Kumba secures board approval for Kapstevel pit in Northern Cape; eyes 2024 for first ore

Kumba is the largest iron ore producer in Africa.
Kumba is the largest iron ore producer in Africa.
  • Kumba has announced the approval of its Kapstevel South project in the Northern Cape to develop a new pit.
  • The total capital cost of the project is approximately R7 billion.
  • Pit establishment and waste stripping will commence this year and the first ore is expected in 2024.

Iron ore mining company Kumba, a member of Anglo American group, on Tuesday announced the approval of the Kapstevel South project to develop a new pit at its Kolomela mine in the Northern Cape, with the first ore expected in 2024. 

The total capital cost of the project, which was now been approved by both the company's and Anglo American's boards, would be approximately R7 billion, including pre-stripping.

In an update to shareholders, Kumba said it anticipates that the addition of the Kapstevel South pit will deliver an after-tax internal rate of return of 25% and allow Kolomela to maintain an estimated EBITDA margin of more than 35% in the long-term.

The pit is a conventional truck and shovel operation which the group says would produce high quality direct shipping ore. Pit establishment and waste stripping will commence this year

“The approval of this project, at a time when the global and South African economies face the challenges of Covid-19, underscores Kumba’s positive longer-term outlook for demand for its high-quality product,” said Themba Mkhwanazi, CEO of Kumba.

Kumba already produces iron ore in South Africa at Sishen and Kolomela mines in the Northern Cape. The company is the fourth largest iron ore producer in the world, and the largest in Africa. Mkhwanazi told journalists the new development would utilise new technology and drive the company's smart mining ambitions.

On Tuesday Kumba also released its interim results for the period six months ended June 2020, which showed a fall in revenue due to the impact of Covid-19. Total revenue decreased by 8% to R31.6 billion from R34.5 billion in 2019, as a result of lower prices and sales volumes, partially offset by a weaker exchange rate.

"We believe that we are likely to see a moderation in prices for the rest of the year....around $90 per tonne," said Mkhwanazi. 

Kumba’s average realised iron ore export price decreased by 14% to $93/tonne from $108/tonne in 2019. Sales volumes reduced by 13% to 18.6 Mt from 21.4 Mt in 2019.

According to Mkhwanazi, the company is working with Transnet to ensure the smooth movement of stock to ports as production at its mines has returned to pre-lockdown levels.

Transnet, which is responsible for transporting Kumba's production by rail to ports, is currently operating at only 80% capacity. As a result, iron ore railed to port during the reporting period decreased by 18.4% to 18.2 million tonnes from 22.3 million tonnes.

"We have a build-up of about 6.2 million tonnes of finished product stock, of which 2.4 million tonnes are at the port," said Mkhwanazi, adding that the company was encouraged by the engagements it has had with the state-owned logistics firm. 

Kumba declared an interim cash dividend of R19.60 per share, down from R30.79 per share in 2019.

- Additional reporting by Sibongile Khumalo 

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