South32 shares fall on production dip in most commodities

Shares in South 32 have fallen after the diversified miner’s annual production of many commodities, including coal, dropped and the company missed its full-year production guidance on some of them.

Bad weather and challenging conditions at various operations impacted South32’s performance over the 2016/17 financial year.

Shares in South32 were 8¢, or 2.82 per cent, lower at $2.76 at 10.45am.

South32’s June quarterly production report showed that aluminium annual production for fiscal 2017 rose 2 per cent and manganese ore production lifted by 5 per cent compared to fiscal 2016.

But output for energy coal fell 8 per cent, metallurgical coal dropped 19 per cent, and manganese alloy was down 2 per cent.

Nickel production fell one per cent, silver decreased by 27 per cent, lead was down 24 per cent, and zinc dropped 11 per cent.

On a quarterly basis, fourth-quarter production in all commodities lifted or was flat except for silver, lead and zinc, which were lower.

South32 missed its annual production guidance for Worsley alumina, South African energy coal, Australian manganese ore, silver and lead.

“While we didn’t achieve the level of consistency that we expect from our broader portfolio, our alumina, nickel and manganese operations finished the year on a strong note,” South32 chief executive Graham Kerr said in a statement.

Mr Kerr said production at the Appin metallurgical coal colliery in NSW’s Illawarra region remains suspended while operations there are reviewed so that the mine can be restarted safely and reliably.

Operations at the Appin colliery were suspended in June.

The NSW Department of Planning and Environment has expressed concerns over gas levels and operating practices at the Illawarra metallurgical coal operation.

South32 said adverse weather affected development of new mining areas at the Wolvekrans-Middelburg Complex in South Africa, which led to a 9 per cent fall in the annual production of South African energy coal.

Stronger demand and pricing helped boost production of South African manganese ore.

But production of Australian manganese ore fell because of heavy rainfall and tropical cyclone Alfred.

The Mozal aluminium smelter in Mozambique achieved a record performance for the year, lifting production by 2 per cent.

RBC Capital Markets analyst Paul Hissey said South32’s year had been marred by operational issues at Illawarra and at the Cannington silver, lead and zinc mine in Queensland, with assets tending to fall short of guidance provided 12 months ago.

“Notwithstanding, prices have been able to offset slightly lower volumes to deliver what should be a sound financial result,” Mr Hissey said in a research note.