Kumba’s production suffers from Covid-19 lockdown

Kumba Iron Ore Ltd’s operational performance for the period reflects the lockdown and subsequent reopening of operations in Q2 2020 with reduced workforce levels of approximately 50%, before ramping up production to pre-Covid-19 run-rates in June.

Consequently, total tonnes mined for the period decreased by 15% to 117.6 Mt (H1 2019: 138.0 Mt), with total waste reducing by 17% to 94.6 Mt (H1 2019: 113.8 Mt).

Both production and sales are closely managed in line with Transnet’s logistical capacity, which increased to approximately 80% in June 2020. As a result, total production was 11% lower at 17.9 Mt, relative to the 20.1 Mt delivered in the same period in 2019 with the impact of the pandemic most evident in the second quarter as volumes decreased by 20%.

Total sales volumes declined by 13% to 18.6 Mt (H1 2019: 21.4 Mt), driven by lower domestic offtake by ArcelorMittal SA of 0.4 Mt (H1 2019: 1.5 Mt), while export sales volumes decreased by 8% to 18.3 Mt (H1 2019: 19.9 Mt) due to logistical constraints and severe coastal weather conditions impacting ship loading at Saldanha port.

Total revenue decreased by 8% to R31.6 billion (H1 2019: R34.5 billion), mainly as a result of lower prices and sales volumes, partially offset by a weaker exchange rate.

Kumba’s average realised iron ore export price decreased by 14% to US$93/tonne (H1 2019: US$108/tonne), while the average Rand/US$ exchange rate weakened by 17% to R16.67/US$1 (H1 2019: R14.20/US$1). Sales volumes reduced by 13% to 18.6 Mt (H1 2019: 21.4 Mt) due to lower exports of 1.6 Mt and lower domestic sales of 1.1 Mt. Shipping revenue increased  by R569 million, benefitting from a weaker currency and higher volumes, partly offset by lower freight rates.

The extent of the impact of Covid-19 on Kumba’s operational and financial performance, including our full-year 2020 guidance, will depend on many factors, including the duration and severity of the pandemic and related restrictions, all of which are uncertain and cannot be fully predicted. The implications for our export markets are still unfolding.

Although Kumba’s management is encouraged by China’s recovery and the reopening of the European economies, the company remain alert to the possibility of further risks developing, including a second wave of infection.

The Company’s full-year 2020 guidance was revised together with our Covid-19 business response update. To date, operational performance has been in line with expectations and our guidance is as follows:

– Total sales of 38 Mt to 40 Mt

– Total production of 37 Mt to 39 Mt

   – Sishen: ~26 Mt

   – Kolomela: ~12 Mt

– Waste:

   – Sishen: 145 Mt to 160 Mt

   – Kolomela: 45 Mt to 55 Mt

Kumba’s unit costs were reviewed to take into account the Covid-19 adjusted production volume guidance and cost savings target. Sishen’s unit costs are expected to increase to between R385/tonne and R395/tonne, while Kolomela’s unit  costs remain between R280/tonne and R290/tonne with cost pressures from mining inflation and managing the Covid-19 impact expected to continue.

Kumba capital expenditure guidance of between R5.6 billion to R6.1 billion for 2020 includes the deferral of R1.0 billion of non-critical capital expenditure to 2021.

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