South32 continues asset hunt

PERTH (miningweekly.com) – Diversified miner South32 will continue with its investment drive and is looking for "new and exciting" opportunities outside its current portfolio in which to invest, CEO Graham Kerr said in Perth on Thursday.

He said at the annual general meeting (AGM) that the company, which operates mines in Australia and South Africa, would not compromise its balance sheet with its investment push.

South32 in the 2016 financial year made its first investment since demerging from major BHP Billiton in May 2015, signing an option agreement with Northern Shield Resources and the Huckleberry property in Canada. South32 can earn a 50% interest in the property by funding C$2.5-million of exploration spend and a further 20% interest by funding an additional C$2.5-million.

“This agreement represents a low-cost entry into the Labrador Trough, a province identified as being highly prospective for copper, nickel and platinum-group elements,” Kerr told shareholders.

Last month, South32 also entered into an agreement with US coal major Peabody Energy to acquire the Metropolitan colliery and its 16.67% stake in the Port Kembla coal terminal, in New South Wales, for $200-million.

The Metropolitan colliery underground mine has a production capacity of 2.3-million tonnes a year, with a 28-million-tonne proven and probable coal reserve. The mine produced two-million tonnes of saleable coal in 2015. The project has an on-site processing facility with a capacity of 480 t/h, and the export coal is transported through the Port Kembla coal terminal, while domestic coal is transported via rail to domestic steelworks. The project employs about 250 staff.

Kerr told shareholder that the Metropolitan mine, which is adjacent to the company’s own Illawarra operation, was a natural fit for the South32 portfolio, and would enable the company to unlock unique blending and resource synergies, while adding up to two-million tonnes a year of metallurgical coal to the company’s portfolio.

Meanwhile, chairperson David Crawford moved to allay shareholder fears over bad investments, saying the company was reminded regularly by investors of the need to be conservative.

“There has been a tremendous amount of work done to do a complete assessment of the assets we inherited, the true life of these assets, whether their lives can be extended and whether additional assets can be acquired to extend the life of these assets,” Crawford said.

He noted that South32’s review of its assets was nearing completion.

“We have been fortunate to see an increase in the price of commodities we sell and have been generating a nice cash return. We have set a conservative target of ensuring we retain sufficient cash to be able to meet all of our commitments, ensure we are able to acquire appropriate opportunities to extend the life of our assets or to acquire new assets, and then we will address the balance of the cash by looking at capital management issues,” Crawford said.

Kerr added on the sidelines of the AGM that the company’s focus would remain on the strength of its balance sheet, and delivering value over volume.

“Our approach hasn’t changed, it's always been about unlocking the value in what we have and identifying new opportunities.

“It will remain unchanged, we will deliver value over volume and ensure we have a strong balance sheet.”