Quarterly Operational Report June 2016

RNS Number : 8085E
South32 Limited
21 July 2016
 

 

 

 

21 July 2016

South32 Limited

QUARTERLY OPERATIONAL REPORT JUNE 2016

 

Graham Kerr, South32 CEO said:

 

"We have built a strong foundation in our first full year of operation, despite the challenging market.

We prioritised value over volume and took decisive action to restructure our operations, reduce controllable costs and improve efficiencies, whilst delivering two major projects on or ahead of schedule, and under budget.

We continue to unlock our resource potential, having reached a landmark agreement with the Anindilyakwa Land Council to mine the Eastern Leases and explore the highly prospective Southern Areas at GEMCO. An option agreement at the Huckleberry property in Canada also marks our first investment in base and precious metals greenfields exploration, and aligns with our strategy to identify opportunities beyond our current portfolio."

 

·     Strong and predictable production, meeting or exceeding FY16 guidance for the majority of operations.

·   Record annual production at Australia Manganese, Worsley Alumina, Brazil Alumina, Mozal Aluminium and Cannington (payable zinc).

·    Significant increase in longwall utilisation and cutting rates at Illawarra Metallurgical Coal supported record annualised coal production of 10.1Mt in the June 2016 quarter.

·     Completed previously announced restructuring initiatives, positioning us well to achieve FY17 unit cost guidance.

·    Delivered Appin Area 9 (Illawarra Metallurgical Coal) and Premium Concentrate Ore (Australia Manganese) projects on or ahead of schedule, and below budget.

·    Reached mining and exploration agreements with the Anindilyakwa Land Council of Groote Eylandt, providing access to first quartile resource potential at GEMCO, one of the world's largest and lowest cost manganese mines.

·     Entered into an option agreement with Northern Shield Resources for Huckleberry, a property prospective for Copper-Nickel-PGE mineralisation, in the Labrador Trough, Canada.

 

 

 

Production summary

 

 

 

 

 

 

 

 

South32's share

FY15

FY16

YoY

 

4Q15

3Q16

4Q16

QoQ

Alumina production (kt)

5,147

5,296

3%

 

1,266

1,334

1,296

(3%)

Aluminium production (kt)

1,004

963

(4%)

 

242

240

238

(1%)

Energy coal production (kt)

35,744

32,988

(8%)

 

8,914

7,930

8,021

1%

Metallurgical coal production (kt)

7,455

7,059

(5%)

 

1,983

1,642

2,119

29%

Manganese ore production (kt)

5,216

4,782

(8%)

 

1,253

1,205

1,231

2%

Manganese alloy production (kt)

413

224

(46%)

 

81

48

45

(6%)

Payable nickel production (kt)

40.4

36.8

(9%)

 

8.6

9.7

9.6

(1%)

Payable silver production (koz)

22,601

21,393

(5%)

 

5,236

4,478

5,037

12%

Payable lead production (kt)

183.0

173.2

(5%)

 

44.3

36.9

38.8

5%

Payable zinc production (kt)

72.3

79.0

9%

 

18.9

18.5

18.7

1%

Unless otherwise noted: percentage variance relates to performance during the financial year ended June 2016 (FY16) compared with the financial year ended June 2015 (YoY) or the June 2016 quarter compared with the March 2016 quarter (QoQ); production and sales volumes are reported on an attributable basis.

 

 

CORPORATE UPDATE

 

·   The previously announced restructuring initiatives at five of our operations (Worsley Alumina, Illawarra Metallurgical Coal, Australia Manganese, South Africa Manganese and Cerro Matoso) are now complete. These initiatives position us well to achieve previously announced FY17 unit cost guidance.1

·     Consistent with our strategy to unlock the potential of our resources, we obtained consent from the Anindilyakwa Land Council to access the Eastern Leases and the Southern Areas at GEMCO. The Eastern Leases will enable us to mine new areas within our existing operating footprint. Access to the Southern Areas, adjacent to existing operations, will substantially increase our exploration footprint at this highly prospective manganese deposit.

·    We signed an option agreement with Northern Shield Resources to become a partner in the Huckleberry property in Northern Quebec, Canada. This agreement represents a low-cost entry into the Labrador Trough, a province identified as being highly prospective for copper, nickel and platinum group elements. We can earn a 50% interest in the property by funding C$2.5M of exploration spend and a further 20% interest by funding an additional C$2.5M. Northern Shield's interest will be free carried to the completion of a Preliminary Economic Assessment (PEA) study on the property.2

·      In the financial year, South32 invested US$13M in exploration, of which US$4M will be capitalised. Exploration activities focussed on metallurgical coal and silver in Australia, and nickel in Colombia.

·    Our Underlying effective tax rate (ETR)3 largely reflects the geographic distribution of the Group's profit. The corporate tax rates applicable to South32 include: Australia 30%; South Africa 28%; Colombia 39%; and Brazil 34%. Permanent differences have a disproportionate effect on the Group's tax rate when the Group's profit margins are compressed.

 

Upstream production

(South32's share) 

FY15

Actual

FY16

Actual

FY16

Guidance

%

Worsley Alumina

 

 

 

 

Alumina production (kt)

3,819

3,961

3,950

0%

Brazil Alumina

 

 

 

 

Alumina production (kt)

1,328

1,335

1,320

1%

South Africa Energy Coal4

 

 

 

 

Domestic coal production (kt)

18,123

16,825

 16,650

1%

Export coal production (kt)

16,150

14,856

15,300

(3%)

Illawarra Metallurgical Coal

 

 

 

 

Metallurgical coal production (kt)

7,455

7,059

6,900

2%

Energy coal production (kt)

1,471

1,307

1,350

(3%)

Australia Manganese

 

 

 

 

Manganese ore production (kt)

2,942

3,071

3,050

1%

South Africa Manganese

 

 

 

 

Manganese ore production5 (kt)

2,274

1,711

Subject to demand

N/A

Cerro Matoso

 

 

 

 

Payable nickel production (kt)

40.4

36.8

36.5

1%

Cannington

 

 

 

 

Payable silver production (koz)

22,601

21,393

21,650

(1%)

Payable lead production (kt)

183

173

175

(1%)

Payable zinc production (kt)

72

79

80

(1%)

 

 

 

WORSLEY ALUMINA

(86% share)

 

South32's share

FY15

FY16

YoY

 

4Q15

3Q16

4Q16

4Q15
vs
4Q16

3Q16
vs
4Q16

Alumina production (kt)

3,819

3,961

4%

 

929

1,008

960

3%

(5%)

Alumina sales (kt) 

3,857

3,874

0%

 

1,048

1,017

959

(8%)

(6%)

 

Worsley Alumina saleable production increased by 4% (or 142kt) to 4.0Mt in the 2016 financial year as an uplift in calciner availability underpinned record performance. This represents the first time that the refinery has operated at its expanded capacity of 4.6Mtpa (100% basis)6 across a full year and was achieved despite a power outage and associated process instability that was caused by water ingress during a severe storm in April 2016.

SOUTH AFRICA ALUMINIUM

(100%)

 

South32's share

FY15

FY16

YoY

 

4Q15

3Q16

4Q16

4Q15
vs
4Q16

3Q16
vs
4Q16

Aluminium production (kt)

699

697

(0%)

 

175

173

172

(2%)

(1%)

Aluminium sales (kt) 

695

709

2%

 

177

162

184

4%

14%

 

South Africa Aluminium saleable production was largely unchanged for both the 2016 financial year (697kt) and the June 2016 quarter (172kt). The impact of load-shedding was lower than expected and this benefit offset the previously announced suspension of production in 22 pots in September 2015. The 14% increase in quarterly sales resulted from a progressive reduction in inventory in the June quarter, following a change in monthly vessel scheduling.

MOZAL ALUMINIUm

(47.1% share)

 

South32's share

FY15

FY16

YoY

 

4Q15

3Q16

4Q16

4Q15
vs
4Q16

3Q16
vs
4Q16

Aluminium production (kt)

265

266

0%

 

65

67

66

2%

(1%)

Aluminium sales (kt) 

273

254

(7%)

 

70

64

69

(1%)

8%

 

Mozal Aluminium achieved record annual production of 266kt in the 2016 financial year as a reduction in load-shedding complemented an increase in potline current efficiency. The increase in quarterly sales reflects the scheduling of shipments between periods.

 

Brazil Alumina

(Refinery 36% share, Smelter 40% share)

 

South32's share

FY15

FY16

YoY

 

4Q15

3Q16

4Q16

4Q15
vs
4Q16

3Q16
vs
4Q16

Alumina production (kt)

1,328

1,335

1%

 

337

326

336

(0%)

3%

Alumina sales (kt) 

1,309

1,359

4%

 

330

360

338

2%

(6%)

Aluminium production (kt)

40

0

N/A

 

2

0

0

N/A

N/A

Aluminium sales (kt) 

41

0

N/A

 

3

0

0

N/A

N/A

 

Brazil Alumina saleable alumina production increased 1% (or 7kt) to a record 1,335kt in the 2016 financial year. The 6% decrease in quarterly sales reflects a timing difference as one additional shipment occurred in the March 2016 quarter.

Aluminium production was first curtailed at Brazil Alumina in July 2013 and the suspension of all smelting activity was announced in March 2015. As previously announced, we have forward sold power until the end of CY17 and have terminated the contract with Eletronorte.

South Africa Energy Coal

(100%)

 

South32's share

FY15

FY16

YoY

 

4Q15

3Q16

4Q16

4Q15
vs
4Q16

3Q16
vs
4Q16

Energy coal production (kt)

34,273

31,681

(8%)

 

8,508

7,692

7,610

(11%)

(1%)

Domestic sales (kt) 

18,416

17,169

(7%)

 

4,358

4,000

4,089

(6%)

2%

Export sales (kt)

16,390

15,157

(8%)

 

4,123

3,575

3,561

(14%)

(0%)

 

South Africa Energy Coal saleable production decreased by 8% (or 2.6Mt) to 31.7Mt in the 2016 financial year. Lower production resulted from the planned closure of the opencast mine at Khutala, and a reduction in contractor activity at the Wolvekrans Middelburg Complex, consistent with our focus on value over volume.

illawarra metallurgical coal

(100%)

 

South32's share

FY15

FY16

YoY

 

4Q15

3Q16

4Q16

4Q15
vs
4Q16

3Q16
vs
4Q16

Metallurgical coal production (kt)

7,455

7,059

(5%)

 

1,983

1,642

2,119

7%

29%

Metallurgical coal sales (kt)

7,324

6,984

(5%)

 

2,067

1,595

2,257

9%

42%

Energy coal production (kt)

1,471

1,307

(11%)

 

406

238

411

1%

73%

Energy coal sales (kt)

1,378

1,333

(3%)

 

307

364

360

17%

(1%)

 

Illawarra Metallurgical Coal total saleable production decreased by 6% (or 560kt) to 8.4Mt in the 2016 financial year as challenging geological conditions were encountered at the Appin and Dendrobium mines in the first six months of the reporting period. Three planned longwall moves were also completed during the year.

The Appin Area 9 project was completed in January ahead of schedule and below budget, significantly increasing longwall utilisation and cutting rates at the operation. This improvement in longwall performance, and the absence of longwall moves at Appin or Dendrobium, underpinned a 29% increase in metallurgical coal production in the June quarter to a record 2.1Mt.

  

australia manganese

(60% share)

 

South32's share

FY15

FY16

YoY

 

4Q15

3Q16

4Q16

4Q15
vs
4Q16

3Q16
vs
4Q16

Manganese ore production (kt)

2,942

3,071

4%

 

761

743

739

(3%)

(1%)

Manganese ore sales (kt)

2,845

3,180

12%

 

700

876

805

15%

(8%)

Manganese alloy production (kt)

167

133

(20%)

 

43

26

22

(49%)

(15%)

Manganese alloy sales (kt)

139

150

8%

 

36

44

30

(17%)

(32%)

 

Australia Manganese saleable ore production increased by 4% (or 129kt) to a record 3.1Mt in the 2016 financial year as concentrator performance improved and the US$139M Premium Concentrate Ore (PC02) project was completed. This project, which increases GEMCO's production capacity by 500ktpa to 5.3Mtpa (100% basis), was completed 17% under budget in the June 2016 quarter. As previously disclosed, the ramp-up of this project has been adjusted to match market demand. Sales of manganese ore increased by 12% in the 2016 financial year as supply chain inventory was drawn down to normalised levels.

Saleable manganese alloy production decreased by 20% (or 34kt) to 133kt in the 2016 financial year as power shortages in Tasmania led to the suspension of two of four furnaces. These furnaces are currently being brought back online, with return to full production expected in July 2016.

SOUTH AFRICA manganese

(60% share)

 

South32's share

FY15

FY16

YoY

 

4Q15

3Q16

4Q16

4Q15
vs
4Q16

3Q16
vs
4Q16

Manganese ore production (kt)

2,274

1,711

(25%)

 

492

462

492

0%

6%

Manganese ore sales (kt)

2,210

1,834

(17%)

 

407

466

489

20%

5%

Manganese alloy production (kt)

246

91

(63%)

 

38

22

23

(39%)

5%

Manganese alloy sales (kt)

251

110

(56%)

 

47

20

40

(15%)

100%

 

South Africa Manganese saleable ore production decreased by 25% (or 563kt) to 1.7Mt in the 2016 financial year following the decision to initially suspend (November 2015) and then restructure operations at Wessels and Mamatwan in response to challenging market conditions. Mining recommenced at both operations in the March 2016 quarter, ramping-up to an optimised 2.9Mtpa (100% basis) production rate. Sales of manganese ore declined by a lesser 17% as supply chain inventory was drawn down below normalised levels.

Saleable manganese alloy production decreased by 63% (or 155kt) to 91kt in the 2016 financial year, following the decision to suspend three of the four high-carbon ferromanganese furnaces at Metalloys in May 2015. Metalloys will continue to operate one of four furnaces until market conditions improve, consistent with our focus on value over volume.

  

cerro matoso

(99.9% share)

 

South32's share

FY15

FY16

YoY

 

4Q15

3Q16

4Q16

4Q15
vs
4Q16

3Q16
vs
4Q16

Payable nickel production (kt)

40.4

36.8

(9%)

 

8.6

9.7

9.6

12%

(1%)

Payable nickel sales (kt)

40.6

36.8

(9%)

 

9.0

9.3

10.0

11%

8%

 

Cerro Matoso payable nickel production decreased by 9% (or 3.6kt) to 36.8kt in the 2016 financial year. Lower production resulted from a decline in the average ore grade, consistent with the mine plan.

The previously announced headcount reduction and the restructure of labour activities to improve productivity were completed in the June 2016 quarter. Combined with a new three-year Collective Labour Agreement, successfully negotiated with trade unions, these efforts position Cerro Matoso to pursue further optimisation initiatives that will improve cash generation.

cannington

(100%)

 

South32's share

FY15

FY16

YoY

 

4Q15

3Q16

4Q16

4Q15
vs
4Q16

3Q16
vs
4Q16

Payable silver production (koz)

22,601

21,393

(5%)

 

5,236

4,478

5,037

(4%)

12%

Payable silver sales (koz)

23,831

20,852

(13%)

 

6,144

4,364

4,590

(25%)

5%

Payable lead production (kt)

183.0

173.2

(5%)

 

44.3

36.9

38.8

(12%)

5%

Payable lead sales (kt)

188.9

169.7

(10%)

 

48.8

37.0

37.2

(24%)

1%

Payable zinc production (kt)

72.3

79.0

9%

 

18.9

18.5

18.7

(1%)

1%

Payable zinc sales (kt)

66.8

82.6

24%

 

16.2

18.6

22.8

41%

23%

 

Payable silver and lead production decreased by 5%, to 21.4Moz and 173.2kt respectively, in the 2016 financial year due to a temporary reduction in mill throughput. Conversely, an increase in the average zinc ore grade and recoveries resulted in record annual zinc production of 79.0kt (+9% YoY).

Finalisation adjustments and the provisional pricing of Cannington concentrates will reduce Underlying EBIT by US$11M in the 2016 financial year (-US$19M December 2015 half year; -US$43M 2015 financial year). Outstanding concentrate sales (containing 3.1Moz of silver, 30.9kt of lead and 6.4kt of zinc) were revalued at 30 June 2016. The final price of these sales will be determined in the first half of the 2017 financial year.

 

Notes:

1.     Unit cost guidance as provided in the 2016 Half Year Financial Results and Outlook management presentation and media release (South32 to reset its cost base in Australia and Colombia), 25 February 2016. Projected all-in costs for FY17 include royalties (where appropriate) and the influence of exchange rate assumptions, and were predicated on: an average AUD:USD exchange rate of 0.68; USD:ZAR exchange rate of 14.12; USD:COP exchange rate of 3,170; a manganese ore price of US$2.00/dmtu for 44% manganese product; an alumina price of US$255/t; a blended coal price of US$65/t; and a nickel price of US$3.75/lb.

2.     For further information, please visit http://www.northern-shield.com

3.     The ETR calculation excludes equity accounted investments as they are recorded on an after tax basis.

4.     8% of South Africa Energy Coal is owned by a Broad-Based Black Economic Empowerment (B-BBEE) consortium. The interests owned by the
B-BBEE consortium were acquired using vendor finance, with the loans repayable to South32 via distributions attributable to these parties, pro rata to their share in South Africa Energy Coal. Until these loans are repaid, South32's interest in South Africa Energy Coal is accounted at 100%.

5.     Consistent with the presentation of South32's segment information, South Africa Manganese ore production and sales have been reported at 60%. The Group's financial statement will continue to reflect a 54.6% interest in South Africa Manganese ore.

6.     The Efficiency and Growth Project took nameplate capacity from 3.5Mtpa to 4.6Mtpa at Worsley Alumina.

7.     Underlying EBIT is earnings before net finance costs, taxation and any earnings adjustments. Underlying EBIT is reported net of South32's share of net finance costs and taxation of equity accounted investments. Underlying EBITDA is Underlying EBIT, before depreciation and amortisation.

8.     Figures in italics indicate that this figure has been adjusted since it was previously reported.

9.     The following abbreviations have been used throughout this report: grams per tonne (g/t); tonnes (t); thousand tonnes (kt); thousand tonnes per annum (ktpa); million tonnes (Mt); million tonnes per annum (Mtpa); thousand ounces (koz); million ounces (Moz); thousand wet metric tonnes (kwmt); thousand dry metric tonnes (kdmt); Australian Securities Exchange (ASX); London Stock Exchange (LSE); and Johannesburg Stock Exchange (JSE).

 

operating performance

South32's share

FY15

FY16

 

4Q15

1Q16

2Q16

3Q16

4Q16

Worsley Alumina
(86% share)

 

 

 

 

 

 

 

 

Alumina hydrate production (kt)

3,874

3,905

 

987

990

980

989

946

Alumina production (kt)

3,819

3,961

 

929

1,031

962

1,008

960

Alumina sales (kt)

3,857

3,874

 

1,048

930

968

1,017

959

South Africa Aluminium
(100%)

 

 

 

 

 

 

 

 

Aluminium production (kt)

699

697

 

175

178

174

173

172

Aluminium sales (kt)

695

709

 

177

185

178

162

184

Mozal Aluminium
(47.1% share)

 

 

 

 

 

 

 

 

Aluminium production (kt)

265

266

 

65

66

67

67

66

Aluminium sales (kt)

273

254

 

70

53

68

64

69

Brazil Alumina
(alumina 36% share, aluminium 40% share)

 

 

 

 

 

 

 

 

Alumina production (kt)

1,328

1,335

 

337

333

340

326

336

Alumina sales (kt)

1,309

1,359

 

330

320

341

360

338

Aluminium production (kt)

40

0

 

2

0

0

0

0

Aluminium sales (kt)

41

0

 

3

0

0

0

0

South Africa Energy Coal
(100%)

 

 

 

 

 

 

 

 

Energy coal production (kt)

34,273

31,681

 

8,508

8,292

8,087

7,692

7,610

Domestic sales (kt)

18,416

17,169

 

4,358

4,246

4,834

4,000

4,089

Export sales (kt)

16,390

15,157

 

4,123

4,132

3,889

3,575

3,561

Illawarra Metallurgical Coal
(100%)

 

 

 

 

 

 

 

 

Metallurgical coal production (kt)

7,455

7,059

 

1,983

2,079

1,219

1,642

2,119

Metallurgical coal sales (kt)

7,324

6,984

 

2,067

1,986

1,146

1,595

2,257

Energy coal production (kt)

1,471

1,307

 

406

406

252

238

411

Energy coal sales (kt)

1,378

1,333

 

307

391

218

364

360

Australia Manganese
(60% share)

 

 

 

 

 

 

 

 

Manganese ore production (kt)

2,942

3,071

 

761

857

732

743

739

Manganese ore sales (kt)

2,845

3,180

 

700

749

750

876

805

Ore grade sold (%, Mn)

47.9

47.6

 

47.9

48.1

47.6

47.8

46.9

Manganese alloy production (kt)

167

133

 

43

44

41

26

22

Manganese alloy sales (kt) 

139

150

 

36

38

38

44

30

South Africa Manganese
(60% share)

 

 

 

 

 

 

 

 

Manganese ore production (kt)

2,274

1,711

 

492

580

177

462

492

Manganese ore sales (kt)

2,210

1,834

 

407

518

361

466

489

Ore grade sold (%, Mn)

41.4

39.9

 

41.0

40.2

39.9

40.4

39.2

Manganese alloy production (kt)

246

91

 

38

21

25

22

23

Manganese alloy sales (kt) 

251

110

 

47

25

25

20

40

 

South32's share

FY15

FY16

 

4Q15

1Q16

2Q16

3Q16

4Q16

Cerro Matoso
(99.9% share)

 

 

 

 

 

 

 

 

Ore mined (kwmt)

6,321

6,009

 

1,156

1,531

1,486

1,512

1,480

Ore processed (kdmt)

2,629

2,699

 

596

639

673

704

683

Ore grade processed (%, Ni)

1.67

1.54

 

1.59

1.55

1.52

1.53

1.55

Payable nickel production (kt) 

40.4

36.8

 

8.6

8.7

8.8

9.7

9.6

Payable nickel sales (kt)

40.6

36.8

 

9.0

8.7

8.8

9.3

10.0

Cannington
(100%)

 

 

 

 

 

 

 

 

Ore mined (kt)

3,418

3,289

 

857

910

833

727

819

Ore processed (kt)

3,289

3,149

 

829

838

819

673

819

Silver ore grade processed (g/t, Ag)

257

255

 

235

272

260

258

230

Lead ore grade processed (%, Pb)

6.7

6.6

 

6.4

6.9

7.1

6.7

5.9

Zinc ore grade processed (%, Zn)

3.4

3.8

 

3.5

3.4

4.0

4.1

3.6

Payable silver production (koz)

22,601

21,393

 

5,236

6,278

5,600

4,478

5,037

Payable silver sales (koz)

23,831

20,852

 

6,144

6,203

5,695

4,364

4,590

Payable lead production (kt)

183.0

173.2

 

44.3

49.1

48.4

36.9

38.8

Payable lead sales (kt)

188.9

169.7

 

48.8

48.7

46.8

37.0

37.2

Payable zinc production (kt)

72.3

79.0

 

18.9

19.6

22.2

18.5

18.7

Payable zinc sales (kt)

66.8

82.6

 

16.2

19.0

22.2

18.6

22.8

Further information

INVESTOR RELATIONS

Alex Volante

T     +61 8 9324 9029

M    +61 403 328 408

E     Alex.Volante@south32.net

Rob Ward

T     +61 8 9324 9340

M    +61 431 596 831

E     Robert.Ward@south32.net

 

Tony Johnson
T    
+61 8 9324 9190

M    +61 439 500 799

E     Tony.Johnson@south32.net

 

 

 

 

 

21 July 2016
JSE Sponsor: UBS South Africa (Pty) Ltd


This information is provided by RNS
The company news service from the London Stock Exchange
 
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