‘When I joined the company, the key thing was to ensure we were sufficiently competitive from a margin perspective to withstand the commodity price cycles,’ Kumba Iron Ore CFO Bothwell Mazarura explains. ‘In 2017 Themba conceived a great strategy called Tswelelopele – Ore To Awe, which I helped implement. The strategy has three main premises; extracting full potential from our assets by making them more competitive, extending the life of our mines and expanding our footprint.’
Tswelelopele is Tswana for ‘moving forward’ and Kumba has indeed been advancing ever since its conception. One of the major targets set was saving R2,6 billion within five years. They achieved this landmark within two and a half years. The quality of their iron ore product has also improved, resulting in better pricing in comparison to their competitors. Moreover, the life of the mine at Sishen has been extended from 13 to 19 years and a project for the conversion of the plant to further enhance the quality of their iron ore products has been approved by the board.
‘The highlight for me is that we have delivered value to our stakeholders resulting from improved productivity and margin. Since 2018, our Earnings Before Interest Taxation and Depreciation (EBITDA) margins have gone up from 45% to 70% and with the increased profitability we have created R127 billion of shared value in taxation, royalties and dividends.
‘Over and above payments to our employees, shareholders and the government, what I find particularly heart-warming is the support we have given local businesses – since 2018 we have sourced R9 billion worth of goods and services from host community suppliers which helps to secure the livelihoods of communities around the mines. I consider it a great success story that we have moved from spending R500 million with host community suppliers each year to seven times that amount.’
Bothwell states that the key to success for any strategy starts with understanding the business, its purpose and its operational context in terms of the environment it operates in. Companies should focus on resilience to ensure that they are profitable and sustainable which allows them to contribute to the preservation of livelihoods.
‘Sustainability is a long-term concept which can be achieved by understanding why you do what you do. For us, it was important to avoid having to go through another massive retrenchment in the future. Having established our strategic direction, it made it easy to take the next step, which is setting up the building blocks. This included finding our competitive advantage which is centred around ensuring we have quality product and extracting it safely and efficiently.’
Given the inherent risks in mining, it is sensible to follow a risk-based approach to setting out your strategy, Bothwell explains. This means performing a careful analysis for potential risks throughout the value chain and determining the elements necessary to manage them.
‘Then it is all about a relentless push to meet the targets you had set for yourself. Where there are setbacks, you need to understand the reasons for them and find ways to compensate for the setbacks. Strategy is also not a static thing; you need to continuously scan your environment and evolve your strategy based on what is happening in that environment.’
This article is an extract from the Masters of Money book by KC Rottok Chesaina (JONATHAN BALL PUBLISHERS)
