KUMBA Iron Ore announced an R72.70 interim dividend representing 100% of record earnings on the back of exceptional iron ore prices and despite logistical problems that saw the Anglo American firm cut its sales forecast for 2021.
The dividend declaration consists of Kumba Iron Ore’s dividend policy which is to pay out 50% to 70% of headline earnings and a top-up. “We have earned in the interim the equivalent of what we earned the whole of last year,” said Themba Mkhwanazi, CEO of Kumba Iron Ore. “That gives you a sense of the scale of the earnings potential.”
Anglo American, the UK-listed diversified miner, owns 70% of Kumba Iron Ore. The group’s 80% owned Anglo American Platinum yesterday also announced record interim earnings on the back of high palladium and rhodium prices.
Half year earnings came in at 72.82 per share which was 178% higher than the six months ended June in 2020, a period affected by Covid-19 production interruptions.
As previously announced, production increased by 12% to 20.4 million tons (Mt) and yet there was frustration as the sub-optimal performance of South Africa’s state-owned freight and logistics company, Transnet, resulted in sales rising only 3%.
Mkhwanazi acknowledged the problems but lauded the financial result, saying: “Our high quality products, combined with a constructive iron ore market, resulted in an exceptional EBITDA of R44.4bn”.
The key factor in the numbers was the iron ore price.
The average realised FOB export price was $216 per wet metric ton (wmt), some 32% above the benchmark price.
In its results commentary, Kumba Iron Ore said that the iron ore price was influenced by the revival of the Chinese economy as well as supply disruptions. Bad weather that affected South African exports was also experienced by Australia whilst operational constraints affected Brazilian and Australian exports.
Iron ore price moderation
While the payout of the dividend suggests high confidence for the remainder of the financial year, Kumba Iron Ore said the iron ore price of the first six months was likely to cool in the second half, but remained elevated.
“We are confident that the positive underlying fundamentals for iron ore will remain constructive for some time relative to historical levels, although it is unlikely to continue at the pace seen in the first half. While uncertainties around the pandemic remain, demand for high-quality iron ore will be sustained as global economies continue to recover,” it said.
Commenting in a media call, the head of Kumba’s marketing, Timo Smit said a downside pressure was a cut in Chinese steel production which had been more severe than in previous production adjustments. However, the consequent improvement in steel margins normally supported the purchase of Kumba’s high quality lumpy ore.
In addition, Kumba’s high quality ore would benefit from the push towards global decarbonisation over the long term.
Kumba ended the period with net cash of R40.7bn.
Transnet problems
Commenting on South Africa’s own logistical logjams, Kumba Iron Ore said there had been “a pleasing recovery” in May and June “… following a number of interventions that have increased capacity and turnaround times”.
The recovery had increased the amount of finished stock at Saldanha Port to 1.7Mt of the total amount of finished stock of 6.1Mt, it said.
However, there was potential for further “logistical challenges” as well as inclement weather, it added. Earlier this month Kumba revised sales guidance for the full year 2021 down by one million tons to between 39Mt and 40Mt.
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