Transnet’s continuing rail system woes force Kumba to cut output
SA’s largest iron ore producer, Kumba, had to “moderate” production rates in December in response to poor rail performance on the Transnet ore line that connects mines in the Northern Cape with the Saldanha Bay port.
Kumba said in a production and trading update on Thursday that production fell 26% in the fourth quarter of 2023 compared with the third quarter and was down 27% compared with 2022’s matching period.
“Following the completion of the annual logistics maintenance shutdown by Transnet in October 2023, rail performance challenges continued to place significant pressure on our value chain. Ore railed to Saldanha Bay Port decreased by 19% in the fourth quarter of 2023 compared [with] the third quarter, resulting in on-mine stockpiles increasing to unsustainable levels,” said Kumba CEO Mpumi Zikalala.
Total production for the year was down 5% to 35.7-million tonnes (in line with revised guidance of 35-million to 36million tonnes) “to align with constrained rail performance to draw down high mine stockpiles”.
Finished stock for the year fell to 7.1-million tonnes from 7.8-million tonnes in 2022, with most of the stock sitting at the mines and “suboptimal levels” of 0.6-million tonnes at the Saldanha Bay port.
The group increased sales for the year 1% to 37.2-million tonnes, but this was still down from the roughly 40-million tonnes of export sales in 2020 and 2021.
Zikalala said Kumba was committed to supporting work being done by the national logistics crisis committee to halt the decline in rail performance and improve the capacity of the ironore export channel.
“However, due to a significant amount of work required to turn the situation around over time, the logistics network is expected to remain constrained over the medium term.
“As a result, we have revised our production guidance for the three-year period, 2024 to 2026, to between 35-million and 37-million tonnes per annum,” she said.
In its “facts and figures” report for 2023 the Minerals Council SA said Transnet was not able now to fulfil its contractual obligations to customers because of poor operational performance.
The report, released this week at the Investing in African Mining Indaba in Cape Town, says the nameplate capacity of the iron ore line was 60-million tonnes a year. But at current rates Transnet was expected to have transported only about 55million tonnes in 2023.
Despite these production challenges the group benefited from higher iron prices in the latter part of 2023.
In the last quarter of 2023 iron ore prices strengthened on the back of tight market fundamentals, including low port inventories and demand supported by government stimulus announcements and steel exports from China.
Kumba’s average realised price for 2023 was $117 per wet metric tonne, 15% above the benchmark and slightly up from the $113 average in 2022.
Due to the higher prices and weaker rand/dollar exchange rate, which has a favourable effect on costs, the group expects headline earnings per share for the year to rise 18%31% on the previous year’s.