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South32 expects 3% lower full-year output

South32 (ASX:S32) announced on Monday that it expects its full-year group output to be 3% lower than previously forecast. The company attributed this decline to production problems, lower-than-expected grades, and plant power outages. However, South32 remains optimistic about an improvement in performance in the ongoing June half-year.

The multinational miner reassured the market by stating that it is effectively managing costs, expecting first-half operating costs to align with or be below its annual estimates for most operations. Like other mining companies, South32 has intensified cost-cutting and restructuring efforts due to lower commodity prices, particularly nickel (down 50%), coal, and other metals.

South32 is benefiting from cost efficiencies and lower raw-material input prices as inflationary pressures continue to ease. The company stated, “We are well positioned to capture the benefit of improved market conditions through expected production growth of 7% in H2 FY24 and our ongoing focus on cost efficiencies.”

CEO Graham Kerr added, “In the December 2023 quarter, our production results were mixed.” Highlights included a 20% increase in zinc and nickel and a 7% increase in silver. However, production from Brazil Alumina, Mozal Aluminium, and molybdenum output from Sierra Gorda fell below plan, impacting annual production guidance.

South32 reported a nearly 50% drop in second-quarter metallurgical coal output due to planned longwall moves at its Illawarra operation. High-grade metallurgical coal production, used in steelmaking, fell to 744,000 tonnes in the three months to December, from 1.5 million tonnes a year earlier. The company maintained its annual total coal production forecast for Illawarra operations and expected a significant upturn in production in the June 30 half.

South32, the world’s largest manganese producer (used to strengthen steel), reported lower manganese ore output for the quarter. Manganese production for the December half-year declined by 5% due to lower yields affecting secondary output at Australia Manganese and a planned maintenance shutdown at the Mamatwan mine in South Africa.

While alumina production remained largely unchanged, South32 lowered its June 30 production guidance for Brazil Alumina by 7% due to third-party power outages and maintenance. Furthermore, FY24 production guidance for the Mozal Aluminium smelter was reduced by 12% to execute a recovery plan for sustained process stability.