https://www.moneyweb.co.za/wp-content/uploads/2018/07/180724-03.mp3
RYK VAN NIEKERK: Kumba Iron Ore reported intermediate results today He has surprised the market by declaring a fairly large dividend, despite a drop in profitability due to a stronger rand, lower iron ore prices and some logistical challenges. The dividend stands at R14.51, and it is only slightly lower than the R15.97 that was paid last year. This is despite the decline in total profits of 35%.
On the line is Themba Mkhwanazi, the CEO of Kumba Iron Ore Themba, welcome to the show. The market seems to be very impressed by your new dividend policy. The price of the stock has increased significantly. Why did you change it?
THEMBA MKHWANAZI: Good evening, Ryk, and good evening to your listeners. It is an improvement of our policy. We have a discretionary policy and we have always been strong dividend payers over the years, and our dividend yield is between about 7% and about 10%. The reason for this change is to give our shareholders more clarity about the payout ratio. I think this gives us confidence in our recently demonstrated performance capability and also gives us a sense of confidence in aspirations while respecting our strategic ambitions. On top of that, the new policy also gives some clarity as to the level of flexibility of the balance sheet that we are comfortable going from before
RYK VAN NIEKERK: Let's talk about your operational performance. It remained under pressure, mainly because of a higher rand, lower interest rates and some logistical challenges. But let's start with these logistical challenges. In your results, you indicate that you had problems with Transnet, and their inability to move your product to ports and to export had a negative impact on your results. What was the magnitude of this negative impact?
THEMBA MKHWANAZI: This is essentially a lost opportunity from the revenue point of view. We had the opportunity to haul and sell 2.4 million tonnes of products and, because of the derailment problems we have encountered since the end of 2017, we had to translate them on their own. the current reporting period. . The impact of this on revenue is about 2 billion rand.
RYK VAN NIEKERK: Two billion rand. But it does not seem that this problem disappears soon. What is your relationship with Transnet? It seems like you are totally dependent on them to move your product.
THEMBA MKHWANAZI: We are totally dependent on it, and it is a key element of the value chain. In the future, it is very important that they respect the recovery plan that they have provided to us. Obviously, we did not have a recovery plan. But the key is to make sure we do not have more derailments or more failures in terms of performance. Therefore, another element is to recover some of the losses. We remain preoccupied and cautious, and that is why we have also revised our forecasts by lowering us by one million tonnes, and in turn our production of one million tonnes to Sishen.
RYK VAN NIEKERK: What do you pay each year to Transnet?
THEMBA MKHWANAZI: In fact, it is under contract and the terms of this contract are confidential.
RYK VAN NIEKERK: But Is it Linked to a Service Level Agreement
THEMBA MKHWANAZI: It is tied to a service level agreement and is very much about the movement of tons.
RYK VAN NIEKERK: [19459009ParlonsdelaChineetdevobadportationsverslaChineNousavonsvulaChineetl'AfriqueduSudsignerdesaccordscommerciauxpotentiellementtrèslucratifsaujourd'huiLemineraideferfiguredoesildanscesaccordscommerciaux
THEMBA Mkhwanazi: This n & # 39; is not what we know. However, from the perspective of the market outlook, China is obviously the key to a super iron ore market. What we see in terms of distribution, especially in terms of quality, is very positive for us because we are a niche player. Our product is unmatched, and the ability to … from the premium higher than the quality products get as a result of China's leaking to quality.
RYK VAN NIEKERK: I will get about the price of iron ore in a minute, but we are witnessing this potential trade war between the United States and China and it can be very aggressive according to the individuals involved. How does this affect the price of iron ore, and Kumba in particular?
THEMBA MKHWANAZI: At this stage, the impacts of the trade war are minimal. Yes, there are still significant impacts on other metals such as copper. And the reason is that when you look at the marine market and you look at the contribution of the marine market to America, it's very small, the contribution of America. And also from a steel manufacturing perspective or steel capacity compared to China, America is very small. And so the impact then for us is negligible at this stage.
RYK VAN NIEKERK: You said earlier that you have an excellent product, which we all know – that Sishen Iron Ore is absolutely one of the best in the world. The spot price is about $ 63 / ton. What are the average prices you get for your product?
THEMBA MKHWANAZI: We would realize an average FOB price of about $ 69 / ton, and this was obviously due to the higher premiums we get for our products. the iron ore content, which is the highest among our peer group, and also the fraction of lumpy ore versus fine ore, which for us represents about two-thirds, compared to about one-third of the niche of our peers. 19659003] RYK VAN NIEKERK: Finally, the political uncertainty in the mining industry is still cited as one of the reasons why there are not many d & # 39; Investment in the mining industry. What are your opinions on the current process of implementing or obtaining a new mining charter on which everyone can hear?
THEMBA MKHWANAZI: For us, it is really important to continue supporting the transformation. Our balance sheet speaks for itself. It is clear that the transformation must also take place, but with the right balance to ensure that we continue to invest in the sector. We believe that the Charter for Mining18 is an improvement over the previous charter in that it is a much simpler and clearer framework. We like both empowered, always empowered for life. We also like the fact that some of the elements that have been linked, for example, with safety, health and the environment, have now been removed because they are already legislation [in]. New rights, refills, free portering are issues of concern. What does it really mean? – the requirements for exploration rights, and also for purchases, while we support the desire to buy more in South Africa, which is good for the economy, the clarity and the Minors' responsibility to be responsible for qualified OEMs. on the BEE identification information. Again, we are concerned about that.
We are therefore looking forward to the consultation and ongoing discussion. And again, we are very happy that there is a possibility for this to happen, and even an extension for the discussions to take place. And we will look for favorable results with the discussions that will take place at the Minerals Council and through our contribution through Anglo American
RYK VAN NIEKERK: Thank you, Themba.
Shining Khuimalo of Vestact, interesting perspective there. They have their problems, probably unique with the problems with Transnet. But I only look at the dividend yield – 10%. BRIGHT KHUMALO: I think the dividend yield was previously higher before canceling it and restoring it again. Yes, some companies are trading at a higher dividend rate for a reason, and that is certainly one of them.
Again, Ryk, I will go back to the heart of investing in business – by investing, there is nothing a good idea or a bad idea without reference to the price. If you look at the price of Kumba iron ore today, its valuation compared to the past where you could have picked it up, I do not think it's attractive, to be honest. At the right price, maybe …
RYK VAN NIEKERK: Well, I think it will depend only on the demand for steel and what will happen with the trade war. He said that there was not really any impact immediately, or that there had not been any because of this potential Sino-US trade war. But I hope that if it goes down, there will be a significant increase in demand.
BRIGHT KHUMALO: And also if you had a glimpse of navigating these trade deals, and you know what the future would look like, and especially how that's going to affect a business like Kumba, I think you would be on something.
