South32 slashes capital expenditure

South32, the global mining and metals company, yesterday slashed its capital expenditure for the 2018 financial year.

At strategy and business update presentation in Perth, Australia, chief executive Graham Kerr said the sustaining capital expenditure for the 2018 financial year was now expected to be $470million (R6.42billion) down from a previously stated $500m.

He said two-thirds of the reduction was associated with the deferral of underground development at Appin, a section of Illawarra Metallurgical Coal in New South Wales, Australia.

The company also said that saleable production of 4.5million tons (3.35mt metallurgical coal, 1.15mt energy coal) was now projected for Illawarra Metallurgical Coal in the 2018 financial year at an operating unit cost of $130/t.

The company also said production would be weighted to the second half of 2018 given the recent outage at the Appin colliery.

“We expect to return the Appin colliery to its prior two longwall configuration in December 2018 quarter, after which we intend to ramp-up Illawarra Metallurgical Coal production safely and sustainably towards historical rates of more than 8mt/pa,” Kerr said.

Sustaining capital expenditure for Illawarra Metallurgical Coal was now expected to be $120m in 2018 from a previous expectation of $150m. South32 operates in Australia, South Africa, Mozambique and Colombia, and has a minority partnership (36percent) in an alumina refinery in Brazil.

The company said it had reduced controllable costs by $700m and capital expenditure by $200m over two years. In terms of cash flow, the company said that underlying free cash flow had increased by $386m in the four months to October. In South Africa, it had completed the restructuring of its manganese assets.

Standalone

On Monday, South32 set in motion the process to manage its South African Energy Coal (SAEC) business as a stand-alone by April that will see the possible listing of the asset on the JSE.

South32 said it would invest R4.3bn to extend the life of the Klipsruit colliery by 20 years. SAEC will now be managed separately from the rest of the group in line with a plan to help improve the way the business managed its global portfolio and improve competitiveness, the company said on Monday.

SAEC had grappled with uncertain medium and long-term in the export thermal coal market, constrained by long- term take or pay rail and domestic supply agreements. South32 shares rose 1.40percent to close at R34.16 on the JSE yesterday.

Source: IOL

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