Hefty tax bill weighs on Kumba share price

Kumba Iron Ore took a knock on Friday after it agreed to settle a R2.5-billion tax bill with the South African Revenue Service.

The miner's share price fell as much as 8.79% after the announcement, hitting a low of R194.39.

Kumba said it had already made provision for R1.5-billion in its 2015 financial statements to be paid to SARS, and would earmark a further R1-billion in its 2016 statements.

It would settle its bill with the tax man in the first quarter of this year, Kumba said on Friday.

The deal "provides clarity for all ... enabling us to focus our efforts on ensuring that Kumba continues to operate at the optimal level, and furthers its position as a major economic and social contributor to the South African economy," said Kumba CEO Themba Mkhwanazi.

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In February last year, Kumba announced it owed SARS R5.5-billion after the service had done a tax assessment of the company for the years 2006 to 2010.

Kumba's agreement with SARS involved Sishen Iron Ore, a subsidiary in which the company has a majority stake.

Rob Spanjaard, investment director at Rezco Asset Management, said the issue had been bubbling for a while in the market.

What Kumba did was similar to what other companies did in routing exports through foreign offices and subsidiaries, resulting in offshoring profits.

"It is not a lack of integrity on Kumba's part, it is more a question of aggressive tax planning that has backfired - which is never good," Spanjaard said.

The company has been on an upward trajectory over the past year, and Spanjaard said it would bounce back since it was generating a lot of cash at the moment due to a high iron-ore price.

Wade Napier, an investment analyst at Avior Capital Markets, said his understanding was that Kumba had not been evading tax intentionally, and only when it walked through the process with SARS were irregularities pointed out. Kumba's share price was also hit by the drop in iron-ore prices, Napier said.

The People's Bank of China's decision to raise interest rates on Friday led to a drop in commodity shares across the board, a factor in the hit taken by Kumba's share price.

China's softer purchasing managers index number on Friday - down to 51 points from 51.9 - coupled with the decision to raise interest rates had an impact on the iron-ore price and also hit iron-ore futures, Napier said.