Kumba’s earnings doubled on higher prices, cost cutting measures

South Africa-based Kumba Iron Ore, one of the divisions Anglo American is trying to sell, said Tuesday it more than doubled profit last year helped by higher metal prices.

The unit, Africa's largest iron ore producer, logged earnings of $607 million for 2016, basically double the $304 million it recorded in 2015, but it held off on paying a dividend because of a volatile market outlook.

Higher iron ore prices, as well Kumba’s own drive to reduce costs by cutting the amount of waste mined, contributed to the improvement in earnings, the company said.

Higher iron ore prices, as well Kumba’s own drive to reduce costs by cutting the amount of waste mined, contributed to the improvement in earnings.

The steelmaking ingredient has gained more than 140% since the record low of $38.30 a tonne struck in mid-December 2015 thanks mainly to China's measures to reduce a global steel oversupply.

It reached new highs Monday, after seaborne ore with 62% content delivered to the port of Qingdao added $5.61 more per tonne to its Friday's value trading at $92.23 a tonne — the highest price since August 2014.

In a separate statement, the firm also announced that Frikkie Kotzee, its chief financial officer and executive director has decided to step down from his role after five years in the post.

Hit by a deep rout in commodity prices, and burdened by large borrowings, Kumba’s parent company Anglo American last year put its coal, iron ore, manganese and nickel assets up for sale as part of a radical “portfolio restructuring,” which aims to have the group focus only on copper, diamonds and platinum.

Since the plan was unveiled, however, most commodities have rebounded, boosting Anglo’s cash generation and profitability to such an extent that the miner is now on track to meet its year-end debt-reduction target without more disposals this year.

Market rumours indicate that Anglo favours a spin-off of its iron ore and thermal coal assets in South Africa, rather than selling them one at the time.

Anglo American (LON:AAL), which has a 69.7% stake in Kumba, is set to post its full-year results next Tuesday.