Kumba production and sales report for the fourth quarter, and trading statement, for the year ended 31 December 2023
08 February, 2024
Production and sales report for the fourth quarter and year ended 31 December 2023
Kumba Chief Executive, Mpumi Zikalala, said: “Our focus on operational safety and stability has driven further improvements in our safety performance in Q4 2023 as we continue to implement key learnings in our relentless pursuit of zero harm and the elimination of fatalities and serious injuries.
“Following the completion of the annual logistics maintenance shutdown by Transnet in October 2023, rail performance challenges continued to place significant pressure on our value chain. Ore railed to Saldanha Bay Port decreased by 19% in Q4 2023 compared to Q3 2023, resulting in on-mine stockpiles increasing to unsustainable levels.
Production rates were therefore moderated in December 2023 to alleviate this pressure. Consequently, production volumes decreased by 26% to 7.2 Mt from 9.7 Mt in Q3 2023. This decrease in production allowed a 0.7 Mt drawdown of on-mine stock from 7.2 Mt in Q3 2023 to 6.5 Mt in Q4 2023. Total finished product reduced from 9.0 Mt in Q3 2023 to 7.1 Mt in Q4 2023. Sales increased by 5% to 9.3 Mt compared to the Q3 2023 period.
"For the full year 2023, Kumba delivered production of 35.7 Mt and sales of 37.2 Mt, in line with revised guidance of 35-36 Mt and 36-37 Mt, respectively. Despite lower production volumes, C1 unit costs improved to US$41 per tonne below our revised guidance of c.US$42 per tonne, largely driven by Rand currency weakness and cost savings, with Kolomela in particular demonstrating better cost performance.
"In the last quarter of the year, iron ore prices strengthened on the back of tight market fundamentals, including low port inventories and demand supported by government stimulus announcements and steel exports from China. Higher lump premium due to low lump stocks and sintering cuts further contributed to Kumba’s average realised price of US$117 per wet metric tonne (wmt) for the year, 15% above the benchmark price of US$102/wmt.
"More broadly, and as previously communicated through the Stock Exchange News Service of the JSE (SENS) announcement on 8 December 2023, a comprehensive business review was conducted in the second half of 2023 with the aim of reconfiguring the business and aligning production more closely to the prevailing logistics capacity in order to ensure the long-term sustainability of our business. Further details regarding Kumba's reconfiguration plans will be released along with the 2023 Annual Results on 20 February 2024.
"Kumba is committed in its support of the key measures being undertaken by the National Logistics Crisis Committee to specifically halt the continued decline in performance and improve the capacity of the iron ore export channel. However, due to a significant amount of work required to turn the situation around over time, the logistics network is expected to remain constrained over the medium-term.
"As a result, we have revised our production guidance for the three-year period, 2024 to 2026 to 35–37 Mtpa and our expected C1 unit costs to $38–40/tonne, reflecting the benefit of our business reconfiguration and optimisation programme. We are taking these actions to ensure that our business is resilient and sustainable, so that we will be well placed to continue creating enduring value for all our stakeholders."
Overview of 2023
- Consistent improvements in safety performance including more than seven years of fatality-free production at Sishen.
- Production decreased by 27% to 7.2 Mt in Q4 2023 (Q4 2022: 9.7 Mt) and by 5% to 35.7 Mt for the full year 2023 to align with constrained rail performance in order to draw down high mine stockpiles.
- Sales increased by 36% to 9.3 Mt in Q4 2023 (Q4 2022: 6.9 Mt) and by 1% to 37.2 Mt for the full year 2023. Performance in Q4 2022 was impacted by logistics challenges caused by industrial action at Transnet.
- Finished stock for the full year 2023 reduced to 7.1 Mt (Q3 2023: 9.0 Mt; Q4 2022: 7.8 Mt), with the majority of stock situated at the mines and sub-optimal levels of 0.6 Mt at the Saldanha Bay Port.
- Achieved an average realised free-on-board (FOB) export iron ore price of US$117/wmt,15% above the benchmark price of US$102/wmt.
| % change |
% change |
% change |
||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Q4 | Q3 | Q2 | Q1 | Q4 | vs | vs | Full year | Full year | vs | |
| ‘000 tonnes | 2023 | 2023 | 2023 | 2023 | 2022 | Q4 2022 | Q3 2023 | 2023 | 2022 | 2022 |
| Iron ore waste | 46,021 | 59,602 | 60,302 | 50,914 | 55,021 | (16) | (23) | 216,839 | 204,308 | 6 |
| Iron ore production | 7,234 | 9,736 | 9,320 | 9,425 | 9,961 | (27) | (26) | 35,715 | 37,700 | (5) |
| Iron ore sales | 9,343 | 8,873 | 9,456 | 9,487 | 6,885 | 36 | 5 | 37,159 | 36,620 | 1 |
| Kumba waste | 46,021 | 59,602 | 60,302 | 50,914 | 55,021 | (16) | (23) | 216,839 | 204,308 | 6 |
| Sishen | 37,391 | 45,842 | 45,504 | 35,064 | 39,769 | (6) | (18) | 163,801 | 156,781 | 4 |
| Kolomela | 8,630 | 13,760 | 14,798 | 15,850 | 15,252 | (43) | (37) | 53,038 | 47,527 | 12 |
| Kumba production | 7,234 | 9,736 | 9,320 | 9,425 | 9,961 | (27) | (26) | 35,715 | 37,700 | (5) |
| Lump | 4,770 | 6,288 | 6,086 | 6,146 | 6,523 | (27) | (24) | 23,290 | 24,671 | (6) |
| Fines | 2,464 | 3,448 | 3,234 | 3,279 | 3,438 | (28) | (29) | 12,425 | 13,029 | (5) |
| Kumba production by mine |
7,234 | 9,736 | 9,320 | 9,425 | 9,961 | (27) | (26) | 35,715 | 37,700 | (5) |
| Sishen | 5,958 | 6,680 | 6,442 | 6,341 | 7,010 | (15) | (11) | 25,421 | 27,018 | (6) |
| Kolomela | 1,276 | 3,056 | 2,878 | 3,084 | 2,951 | (57) | (58) | 10,294 | 10,682 | (4) |
1.Volumes, excluding waste stripping, are reported as wet metric tonnes. Product is shipped with a moisture content of approximately 1.6%.
Safety and health
The health, safety and wellbeing of our employees and contractors is our top priority and a core value for Kumba. We continued to implement multi-year safety improvement programmes that aim to shift mindsets through leadership, empower our people, reduce risks with effective controls, and improve systems and metrics.
Mining and production
During Q4 2023, as part of Kumba’s planned slowdown to alleviate high mine stockpiles, waste mining decreased by 16% to 46 Mt (Q4 2022: 55.0 Mt). Sishen’s waste mining decreased by 6% to 37.4 Mt (Q4 2022: 39.8 Mt), while Kolomela’s waste mining, includes the rephasing of the Kapstevel South pit and a reduction in the waste mined by 10 Mt. As a result, Kolomela's waste mining decreased by 43% to 8.6 Mt (Q4 2022: 15.3 Mt).
Total production in Q4 2023 decreased by 27% to 7.2 Mt in Q4 2023 (Q4 2022: 10.0 Mt) following the curtailment of processing plants at both mines during December to allow for the draw down of high on-mine stockpiles. Sishen's production decreased by 15% to 6.0 Mt (Q4 2022: 7.0 Mt) while Kolomela's production was 57% lower at 1.3 Mt (Q4 2022: 3.0 Mt).
Sishen and Kolomela’s unit costs were in line with our revised guidance of R589 per tonne and R482 per tonne, respectively (revised guidance: Sishen R570-R590 per tonne; Kolomela R480-R500 per tonne). C1 unit costs of US$41 per tonne (revised guidance: US$42 per tonne) largely reflects the benefit of Kolomela’s cost optimisation focus supplemented by Rand weakness.
Logistics, sales and the market environment
During Q4 2023, ore railed to Saldanha Bay port increased by 18% to 8.0 Mt and sales by 36% to 9.3 Mt, compared to Q4 2022, which was impacted by industrial action at Transnet. In Q4 2022, ore railed to port decreased by 27% to 6.8 Mt and sales by 35% to 6.9 Mt, relative to Q4 2021. For the full year 2023, rail improved by just 1.6% due to derailments and other challenges, such as cable theft. Sales increased by 1% to 37.2 Mt.
Closing finished iron ore stock for the 2023 year ended at 7.1 Mt (Q3 2023: 9.0 Mt; Q4 2022: 7.8 Mt), with 6.5 Mt situated at the mines (Q3 2023 : 7.2 Mt; Q4 2022: 7.0 Mt) and sub-optimal levels of 0.6 Mt at Saldanha Bay Port (Q3 2023: 1.8 Mt; Q4 2022: 0.8 Mt). Given this, the restoration of the logistics network system remains a priority and we continue to work closely with Transnet, the government, and other stakeholders including the Ore User’s Forum to address the challenges affecting the iron ore export channel.
The average lump:fine ratio of Kumba’s iron ore products was 66:34 (2022: 67:33) and product quality of 63.7% Fe 2022: 63.8%), translated into an average realised FOB export iron ore price of US$117/wmt (equivalent to US$119/dmt), which is 15% above the average Platts 62 index FOB price of US$102/wmt (equivalent to US$104/dmt).
Production and sales volumes referred to are 100% of Sishen Iron Ore Company Proprietary Limited (SIOC), and attributable to Kumba's shareholders and the non-controlling interests in SIOC.
Kumba’s business reconfiguration and outlook for 2024 to 2026
Kumba is committed to supporting the key measures undertaken by the National Logistics Crisis Committee to improve the logistics network. However, an extended period of under- performance by Transnet has led to mine stockpile constraints, impacting production. Due to the amount of work required to rectify the situation, the logistics capacity is expected to remain constrained over the medium-term.
While we retain the operational flexibility to ramp-up volumes should rail performance improve, the decision has been made to align production to this reduced rail capacity to ensure a balanced value chain. Production is therefore expected to remain at 35-37 Mtpa for the period 2024 to 2026. Unit costs are expected to be between US$38-40/t during this three-year period, benefiting from Kumba’s business reconfiguration and cost optimisation programme in line with the lower production profile.
Trading statement for the year ended 31 December 2023
Kumba is currently finalising its financial results for the year ended 31 December 2023 (the period). Further information will be provided in the 2023 Annual results, which will be released on SENS on 20 February 2024.
In accordance with paragraph 3.4(b) of the JSE Limited Listings Requirements, shareholders are advised that headline earnings for the period are expected to be between R21,361 million and R23,633 million. Headline earnings per share (HEPS) for the period are expected to be between R66.55 and R73.63, an increase of between 18% and 31% from the previous year ended 31 December 2022 (comparative period). The increase in earnings for the period is largely attributable to the higher average realised FOB export ore price and weaker Rand/US$ exchange rate, relative to the comparative period. Reported headline earnings and HEPS for the comparative period (released on SENS on 21 February 2023) were R18,031 million and R56.19, respectively.
Basic earnings for the period are expected to be between R21,361 million and R23,634 million. Basic earnings per share (EPS) for the period are expected to be between R66.55 and R73.64, an increase of between 43% and 58% from the comparative period. The increase was due to basic earnings for the prior period including an impairment on the asset value of Kolomela mine as a result of revisions to the forecast production and cost profile in the life of asset plan. Reported basic earnings and EPS for the comparative period (released on SENS on 21 February 2023) were R14,968 million and R46.64 respectively.
This announcement contains forward-looking statements which are based on the Company’s current beliefs and expectations about future events. The financial information contained in this announcement, has not been reviewed and reported on by the Company's external auditors.
Johannesburg
8 February 2024
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
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