Kumba profit to rocket as iron ore prices jump
February 23, 2005
By Nicky Smith
Johannesburg - Kumba Resources` earnings are expected to shoot out the lights as record iron ore contract price increases of about 70 percent are expected to be set by the world`s major iron ore and steel producers.
Kumba`s share price yesterday reached record highs of R60.50 a share, surging as much as 8.6 percent during the day`s trading on the JSE Securities Exchange.
Yesterday, international news agencies reported that Japan`s Nippon Steel and Companhia Vale do Rio Doce (CVRD) had reached a settlement price of 71.5 percent on last year`s prices.
Last year`s long-term supply contract increase, set by the world`s top three iron ore producers - BHP Billiton, Rio Tinto and CVRD - was up 18.6 percent.
This was the second-highest increase in a long-term contract price since 1966, according to Sanlam Investment Management fund manager Frederik White.
White said that in January the market had expected an increase in the iron ore price for 2005 of about 25 percent. `That expectation has been climbing by about 5 percent every week.`
He said what was not clear yet was whether this price included freight and insurance, and if it did, then the price for ore producers would be lower.
He said with the high oil prices freight charges had been as high as $20 (R115.06) a ton.
The benchmark Hammersley iron price for lumpy ore has been at a $46.66 a ton since April 1 last year. The contracts are from April 1 to March 31.
Mike Kilbride, Kumba`s operations executive, said these record settlement prices had to been seen against a backdrop of a steel sector that was very profitable at the moment.
This sector had also in the past 12 months paid as much as 100 percent more for hard coking coal, which is used in the furnaces of steel mills.
Kilbride said he expected the other steel producers to settle at similar levels soon. `It`s stunning stuff, we have never been here before.`
White said that with these kinds of iron ore price increases, Kumba`s earnings would `shoot out the lights`.
Yesterday Reint Dykema, a Solidarity Union spokesperson, said against this background, it was criminal that Kumba was contemplating retrenching 400 people.
`The unions can understand how the marginal gold mines want to retrench people, but we can`t see how with these higher prices and the planned expansion Kumba can justify retrenching people,` Dykema said.
Kumba`s shares closed R4.25 higher at R60 yesterday. The other mineral extractors sector was down 2.85 percent.
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