Higher demand and price for alumina and manganese lifted South32 annual profit by 16%

South32 and Alumina Ltd. have announced strong financial performances yesterday predominantly due to their alumina operations. After Alumina Limited reported doubling of profits in H1 2018, South32 posted a 16 per cent rise in its annual underlying earnings on Thursday, as healthy demand for alumina and manganese helped offset lesser output from its Illawarra coal project.

The results were buoyed by high prices for alumina, manganese and metcoal driven by a tight supply. The Australian miner, a spinoff from BHP Billiton, reported its underlying earnings jumped to US$1.33 billion from US$1.15 billion in the previous year, better than analysts’ expectations of around US$1.32 billion.

South 32’s profit had been lifted by large gains in spot prices for its key commodities, such as manganese, alumina and metallurgical coal, while the miner had managed to achieve a better-than-expected cost control.

“People’s expectations were that costs were going to be an issue, and they weren’t as bad as people made out,” said an analyst at a fund who declined to be named.

Market analysts projected a tight market for alumina in the next year due to supply disruptions caused by Alunorte’s production cut and uncertainty surrounding Rusal sanction. Chinese alumina market is also expected to remain tight because of environmental checks and winter capacity cuts. These factors worked as positives in the market to drive up the selling prices of alumina boosting earnings for South 32.   

South32 shares climbed by more than 7 per cent to end up 4.9 per cent at A$3.42 ($2.50).

“This really is ... the time for (our alumina) business to shine,” Chief Executive Graeme Kerr said on an earnings call to analysts.

“We are very happy with production performance this year... that has driven strong financial results this year together with prices to mitigate some inflationary cost pressures,” Kerr said.

Underlying operating earnings from South32’s Worsley Alumina operations more than doubled to US$422 million despite lower production, making alumina the second-biggest profit driver for the conglomerate after manganese.

South32 resolved to pay a final dividend of 6.2 cents a share in comparison to 6.4 cents per share in 2017. The company expects group production to climb by 5 per cent in fiscal 2019.

 $1 = 1.3669 Australian dollars