Kumba plans expansion despite Covid-19 risks


Kumba plans expansion despite Covid-19 risks

Published Date: 2020-07-29 | Source: Stephen Gunnion | Author: Stephen Gunnion

Kumba plans expansion despite Covid-19 risks

The company plans to develop a new pit that will extend the life of its Kolomela mine and says it is encouraged by the recovery in China.

Kumba Iron Ore is going ahead with a R7 billion development project of its Kolomela mine in the Northern Cape in a move than will extend the life of the mine. The mining company says it is looking past the immediate impact of Covid-19 on its operations and export markets.

The announcement came as the Anglo American subsidiary reported a dip in first-half earnings as the impact of Covid-19 curtailed production and sales of iron ore. Prices also came under pressure due to reduced demand. However, it said it was encouraged by China's recovery and the reopening of European economies. China is the world's biggest manufacturer of steel, which is made from iron ore.

Kumba said the Kapstevel South project entailed the development of a new pit and more infrastructure at Kolomela, which would contribute significantly to sustaining production of 13 million tonnes of iron ore for the remaining life of the mine. It expected to produce its first ore from Kapstevel in 2024.

The company produced 17.9-million tonnes of iron ore over the six months to end-June, down 11% from the same period last year, while sales fell 13% to 18.6-million tonnes. These were in line with revised guidance earlier this year that took into account the impact of Covid-19 lockdowns. Production and sales were managed in line with Transnet's logistical capacity, which increased to about 80% last month, while Kumba returned to pre-Covid-19 run-rates.

Total revenue for the period fell 8% to R31.6 billion, mainly as a result of lower prices and sales volumes - and partially offset by the weaker rand exchange rate. The average FOB (free on board) price of iron ore was 14% weaker at $93 per tonne. Earnings before interest, tax, depreciation and amortisation declined by 14% to R17.4 billion. Headline earnings per share came in 17% lower at R26.19 and it reduced its interim dividend to R19.60, in line with its policy of paying out 75% of headline earnings. It ended the period with net cash of R15.7 billion.

The company has guided for full-year production of 37-39 million tonnes and sales of 38-40 million tonnes.

Its shares fell 0.25% to R549.25 yesterday. Anglo rose 0.5% to R422.53.

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