The March quarterly report from South32 shows the group is hitting its operational and financial straps at the same time as the prices for its main products – nickel and aluminium – are taking off driven by US sanctions against Russia. The South32 share price has responded moving up 24% from R28.62 on March 26 to close at R35.54 on the JSE on Wednesday. The 52 week high is R38,90 set in October last year.
CEO Graham Kerr commented “strong commodity prices and a partial unwinding of working capital delivered a US$477m increase in net cash to $1.98 billion after allocating a further $85m to our on-market share buy-back in the quarter.”
He added that South32 had delivered, “a year-to-date production record at Mozal Aluminium as the smelter continued to test its maximum technical capability and increased payable nickel production at Cerro Matoso by 21% as the performance of La Esmeralda continued to exceed expectation.”
South32’s manganese operations are also benefitting from favourable international market conditions and Kerr announced the group’s South Africa Manganese division had increased its production guidance for the financial year to end-June 2018 by 5% “despite planned major maintenance at the Wessels underground mine in the June 2018 quarter.”
Kerr commented, “South Africa Manganese saleable ore production increased by 11% in the nine months ended March 2018 as we continued to utilise higher cost trucking and sell lower quality fines product to take advantage of favourable market conditions.”
South32 pushed ore production from its Australia Manganese division up 14% in the nine months to end-March and has increased its production guidance for the division by 6% for the full 2018 financial year.
The one underperforming sector was South African Energy Coal which South32 is in the process of separating from the rest of the group’s operations.
Kerr commented, “We remain on track to manage South African Energy Coal as a stand-alone business during the June 2018 quarter, having concluded our structural consultation process with impacted employees. This will allow us to simplify our business, lower overhead costs and fundamentally change the way we work.”
Saleable production from South Africa Energy Coal dropped 6% in the nine months to end-March because of falling domestic demand although export coal production “continued to exceed expectations.”
Kerr addd that production guidance for financial 2018 remained unchanged at 27.5mt – consisting of 11.5mt of exports and 16mt of domestic output – but “persistent weakness in domestic demand may result in a reduction of loss-making domestic volumes across the remainder of FY 18 and FY 19.
“While any reduction in domestic sales volumes or a reweighting towards export markets would be margin accretive, average operating unit costs would be impacted by increased washing and logistic costs and reduction in volumes.”
