SA’s largest iron producer Kumba Iron expects its headline earnings to halve in the first half of 2022 compared with a year ago due to lower iron-ore prices due to record steel prices in many parts of the world in 2021 partially offset by a weaker rand/US dollar exchange rate.
Kumba earns a premium on its iron ore, which is of higher quality, but now foresees a 48% to 53% year-on-year drop in headline earnings to between R10.87m and R12.03m.
But the full-year guidance for the company, which is majority owned by Anglo-American, remains unchanged at 38-40 Mt in total sales and total production “subject to third-party rail and port performance as well as weather-related disruptions”.
The company lowered its full-year guidance in April due to heavy rain and problems with the reliability of its equipment caused by a global shortage of heavy mobile equipment spares, the Covid-19 pandemic and geopolitical disruptions in the first quarter.
“The iron-ore market also came under pressure in the second quarter, driven by the extended Covid-19 lockdown in China and weaker global economic prospects as the inflationary effects of the pandemic were compounded by conflict in Ukraine,” CEO Mpumi Zikalala said on Thursday.
Iron ore is used in the production of steel and China is the world’s largest steelmaker, which is used for infrastructure and other construction projects.
Sales fell in the first quarter because of rail problems and low levels of stock available at the Saldanha Port. Heavy rain and a plague of locusts in the Northern Cape affected the rail line to Saldanha on the west coast.
The mining industry relies on Transnet’s rail network to transport iron ore and other minerals to various ports, but cable theft and vandalism are among challenges the state-owned entity faces, made worse by recent KwaZulu-Natal flooding. The industry previously estimated that poor rail performance resulted in the sector losing R30bn in sales at the height of the commodities boom.
Total sales improved 1% to 19.7 Mt, but the iron transported to ports fell 4% to 19 Mt despite an improvement in the second quarter.
Total production is down 13% to 17.8 Mt after a challenging first quarter, but improved in the second. The Sishen mine produces almost three-quarters of all iron followed by the Kolomela mine with 27%.
Kumba’s results for the six months end-June will be released on July 26.
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