Derailments pummel Kumba’s export sales

Kumba, SA’s largest iron-ore producer, told overseas customers it could not meet contractual supply agreements because of an unusually high number of derailments on the railway line linking its Northern Cape mines to the Saldanha port.

The incidents contributed to a 1% drop in the company’s export sales in the first quarter compared with the same period a year earlier. International sales fell 12% from the previous three months.

Kumba had declared force majeure on March 14, which remained in force, CEO Themba Mkhwanazi said on Tuesday during a media visit to the flagship Sishen mine. “For the first time in five years, we had to declare force majeure because we could not honour our sales commitments to our clients.

“When we get certainty that we are close to closing the deficit gap we have now, then we’ll lift it,” he said.

Companies declare force majeure when something unexpected happens that prevents them from complying with a contract. Weather and other natural disasters are examples

of potential causes. “This year so far we had two derailments, while in the past six months we had four, which is quite unprecedented and it raises all kinds of concerns. We are eager to get to the bottom of the causes because it impacts on our operations,” Mkhwanazi said.

The Anglo American subsidiary, however, maintained its full-year export sales target at 44-million to 45-million tonnes, meaning the effect of the reduced sales would have minimal financial effect in the longer term.

Kumba is considering regional consolidation, exploration and technology to grow and replace mined ore at its Sishen and Kolomela mines in the Northern Cape. Kumba exports about 44-million tonnes of ore, making it the world’s fifth-largest source of seaborne iron ore. The flagship Sishen mine, which produces about 31-million tonnes a year, has a 13-year life remaining.

Kumba is exploring on and around its tenements in the Northern Cape for additional ore. Mkhwanazi said: “We are quite confident and excited about potential prospects.”

He declined to be drawn on what further growth prospects were outside of technological improvements to ramp up productivity, lower costs to be globally competitive, and tap into low-grade ore that has been stockpiled until a cost-effective way could be found to upgrade its quality.

“What we are saying is we are looking beyond the current business as it stands.

“This has to be opportunistic and value accretive for Kumba. If opportunities come we will consider those, but they have to be value accretive,” he said.

Kumba was inching its way closer to the high-value 65% iron-content ore, which was trading at a premium of $19 a tonne to the medium-grade 62% iron ore, said Timo Smit, executive head of marketing and seaborne logistics.

The premium product is selling for $84 a tonne.

Kumba had increased the iron content in the bulk of its ore to 64.4% from 64.1%, Smit said. He said Kumba was doing this at a time when the demand from China for high-quality iron ore was growing.

In China, stricter pollution controls and efforts to improve smelter efficiencies were driving the demand for goodquality lumpy iron ore, which made up two-thirds of Kumba’s annual production, and higher iron content, he said.

The lumpy premium above the price for fine iron ore was $12 a tonne and Smit saw no reason for it to fall any time soon.

Lumpy ore is small chunks of ore, while fine ore is like sand, which has to be sintered and made into pellets.