Miner South32 Posts Full-Year Loss
August 25 2016 - 1:20AM
Dow Jones News
SYDNEY—South32 Ltd., the base metals and coal miner spun out of
BHP Billiton Ltd., paid a maiden dividend despite reporting a large
annual loss for its first full fiscal year, as it pruned costs and
ended up with more cash than debt.
On Thursday, the Australia-based mining company reported a net
loss of US$1.62 billion for the year through June, compared with a
year-earlier loss of US$919 million. The result was underpinned by
US$1.7 billion in charges and lower prices for the commodities it
sells.
South32, likeother miners including former parent BHP, has
been saddled with large asset write-downs and restructuring costs
as the industry has been hit with multiyear-low commodity prices.
It said the average price it was paid for commodities—including
coal, manganese and aluminum—was down 21% from a year earlier.
Still, South32 will hand shareholders a dividend of one cent a
share after it cut annual costs by US$386 million and ended the
fiscal year with net cash of US$312 million, compared with net debt
of US$402 million a year ago.
The company's net cash has made it an outlier among global
miners, which have been working to pay back multibillion-dollar
debt loads from a long spending spree. The decision to introduce a
payout also contrasts with moves to cut or scrap dividends by
global miners.
South32 was listed in May 2015 to house a collection of
assets—such as manganese mines and aluminum smelters—that BHP no
longer wanted as it narrowed its focus to fewer and larger
operations. South32 was carved out at a turbulent time in global
mining, as prices for metals and bulk commodities—and the companies
that produced them—tumbled to multiyear lows.
South32 has since restructured its business and taken a knife to
spending. "Twelve months on, South32 is a much stronger company
with significantly lower costs and a balance sheet that provides
flexibility," Chief Executive Graham Kerr said.
While some analysts were surprised about the decision to start
paying a dividend, others labeled the one-penny payout as
conservative given the miner's net cash status.
"We are not looking to stretch our balance sheet," said Mr.
Kerr, although "we wanted to have that first dividend come out to
establish a track record of delivering on our commitments."
South32, listed in Australia, London and South Africa, is
looking at other uses for its cash, including two potential
acquisitions, he said.
One of those is Anglo American PLC's minority stakes in its
manganese operations. South32 expressed interest in the stakes
earlier this year. Mr. Kerr wouldn't disclose the other business
South32 is evaluating, although he said it was a smaller asset.
With cash in the bank, the company has more firepower to buy
businesses from struggling rivals than most of its competitors. The
company's cash flow was helped by a recent recovery in commodity
prices, Mr. Kerr said.
Better prices have sparked a rally in mining stocks this year.
South32's shares have nearly doubled in 2016. It is outperforming
BHP, which is up by about a fifth.
A week ago, BHP said it swung to a loss of US$6.39 billion for
the fiscal year through June from a year-earlier profit of $1.91
billion. BHP Chief Executive Andrew Mackenzie said at the time that
BHP would have been worse off had it not spun off South32 and
called the company's portfolio "pretty close to what I would say
is ideal for BHP Billiton right now."
At A$2 a share, South32 has almost returned to its peak of
A$2.45 a share, which was reached soon after it debuted.
Mr. Kerr echoed remarks from other mining executives, including
Rio Tinto PLC CEO Jean-Sé bastien Jacques, by saying that the
recovery in commodity prices appeared to be underpinned by
credit-fueled Chinese demand that was unlikely to last.
"Hope it not a plan," Mr. Kerr said. "And I certainly don't
think it is up [for] prices from here."
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
(END) Dow Jones Newswires
August 25, 2016 01:05 ET (05:05 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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