South 32 shoots the lights out as SA aluminium booms again

South 32 churned free cash flow and profits during the year to end-June as the group benefitted from the global recovery underway in demand for base metals – in particular aluminium and manganese ore – with the result that the good times have returned for most of South 32’s operations in South Africa and Mozambique.

CEO Graham Kerr commented “our aluminium smelters and refineries operated at their maximum technical capability and Mozal achieved record production . We adjusted production in our manganese business to take advantage of higher prices, consistent with our focus on value over volume.”

The group more than trebled free cash flow to US$1.9 bn and reported a net cash balance of $1.6bn at June 30. It reported a “statutory profit after tax” for the year of $1.2bn (previous year $1.6bn loss which reflected impairment charges totalling $1.7bn) and has declared dividends amounting to 10c a share (1.0c a share).

Kerr said production from South 32’s South African aluminium operations at Richards Bay rose to 714,000t (previously financial year – 697,000t) and is forecast to reach record levels of 720,000t in both the 2018 and 2019 financial years.

Underlying EBITDA (earnings before interest, tax, depreciation and amortization) from South Africa Aluminum nearly doubled to $287m ($147m) and Kerr said the “significant improvement in profitability” was underpinned by a 13% rise in the average realized price of aluminium along with stronger sales volume.

Mozal Aluminium in Mozambique increased production by 2% to record levels of 271,000t with production expected to remain largely unchanged at 269,000t for both the 2018 and 2019 financial years. Mozal’s underlying EBITDA more than trebled to $113m ($35m).

Turning to manganese Kerr commented, “South Africa manganese saleable ore production increased by 19% to 2mt in financial year 2017 as we continued to take advantage of stronger demand and pricing by utilising higher cost trucking activity and opportunistically selling fine-grained Wessels concentrate.”

However, manganese alloy production dropped to 73,000t (91,000t) and Kerr reported that the Metalloys plant continued to operate only one of its four furnaces. South 32 reported the “realized external manganese ore sales price” nearly doubled to $4.01/t (previous year $2.09) while the realized manganese alloy sales price jumped to $1,027/t ($682/t).

The group’s South African coal operations continued to underperform and this trend is expected to continue in the current financial year. South African energy coal saleable production dropped by 9% to 28.9mt (31.7mt) and is forecast to fall further during financial 2018 to 27.5mt.

Kerr said a 7% recovery in total coal production to 29.3mt is anticipated for financial 2019 “with on-going development.” The group has yet to decide on the future of the $265m Klipspruit Life Extension Project which he said was still “pending final investment decision.”