South32 raises FY cost guidance

Due to strong currencies in resource-rich countries plus increased royalties and raw materials expenses – namely fuel costs - South32 (ASX: S32) has advised the market that production costs will be higher-than-expected at several of its mines.

To the initiated,  South32 is a diversified metals and mining company operating in Australia, Southern Africa, North America, and South America.

The market took greater note of the bad news within this morning’s mixed-bag announcement, with the share price down -6.82% 30 minutes out from the open.

First some good news

Today’s March quarter update revealed that output had lifted across a number of key assets in the first nine months of the financial year, these include:

• Production up 6% at its Cannington base metals mine in Queensland

• Nickel output up 33% at its Cerro Matoso mine.

• Illawarra metallurgical coal mines production up 42% in the March quarter

Rising costs

Overall, South32 expects rising costs across its operations, plus a weaker US$, to increase costs between 3% to 15% compared to its previous guidance.

Management notes higher received prices are also flowing through to royalties paid to the governments of the countries in which South32 operates.

Looking across its various operations, management noted the following cost increases:

• Worsley alumina operations to come in at an average $US265 a tonne, compared to earlier guidance of $US257 a tonne, but annual output likely to come it ahead of nameplate capacity.

• Costs at its Brazilian aluminium operations to rise 5% compared to the previous financial year.

• Costs in South Africa and Mozambique likely to rise 10 to 15%.

• Likely cost increases at Cannington, Illawarra and South African manganese operations.

Supply chain issues

Echoing the sentiments experienced by many of its contemporaries, South32 noted that supply chain issues and tight freight markets, were forcing the company to explore new ways to ensure delivery of its products to customers.

South32 share price: A 3-month snapshot.