[miningmx.com] – SOUTH32 delivered an $81m reduction in net debt in the December quarter and said it was nearing completion of a strategic review of its manganese ore producing facilities in South Africa.
Net debt was $115m as of end-December down from $196m by the end of its September quarter. Compared to the September net debt position last year, the decline is 80% lower – a position the firm said differentiated it from peers.
“The group’s strong balance sheet remains a key point of differentiation and we are firmly committed to an investment grade credit rating,” the company said in commentary to its quarterly figures.
Analysts agree that South32 has a comparatively strong balance sheet, but Derryn Maade, an analyst for HSBC, said in a November report that this was a necessity owing to the sensitivity of the firm’s earnings to its core minerals of manganese, coal and aluminium.
“The balance sheet is strong but it needs to be,” said Maade who added that a 10% change in core commodity prices would trigger a $692m swing in forecast 2016 earnings before depreciation, interest and tax.
“We believe S32 is unlikely to take on significant financial gearing due this sensitivity and thus has limited growth optionality beyond the existing project pipeline,” he said.
Goldman Sachs commented today that South32 had produced “a solid” operating performance for the December quarter. The fly in the ointment, however, is the South African manganese ore operations some of which are suspended.
As a result, quarter-on-quarter manganese ore produced fell to 900,000 tonnes from 1.44 million tonnes (mt), a decline of 37%. South32 shares the manganese operations through its 50:50 joint venture in Samancor with Anglo American.
Production at the mines was suspended following a fatality at its Mamatwan mine on November 2. In June it said it would write-down the value of its stake in Samancor and that it would delay the restart of three of four high carbon ferromanganese furnaces at its Metalloys manganense alloy facilites. Metalloys and the mines are in South Africa’s Northern Cape province.
Said South32: “The strategic review, which is nearing completion, will define the optimal configuration and production profile for South Africa manganese mines and smelter to ensure cash outflows are mitigated in this difficult pricing environment”.
Analysts think most of the production would not be restarted. “We expect the Metalloys smelter to be closed permanently as part of the review with mining of the Mamatwan open pit mine likely to resume early next year,” said Macquarie Bank in a research note in November.
