Business Maverick

LOGISTICS CRISIS

Kumba warns that Transnet rail woes continue to ‘pressure value chain’, flags higher earnings

Kumba warns that Transnet rail woes continue to ‘pressure value chain’, flags higher earnings
A dumper truck carries excavated iron ore at the Sishen open cast mine, operated by Kumba Iron Ore. (Photo: Waldo Swiegers / Bloomberg via Getty Images)

Kumba Iron Ore said on Thursday that its unfolding rail challenges saw it send 19% less of its product to port in Q4 2023 than it did in Q3, and it further warned that ‘logistics capacity is expected to remain constrained over the medium-term’. But prices and rand weakness came to the rescue as it flagged higher earnings.

The costs of South Africa’s logistics crisis are mounting, and Kumba is the latest company to add them up.

“Following the completion of the annual logistics maintenance shutdown by Transnet in October 2023, rail performance challenges continued to place significant pressure on our value chain. Ore railed to Saldanha Bay Port decreased by 19% in Q4 2023 compared to Q3 2023, resulting in on-mine stockpiles increasing to unsustainable levels,” Kumba CEO Mpumi Zikalala said in a statement.

“Production rates were therefore moderated in December 2023 to alleviate this pressure. Consequently, production volumes decreased by 26% to 7.2 million tonnes (Mt) from 9.7 Mt in Q3 2023.”

Kumba, a unit of Anglo American, has been bedevilled by rail problems.

Mother nature has played its role with locust swarms — of all things — impacting volumes at times, as the critters release an oily substance when they are crushed en masse on the tracks that reduce traction.

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

But most of the challenges relate to Transnet’s ongoing journey off the rails, with rampant copper cable theft and general mismanagement grounding trains.

“Kumba is committed to supporting the key measures undertaken by the National Logistics Crisis Committee to improve the logistics network,” the company said in reference to one of a trio of business/government initiatives — the others focused on power and crime — that have been established to address the key constraints to South Africa’s economy.

Read more in Daily Maverick: Transnet’s critical operation and financial situation extends from bad to worse

“However, an extended period of under-performance by Transnet has led to mine stockpile constraints, impacting production. Due to the amount of work required to rectify the situation, the logistics capacity is expected to remain constrained over the medium term,” the company said.

Despite these problems, Kumba still expects headline earnings to rise between 18% and 31% for 2023 compared to 2022; whole basic earnings may be as much as 51% higher.

“The increase in earnings for the period is largely attributable to the higher average realised FOB [free on board] export ore price and weaker Rand/US$ exchange rate, relative to the comparative period,” the company said.

Kumba releases its results on 20 February earnings would have been even higher were it not for the logistical woes. DM

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