South32 has 2020 to forget

Underlying cash profits (Ebitda) fell 46 per cent to $1.2bn (£910m) while the underlying cash profit margin dropped from 34 per cent to 22 per cent. 

Sales volumes largely held-up, except at the South African thermal coal and manganese operations. Like other miners facing a tough run on prices when the pandemic hit, South32 brought in a cost-cutting programme and shaved 17 per cent from the initial sustaining capital guidance for the year of $515m. The company also paused its buyback programme to conserve cash, with $121m worth of repurchases remaining. A dividend has been declared, but the final payout is just over a third the size of 2019’s final dividend, at 1¢. This level is still close to double the company’s payout policy of 40 per cent of underlying earnings. 

Chief executive Graham Kerr said the coming year would bring lower costs and “further simplification” of the company. It has already announced a deal to sell off the South African thermal coal business and more recently turned its expansion focus to base metals, with the Ambler Metals joint venture formed this year to explore gold, copper and zinc prospects in Alaska.

The next big decisions for the miner are on Australian coal, however, with the expansion at Illawarra metallurgical coal and the financial investment decision on the 50-per-cent-owned Eagle Downs mine expected by mid-2021. 

Consensus forecasts compiled by FactSet do not see a quick recovery for South32, with adjusted earnings per share of 6¢ expected for 2021, compared with 20¢ in 2019.