PERTH (miningweekly.com) – Triple-listed diversified miner South32 has flagged a $350-million-a-year cost reduction over the next three years, as the spin-off battles falling commodity prices.
The miner said on Monday that these cost efficiencies were in addition to the $282-million productivity-led savings embedded at the operations during the 2015 financial year, ended June 30.
South32 made its market debut in May, after BHP shareholders agreed to the divestment of South32, which comprises the aluminium, coal, manganese, nickel and silver assets previously held in the BHP portfolio.
Since its inception, the company had implemented a regional operating model, which included decisions to close offices in Wollongong, Brisbane, Townsville and Australind.
The next phase of the regional model would see a reduction in the layers of operational management, while significant savings were also expected in procurement and logistics, following the aggregation and elevation of commercial activities.
South32 said the additional $350-million-a-year cost-saving target would likely be achieved at an asset level base, as the mines and refineries offered the greatest potential.
The company would look at reducing contractor use and rates, optimising energy fuels equipment and labour productivity and to exercise numerous procurement initiatives.
South32 was also targeting a 9%, or $67-million, cut to sustaining capital expenditure (capex) during 2016, with the miner now planning to spend only $650-million, compared with the initially planned capex of some $700-million. Capex plans include $50-million on major projects, such as the Appin Area 9 coal mine, in New South Wales.
The coal project was expected to be commissioned ahead of schedule in the second half of 2016 and would be some 20% below the original budget of $845-million.
Meanwhile, South32 had reported a pro-forma profit after tax of $28-million for the 2015 financial year, which was lower than the $64-million reported for 2014.
For the year under review, South32 reported impairments of $594-million, which included a $551-million charge to the carrying value of the Wolvekrans Middelburg Complex, in South Africa, and a $41-million write-off to the Metallic Nickel Recovery project, at Cerro Matoso.
Underlying earnings increased from the $407-million reported in 2014 to $575-million, while revenues declined by 7% from $8.3-billion to $7.7-billion.