Kumba Iron Ore's (KIROY) CEO Norman Mbazima on Q2 2016 Results - Earnings Call Transcript

| About: Kumba Iron (KIROY)

Kumba Iron Ore Ltd (ADR) (OTCPK:KIROY)

Q2 2016 Earnings Conference Call

July 26, 2016 05:30 AM ET

Executives

Yvonne Mfolo - Executive Head Public Affairs

Norman Mbazima - CEO

Frikkie Kotzee - CFO

Fani Titi - Chairman

Timo Smit - Executive Head of Marketing and Seaborne Logistics

Analysts

Tim Clark - Standard Bank

Johann Pretorius - Renaissance Capital

Brendan Ryan - Paydirt Media

Brian Morgan - RMB Morgan Stanley

Derryn Maade - HSBC

Liam Fitzpatrick - Credit Suisse

Kieran Daly - UBS

Andrew Snowdowne - Investec

Norman Mbazima

Welcome to you all and thank you for joining us today for our interim results. A very special welcome to our Chairman, Fani Titi and members of both the Kumba and SIOC boards. A warm welcome to executives from Anglo American including some very special ones whom we shall talk about later, and the executives from Exxaro. I would be failing in my duty if I didn't, as always, welcome Con, Sipho and Ras from the Kumba old boys' club. The first half of 2016 has been a challenging time for the industry and for our business. We are pleased with the results that we are presenting to you this morning given this challenging environment.

Iron ore prices declined 13% to $52 compared to the corresponding period. This was, however, a reprieve from the relentless downward pressure that we had experienced in the second half of 2015. Operationally, it has been a difficult half as we implemented the revised Sishen Mine plan and effected restructuring at both Sishen and Kolomela in order to reduce costs. As a result, production volumes were reduced by 21% to 17.8 million tonnes. This has set us up well for continued increases in operating efficiencies in the second half at both mines. We have continued to see real momentum in reducing our costs and our capital expenditure, resulting in our achieving a cash breakeven price of $34 in this period, at the lower end of our targeted $32 to $40.

Headline earnings were up 20% to ZAR9.41, mainly as a result of the de-recognition of a deferred tax asset in the first half of last year. On a normalized basis, earnings were 4% lower than the comparative period. We have also made good progress on our low grade growth projects, and I will give you some detail on this later. Over the last 18 months, we have made very substantial changes to this business, in order to reposition it to be sustainable in the low price environment which is expected to persist well into the future. These changes include the restructuring of all areas of the organization starting with head office in Q1 of 2015, then support services at Sishen and Kolomela in Q3 of 2015 and operational areas of both mines in this half, all resulting in over 31% reduction in staff numbers.

Effecting the closure of Thabazimbi where all mining and processing activities have ceased and all affected employees left. Renegotiating the domestic supply agreement with ArcelorMittal SA to align the pricing to market forces. Implementation of stringent cost reduction measures which recorded ZAR3.1 billion savings in controllable costs in this half. Reviewing capital expenditure, resulting in a 61% reduction to ZAR1.3 billion. Migrating the Sishen Mine to a lower cost pit share, reducing the strip ratio threshold from six in the corresponding period to below four now.

Implementing technology projects such as automated drilling to improve operational efficiencies and introducing the operating model to underpin sustainable operational improvements. These measures have completely reset the cost base of the Company. And we achieved a cash breakeven price of $34 at the lower end of our target range. These measures together with the suspension on dividend have enabled us to generate strong free cash flows which supported a substantial reduction in debt from ZAR4.6 billion at last year end to a cash-positive position of ZAR0.5 billion now. Kumba now has good financial flexibility to cope with the challenges ahead and is now more resilient and better positioned to cope with the low price environment.

Turning to our operational performance, the first half has been very challenging due to the implementation of new mine plans at both mines and the lower cost pit shell at Sishen which significantly reduced mining volumes; the organizational restructuring at Sishen and Kolomela; the heavy rainfall in the Northern Cape and the adverse effects of poor safety performance. Regrettably, we lost two of our colleagues in work-related incidents and extend our sincere condolences to their families, colleagues and friends. The entire Kumba family shares in their sorrow.

In response to this poor safety performance, we have revised our safety programs and applied new interventions in order to effect rapid improvement. The restructuring process at Sishen, which commenced at the end of January has largely been completed. That has resulted in a reduction of the workforce of around 1500 employees and 900 contractors. It is very pleasing and thanks to our employees and their representatives that a restructuring of this scale took place without any work stoppages and that labor relations have been stable throughout this period. Production as expected was lower at Sishen reflecting the significantly revised mine plan and the effects of the restructuring. This was affected further as I said, by disruptions caused by higher than normal rainfall and safety-related stoppages.

Given the magnitude of the change to the new mine plans, further work was done to review and refine them during this period. This indicates that the mines are in a position to deliver a stable operating performance going forward. We have already seen a marked recovery in productivity at Sishen post-the restructuring and are therefore able to reconfirm our full year production guidance of 27 million and 12 million tonnes for Sishen and Kolomela respectively.

Capital and cost discipline remains fundamental to our business success as we move forward in this uncertain and volatile market. Despite lower realized prices and volumes, our financial performance has remained quite robust. The transformation of our cash cost base enabled us to improve our margins. Operating free cash flow was strong, up 18% to ZAR6.7 billion and we have delivered an improved return on capital employed of 37%.

The Platts 62 index reached a historic low of $38.50 in December but recovered in the first half of 2016 driven by developments in China. China lowered property taxes and the Chinese Central Bank cut the reserve requirement ratio. The authorities reconfirmed their commitment to a GDP growth target of 6.5% to 7%. This fueled expectations of further economic stimulus and boosted sentiment, lifting steel prices and steel mill margins. Mills maximized production, providing welcome support to iron ore prices. Coupled with record high activity in the steel and iron ore futures markets, iron ore prices rose above $70 before retreating to the $50 to $60 range that we are seeing now.

The Platts 62% index averaged $52 in the first half, down 13% on the first half of 2015 but much higher than analyst expectations. The lump premium started the year at only $4 per tone but ended the period at more than $10. At one point, increasing to almost $14. The average for the six months was lower than last year. Mills focused on productivity rather than cost, generally demanding higher grade ores and lump which is good for Kumba. The lump premium has also benefited from sinter capacity and blast furnace closures in Tangshan, the biggest steel making province in China, as a result of the Tangshan Horticultural Show. While prices seem to have stabilized, supply demand fundamentals remain challenging. Higher than expected iron ore prices have attracted some supply back into the market, with imports into China from countries other than Brazil, Australia and South Africa showing a marked increase in May and June.

Seaborne supplies from Australia and Brazil continue to increase, albeit at a much slower pace than before. Overall, seaborne supplies increased by 5% compared to the first half of 2015 but down 3% compared to the second half. India increased due to lifting of certain export restrictions. And the rest of the world was up as a result of the unexpected rally in prices. Australian and Brazilian exports are typically lower in the first half. Despite the closure of Samarco's operations, exports from Brazil increased 7% and Australian exports rose 4%. These two countries combined represent 83% of the seaborne market. Exports are expected to grow approximately 4% this year and rise further in 2017 with Minas Rio, Roy Hill and Vale's S11 D project all ramping up. This will need to be absorbed by a steel market which is contracting.

Globally, crude steel production dropped 2.5% with decreased sales in every major region. In China, a further interest in steel exports helped cushion the fall in crude steel production. Steel exports increased 5.7% year on year. These Chinese exports put pressure on local production in their destination markets. In Japan and Korea, steel production continued its decline, decreasing against the first and second halves of last year. In Europe and the rest of the world, steel production came down by 2% to 3%.

Kumba's export sales declined to 18.1 million tonnes, driven by the planned lower production. We railed excess stock in an effort to fully benefit from the recent price rally, which helped to cushion the decline in export sales. Kumba is of course not immune to market developments. As shown previously, both the iron ore price and the average lump premium came down significantly compared to the first half of last year. Obviously this results in lower realized prices for Kumba. However, lower freight rates had a positive impact on realized FOB prices somewhat cushioning the impact of the lower iron ore price and lower average lump premium. Combined, the lower iron ore price, lower average lump premium and lower freight rates implied a $7.5 lower realized FOB price for Kumba. But as you can see from the table, Kumba's average realized FOB price came down by just $6. There are several reasons for this. One, we renegotiated pricing with several key customers. Two, we adjusted the exports sales portfolio. You can see from the table that sales to Japan were down a little whereas sales to Europe increased. China continued to account for about two-thirds of Kumba's exports. And three, we started using financial instruments to manage price risk. CFR sales make up about 70% of our overall export sales. This also gives us tighter control over the vessel lineup in Saldanha.

Let's turn to the operational review. This has been a very challenging period for Sishen. The new mine plan based on the lower cost pit shell which was announced in December of 2015, and again in the February results session was implemented in February. This plan called for a very significant decrease in waste mining to bring the strip ratio to below four and thus reduce unit cost. It should be recalled that our original plans were to mine some 270 million tonnes per annum by now. And this has been reduced to below 150,000 million for 2016. We have therefore had to park large numbers of trucks and shovels, about 30% of the mining fleet.

This reduction in mining activity and the necessity to increase productivity entailed a major restructuring of the workforce, reducing this by some 31%. This has now largely been completed. And I'd like to sincerely thank our employees and their unions for the positive manner in which this massive exercise was done. There was no work stoppage and most of the reductions were achieved through voluntary separations. In addition to these issues, rainfall was three times more than in the corresponding period and the poor safety performance had adverse effects on operations. Sishen therefore saw a 29% reduction in production, to 11.5 million tonnes, and a 40% reduction in waste mined to 64.9 million tonnes. The strip ratio reduced to 3.5, well below the six of H1 2015.

The employees and their supervisors and managers have been very seriously affected by this restructuring and the changes in working practices that have been introduced to improve productivity. These will need to be embedded in the second half and the entire workforce will need to work very hard to do so.

Post-the restructuring, we've seen a marked improvement in operational performance in June as shown in the chart. Further improvement is called for in subsequent months in order for us to meet our projected production of 27 million tonnes from pit operations and also from secondary sources such as the Lilyfield satellite pit.

I always remind myself that Kolomela was designed to produce 9 million tonnes per annum. It has produced 5.9 million in this half and is on track to produce 12 million this year and 13 million in 2017 without significant capital expenditure. Kolomela's mine plans were changed to achieve cost reductions and one of the three pits was put on care and maintenance. This plan has been successfully implemented resulting in reduced mining volumes and reduced unit costs. The first area in which the operating model is being implemented at Kolomela is the plant and this went live in this half. We have already seen significant improvement in throughput volumes and variation as shown in the chart. This alleviates the main constraint to Kolomela achieving the planned 13 million tonnes in 2017.

Kumba's volumes railed were 16% lower at 18.3 million tonnes, impacted by reduced production. We shipped 18.1 million tonnes, down 21%. Total sales were 22% lower at 20.2 million as export sales volumes were impacted by the lower production. Total finished stock held at the mines and ports decreased from 4.7 to 2.3 million tonnes. These are expected to increase moderately in H2.

Now it's over to Frikkie for the financial numbers.

Frikkie Kotzee

Thank you, Norman and a good morning. Kumba achieved a robust financial performance as initiatives to lower the cost base across the business delivered positive results. And the revenue decreased by 11% to ZAR18.2 billion from lower realized prices and a planned reduction in volumes, partially offset by a weaker local currency. We are pleased that our costs reduced by 12% to ZAR13 billion due to the optimization of mining volumes and the continued strict unit cost management. And our capital expenditure of ZAR1.3 billion was 61% down. As a reconfigured Sishen pit and project discipline helped to rebase our capital profile. More details are provided in the later slides. Headline earnings of ZAR3 billion were 20% up while a net cash position of ZAR548 million resulted in a stronger balance sheet. No interim dividend has been declared.

We will continue to focus on actions required for us to stay competitive in this challenging and volatile environment. We will preserve balance sheet flexibility by optimizing capital expenditure, continue improving our operational efficiencies and resizing our cost base. We will continue to generate cash even in a weaker price environment.

The Sishen restructuring delivered meaningful cost savings as lower mining volumes reduced C1 cost and stay in business CapEx requirements were lower. Our breakeven price declined by $15 a tonne over 2015. And FOB cash costs reduced 28% to $27. Controllable costs were $8 a tone down driven by key savings from Sishen's pit reconfiguration, on mine costs, overhead costs and continued SIB CapEx savings. Non controllable costs remained volatile and were $2 a tone down from the end of 2015 due mainly to a weaker end and freight rates declining to historical lows.

Higher price realization and the lump premium benefited our cash breakeven by around $4 per tone more than 2015. Kumba continues to target a cash breakeven price of between $32 and $40 a tone CFR for 2016. We are pleased to be in the lower half of our targeted range at $34. Volatility in non controllable costs is anticipated to continue.

Now turning to our financial review. In a total revenue of ZAR18.2 billion, decreased 11% from ZAR20.5 billion, mainly due to lower realized prices and lower sales from a planned reduction in volumes, offset by 29% weaker local currency. Our operating expenses decreased by 12% to ZAR13 billion. And as a result, our operating margin was stronger at 29% and our mining margin was 32%.

We will be actively working to protect our margin as we continue to focus on containing our controllable costs. Group profit amounted to ZAR3.8 billion of which ZAR3 billion is attributable to shareholders of Kumba and ZAR0.8 billion to SIOC empowerment shareholders. Headline earnings are ZAR3 billion, or ZAR9.41 per share, increased 20%. On a normalized basis, our earnings per share were 4% down on a year on year basis reflecting a positive contribution by cost reduction which I will unpack later. Our effective tax rate was 23%. And cash generated was still strong at ZAR7.6 billion although 12% lower, reflecting lower prices and lower sales volumes. CapEx was ZAR1.3 billion, 61% down from ZAR3.3 billion.

Now analyzing revenue. ZAR18.2 billion is made up of ZAR15.4 billion from exports, ZAR1.7 billion from local sales and ZAR1.1 billion from shipping. The decrease was driven by one, a 10% decline in realized iron ore export prices, measured on an FOB basis reducing revenue by ZAR1 billion; and two, lower sales of 5.8 million tones, impacting revenue by ZAR4.2 billion. This was, to some extent, made good by a 29% weaker rand raising revenue by ZAR3.5 billion, aided by a higher lump premium in quarter 2. Our lump defined ratio was 63 to 37.

Lump premiums started the year low at only $4 a tonne but ended June about $10, at one point reaching almost $14 per tonne in the second quarter. This was a 67% increase from the second half of 2015. However, compared to an average of $12.70 per tonne in half 1 2015, premiums were still down 28% to $9.15 per tonne. CFR sales accounted for 70% of export sales volumes impacted by low freight rates. Sales to ArcelorMittal SA from Sishen were 1.4 million tonnes. And we expect a total of around 3 million tonnes for 2016. The balance of local sales of 0.7 came from Thabazimbi, which we have commenced closure processes. More details are provided in annexure 1.

Now to operating expenditure, which declined 13% to ZAR12.7 billion excluding the mineral royalty of about ZAR250 million. The decrease was driven principally by one, mining costs were down 12%, mainly from lower mining volumes, fuel prices and contractor rates. Partially offset by a decrease in waste stripping costs, deferred to the balance sheet; two, selling and distribution was down due to lower volumes railed to Saldanha; and three, lower shipping costs as freight rates declined to historical lows reaching $4 a tonne during January 2016 and 2.4 million tonnes lower volumes shipped on a CFR basis from Saldanha. Freight costs were ZAR457 million lower, incurred on 12.7 million tonnes sold on a CFR basis at much reduced freight rates. We expect freight rates to remain range bound as slow ship scrapping rates are more than offset by new builds.

Price and ForEx movements added ZAR291 million to the cost base. Input prices benefited from 8% lower diesel prices due to weaker crude oil prices. A decrease of 60% in rail volumes and 21% in ship tonnes led to ZAR177 million lower selling and distribution costs. Demurrage cost decreased by ZAR40 million due to improved planning whilst selling and marketing expenses remained constant. Multipurpose terminal sales volumes declined from ZAR2.3 million to only ZAR0.3 million. Corporate office savings reduced by another ZAR30 million on a sustainable level in real terms, achieved by strict management of overheads and containing projects and technical studies. We continue to embed a strict culture of cost management, so as to continue to deliver sustained benefits in 2016 and beyond.

Unit costs at Sishen were 5% higher at around ZAR327 a tonne compared to ZAR311 per tonne in full year 2015. Around ZAR380 million retrenchment costs are expected in 2016. Going forward, this will contribute about ZAR500 million in sustainable savings per annum from 2017 onwards. And the Cost escalation was contained to a 1% increase, despite inflationary input cost pressure from a CPI of 6.2% mostly offset by lower diesel prices and reduced mining contractor rates. 42 million tonnes lower mining volumes were partially offset by a planned reduction of around 5 million production volumes and decreased capitalization of deferred stripping costs driven by a lower stripping ratio.

In this half, mining costs per incremental tonne moved was ZAR28, 2% down in real terms over 2015. Sishen's cash unit cost net of the capitalization of deferred stripping is anticipated to range between ZAR300 and ZAR310 a tonne for the full year 2016 as we expect to benefit from the expected production increase in the second half. This is similar to full year 2015 as inflationary input cost pressure was offset by reduction in mining volumes as the strip ratio reduced from 5.7 in 2015 to 3.5 in 2016.

Now that we have stabilized the Sishen pit, we will continue implementing improvements in operating efficiencies and expect that Sishen waste to production ratio will remain aligned in the medium term. As a result, unit cost of production is expected to remain mostly flat in real terms.

Now to Kolomela. Kolomela incurred unit cash costs of ZAR172 per tonne, a 3% decrease on 2015 due to 8 million tonnes lower mining volumes from optimization. Cost escalation added ZAR3 a tonne. Input cost savings include reduced mining contractor rates and other third party service provider costs. Lower capitalization of deferred stripping costs added ZAR8 per tonne, driven by a reduced stripping ratio. Mining cost per incremental tonne moved was ZAR27, some 2% down over 2015 in nominal terms and 5% down in real terms.

Kolomela's cash unit cost, net of the capitalization of deferred stripping, is anticipated to range between ZAR200 and ZAR210 per tonne for full year 2016. This will be higher due to increased lifecycle related heavy equipment maintenance as our fleet reaches six years in operation and additional operating expenses related to the commissioning of a modular plant. Unit cost of production over the medium term is anticipated to increase above mining inflation, principally due to increased exploration drilling to firm up resource definition and additional OpEx for the modular plant.

Kumba significantly reduced capital spend supporting cash preservation. We spent ZAR1.3 billion made up of expansion CapEx of ZAR0.3 billion mainly on Dingleton, ZAR0.5 billion on deferred stripping and ZAR0.5 billion on stay-in-business CapEx. We have given a range of ZAR2.9 billion to ZAR3.1 billion for CapEx in 2016 an increase of ZAR0.5 billion compared to the guidance in February, mainly due to an additional ZAR0.3 billion stay-in-business CapEx to support delivery of the new mine plans and an additional ZAR0.2 billion of deferred stripping as we target low-strip-ratio areas. Guidance for 2017 is ZAR2.7 billion to ZAR2.9 billion and for 2018 ZAR3.5 billion to ZAR3.7 billion excluding unapproved capital. From 2019, our guidance on sustainable SIB CapEx is around ZAR2 billion on average through the cycle on a nominal basis. We expect to maintain this optimized SIB CapEx profile due to a few key factors.

Sishen's primary fleet was renewed over 2010 to 2015 meaning it is still relatively young and would not require replacement soon. Over the last year, we have reduced the scope of key infrastructure projects at both mines in line with the reconfigured pit shells. However, we do expect some lumpiness in Kolomela's profile over 2020 to 2022 and as we open the [couple] South pit. We will give updates as numbers are refined. Expansion CapEx for 2016 is for approved projects and is forecast at ZAR0.8 billion and mainly covers Dingleton. We have done well in optimizing this project which will be substantially completed in 2016.

Deferred stripping at Sishen will increase materially from 2.5, or decrease materially from ZAR2.5 billion in 2015 to around ZAR800 million in 2016 and around ZAR700 million in 2017 as Sishen's new mine plans target low strip ratio area. Post 2017, it'll pick up again as we mine different areas of the pit. We expect deferred stripping to peak at between ZAR9 billion and ZAR10.5 billion for Sishen, and that is capitalized in 2025 and ZAR9 billion to ZAR10 billion for Kolomela in 2027. We expect to revise our numbers as we complete our detailed life of mine plan and we will provide additional guidance then. Annexure 3 provides more detail on deferred stripping and SIB CapEx, as well as an estimate of unapproved CapEx. I'm very pleased to report that our strong cash generation and cost savings enabled Kumba to end June in a net cash position of ZAR548 million from ZAR4.6 billion debt at year end.

Total committed debt facilities remained at ZAR16.5 billion. There is still some variation in price forecasts which make accurate forecasting of cash flows challenging. In addition, iron ore prices are expected to be under pressure in the short to medium term and a conservatively geared and flexible balance sheet is necessary. In line with our strategy of conserving cash and strengthening our balance sheet to ensure sustainability thorough the cycle, no dividend has been declared as paying a dividend now would have required us to re gear our balance sheet. However, it remains our approach to pay out excess cash provided it does not require us to take on significant debt, especially in our uncertain market environment. We are confident that the measures that we have taken continue to bear fruit and position Kumba as a robust and sustainable business for all our stakeholders. I see a big contingent of my finance team there at the back, so I'd like to take the opportunity to thank my finance team for all their hard work and dedication during this interim results process. Thank you very much.

Our Chairman, Fani Titi would like to say a few words later on behalf of the Company but I also wanted to thank Norman personally for the past four years. It has certainly been a challenging period but I couldn't have asked for a better boss, a better partner, mentor and friend. I have learned a tremendous amount from you. Fortunately, I will still be working with you as part of a group and I will you all of the best in your new role.

Thank you. I now hand you back to Norman.

Norman Mbazima

Thank you very much, Frikkie, I think you have completely confused what I was going to say now but I'll see what I can do about that. As announced earlier this year, we received a tax assessment of ZAR5.5 billion relating to SIOC's overseas sales and marketing business for the years 2006 to 2010. An audit covering 2011 to 2013 is in progress. We submitted an objection to the assessment and an application for suspension of payment. SARS has granted the suspension until 31st July while they evaluate our grounds of objection. If required, we will apply for a further suspension. With respect to the 21.4% Sishen mining right, we are still awaiting a response to our appeal from the DMR and we have once again been assured the matter is receiving their attention.

Given the supply and demand factors that I discussed earlier, we expect prices to continue to be under pressure in the short term and therefore, the outlook remains challenging. As previously indicated, in 2016, Sishen is expected to produce around 27 million tonnes with waste mined being between 135 million and 150 million tonnes. We plan to continue to produce 27 million tonnes per annum in the medium term with waste at around 150 million tonnes. We will continue to review and optimize these plans and guidance may be adjusted where technical and commercial circumstances require this. However, we do not expect any significant changes which are not value adding.

Kolomela should produce around 12 million tonnes this year, with waste of between 46 million and 48 million tonnes. In 2017 and beyond production is expected to be 13 million tonnes from mining operations with waste of 50 million to 55 million tonnes. Due to current circumstances, we have not considered it appropriate to provide longer term guidance at this time as we are still completing the long term mine plans. The work done to date does not indicate any material change from the Sishen life of mine strip ratio of around four. As a result of the higher run rates in the logistics chain expected in the second half, the usual maintenance shutdown of the rail and port in September and reduced prospects of purchases of products from third parties, we have tempered our export sales guidance to 38 million to 39 million tonnes.

We continue to target a cash breakeven price of $32 to $40 per tonne CFR for 2016 but volatility in non controllable costs is anticipated to continue. Growing long term value in our business while maintaining the financial health and liquidity of the Group, especially in the current down cycle, requires very careful capital allocation. At its simplest it means prioritizing value over volume. Our approach over the medium term is to deliver organic incremental production growth with low capital requirements and short paybacks.

We have been speaking about development in the UHDMS low grade technology for some time now. We are pleased to advise that our first modular plant utilizing this technology was commissioned and is operating satisfactorily at Sishen. As this retreats a portion of the [indiscernible] discard, we plan to construct a second modular plant to treat the balance. This technology and the spare capacity in the DMS plant due to reduced mining volumes has given us the opportunity to consider upgrading that plant to UHDMS. In addition to increased production volumes due to treatment of lower grade materials which are currently stockpiled when mined, the upgraded plant may provide options to simplify and optimize the plant feed strategy, and consequently simplify mining operations.

The estimated capital intensity and financial returns of these projects are very attractive, and therefore we are carrying out these studies on an accelerated basis. The construction of a modular plant at Kolomela is progressing well and this will be commissioned in 2017, contributing production of 0.7 million tonnes per annum.

In conclusion, I would like to highlight a few key points. We've made solid progress in rapidly resetting the Company for a sustained period of lower prices. We've made the tough calls, taking the right decisions and implemented the right interventions. We've upgraded the quality of our asset base by closing high cost ore sources. We have improved capital efficiency and have maintained a strong focus on cost reduction and productivity gains. With all our employees giving of their very best, we will execute successfully on our mine plans at both Sishen and Kolomela, and we will deliver on our value accretive growth projects. Our business will be positioned to be sustainable in the low price environment and to generate free cash flow to reinstate a sustainable dividend and provide returns to our shareholders. They have been patient. With these results, we have made an excellent start on this journey. Thank you all very much for your attention.

I will now hand you over to the Chairman of the Kumba Board, Fani Titi.

Fani Titi

Thank you, Norman. Good day, ladies and gentlemen. You will now be aware that Norman is stepping down from Kumba after four years, having achieved the Company's strategic objectives of creating a more resilient business, able to weather the low iron ore price environment. Norman will now focus on his role as Deputy Chairman of Anglo American South Africa and will remain a member of Anglo American Group Management Committee. As you know the decision to dispose of Anglo American's non-core assets is perhaps the most significant strategic shift in the Group's recent South African history. As Deputy Chairman, Norman will take overall responsibility for the processes to restructure and divest Anglo American's non-core assets in South Africa, including its interest in Kumba and its coal business, where he has also been CEO.

There will of course be a comprehensive handover process. Norman will remain very close to the business and provide support as he works with Kumba's management and Board to prepare for and manage its disposal.

Norman, I now would like to thank you for your impeccable leadership over the last four years. Your time at the helm coincided with tumultuous times for the mining sector and a steep decline in the iron ore price. I'm not blaming you for those. As CEO, Norman responded swiftly to these challenges never shying away from the tough decisions needed to ensure the Company's sustainability. Throughout his tenure, Norman displayed the sort of temperament, technical insight and integrity which attracted the support of staff and stakeholders even as he led the Company through very major changes. Norman, on behalf of the Board and staff, I wish you every success as you focus on your new role. Ladies and gentlemen, an applause of gratitude to Norman.

Many of you will be familiar with Themba Mkhwanazi, CEO of Anglo American Coal South Africa, who will be taking over the reins on September 1, 2016. I welcome Themba to this new role. Sishen and Kolomela are world class assets and I believe that Themba's technical sales and management experience will add great value and will help secure the long term future of these high-quality iron ore mines. Themba has proven abilities in leading safe, productive and complex operations and this is certainly needed at a time when cost-competitiveness is critical to the sustainability of any mining business. He brings extensive operating experience gained across his two decades in the resources industry, both in South Africa and offshore and a decade in top management. Themba will be instrumental in helping us deliver the full potential from our business. Over the coming weeks and months, Norman will be introducing Themba to Kumba's shareholders and analysts on our road show and to all our key stakeholders. Themba, do you mind standing up? May we welcome Themba, please?

Finally, we would like to assure stakeholders that the Board remains committed to the strategy of continuing to deliver a robust, sustainable, long-term business based on the revised mine plans, cost base restructuring and the operational efficiencies that have been defined over the last two years.

We look forward to your support. And I now hand you back to Yvonne. Thank you.

Question-and-Answer Session

Yvonne Mfolo

Ladies and gentlemen, we now present the opportunity for questions. Kindly wait for one of the roving microphones before identifying yourself and stating your question. We will take questions from the audience in Johannesburg before going to the conference call line and finally the live webcast.

Tim Clark

Thank you. It's Tim Clark from Standard Bank. I've got three questions, if you don't mind, please? The first one is just on your mine plan. I respect that you don't want to show us your long term mine plan until it's 100% finished. But since Anglo have announced this new plan for Sishen, we haven't seen anything other than a couple of tables with a couple of stripping ratios. And frankly, that's not the most detailed stuff to get our head around just exactly what you're doing in the north part of the mine, the south part of the mine. I wonder if you could either give us some color on that or give us some color on when we're going to see that sort of detail which we've historically seen for the mine? And my second question's on Kolomela. I just wonder if management could comment on whether Kolomela is perhaps being pushed a little bit hard? You've got a take or pay arrangement with Transnet that obviously requires you to meet certain criteria. I understand that that, economically, means that you probably want to push Kolomela pretty hard. But I just worry that, Norman, you're right, it is well above its nameplate, it's doing a fantastic job, it's been a fantastic project for Kumba. I just wonder if you could comment on the risk that perhaps you are pushing that one just a little bit hard? And then the last one is just for just reiteration of some numbers that came through. That's those long term stripping ratio numbers for 2025. Sorry, I was trying to write but I missed them for Kolomela and Sishen, please?

Norman Mbazima

Shall I deal with that?

Yvonne Mfolo

Yes, please.

Norman Mbazima

The changes to the main plant at Sishen, the one that we recently did, that we announced in December and February, the big changes, the change of the pit shell rather than just the change in how we are dealing with the mine. So it's important that we get all those numbers lined up properly. So the biggest issue, for example, when we started was to make sure that we could do the 12 months mine plan. And the work that we've done in this period was mainly to make sure that we have a mine plan that, for example, supports the operating model, way in which we are operating now, where you need to know exactly where you, who is mining when in order to get those numbers right. So that's done and it's looking good. The guys are just about to finish now the medium term plan, which is the five year mine plan. Of course we have the life of mine plan, the draft one if I may call it that with a 12 months plan, a five year plan and a life of mine plan. But what we are doing is going through those again to make sure that we have got it right. So the 12-month plan is done. The medium-term plan is being reviewed right now. It's done at the levels where it needs to be prepared. And then we'll finish the long term plan as well. That will be in the next few months.

But what I've said to you is that the work that we have done thus far on that plan at Sishen means that we do not need to significantly revise the life of mine strip ratio of about 4 which means that the figures that we've given you before are figures that you can continue to work with until we give you some newer figures to go with. We don't expect a big shift, which I think is a fairly reassuring way to look at it. Kolomela is good, hey? I like this, Kolomela is a mine that was designed for 9 million tones. Firstly, based on having only one pit and then progressively bringing in other pits.

We had accelerated mining at Kolomela to bring the other pits into production earlier. So that's helped. Secondly, the issue was always going to be the plant. Can the plant take any additional ore that you mine? And the work that has been on the plant has been one of the best bits of work that I've seen in terms of the operating model and the advanced work on controls at Kolomela. I think you should not expect Kolomela to go from the mining operations beyond the 13 million tonnes. I think when we do the evaluation of the various areas of Kolomela, we see that we are maxing out all of them and therefore we should look beyond 13. Either from, A, other sources of production that go through modular plants and things like that or, B, a proper expansion that means you are now expanding new pits, new plants, new load out stations and so forth. So where we're going, Kolomela will need something big to go forward. But as of now, I think it is going an excellent job. And that 13 million tonnes from mining operations, we are quite comfortable with this production into the future. So I think the other question on long term strip ratio, I've probably answered in answering the first one.

Johann Pretorius

Hi guys, it's Johann Pretorius here from Renaissance Capital. Just a question on your -- the work in progress category in your -- in your inventory note. It's been steadily building since June of last year. Now it's about ZAR4.4 billion. I was just wondering can you perhaps give us a little bit more color what that entails? In what state is that work in progress? How many tons are we talking about? And how much more would it cost to get this in saleable condition?

Timo Smit

I think broadly what we've done, as you can see, we've reclassified some of it between non-current and current, but broadly on the B grade side we've got about 33 million tons of B grade at Sishen and about 13 million of blendable type B grade stock at Kolomela. Again, not all of that will be used in the year and that's why we've reclassified it. At Kolomela it has continued to build a little bit. Obviously, it's what? Four, five, six years old now and we're sitting at 13 million tons. You would have seen the modular plant that we've built that will start using a little bit of that. So, that should decline. On the Sishen side, we continue to use some of those B Grade vendible stocks.

Brian Morgan

Hi, it's Brian Morgan here, RMB Morgan Stanley. First-half production this year wasn't all that strong if you look at it relative to the full year guidance 27 million tons at Sishen in particular. I'm sure you'd excuse us for being a little concerned about the outlook in terms of production. Quite often when we come to a results presentation, we are told things are looking better and then it's not. So, could you give us a bit of comfort that that production target for the year, that guidance for the year is achievable, and then also looking forward into 2017-2018 please?

Norman Mbazima

Yes, Brian, we never give guidance as to how much we produce in the first half and in the second half. We probably never do that very often. But in our own planning we always knew that the first half was going to be significantly more challenging than the second half, for all the factors that I've mentioned. I'll just give you an example which I didn't talk about. We didn't know whether we could park the -- and introduce the new mine plan and park the equipment before you've gone through the Section 189 and agreed with the unions about for example, who is going to remain and what's going to happen there. That was an issue for us. It might actually have meant that we couldn't have implemented that plan until the Section 18. So there are loads of issues like that, that we had to deal with in addition to the general uncertainty of everybody about their job. So I think we're pretty much done with that and just the stability of the labor force should result in us being able to do our work a lot better in the second half. Secondly, I did mention in my presentation that there are some secondary sources of ore, such as the Lilyfield satellite pit which was not producing in the first half purely because we didn't have a way of transporting the ore from it to the plant. We've now sorted out that issue so in the second half we will have some of that ore coming in. So, we're very confident that the second half will certainly be significantly better than the first half. We are very confident that we will deliver on the 27 million that was set out.

Derryn Maade

Good morning, it's Derryn Maade from HSBC. I just wanted to ask you guys a strategic question on the use of excess cash. I know we've mentioned potentially reinstating the dividends, but in terms of long term value creation, would you not think about potentially reinvesting some of that in Sishen's waste stripping profile especially when you've got a rising stripping ratio in the future to think about? Thanks.

Norman Mbazima

It's a very good question, Derryn. We have to be confident in our mine plan and we're going to give you details of that mine plan in a few months when it's finally completed. That says these are -- this is the amount of recruitment, this is where you are going to deploy it, these are the number of people you are going to work with and this is what it is going to give you. And as we said we reduced the pit shell, the pit shell in which this mine plan is being prepared. So, you remember we had the map and showed you which bits we're never going to mine according to the mine plan that we're going to produce? To get back into those areas, the price has to increase quite significantly and none of us are seeing anything like the level of increases that we would need to be able to go back to a bigger pit shell. So, all the stripping that we need to do in the life of mine plan that we're going to produce will be catered for and will be -- and our financing will accordingly deal with that. But if we needed to increase the pit shell again, that would be a big exercise and we'd need to talk about what CapEx do we need, what people do we need et cetera, et cetera to do, and that's a different ball game. So, I can assure you that we are not going to get into a position where we don't have enough cash to do the stripping that we need to do. Thank you.

Brendan Ryan

Hi, it's Brendan Ryan from Paydirt Media. Norman, now that you're going to be focusing on disposing of Anglo's non-core assets, could I ask your opinion of the wisdom of the decision to get rid of Kumba. It's been turned around, it's generating cash. Last time I checked, Anglo needed cash. You're on both seats here, so what do you think of it?

Norman Mbazima

I'm not sure I'm the right person to ask. Unfortunately, I'm on the GMC as well. So, what I would like to do is reiterate what my boss Mark Cutifani said. He stood up and said we've looked at the quality of the assets, we've looked at the long-term attractiveness of the commodities that we want to get in etc. Whilst we are generating cash right now and I think we'll continue to generate cash for the remainder of the life of Kumba, I think those fundamentals that he talked about though would probably mean that it is not appropriate to change the decision to sell Kumba or keep it. So, that's all I can, repeat what my boss said.

Yvonne Mfolo

Do we have anyone on the web…

Norman Mbazima

On the line?

Yvonne Mfolo

Or conference call?

Unidentified Company Representative

Can we check the conference call line?

Operator

Yes we have questions. First question comes from Liam Fitzpatrick of Credit Suisse.

Liam Fitzpatrick

I think most of my questions have been asked, but just in terms of the eventual separation from the Anglo group, are you in a position to quantify any negative synergies we could see particularly on the cost front in terms of the benefits you get of being part of that larger group?

Norman Mbazima

No, I would not be in a position to quantify that. I just want to mention something here. Anglo has been disposing of assets and acquiring assets extensively over a period of time. In my career in Anglo I've had loads of times to do these both in terms of disposing and in terms of acquisition. And in every single instance I think that separation has been done responsibly making sure that balls are not dropped and therefore you don't end up with the disposed entity not being able to swim where it goes. So I can assure you that from that experience we would be doing the same in the disposal of Kumba. There's a great deal of work led by the CFO right now to make sure that if there is -- when that separation comes, we will have dealt with every angle that will come to us as a result of that.

Operator

The next question comes from Kieran Daly of UBS.

Kieran Daly

I've got two questions which are price related. I think your achieved price of $55 a ton for the half was probably better than most people expected and you made a comment, Norman about the use of financial instruments to manage price risk has contributed to that. I just wonder if maybe Timo or someone could just quantify and first of all, tell us what sort of financial instruments you've been using there and maybe quantify the extent to which they have benefitted and to achieved price? And maybe, the extent to which these financial instruments might be used going forward.

And then my second question is I think it's consensus that the iron ore market should be coming off in the second half, prices should be coming down, but yet the iron ore price has been very resilient. I just wondered if Timo could comment on maybe what he's seen generally in the market. Is there some weakness starting to come in that he's seen or not? Thank you.

Norman Mbazima

Kieran, you're right. This is one of those that I'm going to pass to Timo. But before I do, I would like to say that we're using these instruments in order to bring the price that we get to fit with our policy on how we like to price our sales of iron ore, as opposed to trying take a punt on the price and seeing whether we can hedge and get extra revenue. I just wanted to make that point. Timo?

Timo Smit

Absolutely right. The biggest impact on the price has not been from the trading of iron ore derivatives. We've renegotiated our prices in just about every major region. In China, we have renegotiated again adjustment factors that we have in our pricing formulas. In Japan we've renegotiated certain shipping terms. In Korea, we have entered into a new contract with one of the main steel mills. In Europe, we've renegotiated with basically all the European steel mills. So, that's had a positive impact and you will have seen a small shift in our geographic spread also. That is not unusual by the way. We continue to adjust our portfolio all the time, but this time we have perhaps been a little bit more active than previously. In terms of financial instruments, Norman is absolutely right. We're using it to align the pricing to the price of the day. We ramped up that activity.

We started it in October last year, we've ramped it up quite nicely. We're now doing about a million tons every month. It is purely to manage prices to make sure we get the price of the day. Some of our contracts are priced on a lagging price basis such as in Japan, some on a current, quarterly pricing basis. Some of them are based on the month of loading, some of them are fixed price. We want to have the ability to convert those to the price that we should be achieving of the day. That's what we're doing through these financial instruments. Of course, we we're a big lump producer. The instruments are available to apply to fines, but liquidity on the lump side is still quite limited. So, for two thirds of our sales we can apply this to the fines component but not yet to the lump component. In future you might see us become active on the lump side also. We haven't been active in that space just yet.

But because we're using it to manage prices, you will see cases where we have taken a financial instrument and in hindsight we actually would have wanted not to take it because the eventual prices you end up with might be lower as a result of what you did. Generally, we've seen a small positive uplift from using these instruments. Then your other question was about price weakness setting into the market. Are we seeing any signs of that? Not yet, but it will come. Norman spoke about the three big projects that are still ramping or still needing to be commissioned. Rio's one of them. I am sure Seamus will do his utmost to ramp it up as quickly as possible.

Another one is Roy Hill in Australia which has reached 25 million tons annualized capacity. It's meant to go up to 55, so that's a big chunk of capacity still coming on. Then, of course, the big one is Vale's S11D, 19 million tons. That should start in Q4 this year. So, there's an awful lot of additional supply. Combined, these projects are more than 100 million tons and it's coming into a market that's going to have difficulty absorbing that. It's not just these projects by the way. You should listen to Rio, they were at an annual pace of 323 million but they guided the market to 330. The implication of that is they need to be running above 330 million for the second half of the year. Although there will be a bit more supply from those main producers also, and then of course we've seen some of the capacity that previously left the market come back in because of the relatively strong iron ore prices. For example, Tonkolili was gone and is now back. That's just one example. So, there is an awful lot of additional supply coming in, into a market that's going to have some difficulty absorbing that. Therefore there will be some price pressure. We haven't really seen it just yet. At the moment, the Chinese steel mills are very much in productivity mode trying to maximize production so as to take advantage of these stronger prices. That's good. Taking advantage of the stronger steel prices. That's good for the iron ore prices. But given the supply and demand fundamentals there is bound to be some pressure coming in the second half of this year.

Operator

The next question comes from Andrew Snowdowne of Investec.

Andrew Snowdowne

Just two questions from me. Norman, I was hoping you could give us an update on the agreement with Transnet. Were there any penalties incurred by way of take-or-pay in the first half? You have indicated that you were looking in -- you had expected lower rail volumes in the first half looking to make some of that up in the second half. And maybe you can also just help further reconcile the idea that you're producing 39 million tons and you've maintained that guidance. You're exporting between 38 million and 39 million and 3 million tons to Amsur. So, just in terms of making up those volumes, I would suspect in the near term at inventory, and then on slide 28, you show some incremental increases from the modular plants, but those are 2017, 2019 dated. So, I was just wondering whether you could just reconcile all of that for me.

Norman Mbazima

Okay, reconciliation is for content. So, I'm going to ask the CFO to do that. But before, let me just talk about Transnet. Remember our agreement that the take-or-pay bids that result in penalties are annual. So these are not calculated on a weekly or monthly or half yearly basis. We finish the year and then calculate them and so forth. I said to you before that the main thing is for us to be able to negotiate with Transnet what we're going to do about the penalty clause. They changed that we had to do Sishen is permanent. It's for the life of the mine of Sishen and it was something that brought by external factors, not something that would have liked to do. So, that forms a very good basis for negotiations and those negotiations are ongoing right now. In the meantime, this year, the total tonnage, the total shortfall in tonnage will be quite small. Given what we've talked about, it might be 1 or 2 million and we'll negotiate what to do with that. But I would like to say that our main activity is to renegotiate the penalties with Transnet and that is currently work in progress. Do you want to talk about recons? Where are you going to get that extra amount from?

Frikkie Kotzee

If we start, it's obviously 27 from Sishen and in the medium term we've spoken about an additional modular plant. In the year, we had 0.7 of sales from Thabazimbi. We've spoken about the Kolomela modular plant coming on. We had stocked ores. So, all of that going through and the Sishen recovery in the second half we should not have material shortfalls this year. We may have a million ton or two. Then going forward again these projects that we ramp up should mitigate a lot of that.

Andrew Snowdowne

Just really following on then with my second question, taking it back to slide 28 with these modular plants, you do make the point that it is very accretive and certainly if you look at the capital intensity, ZAR600 to ZAR720 odd per ton, they would certainly look very accretive. Is there any possibility of bringing this forward, and I think also maybe just talking with regards to the DMS upgrade expected 2020-2021 and even more importantly I would argue, the low grade technology, which is something that has been spoken about in the past, my understanding was the that the technology works, but it's still shown as concept still 10 years away? Is there any possibility of bringing this forward? Because I would suspect that the processing cost is significantly lower from these plants.

Norman Mbazima

Yes. I think I said we are going to be doing this on an accelerated basis. So, we're going to be going as fast as we possibly can. The issue is no longer the technology. The issue is the normal projects discipline. What are you going to build? Where are you going to build it? How are you going to connect that with the current existing infrastructure? What are the procurement processes and all of that? We cannot stint on those studies otherwise we have problems. It doesn't matter if we are building a new jig plant which we already know what a jig looks like or a DMS. We have to follow those project disciplines, but having said that, we are going to accelerate it as much as we possibly can. We're actually targeting 2019 as the area where we might have first production from the retrofitted DMS plant and that is really very aggressive.

I would not be surprised if the project managers tell me I should never have told you this because of how tight that is. So, we are doing as much as we can. That UHDMS is one type of low grade technology which is something that is happening now and we'll put all of it in as much as we can. However, if you are going to process ore that is lower than 40% to 43%, then you have to move to a different type of low grade technology, which means grinding and producing concentrate and so forth. That's what we're talking about when we talk about 10 years. Thanks very much.

Operator

We have no further questions from the line.

Norman Mbazima

Okay.

Yvonne Mfolo

This is it and Norman, there's one final question.

Norman Mbazima

There's one final question.

Unidentified Analyst

It's [indiscernible] from Standard Bank. I would like to find out what is the expected timing on the potential debundling of Kumba. Will the current tax overhang issues potentially affect that process and what contingent measures do to management have in place for that?

Norman Mbazima

I can't give any timeline. Remember, Kumba we're just digging up ore and selling it and it's Anglo American that's selling off Kumba. So they'll have to answer to give you more appropriate answers to those kinds of timelines. I'm sure they'll be updating the market in due course once their decisions and so forth have been met.

Now, I think that every company has some issues that is dealing at almost any time in its life, we have always got issues that we're dealing with. And the tax issue for me is just one such issue. I've said over and over again that Kumba is a good corporate citizen that we pride ourselves in how we do our tax affairs that we pay the appropriate tax to the government in this country, the country in which we are residing and live and which we have to live in until the end of the life our mines. We have to be good corporate citizens. So I see these tax issues are the kind of tax issues any corporate and any individual can have and we'll discuss them and we'll deal with them and I expect that anyone who takes over from Kumba should look at them in that light. Thank you.

Yvonne Mfolo

We could and -- Benjamin, we have anyone else?

Unidentified Company Representative

From the webcast there are a couple of questions. The first one comes from [indiscernible] from Afena Capital.

Please could you indicate what normal levels of finished stock inventory you are targeting across your mines and logistics chains?

Norman Mbazima

Okay I've previously said that we target 4 million tons of finished stock throughout the logistics chain as an indicative figure. Timo will tell you I've been working very much with the integrated sales and operating plan, ISOP to try and optimize that further and bring it down. Right now, it's really quite low at 2.3 million. I don't expect it to stay at those levels. I expect it to rise. So it will be somewhere above 3 million but not 4. We are still working on those numbers to try and optimize it. If you want the old figure, it's 4 million.

Unidentified Company Representative

The next question comes from Rene Kleyweg from Deutsche Bank. There are two questions. The first one is can you expand on how you're thinking about dividends? Is there a cash buffer that you'd like to get to? Or is it more about getting comfortable around iron ore pricing outlook?

Norman Mbazima

We have consistently -- I mean the market has always looked before are you going to have a progressive dividend or are you going to have a dividend cover ratio or are you going to have -- what are you going to do? What is your dividend policy or do you have a sort of debt to equity ratio that you must keep. And we have consistently said that we are none of the above. The Board has said that we will not hold excess cash on the balance sheet and every dividend period we'll consider all the issues and make up our minds what the best is. I think you've seen the consistency in paying out a dividend when there was excess cash. So that policy will continue.

The only thing is that given where we are right now, I think it will be difficult for the Board to adopt the previous practice where we used to go into a heavy borrowed position and then recover that over time before the next dividend payout. Given now where we are in the market, we will probably be more conservative than getting into the level of debt that we used to do before. But we're not going to keep cash on the balance sheet which is excess and we will pay that to shareholders as and when it arises, thank you.

Unidentified Company Representative

The last question is just in connection with the financial instruments. The implication in terms of what you'd said about renegotiation of terms which is driving better realized pricing roles in financial instruments. Does that imply that this is sustainable? Were there any adjustments that would backdate it?

Norman Mbazima

This is sustainable. It's basically every time, remember, we've got contracts with customers and then every period we go and say how we're going to, how much are you going to take this particular period and how are we going to price it? And that is something that Timo does regular. Remember, if you go back a long time ago, we used to have fixed price contracts where we say this quarter this is what we're going to do and as the market developed we have also developed into a sort of market driven floating type pricing and therefore it is definitely sustainable going into the future. Thank you.

Yvonne Mfolo

Thank you, Norman. Since this is your last results with Kumba, famous last words?

Norman Mbazima

Yes. I won't make a long speech. I will simply say that it has been a trying time as far as the market forces have been concerned, but in terms of the people that I've worked with, I've not been tried at all. I'd like to say thanks to Fani and to all the members of the board of Kumba and all the members of the board of SIOC for working with me and giving me the guidance and support that I needed in this time. Thank you very much to my executive committee. All of them are here except Alex who had to attend the PLC S&SD committee yesterday. It's been a pleasure working with you. It's been simple. Very, very simple. We could just deal with the issues when we have them on the table. It's been an absolute pleasure working with you. I'll be led by my henchman here. And I really would like to say thank you to all the employees of Kumba. As I said, our employee relations have been second to none I think in the period that we've been here.

And finally to say welcome to Themba. I think you'll find what I've said to be the same for you, that everybody will work with you very well and will be able to drive this great Company forward and welcome Seamus as well for the input that you'll have into Kumba. What you've done elsewhere is exceptional and I would like to see that in Kumba as well. I look forward to working with you all as I'm not retiring. I'm going to 44 Main Street and my work that will mean that our paths have to cross. Thank you very much.

Yvonne Mfolo

Thank you Norman. On that somber note, we've reached the end of this presentation. If you have not had the opportunity to ask your questions, please send them to our investor relations manager Nerina Bodasing whose details are on the results presentation booklet on our website. I would once again like to extend our appreciation to each one of you for taking time to attend the presentation. Please do join us for some refreshments before going back to your offices. We are as always looking forward to reading all your favorable reports and articles on the Company. Thank you very much.

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