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Cape Town – A R617m tax breather boosted Anglo American’s iron ore unit Kumba [JSE:KIO], which posted a headline earnings per share (Heps) rise of 20% to R3bn.
The company said in a statement on Tuesday that this rise in Heps was due to the derecognition of a once-off R617m tax write-down in the first half of 2015.
The company said operating profit margin increased by 1% amid a 12% decline in revenue for the six month period ended 30 June.
As part of its position to strengthen its balance sheet amid continued market volatility and uncertain outlook, Kumba decided not to declare an interim 2016 dividend.
UPDATE: At 12:00, Kumba was trading 3.9% down at R121.58, having started the day at R126.50 on the JSE.
“Earnings were impacted by lower realised iron ore export prices, which weakened by 10% to an average of $55/tonne, partially offset by the favourable impact of a 29% weakening of the rand against the dollar,” it said.
Kumba highlighted its improving operating free cash flow, which was up 18% to R6.7bn.
“Capital and cost discipline remains fundamental to our business model as we move forward in this uncertain and volatile landscape,” it said. “The transformation in our cash cost base has provided us with a reasonable uplift in our operating margin to 29%.”
Mining dropped 35% and sales volumes dropped 22% compared to the first half of 2015, in line with Kumba’s new pit configuration at Sishen.
Kumba mande a substantial R3.1bn reduction in controllable costs, completed its Sishen restructure, achieved a cash breakeven price within its targeted range at $34/t, and strengthened its balance sheet to a net cash position of R548m.
Mine restarts, seasonal supply uptick and continued weakening supply and demand fundamentals are expected to result in further pressure on the iron ore price for the remainder of the year, it said.
Kumba reported two fatalities during the six-month period at Sishen and Kolomela mines.
Kumba CEO resigns
“This time last year, Kumba was facing a significantly deteriorating price environment, which brought about immense change to the industry. Iron ore prices have since declined by a further 13%, reflecting the deep shift in commodity markets,” said Kumba CEO Norman Mbazima, who announced on Tuesday he is stepping down at the end of August.
After four years in the role, Mbazima said he will now focus on his role as deputy chairperson of Anglo American South Africa with effect from 31 August 2016.
Anglo American’s Coal South Africa CEO Themba Mkhwanazi will take over his role on September 1. July Ndlovu, Anglo American Platinum executive head of processing operations, will then move into Mkhwanazi's role.
“Dynamic iron ore market fundamentals, including low cost supply, the flattening of the cost curve and more muted demand from China, necessitated a thorough review of Kumba’s business in order to further improve its competitive position and reduce cash costs,” said Mbazima.
“As a result, we moved decisively to implement major changes which included closing unprofitable ore sources, moving Sishen to a lower cost pit shell, restructuring the entire organisation, reducing cash costs, preserving cash and introducing operational improvements. I am pleased to report that we have made substantial progress as reflected in this set of mid-year results.”
“At 30 June 2016, Kumba was in a net cash position of R548 million, which provides us with good financial flexibility to cope with the challenges that lie ahead. Kumba is now much more resilient and better positioned for lower prices.”
Majority owner Anglo American is planning to offload its stake in Kumba, either through a spinoff or sale. Anglo instead wants to focus on copper, platinum and diamonds, reports Bloomberg.
Kumba shares have tripled this year to R126.50 at Monday’s close, boosted by a 31% increase in iron-ore prices over the same period.
