Johannesburg, South Africa — MININGREVIEW.COM — 15 February, 2008 – Kumba Iron Ore – the world’s fourth largest supplier of sea-borne iron ore – is predicting a substantial increase in iron ore prices in 2008, as major suppliers struggle to effect new production in time to meet increasing demand – particularly from China and the rest of Asia.
Releasing its results report for the year ended 31 December 2007, the company forecast difficulties due to the global shortage in engineering and construction resources, as well as logistical constraints associated with rail and port capacity and shortages in dry bulk vessel capacity. “Operating expenses will also remain under pressure, possibly exacerbated by energy shortages and the need to use higher cost options to maintain production,” the results report added.
The 2007 financial year marked the first full year of Kumba as a pure-play iron ore business listed on the main board of the JSE Limited, and saw the company share price close at R285 per share – up 156% for the year. It heralded record production of 32.4 Mt, strong financial results and the commencement of production from of the 13 Mtpa Sishen Expansion Project jig plant. Kumba increased revenue by 33% from R8.7 billion in 2006 to R11.5 billion in 2007 on the back of record production, higher sales volumes, increased benchmark prices and quality premia on certain products. Operating profit rose by 12% from R5.4 billion in 2006 to R6.0 billion in 2007. Although operating expenses remained under pressure, Kumba’s operating margin increased from 45%1 to 52% in 2007. Profit for the year was R3.9 billion, and headline earnings rose 44% from R2.1 billion to R3.1 billion. The group increased total sales volumes by 10% from 29.8 Mt in 2006 to 32.9Mt last year. Export sales volumes from Sishen Mine for the year increased by 12% from 21.5Mt in 2006 to 24.0Mt.
As far as capital expenditure is concerned, outlay on the Sishen Expansion Project to date is R3.3 billion, with approximately R1.0 billion to be incurred in 2008 and R0.6 billion in 2009. To date, four of the eight jig modules have been successfully commissioned and two of the four tertiary crushers have been brought into production. The primary and secondary crushers were successfully commissioned in late January 2008. Ramp-up to full design capacity of 13Mtpa is still expected to be achieved in 2009. The Sishen South Project – which involves development of a new opencast operation some 70 km south of Sishen Mine – is currently being considered for development. A decision to proceed with this 9Mtpa mine is imminent and depends on finalising logistical arrangements and the granting of mining rights.
A pre-feasibility study to increase production at Sishen Mine by another 5-10Mtpa is due to be completed during 2008.
Turning to the power issue, South Africa’s power shortages have had their effect on Kumba operations. With the required 10% reduction in electricity usage, a variety of actions have been taken by Kumba – including a decision to cease all electricity power-assisted trucking in the short-term. The group’s usage of diesel will therefore increase, a rise in unit costs is likely, and a reduction in output is possible if the crisis deepens.