South32 plans for cost-cutting as share prices plunge by 7%

As the shares prices fell by 7 percent on Monday, recording a new low, Chief Executive Graham Kerr asked the mining sector to be prepared for more tough times ahead. South32 has revealed plans for drastic cost-cutting and reduction in capital expenditures since it made an exit from BHP Billiton in May.

Kerr said that he would aim at reducing controllable costs by a minimum of US$350 million (AU$485.5 million) per year by the end of the financial year 2018. He also noted that sustaining capital expenditure would also reduce by 9 percent to US$650 million (AU$898.4 million) in 2016. A recent review in the company’s South African manganese division might lead to further reduction in its production volumes, indicated Kerr.

“One of the pitfalls in the mining industry in the last decade is that people were very focused on the growth of volume,” he said. “What we are focused on is growth in earnings per share.”

Besides lowering energy costs, slashing jobs and reducing the number of contractors are also expected to part of the entire cost-cutting initiative of the company, though Kerr has not yet specified how many jobs will be lost.

"There is more work to be done around running these assets better, there is more work to be done around understanding how we convert resource to reserve, and mergers and acquisitions for us is not the key strategy but it will be looked at opportunistically," he said. "We are planning for a couple of hard years in our business."

South32 recorded an underlying profit of US$55 million (AU$76.5 million) and a statutory profit of US$28 million (AU$38.75 million). But according to analysts, the reduction in the company’s net debt was most prominent in these reports due to the non-cash charges which influenced the results. Kerr said it was a favourable time to have reduced debts.

Contact the writer at feedback@ibtimes.com.au, or let us know what you think below.