South32 forced to slash costs

BHP Billiton spin-off South32 aims to cut group costs by 25 per cent this financial year, as part of a broader target to strip costs amid a slump in commodity prices.

The company has maintained production guidance for all its mining operations, but expects capital expenditure to decline more than the previously targeted 9 per cent, on account of continued weakness in the Australian and South African currencies.

The miner yesterday said it had lifted production in the September quarter, helped by strong performance at its Australian operations but constrained by continuing problems in South Africa.

“We are making excellent progress as we seek to optimise our operations, reduce costs and sustainably decapitalise the business,” chief executive Graham Kerr said.

South32, which listed this year after demerging from BHP, had said in August it would strip out $US350 million ($485 million) in costs by the end of its 2018 financial year.

It is now finalising a review of “all functional support” to deliver a 25 per cent cut in 2015-16 group costs.

It also said alumina production in the three months to September rose 10 per cent from a year ago to 1.36 million tonnes, helped by a bounce back from maintenance at its Worsley plant in Western Australia.

However, aluminium metal production fell 7 per cent to 244,000 tonnes as the company suspended some production in South Africa on the back of weak market conditions and power supply problems.

Thermal coal output rose 2 per cent to 8.698 million tonnes, while record production at Illawarra helped lift metallurgical coal output 13 per cent to 2.079 million tonnes.

Manganese ore production rose 6 per cent but alloy production was down 36 per cent to 65,000 tonnes.

South32 shares closed up 4.5¢, or 3.1 per cent, at $1.495.