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Kumba’s annual earnings derailed by Transnet, calls for private sector involvement in rail

Kumba’s annual earnings derailed by Transnet, calls for private sector involvement in rail
A logo on display outside Sishen mine, operated by Kumba Iron Ore, an iron ore producing unit of Anglo American plc, in Sishen, South Africa, on 24 August 2011. (Photo: Nadine Hutton / Bloomberg via Getty Images)

Kumba Iron Ore’s full-year earnings fell 46%, more than expected, as Transnet’s woes derailed the company’s ability to move its product to market. As a result, the Anglo American unit revised its production outlook lower for the next three years and called for the private sector to step in where the state is failing.

Kumba told the market early in February in a trading statement that it expected its headline earnings for the full year to fall “between 38% and 44%” from the previous year, which were sizzling. As it turned out, they tanked 46% to 56.19 rand. And Ebitda – earnings before income, taxes, depreciation and amortisation – slid 42% to R37.3-billion. 

The total cash dividend for the year decreased by 56% to R45 per share. Still, the bad news seems to have been mostly priced into the market. Its share price fell, but by a marginal 2% in late trade on Tuesday. 

The shambolic performance of state-run logistics company Transnet, and lower iron ore prices, were the main factors behind the fall in earnings. 

“Transnet’s poor logistics performance, including its two-week wage strike, resulted in ore railed to Saldanha port declining by 9% to 35.9 million tonnes (Mt). Finished stock increased to 7.8 Mt, limiting space for further production due to the high build-up of stock at our mines, while low levels of finished stock at Saldanha port contributed to a 9% decrease in sales volumes to 36.6 Mt,” Kumba said. 

State failure is a recurring theme among South African mining companies. Transnet, Eskom, worsening crime and insecurity, you name it – if the state is responsible, it’s failing, and the mining sector and wider economy are all paying a steep price. 

“Rail capacity was predominantly impacted by derailments and a weather-related event in the first quarter resulting in increased speed restrictions, while low availability of train wagon sets led to increased turnaround times,” Transnet said. 

“Industrial strike action, equipment breakdown and locust outbreaks further contributed to rail performance reducing to 80.3% of contracted tonnage.”


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Locust outbreaks? Things seem to be going downright biblical in the Northern Cape. But the overall challenge is clearly secular in nature. 

“Over the next three years, we will reset our production outlook to reflect lower expected Transnet rail performance, given the challenges faced in 2022,” Kumba said. 

And in her results presentation, Kumba CEO Mpumi Zikalala called for private sector involvement to keep the rail system from going off the tracks and to keep the ports afloat. 

“We believe private sector participation in the port and rail network is critical – this will benefit all stakeholders including government, emerging and established miners,” she said. 

In an interview with Business Maverick, Zikalala noted that given the nature of the commodity – iron ore is rather heavy – Kumba didn’t have the option open to coal producers of resorting to trucks. And for coal producers, that has only been a viable option because of prices – and the roads are suffering. 

“There are 869km of rail that we are looking at. And iron ore is heavy, relative to coal, so you could imagine the impact on various roads. And these are roads that are not designed for the amount of trucking that we are talking about,” Zikalala said. 

“And the other thing you have to look at is the increase in road fatalities. It’s not just a cost issue.” 

Unfortunately, geology has conspired to keep the iron ore far from the coast – distances in the Northern Cape, like its generally blue skies, are always big. Still, a competent rail operator should be able to rise to that challenge. And that’s what is lacking. DM/BM

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