Kumba Iron Ore Slashes Production Amid Logistics Turmoil, Unveils Billion-Rand Cost-Saving Blueprint for 2024 Growth

  • Production Adjustments: Slowed production to 35 - 36 million tonnes due to ongoing logistics challenges, impacting unit costs.
  • Cost Optimization Program: Multi-year plan targets R2.5-3.0 billion in sustainable cost savings by 2024, focusing on efficiency and streamlining.
  • Logistics Challenges: Rail and port issues persist, prompting Kumba to collaborate for solutions; despite setbacks, community support continues.
By Lethabo Ntsoane

Kumba Iron Ore Limited, a member of the Anglo American plc group, has announced adjustments to its full-year 2023 guidance and provided insights into the production and cost outlook for the years 2024 to 2026. The mining company, based in South Africa, faces ongoing logistics challenges affecting its value chain.

Operational Stability and Safety Prioritization

Mpumi Zikalala, Chief Executive of Kumba, highlighted the company’s commitment to improving operational stability at the Sishen and Kolomela mines. The emphasis remains on prioritizing safety by eliminating fatalities and serious injuries across operations.

Logistics Constraints Impact Production

Despite improved operational stability at the mines, persistent logistics challenges have led to heightened stock levels at Kumba. In response, the company has decided to slow down production. The updated production outlook for 2023 is expected to be between 35 – 36 million tonnes, with sales projected at 36 – 37 million tonnes.

Production AspectPrevious GuidanceUpdated Guidance
Total Production (Mt)35 – 3735 – 36
Export Sales (Mt)36 – 3836 – 37
Sishen Production (Mt)~26~25
Kolomela Production (Mt)Unchanged at ~10Unchanged at ~10

Unit Cost Adjustments

The slowdown in production has implications for unit costs. Sishen’s unit cost is expected to increase to between R570 – 590 per tonne, compared to the previous estimate of R540 – 570 per tonne. Conversely, Kolomela’s unit cost is anticipated to improve to between R480 – 500 per tonne.

Unit Cost AspectPrevious Guidance (R/t)Updated Guidance (R/t)
Sishen On-Mine Unit Cost540 – 570570 – 590
Kolomela On-Mine Unit Cost510 – 540480 – 500

Cost Optimization Program

Kumba is embarking on a multi-year cost optimization program, identifying sustainable cost-saving initiatives of between R2.5-3.0 billion for 2024. The program focuses on optimizing the mine plan, using contractors efficiently, improving overall efficiencies, extracting supply chain savings, and streamlining overhead costs.

Capital Projects and Future Outlook

The Kapstevel South project at Kolomela has been rephased, with the delivery of first ore expected in H1 2024. However, the ultra-high-dense-media-separation (UHDMS) project at Sishen is under review, with changes from the mine plan optimization to be incorporated. Despite challenges, Kumba remains optimistic about iron ore fundamentals and is actively collaborating with customers to develop steelmaking technology with a lower carbon footprint.

Addressing Logistics Challenges and Community Support

Kumba acknowledges the impact of South Africa’s rail and port network challenges, resulting in significant revenue losses. The company, along with the Ore User’s Forum, is working with stakeholders to address barriers and improve the iron ore and manganese logistics network.

Despite the ongoing logistics constraints, Kumba continues to support local host communities. Over the past four years, the company’s local procurement spend of R18.4 billion has contributed to supporting local livelihoods, with an additional R1.4 billion invested in community healthcare, education, skills development, and infrastructure.

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Lethabo Ntsoane

Lethabo Ntsoane holds a Bachelors Degree in Accounting from the University of South Africa. He is a Financial Product commentator at Rateweb. He is an expect financial product analyst with years of experience in reviewing products and offering commentary. Lethabo majors in financial news, reviews and financial tips. He can be contacted: Email: lethabo@rateweb.co.za Twitter: @NtsoaneLethabo