JSE-listed miner Kumba Iron Ore delivered a payout ratio of 92% of headline earnings per share (HEPS) for the year ended December 31, exceeding its 50% to 75% dividend payout policy.

The company declared a final cash dividend of R15.99 apiece, which, combined with the interim dividend of R30.79 apiece, amounted to a total dividend of R46.78 apiece, compared with the total dividend of R30.24 apiece in the year ended December 31, 2018.

Kumba created value of R19.8-billion for shareholders and its empowerment partners in the year under review.

CE Themba Mkhwanazi said in the company’s results statement on Tuesday that Kumba’s value over volume strategy had helped to deliver exceptional earnings growth and increase the resilience of the business.

Kumba achieved earnings before interest, taxes, depreciation and amortisation (Ebitda) growth of 62% year-on-year to R33.4-billion, while improving its Ebitda margin from 45% to 52%.

The company’s cash flow from operations was also up by 79% to R34-billion, with the company ending the year at a net cash position of R12.3-billion, compared with a net cash position of R11.7-billion in 2018.

Kumba reported a 62% year-on-year increase in net profit increase to R21.3-billion.

Mkhwanazi said Kumba’s financial performance in the year under review reflected the benefits of higher iron-ore prices, improved efficiencies and further cost savings ahead of the company’s target.

These factors helped offset the impact of operational challenges experienced during the year.

Kumba’s total tonnes mined increased by 2% year-on-year to 297.9-million tonnes in 2019, compared with the 292-million tonnes mined in 2018.

Mkhwanazi noted that mining activity had improved in the second half of last year, after challenges with primary equipment reliability in the first half of last year.

Combined with plant maintenance impacts, Kumba’s production volumes for the year under review decreased by 2% year-on-year to 42.4-million tonnes, compared with 43.1-million tonnes produced in the prior reporting year.

Kumba maintained a lump-to-fine ratio of 67:33, compared with a ratio of 68:32 in the prior year, while the average quality was sustained at 64.2% iron in 2019, compared with 64.5% iron in 2018.

The company’s Sishen mine produced 29.2-million tonnes in 2019, on par with that produced 2018, while the Kolomela mine’s production decreased by 5% year-on-year to 13.2-million tonnes.

Mkhwanazi said lower domestic sales volumes in the year under review were offset by stronger iron-ore prices, higher market premiums and currency gains.

Kumba’s average realised iron-ore export price increased by 35% year-on-year to $97/t in 2019, compared with $72/t in 2018.

The company has set its production guidance for 2020 at between 41.5-million and 42.5-million tonnes.

"With supportive demand fundamentals for our high-quality products, we are focused on delivering our safe production targets to continue capitalising on this opportunity.

“We are also focused on improving operational equipment reliability and productivity, building on the strong financial performance in 2019. Underpinned by our strong balance sheet and capital discipline, we have a solid foundation for achieving our 2020 targets,” Mkhwanazi stated.

Kumba has remained fatality-free since mid-2016, while its lost time injury rate was down 19% year-on-year to 17 cases in 2019. The company also recorded no major environmental incident in the last four years. 

The company’s two prospective targets, Ploegfontein and Heuningkranz, which would extend the Kolomela mine’s life beyond 2030, continued to be explored up to 65% and 90% completion, respectively. 

Mkhwanazi confirmed that drilling at targets between the Kolomela and Sishen mines would start later in the current quarter.

An expansion plan for the Sishen mine was being advanced, with a feasibility study to be completed in the second half of the year, ahead of planned implementation in 2023.

When asked about why the company's production had remained flat over the last few years, Mkhwanazi said the company's production growth had been limited by constrained rail and port capacity.

He added that the company was continuously engaging with State-owned Transnet on increasing rail and port capacity.

The closure of steel producer ArcelorMittal South Africa's Saldanha mill will, however, also impact on local iron-ore sales in future.

MARKET OUTLOOK
In 2019, iron-ore prices were supported by demand and supply factors, said Mkhwanazi. The iron-ore price averaged $93/t, up 34% year-on-year and the highest level since 2015 in dollar terms; in rand terms it was the highest level ever recorded.

Mkhwanazi further acknowledged that the coronavirus situation was still evolving rapidly, but the precise impact on the Chinese economy remained to be seen. 

“We expect volatility to continue and Chinese demand to remain low, owing to its steel production being put on hold. Kumba’s diversified portfolio and proactive discussions with customers inside and out of China will help to minimise the impact of lower demand from China’s steel industry.”

Mkhwanazi confirmed that the company's sales had not yet been affected by steel mill shutdowns in China. 

Forty-two per cent of Kumba's export sales volumes is sold to South Korean, Japanese and European customers, which helped to diversify the portfolio, while Chinese customers accounts for 52% of export sales.