Railway chaos stunts Kumba growth
February 20, 2004
By Sherilee Bridge
Johannesburg - Kumba Resources, the world's fourth-largest iron ore producer, said yesterday that state rail operator Spoornet held a stranglehold on Kumba's growth.
In order for Kumba to expand quickly and take advantage of export opportunities to China, it said rail and harbour infrastructure needed upgrading as a matter of urgency and further delays could cost millions of dollars in lost revenue for both Kumba and South Africa.
Competitors like BHP Billiton were doubling their profit thanks to Chinese demand for iron ore.
Kumba adds its name to a growing list of local commodity producers, including Iscor and Metorex, which have complained about the country's rail service and increasing tariffs.
The complaints come despite the fact that, according to UK-based intelligence unit, The Economist, South Africa has the 10th-largest railway in the world with 22 000km of rail track.
That is double the length in Australia. And despite South Africa's rail system also ranking eighth in terms of the amount of freight it carries, Kumba's iron ore growth is being stunted by alleged inefficiencies.
Kumba said its profit for the six months to December had fallen 37 percent to R265 million from the R422 million reported for the same period the year before.
Stripping out one-off charges and exceptional items, headline earnings dropped 46 percent to R243 million, or 82c a share.
This was in line with analysts' forecasts of a 50 percent decline.
"Earnings will continue to be effected for as long as we find ourselves in a strong rand environment," said Con Fauconnier, the chief executive.
Anglo American, which holds 66 percent of Kumba, believes Kumba could double its existing output of just under 30 million tons a year by 2009.
But the lack of rapid expansion in the Saldanha port facilities and a slow increase in rolling stock on the Orex line, which Kumba uses to export its iron ore, has scuppered expansion plans.
Mike Kilbride, Kumba's chief operating officer, said that a staggered expansion would mean that the development of a new R2.2 billion iron ore mine at Sishen South would only happen after the expansion of the existing facilities.
The Sishen expansion, where up to R500 million could be spent, would increase production by another 8 million tons a year by late 2004 or early 2005. Kumba's goal is to increase output by at least 21 million tons.
Iron ore remains the largest contributor to Kumba's revenue, bringing in R1.8 billion of its first half total of R3.96 billion.
Shares in Kumba lost 80c to close at R41.80 yesterday.
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