Good morning and thank you for taking the time to join us this morning. On behalf of Kumba's executive management, I'd like to extend a very warm welcome to everyone in the room with us and those on the line. My name is Penny Himlok, I'm Head of Investor Relations and I'm joined by our CEO, Mpumi Zikalala, and our CFO, Bothwell Mazarura, who will present our interim results. As you know, your safety is important to us. Before we continue with today's presentation, please allow me to take you through our safety procedures. Kindly note that there are no safety drills scheduled for today, so please follow the safety instructions. In the event of an emergency announcement, calmly make your way through to the exit from which you've entered the room and proceed outside to the front of the building to await further instructions from the safety marshals.
Before we continue, may I remind participants joining us on the webcast that they will be in listen-only mode until we open the line for questions at the end of the presentation. Also, please note the disclaimer, particularly in reference to our forward-looking statements. Now turning to the agenda. The agenda for today's presentation will follow the usual running order. Mpumi and Bothwell will take you through our performance and we'll follow that with the Q&As. We also have members of our executive team in the room with us who will be on hand for any questions at the end of the presentation. Thank you. I'll now hand you over to Mpumi.
Thank you, Penny. Good morning everyone and thank you for taking the time to join us this morning. Over the past few years, we've all navigated a period of heightened volatility. Whether that's macroeconomic headwinds, supply chain disruptions, and now once again, rising geopolitical tensions. While the specific challenges continue to evolve, one thing has become clear, and we've been saying this over and over again. Change is constant and we must stay agile and focused on what we can control. This principle has guided our decisions and it's helped us to remain resilient as a business. Steel is not just essential for low carbon infrastructure and manufacturing today, but also future innovations, economic growth, and sustainability. Our world-class asset base and the quality of our resource endowment continue to stand out in a market that depends on steel produced with a better environmental footprint.
Kumba's high iron ore content products help steel producers minimize emissions while boosting productivity. These strengths are not just technical, they are strategic and they matter more now than ever in the environment that we face. During the first half of 2025, we've continued to execute on our priorities, particularly unlocking value through safe, reliable, and cost efficient production. By focusing on operational excellence, we delivered consistent production despite operating with a leaner workforce and certainly a smaller truck fleet. I'll touch on this a little bit later. Importantly, we did so while holding our cost flat. We've also continued with our investment in UHDMS technology, which is an important step in this journey, optimizing the value of our rail capacity and positioning us to compete even more effectively in the global market for high grade iron ore.
On the logistics front, I'm very pleased to say that we have seen performance stabilizing and that's thanks to the value adding collaboration we are seeing with our partners. Those include the National Logistics Crisis Committee, the Ore Users Forum, Transnet, as well as our government. There's clearly more that we still need to do, but we certainly believe that we've got a solid foundation that we can continue building from. Above all, our people are at the very heart of our business. Up front, I just want to say a big thank you to our board and to all our Kumba teams. As always, that includes our service partner employees as well. We are one team. We are making real progress with consistent delivery on our near-term priorities, while also positioning the business for a more resilient and certainly sustainable future. Now, turning to our business overview.
By focusing on operational excellence, we've achieved consistent production despite, as I said, using less equipment and having a leaner workforce. Importantly, and I'll say it again, I said it earlier, this performance was achieved while keeping our costs flat. EBITDA of ZAR 16 billion largely reflects lower iron ore prices offset by higher sales volumes and the benefit of other income. Our attributable free cash flow was ZAR 7.9 billion and we also continue to create enduring value for all our stakeholders of ZAR 25.9 billion. We have delivered an interim cash dividend of ZAR 7.2 billion to our Kumba shareholders, with ZAR 1.9 billion of this total dividend going to our empowerment partners. Now to take a closer look at the safety and well-being of our people. Let me begin as we always do with safety, because it is and will always be our first value.
It's part of who we are and it underpins everything that we do. For us, operational excellence is not just about the tons produced, it's about safe tons and making sure that each and every person who comes to Kumba goes back home safely every single day. This year we have now achieved nine consecutive years of fatality-free production at Sishen and just over two years at Kolomela. These are remarkable milestones and a credit to our entire workforce who live our values every shift and every single day. That said, we are not where we want to be. Our total recordable injury frequency rate of 1.18 certainly shows us that there's still more work that we need to do. It reinforces the importance of our fatal risk management and contractor performance management programs and our unwavering focus on continuous improvement, starting with what matters most.
On the health and wellness front, I'm equally pleased to report that we've had over nine years without a single level four or five health incident. That's an important indicator because we care for the occupational health of all our people. Over and above this, our Journey to Wellness program for employees and all our service partners is an initiative that takes a holistic approach to health, looking not just at physical health, but also looking at mental well-being. Because as we know, the safety and wellness of our people are two things that are deeply connected. This is a journey and we are committed to this. It's certainly part of our culture at Kumba. It is for our people. I say this over and over again. Our people include all our service partner employees as well.
Now let me talk you through some of the real-life impacts of our commitment to sustainability. Sustainability is integral to our strategy and not just a corporate responsibility. It is certainly core to how we create long-term value. Through our sustainable mining plan, we work to make a meaningful difference in the communities we serve and reduce our environmental footprint. We are seeing clear results. Through our ongoing mine optimization work, we've made measurable improvements in our water efficiency and carbon emissions, both key indicators of environmental health. Under our thriving communities pillar, we've created over 670 employment opportunities outside our mines. We are proud to have supported more than 10,000 learners and over 300 teachers across 19 schools in and around our communities.
One initiative I'm especially proud of is the launch of our Collect and Go Smart Lockers, the first of its kind in our province, the Northern Cape province. These lockers bring chronic medication closer to the people who need it safely and on time. It's a practical solution that reflects the kind of innovation and compassion we want to be known for. As a business with deep roots in South Africa, we also recognize our responsibility to help shape a more inclusive and equitable society. That's why I was so pleased that Kumba has achieved the Level 4 Broad-Based Black Economic Empowerment accreditation, our third consecutive year of improvement. It reflects the real progress we are making, particularly in areas like gender diversity and inclusion. Finally, on the policy front, we continue to advocate for structural reforms that benefit the country as a whole, not just Kumba, but everyone.
As many of you know, Kumba alongside the Ore Users Forum has been longstanding advocates for private sector partnerships on logistics. This is something we'll return to a little bit later in the presentation. Taken together, these outcomes reflect our deep commitment to sustainable development through action, through partnership, and certainly through accountability. Now moving on to stakeholder value creation in what has been an extremely tough macro environment, I'm proud to say that Kumba continued to deliver meaningful impact, creating ZAR 25.9 billion in ensuring stakeholder value. This shared value goes to all our stakeholders. This is not just a number, it's a reflection of our deep commitment to inclusive performance. It's also a clear reminder that while we've had to make some pretty tough decisions over the past couple of years, those decisions have been critical to creating a stronger and more resilient business capable of delivering this performance.
Our economic contribution to the national fiscus amounted to ZAR 3.1 billion through income tax and mineral royalties. These are critical revenues that support essential services and infrastructure for all South Africans. We are also returning ZAR 7.2 billion in dividends to our shareholders, of which ZAR 1.9 billion will go to our empowerment partners. As a reminder, the empowerment partners include our communities through our Sishen Iron Ore Community Development Trust. They include our employees through our Sishen Employee Share Ownership Scheme. That's sharing the value we create in a tangible and equitable manner to support sustainable livelihoods. We continue to draw strength from our deep connection to the Northern Cape province where 80% of our employees reside. Our investment in the UHDMS project and the extension of Sishen's life of mine ensures that we can continue to add value to all our stakeholders for many years to come.
On the procurement front, we spent ZAR 8.2 billion on goods and services with B-BBEE suppliers, including ZAR 1.4 billion with businesses from and amongst our communities, helping to build local economies and grow entrepreneurial capacity. Finally, we invested ZAR 135 million in direct social investment focused on the areas that matter the most: health, education, enterprise development, as well as skills upliftment in our local areas. These are foundations that enable our communities to thrive and we remain deeply committed to walking this journey alongside our communities. This is what shared value in action looks like. It's how we are building a more resilient, inclusive, and sustainable future together. Now I will take you through our operational performance. Waste mining was lower in the first half as we continued the sequential execution of our optimized mine plan, a plan that also included rightsizing our mining fleet and workforce.
Last year we produced 18.2 million tons, which reflects our flexible and integrated approach to production. We took advantage of improved rail performance and proactively drew down on the high levels of stock excision. At the same time, we increased production at Kolomela to maintain overall output and balance our system. Despite experiencing two derailments during the period, we managed to increase ore railed to the Saldanha Bay Port by 4%, reaching a run rate of 83% of contractual capacity. This compares to the 79% that we achieved for the same period last year. This also meant that we were able to double our finished stock levels at Saldanha Bay Port to 1 million tons. Having optimal stock levels at the port is critical, and the combination of higher port site stock and improved equipment availability supported a 3% increase in sales during this period.
On the next slide, we'll take a closer look at our operational and cost performance. Our focus for this year has been on locking in the benefits of the reconfiguration that we implemented in 2024. We are also managing Sishen and Kolomela as an integrated mining complex, and we found the incremental flexibility helpful in optimizing performance across both sites. Against the second half of last year, we've increased waste mining by 19% and production by 5% in the first half of 2025. As we move into the second half, we expect to make further progress, particularly as seasonal weather conditions begin to improve. We are also seeing continued gains in equipment efficiency thanks to the optimized mine plan. For example, we've been able to reduce our truck fleet by 27% while increasing operating time by 4% and haul truck availability by 3%.
This has also allowed us to maintain the run rate of savings attained last year. With the once-off restructuring costs not recurring, we realized an additional ZAR 661 million in cost savings, bringing our cumulative savings since the reconfiguration that commenced at the beginning of last year to now to a figure of ZAR 5.1 billion. All these elements have contributed to our C1 unit cost at $39 per ton, and we believe that we can continue to mitigate inflation and hold that cost level for the full year. Bothwell will take you through the details of the savings and the financial impact in just a moment. Just before that, let's turn on to Transnet's logistics performance.
Overall, we've seen encouraging signs of progress in the last six months in terms of rail performance that improved to 83% of contractual volumes, which together with improved equipment availability at the Saldanha Bay port resulted in the 3% increase in our sales. This progress is a direct result of the partnerships that we have in place, particularly the technical support that's provided to Transnet and that's done by Kumba in collaboration with the rest of the other users. As you know, we call ourselves the Ore Users Forum. That said, we still need to close a significant gap to our contracted volumes and this is on both rail and port, and bridging that gap remains a key priority for us. To support that, the O Corridor restoration program is expected to unlock further improvement over time.
I'm also pleased that we've now finalized the mutual cooperation agreement between Transnet and the Ore Users Forum and this is an important milestone. It formalizes the working partnership and enables urgent maintenance work to be delivered faster, more efficiently, and with greater alignment amongst all the partners. In addition to the mutual cooperation agreement, or MCA, further long-term funding mechanisms are being evaluated by government. Steady progress also continues to be made on the logistics structural reform aimed at increasing long-term private sector partnership. Lastly, Kumba, as part of the Ore Users Forum, is in the midst of working through government's recently announced private sector participation process. At the end of May, the Ore Users Forum submitted a response to the request for information phase and that response was submitted to the Department of Transport.
We now await the release of the commercial request for proposal process that will commence a little bit later this year. I will now hand over to Bothwell who will take us through the numbers. Thanks, Bothwell.
Thank you, Mpumi. Good morning and thank you all for joining us. You've just heard Mpumi speaking on the progress we've made through the operational excellence and our focus on efficiencies. Our work on cost optimization and maximizing our product premia was further supported by increased sales volumes on the back of improved logistics. The average realized FOB price of $91 per ton was 7% lower than H1 2024. This is as iron ore prices decreased by more than 14%. Despite the drop in prices, I am pleased to say that our premium made a positive contribution overall. I will elaborate on this in the next slide. While the lower pricing environment impacted revenue, the progress we have made in reducing costs together with other income contributed to our EBITDA margin increasing to 46%.
Our breakeven price, which includes all-in cost and stay-in-business capital net of our quality premia, was $64 per ton and it benefited from less pronounced timing effects as well as lower freight rates. Headline earnings were flat at $0.2226 per share and our returns were maintained at 48%. On the back of our financial performance, the Board declared an interim dividend of ZAR 16.60 per share. Now let's take a closer look at the market environment. China's property markets remain persistently weak. This was partly cushioned by strong exports as steel output contracted by 2% in the first six months of the year. However, these strong exports displaced steel output outside of China, which fell by 4%. Prices have been supported by iron ore supply remaining flat. Increased shipments from Australia and Brazil were offset by non-mainstream miners reducing production as iron ore prices declined.
Despite the pressure from trade tensions, prices are averaging around $100 per ton and we continue to see prices supported at the marginal cost of production, which is around $90 per ton. On a more positive note, our lump premium continued to find support despite lower prices and this was primarily due to falling coking coal prices. However, the headwinds are likely to persist given the uncertain global trade environment. China steel exports are trending down and output could fall further if production cuts are implemented in China during the second half of the year. Now let me turn to our product quality and customer strategy. Our qualities position us well to achieve market-leading realized prices through the cycle. Over the long term, we continue to target sales of between 45% and 55% to markets outside of China.
In recent years, we have seen weak demand in these markets compared to Chinese demand. For the first six months of the year, we have seen a similar trend. Sales to China rose to 58%, reflecting relatively higher Chinese steel production underpinned by strong exports to markets outside of China. The chart on the top right shows the premium against the equivalent Platts FOB index. If we break this down for the half year, Kumba's product FE was 64.1%, and this is above the Platts 62 index and ahead of our peers. This earned us a quality premium of $4 per ton. Our lump proportion, which increased from 64% to 67%, gave us an additional $7, resulting in overall quality premia of $11 per ton. Our ability to place products outside of China and negotiate margins was impacted by weak steel demand outside of China.
Consequently, we saw a negative $4 price premium. Of this, $2 relates to a negative marketing premium, while the remaining $2 were due to the timing effect of our shipments. As you know, these arrived two months later at our customers in China. It was also impacted by provisional pricing effects of unpriced sales late last year. Overall, we achieved an average FOB export iron ore price of $91 per wet metric ton, which is the $7 of quality premia earned above the benchmark iron ore price of $84 per ton. If I turn to our EBITDA in the first half, we can see the benefit of our focus on operational excellence. Higher sales volumes together with continued cost savings had a positive impact on our EBITDA.
I'm pleased that we continued to see a savings benefit from our optimized mine plan and operational excellence, which has kept operating expenses broadly flat. This is helping us to offset much of the impact of the iron ore price decline. As I mentioned, we saw a lower iron ore price and the rand strengthened against the US dollar, which coupled with cost inflation and lower shipping revenue weighed negatively on our EBITDA in this period. We also received a boost from other operating income, and this relates to compensation for logistics underperformance. Now let's turn to our breakeven price on the next slide. As I mentioned, our breakeven price reflects our all-in costs. This includes sustaining capital and is net of the premiums we earn over and above the Platts 62 index. Compared to 2024, our breakeven price has improved by $10 to $64 per ton.
This puts us in a more resilient position to withstand market headwinds. This year we kept costs flat and lower. Sustaining capital helped to offset the negative marketing premium, resulting in a dollar per ton increase in the breakeven price. Before we take into account the external factors, lower timing effects which I touched on earlier, coupled with a higher lump premium and lower freight rates, reduced our breakeven price by $11. Our goal is to maintain or improve our breakeven price by being more proactive on our cost out program and focusing on improving product premium. Now let's take a closer look at our cost savings. Let me start by clarifying our cost reduction targets. Our cost savings target for 2024 was between ZAR 2.5 billion and ZAR 3 billion in February. I then stated that we would target a further ZAR 2.5 billion- ZAR 3 billion of savings for 2025.
This brings the cumulative savings to between ZAR 5 billion and ZAR 6 billion for the two years. Our actual savings achieved are made up of, firstly, ZAR 4.4 billion in 2024 as we reconfigured our business, and secondly, ZAR 661 million saved during the first half of this year. This was largely comprised of reduced contractor mining volumes and the non-recurrence of contractor settlement and termination benefits. This brings our cumulative savings for the year and a half to ZAR 5.1 billion, which is within the two-year target range. We expect to maintain this level of savings for the remainder of the year, and this positions us well to achieve both our C1 and mine unit cost guidance. Other cost elements related to freight and distribution, royalties, the impact of stock movements, and capitalization of stripping costs also had a positive impact on our operating expenses.
This was partially offset by an increase in owner mine volumes, non-cash costs which include depreciation and other costs. The net result of all of this is a 1% reduction in total operating costs compared to the same period last year. We achieved this outcome without compromising on the safety and health of our people while also maintaining essential costs such as repairs and maintenance, and they help us to drive equipment reliability and operational efficiency. In February I also said that for the period 2025 to 2027 we have set a target of between $39 and $40 per ton for our C1 costs. We remain committed to achieving this and expect to end the year at $39 per ton. This will be driven by an increase in production at Sishen and continued improvements in operational efficiencies, sourcing, and the efficient use of consumables.
Now let's move on to the impact of these savings on our mine unit costs sessions. Unit costs increased by 3% to ZAR 557 per ton. This was mainly due to a 6% decrease in plant production. The cost of inflation was more than offset by the continued benefit of optimizing our mine plan. In the second half, we plan to increase mining volumes as we replenish our stockpiles as well as increasing plant production. This will account for the improvement in H2 unit costs to conclude the year within our guidance of between ZAR 510 and ZAR 540 per ton. Kolomela's cash unit costs improved by 23% to ZAR 329 per ton. Being a smaller mine, Kolomela's unit costs are more sensitive to volumes produced. As a result, cost inflation of 3% was more than fully offset by a 12% increase in production.
Our cost optimization initiatives, coupled with higher capitalization of deferred stripping costs and lower work in progress utilization, provided a further boost. Kolomela's unit cost is currently well below the full year guidance of between ZAR 430 and ZAR 460 per ton. In the second half, an increase in iron ore mined and lower plant production will result in Kolomela's unit cost ending the year closer to the lower end of our guidance. If I turn on to CapEx, capital expenditure for H1 totaled ZAR 3.8 billion and is broadly flat compared to last year. It's made up of the following: firstly, expansion capital of ZAR 650 million and this is being phased in line with the implementation of our UHDMS technology project. The second part is stay-in-business capital and this was ZAR 1.3 billion.
It's mainly from spend on capital spares and mining fleet replacements of about ZAR 800 million and this is to sustain the business. The balance was spent on safety, regulatory, and infrastructure projects. Lastly, deferred waste stripping CapEx of ZAR 1.9 billion was mainly driven by the higher stripping ratio at Sishen's North mine. Our full year CapEx guidance remains unchanged and it's between ZAR 9.5 and ZAR 10.5 billion. In terms of expansion CapEx, the construction of the first modules of the UHDMS project is on track and we expect to spend between ZAR 1.4 and ZAR 1.6 billion for the year. Stay-in-business CapEx is expected to be between ZAR 4.2 billion and ZAR 4.6 billion and will be spent mostly on our fleet and capital spares as we improve HME reliability as well as on plant infrastructure.
Deferred stripping CapEx is expected to increase to between ZAR 3.9 billion and ZAR 4.3 billion due to mining in higher strip ratio areas in comparison to the life-of-mine strip ratio. Now, if I turn to our capital allocation, our disciplined approach to capital allocation remains unchanged. We have a high cash-generating business and we continue to prioritize capital to sustain our business. This is followed by consistent returns to shareholders before we allocate capital to discretionary options. These include high-returning capital projects and additional dividends. For the six months under review, we generated cash of ZAR 10.5 billion. After paying for sustaining capital, ZAR 5.2 billion was used to pay base dividends to shareholders before allocating ZAR 3.9 billion to discretionary capital. This was largely focused on progressing the UHDMS project together with additional dividends paid over and above the base. Our dividend policy remains unchanged.
We continue to target a payout ratio of between 50% and 75% of headline earnings. We delivered a healthy return on capital employed of 48% and attributable free cash flow of ZAR 7.9 billion. This has underpinned our board's decision to pay out ZAR 16.60 per share of dividends for the first half. This results in a 75% payout of our headline earnings and an annualized yield of 12%. Our focus for the rest of the year remains on reducing our costs, maximizing the value of our products, and sustaining our competitive position. Our strong balance sheet positions us well to navigate current market uncertainty and continue to deliver key projects while sustaining returns to all our stakeholders. Now, before I hand back to Mpumi, I'd just like to say a few words.
I must say Penny refused to give me a physical microphone for this moment because she thought I might use it as a mic drop moment. This is my last set of results and I would like to thank Mpumi, my colleagues on the ExCo, the Kumba board, my finance team, and all of our stakeholders for all of your support. I have enjoyed every moment of the journey and as a shareholder, I look forward to seeing Kumba's continued success. Thank you.
Thank you, Bothwell. I'm not sure about the drop the mic moment. Bothwell's young at heart. That's why he talks about the drop the mic moment. Jokes aside, Bothwell, before I continue, I would actually like to take this opportunity to thank you on behalf of the board, as well as a personal thank you from me for your contribution to Kumba over the last eight years. You've been an integral part of our leadership team, and under your financial stewardship, Kumba has not only delivered strong operational and financial performance, but we've also advanced critical work around our sustainable mining plan. This is especially important because finance people are not known to have hearts. Sometimes I think for me, the biggest thing is this, is that this was supported by your big heart and a genuine care for people and a relentless pursuit of value creation.
From all of us, a big thank you to you, Bothwell. Please give Bothwell a hand. Coming back to the room, as a reminder to all of us, this may be Bothwell's last set of results presented, but he is not leaving us just yet. He remains fully committed to the strategic delivery of our business for the second half of this year. As announced a couple of weeks ago, we will have a structured handover between Bothwell and our incoming CFO, Kolani Mbambo. Now, let's then come back to the presentation and look at the rest of the year. As we showed earlier, our focus on operational excellence continues to gain momentum and it's helping us unlock more value from our existing assets through our integrated mining complex. We are also capturing opportunities to increase our shared learnings on safety and operational execution.
Our UHDMS project at Sishen is another example of how we can benefit from our learnings by applying a phased execution approach. Let me provide you with an update on how we are progressing with our critical project, the UHDMS project. As you know, we resumed work on the project in November 2024, beginning with the fabrication and construction of the long lead items, including the modular substation, which is now well underway. To date, we've awarded all major construction packages. The dismantling of the first coarse module is complete and the assembly of the new UHDMS beneficiation equipment and associated infrastructure is actively underway for this first module, the first coarse module. In parallel, we've started work on the first FINES module, which is also on schedule.
Construction of the new COS modular substation is in progress and is expected to be installed during the third quarter of this year. We've also completed the fabrication packs for the next COS module, with dismantling and construction for that next module set to begin in the fourth quarter of 2025. The 3D model in the center of the slide indicates the progress we have made as we prepare to convert the first COS module, and on the far right we can see the construction of the FINES modular substation. Overall, we plan to convert six out of the eight COS modules and five out of the seven FINES modules. The main tie-in of the project is scheduled for the second half of 2026. That has not changed, and we expect the plant to ramp up steadily, reaching full capacity by the end of 2028.
As we are following a modular execution approach, we'll be able to keep the remaining modules and the existing Jig plant section fully operational. During the construction of the project, we will be supplementing production with finished product stock to ensure sales consistency during the entire period, and from a capital perspective, we remain very disciplined. The ZAR 1.5 billion allocated for this project is fully aligned with our phased execution plan, and I'm pleased to say that we are on track and we are on budget. We are excited about what this project represents for Kumba. UHDMS will significantly improve the quality and yield of our ore, allowing us to triple the volume of premium product output. It is also a vital enabler of our future and a key part of how we will continue to create sustainable value for all our stakeholders.
Let's now take a closer look at the broader market development for premium grade iron ore. Now let me take a moment to highlight how we see Kumba's position improving in the context of global iron ore market dynamics. If you take a look at the left-hand graph, you'll see that Australian producers have faced increasing pressure on product quality over the past two years. The majors are increasingly shifting from 62% to 61% Fe, reflecting a broad trend of declining resource quality. By contrast, Kumba's average product quality is set to improve further through the implementation of the Ultra-High Dense Media Separation project. That positions us extremely well in a market where high grade iron ore is increasingly valued for its efficiency in the blast furnace technology as well as for its role in reducing carbon intensity.
Globally, over 70% of blast furnace capacity is less than 20 years old and most of it will remain in service for at least another 20 years. Blast furnace steelmaking will therefore remain important. As shown in the right hand graph together, blast furnace and DRI steelmaking will continue to account for more than 60% of global production. Both Kumba standard and premium products are very well suited for the blast furnace route. Higher grade ore helps reduce carbon emissions for blast furnace steelmaking. Therefore, tripling our volume of premium products will help our blast furnace customers reduce their carbon emissions. In addition to blast furnace steelmaking, we see more of our premium product grade ore going towards DRI steelmakers for use in DRI production, which is a carbon light method of steelmaking.
In short, as mentioned before, the UHDMS project will triple our supply of premium grade material, giving us the scale and flexibility to meet the growing demand for high quality iron ore as the industry evolves. This is where our product quality, our technology investment and our long term strategy come together and it's a key differentiator for Kumba in the years ahead. That then brings me to our full year guidance. Subject to logistics performance, total production of between 35 million to 37 million tons is expected to be made up of an estimated 26 million tons from Sishen and 10 million tons from Kolomela. We have maintained our sales guidance of between 35 million to 37 million tons and our C1 unit cost guidance remains unchanged at $39 per ton. As you've heard from Bothwell, capital expenditure is expected to remain between ZAR 9.5 to ZAR 10.5 billion for the full year.
Now before moving to the Q and A, I would like to yet again remind you of our value proposition as we look ahead. Focus remains critical in this dynamic market environment for the remainder of the year. Our priorities are clear. This is to deliver on our guidance and continue to drive improvement where it matters most, in waste mining, in production and in cost efficiencies, with a particular focus on in terms of our logistics performance. We remain committed to the partnerships that are making a positive impact, and we are also doing work around private sector partnerships ahead of a potential request for proposal phase. Sadly, we can't share more around this because all of us are waiting for government to revert back around how that phase will look like.
As I've just talked through, we are on track with our UHDMS project, and we expect to reach an important milestone as we complete the first module conversions in the fourth quarter of this year and push towards the completion of the major tie-in in 2026. Beyond UHDMS, we are developing a strong pipeline of options to make sure that Kumba is well positioned to meet evolving market demand and long-term value creation. At the core, Kumba is built on strong fundamentals. We have great people, committed partnerships across all our stakeholder base, world-class assets, and a commitment to perform. I have no doubt that we will continue to face unexpected turns in the path ahead. That's something that we've seen over time. However, I have real confidence in our future because we are focusing on the right things.
With that, I will now hand over back to Penny, who will lead the question and answer session. Thank you, Penny.
Thank you, Mpumi. Before we open for questions, I'd like just to take a few moments to express my sincere appreciation to Bothwell. Your leadership has been invaluable. Bothwell, from navigating volatile markets to steering our financial strategy with clarity and conviction, you've really been a steady hand on the wheel. Thank you for your guidance, your integrity, and your unwavering focus on what really matters most. I and my colleagues throughout Kumba, I think I speak for a lot of people at Kumba, really look forward to making the most of the next few months as we deliver on the targets set out for the rest of this year. Of course, I certainly, and I'm sure a lot of other of my colleagues, look forward to favorable engagements with you as a long-term shareholder.
We'll now open for questions first in the room, followed by the conference call line, and then we'll move to the questions sent through on the webcast.
Thank you. Just voice my thanks from the analyst community to Bothwell as well. I think your guidance and your financial work that you've done has been exceptional. You've been a real asset to Kumba. Let me just ask an operational question. I'll give you a break, Bothwell. Just an operational question. Just on Kolomela, you've got quite low cost, $3.29 for the first half. You sort of indicated you want to get to the bottom or you expect to get to the bottom end of the range for the year. That means the second half's quite a lot higher. It's quite a significant jump up. I wonder if operationally we could just talk about what that means, you know, what is actually going on in terms of stripping and in terms of production. It seems to be quite volatile, Kolomela.
I just noticed in the life of mine on the last slide, on your guidance slide, Kolomela has gone from 11 to 16 years. Cup Steel was in the previous slide, it's in this slide and it sort of speaks about a lower stripping extension to life of five years. I just wonder if we could speak about that a little bit. Is that production profile flat? We seem to be talking about a second half with high stripping and then a life of mine extension on lower stripping and it's all a bit sort of up and down. I'll leave my question there, thank you.
Thank you, Tim. I'll ask Harry to add to this. Firstly, you would have seen that from a Kolomela perspective, we have actually not changed guidance. The mine plan that we started with when we set our guidance still remains exactly the same. You would have seen that clearly Kolomela, from a production perspective, produced significantly more in the first half. That being the denominator clearly has led partially to Kolomela having a lower unit cost. We've guided to still end the year at the same levels of guidance because ultimately we still want to mine exactly the same quantities that we set out to mine at Kolomela. I don't see it as volatility. I actually see it as the Kolomela team really having done well from an efficiencies perspective, with us being very much focused to ending off the year in the same position.
Thanks. Tim, I think what's important here is the life of mine strip ratio for Kolomela is higher than the current stripping ratio. If you then consider over the life of mine, the way stripping will increase. When we look at this year, the stripping is in line with the optimized mine plan. In future years it will increase, but on the other hand, session will reduce. It does balance over the life and that's why we use both operations to manage the overall stripping as well as the cost base. When you look at the life of mine strip ratio, you'll see that will increase over time as it obviously ramps up to those levels and then later in the life it reduces again to balance out. I don't know if that answers your question. This was built into the update that we did at full year results.
Kolomela South was fully included and is fully included in the resource and reserve statement.
Makes sense.
Yeah, absolutely.
I think the key one, Tim, is the resources and reserve statement that we published then has actually not changed, and that was aligned to the increase in Loma. Thanks.
We have a question from Brian.
Thanks, Penny. Thanks for the presentation. Timo, to you. If I may. The marketing premium for this period - $2, I assume that's got to do. With Europe, China mix. If you could just run through that. That slide on page 25 was quite interesting with scrap, DRI, blast furnace. Just wondering if you can chat t o that a little bit more t erms of also what sort of growth n umbers you've got for China in that.
Not an entirely unexpected question, Brian, but you're exactly right. That marketing premium turning negative has got everything to do with the split between China and ex-China sales. China has been under pressure, - 2% for the first half of the year. That's led to record exports of steel from China, more than 120 million tons. All of that steel is finding its way into other markets outside of China. It has been putting a lot of pressure on those markets outside of China. There we're seeing steel production in Europe down 4%, in Japan and Korea down 5%. Those are important markets for us. That pressure has led to a different mix between the China and ex-China sales. We are not at the 45%- 55% range. Where we'd like to be outside of China was only 42%. That's a pity because outside of China we're realizing better prices.
If that ratio is lower, that has an impact on our marketing premium and that's exactly what we've been seeing in the first half of this year. Your other question on the blast furnace DRI mix, I think Mpumi actually explained it well. Blast furnaces are going to remain important for many, many years to come. The average age of a blast furnace globally is 17 years. They're going to be around for at least another 20 years. That blast furnace proportion is always going to remain very, very important. DRI will see a very, very significant increase, but it's off a much lower base. Even at the end of the horizon that we were showing, it's still going to be a relatively small portion. DRI and blast furnaces combined, that's going to be fed by iron ore. That's not the scrap that you're seeing at the top.
More than 60% of the steel production raw material mix will be in the form of iron ore. We are well positioned there, right with that mix. Our Kumba product is primarily a blast furnace product. As Mpumi points out, blast furnaces need to decarbonize. To do that, a higher grade ore is going to be very helpful, using a lump where you don't need to incur the emissions from sintering or pelletizing. That's also going to be helpful. We are well positioned to serve that blast furnace market. Some of our best quality premium iron ore might also make its way into DRI production. That would be the icing on the cake. That's not a pipe dream because we are selling to DRI steel makers, but that's a relatively small portion of our overall sales. Clearly, if we can expand that further, that will be a further positive.
I have a question from Tobela.
Yeah, morning. Morning, everyone. Bothwell, I'll start with you and I will not let you off the hook yet. Just a question
around that other income on that EBITDA waterfall, could you just sort of give us a breakdown of what contributed to that other income? I'm not sure if I've seen that number before in one of your slides. Maybe if you could just take us through as to what is in there. Perhaps also to clarify for me, I think there was a mention that it was related to compensation due to lower rail. If you can just explain to us, going forward, how should we think about that particular number? Mpumi, for you, I know you can't talk too much about Transnet, but maybe if you could just explain what is this mutual cooperation agreement that has been signed with Transnet, what is it expected to deliver? There have been a few things happening around Transnet. We just need to get clarity on that. Thank you.
Great, thanks. Thanks to Bella. The other income is compensation from Transnet for the logistics underperformance. We do have a take or pay contract with Transnet, which means at certain volume thresholds, if they don't provide the required volumes, they have to pay us penalties. If they provide and we don't take up those volumes, we have to compensate for them. As you can imagine, over the last few years we've had a lot of underperformance in terms of that contract from Transnet. The way the contract mechanism works is that at the end of each year we do a reconciliation of the volumes delivered and we agree that reconciliation between the parties and agree on who needs to pay who in terms of that take or pay agreement.
As you can imagine, with the years of protracted underperformance, those conversations have not been easy and the reconciliations have not been straightforward because you do talk about real underperformance versus things that are outside of their control, like force majeure issues and so on. It has taken us about three years to get to a settlement in terms of what that entails and that's up to the end of 2024. That's why you see a number of ZAR 940 million coming in as other income. It's quite significant because of the significant underperformance. It's a culmination of, it's an accumulation of a few years of penalties. Again, the way we account for it, we don't account for that until we have reached agreement and we are certain that we are going to be able to collect that amount. Therefore, I wouldn't start modeling that every year or every six months.
I think it's something that we do on an annual basis, as I said.
Yeah, thanks. Thanks, Bothwell, and then Tobela on the mutual cooperation agreement. We have been working together with Transnet as Kumba and as part of the Ore Users Forum, and we've previously spoken about the partnership around the independent technical assessment and now the partnership around the co-creation of the Ore Corridor Restoration program. What the mutual cooperation agreement does, and this is an agreement between the Ore Users Forum and Transnet—clearly we are part of the Ore Users Forum—is that it will allow us to step in and execute urgent maintenance work on behalf of Transnet. Clearly, we will be refunded, but this essentially brings in a more structured approach, just around the approach when it comes to the execution of urgent work. We are excited about it.
As I indicated, there are additional engagements that are taking place, and that's led by government just around how other work should essentially be funded in the short term.
Okay, I don't see any other hands. Can we please go to Tim?
Yeah, thank you. Sorry, I was looking at the wrong life of mine. On a previous slide just on CapEx, the SRB is bumping up quite a lot in the second half. Is there particular SIB programs that are coming to the fore? Just that one. Secondly, we just noticed that amongst the global miners the benchmark seems to be moving towards 61. You've mentioned it. It was a very helpful slide with the detritus elements noted. Do you think, Timo, that's going to give you additional premium or do you think that's just discounts that have been sitting in their sort of product mix that, you know, kind of almost just—it's almost lost or it's already accounted for.
With the SIB question, you are quite right. If you look at the profile of stay-in-business capital, it's lower in the first half and higher in the second half. That sort of profile is not unusual. We saw a similar profile last year as well. In terms of the full year, guidance remains exactly as we had guided, and that profile is usually determined by the timing of deliveries. We've got some long lead items which typically we order at the beginning of the year, and they tend to be delivered in the second half of the year. Also, some of our execution in terms of maintenance programs and so on, we also try to do plant maintenance, for example, during the shut with Transnet in the second half of the year.
That determines the profile of CapEx, but we will come in within the full year guidance as we had guided.
Timo.
Timo.
Certainly because we start measuring against another index doesn't mean that the value of our product goes up all of a sudden. Right. That shouldn't have a direct impact on the realized price. If you then start measuring against that lower index, the premium against that index should be high, but that index itself will be lower.
Right. So net. Net. It doesn't actually change, but it does give you an opportunity to more clearly differentiate yourself in terms of your product quality when everyone else is moving to a lower index. Indirectly, there is a bit of an opportunity, but the value of our product as such isn't going to change because of this happening, sort of slow change. Maybe, maybe.
Okay, all right.
I really don't see any further hands at this time. Could you please move to the conference call line?
Thank you. We have a question from Richard Hatch of Berenberg. Please go ahead.
Thanks very much for your time and presentation. Just one question for me. On the reduction of your fleet capacity, I just wonder if you can give us the confidence that you're not cutting the fleet too close to the bone and therefore you'll have issues in the next couple of years in terms of truck availability and such like. Perhaps if you can give us a bit more confidence on the fact that the fleet hasn't been cut to the point where if you do see some unexpected failures, you'll have flexibility issues. Thanks.
Yeah, thanks. Thanks, Richard. The cutting off the fleet and for our own fleet essentially means that we've parked the fleet and we are maintaining it in order to make sure that when we do ramp up, or if we do ramp up, we should be able to go back and actually restart the fleet. Andre, who looks after the operations for us, is here. He's essentially made sure that this is kept under a safe area because miners can sometimes go and scavenge parts, but I'm comfortable that that's not the case. The fleet is there, but we are doing the right thing because essentially we are sweating the fleet that we are running. If you look at the operating time measure, which essentially says that for the fleet that we are running, are we actually getting more value from it?
That measure has gone up and you would have seen that we spoke about truck availability specifically and spoke about the 3% improvement in availability. That's actually good. For me, how I look at this is the fact that our teams have got a slightly reduced fleet that they are maintaining, but it actually gives them more time on that fleet and in turn, that actually allows us to get better value from an operational excellence perspective. It is absolutely the right thing to do.
That's very clear.
Thanks. Next we have Dominic OKane of JP Morgan. Please go ahead.
Thank you. I just have a quick question on capital allocation and the dividend. The first half you paid at the top end of your dividend policy range. You have a very significant net cash position. How should we think about the dividend as we move into the second half of the year? I suppose specifically we saw your former sister company, Valterra Platinum, during the first half pay out a very large special dividend. Is there any consideration given at the board level as to whether you're carrying an appropriate level of cash on the balance sheet? Thank you.
Yeah, thanks for that, Dominic. You're quite right. We have paid at the top end of our target range. We target 50% to 75%. We paid 75% this time around, and we've shown that we still kept just under ZAR 9 billion of cash on the balance sheet. At the end of that, I think the usual considerations are just around the cash that we hold on the balance sheet. First, we have a certain amount of restricted cash that we do have to hold for some of our margin variations. From a marketing entity perspective, that remains unchanged. The other thing we typically look at, especially at interims, is the profile of our cash flows. As I was talking about CapEx earlier, I did mention that CapEx is back-end loaded, and we see more cash outflow in the second half of the year. We take that into account.
We also look at what our working capital movements look like between the two halves. I think overarching that, which we can't ignore in thinking about this dividend, is just the general environment that we are operating in. It's a bit uncertain from a global dynamic perspective, and we have seen the iron ore price come under significant pressure lately. It's that period of uncertainty that has dictated that we be just a little bit more cautious, given that it is still interim and we still have the rest of the year to see how it unfolds. We think paying at the top end of our range is a good balance for our shareholders and with us being a bit more cautious.
The next question comes from Ian Rossouw of Barclays. Please go ahead.
Hi team. Thanks. Just three quick questions from me. Just on that restricted cash bottle, can you give us a sense how much that is in isolation, and then just on the Transnet shut in the second half of the year, do you mind just giving us an update, whether that's two weeks or three weeks? Does some of it fall still within Q3 or mostly in Q4? Just on the contractual rail performance, you said that the utilization of that rail, which was much better, was that due to overall volumes on the rail for other users as well going up, or was it more Kumba taking a larger market share?
Just thinking over the medium term whether that's an opportunity to get more market share if some of the other users on the rail line are not, I guess, delivering on their plans or volumes.
Okay, thanks, Ian. Restricted cash is around ZAR 2 billion.
Yeah. Ian, the Transnet shutdown will take place in October, beginning of October. The period is similar to what we've seen in previous years. It's typically been 10 days, we are looking at 11 days. It's the same period and similar to before. We are, as part of the Ore Users Forum, working with Transnet on the planning of that shutdown. What pleases us is the front end loading of that plan, because if you plan significantly, then the execution will actually go well. We are essentially repeating a recipe that's worked for us. On the real contractual performance, it's actually equitable. All the users have got their volume allocation and if there's underperformance that's applied consistently across the board. For us that's absolutely the right thing to do. As you can imagine, clearly everyone has got a contractor, so everyone gets impacted in an equitable manner.
Okay, all right, thank you.
At this stage, we have no further questions from the lines. Thank you.
Thank you. We can then switch over to the webcast. Questions. I have a question from Kateko from Investec. This is for you, Mpumi. Your messaging on Transnet progress feels positive. How should we think about the production guidance for FY 2027, which currently reflects zero improvement compared to FY 2024? Not looking for a number here, but just directional trend.
Yeah, thanks, Nkateko. I keep saying that what we are seeing is greater stability. Essentially, we come from a period where we saw significant declines in performance, and we're actually encouraged by the stability that we are seeing. If you think ahead, the gaps that were identified during the independent technical assessment are still there, and that work still needs to be done. For that work to be done, you can imagine the system will have to essentially shut down for the work to be executed. Up until the significant portion of that work has been executed, I don't see us gaining significantly more levels from an operational performance perspective. How do I see guidance? It's exactly how we've guided.
As you note, we've guided flat for the three years, and that's to allow for the fact that the fundamental work still needs to be done, and certainly the system will have to be stopped to conduct that work. I think what you most probably should think about is the fact that historically we've spoken about the high levels of uncertainty and the high levels of volatility that we've seen from a performance perspective. What encourages us is the greater levels of stability, and we'll actually continue working with Transnet, the Ore Users Forum, and all the other partners to make sure that the execution of that all corridor restoration program takes place.
Thanks Mpumi. We have a question from Shilan Modi from HSBC. How do you anticipate Simandou volumes entering the market to impact Kumba's price realizations going forward? That's for Timo.
Simandou volumes, we're going to see the first volumes later this year and then a 30-month ramp up to take it to 60 million tons sometime in the middle of 2028. We should see that run rate. For us, what's good is that Simandou is, almost all of it is fines, no lump. Our position in lump is not going to be impacted by Simandou. Where you see in our price realization chart, always a big contribution from our lump premium, that will continue and it's not going to be affected by Simandou. Simandou is going to be mostly fines. Almost all of it is going to be fines. It's going to be very good quality fines. That will be another premium product entering the market.
Frankly, there will be demand for better quality ore given the need to decarbonize, you know, and these blast furnaces are all going to need to decarbonize. I think that decarbonization trend is going to underpin quality premia and therefore the emergence of Simandou in the market I don't see as a direct threat. It complements the offering of better quality ores.
Thanks, Timo. We have a question from Becky Matetwa from Butler Capital. How much finished stock should we expect will be drawn down in 2026, and what are the key considerations that we should keep in mind?
Yeah, so Peggy, in the second half of 2026 we'll do the major tie-in, which essentially says we've taken a modular approach in terms of the projects I spoke about. All the major tie-in work that connects all the infrastructure around that circuit, you know, connection to the crushers, both primary crushers, quaternary crushers which are just after the UHDMS, and change the circuit around to allow us to actually start getting the benefit of better products because we'll start getting that post the tie-in. That will happen in the second half, and what we essentially have guided is the fact that our 2026 production will drop simply because we'll stop the DMS circuit. As I said, during the time we will continue running the JIC plant and Sishen and Kolomela will be running, and we'll then supplement additional volumes from a sales perspective from stock.
The current stock levels are around 7.4 million tons. I expect that to remain roughly in the range, slight ups and downs. I'm not too concerned about it, but that's good because clearly we'll sell down on that stock in the second half, and I then expect us post the DMS shutdown to go back to normal levels of stock that we'd like to keep, which is in the range of around 3.5 million to 4.5 million tons post the shutdown. Thanks. Just one last thing. The split from a stock perspective, you saw me smiling when I spoke about the increased levels of stock at the port. Clearly, it's not just about the overall stock volumes. I definitely would like to see us continuing with higher levels of stock at the port.
Thanks Mpumi. We have another question from Nkateku and Miles Alsop, both on premium for Timo. Timo, we want to, which is actually Nkateku is asking about the marketing premium difference in Q1 versus Q2. It would seem that marketing premium was negative in Q2 in addition to the negative timing effects, and Miles is looking at an indication of what marketing and lump premium will look like going forward.
All right, now these are tough questions. I don't think there is that much of a difference in our sales split Q1, Q2, China versus ex-China. I'm also looking at Ibrahim. If you know more, please say so. I think it's pretty much the same, so I would expect that there hasn't been too much of a divergence between the two quarters. Lump premium going forward, I think, was your second question, pretty much in line with what we're seeing now. The lump premium has recently been supported by the much lower coking coal prices. That's been a positive. Lump stocks in Chinese ports have also come down quite significantly in the first half. That's also been effective at supporting the lump premium.
So. We would expect the lump premium to pretty much continue at the level that we see now for the second half of the year. You know we're now at $0.18. I think if you have to pick a number, that's a good number to take for the second half.
Thanks, Timo. A couple of questions for Bothwell. The first one from Nompumelelo from ABSA Capital. Lelo's asked what did labor and maintenance increase at Sishen compared to H1 2024. His second question is why is the timing difference or effects that's higher whereby breakeven price timing effect is negative 6 and FOB realized is negative 2. The next question is on the CapEx side, so perhaps I'll pause there and really deal with income statement questions first.
Just pause there. What are we talking about? Labor.
Labor costs.
Labor and maintenance costs. Yeah. Our soft costs have remained fairly stable if you compare versus H1, especially at Sishen. Overall, there's only been a percentage change in labor costs, so fairly flat from a maintenance perspective, slightly higher. Repairs and maintenance is about 6% higher than last year. We always talk about the importance of maintenance and making sure that we keep up with maintenance. That's in line with our expectations there. The question on the break even, I didn't quite understand what he was comparing.
I think it's from looking at the slides where we show the timing effect in the breakeven price, and then we also spoke about the timing effect on the product and clients customer strategy slide.
Oh, okay.
Yeah, okay.
I think I understand the question. These are two different views. When we talk about timing effects versus the index price, what we are comparing is the index price versus what we realized as a price. That will be the difference there or the timing effect on the breakeven price. We're comparing last year's breakeven with this year's breakeven. What you will see there is the difference in timing effects. The timing effects that we saw this time last year against the timing effects that we are seeing. The two numbers are not the same.
The other question actually is regarding CapEx from Miles also, but he's asking about CapEx expected in 2026 and 2027, which we normally just guide for this current year.
We do guide for the current year. If you do look on our CapEx slide, we do talk about in the medium term, what do we expect. We've guided to the profile of the UHDMS project, so that's clear. We've also guided to what we expect from an SIB perspective in the medium term. That's on the CapEx slide.
Okay, thanks Bothwell. We have another question with regards to the solar. She has mentioned if there would be any anticipated impact on operating costs from the solar and wind program, which will reduce emissions significantly. If you could please have the mic.
Thank you.
Thanks, Timo. I guess the short answer is yes, there is a clear benefit in the solar in addition to the carbon reduction. It is a lot cheaper, and because of that, we do get a significant reduction in our electricity bill at site. This is specifically for session from a solar PV perspective. Thanks, Billy.
Thank you. I've got one question here from Miles as well, on the public private partnership, or we actually call them PSPs, where could volumes normalize from 2028 onwards, assuming the PSP is concluded, and should we expect volumes to get back to between 40 million and 45 million tons?
Yeah, no, thanks, Myles. Overall, Myles, we've spoken about the fact that we are excited about the fact that at least volumes have stabilized in the short term, and clearly maintenance work needs to be conducted to catch up on that maintenance in the longer term. The reason why we are working in partnership with Transnet and why we've always advocated for PSPs is because we do believe that that line, in terms of the ore export channel, can actually go back to most probably closer to historical levels. It's about catching up on the maintenance, clearly in a phased manner, because otherwise you'd have to stop the entire infrastructure for an extended period of time, which would essentially not work. That's what we're fighting for, Myles. That's why, to be fair, these partnerships are critical to us.
It's simply because clearly an improvement in the overall line will not just impact Kumba , but it will actually impact the country as a whole. We've always spoken about the impact that the logistics challenges are posing to the country as a whole, whether you're talking about this line or frankly the coal line, the chrome line, the manganese players, and the rest of the country. That's why PSPs, you've called them Triple Ps, but that's why we actually are excited about them. Thanks.
Thank you. We have no further questions on the webcast. We'll now close the presentation. Thank you very much for joining us today and wish you the rest of a good day for the rest of the day and look forward to further engagements this afternoon. Thank you.