The annual results from miner South32 yesterday gave us a taste of what the 2018-19 financial year was like for resource companies without exposure to iron ore – in a word tough.
Aluminium, alumina, coal (especially steaming or thermal) coal were all much tougher and there doesn’t seem much in the way any significant improvement on the horizon with steaming coal prices down around 3-year lows, especially in Asia.
The company said a 3% increase in group production volumes, and cost reduction initiatives across labour, energy and materials usage ‘were more than offset by lower aluminium and thermal coal prices.”
“We achieved record production at Hillside Aluminium, a 57 percent increase in volumes at Illawarra Metallurgical Coal and strong manganese ore production of 5.5 million tonnes, underpinning a 3 percent increase in Group production volumes, CEO Graham Keer said in the release.
“We continued to reshape and improve our portfolio, funding the acquisitions of the Hermosa project and a 50 percent interest in the Eagle Downs Metallurgical Coal project from our cash reserves and announcing the review of our manganese alloys business.
“We released a Mineral Resource estimate for the Taylor deposit at Hermosa, which was a key milestone as we progress one of the most exciting base metals projects in the industry. Work undertaken since its acquisition has significantly de-risked our investment, increased our confidence in the project and confirmed its ability to deliver strong returns to shareholders over many decades.
“Subsequent to the end of the year, we have entered into exclusive negotiations with Seriti Resources to finalise its offer to acquire our South Africa Energy Coal business. The divestment will significantly reduce the Group’s sustaining capital intensity, further strengthen our balance sheet and improve margins.
“Looking ahead our portfolio will include industry-leading positions in alumina and manganese and we will continue to embed development options with a bias to base metals that have the potential to deliver meaningful growth in shareholder value,“ Mr Kerr added.
That was all very upbeat after South32 reported a 25% slide in earnings for the 2018-19 year to $US992 million from $US1.46 billion in 2017-18.
Net income fell 71% to $US389 million, thanks to $US578 million in write-downs in the value of the company’s South Africa Energy Coal operation. That thermal coal business is being sold to local interests and the write-down was to clean up the accounts and balance sheet ahead of the completion of the sale.
The company has slashed its final dividend by more than 50% to 2.8 US cents a share (fully franked) for the year, from 6.2 US cents a year ago. The slide in the value of the Aussie dollar will part compensate for the reduction, but nowhere near the 50% slash.
But the buyback has been expanded, which will make up more to the cut for those shareholders interested in a bit of capital management. South32 said $US762 million was returned to shareholders in 2018=19 via dividends and the share buyback
The company said that a “US$140M fully franked dividend and an increase in our capital management program of US$250M to US$1.25B, leaving US$264M expected to be returned by 4 September 2020.” demonstrated its “strong financial position.”
Soth32 shares eased 4.3% to $2.63 yesterday.
