FIFI PETERS: Mining can be a profitable but risky business. The balance between profit and safety is not always the easiest thing to manage but Kumba has done it again, recording its fifth straight year of no fatalities at its mine while first-half profits soared 178%. We have Kumba Iron Ore CEO Themba Mkhwanazi on the line for more on the results.
Themba, thanks so much for your time. It is always refreshing for me to read your results statement and how boastful you are about your safety record. You have reached yet another milestone this time around. What kind of investments have you been making in the space to ensure your workers continue to go home after a shift at the mine?
THEMBA MKHWANAZI: Thanks, Fifi. We are very pleased to have had five years fatality-free; this is actually an achievement that recognises the commitment that we have with the families of our employees and contractors. We call it a sacred covenant that says everybody will return home without harm, because that’s the promise we make to them. This is something that has been an investment over the years, starting off with a focus on standards, and focusing on what we call fatal risk standards and the implementation of those, drawing from our parent company Anglo American. From there then there has been a process around aligning and educating leadership and employees and contractors to understand that we all are safety leaders.
Then followed through some significant investment in technology. For example, for the avoidance of heavy-vehicle to light-vehicle interactions, we have our auto-braking system – which was a first in the world in terms of its implementation – and various other technologies that we’ve implemented to engineer out the threats.
We’re very pleased that the combination of all that has led to the elimination of fatalities, as well as a significant reduction in injuries.
FIFI PETERS: And then, drilling into the profits – you have increased profits substantially over the period. I see that your revenue has also doubled, despite the setbacks from rail transport and Transnet. What is driving such strong demand for your product?
THEMBA MKHWANAZI: The markets are very robust. Largely it’s steel production in China, which is up 14% year on year in terms of comparison – that then coupled with a pretty flattish supply around about 2%. This is primarily largely true to some of the challenges with weather on the west coast of Australia. That bodes well for supply-demand such that it drives prices higher. That’s been a big contribution.
Equally, though, I must say that we have a robust corporate strategy that has served us well in ensuring that we kept our engine running. Through that we’ve shown resilience both from an operational perspective and from a financial performance perspective in terms of our balance sheets.
FIFI PETERS: How is your vaccination drive going? I was speaking with one of your sister companies, Anglo Platinum yesterday, and Natascha Viljoen said that around 2 000 miners had been vaccinated so far, although she was expecting a quick ramp-up to a 30 000 or so, which was the target. What is the situation like at Kumba’s mines?
THEMBA MKHWANAZI: We’re quite excited. We have about four vaccination sites, of which three were given the go-ahead by the Department of Health just yesterday. We received about 11 700 vaccines to be able to vaccinate employees and contractors at our Sishen facility, the UGM. This is on top of the initial vaccination, which was largely focused on our healthcare workers.
So we have the capacity to vaccinate not only our employees and contractors, but also eventually their families and the community. We are quite excited with the drive; there’s a massive take-up and interest from our workforce. We are also doing a lot around how we support the Department of Health through the provision of resources, training and transportation on their vaccination sites, over and above ours.
FIFI PETERS: Just going back to the main product that you mine, being the iron ore, your clients are willing and it seems happy to pay quite a premium for it – over 30% or so more than the market price. You can correct me there if I’m wrong, Themba. Is it a push for quality over price, a result of a lack of competition in the market, or is it a signal that there is a stronger demand out there for cleaner and less harmful product to mine and to use within operations regarding infrastructure, as a result of a real concern about climate change and steps to try and mitigate the effects of climate change?
THEMBA MKHWANAZI: Fifi, it’s a combination of two things. On the one hand it’s a drive for cleaner emissions. And, of course, the higher your Fe content – ours is about 64.5% – and the higher the size fraction in terms of the lumpiness, that bodes well for cleaner emissions, as opposed to the finer ores which require sintering; sintering creates or adds about 10% of carbon emissions. So that’s the one driver.
The other driver, as well – which is why our products lend well to this – is that if you are driving for higher utilisation, particularly in your blast furnace, you are preferring to direct charge, you are also preferring to have obviously the highest size fraction, which has an impact on the cost of your reductant, your coking coal. It also has an impact on the use of your fuel in terms of the blast furnace itself.
So it’s a drive for cleaner emissions as well as utilisation and improving productivity.
FIFI PETERS: Themba, while the top-line sales growth was a lot stronger this year, the local picture is a lot different, given that you saw a decline in your product that was demanded out there. What was the reason for this? And when do you expect to see a turnaround?
THEMBA MKHWANAZI: There are a couple of reasons. Firstly, the closing of the Saldana Steel mill was an element, but also Amsa (Arcelor Mittal), whom we supply as our local customer, had challenges as a consequence of Covid. So with the combination of that we saw a significant reduction in what we sold locally. We have the advantage, though – for what we cannot sell locally we always have a market offshore. In this particular case we were able to drive the sales offshore as opposed to domestically.
FIFI PETERS: Just going back to the challenges that you did cite with getting some product out, perhaps the number could have been even better had it not been because of some of the rail constraints with Transnet, which yesterday declared a force majeure. Are you impacted by this in any way, Themba?
THEMBA MKHWANAZI: The force majeure in relation to the cyber attack? No, we are not. It seems it’s probably impacting more on the container terminals, so we haven’t seen that. The impacts that we had were largely as a consequence of extreme weather in the first quarter, which resulted in a washout. We also had a swarm of locusts on two occasions, and one derailment, in particular. We also had some weather impacts in the second quarter, but that largely impacted the ports. When you have inclement weather you have high swells and the ships cannot be brought in for loading. Those were the impacts.
But we’ve been working with Transnet in a very, very strong relationship and collaboration as we work through these challenges.
FIFI PETERS: Lastly, you’re sitting on quite a large cash pile as of your June year-end – R40.7 billion or so. How much of that will be used to support President Ramaphosa’s call for further investments into the economy to help it grow?
THEMBA MKHWANAZI: Of the R40 billion, as we announced today, R30 billion has been paid to shareholders, both Kumba shareholders and minorities. Out of the cash that we generated R10 billion will be paid in royalties and taxes, which have a direct impact in helping drive the economy in South Africa.
And then of course, in addition to that, there are the salaries and wages that we pay – about R2.5 billion. Then there’s the R6 billion that we have spent in terms of procurement in terms of BEE, and also to host community businesses. So we have basically given back or created about R51 billion in terms of stakeholder value, which in turn will have a positive impact on the South African economy.
FIFI PETERS: Yes, Themba, I think we have seen it. The R10 billion you paid in taxes has helped a lot of taxpayers not to have to pay higher taxes; and more recently it has helped to contribute to the national social-relief package that was recently announced by the president. We’ll leave it there. Thanks very much for your time. Themba Mkhwanazi is the CEO of Kumba Iron Ore.