South32 exceeded expectations in the quarter to end-March, which it ended in a cash positive position.
Graham Kerr, South32’s CEO, said the strong balance sheet “remains a key point of difference” and it ended the quarter with a $18m net cash position, while controllable costs will be reduced by $300m this year.
“We continue to strengthen our balance sheet by focusing on value, not volume,” he said, adding that the company is making progress on costs and “continued to generate cash despite volatile commodity markets.”
The Appin Area 9 project at Illawarra Metallurgical Coal is complete and the PC02 project at GEMCO is almost complete and both will come in below budget. Appin Area 9 was 33% below budget.
Restructuring at Worsley Alumina, South Africa Manganese and the Australia Manganese mining operation is largely complete, while restructuring at Cerro Matoso and Illawarra Metallurgica Coal will be completed in the current quarter.
At Worsley Alumina, a strong operating performance supported a 5% increase in production.
Metallurgical coal production was up 35% following recommencement of longwall mining at Dendrobium and completion of the Appin Area 9 project.
At Cannington, a reduction in mill availability and an outage in January, resulted in lower production.
South Africa Manganese was reconfigured to respond more flexibly to market demand.
Macquarie Securities said in a note that production results were mixed, with better than expected production of metallurgical coal and manganese offset by weaker production at Cannington.
“Cash flow generation was slightly better than we had expected with S32 moving to a modest net cash position of $18m at the end of March” from net debt of $116m at the end of December, an impressive achievement given $23m of one off redundancy and restructuring payments and a $30m forex related increase in debt.
Nevertheless, Macquarie’s bearish outlook for aluminium, alumina and thermal coal prices “are the key drivers behind our underperform rating on South32.”
