Graham Kerr. Picture: BUSINESS DAY
Graham Kerr. Picture: BUSINESS DAY

Diversified miner South32 forecast a "strong finish" to its financial year on Thursday after free cash flow more than doubled in the first half of the year, enabling it to pay an interim dividend of 3.6 US cents a share.

South32, spun out of BHP Billiton two years ago, produces mainly coal, manganese, nickel and aluminium. At the time of the spin-off their prospects seemed poor but in the past 10 months prices of energy and base metals resources have surged on renewed demand from China.

South32 shares were trading at R26.34 on the JSE after the interim results were announced, almost three times higher than a year ago.

Group turnover rose 8% to $3.2bn compared with the same period a year ago and basic underlying earnings surged to 9US cents a share from 0.5 US cents previously.

Free cash flow was $489m, bringing the group’s net cash holdings to $859m.

Capital spending was $169m. For the full year South32 will spend $450m, significantly less than the $768m spent in the 2015 financial year.

CEO Graham Kerr said the group was planning several projects, including La Esmeralda nickel in Colombia, extending the life of Klipspruit export coal mine in SA at $250m, and exploring southern areas at Gemco manganese operations in Australia.

The focus was on optimising existing operations, but it could make "opportunistic" acquisitions, Kerr said.

Talks with Eskom on an underground extension to the Khutala coal mine, which Eskom owns and South32 operates, were continuing. Engagements had been "very positive".

At Hillside aluminium in SA, 22 pots have been restarted while in the Northern Cape manganese ore production has been accelerated to an annualised 3.4 tonnes, from about 2.9tonnes a year ago.

Output would be adjusted to meet market conditions.

Only one of four furnaces is online at Metalloys, the manganese alloy joint venture with Anglo American. Restarting the other furnaces depended on a number of factors, including the cost of electricity and current global excess capacity for alloy smelting, Kerr said.

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