SUP­PORT­ING EV­I­DENCE

Finweek English Edition - - INVESTMENT - Kumba Iron Ore

One of the trad­ing up­dates that hit the mar­kets re­cently was from Kumba Iron Ore, with HEPS ex­pected to be lower by some 12%-19%. This sug­gests that it is prob­a­bly pro­duc­ing more iron ore, al­beit at a lower USD price but helped by a weaker rand-dol­lar ex­change rate. In short, the up­date was bet­ter than I ex­pected. Tak­ing the mid­dle of the range and their re­cent div­i­dend cover of 1.2 times, sug­gests a div­i­dend of around 1 700c for the first half of the year. Take an­other 15% fall in earn­ings for the sec­ond half com­pared to last year and we should see an­other 1 700c div­i­dend at the same cover ra­tio. This leaves the miner with 3 400c for the year and a for­ward div­i­dend yield of around 10%. That re­mains a very chunky yield. The ar­gu­ment for Kumba has been that while iron ore prices are fall­ing, the com­pany is a very low­cost pro­ducer that can still pay great div­i­dends. The ev­i­dence seems to sup­port this idea.

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