Kumba flags surge of 150% in interim earnings buoyed by strong ore prices
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KUMBA Iron Ore, South Africa’s biggest iron ore producer, yesterday flagged a surge of at least 150 percent in earnings for the six months ended June 2021 compared to a year earlier buoyed by strong iron ore prices.
Kumba, an Anglo American plc subsidiary, which owns the Sishen and Kolomela mines in the Northern Cape, expects headline earnings and basic earnings to be R12.6 billion and R12.6bn higher, respectively, in the half year ended June 2021 compared to a year earlier.
Headline earnings a share and basic earnings a share were likely to be at least R39.29 a share and R39.32 a share, respectively, at least 150 percent higher than the headline earnings a share and earnings per share reported in the previous year.
A year earlier Kumba had posted headline earnings and basic earnings of R8.4bn and R8.4bn, respectively. The company’s headline earnings a share and earnings a share were R26.19 and R26.21, respectively.
“The period under review has to date seen higher average export iron ore prices and a stronger rand/US dollar exchange rate relative to the comparative six months ended June 30, 2020,” Kumba said in its trading statement.
Iron ore prices are on a decade high after eclipsing $200 (R2 843) a ton in May on the stronger steel demand from China, the world’s biggest steel producer. Iron ore is benefiting from China’s strong momentum after it boosted its stimulus spending with a focus on infrastructure spending. A year ago, iron ore prices touched $115 a ton compared with $97 tons in 2019.
Commenting on Kumba’s trading statement, Anchor Capital’s investment analyst, Seleho Tsatsi, said with current foreign exchange and commodity prices Kumba was on track to earn close to R150 per share in 2021, placing the share at just over 4 times estimated 2021 earnings.
Tsatsi said the low multiple was indicative of hesitation around the currently high iron ore price.
“Assuming Kumba pays the majority of what it earns out as a dividend (as it has over the past few years), that would imply a sizeable dividend yield in 2021 based on today’s share price. Kumba had a strong balance sheet coming into this year so it should be in a good position to continue paying out most of what it earns,” Tsatsi said.
Kumba rewarded shareholders with a dividend of R60.90 a share during the year ended December 2020 up 30 percent from 2019 after posting
record earnings spurred by higher iron ore prices and a weaker rand.
The final R60.90 a share dividend represented a payout ratio of 86 percent of headline earnings. The record earnings and dividend pay-out was on the back of 19 percent higher dollar iron ore prices while breakeven costs were kept flat at $45 a ton. Despite the bumper profits, in March Kumba issued retrenchment notices that would affect 1 600 employees. According to trade union Solidarity, the process could result in 653 job losses.
In a separate announcement, Kumba said it had appointed Terence Goodlace as chairperson of the Kumba board of directors from Wednesday. Goodlace succeeds Dr Mandla Gantsho who retired on May 14.
Kumba Iron Ore closed 0.54 percent higher at R620.30.