Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
South Africa-based Kumba Iron Ore, one of the divisions Anglo American is trying to sell, expects profits to more than double this year on the back of higher iron ore prices, an outlook that makes it highly attractive to potential buyers.
The firm, Africa’s largest iron ore producer, said headline earnings per share (EPS) for the year to end-December would likely be in a range of 26.36 rand to 27.72 rand — between 123% and 125% higher than the previous year.
Kumba expects headline earnings per share (EPS) for the year to end-December to be in a range of 26.36 rand to 27.72 rand, which is between 123% and 125% higher than in 2015.
It also said that production of the steelmaking ingredient in the last quarter of last year increased by 9% to 11.9 million tonnes, driven by improved mining productivity, higher plant yields at Sishen mine and higher throughput at Kolomela mine.
Iron ore futures prices have gained more than 10% so far this month, building on last year’s rally, which was triggered mainly by China’s measures to reduce a global steel oversupply.
The commodity edged up again Thursday despite limited trading activity in the physical market in China, as most participants are already away for their Chinese New Year holiday.
Import price for 62% iron content fines at the port of Qingdao added 85 cents per tonne, taking it to $83.34 a tonne, according to The Metal Bulletin Index.
But whether better iron ore prices and Kumba’s exceptional performance dissuades parent company Anglo American from offloading the unit remains to be seen.
Hit by a deep rout in commodity prices, and burdened by large borrowings, Anglo last year put its coal, iron ore, manganese and nickel assets up for sale as part of a radical “portfolio restructuring,” which aims to have the group focus only on copper, diamonds and platinum.
Since the plan was unveiled, however, most commodities have rebounded, boosting Anglo’s cash generation and profitability to such an extent that the miner is now on track to meet its year-end debt-reduction target without more disposals this year.
Market rumours indicate that Anglo favours a spin-off of its iron ore and thermal coal assets in South Africa, rather than selling them one at the time.
Courtesy of The Metal Bulletin.
