Re­turn to div­i­dend boosts Kumba

Finweek English Edition - - Market Place - Ed­i­to­rial@fin­week.co.za

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.

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