Kumba Iron Ore yesterday, releasing its results for the year December 31, 2022, lowered its production outlook for the next three years due to state-owned Transnet’s shoddy performance, which led it to losing R10 billion in lost sales.
Kumba said Transnet had a lack of freight trains to carry minerals to the port. Approximately R6.5bn of those sales were lost in the fourth quarter alone. And due to Transnet bottlenecks, Kumba said iron ore stockpiles increased to 7.8 million tons by December 31 from 6.1 million tons a year.
Transnet’s poor logistics performance, including a worker strike during 2022, repressed the volume of ore railed to port by 9% to 35.9 million tons. This has hamstrung South African coal and iron ore exporters across the board.
As a result, Kumba, the Anglo American subsidiary, which mines iron ore in the Northern Cape, said yesterday that it would readjust its production outlook over the next three years to reflect lower-than-expected Transnet rail performance, given the challenges faced in 2022.
Kumba CEO Mpumi Zikalala said: “Rail capacity was predominantly impacted by derailments and a weather-related event in the first quarter, resulting in increased speed restrictions, while low availability of train wagon sets led to increased turnaround times.
“Industrial strike action, equipment breakdown, and locust outbreaks further contributed to rail performance reducing to 80.3% of contracted tonnage.”
Kumba said output this year would be maintained at between 35 million tons to 37 million tons as it clears stockpiles as its Kolomela operation in the 12 months to December 31 produced 17% less iron ore than in 2021.
Production could rise by 5% to 6% each year in 2024 and 2025 as rail performance improves.
Zikalala said: "We are engaging with Transnet and the government to improve the stability and reliability of rail and port infrastructure as a matter of urgency."
Earlier this month Mineral Resources and Energy Minister Gwede Mantashe, speaking at the Investing in African Mining Indaba, said the mining industry was not fully benefiting from the commodity boom due to inefficiencies at railways and ports.
Minerals Council SA chief economist Henk Langenhoven said the country was losing out on making the most of bulk commodities at a time when prices were strong, due to Transnet.
He said if the rail network were operating at its full capacity, with a few minor enhancements, the country would realise R151bn more in bulk mineral sales.
In a bid to address the parastatal's challenges in December, Transnet and the council established a partnership to maximise the potential of bulk commodities.
Zikalala said Kumba welcomed the collaboration, but there was a lot that needed to be done.
Kumba's headline earnings per share (heps) plummeted 46% to R56.19 from the prior year.
This as it reported a 27% drop in revenues from R102bn in 2021 to R74bn for the reported period amid a challenging environment caused by headwinds in logistics, costs and operations.
The miner declared a final 2022 dividend of R5.2bn bringing Kumba's total shareholder dividends to R14.5bn, or R45 per share, representing a total payout ratio of 80% of headline earnings for the year.
Zikalala said, "Despite market volatility, demand for our high-grade iron ore helped us realise an average price of $113 (R2 060) per wet metric tonne, 13% above benchmark prices,“ she said.
Anchor Capital investment analyst Seleho Tsatsi said the 46% decline in Kumba’s diluted Heps was driven mostly by lower pricing, but also by a decline in volumes. Iron ore prices were down 22% in rand terms. That, in addition to a 9% decline in sales volumes, put pressure on earnings.
“Looking forward, iron ore prices have rebounded from the lows reached near the end of last year and that price reflects optimism around the re-opening of China’s economy. Investors are looking to see how strongly the Chinese recovery will be infrastructure drive -which is positive for iron ore and for Kumba- vs consumer driven,” Tsatsi said.
Kumba’s shares closed 1.25% lower at R540.26 yesterday.
BUSINESS REPORT