Locusts and Transnet a plague on Kumba

State-owned ports and rail operator Transnet’s poor service cost Kumba Iron Ore R10bn in earnings last year.

Net profit of the Anglo American subsidiary and the largest iron ore producer in SA plunged 55% to R19.7bn from R43.7bn in 2021, while headline earnings per share fell 46% to about R56 for the year to end-December 2022.

A drop in global iron ore prices and disruption of Transnet’s rail and port services were the major causes of earnings and profit falling, the company said when posting annual results on Tuesday.

Kumba CEO Mpumi Zikalala told journalists that the effect of Transnet’s dysfunction on Kumba was “significant”.

“Just in the fourth quarter the impact was about R6.5bn. For the year the impact was over R10bn,” she said.

Apart from a strike at Transnet, rail performance was affected by equipment breakdowns and locust outbreaks in the Northern Cape.

Rail capacity was affected predominantly by derailments and a weather-related event in the first quarter, while low availability of train wagon sets led to longer turnaround times. This all contributed to rail performance reducing to 80.3% of Kumba’s contracted tonnage.

Strike

Transnet workers affiliated with the United National Transport Union and the SA Transport and Allied Workers’ Union downed tools for 12 days in October, crippling rail and port operations and prompting Transnet to declare force majeure.

Zikala said that while rail performance on the iron ore line declined, the company is pleased with the collaboration announced by the Minerals Council SA and the Transnet board to work together on the recovery plan for all heavy haul lines. “We are seeing greater quality collaboration, but there is clearly more work that needs to be done,” she said.

One near-term step to improve performance is the support Kumba is providing to mitigate the threat of locust outbreaks. It is helping the agriculture department to manage locust outbreaks by procuring 15,000l of pesticides and providing the services of a helicopter to spray areas of the iron ore export corridor and farmland seasonally affected by locusts from January to April.

Production

In its annual report for 2022, Transnet said it had to suspend mainline operations on the ore corridor for two-and-a-half days after more than 100km of line was hit by a huge swarm of locusts. Trains in the affected section could not move because wheel slippage was causing axles to lock, Transnet said.

Kumba’s total production for the year fell 8% to 37.7-million tonnes, ore railed was down 9% at 35.9-million tonnes and export sales fell 9% to 36.6-million tonnes.

Global iron ore prices dropped 27% to $100/tonne (wet metric tonnes) as commodity markets came under pressure. In steel markets, this was driven by the secondary effects of the extended Covid-19 lockdown in China and Europe’s energy crisis.

Kumba achieved an average realised free-on-board price of $113/tonne, 13% above the equivalent benchmark iron ore price, for its high-grade ore.

Eskom’s load-shedding has not had a significant effect on production to date, Kumba said. “We have minimised the impact on production by rescheduling our work according to load curtailment requirements. However, managing our operations around the availability of power supply represents an increasing risk for our operations.”

Due to the drop in earnings the dividend for 2022 will be 56% less than the previous year. The company will pay a total dividend of R45 per share, compared with the 2021 dividend of R103 per share.

erasmusd@businesslive.co.za