South32 CEO Graham Kerr
PERTH (miningweekly.com) – Diversified miner South32 is likely to press pause on further merger and acquisition (M&A) opportunities, to focus on its own suite of assets, CEO Graham Kerr said on Thursday.
Speaking to analysts following the release of the company’s financial results, Kerr noted that following the completion of the $1.3-billion acquisition of TSX-listed Arizona Mining, South32 was unlikely to go hunting for more assets just yet.
“We are starting to build a suite of options through the group that can compete for capital,” Kerr said.
“We are very comfortable with the portfolio of options we have today, which include the 18 projects we have in greenfields. In the current pricing environment, its also very hard to see any current M&A deliver great opportunity for the group.”
The Arizona acquisition added the Hermosa base metals project to the South32 portfolio, where the miner will invest about $100-million in the 2019 financial year, including on the development of a twin exploration decline.
South32 in May also announced the acquisition of a 50% interest in the Eagle Downs metallurgical coal project, in Queensland, from an up-front cash payment of $106-million and a further $27-million three years after the transaction. A coal price linked production royalty will also be payable, capped at $80-million.
The fully permitted project was placed under care and maintenance in late 2015, and currently has a coal resource of 1.12-billion tonnes, of which 67% is in the measured category and 12% in the indicated category.
South32 is planning a final feasibility study to optimise the mine’s design and development, and subject to the findings of this study and the requisite approvals, the company will construct a multi-seam underground longwall metallurgical coal mine and processing plant with a dedicated rail spur and train load-out facility.
South32 was on Thursday unable to give a capital expenditure guidance for the Eagle Downs project, as the transaction has not yet been completed.
Meanwhile, Kerr pointed out that South32 had exercised its second year option with TSX-listed Trilogy Metals, which is hunting for high-grade copper at the Bornite deposit in Alaska, with the miner also increasing its commitment to exploration with 18 partnerships for greenfield base metals project in Australia, the Americas and Sweden.
Between $20-million and $41-million will be spent on these greenfield exploration projects in 2019.
STRONG FINANCIAL RESULTS
South32 has meanwhile reported a strong financial year, with stronger commodity prices, and the company’s efforts to mitigate inflationary pressures delivering a 16% increase in underlying earnings from $1.10-billion to $1.32-billion.
Underlying earnings before interest, taxes, depreciation and amortisation (Ebitda) increased by 4%, from $2.4-billion to $2.5-billion, while profit after tax increased by 8%, from $1.23-billion to $1.33-billion.
Revenue for the full year was also up by 9%, from $6.9-billion to $7.5-billion.
South32 said that the key factors impacting the financial results included a $349-million increase in the contribution from its alumina refineries to underlying Ebitda and a 10% increase in their combined operating margins to 40%, as the unit benefitted from South32’s long alumina position and its exposure to market prices for the vast majority of production.
The firm also reported a 10% increase in total manganese ore production, including record production at Australia manganese and record production at Mozal Aluminium.
The company reported a 20% increase in payable nickel production at Cerro Matoso, in Colombia, as ore grades improved temporarily following the ramp-up of La Esmeralda, and strong cost control as the majority of the company’s upstream operations achieved operating unit cost guidance, despite inflationary pressure.
However, South32 reported a 40% decrease in Illawarra metallurgical coal production, in Australia, as the Appin colliery was suspended for much of the first half of the year, as the company sought to re-establish minimum performance criteria.