Coal to manganese miner South32 (S32) has staged a dramatic recovery in earnings over the past year, as evident by impressive half year results. The company has moved from a loss to profit, dramatically improved free cash flow and reported its first interim dividend.

The company generated $626m free cash flow in the six months to 31 December 2016, ending the calendar year on an $859m net cash position. It will pay 3.6c per share dividend to shareholders, costing a total of $192m.

Spun out of FTSE 100 diversified miner BHP Billiton (BLT) in May 2015, South32 has subsequently focus on improving operational efficiencies, improving its balance sheet and developing various projects to boost its future production pipeline.

An improvement in commodity prices certainly gave a tailwind to the half year results. Revenue was up 8% to $3.2bn. It moves from a post-tax loss of $1.75bn a year ago to a post-tax profit of $620m.

Underlying pre-tax profit moves from $128m to $459m year on year.

Operationally, South32 had a tough second quarter period due to lower grades at its Cannington silver and lead mine, difficult ground conditions at its Illawarra colliery and reduced plant availability at its Australian manganese operations.

Analysts have previously said the investment case was diluted by South32 having short mine lives and a lack of organic growth.

Since those remarks were made, the company spent $200m buying the Metropolitan Colliery project and a 16.67% stake in a coal terminal from Peabody Energy.

This project is located fairly close to South32’s Illawarra deposit, thereby enabling the group to look at product blending and resource synergies.

South32 is also in advanced negotiations for early stage exploration projects.

The miner hopes to increase nickel production via developments at its La Esmeralda project. It has increased 2018 production guidance for the project from 35,000 tonnes to 41,600 tonnes.

The capital expenditure bill has also been significantly reduced, falling from $60m to $16m.

It will make a decision at the end of 2017 whether to extend the life of its Klipspruit coal mine in South Africa.

South32 Limited  S32    Share Price   Shares Magazine


Issue Date: 16 Feb 2017