South32 posts $1.6bn loss but pays maiden dividend

BHP spin-off South32 has slumped to a full-year net loss of $US1.62 billion ($A2.13 billion) on a pro-forma basis, after taking heavy writedowns in its manganese, coal and alumina operations reflecting the slump in commodities prices.

After its first full year of operation, South32 posted a loss of $1.6 billion for fiscal year 2016.

South32 expects prices for its commodities to fall from where they were in the second quarter as it does not expect China’s fiscal stimulus, which helped boost demand for metals earlier this year, to be sustained.

Underlying earnings, excluding non-cash impairments and foreign exchange movements, were also down 76 per cent to $US138 million, while revenue for the year to June dropped 25 per cent to $US5.8 billion.

Coal prices though have recovered sharply in recent months, as have nickel and aluminium (but not copper) prices.

However, chief executive Graham Kerr said the company had significantly reduced its costs, and the company announced a 1 cent dividend. “Against this backdrop, our board resolved to pay an inaugural dividend of United States 1 cent per share”, Kerr said.

Annual costs were cut by $386m, with corporate costs now half the level envisaged at the time of listing, and by the year end there was still net cash of $312m compared to $402m over the 12 months.

Despite the red ink flowing from the headline numbers, South32 clocked up free cash flow of $597 million and moved to a net cash position of $312 million by June 30, a significant improvement on opening net debt of$402 million. “Against this backdrop, our board resolved to pay an inaugural dividend of US1¢ per share”.

“Production guidance for the 2017 financial year was maintained for the majority of our upstream operations and will stretch performance to meet cost targets”.

At 1104 AEST, South32 shares were down 4.15 per cent to $1.965.