African Rainbow Mulls Kumba Iron Ore Bid as Anglo Plans Exit

  • Company also sees `low-hanging fruits' in platinum, copper
  • Seeks to save costs by combining overheads with nearby mines

African Rainbow Minerals Ltd., the diversified mining company controlled by South African billionaire Patrice Motsepe, said it may consider a bid for Kumba Iron Ore Ltd., the company that Anglo American Plc wants to exit.

Even if African Rainbow and its iron-ore venture partner Assore Ltd. decide against a possible purchase of Kumba, the company will seek to save costs by combining overheads with the Anglo unit, because many of their operations are located near one another in South Africa’s Northern Cape province, Chief Executive Officer Mike Schmidt said on Friday.

The company will decide in the next few weeks whether it will inform Kumba of its intent to study the business, Schmidt said in an interview in Johannesburg. “We know their ore bodies, they know our ore bodies.”

African Rainbow’s interest in Kumba comes after Anglo American said last month it planed to dispose of its 69.7 percent stake as part of plans to focus on mining platinum, copper and diamonds. Iron ore and steelmaking commodities such as manganese and chrome contributed 44 percent to African Rainbow’s earnings before interest, tax, depreciation and amortization in the six months ended Dec. 31.

African Rainbow may bid for new platinum assets after signing non-disclosure agreements with sellers, Schmidt said. It is also evaluating opportunities for expansion in copper, he said.

Potential Purchases

“There are some low-hanging fruits that we’ve identified in platinum and copper,” Motsepe said at an investor presentation.

The company is looking at acquisitions after all its units except the steelmaking-commodities division suffered half-year losses.

Earnings excluding one-time items for the six months ended Dec. 31 fell 51 percent to 507 million rand ($33 million) from a year earlier, aided by a 599 million-rand profit from its ferrous unit, African Rainbow said in a statement on Friday. All of its other divisions including platinum, coal and copper reported losses for the period, the company said.

“African Rainbow is critically reviewing non-performing operations and assessing whether these have potential to achieve improved results in the future,” it said in the statement. The company will cut costs, improve mines and seek to ensure “that where shareholder funding is required, this is minimized.”

Funding Operations

The company won’t seek money from shareholders, but may need to fund some operations with its venture partners, Schmidt said. It will continue to pay dividends, Motsepe said.

Mining companies globally have seen their margins eroded by a slump in commodity prices, caused by supply gluts and a slowdown in economic growth in China, the largest consumer.

African Rainbow concluded a deal with ArcelorMittal South Africa Ltd. for the supply of 3 million metric tons of iron ore annually for three years, Schmidt said.

The stock, which has more than doubled this year, declined 2.6 percent to 100.36 rand by the close in Johannesburg.

(A previous version of the story corrected the African Rainbow CEO’s comment.)

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