Anglo American’s Kumba Iron reports 11% decline in iron ore output during H1 2020

HIGHLIGHTS
Operational performance during the period reflects the lockdown and subsequent reopening of our operations with a reduced proportion of our workforce in April before ramping up to pre-Covid-19 run-rates in June. Both production and sales are managed in line with logistical performance and, due to the capacity constraints, maintaining flexibility is essential to protect our
value chain.

As a result, total production was 11% lower at 17.9 Mt, relative to the 20.1 Mt delivered in the same period in 2019 (‘the comparative period’). The impact of the pandemic was most evident in the second quarter, with volumes decreasing by 20%. Total sales volumes decreased by 13% to 18.6 Mt (H1 2019: 21.4 Mt), driven
by a 1.1 Mt decline in domestic off-take to 0.4 Mt, while export sales decreased to 18.3 Mt (H1 2019: 19.9 Mt).

Kumba’s earnings before interest, tax, depreciation and amortisation (EBITDA) margin of 55% (H1 2019: 58%) benefitted from favourable iron ore prices, a weaker Rand/US$ exchange
rate and cost savings of R700 million (H1 2019: R460 million). However, the break-even price of US$42/tonne (H1 2019: US$32/tonne) was impacted by lower price and lump premia,
increased cost inflation and higher royalties.

Overall, this translated into attributable and headline earnings per share of R26.21 and R26.19 (H1 2019: R31.39 and R31.51),
respectively. In line with Kumba’s capital allocation framework and dividend policy, which targets a payout range of between 50% and 75% of headline earnings, the Board has declared an interim cash dividend of R19.60 per share (H1 2019: R30.79 per share) representing 75% of headline earnings.

OPERATIONAL PERFORMANCE
Kumba’s operational performance for the period reflects the lockdown and subsequent reopening of operations in Q2 2020 with reduced workforce levels of approximately 50%, before ramping up production to pre-Covid-19 run-rates in June.

Consequently, total tonnes mined for the period decreased by 15% to 117.6 Mt (H1 2019: 138.0 Mt), with total waste reducing by 17% to 94.6 Mt (H1 2019: 113.8 Mt).

Both production and sales are closely managed in line with Transnet’s logistical capacity, which increased to approximately 80% in June 2020.

As a result, total production was 11% lower at 17.9 Mt, relative to the 20.1 Mt delivered in the same period in 2019 with the impact of the pandemic most evident in the second quarter as volumes decreased by 20%.

SALES AND LOGISTICS
Total sales volumes declined by 13% to 18.6 Mt (H1 2019: 21.4 Mt), driven by lower domestic offtake by ArcelorMittal SA of 0.4 Mt (H1 2019:1.5 Mt), while export sales volumes decreased by 8% to 18.3 Mt (H1 2019: 19.9 Mt) due to logistical constraints and severe coastal weather conditions impacting ship loading at Saldanha port.

Revenue
Total revenue decreased by 8% to R31.6 billion (H1 2019: R34.5 billion), mainly as a result of lower prices and sales volumes, partially offset by a weaker exchange rate.
Kumba’s average realised iron ore export price decreased by 14% to US$93/tonne (H1 2019: US$108/tonne), while the average Rand/US$ exchange rate weakened by 17% to R16.67/US$1 (H1 2019: R14.20/US$1).

Sales volumes reduced by 13% to 18.6 Mt (H1 2019: 21.4 Mt) due to lower exports of 1.6 Mt and lower domestic sales of 1.1 Mt.
Shipping revenue increased by R569 million benefitting from a weaker currency and higher CFR volumes, partly offset by lower freight rates.

The lower average achieved FOB price of US$93/tonne was due to a US$17/tonne decrease in the Platts 62 index price to US$91/tonne and a US$15/tonne decrease in the lump, Fe and market premia. Platts freight rates were marginally lower at US$10/tonne from
US$11/tonne in H1 2019.

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