Kumba Iron Ore Doubles Profits

JSE-listed iron-ore producer Kumba Iron Ore (KIO) reported a doubling in profits and headline earnings for the year ended December 2008 despite the volatile world economy.

Attributable profit for the year grew to R7.2-billion, from R3.2-billion in 2007, while headline earnings were up to R7.3-billion from R3.1-billion in 2007.

KIO stated that steel market prices in 2008 experienced both sharp rises and sharp falls. During the first half of the year, the steel market rose continuously and broke historical records, while Chinese imports of iron-ore rose to 444-million tons for the year, pushing iron-ore spot prices to an all-time high of close to $200/t.

However, that was followed by a steep fall in third quarter steel prices on the back of a sudden drop in demand.

Despite this, KIO reported that revenue increased by 86% to R21.3-billion as a result of stronger iron-ore prices, a weaker rand, increased revenue from shipping services, and higher export sales volumes.

However, the increased revenue was partially offset by a 24%, or R1.1-billion, increase in net operating expenses, after taking into account foreign exchange gains.

Production costs for Sishen mine increased by 36% to R3.8-billion, and by 15% to R628-million for Thabazimbi mine, principally owing to an increase in production volumes at Sishen Mine, increases in the price of diesel, blasting material products, and steel products.

Export sales volumes for the Sishen mine for the year ended December 2008 increased by 4% to 24.9-million tons. This was impacted by a drop in demand during the fourth quarter, predominantly coming from Europe, and to a lesser extent, the Far East.

Sishen Mine’s South African domestic sales volumes declined by 14% to 5.6-million tons, owing to lower local demand. However, production increased by 15% to 34-million tons, principally as a result of the 4.7-million tons of production from the Jig plant.

Production was affected during the final quarter owing to the focus on increased quality of production from the Sishen Mine in order to secure export volumes in the short-term. Total tons mined at Sishen increased by 3% to 107.6-million tons. Thabazimbi produced 2.7-million tons, and sold about 2.5-million tons into the domestic market.


“The uncertainties and challenged faced by the global economy have led to a period of unprecedented volatility and rapid decreases in commodity prices, and volumes traded. Kumba plans to increase production by some 10% during 2009, should stable market conditions prevail,” the company stated.

The company would continue to target customers in China, in an attempt to redirect any lost contract volumes from Europe and Japan. In the short-term, minor production cut-backs may be required to produce higher quality products.

“However, more substantial cut-backs in production will depend on the scale of demand cuts from Europe and Japan, and the extent to which this can be absorbed by China. The first half of 2009, is likely to be very challenging for iron-ore sales volumes.”

Source: Mining Weekly