By David Winning 
 

SYDNEY--South32 Ltd. said its first-half net profit fell by 84% as it felt the sting of weaker commodity prices and it absorbed a higher tax rate ahead of the planned sale of its South African Energy Coal assets.

South32 reported a net profit of US$99 million for the six months through December, down from US$635 million at the same stage a year ago. Underlying earnings before interest and taxes fell by 80% to US$131 million.

Still, the company said on Thursday that it would expand its capital management program by US$180 million to US$1.43 billion.

Directors declared an interim dividend of 1.1 U.S. cents a share, down from 5.1 cents a year earlier. They also declared a special dividend of 1.1 U.S. cents even as the company's net cash dropped to US$277 million at the end of December from US$504 million six months earlier.

South32 has been put on the back foot by falling prices of key commodities, with management reacting to weakness in the market for manganese by reducing its use of trucking to save costs and shuttering its underground operation in South Africa for extended maintenance. The company's first-half manganese alloy output dropped 17% on a year earlier.

South32 also scaled back activity at the South Africa Energy Coal operations that it wants to sell after trading conditions worsened. That led management last month to warn that annual output in the division would be at the bottom end of a prior guidance range.

Still, first-half alumina production was 4% higher than a year earlier, driven by a record performance in Brazil, although the company also faced significant pricing headwinds in the division.

South32's net profit was also dragged lower by a higher effective tax rate of 75.0% in the half, compared to 37.3% a year earlier. In prior periods, the mining company has been able to reduce its tax bill by writing off losses made by some of its assets, such as the South African Energy Coal business.

However, South32 has agreed to sell its more than 90% stake in the South African Energy Coal business to Seriti Resources Holdings Pty Ltd. and two trusts for ZAR100 million (US$6.8 million) in cash and further payments that are linked to cash flow. That meant no benefit for losses made prior to the sale completing was recorded in the first-half result.

 

Write to David Winning at david.winning@wsj.com

 

(END) Dow Jones Newswires

February 12, 2020 17:24 ET (22:24 GMT)

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