Transnet crisis pushes Kumba to cut production until 2027

Anglo American subsidiary Kumba Iron Ore will cut its iron production in South Africa over the next three years to ensure its output does not exceed Transnet’s declining capacity to transport the mineral via rail for export. 

This was revealed by Kumba in a SENS announcement, which outlined its strategy to cut costs and ensure it allocates capital efficiently. 

Transnet is struggling to haul minerals and other commodities to export markets due to locomotive shortages, cable theft and vandalism of its infrastructure. 

This has cost exporters billions of rand in potential revenue, with the Minerals Council of South Africa saying it cost miners R150 billion alone in 2022. 

Kumba’s iron ore stockpiles had grown to 9 million tons by September due to the rail bottlenecks, resulting in the company running out of space to store the mineral. 

It said it now expects to end 2023 with production of between 35 and 36 million tons, down from the previous forecast of 35 to 37 million tons.

Kumba has also lowered its production outlook for the next three years to 35 to 37 million tons per year from previous targets of 37 to 39 million tons in 2024 and 39 to 41 million tons in 2025.

“There is no escaping the fact that ongoing logistics constraints have continued to place significant pressure on our value chain, resulting in stock levels at the mines increasing to unsustainable levels. We have, therefore, slowed down production,” Kumba CEO Mpumi Zikhalala said.

The persistent logistics problems have resulted in a 15% decrease in iron ore railed to port since 2019, Kumba said.

Kumba’s parent company, Anglo American, made it clear that they would ramp up production once the transport capacity was available. 

The inability to get iron ore to market cost Kumba R6 billion in the first half of its current financial year and resulted in the company suspending R2 billion worth of investment in South Africa. 

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. 

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.