Return to dividend boosts Kumba
Kumba Iron Ore’s share price spiked by 17% on 25 July when the company said it would resume dividend payments for the first time in two years thanks to higher commodity prices and improved productivity. Kumba, which operates the Sishen and Kolomela mines in the Northern Cape, declared an interim dividend of R15.97 a share, helping majority shareholder Anglo American to also restart its dividend.
Kumba’s revenue increased by 22% to R21.5bn in the six months to end June, driven in part by a 23% increase in production to 21.9m tonnes. Headline earnings per share (HEPS) jumped 53% to R14.42. (Also see page 19.)
This was driven in part by higher prices, with the benchmark iron ore price reaching $95.05 a tonne in February, the highest level since August 2014. Iron ore prices were trading at around $70 a tonne at the time of writing on 1 August. Kumba warned that it expected lower prices in the second half of the year on the back of a “tempering in steel demand”. It said rising iron ore stock levels at Chinese ports, combined with a number of iron ore projects coming on line, is anticipated to “put pressure on iron ore prices during the next six months”.
How to trade it:
Go short: Kumba broke out of its 18-month bull trend in May, but held at 13 300c/share. It regained upside and consolidated before gapping upwards on 25 July. Upside above 20 600c/share would be a bullish sign – Kumba would return to its previous uptrend. But because gaps are usually closed, Kumba may retrace to fill that gap. If it fails to hold at 17 500c/share, it could fall back towards 13 300c/share.
Go long: Support retained at 17 500c/ share would increase the chances of Kumba resuming its previous bull trend. If so, go long above 20 600c/share, as upside towards 25 835c/share could then follow. ■
Haulage operations in the Leeufontein pit at the Kolomela mine near Postmasburg in the Northern Cape.