Good morning, everyone. Great to see everyone today, and a very warm welcome to Kumba's 2023 annual results presentation. It's really great to see you. As you may probably know by now, my name is Penny Himlok, and I look after investor relations. Before we continue the presentation, please allow me to take you through a few safety procedures. Please note that there are no safety drills that are expected today, so if there's an announcement, please do take it seriously. In case of an emergency, an announcement will be made to evacuate the premises, and you will need to make your way through the exit that you came through and proceed outside to the front of the building and await further instructions from the safety marshals. I'd like to thank you all again for joining us.
On behalf of Kumba's Board of Directors and Executive Management, we know that the industry is going through a really busy results period. As always, we seem to always have our results at the same time, but it really keeps it exciting. I have with me, though, today I'd like to just introduce you to Mpumi Zikalala, Kumba's Chief Executive, and Bothwell Mazarura, our CFO, who will be presenting our annual results today. We also have members of the executive team that are with us today, and we'll be taking questions after the presentation. May I remind participants on the webcast and Chorus Call that they'll be in listen-only mode until we open the line for questions. And lastly, I'd just like to remind you to please note the disclaimer regarding references to forward-looking statements. I'll now hand you over to Mpumi.
Thanks, Penny. Good morning, ladies and gentlemen, and warm welcome to Kumba's 2023 annual results. As Penny said, we know it's a busy period for all of you, so we actually appreciate having you with us today. And as Penny highlighted, I've got my executive team, and I also have some members of our board, including our regional director as well. The format for today will be similar to usual. I will start with an overview of the year before handing over to Bothwell, who will take you through our financial performance. I will then wrap up with our business outlook before opening up for questions. I have to say that although the format looks similar, as promised at our investor update on the 8th of December last year, we will also be providing further detail on the proposed reconfiguration of our business.
So let's get straight to it with an overview of our 2023 performance. Bothwell and I will cover more details around this later, but let's start off with a brief summary. Key learnings from our fatality at the beginning of last year have been implemented, and we continue to focus on embedding safe working practices. I'm pleased that there has been a marked improvement in our total recordable injury frequency rate. We ended off at 0.98 versus where we ended off in the prior year, where we sat at 1.55 from a rate perspective. Production was down 5% for the year to 35.7 million tons. This decrease was mainly driven by our difficult decision to reconfigure the structure and the size of the business so that we can match mining and our production more closely to actual logistics exports capacity.
Unit costs were up from $40 per ton to $41 per ton, with pressure from cost inflation and constrained production mitigated by strong cost discipline and a weaker exchange rate. EBITDA increased to ZAR 45.7 billion on the back of a higher iron ore price and a weaker rand and higher sales volumes. These results allowed our board to declare dividend in line with our committed dividend policy of ZAR 15.1 billion to Kumba shareholders. In addition to this, our empowerment partners will also receive a total dividend of ZAR 4.9 billion for the year. Now, I'd like to turn to the next slide, where I'll tell you a little bit more about our business reconfiguration in order to sustain our competitiveness as a business.
Over the last few years, the business has had to deal with a difficult external environment with volatile pricing and persistent cost inflation, as well as significant challenges from our operating context, most notably the decline in our logistics performance. We've taken a number of actions to mitigate these impacts without compromising either the safety of our people or the integrity of our assets, and it's good to see a number of these measures, such as our wide-ranging cost actions, making a difference to the bottom line. These measures, however, fall a long way short of making up for the decline in logistics performance. This year, the shortfall was mitigated by stronger prices and weaker currency, but we can't rely on support from prices to maintain our competitive position.
While we remain committed to the process of working in partnership to help resolve these logistics issues, and we can see some signs of progress, it's also clear that these issues will take some time to resolve. In that context, in order to make sure Kumba remains competitive in a global industry where we must reconfigure our business in line with the current realities of the lower logistics capacity, I have to say that we reiterate that we have to continue with this, as we highlighted in December. Since that time, we have been working through all the actions required to deliver that reconfigured business. This includes a range of initiatives that will unlock between ZAR 2.5 billion-ZAR 3 billion of cost efficiencies in 2024. In addition to this, we'll continue to focus on maximizing our product premium as we optimize our high-quality asset portfolio.
Unfortunately, we also need to resize our workforce to adapt to lower production levels, which is why earlier today we announced the start of a Section 189A consultation process. While this is necessary to make the business fit for the future, we acknowledge that this will be a difficult time for our colleagues, our suppliers, as well as our communities. We will act responsibly to fulfill our social and labor plan commitments and provide additional support to help mitigate the impact of what we know will be a difficult phase. These are difficult and even painful decisions, but they will help ensure that we can sustain our competitiveness so that we can continue delivering value to all our stakeholders. We'll cover the business reconfiguration in more detail later in the presentation. Firstly, I'd like to turn to our sustainability performance for 2023.
As always, we start with safety, which always comes first at Kumba. There's nothing more important than all our people, and that includes our contractor workforce, returning home to their loved ones every day unharmed. We were, therefore, deeply saddened when Nico Molewa, a colleague at one of our service partners, was fatally injured just over a year ago at Kolomela Mine. Nico's loss is still deeply felt by all of us, and that includes Nico's family, Nico's colleagues, and all of us at Kumba because we see ourselves as one Kumba family. Key learnings from this have been implemented, and we continue to focus on making improvements to embed safe working practices. We have seen on the previous slide that our safety performance is improving on the back of us implementing the learnings. Notably, Sishen has completed more than seven years of fatality-free production.
As we know, safety is a journey, and you have to continue improving every day. This is our commitment to ourselves, as I said, around our sacred covenant, our families, as well as our communities. We value the safety and health of each and every person that's associated with our business. Next, I'd like to report that the health of our employees is clearly equally important. We have had no level four occupational diseases in the past year. These are reduced by us minimizing exposure to these hazards, and the work around this also continues. As a responsible miner, minimizing our environmental impact is also critical. Our mines are situated in the water-scarce Northern Cape Province, as we know, and it is therefore particularly pleasing that we have enhanced our water stewardship. During 2023, freshwater withdrawals reduced by 4% while maintaining a stable supply to our communities.
We achieved this by stabilizing our rate of dewatering and focusing on the hierarchy of water usage at our operations. The construction of our 67 MW solar PV plant at Sishen is also progressing to plan, and we are also finalizing an 11 MW renewable electricity wheeling contract for Kolomela. These will contribute to us reducing our Scope 2 emissions and will, I have to say more importantly, also provide additional energy security. Also importantly is the fact that by utilizing less energy from the national grid, we will contribute towards making more power available to our communities as well as our broader country. Now, taking a closer look at our broader social impact among our mine communities. Building thriving communities is key to our sustainable mining plan, and we do this through our health, education, and also livelihoods programs.
As part of the Anglo American Education Program, we are supporting 76,000 learners at 85 schools, and in addition to this, we are also supporting early childhood development centers in the Northern Cape. We also supported the upskilling of more than 2,300 community members through training colleges in sectors such as catering, tourism, and agriculture. We have also invested in improving the healthcare in the John Taolo Gaetsewe and Tsantsabane municipalities, and this has been through us supporting specialist services and also refurbishing facilities as well. For small and medium-sized enterprises, we have launched an incubation program assisting over 500 beneficiaries to achieve accreditation in the construction industry. This supports their business growth and increases employment opportunities in our communities.
Programs like these move us closer to achieving our goal of supporting five offsite jobs for each and every job that we have onsite by 2030, and since 2018, we have supported over 39,000 offsite jobs. In 2023, over 77% of our staff, and that includes our service partners or contractors, were employed from the Northern Cape communities, which is something that we also look at. Clearly, what enables this is all the various programs that we have around education and skills upliftment. Connecting our communities is critical to being able to learn, work, and develop businesses. Given this, we provided generators and inverters to municipalities and also provided Wi-Fi connection. We also upgraded local infrastructure and resurfaced roads in our communities. Although the logistics challenges have impacted our business over the years, we have continued to support our local communities, and this is critical to us.
Last year, we provided ZAR 376 million of direct social investment support. Creating stakeholder value has a significant multiplier effect in not just the local regional economy, but for South Africa as a whole, which brings me to the next slide around our enduring value to all our stakeholders. More broadly, our economic contribution for 2023 amounted to more than ZAR 70 billion. Our commitment to supporting government extends beyond collaborative work and includes contributing ZAR 10.9 billion in income tax and mineral royalties to the national fiscus. We also contributed to social value by procuring over ZAR 23 billion of goods and services from BEE businesses, of which more than ZAR 6 billion was from our local Northern Cape host community suppliers. In addition, we have invested more than ZAR 10 billion in capital expenditure, demonstrating our commitment to our country and also to the Northern Cape region.
Our employees benefited from salaries paid totaling just over ZAR 7 billion, and to our shareholders, including our empowerment partners, which include our Community Development Trust and our Tsima Employee Share Option Scheme, we returned ZAR 20 billion in valuable dividend income. I'd like to now move on to our operational performance, where we have been doing a lot of work around the drive for safe, stable, and capable operations. Our performance in 2023 reflects our difficult decision to rebalance our value chain in the fourth quarter. We made good progress on operational stability, with production up 3% and waste up 14% year-on-year in the third quarter. The slowdown in the fourth quarter led to production decreasing by 5% for the full year.
Waste mining was up 6%, demonstrating improved equipment reliability from our HME optimization program, which is work that we've been doing for quite a number of years. Logistics performance increased by 1% compared to 2022, which was impacted by industrial action at Transnet by approximately 1 million tons. So if you think of 2022, you've got to add that back. Finished stock levels remain high at over 7 million tons, with 92% situated at the mines and, sadly, only 8% being situated at the Saldanha Bay port. This imbalance resulted in sales increasing by just 1% to 37.2 million tons. Having optimal levels of stock at the port for sales is critical, and for this, we need the entire logistics network and value chain to work in a balanced manner. On the next slide, I'll take you through our actions to alleviate high on-mine stock levels.
Given the industrial action at Transnet in 2022, we expected the logistics performance to improve in 2023. However, run rates remained fairly similar or at fairly similar levels, and as a result, our total finished stock increased to 9 million tons in the third quarter, with 80% of the stock being situated at the mines. We therefore took a decisive decision to reduce production in the fourth quarter, and this has allowed us to draw it down at our on-mine stocks. Through this action, we were able to lower total finished stock levels by 21% to 7.1 million tons and on-mine stock by circa 10%. In line with this, waste mining decreased by 23% and production by 26% quarter-on-quarter. Most of the decrease was driven by Kolomela, where we stopped production in December.
This includes Kolomela's DMS plant, which produces approximately 0.8 million tons per annum and which has been placed on current maintenance. This resulted in Kolomela's waste and production reducing by 37% and 58%, respectively. These measures have helped us to alleviate the pressure. However, as you would have seen, on-mine stock levels are still above the 5.5 million tons that we were sitting with at the end of the prior year, 2022. Now, turning to the next slide on now specifically logistics performance, where we have experienced some challenges. As we have seen over the past few years, the logistics performance has declined. Compared to 2019, the ore railed to the Saldanha Bay port last year decreased by between 6 and 7 million tons, despite the collaborative work that we are doing with Transnet, our Ore Users' Forum, which includes other users of the iron ore export channel, and government.
I have to say that we remain committed in terms of our support for the work that's being undertaken by the National Logistics Crisis Committee, and this work is aimed at halting the continued decline in performance. We have started to see some positives coming out of this work. This work includes increasing availability of train slots, looking at the availability of locomotives and wagons, and also just increasing the overall cycle times and the turnaround times, as well as expediting the procurement of spares. The independent technical assessment, which is being co-sponsored by the Ore Users' Forum, which includes other users of the line as well as Transnet to verify the actual condition of the logistics infrastructure and the maintenance philosophies, is progressing, and it is expected to be completed by the middle of this year.
More broadly, we are encouraged by Cabinet's approval of the Freight Logistics Roadmap. This was approved in December last year, and this is certainly a step in the right direction towards improving private sector participation in the logistics sector and us getting to a more sustainable logistics network system. However, we have seen the amount of work required, and because we've been at this journey for quite some time, and the time that's been taken to resolve the logistics issues. Given this, we need to be more realistic. Implementing all of these required measures will take some time. In light of this, we are reconfiguring our business. Now, let me take you through our approach. Following two years of logistics performing at run rates in the low 80% of our contractual capacity, it is clear that we need to align our production more closely to the logistics capacity.
This is to ensure that our business remains cost competitive and that our value chain remains balanced. Our strategic business review focused on aligning our operations with a more realistic logistics capacity of circa 84% over the next three years. We are prioritizing value over volume and defining the optimal production scenarios between Sishen and Kolomela. We are also structurally removing costs and also right-sizing our organization. Production is expected to reduce by circa 12% on average to between 35 and 37 million tons per annum for the next three years, compared to our previous guidance of between 37 and 39 million tons for 2024 and between 39 and 41 million tons for 2025. In line with this, waste mining is expected to reduce by approximately 25% on average to between 155 million-170 million tons in 2024.
Most of the reduction will be at Kolomela, where we are guiding between 20 million-35 million tons on waste stripping, compared to 53 million tons, which was recorded in 2023. The business review identified several opportunities for cost optimization. We have validated between ZAR 2.5 billion-ZAR 3 billion of cost savings for 2024, and we are continuing to identify further saving opportunities. This work will continue. These measures include the following. Firstly, the rephasing of Kolomela's waste and waste stripping and us working in lower strip pressure areas, which will allow us to optimize our HME and also improve operational efficiencies. Secondly, we are reviewing our sourcing model and improving our contractor management. Thirdly, we are looking at our overhead costs. Part of this is by us simplifying our organizational structure at head office, where we have consolidated certain roles.
Since our December update, we have continued to assess the business given persistent cost pressures. As a consequence, and I have to say as an absolute last resort, we are exploring options. We are embarking on a proposed organizational restructure. This is expected to impact, as we said earlier today, approximately 490 roles, including our fixed-term employees. This is across our operations as well. A Section 189A process of the Labour Relations Act will be followed. This includes consulting with our trade unions and affected employees and will be facilitated by the Commission for Conciliation, Mediation, and Arbitration, also called the CCMA. In addition to this, a contractor review process is also underway. This may affect approximately 160 service providers from a company perspective.
Notably, we have retained the flexibility and the optionality to ramp up production in the event of an earlier uptick in logistics performance. This is something that we would welcome as a business. That's why we've also maintained that flexibility. We believe that these actions, although painful, will improve business outcomes for all our stakeholders. It will ensure that we remain globally competitive to sustain our mines and also unlock value in the longer term. I will now hand over to Bothwell, who will take you through our numbers.
Thank you, Mpumi. Good morning to everyone. As I take you through the financial section, you will note that we've produced a solid set of results, and we continue to deliver significant value to all our stakeholders. The operations are stable, and that feeds into improving our cost efficiencies. We have seen strong iron ore prices and a weakening Rand-dollar exchange rate, and these have provided support to our profit outcomes. However, as Mpumi outlined, the business is responding to our logistics reality to remain competitive. Cost discipline has now, more than ever, become paramount to protect our margin, as we cannot rely on market tailwinds to continue generating returns. I'm going to start by taking a look at our overall financial performance for the year. In a volatile market, we achieved an average realized FOB price of $117 per ton. This is 15% above the benchmark.
Our C1 unit cost of $41 per ton was underpinned by achieving our cost savings target of ZAR 1 billion and supported by a weaker exchange rate. These contributed to our EBITDA margin of 53%. Our break-even price, which includes all-in costs and stay-in-business capital, net of the premiums we earned for our quality product, was $62 per ton for the period, and this was down from $68 per ton that we saw last year. Headline earnings were ZAR 70.80 per share. On the back of this solid financial performance, the board has declared a final dividend of ZAR 24.20 per share, and this brings the total dividend for the year to ZAR 48.80 per share. On the next slide, we'll take a closer look at the market environment. Iron ore prices averaged $120 per ton in 2023.
After starting the year strongly following China's reopening, the market fell on the back of property sector weakness and constrained mill margins. Strong export growth of 34%, low port inventories, and fiscal stimulus in China, which equated to about 3% of their GDP, drove positive momentum in the second half. Supply disruptions curbed a seasonal pickup towards the end of the year, contributing to stronger iron ore prices. In terms of market premium, however, we saw a slightly different picture. On the right, you'll see that mill margins came under pressure in 2023. The impact was particularly felt in the second half due to persistently low steel prices, which is reflected in softer high-grade premium. On the next slide, we'll see how these market developments translated into the price that we realize and the premiums that we achieve in the market.
We continue to lead our peers in terms of Fe quality and lump proportion in our products. 49% of our total sales went to markets outside of China. This increased from 46% at the half-year, reflecting improving demand in other geographies. This compares to our medium to long-term target of between 45% and 55% for these markets. Although premiums came under pressure, Kumba achieved a total premium of $15 per ton. This includes the price premium of $5 per ton, resulting from a combination of our marketing efforts and provisional pricing benefits. As we've said before, in a higher pricing environment, we see a positive timing effect because we price on average two months after shipping to our customers. This contributed towards our realized FOB price of $117 per ton, and this continues to be well ahead of our peers.
Going forward, we'll continue to maximize the value of our high-grade products by partnering with our steelmaking customers to develop green steel production solutions. On the next slide, I'll take a closer look at our EBITDA performance. Our EBITDA increased by 24% to ZAR 45.7 billion for the year. This is an EBITDA margin of 53%. The weaker rand, higher realized FOB export price, coupled with an increase in sales volumes, were the main drivers for this performance. We also saw some logistics performance headwinds and cost pressure, and this resulted in an increase in our operating expenses. I'll cover this in more detail on the next slide. Cost inflation across our sites averaged 6% for the year. At the half-year, we saw an improvement in Kolomela's unit cost position as a result of a strong focus on efficiency and cost optimization.
I'm pleased to say that this trend has continued in the second half of the year. Lower mining and maintenance costs more than offset the impact of lower production, lower deferred stripping capitalized, and inflation costs. Kolomela's unit costs reduced to ZAR 482 per ton, which is ZAR 8 per ton below what we saw in 2022. Sishen's performance reflects increased cost pressures as we focused on improving equipment reliability and operational stability. Lower production volumes added further pressure. These were partially offset by savings through our cost optimization program. As a result, Sishen's unit costs increased to ZAR 589 per ton, and this was at the top of our guidance range. Our C1 unit costs increased to $41 per ton, and this includes the benefit of the 13% weaker rand.
While we continued to see good cost-saving momentum from Kolomela in the second half, savings at Sishen were largely offset by increased spend, especially in the maintenance area. As a result, net savings for the full year amounted to ZAR 1 billion, which is in line with what we had originally targeted. Most of the savings came from optimizing our mine plan. This was followed by contractor optimization and the efficient utilization of consumables. We continue to work on improving our cost control systems. As Mpumi outlined, the reconfiguration of our business aims to reduce our C1 unit cost profile to between $38-$40 per ton over the next three years. The cost optimization target of between ZAR 2.5 billion-ZAR 3 billion for 2024 supports our unit cost target of between ZAR 520-ZAR 550 for Sishen and ZAR 410-ZAR 440 for Kolomela.
The cost initiatives are focused on the elements that we can control, and this was detailed earlier by Mpumi. If I move on to capital expenditure, our capital expenditure for 2023 was just short of ZAR 10 billion, and it was made up of the following. Firstly, expansion CapEx of ZAR 3 billion, and this was to complete the mining infrastructure at Kapstevel South and to progress the detailed engineering design work that we continue to do for our UHDMS project. Secondly, stay-in-business CapEx of ZAR 5.3 billion, and this included spend on spares, mining fleet replacement, and plant upgrades to ensure safety and asset reliability. The last bucket is deferred stripping CapEx of about ZAR 1.6 billion, and this reflects us mining in lower strip ratio areas.
Looking forward, the business reconfiguration has given us an opportunity to reassess our capital spend, and we have streamlined our discretionary capital while preserving optionality. At Sishen, where the UHDMS project is under review, we've prioritized the reconfiguration of the business due to the ongoing logistics challenges. At Kolomela, the remaining waste for Kapstevel South will be mined, and we will expose first ore, which is expected this year in 2024. As a result, we have guided to a lower CapEx of between ZAR 8 billion and ZAR 9 billion for 2024. In the medium term, our stay-in-business capital spend is expected to remain around the ZAR 5 billion mark. Now, if I move on to our capital allocation, we continue to deliver value supported by a balanced and disciplined approach to capital allocation. There's a clear prioritization across the different pillars.
For the year under review, we generated cash of ZAR 23.3 billion, and this was after paying for our sustaining capital. We then paid base dividends of ZAR 15.9 billion before we allocated capital to our discretionary options. These included expansion capital of ZAR 3 billion and additional shareholder returns of ZAR 500 million. We ended the year with net cash of ZAR 13.2 billion. Our dividend policy remains unchanged. We target base dividends of between 50%-75% of headline earnings. On the back of our strong closing liquidity position and after considering future capital requirements, and we consider these through the cycle, we will be paying a final cash dividend of ZAR 10.3 billion. This includes ZAR 2.5 billion paid to our minority shareholders.
This equates to a final dividend of ZAR 24.20 per share to our Kumba shareholders and again brings our total dividend for the year to ZAR 46.80 per share. This is at a payout ratio of 66%, and it gives us a dividend yield of 7.6%. If I just talk about the efficiency of our balance sheet, we are committed to sustainability of our business and consistent delivery of shareholder value by ensuring that we have an efficient balance sheet and by managing liquidity through the cycle. Over the past five years, our attributable free cash flow has totaled ZAR 93.6 billion, and we have distributed ZAR 97.5 billion in dividends to shareholders. Importantly, this includes dividends paid to our staff and communities, and it reflects an average payout ratio over the five years of about 85%.
In addition to the cash generated by our business, our liquidity position is strengthened by committed debt facilities of ZAR 16 billion, which is at our disposal. I'm glad to see some of our funding partners in the audience today. We've also prioritized the further optimization of our working capital by improving inventory management and supply chain efficiency. Last year, our return on capital employed improved to 82% from 76% in 2022. Going forward, our priorities will remain focused on reducing our costs and improving our competitive position, maintaining our capital discipline, and delivering sustainable returns to all our stakeholders. Thank you. I'll now hand back to Mpumi.
Thank you, Bothwell. Now, as we look ahead, I think we can all agree that the move to green steel and decarbonization continues to drive demand for higher grade iron ore and that they are signs of long-term demand. The transition to carbon-light steelmaking has been accelerating at major steel mills led by Europe. Most steelmakers have set a 30% carbon emission reduction target by 2030 led by efficient blast furnaces and hydrogen-based direct reduction processes.
This will increase the demand for higher grade iron ore. As a rule of thumb, each 1% increase in Fe lowers CO2 emissions by 2.5%. In addition to this, the use of lump improves CO2 emissions by a further circa 10%. Further, the transition to direct reduction processes will boost demand for direct charge ores like lumps and pellets. We have signed partnership agreements with more than 30% of our customers to help them reduce their carbon emissions. Most of these were with customers outside of China, but more recently, we added China's Baosteel. This illustrates the growth in demand for high-quality iron ore.
In the long term, we expect high-grade premium to be around 23%. Mill margins will increase as the demand for high-quality iron ore outweighs supply. We can therefore see that the market holds a favorable long-term outlook on premium for high-grade iron ores like ours. Now, turning to the near-term outlook. As you can see, we expect to see global steel production growing in 2024. China's 2024 steel production is forecast to grow by 1.6%. We expect continued support from stimulus measures as well as sustained strength in exports and auto demand expansion. Looking at the rest of the world, European output fell last year due to persistent high inflation and weak end-user demand. However, recently, we have noticed a wave of blast furnace resumptions as European steel prices have increased by close to 30% since October, which should support higher steel production volumes and margins in 2024.
There's also a healthy pipeline of blast furnace capacity expansions in Southeast Asia, increasing production outlook. Given this constructive market background, we look forward to the year ahead and are firmly focused on delivering on our 2024 guidance as set out in the next slide. As reported on the 8th of December, we have maintained our production guidance. In line with our business reconfiguration, our 2024 guidance on waste is between 155-170 million tons, and production is between 35 million-37 million tons. Our guidance for unit costs at both mines and our C1 costs at $38 per ton is underpinned by our cost optimization program. And as Bothwell guided, our capital expenditure is expected to be between ZAR 8-9 billion for the full year. Now, before we go to the Q&A, I'd like to conclude with our value proposition.
This past year, Kumba celebrated its 70th anniversary of operating in the Northern Cape Province. This is a significant milestone. Over those seven decades, we have played a critical role in boosting the local economy. We are committed to remaining an important part of the economy for many years to come. I believe that by reconfiguring our business as we have described today and as difficult as it is, this will allow us to keep Kumba more globally competitive. My priority for 2024 is therefore to deliver the plan in line with our values without compromising on our operational safety and the stability and capability of our operations. In parallel, we continue to work hard to resolve the issues that are constraining our full potential. We will continue working very closely around the resolution of the current logistics performance challenges.
We will work closely with Transnet, with the other users of the line or the Ore Users' Forum, as well as our government through the National Logistics Crisis Committee to support the logistics network restoration program. I would like to be clear that the reconfiguration of the business does not represent a change in our strategy. What drives our strategy is a globally competitive business. And in order to achieve that, we must adapt to the operating and market environment. Put another way, the actions that we are taking today are enablers for our strategic ambition.
We retain our conviction that this business, Kumba, can really thrive over the longer term. If the logistics capacity improves at a faster pace, we are keeping the flexibility and the optionality to ramp back up from a production perspective. And that certainly remains our aspiration. And that's why we'll continue driving for the collaboration. Through the actions that we are taking today, we keep our foundation strong and drive for a brighter future. I will now hand back to Penny, who will manage our question and answer session.
Thank you, Mpumi. We'll now open for questions first in the room, followed by the conference call, and then we'll move to the questions in the webcast.
Thanks so much. It's Brian Morgan from RMB Morgan Stanley. Thanks for the presentation. We've obviously been watching the FLR come through its various versions over the last couple of months. And now we've got cabinet approval. It's got some pretty tight deadlines. But let's assume that those deadlines can be met. What would you expect to see changing in the next couple of months if the FLR is stuck to? Would you expect to see private operators taking slots on the line?
Mpumi, would you like to address that?
Yeah, I'll take that. Thanks, Brian. Thanks for the question. So Brian, you'd recall that even before the FLR, the white paper on rail was actually released a couple of years ago. Clearly, post its release, we didn't really see as much traction from a private sector participation perspective. But what we like about the FLR is that clearly, it's come about following a process that we've all been going through as part of the National Logistics Crisis Committee. It's also had input from various elements of government. And yes, it may not be perfect from some of the sections, but we believe that it's actually workable. And we've seen the attempt from a Treasury perspective to essentially work together with Transnet around making sure that as Treasury engages with Transnet, clearly, they think about the FLR. So we are really excited about this.
Clearly, what needs to take place now is that individual discussions with different companies and in our space, it's not just a Kumba thing. We believe that we need to look at this from an overall Ore Users' Forum perspective, which includes other players. We believe that those more detailed discussions need to now take place for us to actually see what this will translate to. But as we've always said, and we've been consistent around this, we believe that we need to see more private sector participation. One can then look at how that looks like. Things such as concessions, one shouldn't look at concessions for short durations like two years. You need to look at 15 years plus, et cetera. We are looking forward to the discussions that will be taking place going forward. Certainly, it's a step in the right direction.
Can I ask another, if I may? Just on, I think, about 15 months ago, end of 2022, Transnet announced plans that from 2027, 30% of volumes across their freight system would be going to junior miners. First is that, do you know if that's still the plan? And second of all, if we don't see a recovery in performance and the FLR doesn't get rolled out and all of that sort of stuff, would we expect to see a step down in volumes from 2027?
Yeah. It's a great question, Brian. So one thing that we've always said is that one of the things that the space of unlocking the capacity of the entire infrastructure is that this will be positive for both the current existing users like ourselves, but also the junior miners. So we engage with a lot of junior miners around us. We are not strangers to them. And we actually, as part of the reason why we drive for the collaboration, would like to see some of the junior miners coming on board. The key that we've always said is that one wouldn't typically take a cake, shrink it, and then subdivide a smaller cake. We need to grow that cake back to what it needs to be. And that's where the effort or where the effort is going. And then that then needs to be shared with others.
That's certainly been the approach that we've been having with Transnet. What's positive is, for me, the fact that, particularly with the new acting leadership from a Transnet perspective, we've certainly had far much more constructive engagements. They've been transparent around the process that we are going through from an independent technical assessment perspective, which is positive for us because clearly, we'd like to drive for greater collaboration as we all work towards the current challenge. That's certainly something that we'll continue engaging around going forward.
We do think, and I think we need to acknowledge the fact that the challenge that we see from a logistics perspective is not just the Kumba challenge. We see it in other channels as well, be it coal, chrome, or manganese. We do believe that the collective effort that's going towards turning this space around will actually be great for not just current businesses, but for others who want to grow their businesses and certainly for our broader economy as well.
Thanks, Mpumi. We've got a question from Mpumelelo from Absa.
Thank you, Penny. My first question, it's with regards to water shedding. Since it's starting to become a challenge, have you factored that in your operations since Northern Cape is a water-stressed province? The second question is a clarification question. I noted your stripping ratio went from 5- 2 for Kolomela. Does that have to do anything with declining waste? Thank you.
Thank you, Mpumelelo.
Thanks, Mpumelelo. Namesake, I love that name. Clearly, I'm biased. From a water-shedding perspective, I think we are in a fortunate position. But it also puts us in a position of us needing to be very responsible. We do have water-positive mines. As a result, we are able to supply to others in an area where we mine. We supply to communities. We also supply to other mining companies as well. What we then focus on is us ensuring that we use as limited water as possible for us to actually supply more water to others. Certainly, one of the challenges that we have around our area is around the Vaal Gamagara Water Scheme. It's a pipeline. It's been challenged for quite a few years.
In the space, we are collaborating with national government, provincial government, and also local government around turning that space around. But the challenges have meant that that pipeline has not been able to supply as much water as it should be supplying from the Vaal River. And as a result, we actually supply more water to communities. And again, I'll go back to it. We take this very seriously because we are a responsible company. So just because we operate water-positive mines does not mean to say that we just use water as we see fit. We've got internal water targets that require us to reduce our own usage in order to enable us to supply more to others because it's clearly a scarce resource. And it's needed. And then from a stripping ratio perspective, there's Glen. Do you want to take it, Glen?
So just maybe, and it's obvious that one of the big levers we pulled was to optimize our stripping ratio this year. And you can see it at Kolomela coming down to the 2s like you saw. But maybe there's two things at play here. And I think if you go back in history, we've always been guiding the rail at higher numbers than we've actually performed, than the rail's actually performed. If you think about last year, we were saying in 2025, we wanted to be at 41 million tons on the rail. So we've always been planning our mines according to that and stripping accordingly. But the rail's always underperformed. So we've built up quite a healthy pre-strip buffer on our mines. So we've got a healthy inventory ahead of us, which is good. So that's a good position to be in.
And then secondly, because we're taking a more realistic view of the rail and saying we're not going to plan it at 41, we're going to plan it, say, 35-37, we need to slow down the rate of waste stripping as well. So those two factors are at play. And that's why there's such a dramatic drop at Kolomela was we built up a nice reserve. And also, we're planning now more realistic numbers.
And then the third part of that is to say, because we no longer need to max out production from Sishen and Kolomela to fill the rail, we can look at it from a cost and a quality perspective where the best place is to mine. And that's what you'll see playing out in the strip ratio that we've balanced that. It's healthy pre-strips, being more realistic around planning, and then looking really where the highest value tons come from. That's what you're seeing playing out.
Thanks, Glen. And the key to this, Mpumelelo, is that we're not being focused on just the short term. All the work that we've been doing has fundamentally been premised on us running a whole lot of scenarios in the background to make sure that we get to the most optimal position. I think Tim's hand's up. Yeah.
Thank you. It's Tim Clark from SBG Securities. I've got a couple of questions. The first one really is for Timo. Nice positive view of the steel market for the year, which is good. I guess the concern that most investors share with me is that with real estate problems, we've recently had Evergrande going bankrupt and real estate problems sort of rolling into lower completions off the lower start level as to whether that's a threat to iron ore demand and whether your steel outlook is perhaps a little bit optimistic. And then perhaps just on top of that, if you could talk about what you're seeing in lump at the moment as well. That always helps us just to get a bit of a view on how you see the interaction with lump coming through as well. And then my second question is just a more broad question.
It's just sort of a stepping back a little bit question. Your life of mines is starting to get a little bit short, right? I just wonder what management's thinking about that. My sense has always been that in the bigger mining companies, when you start heading towards 10 years life of mine, you start worrying a little bit. Above 10, it's not such a concern. I know this is a funny time to say this because you're paring back the organization. The sort of medium to longer-term thinking, I wonder if you could just share your view of that a little bit.
Thanks, Tim. We'll start with Timo. Timo has been feeling a little bit lonely today.
Thanks for asking a question on the markets. Appreciate it. So are we being too optimistic on the markets? Look, I don't think so. I think property markets are bottoming out. And the effects of stimulus that has already been announced last year has yet to filter through in full. You would have seen CNY 3 trillion in various measures, special bonds, and so on. You would have seen a lowering of down payment requirements, lowering of interest rates, lowering of required reserve ratios. I don't think we've seen the full effect of that yet. So with the property market bottoming out, we should actually see it pick up again. And that will be positive for steel.
Couple that with the infrastructure investments, all of that is going to be positive for steel and leads us to believe that we're going to see a 1%-2% improvement in the steel market in China. Outside of China, we are certainly now seeing the positive effects coming through. Europe is an important market for us. It takes about one-third of our product. We've seen a number of announcements of blast furnace coming back online: Liberty Steel, Salzgitter, ArcelorMittal, and so on. You would have seen a pickup in the price of steel in Europe also. That's having a positive effect. So yeah, we hold a constructive view on the steel market overall. But I think it's justified by the various measures that we've seen. Then your specific question on lump. The lump premium at the moment is sitting at relatively low levels.
In fact, all premia are sitting at low levels. I think that's on account of the steel mill margins that are relatively low. When the mill margins are low, anything that's expensive is shied away from by the steel mill. That includes expensive lump and expensive high-grade ore, also expensive scrap, by the way. People are shying away from that, which has been a positive for the iron ore demand because one thing that's often overlooked, last year we saw flat steel production in China. We saw a greater proportion of blast furnace production and a lower proportion of EAF production, so less scrap. Also, within blast furnace production, we saw, again, less scrap. The implication is that we saw a greater demand for iron ore, less for scrap.
That I've been at Kumba for, the ultimate results of what it is that my various teams can actually do. I know that we'll see this through. Thanks, sir.
Thank you. Thanks a lot.
Also.
Very clear. Thanks very much.
Thanks, sir. Thanks, Cameron. Lastly, I'd just like to thank everyone for attending today and for joining us and your continued interest in Kumba. It's always very welcome. Thanks.
Thank you.