Miner South32 Posts Full-Year Loss

SYDNEY—South32 Ltd., the base metals and coal miner spun out of BHP Billiton Ltd., paid a maiden dividend despite reporting a large annual loss for its first full fiscal year, as it pruned costs and ended up with more cash than debt.​

On Thursday, the Australia-based mining company reported a net loss of US$1.62 billion for the year through June, compared with a year-earlier loss of US$919 million. The result was underpinned by US$1.7 billion in charges and lower prices for the commodities it sells. ​

​South32, like​other miners including former parent BHP, has been saddled with large asset write-downs and restructuring costs as the industry has been hit with multiyear-low commodity prices. It said the average price it was paid for commodities—including coal, manganese and aluminum—was down 21% from a year earlier.

​Still, South32 will hand shareholders a dividend of one cent a share after it cut annual costs by US$386 million and ended the fiscal year with net cash of US$312 million, compared with net debt of US$402 million a year ago.

The company's net cash has made it an outlier among global miners, which have been working to pay back multibillion-dollar debt loads from a long spending spree. The decision to introduce a payout also contrasts with moves to cut or scrap dividends by global miners.

South32 was listed in May 2015 to house a collection of assets—such as manganese mines and aluminum smelters—that BHP no longer wanted as it narrowed its focus to fewer and larger operations. South32 was carved out at a turbulent time in global mining, as prices for metals and bulk commodities—and the companies that produced them—tumbled to multiyear lows.​

South32 has since restructured its business and taken a knife to spending. "Twelve months on, South32 is a much stronger company with significantly lower costs and a balance sheet that provides flexibility," Chief Executive Graham Kerr said.​

While some analysts were surprised about the decision to start paying a dividend, others labeled the one-penny payout as conservative given the miner's net cash status.

"We are not looking to stretch our balance sheet," said Mr. Kerr, although "we wanted to have that first dividend come out to establish a track record of delivering on our commitments."​

South32, listed in Australia, London and South Africa, is looking at other uses for its cash, including two potential acquisitions, he said.

One of those is Anglo American PLC's minority stakes in its manganese operations. South32 expressed interest in the stakes earlier this year. Mr. Kerr wouldn't disclose the other ​business South32 is evaluating, although he said it was a smaller asset.

With cash in the bank, the company has more firepower to buy businesses from struggling rivals than most of its competitors. The company's cash flow was helped by a recent recovery in commodity prices, Mr. Kerr said.

Better prices have sparked a rally in mining stocks this year. South32's shares have nearly doubled in 2016. It is outperforming BHP, which is up by about a fifth.

​A week ago, BHP said it swung to a loss of US$6.39 billion for the fiscal year through June from a year-earlier profit of $1.91 billion. BHP Chief Executive Andrew Mackenzie said at the time that BHP would have been worse off had it not spun off South32 and called​ the company's portfolio "pretty close to what I would say is ideal for BHP Billiton right now."

At A$2 a share, South32 has almost returned to its peak of A$2.45 a share, which was reached soon after it debuted.

Mr. Kerr echoed remarks from other mining executives, including Rio Tinto PLC CEO Jean-Sé bastien Jacques, by saying that the recovery in commodity prices appeared to be underpinned by credit-fueled Chinese demand that was unlikely to last.

"Hope it not a plan," Mr. Kerr said. "And I certainly don't think it is up [for] prices from here."

Write to Rhiannon Hoyle at [e-mail]

(END) Dow Jones Newswires

August 25, 2016 01:05 ET (05:05 GMT)

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