Rail woes to cost Kumba billions

Even as Africa’s largest iron ore miner expects a near tripling of interim profit due to sharply higher prices for the main steel ingredient and improved exports, it remains concerned about SA’s rail network.

JSE-listed Kumba Iron Ore, an Anglo American subsidiary, dropped its full-year sales guidance by 1-million tonnes because of rail constraints linking its mines to Saldanha harbour and adverse weather at the start of the year.

The 1-million-tonne reduction in sales based on the average price in the first half of the year of $220/tonne equates to a loss in revenue of R3.2bn and goes a long way to explain the frustration bulk exporters have with Transnet.

The Minerals Council SA has, along with other large business organisations, flagged inadequate service on rail and in the ports as key bottlenecks for

the economy. They have urged the state to accelerate private sector participation in these monopolies.

Transnet has blamed a high level of theft of overhead power cables, signalling and tracks.

It is working with the private sector to urgently implement plans to thwart these activities.

The government is talking about bringing private operators onto the railways and into harbour operations as part of its plans to revive SA’s moribund economy by introducing greater efficiencies and productivity in its logistics network.

HIGHER EARNINGS

Kumba updated the market on Tuesday on what to expect when it reports its six-month results to end-June on July 27, advising investors that basic and headline earnings could be as much as 182% higher than the same period a year earlier.

Basic and headline earnings of R22.77bn-R23.7bn were forecast for the period.

“The increase in earnings for the period is largely attributable to higher average realised FOB [free on board] export iron ore prices and higher total sales volumes, partially offset by the stronger rand-dollar exchange rate, relative to the comparative period,” Kumba said.

It produces high-quality iron ore from its Sishen and Kolomela mines in the Northern Cape, fetching a healthy premium to the prevailing spot prices. In the interim period, Kumba realised an average $220 per dry tonne of ore, compared with the market average of $166.

LOCUST SWARMS

Kumba produces a product called lumpy ore — fist-sized chunks of rock sought after by steelmakers. Nearly 70% of its sales comprise lumpy ore, which has a 64.1% iron content.

Export sales increased 5% during the interim period to 19.5-million tonnes.

Domestic ore sales, which go primarily to local steelmaker ArcelorMittal SA, fell to just 100,000 tonnes from 400,000 tonnes a year earlier.

The first quarter of the year was marred by constraints on the railway, including locust swarms making the tracks slippery, and heavy rain.

“Rail performance recovered in May and June, reflecting the benefit of interventions implemented to increase capacity and improve turnaround times,” Kumba said on Tuesday.

Equipment failures and shipping disruptions caused by bad weather at Saldanha in June saw export sales fall 10% in the second quarter of the year to 9.2-million tonnes from 10.3-million tonnes in the first quarter.

Kumba put its full-year sales at 39-million-40-million tonnes, a 1-million tonne drop compared with an earlier forecast. The fullyear production target was maintained at 40-million41-million tonnes.

TRANSNET HAS BLAMED A HIGH LEVEL OF THEFT OF OVERHEAD POWER CABLES, SIGNALLING AND TRACKS