Logistics-hit Kumba declares dividend from cash pile

Kumba Iron Ore declared a large interim dividend on the back of a new policy governing returns to shareholders, but its underlying profit and sales struggled in the period with logistics, a strong rand and global iron ore prices.

Kumba reported a dividend of R14.51 per share for the six months to end-June, including a one-off top-up on top of its new policy of returning between 50% and 75% of headline earnings to investors.

Headline earnings for the period were R2.98-billion, down from R4.6-billion a year earlier.

Profit slipped to R3.85-billion from R6-billion as revenue fell by 9% to R19.5-billion.

A drop of $2 a ton in realised iron ore prices and higher freight charges contributed to the lower revenue, as did a stronger rand.

Operating costs were 4% higher at R14-billion.

Despite the market headwinds, combined with difficult logistics, Kumba’s net cash position was R11.7-billion, down from R13.5-billion. After the interim dividend is paid, it will be closer to R5-billion.

Of overarching concern to the Kumba board is the logistics side of the business, on the railway lines connecting its Sishen and Kolomela mines in the Northern Cape to the Saldanha harbour on the West Coast.

Derailments and adverse weather at the port meant Kumba could not sell about 2 million tons of ore, forfeiting about R2-billion in revenue, said executive head of marketing and seaborne logistics Timo Smit.

Instead of stockpiles of about 2.4 million tons at both mines, the total was now 4.8 million tons, making up the bulk of the 6.2 million tons of unsold material Kumba has waiting for sale in SA, he said.

Kumba chief executive Themba Mkhwanazi said there was a recovery plan under way with Transnet, the operator of the railway line, after four derailments so far this year.

“We haven’t seen derailments of late but we are still experiencing some disruptions on the line with equipment failures.”

Asked whether Kumba’s management was confident these issues would be resolved during the second half of the year, allowing Kumba to reduce its stockpiles, Mkhwanazi said: “We remain concerned”.

If the excess stock could be delivered to the port and onto ships, it would be “easily” sold, said Smit. “It all depends on the success of Transnet’s recovery plan.

“We are also concerned that during the second half of the year there will be capital refurbishment programmes. We face seven weeks of single loading so the port volumes will come under pressure,” he said.

Kumba has lowered its fullyear sales guidance to between 42 million and 44 million tons, from between 44 million and 45 million tons, with a similar reduction in production.

If excess stock could be delivered to the port and ships, it would be ‘easily’ sold