Kumba anticipates 44% lower annual earning with Transnet still a concern

KUMBA Iron Ore - the Anglo American subsidiary - is anticipating a decline in headline earnings per share of up to 44% to R64.49 for the full year to December 31, 2022, due to weaker sales volumes and lower export ore prices, although a weaker rand to dollar exchange rate will provide some respite.

The mining firm said Transnet had hammered Kumba Iron Ore’s volume shipments for the fourth quarter to December 31, dragging down sales by 35%. This derailed its 3% quarterly surge in production.

The logistics bottlenecks from Transnet had remained of concern for Kumba Iron Ore, its chief executive Mpumi Zikalala said yesterday.

“Transnet’s logistics remain a concern with poor performance continuing subsequent to the two-week wage strike in October 2022 and the annual maintenance shutdown in November 2022.

“This limited production to 10 million tons (Mt), representing an increase of 3% in Q4 2022 (quarter four), while sales decreased by 35% to 6.9 Mt, largely due to Transnet’s performance,” said Zikalala.

Additionally, load shedding by Eskom had increased during the period, increasing the power supply risk to operations.

This was despite Kumba Iron Ore’s efforts to minimise the impact of load shedding through rescheduling of production processes.

Headline earnings per share for the period “are likely to be between R58.29 and R64.49, a decrease of between 38% and 44% from the previous year”, Kumba Iron Ore said in a trading statement. “The decrease in earnings for the period is largely attributable to the lower average realised free on board export ore price and lower sales volumes, partly offset by a weaker rand/US$ exchange rate, relative to the comparative period.”

Additionally, basic earnings for the period reflected an impairment on the asset value of its Kolomela mine as a result of revisions to the forecast production.

Subsequently, basic earnings for the period were expected to be between R14.7 billion and R16.3bn.

Iron ore output for the company for the 2022 full year at 37.7 million tonnes and sales volumes at 36.6 million tons were “in line with revised guidance”. “Currency weakness contributed positively to C1 costs of $40 (R690) per ton ending the year better than guidance of $44 per ton,” said Kumba Iron Ore.

It said its “product quality and geographically diverse customer base contributed to an average realised price of $113 per wet metric ton” for the year, which is 13% above the benchmark price of $100 per wet metric ton.

Waste stripping for the fourth quarter period was 2% higher at 55 million tons due to a 5% increase at Sishen to 39.8 million tons. Waster mining at Kolomela has improved on the previous two years, said the company.

This helped lift total production for the quarter to 10 million tons, a 3% strengthening on the prior year contrasting period.

Output from Sishen increased by 7% to 7 million tons, boosted by improved feedstock stability.

Output at Kolomela declined by 7% to 3 million tons, largely as a result of the industrial action at Transnet in October as well as “poor rail performance following the annual maintenance shutdown”.

This contributed to additional build-up of stock at the mines which necessitated “a curtailment” in production.

The share price in Kumba Iron Ore on the JSE surged by 3.89% to close at R546.18 yesterday.