South 32's strong start

THE unwanted assets of BHP Billiton spin-off South 32 have helped the company post a solid result for its first quarter as a standalone entity.
South 32's strong start South 32's strong start South 32's strong start South 32's strong start South 32's strong start

Illawarra Coal image courtesy of South32.

Haydn Black

South32 CEO Graham Kerr described the past three months as a historic period for the company following shareholder approval of the demerger that allowed the company to start trading on exchanges in Australia, London and Johannesburg.

Unfortunately for the company, South 32’s share performance has lived up to the performance expected from a company the wags dubbed “CrapCo” when the demerger was first discussed.

The shares fell 1% of $A1.807 yesterday, well down from the peak of $2.37 reached shortly after trading began.

Kerr said the company was fast-tracking the implementation of a regional operating model and had established a strong foundation for its agile and entrepreneurial culture.

“The curtailment of aluminium production at Alumar and manganese alloy production at Metalloys demonstrates our commitment to maximise financial performance per share, rather than volume,” he said.

“Our high-quality assets, cash generating capacity and strong balance sheet underpins our confidence in the outlook for our business.”

The company managed to set annual production records including saleable coal at Illawarra Metallurgical Coal, alumina at Brazil Aluminium, alloy at Australia Manganese and ore at South Africa Manganese.

In Australia, South 32 noted the Appin Area 9 metallurgical coal project was expected to be completed 20% below the original $US845 million budget.

The Appin Area 9 project is 86% complete and is expected to be commissioned ahead of schedule in the second half of 2015- 16 financial year.

The project will sustain the Illawarra unit’s metallurgical coal production capacity.

Illawarra Metallurgical Coal’s saleable production increased by 19%, or 1.4 million tonnes, to a record 8.9Mt in the 2015 financial year.

An improvement in longwall availability and utilisation, and a 22% increase in washed tonnes from the West Cliff coal processing plant, underpinned record metallurgical coal production.

The 33% increase in June quarter coal production reflected an absence of longwall moves during the period.

Three longwall moves are planned for the 2016 financial year, up from two in 2014-15, including one in the December half.

There was also a substantial increase in annual exports from South Africa Energy, although BHP Billiton left South 32 a gift with a number of impairments across the whole business totalling $US1.9 ($A2.5) billion, including a $US539 million writedown at the Wolvekrans Middelburg complex within its South Africa Energy Coal unit.

Despite that South African production increased by 13%, rising 3.9Mt to 34.3 Mt in the 2015 financial year thanks to the continued optimisation of equipment availability.

Mine planning also underpinned a 23% and 13% increase in export and domestic sales, respectively.

Saleable coal production in the June 2015 quarter declined 8%, or 728,000t, following the curtailment of mining activity at the Khutala open cut mine.

The Khutala open cut mine contributed 1.4 Mt of domestic coal production in the 2015 financial year.

Some $US4 million was invested in exploration in May and June, which was focused on South32’s metallurgical coal and silver in Australia, and nickel in Colombia. Half was expensed.