Kumba Profit Rises as New Mine Output Counters Strike Losses

Kumba Iron Ore Ltd. (KIO), the owner of Africa’s biggest iron-ore mine, said profit rose in the first half as output from a new site countered losses from strikes.

Net income climbed to 7.76 billion rand ($790 million) from 7.66 billion rand a year before, the Johannesburg-listed company said today in a statement. Earnings excluding one-time items gained to 24.13 rand a share from 23.88 rand. The contribution to Anglo American Plc (AAL)’s profit slid 8.8 percent to $579 million, the London-based parent company said in a separate statement.

Production of the ore used in steel-making at the Sishen mine in Northern Cape province fell 10 percent to 16.1 million metric tons. Sishen was brought to a standstill when 125 staff occupied the operation for two weeks in October, threatening to damage mining equipment valued at about 3.3 billion rand. At the same time, the Kolomela mine, shipping its first ore in December 2011, raised output 62 percent to 5.26 million tons, Kumba said.

“Steel fundamentals remain under pressure as the Chinese economy slows down,” Kumba said. “Iron-ore prices are expected to remain under pressure as supply exceeds demand in the second half of the year, though restocking by steel mills may support prices.” China is the largest producer and consumer of steel.

Operating expenses excluding royalties increased 14 percent to 11.4 billion rand, and the company’s mining of 40 million to 50 million tons of waste at Sishen to make up for volumes lost in the strike, may add to second-half costs, it said.

Output Goal

“There might be some upside risk if we don’t meet our production targets,” Chief Financial Officer Frederick Kotzee said by phone. Kumba retained a full-year output goal of about 37 million tons at Sishen and about 9 million tons at Kolomela.

Iron ore for immediate delivery at Tianjin port in China, a benchmark, fell 1.9 percent to $137.02 a ton from a year ago, according to a price index compiled by The Steel Index Ltd.

The weaker rand should help Kumba control costs, Deutsche Bank AG said in an e-mailed note to clients. “Beyond 2013, an ability to ramp Kolomela further should be a source of cost reduction for the group average cost as well,” the bank said.

Capital spending will peak at 5.3 billion to 6 billion rand this year, Kotzee said in a Johannesburg presentation, after 2.3 billion rand in the first half. Kumba will pay an interim dividend of 20.10 rand a share, from 19.20 rand last year.

To contact the reporter on this story: Andre Janse van Vuuren in Johannesburg at ajansevanvuu@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net

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