Africa’s largest iron ore miner posted record interim results, eclipsing those for the full year in 2020, allowing it to handsomely reward shareholders and pour billions into SA’s government coffers at a vital time.
Kumba Iron Ore, an Anglo American subsidiary, is the second large SA mining company to report bumper profits and a record high dividend as it reaps higher commodity prices.
On Monday, Anglo American Platinum rewarded shareholders with a R46bn interim dividend, its highest ever, and Kumba on Tuesday returned R23.4bn to shareholders, up from the previous year’s R6.3bn interim dividend.
For the SA government, which is grappling with a weak economy and the fallout of a week of looting, arson and destruction of businesses in KwaZulu-Natal and Gauteng, costing the country tens of billions of rand, the record results from two large mining companies have generated strong tax and royalty inflows.
It underscores the importance of mining as an industry in the SA economy, not only employing 450,000 people directly, but able to keep the country financially sound when other segments of the economy are struggling.
Kumba paid R9.2bn in taxes and royalties in the first half of the year compared with R4.3bn in the same period a year earlier.
Amplats said on Monday it had paid R16.6bn in taxes and royalties.
“Mining has in many ways come to the rescue, particularly from a fiscus perspective, given the greater revenues that have been collected,” said Kumba CEO Themba Mkhwanazi.
Kumba was keen to play a role in a private-public partnership on the railway line linking its mines in the Northern Cape to the Saldanha harbour, he said, without specifying exactly what it wanted to do to improve efficiencies on the link to the coast.
Kumba estimates there is about 6-million tonnes, or 10%, of unrealised capacity on the 60-million tonnes-a-year railway line that can be unlocked through a more reliable and less variable system of using the infrastructure, and the company was ready to help Transnet realise this, he said.
Of concern are the domestic logistics in SA, being rail and port. Kumba lopped 1-million tonnes off its full-year sales forecast because of a difficult first quarter on the railway linking its mines in the Northern Cape to the port of Saldanha and adverse sea conditions in the second quarter. This lost output is worth about R3bn.
In the second half of the year, Transnet, the state-owned rail and port monopoly, undertakes maintenance of the railway line.
Transnet and Kumba worked closely to rectify shortfalls, said Mkhwanazi, noting that rail deliveries rose to 95% of contracted levels from 83% in the first quarter.
He described the relationship with Transnet as open and strong.
Kumba reported after-tax profit of R30.6bn for the six months to end-June compared with R11bn in the year-earlier period. Revenue ballooned to R64bn from R32bn.
“We have effectively earned the equivalent of what we earned in the whole of last year in just six months. It gives you the scale of the record levels of these earnings,” Mkhwanazi said.
Both Anglo American subsidiaries paid shareholders the equivalent of 100% of headline earnings, indicating a belief that stronger markets for iron ore and platinum group metals lie ahead.
The expectation is for iron ore prices to remain “higher for longer”, said Mkhwanazi.
Kumba expects the iron ore price to average $180/tonne, bringing the full-year average to $175/tonne.
Iron ore prices should remain elevated for 2022 and 2023, said Timo Smit, Kumba’s executive head of marketing and seaborne logistics.
“We see continued strong demand ex-China, definitely in China as well. Australia is operating close to logistics capacity, so not much additional supply from there,” he said.
Kumba benefits from two-thirds of its production being lumpy ore, fist-sized chunks of ore sought after by steelmakers, and the high iron content of its product, being 64% compared with the market benchmark of 62%. Kumba earns a hefty premium on its iron ore sales relative to the market price.
In the next three years Kumba will build a 100MW solar array at its Northern Cape operations, with the mines and processing plants needing 60MW and the balance either sent to other Anglo subsidiaries, if companies were allowed to use Eskom’s transmission infrastructure, or sold into the grid.
Kumba wants to move its 140 vehicle mining fleet of trucks off diesel to hydrogen fuel cells if the test work at Amplats’s Mogalakwena opencast mine on this technology proved successful, said Mkhwanazi.
Diesel comprised 86% of Kumba’s annual energy source and the intention was to have the haul trucks converted to hydrogen fuel cells by about 2030, he said.
Kumba would use renewable energy to convert water to hydrogen to power the fleet.
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