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.

A good safety, health and environment performance is paramount to the success of all our operations. The 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.

Operational Excellence
Achievements
The programme to improve performance through initiatives focused on people, processes and operational excellence yielded a number of excellent results:

• 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 here and in the fold-out.

OVERVIEW
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.

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 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.

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.

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.

PROSPECTS
The tight supply/demand situation in the seaborne iron ore industry continued during the past 12 months, 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 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.

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.

OVERVIEW
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.

Two brownfields expansion projects to boost production

PROSPECTS
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 here.

Production and sales volumes are set to increase. The commissioning of the 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.

CAPITAL EXPENDITURE
R million	Actual 2004	Estimate 2005
Sustaining	100	56
Environmental	5	41
Expansion	66	401
Total	171	498

	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.
	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).

Smelter construction completed within budget and on schedule

H E AV Y  M I N E R A L S
Physical information	Ticor SA		Ticor Limited**
Total production	2004 000t*	Y-O-Y %	2004 000t*	Y-O-Y %
Ilmenite	459***	–	236	9
Zircon	49	(2)	38	(5)
Rutile	20	18	18	6
Low manganese
pig iron (LMPI)	63	152
Synthetic rutile			112	15
Pigment			53	10
Chloride slag	96	256
High-grade sulphate slag	40	100
Total sales
Ilmenite	27	(54)	30	(45)
Zircon	48	(6)	38	(3)
Rutile	17	(43)	21	31
Synthetic rutile			50	2
Low manganese pig iron	58	480
Chloride slag	84	600
High-grade sulphate slag	24
*      Metric tonnes. **    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.

On track to become a significant producer of slag feedstock

	Aerial view of Ticor SA smelter blockyard and slag plant.
Hydraulic mining at the Hillendale mine.

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.

CAPITAL EXPENDITURE
R million	Actual 2004	Estimate 2005
Sustaining	125	102
Environmental	4	10
Expansion	351	164
Total	480	276

Record production in Namibia, Chinese refinery capacity doubled

B A S E  M E TA L S
Physical information	2004 000t*	Y-O-Y  %
Total production
Zinc concentrate	124	15
Zinc metal	116	2
Lead concentrate	27	(13)
Total sales
Zinc metal	119	4
Domestic	91	7
Exports and other	28	(3)
Lead concentrate	12	(66)
* = metric tonnes
Y-O-Y = year-on-year

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.

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.

CAPITAL EXPENDITURE
R million	Actual 2004	Estimate 2005
Sustaining	17	37
Environmental	13	9
Expansion	32	28
Total	62	74

	The Rosh Pinah mine in southern Namibia.
	Jumbo zinc ingots at the Zincor electrolytic refinery are readied for transport.
	Zincor, situated in Gauteng province, is a low-cost producer of zinc metal.

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
	2004 000t*	Y-O-Y %
Total production
– Glen Douglas (000t)	1 431	8
– Bridgetown (000t)	180	0
– Ferrosilicon (t)	5 670	5
Total sales
Glen Douglas – domestic (000t)	1 441	9
Bridgetown – domestic (000t)	180	0
Ferrosilicon – domestic (t)	5 408	0
	2004 000t*	Y-O-Y %
Revenue	95	16
Operating profit	20	(1)
Operating margin	21	(5)
Capital expenditure	7
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 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.

The Glen Douglas mine produces dolomite, aggregate and small quantities of agricultural lime.

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.

CAPITAL EXPENDITURE
R million	Actual 2004	Estimate 2005
Sustaining	7	8
Environmental	–	–
Expansion	–	–
Total	7	8