) and environmental impacts of our activities, for the period 1 January 2015
to 31 December 2015. The report covers our Sishen, Kolomela and
Reviews our approach to managing our Thabazimbi mines, our corporate office in Centurion, and the Saldanha
significant economic, social and port. The report is aimed at the broad range of our stakeholders: those
environmental impacts, and to addressing individuals, groups or organisations that affect and/or could be affected by
those sustainability issues of interest to a our activities, products and associated performance, including our
SUSTAINABILITY REPORT 2015
DRIVING CHANGE,
broad range of stakeholders. employees, shareholders, local communities, investors, customers,
DEFINING OUR FUTURE
KUMBA IRON ORE LIMITED
business partners, NGOs and government.
This is the third year that our sustainability report has applied the GRI’s
G4 Sustainability Reporting Guidelines (‘Core’) and GRI Mining and
Integrated report (IR) Metals Sector Supplement (MMSS). Our reporting is also aligned with
A succinct review of our strategy and business the AA1000 stakeholder engagement standard, the sustainable
model, operating context, governance and development principles and reporting framework of the International
operational performance, targeted primarily Council on Mining and Metals (ICMM), and the principles of the United
at current and prospective investors. Nations Global Compact (UNGC).
In addition we have published an integrated report (IR), annual financial
INTEGRATED REPORT 2015
DRIVING CHANGE,
DEFINING OUR FUTURE
KUMBA IRON ORE LIMITED
statements (AFS), and Ore Reserves and Mineral Resources (ORMR)
report. The reporting process for all our reports has been guided by the
principles and requirements contained in the International Financial
Reporting Standards (IFRS), the IIRC’s International Framework, the
Annual financial statements (AFS) GRI’s G4 Guidelines, the King Code on Corporate Governance 2009
Detailed analysis of our financial results, (King III), the JSE Listings Requirements and the Companies Act, 71 of 2008.
with audited financial statements, prepared
We use a combined assurance model to provide us with assurance
in accordance with the IFRS.
obtained from management and from internal and external assurance
providers. PricewaterhouseCoopers (PwC) verified key information
provided in our SR. PwC’s assurance statement is provided on page 70.
ANNUAL FINANCIAL STATEMENTS 2015
DRIVING CHANGE,
DEFINING OUR FUTURE
KUMBA IRON ORE LIMITED
Back cover Front cover
7 1 2 3
Ore Reserves and Mineral Resources report (ORMR)
Kumba Iron Ore
Centurion Gate – Building 2B
124 Akkerboom Road
Centurion
0157
www.angloamericankumba.com
A member of the Anglo American plc Group
www.angloamerican.com
Find us on Facebook
Follow us on Twitter
Reported in accordance with the 8 9 6 4
South African Code for the Reporting of 10 5
Exploration Results, Mineral Resources and
Mineral Reserves (SAMREC 2007; SUSTAINABILITY REPORT 2015
ORE RESERVES AND MINERAL RESOURCES REPORT 2015
DRIVING CHANGE,
July 2009 amended). DRIVING CHANGE,
DEFINING OUR FUTURE
DEFINING OUR FUTURE
KUMBA IRON ORE LIMITED
KUMBA IRON ORE LIMITED
Front cover images treatment and medical care to patients. The clinic
was built by Kolomela mine for the community
1. Chipo Taruona, a sales lady at the Thabazimbi
of Postmasburg.
cultural village selling locally created carvings
and artifacts to tourists visiting the town. 6. Sishen mine is Kumba’s largest operation and the
only haematite ore producer in the world to fully
2. Farmworkers Doreen Motaung, Sipho
beneficiate its product.
Online (WEB) Sekhwela, Pleasure Mahoa, Abram Nakana
and Florence Tembe harvesting crops at the
Back cover images
Each of these reports, with additional updated information, Bakotudi farm funded by Kumba. The farm
grows and distributes vegetables to the local 7. A view of the Saldanha iron ore multi-purpose
is available on our website: www.angloamericankumba.com markets in the area. terminal. The main stockpile conveyor lines run
3. A general view of Sishen mine situated in the at a very high speed.
Northern Cape province. 8. Mosimanithebe Gaosenkwe, a haul truck
4. Johannes Davies, a training officer training operator at the haul truck refuel and wash bay at
students, Haword Gedulo, Heireich Hofmeester, Sishen mine washing a Komatsu 860 truck.
Sylvester Modise, Jan Plaatjie, Gavin Hunter, 9. Sishen mine is Kumba’s largest operation and the
Tyron Visagie and Bradley Page in bricklaying only haematite ore producer in the world to fully
skills. The students are all part of the Dingleton beneficiate its product.
relocation project and attend the classes to gain 10. Dimpho Sephiri, Mafoka Mahloane and
For more information, visit additional skills. Gomolemo Comoletiale, learnership students
http://www.angloamericankumba.com/
5. Mary Louise Vos and Enosen Shea, nurses at the at the Tshipi skills development centre at
Postmasburg primary health care clinic provide Sishen mine learning plumbing skills.
Kumba Iron Ore Limited Sustainability Report 2015GROUP PERFORMANCE CONTENTS
GROUP PERFORMANCE
IFC Our approach to reporting
2 Social, Ethics and Transformation Committee Chairman’s review
AVERAGE REALISED IRON ORE PRICE OF US$53/tonne
down 42% OUR BUSINESS
4 Our business
6 Chief executive’s review
PRODUCTION OF 44.9Mt
down 7%
10 Our business model
12 Creating sustainable value
14 Key stakeholder interests
HEADLINE EARNINGS PER SHARE (HEPS) OF R11.82 16 Our strategy
down 66% 17 Sustainability governance
PEOPLE
20 Investing in an effective and engaged workforce
26 Ensuring a safe workplace
Number ofNumber
employees
of employees CED expenditure
CED expenditure 30 Promoting the health and wellbeing of our employees
11,790
11,790 R175
R175 million million
SOCIETY
36 Managing the social impacts of our activities
2015 2015 11,790 11,790 2015 2015 R175 millionR175 million 39 Making a positive social contribution
2014 2014 14,040 14,040 2014 2014 R202 millionR202 million
ENVIRONMENT
Fatalities Fatalities SignificantSignificant
environmental incidents incidents
environmental 46 Our environmental management approach
0 0 1 1
48 Resource stewardship: water, energy and land
55 Climate change mitigation and adaptation
2015 0 2015 0 2015 2015 1 1 59 Air quality and waste management
2014 2014 1 1 2014 2014 1 1
APPENDIX
62 Our sustainability performance
LTIFR LTIFR Energy consumption
Energy consumption
64 Mining Charter scorecard
0.230.23 11.111.1 million GJmillion GJ
65 Summary GRI table
70 Independent assurance report
2015 2015 0.23 0.23 2015 2015 11.1 million GJ
11.1 million GJ
2014 2014 0.23 0.23 2014 2014 10.8 million GJ 73GJReport of the external review panel
10.8 million
74 Glossary of terms and acronyms
New occupational health cases
New occupational health cases Primary water used
Primary water used IBC Administration
28 28 10,088,930m
10,088,930m
3 3
2015 2015 28 28 2015 2015 DIRECTORS’
10,088,930m10,088,930m
3 3 RESPONSIBILITY
2014 2014 14 14 2014 2014 8,734,000m38,734,000m3
The Kumba board, supported by the Audit Committee, has
overall accountability for this report. It delegated the
% HDSA in%management
HDSA in management GHG emissions
GHG emissions responsibility to oversee the reporting process to its Social,
59 59
Ethics and Transformation Committee, which was assisted
1.201.20 Mt CO2 equivalent
Mt CO2 equivalent
by a Steering Committee comprising executive managers
and a dedicated reporting team. The board collectively
2015 2015 59 59 2015 2015 1.20Mt 1.20Mt reviewed the content of this report and confirms that it
2014 2014 58 58 2014 2014 1.21Mt 1.21Mt believes this Sustainability Report 2015 addresses our
material issues, and is a balanced and appropriate
% women%
inwomen
management
in management presentation of the sustainability performance of the group.
The Kumba board approved this report on 10 March 2016.
18 18 Dolly Mokgatle
Chairman: Social, Ethics and Transformation Committee
2015 2015 18 18
2014 2014 20 20
10 March 2016
Kumba Iron Ore Limited Sustainability Report 2015 1SOCIAL, ETHICS AND TRANSFORMATION COMMITTEE CHAIRMAN’S REVIEW
SOCIAL, ETHICS AND TRANSFORMATION
COMMITTEE CHAIRMAN’S REVIEW
medical surveillance programme, the results of which are
Dolly Mokgatle reviewed in more detail elsewhere in this report. As part of
Chairman: Social, Ethics and Transformation Committee Kumba’s holistic approach to health, employees have access
to voluntary counselling and testing for a broad range of
chronic conditions such as HIV/AIDS, hypertension and
diabetes. We have continued to see an encouraging uptake of
our wellness screening. In 2015, for example, we once again
met our target of 90% participation in our voluntary HIV/AIDS
testing programme.
INVESTING IN AN EFFECTIVE AND STABLE WORKFORCE
Being held to account by our stakeholders, and
Given the context of the volatile labour relations across the
engaging in frank dialogue, is essential if we are country, the challenges facing the South African mining
to deliver effectively on our sustainability goals. sector, and Kumba’s current organisational restructuring
process, the importance of developing and maintaining
positive relationships with employees has taken on particular
DEAR STAKEHOLDER significance. Following the successful conclusion in 2014 of a
three-year wage agreement with our recognised trade unions,
It gives me great pleasure to introduce you to Kumba’s 2015 we have experienced another year of industrial relations
Sustainability Report, and to present the 2015 report of the stability across our operations.
Social, Ethics and Transformation (SET) Committee. The
Committee is tasked with ensuring that Kumba attains its The good relationship that the Company enjoys with
goals relating to the management of safety and health, the employees and their union representatives has been evident
environment, social, transformation and ethics issues across throughout the restructuring undertaken during the year.
the Company. During this process, we have made every effort to ensure
effective consultation and to provide affected employees with
In this opening review, I share some of my overriding the necessary support and assistance. In doing so, we have
impressions of Kumba’s sustainability performance during had very constructive relationships with employees, both
2015. I encourage you to please share your feedback on this during the difficult process of closing our Thabazimbi mine,
sustainability report, in terms of both our performance and as well as the restructuring of both our head office and our
our disclosure. support services at the mines. We have been pleasantly
surprised by the appreciation and understanding shown by
ENSURING A SAFE AND HEALTHY WORKPLACE many affected stakeholders.
I am saddened to report that very early in 2016, a Kumba
employee was fatally injured in an incident involving moving STRIVING TO MAKE A POSITIVE SOCIAL CONTRIBUTION
machinery at the Kolomela mine. This most regrettable We recognise that mining companies have both a
incident occurred after what had been a fatality-free year. responsibility and an interest in contributing to the wellbeing
Throughout the year we had been placing a very strong focus of the communities in which they operate. In addition to
on fatality prevention through the identification of priority providing direct employment opportunities and significant tax
unwanted events and the implementation of critical controls. revenues, we make an important positive contribution
While we have also seen a good improvement in through our procurement activities and our corporate social
our leading safety indicators, it is disappointing that we investment funding.
have not achieved our targeted improvements for our
lagging indicators. Given the profound challenges of the current economic
climate and the growing expectations of communities, many
We continue to strive to reduce the number of injuries at our of whom have been the recipients of the benefits of social
operations. Recognising the impact of the organisational investment programmes, we need to find innovative ways to
restructuring processes on our safety performance, we have deliver further social return with substantially less funding.
been placing a particular emphasis on behavioural-based This was also at the centre of the outcomes of the socio-
interventions. During 2015, Kumba embarked on a significant economic impact study that we conducted in 2015. We have
organisational restructuring process. There was a strong drive been focusing our efforts on engaging with communities,
during the year on engaging employees through visible felt their representatives and other key stakeholders to identify
leadership, with managers spending more time out in the field those projects that will be most effective in addressing priority
working with employees to identify unwanted events and community needs in a manner that can be sustained beyond
assess the effectiveness of controls. We continue to prioritise our intervention. We are seeking to do so by establishing and
the prevention of transportation incidents. In addition to strengthening collaborative partnerships informed by a
various technical initiatives relating to our vehicles, we have a shared vision of the desired outcomes.
comprehensive management programme to address the
challenges associated with driver fatigue and stress. Underpinning this approach is recognition of the need
to continue improving our process of engaging with
Through our occupational health improvement programme, stakeholders. A highlight in 2015 has been the stakeholder
the Company has been making progress in reducing road-show that we undertook to our operations across the
occupational exposure, particularly to noise and dust, our two Northern Cape in which Company executives, accompanied
main health risks. These efforts are supported by a stringent by members of the board, met with diverse stakeholder
2 Kumba Iron Ore Limited Sustainability Report 2015representatives from communities, government, traditional Due to adverse market conditions, we have had to adjust our
leadership, suppliers, SMMEs, unions and political parties. This rehabilitation targets. In response, we initiated a review of our
road-show built on the very successful Stakeholder Day that rehabilitation strategy. Managing our dust emissions remains
we held at Kathu in 2014. These engagements have helped us an important challenge. While we have seen some
enhance our understanding of stakeholders’ interests and improvements in our emission levels, we recognise that
needs, fostered greater stakeholder appreciation of our continuing work is needed to ensure full compliance with the
activities, and encouraged new thinking about how sustainable new legal limits that came into effect at the beginning of 2015.
development may be promoted in partnership across Kumba’s During 2015, we completed a study to better understand the
operations and host communities. background dust levels and sources of exceedances. The
results are informing our dust management plans and we are
In addition to this road-show, Kumba also undertook continuing to work with regulators in addressing this issue.
extensive engagements with internal and external
stakeholders regarding the closure of Thabazimbi. This was THE YEAR AHEAD
complemented by a socio-economic impact assessment
study that reviewed the issues that the mine, employees, the This has been a very tough year for the mining sector in
town and communities could face following the closure. This general, for the iron ore sector and for Kumba in particular.
study and the outcomes of our engagements have informed Looking to the year ahead, we see some significant further
our developmental and skills development projects that will challenges for the Company, with important implications for
form part of a social plan to mitigate the impacts. our sustainability activities and the work of the SET Committee.
Another important development during the year has been Mining forms a critical component of the South African
the ongoing relocation of the Dingleton North community, economy, contributing to around 6% of GDP and roughly
which is on track to be completed within budget in 2016. 60% of the country’s exports. With dramatically declining
Despite some differences between the relevant stakeholders, commodity prices and increasing production costs, the
I believe that this process has been effective in helping us sector’s contribution to an already struggling economy has
understand and accommodate community needs. declined significantly. At the same time, stakeholders’
expectations of the mining sector’s role in delivering social
TRANSFORMATION AND EMPOWERMENT value have increased, and may increase further in the run up
to the 2016 municipal elections.
We have continued to make good progress in delivering on
our commitment to transform and empower Kumba and its In preparing for the year ahead it is important that we do not
stakeholders. At year-end, Kumba received excellent create expectations that cannot be met. Establishing and
feedback on its DMR Mining Charter audit, recognising the maintaining trust with all our stakeholders will be critical as we
valuable work we have undertaken in terms of promoting strive to meet our commitments relating to zero harm,
employment equity, skills development, preferential transformation, socio-economic development and
procurement, enterprise and supplier development, and environmental protection. Demonstrating a genuine
community development. commitment and ability to deliver on our sustainability objectives
is an important basis for fostering this trust. I believe that the
One of our key focus areas has been the planning of a mining performance review in this sustainability report provides a very
supplier park in Kathu, Northern Cape. The park will attract good indication of our commitment and ability in this area.
various suppliers that are currently not present in Kathu due to
the unavailability of industrial space. Specific incubation IN APPRECIATION
opportunities for new local BEE business will arise due to the
operational requirements of the park and induced support I wish to conclude by thanking my colleagues on the board for
required by anchor tenants. We completed a project their support to the activities of the Committee, as well as my
development plan in partnership with the IDC, however, due fellow Committee members and the executives and
to the economic downturn, and muted interest from tenants, employee teams for their hard work and dedication in striving
the project may be put on hold, or adopt a phased-in approach. to deliver on Kumba’s sustainability commitments. I would
also like to convey my appreciation to all those stakeholders
RESPONSIBLE ENVIRONMENTAL STEWARDSHIP whose advice, counsel and support have been invaluable in
charting Kumba’s success.
Looking back at the year under review, the Committee is
generally satisfied with our environmental performance. As one of the two remaining founding directors on the Kumba
There has been particularly encouraging progress in our board, I have had the privilege of watching the Company
water and energy saving activities, with our set targets having develop since its inception. I have seen it operate across a
been exceeded through our Anglo American-guided water spectrum of commodity prices. During this time, I have come
and energy saving initiatives. Another important achievement to understand and appreciate what Kumba means for so
during the year was the issuing of some long-awaited many people. I am determined to ensure that in the year
integrated water use licences (IWULs), the culmination of an ahead, we do all that we can to ensure that we continue to
extensive process of constructive discussion with regulators. deliver value to all the Company’s stakeholders.
We have completed climate change adaptation studies at
Kolomela and Thabazimbi. Work on the closure plan for
Thabazimbi is on schedule. Our performance in these areas Dolly Mokgatle
has been recognised with an ‘A’ ranking in 2015 in terms of Chairman: Social, Ethics and Transformation Committee
both the CDP’s Climate Change and Water programmes. 10 March 2016
Kumba Iron Ore Limited Sustainability Report 2015 3OUR BUSINESS: OUR BUSINESS
OUR BUSINESS
OUR VISION: To be a successful and LISTED ON THE JSE LIMITED
sustainable African supplier of quality iron ore
to global and local markets while delivering 11,790 EMPLOYEES IN 2015 (2014: 14,040)
superior value to our stakeholders
CUSTOMERS IN SOUTH AFRICA, CHINA,
INDIA, JAPAN, SOUTH KOREA, EUROPE
WHO WE ARE AND THE MIDDLE EAST
Kumba is a supplier of high-quality iron ore to the global steel industry. We
operate primarily in South Africa, with mining operations in the Northern DOMESTIC SALES EXPORT SALES
Cape and Limpopo provinces, a head office in Centurion, Gauteng, and a (2014: 4.8Mt) (2014: 40.5Mt)
4.3Mt 43.5Mt
port operation in Saldanha Bay, Western Cape. Kumba has a 73.9% interest
in Sishen Iron Ore Company Proprietary Limited (SIOC), an entity which we
manage. SIOC, in turn, owns the operating assets of the Company. The
remaining 26.1% interest in SIOC is held by our black economic
empowerment (BEE) partners Exxaro Resources Limited (a leading BEE PRODUCTION WASTE MINED
company listed on the JSE), the SIOC Community Development Trust (2014: 48.2Mt) (2014: 274.3Mt)
44.9Mt 276.8Mt
(a trust that funds projects in local communities) and Envision (an employee
share participation scheme).
WHAT WE DO
BEING A PARTNER OF CHOICE
We produce high-grade iron ore, with a lump-to-fine ratio of 65:35 in 2015.
Building lasting beneficial relationships is central to what
This ore is mined at our three operations, all of which are managed by SIOC.
we do. We are a significant employer in the regions in
Export ore is shipped to customers across the globe from the port operation in
which we operate, and we work with communities and
Saldanha Bay. We also have a marketing office in Singapore, in partnership
local governments to create lasting change in these
with Anglo American plc, and one in Luxembourg. In total, around 9% of our
areas. At the end of 2015 we employed 11,790 people
product comprises domestic sales, and around 91% is exported. The revenue
– 7,434 permanent employees, 3,627 contractors and
generated from these sales is used to grow and sustain the business, which
729 learnerships. For more on these relationships see
shares its success with various stakeholders in many ways. To learn more
page 19 to 25 of this report.
about our operations see page 66 of the IR.
KUMBA IRON ORE LIMITED OWNERSHIP STRUCTURE
PUBLIC INVESTMENT CORPORATION SOUTH AFRICAN FUND MANAGERS SOUTH AFRICAN SHAREHOLDERS FOREIGN SHAREHOLDERS
7.4% 10.7% 6.9% 75%
ANGLO AMERICAN plc
100%
GOVT EMPLOYEE PUBLIC INVESTMENT INDUSTRIAL ANGLO SOUTH AFRICA SOUTH AFRICAN FOREIGN
PENSION FUND CORPORATION DEVELOPMENT CAPITAL SHAREHOLDERS SHAREHOLDERS
2.6% 1.9% CORPORATION 12.9% 69.7% 2.7% 10.2%
EMPOWERMENT PARTNERS 26.1% LEGEND
KUMBA IRON ORE
73.9%
EXXARO SIOC Community Anglo American Group companies
Resources Limited Development Trust
BEE partners
20.0% 3.0%
SIOC Government related bodies
SIOC employee share participation scheme South African shareholders Foreign shareholders
(Envision) 3.1%
Fund managers investing on behalf of e.g. pension funds
4 Kumba Iron Ore Limited Sustainability Report 2015WHERE WE OPERATE
Limpopo
2c
EXPORT RAIL LINE
••Current capacity of 60Mtpa of which Mpumalanga
Kumba has 44Mtpa allocation North West
1
Gauteng
2a
Our business
2b SOUTH AFRICA
KwaZulu-
Corporate office
Free State Natal
1 Centurion
Northern Cape
Mining operations
2a Sishen mine
2b Kolomela mine Eastern Cape
2c Thabazimbi mine
3
Western Cape
Port operations
3 Saldanha Bay
SISHEN MINE 2a KOLOMELA MINE 2b SALDANHA BAY PORT 3 THABAZIMBI MINE 2c
••Opened in 1953 ••Opened in 2011 and ••All Kumba export volumes ••Thabazimbi mine has been
••Located in Kathu produces high-grade direct exported through Saldanha operating since 1931 and
••Reserve life: 15 years shipping ore (DSO) Bay Port Operations, the produces primarily
only dedicated iron ore high-grade haematite ore
••Bulk of Kumba’s production ••R8.5 billion investment
export facility in South Africa
••One of the largest open-pit ••Thabazimbi mine’s product
••Mine situated near the town
mines in the world ••Operated by Transnet is particularly low in
of Postmasburg
••All mining is done by contaminants and is
opencast methods ••Reserve life: 21 years currently sold exclusively to
••Sishen is the only haematite ArcelorMittal South Africa
ore producer in the world to ••The mine has reached the
beneficiate all its product end of its economic life
SISHEN MINE KOLOMELA MINE SALDANHA BAY PORT THABAZIMBI MINE
••261.4Mt total tonnes mined of ••60.6Mt total tonnes mined of ••Total volumes railed to ••Mining activities ceased in
which 31.4Mt final product which 12.1Mt final product Saldanha Bay: 42.4Mt September 2015
and 222.2Mt waste and 45.7Mt waste
••Export sales: 43.5Mt ••Mine closure progressing
••30.2Mt railed on the Sishen/ ••12.2Mt railed on the IOEC according to plan
••Total shipped volumes:
Kolomela-Saldanha iron ore
••ISO 14001, ISO 9001 certified 43.5Mt ••1.4Mt final product
export channel (IOEC)
and OHSAS 18001 compliant
••Total CFR volumes: 29.8Mt ••1.3Mt railed domestically to
••ISO 14001, ISO 9001,
••1,143 permanent full time ArcelorMittal SA
OHSAS 18001 certified ••ISO/IEC 17025 accredited
employees and 1,091
QC laboratory ••ISO 14001, ISO 9001 and
••5,575 permanent full time full time contractors
OHSAS 18001 certified
employees and 2,269 ••LTIFR of 1.66, with zero
••R31 million invested in social
full time contractors fatalities ••R10 million invested in social
and community projects
and community projects
••R71 million invested in social ••42 permanent full time
••LTIFR of 0.20, with zero
and community projects employees ••LTIFR of 0.16, with zero
fatalities
fatalities
••LTIFR of 0.22, with zero
••Unit cash cost: R178/tonne
fatalities ••408 permanent full time
••Stripping ratio: 3.1 employees and 107
••Unit cash cost: R311/tonne
full time contractors
••Stripping ratio: 5.7
For more information on our operations, For more information on our operations, For more information on our operations, For more information on our operations,
see page 66 of the IR see page 68 of the IR see page 71 of the IR see page 70 of the IR
Kumba Iron Ore Limited Sustainability Report 2015 5OUR BUSINESS: CHIEF EXECUTIVE’S REVIEW
CHIEF EXECUTIVE’S REVIEW
With prices falling faster and deeper than we expected, the
Norman Mbazima tough operating environment has required us to implement a
Chief executive new operating model that will enable us to withstand a longer
period of lower prices. We have moved quickly and decisively
to reset our cost base in response to lower prices, with three
major strategic imperatives:
••Firstly, we have moved from a volume-based (increasing
waste and production volumes) to a value-based (cash
generating) strategy, reconfiguring our mines to reduce
the amount of waste and save costs in all operational areas.
Our industry is under tremendous pressure, with We have ceased mining at Thabazimbi, restructured the
Sishen pit to a lower cost shell, and increased production
the market now pricing in a more muted trend for at Kolomela by ramping up low cost tonnes and optimising
the waste profile.
the iron ore price over the medium to longer term.
••Secondly, we exercised strict capital discipline by assessing
This has reinforced the need for us to take some every item of proposed capex with a view to cancelling,
tough decisions for our business that will enable us reducing the cost, or delaying the expenditure. The board
also decided to suspend the dividend.
to withstand a longer period of much lower prices. ••Thirdly, we made significant structural changes to our cost
Within this context of restructuring our business, it base, achieving significant savings on overheads, project
and technical study costs and headcount, and adding
is imperative that we do not lose focus on our organisational controls to ensure these are sustainable for
commitment to delivering on our safety, health and the future.
environmental commitments. All these measures are part of a key objective – to preserve
cash, reduce debt and position the business to grow
sustainable free cash flow over the long term. Doing so is
In opening my annual review, I wish to touch first on the issue fundamental to our ability to deliver value for all our
of safety. It is with deep regret and sadness that I report the stakeholders. In line with our promised strategy of cost
death of one of our colleagues, Mr Grahame Skansi, in an containment and capital preservation, this year we delivered a
incident at Kolomela mine. The incident took place on R4 billion reduction in controllable costs through various
27 January 2016, shortly after the completion of this year’s initiatives, all of which are reviewed in more detail in our
reporting period. Our thoughts are with his family and friends. integrated report. Notwithstanding these important cost
Before this incident, we had been elated by the fact that we reduction achievements, we recognise that the global price
had had no loss of life throughout the whole of 2015, with the environment presents significant further challenges. Looking
group operating fatality-free since April 2014. Over the past ahead, we see further opportunities to reduce the cost base,
few years we have taken many steps to build a safer business, particularly through savings from the reconfiguration of the
and our safety trends have consistently improved. As we Sishen pit. Unfortunately this is expected to result in a 45%
navigate the current turbulent environment we will maintain reduction in the workforce. While this is a particularly painful
our relentless focus on ensuring a safe workplace for all. issue for all of us, this will place our Company in a much
stronger position to weather the difficulties of the low price
environment. As is reviewed further below, we will be
RESPONDING TO THE TOUGH maintaining ongoing consultations with all affected
OPERATING CONTEXT stakeholders throughout this process, and implementing our
Our activities and performance this year have been closure plan at Thabazimbi.
significantly impacted by the unexpectedly steep and rapid
decline in the iron ore price. The 42% fall in realised iron ore DRIVING WORKPLACE SAFETY
price, caused by declining global demand and continuing
supply growth, has had a profound impact on our earnings The commitment to zero harm and improved safety
and profitability, as well as certain aspects of our performance remains a core value and as we navigate the
sustainability performance. Unfortunately it has prompted us current turbulent environment we will keep a relentless focus
to close Thabazimbi and restructure our Sishen mine, both of on ensuring a safe workplace for all. I believe also that
which have had significant implications for our employees improved safety goes hand-in-hand with efficiency and
and neighbouring communities in these areas. financial results; improve one and you improve the other.
6 Kumba Iron Ore Limited Sustainability Report 2015Given the tough operating environment, and the impact that Our internal health initiatives are supported by various
Our business
uncertainty can have on safety behaviour, it was encouraging activities to promote the health and welfare of our
to see a steady improvement in our safety performance neighbouring communities, often in partnership with
during 2015, with fewer injuries and reduced severity. government. Through our investments in strengthening
Although we have seen some progress in both our leading health systems, our aim is to improve access to quality
and lagging safety indicators, unfortunately we did not medical and healthcare services and alleviate some of the
achieve our targeted improvements for our lagging mounting pressure on health service delivery. This year we
indicators. This year, we recorded 40 lost time injuries, down invested R18.2 million on community healthcare projects. Key
from 44 in 2014, resulting in an unchanged lost time injury initiatives included: the provision of primary healthcare
frequency rate of 0.23 in 2015 against a targeted 0.21. There services to mine employees, contractors and host
has been a significant reduction in the number of serious communities through wellness clinics; completion of a newly
incidents, which is encouraging. constructed primary healthcare facility in Postmasburg near
Kolomela mine; and continuing support for Sishen mine’s
During the year we did not experience any significant innovative Batho Pele mobile clinics that bring healthcare to
safety stoppages that impacted on production. We had one people in remote rural areas.
regulatory stoppage (2014: five), 25 voluntary stoppages
(2014: 43), and two non-compliance notices (2014: six).
It was notable that the emergency safety procedures at RESPONSIBLE ENVIRONMENTAL MANAGEMENT
Thabazimbi worked effectively during the slope failure when We have made good progress this year on environmental
no injuries were recorded. Collectively, this performance issues, securing many of our outstanding permits, and
suggests that our strong safety focus and management delivering some improvements in water and energy
controls are delivering some initial results, but it is evident management where we exceeded our performance targets.
that more needs to be done. We experienced only one significant medium-impact
(‘Level 3’) incident, involving a pit slope failure at Thabazimbi
As I mentioned earlier, unfortunately there was a tragic mine (reviewed on page 52). There were no high impact
fatality at Kolomela very shortly after the end of the (Levels 4 and 5) environmental incidents.
reporting period. This is a considerable setback, firstly from
an emotional perspective – for family, colleagues and all Given the recent drought and the fact that our operations are
of us at Kumba – and secondly from an operational in water-stressed areas, our water management activities have
perspective. Over the past five years we have had three received renewed focus. This year we saved 8.5 million m3 of
separate calendar years of zero fatalities, but never in water against our projected water usage, exceeding the full
succession. We will continue in all our efforts to achieve year target of 6 million m3; our water use intensity increased
zero harm, maintaining a strong focus on human-factor from 181 litres per tonne of ore processed (l/t) in 2014, to
issues and risks associated with the organisational 221 l/t in 2015. Following extensive engagement with
changes, as well as on effective critical control regulators, some long-awaited integrated water use licences
management and behavioural interventions. were issued this year. Two water licences remain outstanding:
at Sishen for storm-water infrastructure, and at Kolomela mine
for its aquifer recharge project. Our Sishen and Kolomela iron
PROMOTING EMPLOYEE AND COMMUNITY HEALTH ore mines continue to manage issues of concern among local
On employee health, it is encouraging to see that we once farmers regarding mine dewatering that affects the availability
again met our 90% target for voluntary HIV testing. We of groundwater.
continued to reduce noise levels in key areas in line with the
In 2015, we defined our new five-year energy and GHG
2014 Mine Health and Safety Summit milestones, and we
emissions targets. Kumba had a 2015 energy consumption
saw a decline in the number of employees with noise-induced
reduction target of 4% against business-as-usual (BAU) and a
hearing loss, with seven new cases, down from 11 in 2014.
GHG emissions reduction target of 5% against BAU. Both
Unfortunately there were 28 new cases of occupational targets were exceeded this year, with 4.69% energy savings
diseases reported, up from 14 in 2014. Our occupational against BAU, and 5.13% for GHG emissions. Further targets
hygiene monitoring shows no significant occupational for 2020 will be set to align with government commitments on
exposure to asbestos dust; the increase this year in energy and climate change mitigation.
asbestosis cases (three in 2015, compared with zero in 2014)
is attributed to previous asbestos exposures prior to Unfortunately we continue to have challenges with PM10 dust
employment at Kumba. There were no regulatory or emissions at Sishen. We are working closely with regulators to
voluntary work stoppages and no non-compliance notices address compliance concerns with the stricter legal limits of
issued for medical or health related matters. dust emissions coming into effect in January 2015.
Kumba Iron Ore Limited Sustainability Report 2015 7OUR BUSINESS: CHIEF EXECUTIVE’S REVIEW
CHIEF EXECUTIVE’S REVIEW continued
ENSURING RESPONSIBLE MINE CLOSURE ensure our survival and maintain our capacity to generate and
share value into the future.
A significant development this year was our decision, in
July 2015, to close Kumba’s Thabazimbi mine in Limpopo. Our investors are primarily concerned about how we respond
The mine is more than 80 years old, and over the past to the continued volatile iron ore price environment. We must
15 years has had its proposed closure postponed six times be able to show them that we can continue to deliver value
through various reserve life extension plans. The mine’s over the medium and longer term. For the reasons outlined in
difficult operating conditions, due to its inherent our integrated report, and in our other direct engagements
geo-technical complexities, were exacerbated by the with them, I am confident that they will share our belief in our
limited remaining iron ore resource, high operating costs, ability to do so.
and the slope failure in June 2015 which rendered the
resources in the one remaining pit uneconomic to mine. These are particularly difficult and uncertain times for all our
employees, especially for those leaving us as a consequence
We have made concerted efforts to mitigate the negative of the restructuring. Throughout this process we have sought to
impacts of the closure on our employees, contractors and engage as fairly and transparently as possible with all affected
neighbouring community. Throughout the closure process employees, clarifying the unfortunate necessity of the
we maintained and will continue to maintain a strong focus on restructuring, and providing opportunities to assist them in their
communicating openly with employees, unions, government transition. I hope that those who are leaving will do so with their
and community representatives, and on managing the heads high, acknowledging both the important contribution
process as respectfully and fairly as possible. These they have made to this company, as well as our best efforts in
engagements have been challenging, yet constructive, in providing for their interests under these difficult conditions.
reaching a consensus on relevant issues, and in finding
We have maintained a positive relationship with our
mechanisms to minimise the impacts of the closure.
employees and their union representatives, without any
With the community becoming increasingly dependent on significant incidents or work stoppages. While we anticipate
the mine in recent years, given the lack of other employment further robust discussion in the months ahead, we will
opportunities in the area, we have been engaging with continue to do so through the mutually respectful process of
employees and contractors to identify alternative dialogue that we have followed thus far. The willingness that
employment opportunities. We have also been investing in each party has shown to listen and engage with the other,
local economic development projects that are independent gives me confidence that we will find the best possible
of mining, to provide an alternative source of employment solution in a constructive manner.
and sustainable revenue for the local communities.
Our colleagues in government, whom we have kept well
briefed on our activities, had been expecting the
MAINTAINING POSITIVE STAKEHOLDER developments at Thabazimbi and Sishen. While, like us, they
RELATIONSHIPS are not happy with the closures, they have acknowledged that
this is a function of force of circumstances, and necessary for
The importance of maintaining positive relationships with the longer term. We have continued to engage actively with
influential stakeholders, and the challenges in doing so, has government throughout the year on a range of matters. We
become more pronounced given the various pressures hope to see clear resolution on two critical issues: the
facing the South African economy. These pressures include continuing uncertainties regarding the proposals associated
the high levels of unemployment, the low rate of economic with the 21.4% Sishen mining right, and our ongoing
growth, and the prospect of a potential rating-agency engagements with the South African Revenue Service (SARS)
downgrade with significant negative implications for global on the tax assessment covering the period from 2006 to
investor confidence. 2010, both of which we review in more detail in our separate
Integrated Report 2015. We believe that it is in our collective
In this context, the decision to restructure Sishen, and
interest to resolve these matters as soon as possible, so that
retrench up to 3,900 jobs after announcing the Thabazimbi
we can focus collaboratively on boosting investor sentiment
closure, was particularly tough for us. The decision was made
and stimulating economic growth.
after careful consideration of all the various options, and of
their implications both for the Company and our The Company looks forward to the resolution of the current
stakeholders. In taking this decision, we spent time speaking stand-off between industry and the DMR on the declarator
with our principal stakeholders: our shareholders, employees order in respect of the Mineral and Petroleum Resources
and unions, government representatives and neighbouring Develpment Act (MPRDA). It is in the interest of all affected
communities. Building on the position of trust that Kumba parties that this issue is resolved, so that clarity is gained on
has developed over the years – through our commitment to the way forward, in order to ensure that effective
transparency and frank dialogue – we reached agreement implementation of the charter pushes forward the
with them that though painful, this is a necessary step to transformational goals of the MPRDA.
8 Kumba Iron Ore Limited Sustainability Report 2015“We are facing a very difficult situation in the South I believe that we are up to this challenge. Over the past two
Our business
African mining sector. Unless business, government and years we have done the necessary planning and taken the
labour get together and try and tackle these challenges difficult and painful decisions to ensure that we successfully
collectively, rather than tackling each other, we will have weather the storm. Our focus for the year ahead is to ensure
a very hard road ahead of us. It will take all three of us that these decisions and plans are well executed, and that in
doing so we maintain a clear focus on our sustainability
working together with a shared vision, to get the mines
performance. I am confident that we will deliver on our
up and running in good order again.” planned restructuring in a responsible manner, and that we
Kumba has had a significant impact on its neighbouring will be effective in implementing the promised improvements
communities, both directly though the opportunities that our in our two mines, so that we match world best standards. It is
business activities create, as well as through our social only by doing this, that we can ensure that we return value for
investments. From the start, we have played an active and all our stakeholders.
informed role in our host communities, being generous in
sharing in the upside of the commodity cycle through APPRECIATION
structured and transparent engagement processes. Our
investments in community health initiatives, and the benefits In closing, I wish to extend my thanks to the Kumba board
shared through our employee ownership scheme, have been and executive team, who have supported me in my task as
particular highlights. The current downturn presents Chief executive, providing valuable advice in helping to guide
significant constraints on our ability to maintain these levels the Company through these particularly challenging times.
of economic and social investment activity; managing My profound thanks also to all of my colleagues across the
community expectations is going to be critical. Given our Kumba team, who have shown incredible resilience, fortitude
history in these communities, and the levels of trust that we and good spirit in this difficult year, and whose talent and
have built up, I believe that we will be able to do so, informed commitment is the foundation of the Company.
by a common understanding of the challenges we face and
We have another challenging year ahead. Given the values,
our commitments for the longer term.
skills and enterprise of the Kumba team, I am confident that
In my discussions and engagements with numerous we will deliver on the plans we have set ourselves, and that we
stakeholders over the year, it has been encouraging to see will pull through this prolonged downturn in the commodity
the level of understanding and appreciation amongst these cycle, emerging as a thriving organisation delivering value to
stakeholders of the steps we have been taking and the all our stakeholders.
manner in which we have done so.
THE YEAR AHEAD
Looking to the immediate future, we do not anticipate that
ore prices will recover significantly in the short or medium
term. Those companies that can lower the cost of production
through productivity and efficiency gains, and that can Norman Mbazima
maintain financial flexibility in the context of continuing Chief executive
market turbulence, will have the best chance of survival. 10 March 2016
Kumba Iron Ore Limited Sustainability Report 2015 9OUR BUSINESS: OUR BUSINESS MODEL
OUR BUSINESS MODEL
U E
EN
POTENTIAL FOR REVENUE SENSITIVITY ANALYSIS*
DIFFERENTIATION V 1% change to key operational drivers
RE
Sensitivity analysis (1% change) – EBT impact (Rm)
Ability
to achieve quality (150) Export volumes 150
premium for superior ore quality
(64.2% vs 62% benchmark) ON
G
(290) Export price 290
IN
Price
differential potential due
ET
to higher lump:fine ratio
(65:35 vs global average of 30:70) (315) Currency 315
MP
Price
penalties due to higher -350 -300 -250 -200 -150 -100 -50 00 50 100 150 200 250 300 350
CO
contaminant levels (gangue) Change per unit of key operational drivers Unit change EBIT impact
Currency (R/US$) R0.10/US$ R245m
Export price (US$/t) US$1.00/t R550m
Volume (Kt) 100Kt R35m
Breakeven price impact
Currency (ZAR/USD) R1.00/US$ US$3.00/tonne
* 1% change to key operational drivers, each tested independently
OUR REVENUE
••Iron ore prices (global supply and demand dynamics)
••Sales volume of iron ore (noting quality and lump)
••Rand/US$ exchange rate (weaker Rand can
partially offset lower US$ iron ore price)
OUR OPERATING CONTEXT:
ISSUES IMPACTING VALUE
CREATION
••Negative commodity sentiment
••Flattening of the global cost curve
••Organisational restructuring
••Increasing socio-political pressures
••Heightened stakeholder
expectations
••Regulatory and policy uncertainty
OUR TOP TEN RISKS
OUR ACTIVITIES ••Nature of iron ore reserves
1.
Commodity market and exchange
and life of asset
rate fluctuations
••Exploration – primarily in the Northern Cape
2. Fiscal compliance and regulatory For more information,
certainty ••Mining – extracting iron ore in the Northern Cape see page 24 to 27 of the IR
Limpopo
3. Funding ••Beneficiation – improving the final product quality
4. Operational performance ••Blending and outbound logistics – providing and transporting niche products Mpumala
5. Safety Gauteng1
North West
••Shipping, marketing and selling – to markets in South Africa and globally
6. Reliance on third-party
infrastructure ••Rehabilitation and environmental management
SOUTH AFRICA
7. Mining legislation and regulatory ••Corporate social investment KwaZu
certainty Free State Natal
8. Organisational restructuring, For more information on our Value chain Northern Cape
Envision benefits and labour relations activities, see pages 12 and 13
9. Stakeholder relationships and
Eastern Cape
social licence to operate
10. Residual mining rights 3
Western Cape
For more information on Risk
management, see page 32 of the IR
10 Kumba Iron Ore Limited Sustainability Report 2015CO
SISHEN AND KOLOMELA MINES UNIT CASH COST STRUCTURE (%) M
Our business
150 150
PE
120 120
TI
27%
N
18% 23%
22%
G
90 90 17% 15%
21%
ON
21%
60 60 36% 38%
33%
CO
27%
10% 12%
17%
ST
13%
30 30 9% 8%
5% 2% 1%
3% 3% 2%
20% 17% 24% 20%
0 0
(11%) (15%)
(20%) (18%)
Image
Mining operations at Sishen mine Sishen mine Kolomela mine Kolomela mine
FY14 FY15 FY14 FY15
the Kapstevel pit at
Kolomela mine Deferred stripping Other Energy Drilling and blasting Maintenance Outside services Fuel Labour
OUR COSTS ••Drilling and blasting
••Labour ••Tax and mineral royalty payments
••Distribution (rail, port and freight) ••Mining contractors
••Energy ••Social investments
••Capital expenditure ••Rehabilitation
••Maintenance ••Marketing
POTENTIAL FOR COST
DIFFERENTIATION
Significantly reduced SIB capex
due to optimised pit design and
reduced deferred stripping
Lower mineral royalty rates than
KEY RESOURCES AND RELATIONSHIPS Australian competitors
••Clear prospecting and mining rights from government and Positive wage index compared
regulatory certainty with competitors
••Quality and location of ore body Rail and port costs competitive
despite higher distance to port
••Long-life assets and existing infrastructure (including rail and port)
Higher stripping ratio than
••Human capital – technical skills, productivity, experience and
competitors due to inherent
leadership team characteristics of the ore
••Exploration, mining and processing technology and techniques body which results in higher
mining costs
••Social licence to operate – from communities and their
representatives Higher freight costs, with
Australian competitors much
••Financial capital – from shareholders, investors and funders closer to key market in China
••Key suppliers and service providers
••Loyal customer base
CUSTOMER VALUE EMPLOYEE VALUE SHAREHOLDER VALUE SOCIETAL VALUE
PROPOSITION PROPOSITION PROPOSITION PROPOSITION
Reliable supply of high-quality The opportunity to earn, learn Sustained financial returns and Converting mineral resources
iron ore and grow in a safe and dividends, from well managed into social value by encouraging
supportive environment operations opportunities for inclusive
growth and sustainable
development
Kumba Iron Ore Limited Sustainability Report 2015 11OUR BUSINESS: CREATING SUSTAINABLE VALUE
CREATING SUSTAINABLE VALUE
PEOPLE ARE
CENTRAL PRIMARY INPUTS
TO OUR Our ability to generate value is dependent on access to financial capital, skilled people, quality relationships and key
OPERATIONS natural resources, supported by the right Company culture, and by access to necessary infrastructure, plant and
equipment. An overview of key inputs across our value chain is provided on page 24 of the IR.
EXPLORATION MINING BENEFICIATION
OUR ACTIVITIES In South Africa, exploration is We extract iron ore from mining the Beneficiation is the processing of ore
focused in the Northern Cape, close iron ore bodies within our various for the purposes of regulating the
to our existing operations. On and mining leases. All our mining is physical properties of the finished
near mine exploration and resource currently undertaken using open-pit product, removing impurities and
definition drilling is conducted to methods. improving product quality. We use
increase confidence in the dense medium separation and jigging
geological models; these are technologies to achieve this.
updated annually in support of life of
mine and long-term planning. FURTHER BENEFICIATION
We support the South African
government’s objectives to maximise
the developmental impact of the
minerals sector, aware of the
important role that mining companies
have to play in this space.
KEY OUTCOMES
Contributing
to long-term Skills
development Securing
market premium
Enhancing and financial viability through enhanced quality product
diminishing value Community
upliftment and
in each stage of Developing key relationships in infrastructure investment Enhanced intellectual capital and
the value chain the Northern Cape technology development
Contribution
to beneficiation
Developing
intellectual capital Contribution
to national tax base
through enhanced exploration Investment
in innovation
technologies and techniques Contribution to national tax base Supply iron ore to the local
steel industry
Contribution to national tax base Exceeding
water and energy Difficulties in providing the DMS
savings target
Competition
over land use with plant with correct quality
communities feedstock
Improved access to quality
Increasing community healthcare for local communities
expectations for economic
opportunities and service delivery Unchanged
LTIFR of 0.23
for 2015
Slope
failure at Thabazimbi mine
STRATEGIC ••Focus on the Northern Cape ••Redesign pits to extract maximum ••Invest in step-change technology
FOCUS AREA value
••Maintain optionality to grow in West ••Compete through premium
and Central Africa ••Implement the Operating Model products
••Extend life of current mines
••Sustainably operate mines and
lower costs
12 Kumba Iron Ore Limited Sustainability Report 2015Our business
LEGEND
Positive outcome Neutral outcome Negative outcome
BLENDING AND OUTBOUND SHIPPING, MARKETING AND REHABILITATION AND
LOGISTICS SELLING ENVIRONMENTAL MANAGEMENT
Blending allows us to utilise products We sell iron ore domestically and The life cycle of the mine needs
from our operations to provide internationally. Export customers are in a careful environmental management
consistent product specification to our range of geographical locations around practices including concurrent
markets. Products are screened and the globe, including China, Japan, India, rehabilitation to ensure the least
sized to match customer requirements, South Korea and countries in Europe and disruption to our natural resources
and then transported through our the MENA region. Domestically, we sell both during and after our operations.
outbound logistics chain. ore to ArcelorMittal.
Our product portfolio includes niche
lump products as well as standard fines
and standard lump.
Maximise
value from the resource Enhanced
financial returns through Minimising
longer-term
product differentiation in sales environmental impacts
Investment
in technologies and
techniques Increase in export sales of 3Mt Decreased longer-term liabilities
Enhanced
financial returns Increased
shipments through the Securing
authorisations and
multi-purpose terminal (MPT) licences
Contribution
to national tax base
High freight differential Enhanced reputational benefits
Increase
in volumes railed to port
of 0.2Mt Responsible
mine closure
Continuous
mine rehabilitation
Increased short-term financial costs
PRIMARY OUTPUT
44.9Mt high-quality haematite iron ore with a lump-to-fine ratio of 65:35 in 2015
••Compete through premium products ••Compete through premium products ••Implement operational risk
management (ORM)
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