Kumba Iron Ore pays out cash and invests in Sishen mine after strong profits

JOHANNESBURG: South African miner Kumba Iron Ore reported a 40% jump in annual profit on Tuesday and declared a strong dividend payout, driven by a surge in prices of the steel-making raw material and a weaker rand exchange rate during the year.

Majority shareholder Anglo American Plc will be a beneficiary of the strong dividend payout after Kumba reported headline earnings per share of 71.07 rand ($4.86) for the year ended December 2020, up from 50.88 rand a year earlier.

Kumba, which runs the Sishen and Kolomela mines in South Africa, declared a final dividend of 41.30 rand per share, or 85% of headline earnings, bringing the full-year dividend to 60.90 rand, or 30% higher than its final dividend of 46.78 rand a year earlier.

Iron ore prices soared in 2020, driven by China's rapid economic recovery and a focus on infrastructure. A weaker rand, which reduces costs, further boosted full-year earnings.

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) during the year jumped 57% to a record of 45.8 billion rand, the company said.

Attributable free cash flow during the year rose 21% to 20.7 billion rand.

However, 2020 output fell to 37.0 million tonnes from 42.4 million a year earlier, hit by coronavirus-related operational and logistical constraints and lower off-take from steel producer ArcelorMittal South Africa.

"Given that Kumba is in a net cash position, they could pay out almost all of their free cash flows as dividends, with majority shareholder Anglo American receiving almost $1 billion from Kumba," said Investment Analyst at Sanlam Private Wealth, Christiaan Bothma.

Kumba said it planned to spend 3.6 billion rand to extend the life of its Sishen mine to 2039 through the ultra-high dense media separation project which was approved in February.

The project at the Sishen mine in Northern Cape province is expected to begin in the second half of 2023.