South32 manganese ore production drops to lag estimates

Singapore - South32 [JSE:S32], the world’s largest manganese supplier, said first-quarter output dropped 4% after halting some mine work in South Africa.

Production fell to 1.18 million metric tons in the three months to September 30, from 1.23 million in the previous quarter, the Perth-based company said in a statement on Thursday. That’s below a 1.22 million median estimate among three analysts surveyed by Bloomberg.

Manganese ore output from South African operations dropped 15%. South32 said its mines in the region are now operating at an optimized rate after a decision to stop work at Wessels following a fatality in June. It boosted net cash by almost 80% to $551m during the quarter and kept production and unit cost guidance unchanged for most of its operations, with the exception of a cut to coal.

The net-cash increase may appeal to shareholders as the lack of identifiable growth options, including asset purchases, suggests the miner could pay a higher dividend, Paul Hissey, an analyst at RBC Capital Markets in Melbourne, said in a note.

“We remain constructive on South32 given the relatively quick read-through of higher commodity prices to the company’s financial results, as evidenced by the increase in cash in the first quarter.”

Commodities rebound

South32’s shares have more than doubled in Sydney this year as commodities gained, including metallurgical coal and zinc. The stock closed 0.4% lower at A$2.58 on Thursday.

“Stronger commodity prices and cost-saving initiatives delivered a further $239m increase in our net-cash position,” CEO Graham Kerr said. That’s been achieved “despite the impact of annual payments that followed year-end and the typical lag in commodity pricing,” he said.

Metallurgical coal output fell 32 percent to 1.44 million tons, trailing the median forecast of 2 million tons in a Bloomberg survey. South32 cut its Illawarra full-year guidance to 9 million tons from 9.5 million, and forecast it’d hit a unit-cost target of $71 a ton in the second half instead of the first.

Metallurgical coal has tripled this year as China cut output to help lift prices for struggling miners and curb pollution, making the world’s biggest consumer more reliant on imports to feed steel mills. Spot hard coking coal jumped 3.6% to $240.90 a ton on Wednesday, according to The Steel Index, a record for the data that started in 2013.

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