Transnet underperformance costs Kumba R1 billion a month

Anglo American subsidiary Kumba Iron Ore lost R6 billion from rail underperformance, including derailments and cable theft on Transnet’s iron ore line in the first six months of the year. 

Kumba released its interim results this week for the six months that ended 30 June and said that maintenance issues and other issues on the line, including cable theft on the Sishen-Saldanha rail line, cost it roughly R6 billion in sales. 

The company is South Africa’s largest producer and exporter of iron ore, and its exports provide vital revenue for the fiscus. 

The loss of R6 billion in sales is in addition to losses of R10 billion from 2022, which Kumba also attributed to Transnet’s failing infrastructure. 

Kumba’s production increased by 6%, but iron ore railed to port decreased by 3% to 18.4 million tonnes in the first half of 2023.

While the company benefitted from a weaker rand, revenue decreased by 11% to R38.3 billion (H1 2022: R43.0 billion). 

Kumba still declared a bumper dividend of R22.60 per share. 

Kumba CEO Mpumi Zikalala

Kumba CEO Mpumi Zikalala said the company’s operations could produce much greater amounts of iron ore, but it is running out of space to store the material prior to transport. 

The company has 7.9 million tonnes of finished stock ready to be exported, but due to Transnet inefficiencies, it cannot get it to Saldanha port. 

The port’s operations are also heavily impacted by load curtailment. However, Kumba has agreed with Eskom to shift curtailment to its operations to ensure the port’s electricity supply is uninterrupted. 

Historically, the Sishen-Saldanha rail line has been Transnet’s best-performing rail corridor but has recently been heavily impacted by cable theft. 

Kumba released a production forecast last week, saying it now expects to sell between 36 million and 38 million tonnes compared to its previous forecast of 39 million tonnes.

This reduction of roughly 1 million tonnes of iron ore sales forced the company to delay R2 billion of investment in South Africa. 

Zikalala said that its ability to grow and sustain the employment of its staff is “inextricably linked to reliable logistics services”.

“An efficient logistics system is fundamental to global trade and South Africa’s weakening economic growth.”

Zikalala said, “Given the uncertainty due to the logistics challenges, the company decided to defer non-critical capital expenditure of R2 billion.”

The National Logistics Crisis Committee (NLCC) has been formed to urgently pursue interventions to address the rail, port and road crises currently severely undermining economic growth and job creation in South Africa. 

She had been impressed by the work done through the NLCC so far, with a clear recognition of the extent to which logistics constraints hamper exports and that deep collaboration is required to solve these challenges.