The missed export opportunity due to the disruption of rail services cost SA’s largest iron producer, Kumba Iron Ore, about R6bn in earnings during the first six months of 2023.
Kumba CEO Mpumi Zikalala said they were particularly concerned by three incidents of copper cable theft in June, which had previously not been a problem on the iron ore line.
The lost sales reported in the interim results were in addition to the R10bn in lost earnings reported for the 2022 year.
Zikalala said there had been more cable theft attempts in July, but thanks to collaboration with Transnet, the Ore User’s Forum and law enforcement authorities, these were “handled as quickly as possible” and arrests have been made.
“Security has been put in place with drones monitoring the line in the short term and we are working on a longer-term security solution with Transnet. Cable theft, and especially copper cable theft, is a challenge across the board that should be addressed at country level,” Zikalala said.
Transnet Freight Rail’s iron ore export line, which connects mines in the Northern Cape to the Saldanha iron ore terminal in the Western Cape, has traditionally been the best-performing bulk line, but many challenges have affected rail performance over the past two years.
Cable theft, which can bring traffic on rail lines to a standstill, has become a persistent problem on Transnet’s container and coal corridor lines that run to the ports in Durban and Richards Bay. But miners in the Northern Cape, where iron ore mining dominates, now fear that there is an increase of criminal activity on the iron ore line.
Transnet Freight Rail said in its 2022 annual report there has been an exponential increase in cable theft in SA over the past five years. More than 1,500km of cable was stolen (a 1,096% increase) with a net financial impact of R4.1bn.
Zikalala said rail disruptions have led to already low levels of finished stock at Saldanha Bay Port declining further, resulting in sales decreasing 4% to 18.9-million tonnes for the six months to end-June.
The company exports most of its iron ore to China, Europe, Japan and South Korea.
Collaboration between the Ore User’s Forum and Transnet on the maintenance of the iron ore line partially mitigated some of the challenges, but this was more than offset by derailments, resulting in the line being closed for seven days, which coincided with incidents of cable theft in June, she said. This all contributed to rail performance for the period being reduced to about 81% of Kumba’s contracted tonnage.
The iron ore line stretches for about 870km, but the three incidents of cable theft in June were concentrated in one area, Zikalala said.
Kumba was encouraged, she said, to see the government, Transnet and the industry come together to tackling the challenges to rail performance.
Forum security teams are working with Transnet on additional security to combat the cable theft and help secure the line. The committee will also steer the “reform agenda”, which includes the opening of rail and port networks to private operators.
The logistical constraints and lower market prices caused Kumba’s interim profit to decline nearly R2.5bn.
It said in its results for the six months to end-June, this led to the company, valued at about R141.4bn on the JSE, to cut its dividend by just more than one-fifth year on year to R22.60, amounting to a payout of R7.3bn. On this news Kumba’s share price rose the most in eight months, up 11.56% to R489.74.
During its latest reporting period, revenue was down 11% to R38.3bn, while net profit fell 16.4% to R12.7bn.
Last week the unit of mining giant Anglo American said in its production and sales report for the six months to end-June that it expects to sell between 36-million and 38-million tonnes compared with the previous sales guidance of 37-million to 39-million tonnes.
“The iron ore and coal mining industry’s ability to continue contributing significantly to the fiscus, sustain employment and deliver far-reaching socioeconomic benefits are inextricably linked to reliable logistics services. An efficient logistics system is fundamental to global trade and SA’s weakening economic growth,” Zikalala said at the time.
Kumba said it had to defer about R2bn in “noncritical” capital expenditure due to uncertainty created by the country’s logistics challenges.
On Tuesday, one of the highlights was the growth in production of 6% to 18.8-million tonnes, boosted by an improvement of more than one-fifth at the Kolomela mine near Postmasburg in the Northern Cape to 6-million tonnes.
With Kabelo Khumalo
Correction: July 27 2023
A previous version of this article incorrectly implied in the title that cable theft on the iron ore line was the primary reason for R6bn in missed export opportunity experienced by Kumba in the first six months of 2023. The missed export opportunity arose due to various disruptions to rail services.
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