Kumba (KIO) is a highly successful iron mining operation, with 79% ownership and control by Anglo American. The company's share price experienced a significant drop to R223 in March 2020 due to the COVID-19 pandemic but later recovered to R668 before facing declines following the March 2022 quarterly results. Kumba's reliance on exports, which constitute 94% of its total sales, makes it less dependent on local sales but exposes it to risks related to the strengthening of the rand and the effectiveness of rail transport to ports.
To reduce its reliance on Eskom, the company plans to build a 100 MW solar park over the next three years. However, Kumba has faced challenges such as heavy rainfall and poor rail performance. On 10th October 2022, Kumba announced that due to a force majeure at Transnet, it would lose about 50,000 tons of production per day, increasing to 90,000 tons after seven days. This disruption was expected to result in a loss of around 120,000 tons of exports, costing the company approximately $8.5 million in production and $11.7 million in lost export revenue per day. The company is also considering 490 retrenchments.
In its results for the six months ending 30th June 2024, Kumba reported a 6% decline in revenue and a 26% drop in headline earnings per share (HEPS). The average free-on-board (FOB) price received was $97 per ton, with an EBITDA margin of 44%. The company maintained a strong closing cash position of R14.6 billion and declared an interim dividend of R6.0 billion, supported by attributable free cash flow of R9.1 billion.
Kumba's share currently trades at a multiple of 5.81 and offers a dividend yield (DY) of 9.39%, which provides some compensation to investors for the commodity risk associated with this rand-hedge share. However, it remains volatile and thus carries a degree of risk. Additionally, the potential offer by BPH to buy Anglo American, which includes the unbundling of Kumba, adds an element of uncertainty to the company's future. On 28th August 2024, Kumba announced plans to invest R11.2 billion in improved processing technology at its Sishen mine, which aims to increase premium quality production to 55% from the current level of 18%.
To reduce its reliance on Eskom, the company plans to build a 100 MW solar park over the next three years. However, Kumba has faced challenges such as heavy rainfall and poor rail performance. On 10th October 2022, Kumba announced that due to a force majeure at Transnet, it would lose about 50,000 tons of production per day, increasing to 90,000 tons after seven days. This disruption was expected to result in a loss of around 120,000 tons of exports, costing the company approximately $8.5 million in production and $11.7 million in lost export revenue per day. The company is also considering 490 retrenchments.
In its results for the six months ending 30th June 2024, Kumba reported a 6% decline in revenue and a 26% drop in headline earnings per share (HEPS). The average free-on-board (FOB) price received was $97 per ton, with an EBITDA margin of 44%. The company maintained a strong closing cash position of R14.6 billion and declared an interim dividend of R6.0 billion, supported by attributable free cash flow of R9.1 billion.
Kumba's share currently trades at a multiple of 5.81 and offers a dividend yield (DY) of 9.39%, which provides some compensation to investors for the commodity risk associated with this rand-hedge share. However, it remains volatile and thus carries a degree of risk. Additionally, the potential offer by BPH to buy Anglo American, which includes the unbundling of Kumba, adds an element of uncertainty to the company's future. On 28th August 2024, Kumba announced plans to invest R11.2 billion in improved processing technology at its Sishen mine, which aims to increase premium quality production to 55% from the current level of 18%.
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