KIROY - Kumba Iron Ore

[DTEJD1997]

Hey all:

 

Anybody else looking at Kumba Iron Ore (KIROY) in South Africa?

 

It appears to be somewhat intriguing.

 

The first thing that jumps out is their high yield, about 12%.  They also have an EXTREMELY low P/E ratio and and a low EV/EBIDTA ratio.

 

Unfortunately, they are located in South Africa, which of course has a host of problems.  Labor is high cost, their are political problems, and of course you've got RAND issues.  That potentially could be good for investors as sales are in USD, costs are in RAND.  Lately, the dollar has appreciated against the RAND, so that should lead to thicker margins.

 

Secondly, they are iron ore producers (not such a good industry) but they appear to be lower cost producers and have some transportation advantages.  They appear to have some advantages over their Brazilian competitors.

 

One of their mines will most likely be closing in the next 24 months.  Surely this will affect their sales & earnings.

 

Any way you slice it, their fortunes are tied to China.  So a slowdown in China will put the kibosh on these guys.

 

I'm thinking it is good for a small position.  They are reporting earnings in August and will also update their dividend payout.

 

Anybody have any thoughts or input?

 

 

[PlanMaestro]

Cost Curve

[jouni1]

Cost Curve

i wonder what the lowest cash cost producer (listed as other at between 700-750million tonnes) is? their cash cost is at half of the "low-cost" producers. is it because it's a reported number and not total cost? they're understating their costs?

 

it's pretty interesting to see how big the differences are. have to look at kumba and rio i think. there might be a few long-term winners here.

[Spekulatius]

Why not just buy Vale. Trading below tangible book, low PE, good dividend, lowest cost producer worldwide? Even Graham would approve of that one.

 

I own a few shares and think it's a one foot hurdle and I should buy more. Even if China and iron ore prices go to hell, their competitors will go out of business and Vale and Rio will still be standing.

[DTEJD1997]

Why not just buy Vale. Trading below tangible book, low PE, good dividend, lowest cost producer worldwide? Even Graham would approve of that one.

 

I own a few shares and think it's a one foot hurdle and I should buy more. Even if China and iron ore prices go to hell, their competitors will go out of business and Vale and Rio will still be standing.

 

Vale is an interesting company...BUT Kumba is yielding about 12%, the P/E is much lower, and the EV/EBIDTA is also lower than Vale....They've also paid out MUCH bigger dividends in the past.  Thus, if iron ore pricing rebounds, the dividend could be raised 50% or more.

 

The more I dig, the more I think Kumba is a quality operation...

 

 

[jouni1]

i'm not sure if that graph is completely right, but looking at it it doesn't seem like vale is the lowest cost producer. it's the most expensive of the big non-china producers? also they're controlled by the brazilian government. governments are bad investors. corrupt governments even more so.