South Africa’s biggest steel and iron ore producers Iscor and Kumba Resources are seen reporting a leap in annual earnings next week, reaping the rewards of their split and despite a firmer rand.
Both companies report results for the year ended June 30, 2002 on Thursday for the first time since Iscor hived off its profitable mining division as a separate company known as Kumba Resources, which was listed in November 2001.
Shareholders who approved the unbundling as a strategy for unlocking value will not be disappointed.
A consensus poll of four analysts by Multex said the new Iscor will move into positive territory, posting headline earnings per share of 108 cents against a proforma loss, excluding mining assets, of 62,2 cents in the previous year.
Kumba’s headline earnings per share, which strip out extraordinary items and their tax effects, was seen rising to 366 cents from a proforma 195 cents, according to four analysts polled by Reuters.
”The market should quite like the results. They’ll be very good but probably just a bit lower (than originally thought) due to the strengthening rand,” said one analyst.
An unprecedented fall in the rand last year helped South African mine firms post record earnings on the back of dollar-based metals prices. Some of that shine will come off this year as the rand has since clawed back 12% of its value.
One analyst said Iscor, which sells over half of its 5,3-million tons steel output locally at hefty premiums over its export prices, would also gain from a bounce in steel prices from 30-year lows in the period under review.
Iscor said in July it would increase domestic steel prices by 14,9% in September following a rise in world steel prices to an average $265 a ton in June from $155 in December 2001.
Ahead of the planned increase, demand has increased, forcing Iscor to raise domestic supply by 10 000 tons a month.
”Iscor is in a much better situation now after the restructuring. Costs will come down,” said another analyst.
EYES ON SALDANHA
Analysts will be looking for news on the Saldanha Steel operation on South Africa’s west coast, a former joint venture with the state-owned Industrial Development Corp (IDC).
The deal to unbundle Iscor was part of a strategy to refinance Saldanha’s massive debt of about six billion rand. Iscor and the IDC shared the burden of refinancing the debt.
The deal also saw Iscor take over Saldanha. In exchange, the IDC acquired extra shares in Iscor and Kumba.
Analysts will be watching for the impact of a maintenance shutdown at Saldanha’s Corex furnace which resumed output in late June. Since then it has hit a 4 200 tons daily output record.
”We’ll be looking for news on Saldanha and how the turnaround is going. Also how they are resolving the technical problems that have plagued its operations,” said Allan Cooke of Rice Rinaldi Securities.
Since global diversified miner Anglo American Plc acquired a 20% stake in Kumba in March, the market has been awash with speculation over its next move.
Anglo also has a 34,9% stake in Anglovaal Mining (Avmin) which also has iron-ore assets in the Northern Cape province, home to Kumba’s star Sishen iron-ore mine.
Anglo has made no secret of its ambitions to expand its portfolio and sees its iron-ore interests focused in South Africa. Analysts said they would be watching for news of any corporate activity at the results next week.
Some cautioned, however, a controversial new draft mining charter seeking to increase black participation in the sector could act as a deterrent for any Anglo takeover — at least for now.
”It’s unlikely they will take over Kumba. The authorities wouldn’t allow it, said one analyst. – Reuters