Transnet sent us R2bn off track, says Kumba

SA’s largest iron ore miner lost R2bn in revenue in the first half of the year due to problems on SA’s premier railway line, including train cancellations and four derailments, Kumba Iron Ore CEO Themba Mkhwanazi said on Tuesday.

His comments are sure to sting line operator Transnet, which prides itself in running what it says is one of the world’s best heavy-haul export lines.

“The entire rail system has been under pressure. Actual load scheduling was often significantly below plan. Besides the major disruption of the derailments to our operations, there have been train cancellations and failures,” he said.

“It has resulted in 2.4-million tonnes of lost opportunity. These constraints seriously impacted our overall performance and we are extremely concerned about the wider implications this has for growth of the economy, employment and investment in the country.”

Kumba’s revenue for the six months to end-June fell to R19.5bn from R21.5bn the year before because of a stronger rand and weaker global iron ore prices during the period.

The R2bn lost in revenue due to the rail issues “would have gone a long way to offset currency and price headwinds”, said Kumba chief financial officer Bothwell Mazarura.

Kumba reported an interim dividend of R14.51 per share, including a once-off top-up over and above its new policy of returning between 50% and 75% of headline earnings to investors. Analysts criticised the policy, saying it was not enough and was delivering dividends in line with earlier policies.

Transnet said on Tuesday it had deployed 300 new wagons to the line servicing Kumba and the Assmang iron ore mines shared by African Rainbow Minerals and Assore, and that it was not in breach of any contracts with Kumba.

“Penalties are payable if annual contract commitments are not met. Transnet did not have to pay any penalties in the previous financial year and all contractual commitments have been met to date,” it said.

Transnet said it noted that Kumba had reported a loss of 2.4-million tonnes due to derailments, “but this is incorrect”.

Both sides are working on a recovery plan and once that was finalised, Kumba wanted to hold discussions with Transnet about its expansion plans at its operations in the Northern Cape, Mkhwanazi said.

Contrast, if you will, how the private sector digs itself out of a hole, compared with its vastly inefficient peers in the public sector.

Anglo American Platinum (Amplats) and Kumba Iron Ore, both companies in the Anglo American family, have this week given a master class in how to deal with underperforming assets, high debt and relentless operational conditions and still come out on the other side.

In the case of Amplats, which is hostage to the same weak metals price affecting everyone, the platinum miner has moved to a net positive cash balance of almost R500m as of its half-year results. That’s no mean feat considering that in 2017 it had net debt of R5.9bn and almost R15bn in 2014. How did it get there?

Notwithstanding the fortune of having one of the lowest-cost new mines in the platinum world, Mogalakwena, Amplats still had to make tough calls.

It sold mines that it could not defend keeping. It shut shafts that were losing money. It slashed its staff bill by 60%, mainly through those asset sales to other, possibly more gung-ho players. It held firm against union demands.

The result is a company that can stand on its own, invest in its future, pay its staff and hand shareholders a return.

This is where capitalism works. There is no backstop, other than shareholders who may be called on to support a company out of their own free will. It can be brutal at times, but it helps ensure that what is of value survives, and may even prosper. Eskom would do well to pay attention.

For an industry that claims to be struggling to cover its costs, mining does seem to be remarkably generous with its payments to executives.

According to PwC’s report on executive remuneration trends in SA, mining companies hiked CEOs’ total guaranteed pay by between 4.3% and 13% in 2017.

It has to be noted that the PwC report covers all mining companies, which includes the gold miners.

The rate of executive pay increase depended on the size of the company, with the large-cap miners giving median increases of 4.3% to R31.2m. Medium-cap companies awarded their CEOs median increases of 7.2%, taking the average up to R10.3m. The CEOs of small-cap mining companies enjoyed the highest median increases at 13% for an average payout of R3.6m.

Other top executives in the mining companies also enjoyed generous increases in their total guaranteed pay.

The PwC report doesn’t provide sectoral breakdown of the short-term bonuses that are guaranteed to bump up executive pay each year, but the overall picture is heartening for the pampered executives.

Executives can also look forward to generous payouts from their long-term incentive schemes. PwC provides no details on long-term incentives, which are so shockingly complicated they defy comparison, but a rule of thumb is that they add about 30% to the value of an executive’s remuneration.

So when it comes to executive pay, there’s no sign of difficult times in the mining industry. Of course it could be that gold miners are out of step and their very survival is at stake. Or talk of widespread losses could be self-serving fear tactics ahead of wage negotiations.