JOHANNESBURG (miningweekly.com) – Despite a 25% drop in revenue for the 2016 financial year, diversified mining major South32 announced on Thursday that it would pay an inaugural shareholder dividend of $0.01 a share, reflecting the company’s belief in its operations and the flexibility of its balance sheet.

With revenue down from $7.74-million in 2015 to $5.81-million in 2016, the relatively new BHP Billiton spin-off company recorded a net loss of $1.6-billion in the 12 months to June 30, which it attributed to noncash impairment-related charges of $1.7-billion recorded in the December 2015 half-year.

This productivity decline, which is considerable considering the $28-million profit posted in the 2015 financial year, was primarily driven by a deterioration in commodity markets, which impacted on revenue.

However, South32 CEO Graham Kerr believed that, despite the challenging price environment, the company’s operating performance and underlying financial performance were strong.

“It’s more than just the cost – it’s about the efficiency and the volume, which is where we think we can also create a lot of value,” Kerr told the global media in a Perth-based conference call.

“Consistent with our strategy, we have optimised our existing operations, as we transitioned to our regional model, and completed restructuring initiatives, announced at our half-year results.”

He added that South32 had set five production records and achieved guidance at most of its upstream operations, generated controllable cost savings of $386-million and reduced capital expenditure by $306-million.

“By optimising our operations and maintaining a core focus on value, we generated free cash flow of $597-million and finished the year with net cash of $312-million.”

Further, the group generated underlying earnings before interest, taxes, depreciation and amortisation of $1.1-billion in the period under review, for an operating margin of 21.5%.

Kerr assured shareholders that South32 would endeavour to continue unlocking the potential of its portfolio, identifying opportunities and pursuing investments of value, but was adamant that the group would not compromise its strong balance sheet and investment credit grade rating.

“Looking to the 2017 financial year, we have maintained production guidance for the majority of our upstream operations and will stretch performance to meet cost targets. Our functions are lean, with corporate costs now half the level envisaged at the time of the listing,” he said.

South32’s 2017 financial year production guidance remains unchanged for most of its upstream operations, although a downward revision has been noted by its Australia-based Cannington silver and lead mine, located in north-west Queensland.

The group optimised the longer-term mine plan at Cannington, reducing silver and lead production guidance for 2017 by 2% and 3% respectively, and increasing zinc production guidance by 3%.

“This plan, which seeks to increase total silver, lead and zinc extraction across the remaining years of the underground operation . . . results in a further 10% to 13% reduction in payable metal production in the 2018 financial year,” the company said.

AFRICA
Total coal production guidance for South32’s South Africa energy coal operation will be maintained at about 31-million tonnes, albeit with a higher proportion of domestic sales and a small production decrease expected in the 2018 financial year.

The group also reported that, while high rates of current efficiency were achieved at its African smelters in the year under review, it had not yet restarted production at 22 pots taken offline at South Africa Aluminium in 2015, in response to challenging marketing conditions.

The group further noted that the impact of load-shedding was lower than expected this year, though production would continue to be influenced by the regularity of outages.

Reflecting market demand, South32 adjusted saleable manganese alloy production at its Metalloys manganese smelter, with one of four furnaces to remain in operation until market conditions improve.

AUSTRALASIA
Saleable coal production guidance remains unchanged at 9.5-million tonnes at the Illawarra metallurgical coal operation, while production is expected to remain largely unchanged in 2017.

Saleable alumina production guidance for the Worsley bauxite mine remains unchanged, with the operation’s refinery expected to produce at a nameplate capacity of 4.6-million tonnes a year across the 2017 and 2018 financial years.

Meanwhile, affecting the group’s Temco manganese operation, power shortages in the year under review led to the suspension of furnaces two to four, though these furnaces returned to production in July.

SOUTH AMERICA
Payable nickel production guidance for the group’s Colombia-based Cerro Matoso mine remains unchanged for 2017 at about 36 000 t, with a small decrease in production expected in the 2018 financial year.

Access to the La Esmeralda mineral resource at Cerro Matoso will be facilitated by the development of a low-cost river, which coincides with the expectation that payable nickel production will rise temporarily to more than 40 000 t/y in 2019 and 2020.

South America’s Brazil Alumina’s saleable production also remains unchanged at 1.32-million tonnes, before a small increase expected in the 2018 financial year.