BEE success for Kumba’s Envision scheme with milestone cash return for employees

Kumba’s broad based employee share scheme valued at R2.665bn at first five year close.

Kumba Iron Ore Limited (“Kumba”) is delighted to announce the first maturity of Envision, its broad based employee share scheme with 6,209 permanent employee members. Envision has been valued at R2.665 billion at the conclusion of its first phase. This follows a share swap of The Envision Scheme’s 3% shareholding in Sishen Iron Ore Company (“SIOC”) for the equivalent Kumba shares.

Kumba CEO, Chris Griffith noted: “Envision is a broad based success story, an empowering initiative and something which we at Kumba, are immensely proud of. Envision sits alongside our diverse broad based empowerment initiatives and sets a benchmark for empowerment goals and ideals in our country.”

Employee members who have worked for Kumba over the five-year period since the Company’s inception will receive R576 045 (for their holding of 3,365 units in Envision). This equates to an after tax payout of R345 627, based on a marginal tax rate of 40%. The majority of Envision’s employee members have elected to receive the cash sum and can look forward to their Envision payout in December, instead of the equivalent in Kumba shares, which is the alternative option. This value has been calculated based on a five day weighted average of the Kumba share price prior to the official close of the first maturity on 17 November.

Commenting on the scheme, Kumba CEO, Chris Griffith said: “Since inception, Kumba has worked to deliver a meaningful impact on South Africa that goes beyond its corporate contribution to the mining industry. We have brought growth and continue to strive for job creation, skills development and a new standard of safety and operational excellence in our work. However, in addition to all of this, we seek to achieve real transformation in our workforce and the communities around our mines. I believe Envision truly embodies this on-going effort.”

Envision was established at the company’s inception in 2006 as part of Kumba’s broad based empowerment initiative. Designed for the promotion of black economic empowerment through an increase in broad based and effective participation in the equity of SIOC by HDSAs, the scheme targets permanent employees below the managerial level and who do not participate in the other Kumba share schemes. In this way Envision enables Kumba’s employees at the heart of the business, whatever their role, whether they are transporting ore, excavating the ore or other, to benefit from the operational and financial success of the company to which they contribute on a daily basis. Employee members of the scheme have already received up to R55,000 in dividends through the course of the past five years.

Envision sits within Kumba’s three-part empowerment programme incorporating transformation efforts which work to deliver within the corporate, employee and community fields. This programme includes the SIOC Development Trust targeting community growth and poverty alleviation through the investment and support of local projects for health, education, enterprise development and more. The Trust’s work also ties up with Kumba’s own Social and Labour Plans and the company’s partnership with Exxaro one of South Africa’s most significant black controlled and economically empowered companies, also working to deliver real empowerment, particularly in skills development and equity participation.

Chris Griffith added: “For Kumba, the conclusion of this, Envision Phase I, marks the beginning of our next empowerment chapter as we look forward to Envision Phase II, the implementation of SIOC Community Development Trust’s investment projects and Kumba’s own socio-economic developments. As all three initiatives gain momentum; and, with markets and our operations permitting, we will be able to continue our work empowering our employees, their families and broader community groups.”

Further background:

Kumba’s Broad Based Empowerment Initiative:

When Kumba was established in 2006, the company ensured a 26% black empowerment ownership in Sishen Iron Ore Company through the transfer of a 20% shareholding to BEE company Exxaro Resources, a 3% shareholding to the SIOC Community Development Trust and a further 3% to Envision. Both Envision and SIOC Community Development Trust were created to support Kumba’s empowerment initiatives, the former for employees and the latter for communities around Kumba’s mines.

Kumba’s strong cash flow generation enabled the consistent payment of biannual dividends since 2006, which have resulted in the successful development of both SIOC CDT and Envision.

In November 2006, the iron ore assets of the old Kumba Resources Group were unbundled as the Sishen Iron Ore Company (“SIOC”). Simultaneously, Kumba Iron Ore was listed on the JSE and acquired 74% of SIOC. The remainder of SIOC was acquired by Kumba’s now empowerment partners: Exxaro (20%); The SIOC Community Development Trust (3%); and The Envision Trust (3%), an employee share participation scheme trust (Envision).

SIOC non managerial employees were allocated units that were notionally linked to SIOC shares through which they benefited in the value created in SIOC by way of dividend and capital growth through the Envision scheme. Envision was structured to be a ten year scheme with two 5 year maturities, at which point SIOC shares held by Envision would be swapped for Kumba shares. The Kumba shares would then be distributed to the employee beneficiaries of Envision.

Employees are receiving financial training and guidance with regard to their participation in Envision, dividends and payouts. Tax education has been a focal point of financial training – including how to fill in a tax return. Kumba has also focused on the importance of clearing debts and home ownership in an effort to assist staff in making sustainable financial decisions with their capital payout. Financial training and support is ongoing and will continue for all Envision members old and new in the next phase of the scheme

On November 11 2011 Kumba launched Envision Phase II for permanent employees below the managerial level. This is effectively Phase I “rolled over” for the second five year term and will operate under the same terms as the first.