South32 profit plunges on weak commodity prices; declares special dividend

MELBOURNE (Reuters) - Australia’s South32 Ltd reported a 80% plunge in half-year profit on Thursday, as a trade war between China and the United States hit prices of its key products, but the miner’s shares rose after it announced a special dividend.

FILE PHOTO - The logo of Australian miner South32 can be seen at the venue of a media conference in Perth, Western Australia, November 18, 2015. REUTERS/David Gray/File Photo

Prices of South32’s top three commodities - metallurgical coal, aluminum and manganese - slumped in 2019 as the bruising Sino-U.S. trade war crimped demand.

However, the miner declared an interim dividend of 1.1 cents per share, down from 5.1 cents per share a year ago, and a special dividend of 1.1 cents per share.

“At first glance, the results appear broadly neutral versus our estimates for earnings,” RBC Capital said.

“The extension of the capital management program could see the stock supported.”

The miner’s shares rose 1.4% to A$2.59 by 0333 GMT.

The impact of this year’s coronavirus epidemic boosted demand for some of South32’s products, Chief Executive Officer Graham Kerr said.

“There is a fair chance China will look at some kind of broad-based fiscal stimulus which might provide some support for commodities in the back-end of the second half,” he added.

The world’s biggest producer of manganese said output cuts in the December quarter had balanced the market for the steel-making ingredient and supported prices.

For alumina, China’s import demand had picked up of late after disruptions to domestic mine supply, Kerr said.

The miner said its underlying profit fell to $131 million in the six months ended Dec. 31 from $642 million a year earlier. It, however, beat an RBC estimate of $109 million.

South32 hopes to make an announcement about divestment of its manganese alloy smelters before the end of the financial year, it said.

For now, it has scaled back expansion plans at its South African thermal coal mines, due to low prices, and adjusted its 2020 outlook to the bottom end of its prior range.

Its sale of the business to Sereti Resources depends on conditions such as agreement over supply terms with state utility Eskom, and is expected to close by the end of the financial year.

Sixty percent of the coal from the business goes to Eskom and the rest to export markets such as India and Morocco.

“They are long-life deposits that won’t reach the end of life until many, many decades down the track,” Kerr said.

“We believe there are substitutes medium- to long-term in the energy coal space, but developing countries are going to take a much longer period to get there,” he told Reuters.

Reporting by Anushka Trivedi and Nikhil Kurian Nainan in Bengaluru; Editing by Shailesh Kuber & Aditya Soni