Kumba Iron Ore | Derailed results

KIO released mixed H1 '18 results in our view. Heading earnings were negatively impacted by lower than expected export sales volumes, a stronger ZAR and a decline in KIO's average realised selling price. While KIO has no control over macro factors, the Group's explanation of six train derailments in the past year was underwhelming. In our view, the movement of ore to the port remains a risk as KIO is uncertain of the cause of the derailments as it awaits feedback from Transnet. Encouragingly, KIO unpacked plans to unlock its significant resource base through technology, efficiency and optimisation efforts. However, we maintain our muted short-term outlook for iron ore prices since we expect capacity additions in conjunction with seasonally weaker demand to cause price weakness in H2 '18f.