Cash-flush Kumba pays R9.7bn to shareholders
SA’s largest iron ore miner pours cash into shareholder returns despite a difficult year, fraught with logistical problems
Kumba Iron Ore paid a handsome dividend, returning all of its R9.7bn in annual headline earnings to shareholders despite a drop in profit.
Kumba, which is an Anglo American subsidiary and SA’s largest iron ore producer, reported post-tax profit of R12.7bn for the 12 months to end-December, down from R16bn the year before.
It reported a total dividend R30.24 per share after declaring a final dividend of R15.73 per share. The total dividend in the year earlier was R30.97 per share.
Kumba’s dividend policy is to return between 50% and 75% of headline earnings to shareholders. However, for 2018, the company returned 100%.
Operating expenses increased to R29.4bn from R25bn the previous year. Revenue fell by 1% to R45.7bn because of a 4% fall in sales stemming from logistical constraints, including seven derailments on the line linking the mines in the Northern Cape to the Saldanha port.
Iron ore prices increased by 1% during the year to $72 per tonne.
Kumba expects the global iron ore price to average $75 a tonne because of an estimated 40-million tonnes of iron ore from Brazil’s Vale not coming onto the market after a tailings dam burst stopped one of its mines.
Total production from the mines fell by 4% to 43.1-million tonnes from its Sishen and Kolomela mines in line with the logistical constraints on the railway line and planned refurbishment of ship loader at Saldanha. “Our flexible production enabled a timeous response to the rail constraints and to market demand for premium quality products,” said CEO Themba Mkhwanazi.
Export sales fell by 4% to 40-million tonnes.
“The decrease was as a result of a combination of missed sales opportunities due to derailments experienced, single loading due to the six-week scheduled refurbishment of a ship loader, and temporary closure of the Iron Ore Export Channel due to a truck colliding with a railway bridge in November 2018,” Mkhwanazi said.
Transnet, the rail and port operator, repaired the bridge spanning the railway line quickly and kept disruption to a minimum. The disruptions on the line meant volumes delivered to Saldanha fell by 3.3% to 40.6-million tonnes from 42-million tonnes in the previous year.
Bad weather at Saldanha and the use of a single loader for six weeks meant shipments fell to 40.3-million tonnes from 41.6-million tonnes. Local sales to SA consumers stayed steady at 3.3-million tonnes.
Kumba has implemented technology to ensure the iron ore content in its product increases to 64.5% from 64.1% on average, which achieves a premium price over the benchmark 62% iron ore content. It has also increased the production of lumpy iron ore to 68% from 66%, which is a premium product compared to the fine material making up the bulk of global iron ore sales. Lumpy ore achieved a $16 per tonne premium for the year.
Kumba ended the year with net cash of R11.7bn, down from R13.9bn the previous year. Cash from operations fell by 16% to R19bn.
Looking ahead, Kumba said it will produce up to 44-million tonnes in 2019, with sales in line with that target. It expects to spend between R2bn and R3bn on a new, ultra-high dense media separation plant in 2020, which will allow the company to treat relatively low-grade iron ore and increase the content to a saleable product.