Lower export ore prices and sales weigh on Kumba

Kumba Iron Ore expects full-year earnings to drop by as much as 48%, mainly due to the lower average realised free on board (FOB) export ore price and a 2% decrease in sales volumes.

The group said in a statement on Thursday that headline earnings for the year to end-December were expected to be between R11.745bn and R12.995bn, or R36.60-R40.50 per share, a decrease of between 43% and 48% from the previous year.

Basic earnings for the period include the reversal of an impairment on the asset value of the Kolomela cash-generating unit in 2022. The impairment reversal is due to a revision in the forecast production volume profile of Kolomela as part of the company’s business reconfiguration plan to optimise value considering the current rail capacity.

As a result, basic earnings for the period are expected to be between R13.817bn and R15.287bn, or between R43.06 and R47.64 per share, a decrease of between 33% and 39% from the comparative period.

The group reported that despite rail performance deteriorating by 2%, Kumba’s production and sales for the full year were within guidance of 35-million to 37-million tonnes and 36-million to 38-million tonnes, respectively.

Production of 35.7-million tonnes was consistent with performance in 2023 and closely matched the ore railed by Transnet of 35.6-million tonnes. Due to the challenging rail performance during the year, sales ended the year at 36.3-million tonnes.

Production in the fourth quarter increased by 8% to 7.8-million tonnes.

“Kumba continued to focus on operational excellence and strengthening its safety performance, while working with government and Transnet to improve logistics performance,” said CEO Mpumi Zikalala.

“Consistent with our reconfigured business plan, we delivered production in line with Transnet’s logistics capacity.”

Ore railed to Saldanha Bay Port decreased by 8% compared with the third quarter, due to the planned 15-day annual maintenance shutdown and train derailments after the reopening of the Ore Export Channel (OEC).

To maintain a balanced and efficient value chain, finished stock at the mines was drawn down and production reduced by 17% compared with the third quarter, while sales increased by 1% to 9.1-million tonnes.

“Kumba, as part of the Ore User’s Forum (OUF), worked closely with Transnet to prepare for the annual maintenance shutdown in October 2024 and good progress was made in upgrading 90km of rail infrastructure which allowed speed restrictions to be lifted on approximately 50km of the OEC,” she said.

In parallel, work by the OUF and Transnet is under way to convert the outcomes of the independent technical assessment into a multiyear ore corridor restoration programme of focused projects to restore the OEC to full capacity.

Lower iron ore prices continued to reflect subdued steel demand, coupled with an increase in iron ore supply, with strong steel exports and economic stimulus support in China providing a partial offset, Kumba said.

Kumba achieved an average realised price of $92 per wet metric tonne (wmt) for the year, 3% above the benchmark price of $89/wmt.

“On the project front, the execution of the ultra-high-dense-medium-separation technology (UHDMS) project has recommenced and is progressing according to plan. In line with our disciplined capital allocation approach, the balance of the UHDMS project will be implemented over a five-year period ending in 2029,” she said.

The project is aligned to Kumba’s premium product strategy and supports the optimal use of available rail capacity.

“The outlook for Kumba’s production for the period 2025-2027 has been updated, subject to Transnet’s logistics performance. We remain committed to the process of working in partnership with government and Transnet to restore the OEC and while there are signs of progress, the logistics issues will take some time to resolve,” she said.

Kumba’s 2025 production is expected to be between 35-million and 37-million tonnes. In 2026, due to the main shut down of the dense media separation plant and tie-in of the UHDMS plant, production has been revised to 31-million to 33-million tonnes, with the balance of the saleable product expected to be supplemented by finished stock at Sishen. 
Thereafter, in 2027, production is expected to increase to 35-million to 37-million tonnes.

“The network statement released by Transnet at the end of 2024, which sets out the rules of engagement and the access charges, is a significant step forward in terms of the liberalisation of the SA railway industry. Kumba is engaging with Transnet on how the network statement will be implemented in relation to the current contractual agreements for both Sishen and Kolomela,” Zikalala said.

mackenzie@arena.africa