Kumba Iron Ore said this week its earnings will decrease by 22% due to lower export prices, as it cuts its 2023 sales guidance.
In a trading statement for the six months ended June 30, 2023, Kumba, majority-owned by Anglo American, said headline earnings were likely to be between R9.04 billion and R10bn, a decrease of between 14% and 22% from the previous six months ended June 30, 2022.
“The decrease in earnings for the period is largely attributable to lower average realised FOB export iron ore prices and lower sales volumes, partially offset by a weaker Rand/US Dollar exchange rate, relative to the comparative period,” it said.
The group flagged that sales for the year would be between 36 to 38 million tons (Mt) from a previous guidance of 37 to 39 Mt. The decrease was due to a 3% fall in deliveries of iron ore as Transnet continued to struggle.
Kumba CEO Mpumi Zikalala said: “The iron ore and coal mining industry’s ability to continue contributing significantly to the fiscus, sustain employment, and deliver far-reaching socio-economic benefits are inextricably linked to reliable logistics services. An efficient logistics system is fundamental to global trade and South Africa’s weakening economic growth.”
Zikalala said to reflect the impact of ongoing rail constraints, Kumba revised its 2023 guidance on waste to 195 - 225 Mt and on sales to 36 - 38 Mt.
“We have maintained our production and unit cost guidance for both mines and reduced the C1 cost guidance to $43 per ton to reflect the weaker Rand exchange rate.
“Given the uncertainty faced as a result of the logistics challenges, we have deferred non-critical capital expenditure of R2bn and revised our guidance down to R9 - 10bn for the full year,” she said.
According to Zikalala, iron ore production increased by 6% underpinned by Kolomela’s recovery and improved productivity at both operations.
“However, multiple disruptions including derailments and cable theft on the Transnet rail line resulted in ore railed to Saldanha Bay Port decreasing by 3% at June 30, 2023. With lower finished stock levels at Saldanha Port, sales decreased by 4%,” she said.
The group said total production volumes increased by 6% to 18.8 Mt, with Kolomela’s production increasing by 22% to 6.0 Mt, reflecting the benefit of improved ore feedstock availability at the mine.
Kumba said the National Logistics Crisis Committee (NLCC), which is jointly supported by government, Transnet and organised business, has been formed to urgently pursue interventions to address the rail, port and road crises currently severely undermining economic growth and job creation in South Africa in parallel to a reform agenda with longer-term implications, including the opening of rail and port networks to private operators.
“Kumba welcomes the establishment of the NLCC as clear recognition of the extent to which exports are being hampered by logistics constraints and that deep collaboration and private sector partnerships are required to solve these challenges.
Anchor Capital investment analyst Seleho Tsatsi said headline earnings per share was expected to fall 18% at the midpoint of the guidance range given.
“The drivers behind the decline are decrease in the Rand iron ore price and a decrease in sales volumes. Kumba has reduced its sales volume guidance for 2023 by 3%. Challenges at Transnet have been one contributor to the pulled back guidance,” he said.
Tsatsi said iron ore hit an all-time high in 2021 and so earnings for the iron ore miners have normalised since then.
BUSINESS REPORT