South32 puts focus on balance sheet

BHP spin-off South32 has slashed its debt and sharply cut costs as it races to stay ahead of weaker earnings amid a slump in commodities prices. The company on Thursday posted drops in production across most of its businesses for the December quarter.

South32 has already cut or suspended production at high-cost manganese ore mines in South Africa, as well as several aluminium smelters, but said it was ready to do more if needed to ride out the volatile market conditions.

"Further decisive action will be taken as we seek to maximise short-term cash flow while preserving longer-term value," chief executive Graham Kerr said.

The company said its net debt by the end of December stood at $US115 million ($A166.79 million), down from $US196 million three months earlier, and $US402 million at the end of June. It also expects to deliver savings of $US30 million, or about 25 per cent in group costs for the fiscal year.

South32, which listed in 2015 after its demerger from mining giant BHP Billiton, had announced in August it would strip out $US350 million in costs by the end of its 2018 financial year. The mining group cut production forecast for coal from its Australian operations by seven per cent to 8.3 million tonnes, after facing difficult geological conditions at some mines.

However, output targets for most of its other businesses remain in place for this financial year. Alumina production in the three months to December fell seven per cent from a year ago to 1.39 million tonnes, on account of planned maintenance at its Worsley plant in Western Australia.

Aluminium metal production fell six per cent to 241,000 tonnes as the company suspended some production in South Africa on the back of weak market conditions and problems with electricity supply.

Thermal coal output fell six per cent to 8.34 million tonnes, while metallurgical coal output slumped by 40 per cent to 1.21 million tonnes on account of geological problems at Illawarra.

South32 shares, which have slumped around 40 per cent since November, were trading 0.75 of a cent higher at 89.75 cents at 1327 AEDT.

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