Kumba Iron Ore’s financial year end results to December 2013 have confirmed that the company is under pressure to prioritise optimisation plans at its Sishen iron ore mine in the Northern Cape as the mine’s production continues to deteriorate.
Sishen represents the core of Kumba’s business and has been a significant iron ore and cash generator since the company’s establishment. Its age (nearly 50 years) however is starting to show. Total Kumba iron production of 42.4 million metric tonnes (Mt) decreased by 2%, primarily as a result of the production shortfalls at Sishen mine, although these were mostly offset by the excellent performance at Kolomela mine.
Kumba has actively been pursuing and investing in optimisation and strategic reviews at Sishen mine which have resulted in a focused recovery and optimisation plan to increase production. In the company’s financial status update, the company made no effort to conceal that work needs to be done to keep Sishen’s momentum going. “The Sishen mine pit is currently constrained, resulting in insufficient exposed ore. A production recovery plan to address the current pit constraints and a longer term operational optimisation strategy are being implemented, which include re-designing of waste mining push backs to rotate mining direction in some areas through 90 degrees, optimising smaller push backs, and design changes to enable faster sink rates to expose ore. A three-year expansion programme to develop and build a maintenance workshop for heavy mining equipment was completed on time and on budget, improving sustainability and productivity.”
Total tonnes mined at Sishen mine rose by 22% to 208.8 Mt (2012: 171.6 Mt), of which waste mined amounted to 167.8 Mt, a massive increase of 26% (2012: 133.5 Mt) as the planned waste ramp up continues to alleviate the current pit constraints at the mine.
Iron ore production at Sishen mine, however, decreased by 8% compared with 2012, to 30.9 Mt. Production from the dense media separation (DMS) plant was impacted by availability of material from the pit and resulted in 12% lower output for the year. Production from the Jig plant was in line with the prior year although still below design capacity due to feedstock quality constraints. The mine was further hampered by several section 54 regulatory safety stoppages relating to the operation of trackless mobile machinery in August 2013, which also resulted in a gradual ramp up of the mine thereafter.
To facilitate the expansion of Sishen mine to the west, which can now proceed following the announcement earlier today that it had been granted surface rights over a portion of land crucial to the expansion of Sishen, Kumba has completed a comprehensive feasibility study for the relocation of the Dingleton community in conjunction with an extensive consultation process with interested and affected parties, the community and relevant government departments. The Kumba Board approved the plan to resettle the community in the town of Kathu in the Northern Cape Province. This is expected to cost an estimated R4.2 billion over a four to six year period.
Kumba CEO Norman Mbazima says that the Sishen mine recovery and optimisation plan expects a phased production increase from the 30.9 Mt in 2013, to approximately 35 Mt in 2014. As the ore body dips and thins to the west, waste stripping of up to 270 Mtpa is required by 2016 for the production of 37 Mtpa at current marketing specifications.
Fortunately, Kolomela mine is providing the ‘buffer’ capacity Kumba needs while it puts Sishen on the right track. Technical studies have confirmed Kolomela’s capacity to sustain production at 10 Mtpa, 1 Mtpa above its original design capacity. Further, incremental expansions of the mine are also being studied.
In terms of export sales, volumes are expected to be in line with 2013 levels as demand increases marginally in the first half of 2014 but dips in the second half.
“2013 has been a challenging year, however, we remain confident in our employees and our mines. We are more focused now on building a world class portfolio of operations and I believe we have optimised our business in order to provide the best possible outcomes for all our stakeholders. We have delivered very good returns for all our stakeholders in a challenging year. We remain focused on delivery. 2014 will be all about the execution of the strategy we revised in 2013. Looking ahead, we want to be working to a common goal with our employees, our customers, our investors and other key stakeholders,” Mbazima points out.
Kumba’ headline earnings for the full year totalled R15.4 billion, a 24% increase on the R12.5 billion achieved in 2012. The marginal 2% decrease in export iron ore volumes to 39.1 Mt, offset by the 2% stronger average export iron ore prices achieved, together with a 17% decline in the average Rand/US dollar exchange rate, resulted in revenue increasing by 20% to R54.5 billion (2012: R45.4 billion).
Kolomela mine continued to deliver an outstanding performance in 2013, increasing production by 27% to 10.8 Mt (2012: 8.5 Mt). Production exceeded monthly design capacity for most of the year, and reached a new record level during October 2013. Total tonnage mined increased by 38% to 59.9 Mt (2012: 43.5 Mt), of which waste mined increased by 39% to 46.7 Mt.
By Laura Cornish