Despite Kumba Iron Ore slashing its interim dividend by 20% as its profit fell by 17% on ongoing logistics constraints and weak global steel demand impacting iron ore market, the shares were bullish.
In late afternoon trade, the shares rose 8.7% higher at R476.94 as the results came in on the higher end of expectations.
In a trading statement last week, Kumba told the market its said headline earnings were likely to be between 14% and 22% lower.
In its interim results for the period ended June 30, 2023, Kumba Iron Ore, majority-owned by Anglo American, said interim profit declined by nearly R2.5 billion, and this led the company to slash the dividend to R22.60, resulting in a R7.3bn payout.
Normalised headline earnings per share (Heps) dropped by 16.8% to R29.98.
The group flagged that revenue declined by 11% to R38.3bn, while net profit fell 16.4% to R12.7bn.
Production grew by 6% to 18.8 million tons, boosted by the improvement from the Kolomela mine near Postmasburg in the Northern Cape to 6 million tons, while ore railed to port decreased by 3% to 18.4 million tons.
“China’s reopening led to a strong first quarter, but the recovery slowed down in the second quarter as economic stimulus measures failed to sustain demand,” the group said.
Kumba CEO Mpumi Zikalala said: “Kumba recorded a solid operational and financial performance in the first half of 2023. Despite ongoing logistics constraints and weak global steel demand impacting iron ore markets, we delivered earnings before interest, tax, depreciation, and amortisation (Ebitda) of R19.8 billion.”
Zikalala said due to the rail constraints, total finished stock levels remained high at 7.9 million tons (Mt) with the majority of the stock at the mines, while low levels of finished stock at Saldanha Bay Port resulted in sales decreasing by 4% to 18.9 Mt.
“We have been collaborating with Transnet and we had some successes around tamping and locust spraying and a whole lot of other things. But we have, at the same time, other challenges. I spoke about derailments and other breakdowns,” she said.
Kumba last week cut its sales forecast to 36 to 38 Mt from a previous target of 37 to 39 Mt. The reduction was due to a 3% fall in deliveries of iron ore as state-owned logistics firm Transnet continued to toil.
“Pleasingly, the impact of Eskom load curtailment at Saldanha Bay Port in the first quarter was mitigated by an agreement with Eskom and Transnet that the OUF (Ore User's Forum) will absorb the Saldanha Port load curtailment to ensure uninterrupted energy supply to the Port,” she said.
Looking ahead, Zikalala said market volatility was expected to continue. Iron ore prices have been underpinned by China’s economic stimulus measures as well as inventory levels at mills being at a five-year low as mills keep the cost of holding stock to a minimum.
“Overall, it should be noted that iron ore export prices and the Rand/dollar exchange rate are key factors influencing Kumba’s financial performance. While we delivered a solid set of results, we have our work cut out for us,” she said.
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