JOHANNESBURG (miningweekly.com) – Iron-ore mining company Kumba Iron Ore on Tuesday reported a 23% increase in production in the six months to June 30 on the back of a productivity step change linked to the revised Sishen mine plan.

The Anglo American subsidiary achieved a fatality-free half-year and reduced lost-time injuries in producing 21.9-million tonnes of iron-ore.

The stronger operational performance and higher iron-ore prices resulted in the operating margin improving to 36%, up from 29% in the first half of last year.

Headline earnings leapt 53% with operating free cash flow up 48% to R8.3-billion, resulting in a robust R13.5-billion net cash position, which has enabled the company to resume dividend payments, with an interim dividend of R5.1-billion declared, representing R15.97 a share.

The reinstatement of the dividend saw the price of Kumba shares jump by more than 12% in early morning trade to R194.49 a share.

“While the overall progress has been very encouraging, substantial effort was required simply to offset cost inflation and there is no room for complacency. The team is therefore examining every aspect of the value chain to improve Kumba’s ability to endure any future price volatility,” Kumba CEO Themba Mkhwanazi said in a release to Creamer Media’s Mining Weekly Online.

Kumba achieved an average cash breakeven price of $43/t in the first six months of 2017, an increase of $14/t from the average for the full year 2016.

Controllable costs increased by $1/t as a result of a $2/t increase from mining cost inflation and higher waste mining volumes, partially offset by a further reduction in controllable overhead costs of $1/t through continued cost optimisation.

Uncontrollable costs increased as a result of higher freight rates ($3/t) and lower lump and market premiums ($5/t), higher mineral royalties ($1/t) and a stronger currency, which added $4/t.
                          
Revenue rose 22% to R21.5-billion and the 53%-higher headline earnings a share amounted to R14.42 a share.

The board has decided to resume paying a dividend while retaining a high level of balance sheet flexibility but a conservative approach is seen as remaining critical in the context of an ongoing volatile price environment.

Kumba expressed concern that Mining Charter Three was not concluded through the usual agreement between government, business and labour, despite the best efforts of those stakeholders over the preceding year.

Kumba threw its weight behind the legal course of action being followed by the Chamber of Mines, with the ultimate objective of arriving at a negotiated solution that is practical to implement, and that preserves and enhances investment in what it describes as “a critically important industry for South Africa”.

The company said that in the absence of new investment, South Africa would fail to deliver the economic growth required to create greater levels of employment and socioeconomic upliftment for the benefit of all South Africans.

Kumba reiterated its commitment to meeting South Africa’s transformation objectives and would continue to engage through the chamber.

The Sishen mine’s consolidated mining right was this month granted by the Department of Mineral Resources and the process to amend it will now proceed, with mining operations only commencing once the required environmental authorisation has been approved, which is expected soon.

The transfer of the Thabazimbi iron-ore mine to ArcelorMittal South Africa will lapse on August 31 if conditions are not satisfied. Should this happen, Sishen Iron Ore Company will proceed with the closure of the mine.

Should the agreement become effective, employees, assets and liabilities will transfer to ArcelorMittal at a nominal purchase consideration plus the assumed liabilities, which includes the mine’s social closure plan based on the identified needs of the Thabazimbi community.