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Tuesday, 28 July 2015 - 20:00
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Seed Weekly - Kumba - Nerves of Steel Required
Kumba Iron Ore Ltd is the only pure play iron ore company listed on the JSE, and it operates across the entire value chain including exploration, extraction, beneficiation, marketing, sales and shipping of iron ore.
History
Kumba can trace its roots back to the parastatal steel company Iscor, which established the Thabazimbi mine in 1932 and the Sishen mine in 1954. The Sishen-Saldanha rail link, developed by government in 1976, enabled the easy transportation of iron ore to the Saldanha port for export.
Following Iscor’s privatisation in 1989, it was unbundled into Iscor and Kumba Resources. Kumba was listed on the JSE in November 2006 as the result of the further unbundling of Kumba Resources’ iron ore assets.
Operations
The Company operates three mines – Sishen and Kolomela in the Northern Cape, and Thabazimbi mine in the Limpopo Province.
Sishen is the flagship operation, has a 19-year life of mine and at 14km long is one of the largest open pit mines in the world. Kolomela mine, although the newest mine, is going from strength to strength in terms of production and has a 25-year life of mine.
Thabazimbi, in operation since 1932, is no longer cost-efficient, with difficult mining conditions increasing safety risks. As a result, Kumba has initiated the process of closing the mine down completely.
Latest Financial Results
Kumba recently released its results for the six months ended 30 June 2015, and it is clear that the company is under a lot of pressure due to the falling iron ore price.
Revenue fell by 23% to R 20.5bn, resulting in a drop of 53% in operating profit and a substantial 61% decrease in Headline Earnings Per Share. Volatile trading conditions and the need to maintain some financial flexibility resulted in the board not declaring an interim dividend.
On the positive side, production decreased by only 1% to 22.6Mt, export sales were up 18% to record levels, and controllable costs were brought down by 16%.
The graph below illustrates the drivers behind Kumba’s change in revenue over the reporting period:
The iron ore export price dropped dramatically, down 41% from $104/t in 1H14 to $61/t in 1H15, resulting in an R11bn decrease in revenue. Shipping revenue reduced by around R 500m to R 1.6bn.
Offsetting these negative effects were higher sales volumes, resulting in a net increase of R3.9bn, and a weaker ZAR/USD exchange rate.
Outlook and Fundamentals
The company is in the process of reconfiguring its operations in light of the very challenging market environment. It will attempt to bring down its cash breakeven price from $63/tonne to $45/tonne by reducing overhead costs, reinforcing capital discipline and maintaining its focus on product quality.
The difficult mining conditions at Thabazimbi was worsened by a recent slope failure, and as a result the mine has reached the end of its economic life and will now be closed down.
With demand from China ever slowing and competitors in Australia and Brazil increasing supply, the iron ore price is expected to remain under pressure in the foreseeable future. This leaves only one, very challenging, option – increase production while reducing marginal costs and waste volumes.
The share has collapsed from over R600 to just over R100. This has meant that despite the collapse in earnings the historical PE has declined to just over 5 times, which appears very cheap compared to the JSE’s 17.9. The dividend yield, which has peaked at over 20% early in July, has dropped to 7.4% with no interim dividend declared.
Kumba is currently held in the Seed Equity Fund, with the high Dividend Yield, Earnings Yield and Cashflow/Price ratio earning it a place in the Value portfolio.
Kind regards,
Cor van Deventer
Tel 0219144966
Fax 0219144912
Email info@seedinvestments.co.za
Seed is hiring: Click through to our LinkedIn profiles to see vacancies at Seed Investment Consultants and Seed Analytics
Tue, 28 Jul 2015Top News
![[IMAGE]](image.php@width=300&height=150&cropratio=2%253A1&image=%252Fnews_images_sn%252F1376481030.jpg "5pm market wrap") Local markets Full story ![[IMAGE]](image.php@width=300&height=150&cropratio=2%253A1&image=%252Fnewsimages%252F2015-07-28T133636Z_1007950001_LYNXNPEB6R0O9_RTROPTP_3_OZABS-UK-SAFRICA-MAIZE-FORECASTS.JPG "Mthimkhulu inspects his crop at his farm in Senekal") South Africa kept its 2015 maize output unchanged at 9.755 tonnes on Tuesday, the government's Crop Estimates Committee (CEC) said.
South Africa is still expected to reap its lowest staple crop harvest since 2007, which is forecast to be a third less compared with the 2014 crop due Full story |
 NATO gave Turkey its full political support in fighting militants in Syria and Iraq at an emergency meeting on Tuesday but several nations urged Ankara not to undermine the Kurdish peace process by using excessive military force. Full story  A Libyan court on Tuesday sentenced Muammar Gaddafi's most prominent son, Saif al-Islam, and eight others to death over war crimes including killings of protesters during the 2011 revolution that ended his father's rule. Full story  Malaysian Prime Minister Najib Razak sacked his deputy and four other ministers in a cabinet reshuffle on Tuesday, and replaced the attorney general, in a bid to stifle questions over a graft scandal at debt-laden state investment fund 1MDB. Full story |
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Markets |
U.S. and European stocks rose
on Tuesday, and were on track to snap five-day losing streaks as
investors focused on earnings and mergers. . . Full story |
Gold firmed on Tuesday but
remained near 5-1/2-year lows as markets braced for this week's
Federal Reserve meeting, at which policymakers are expected. . . Full story |
European stocks snapped a
five-day losing streak on Tuesday, with merger activity and
earnings news lifting major markets by more than 1 percent,. . . Full story |
Hong Kong blue chip stocks
rose on Tuesday, bucking falls for mainland shares, on hopes for
a stabilising China market as Beijing hinted. . . Full story | |||
China stocks ended lower in a
volatile session on Tuesday, even as Beijing pledged to lend
further support after stocks sank 8 percent. . . Full story |
Australian shares closed
marginally lower on Tuesday as strength in the energy and
healthcare sectors largely offset worries about China's economy.. . . Full story |
Japan's Nikkei share average
edged down on Tuesday in volatile trade after crawling back from
a more than two-week low hit earlier in. . . Full story |
The biggest rout in Chinese
shares in eight years stoked concerns over slowing growth in the
world's No. 2 economy on Monday, knocking. . . Full story | ||||
SA Business |
South African power utility Eskom is open to importing coal for plants it still plans to commission, a coal conference heard. . . Full story |
Diageo and Heineken have agreed to dissolve their joint ventures in South Africa and Namibia, so the British spirits maker and. . . Full story |
Shares in South Africa's MTN fell 5 percent as the company said it expects a drop in first-half earnings, blaming a. . . Full story |
South Africa's South Africa's National Union of Mineworkers (NUM) said on Monday it had signed a two-year wage agreement with junior. . . Full story | |||
South Africa's largest private education company Curro Holdings said a 6 billion rand ($478 million) offer for smaller rival Advtech is. . . Full story | South African private education firm Advtech is talking to other potential investors and has not referred a takeover bid by larger. . . Full story | Emerging stocks languished near
a two-year low on Tuesday after Chinese shares took another
beating while currencies, mired around multi-year lows, were
pulled in. . . Full story | France's largest telecom operator
Orange inched closer in the second quarter to a
long-awaited recovery as customers shifted to premium high-speed
mobile and broadband. . . Full story |
South Africa's rand recovered slightly early on Tuesday after touching a fresh 14-year in the previous session as emerging markets wobble on concerns over China's economy.. . . Full story |
Company News |
ADvTECH shareholders are advised that at the annual general meeting (AGM) of shareholders held on Tuesday, 28 July 2015, all the. . . Full story |
In terms of the Listings Requirements of the JSE Ltd., a listed company is required to publish a trading statement as. . . Full story |
Shareholders are advised that the notice of annual general meeting (ônoticeö) of the company has been distributed to shareholders today. As. . . Full story |
Shareholders are advised that the salient dates for the twenty-first dividend declaration on the variable rate non-cumulative, non- redeemable B preference. . . Full story | |||
Production Results to 30 June 2015
Highlights
*Attributable production from operating mines up 5% quarter-on-quarter, up 6% compared to previous corresponding period, quarter ended June 2014 (pcp)
*Both Kroondal and Mimosa production at fourth quarter record levels
*Average USD PGM basket price decreased 4% for the quarter û down 16% compared to pcp
*Kroondal PGM basket price decreased 3% on average to R12 120 per PGM ounce quarter-on-quarter - down 5% compared to the pcp
*Mimosa. . . Full story | |||||||
Company Results | Revenue decreased to R3.9 billion (R4.1 billion). Gross profit fell to R288.2 million (R453.1 million). Operating profit came in at R138.5. . . Full story | Revenue was up 8% to R8.6 billion (R7.99 billion). Profit from operations rose by 22% to R991 million (R814 million). Net. . . Full story | The financial year ending 31 March 2015 reflected the third full year of operation of Sacoven, which was incorporated on 16. . . Full story | Revenue for the interim period increased to R93.8 million (R89.5 million). Operating profit before interest decreased to R19.7 million (R20.9 million).. . . Full story |
World Markets (Spot Prices)
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The JSE Today
| Date | Adv. | Decl. | Unch. | Actives | Volume | Value | Trades | Orders |
|---|---|---|---|---|---|---|---|---|
| 28/07/2015 | 104 | 254 | 61 | 419 | 259,853,947 | R20,193,963,077 | 263784 | 1661765 |
| 27/07/2015 | 163 | 186 | 69 | 418 | 228,325,190 | R15,884,623,420 | 206963 | 1612906 |
| 24/07/2015 | 110 | 272 | 44 | 426 | 228,166,238 | R16,225,557,520 | 219883 | 1328451 |
| 23/07/2015 | 197 | 133 | 69 | 399 | 241,237,120 | R17,830,572,394 | 241194 | 1711820 |
| 22/07/2015 | 98 | 261 | 51 | 410 | 282,766,520 | R20,656,919,329 | 235812 | 1354280 |
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Index Summary
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Stock Exchange News Service
| Date | Time | Headline |
| 28/07/2015 | 17:39 | VUKILE PROPERTY FUND LIMITED - New financial instrument listing - VKC10 |
| 28/07/2015 | 17:38 | ELLIES HOLDINGS LIMITED - Dealing in securities by a director |
| 28/07/2015 | 17:30 | GLOBAL ASSET MANAGEMENT LTD - Unaudited interim results for the six months ended... |
| 28/07/2015 | 17:08 | BSI STEEL LIMITED - Dealing in securities |
| 28/07/2015 | 17:05 | ACCELERATE PROPERTY FUND LTD - Results Of Annual General Meeting |
| 28/07/2015 | 16:48 | ADVTECH LIMITED - Results of AGM, Chairmans Statement and Changes to the Board |
| 28/07/2015 | 16:45 | BNP PARIBAS ARBITRAGE ISSUANCE B.V. - Redemption Of Certificates Relating To The... |
| 28/07/2015 | 16:44 | BNP PARIBAS ARBITRAGE ISSUANCE B.V. - Redemption of certificates relating to the... |
| 28/07/2015 | 16:40 | GLOBAL ASSET MANAGEMENT LTD - Further Trading Statement |
| 28/07/2015 | 16:30 | SABMILLER PLC - Block listing application |
| 28/07/2015 | 16:30 | GROWTHPOINT PROPERTIES LIMITED - Dealings in securities by a director's associat... |
| 28/07/2015 | 16:10 | NIVEUS INVESTMENTS LTD - Update relating to the Specific Issue of Shares |
| 28/07/2015 | 15:49 | INVICTA HOLDINGS LIMITED - Directors dealing in securities |
| 28/07/2015 | 15:08 | ALEXANDER FORBES GROUP HOLDINGS LIMITED - Notice of withdrawal of special resolu... |
| 28/07/2015 | 15:00 | CORONATION FUND MANAGERS LIMITED - Dealings in securities by CFM Bonus Pool Trus... |
| 28/07/2015 | 14:05 | OLD MUTUAL PLC - Form 8.3 - Public Opening Position Disclosure |
| 28/07/2015 | 13:50 | OLD MUTUAL PLC - Form 8.3 - Public Opening Position Disclosure |
| 28/07/2015 | 13:24 | HUDACO INDUSTRIES LIMITED - Dealing in securities by a director |
| 28/07/2015 | 13:04 | BUILDMAX LIMITED - Notification in terms of section 122(3) of the Companies Act ... |
| 28/07/2015 | 13:01 | PLATFIELDS LIMITED - Resignation of Transfer Secretary |
| 28/07/2015 | 13:00 | HOWDEN AFRICA HOLDINGS LIMITED - Trading Statement for the interim period ended ... |
| 28/07/2015 | 12:45 | OLD MUTUAL PLC - Form 8.3 - Public Opening Position Disclosure |
| 28/07/2015 | 12:19 | TEXTON PROPERTY FUND LIMITED - Posting of the Circular and Notice of General Mee... |
| 28/07/2015 | 12:00 | A E C I LIMITED - Announcement: results presentation |
| 28/07/2015 | 11:04 | OMNIA HOLDINGS LIMITED - No Change Statement and Notice of Annual General Meetin... |
| 28/07/2015 | 10:48 | NEDBANK LIMITED - Dividend Announcement - AGLNNI |
| 28/07/2015 | 10:44 | NEDBANK LIMITED - Dividend Announcement - AGLNIK |
| 28/07/2015 | 10:05 | THE SPAR GROUP LIMITED - Dealing in securities by The SPAR Group Limited Employe... |
| 28/07/2015 | 09:56 | INVESTEC PROPERTY FUND LIMITED - New Financial Instrument Listing - IPFC07 |
| 28/07/2015 | 09:05 | NEW GOLD ISSUER LIMITED - NGPLT-Additional Listing of NewGold Platinum Debenture... |
| 28/07/2015 | 09:00 | NEW GOLD ISSUER LIMITED - NGPLT-Additional Listing of NewGold Platinum Debenture... |
| 28/07/2015 | 09:00 | ABSA BANK LIMITED - ASN077-New Listing |
| 28/07/2015 | 08:53 | CSG HOLDINGS LIMITED - Dealing in securities |
| 28/07/2015 | 08:33 | MTN GROUP LIMITED - Trading Statement for the six-month period ended 30 June 201... |
| 28/07/2015 | 08:30 | STANDARD BANK GROUP LIMITED - Trading statement in respect of the six months end... |
| 28/07/2015 | 08:18 | FIRSTRAND LIMITED - Dividend declaration of 363.93010 cents per variable rate no... |
| 28/07/2015 | 08:00 | AQUARIUS PLATINUM LIMITED - Production results to 30 June 2015 |
| 28/07/2015 | 08:00 | MONDI LIMITED - Mondi Group: Trading Statement |
| 28/07/2015 | 08:00 | SACOVEN PLC - Annual report and audited financial statements |
| 28/07/2015 | 07:05 | A E C I LIMITED - Condensed consolidated unaudited interim financial results and... |
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