Kumba slumps to three-week low as production disappoints

From Business Day Live, October 18, 2013

Featuring Michael Kavanagh, mining analyst for NOAH Capital Markets.


SHARES of Kumba Iron Ore slumped to a three-week low on Friday after the miner delivered a poor production and sales report for the third quarter.

Noah Capital Markets’ platinum and mining analyst Mike Cavanagh said the 24% decrease in the group’s total production to 9.5-million tonnes for the quarter ended September, compared with the same period in 2012, came as quiet a surprise to the market.

The miner, which supplies iron ore to the global steel industry cited pit constraints at its flagship Sishen operations and regular section 54 stoppages as the major constraints to production during the period.

Mr Cavanagh said although the market was aware of Kumba’s pit constraints and that there would be no quick-fix solutions to alleviate the problem, investors did not expect it would affect production as severely as it did.

Kumba, a member of the Anglo American group, said total export sales volumes fell by 5% to 9.4-million tonnes, compared with the 12.4-million tonnes exported in the third quarter of 2012, due to reduced output from its Sishen mines and Transnet’s annual maintenance shutdown of its rails and ports. The company expects export volumes for the rest of the year to be lower than the previously guided 40-million tonnes.

“Following the downgrade of its production guidance, the market will have to go back to the drawing board and reassess this stock,” he said.

At 10.03am, the stock was down 5.22% to R449.22, its worst level since September 27, valuing the company at R144.68bn.