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Loss-making South32 steels for pain ahead

AAP logoAAP 24/08/2016 Prashant Mehra

South32 is building cash to ride out an extended slump in commodities prices and fund possible investments after suffering a $US1.62 billion ($A2.13 billion) loss in its first full year as a listed company.

Heavy writedowns in manganese, coal and alumina operations during the first half of the year hit the diversified miner's full year results, revealed on Thursday.

Underlying earnings, excluding non-cash impairments and foreign exchange movements, were also down 76 per cent to $US138 million, while revenue for the year to June dropped 25 per cent to $US5.8 billion.

Commodity prices have partially recovered on the back of fiscal stimulus earlier this year in China but South32 chief executive Graham Kerr said he does not think gains will be sustained.

"I don't expect the high prices to last. I still expect them to moderate in the near term," Mr Kerr said in a results briefing.

Mr Kerr said South32 would continue to look for opportunities to grow its portfolio, but would be "quite disciplined" in considering investments.

He said the company was currently looking at two opportunities, including purchase of Anglo American's minority stake in its manganese joint venture.

South32 announced a maiden dividend of one cent a share, unfranked, and Mr Kerr said one of the considerations for the modest payout was the need to maintain a strong cash position for potential acquisitions.

It reported a cash balance of $US312 million at the end of June.

South32 listed in 2015 after demerging from BHP and is the world's largest producer of manganese ore and a global producer of manganese alloy, used in making steel and aluminium products. It also has significant interests in alumina, silver, nickel and coal.

The miner flagged writedowns of $US1.7 billion in February amid an extended downturn in the commodities sector. It axed more than 1,000 jobs globally, slashed manganese supply by a quarter, and has cut production at several high-cost mines and smelters.

It said the deterioration in commodity markets had cut revenue by $US1.5 billion during the year, while selling prices for its products fell by an average 21 per cent.

The miner slashed costs by $US386 million during the year, while capital expenditure is down nearly 40 per cent or $US306 million.

"Overall, the result was generally in line with our estimates, with a slight beat on costs flowing through to the adjusted net profit," RBC Capital Markets analyst Paul Hissey said in a note.

The company said in July it had managed to meet annual production guidance for most of its commodities despite cutting output during the year.

It has maintained production guidance for most of its operations, and said it is on track to achieve the forecast reduction in unit costs by the end of the 2016/17 financial year.

At 1507 AEST, South32 shares were three cents lower at $2.02.

SOUTH32 SLUMPS TO FY LOSS

* Statutory loss of $US1.62b, from $US28m

* Revenue down 25pct to $US5.8b

* Final dividend of 1.0 US cent per share from nil

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