Cape Town - Soon after the news broke that he would be stepping down as chief executive officer at Kumba Iron Ore, Norman Mbazima reported substantial progress had been made in restructuring at the miner.
As the company released its results for the six months to the end of June, Mbazima said: “This time last year, Kumba was facing a significantly deteriorating price environment which brought about immense change to the industry.”
He said the company had “moved decisively” to implement major changes, including closing unprofitable ore sources, moving Sishen to a lower cost pit shell and restructuring the entire organisation.
“I am pleased to report that we have made substantial progress as reflected in this set of mid-year results,” he said.
Strong free cash flow during the period under review supported debt reduction from a net debt position of R4.6 billion at the end of 2015 to a net cash position of R548 million at the end of June which, the company said, provided “good financial flexibility to cope with the challenges that lie ahead”.
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Reporting a R3.1 billion reduction in controllable costs, the miner said restructuring of Sishen had been completed successfully.
Other changes included ceasing operations at the high cost Thabazimbi mine and ramping up low cost production at Kolomela. “This enabled us to reset our operational and capital expenditure, bringing down cash costs and our cash breakeven price to more competitive levels,” the company said.
It added the restructuring at Sishen, which started on January 28, had affected every role on the mine. The process had largely been completed and had resulted in a 31 percent overall reduction in the workforce, or about 1 500 full-time employees and 900 contractors.
Kumba said the process had been completed mainly through voluntary separation and without any work stoppages. “We are pleased that overall labour relations have been stable throughout the period,” the company said.
Lower prices
Total revenue from continuing operations came in at R17.6 billion during the half year, 12 percent lower than the R20 billion for the comparable period in 2015. Kumba said this was mainly as a result of the 10 percent drop in average realised iron ore export price to $55/tonne and 22 percent lower total sales volumes.
The labour restructuring process at Sishen had resulted in R377 million additional retrenchment costs in the period. This was expected to contribute to annual sustainable savings from 2017.
“Further savings were achieved through aggressive management of overheads and by curtailing project and technical studies, partially offset by inflation and currency movements,” Kumba said, adding that it would continue to focus on capital and cost discipline “as we move forward in this uncertain and volatile landscape”.
Kumba said headline earnings had increased by 20 percent to R3 billion, mainly as a result of the derecognition of a deferred tax asset of R617 million in the first half of of 2015. Headline earnings for the period came in at R9.41 per share, up from R7.85 last time.
The board had decided not to declare an interim dividend. It was announced earlier on Tuesday that Mbazima would be stepping down as chief executive after four years in the role to focus on his role as deputy chairman of Anglo American South Africa. Themba Mkhwanazi, executive head of processing operations at Anglo American Platinum since 2007, would be stepping into his shoes on September 1.
Mark Cutifani, Anglo American chief executive, earlier thanked Mbazima for “his tireless work to reshape Kumba's cost structures over the last four years to create what is a much more resilient business to weather the lower iron ore price environment”.
Cutifani added Mbazima would now “concentrate on how we deliver value through the restructuring and divestment of our non-core businesses in South Africa as we continue to explore all appropriate options, as we have been doing across our global portfolio of non-core assets”.
AFRICAN NEWS AGENCY