JOHANNESBURG (miningweekly.com) – South Africa’s biggest iron-ore mining company Kumba Iron Ore intends maximising the return potential of its assets through productivity initiatives, accompanied by ongoing robust cost management.

It intends ensuring disciplined capital allocation, prioritising the reinstatement of dividend payments and progressing its project pipeline.

“I intend to lead the business towards greater technology adoption, as technology will play a very meaningful role in our future,” said new CEO Themba Mkhwanazi.

He views increasing the productivity of the company’s assets as a powerful driver of financial returns at low risk.

His aim is to deliver free cash flow that is not dependent on a recovery in the iron-ore price, which was up at $93.05/t on Tuesday but expected to drop back down into the $60/t to $50/t price range.

Planned are steps to generate value at every opportunity, from mine through to market and reviewing every aspect of the value chain as a means of offsetting mine cost inflation.

“We aim to achieve a 20% improvement in mining productivity through optimising shift changes, increasing labour availability and improving mine infrastructure,” Mkhwanazi said at Tuesday’s results presentation attended by Creamer Media’s Mining Weekly Online.

Plant maintenance is being prioritised, buffer stockpiles are being built and third-party ore sources are being used to support production.

Plans have been drawn up to increase plant yields and improve the ratio between lump ore and fine ore.

Steps are being taken to opportunistically engage in product blending to enhance grades and thus prices fetched.

In the 12 months to December 31, Kumba realised increasing value for its premium lumpy product in a rising iron-ore price scenario and at the same time cut controllable costs by 34%, which resulted in strong cash flow generation pushing the company’s net cash position to R6.2-billion.

The Sishen and Kolomela opencast mines, which both exceeded guidance, produced a combined 41.5-million tonnes iron-ore and reduced the average cash breakeven price to $29/t against an average realised price of $64/t free on board – up 18% on last year.
 
The strong balance sheet is now supporting a conservative capital structure in the face of an expected moderation in prices and technological steps to increase productivity.

It is also committed to realising better prices through better negotiations, understanding customer needs and improved two-way communication between marketing and operations.

Ongoing discussions are under way with suppliers to freeze escalation and steps are being taken to increase third-party volumes, which are expected to be between one-million tonnes and two-million tonnes this year, to mitigate against take-or-pay rail penalties.

Efficiency improvement spinoff is also expected through the integration of technologies, especially at Kolomela where advanced process control in the plant has contributed to increased plant throughput as well as a 2% rise in the lump-to-fine ratio.

This is cited as the reason why Kolomela has been able to lift its output to 13-million tonnes without having to spend capital on expansion and the same is now being repeated at Sishen.

“To achieve these ends, technology will play a major role,” Mkhwanazi reiterated.

In the 12 months to December 31, Kumba beat production guidance, slashed costs and pumped cash in what was a successful year marred by two fatalities.

Controlling shareholder Anglo American said in a separate statement that it would report underlying Kumba earnings of $438-million for the year, which would take into account certain adjustments on Kumba’s reported headline earnings of R8.7-billion.

But there is still no resumption of dividend payouts as the board has deemed it more prudent to use the cash to remain ungeared.

This year will also see the company having to appoint a new CFO following the resignation of Frikkie Kotzee after five years of service.

Despite the company’s triumph in challenging and volatile iron-ore markets, controlling shareholder Anglo American is still intent on disposing of the restructured company, which has settled its tax dispute with South African Revenue Services and had the residual Sishen mining right returned to it by the Department of Mineral Resources.

“We can now focus on the business,” Mkhwanazi told Mining Weekly Online in a media call.
 
The strong balance sheet is now supporting a conservative capital structure in the face of an expected lowering of prices and technological steps to increase productivity.