Anglo’s Kumba Iron Ore counts the cost of Transnet’s force majeure

10 Oct 2022

Kumba Iron Ore said on Monday that a notice of force majeure from Transnet in the face of what the state-owned enterprise describes as an illegal strike will cost the Anglo American unit 120,000 tonnes per day in lost export sales. Other companies are in a similar boat, which bodes ill for an economy beset by rolling power cuts.

Kumba Iron Ore said in a statement on Monday that it had received a notice of force majeure from Transnet and had “implemented contingency plans to safeguard our assets and minimise the impact on operations”.

“However, as a result of the disruption to Transnet’s rail and port services, the estimated impact on production is approximately 50,000 tonnes per day for the first seven days and, thereafter, approximately 90,000 tonnes per day. Export sales will be impacted by approximately 120,000 tonnes per day,” the company said.

Transnet issued the force majeure — which means it cannot meet contractual obligations because of events outside of its control — on 7 October.

Transnet said the strike by members of the Satawu and Untu unions was “illegal”.

Kumba had forecast sales and production of between 38 million and 40 million tonnes this year and said on Monday it would provide “further updates, as appropriate”.

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Meanwhile, coal producer Thungela — which was previously part of the Anglo stable — noted in a statement that the Richards Bay Coal Terminal is not a Transnet operation, but the impact on the rail network meant that if the strike extends beyond a fortnight, it would lose production.

“Rail constraints over recent months have resulted in relatively high stockpile levels on our operations. Operations are, however, able to run without rail for a further seven days without experiencing a significant impact on production. In the event of a protracted strike extending to two weeks, we would be forced to further curtail production, with the potential resultant impact being a reduction of up to 300,000 tonnes of export saleable production,” the company said.

Thungela’s guidance for the year for export production was 13 million to 13.6 million tonnes and would have been higher were it not for “the ongoing inconsistent and poor rail performance by Transnet Freight Rail”. Now even that forecast may come off the rails.

So, the strike and force majeure are going to be material for the bottom line of a number of companies and will rob South Africa’s economy of badly needed export earnings.

The fourth quarter of this year started on 1 October and has already been marked by serious rolling blackouts. Combined with this unfolding mess, the economy has probably been in contraction mode so far this quarter, and the outlook for any growth must be dimming.

That helps to explain why the rand on Monday, according to Investec, reached 18.24/dollar at one point, its lowest level in about 30 months. The dollar is on an absolute tear globally amid rising expectations of more aggressive rate hikes in the world’s largest economy. But South Africa is also scoring enough own goals to keep the rand on the back foot. BM/DM

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