Remuneration report

for the year ended 31 December 2008

Kumba’s remuneration philosophy

The human resources, remuneration and nominations committee ensures that the principles of accountability and transparency are applied and that remuneration is linked to performance and that they support the business strategy.

The following remuneration philosophy is applied by Kumba:

• To motivate and reinforce the performance of individuals.
• To attract and retain talented people.
• To compete in the marketplace with the intention of being a preferred employer is key in supporting the implementation of Kumba’s business strategy.
• To apply it equitably, fairly and consistently in relation to job responsibility, the employment market and personal performance.

The directors and members of the Kumba executive committee are appointed and remunerated based on their ability to contribute to the overall performance of Kumba. The purpose of the policy on directors’ fees and remuneration is to ensure that executive directors and senior managers receive remuneration that is appropriate to their scope of responsibility and contribution to the group’s overall performance.

Executive directors’ remuneration

The remuneration of executive directors consists of a fixed component and a variable component (short and long-term incentives). The long-term incentives comprise grants under the Kumba Management Share Option Scheme, Phantom Share Scheme, the Share Appreciation Rights Scheme, the Long-Term Incentive Plan and Deferred Bonus Plan. Both fixed and variable components ensure that a substantial portion of the remuneration package is linked to the performance of the business. The Share Appreciation Rights Scheme and the Long-Term Incentive Plan were implemented with effect from March 2007 to replace the Kumba Management Share Option Scheme and the Phantom Share Scheme. The Deferred Bonus Plan was implemented for executive directors from 2008.

A portion of the approved cash salary and short-term incentives of the chief financial officer’s remuneration are determined and paid in terms of a separate employment agreement concluded between Kumba International BV and the respective executive director. The actual percentage paid is calculated on the basis of the time required to perform services offshore.

Fixed remuneration

The fixed salaries of executive directors are reviewed annually and determined with reference to the scope and nature of an individual’s role and his performance and experience.

In addition to a basic cash salary, executive directors receive benefits that include contributions to the membership of a medical health care scheme and a vehicle allowance. Retirement and risk benefits are provided to executive directors subject to the rules of the Kumba Pension and Provident Selector Funds. Contributions calculated as a percentage of the basic cash salary are paid to contributory retirement schemes and are subject to the rules of the pension and provident funds.

Short-term incentives

In addition to fixed remuneration, each executive director participates in a short-term incentive scheme to reward and motivate the achievement of agreed group performance objectives.

The approved principles of the short-term incentive scheme for the 2008 financial year comprise financial, business and strategic performance criteria and metrics. Kumba’s financial performance targets are set by the board using earnings before interest and tax and return on capital employed as measures. Actual performance on Kumba’s financial targets determined 50% of the executive directors’ short-term incentive in 2008. The balance of the short-term incentive is determined by the extent to which strategic and other business performance objectives are achieved.

In total executive directors may earn an annual short-term incentive of up to 60% of fixed remuneration.

On 12 February 2008 the committee considered in respect of 2007 the overall assessment of the performance of the executive directors participating in the short-term incentive scheme against the agreed group financial targets and the levels of achievement against their strategic and other business performance objectives.

Long-term incentives

Executive directors and senior management participate in the following long-term incentive schemes:

Old schemes – transferred to Kumba post-unbundling

1. Kumba Management Share Option Scheme
2. Phantom Share Scheme

New schemes

1. The Share Appreciation Rights Scheme
2. The Long-Term Incentive Plan
3. The Deferred Bonus Plan

On 8 November 2008 the committee considered the adoption of a Bonus Share Plan for executive directors and senior employees to be implemented in 2009. The adoption and implementation of the scheme is subject to approval by shareholders at the annual general meeting (AGM) on 20 March 2009. Detail of the plan is provided in a separate circular to shareholders.

Kumba Management Share Option Scheme

Prior to the unbundling of the then Kumba Resources Limited (Kumba Resources) senior employees participated in the Kumba Resources Management Share Option Scheme. At the time of unbundling in order to place, as far as possible, all participants in the Kumba Resources Management Share Option Scheme in the position they would have been if they remained shareholders of the then Kumba Resources Limited, the schemes continued in Kumba Iron Ore Limited and in Exxaro Resources Limited.

The Management Share Option Scheme was adopted by the group post-unbundling subject to certain amendments that were made to the Kumba Resources Management Share Option Scheme.

As a result the senior employees and directors that participated in the Kumba Resources Management Share Option Scheme subsequently became participants of the new Kumba Iron Ore Management Share Option Scheme.

From the date of the unbundling, no rights in terms of the Kumba Management Share Option Scheme have been granted.

Subsequent to the secondment of EJ Myburgh to South Africa’s national electricity supplier, Eskom, no executive directors currently participate in the scheme.

Phantom Share Scheme

As a result of restrictions related to the empowerment transaction of Kumba Resources, certain executive directors and senior employees who participated in the Kumba Resources Management Share Option Scheme were not able to receive certain grants of options which would have been made in the ordinary course of operations.

From the date of the unbundling, no rights in terms of the Phantom Share Scheme have been granted.

Subsequent to the secondment of EJ Myburgh to South Africa’s national electricity supplier, Eskom, no executive directors or senior employees currently participate in the scheme.

The Share Appreciation Rights Scheme

Executive directors and senior employees receive annual grants of share appreciation rights, which are rights to receive Kumba shares equal to the value of the difference between the market value of a Kumba share on the day immediately preceding the date of the exercise (exercise price) of the right and the market value of the Kumba share on the day immediately preceding the date of grant of the right (grant price).

The vesting of the rights is subject to specific performance conditions. The duration and specific nature of the conditions as determined by the remuneration committee of Kumba are stated in the letter of grant for each annual grant. The measurement of the performance conditions will be tested after three years. Retesting of the performance condition is permitted on the first and second anniversary of the end of the performance period.

After vesting, the rights will become exercisable. Rights not exercised within seven years will lapse.

With the planned implementation of the Bonus Share Plan in 2009 no rights will be granted under the scheme in future.

The Long-Term Incentive Plan (LTIP)

Executive directors and senior employees receive annual grants of conditional awards of Kumba shares.

The conditional award will vest after the performance period of three years, and to the extent that specific performance conditions have been satisfied. No retesting of the performance conditions is allowed.

The performance conditions for the annual LTIP awards made since the inception of the plan in 2007 are subject to the achievement of stretching performance targets relating to total shareholder return (TSR) and to a financial measure, return on capital employed (ROCE), over a fixed three-year period.

The performance conditions will determine if, and to what extent, the conditional award will vest. Upon vesting the employee will be entitled to shares in Kumba to settle the value of the vested portion of the conditional award. The conditional awards which do not vest at the end of the three year period will lapse.

The Deferred Bonus Plan

The purpose of the plan is to encourage executive directors and senior employees to utilise part of their after tax short-term incentive payment for the purpose of acquiring shares (pledged shares) in Kumba. Participants who own pledged shares are entitled to all rights in respect of these shares including dividend and voting rights. If the pledged shares are held for the pledge period (usually three years) and the participants remain in the employ of the company for the pledge period, then the company will provide a matching award of free shares (matching shares). Executive directors and senior management first participated in this plan from 2008.

With the planned implementation of the Bonus Share Plan in 2009 no pledged shares will be granted under the scheme in future.

The Bonus Share Plan

With ever-increasing importance of attracting and retaining talent, the Bonus Share Plan will be implemented in 2009 (subject to shareholder approval). Participants of the plan will receive forfeitable shares. All previous awards under the Share Appreciation Rights Scheme and Deferred Bonus Plan will be grandfathered. The plan strives to improve the link between performance and reward while promoting share ownership by executive directors and senior employees.

Executive directors’ remuneration for the year was as follows:

Non-executive directors’ fees

The committee recommends fees payable to the non-executive directors for approval by the shareholders. The annual fees payable to non-executive directors for the period commencing 1 January 2008 were approved by the shareholders at the AGM of 28 May 2008. Fees are approved for an annual period commencing on 1 January each year. The revised fees of the non-executive directors will be submitted to the shareholders for approval at the next AGM on 20 March 2009.

Non-executive directors’ fees approved for 2008 were as follows:

Non-executive directors’ fees for the year were as follows:

Executive committee members’ remuneration

The fixed remuneration of members of the Kumba executive committee, other than executive directors, is reviewed and recommended to the Kumba board by the committee.

Similar to the executive directors the members of the Kumba executive committee participate in the short-term incentive scheme as set out above and in the various long-term incentive schemes. Awards in terms of these schemes are under the same terms as detailed above.

The aggregate remuneration of members of the Kumba executive committee (excluding that of the executive directors disclosed separately above) for the year was as follows:

Long-term incentive schemes

Kumba long-term incentive schemes

The interests of the directors in shares of the company provided in the form of share options, rights, conditional awards and pledged shares are shown in the tables below. No variations have been made to the terms and conditions of the schemes during the year, including the performance conditions to which the granting and vesting of the options, rights and conditional awards are subject.

Anglo American plc group long-term incentive schemes

CI Griffith and VP Uren through their employment at Kumba, a member of the Anglo American plc group, retained of the awards granted whilst participants of the Anglo American plc group long-term incentive schemes. CI Griffith and VP Uren no longer receive awards under these schemes.

As at 31 December 2008 the following awards under the Anglo Platinum long-term incentives schemes were held by CI Griffith:

As at 31 December 2008 the following awards under the Anglo American long-term incentives schemes were held by VP Uren:

Directors’ beneficial interest in Kumba

The aggregate beneficial interest in Kumba at 31 December 2008 of the directors of the company and their immediate families (none of which have a holding greater than 1%) in the issued shares of the company are detailed below. There have been no material changes in these shareholdings since that date.