JOHANNESBURG (miningweekly.com) – The operating profit of iron-ore miner Kumba fell 4% in the six months to June 30, when export sales volumes fell 3% from record levels.

Increased operating expenses saw operating profit fall to R14.3-billion from the R14.9-billion in the first half (H1) of 2012.

Shareholders will receive a R6.5-billion final cash dividend.

Revenue increased by 4% to R26.3-billion and production of 21.6-million tons was in line with H1 2012.

Kumba has net cash of R2.3-billion and net debt of R668-million.

The JSE-listed company grew second-quarter production at the Sishen mine by 13% and the new Kolomela mine continued to perform exceptionally well.

A strategic review of these two Northern Cape mines has been conducted to satisfy domestic demand and also to fill the rail line to optimise exports.

“We’re considering various scenarios at Sishen and Kolomela mines, to balance both production and costs,” Kumba CEO Norman Mbazima reports.

The export capacity on the rail line is 42-million tons and will remain so in the near future.

While there was one loss of life, 14 lost-time injuries were suffered, reflecting a deteriorating H1 safety position.      

The operating profit margin of 58% for mining activities was down on the 64% for H1 2012 and the overall 55% margin was down on the 59% previously.

The group continued to generate substantial cash from its operations, with R17.1-billion generated during the six months.

These cash flows were used to pay taxation of R2.8-billion, royalties of R800-million and aggregate dividends of R5.1-billion during the six months.

The group’s working capital position remains healthy, ensuring sufficient reserves to cover short-term positions.

Capital expenditure of R2.3-billion was incurred; R1.9-billion on stay-in-business activities, including deferred waste stripping; and R451-million on expansion.

Capital of R310-million was spent on new employee housing, bringing the total spent on housing since 2006 to R2.2-billion.

The outlook is dimmed by steel fundamentals remaining under pressure as the Chinese economy slows down, with manufacturing activity receding as a result of declining export orders.

Iron-ore prices are expected to remain under pressure as supply exceeds demand in the second half of the year, though restocking by steel mills may support prices in the near term.