South32 profit leaps, eyes electric vehicle battery market

SYDNEY (Reuters) - Australian-based miner South32 S32.AX, buoyed by an eight-fold leap in annual profit, is looking to lift its exposure to growing markets for metals used in electric vehicles to boost growth.

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South32 already has broad exposure to aluminum and nickel, while its Cannington mine in Australia is one of the world’s largest sources of silver, lead and nickel.

“If you look at the metals we produce, they are either used in renewables or battery technology,” South32 Chief Executive Graham Kerr told a media call on Thursday after its results.

“We are looking to add more base metals exposure to the group... We do see battery technology having an impact over time,” Kerr said.

Glencore GLEN.L Chief Executive Ivan Glasenberg said this month that the coming large-scale roll-out of electric vehicles and energy storage systems looks set to unlock significant new sources of demand for copper, cobalt, zinc and nickel.

The rise of electric vehicles is also driving the world's biggest mining house, BHP BHP.AXBLT.L, to switch gears and invest heavily in its nickel business.

While South32 was prepared to supply a host of metals used in making batteries for electric vehicles and other systems, it sees overcapacity in lithium, the driving component of the burgeoning lithium-ion battery technology.

“The reality is there is a large amount of lithium supply that exists in South America that’s not activated today and a large number of producers that sit on a lot of idle capacity,” Kerr said.

Morgan Stanley projects production and use of electric cars will to rise to 2.9 percent of 99 million new vehicles in 2020.

South32 posted fiscal 2017 underlying profit of $1.15 billion, up from $138 million the previous year.

The profit leap prompted the company to extend a $500 million buyback by a further $250 million, while boosting its final dividend to 6.4 cents per share from 1 cent per share, helping push up its shares as much as 4 percent.

South32’s Appin coal mine in Australia, a key source of revenue and where work has been suspended multiple times due to challenging ground conditions and elevated gas levels, was ramping up for a September restart, South32 said.

The company had spent $211 million by June 30 purchasing shares at an average price of A$2.66 per share after it kicked off the buyback in April.

Reported net profit came in at $1.2 billion, compared with a net loss of $1.6 billion last year, weighed down by $1.7 billion in impairments.

Reporting by James Regan; Additional reporting by Anusha Ravindranath in Bengaluru; Editing by Richard Pullin