Mining giant Kumba Iron’s share took an almost 4 percent dip after it warned that heavy rains and lower iron ore prices had impacted its interim performance with earnings likely to drop up to 53 percent.
Kumba, majority owned by Anglo American, said its headline earnings for the 12 months would be between R10.9 billion and R12bn representing a 48 percent to 53 percent year-on-year decrease.
The shares traded at about R449 yesterday after the company released its production and sales report, and trading statement for the six months ended June 30, 2022. Later the share closed at R450.81, 3.47 percent lower.
Total production decreased by 13 percent to 17.8 million tonnes (Mt), compared to 20.4 Mt of the first half year of 2021, due to the challenging first quarter, with improvements coming through in the second quarter.
Kumba chief executive Mpumi Zikalala said: “Kumba’s operational performance is improving, and we are focused on delivering our full year production and sale guidance, despite operational and mining cost inflation headwinds in the first half.”
Kumba’s full year production guidance remained unchanged at 38Mt to 40Mt. It also increased export sales 2 percent to 19.7 Mt, with second performance in the second quarter improving by 7 percent.
Finished stock decreased to 4.5 Mt, reflecting a drawdown to maintain export sales.
Kumba said the iron ore market also came under pressure in the second quarter, driven by the extended Covid-19 lockdown in China and weaker global economic prospects as the inflationary effects of the pandemic were compounded by conflict in Ukraine.
“It is within this context that Kumba achieved an average realised price of $136 per wet metric tonne (wmt), notably 15 percent above the benchmark price of $118 per wmt, reflecting the premium quality of our products,” it said.
Following adverse seasonal weather conditions in the first quarter, Sishen’s waste stripping recovered by 12 percent to 40 Mt in the second quarter to 75.6 Mt for the period. Kumba maintained Sishen’s unit cost guidance of R500 to R530 per tonne.
“The recovery was driven by improved weather conditions, optimised pit set-up and improved equipment reliability,” it said.
Kolomela recorded close to double the rainfall at Sishen in the first quarter and continued to be hampered by low truck availability due to saturated pit conditions, as well as a safety intervention implemented in the second quarter.
“Given this, Kolomela’s waste stripping reduced by 20 percent compared to the first quarter of the year, resulting in a decrease of 36 percent to 19.9 Mt,” the group said.
Kumba said in an effort to address the challenges, it had put in place an improved rain readiness plan, resourced additional contractors and optimised mine plan to improve the haulage cycle, which would help with recovery in the second half of the year.
“Following a tough start to the year due to heavy rainfall, Sishen has since made good progress to stabilise production, while Kolomela continued to experience a number of challenges in the second quarter, reflecting the impact of a safety intervention and equipment reliability. A renewed focus on operational stability has started to deliver positive results, and we expect a turnaround in performance throughout the rest of the year,” Zikalala said.
Kumba said it has achieved its sixth year of fatality free production in May this year.
Kumba will release its financial results for the six months ended June 30, 2022, on July 26.
Anchor Capital investment analyst Seleho Tsatsi said the biggest driver of Kumba’s expected decline in headline earning per share was the iron ore price, which fell 26 percent.
“Iron ore prices were phenomenal last year, and last year was, in fact, the second highest annual average iron ore price on record going back to 2011.
“We do not expect prices to rally back to those levels. So, earnings should continue to go backward in the second half of this year. The share price is now 35 percent off its 2022 high and is starting to look more reasonably valued than it has in recent times,” Tsatsi said.
He said the iron ore price was currently $96 (R1 528) per tonne, and commodity prices have been impacted by both lockdowns in China and global recession fears.
BUSINESS REPORT