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Kumba weathers headwinds but 490 jobs at risk as it reconfigures business

An image of Kumba Iron Ore CEO Mpumi Zikalala

CEO Mpumi Zikalala

20th February 2024

By: Tasneem Bulbulia

Senior Contributing Editor Online

     

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Anglo American subsidiary Kumba Iron Ore delivered solid operational and financial results for the year ended December 31, 2023, despite macroeconomic challenges; however, about 490 jobs could be at risk owing to a proposed reconfiguration to mitigate the logistics challenge, CEO Mpumi Zikalala said on February 20.

“Macroeconomic volatility and uncertainty continued to weigh on global markets with geopolitical tension escalating and persistent cost inflation amidst multi-year-high interest rates. Domestically, businesses were further impacted by loadshedding and logistics constraints, increasing the cost of doing business in South Africa,” she explained.

“Over a number of years, Kumba along with other members of the Ore User’s Forum have suffered significant losses due to derailments and logistics infrastructure and equipment failures. These issues continued in 2023 and, in order to rebalance our value chain, we took decisive action to slow down overall production in the fourth quarter of 2023 following our product stockpiles peaking at unsustainable levels.

“As a result, production decreased by 5.3% to 35.7-million tonnes, while sales increased by 1.6% to 37.2-million tonnes relative to 2022 when industrial action at Transnet disrupted rail and port operations,” Zikalala outlined.

Following a strategic review last year, Kumba is reconfiguring its business to an overall lower production profile of 35-million to 37-million tonnes for 2024 to 2026, in line with prevailing logistics capacity, Zikalala informed.

“This will enable the necessary drawdown of high on-mine stockpiles and support cost reductions that will help ensure our business remains competitive in the long term for the benefit of all of our stakeholders,” she averred.

To this end, Kumba has identified cost savings initiatives of R2.5-billion to R3-billion for 2024, and revised its C1 unit cost guidance to $38/wet metric tonnes (wmt) to $40/wmt for the next three years.

Zikalala said that despite extensive measures taken last year to mitigate logistics challenges, the production reduction has necessitated the announcement of a proposed reconfiguration process.

“As the reconfiguration will, regrettably, involve job losses, it will be carried out in consultation with our stakeholders, including trade unions and other affected, non-unionised employees in terms of Section 189A of the Labour Relations Act.

“The potential reconfiguration of our business is expected to impact about 490 jobs (including fixed-term employees) across Kumba’s operations. The Section 189A process involves a consultation period with trade unions and affected employees and will be facilitated by the Commission for Conciliation, Mediation and Arbitration. Only when the consultation process is concluded will the final number of impacted jobs be known,” she pointed out.  

In parallel, a contractor or vendor review process is under way that may see about 160 service providers or contractors impacted.

This could result in some of the contractor services being rescoped or terminated as part of the business reconfiguration process.

“As part of the Anglo American group, we are developing an integrated social response plan that is intended to help mitigate the socio-economic impact on affected employees, contractors and communities,” Zikalala said.

FULL-YEAR PERFORMANCE

Increasing cost pressures and lower production volumes contributed to Sishen’s unit cost increasing to R589/dry metric tonne (dmt), while improved efficiencies and tight cost discipline at Kolomela, helped reduce the unit cost to R482/dmt, Zikalala noted.

The company’s lower C1 unit cost of $41/wmt reflects the benefit of a 13% weaker average exchange rate of R18.45 to the dollar and cost savings of R1-billion delivered in line with its target for 2023.

“A rebound in iron-ore markets late in 2023 contributed to our average realised price of $117/wmt, an increase of 3.5% on 2022 prices. Despite these challenging conditions, Kumba delivered earnings before interest, taxes, depreciation and amortisation (Ebitda) of R45.7-billion and an Ebitda margin of 53%.

“This contributed to our attributable free cash flow of R14.9-billion, and we will be paying a final cash dividend of R10.3-billion. This represents valuable dividend income to our shareholders, including our empowerment partners, the community development trust and our Semela employee share option scheme,” Zikalala highlighted.

She added that R71.1-billion of shared value was created in the year.

A final cash dividend of R24.20 per share bought total cash dividends for 2023 to R46.80 a share, up 4%.

The total recordable incident frequency rate improved to 0.98 from 1.55.

Meanwhile, Sishen’s 67 MW solar photovoltaic project is on track.

“In the long-term, we remain positive on the iron-ore market fundamentals. The carbon emission reduction properties of our high-quality iron-ore products ensure we are well positioned to meet the growing demand for green steel. We are already working with more than 30% of our customers by sales volumes to develop steel-making technology with a lower carbon footprint.

“In line with our refreshed business strategy, we are focused on ensuring our business is sustainable and unlocking further value through the reconfiguration of our business.

“My priorities for Kumba in 2024 are to maintain operational safety, stability and capability as we transition to a lower production profile, while improving cost competitiveness. The streamlining and optimisation of our operations will bring increased efficiency and position Kumba for a sustainable future to the benefit of all our stakeholders,” Zikalala posited.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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