Kumba wants TFR revival to pick up steam

Africa’s biggest iron ore producer wants a “speedy” turnaround at Transnet Freight Rail (TFR) as logistics constraints continued to hamper its performance in the six months ended June.

Kumba Iron Ore, an Anglo-American subsidiary, has more capacity than the volumes Transnet rails to ports. It curtailed its output in late 2023 as Transnet’s rail performance deteriorated and commodity prices sank. In February it slashed capital expenditure and reduced its workforce.

Announcing first-half results this week, Kumba noted that Transnet’s performance on the iron ore export channel between Sishen and Saldanha had been affected by derailments and equipment failures.

CEO Mpumi Zikalala told Business Times there was room for more improvement at Transnet. She said they were working with the state rail and ports entity and the National Logistics Crisis Committee — a presidency-led initiative to tackle logistics challenges — to identify and eliminate bottlenecks in rail and ports performance.

The private sector played a key role in keeping the lights on uninterrupted for 100 days, and private operators could help address underperformance in logistics

—  Mpumi Zikalala, Kumba CEO

She said an independent technical assessment currently under way would shed light on what to focus on to improve throughput. 

Interventions under the Freight Logistics Roadmap unveiled last year include breaking up Transnet’s monopoly and introducing private rail operators on its network, as well as bringing in private operators to help manage port terminals.

TFR is also being split into two divisions — a rail operating company (TFROC) and an infrastructure manager (TRIM) — to facilitate third-party access. Last month, President Cyril Ramaphosa signed into law the Economic Regulation of Transport Bill, establishing a Transport Economic Regulator that will set prices in the sector, including rail.

Zikalala said the private sector played a key role in keeping the lights on uninterrupted for 100 days, and private operators could help address underperformance in logistics. 

“If you look at the energy space and what has driven part of the change, it is the essence of allowing the private sector to invest [in independent power]. I am hopeful ... clearly, what is needed is speed. I think we understand the challenges, we understand what needs to be done, it is speed, from an execution point of view, that will lead us to deliver results.”

Kumba, which operates the Kolomela and Sishen mines in the Northern Cape, reported a 2% decline in ore railed to the ports, with the group ending the half with 8.2Mt of stockpiles.  While repairs to a reclaimer at the port of Saldanha in April had helped sales improve in the second quarter, they still fell 5% in the half-year under review compared with the previous six-month period.

In line with plans to tighten expenses announced in March, Kumba achieved a R1.8bn reduction in costs. It also announced it was cutting 490 jobs.

The group is squeezed by lower commodity prices which affected its bottom line, with revenue falling 6% to R35.8bn. Steel demand has been subdued due to the dimmer prospects of the Chinese property sector.

Timo Smit, executive head of marketing and seaborne logistics at Kumba, said their long-term target was to place 50% of products in China and 50% outside China.

“I’d like to place more products outside of China. We are realising better prices outside China than in China.  In terms of quality, we are a strong player; in terms of quantity, we are not as big as Rio Tinto or Vale, which means the need for us to place those same volumes is not as severe as those players. If you take a Rio Tinto or a Vale, they need to place 1Mt every day,” he said.

In May, Kumba parent Anglo American rebuffed a $49bn takeover bid by the world’s number one mining company, BHP. Anglo announced plans to focus on its copper, crop nutrients and iron ore business.

Zikalala said being part of Anglo gave Kumba access to a bigger pool of skills within the group. 

“If you look at us as Kumba, we operate in South Africa, but through being part of the greater Anglo American group we have global reach. We have access to global expertise. We are able to tap into skills like our marketing team that doesn’t just sell Kumba Iron Ore’s products but sells Minas-Rio products from Brazil. We will benefit from economies of scale.”

Zikalala said while Kumba may be smaller when it comes to volumes, it punches above its weight in the quality of its products.

“On our end as Kumba we focus on high-quality elements. For people who are interested in reducing their carbon emissions, and that is the bulk of our customers, we get to tap into that market.”