[miningmx.com] – THE price of iron ore would revive in the fourth quarter, said Kumba Iron Ore (Kumba), the Anglo American subsidiary which today posted a 16% decline in interim headline earnings as prices for its iron ore fell 17%.
Restocking by steel mills and a slowdown in Chinese domestic iron ore production in the winter would “support prices towards the end of the year,” said Norman Mbazima, CEO of Kumba. Prices would be stable in the third quarter.
The average price of iron ore has tumbled 19% in the first half of the calendar 2014 year to $111/t from $137/t in 2013. The indexed price of iron ore by the end of June was $93/t from $134/t at the beginning of the year.
Notwithstanding the lower interim earnings, Kumba paid a R5bn interim dividend equal to R15.61/share (2013: R20.10/share). “We will continue to pay healthy dividend to shareholders as that’s its investment case,” said Mbazima.
The company increased its dividend cover to 1.3 times from 1.2 times after lowering the interim dividend. Although cash generative, Kumba has swung into a net debt position of R687m from net cash of R2.3bn in 2013.
It plans to spend between R7.5bn and R8.2bn in the 2014 financial year while capital is required to refurbish its fleet in the 2015 and 2016 financial years including some R4.2bn for its Dingleton project.
Mbazima said, however, that production growth from projects partly turned on the availability of rail capacity on the Sishen-Saldanha line known as the Iron Ore Export Channel. “Kumba continues to work together with Transnet to determine an optimum solution for incremental expansion of the IOEC,” he said.
He added, however, that the company’s main operation, Sishen Iron Ore Mine, remained constrained by a lack of mining flexibility. As a result, the mine is processing a high degree of waste as it seeks to improve its yield.
It’s other mine, Kolomela, was performing well. “We hope to produce 35mt in the year with Kolomela doing 10mtpa, or more, if we can,” said Mbazima. Interim sales totalled 22.5mt of which 19.7mt was exported, some 66% to China. Kumba has targeted 2016 as the year for restoring total iron ore production of 37mt.
Global iron ore supply has increased to 700 mt owing to a 25% lift in Australian exports, with a further 8% in export growth from Brazil.
Mbazima said an exploration venture with Jonah Capital in west Africa’s Liberia had been discontinued as the prospect was not economic. Kumba continued to look for other iron ore deposits in the region, however.
The group has also been kept waiting on approval by the Department of Mineral Resources for the 21.4% mining right formerly owned by ArcelorMittal South Africa. “We applied for this at the beginning of the year,” said Mbazima.
“We have been liaising with DMR and waiting for it to be granted, but it is not yet granted.” he said. “It takes about six months for the granting of a licence, and one of this magnitiude … it’s not an unreasonable period to wait,” he said.
Kumba is currently involved in wage negotiations primarily with the National Union of Mineworkers. It expected an agreement shortly but acknowledged that the Association of Mineworkers & Construction Union at won recognition rights with total membership of 5% of company workers. It requires 15% membership for bargaining rights.
