South32 Costs Head North

By Glenn Dyer | More Articles by Glenn Dyer

Diversified miner South32 has again issued a warning about cost pressures, saying it expects raw material input prices to rise across the industry.

A month ago in its first quarter production report, South 32 revealed concerns about rising raw material costs. But at yesterday’s annual meeting in Perth, the company was much more vocal.

CEO Graham Kerr told the meeting in Perth that while its unit costs were tracking to plan at the end of first (September) quarter, rising raw material costs and a weaker US dollar could put its full-year unit cost guidance for its commodities at risk.

“Should these external pressures persist across the remainder of the year, we will not be immune to additional cost inflation,” he warned.

South32, which was spun off from BHP Billiton in 2015, is the world’s largest producer of manganese ore, and also operates significant assets in the coal, nickel, alumina, silver, zinc and lead sectors.

The miner reported a $US1.23 billion net profit in 2016-17, compared to a $US1.6 billion loss in the previous year when it took a number of heavy impairment write-downs and losses.

South32 earlier this year said it was pursuing base metals opportunities in four countries, and had entered into new exploration agreements with AusQuest Limited for Western Australia and Peru, and Trilogy Metals for deposits in Alaska.

But that is likely to be exploration deals – Mr Kerr has consistently played down the company engaging in mergers and acquisition activity and he was again firm on that point yesterday. South 32 has more than $US1.6 billion in cash in its accounts.

He told the media it was “unlikely” investors would see the company engage in mergers or acquisitions at the moment given the high price environment and limited number of “quality assets” in the market.

He made a point in his speech of updating the media on the company’s capital management activities:

He said that up till the end of October this year ”as part of our 750 million US dollar capital management programme, we have purchased shares on market to the value of 282 million US dollars. Shares were purchased at an average price of 2.77 Australian dollars per share. In addition, we paid 526 million US dollars in dividends.”

There was the impression that that is more than enough excitement for shareholders. The shares ended up 1.6% at $3.375.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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