Since its initial public offer (IPO) earlier this year, South32 Ltd (ASX: S32) shareholders haven't had much to smile about, with its share price down almost 30%.
However, it appears traders and investors liked what they saw in the company's quarterly production report released to the market this morning.
In a statement to the ASX, South32 said it had made excellent progress on optimising its operations during the period, including increasing production of key commodities.
Compared to the prior quarter, South32 increased production of alumina, aluminium, metallurgical coal, manganese, nickel, silver, lead and zinc. The review of its South Africa Manganese business, however, saw Manganese Alloy production fall 20%.
"Our business is performing well and we are making excellent progress as we seek to optimise our operations, reduce costs and sustainably de-capitalise the business," South32 CEO, Graham Kerr, said. "Our high-quality and low-cost assets, motivated workforce and strong balance sheet remain a key point of differentiation."
During the quarter, South32 lowered its net debt (debt minus cash) by $US206 million to just $US196 million. Moreover, South32 previously set a target of cutting $US350 million of costs from the business by 2018.
However, following an "in-depth review of all functional support" the company said it should deliver a 25% reduction on the $US130 million cost-cutting target previously set for 2016. It also said capital expenditure would fall by 9%, but weakness in the Australian and South African currencies could see it fall even further.
2016 production guidance remained unchanged.
Buy, Hold or Sell?
Spun off from BHP Billiton Limited (ASX: BHP) earlier this year, shares of South32 and other commodities producers like Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) have fallen in a heap, as a result of plunging market prices. While there may be some value to be found in the company's share price at these levels, I'm holding off buying South32 shares at this time.
