JOHANNESBURG (miningweekly.com) – The operating profit of JSE-listed Anglo American group company Kumba Iron Ore fell 28% to R23.2-billion in the 12 months to December 31 compared with the R32-billion of 2011.

The company’s operating profit margin declined to 51% from 66% the previous year.

Delivering his first set of results, Kumba CEO Norman Mbazima said 2012 was marked by considerable market volatility and unprotected strikes.

“In spite of the strike and the rather large drop in prices, we are recovering well,” he said.

His expectation was that prices would be firmer in 2013 and there would not be a recurrence of labour unrest.

“The labour situation has been quite calm and we’re able to start getting back up to speed with labour efficiencies,” he added.

Post-strike, the company had still to return to full production levels.

This was because the training of the more than 100 people who replaced the dismissed wildcatters would continue until the end of this quarter.

“When we get to quarter two, we should be very close to being at full production again. At that point, training for the ramp-up will begin,” Mbazima said.

The 49 wildcat strikers arrested for damaging equipment had appeared in court three times and were currently remanded on bail.

The hearing was expected to resume in March.

On possible merger and acquisition (M&A) activity in West Africa, Mbazima said all M&A opportunities were being considered.

“We’re going ahead, but cautiously,” he added.

In the first quarter, prices fell from $158/t at the start of the quarter to $89/t by early September as Chinese steel mills depleted stockpiles and reduced raw material inventory levels to as few as 17 days’ worth of production requirements.

Iron-ore prices reached a high of $151/t in April 2012, before stabilising around $130/t towards the end of the year.

For 2012 as a whole, index prices averaged $130/t, down 23% on 2011’s average of $169/t.

A similar level of growth in global crude steel production was expected for 2013 with China’s crude steel production forecast to grow to 740-million tons, while growth in crude steel production in other developing countries was expected to be counter balanced by reduced production in some of the developed markets.

In 2013, Indian iron-ore production is expected to remain under pressure as a result of domestic policy changes.

However, new supply capacity, primarily from Australia, was expected to partially offset this reduction in Indian supply.

The start of 2013 had seen a rapid price recovery in iron-ore prices. The consensus view is that this rally will not be sustained throughout the year.

However, some positive sentiment in relation to Chinese steel consumption growth had been restored and was expected to provide support to prices throughout the year.

Seaborne iron-ore supply growth might lead to iron-ore prices softening in the second half of 2013, but overall Kumba’s view was that, on average, iron-ore prices should be firmer than in 2012.

Key operational features included record total production up 4% to 43.1-million tons of iron-ore, with the new Kolomela mine contributing 8.5-million tons, described as an outstanding performance.

Export sales volumes were up 7% to a record 39.7-million tons.

The 23% decrease in iron-ore prices in the period knocked down headline earnings by 28% to R12.2-billion or R37.97 a share.

Operating profit was down 28% to R23.2-billion, resulting in the group’s operating profit margin declining to 51%.

Kumba generated cash from operations of R25.3-billion and a final dividend of R4-billion or R12.50 a share had been declared.

Total production at Sishen mine decreased by 13% to 33.7-million tons mainly owing to the impact of the unprotected strike in the fourth quarter.

A record 40-million tons was railed on the iron-ore export channel to the Port of Saldanha Bay, an increase of 2%, including 8.6-million tons railed from Kolomela mine.

Kumba had been recognised as 2012’s best mining employer by Deloitte and the CRF Institute.

Two employees, Sarah Obudilwe and Wickus Coetsee, died in work-related incidents.

“We remain committed to zero harm at all the group’s sites and management has intensified the focus on compliance to operational safety standards and the ongoing dedication of every employee to the zero-harm principles,” Mbazima said.

As guided previously, waste mining at Sishen mine was anticipated to increase by an additional 30-million tons a year in line with the planned ramp-up that began in 2009.

To make up mining volumes lost as a result of the strike, 10-million tons to 20-million tons more waste was anticipated to be mined in 2013, which would put upward pressure on unit cash costs.

Yearly production volumes from Sishen mine were expected to increase from the 33.7-million tons achieved in 2012, to at least 37-million tons in 2013.

Kolomela mine would produce at design capacity of 9-million tons for the full year, which would enhance the group’s ability to supply to the market during 2013.

Waste mining at Kolomela mine was expected to increase as the new pits were opened up, which would put upward pressure on unit cash costs. Kolomela mine’s cash unit cost was expected to be R180/t.

Export sales volumes in 2013 were expected to be similar to those in 2012.

Domestic sales volumes from Sishen mine to ArcelorMittal South Africa were anticipated to be 4.8-million tons, in line with the interim pricing agreement.

Kumba’s operating profit remains highly sensitive to iron-ore prices and the exchange rate.
 
Global crude steel production increased by 2% to 1 550-million tons. Outside of China, crude steel production was essentially flat at 833-million tons. 

Seaborne iron-ore supplies were impacted by adverse weather conditions in both Brazil and Australia in the first quarter of 2012, in addition to ongoing Indian supply disruptions. For the year as a whole, seaborne supplies reached a level of 1 064-million tons, up 0.5%.