You can also listen to this podcast on iono.fm here.
advertisement
Continue reading below
This interview was originally broadcast on RSG Geldsake. The Afrikaans preface has been translated into this transcript.
Rik van Niekerk: Kumba Iron Ore is the continent's largest iron ore producer, with Anglo American owning about 70% of the company. The group has his two main businesses, the largest of which is his 76% stake in the Sixen iron ore mine in the Northern Cape. The mine is a 14 km long open pit, making it one of the largest open pit mines in the world. Kumba also owns the Kolomera mine near Postmasburg, also in the Northern Cape.
Today, the company announced its fiscal year 2023 results. Revenue increased by 16% to R86 billion. Comprehensive earnings per share increased by 26% to R22.7 billion. However, the group's production fell by 5% to 36 million tonnes, mainly due to Transnet's logistics problems. Therefore, the board declared him a dividend of R24.20, making his total dividend for the year to be R46.80.
The group also announced that 490 workers may be laid off. This comes after Amplats announced yesterday that it plans to cut its workforce by 3,700 people.
Read: Amplats considers cutting 3,700 jobs as metal prices fall
Mpumi Zikalala is waiting. She's her CEO of her Kumba. Mpumi-san, thank you very much for today. We announced a restructuring process affecting nearly 500 people, and our profitability increased by around 26%, which is significant. Can you put this into context?
Mpumi Zikalala: Obviously, we highlighted the results. A few more things to consider.
We have seen an improvement in safety performance, which is always important to us. But the other thing that we highlighted was the fact that we actually had to slow down production in the fourth quarter. The reason is that we have noticed that the product inventory has reached an unprecedented level, reaching 9 million tons. We delayed production because we had to readjust and rebalance our value chain as a result of our logistics performance.
Read: Kumba Iron Ore considers job cuts
Therefore, our reasons for initiating the Section 189 process are not ones we would have chosen lightly. It will be a difficult period and a challenging period for our team.
The two main reasons for this focus are simply that our business is outpacing our logistics network at the moment and we are seeing increased levels of product inventory to rebalance our value chain. It is necessary. We will rebuild our business.
We started this last year, starting with other elements of the business. So we reviewed and realigned our mine plans and also looked at reducing other structural costs across the business. As a last resort, we have sadly come close to initiating the Section 189 process. We cannot continue to operate a business that loses its balance and accumulates inventory.
I must say that this does not mean that I do not believe in the turnaround that the National Logistics Crisis Committee is promoting. What we recognize is the fact that although the appropriate work has been done, it will take time for the results to return to the level where he has a logistics capacity of over 40 million tons.
Obviously the second reason is that when the value chain becomes unbalanced, the business is actually designed to transport over 40 million tonnes of iron ore, so you end up spending money that you don't have to spend. Because it will. However, your logistics will be constrained by the numbers we have guided you.
Rik van Niekerk: I think this is a sad reality. Because if Transnet can ship more, it can expand its business.
But you have given guidance on future production levels, which remain relatively static at around 37 million tonnes. Can we then infer that we can't expect Transnet's efficiency to improve significantly over the next few years, even under Michelle Phillips?
Mpumi Zikalala: I'll think of a few things. We've guided him in the range of 35 million tonnes to 37 million tonnes, but what we need to consider as well is that right now he has a high level of inventory of just over 7 million tonnes. The fact is that there is. Over the years, we're obviously going to eat into that stock.
In addition to that, it's just inventory at the end of the process and our salable output, so we also have a high level of buffer in terms of our own production value chain and basically returns to normal level.
read:
Transnet's personnel changes are a success
Transnet says logistics reform cannot be rushed
advertisement
Continue reading below
And going back to the Transnet side, we said we fully support the National Logistics Crisis Committee and we are seeing strong leadership from Michel. Also, what we love is the fact that Michelle has taken the time to really get close to her customers. But what we recognize is that given the extent of the challenge, it will take some time for this to return to the level we want to reach, which is 40 million tonnes or more of production. Improving production capacity from the perspective of logistics performance.
Rik van Niekerk: In a perfect world, where there were no logistics problems or power supply problems, how much could Kuumba production be increased? Or to put it another way, with the logistics and challenges we face here in South Africa? What is the opportunity cost of the electricity challenge?
Mpumi Zikalala: Riku, In a perfect world, we would like to be operating at historic levels. In other words, as we have said, we have been aiming for about 35 million to 37 million tons, but he expects to reach a peak of 42 million to 43 million tons. ton, and we want to get back to that level.
I have to say unequivocally that this decision was difficult to watch because our team has actually performed very well. However, we cannot continue with an imbalanced value chain.
From Kunba's point of view, power issues don't affect us that much. That's because from a mining perspective, we primarily use diesel-powered vehicles.
But obviously we also work closely with Eskom. It's just that Transnet's logistics performance has a big impact on us.
Rik van Niekerk: Are there any other government-related challenges? Perhaps licensing-related issues?
Mpumi Zikalala: This is one of the biggest challenges we have from a Kumba perspective. Because obviously we want to unconstrain the value chain. And we all know that if we get it right, it will not only affect Kunba but other mines as well. Businesses, and our entire country, will benefit from this.
Read/listen: Kumba wants to 'co-operate' with Transnet [Feb 2023]
We work very closely with DMRE in terms of mining licenses and so on. [Department of Minerals Resources and Energy], it is a space that we have clear control over on a daily basis. Whenever we have a challenge, DMRE makes sure that we are available.
Rik van Niekerk: Let's look at the potential for private operators to step in to improve Transnet's efficiency. You mainly use this Xishen/Saldanha railway line, and my understanding, and I think that is accurate, is that it is the Transnet line that is most efficiently managed, especially in terms of goods. That's what I think. Is there any prospect that a private operator will actually operate on that particular route?
Mpumi Zikalala: yes. We use the iron ore export route, namely the Saldanha Bay export route. One of the things that excites us at the moment is the fact that the Freight Logistics Roadmap was approved by his cabinet in December. This roadmap basically looks at increasing private sector participation as part of Ore as well as Kumbh. User forum. Contains other users of the line.
Read: SA aims to revitalize economic growth with revival of ports and railways
We look forward to working on looking at how we can actually get the most benefit from this. We believe there is potential for concessions to work in the iron ore export channel and we look forward to engaging with both Transnet and the Government there.
Rik van Niekerk: Thank you, Mpumi. Mpumi Zikalala is the CEO of Kumba Iron Ore.
