Dismal prices dent Kumba’s earnings
KUMBA Iron Ore, a unit of diversified mining firm Anglo American, has forecast a disappointing set of financial results for the six months to June amid falling iron ore export prices.
Both headline and basic earnings would drop by 20 percent to R1.302 billion in the six months to June, compared with the comparative previous period, the country’s biggest iron ore producer said in its trading statement on Friday.
Iron ore prices have softened by about 47 percent last year compared with the 2013 closing prices.
Kumba said headline earnings a share and earnings per share were likely to be R4.06, 20 percent lower from the same period last year.
“The decrease in earnings is primarily attributable to the significant decrease in export iron ore prices during the period,” the company said.
Kumba reported headline earnings and basic earnings of R6.505bn and R6.51bn in the six months to June last year. Headline earnings a share and basic earnings a share for the period were R20.28 and R20.30, respectively.
Following news of the forecast, Kumba shares declined by 3.49 percent to close at R161.55 on Friday.
Kumba’s earnings were expected to be more than 20 percent since the price of iron ore averaged $104 a ton, as the exchange rate was R10.68 to the dollar, Stephen Meintjes, an Imara SP Reid analyst, said in a note on Friday.
“Our model indicates the market is valuing the stock on a long-range iron ore price in excess of $60 a ton, which we believe is realistic, making the stock a hold for the long term.
“In the short term, however, there may well be disappointments at the upcoming interim trading update and more active investors might wish to lighten should the rally proceed any further,” Meintjes said in the note.
Iron ore is an important ingredient in the production of steel. Kumba has been adversely affected by the weak price environment, and has reviewed its business in a bid to cope.
In addition, the company has cut head office staff by 40 percent and reduced its capital expenditure last year and is also reviewing the future of its Thabazimbi mine in Limpopo, which it could close down.
Operations at Thabazimbi, which opened in 1931, have been suspended due to the weak price, and the mine incurred a R439 million impairment charge last year for de- ferred stripping.
Kumba owns 74 percent in Sishen Iron Ore Company (SIOC), while the balance is owned by Exxaro, the SIOC Employee Share Participation Scheme and the SIOC Community Development Trust.