Anglo American’s share price rally has come to an abrupt end after its iron ore subsidiary reported a steep fall in profits.
Kumba Iron Ore, which is 70pc owned by Anglo, has been hammered by a sharp fall in the price of iron ore, the primary element used in steelmaking.
Pre-tax profits at the South Africa-based company tumbled 89pc to 2bn rand (£87.5m) from 18.7bn rand a year ago. Revenue slipped 24pc to 36.1bn rand.
As a result, Kumba's contribution to Anglo's underlying earnings for the year will be 66pc lower, at $238m.
Iron ore prices were down 42pc during the year, due to global oversupply and faltering steel production in China. Kumba’s production fell 7pc to 44.9m tonnes in 2015 due to operational problems at its biggest mine, Sishen, which took a 6bn rand impairment charge to cover lower prices and restructuring costs.
Kumba has announced 4,000 job cuts at Sishen and said output at the mine will fall by a quarter this year.
“We have responded decisively to position our business to withstand a longer period of lower iron ore prices,” said Norman Mbazima, Kumba chief executive.
Kumba was shifting from a “volume to a value-based strategy”, he said, with the goal of preserving cash, reducing debt, and boosting free cashflow.
Source Telegraph .UK