Kumba delivers value through cost and capital discipline
08 December, 2023
Kumba is providing an update on the Company’s full year 2023 guidance and the outlook on production and C1 cash unit costs for 2024 to 2026.
Mpumi Zikalala, Chief Executive of Kumba said: “Kumba has continued to deliver improved operational stability at both Sishen and Kolomela, while continuing to prioritise the elimination of fatalities and serious injuries across both operations.
“Beyond the mine gate, however, there is no escaping the fact that ongoing logistics constraints have continued to place significant pressure on our value chain, resulting in stock levels at the mines increasing to unsustainable levels. We have therefore slowed down production and expect to end the year with production of between 35 - 36 million tonnes (previously 35 – 37 million tonnes) and sales at 36 – 37 million tonnes (previously 36 – 38 million tonnes). Sishen’s production has reduced to ~25 million tonnes (previously ~26 million tonnes) and Kolomela’s production guidance is unchanged at ~10 million tonnes.
“As a consequence of the reduced production volumes, Sishen’s unit cost is anticipated to increase to between R570 – 590 per tonne (previously R540 - 570 per tonne). Kolomela’s unit cost is expected to improve to between R480 – 500 per tonne (previously R510 - 540 per tonne), due to lower waste mining, higher production volumes as well as cost savings. Notwithstanding lower production at Sishen, our continued focus on cost improvements together with the benefit of a weaker currency, has contributed towards our improved C1 unit cost guidance of US$42 per tonne (previously US$43 per tonne).
“In light of persistent logistics challenges, we conducted a strategic business review in the second half of this year, with the aim of reconfiguring our business and aligning production more closely to the prevailing logistics capacity in order to ensure that our business is sustainable. Given this imperative, we have lowered our production outlook for the next three years to 35 – 37 million tonnes per annum (previously 37 – 39 million tonnes in 2024 and 39 – 41 million tonnes in 2025). I am pleased to add that, despite flat production and ongoing cost inflation, our C1 unit cost is forecast to improve to between US$38 - 40 per tonne over the next three years, benefiting from our programme to optimise our cost base in line with the revised production profile.
“The cost optimisation programme will be a multi-year journey. To date, we have identified between R2.5-3.0 billion of sustainable cost saving initiatives for 2024. As we progress, we will be doing more work to identify and embed further cost savings and efficiency opportunities into our plans. The initiatives identified are centred around optimising our mine plan and use of contractors, improving our efficiencies, extracting further supply chain savings, and streamlining overhead costs.
“From a capital project perspective, as previously communicated, we have rephased our Kapstevel South project at Kolomela, reducing the waste mined, and we are on track to deliver first ore in H1 2024 as planned. At Sishen, where the ultra-high-dense-media-separation (UHDMS) project is under review, we have prioritised the reconfiguration of the business due to ongoing logistics challenges. The changes resulting from the optimisation of our mine plan will be incorporated into the project technical review and we expect to submit the project to the board for approval mid-2024. We remain confident that the UHDMS technology will play an essential role in positioning our business for a sustainable future. We continue to see significant value uplift, due to the benefit from lowering the cut-off grade which reduces our strip ratio, increasing product quality, and extending the life of mine.
“At half year, we revised our capital expenditure guidance for the full year 2023 by approximately R2 billion lower, to between R9 billion and R10 billion. This was largely driven by lower expansion capex due to the rephasing of Kapstevel South and the UHDMS project being under review, as well as a reduction in stay-in-business capex due to the re-prioritisation of heavy machinery and equipment spend as part of the mine plan optimisation. Our capital expenditure guidance for the full year 2023 is unchanged. In the medium-term, sustaining capital expenditure is expected to remain at current levels of around R5 billion.
“The state of South Africa’s rail and port network is resulting in significant losses of revenue for many sectors of the economy and is depriving the country’s fiscus of much-needed taxes. Kumba, together with the Ore User’s Forum, is continuing to work with Transnet, the government, and other stakeholders to remove barriers and to improve the performance of the iron ore and manganese logistics network. We look forward to working with the new leadership at Transnet and are encouraged by the constructive efforts of the National Logistics Crisis Committee in promoting public sector partnership through the Freight and Logistics Roadmap.
“Despite ongoing logistics constraints, resulting in ore railed having decreased by ~15% since 2019, Kumba has continued to support local host communities. Over the past four years, our local procurement spend of R18.4 billion has helped to support local livelihoods and we have invested R1.4 billion in community healthcare, education, skills development and infrastructure. However, as we continue to face logistics challenges, we must ensure that our business is cost competitive so that we can continue to create enduring value for all our stakeholders.
“This year, Sishen celebrates its 70th year of operations in the Northern Cape where we have played a critical role in the local economy. With the actions we are taking to ensure that our business is resilient and sustainable, we will be well placed to continue supporting our local communities for years to come. We are focusing on the areas that we can control and building the flexibility required to operate in volatile macro scenarios with a more effective organisation to deliver our strategy in a sustainable and affordable manner.
“Over the long term we remain positive about iron ore fundamentals. The adoption of Scope 3 carbon reduction interventions by steel manufacturers will continue to support demand for Kumba’s high quality iron ore products. We are working with over 30 percent of our customers (by sales volumes) to help develop steelmaking technology with a lower carbon footprint and the decarbonization of our own operations will also ensure that we are well placed to participate in the green steel market.”
This announcement contains forward-looking statements which are based on the Company’s current beliefs and expectations about future events. The operational and financial information provided in this announcement are estimates, are subject to logistics constraints and have not been reviewed and reported on by the Company’s external auditors.
Kumba’s production and sales report for the fourth quarter and year ended 31 December 2023 will be released on the Stock Exchange News Service (“SENS”) on 8 February 2024.
| Full year guidance | 2023 | 2024 | 2025 | 2026 |
|---|---|---|---|---|
| Export sales (Mt) | 36 - 37 (Previously 36 – 38) |
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| Total production (Mt) | 35 - 36 (Previously 35 – 37) |
35 - 37 (Previously 37 – 39) |
35 - 37 (Previously 39 – 41) |
35 - 37 |
| Sishen | c.25 (Previously c. 26) |
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| Kolomela | c.10 (Unchanged) |
|||
| Waste stripping (Mt) | 205 - 215 (Previously 195 – 225) |
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| Sishen | 160-165 (Previously 150 – 170) |
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| Kolomela | 45 - 50 (Previously 45 – 55) |
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| On mine unit cost (R/t) | ||||
| Sishen | 570 - 590 (Previously 540 – 570) |
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| Kolomela | 480 - 500 (Previously 510 – 540) |
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| C1 unit costs (US$/t)¹ | 42 (Previously 43) |
38 | 39 | 40 |
| Capital expenditure (Rm) | 9 000 – 10 000 (Unchanged) |
1Based on foreign exchange rate of R18.00/US$ for 2023. The guidance for 2024 to 2026 is based on R19.00/US$.
2Production, sales volumes and C1 unit costs are reported as wet metric tonnes, with a moisture content of approximately 1.6%.
3Volumes referred to for the period are 100% of Sishen Iron Ore Company Proprietary Limited (“SIOC”), and attributable to Kumba’s shareholders and the non-controlling interests in SIOC.
Kumba investor call
Mpumi Zikalala, CEO; Bothwell Mazarura, CFO and Timo Smit, Executive Head of Marketing, will host an analyst and investor call at 13:00 (CAT). The conference call pre-registration details are provided below:
Conference call pre-registration:
https://services.choruscall.za.com/DiamondPassRegistration/register?confirmationNumber=2619129&linkSecurityString=6d514e9a4
Anglo American plc investor update
The Anglo American plc investor update presentation is available on the Anglo American plc website, at: https://www.angloamerican.com/investors/investor-presentations
Johannesburg
8 December 2023
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
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