Kumba ups profit 46%, returns 100% of headline earnings to shareholders

‘When we have an excellent year similar to the year we had last year, we look at a dividend top-up to 100% of headline earnings,’ says CEO Mpumi Zikalala.

RYK VAN NIEKERK: Kumba Iron Ore is the largest producer of iron ore on the continent, and Anglo American of course owns around 70% of the company.

Kumba has two primary operations, the largest being a 76% stake in the Sishen iron-ore mine in the Northern Cape. Sishen is an open-pit mine and is 14 kilometres long, making it one of the largest open-pit mines in the world. Kumba also owns another iron-ore mine in the Northern Cape: the Kolomela mine near Postmasburg.

The company has reported results for its 2021 fiscal year. Revenues rose by 27% to R102 billion. The headline earnings spiked by nearly 50% to R33 billion, or R103/share. A final cash dividend of R30.50/share was declared, which pushes up the total dividend for the year to also over R103/share.

It means that Kumba has returned 100% of its headline earnings to shareholders. Kumba also paid tax and royalties of R21 billion during the period.

On the line is Mpumi Zikalala. She is the CEO of Kumba. Mpumi, thank you so much for joining me. It was really an excellent year for Kumba, and it’s interesting that Anglo American Platinum also announced yesterday that it will return 100% of its headline earnings to shareholders through dividends. Is it an Anglo American policy for you to return everything?

Read: Anglo Platinum’s record-breaking performance aided by surging PGM prices

MPUMI ZIKALALA: Our dividend policy actually talks about 50% to 75%. However, when we do actually have an excellent year similar to the year that we had last year, we do look at a top-up. That is what actually took us to 100%. But our dividend policy still remains what it is, at 50% to 75%.

RYK VAN NIEKERK: It is significant. The profitability is based on very high iron-ore prices, and I see that the average export price for your iron ore is around $160/tonne. Is that sustainable?

MPUMI ZIKALALA: You are 100% correct. Part of the reason why we delivered the excellent results that we delivered was actually linked to the iron-ore prices.

When we then look at where we are, you most probably would’ve seen that towards the later part of the year we saw subdued prices, and that was prices primarily linked to the steel cuts that were in line with China seeking to keep the steel production flat.

Coming into 2022, we have certainly seen underlying demand ramping up. We’ve just come out of the Winter Olympics from a China perspective, and the construction industry has started up. We therefore believe that the prices that we are seeing at the moment will certainly continue well into the second quarter of this year.

Looking further towards the later part of this year, we expect prices to moderate in line with demand. However, if one looks at the overall year, we still expect to see our average prices sitting within the triple-digit mark.

I guess the key is that what we are seeing from a supply/demand fundamental perspective is actually driven by underlying demand, which for us is something that’s constructive or positive.

RYK VAN NIEKERK: Of course, it’s not only the price that affects the bottom line. It’s also the production levels. I see your production levels rose by only 9% to 41 million tonnes. Now, of course, there are issues with the bottlenecks at Saldanha Bay, where you export the iron ore. How do those bottlenecks affect your production planning?

MPUMI ZIKALALA: A couple of things. Number one, we have actually been engaging with Transnet for quite some time and, with me coming into the role, we have certainly continued engaging with them. We have a strong partnership and one that is linked to us I guess being open and honest with each other around where Transnet is from a performance perspective, and our looking at getting data that will assist us with regard to aligning key dates, such as the dates that Transnet looks at from an annual shutdown perspective.

So when we look at where Transnet is, you most probably would’ve noted that they will have the last of their major three-year shutdowns. This is absolutely critical, because they do need to get their assets certainly in line from a maintenance perspective. We believe that [is] something that will assist with improving availability and reliability of the overall system going forward.

They are also working on a programme where they are looking at eliminating some of the feed restrictions that we thought saw toward the later part of last year and the early part of this year.

And there are also additional things that we engage Transnet around, things such as our utilising bigger vessels, simply because that eliminates the element of starting and stopping when you load vessels, also engaging around direct loading of vessels rather than going via the stockpile. Those are things that we believe we can work on clearly as we align our planning with Transnet.

Another critical thing that they are looking at is the project around [inaudible], which is absolutely critical from an overall system perspective when it comes to the port. So I guess where you are correct is that, as part of the value chain, we are closely linked to Transnet – and that is why we work very, very closely with them – because whatever happens on their side does have a direct impact on our business. But we do like the fact that, from a partnership perspective, this is one that’s based on the fundamentals of being open and honest with each other and driving for collaboration.

RYK VAN NIEKERK: Maybe another way to put that question is: if Transnet could get its ducks in a row or, how should I say it, get their trains in a row, and actually create capacity for additional exports, would you be able to expand your production or increase your production, and in that sense increase your whole operation in South Africa?

MPUMI ZIKALALA: I think you would’ve seen that, when you looked at the fact that our stockpiles grew towards the end of last year, had Transnet had more capacity we would essentially have exported the product, rather than looking at where we ended off with our stockpiles growing.

So …that’s why it’s critical that we, from a business perspective, continue working very closely with Transnet.

RYK VAN NIEKERK: Government has also announced the policy where private operators will be allowed to operate some of the lines on the Transnet rail network. Now there are many people who are very excited about this. Would this affect you? Could you possibly use private operators to transport the iron ore?

MPUMI ZIKALALA: Government and Transnet have certainly started engaging around PSP [private-sector participation], but they haven’t yet defined what that will look like. So, similar to other players, we are excited by this. We are looking forward to receiving more clarity around what this will entail. In line with the partnership that we drive with Transnet, we’ll certainly engage as soon as we get more clarity. For us it goes back to the fundamentals. It’s part of our value chain and we have to continue working very closely with them, so we’ll be very open-minded when we do get additional data around this.

RYK VAN NIEKERK: And then, just lastly, I spoke to Natascha Viljoen [CEO] of Amplats last night, and I asked her what she thought of the current state of policy certainty in the mining industry in the country. She was actually very positive. What are your views of policy certainty in the country at the moment?

MPUMI ZIKALALA: Similar to Natascha, we are very positive on this front. What’s positive for us is that we see engagements continuing with government, particularly with the Department of Mineral Resources and Energy through the engagements that we have with them as a company, but also engagements that we have with them as the overall industry from a Minerals Council perspective.

We think that where things are, from a Mining Charter III perspective, certainly provides more certainty for us as an industry. But we continue engaging with government around this space.

So when you look at us as a business – and I guess it’s reflected in our financials as well – we continue investing in the country, and part of the reason why we continue investing in the country are the wonderful projects that we have around exploration investment in the UHDMS [ultra-high dense media separation] is because we actually are confident around where we are as a country. Where there are things that we still need to iron out with government, we will continue engaging. Certainly their doors are open for this.

RYK VAN NIEKERK: Mpumi, thank you so much for your time tonight. That was Mpumi Zikalala, the CEO of Kumba.

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Anglo is extracting maximum dividends from its subsidiaries! Kumba, Amplats

At some stage somebody has to look at reserves. It is not really kosher to pay out all profits to shareholders in good times (entirely external to anything the company or management did) and then plead for help in bad times (also entirely external to anything the company or management did)

One assumes the hired help maxed out their bonuses courtesy of the stuff neither the company or management had anything to do with?

Jip Johan.
You are absolutely correct.
In any normal economy that would hold true but in SA most companies are loath to invest any more capital in their operations mainly due to government policies and practices.
This is resulting in the rapid expansion of investment in overseas operations and the profit taking from SA operations until they are finished.
The deindustrialization in SA is rapidly picking up pace !!!

End of comments.

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