PERTH (miningweekly.com) – Diversified mining company South32 has reported a rough start to the 2017 financial year for its metallurgical coal operations in Australia.

Production decreased by 32% in the September quarter and South32 warned on Thursday that its metallurgical coal output would miss its cost guidance.

Production at the Appin operation, which forms part of the Australian Illawarra metallurgical coal assets, was impacted by challenging geological conditions, which resulted in metallurgical coal production declining from over two-million tonnes in the first quarter of 2016, to 1.4-million tonnes in the first quarter of 2017.

The firm reduced its full-year production guidance for the operation from 9.5-million tonnes to 9-million tonnes, while the division’s unit cash cost guidance of $71/t will only be reached during the June 2017 half-year, with the costs to be $4/t higher in the December 2016 half-year.

Energy coal production from South Africa increased by 2% to 8.1-million tonnes in the quarter under review, while domestic sales rose by 9%.

South32 restarted production in 22 pots at its South African aluminium assets, as power availability continued to improve during the quarter, and the operation maintained leading rates of current efficiency.

Meanwhile, manganese ore production declined by 4% to 1.1-million tonnes, while manganese alloy production increased by 31%, to 59 000 t.

South32 told shareholders on Thursday that its South African manganese mines were now operating at the optimised 2.9-million-tonne-a-year rate, following the decision to stop work at the Wessels underground mine, in the Northern Cape, in June owing to a fatality.

The Wessels Central Block project remains on track to be completed in the March quarter.

Alumina production for the first quarter remained stagnant at 1.2-million tonnes, while aluminium production increased by 2% to 243 000 t.

Nickel production for the quarter declined by 9%, compared with the previous quarter, to 8.7-million, while lead production was down 1% to 38.4-million tonnes, zinc production was down by 5% to 17.7-million tonnes, and silver production was down by 7% to 4.6-million ounces.

South32 CEO Graham Kerr said that stronger commodity prices and cost savings initiatives delivered a further $239-million increase in the company’s net cash position at the end of the quarter, despite the impact of yearly payments that followed at year-end.

“The combination of a strong balance sheet and operating leverage ensures we are well positioned to deliver superior performance as we optimise our operations, unlock their potential and identify opportunities beyond our current portfolio.”