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Kumba’s impressive performance

Iron ore on the
conveyer at Kumba’s
Sishen project
Johannesburg, South Africa — MININGREVIEW.COM — 17 February 2009 – Kumba Iron Ore – Africa’s biggest producer of iron ore – has more than doubled it 2008 full-year earnings per share, and expects to increase production by at least 10% in 2009, despite the ongoing volatility in the international economy.
A unit of global miner Anglo-American, JSE-listed Kumba reported a 130% rise in full-year headline earnings per share, but warned that the first half of 2009 would be tough for iron ore sales. Nevertheless, it expected to lift output by 10% this year. Output rose 13% to 36 699 million tonnes last year, the company said.

Kumba said in a statement that it would target China to make up for some of the lost demand in Europe and Japan, but added that the long-term fundamentals for its commodity remained robust.

Chief executive Chris Griffith pointed out that Kumba preferred to sell at reduced prices to move its volumes, adding that it was still selling to China at a margin of around 50%.

“We are likely to see a price settlement 10 to 20% lower for fine and 20 to 30% lower for lump, if the settlements take place around the spot price,” he predicted.

Reuters reports that slumping demand for steel has forced producers across the globe to cut production sharply and delay expansions, leaving the iron ore market with a glut of material and making it almost impossible for miners to achieve a price increase. A Reuters poll in late January showed Australian iron ore prices were expected to fall by 30% in 2009 after six years of consecutive price rises.

Kumba said earnings were hit by weakening demand on the back of a slowing global economy and a rise in operating costs. Revenue was up 86 % at R21.4 billion, it added.

Griffith told Reuters in an interview that Kumba would allow stocks – currently at 5.8 million tonnes – to rise by another 7 million tonnes before considering major production cutbacks. He said Kumba’s R8.5 billion expansion of the Sishen South mine was on target, and would lift the group’s output by 9 million tonnes per year when complete. The mine was expected to start producing in the first half of 2012, and to peak by 2013.