Kumba flags a big surge in its headline earnings

KUMBA Iron Ore yesterday flagged a 44 percent year-on-year surge in headline earnings during the year ended December 2020 on the iron ore price rally, raising expectations of a bigger dividend payout.

Pretoria headquartered Kumba, which operates the Sishen and Kolomela mines, reported a headline earnings jump of between R21.83 billion and R23.4bn during the year under review.

The Anglo American plc subsidiary said headline earnings per share would be between R68.07 and R73.06, an increase of between 34 and 44 percent from the previous year ended December 31, 2019.

“The increase in earnings for the period is largely attributable to the higher average realised free on board (FOB) export ore price and a weaker rand/US dollar exchange rate, relative to the comparative period,” said Kumba in a production and sales report for the fourth quarter ended December 2020.

The full year average realised FOB export price was $115 (R1 743) a ton in 2020, compared to the $97 a ton Fe benchmark price a year earlier.

Kumba said the higher price reflected its high quality iron ore product, and that it had achieved an average lump:fine ratio and product quality of 69:31 in 2020. However, annual production fell by 13 percent to 37 million tons in 2020 from 42.3 million tons a year earlier due to the impact of the Covid-19 pandemic.

Kumba said higher rainfall combined with operational headwinds also had a knock on production during the December quarter. Output for the quarter ended December fell by 19 percent to 9.6 million tons, with production from Sishen falling by 22 percent to 6.5 million tons and Kolomela production decreased by 13 percent to 3.1 million tons.

“The decrease in production was largely driven by higher than average rainfall, which has continued into 2021 and operational issues at the Sishen crusher and Kolomela plant. This coincided with annual rail and port maintenance that took place in the fourth quarter, compared to the third third quarter of 2019,” Kumba said, adding that production volumes were supplemented by finished stock, which decreased to 4.8 million tons from 5.4 million tons at September 30, 2020.

Total annual sales fell by 6 percent to 39.7 million tons, largely driven by an 84 percent decline in domestic offtake. Sales to steel giant ArcelorMittal South Africa (Amsa) fell to 400 000 tons compared to 2.2 million tons a year earlier after the winding down of Amsa’s Saldanha Steel operations.

Export sales volumes of 39.3 million tons were 2 percent lower than 40 million tons recorded in 2019.

Portfolio manager at FNB Wealth & Investments, Wayne McCurrie, said at the beginning of 2016 Kumba’s total market capitalisation was R8.1bn. “The market cap now is R200bn, roughly the same as 2013. This is the nature of a commodity company,” McCurrie said.

Kumba Iron Ore shares closed 1.70 percent lower at R614.15 on the JSE yesterday.