Kumba profit to take beating

• Market unmoved given global commodity markets were in turmoil for most of 2022

Kumba Iron Ore expects headline profit to drop by as much as 44% in the year ended December as a result of lower iron ore prices and lower sales, though its shares rallied after an initial jolt. The sanguine market reaction suggests the news was already discounted by investors, given that Kumba’s fortunes are tied to the global iron ore market.

Kumba Iron Ore expects headline profit to drop as much as 44% in the year ended December as the result of lower iron ore prices and lower sales, though its shares rallied after an initial jolt.

In a trading update on Thursday, Kumba, which is majority owned by Anglo American, said headline earnings per share will be between R58.29 and R64.49, representing a decline of 38%44% year on year.

The share price dropped as much as 3% after the announcement before rebounding to close more than 4% higher on the day.

The sanguine market reaction suggests the news was already discounted by investors, against the background that Kumba’s fortunes are tied to the global iron ore market, which relies heavily on supplydemand dynamics in China.

The price of iron ore, the key input in the production of steel, fell sharply in 2022 as China battled bouts of Covid-19 cases and locked down the country, choking demand. But authorities began easing the restrictions before abandoning them altogether in January, sparking a rally in spot prices, which substantially boosted Kumba.

The company said the lower sales volumes are attributable to Transnet’s unreliable rail infrastructure — a setback that the company and peers have lamented before.

Still, the state-owned ports and rail operator, the mining industry and other stakeholders joined forces in December in an attempt to improve the reliability of the network, which has been hamstrung by vandalism, theft and a shortage of locomotives.

Kumba and other miners rely heavily on Transnet’s infrastructure to move their dry-bulk commodities such as iron and coal to ports where they are exported to customers as far afield as China and India.

Ore railed in the three months to end-December dropped 27% to 6.8-million tonnes year on year, further reducing already low levels of finished stock at Saldanha Port, the company said in a statement.

“Combined with the impact of the Transnet industrial action at the port, shipping throughput was significantly reduced. As a result, sales for the [fourth quarter] 2022 period decreased by 35% to 6.9-million tonnes.”

The iron ore production is forecast at 37-million tonnes in 2022, down from an earlier estimate of between 38-million and 40-million tonnes.

For 2023, Kumba expects output of between 35-million tonnes and 37-million tonnes, down from between 39-million tonnes and 41-million tonnes.

Parent company Anglo said in a separate statement earlier in the day that output in the December quarter was 10% higher than the same period a year earlier.

Copper output surged 52% due to the ramp-up of production at its new Quellaveco mine in Peru. Rough diamond production rose 6% and coking coal by a similar margin.

Iron ore production grew 4%, reflecting higher plant availability at the Minas-Rio operation in Brazil, and improved operational performance at Kumba’s Sishen mine.