JOHANNESBURG (miningweekly.com) – Triple-listed diversified miner South32 on Wednesday reported that, while it had achieved its guidance for all its operations during the three months to December 31, its South African manganese operations, in particular, exceeded expectations, owing to strong market demand.
Saleable ore production increased by 22% to 633 000 t.
“A continuation of higher-cost trucking and the sale of lower-quality fines products enabled us to take advantage of favourable market conditions while the Wessels central block, which was successfully commissioned in the March 2017 quarter, also operated at maximum capacity ahead of planned maintenance in the June 2018 quarter,” CEO Graham Kerr outlined in a statement.
Given the record start to the year, the company increased its full-year ore production guidance by 8% to 2.04-million wet tonnes, with this projection remaining subject to continued strong market demand. The increase in ore inventory in the December 2017 quarter was also expected to unwind in the six months to June 30.
Wessels concentrate and other fines products received a substantial discount when referenced to index prices and accounted for 17% of sales across the six months to December 31.
Favourable negotiated price outcomes for South32’s primary products, as well as a temporary increase in the proportion of sales priced in the month of shipping offset the impact of these discounts. Internal sales continued to occur on commercial terms.
Manganese alloy saleable production decreased by 3% to 36 000 t in the six months to December 31 as Metalloys continued to operate only one of its four furnaces.
Meanwhile, Kerr pointed out that the miner also achieved record ore production at its Australian manganese operations in the six months to December 31, as the performance of its high-grade circuit improved and the partial pressure carbon dioxide (PCO2) circuit continued to operate at capacity.
Saleable ore production from the operations increased to 893 000 t and 1.7-million wet tonnes, respectively, owing to lower-than-expected rainfall in the December quarter, which underpinned higher throughput in the primary circuit, while favourable market conditions allowed the PCO2 circuit to operate at full capacity.
The PCO2 circuit contributed 8% of total manganese ore production in the six months to December 31, with 2018 production guidance remaining unchanged at 3.12-million wet tonnes, as the wet season was expected to impact on production for the remainder of the financial year.
“Our low-cost PCO2 fines product has a manganese content of about 40%, which leads to both grade and product-type discounts when referenced to the high-grade 44% manganese lump ore index.
“Given the contribution of the PCO2 circuit to our sales profile, our average realised price for external ore sales in the December 2017 half-year will reflect the high grade 44% manganese lump ore index on a volume weighted M-1 basis. Internal sales continue to occur on commercial terms,” Kerr said.
South32 also managed to deliver another production record at its Mozal Aluminium operation in the six months to December 31, while South Africa Aluminium remained on track to increase production in the year ahead, despite a November 2017 electric arc incident which impacted on 36 pots.
Mozal Aluminium’s saleable production increased by 1% to a record 137 000 t in the six months to December 31, as the smelter continued to operate at its maximum technical capability. Aluminium sales also increased by 10% as the inventory position returned to more normal levels; however, the timing of those sales ensured that the aluminium working capital position remained elevated. Full-year production guidance remains unchanged at 269 000 t.
South Africa Aluminium’s saleable production increased by 1% to 358 000 t. The pots are being progressively returned to service during the current quarter. A temporary increase in finished goods inventory related to South32’s shipping schedule is also expected to unwind in the current quarter.
Brazil Alumina’s saleable production increased by 3 000 t to 676 000 t in the six months to December 31, as the refinery continued to operate at capacity. The company’s production guidance remains unchanged at 1.3-million tonnes with Phase I of the refinery debottlenecking project nearing completion.
“In accordance with our disciplined capital management framework, we paid our $333-million final dividend in respect of the financial year ending in October 2017 and purchased a further 37-million shares for a cash consideration of $93-million during the December 2017 half-year.
“To December 31, we have purchased 143-million shares at an average price of A$2.80 apiece for a cash consideration of $305-million, representing 41% of our approved $750-million capital management programme,” Kerr added.
South32 also invested $23.9-million in brownfield and greenfield exploration programmes during the six months to December 31. This included $1.1-million for its equity accounted investments and expenditure associated with its portfolio of high-quality, early-stage exploration opportunities.
Meanwhile, South32 reported that, as anticipated, its South Africa Energy Coal business’s saleable production decreased by 9% to 13.4-million tonnes in the six months to December 31.
“Export coal production exceeded expectations as productivity lifted at both the Klipspruit mine and the export oriented areas of the Wolvekrans-Middelburg Complex (WMC).
“In contrast, domestic production was impacted by a reduction in demand from the Duvha power station and scheduled maintenance in the domestically focused areas of the WMC,” the company pointed out.
The continued build of inventory across the six months under review reflected ongoing constraints in the supply chain and weather-related delays at the Richards Bay Coal Terminal (RBCT).
While the development of new mining areas at the WMC was progressing according to plan and the full-year production guidance remains unchanged at 27.5-million tonnes – 11.5-million tonnes export and 16-million tonnes domestic – the potential for weaker demand could persist in the six months to June 30, which implies a degree of downside risk for lossmaking domestic volumes.
“During the period, we also commenced the process to manage South Africa Energy Coal as a standalone business from April and approved a R4.3-billion investment to extend the life of the Klipspruit colliery by at least 20 years,” it highlighted.
Metallurgical coal saleable production from South32’s Illawarra operation, in the southern coalfields of New South Wales, in Australia, decreased by 50% to 1.9-million tonnes in the six months to December 31 as the Appin colliery recovered from an extended outage and the Dendrobium longwall progressed through a faulted zone.
Its full-year production guidance of 4.5-million tonnes remains unchanged with a longwall move is scheduled for Dendrobium in the March quarter.
The depreciation and amortisation charge for Illawarra metallurgical coal is expected to decline by around 15% from the prior period to $93-million, as a result of the lower extraction rates.
Meanwhile, at South32’s Cerro Matoso mine, in Colombia, payable nickel production increased by 23% to 21 800 t in the six months to December 31 as ore grades improved, following the ramp-up of production at La Esmeralda.
Production was 14% lower in the December quarter as planned maintenance was undertaken in the furnace. Production guidance for the year ahead remains unchanged at 41 600 t with additional maintenance planned for the furnace in the March quarter.
Further, the miner pointed out that, as anticipated, payable production at its Cannington silver, lead and zinc mine, in Queensland, decreased by 41%, 33% and 52% respectively in the six months under review, owing to lower ore grades and a reduction in mill throughput.
Mining rates remained constrained in the December quarter as additional underground development was prioritised in preference to the planned replenishment of above-ground stocks.
Throughput was expected to improve with the ramp-up of the replacement underground crusher, which was on schedule to be commissioned in March.
Production guidance at the operation remains unchanged and is predicated on a significant improvement in silver and lead ore grades, as determined by the sequence of stope extraction with production weighted towards the June quarter of this year.
“We remain focused on the safe extraction of the remaining underground ore reserves at Cannington with the optimal stope sequence designed to reduce geotechnical risk and increase value. A significant increase in underground activity and complexity will drive greater variability of mine performance as the underground mine progresses towards the end of its life,” said South32.