HIGHER iron ore prices will ease Kumba Iron Ore to a full-year headline earnings increase of up to 132% year-on-year – a performance that will raise hopes for the reinstatement of the dividend which was suspended in July, 2015.
The Johannesburg-listed company, in which Anglo American has a 70% stake, said in a trading statement today that headline share earnings would come in at R27.38/share at the upper end of guidance. Basic earnings per share would be between R26.04 and R27.38/share, the company said.
Said Kumba: “The increase in earnings is largely attributable to the increase in export iron ore prices, as well as the impairment charge of R5.98bn that was included in basic earnings but excluded from headline earnings in the comparative period”.
Shares in Kumba were just over 6% higher in the first two hours of trading on the Johannesburg Stock Exchange (JSE). On a 12-month basis, the share is more than 500% stronger and was one of the strongest performing on the JSE last year.
Expectations of a payout are based on the apparent robustness of the iron ore price which has stayed above $80/t even though analysts were expecting it to weaken.
“During 2017H1, we see supply and demand roughly in balance and expect prices to stay above $60/t,” said Goldman Sachs in a report published in November. “During 2017H2, however, we expect the supply pressure to begin to build and iron ore prices to fall to $55/t by year-end,” it added.
It’s worth noting that at an average price of $57/t in the first half of Kumba’s 2016 financial year, the company was able to generate about R4.5bn in cash flow – enough to rub out debt.
In a different note, published in December, the bank said it expected Kumba to reinstate dividends with the announcement of its 2016 financial results, scheduled for February 14. It said Kumba had an average dividend yield of 5.4% over the next three years.
Kumba is also negotiating with the South African Revenue Service regarding a dispute over alleged unpaid taxes totalling R6.5bn for a number of years stretching back to 2011.
Kumba is one of the assets that Anglo American said it was prepared to sell although the UK group has been listening to requests by South Africa’s Public Investment Corporation that the company be consolidated with non-core coal and manganese assets and then demerged into a new South African champion on the JSE.
However, Anglo has said that it would manage its non-core assets for cash until the right offer came in for them, including Kumba. More recently, Anglo CEO, Mark Cutifani, told analysts at a site visit in December that he would be prepared to hold non-core assets for longer given the improvement in commodity prices.
