The news came alongside the announcement that the company had posted a $US1.7 ($A2.4) billion loss for the first half of the 2015-16 financial. That was on the back of non-cash impairment related charges of $US1.7 billion so, technically, it broke even.
Underlying earnings before interest, tax, depreciation and amortisation were $US542 million for a 20% operating margin.
Cost savings of $182 million were achieved through labour productivity, reduced procurement costs and optimising the company’s energy footprint.
Net debt was cut by $US286 million during the period to $US116 million.
Earlier this month South32 announced it would be cutting 620 jobs at its South African manganese operation and foreshadowed that hundreds of jobs would go in Australia.
Besides the 770 going in Australia, the company also announced it would cut at least 350 jobs at its Cerro Matoso ferro-nickel operations in Colombia.
Worsley Alumina, which South32 has an 86% stake in, will bear the brunt of the Australian job losses with about 390 employees and contractors slated to go by the end of the 2015-16 financial year.
This is part of its aim to reduce operating unit costs to about $US200 per tonne – based on an alumina price of $US255/t for royalty purposes and an average $US-$A exchange rate of US68c.
It appears many of those job losses will be from the reorganisation of mining and refining into two operations, which will lead to the removal of layers of management and functional support.
Other efforts include aggregating procurement activities in the region, which is expected to save $65 million in 2016-17; continued optimisation of the coal to gas fuel mix in the co-generation facility; and a 34% reduction in South32’s share of the sustaining capital expenditure to $US41 million in the 2017 financial year.
South32 expects to book pre-tax restructuring costs, including redundancies of about $US15 million at Worsley.
There will be at least 300 employees shed from Illawarra Metallurgical Coal. That is on top of the 100 employees and contractors already shed over the 18 months to the end of December.
Further aggregation of South32’s procurement in the region is expected to bring in savings of $50 million in FY17.
The company expects pre-tax restructuring costs of $US10 million at Illawarra.
At GEMCO there will be a reduction of about 82 employees and contractors by the end of FY16.
Interestingly, South32 does not expect to book redundancy costs there.
South32 CEO Graham Kerr said the company’s financial results highlighted both the strength of the company’s financial position and the opportunities ahead.
“The initiatives that we have announced today across our Australian and Colombian operations are central to our strategy,” he said.
Kerr believes ongoing optimisation of the company’s operations will strengthen underlying cashflow in what remains a tough market.
“The refinement of our regional operating model allows us to remove additional layers of management while further aggregating functional support,” he said.
“As a result we expect another significant increase in labour productivity and a corresponding reduction in cash costs.
“When combined with our broad-based focus on all procurement activities we are well positioned to significantly exceed our costs savings targets both in terms of quantum and timing.
“Operating unit costs, including sustaining capital expenditure, will move sharply lower at our Illawarra Metallurgical Coal, Cerro Matoso and Worsley Alumina operations, mitigating cash outflows and solidifying their position at the low end of industry costs curves.
“In addition, the reconfiguration of our leading Australian manganese mine GEMCO will ensure it becomes a positive contributor to free cashflow at current prices.”
