(Bloomberg) — The selloff that made Kumba Iron Ore Ltd. the worst-performing South Africa stock is poised to persist as a rout that pushed prices for the steel-making ingredient to 10-year lows deepens.

Kumba, the Pretoria-based unit of Anglo American Plc that operates the continent’s largest iron-ore mine, fell 43 percent this year, the biggest retreat on the FTSE/JSE Africa Top40 Index and 171-member FTSE/JSE Africa All Share Index. The shares led declines on both gauges on Friday.
The decline followed an almost 80 percent drop in iron-ore prices since the start of 2014 after some of the biggest producers — Rio Tinto Group, BHP Billiton Ltd., Fortescue Metals Group Ltd. and Vale SA — fueled a supply surplus by boosting low-cost output and as China’s economy grew at the slowest pace in more than two decades. Kumba responded by reducing dividends, slashing capital expenditure and cutting jobs as margins declined.
“There is still downside until such time as we see meaningful cuts in iron-ore production worldwide,” Troye Brady, an analyst at Noah Capital Markets (Pty) Ltd. in Johannesburg, who has a sell recommendation on the stock, said on Thursday. “In a market as highly oversupplied as iron ore, it’s very hard to determine the bottom.”
Ore with 62 percent ferrous content at the Chinese port of Qingdao rose 0.6 percent to $48.34 a dry ton on Thursday, according to Metal Bulletin Ltd. Prices fell to $47.08 on April 2, the lowest since 2005, based on daily and weekly data from Metal Bulletin and annual benchmarks for ore delivered to China compiled by Clarkson Plc.
Unit costs at Kumba’s Sishen mine were $30.60 a ton in 2014 and $24.84 at Kolomela, its two largest operations, the company said on Feb. 10. It is considering shutting its Thabazimbi mine.
Kumba may need to cut back on spending to maintain production at the Sishen mine, lowering future output, Noah’s Brady said.
“They’ll do whatever they can to prevent that,” he said. “At the same time if prices stay at $50 or go even lower they’ll have to do something.”
Kumba cut dividend payouts by 42 percent in 2014, the company said when it released full-year earnings on Feb. 10. At that time, ore prices were trading at about $62 a ton. The company raised its dividend cover to 1.7 times from 1.3 times and may increase it even further, meaning less money as a proportion of earnings is being set aside for shareholders, Chief Executive Officer Norman Mbazima said.
Ore prices will remain “lower for longer,” even though a modest recovery would give a significant lift to Kumba’s profitability, Stephen Meintjes, an analyst at Imara SP Reid in Johannesburg, said by phone.
“I don’t think it can go very much lower,” Meintjes said. “The best one could do would be to sit tight.”
Kumba’s woes are hurting its parent Anglo American, Ben Davis, a commodities analyst at Liberum Capital Ltd. in London, said by phone. Output of steel-making ingredients contributed 35 percent of the London-based company’s adjusted earnings before interest, tax, depreciation and amortization in 2013. Anglo’s shares traded in London have declined 15 percent this year.
“For many a year it was the hallowed operation that was certainly doing its bit,” Davis said, referring to Kumba. “It appears like it is a bit of a disaster at the moment.”