South32 sees continued downward trend

South32 shares have slumped following the release of disappointing results.

The miner has announced a 56 per cent fall year on year in its profits after tax, with its share price falling close to 60 per cent since FY14, from US$1.20 to half a dollar.

The announcement is little surprise for the industry.

Even before the entity listed the market was speculative on its capabilities, with Deutsche Bank cutting the valuation of South32 –before it launched its IPO – by a third, pegging the likelihood of US$2 per share below the investor expectations of US$3 per share.

Following its listing the business rapidly shifted downwards, falling by a fifth in value in the space of a month as major shareholders such as Blackrock reduced their exposure to the miner.

Following the release of its most recent results, South32 recorded a seven per cent fall in revenues year on year, with no intention to pay a dividend for the period.

Despite the poor overall performance, the miner did see a jump in profit from its operations, rising from US$319 million in FY14 to US$519 million in FY15 thanks to lower expenses, while its underlying earnings rose from US$407 million to US$575 million.

It has significantly lowered its debt position as well, with net debt standing at US$402 million.

However it is not positive on the coming future for the business.

“We are planning for a couple of hard years in our business,” chief executive Graham Kerr stated.

"There is more work to be done around running these assets better, there is more work to be done around understanding how we convert resource to reserve, and mergers and acquisitions for us is not the key strategy but it will be looked at opportunistically.”

In Australia the miner has a planned 29 per cent reduction in its contractor workforce at its Illawarra Coal mines, while it will look to insource contractor activity at its Cannington mine

 

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