SOUTH32 today demonstrated the strength of its balance sheet and confidence in its cash generating capability unveiling a stunning $500m capital management programme starting with a share buy-back.
“Our net cash balance continues to build giving us the financial strength and flexibility to invest in our existing operations, pursue opportunities where we can create value and return excess capital to shareholders,” said Graham Kerr, CEO of South32 in a statement.
“This $500m capital management programme meaningfully increases shareholder returns and follows the recent announcement of our $192m interim dividend,” he added. Shares in the company would be bought back “… contingent upon the prevailing share price and market conditions,” the company said.
“The $500m capital management program is expected to be completed over a 12 month period and all alternatives will continue to be assessed to ensure this capital is returned in an efficient manner,” it said.
The $500m payment, therefore, outstrips expectations and is an indication of how much cash South32 is generating. It was thought the firm would have built a net cash balance of more than $1bn before the the capital management programme by the time it closes its 2017 financial year on June 30.
The benefit of a buy-back is that it increases the proportion of earnings distributed to shareholders who want to remain exposed to the stock for a longer period whilst also providing a return especially if the share is considered undervalued.
Said David Crawford, chairman of South32: “The combination of our operating leverage, strong balance sheet and simple capital management framework is designed to maximise returns and reward shareholders as financial improvement improves.
“Today’s announcement further demonstrates our disciplined approach to capital management and our confidence in the group’s cash generating capacity”.
Last month, South32 posted interim headline share earnings of 11.6 US cents per share compared to a six cents/share loss in the previous financial year in which it booked $1.7bn in asset impairments. Free cash flow totalled $626m which took net cash to $859m from which it will pay the $192m interim dividend, equal to 3.6 cents/share.
This would take cash on hand to $667m – well above the $500m buffer that Kerr has stated as a preference throughout the mining cycle, whether times are bad or good.
