Kumba Iron Ore, the South African iron ore producer, confirmed that parent company Anglo American intends to exit its 69.7% shareholding in the company.

This will be done at “an appropriate time and in an orderly manner and could include a potential spin-out”, the struggling iron ore company added.

Anglo American made the announcement to investors, shareholders and media as part of its year-end financial results to 31 December 2015.

The two companies will work together to evaluate options for the exit and how the business can be set up as a standalone entity that will create sustainable value for its stakeholders.

Kumba
Kumba Iron Ore is reconfiguring the Sishen pit to a lower cost shell to safeguard the mine’s viability at lower prices

Production at Kumba decreased 7% to 44.9 Mt owing to mining constraints at Sishen during 2015.  Its underlying EBIT decreased by 61% to $739 million (2014: $1.9 billion), mainly attributable to the 42% fall in the iron ore benchmark price to an average of $56/t.

Realised FOB export prices averaged $54/t, 42% lower than in 2014.

Total cash costs, however, declined by 18%, with costs associated with the 10% increase in waste mined more than offset by the weakening of the South African rand against the dollar. Kumba reduced controllable costs by $8/t to achieve an average cash break-even price of $49/t (CFR China) in 2015.

Kumba Iron Ore strategy and activity in 2016

Kumba is targeting to be cash break-even below an iron ore price of $40/t. These improvements include savings in capital expenditure, operating costs, and productivity gains in mining and processing operations.

During the year the deteriorating price environment necessitated a further optimisation of the Sishen mine plan. It was decided to reconfigure the Sishen pit to a lower cost shell to safeguard the mine’s viability at lower prices.

The mine is currently transitioning to a lower strip ratio and operational cost position is progressing well. Combined with further operational improvements at Kolomela, is expected to add to the Group’s cash flow generation at prevailing iron ore prices.

In the medium term, the mine will also be exploring further opportunities to utilise spare plant capacity, including the use of low grade stockpiles. It is expected that the Reserve Life will remain stable at ~15 years due to the lower production rates and will be reviewed and finalised during 2016.

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