Too much cash, too few investment opportunities because there are too many mines and too much capacity in all sectors of the resources sector.
So two months short of two years as a stand alone company, the BHP spin off, South32 (S32) will take advantage of its bulging bank balance to launch a $US500 ($A655 million) million share buyback.
The miner, which was spun off from BHP in May 2015 and has operations in Australia, South Africa and South America, had net cash (that is, cash minus debt) of $US859 million at December 31 (well over $A1.1 billion).
But the company has only two major commitments to fund – the $US200 million acquisition of the Metropolitan mine near Wollongong in NSW coal mine, and its $US192 million interim dividend.
“Our net cash balance continues to build giving us the financial strength and flexibility to invest in our existing operations, pursue opportunities where we can create value and return excess capital to shareholders,” CEO Graham Kerr said yesterday.
“This $US500m capital management program meaningfully increases shareholder returns and follows the recent announcement of our $US192m interim dividend.”
But South32 was spun-off from BHP with low debt, and South32 management has worked hard to strengthen its balance sheet, including heavy write offs, job cuts and restructuring.
The miner reported a net loss after tax of $US1.6 billion for the 2016 financial year, including impairments of $US1.7 billion recorded in the first half.
The buyback is expected to be completed over the next 12 months and would represent 4.5% of the group’s current market capitalisation of $14.5 billion.
The on-market buyback is not subject to shareholder approval.
The shares fell 1.7% to $2.67 yesterday. They listed at $2.13 in May 2015.
