Kumba Iron Ore has approved its second growth project in eight months, this time a R3.6bn plant at its flagship Sishen mine to produce a high-value ore and to extend the life of the operation.
Kumba, Africa’s largest iron ore producer, has two mines in the Northern Cape, the largest of which is Sishen and the new project, which is a new way of processing low-grade ore to create a high-value product, will add four years of life to the mine to 2039.
The ultra-high dense media separation (UHDMS) plant will cost R3.6bn and deliver between 10-million and 15-million tonnes of ore a year, with an anticipated payback of three years once it is in production from the second half of 2023.
Kumba, a 69.7% held Anglo American subsidiary, approved the Kapstevel mine at its Kolomela operation in July 2020 to keep production there steady at 13-million tonnes.
Through an exploration programme and the development of the UHDMS processing technology, Kumba has added more than 300-million tonnes of reserves, which are mineable tonnes of ore, well ahead of its 200-million target set for 2022, said CEO Themba Mkhwanazi in an annual results presentation to analysts.
Capital expenditure for 2021 will jump to no less than R11.3bn from about R5.7bn a year for the past two years as the new projects are developed. Just less than half the capital will be for Kapstevel and, to a lesser extent, for the UHDMS project.
Kumba held cash of R22.7bn by end-December 2020, a 77% increase compared to the previous year. The balance sheet was bolstered by cash flows of R40bn.
Kumba, which was listed on the JSE in 2006 after an unbundling that also created Exxaro Resources, declared a final dividend of R41.30 a share that included a top-up of R8 a share from the cash-flush company. Combined with the interim dividend, Kumba returned R60.90 a share at end-December 2020 compared to R46.78 a year earlier, representing 86% of headline earnings.
Kumba generated revenue of R80bn in the period under review, a 25% increase from the previous year as higher prices offset reduced sales.
Kumba’s production of 37-million tonnes was more than 5-million tonnes lower than the previous year because of disruptions caused by Covid-19.
Kumba realised sales of 39.7-million tonnes compared to 40-million tonnes a year earlier. The company tapped into stockpiles to sell more than it had mined, but exports were constrained by coronavirus-related logistical difficulties in railing ore to the port of Saldanha and disrupted shipping movements through the harbour.
Iron ore prices shot up by 19% to $115/tonne, while the rand weakened by 14% against the dollar.
Kumba expects to produce and sell up to 41-million tonnes of ore in 2021.
The ore Kumba produces fetches higher prices than its larger peers, Mkhwanazi said, noting the company had realised $115/tonne compared to the $99/tonne the world’s two largest iron ore miner, Brazil’s Vale and Australia’s Rio Tinto.
The reason is that two thirds of Kumba’s sales are made up of lumpy or fist-sized chunks of ore that fetches a premium from Chinese and global steel mills, compared to fine, sand-like ore.
Among its peers, Rio and BHP are the next biggest suppliers of lumpy ore, with about a quarter of their output made up of this material.
Correction: June 24 2021
An earlier version of this article incorrectly said Kumba was unbundled from Exxaro, whereas Kumba Resources was unbundled into Kumba Iron ore and Exxaro.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.