JOHANNESBURG - Kumba Iron Ore on Tuesday became a shareholder darling as it gained 12 percent in early trade at R195.02 a share on the JSE after it announced it had decided to resume paying a dividend in the first half of 2017 for the first time in two years.
Kumba, an Anglo American subsidiary, declared a R5.1 billion interim dividend, which translated to R15.97 a share - brought about by the higher commodity prices and improved productivity.
The dividend was significant as it was 9 percent on closing share price on Monday, analysts said.
Themba Mkhwanazi, Kumba’s chief executive, said the company had decided to resume paying a dividend in line with the board’s policy to return excess cash to shareholders.
He added the company remained conservative and did not outline a dividend policy other than say it was still under review.
“We are paying a dividend based on a confidence in the market,” he said, adding that Kumba was a player that focused on a single commodity and was sensitive to changes in the price environment.
The last time Kumba paid a dividend was in 2015. However, due to the economic headwinds and low price environment it put the brakes on dividends.
Kumba, which is focused on mining iron ore in the Sishen Mine and Kolomela in the Northern Cape, also reported that its net cash flow position was R13.5bn in the first half of the year as a result of the 48 percent higher cash flow.
The company’s revenue from continuing operations increased to R21.5bn from R17.6bn for the comparable period last year, mainly as a result of the 29 percent increase in the average realised iron ore export price to $71 a ton from $55 a ton in the first half of last year as well as a 5 percent higher total sales volumes.
However, the gains were partially offset by the strengthening of the average rand exchange rate which was R13.21 in the first half of 2017 compared with R15.40 in the first half of the previous year.
Commodity prices
The company also said that the stronger operational performance and and commodity prices had resulted in the operating margin improving to 36 percent from 29 percent in the first half, with headline earnings increasing 53percent.
Operating profit rose 50 percent to R7.7bn from R5.2bn for the same period last year.
Seleho Tsatsi, an investment researcher at Anchor Capital, said the big surprise from results was the resumption and size of the dividend, which was generally expected to occur at year-end. “Although the iron ore price has declined from its highs of earlier in the year, Kumba is still highly cash-generative at the current iron ore price,” he said.
The Kumba share price closed 17.34 percent higher on the JSE at R203 yesterday.