Kumba Resumes Dividend as Earnings Jump After Iron Ore Recovery

  • Spike in prices, efficiency gains boost earnings by 53 percent
  • Dividend policy is ‘discretionary’ as iron ore price may drop

Kumba's Sishen mine, South Africa.

Photographer: Nadine Hutton/Bloomberg

Kumba Iron Ore Ltd. will resume dividends for the first time in two years after higher ore prices earlier this year and more efficient production helped boost first-half earnings by 53 percent. The shares rallied.

Iron ore reached a three-year high of more than $90 a metric ton earlier this year, helping improve cash flow for Kumba, whose costs were less than half that in the first half, the Centurion, South Africa-based company said in a statement Tuesday. The firm, majority owned by Anglo American Plc, will pay a dividend of 15.97 rand a share, the first since halting payouts in 2015 amid a collapse in ore prices.

“Operating improvements combined with higher prices have driven a much stronger financial performance,” Chief Executive Officer Themba Mkhwanazi said on a call with reporters. “This, together with our confidence in the stability and consistency of operations, has led us to reinstate the dividend.”

Kumba shares rose as much as 9.2 percent, the most in four months, and were up 8.1 percent at 186.94 rand by 9:37 a.m. in Johannesburg. Anglo American gained 4.7 percent in London.

During the commodities crash in 2015, when iron ore dropped below $40 a ton, Kumba reconfigured its giant Sishen open-pit mine in South Africa to cope with lower prices. The company has also reduced costs by cutting workers and increasing trucking efficiency. Anglo American, which in early 2016 said it would consider selling its holding in Kumba, has since signaled it’s happy to maintain its almost 70 percent stake.

Iron ore delivered to Qingdao, China, was at $67.86 on Monday, according to Metal Bulletin Ltd. Prices will probably be lower in the second half, Kumba Chief Financial Officer Johan Prins said on the call. That means the company will have a "discretionary policy" on dividends in the future, Mkhwanazi said.

Earnings information:

  • Kumba’s first-half headline earnings rose 53 percent to 4.6 billion rand ($355 million), or 14.42 rand a share.
  • The company had net cash of 13.5 billion rand as of June 30.
  • Kumba increased its full-year production guidance to 41 to 43 million tons.
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