South32 boss: commodities have hit bottom
Price recovery may be on the way, says miner as it reports sharp losses in first results since BHP spin-off
COMMODITY prices appear to have turned a corner, the boss of mining group South32 has said, as the company reported a loss in its first set of results after being split off from BHP Billiton.
While every commodity was different, “the first quartile of the year probably was the bottom from what I’ve seen”, said Graham Kerr, chief executive. “In the second quarter and a little bit in the third quarter we saw stimulus by the Chinese government. But some of the rebounds in price will ease off.”
Commodity prices have enjoyed a strong start to the year with better than expected demand from China, the world’s biggest consumer of raw materials, which has been trying to boost its construction industry. Mr Kerr tipped metallurgical coal and silver to hold onto their gains, while predicting thermal coal and aluminium could retreat as more supply comes onto the market.
In its first year as a separate company, South32 reported a pre-tax loss of $1.5bn (£1.3bn) – a drop of 288pc on a proforma basis. Much of this was due to a $1.7bn impairment it recognised in February because of lower prices. Underlying earnings tumbled 39pc to $1.1bn.
Revenue fell 25pc to $5.8bn, as the average price of its commodities slumped 21pc. FTSE 100 giant BHP spun South32 off last year in a bid to simplify its structure. South32 mines minerals such as manganese ore, used in stainless steel, as well as alumina, coal, nickel, silver, lead and zinc. Mr Kerr defended the spin-off, saying it created a “more nimble and agile” company, with assets that “are running better than ever”.
South32, which is listed in Sydney, London and Johannesburg, with operations in Australia, Africa and Brazil, slashed $386m from its costs during the year as it squeezed more out of its assets and cut its headcount by 20pc to 23,542 contractors and staff. It reported cash flow of $587m, prompting it to announce a maiden dividend of 1 US cent a share. South32 had been looking to add to its portfolio, Mr Kerr said, although “we will not do a deal at the expense of our balance sheet and credit rating”.
It has made no secret of its interest in buying Anglo American’s 40pc stake in their manganese ore joint venture Samancor, which it operates. “We know the operations well. But we’d only do the acquisition if there is value there to be had,” Mr Kerr said.
The company is eyeing a second deal, but Mr Kerr would not be drawn on details. South32 shares dropped 2.8pc to 113¼p. They are up 5pc on their float price of May 2015.