Operating expenditure

Operating expenditure increased by 34% year-on-year from R7.8 billion to R10.5 billion, driven by increases in mining, production and logistics activities.

Cost of goods sold increased by 34% from R3.7 billion to R5.0 billion. Production cost for Sishen Mine have increased by 21% from R3.8 billion to R4.6 billion principally due to a 14% increase in total tonnes mined from 108.8Mt in 2008 to 128.3Mt in 2009, fuelled by the inflation in labour related expenditure, offset by the decreasing cost of diesel and blasting products and strict cost management.

Finished goods inventory increased from 5.8Mt 2008 to 6.7Mt in 2009. This increase coupled with the stockpiling of 10.5Mt of B-grade material to be used by the Jig plant were the main contributors to the increase in the movement in inventories to R600 million for the year.

During 2008 the group earned net foreign currency translation gains of R1.0 billion, however, during 2009 the net gain was R329 million. Operating expenses were, therefore, adversely affected by lower net translation gains earned in 2009.

Selling, rail and port costs increased by 44% from R2.0 billion to R2.8 billion, principally due to the logistics and export operations transporting the increased production achieved for 2009. Volumes railed on the Sishen-Saldanha export channel increased by 23% to 34.6Mt, while a 38% increase in the volumes shipped from the port at Saldanha was achieved.

Expenditure relating to our shipping services increased by R612 million against an increase of R920 million achieved in the revenue from these operations. The increase was mainly due to a 15.3Mt increase in volumes shipped by Kumba on behalf of its customers to 21.5Mt for the year, utilising a record 134 vessels.