South32 Sees Shipping Delays Tying Up Cash In Inventory

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South32 Ltd. (S32.AX), an Australian diversified miner, reported major commodity output that largely met expectations but observed that shipping delays had resulted in an inventory buildup that had a negative impact on working capital. In its quarterly report, South32 stated that it had surpassed analyst expectations for the output of manganese ore, of which it is the world's largest producer, while also meeting forecasts for coal, aluminum, and copper. Shares increased by 1.3%.

While production was on schedule, sales were affected, resulting in weaker-than-expected cash creation, according to Barrenjoey analyst Glyn Lawcock in Sydney. In the December half year, delayed shipments of inventory, primarily aluminum, used up an additional $100 million in working capital. Following worker strikes and an extended longwall move, South32's Appin mine in Australia's New South Wales saw increased volumes and labor productivity, which contributed to a 24.4% increase in the company's second-quarter metallurgical coal output. To address ongoing worker strikes over salary increases, South32 concluded a new enterprise agreement at the mine in October. It will be in effect for four years, until 2026.

However, due to the smelter's delayed ramp-up to nameplate capacity, South32 reduced its full-year output target for its aluminum assets in Brazil by 25%. Additionally, it reduced forecasts at its Cannington silver zinc mine by 11%, in part because of a manpower shortage. In November, two people died at South32's Mozal Aluminum facility after an accident during maintenance. The Perth-based miner continued by saying that despite inflationary pressures, it anticipates that for the bulk of its operations, operational unit costs will be in line with or lower than its current forecast for the first half of fiscal 2023.