A clump of iron ore from a mine. Picture: REUTERS
A clump of iron ore from a mine. Picture: REUTERS

Anglo American subsidiary Kumba Iron Ore dropped the most in more than two months after saying its first-half earnings probably fell more than a fifth, hurt by a stronger rand and weaker prices for iron ore.

The JSE-listed shares dropped 5.3%, the most since the middle of April, after Kumba said in a trading statement on Monday that earnings for the first half of the year were likely to be at least 20% lower than for the same period in 2017.

This may signal a similar fate for other South African producers Assore and Assmang, an analyst said.

Headline earnings and basic earnings for the period to June 30 may be at least R921m and R917m lower, respectively, than for the comparative period in 2017, Kumba said.

Headline earnings per share and earnings per share are likely to be lower by R2.88 and R2.87, respectively, Kumba said.

Improving efficiencies

Improving efficiencies and cost cuts were probably "more than offset" by a stronger rand and lower iron ore prices.

Derailments on Kumba’s iron ore export channel— the railway linking its Northern Cape mines to a devoted iron export facility at Saldanha Bay — contributed to lower earnings, according to the company.

The Kumba share price closed at R286, pushing its decline this year so far to 25%, compared with a 9.4% gain for the JSE’s resources index. The company has a market value of R92bn, down from R199bn in April 2013.

Luvuyo Booi, an equity analyst at Noah Capital Markets, said the revised forecast was worse than he expected, attributing that to a stronger rand in the period under review. He had forecast a drop of 10% to 13% in earnings.

The company’s headline earnings and earnings for the first half of 2017 were R4.6bn and R4.58bn, respectively. Kumba’s results last year were boosted by higher metal prices and sales volumes.

In the first half of last year the rand averaged R13.21 to the dollar and strengthened this year to R12.19, said Booi. The iron ore price in the previous year was on average about $72 a tonne, compared with $69 this year.

Booi said he anticipated that the share price would fall further on Tuesday.

Kumba’s financial results for the six months ended June 30 will be released on July 24.