A cash-drunk Kumba yesterday smiled its shareholders all the way to the bank after declaring an interim dividend of almost R10 billion as earnings tripled on the 57 percent iron ore export price rally and the weak exchange rate that have lifted the gloom in the mining industry this year.
Kumba, a unit of Anglo American plc, yesterday said it rewarded its investors with an R9.9bn cash dividend or R30.79 a share, representing a 98 percent payout of headline earnings. Kumba said the dividend exceeded its target range of between 50 and 75 percent of headline earnings.
The iron ore producer has been one of the best-performing stocks on the JSE after prices rocketed this year, hitting the highest level in more than five years. The price rally has come amid the expanding Chinese demand, the dam disaster in Brazil, and as bad weather in Australia curtailed shipments.
The rand weakness by 16 percent against the US dollar at R14.20 compared to R12.30 last June saw headline earnings jumping by 239 percent to R10.1bn or R31.51 a share. Kumba chief financial officer Bothwell Mazarura said the company would maintain its capital discipline, despite the phenomenal financial performance.
“We are under no illusion by how much of the results are of our own doing and how much is driven by the market,” Mazarura said. Kumba, which operates the Sishen and Kolomela mines in the Northern Cape, recorded a 77 percent revenue increase to R34.5bn in the period under review from 19.5bn last year, largely driven by the iron ore price increase to $108 a ton. Themba Mkhwanazi, Kumba chief executive, said the company had delivered savings of R460 million, and for the second half of the year it aimed to deliver on its full-year R700m cost-savings.
Kumba set a target of saving R2.2bn by 2022. “Our strategy to extend the life of our mines to more than 20 years remains on track, thus providing a more sustainable future for our communities which depend on us. Our commitment to disciplined capital allocation and sustainable shareholder returns, together with our flexible and resilient balance sheet, ensures that we remain well-positioned to deliver sustainable returns,” Mkhwanazi said. Operations, however, rocked production challenges as Sishen missed its output after issues in the first half resulted in overall production volumes decreasing 11 percent to 20.1m tons on unscheduled plant maintenance in the first quarter. Unit costs at Sishen increased 20 percent to R370 a ton from R290 last June, due to the production issues.
The production issues saw the company lowering its guidance for the year to 42 million tons from the 43 million tons it predicted earlier. Kumba’s strong financials come a day after Anglo American Platinum posted strong results and are the latest indication of shaking off the gloom of losses that had gained momentum on the back of higher prices and weaker rand. Kumba shares declined 2.93 percent on the JSE yesterday to close at R475.90.