Transnet snubs Kumba’s overture to run lucrative South African iron ore rail-line

South Africa’s state-owned logistics company has rejected an overture from an Anglo American Plc unit to take over the running of its iron ore rail line, which is one of its most profitable but battles to move sufficient volumes.

Kumba Iron Ore Ltd. wants to lease the line from Transnet SOC Ltd. or run it on a concession basis and would invest in boosting its capacity and making it more efficient, according to Mpumi Zikalala, Kumba’s chief executive officer. While she wants to discuss the matter with the government, her Transnet counterpart Portia Derby isn’t interested.

“We are not looking to concession or lease out the iron ore line, not at all,” Derby said in an interview. That would generate “no value whatsoever for us,” she said. 

The 861-kilometer (535-mile) line is used to haul iron ore and manganese from Kumba’s giant Sishen mine and other operations in South Africa’s Northern Cape province to the Saldanha port on the west coast. Transnet lacks the money to properly maintain the line and increase its capacity, so Kumba and other mining companies have stepped in to keep it running, including funding the spraying of locust swarms that can cause derailments. 

Last year, Kumba said stockpiles of its high-grade iron ore had built up to 7 million tons at its Sishen and Kolomela mines because it couldn’t be railed, while another 800,000 tons of the steelmaking ingredient was waiting to be shipped from the Saldanha port — which Transnet also operates. The build-up cost Kumba more than 10 billion rands ($546 million) in lost sales.

Global miners including BHP Group and rival Rio Tinto Group own individually-operated private tracks in Australia’s vast Pilbara region, the world’s biggest source of iron ore exports. Those operations showed how privately run lines could boost mining output and aid growth, Zikalala said. She declined to say if Kumba has made a formal proposal to Transnet.

“If you look at the amount of capital that’s required to essentially deal with the maintenance, Transnet can’t do it on their own, the government can’t do it on their own,” Zikalala said. 

Transnet’s key focus is on meeting contracted volume targets on the line, and the government will need to invest in expanding its capacity to ensure small producers have access, according to Derby. She would welcome outside investment to improve efficiency on the line and expand processing capacity at the Saldanha port to about 67 million tons, from 60 million tons.

Transnet has indicated a willingness to bring in private partners to operate some of its other rail lines and port terminals. The company has been plagued by a shortage of locomotive parts, theft, and vandalism of cables used to operate its electric trains — problems that are particularly acute on the main line used to move coal from mines in the eastern Mpumalanga province to port.