Good morning, everyone. Thank you for joining us today. On behalf of Kumba's board and management, I'd like to welcome you to Kumba's 2022 interim results presentation. My name is Penny Himlok, and I'm joined here today with our CEO, Mpumi Zikalala, and our CFO, Bothwell Mazarura. It's been 2.5 years since we last did an in-person presentation. In fact, it was 2019 annual results. It's really quite something to be able to do this again in person. I'm very glad to see you all. We have Harvey Grohmann that will do our safety in a minute. After that, I'd like to just remind our participants that are on the webcast and chorus call that they'll be in listen-only mode until we go into questions. Harvey, could you maybe just do a few safety points?
Thank you very much, Penny. Good morning, everybody. In terms of the Anglo safety procedures, just a short safety briefing just to assist you out of the building in the event that there is an alarm in the building. There are no planned drills. There is no work happening in the building at the moment. If I'd like to just draw your attention to the fire escapes. There's a fire escape on that side, so those people that are on this side of the auditorium, if you could make your way around past the balustrade to that side, we'll open the door and safely evacuate you into the assembly area.
For those of you that are in the middle or on this side of the auditorium, if you'd make your way up the stairs, down the bottom there, and we have floor wardens who will assist you out of the building. The alarm is very loud. You will not mistake it. We'll make sure that you safely get out of the building. Once you're outside, just group together, and then security will look after you thereafter. Thank you. Thank you, Penny.
Thank you very much, Harvey. Before we continue, I'd just like to remind everyone to have a second look at the disclaimer, particularly in terms of the forward-looking statements. With that, I'd like to hand over to Mpumi, who will take you through the overview of the first half. Thank you.
Thanks, Penny. Good morning, everyone. Firstly, Penny said it. It is absolutely great seeing some of you in person. Thank you for joining us as we take you through our first half results. Firstly, after six months as CEO of Kumba, I would like to set the scene with a few observations before going through the results. Bothwell will then go through the numbers, and I will then wrap it up before we go through to our question and answers. My first six months as CEO have seen some pretty unprecedented challenges. We are still dealing with the effects of the COVID pandemic while the macro environment creates a broad spectrum of issues with disrupted supply chains, inflationary pressures, and a high level of volatility. However, we must not get distracted by factors that we cannot control.
We have to get the basics right, and in that context, I'm very appreciative of my team's resilience. They have continued being effective when finding a regular operating rhythm has been pretty challenging. Looking forward, I am confident that we can deliver much more. Let me start by outlining the three critical elements that have allowed us to navigate a challenging first half and provide clarity and confidence on the path ahead. The first element is our robust fundamentals. In mining, as all of us know, the most important factor for success is the quality of your assets. We have excellent assets that produce world-class products. The quality of our ore is an increasingly positive differentiating factor. It helps our customers deliver on an ever more important strategic objective, which is producing steel with fewer carbon emissions. We are also differentiated by our core capabilities.
For example, our ability to innovate is demonstrated through our UHDMS technology, which will further increase our share of premium products and allow us to sell more of our products on a higher grade index. The second element is operational excellence. Achieving the consistency that operational excellence demands is tough in an environment where various factors disrupt your operating rhythm. There is no doubt that we've seen that impact in the first half. However, we made the right interventions to get back on track. Going forward, we must and will step up our focus on the operating model. Also, we will do so safely, sustainably, and consistently. The third element captures our broader pathways to value. These are the tangible upsides of optimizing our position across the value chain. We have huge opportunities ahead of us. Our P101 program will push our performance to the next level.
By continuing to integrate production with marketing, we can maximize the value that we achieve from our high-quality products. Our future smart mining and sustainable mine initiatives dovetail to harness cutting-edge technology for safe and sustainable outcomes while supporting our pipeline of expansion initiatives. Overall, it's been a pretty challenging first half, but we've acted quickly to navigate the issues we faced, and we feel confident about the path ahead. Turning to the actual first half results. Overall, Kumba delivered a solid first financial performance despite the challenges that we faced. Safety is our number one value, and in May this year, we achieved six years of fatality-free production. Our elimination of fatalities, risk reduction, and culture programs are key to that outcome.
That's a team effort, and I would like to thank all the wonderful men and women that are part of our employees and contractors in Kumba for this achievement. In terms of production, we had a tough half resulting in production that was 13% lower at 17.8 million tons. The shortfall came from a variety of factors, but mainly from our weather challenges in the first quarter of this year, and the safety intervention that we implemented, particularly at Kolomela, and I will cover this a little bit later. This took place in the second quarter. Disciplined cost control in an inflationary environment, together with realizing product value, helped translate this into an EBITDA of over ZAR 23 billion. We continue to create enduring value of ZAR 31 billion for our stakeholders.
Our robust balance sheet, combined with our capital discipline, allowed us to declare an interim dividend of ZAR 9.2 billion. Turning to the next slide, where I'll cover safety, health, and responsible operations. Thanks, Penny. As I said earlier, Kumba has achieved over six years of fatality-free production. We can, however, not become complacent. After two years of COVID and a tough first half, there is risk of fatigue. Our leading and lagging safety performance reflect that our team has been operating under challenging conditions. Our high potential incidents, which are a leading indicator, increased in April, including a blasting misfire incident at Kolomela. Safety is our top value, and we responded immediately by stopping production and implementing a safety reset initiative at all our operations.
We engaged with our employees and our contractors to continuously evaluate our ways of work and to identify areas of improvement to further strengthen our safety culture. It was clear that a renewed focus on safety was required, particularly at Kolomela, where we maintained the safety intervention for a longer period. I will cover this a little bit in more detail when I cover operational performance. Total recordable cases and lost time injuries are lagging indicators. These were also higher this year. Fortunately, these injuries related to low-energy incidents such as slips, trips, and falls, and also materials handling incidents. On the health front, there have been no new occupational diseases. We have also continued to support our staff through our wellness and chronic disease management programs.
Turning to our environmental performance, I'm pleased to firstly report that we have achieved more than seven years without any major or so-called level three to five environmental incidents. Secondly, with climate change, pressure on fresh water resources is a global concern. As part of our sustainable mining plan, we are targeting a 50% reduction in fresh water usage by 2030, and I'm glad to say that we've seen an 18% reduction since 2015. In the first half, we supplied over 7.5 billion L of fresh water to our municipalities from essential mine dewatering activities. The heavy rains increased mine dewatering, combined with constraints on the Vaal Gamagara pipeline. Unfortunately, we were unable to direct additional fresh water. This resulted in excess fresh water at the mine and a 20% increase in our own fresh water consumption. Let's not forget biodiversity.
Protecting nature is a crucial part of our environmental actions. To date, we have reshaped 69.2 hectares and seeded 16.5 hectares of land. Progress has been hampered by equipment reliability issues, but we remain focused on catching up on this target before the end of the year. This brings me to decarbonization, which is clearly a global priority, given the increasing evidence of global warming. We remain focused on our carbon footprint, and I will address this in more detail on the next slide. Thanks, Penny. Decarbonizing our operations is an imperative if we are to have a more sustainable future.
As part of our decarbonization pathway, we are targeting a 30% reduction in Scope 1 and 2 greenhouse gas emissions by 2030 and achieving carbon neutrality by 2040. Diesel makes up 80% of our Scope 1 energy requirements, but only contributes just over 50% of our actual Scope 1 emissions. While electricity represents 20% of our energy requirements and contributes just under 50% of our Scope 2 emissions. This represents significant opportunity to achieve our 30% target through our Scope 2 emission reduction projects. As a result, we are prioritizing our participation in the broader Anglo American group's regional renewable energy strategy. This includes the plan to develop a 65 MW solar plant at Sishen by 2025, as well as with wind and storage by 2030, which offers us a pathway to zero Scope 2 emissions.
Environmental studies on our solar PV plant are underway, and we have also commenced with the studies to supply 10 MW-15 MW of renewable energy at Kolomela as well. In terms of Scope 1, our current focus is on truck efficiency and optimization initiatives to reduce our diesel usage. We are also excited about the potential benefits of the hydrogen power truck currently being piloted at Anglo American Platinum. Regarding Scope 3, the decarbonization of the steel industry will be key as the steel making value chain indirectly generates our carbon emissions. Through Anglo American Marketing, we are partnering with our customers to help lower their Scope 3 emissions by using our high-quality iron ore products. We established our partnership with Salzgitter last year, and we recently announced our partnership with Nippon Steel as well.
On the shipping front, the group announced the successful sea trial of a biofuel blend from TotalEnergies that will reduce emissions by 10% and the move to LNG vessels in the near future offers us a further 35% cut in carbon emissions. A healthier environment ensures that we are creating a more sustainable future for our stakeholders, which brings us to the next slide on creating enduring value. Kumba continued to create exceptional value for our stakeholders. Our economic contribution of ZAR 31 billion provides enduring value. From the ZAR 7 billion in taxes and mineral royalties we contributed towards South Africa's economy, to over ZAR 12 billion in dividends paid to our shareholders, who include all our permanent staff. In this regard, I'm delighted with the implementation of our new hybrid employee share option scheme, which was announced earlier this morning.
This new scheme replaces the current Karolo scheme and includes a vesting and an evergreen component. The vesting component is effectively a continuation of the Karolo scheme. Employees will be awarded the inflation-adjusted equivalent of ZAR 20,000 in the form of Kumba shares with a three-year vesting period. With the evergreen component, the new scheme will own 1.2% of our subsidiary, the Sishen Iron Ore Company, or also called SIOC, and participating employees will receive a pro-rata distribution of any SIOC dividends declared. This new incentive scheme will deliver a tangible and lasting benefit to our employees whose commitments make us the successful business that we are. With nearly 80% of our employees coming from the Northern Cape region, this benefit, in addition to the income that our employees earn, makes a massive difference to the livelihoods of our communities.
Procurement is another way we add value to the Northern Cape region. We increased our local spend by close to 18% to help drive economic transformation. In the first half, we procured over ZAR 5 billion of goods and services from BEE suppliers. Of this, more than ZAR 2 billion benefited local content, local host community suppliers. We supported many in the business community with skills and capacity building, with a focus on increasing the value of goods and services sourced from especially black youth and women-owned businesses. To sustain and extend the life of our mines, we also spent ZAR 3.6 billion on capital investments. These examples demonstrate how Kumba creates and shares enduring value for all our stakeholders. We know that our performance and profits help sustain our country and the very communities that we rely on for our success.
Now turning on to our operational performance. Operational conditions in the first half were indeed challenging. These headwinds resulted in total waste stripping, reducing by 3% to 95.5 million tons, with a decrease at Kolomela partially offset by improved performance at Sishen in the second quarter. Production reduced by 13% to 17.8 million tons due to lower ore mined and plant feedstock constraints. As these improved in the second quarter, production increased by 14%. Ore railed to port reduced by 4% to 19 million tons for the period. To maintain export sales, we drew down finished stock levels to 4.5 million tons. As rail performance improved in April and May, we saw export sales increasing by 7% in the second quarter, contributing to a 2% increase for the period to 19.7 million tons.
Next, we'll take a closer look at the performance of Sishen and Kolomela. Starting with Kolomela, where operational performance was impacted by high seasonal rainfall in the first quarter and a safety reset intervention in the second quarter, and this followed a blasting misfire incident in late April. I would like to spend a bit of time on this, the misfire incident. In the industry, when a blast hole does not fully detonate during normal blasting process, we refer to this as a misfire. We have a built-in process to identify and treat these misfires. Unfortunately, this specific misfire was not immediately identified and was set off by an excavator during our loading processes. Thankfully, there were no injuries. As I've mentioned, safety is our number one value, so we took this incident very seriously and took immediate action.
Following an investigation, we identified eight other areas that could potentially have the same issue. We then implemented stringent measures to ensure the safety of our people and operations. However, this impacted mining production up to July. We have strengthened our blasting processes and controls to help prevent further incidents like this in the future. As a result, waste stripping at Kolomela reduced by 20% and production by 8% compared to the first quarter. The very high rainfall, almost double that of Sishen over the same period, the first quarter, contributed clearly to lower production as well. We have now cleared all the misfire areas and are returning to normal production rates. Sishen was less impacted by the safety stoppages, and waste stripping improved by 12% in the second quarter at Sishen. This was driven by better weather conditions and optimized pit setup and improved equipment reliability.
As mining improved, all feedstock levels into the plant also improved, and total production increased by 22% in the second quarter. In the remainder of the year, our focus at Sishen will be on improving HME reliability, plant stability, and feedstock. At Kolomela, we are focusing on improved rain readiness ahead of the rain season, which will start in the fourth quarter of this year. We are also looking at the optimization of our mine plan to improve our haulage cycle and truck utilization. Given all of this, we have maintained our production and sales guidance for the full year of 2022. Now, we'll take a closer look at how we are managing on the logistics front. Debottlenecking logistics continues to be a key focus area with the first quarter typically impacted by seasonal weather challenges.
That was again the case this year with rail washaways and a plague of load shedding in the area impacting performance alongside equipment reliability challenges. These factors or these seasonal factors diminished in the second quarter, with rail performance improving by 8%. However, this remains more than 11% below the contracted capacity, with a resultant negative impact on sales and shared benefits. These rail constraints have meant that we had to work with low levels of stock at the port, resulting in higher freight costs due to ship-loading delays or missed sales. As we saw earlier, sales increased marginally off a low 2021 base. Building stocks at the port to improve ship loading is critical. We will continue working with Transnet to improve or to implement improvement initiatives in the second half to debottleneck rail performance.
These initiatives include integrated planning and tracking by the channel optimization team to reduce the number of speed restrictions and also unscheduled maintenance events on the line. At Saldanha Port, the use of the multipurpose terminal will help to improve loading efficiencies, as will collaborating with the Transnet maintenance team. The improvement in the second quarter is encouraging. We expect this trend to continue through the remainder of the year, as we have seen in previous years. The long-standing infrastructural challenges to the rail and port system are known. Thankfully, we have open and honest engagements with Transnet about where and how the improvements can be made. The partnership approach with Transnet helps diagnose and deal with challenges as they emerge. The lost opportunities are a cause for concern, not only for Kumba, but also for other Northern Cape miners.
Improving the entire rail and port ecosystem will require multiple interventions to increase system capability and reliability. These include improved technical and management systems, significant capital investment, and the deployment of best practice business models and planning. Together with other stakeholders, we are engaging with Transnet and national government about how best to prioritize and implement the system improvements. We remain open to partnerships to achieve this, as we've always said. Now, moving on to the markets before I hand over to Bothwell, who will take us through our figures, our financial figures. For the first half, the iron ore FOB price averaged $118 per wet metric ton on tight market conditions. This translated into an average realized FOB export price of $136 per wet metric ton. In China, steel production was down 6.5% during the period on cusp of Winter Olympics and COVID-related lockdowns.
Hot metal production, however, fell to a lesser extent of 4.7% on the back of better blast furnace margins compared to electric arc furnaces. Steel demand fell when Shanghai entered lockdown for most of the second quarter. Concurrently, mills continued to increase production, resulting in an accumulation of unsold steel inventories. Iron ore supply disruptions, which saw this year's first half volume at its lowest level since 2017, offset some of the weaknesses in demand. Heavy rain affected production and logistics in Brazil. Volumes were affected out of Russia and Ukraine, and an increase in iron ore export taxes resulted in reduced exports out of India. As you can see on the right-hand chart, the 90th percentile point on the cost curve has acted as a support level to iron ore prices.
Risks from COVID-led restrictions added volatility to China's economic activity and iron ore prices over the past three years. To support growth this year, an estimated CNY 6.5 trillion infrastructure stimulus package could be rolled out. Fiscal relaxation of around CNY 1 trillion in the first half was followed by an issue of CNY 3.65 trillion of special purpose bonds or SPBs in June that should be deployed by August. Recently, there have been talks of a potential infrastructure fund of CNY 0.5 trillion in the third quarter and bringing forward the 2023 SPB quota, which equates to circa CNY 1.5 trillion. Overall, this totals CNY 6.5 trillion, which is higher, or which is circa 5.5% of GDP, higher than the 4% level in 2015 to 2016, but below the 10% level in 2008 to 2009 levels.
However, the efficacy of this stimulus will be dependent upon China's ability to curb COVID outbreaks and control potential spillover of systemic risks within its property sector. Overall, China is stepping up its stimulus package, which will be constructive for the iron ore markets. I will now hand over to Bothwell, who will take you through our financial numbers. Sir?
Thank you, Mpumi. It is great to see all of you here in person. It does make a difference to be talking to real people as opposed to just looking at a camera. Now, Mpumi has set out the market and operational backdrop that has driven our financial outcomes for the period under review. It's been a challenging environment, characterized by environmental and operational headwinds, which have impacted our mining and production volumes. Logistics throughput has been equally challenged, resulting in some revenue opportunity missed. A negative macroeconomic environment with ongoing supply chain constraints and high inflation continues to put upward pressure on our costs. With all of this, the imperative for operational excellence and cost discipline to protect our margins has never been clearer to us. The iron ore markets, though not as buoyant as this time last year, have been constructive, and they continue to reward quality.
This has meant that our margins have remained strong, allowing us to deliver a solid financial performance in the first half despite all the headwinds. We remain disciplined in the way we allocate capital, maintaining an appropriate balance between the liquidity on our balance sheet, investing for the future, and delivering excess returns to our shareholders. Getting this right sets us up to continue delivering value. Now, let's take a closer look at the financial highlights. Our realized FOB price reduced to $136 per ton in a more subdued pricing environment. However, this was still 15% above the benchmark price. This reflects the high quality of our products, combined with our marketing team's ability to maximize premium. Cost performance continues to be a key focus. Headwinds brought on by macro factors as well as operational challenges are putting pressure on our unit costs.
To counter this, we continue to focus on cost-saving initiatives. In the first half, we achieved ZAR 604 million of savings against our target of ZAR 1 billion for the full year. Our breakeven price, which is largely driven by our cost performance and the premiums we are able to capture for our products, increased from $56 per ton at the end of last year to $66 per ton for the period. Consequently, while our EBITDA margin remained strong at 54%, in absolute terms, our EBITDA decreased by 48% to ZAR 23.1 billion. Headline earnings per share of ZAR 36.13 allowed the board to declare a first half dividend of ZAR 28.70 per share. On the next slide, I will go into the main drivers of our price performance.
As Mpumi has highlighted, the quality of our orebody continues to be a strong differentiating factor. This not only continues to drive a strong premium, but further positions us for growth with the flight to quality, even more so as the pressure of climate change grows. Our Fe quality and lump to fine ratio remain ahead of the Big Four miners. As you can see on the right, this gave us an $18 per ton price premium benefit, putting Kumba $23 per ton ahead of the closest peer from a realized price perspective. It is increasingly likely that we will see an attractive premium for this quality. Our sales to markets outside of China also remained strong at 53% in the first half. Our diversified customer strategy and marketing agility continues to be a source of benefit in a volatile market.
On the next slide, I will take a closer look at our EBITDA performance. The EBITDA was largely driven by a lower realized FOB price on the back of a 28% decrease in the benchmark FOB price to $120 per ton during the first half. Despite realizing ZAR 604 million in cost savings, higher base inflation and cost escalations resulted in an increase in operating expenditure, which negatively impacted our EBITDA. We will take a closer look at costs on the next slide. Currency weakness, coupled with lower royalties on the back of a reduced revenue base, provided partial relief. Now, let's take a closer look at our costs. Now, there are four main elements driving our unit cost performance in this set of results. The first element consists of base mining inflation and cost escalation.
Base mining inflation has accelerated on the back of combined effects of geopolitical tensions and macroeconomic challenges. For us, this has impacted key input costs. Diesel, for example, has increased by 45% since the beginning of the year, while the cost of explosives has gone up by 26%. The second element centers around geological inflation and our operational performance and how they impact our unit costs. As highlighted by Mpumi, waste stripping at both Sishen and Kolomela was impacted by severe weather conditions and equipment reliability issues, followed by a critical safety reset initiative. We continue to focus on the maintenance to improve the availability of HME. Geological inflation is driven by increasing hauling distances and vertical lifts as our mines mature. Now, the cost increases brought on by these operational factors were offset by higher work in progress stockpile replenishment and deferred stripping capitalization.
At Sishen, we've also started to realize the benefit of accounting for C-grade material as we build stockpiles ahead of commissioning our UHDMS plant. The third element impacting costs relates to plant production, and this is the denominator in our unit cost calculation. Now, because of its lower production base, Kolomela's unit cost is particularly sensitive to how much the mine produces. This is quite evident in the bottom graph, as the lower production accounts for more than three-quarters of the unit cost increase at Kolomela. The key drivers of the production impact relate to the environmental headwinds and the safety reset, and we don't expect these to recur in the second half. Lastly, but on a more positive note, these cost impacts were partially offset by cost savings of ZAR 604 million.
Of these, 37% were driven by optimizing Sishen's mine plan, 31% by supply chain optimization, and the remainder, about 20%, by operational improvements. Overall, the negative cost impacts were felt more at Kolomela, where unit cost increased by 47%, while the Sishen increase was limited to 11%. Looking ahead to the second half, we expect unit costs to benefit from further operational efficiency improvements and increased production volumes. Cost savings will also gain momentum and the full benefit of our contractor management program and other cost initiatives will start to take effect. While we expect to see ongoing cost pressures in the macro environment, we have maintained our unit cost guidance at between ZAR 500 and ZAR 530 per ton for Sishen.
However, we have increased our unit cost guidance at Kolomela to between ZAR 420 and ZAR 440 per ton. Now let's move on to the margin slide, and this shows our progression since we implemented our Tswelelopele strategy. By now, most of you are familiar with our strategy. It is underpinned by three value drivers, product quality, operational efficiency, and cost optimization. These are also directly related to our near-term priorities, as Mpumi alluded to earlier. While we've experienced operational challenges and increasing cost pressure in recent times, it is important to also view our progress over a longer period as driven by our Tswelelopele strategy. We have seen the benefit of a constructive iron ore market and our value over volume strategy.
In more volatile times of the cycle, and specifically when we consider the challenges since the onset of COVID-19, this strategy has served to protect our margin. From 2018, EBITDA per ton has increased more than threefold from $27 per ton to $93 per ton. Cumulatively, cost savings have delivered ZAR 4.5 billion, well ahead of our original ZAR 2.6 billion target by 2022. This has allowed us to partially offset inflationary headwinds and contain our unit cash costs despite lower production volumes. The increase in C1 costs was largely driven by the factors I've already spoken about. On the right-hand side, and just as a reminder, our margin strategy continues to focus on three things. Firstly, achieving more than $2 per ton price premium over and above a lump and Fe premium.
Secondly, operational efficiency supports our cost savings initiatives, and we are targeting P101 benchmark operational efficiency performance. Thirdly, we are continuing to focus on our cost savings journey. Our objective in 2022 is to contain our C1 unit cost below $44 per ton. Our product quality underpins our ability to attract a price premium, and we are prioritizing operational excellence going forward. Now let's talk about capital expenditure. Our approach to capital management aims to ensure that we have an uninterrupted investment program to sustain and expand our business through the cycle. In the first half, capital expenditure increased to ZAR 3.6 billion from ZAR 2.4 billion. This is broken down as follows. We have ZAR 1.2 billion of expansion CapEx. Of this, ZAR 700 million was spent on the development of Kapstevel South.
The balance supports the work on our UHDMS project and our P101 efficiency program. Secondly, stay in business capital of ZAR 1.2 billion, largely comprised of spend on HME, plant infrastructure, environmental sustainability, and our technology programs. Lastly, deferred stripping increased to ZAR 1.2 billion due to higher strip ratios at the relevant sections at both mines. A significant part of our current capital outlay centers around our life extension projects. These are Kapstevel South and our UHDMS project. In total, these two projects will cost us just under ZAR 11 billion, and both of them offer a healthy rate of return with good EBITDA margins. Kapstevel South, our ZAR 7 billion investment at Kolomela, is 49% complete. This is versus a planned completion target at this stage of about 55%.
We are running slightly behind schedule, and this is mainly due to adverse weather conditions that have impacted the waste mining and some infrastructure construction, especially in the first quarter. The safety reset plan that Mpumi referred to also impacted waste stripping at Kapstevel South. Recovery and optimization options are being assessed and implemented, and we remain on track for the delivery of first ore in the second half of 2023. The procurement and commissioning of the required HME is progressing well. At Sishen, we are on track for commissioning the UHDMS plant upgrade in the second half of 2023 and handover in H1 of 2024. The project is running some 6% behind schedule. This is primarily as a result of some delays in engineering design and civil works, but we don't expect this to impact overall delivery.
We are also seeing cost inflation in the project, and this is linked to higher material and tender prices as we award major contracts. We will provide an update at our full year results once we have evaluated the full impact of these pressures. Given that the expansion projects are running slightly behind schedule, we have revised our full year CapEx guidance by about half a billion rand. We now expect for the 2022 full year to spend between ZAR 10 billion and ZAR 11 billion. On the next slide, I'll talk about our balance sheet and capital allocation. Disciplined capital allocation remains one of my priorities, and this slide demonstrates how we have applied our capital allocation framework. Our dividend policy is unchanged. We're still targeting between 50% and 75% of headline earnings as base dividends. The remaining capital is then allocated to discretionary options.
This includes our expansion projects, any value accretive investment opportunities, and the potential for additional returns to shareholders over and above the base dividend. We started the period with ZAR 17.5 billion in net cash. We generated a further ZAR 15.1 billion after paying for our sustaining capital. The final 2021 base dividend was paid in March, and this was about ZAR 10 billion, leaving us with a balance of ZAR 22.7 billion. We then applied discretionary capital of ZAR 5.1 billion to our expansion projects, and we paid additional shareholder returns. This left us with ZAR 17.6 billion on the balance sheet. Now, after taking into account our liquidity requirements and further discretionary capital options, we will be paying an interim cash dividend of ZAR 28.70 per share.
This represents a payout ratio of 80% of headline earnings, and it gives us a dividend yield of 6% on the period end share price. Our liquidity position has been strengthened further. Subsequent to the period end, we've added another ZAR 8 billion of credit facilities to ensure we have an appropriate balance of cash resources and debt facilities at our disposal. To enhance the efficiency of our balance sheet, we will be looking to introduce a moderate level of gearing in the second half of the year. This will be specifically to fund our expansionary capital program. In conclusion, we have delivered a solid set of financial results for the first half, demonstrating our discipline through the headwinds experienced and the benefits of our margin enhancement strategy.
Since 2018, attributable free cash flow has totaled ZAR 85 billion, and this includes the ZAR 9.7 billion generated during this period. In the past 4.5 years, we've paid over ZAR 70 billion in base dividends and ZAR 16.6 billion in top-up dividends. Despite the cyclical nature of our business, the operational and macro challenges, and market volatility over the past few years, we've provided consistent returns to our shareholders. During the same period, we've returned just over 100% of free cash flow and, on average, more than 90% of headline earnings to our shareholders. This underscores the operational and financial resilience of our business. We remain committed to maintaining a balance between investing to sustain and grow our business while returning excess cash to shareholders. On that note, I'd like to thank you, and I'll hand you back to Mpumi.
Thank you, Bothwell. Now, as we know, the buildings we live and work in, the vehicles, and even the infrastructure that all of us used to get here this morning are all manufactured from steel. We also know that the market is embracing the need for decarbonization. Steel is not only central to how we live today, but it is also pivotal for the future. It is a critical ingredient and enabler for the energy transition across all renewable power infrastructure and electric vehicles. Kumba's greater share of lump and high-quality Fe positions us well for this development. Now, we'll take a closer look at this on the next slide. Steel demand is expected to increase in the global shift towards renewable energy. Steel intensity in renewable power infrastructure is 10-30 times more than that of fossil-based power infrastructure.
In an effort to decarbonize the steelmaking process, mills are investing more in DRI. There is a healthy pipeline of DRI projects coming on board in the next 30 years, and the share of DRI in global steel production is expected to almost triple to 26% by 2050. This will drive demand for high-quality ore as it offers higher productivity and has lower energy requirements. In fact, as we know, for every 1% increase in Fe, one will see a decrease of circa 2%-3% in carbon emissions. Kumba is well-positioned as a leading provider of high-quality, high-lump iron ore. Our Fe quality and lump-to-fines ratio remains high relative to our peers, but more importantly, Kumba continues to focus on premium products.
The implementation of the UHDMS plant at Sishen will approximately double the volume of premium lump and further improve the quality of our product portfolio. I will cover this. I will now cover some of our near-term priorities. As we look forward to the rest of the year, our focus remains on delivering on our near-term priorities, which links back to some of the things that I said when I started earlier. Ongoing challenges remain, but despite this, we continue to focus on the nuts and bolts of our business to drive operational excellence, including value chain stability, HME maintenance and reliability, and also the setup for our UHDMS tie-in next year. In the second half, costs are expected to benefit from these operational efficiency improvements and increased production volumes, as Bothwell indicated.
Cost savings will also gain momentum with the full benefit of supply chain, contractor management and other initiatives that we are focusing on from a cost front. Moreover, the quality of our ore body continues to be a strong differentiating factor that continues to drive a strong premium and further positions us for growth. Our near-term priorities of safe operational excellence, cost optimization, and ensuring that we achieve the full value of our premium products are fundamental to value delivery at Kumba. These will remain our key focus areas along with continued improvements in environmental, social, and governance performance. Looking ahead, we will continue to focus on safety and safeguarding the health of our workforce. We envisage continued demand for high-quality iron ore underpinned by China's stimulus package in the second half. As such, we reiterate our full-year guidance on waste production, sales, provided at our Q1 production update.
Bothwell has already discussed our unit cost and CapEx guidance. Before we go to Q&A, let me conclude with our value proposition. Overall, we've delivered a resilient performance, including a solid financial return in the first half, despite the operational and market-related challenges. We also continue to progress on initiatives to extend the life of our portfolio. Our products continue to generate healthy premiums, and we have increasing confidence that our products will command an attractive and sustained premium given the emission reduction benefits that they provide for our customers. Looking ahead, we are conscious of the operational challenges that we saw in the first half, and we will continue to prioritize the health and safety of our workforce. We have a few hurdles to overcome, but we remain confident that we can continue to build on our track record of delivering value for our shareholders and stakeholders.
In closing, I would like to thank all of our Kumba employees and contractors for all their hard work and commitment. Our board for their leadership and guidance, and of course, our partners and stakeholders for their continued support. I will now hand over back to Penny, who will manage our question and answer session. Thank you.
Thank you, Mpumi. I see that we have one question in terms of the webcast, and I'll deal with that first, and see if there's more questions on the chorus call line. In terms of the question that we have here, sorry, that's actually now two. The first one is from CAPITAL SIGMA, Abdullah at CAPITAL SIGMA. He's asked a question on iron ore prices. I guess it's always a favorite question, even more so at this stage. Mpumi, I'm not sure if you'd like to deal with that, and then we can pass on to Timo.
You know what? We have Timo who's come through all the way from Singapore, and I'd like Timo to take that. Timo.
Okay.
Do you have the mic?
Do you have the mic?
Thanks, Timo.
What is the question on iron ore prices?
It's basically.
How are you?
What are you expecting for the second half?
What are we expecting? Okay. All right. Let me be careful in what I say because I do not want to come across as negative. Maybe I'm a little bit cautious. There's a couple of very positive factors that are underpinning our iron ore prices. First of all, I should emphasize that product quality pays. There is a continued flight to quality. We've been talking about that for a couple of years already, but it is very much in play. We're seeing very healthy demand for high-quality products. In fact, we've been able to grow our share of sales outside of China, where there is more of a demand for high-quality products, to over 50%. China now accounts for less than 50% of our overall sales. 47%, in fact. Quality definitely pays.
The overall iron ore price has been and will continue to be supported by some supply disruptions. We've seen disruptions from Russia, from the U.K., from India. We've seen very heavy rainfall also in Brazil in the first half of the year. Overall, global iron ore supply is down 6% year-on-year, which is very, very significant. Secondly, we think that Chinese stimulus will underpin iron ore prices in the second half of the year. The number that we're talking about is very significant. CNY 6.5 trillion represents about 5.5% of GDP. That's a higher share of GDP than what we saw in 2015, 2016, although it's not as high as what was seen after the global financial crisis in 2009.
That stimulus is being provided in a number of different ways. Special purpose bonds, CNY 3.65 trillion for 2022. That's almost completely exhausted already. 96% has already been issued, and we're gonna be seeing those effects in the next couple of months. What's likely is that China will also bring forward some of the special purpose bonds quota that were allocated for 2023. It's likely that CNY 1.5 trillion will be used in 2022. Add to that some fiscal loosening in the first half to the tune of about CNY 1 billion and a special infrastructure fund that's being set up, CNY 0.5 trillion, and all of that adds up to CNY 6.5 trillion in stimulus. That's very, very positive.
Supply disruptions and Chinese stimulus are expected to support prices definitely in the second half of the year. There are also some headwinds, particularly on the property side in China. Land sales are down. Floor space started is also down on last year. You'd have seen perhaps some news that, buyers across 22 cities in China are refusing to make their mortgage payments, in response to delayed construction projects and so on. You may have seen the news just now out that China is setting up an, a property fund to tackle these issues. They announced it, just today actually. It's gonna be CNY 80 billion, and it's got a multiplier effect embedded in it, so this could be a very significant development, and the market is definitely responding positively, to that.
You know, overall, although we're cautious because of these property pressures and because of the possibility of continued COVID flare-ups in China, we're also positive because of some of these other factors, global supply disruptions and particularly Chinese stimulus. The price has fallen below $100 a ton, but it's now bounced back. Most analysts or the consensus is that we're gonna be seeing a price just north of $120 per ton for the year as a whole. For the first half of the year, we saw $140, so the implication is that, you know, in the second half of the year, we should be seeing something just a little bit north of $100.
We take a slightly more positive view than that, so we're slightly above consensus, because of the Chinese stimulus and the supply disruptions that we've seen. There's our view on prices, so absolutely not doom and gloom. We're cautious, but we're certainly not negative.
Thanks, Timo. Okay. The next question is for Mpumi, and it's basically question from Dominic O'Kane from JP Morgan. He's asked if we can comment on the logistics constraints that may exist in 2022 and 2023 in terms of Transnet, the Saldanha Port, and also Eskom.
Yeah, thanks. Thanks for that. It was Dominic, yeah?
Yes, Dominic.
Thanks. As I mentioned earlier, actually let me start with the fundamental thing. I think all of us know that for our mining industry more broadly to actually continue growing and deliver, we require an effective rail and port infrastructure system. People know about the challenges that exist in other lines. People normally comment and say that our line, which is the iron ore line, has higher availability, and that's true. It is higher relative to others, but it still remains lower relative to contractual capacity. I always say to people that we still have things that we need to work on together with Transnet. What did we see in the first half? We saw performance that was lower than contractual capacity, albeit significantly higher than other lines.
Moving into the second half, the first couple of weeks of the second half, we've seen higher levels of performance, but key is essentially for that to clearly be sustained going forward. What will happen towards the end of September, circa the beginning of October, is that Transnet will have another one of the slightly longer shutdowns. We support this because clearly if you maintain the line, then the availability of the line and the reliability of the line will actually be beefed up going forward. We do still believe that there's more work that still needs to be done on the line, and we like the fact that certainly insofar as our relationship with Transnet is concerned, we are able to sit and be open and honest with each other around the challenges that exist and additional things that need to be done going forward.
We are looking forward to collaborating with Transnet. I however don't want people to think that we don't have our own challenges. We certainly do. We are not at contractual capacity. We still firmly believe that going forward, more still needs to be done, and we're excited by the white paper that was released on rail earlier this year. Also the initial, you know, indications coming through from a Transnet perspective around public sector or private sector partnerships. That's certainly a place or a space that we'd like to play in. Looking outside our country, we do think that that is something that will continue adding value. We will continue engaging with both Transnet and national government. From an Eskom perspective, you know, firstly, I'm sure most of us listened to the family meeting yesterday.
We're actually quite excited by what the president said, and we see huge opportunities for ourselves and the rest of our country as well. From a broader Anglo American perspective, as most of you know, we are working on the regional renewable power initiative that's seeking to assist us from a Scope 2 initiative or Scope 2 emission perspective. Overall, that's looking at 3 GW-5 GW of power. The phase one that we spoke about from a Kumba perspective, and that's the 65 MW that will be going to Sishen, is part of that broader infrastructure that we are looking at. We quite like the announcement and the fact that it's seeking to clearly make things a little bit easier going forward in terms of permitting and actually us working through what we would like to do.
We are actually looking forward to exploring this from a broader group perspective, and it will add value for us. As we know, you know, implementing projects is not quick. I indicated that with our 65 MW, that would come on board in circa end 2024, beginning 2025. With the announcement, you know, you never know. Glenn, I'm looking at Glenn. He may be able to bring that forward, and clearly we'll continue pushing on that. More importantly, we are just excited by the broader aspect of what this could mean for us as the broader Anglo American group. That's it.
Thanks, Mpumi. With that, I'd like to just ask if there are any questions in the room before we go back to the webcast. Brian, could we just have a mic?
Yeah. I got the mic first.
Oh, sorry. Hi.
I'm gonna go first, Brian. Sorry.
That's all right.
Four questions.
We've got two mics.
From my side. Number one, just as a follow-up on TFR, are you guys able to share, you know, an indication of what the cost escalations were on a year-on-year basis? I know a lot of industrial players have been complaining about the escalations. The second question is on Kolomela. Are you guys confident that you can recover from a production perspective in the second half of the year, given how tough the first half has been? My third question is on the UHDMS, because it's getting near and we're getting excited. We understand that your quality products in your portfolio will improve, but what's gonna happen to your long-term lump to fine ratio, as out of the total portfolio?
Lastly, I know you guys said you'll give us an update at FY 2022, but what sort of cost escalations are you seeing already at Kapstevel and on the UHDMS project, at this point? Thank you.
Yeah. Thank you so much. I'll firstly ask Bothwell, well, can you cover the TFR cost escalations and the overall, call it, cost escalations, going forward? Just touch on the UHDMS portfolio as well, and then we'll cover the next other one, the couple ones.
Yeah. No, that's fine. Thanks, Mpumi. Does the camera like it if I continue to sit here?
Yeah.
Great. Okay. TFR cost escalations, we are in a long-term contract, as you know, and it's got inflation-linked increases that are inbuilt into that contract, and it's based on a basket of goods. If you look at our increase in transportation and logistics costs, we're running at about 7%-8% for the half. That's where we are.
Can you move your mic a little bit?
I need to move my mic, so maybe I should stand up. From a cost escalation in our projects, Kapstevel South, first of all, that's, you know, the bulk of that or over 50% of the cost on that project relate to mining costs 'cause it's about waste stripping, as we open up the pit. A lot of that is within our control in terms of how efficient we are as we mine through the waste there. We're not seeing significant cost pressure from that perspective. Another significant element of that is the HME component of that, and a lot of that has been placed already and we are getting delivery of the HME, as I said in the presentation. That's not expected to escalate.
There is obviously the infrastructure and the construction bit, and that is impacted by current inflationary pressures we see in input prices like steel and so on. For the UHDMS, because of those two significant components that we don't expect much escalation from, we still envisage that we will come in on budget for that project. The UHDMS has got a much, obviously much bigger construction element to it and civil works, and as we place those packages, we are seeing pressure, especially in terms of pricing.
Because we're still placing those packages, I'm not in a position at this stage to give you the exact amount, and that's why I've said at the end of the year, once we've placed all the construction packages, we'll be in a better position to tell you by what percentage we expect to increase on the UHDMS.
Thanks, Bothwell . On the second aspect, on the couple of additional questions, you asked about our confidence from a Kolomela perspective, and I'm looking at Vijay, our COO, but let me comment. As you know, Kolomela has actually always delivered. The challenges that we had beginning of this year, if you think about it, we had double the amount of rain relative to what we had to Sishen or compared to Sishen in the first quarter. Secondly, we had the safety intervention. I have to say that we did the right thing by putting our people safe or keeping our people safe, because that's our first value, and we'd never take chances when it comes to their safety. If we look forward, Vijay, I'll ask you to comment on our levels of confidence.
I think that's something that we have to keep in mind, because Kolomela had a couple of challenges this year, but we are well set up. Vijay?
Yeah. Thanks, Mpumi.
Mm-hmm.
At Kolomela, specifically, the safety reset affected our ability to mine at the optimum rates during the second quarter, and this was basically driven by the misfire incident that had happened. What we did as a proactive measure, safety being our primary value, we whichever areas where we suspected of potential misfires, we treated as misfired areas. We have mined through most of these areas, and as we mine through these areas, we see a gradual step-up in the performance. On top of that, we have already caught up with our maintenance program as far as HME maintenance is concerned at Kolomela. We have optimized the mine plan so that in the second half of the year you have a lot shorter hauling cycles, which improves your truck efficiency. On top of that, certainly the rain readiness is going to play a big role.
Kolomela, by design, is a slightly different mine compared to Sishen and then we had to optimize our rail readiness plans. We have learned from our experience at Sishen, and certainly that is what we are going to put in place at Kolomela.
Thanks, Vijay. I mean, we've got a pretty good team at Kolomela, and that's why I always say to people, "Let's remember that Kolomela has always delivered. It's just that we've had a couple of challenges this year."
Okay. Thanks, Mpumi. Thanks, Vijay, and Bothwell, and Brian's question.
Thank you. It's Brian Morgan, RMB Morgan Stanley. I've got three questions. Can I ask them one at a time?
Yep. We are a little bit. Yeah.
Maybe just ask all three.
Go through.
Go through all three.
Okay. Bothwell, could you just chat to us about capital allocation? You mentioned going into a bit of net debt in the second half of this year. Could you just expand on that a little bit? Previously you've spoken about a minimum cash balance requirement. Could you just give us an update on that and how that ties into the dividend? The second question is on the sort of medium-term production volume guidance and just, you know, it's 2 million-3 million tons up from where you're guiding for this year. Is that a scenario where everything has to work, everything's gotta be perfect, Transnet's got to come to the party, the rain readiness plans have to be in place, UHDMS has got to be in place?
Is that the scenario or is there potentially even more that could go, or that, you know, if everything goes well, could it be better than guidance? Then, Timo, a question for you on just on the infrastructure spend and the stimulus and all that sort of stuff. You know, I've seen the same thing as you, LGSB issuance and very big numbers up year-over-year, but we don't see it in the NBS fixed asset investment line item that comes out of China. Am I missing something, or are you a little skeptical of this, of the stimulus?
Okay. Let's take the first one first. Thanks, Brian. Capital allocation.
Okay. No, thanks, Brian. Yes, you're right. I did allude to the fact that we have strengthened our balance sheet in terms of liquidity. We've placed an additional ZAR 8 billion of debt facilities. The way we allocate capital still remains unchanged. Our dividend policy remains unchanged. But what we want to do is to introduce a slightly more efficient balance sheet, given our confidence in our ability to generate cash. We will take the opportunity from H2 onwards to fund some of our expansion projects, and that relates specifically to UHDMS and Kapstevel South, using our debt facilities, which will free up a little bit more cash from a dividend perspective. We are still cautious in our approach.
We still recognize that we are a single commodity, single geography company, and therefore, we have to make sure that our balance sheet withstands the stresses of the volatile cycles. We will be cautious in our approach. When we come back at the year-end, we will talk more about that sort of cautious drawdown of those debt facilities and the introduction of a slight level of gearing on our balance sheet.
Thanks. Timo, do you want to take the second one? Thanks. The third one. Sorry, Tim.
No, I think it's a timing issue. Of the CNY 6.5 trillion, you know, half is infrastructure fund, CNY 1.5 trillion is the 2023 quota, CNY 3.65 is this year's special purpose bonds quota. Now, for the majority, they've now been issued, but it's gonna take three, four months before you see it starting to filter through in the actual numbers. I'm not too worried about that. I think it's still coming. The main effect is still coming.
Yeah. Brian, I'll go quick on the second one. Whenever we consider guidance, we consider the full value chain. We think about what will be happening on the production side. As you know, next year we are looking at doing the UHDMS tie-in. We also look at the planning cycle of Transnet, and that's why we like it, the fact that we are able to be open and honest with each other, and that's what informs guidance. It follows a balanced value chain approach.
Okay. I see Nkateko has a hand up.
Good afternoon.
Go ahead, Nkateko.
Yeah. Good afternoon. Nkateko Mathonsi from Investec Bank. I actually only have one question, and it relates to your operational excellence pillar, specifically the fleet efficiencies which still remain lower than what we saw in 2020. I wanted to know what is the roadmap and timelines to getting back to those levels, and what are the targets, if there are any revisions upwards?
Yeah. It's a brilliant question, Nkateko. We've spoken for quite a few years about the fact that our drive is actually around P101. Now, what essentially affected our, I guess, HME maintenance is a couple of things that happened towards the end of the year last year, firstly. We started having a couple of issues, and I've mentioned it before, around spares availability from some of our OEMs. In addition to that, we actually proactively, as a means of driving down our costs, did some restructuring and removed what we called our rapid response teams. You can imagine if you don't have spares, it means that you can't do all your maintenance. If you don't have a rapid response team that deals with breakdowns, it means that it will take you longer when you have breakdowns.
We've clearly gone in and had engagements with our key OEMs in order to up our spares holding. Secondly, we've brought back our rapid response teams in the short term simply because we clearly need them as we still need to walk the journey of improving our equipment reliability. In addition to that, we are working with, I have to say, asset reliability experts who are helping us with our journey because the goal that we have is still in place. We still want to get to P101 for our entire fleet, and clearly this is driven by value. Key is we are starting to see, you know, and we call it firstly, we called it you have to be stable first before you improve capability. We've certainly seen that from a Sishen perspective. That's why you're seeing the numbers coming through.
Vijay spoke about the fact that we've, you know, dealt with the bulk of our backlog at Kolomela as well, and that sets up well as we drive for stable and capable production, because that's how you do it when it comes to the HME space, yeah. As we look at that, we are not forgetting our plans, yeah. Just because something is not screaming today does not mean to say that you don't look after it. Overall, when we look at asset reliability, we look at the entire, call it asset base that we have.
Thanks, Mpumi. Are there any other questions in the room? I'm conscious. Tim, please go ahead.
It's just one quick question. It's Tim Clark from SBG Securities. You asked. You said. You used the word critical to rebuilding stockpiles at the port. If I look at the run rates that you've showed us on your charts going back to 2020, I mean, it looks like an impossible task, I'm afraid to say. It looks like you're not getting the rail, and whatever rail you are getting, you're gonna need to get it onto a ship. I just wondered if that could have an impact just in terms of blend and mix. You know, because you have drawn down stockpiles, and it does look like it's gonna be a hell of a challenge to build them back up again, despite it being a very high priority. I suppose secondary to that.
Mm.
We're all very jaded because of the coal line, so perhaps, you know, we must look at it through that glass. We are somewhat concerned about, you know, sort of over-optimism in relation to Transnet improvements that we keep looking for and don't seem to appear. Perhaps if you've got some idea of specifics that could really make a difference. I mean, it does look like with a big shutdown in the second half and extended shut, things will be worse, frankly, not better.
Yeah. No, Tim, firstly you've got it spot on. If you look at the first half, port actually outperformed rail. That's why if you look at our stock holding right now, so product stock, the 4.5 million tons that we spoke about, the bulk of that is sitting at the mine. The key focus is actually on improving rail performance in order to get that stock to the port, clearly for two reasons, one, for sales purposes, and also because we'd actually like to build up our stock from a port perspective. That's exactly what we are focusing on with Transnet, yeah. There's a couple of things that they've looked at. If you look at the first quarter of this year, actually, sorry, we can't. Let's not go back to the graph.
We can share it with you later. Firstly, if you look at our historical performance. We get better performance in the second half of the year, simply because in the first quarter, Transnet, similar to us, I guess to a degree, gets affected by the seasonal weather challenges. They have the washaways, and clearly you get the low cost, et cetera. Those tend to happen during the first, call it, part of the year. As, I guess, things become drier, you start to see performance improving, and I spoke about the first couple of weeks that we've had in the second half of this year, and certainly we've seen that performance. To your point, we are not jaded by that. What we need to see is improved, sustained performance. The key things that need to be driven are exactly top of mind for us.
One, I want to cover the maintenance one that you touched on. We believe in maintenance, because if you don't maintain something, it will break down. We fully support the aspect of the slightly longer maintenance, simply because what we've seen before is that if you don't maintain something, we know with our experience as well, certainly you feel that or the effects of that. There's other things that they've essentially focused on. We did have quite a few speed restrictions. They have been working on a program of reducing the number of speed restrictions, and as you know, when you've got a speed restriction, it tends to affect your entire line. There's a whole lot of other things that they have, and we look at it like this.
There's the shorter-term things that need to be fixed today to fix performance today, but there's also things that need to be done in order to ensure sustainability going forward. For example, the replacement of Tippler 1 with Tippler 3 is absolutely critical because Tippler 1 is old, and when an asset is old, you start struggling to find spares and you start having more breakdowns. When we look more broadly from a program of work, we don't sit on the side and become bystanders. I'll go back to it. It is absolutely critical that our engagements with Transnet are close, because clearly for us, that allows us to actually see through what Transnet is looking at, offer help where we can, and also for Transnet to actually tell us about things that we need to improve on our side.
They've certainly raised a couple of things that we've needed to do on our side in order to help improve the overall capacity of the system. Similar to you, clearly, we look at the other lines and that worries us, and that's why we always say we have to continue working closely with Transnet. Timo, I don't know if you want to add anything.
Maybe just to comment on how you started your question. You know, with lower stock levels in the port, blending does become a little bit more difficult, but certainly not impossible. I'm actually impressed by what the team has managed to do, loading the specs that the customers require on just about every cargo that we've sent out. The fact that we have low stock levels in the port forces better integration between marketing and production, so that effectively we're pulling the right product into the port at exactly the right time. That's actually been a, you know, a silver lining, I suppose, that's come about because of the low stock levels that we've seen.
Thanks. More still needs to be done. I don't want you to think that we are saying that we don't have work. There's still more work that needs to be done, even with the higher levels of performance that we see relative to others.
Thanks, everyone. Just conscious of time. We have two more questions on the webcast and a few on the line as well. I think, Timo, since you've had the last question, could you also maybe take this other question? It's from Thishan , from Truffle. He's just asked, how do you square away your positive outlook on prices and lump in Fe premium compared to the steel margins that producers are seeing and the shift towards lower quality in order to support the margin situation?
We are seeing lower steel margins at the moment. The proportion of Chinese steel mills that are profitable is at a very low point. We've always said, and as a result of that, there's a focus on cost and not productivity. When there's a focus on cost, then you see the differential between the medium-grade 62% index and the high-grade 65% index. That differential calms down in such an environment, and the lump premium also tends to calm down in such an environment, and that's exactly what we're seeing at the moment. That is a cyclical effect. That's not a structural effect. Structurally, we believe that there is a 20% premium for your high-grade products or a 20% differential between a 62% and a 65% index.
At the moment, it's a lot lower than that, but earlier this year, it's been actually remarkably close to the 20% that we've been talking about for quite a while. Yes, we are going through a lower premium right now, but as the stimulus is rolled out, I would expect that premium to recover, and I would also expect the lump premium to recover when the Chinese steel mills start using more lump in their burden. Typically, they use between 11% and 12.5% of lump in their blast furnace burden. At the moment, it's fallen below 11%. It's at 10.8%. You've seen a buildup of lump in the ports in China. When they start using more lump again, and they most certainly will at lump premium that we're seeing at the moment, we should see a recovery in the lump premium, a higher usage of lump in their blast furnaces.
Thanks, Timo. At this stage, I'd like to just check if there are any questions on the Chorus Call line that are different from the topics we've discussed.
Yes, there are questions on the phone lines. The first question comes from Richard Hatch from Berenberg. Please proceed, Richard.
Yes. Thanks very much for the call. Look, I just wanted to ask just two questions on Kolomela. The first one is, I know in your results you talk about a fleet efficiency of 42.2%. Can you just talk about what your long-term target is there and what you're gonna do to get back to where you wanna get to? Then just secondly, just in terms of Kolomela costs, if I go back sort of through the years, you know, this mine's done a unit cost of ZAR 250 moving up to ZAR 330 last year. You put ZAR 475 on the table this morning. I mean, what's your kind of medium-term target to drag unit cost back to Kolomela, please? Thank you.
Thanks, Richard. Glen Mc Gavigan, who's our Head of Technical, will take the first one. Bothwell will cover the cost one. Glen, want to?
Thanks, Mpumi.
Yeah.
Just the Kolomela, you're right. We're running at about 47% fleet efficiency, and that's calculated if you look at the shovels and trucks together. The biggest negative we've had at Kolomela has been our fleet availability, and it really is linked to what Mpumi talked about around spares availability. We're working through that and that maintenance backlog. Now we're probably running at about 10% less than our target on availability, around 75%, which is relatively low. Our target is to get that back to 85%, so that's what we're looking at. Then we're looking at other initiatives like improving our payloads on our trucks, improving our double-sided loading, improving you know, our whole route optimization.
Overall, if you look at the fleet from a shovel truck perspective, our goal in the medium term is to get up around the 75%-80% for that fleet. We've got a big jump up to do, but we were operating at the 65%-70s%. We get back to that level, like Mpumi said, get stable again and then work on the capability to get that fleet up above the 80% is what we're looking at.
P101 remains key, Bothwell. Let's take the cost one.
We have seen that increase in cost at Kolomela. I think as I said in the presentation, Kolomela is particularly sensitive to how much it produces because it's a much lower production base. We saw that just missing production by 2 million tons has increased its unit cost by over ZAR 100 per ton. We do intend to get back to normalized production levels at Kolomela, which is between 12 million-13 million tons per annum, and that should stabilize its unit cost base. I prefer to see that cost at between about ZAR 380-ZAR 420 and not touching the ZAR 440 that we are now guiding to as the top end, and certainly not the ZAR 475 that we've seen in H1.
Yeah. Thank you very much. At this stage, if we could come back to the participants on the line later on, I can come back to them. We are running a little bit behind with our program for today. That's okay for me, Bothwell. We'll go through the roundtable, and please join us if you're on the call and you'll be attending the roundtable. We will address your questions there. Thanks.
Thank you.
For those on the webcast, I will also address your questions if not answered via email. Thank you.
Thank you very much.
Thank you.
Thank you.
Thank you.