South32 to Cut Costs Amid Commodity Market Downturn -- Update

   By Rhiannon Hoyle 
 

SYDNEY--South32 Ltd. (S32.AU) said it intends to cut operating costs to safeguard profit amid a downturn in world commodity markets.

The mining company, spun out of BHP Billiton Ltd. (BHP.AU) earlier this year, said it aimed to cut annual costs by US$350 million or more by mid-2018.

"South32 has already made strong inroads in reducing costs but there is more to be done," the company said in a statement Monday.

It will also reduce sustaining capital expenditure this fiscal year by 9% to US$650 million. The company aims to maintain that rate of project spending for the forseeable future, it said.

In its maiden fiscal report, South32 reported a pro forma net profit of US$28 million, which it said compared to a profit of US$64 million a year earlier. It reported a statutory loss of US$919 million.

It said net profit was knocked by writedowns against some mining operations. Pro forma underlying earnings were up 41% at US$575 million, it added.

Still, South32 cautioned it faced challenging market conditions. Mining company earnings have been squeezed by falling commodity prices, as China's economy slows. The price of industrial metals and other commodities such as coal and manganese have fallen sharply.

"This is likely to persist for some time," Chief Executive Graham Kerr said on a conference call.

Shares in the company have been falling since it listed in May, weighed by uncertainty over its outlook, following one of the largest corporate breakups in mining history. South32 was down 2.6% in early Sydney trading.

Write to Rhiannon Hoyle at [e-mail]

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August 23, 2015 20:34 ET (00:34 GMT)

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