22nd Jul 2015 07:43
LONDON (Alliance News) - South32 Ltd Wednesday released its first report since shareholders approved the demerger of the company from BHP Billiton PLC and the company said it has the right balance sheet to deliver on its promise to distribute a minimum of 40% of underlying earnings as dividends.
South32 demerged from BHP Billiton in May, which resulted in South32 take on assets from BHP that are predominantly in the southern hemisphere with some projects in Mozambique and South Africa alongside other assets in Brazil, Colombia and Australia.
The assets spun-off into South32 only contributed 4% of BHP's underlying earnings before interest and tax in 2014, but are diverse by including alumina, aluminium, coal, manganese, nickel, silver, lead and zinc.
"This was an historic period for our company as shareholders approved the demerger and we listed on the Australian Securities Exchange, London Stock Exchange and Johannesburg Stock Exchange," said South32 Chief Executive Graham Kerr.
"Our high-quality assets, cash generating capacity and strong balance sheet underpins our confidence in the outlook for our business," he added.
South32 reported its production results for the fourth quarter of 2015, alongside its share of production for the full financial year from BHP, which also reported its fourth quarter results early Wednesday.
South32 said alumina production in the fourth quarter totalled 1.2 million tonnes, flat from a year earlier but down from the previous quarter when it produced 1.3 million tonnes. Aluminium production in the quarter totalled 242,000 tonnes, down from 276,000 tonnes a year earlier and from 245,000 tonnes in the previous quarter.
Energy coal production totalled 8.9 million tonnes, up from 8.5 million tonnes a year earlier but down from 9.4 million tonnes in the third quarter. Metallurgical coal production came in at 2.0 million tonnes, up from 1.7 million tonnes a year earlier and from 1.6 million tonnes in the previous quarter.
Silver production in the fourth quarter totalled 5.2 million ounces, up from 5.1 million ounces a year earlier but down from 6.0 million tonnes in the previous quarter.
Production from its other smaller commodity sectors saw zinc production experience a small rise both year-on-year and on a quarter-on-quarter basis, but manganese alloy production was down on both accounts. Lead production was broadly flat.
Following on from BHP's full year production results, South 32 outlined its share of production for the full 2015 financial year.
South32 said its share of alumina production was 5.1 million tonnes, down 1% from the 5.2 million ounces it would have netted a year earlier whilst aluminium production totalled 1.0 million ounces, down from 1.2 million ounces.
Energy coal production was 35.7 million tonnes for the year, up 12% from 31.9 million tonnes whilst metallurgical coal production rose 25% to 7.5 million tonnes from 6.0 million tonnes.
Manganese ore production came in at 4.6 million tonnes for the year, up 4% from 4.4 million tonnes whilst manganese alloy production was up 7% to 413,000 tonnes from 387,000 tonnes.
Silver production however was down 10% to 22.6 million ounces from 25.2 million ounces whilst lead production was down 2% year-on-year and nickel was down 9%. Zinc production for the year was up 25%.
In the current financial year, South32 will be fast tracking its regional operating model, and the company said it expects the associated cost savings from the strategy to outweigh the USD60 million of costs per year being incurred by the corporate office.
South32 outlined it would aim to distribute a minimum of 40% of its underlying earnings to shareholders, and on Wednesday the company said it has "the right balance sheet" to deliver on that promise in the new financial year.
"As part of our year-end process we are assessing the fair value of our assets at June 30, 2015 and will keep the market informed should there be a material difference to those figures provided by BHP Billiton," said the company.
However, the company said it has also been informed by BHP Billiton that South32 will incur non-cash impairments totalling USD1.90 billion, comprised of USD445 million against its Australian maganese operations, USD882 million at its South African maganese operations and USD539 million at the Wolvekrans Middelburg complex within the South Africa Energy Coal division.
South32 said the USD1.30 billion impairment against its manganese assets largely offsets the previous fair value lift of USD2.10 billion it announced back in March. However, that will also reduce the depreciation charge for the manganese assets compared to the company's previous expectations, it said.
It is worth noting however that the statutory results of the South32 group for the 2015 financial year will not include all fair value adjustments and impairments due to the timing of the internal restructuring steps associated with the demerger.
When BHP Billiton reported its results earlier Wednesday, the FTSE 100-listed miner said iron ore, metallurgical coal and energy coal production all grew in the fourth quarter of the financial year, whilst petroleum and copper production both fell.
Following the spin- off of South32, BHP Billiton also said it expects to recognise a net loss on the demerger of about USD2.1 billion post-tax as an exceptional item in the second half of the 2015 financial year.
BHP also warned that petroleum, copper, metallurgical coal and energy coal production would all fall in the 2016 financial year.
South32 shares were down 2.6% to 83.75 pence per share on Wednesday morning whilst BHP shares were down 3.2% to 1,211.50 pence per share.
By Joshua Warner; [email protected]; @JoshAlliance
Copyright 2015 Alliance News Limited. All Rights Reserved.
Related Shares:
BHP Billiton PLCSouth32