South32 is sitting pretty when compared with its competitors

SOUTH32, the miner spun out of BHP Billiton in May, said full-year earnings rose 41 percent helped by its aluminium and alumina operations.

Underlying earnings were $575 million (R7.45 billion) in the year ended June 30, compared with a pro forma $407m a year earlier, the Perth-based miner said yesterday.

South32, the world’s biggest manganese ore producer, had record output of alumina in Brazil, metallurgical coal and manganese alloy in Australia and manganese ore from South Africa. A cost-cutting programme also boosted earnings.

The company would seek to reduce costs by at least $350m a year for the next three years, and was continuing a review of South African manganese operations that might lead to a further reduction in planned production, it said.

Questions

“Cost cutting and asset sales are likely,” Evan Lucas, a market strategist at IG in Melbourne, said. “There’s got to be questions about manganese assets and what they are going to do with them.”

The producer fell as much as 7.9 percent in Sydney trading and closed at A$1.405 (R13.30), the lowest since it de- buted in May.

The producer’s profits are being shielded from the full sting of faltering demand in China that is eroding earnings for its competitors. The world’s biggest buyer of metals accounts for about 11 percent of its sales. “Broader cost saving initiatives are already delivering strong results,” chief executive Graham Kerr said.

X2 Resources, led by former Xstrata chief executive Mick Davis, was weighing an eventual bid for South32 and offered BHP about $10bn for most of the assets last year, people familiar with the fund’s plans said in April. South32 has hired Morgan Stanley Macquarie as defence advisers. – Bloomberg