| Mon 26 May 2003, 11:08 | | Kumba welcomes higher than expected iron ore price |
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GM says settlements will help balance effect of strong rand
Resources Correspondent
HIGHER than expected annual iron ore price settlements may take the edge off a tough June quarter for Kumba Resources, but are not expected to compensate for the effect of the strong rand on the company's earnings in the quarter.
Last week, both BHP Billiton and Brazil's Cia. Vale do Rio Doce (CVRD) settled iron ore prices for April to March next year with levels higher than had been expected at the start of the year.
Chinese demand for iron ore has persisted and iron ore suppliers were able to settle at prices 8% to 9% higher than last year.
CVRD in its contracts with Arcelor won price increases of 9% for its Carrajas fines and an 8,5% increase for its Itabira fines. And Rio Tinto and BHP Billiton settled annual iron ore supply contracts with Japanese customer up 9% on the previous year.
These price settlements will provide a benchmark for Kumba's supply contracts for the year with analysts suggesting that Kumba, which is headed by Con Fauconnier, could settle contracts up by between 7,5% to 9% for its ore.
Kumba, like many SA mining companies, has seen earnings dented by the appreciation of the dollar against the rand.
For the first three months of this year, the company reported a 51% drop in earnings when compared with the same period last year.
The company exports about 20- million tons of iron ore a year and produces about 27-million tons from its Sishen iron ore mine in Northern Cape.
"The iron ore price increase will help a bit but a lot of the good news is already priced into the Kumba share price," said one SA-based mining analyst.
Kumba's share price has risen 18,37% since the end of April and closed at R29,39, up 49c, on Friday.
According to analysts, the rise in the share price resulted from a positive news flow from Ticor SA, a heavy minerals company in which Kumba has a 60% stake, with the rest held by Australian-listed Ticor.
The Ticor news was underpinned by a belief that steps towards the consolidation of Northern Cape's iron ore reserves, in which Kumba will play a key role, will come soon.
Ticor SA's first smelter at its Empangeni titania and pig iron project was commissioned this year and there are indications that an agreement on the consolidation of the iron ore reserves in Northern Cape will be settled soon, according to the analyst.
The scenario one analyst is painting for the start of consolidation of the iron ore reserves in Northern Cape would see the reserves consolidated on the basis of two operations.
One operation, which would be Kumba, would, perhaps, mine reserves in the south. Another company, possibly a black empowerment company, would mine reserves in the north of Northern Cape, taking in Assmang's Beeshoek mine. "Consolidation could come in the next six months before Kumba moves to the north of the Sishen mine," said the analyst.
Trevor Arran, Kumba's GM for investor relations, said the iron ore price settlements announced last week would act as a benchmark for Kumba's price negotiations with buyers. "The price rise of 9% to 10% is very welcome as prices were slashed a few years ago," said Arran. He was confident that any increase in the company's iron ore price settlements that was in line with those seen last week would help negate the effect of the stronger rand in the June quarter. He said the prices would be applied from April 1.
May 26 2003 06:54:30:000AM Julie Bain Business Day 1st Edition
