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Kumba Iron Ore: Strategic Shift Ahead

Reconfiguration Plan to Enhance Long-Term Competitiveness Announced

by Oluwatosin Alabi

Kumba Iron Ore, a subsidiary of Anglo American and led by CEO Mpumi Zikalala, announced significant strategic changes following a comprehensive review in 2023. Aimed at adapting to prevailing logistics constraints and ensuring long-term competitiveness, Kumba is set to reconfigure its operations. This entails adjusting its production profile to 35-37 million tonnes (Mt) from 2024 to 2026, a move designed to reduce on-mine stockpiles and achieve substantial cost savings, projected between R2.5 billion to R3.0 billion for 2024. The revised C1 unit cost guidance is now set at US$38 – US$40 per wet metric ton (wmt) for the next three years.

This strategic shift, while necessary for maintaining Kumba’s competitive edge and sustainability, unfortunately comes with significant human and economic costs. The proposed reconfiguration will result in the loss of approximately 490 jobs across Kumba’s operations, impacting both permanent and fixed-term employees. This process will be conducted in consultation with relevant stakeholders, including trade unions and non-unionized workers, adhering to section 189A of the Labour Relations Act. The process aims to be transparent and considerate, facilitated by the Commission for Conciliation, Mediation, and Arbitration to ensure fair and equitable treatment for all involved.

Simultaneously, Kumba is reviewing its contractor and vendor arrangements, potentially affecting around 160 service providers. This review might lead to the rescoping or termination of some contracts as part of the business’s broader reconfiguration efforts.

Kumba acknowledges the challenges this reconfiguration poses to its workforce, contractors, and the broader community. The company is committed to developing an integrated social response plan, in line with its affiliation with the Anglo American group, to mitigate the socio-economic impacts on those affected. This plan prioritizes the safety, health, and well-being of Kumba’s employees and mine communities, continuing its goal of achieving zero harm and eliminating fatalities.

The backdrop to these decisions includes macro-economic volatility, escalated geopolitical tensions, and domestic challenges such as loadshedding and logistic constraints. These factors, combined with persistent cost inflation and high-interest rates, have pressured businesses, including Kumba. The company has faced significant logistic challenges, including derailments and infrastructure failures, prompting a production slowdown in the fourth quarter of 2023. This strategic adjustment resulted in a 5.3% decrease in production to 35.7 Mt, while sales saw a modest increase of 1.6% to 37.2 Mt.

Despite these hurdles, Kumba has managed to deliver robust financial results, with earnings before interest, tax, depreciation, and amortization (EBITDA) reaching R45.7 billion and an EBITDA margin of 53%. This financial resilience enabled Kumba to declare a final cash dividend of R10.3 billion, reflecting its commitment to delivering value to shareholders, including empowerment partners and the broader community.

Looking forward, Kumba remains optimistic about the iron ore market’s fundamentals, particularly the demand for its high-quality ore in green steel production. The company is engaged with over 30% of its customers to develop steel-making technologies with a lower carbon footprint. Moreover, Kumba is advancing its sustainability initiatives, including a 67 megawatt (MW) solar PV project at Sishen and an 11 MW renewable electricity wheeling contract for Kolomela, aligning with its 2030 carbon emission reduction targets.

As Kumba navigates these transformative changes, its focus remains on operational safety, stability, and enhancing cost competitiveness. The reconfiguration is seen as a pivotal step in streamlining operations, boosting efficiency, and securing a sustainable future for the company and its stakeholders. Kumba’s leadership, under Zikalala’s direction, is committed to steering the company through this period of transition, ensuring it remains a key player in the global iron ore market while contributing positively to its employees, communities, and the South African economy at large.

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