South32 to spin off coal business

Diversified miner South32 is pumping cash as commodity prices remained firm and lower working capital and improved quarterly output led to increased returns to shareholders.

South32 is another large mining company that is scaling down its presence in SA.

It is setting up its 27.5-million tonnes a year thermal coal business, which supplies Eskom and export markets, to be a stand-alone business by the end of June.

South32 CEO Graham Kerr has said the power utility’s demands for 51% empowerment ownership of coal suppliers, which would leave South32 as a minority participant in its mines, had played a role in the decision to separate the thermal coal business. Anglo American has sold all its thermal coal mines that supply Eskom, citing similar reasons.

South32’s exit from its South African thermal coal business would “simplify our business, lower overhead costs and fundamentally change the way we work”, the company said in a quarterly production update.

South32 increased its net cash to $1.9bn during the March quarter, with cash flows of $477m during the three months, which mark the third quarter of the 2018 financial year.

South32 increased its share buy-back scheme by $85m during the quarter.

The Mozal aluminium smelter in Mozambique and South32’s manganese business in Australia delivered production records in the quarter.

There was little mention of the all-time high for alumina prices stemming from US sanctions imposed on Russia’s Rusal, the owner of Europe’s largest refinery of the key ingredient for aluminium production.

Prices have shot to highs above $700/tonne for alumina, with one trade reaching as high as $800/tonne, the Financial Times report.

South32 owns alumina operations in Australia and Brazil.

Looking ahead, South32 predicted output from Worsley Alumina to rise to 3.975-million tonnes by the end of its financial year in June from 3.892-million tonnes a year ago.

Brazil Alumina’s output would rise marginally to 1.345million tonnes from 1.329million tonnes before.

“Stronger alumina prices, of which we are a net beneficiary, will also impact the cost base of our aluminium smelters over the remainder of financial year 2018,” South32 said.

In SA, aluminium output was pegged at 720,000 tonnes for the year, up from 714,000 tonnes a year ago, while Mozal would produce 269,000 tonnes compared with 271,000 tonnes.