Kumba’s remarkable run is nothing short of a fairytale story

Kumba Iron Ore’s performance over the past five years or so has been nothing short of remarkable. Given that resource counters are price takers, this phenomenal rise has all to do with the robustness of the iron ore price over the period. At the beginning of 2016, Kumba was briefly trading below R30 per share with a market capitalisation below R10bn. This morning Kumba announced an interim dividend of R72.70, amounting to a distribution of approximately R23bn to shareholders, more than two times its entire value in 2016. Total return for an investor comprises of two components, namely capital appreciation and income (ie dividends). Since Kumba’s lows in 2016, using R30 as the base (although the share price did go lower), capital appreciation has been a near 30 bagger and an investor would’ve received more than R240 in dividends over that corresponding period. In the world of investing, a compound annual growth rate of 20% has been achieved by very few and the geniuses that have achieved such level of outperformance consistently are world famous for a reason – think Warren Buffet, Bill Ackman and Carl Icahn. Over the period outlined above, Kumba has achieved a compound annual growth rate of approximately 90%. The sample period is biased and timing the market to this extreme is almost impossible, its merely used to emphasise the iron ore producer’s remarkable performance. Please note that the calculation above excludes the time value of money as dividends received in the earlier years are worth more as purchasing power is eroded by inflation. Going through the interim numbers, top-line revenue doubled to R63bn as production was ramped up slightly and iron ore prices continued to increase when compared to the prior period. This resulted in earnings of around R23bn, with shareholders receiving nearly all earnings in the form of dividends. If history tells us anything, these strong commodity prices can only last for so long, but until then commodity counters such as Kumba will keep printing cash and distributing large sums of money to shareholders. – Justin Rowe-Roberts

Kumba Iron Ore 10 year graph

Kumba SENS statement:

Extracts from the reviewed interim results for the period ended 30 June 2021 and interim cash dividend declaration

Themba Mkhwanazi, Chief Executive of Kumba, said: “In the first half, we have marked five years of fatality-free production, while providing comprehensive WeCare Covid-19 support. In these challenging times, we continue to prioritise the safety, health and livelihoods of our colleagues and communities. Kumba is working with the rest of Anglo American’s South African businesses, to address the impact of the recent social unrest, building on our WeCare programme.

“Despite logistical constraints and weather disruptions, we delivered a strong operational and financial performance, with production increasing by 12% to 20.4Mt. Our high-quality products, combined with a constructive iron ore market, resulted in an exceptional EBITDA of R44.4bn, enabling us to announce an interim cash dividend of R72.70 per share.

“We are maximising the value of our products and positioning our business for the future, to the benefit of all our stakeholders.”

Key features

Continuing to deliver shareholder value

– Attributable free cash flow of R31.5bn

– ROCE of 225%

– Interim cash dividend of R72.70 per share

Safety and sustainability is integral to our business

– Over 5 years of fatal-free production

– Over six years without any level 3-5 environmental incidents

– R12 million in WeCare Covid-19 community support

Maximising returns and positioning for the future

– Average realised FOB export price of $216/wmt, 32% above benchmark

– Robust EBITDA margin of 70%

– Closing net cash of R40.7bn

Notice of interim cash dividend

At its Board meeting on 26 July 2021, the directors approved a gross interim cash dividend of 7,270 cents per share on the ordinary shares from profits accrued during the period ended 30 June 2021. The dividend has been declared from income reserves.

The dividend will be subject to a dividend withholding tax of 20% for all shareholders who are not exempt from or do not qualify for a reduced rate of withholding tax. The net dividend payable to shareholders after withholding tax at a rate of 20% amounts to 5,816 cents per share.

The issued share capital at the declaration date is 322,085,974 ordinary shares.

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