South32 profit plunges 65%

Melbourne — China’s measures to bolster its economy will likely support base metals markets, the CEO of South32, Graham Kerr, said on Thursday as the diversified miner reported a 65% slump in full-year profit.

The Perth-based miner, which was spun off from BHP in 2015, is the world’s biggest producer of manganese, an additive that makes steel strong, and counts China as the biggest customer for its products.

"We are seeing them doing some work in terms of incentivising the economy, but it’s very focused at the moment and probably tends to favour base metals rather than the bulks," Kerr told reporters on an earnings call, referring to raw materials like coal and iron ore.

Beijing’s focus was on shoring up its auto and home appliances sectors — which typically use more base metals such as copper — rather than property, Kerr added.

BHP earlier this week said there were bright spots in China’s demand including home completions, which tend to use more metals such as zinc and copper in finishings, but said it also was keeping a close eye on China’s property market.

South32 reported a slight miss to underlying earnings of $916m vs a Visible Alpha consensus of $930m, given softer prices for its products that also include steel-making coal and aluminium, and rising costs. It had reported $2.60bn for fiscal 2022.

"FY24 cost guidance at key assets higher than estimates and likely to lead to consensus earnings downgrades in our view," Sydney-based investment bank Barrenjoey said.

Shares of South32 fell as much as 3.5%.

South32 raised costs in next year’s forecast for most of its mines. That was in line with a broad industry trend, but was also due to greater spending on safety and growth. Costs are expected to rise as the miner trimmed production estimates at some mines next year.

Kerr said that a workers’ strike at its Illawarra metallurgical coal operations in Australia had not had any material impact on production so far.

"There might be some impact as we move into the development phase, but no material impact as of now," Kerr said. The sector accounted for more than 40% of underlying earnings last year.

The miner posted an annual statutory loss of $173m, as it recognised a $1.3bn one-off charge for its Taylor zinc-lead deposit at its Arizona Hermosa project as Covid-19 restrictions delayed project development, and dewatering costs.

The charge came amid a step change in US costs for building materials while war damage to Ukraine’s power networks and a global decarbonising trend have led to shortages in power equipment, Kerr said.

Elsewhere, South32 said that it was assessing prospects of developing an intermediate nickel product at its Cerro Matoso operations in Columbia to potentially supply the electric vehicle (EV) market, after completing a mine life extension.

South32 already plans to supply manganese and zinc to North American automakers from its Hermosa project in Arizona.

Reuters