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Eskom's electricity blackouts not a problem for Kumba Resources

By unknown | Feb 15, 2008 | COMMENTS [ 0 ]

Zweli Mokgata

Zweli Mokgata

Iron ore producer Kumba Resources is one of the few mining companies to be unfazed by the country's electricity crisis.

The mining company, which listed on the JSE in late 2006 after unbundling from Exxaro Resources, recorded a 52percent increase in operating profit.

The company achieved record raw ore production level of 38,9million tons for the year to the end of December last year, the highest production to date. This was 24percent higher than the previous year's level of 31,4 million tons.

Unlike many South African mines which are deep earth mines, Kumba's mines are surface pit mines. This means that there is far less need for electricity, as most of the mining is done using diesel powered machinery. Only around 7percent of the operation requires electricity.

Ras Myburgh, Kumba's chief executive, said: "Much of our growth was driven by domestic demand, but increasing demand from China will create further demand. Chinese domestic iron ore production cannot compensate for the diminishing grades there."

Global steel demand growth is expected to exceed 6percent, driven by China's rapid economic expansion. Chinese steel production is expected to grow from 489million tons last year to 750million tons in 2012.

Iron ore producers are expected to benefit from rising ore prices, lower freight rates and supply constraints in Australia, Brazil and India due to infrastructure bottlenecks and project delays.

Myburgh said: "With prices likely to rise, we foresee substantial increases in our cash generating business, so we will be increasing our debt and use the funding for capital expenditure programme."

Stephen Arthur, Absa's resources analyst, said: "Iron ore prices are likely to increase by up to 50percent this year, but input costs won't increase by that much."


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