KUMBA Iron Ore, which released results for the six months to June on Friday, increased its output forecast from its new Kolomela mine, which is ramping up to steady state production next year as another battle looms with its largest customer in SA, ArcelorMittal.
Kolomela played an important role in the first half of this year, offsetting reduced production from its flagship Sishen mine, where rain and absenteeism brought output down 12% to 17,9-million tons compared to the previous six months. On a year-on-year basis, Sishen's output was 4% lower.
Combined export and local sales were 6% higher at 23,4-million tons. Export sales of 20,7-million tons were a record.
Kumba raised the forecast for Kolomela to "at least 6-million tons" this year compared to an earlier prediction of between 4-million tons and 5-million tons. The mine will produce 9 -million tons when it reaches a steady state next year.
Anglo American has increased its stake in Kumba to 69,7% from 65,3%, exercising its options for R7,5bn, which is equivalent to an average R519 a share.
"We have no other options outstanding," said Anglo spokesman James Wyatt-Tilby. "As we have always said, there is no impediment to us increasing our shareholding and we will continue to assess such opportunities when we see value in the stock."
Liberum Capital said: "This is a good purchase and is below Kumba's market price."
Kumba is involved in a suspended arbitration process with ArcelorMittal SA over a disputed supply agreement under which the steel maker had rights to 6,25-million tons of ore a year at cost plus 3%. Both parties are waiting for the outcome of a court process to resolve a contested allocation of part of the Sishen mine to Imperial Crown Trading.
Meanwhile, Kumba and ArcelorMittal are going to arbitration next year over the steel maker's decision to reverse its withdrawal from the Phoenix project to build a new mine near the spent Thabazimbi mine.
Kumba is looking for growth options in Africa as it grows its output in SA to 70-million tons in 2019. It is unlikely to invest in one large iron ore project and put its balance sheet under undue stress, said Kumba CEO Chris Griffith. "There are some great opportunities but we are likely to take a cautious approach." He also said valuations of iron ore projects in Africa were starting to come down. Kumba would like a suite of exploration and nearproduction projects, he said.
Looking ahead, Kumba expects iron ore prices to trade in a range from $130/ton to $150/ton for the rest of the year.
"We said in these politically uncertain times you'll see huge volatility but there is nothing about the long-term structural nature of steel demand that we think is fundamentally different to what we believed a year ago," Mr Griffith said.
"About 18 months ago, if we'd said we'd get a . price of $135 a ton, we all would have said that is a fantastic price. The problem is we are coming off an enormous price in the first half of last year. This $135 a ton is above what people are anticipating for a long-term price ," he said.