Kumba Annual Report 2004


	Chairman's statement

	A year of notable achievements and excellent operational performance

	INTRODUCTION
	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.

	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.

	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.

	BUSINESS ENVIRONMENT
	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, 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.

	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 strategic plan under way in Kumba to mitigate the effects of currency strength. Our approach is that currency strength is a variable that has to be managed; companies that manage it well will emerge stronger, better organisations.

	SHAREHOLDING CHANGE
	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.

	DIRECTORATE
	Following the change in shareholding, Kumba welcomed four Anglo executives 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.

	ECONOMIC EMPOWERMENT
	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.

	HIV/AIDS
	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.

	During the review period, the mining industry guide on HIV/Aids, commissioned by the International Finance Corporation, was published.

	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.
		Peer group educators at Sishen assisted the International Finance Corporation to compile an HIV/Aids guide for the mining sector.

	International corporate governance standards in place

	CORPORATE GOVERNANCE
	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 YEAR OF ACHIEVEMENT
	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 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.

	DEVELOPMENTS IN AFRICA AND ABROAD
	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 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.

	The new financial year will be one of delivering on growth projects

	APPRECIATION
	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.

	PROSPECTS
	The 2005 financial year will be one of delivery, one in which the plans 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.


	Dawn Marole
	Chairman
	11 March 2005

	A YEAR OF ACHIEVEMENTS
	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.










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