21st Jan 2016 12:28
LONDON (Alliance News) - Despite South32 Ltd reiterating its full year guidance across most of its commodities on Thursday, production is expected to fall in the current year and the miner also said it could cut its capital expenditure in the near future.
The miner, spun off from BHP Billiton PLC last year, said its has maintained production guidance for the majority of its upstream operations but trimmed its outlook for coal production from the Illawarra mine in Australia.
In the six months ended December 31, South32 saw production fall year-on-year across every single one of its commodities except for alumina and zinc.
Alumina production was up 1% year-on-year to 2.6 million tonnes whilst zinc production was up 13% to 41,800 tonnes.
Aluminium production was down 6% to 485,000 tonnes, thermal coal production dropped 2% to 17.0 million tonnes, metallurgical coal fell 15% to 3.3 million tonnes and silver production was down 3% to 11.9 million ounces. Manganese ore and alloy production fell 14% and 41% respectively in the half, whilst nickel production was down 17%.
"Following another solid quarter of operating performance we remain on track to meet production guidance for the majority of our upstream operations," said Chief Executive Graham Kerr.
Although the group has maintained its guidance for most of its upstream projects in 2016, South32 is still anticipating falls in production across most of its commodities in the current financial year to end in June.
The only full year guidance to be revised down was at the Illawarra coal mine due to difficult geological conditions it experienced during the fourth quarter.
South32 said full year metallurgical coal production from that mine will total around 6.9 million tonnes whilst thermal coal will be around 1.4 million tonnes - which would represent 7.4% and 8.4% falls from the last financial year.
The only segments that South32 are expecting to report increases in production for the full year are manganese operations in Australia, expected to report a rise of 3.6% year-on-year and alumina production from its Worsely operation in Australia, which is anticipated to report a 3.4% rise.
Thermal coal produced in South Africa is sold to the domestic market and is also exported. Domestic coal production is expected to fall over 8% in the full year whilst export coal production will fall over 5%.
Nickel production from the Cerro Matoso mine in Colombia is expected to report almost a 10% fall in production for the full year, whilst the Cannington mine in Australia is expected to report a 4% year-on-year fall in silver production and a 4% fall in lead production. However, that mine is also expected to report a more than 11% rise in zinc production during the year.
South32 has kept its manganese operations in South Africa under review, after ore production was impacted by the temporary suspension of operations during the last quarter.
"The strategic review, which is nearing completion, will define the optimal configuration and production profile for the South Africa manganese mines and smelter to ensure cash outflows are mitigated in this difficult pricing environment," it said in a statement.
"In order to protect our strong financial position in the currently challenging environment we have already cut or suspended production at our South Africa Manganese ore mines and Alumar, Metalloys, TEMCO and South Africa Aluminium smelters. Further decisive action will be taken as we seek to maximise short-term cash flow while preserving longer-term value," it added.
On the corporate front, South32 said a review of "corporate functional support" completed during the first is expected to deliver an annualised saving of approximately USD30.0 million in the current financial year. Corporate functional expenditure is expected to be approximately USD100.0 million in the current financial year.
The miner, like its peers is keeping a close eye on its capital expenditure. South32 currently has a budget of USD700.0 million for the current year, but said that was based on the AUD:USD and USD:ZAR exchange rates at the time, and said an updated guidance will be provided shortly "to reflect the general appreciation of the US dollar against a basket of producer currencies, and the group's ongoing efforts to optimise its investment activities."
South32 significantly reduced its debt in the first half of the financial year, with net debt standing at USD115.0 million at the end of December after dropping from USD196.0 million at the end of September and from a staggering USD402.0 million at the end of June 2015.
"Our relentless focus on safety, volume, costs and capital expenditure has allowed us to reduce net debt by almost USD300.0 million in the December 2015 half year, despite continuing weakness in commodity markets," said the company. "The group's strong balance sheet remains a key point of differentiation and we are firmly committed to an investment grade credit rating."
South32 shares were up 23.5% to 44.0 pence on Thursday afternoon.
By Joshua Warner; [email protected]; @JoshAlliance. Additional reporting by Sam Unsted; [email protected]; @SamUAtAlliance
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