South32 (S32), the company housing the bits BHP Billiton (BHP) didn’t want, and spun off earlier this year, is looking at more cost cuts in the year to June 30, 2016 as it adapts to the lower commodity price and weaker demand regime.
South32 said in its September quarter production report yesterday that it is finishing a big review of all “functional support” for the company that should millions of dollars in new cost cuts.
The ‘functional support’ cost to the balance sheet was around $US130 million a year and South 32 management reckons that can be cut by 25%.
At the same time, South 32 management reckons capex for 2015-16 could fall by more than previously forecast if the Australian and South African currencies remain weak.
When releasing its first annual results in late August, South 32 said it would cut annual costs by US$350 million or more by mid-2018.
And it previously said capital expenditure this financial year would drop by around 9%.
S32 YTD – BHP spin-off reviewing ‘functional support’
The focus on costs and spending comes as South32 recorded what it said was solid first-quarter production, with record output at its manganese and Illawarra steelmaking coal businesses in Australia.
Production forecasts were left broadly unchanged across the company’s various divisions, but output at its South African manganese business is under review. In fact media reports yesterday suggested these businesses could be closed. As well the company has suspended 3% of aluminium production in South Africa on the back of weak market conditions and the lack of reliable electricity supply in the country.
Production of alumina rose by 8% on-quarter to 1.36 million tonnes in the September quarter, while aluminium output edged up 1% to 244,000 tons. Metallurgical coal production was 5% up, at 2.08 million tonnes, but thermal coal production eased 2% to 8.7 million tonnes.
Manganese ore output was up 15% at 1.44 million tons, nickel output was 1% higher at 8,700 tonnes, and silver production jumped 20% at 6.28 million ounces, thanks to a surge in output at the huge Cannington mine in Northern Queensland, which had been forecast to experience a slide in output.
Lead and zinc production from Cannington was steady, but sales of zinc jumped 19% in the quarter from the previous quarter and 27%higher than the same quarter of last year.
South32 was launched by BHP in late May with a basket of operations that the former parent deemed were too small to focus on. It is the leading global producer of manganese ore and owns the world’s largest silver mine.
The company’s net debt fell US$206 million during the recent quarter to US$196 million.
The overall positive tone of the report saw the shares bounce more than 3% to $1.49 yesterday.
