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Kumba Iron Ore: We're working with Transnet over derailments

Jul 26 2018 21:53
Marelise van der Merwe

Kumba Iron Ore has vowed to take corrective action after train derailments allegedly cost it R2bn.

But while Transnet has committed to working alongside SA's largest iron ore miner to address the issue, it says it was not entirely to blame for Kumba's revenue losses.

According to Kumba's interim results for the year ended 30 June 2018, there were six derailments on the Iron Ore Export channel since the second half of 2017, with four of these occurring during the 2018 period.

The company had delivered a mixed bag of results, with total revenue decreasing by 9% to R19.5bn and headline earnings dropping by some 35% to R3bn. Earnings before interest, tax, depreciation and amortisation (Ebitda) dropped by 24% to R7bn.

Despite a challenging operating environment, however, the company realised cost savings of R415 million and investors had received an interim cash dividend of R14.51 per share.

Operations also remained fatality free with high-potential incidents reduced by 77%, and product quality had improved at 64.5% Fe with production increasing 3% to 22.4 Mt.

'Sub-optimal'

Kumba, a subsidiary of Anglo American, described Transnet's performance as "sub-optimal" in the interim results statement, saying rail challenges had "resulted in lost opportunities to achieve higher export sales volumes".

"As a result of this, iron ore railed to port remained similar to the comparative period at 20.8 Mt," Kumba said.

Kumba spokesperson Sinah Phochana told Fin24 the derailments had set the company back R2bn.

According to the statement, logistical issues overall resulted in 2.4 Mt of lost export sales opportunity.

Total and export sales remained flat at 21.2 Mt and 19.5 Mt respectively relative to the comparative period, with domestic sales decreasing to 1.7 Mt.

'We are hopeful'

According to Kumba's results statement, initiatives have been implemented to mitigate the impact of derailments, including reducing loading times and improving turnaround times at mines.

Phochana told Fin24 efforts had also been made to reduce variability in loading times.

The company had engaged with Transnet on improving performance and Kumba was optimistic regarding the outcome, she added.

"Transnet has shared a recovery plan with us, which aims at reaching stability and catching up on lost railing," Phochana said.

"We are monitoring Transnet's performance to achieve delivery of our contractual capacity and to prevent further derailments and breakdowns."

Additionally, Phochana said, Transnet had replaced and commissioned new wagons. "We are hopeful that our engagements with them will gain some traction."

'Improving year on year'

Transnet told Fin24 there were recovery plans in place to meet Kumba's volume commitments and that Transnet was working closely with the company and remained on target.

Transnet had "improved year on year", spokesperson Molatwane Likhethe said. There had been a 10.2% variance in performance on the iron ore channel and the rail operator was ahead with volumes compared to the previous year's performance.

"Unfortunately, volumes lost from the derailments have impacted Kumba more than other iron ore customers," Likethe said.

Some of the derailments had been force majeure incidents involving premature equipment failures, he added.

A number of Board of Inquiries had been initiated on the remaining derailments, Likethe said, and Transnet would engage its customers when the findings were complete.

However, Likethe said, Transnet "noted with concern" that Kumba reported a loss of 2.4mt due to derailments. According to Likethe, this was incorrect.

Likethe told Fin24 the gross losses – i.e. trains cancelled by Transnet – accounted for over 2.8Mt; however, there had been over 1Mt in recoveries (where Transnet had mobilised quickly to replace a lost train to make up for the loss). This meant there had been a net loss of 1.88Mt, he said.

According to Likethe, Kumba also cancelled a number of trains from 1 January to 30 June for "various reasons".

"The cancelled volumes by Kumba is 393 200 tons," Likethe said.

Kumba [JSE:KIO] shares were trading at R285.26 at 16:50 on Wednesday, down 1.25%.

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anglo american  |  kumba iron ore  |  mining  |  iron ore
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