SOUTH32 lowered production guidance from its South African coal mines to the bottom end of guidance of some 26 million tons (Mt) after previously expecting 28Mt in output as a result of wet weather and subdued local demand.
Production was also affected by the near-term outlook for domestic demand, and the demobilisation of contractors operating the unprofitable pits. This was in line with the firm’s “disciplined approach to capital”, said BusinessLive citing South32 CEO, Graham Kerr.
South32’s 92% stake in its South African coal mines – held in South African Energy Coal – are due to be sold to Seriti Resources for an upfront fee of R100m. South32 will also receive 49% of free cash flow from the assets capped at R1.5bn a year until about 2024.
But the real value of selling the mines is that South32 removes unloved thermal coal from its portfolio of assets whilst avoiding the cost of their rehabilitation which will now be borne by Seriti Resources.
South32 said today in a quarterly update that the transaction was expected to close in its December 2020 half year.
Saleable coal by SAEC declined 3% or some 386,000 tons to 11.8Mt in the December quarter, the company said today. This decline more than offset a 15% increase in export sales volumes following improved dragline availability at Klipspruit, it said.
“Notwithstanding the improvement in dragline performance, supporting a 46% increase in export sales during the December 2019 quarter, its ramp-up to full utilisation has been slower than anticipated as a result of wet weather,” said South32.
Operating unit costs were expected to be approximately 10% above the top end of South32’s guidance range of $40 per ton in the December 2019 half year. This was ahead of benefitting from an expected increase in volumes during the June 2020 half year and the realisation of cost saving initiatives which include contractor demobilisation, it said.
Commenting on group performance in six months ended December 31 period Kerr, said that the company had returned $331m in terms of its capital management programme via a continuation of its on-market share buy-back and payment of our ordinary dividend in respect of the prior six months.
The group did not comment on growing violence in the Mpumalanga province where it coal mines are located. Mike Fraser, COO of South32, said in November that protests were set to be a feature of the coal industry for the foreseeable future. “It’s still very fractious … We do expect the protests to continue,” he said.
The Minerals Council South Africa said earlier this year coal miners had lost millions of rands in revenue as a result of mine stoppages following community-related protests. The protests are sometimes driven by local political interests.