KUMBA EXPANSION PLAN
Iron ore supplier unveils vision of 3 horizons, plans further expansion
KUMBA Iron Ore, a supplier of high-quality iron ore to the global steel industry, yesterday unveiled a strategy that will include the acquisition of assets as the company posted improved financial and production results for the 12 months to December.
In the strategy, Kumba envisages three horizons. The first comprises the company aiming to realise the full potential of its assets and includes the consolidation of its 1 500 suppliers and service providers.
In the second horizon, Kumba plans to increase beneficiation and exploration in the Northern Cape.
In the third horizon, the company aims to grow and explore value accretive growth.
Unpacking the “strategic horizon”, Kumba chief executive Themba Mkhwanazi said in the medium- to short-term the focus was to improve margins, extend the life of mines and root out fatalities.
“We will also be looking at taking advantage of strategic opportunities as long as they are value accretive and make sense for us,” said Mkhwanazi, adding that the strategy would help to secure jobs.
Kumba, which employs 5 500 people, declared a final cash dividend of R15 a share, with a total dividend of R30.97 a share.
Headline earnings increased 12 percent to R9.7 billion from R8.7bn in 2016, mainly as a result of the 11 percent strengthening in the average realised iron ore export price to $71 (R848) a ton from $64 a ton in 2016 and a 6 percent higher total sales volume.
Attributable and headline earnings for the year were R38.63 and R30.47 a share respectively, compared with R26.98 and R27.30 in 2016.
Revenue increased by 14 percent to R46bn.
The company’s production guidance for 2018 is between 44 million and 45 million tons of iron ore and a capex of between R3.9bn and R4.1bn.
Production was 8 percent higher at 45 million tons and total sales increased by 6 percent to 44.9 million tons.
Kumba, a subsidiary of Anglo American, has benefited from the rebound in the iron ore price in the past years.
Seleho Tsatsi, an investment researcher at Anchor Capital, said the business had managed to keep the absolute rand operating expense number flat despite growing production by 8 percent.
Because a big portion of the cost base is fixed, that production growth had a positive effect on unit costs.
He estimated that there would be about R28 a share of net cash after they’ve paid this dividend.
“They haven’t formalised the dividend policy to a payout ratio, but there’s potential for a meaningful proportion of earnings to be paid out,” Tsatsi said. “From a valuation standpoint, it does look a bit stretched at the moment.
“The share is trading at a premium to peers. Part of that may be due to the lump premiums it’s currently receiving.
“Given the reforms happening in China with regards to pollution, there is the potential for the premium for high-quality iron ore to structurally increase going forward. And Kumba’s iron ore quality is high compared to other producers,” he said.
The company expected an iron ore price of between $60 and $70 a ton in 2018.
“It will be a tale of two halves. In the first half, we will see good investment in China’s property industry. It will come off in the second half,” Tsatsi said.
Kumba shares rose 1.33 percent to close at R346.28 on the JSE yesterday.