Home » Kumba Iron Ore’s Growth Plans Derailed by South Africa’s Logistics Crisis

Kumba Iron Ore’s Growth Plans Derailed by South Africa’s Logistics Crisis

The company blames the logistics constraints for its lower output and higher costs this year.

by Motoni Olodun

South Africa’s largest iron ore producer, Kumba Iron Ore, has announced that it will not increase its production for the next three years due to the poor performance of the country’s rail and port network.

The company said that it had revised its business plan after a review this year, which revealed that the volume of iron ore transported by Transnet Freight Rail (TFR), the state-owned logistics company, had fallen by 15% since 2019.

“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,” said Mpumi Zikalala, CEO of Kumba Iron Ore.

The logistics crisis has also affected Kumba’s production and costs this year, forcing the company to lower its output guidance to between 35 and 36 million tons (Mt), compared to the previous range of 37 to 39 Mt.

The unit costs at its Sishen and Kolomela mines are expected to increase to between R570 – 590 per tonne and R480 – 500 per tonne, respectively. However, the company said that its unit costs in US dollars would improve to $42 per tonne, due to the depreciation of the rand.

Kumba also said that it had delayed the development of its ultra-high dense media separation (UHDMS) plant, a processing technology that would improve the quality and efficiency of its iron ore products. The project, which was sent back by its parent company Anglo American for review nearly two years ago, would be submitted for board approval in mid-2024.

The company’s revised production plan for the next three years is to maintain a stable output of 35 to 37 Mt per year, with a unit cost target of $38 to $40 per tonne. The capital expenditure is expected to remain at about R5 billion per year, including the rephasing of the Kapstevel South expansion and the ongoing review of the UHDMS plant.

Kumba’s announcement comes amid a growing concern over the state of South Africa’s logistics infrastructure, which has been plagued by inefficiencies, corruption, and vandalism. The poor performance of TFR has been a major bottleneck for the mining sector, which relies heavily on rail and port services to export its commodities.

“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,” said Zikalala.

According to the Minerals Council of South Africa, the mining industry contributed 8.2% of the country’s GDP and 27.6% of its total exports in 2020. However, the industry also faced a decline of 12.5% in its transportable sales volumes, mainly due to the disruptions caused by TFR.

The council has estimated that the mining sector could lose up to R15 billion in potential export revenue per year if the logistics challenges are not addressed urgently.

Kumba said that it remained hopeful that the situation would improve, as it was working closely with TFR and other stakeholders to find solutions. The company also welcomed the efforts of the National Logistics Crisis Committee, which was established by the government to promote public-private partnerships and implement a freight and logistics roadmap.

Zikalala said that he was also encouraged by the constructive efforts of the Ore User’s Forum, a platform for collaboration between TFR and its customers. He added that he was optimistic about the possible improvement in performance once the new leadership was installed at Transnet, following the resignation of its former CEO earlier this year.

Kumba Iron Ore is one of the world’s leading suppliers of high-quality iron ore, with a market capitalization of about R200 billion. The company operates two open-pit mines in the Northern Cape province, Sishen and Kolomela, which together produce about 70% of South Africa’s iron ore output.

The company’s iron ore products are highly sought after by the global steel industry, especially in China, which is the largest consumer of iron ore in the world. Kumba’s products have a high iron content and low impurities, which make them more efficient and environmentally friendly.

The company said that it was confident in the long-term outlook for the iron ore market, as the steel demand remained strong, driven by the recovery of the global economy and the transition to a low-carbon future.

Kumba Iron Ore said that it was committed to delivering value to its shareholders, customers, employees, and communities, while also contributing to the sustainable development of South Africa.

Source: Miningmx


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