Kumba holding onto its cash

Warren Thompson

Kumba’s cautious play of continuing its dividend suspension is understandable, but is it warranted? Given its vulnerability in the portfolio of the mothership, is the stockpiling of cash setting the company up for its eventual sale to a BEE consortium facilitated by the Public Investment Corporation?

Kumba announced an excellent set of results on Tuesday for the year ending December 2016 that showed phenomenal cash generation on the back of lower costs and higher realised iron ore prices. Having started 2016 with net debt of R4.6 billion, the company was sitting on net cash of R6.2 billion at the end of the year, which had grown to R8.2 billion (post financial year end) by the end of January.

This suggests that, at current prices, Kumba is capable of generating free cash flow of some R2 billion a month.

It generated R40.15 billion in the year, resulting in headline earnings per share of R27.30 (up 131%) and operating profit of R17.2 billion. Kumba said last week it had reached a final R2.7 billion settlement, a fine it will pay in full next month.

Now analysts are queuing up to ask incoming CEO Themba Mkhwanazi why there was no resumption in the dividend. “We are taking a cautious stance in the short to medium term to ensure we are not geared (carrying any debt),” he said.

Kumba is still a business Anglo wants to sell. But its share price shot the lights out in 2016 (up 286%), so any interested parties would need at least R38 billion. It raises the question: is Anglo stockpiling the cash to facilitate a transaction?

Picture: Bloomberg WHEEL TURNS A technician maintains a massive ore-moving truck at Sishen. What a difference a commodity cycle makes. From a loss a year ago, Kumba is now sitting on a massive stock pile, but is being very hesitant about what to do with all that lolly.