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Rinse and Repeat: Kumba flags Transnet woes as H1 earnings fall

Rinse and Repeat: Kumba flags Transnet woes as H1 earnings fall
Kumba CEO Mpumi Zikalala. (Photo: Dwayne Senior / Bloomberg via Getty Images)

Kumba Iron Ore has once again flagged the woes of state-run logistics company Transnet as it unveiled a fall in interim earnings, a decline mostly attributable to lower prices. Kumba’s locust spraying programme has helped keep the rails clear of the pests, which can cause derailments when they swarm, but trains are still coming off the tracks.

“Logistics is still a challenge,” is how Kumba CEO Mpumi Zikalala summed up the Transnet situation on a media call with journalists after the release of the Anglo American unit’s interim results.  

That is indeed the case, and amid the arid ochre landscape of the Northern Cape where Kumba operates, the challenges include locust infestations and the more typical South African dilemma of crime and gangsterism.  

“Ore railed to port decreased by 3% to 18.4 million tonnes (Mt) with collaborative work between the Ore User’s Forum (OUF) and Transnet on the maintenance of the Iron Ore Export Channel (IOEC) and the locust spraying programme, partially mitigating some of the challenges,” Kumba said in its earnings booklet. 

The locust spraying programme is aimed at swarms of the insects which can carpet the rail line in midsummer. When the critters are crushed by trains, they release an oily substance that can trigger derailments. 

Read more in Daily Maverick: Let us spray: Kumba Iron Ore confronts biblical plague of locusts to boost rail performance 

That programme seems to be working and is set to swing back into action when the swarms form again in summer. But with South Africa’s rail network, it is often a case of one step forward, two steps back.  

Kumba said that its OUF work and spraying programme “… were more than offset by derailments resulting in the line being closed for seven days, which coincided with incidents of cable theft in June 2023. Security has been put in place with drones monitoring the IOEC line in the short term and we are working on a longer-term security solution with Transnet.”  

Zikalala told Daily Maverick that the derailments were a consequence of the “condition of the railway track”. 

She also elaborated on the additional security measures put in place in response to the incidents of cable theft in June.  

“We added additional security in terms of people and drones and helicopters, and what is positive is that yielded arrests of some people as well,” Zikalala said.  

The drones will also come in handy when locust season arrives, she said.  

Transnet and its foibles remain a major focus of the board.  

“The Board has considered the group’s cash flow forecasts for the period to the end of 31 December 2024 under base case and downside scenarios, with consideration given to the uncertainty of the impact of the Transnet rail constraints and the conflict in Ukraine on both the wider macroeconomic environment and the group’s operations,” Kumba said.  

This means that two of the biggest threats to cash flow over the next 18 months are seen coming from Transnet and Russia’s war in Ukraine.  

“In the scenarios modelled, the group maintains sufficient liquidity throughout the period of assessment without the introduction of further mitigating actions,” Kumba said.  

This means that the company does not envision any big workforce reductions or anything along those lines.  

On the labour front, Kumba announced that it had recently concluded a three-year wage deal with its unionised employees, providing its operations with a degree of stability.  

The company’s earnings for the six months to the end of June fell, reflecting a sour global environment for the commodities sector broadly.  

Ebitda declined by 14% to R19.8-billion and headline earnings fell by 17% to R9.7-billion. It will pay 75% of its earnings in an interim dividend of R22.30 per share. DM

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