Australia's South32 Lowers Coal Output Target for FY20

In a recently released quarterly report, Perth headquartered South32 has lowered its production guidance for coal output for the ongoing financial year (Jul'19 - Jun'20) from 28 MnT previously to 26 MnT amid wet weather and poor local demand.

The company has reduced the number of contractors operating in unprofitable pits which was in line with the firm's 'disciplined approach to capital'.

South32 said that South Africa Energy Coal saleable production decreased by 3% y-o-y during Jul-Dec'19 to 11.8 MnT, as the operation demobilised contractors in response to market conditions.

This decline more than offset a 15% increase in export sales volumes following improved dragline availability at Klipspruit mine. "Notwithstanding the improvement in dragline performance, supporting a 46% increase in export sales during the December 2019 quarter, its ramp-up to full utilisation has been slower than anticipated as a result of wet weather," said South32.

In November South32 entered into a binding conditional agreement for the sale of its 92% shareholding in South Africa Energy Coal to black-owned Seriti Resources for an upfront fee of R100m. South32 will also receive 49% of free cash flow from the assets capped at R1.5bn a year until about 2024. However, the sale is subject to a number of material conditions and is expected to close in the December 2020 half-year.

According to market sources, the real value of selling the mines is that South32 want to remove polluting thermal coal from its portfolio of assets whilst avoiding the cost of their rehabilitation which will now be borne by Seriti Resources.

The group did not comment on growing violence in the Mpumalanga province where it coal mines are located. Mike Fraser, COO of South32, said in November that protests were set to be a feature of the coal industry for the foreseeable future. "It's still very fractious. We do expect the protests to continue," he said.