Diversified miner South32 Ltd pointed on Thursday to signs of rising Chinese demand for steel-making material manganese, while reporting a 44% drop in first-half underlying earnings driven by inflation and falls in prices for its key commodities.
The result slightly beat analyst’s expectations.
The company, the world’s biggest producer of manganese, said the steel market in China had just begun to warm up following the end of pandemic controls there late last year. A pick-up in property-related steel demand from China would underpin higher manganese prices in coming months, chief executive Graham Kerr told Reuters.
“Real estate is probably still the sluggish market at the moment. That hasn’t quite taken off yet compared to the industrial side,” he said.
However, fresh buying of steel from that sector should erode stockpiles and help lift manganese prices to around $6.20 per dry metric tonne over the next three months from around $5.90 currently, he said. As more supply from South Africa appeared, prices would fall back towards $5.20 to $5.30, he said.
Headquartered in Perth, South32 was spun off from mining giant BHP Group in 2015. It also produces aluminum, lead, zinc, nickel and coking coal and copper.
Underlying earnings for the six months ended Dec. 31 were $560 million, compared with $1 billion a year earlier and ahead of a Visible Alpha consensus of $550 million.
South32 logged $127 million in cost rises linked to general inflation across its Australian, South African and Columbian operations.
Kerr said inflation was particularly acute in Australia’s labour market, where competition for highly paid workers such as jumbo drill operators was fierce. Lithium developments in Western Australia and mine-sustaining projects by iron ore majors were driving up demand for such workers.
Also, he said, some people no longer wanted fly-in, fly-out (FIFO) jobs, in which workers live at a mine for perhaps two weeks then go home for a week.
“That’s a function of a number of things: people coming out of Covid and making decisions around lifestyle. Some don’t want to do FIFO anymore,” he said.
“We are also losing some of our jumbo operators to places like Africa because they are chasing the dollars, so that’s the inflation driver.”
Kerr expects Australia’s labour market to stay tight for another 12 to 18 months.
The company expanded its capital management programme for the second half of its financial year by $50 million to $2.3 billion, leaving $158 million to be returned to shareholders by Sept. 1. It declared an interim dividend of 4.9 cents per share, down from 8.7 cents in the prior year and slightly below Citi’s expectation of 5.7 cents.
The shares closed 0.9% higher at A$4.66.
South32 separately said its vice-president of finance, Sandy Sibenaler, would become chief financial officer.
The company left its full-year 2023 production guidance unchanged.
(By Melanie Burton and Archishma Iyer; Editing by Shailesh Kuber and Bradley Perrett)
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