South32 on opportunistic commodity rebound trail
Half-year earnings reach $479m
EAGER to capitalise on a rebound in commodity prices, South32, the Perth-based BHP Billiton spin-off mining company, wants to “opportunistically” boost manganese ore output.
South32, which was made up of assets deemed too small and unstrategic to BHP Billiton, yesterday counted stronger commodity prices among factors that underpinned its financial performance in the six months ended December 31.
Buoyed by the stronger coal and manganese prices, South32 lifted half-year underlying earnings from continuing operations to US$479 million (R6.25 billion) compared to the corresponding period last year.
First dividend
In the six months, South32 reported a 197 percent improvement in free cash flow to $626m.
The company declared its first interim dividend of 3.6 cents a share to shareholders. “This dividend is paid in line with our policy to distribute a minimum 40 percent of underlying earnings as dividends to shareholders following each six-month reporting period, having regard to our first two priorities for cash flow, being a commitment to maintain safe and reliable operations and an investment grade credit rating through the cycle,” said South32.
Given the rebound in commodity prices, profit in some divisions was weaker than expected, Peter O’Connor, a Sydney-based analyst with Shaw and Partners, said. The dividend was also less than anticipated and “surprising really for a mining company with one of the best balance sheets”, O’Connor said.
At end December, South32’s net cash position was $859m, an increase of $547m from June last year.
South32 president and chief operating officer of Africa, Mike Fraser, said an investment decision on the project to extend the life of Klipspruit coal mine in Mpumalanga would be made in the second half of this financial year.
“There is certainly potential for a long life out of this resource,” Fraser said. In addition to servicing the export market, the mine also supplies Eskom’s Duvha power station.
Last week he said that the company would take its plans to extend the colliery to the board later this year. Speaking on the sidelines of the Mining Indaba, Fraser said South32 wanted to get new coal from the extension by 2019.
Joint venture
South32 chief executive Graham Kerr said that the company wanted to increase its stake in the Samancor Manganese Joint Venture in the Northern Cape. South32 is a 60 percent owner and manager of the Samancor Manganese Joint Venture. Anglo American holds the remaining 40 percent. But Kerr was doubtful Anglo American would be keen to reduce its interest because of higher commodity prices. “It is a business we know well and we are a large player in it. At the right price, we would be interested in increasing our stake,” he said.
In a note, Goldman Sachs said there was no surprise in the South32 numbers. “However, don’t take the lack of surprise as a disappointment. (South32) continues to deliver strong cash flow, has a robust balance sheet and is well placed to take advantage of the next leg of the cycle,” Goldman Sachs said.
South32 shares dropped 1.8 percent on the JSE yesterday to close at R26.17. – Additional reporting by Bloomberg