Waiting for a dividend
Kumba has had a massive run as the price increased some five-fold off the lows of late 2015.
The reality is that the bind the company found itself in, and which saw the dividend being cancelled, is likely over. Iron ore prices look set to settle around $50 and this will massively help cash flow. More importantly, Kumba has optimised operations, which now sees it only mining the higher ore bodies. This will improve yields and also boost earnings and cash flow.
I don’t see the stock moving much higher, but a return of the dividend should help the company hold its current price levels and the dividend will be a decent reward for holding on. The big risk here is the exit by Anglo American, which wants to dispose of its 69.7% stake in the company. This would most likely be done via an unbundling to shareholders, but that has some challenges as many Anglo shareholders are registered in London, where Kumba does not trade. Further, any unbundling could put short-term pressure on the share as those receiving Kumba sell their stake.
Kumba's Kolomela mine in Postmasburg, Northern Cape