Increasing rail disruptions on the 870km line connecting mines in the iron ore-rich Northern Cape to the port of Saldhana in the Western Cape could lead to a short-term reconfiguration of Anglo American's Kumba Iron Ore unit.
Duncan Wanblad, Anglo American CEO, described Transnet as “Kumba's bottleneck” and cautioned that if rail logistics problems persist, the parent company could consider a technical reconfiguration of its iron ore operations.
Kumba is Africa's largest iron ore producer and reported a 6% increase in production in the six months to June, but sales fell by 4% due to rail constraints. The miner is battling to meet its annual output targets and has a stockpile of about 7.9MT as Transnet is only able to move 80% of its production. This cost it R6bn in sales.
“Our cost base and productivity are about getting 40MT of iron ore to the port in a cost-effective manner. To the extent that it cannot happen, you have no choice but to reconfigure your business to match the bottleneck. Transnet is Kumba’s bottleneck.”
Wanblad said Anglo and Transnet's management, together with the department of public enterprises, had to find a solution to the logistics constraints. He said a technical reconfiguration of Kumba would not result in job losses.
“There are lots of solutions to this. We have to get to them pretty rapidly otherwise inevitably Mpumi and I will have to think very hard about how we restructure this business,” he said, referring to Kumba CEO Mpumi Zikalala.
In reality, if this business cannot ship its allocation to the port, then we cannot mine the material that needs to go to the port
— Duncan Wanblad, Anglo-American CEO
“In reality, if this business cannot ship its allocation to the port, then we cannot mine the material that needs to go to the port and all the people associated with that element of mining really will not have jobs at the end of the day. It is in our interest to ensure we are able to de-bottleneck the constraint as soon as we possibly can."'
He said Transnet's inefficiencies were compromising the government's efforts to open the iron ore line to emerging miners.
“There are engineering and commercial solutions that should allow the bottleneck to be liberated. When that happens, our pursuit of transformation in the industry is only enabled, not disabled, and I think that is an important point — if we continue to grow the pie and there are more slices of the pie to share there is a higher opportunity for transformation to occur.”
Transnet has been battling to access locomotives and spare parts stuck in China after it cancelled a deal tainted by state capture corruption. It has issued a tender for the rehabilitation of non-operational Chinese locomotives.
Zikala noted at the Kumba results announcement this week that cable theft was a new problem on the iron ore export line. Collaboration with Transnet, iron ore miners and law enforcement authorities had thwarted some attempts.
“Security has been put in place with drones monitoring the line in the short-term and we are working on a longer-term security solution with Transnet. Cable theft, and especially copper cable theft, is a challenge across the board that should be addressed at country level,” she said.
Another Anglo subsidiary, diamond producer De Beers, recorded slightly lower production at 16.5-million carats from 16.9-million a year earlier. Anglo has signed an in-principle agreement that will ensure its diamond extraction and export partnership with the Botswana government through the Debswana Diamond Company's rough-diamond business runs until 2033, with a new 25-year mining licence for Debswana.
Wanblad said the negotiations leading up to the agreement had been challenging as the prize was big for both parties.
“We were wrestling with a number of things by coming up with an outcome that was not single-mindedly focused on aspects of one agreement. It was the right thing to do. When both parties come out of the agreements and feel we have each given up something and we have each gained something, and we are both better off coming out of this than going into it, then it has been a good negotiation no matter how hard or how long that negotiation has been.”
On Thursday, Anglo appointed John Heasley as finance director after Stephen Pearce’s decision to retire. It named Craig Miller as Anglo American Platinum CEO, with effect from October 1, to replace Natascha Viljoen who resigned in February.
Wanblad expressed support for the country's transformation policies, including B-BBEE and employment equity legislation, in the face of criticism that large companies have not done enough to transform their ownership structures and boardrooms.
He said Anglo in May appointed Themba Mkhwanazi regional director for Africa and the Australia region as part of a management team shake up.
The company's transformation journey had also seen Zikalala and Viljoen becoming the first female CEOs of subsidiaries Kumba Iron Ore and Anglo American Platinum.
Wanblad said the mining industry was behind the transformation agenda. “You can see through the Minerals Council South Africa, they are working hard by moving through transformational matters. We as Anglo specifically have taken it on because it makes a better business at the end of the day.”
Last week, top black business leaders blasted the slow pace of economic transformation, saying there was still too much wealth concentrated in white hands almost 30 years into democracy.
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