Kumba has refined its production strategy as Transnet falters, opting for producing higher-quality iron ore that fetches premium prices rather than attempting to match previous years’ volumes of lower-grade material.
Kumba, the country’s largest iron ore producer and the fifth-biggest in the world, is part of the Anglo American stable — which is undertaking huge cost-cutting measures in response to a downturn in most commodity prices.
The iron ore producer has lowered its production outlook for the next three years to between 35-million tonnes and 37-million tonnes (Mt), down from 37Mt-3Mt it has previously planned for 2024 and 39Mt-41Mt in 2025.
The revised outlook is intended to keep the business viable by drawing down elevated mine stockpiles due to theft and maintenance problems on Transnet’s freight railways. The move is also geared to help efforts of reducing the company’s costs by R2.5bn-R3bn this year.
“Due to the geographical location of our operations, the geological nature of our ore body and significant logistical constraints associated with Transnet, Kumba is not able to compete effectively with large global iron ore producers on a volume basis. We have thus chosen to compete by maximising the price premium through the provision of premium quality products and differentiated customer relationships,” Kumba said in its 2023 annual report, published on Friday.
“We have the unique advantage of being primarily a lump iron ore producer with a product that has a recognised exceptional chemical and metallurgical quality. The highest-quality and most important iron ore for steelmaking are haematite and magnetite.
“Haematite is the more sought-after ore and the preferred raw material in more efficient and climate-sensitive steelmaking mills. It accounts for approximately 95% of SA’s iron ore production.”
Kumba, with CEO Mpumi Zikalala at the helm, has customers in SA, China, Japan, South Korea, the EU, Middle East, North Africa and the Americas.
The company said it has been consistently increasing its sales to markets besides China with the share now at 50%.
“This aligns with our target of between 50% and 55% of sales to these markets where our products are valued more for their carbon-reduction properties.”
The company said the persistent logistics constraints has resulted in ore railed decreasing by about 15% since 2019.
Kumba in February announced restructuring plans, which could affect 490 jobs, as part of Anglo’s groupwide efforts to rein in costs.
Anglo’s new CFO, John Heasley, said while unit costs are clearly an important measure for the industry and for the group, his attention will be on total costs which are closer to $22.5bn and include certain overheads, third-party commodity purchases, royalties, logistics and exploration.
Zikalala said in Kumba’s annual report that in the face of continued logistics challenges, the company will need to ensure that its business is cost competitive so that it can continue to create enduring value for all stakeholders.
Kumba said it is committed to creating a truly inclusive workforce by accelerating the recruitment, development and promotion of designated groups.
“At senior management and top management level, the white male demographic reduced from 43% to 3%, the African male demographic increased from 29% to 46%, and the African female demographic increased from 14% to 16%,” Kumba said.
“Kumba is working towards a stretch target of 40% women representation in mining by 2040. By year-end, women made up 26% of our overall workforce (2022: 26%), 24% of core disciplines (2022: 20%), and 30% of management positions (2022: 30%).”
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