THE dividends keep rolling for Kumba Iron Ore shareholders with the firm today saying it would pay a total dividend of R46.78/share – nearly R20bn – despite “operational challenges” last year that lead to a production downgrade, and a market that has turned a shade uncertain in 2020.
All in all, the payout ratio equated to 92% of earnings, easily exceeding Kumba’s dividend policy of 50% to 75% of earnings.
The performance was largely market-driven: the average iron ore price received by Kumba was about a third higher year-on-year at some $97 per ton and offset production gremlins which resulted in Kumba adjusting guidance down to 42 million tons (Mt) to 43Mt. As it happened production came in 2% lower year-on-year at 42.4Mt.
Kumba is on a cost reduction drive. It saved R920m in the year under review and has pledged further improvements. The net result was a very healthy bump in EBITDA margin to 52% from 42% two years ago. Net profit subsequently increased 69% to R21.3bn from R12.6bn a year ago.
Cash flow from operations increased some 84% to R34.7bn. Cash on hand stood at R12.3bn as of December 31.
Themba Mkhwanazi, CEO of Kumba Iron Ore, said he was confident the company would continue to command a premium for its product. “Our unique, high-quality lump products and marketing capabilities position us well to capitalise on the opportunities ahead to further transform our business and create sustainable value for our stakeholders”.
He acknowledged, however, some short-term caution though owing to last year’ outbreak of the coronavirus (COVID-19) in China which might disrupt trade flows, and a damper market for commodities in general.
There was also the prospect that, in the longer term, iron ore giant Vale would return some of the 90Mt of production to the market as it slowly recovered from the Brumadinho disaster. This is the event in 2019 in which hundreds of people were killed following a slimes dam breach at the firm’s Brazilian facilities.
About 25Mt of additional material was in the market this year from Vale, and there was some 20Mt in marginal production that had been incentivised by the higher pricing. However, cyclone activity had interrupted sales.
“The first month of the year has been a difficult month with unseasonabl weather impacts, higher recalls from Brazil and in the Pilbara (Australia’s iron ore district). The impact is that the four majors are not likely to deliver on guidances they initially projected.”
Mkhwanai also alluded to potential headwinds related to a “logistically constrained environment”, a reference to state-owned freight company, Transnet.
A decision by ArcelorMittal SA (AMSA) to shut its Saldanha Steel facilities in November had also given Kumba pause for thought on its proposed R3bn UHDMS plant. A feasibility study into the UHDMS plant would be extended into this year.
Kumba’s performance is good news for Anglo American which is the firm’s largest shareholder with a 70% stake, and comes on the back of bumper dividends announced by Anglo American Platinum on Monday.
