KUMBA Iron Ore today announced a R30.50 per share final dividend taking the total dividend for its 2021 financial year to R103.20/share representing 100% of its headline earnings which were 46% higher year-on-year.
The announcement is good news for 70% shareholder Anglo American which yesterday benefited from the 100% total dividend payout of R80bn from its 80%-owned Anglo American Platinum.
Kumba’s dividend policy is to pay out 50% to 75% of headline earnings.
The numbers represent a banner start for Mpumi Zikalala, the former De Beers Consolidated Mines CEO who was appointed Kumba CEO in October. “Despite weather and logistical challenges, production increased by 9% to 40.9 million tons (Mt),” Zikalala said in Kumba’s results announcement today. “Strong prices combined with our high-quality products and operational resilience, resulted in a record earnings before interest, tax, depreciation and amortisation (EBITDA) of R64.6bn,” she said.
The financial performance was largely driven by the strong pricing for iron ore which recorded its second highest average level of $160/t for the year peaking at $220/t at one point in the year before crashing to $80/t in the latter months of the year.
For its product, Kumba said it had achieved an average export price of (free on board) of $161 per ton, 18% above the benchmark and 42% better than the 2020 average export price.
Timo Smit, head of marketing for Kumba, said he was “quite optimistic” about the trajectory of iron ore prices this year. A recovery in China’s property market would lead to an increase in steel production. Evidence of this is reflected in recent pricing: iron ore is curently trading about $123/t, an 18% improvement on last quarter.
“In the short-term underlying demand is strong and steel stocks are low. We have a very supportive environment for lumpy iron ore (Kumba’s predominant product) because metallurgical coal’s price is sky-high which will come under pressure. As we know, when the coal price falls the premium for lump goes up.”
He was doubtful plans by Chinese authorities to centralise the purchase price of imported iron ore through a digital platform would have a major effect on how prices for iron ore were agreed. “The impact will be relatively small. They [China] are trying to limit some of the speculation which wouldn’t be a bad thing,” he said.
China has asked traders to cooperate with investigations into illegal practices following a ramp up in iron ore prices. According to reports, some traders are taking advantage of strong iron ore conditions to recover long positions in the fourth quarter when China shut some of its steel operations.
Kumba’s iron ore stocks totalled 6.1Mt of which most was located on mine owing to the year-end closure of the Transnet-controlled Sishen-to-Saldanha port rail line.
Smit said deliveries of iron ore were set to improve in the medium term as Transnet undertook the last of three major annual shutdowns. One benefit would be an increase in trains each carrying 1.5Mt tons of iron ore. “If we get two trains a month more than would result in a meaningful difference.
There were also new plans to improve the efficiency of the Saldanha port with possible interventions including changing vessel sizes, adding a tippler at the port and looking at the optimal port layout.
Transnet fell under heavy criticism last year after it was subject to regular rail interruptions, partly as a result of criminal activity.