Kumba ‘has a plan’ to buffer effect of coronavirus on iron ore sales
Kumba chief executive Themba Mkhwanazi said: “The strategy around the coronavirus and the slowdown in China is really around how we manage our stockpiles both at the sites and at the ports. We are engaging with our customers and are also looking at our marketing outside of China.”
However, Mkhwanazi said so far the coronavirus has had a muted impact on sales. China is the world's biggest consumer of iron ore, the main ingredient in the production of steel.
Mkhwanazi said market uncertainty around the potential implications of the coronavirus for China and the commodity industry were weakening confidence and affecting commodity markets.
“This makes us cautious about the short-term outlook, but we remain positive about the outlook for the industry in the long run. Our unique, high-quality lump products and marketing capabilities position us well to capitalise on the opportunities ahead to further transform our business and create sustainable value for our stakeholders,” said Mkhwanazi.
Kumba reaped the benefits of the strong global iron ore price environment and improved efficiencies, which mitigated the impact of the operational headwinds at the Sishen and Kolomela mines as well as the lower domestic sales due to the decision by ArcelorMittal South Africa (Amsa) to wind down operations at its Saldanha Steel plant.
Kumba, Africa’s biggest iron ore producer, reported a 69 percent surge in net profit to R21.3bn as well as a 79percent jump in cash flow from operations to R34.7bn.
The company declared a total dividend of R46.78 a share compared with R30.24 a share a year earlier.
Total production volumes decreased by 2 percent to 42.4 million tons from 43.1 million tons a year earlier after production challenges at the Sishen and Kolomela mines.
Total sales volumes declined to 42.2 million tons from 43.3 million tons in 2018, driven by lower domestic sales of 2.2 million tons from 3.3 million tons, while export sales were maintained at 40 million tons.
“Following the announcement by Amsa of the winding down of its Saldanha Steel plant, Kumba is investigating a number of options to increase its export sales capacity to compensate for lower domestic sales,” said the company.
Kumba also said the company had managed to make R920 million in cost savings - R220m ahead of the previous guidance of R700m.
The group committed to doubling its efforts in managing controllable costs to ensure its business was resilient in a lower price environment.
“Consequently, we are implementing further initiatives to optimise costs across the business, and extending our cumulative savings target beyond R2.6bn,” said the company.
Kumba shares closed 2.29 percent lower at R360.86 on the JSE on Tuesday.