Kumba Iron Ore Ltd. said it will cut output at Africa’s largest mine for the steelmaking ingredient as it doesn’t foresee a recovery in prices that have slumped more than two-thirds since the start of 2013.
“The period ahead is likely to result in formidable changes for the industry, with the market now pricing in a more muted trend for the iron-ore price,” the Pretoria-based unit of Anglo American Plc said in a statement on Tuesday. “These circumstances have reinforced the need to make tough decisions for the business.”
Kumba is scaling back production as it targets a third of its workforce in job cuts to weather a collapse in iron ore. A slowdown in China restricts demand from the biggest user while the largest miners, including Vale SA and Rio Tinto Group, have raised production to build market share, spurring a glut. The World Bank forecasts the raw material will post the biggest loss among metals this year as low-cost supply continues to outstrip consumption.
Headline earnings fell 66 percent to 11.82 rand ($0.73) a share from a year earlier, Kumba said. Total production decreased 7 percent to 44.9 million metric tons. The company cut its forecast for output this year from Sishen, its biggest mine, by 25 percent to 27 million metric tons. The pit produced 31.4 million tons in 2015.
Impairment Charge
Kumba is also booking an impairment of 6 billion rand on Sishen and plans to reduce its breakeven costs by about $10 a ton in 2016, from $41 a ton achieved at the end of 2015, the company said. Ore with 62 percent ferrous content delivered to China’s Qingdao port, a benchmark, was at $45.73 a dry ton on Friday, according to Metal Bulletin Ltd.
Following an audit, South African Revenue Service wants Kumba to pay additional tax of about 1.8 billion rand for 2006 to 2010. Kumba lodged an objection and is awaiting SARS’s response, it said.
The producer appealed to the minister of mineral resources against conditions imposed by the ministry when it granted Kumba a 21.4 percent right to Sishen, it said.
Source: Bloomberg