Africa’s top iron ore miner stockpiles as rail problems worsen – Reuters

Jul.25 (Reuters) – Anglo American’s South African iron ore unit (AAL.L) said cooperation between private investors and the government could help solve bottlenecks in rail mounting that are forcing it to stockpile more iron ore at its mines.

Kumba Iron Ore (KIOJ.J) said those inventories have grown to 7.9 million tons from 7.8 million tons in December last year, forcing the company to reduce mining operations and lower its sales forecast.

Closer cooperation with the government through the National Logistics Crisis Committee could alleviate South Africa’s rail problems, including a shortage of locomotives and infrastructure vandalism, said Mpumi Zikalala, CEO of Kumba.

Africa’s largest producer of the steelmaking ingredient transports iron ore on an 861-kilometer rail line that runs from the giant Sishen mine in South Africa’s Northern Cape province to the port of Saldanha.

Frequent disruptions on the line operated by the state rail and port company Transnet (TRAN.UL), often caused by locust swarms, have recently been exacerbated by cable thefts and derailments, forcing Kumba to deposit more iron ore at the mines.

Kumba has “seen an increase in challenges” on the iron ore line, Zikalala said on a conference call.

“We’ve been working with Transnet and we’ve had some successes with tamping and locust spraying and a lot of other things,” Zikalala said.

“But we have other challenges at the same time. I was talking about derailments and other breakdowns,” she added.

The iron ore line also carries manganese and other minerals to South Africa’s west coast ports.

South Africa’s lack of rail capacity is also hurting the revenues of miners such as Thungela Resources (TGAJ.J) and Exxaro Resources (EXXJ.J) who rely on Transnet’s networks to transport coal to ports on the east coast.

The problem is also a headwind for bulk shippers, who rely on domestic rail to export products, BofA Securities said.

“Given the complex and entrenched problems with the South African rail network, we believe a more permanent solution may prove barren for some time to come,” the BofA analysts said.

Kumba’s profits in the six months through June fell 17% on the back of rail challenges and softer pricing. Still, Kumba’s premium iron ore achieved a price that was 4% above its reference price.

The company announced an interim dividend of R22.60 per share. Shares were up 7.52% at 0919 GMT.

($1 = 17.6578 rand)

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