Rail crisis forces Kumba to cut more jobs
The decision taken by global mining giant Anglo American in December to slash capital expenditure by $1.8bn until 2026 in response to a plunge in commodity prices has seen Kumba become the latest company in the stable to announce job cuts as it strives to cut costs.
Kumba on Tuesday said 490 workers might lose their jobs, and contracts with service providers were being reviewed as the iron ore producer sought to cut costs by at least R2.5bn this financial year.
Kumba, like most mining houses, is also facing logistics headwinds as state-owned freight rail operator Transnet continues to falter.
The decision by Kumba to restructure the business comes just a day after sister company Anglo American Platinum (Amplats) embarked on a similar process, with more than 3,700 jobs on the line, as it attempts to save about R5bn in costs.
Kumba announced it would undertake a contractor review process that might affect 160 service providers as part of plans to revise its production outlook for the period from 2024 to 2026 downward by about 15% in response to prevailing market conditions.
These measures will contribute to R2.5bn-R3bn in cost savings in 2024.
According to Kumba CEO Mpumi Zikalala, the 490 jobs that were likely to be cut during the retrenchment process and the 110 jobs that were cut in a 2023 restructuring process brought the total number of job losses envisaged to 600, representing approximately 10% of the Kumba workforce.
Zikalala said the business, along with other members of the Ore Users Forum, had suffered significant losses due to the deterioration of rail services.
“We recognise that this is a challenging time for all our people. The decision to potentially reconfigure our business has not been taken lightly but it is necessary if we are to remain globally competitive to sustain our mines and those who depend on them for the long term, including our employees, service partners, communities, local businesses and our government through our contribution to the fiscus,” Zikalala said.
“As part of the Anglo American group, we are developing an integrated social response plan that is intended to help mitigate the socioeconomic impact on affected employees, contractors and communities.”
In a trading update issued earlier in February, Kumba said it 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.
Ore volumes railed to Saldanha Bay decreased by 19% in the fourth quarter of 2023 from the third quarter, resulting in onmine stockpiles increasing to unsustainable levels.
According to Zikalala, the company had to slow down production in the fourth quarter of 2023. This led to overall production for the year decreasing by 5.3% to 35.7-million tonnes (in line with revised guidance of 35million to 36-million tonnes).
Sales increased 1.6% to 37.2
million tonnes relative to 2022, when industrial action at Transnet disrupted rail and port operations, but this was still down from the roughly 40-million tonnes of export sales in 2020 and 2021.
“We are committed to supporting key measures by the national logistics crisis committee to improve logistics performance and [are] encouraged by the cabinet’s approval of the Freight Logistics Roadmap that will allow for greater and muchneeded private sector participation in the logistics sector.
“Logistics challenges will, however, take some time to resolve and unless we act now to align our production and cost base to current logistics constraints, this business will not have the resilience it needs to deliver across its stakeholders,” said Zikalala.
NO QUICK FIX
In response to rail challenges, the group has revised its production guidance for the years 2024 to 2026 to between 35million and 37-million tonnes a year, down from previous figure of about 42-million tonnes.
Given the required change to its production footprint in the medium term, Kumba said it also needed to reconfigure the size of its workforce.
“Rail services have stabilised but at a lower base than before and it requires significant investment to fully restore capacity. This is not a quick fix; it will take a couple of years,” she said.
The reforms being implemented to solve the rail crisis include bringing in private partners, on a concession basis, on some of the Transnet lines.
Zikalala said they fully supported this given that no single party could resolve the full extent of the challenges facing Transnet. “That is why there is a need for private participation. We believe this should be through concessioning for the iron ore export channel.”
If there was an earlier recovery in rail services, Kumba had retained the flexibility to ramp up production in response to this, she said.
Despite these production challenges the group had, however, benefited from higher iron prices in the latter part of 2023.
In its annual results for 2023 published on Tuesday, the group said its average realised price for 2023 was $117 per wet metric ton, 15% above the benchmark price and slightly up from the average price of $113 in 2022.
Due to the higher prices and weaker rand-dollar exchange rate, which had a favourable effect on costs, headline earnings per share for the year rose 26% to R70.80. Earnings before interest, tax, depreciation and amortisation were up 22.5% to R45.7bn.
Kumba will pay a final dividend of R24.20 a share, which brings the total dividend for the year to R48.80, up from R45 a share in 2022.
Kumba’s share price on the JSE ended down about 2% at R548.93 per share. The share has lost 9% of its value since the start of 2024 but it has gained about 1.6% over the past 12 months.