Kumba’s Interim Dividend at 98 Percent of HEPS

JOHANNESBURG – JSE-listed Kumba Iron Ore has declared a dividend of R30.70 a share for the six months ended June 30, which adds up to R9.9-billion in shareholder returns.

CEO Themba Mkhwanazi on Tuesday said the payout represents a ratio of 98 percent of headline earnings per share (HEPS), above the company’s base dividend target range of between 50 percent and 75 percent of HEPS.

HEPS for the reporting period were R10.1-billion.

Kumba has paid out around R39-billion to shareholders since its JSE listing in 2006, while achieving 190 percent share price growth between then and now.

Mkhwanazi attributed a threefold increase, or 189 percent, in earnings before interest, taxes, depreciation and amortisation (Ebitda) to R20.1-billion for the period under review to the company’s ‘value over volume’ strategy.

Kumba reported Ebitda of R7-billion in the corresponding period of the prior financial year.

He explained that the strategy centred around eliminating fatalities, enhancing margins, extending the life-of-mine (LoM) of its operations and being the employer of choice.

Further, Kumba achieved a 57 percent increase in its average realised free on board (FOB) iron price to $108/t of iron-ore, reflecting strengthening iron-ore prices and quality premia, as well as the marketing and beneficiating capability of the team, Mkhwanazi said.

Kumba achieved a $69/t average realised FOB iron-ore price in the prior corresponding period.

“We are progressing towards our margin enhancement target of $10/t. Our operational efficiency increased to 67 percent, which, together with the company’s focus on cost optimisation, delivered savings of R460-million, underpinning an Ebitda margin of 58 percent and a break-even price of $32/t.”

Kumba is beyond halfway on delivering on its targeted savings of R700-million for the full financial year. By 2022, Kumba wants to achieve a cumulative R2.6-billion in savings.

The financial victories of the company were achieved despite lower production volumes in the reporting period.

Iron-ore production decreased by 11 percent year-on-year to 20.1-million tonnes in the reporting period. This was largely owing to unscheduled plant maintenance that addressed blocked crushers, crane issues and conveyor reliability, mostly in the first quarter of the year, at the Sishen mine.

Mkhwanazi noted that saleable production at Sishen had improved by 12 percent quarter-on-quarter in the second quarter.

Further, lower production at Sishen had been offset, to some extent, by a nine percent year-on-year increase in production to 38-million tonnes at the Kolomela mine.

Nevertheless, the company has revised its yearly production guidance downward to between 42-million and 43-million tonnes, from the initially guided 43-million to 44-million tonnes.

Meanwhile, the company is progressing its resource development plan and feasibility study on ultrahigh dense media separation technology at Sishen’s processing plant, which will extend the mine’s life to 20 years, from the current 14-year mine life.

Mkhwanazi highlighted that the feasibility study would be concluded in the last quarter of the year. He explained that the technology would enable the company to deliver high-quality product, but at a lower feed cutoff grade, allowing the company to treat material which Kumba would have previously stockpiled.

The technology is expected to have a positive impact on strip ratio and on the LoM at Sishen.

At Kolomela, the company is undertaking exploration at the Ploefgontein and Heuningkrans deposits, which was incorporated into Kumba’s mining right. The exploration programme aims to add 85-million tonnes to Kumba’s iron-ore resource.

CFO Bothwell Mazarura said he expected a strong iron-ore price of between $95/t and $100/t to continue in the second half of the year.

He said the strong price would be on the back of increased demand from China, whose own production has decreased over the last few years.

Additionally, Mazarura said Kumba was benefitting from the 45-million-tonne-a-year supply gap caused by a tailings dam collapse at one of Vale’s mines in Brazil earlier this year.

Vale has indicated that it would only ramp up to its targeted 380-million-tonne output in about three years’ time.

In addition, Mkhwanazi noted that Cyclone Veronica had impacted on diversified miners BHP and Rio Tinto’s iron-ore shipments from Australia, which also provided increased supply opportunities for Kumba.

Kumba marketing executive Timo Smit during a media call on Tuesday said Kumba was carefully keeping an eye on the future prospects for Chinese demand, considering that country’s economic stimulus plan but also the possible impact of its trade war with the US.

“Certainly for the second half of the year, we are bullish on prices. There will be pressure from 2020 and beyond, but for now, we have ramped up our price expectations for this year.” Mining Weekly