South32 shares eased more than 3.2% yesterday after the global miner became the first to voice concerns about cost pressures from rising raw material costs and a weaker US dollar.
"Industry cost curves continue to steepen as a result of US dollar weakness, rising raw material input costs and the environmental policy response in China," the Perth-based company said, referring to China’s recent introduction of tighter regulations for its steel industry.
It said while unit costs are tracking to plan so far, it may experience "additional cost inflation" if the external pressures persisted during the year.
Despite these concerns South 32 maintained its annual guidance across operations despite the warning on costs and as weaker than expected production performance (with the exception of a fall in coking coal output which was well forecast) in the three months to September surprised some analysts.
And its cash pile keeps growth with the company revealing that the “Stronger commodity markets delivered a US$33M increase in our net cash position to US$1.7B despite an increase in working capital, the continuation of our capital management program and the prepayment that will increase our stake in Arizona Mining.”
Coking coal production in fact fell 66% safety problems at its major Australian export mine south of Sydney, but South32 also revealed a 2% lift in aluminium production to 249,000 tonnes for the quarter, while nickel output jumped 34% to 11,700 tonnes.
Both increases were made into a rising market where prices for the two metals – enjoyed a solid rise in the quarter.
The company, which is the world’s largest producer of manganese ore, also took advantage of strong market conditions to boost production of the ore by 11% to 1.3 million tonnes.
However, production for alumina (down 3%), silver (down 17%) lead (down 4%) and zinc (down 17%) slipped in the quarter. (the fall in zinc meant South 32 was unable to take advantage of the price surge in demand for the meta in the quarter).
Production of metallurgical coal slid 66 per cent from a year ago to 494,000 tonnes, with performance weighed down by the shutdown of the company’s Appin mine in NSW, with operations there only resuming last week.
South32 confirmed it would only operate one of the two sections at the troubled Appin coal mine, where operations have been suspended since June due to safety concerns.
“We have commenced a measured ramp-up of longwall mining activity at the Appin mine that will allow us to reset the operation’s culture, re-establish minimum performance criteria and drive productivity towards a more acceptable level,” chief executive Graham Kerr said in the release.
Output of thermal (or energy) coal, used in power plants, also fell 14% to 7.01 million tonnes, in part due to maintenance at the South African operations
South32 shares ended the day at $3.13, off 3%.
