KUMBA Iron Ore reduced sales guidance for 2019 by up to 1.5 million tons (Mt) to between 41.5 to 42.5Mt owing to the planned closure of Saldanha Steel. Production guidance of between 42 to 43Mt was unchanged.
ArcelorMittal South Africa (AMSA) announced yesterday that it would wind-down steel production at Saldanha Works and put the facilities on care and maintenance owing to poor economic conditions.
Kumba supplies iron ore, a key ingredient in the steelmaking process, to AMSA. It said, however, 94% of its production was sold in offshore markets where its high quality product occupied a niche position. The export book was stable.
“Kumba will continue to assess the effect of AMSA’s strategic asset footpring review on domestic sales and will update the market in due course,” the company said. Kumba is 69.7% owned by Anglo American, the UK-listed diversified mining group.
Shares in Kumba were nearly 4% higher in Johannesburg trade.
Kumba also set out its production guidelines up to its 2022 financial year when it anticipated output of between 43 and 44Mt. This followed an analyst and investor visit in Australia described by Goldman Sachs as having contained positive information.
Kumba said unit costs would be between $33 per ton in 2019 rising to $36/t to 2020 which was “… about inline with South African mining inflation at 8%,” said Goldman Sachs. “There was no new growth capital expenditure, but Anglo did discuss potential options at Kumba in outer years,” it said.
Kumba declared an interim dividend of R9.9bn in July taking overall payouts to shareholders in 2019 to R13bn, including the end-2018 dividend. This was amid buoyant market conditions in which the iron ore price soared 57% in the six month period.
The interim payout represented 98% earnings payout ratio, well above its target range of 50% to 75% of earnings and was an indication of management’s comfort with cash flow performance for the remainder of its financial year … operational hiccoughs notwithstanding.
Vale, the Brazilian iron ore miner, said earlier this week it would sell between 307 and 312Mt of iron ore and pellets this year. This represented a 14.7% decline from a year earlier as it grappled with the aftermath of a deadly dam burst incident, said Reuters.
Vale had originally forecast sales of up to 332Mt before saying in October the number would be lower.
The outlook change is due to “greater visibility’ on sales expected for the fourth quarter” which should be between 83Mt and 88Mt. This suggested a drop of at least 9% from a year ago, said the newswire.
