Johannesburg - Kumba Iron Ore’s board has put a halt to paying a dividend in the half year to June and has moved to overhaul its operations as it grapples with a double whammy of tumbling iron ore prices and rising costs.
Things are not looking good for South Africa’s biggest iron ore producer, which has been a mainstay for parent company Anglo American.
Iron ore prices slid 46 percent to $61 (R752) a ton in the six months to June down from $104 a ton in the comparative period last year.
Kumba chief executive Norman Mbazima said no dividend would be declared until commodity prices improved.
“Taking cognisance of the pressure of lower cash generation, the initiatives required to preserve cash as, and in order to maintain financial flexibility, the board has decided not to declare an interim 2015 dividend,” Mbazima said on Tuesday.
Kumba has forecast iron ore prices to remain under pressure as Australian and Brazilian producers increase supply and demand growth from China slows.
The low price environment has necessitated the introduction of a revised life-of-mine plan for the ageing Sishen mine near Kathu in the Northern Cape.
Kumba said Sishen production would be moderated to 33 million tons this year and the revised life-of-mine plan had resulted in the waste target for this year being revised down from 240 million tons a year to 200 million tons a year with a ramp-up to 230 million tons from 2018.
The production outlook at the mine has been set at 36 million tons for next year to 2017, rising gradually to 38 million tons thereafter.
“The new plan brings about reduced flexibility from a mine engineering perspective which will be mitigated through a greater focus on the quality of the execution in the pit and the execution of the operating model,” Mbazima said.
Kolomela’s life-of-mine has been reduced by two years to 19 years from 21 years because of production capacity increases.
The new mine plan at Kolomela is part of interventions to weather the the challenging market conditions, which are expected to result in a reduction in the group’s cash break-even price to $45 a ton from the $63 a ton last year.
Other initiatives include reducing overhead costs, reinforcing capital discipline, reconfiguring the operations and maintaining the focus on product quality through the production of lump products.
The company’s cash flow is under pressure and debt covenant headroom is decreasing amid low prices.
Revenue sunk by 41 percent to R11 billion. Normalised earnings declined 52 percent to R9.78 a share in the six months to June compared with the comparative period last year.
Operating profit slid 53 percent to R5.8bn a share in the period under review.
The low price environment has necessitated the restructuring of operations to cut costs. These include R200m annual savings following the cutting of 61 percent of head office staff to 221 from 572 in the period under review.
Kumba is also closing the 80-year-old Thabazimbi Mine, which will affect over 1 000 employees.
Kumba shares on the JSE on Tuesday rose by 0.19 percent to end at R122.80.