Evaluating Kumba Resources unbundling from ISCOR and strategic options available post unbundling.
Mdoda, Patilizwe Caswell.
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Kumba Resources Ltd [Kumba], one of the largest South African-based mining companies listed on the JSE Securities Exchange, is a focused metals and mining company with a diverse commodity portfolio consisting of iron ore, heavy minerals, coal, base metals and industrial minerals. At the unbundling of Iscor Ltd [Iscor], all the mining assets were housed under the new mining company, Kumba Resources. The study therefore is an effort at evaluating the unbundling decision as well as options for the Kumba going forward. The literature reviewed covers restructuring and cases on restructuring in South Africa and internationally. It outlines various methods at arriving at the competitive strength and strategic fit of company business units in a diversified environment as well as evaluating the contribution of each business unit to the profitability of the company. All the tests applied to Kumba attest to the unbundling decision having been a good decision to take. However there are assets that have been identified that do not provide the right strategic fit in Kumba or too small and therefore destroying value like the information technology company, AST and Base Metals and Industrial Minerals Divisions. Analysis of Kumba going forward shows that the key drivers to its growth strategy will be a focus on those commodities and investments that offer above average growth and returns while spreading the risk associated with cyclicality and volatility that characterises the supply and demand of minerals and metals in the world's major markets. Whilst the attraction of being a single commodity player because of the performance of iron ore in relation to other commodities in Kumba's portfolio, experience shows that iron ore has in the past suffered same cyclical swings particularly when the steel prices are low. Lastly minerals and metals are a depleting resource and it is therefore advisable for the company to maintain a robust project pipeline in commodities where the company will achieve above average returns including considerations at mergers and acquisitions, critically investigate and divest in those commodities that do not provide the expected returns.