Diversified miner Anglo American's majority-owned Kumba Iron Ore will proceed with the Kapstevel South project at its Kolomela mine in South Africa, which will ensure sustained production of around 13 million mt/year of ore for Kolomela's remaining life, Kumba said July 28.
This follows approval of the project, with an estimated capital cost of R7 billion ($422.3 million), including pre-stripping, by the boards of both Kumba and Anglo American, Kumba said.
Kolomela has 13 years of mine life left on the current reserve, an Anglo American spokesperson said. Anglo American holds 69.7% of Kumba Iron Ore.
The project entails the development of a new pit, Kapstevel South, and associated infrastructure at Kolomela. The pit is a conventional truck and shovel operation producing high quality direct shipping ore (DSO). Pit establishment and waste stripping will commence this year, with first ore expected in 2024, Kumba said. The addition of the pit is expected to deliver an after-tax internal rate of return of around 25% and will allow Kolomela to maintain an estimated EBITDA margin of more than 35% in the long term, the company said.
"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, " Themba Mkhwanazi, CEO of Kumba, said.
Iron ore prices have continued near five-year highs for a sustained period following the tailings dam accident at Brazil's Vale in January 2019, which led to a curtailment of supplies. Demand for high-grade iron ore, which can reduce coking coal usage in blast furnaces, thus curbing emissions, is expected to continue to increase in the medium term, following a demand upturn in recent weeks from China, where steel output has recovered following the coronavirus crisis.
In its interim report for the six months ended June 30, Kumba said it achieved a strong performance, with EBITDA of R17.4 billion at a margin of 55%, despite the coronavirus challenges, which it says are likely be an "enduring reality."
"We are a resilient and capital efficient business with a robust balance sheet, well positioned to navigate the current environment and the longer term," said Mkhwanazi.
"Kumba's production of 17.9 million mt and sales of 18.6 million mt were in line with our COVID-19 adjusted guidance for the first half of the year, following continued improvements as we returned to pre-COVID-19 run-rates in June," he said. "Our strong EBITDA performance translated into R7.1 billion of attributable free cash flow."
The company remains committed to its strategic imperatives of margin enhancement and life extension, which are key to its sustainability, Mkhwanazi said. "Our margin continued to benefit from constructive market prices and currency weakness, as well as the early and decisive action taken to protect our margin through additional cash preservation measures including delivering R700 million in cost savings for the year to date," he said.
