Lower aluminium price triggers 25% drop in annual profit of Australia's South32

Australian miner South32 Ltd has reported a larger-than-expected 25% drop in annual profit driven by lower aluminium prices which was the result of the trade war between China and the United States. The drop in profits sends its shares lower by as much as 5.8% on Thursday, August 22. Results were also negatively affected by lower thermal coal prices.

The miner’s fortunes have fallen this year with a decline in aluminium and alumina prices. Prices were under pressure due to a slowdown in China - the world’s biggest consumer of the metal due to the Sino-U.S. trade war. The results were also affected by the falling alumina price.

Underlying earnings for the 12 months to June 30 fell to US$992 million (Australian $1.46 billion) from US$1.33 billion in the prior year. Cost cuts could not compensate for the falling aluminium and coal prices.  Analysts had predicted a profit of $1.04 billion for the year.

Net income fell 71 per cent to US$389 million, weighed down by US$ 578 million in writedowns in the value of the company's South Africa Energy Coal operation.

South32 expects to see an upward trend in alumina production through to FY21, with 5,295 kilotonnes (kt) in FY20 and 5,335kt in FY2021. Aluminium production is expected to be steady at 993kt.

South32 has decided to sell of its South Africa thermal coal business due to climate change concerns and investor pressure. The company said it was in talks to sell its South Africa thermal coal business to Johannesburg-based Seriti Resources. The sale is expected to reduce South 32's need for standing capital, strengthen its balance sheet and improve profit margins.

Commenting on the sale of coal assets, Chief executive Graham Kerr said:

"Our announcement that we have entered into exclusive negotiations with Seriti is an important milestone and we expect to provide a further update to the market in the December 2019 half year."

South32 was spun out of the world's biggest miner BHP in 2015, which has operations in Australia and around the world.

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