PERTH (miningweekly.com) – Diversified miner South32 has reported a 71% fall in profits before tax as the Covid-19 pandemic decimated commodity prices, with the miner flagging a change in focus towards base metals over the next five years.

South32 on Thursday announced a loss after tax of $65-million for the 12 months ended June, compared with a profit of $389-million in the 2019 financial year.

“Given the extraordinary circumstances and volatility caused by the pandemic we have been quick to act to protect our strong financial position. During the year we re-designed and re-prioritised our capital expenditure programmes, maintained strong control over our operating costs and suspended our on-market share buy-back,” CEO Graham Kerr said on Thursday.

South32 generated free cash flow of $270-million this year, and received $313-million in distributions from its manganese equity accounted investments (EAI), despite a 20% reduction in the average realised prices for its commodities.

While major capital expenditure (capex) was $32-million higher than the 2019 financial year, at $251-million, including $104-million at the Hermosa base metals project, in Arizona, as South32 completed a voluntary remediation programme, sustaining capex decreased by $8-million to $425-million.

Capex for the full 2020 was 17% below the original budget, as South32 re-designed and re-positioned expenditure in response to the market economics and the conditions imposed by the pandemic.

“Looking to next financial year we are taking further action as we continue to navigate a period of potentially extended market volatility and lower commodity prices. We expect cost efficiencies and further simplification of our group, combined with higher volumes, to result in lower operating unit costs across the majority of our operations,” Kerr said on Thursday.

“We finished the year in a strong financial position, with lower costs and a balance sheet that provides flexibility. Against this backdrop we continue to invest in the exploration and growth options we have embedded in our portfolio to create shareholder value.

“At Hermosa we are progressing our prefeasibility study for the Taylor deposit, releasing an updated mineral resource estimate following the end of the financial year and have commenced a scoping study on emerging end-market opportunities in battery technology for the Clark deposit.

Having formed the Ambler Metals joint venture in Alaska with Trilogy Metals, we have embedded another exciting base metals project in our growth pipeline.”

Kerr said on a conference call on Thursday that the company’s portfolio over the next five years is likely to be geared strongly towards the base metals market, following the divestment of its South African energy coal division and its exit of the manganese alloy business.

South32 last year struck a R100-million agreement with South Africa’s Seriti Resources Holdings to divest of the South African energy coal assets.

The company also recently struck an agreement with Sanjeev Gupta’s GFG Alliance to divest of its 60% shareholding in the Tasmanian Electro Metallurgical Company, while options were still being considered for the Metalloys operation, in South Africa, which is currently on care and maintenance.

“These changes will dramatically change who we are in terms of the physical size of our footprint, the number of people we have, and the margins we generate. And the assets that we are bringing into the portfolio are predominantly biased towards base metals,” Kerr said.

“In the next five years, I would expect our portfolio to be very different, you will see a stronger move towards base metals, and we will be actively managing our established assets and will be working on new projects in the Americas.”