Transnet blues: Anglo H1 earnings fall, CEO says to 'reconfigure' Kumba as rail network fails

The Transnet blues have got Anglo American down, setting the stage for a rearrangement of its South African iron ore unit, Kumba, that will see it produce less. 

“The situation at Transnet is not great for Kumba. Everyone that is associated with Kumba has been working extremely hard alongside Transnet and government to try to de-bottleneck some of the situations that we see holding the whole of the industry back in that corridor,” Wanblad told journalists during a conference after the company released its interim earnings.   

“But it doesn’t feel like change is going to happen anytime soon. The consequence is that Kumba is producing more than it can ship because we can’t get the material down the rail. So we have to reconfigure the business. 

“I am hoping that this is going to be a short-term reconfiguration. We have to consider how we deploy capital and where we deploy capital. This means it will take longer to expand or replace some of the production at Kumba.”

That’s a signal of less investment or capital expenditure being directed to Kumba, at least in the short term. There’s no sense producing the stuff if you can’t move it to your markets.  

Asked for further details, Wanblad said it boiled down to less production over a longer period.

“Reconfiguring the business really means how you would fundamentally shape up your long-term mine plan … how many million tonnes per annum you are going to mine. So to the extent that you don’t mine at the optimal size of the geological resource, what you do is extend the life of the mine at a lower production rate.

“We have to reset with the Transnet volumes as the constraint.”

This means less production, less investment and ultimately less job creation – all because of state failure in South Africa, where good governance has long since come off the tracks. 

Kumba on Tuesday had already flagged Transnet’s ongoing woes when it presented its H1 results, but Wanblad’s comments underscored the sheer scale of the problem.  

Read more in Daily Maverick: Rinse and Repeat: Kumba flags Transnet woes as H1 earnings fall 

Transnet’s challenges – ranging from idled locomotives lacking spare parts to shoddy maintenance to rampant cable theft and vandalism – are costing South Africa’s economy tens of billions of rand a year in lost commodity exports, and these costs are mounting materially. 

Overall, Anglo saw its underlying Ebitda fall 41% to $5.1-billion for the six months to the end of June compared with the same period last year, a decline it attributed mostly to softer prices. 

Prices for a range of commodities have been under pressure this year in the face of slowing global economic growth and uncertainty about the pace of any recovery as inflation remains elevated and Russia’s war in Ukraine drags on. 

The basket price of Anglo’s mix, which includes PGMs, copper and iron ore, was down 19% compared with the first six months of 2022. 

The International Monetary Fund this week revised its 2023 forecast for global economic growth up slightly to 3.0% from 2.8%, but that is still a slowdown from an estimated 3.5% last year. 

Read more in Daily Maverick: IMF revises its 2023 global economic growth forecast slightly upwards, including for SA

Wanblad said that while he did not see prices falling much further, he did not see an immediate rebound either in the current macro environment. 

“I don’t know that it will get appreciably worse, but I don’t feel like it’s going to get better very quickly. The bottom line for us is that we have to be cognisant of that, and the long-term fundamentals are great for this industry. But in the short term we have to steel ourselves to become a little more resilient to the high costs and slightly pressurised prices,” he said. 

On other fronts, Wanblad was asked during the media call if De Beers remained a good fit in the Anglo portfolio. 

“The most important thing for us is that we have a look at what the underlying assets are, and these are the best diamond assets in the world,” he said. 

De Beers and the Botswana government recently reached an agreement in principle on a new 10-year sales deal for rough diamond production by their Debswana joint venture and new 25-year Debswana mining licences.  

These are still being finalised, but critics have said the deal is far less favourable to De Beers and Anglo, as Botswana will get a bigger direct share of the rough diamonds mined, leaving the company with less cash for vital marketing which is the lifeblood of the industry. DM