Johannesburg - Kumba Iron Ore turned the corner after the world’s fifth largest seaborne iron ore producer said yesterday that it had generated cash and posted higher earnings in a difficult half year to June.
The Anglo American subsidiary’s boosted balance sheet comes despite it grappling with deteriorating commodity prices. Kumba is focused on capital discipline amid uncertainty in the iron ore sector, which has been the worst performing commodity after nickel, sliding 40 percent last year.
The woes in iron ore prompted Anglo American to announce plans to disinvest from Kumba and declare it as a non-core asset. But Kumba has now turned the corner after it reported a net cash position of R548 million in the six months to June from net debt of R4.6 billion at the end of December.
Headline earnings rose 20 percent to R3bn from R2.5bn last year. No interim dividend was declared amid market volatility and the uncertain outlook in iron ore.
Watch: Departing CEO notes Kumba's successes
Kumba reined in costs through making R3.1bn in savings, including a 61 percent reduction in capital expenditure to R1.3bn.
Outgoing chief executive Norman Mbazima said the improved financial position had come earlier than expected.
“We did not expect to be cash positive in the first half. This is an excellent achievement… which provides us with good financial flexibility to cope with the challenges that lie ahead,” Mbazima said yesterday.
“Kumba is now much more resilient and better positioned for lower prices,” he said.
In terms of operations, the company implemented the revised 2016 mine plan at its Sishen mine, resulting in a 30 percent reduction in the mining fleet. “We are considering the future use of the equipment,” Mbazima said.
Restructuring
The restructuring at Sishen, which begun at the end of January and has since been completed, led to 1 500 full-time employees and 900 contractors losing their jobs, or 31 percent of the mine’s headcount mainly through voluntary separation.
Total production was reduced by 21 percent to 17.8 million tons, most of which was due to the significantly revised mine plan at Sishen. Production at Sishen was 29 percent lower at 11.9 million tons.
“This reduction was affected further by disruptions caused by the restructuring process, higher than normal rainfall and safety related stoppages,” Mbazima said.
The projected full year guidance for production at Sishen was 27 million tons, the company said. In terms of Kumba’s Kolomela subsidiary, Kumba was targeting 13 million tons at the end of next year. Kolomela, produced 5.9 million tons in the period under review.
Iron ore prices were down 13 percent to $52 (R745) a ton in the period under review, but were higher than the $38.50 a ton level at the end of December. Kumba’s share price fell 1.3 percent to R124.86.
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