Headline earnings up 40% to R9bn despite adverse conditions
Sat,July23,2011
By Mark Allix, Business Day
KUMBA Iron Ore scaled new heights in the six months to June 30, returning a record interim cash dividend of R7bn to shareholders following a 56% rise in export iron ore prices, driven by robust Chinese steel demand.
Despite abnormal rainfall hampering operations, additional tax effects and higher labour and input costs, headline earnings were up 40% to R9,1bn, and its broad-based empowerment shareholders received an interim dividend of R2,4bn, the company said yesterday. Kumba has returned R11bn to empowerment partners since 2006.
The stellar results came after the miner increased total dividends 136% the previous year. But it says arbitration with steel maker ArcelorMittal SA over iron-ore prices, and a politically charged court case over mining rights, has stymied long-term contracts at its flagship Sishen mine.
The period has also seen the continuing development of the Kolomela mine, which is 94% complete and is expected to produce up to 5-million tons of iron ore a year by next year.
"Kumba’s operational and strategic focus has delivered another strong set of results. Despite … abnormally high rainfall, total sales were maintained," CEO Chris Griffith said.
Exports were supplemented by sales from stockpiles, ensuring Kumba benefited from record prices. Stakeholders had approved a move into Africa, likely in partnership with parent company Anglo American, but operations in SA remained the platform for growth. "There is a much better chance of being successful in your own backyard than anywhere else," Mr Griffith said.
Kumba’s outgoing chief financial officer, Vincent Uren, said that despite the strong rand, secondary tax and mineral royalties, the group remained on track. Mr Uren will continue to work on Kumba’s unfinished legal issues and will consult for the group.
"We never anticipated these businesses to do so well. It’s good management and good (commodity) prices and we have reaped the benefits," Wim de Klerk, financial director of miner Exxaro , said yesterday, referring to Kumba’s and Exxaro’s share prices.
Exxaro, a big producer of coal and mineral sands, is Kumba’s main empowerment partner, having a 20% stake in the Sishen Iron Ore Company. It resulted from the unbundling of Kumba Resources’ iron ore assets.
The hefty rise in export iron ore prices was partially offset by the continued strength of the rand and a 14% increase in operating expenses following increases in waste mining, the mineral royalty, inflation and lower production volumes, along with higher costs for labour, electricity and diesel.
But Kumba’s operating profit shot up 51% to R16,9bn, and margins of 70% rose from 63% previously, with the group generating R15bn in cash in the six months.
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