Kumba production and sales report, and trading statement, for the quarter ended 30 June 2020
16 July, 2020
Kumba’s Chief Executive, Themba Mkhwanazi, said: “Kumba's first priority is the safety and health of our employees and contractors. It is therefore with heartfelt gratitude that in May this year, we marked four years of fatality-free operations, underlining our sustained commitment to improving safety across all our operations.
"We have been responding to the Covid-19 pandemic with the same focus and rigour. Our comprehensive "WeCare" lives and livelihoods response programme is aimed at safeguarding the physical and mental health, wellbeing and safety of our people at work and at home, as well as that of our local communities. As part of this focus, Kumba has implemented extensive measures to combat the spread of the virus in the workplace and in our host communities. These measures include the implementation of extensive health screening measures, our own testing facilities, securing isolation and quarantine facilities for employees and their families, and appointing additional medical support staff in the Northern Cape region.
"Business continuity is our next priority to safeguard the livelihoods of all those who rely on our business across our value chain. While our operational performance reflects the impact of the lockdown and subsequent re-opening with a reduced proportion of our workforce, we successfully ramped up to close to full capacity in June 2020. Our focus is on maintaining flexibility and performance along our value chain to protect run-rates and capture the benefits of healthy demand for our quality products”.
Production and Sales Report for the six months ended 30 June 2020 ("the period")
Overview:
- Kumba marked four years of fatality free operations, underlining our commitment to improving safety and health.
- Covid-19 response measures, including contingency plans are in place and production is at 100% run-rate.
- Following the lockdown and subsequent re-opening with reduced workforce levels, total production decreased by 11% to 17.9 Mt (1H 2019: 20.1 Mt), driven by a 19.6% decline in Q2 2020 to 8.5 Mt (Q2 2019: 10.5 Mt).
- Total sales were further impacted by severe coastal weather conditions and reduced by 13% to 18.6 Mt (H1 2019: 21.4 Mt). Export sales decreased by 8% to 18.3 Mt and domestic off-take fell by 1.1 Mt to 0.4 Mt.
- Finished stock levels include a drawdown of 0.2 Mt to 6.2 Mt (31 December 2019: 6.4 Mt), with 2.4 Mt at port.
| Sales summary | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| ' 000 tonnes | Quarter ended | % change vs Q2 2019 |
Quarter ended Q1 2020 |
% change vs Q1 2020 |
Six months ended | % change vs 1H 2019 |
|||
| Q2 2020 | Q2 2019 | H1 2020 | H1 2019 | ||||||
| Total | 8,070 | 10,472 | (23) | 10,541 | (23) | 18,611 | 21,351 | (13) | |
| - Export sales | 8,070 | 9,756 | (17) | 10,190 | (21) | 18,260 | 19,886 | (8) | |
| - Domestic sales | 716 | (100) | 352 | (100) | 352 | 1,464 | (76) | ||
| Production summary | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| ' 000 tonnes | Quarter ended | % change vs Q2 2019 |
Quarter ended Q1 2020 |
% change vs Q1 2020 |
Six months ended | % change vs 1H 2019 |
|||
| Q2 2020 | Q2 2019 | H1 2020 | H1 2019 | ||||||
| Total | 8,475 | 10,544 | (20) | 9,450 | (10) | 17,924 | 20,060 | (11) | |
| - Sishen Mine | 5,782 | 7,310 | (21) | 6,580 | (12) | 12,362 | 13,757 | (10) | |
| - Kolomela Mine | 2,693 | 3,234 | (17) | 2,870 | (6) | 5,562 | 6,303 | (12) | |
Kumba’s operational performance for the period reflects lower workforce levels in Q2 2020 as guided by the South African government in response to the Covid-19 pandemic. Having shut down operations in response to the lockdown, Kumba re-opened its operations on 27 March 2020 following approval from the Department of Mineral Resources and Energy to operate at c.50% of workforce levels. With opencast mines permitted to return in phases to 100% of operations from 1 May 2020, Kumba commenced with the ramp-up to 100% in June 2020.
The safety and health of our employees and contractors has always been our first priority and in the current environment this is even more critical as we work to safeguard both lives and livelihoods. Covid-19 measures include screening, testing and quarantine procedures, as well as business contingency plans which have been implemented across our value chain. These measures support efforts to manage infection rates and to date, operating activities have not been impacted.
In line with these operating conditions and significantly reduced workforce levels, waste stripping for the period declined by 17% to 68 Mt (1H 2019: 82.8 Mt) at Sishen and by 15% to 26 Mt (1H 2019: 30.9 Mt) at Kolomela.
Both production and sales are being closely managed in line with Transnet's logistical capacity, which increased to c.80% in June 2020 after also re-opening at c.50% of workforce capacity. Kumba, along with industry peers, and Transnet, are working together to ensure optimal use of the rail network and port. At the same time, initiatives are underway to increase workforce levels, including the provision of training support.
Total production decreased by 11% to 17.9 Mt (1H 2019: 20.1 Mt), with the impact of the pandemic most evident in Q2 2020 resulting in production falling by 20% to 8.5 Mt (Q2 2019: 10.5 Mt). Total sales decreased by 13% to 18.6 Mt (1H 2019: 21.4Mt) which includes a 76% drop in domestic off-take to 0.4 Mt (1H 2019: 1.5 Mt), while export sales decreased by 8% to 18.3 Mt (H1 2019: 19.9 Mt), as an increase in severe coastal weather conditions during the period hampered shipment rates.
Maintaining flexibility across the value chain, from mine to port, remains a key focus area for the Company. The benefit of having flexibility was demonstrated by our ability to draw down 0.2 Mt of finished stock to 6.2 Mt during the period (31 December 2019: 6.4 Mt; 30 June 2019: 4.5 Mt), with 2.4 Mt available for shipping at Saldanha Port.
Buoyant iron ore prices, translated into an average realised FOB export iron ore price of US$93/tonne (1H 2019: US$108/tonne). Lump to fine ratio was 65:35 (1H 2019: 68:32) and product quality was adjusted during the period to meet market demand resulting in an average Fe quality of 64.4% (H1 2019: 64.3% Fe).
Full year 2020 guidance
Kumba's full year 2020 guidance was revised on 23 April 2020 together with our COVID-19 business response update. Our ramp up in run-rates are on track and revised guidance remain unchanged.
- Total sales of 38 - 40 Mt
- Total production of 37 - 39 Mt
- Sishen: ~27 Mt
- Kolomela: ~11 Mt - Waste:
- Sishen: 145 - 160 Mt
- Kolomela: 45 - 55 Mt
Trading statement for the six months ended 30 June 2020
Kumba is finalising its interim financial results. In accordance with section 3.4(b) of the JSE Limited Listings Requirements, shareholders are advised that headline earnings for the period are likely to be between R8,137 million and R8,557 million, a decrease of between 15% and 19% from the previous six months ended 30 June 2019 ("comparative period"). Headline earnings per share (HEPS) are likely to be between R25.37 and R26.68, a decrease of between 15% and 19% from the comparative period. Reported headline earnings and HEPS for the comparative period (released on SENS on 23 July 2019) were R10,095 million and R31.51.
Basic earnings for the period are expected to be between R8,146 million and R8,566 million, a decrease of between 15% and 19% from the comparative period. Basic earnings per share (EPS) are expected to be between R25.40 and R 26.71, a decrease of between 15% and 19%. Reported basic earnings and EPS for the comparative period were R10,058 million and R31.39, respectively.
The decrease in earnings for the period is largely attributable to lower total sales volumes and lower average realised FOB export prices, partially offset by the weaker Rand/US Dollar exchange rate, relative to the comparative period. Further information will be provided in the Company’s results for the period, which will be released on SENS on or about 28 July 2020.
This announcement contains forward-looking statements which are based on the Company’s current beliefs and expectations about future events. The operational and financial forecasts provided in this announcement are estimates and the financial information on which the trading statement is based, has not been reviewed and reported on by the Company's external auditors.
Production and sales volumes referred to for the period are 100% of Sishen Iron Ore Company Proprietary Limited (“SIOC”), and attributable to shareholders of Kumba as well as to the non-controlling interests in SIOC.
Centurion
16 July 2020
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
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