South32 Comes Back to Earth as Production Dips

It was back to more prosaic matters on Thursday for South32 Ltd which a week ago revealed a huge South American copper move valued at $2.8 billion.

In its quarterly production and sales report on Thursday, South32 revealed a 15% slide in hard coking coal production – mostly at its mines south of Sydney.

But the company said it was looking to higher prices to soften the impact of that fall.

The fall was nearly 300,000 tonnes but while lower than a year earlier, was up sharply from the 1.3 million tonnes produced in the June quarter.

Coking coal prices have risen (following thermal coal prices higher) thanks to China’s power crunch, environmental curbs and the country’s worsening property market crisis.

While falling steel production in China because of the emission curbs and power cuts has helped cloud the outlook for the coking coal prices have risen sharply on weak domestic and import supplies – even after taking into account the ban on Australian coal.

South32 said that however coal supply outside China has so far remained inelastic to the sharp price increases.

Heavy rain, port problems and administrative actions by Indonesian regulators have capped coal exports from that country to China and other Asian markets, adding to the shortage and boosting prices.

“While the lower total volumes are expected to adversely impact Operating unit costs, realised prices will benefit due to fewer sales of the lower-priced product and the current strong metallurgical coal market,” the company said.

(Whitehaven is another Australian coal producer seeing the benefits of China’s problems and the shortage of coal in the Asian basin).

Production of metallurgical coal fell to 1.6 million tonnes in the three months to Sept. 30 from 1.9 million tonnes a year earlier.

Metallurgical coal sales, however, rose 1% to 1.5 million tonnes

South32 is also the world’s largest producer of manganese ore and that business did better than coal in the quarter with a 7% rise in production to 1.6 million wet metric tonnes from a year earlier.

The company’s aluminium and alumina operations performed well in the quarter. Aluminium production was steady on 248,000 tonnes for the quarter.

Despite the fall in coking coal output, South32 says it is maintaining guidance for June 30, 2022 production.

CEO Graham Kerr said in the statement;

“Our operations continue to perform well, achieving record production at South Africa Manganese and maintaining production above nameplate capacity at Worsley Alumina.

“Production at Mozal Aluminium was higher, with the smelter benefitting from our investment in the AP3XLE energy efficiency technology.”

The shares rose half a per cent to $3.85. 


Meanwhile the slide in the iron ore market that forced Mount Gibson to idle its new small WA iron ore mine in September also slashed quarterly sales to just 439,000 wet metric tonnes in from 1.4 million wet metric tonnes a year earlier when conditions and prices were recovering from the pandemic driven slump.

The sales consisted of 300,000 wet metric tonnes from the company’s Koolan Island mine and 100,000 from the now idled Shine mine in the mid-west region of WA.

The decline in sales was due to the “dramatic deterioration” in the conditions in the market, including lower prices of iron ore that went down by half, discounts and penalties on products, as well as the more than double increase in shipping freight charges, Gibson CEO Peter Kerr said in the quarterly report.

Mount Gibson said group cash outflow in the quarter was $111 million “reflecting Koolan waste stripping and capital project investments, and Shine development and stockpile build expenditure.”

“Revenues totalled $29 million before adverse provisional pricing adjustments from prior period shipments, reflecting the significantly weaker iron ore price in the quarter.”

The company said it had cash and investments of $250 million at the end of September with ’no borrowings’.

The shares eased 3.5% to 44.5 cents.



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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