21 months after being spun out of BHP Billiton (BHP) we saw the full potential of South32 (S32) yesterday in its December half year result. The company revealed a sharp jump in half-year underlying earnings, thanks to ongoing cost cutting and stronger coal and manganese prices.
And there was also a first up dividend declared for patient shareholders as well and the likelihood of a final later this year.
In one way it was a scene setter for its former parent when it releases its interim figures next week which will show the benefit of the surge in prices for iron ore, coking and thermal coal, plus better prices for copper, oil and gas for the six months to the end of 2016. South32 saw a dramatic rebound in earnings to a $US620 million ($A804 million) profit for the six months to December 31, compared to a $US1.7 billion (more than $A2.3 billion) loss a year ago.
But on an underlying basis (with one offs stripped out, especially 2016’s big asset write downs) the improvement in earnings was dramatic – to $US479 million from just $US26 million for the six months to December 2016. That reflected the improving better trading, prices and more stable outlook for asset values.
Revenue for the six-month period was up 8% to $US3.22 billion, despite the company posting lower first-half production.
"As we continue to take costs out of the business and generate cash, we are managing our financial position to retain the right mix of flexibility and efficiency," chief executive Graham Kerr said after announcing the results.
South32 said higher average realised prices for its commodities increased revenue by $US661 million, with coal and manganese the main contributors.
Manganese and metallurgical coal prices nearly tripled in 2016, but have since faded in 2017.
South32 is the world’s largest producer of manganese ore and it said yesterday it took advantage of the surge in price of the commodity by opportunistically lifting production in the December quarter.
However, it could not fully benefit from higher coal prices due to a forced temporary shutdown at its Australian operations and planned maintenance in its South Africa operations.
The company also indicated it may increase payouts to shareholders, declaring its first interim dividend since being spun off from BHP Billiton in 2015.
South32 will pay an unfranked interim dividend of US3.6 cents a share.
Naturally the shares fell on the good news – down 1.8% at $2.62.
The shares listed closed at $2.13 on May 19, 2015, the first day of trading for the shares.
There was not a spin off price that BHP shareholders were required to pay (in other words they were free in the hand). There was a range of $2 to $2.50 a share as an indicator of their likely value. The shares fell sharply as the mining downturn hit, but have more than doubled in the past year.
